Schwab U.S. Dividend Equity ETF NCSRS Certified semi-annual shareholder report (management investment company)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSRS

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-22311

Schwab Strategic Trust – Schwab U.S. REIT ETF and Fundamental Index ETFs

(Exact name of registrant as specified in charter)

211 Main Street, San Francisco, California 94105

(Address of principal executive offices) (Zip code)

Marie Chandoha

Schwab Strategic Trust

211 Main Street, San Francisco, California 94105

(Name and address of agent for service)

Registrant’s telephone number, including area code: (415) 627-7000

Date of fiscal year end: February 28

Date of reporting period: August 31, 2016

Item 1:

Report(s) to Shareholders.

Semiannual report dated August 31, 2016, enclosed.

Schwab U.S. REIT ETF^™

This wrapper is not part of the shareholder report.

Schwab U.S. REIT ETF

Semiannual Report

August 31, 2016

This page is intentionally left blank.

In This Report

Performance at a Glance	2
From the President	3
The Investment Environment	5
Fund Management	6
Performance and Fund Facts	7
Fund Expenses	8
Financial Statements and Portfolio Holdings	9
Financial Notes	15
Investment Advisory Agreement Approval	22
Trustees and Officers	24
Glossary	28

Fund investment adviser: Charles Schwab Investment Management, Inc. (CSIM).

Distributor: SEI Investments Distribution Co. (SIDCO)

The Sector/Industry classifications in this report use the Global Industry Classification Standard (GICS), which was developed by and is the exclusive property of Morgan Stanley Capital International Inc. (MSCI) and Standard & Poor’s (S&P). GICS is a service mark of MSCI and S&P and has been licensed for use by Charles Schwab & Co., Inc. The Industry classifications used in the schedule of Portfolio Holdings are sub-categories of Sector classifications.

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Performance at a Glance

The performance data 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.csimfunds.com.

Total Returns for the 6 Months Ended August 31, 2016
Schwab U.S. REIT ETF (Ticker Symbol: SCHH)
Market Price Return¹	17.33%
NAV Return¹	17.30%
Dow Jones U.S. Select REIT Index	17.40%
ETF Category: Morningstar Real Estate²	19.46%
Performance Details	page 7

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

For index definitions, please see the Glossary.

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

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

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

Shares are bought and sold at market price, which may be higher or lower than the net asset value (NAV). Brokerage commissions will reduce returns.

Index ownership — Dow Jones^® is a registered trademark of Dow Jones Trademark Holdings LLC (Dow Jones). The Dow Jones U.S. Select REIT Index is a product of S&P Dow Jones Indices LLC and/or its affiliates, and has been licensed for use by CSIM. The Schwab U.S. REIT ETF is not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices LLC, Dow Jones, or any of their respective affiliates and neither S&P Dow Jones Indices LLC, Dow Jones, nor any of their respective affiliates make any representation regarding the advisability of investing in such product.

ETF performance must be shown based on both a market price and NAV basis. The fund’s per share 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. Market Price and NAV returns assume that dividends and capital gain distributions have been reinvested in the fund at Market Price and NAV, respectively.

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.

2Schwab U.S. REIT ETF

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From the President

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

Dear Shareholder,

Investors’ search for yield and cheap financing buoyed commercial real estate prices in recent months, helping the Schwab U.S. REIT ETF (the fund) generate a double-digit return of 17.3% for the six-month reporting period ended August 31, 2016. After raising the federal funds rate in December 2015, the Federal Reserve continued to push back its timeframe for further rate increases during the reporting period as economic data underwhelmed and inflation remained subdued. The unexpected decision by the United Kingdom to leave the European Union in June contributed to the uncertain economic outlook, as well as to downward pressure on interest rates.

These factors translated into borrowing costs near record lows, helping to boost profits for real estate investment trusts (REITs) and generally making it cheaper to build new office buildings, warehouses, and other commercial projects. Low rates also prompted investors to search for yield in non-traditional asset classes such as real estate. In addition, as of September 1, 2016, Standard & Poor’s Dow Jones Indices and MSCI began to categorize real estate securities in their own sector, where before they were grouped in with Financials. While this change does not affect the structure of the fund, it does have the potential to increase understanding and visibility of REITs and real estate investments overall. Many believe the new classification will help investors focus on the differentiated performance of real estate and financial services companies, as the latter group has been held back recently by the low-rate environment.

At Charles Schwab Investment Management, we believe that real estate may be a valuable addition to an investor’s portfolio, as it may complement the

Asset Class Performance Comparison % returns during the six months ended 8/31/2016

For index definitions, please see the Glossary.

Data source: Index provider websites and CSIM.

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

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

Schwab U.S. REIT ETF3

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From the President continued

traditional mix of stocks, bonds, and other investment options. REITs invest in a wide range of commercial properties, such as office complexes, apartment buildings, shopping malls, hotels, and even different forms of “property” such as data storage. The fund may provide industry diversification in an investor’s portfolio and it does so in an ETF at one of the lowest operating expense ratios in the industry. We recognize that investor dollars that go toward paying fees are dollars that aren’t being invested, which is why we are committed to providing our shareholders with low-cost funds that help their investment dollars go further.

Thank you for investing with Charles Schwab Investment Management, and for trusting us to help you achieve your financial goals. For more information about the Schwab U.S. REIT ETF, please continue reading this report, or you can find further details about the fund by visiting our website at www.csimfunds.com. We are also happy to hear from you at 1-877-824-5615.

Sincerely,

Index figures assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Past performance is not an indication of future results.

4Schwab U.S. REIT ETF

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The Investment Environment

Over the six-month reporting period ended August 31, 2016, the U.S. economy showed signs of strength even as market volatility and uncertainty continued across the globe. The S&P 500^® Index, a bellwether for the overall U.S. stock market, returned 13.60%, while the MSCI EAFE Index (Net), a broad measure of developed international equity performance, and the MSCI Emerging Markets (Net) Index, returned 10.35% and 22.69%, respectively. Many real estate markets also generated positive returns, and outperformed the broader U.S. stock market over the six-month reporting period. The Dow Jones U.S. Select REIT Index returned 17.40%, and the FTSE EPRA/NAREIT Global Index (Net), representing general trends in eligible real estate securities worldwide, returned 16.42%.

U.S. economic data was relatively strong over the six-month reporting period. New housing starts and disposable personal income generally trended upward, while U.S. real gross domestic product continued to grow and consumer spending rose in April, May, June and July. Though U.S. retail sales numbers declined in the last three months of the reporting period, U.S. e-commerce sales increased during the six months. As internet retail companies need warehouses to store their goods, the positive trend in e-commerce supported the performance of REITs that own industrial space. Toward the end of the reporting period, some economic data came in below expectations, including the August nonfarm payroll numbers. However, despite these uneven measurements, the relatively stable U.S. economy supported real estate market fundamentals overall, and contributed to the performance of U.S. REITs.

During the six-month reporting period, uncertainty continued surrounding U.S. short-term interest rate policy. The Federal Reserve (Fed) left the federal funds rate unchanged at meetings in March, April, and June as concerns remained about lackluster global growth and the durability of the U.S. economic recovery, as well as continued muted inflation. The pace of future short-term interest rate increases was further complicated by the United Kingdom’s decision in late June to leave the European Union, also known as Brexit, while inconsistent labor numbers also played a role. Though the Fed again left rates unchanged at its final meeting of the reporting period in July, Fed officials noted that they believed the near-term risks to the economy had receded, increasing the chances of a rate hike by the end of 2016. These continued low interest rates in the U.S. helped the performances of many dividend-paying investments (including REITs), as many investors sought potentially higher returns than those generated by fixed-income instruments such as bonds.

Over the six-month reporting period, most U.S. REITs performed well amid solid property fundamentals and strong demand. Within the Dow Jones U.S. Select REIT Index, Industrial REITs generated one of the best performances for the six months, driven by double-digit returns for all REITs in this subindustry. Industrial REITs are less sensitive to interest rates and have benefitted from the continued growth of e-commerce. Even in a slowly growing economy with heightened market volatility, Industrial REITs experienced strong demand and occupancy levels near all-time highs. In comparison, Specialized REITs, which include self-storage REITs, had the only negative returns in the Dow Jones U.S. Select REIT Index. After being a top performer for several years, some Specialized REITs have experienced a recent slowdown in growth, contributing to this subindustry’s underperformance.

For index definitions, please see the Glossary.

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

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

Schwab U.S. REIT ETF5

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Fund Management

Agnes Hong, CFA, Vice President and Senior Portfolio Manager, is responsible for the day-to-day co-management of the fund. Prior to joining CSIM in 2009, Ms. Hong spent five years as a portfolio manager at Barclays Global Investors (subsequently acquired by BlackRock), where she managed institutional index funds and quantitative active funds. Prior to that, Ms. Hong worked in management consulting and product management, servicing global financial services clients.

Ferian Juwono, CFA, Managing Director and Senior Portfolio Manager, is responsible for the day-to-day co-management of the fund. Prior to joining CSIM in 2010, Mr. Juwono worked at BlackRock (formerly Barclays Global Investors), where he spent more than three years as a portfolio manager, managing equity index funds for institutional clients, and nearly two years as a senior business analyst. Prior to that, Mr. Juwono worked for more than four years as a senior financial analyst with Union Bank of California.

Chuck Craig, CFA, Managing Director and Senior Portfolio Manager, is responsible for the day-to-day co-management of the fund. Prior to joining CSIM in 2012, Mr. Craig worked at Guggenheim Funds (formerly Claymore Group), where he spent more than five years as a managing director of portfolio management and supervision, and three years as vice president of product research and development. Prior to that, he worked as an equity research analyst at First Trust Portfolios (formerly Niké Securities), and a trader and analyst at PMA Securities, Inc.

6Schwab U.S. REIT ETF

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Schwab U.S. REIT ETF

Performance and Fund Facts as of 08/31/16

Average Annual Total Returns¹

Fund and Inception Date	6 Months	1 Year	5 Years	Since Inception*
Fund: Schwab U.S. REIT ETF (1/13/11)
Market Price Return²	17.33%	23.97%	13.25%	12.97%
NAV Return²	17.30%	24.03%	13.22%	12.97%
Dow Jones U.S. Select REIT Index	17.40%	24.23%	13.36%	13.12%
ETF Category: Morningstar Real Estate³	19.46%	23.53%	12.60%	11.80%

Fund Expense Ratio⁴: 0.07%

Statistics
Number of Holdings	101
Weighted Average Market Cap (millions)	$19,880
Price/Earnings Ratio (P/E)	43.1
Price/Book Ratio (P/B)	2.7
Portfolio Turnover Rate^5,6	5%

Sector Weightings % of Investments
Retail REITs	26.2%
Residential REITs	18.9%
Office REITs	15.6%
Health Care REITs	12.7%
Specialized REITs	10.5%
Industrial REITs	7.3%
Hotel & Resort REITs	5.9%
Diversified REITs	2.8%
Other	0.1%
Total	100.0%

Top Equity Holdings % of Net Assets⁷
Simon Property Group, Inc.	10.0%
Public Storage	4.9%
Prologis, Inc.	4.2%
Welltower, Inc.	4.1%
Ventas, Inc.	3.7%
AvalonBay Communities, Inc.	3.6%
Equity Residential	3.5%
Boston Properties, Inc.	3.2%
Vornado Realty Trust	2.8%
HCP, Inc.	2.7%
Total	42.7%

For index definitions, please see the Glossary.

Small-company stocks may be subject to greater volatility than many other asset classes.

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

Shares are bought and sold at market price, which may be higher or lower than the net asset value (NAV). Brokerage commissions will reduce returns.

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 trading and management costs incurred by the fund.

Source of Sector Classification: S&P and MSCI.

*	Inception (1/13/11) 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	ETF performance must be shown based on both a market price and NAV basis. The fund’s per share 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.
³	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.
⁴	As stated in the prospectus.
⁵	Not annualized.
⁶	Portfolio turnover rate excludes securities received or delivered from processing of in-kind creations or redemptions.
⁷	This list is not a recommendation of any security by the investment adviser.

Schwab U.S. REIT ETF7

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Fund Expenses (Unaudited)

Examples for a $1,000 Investment

As a fund shareholder, you may 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 the fund and to compare this cost with the ongoing cost of investing in other mutual funds. These examples are based on an investment of $1,000 invested for six months beginning March 1, 2016 and held through August 31, 2016.

Actual Return line in the table below provides 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 the fund under the heading entitled “Expenses Paid During Period.”

Hypothetical Return line in the table below provides information about hypothetical account values and hypothetical expenses based on the 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 brokerage commissions you may pay when purchasing or selling shares of a fund. Therefore, the hypothetical return lines of the table are useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Expense Ratio¹ (Annualized)	Beginning Account Value at 3/1/16	Ending Account Value (Net of Expenses) at 8/31/16	Expenses Paid During Period² 3/1/16–8/31/16
Schwab U.S. REIT ETF
Actual Return	0.07%	$1,000.00	$ 1,173.00	$0.38
Hypothetical 5% Return	0.07%	$1,000.00	$1,024.85	$0.36

¹	Based on the most recent six-month expense ratio; may differ from the expense ratio provided in the Financial Highlights.
²	Expenses for the fund are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by 184 days of the period, and divided by 365 days of the fiscal year.

8Schwab U.S. REIT ETF

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Schwab U.S. REIT ETF

Financial Statements

Financial Highlights

	3/1/16– 8/31/16*	3/1/15– 2/29/16	3/1/14– 2/28/15	3/1/13– 2/28/14	3/1/12– 2/28/13	3/1/11– 2/29/12
Per-Share Data
Net asset value at beginning of period	$37.71	$40.04	$33.06	$31.96	$28.30	$27.28
Income (loss) from investment operations:
Net investment income (loss)	0.88 ¹	1.03 ¹	0.92	0.80	0.72	0.65
Net realized and unrealized gains (losses)	5.61	(2.38)	6.91	1.08	3.71	0.98
Total from investment operations	6.49	(1.35)	7.83	1.88	4.43	1.63
Less distributions:
Distributions from net investment income	(0.42)	(0.98)	(0.85)	(0.78)	(0.77)	(0.61)
Net asset value at end of period	$43.78	$37.71	$40.04	$33.06	$31.96	$28.30
Total return	17.30% ²	(3.41%)	24.04%	6.08%	15.83%	6.15%
Ratios/Supplemental Data
Ratios to average net assets:
Total expenses	0.07% ³	0.07%	0.07%	0.07%	0.10% ⁴	0.13%
Net investment income (loss)	4.15% ³	2.70%	2.56%	2.52%	2.43%	2.50%
Portfolio turnover rate⁵	5% ²	12%	15%	11%	7%	5%
Net assets, end of period (x 1,000)	$2,852,537	$1,823,208	$1,269,306	$790,052	$466,567	$277,370

*	Unaudited.

Calculated based on the average shares outstanding during the period.

Not annualized.

Annualized.

⁴

Effective September 20, 2012, the annual operating expense ratio was reduced. The ratio presented for the period ended 2/28/13 is a blended ratio.

⁵

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

See financial notes 9

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Schwab U.S. REIT ETF

Portfolio Holdings as of August 31, 2016 (Unaudited)

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 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.csimfunds.com/schwabetfs_prospectus.

Holdings by Category		Cost ($)	Value ($)
99.9%	Common Stock	2,501,042,278	2,848,811,975
0.1%	Other Investment Companies	4,175,912	4,201,445
100.0%	Total Investments	2,505,218,190	2,853,013,420
(0.0%)	Other Assets and Liabilities, Net		(476,683)
100.0%	Net Assets		2,852,536,737

Security	Number of Shares	Value ($)
Common Stock 99.9% of net assets
Diversified REITs 2.8%
Cousins Properties, Inc.	802,570	8,844,321
First Potomac Realty Trust	248,419	2,501,579
Forest City Realty Trust, Inc., Class A	932,570	22,064,606
Liberty Property Trust	626,592	25,834,388
PS Business Parks, Inc.	86,343	9,565,078
Washington Real Estate Investment Trust	314,232	10,212,540
		79,022,512
Health Care REITs 12.7%
Care Capital Properties, Inc.	362,700	10,877,373
HCP, Inc.	1,974,675	77,663,968
Healthcare Realty Trust, Inc.	500,272	17,539,536
LTC Properties, Inc.	161,773	8,399,254
Senior Housing Properties Trust	989,171	22,098,080
Universal Health Realty Income Trust	56,870	3,502,623
Ventas, Inc.	1,442,868	104,853,218
Welltower, Inc.	1,519,904	116,652,632
		361,586,684
Hotel & Resort REITs 5.9%
Apple Hospitality REIT, Inc.	633,709	12,433,371
Ashford Hospitality Prime, Inc.	107,478	1,666,984
Ashford Hospitality Trust, Inc.	472,849	3,295,758
DiamondRock Hospitality Co.	851,394	9,016,262
FelCor Lodging Trust, Inc.	522,456	3,714,662
Hersha Hospitality Trust	202,265	3,952,258
Hospitality Properties Trust	718,254	21,899,565
Host Hotels & Resorts, Inc.	3,140,352	55,961,073
LaSalle Hotel Properties	480,807	13,491,444
Pebblebrook Hotel Trust	304,810	9,156,492
RLJ Lodging Trust	543,299	12,680,599

Security	Number of Shares	Value ($)
Sunstone Hotel Investors, Inc.	944,852	13,123,994
Xenia Hotels & Resorts, Inc.	414,836	6,985,838
		167,378,300
Industrial REITs 7.3%
DCT Industrial Trust, Inc.	386,496	18,826,220
Duke Realty Corp.	1,459,027	41,027,839
EastGroup Properties, Inc.	136,296	10,001,401
First Industrial Realty Trust, Inc.	490,087	14,099,803
Prologis, Inc.	2,246,638	119,318,944
Rexford Industrial Realty, Inc.	280,308	6,259,278
		209,533,485
Office REITs 15.6%
Alexandria Real Estate Equities, Inc.	336,536	37,049,248
Boston Properties, Inc.	657,146	92,085,869
Brandywine Realty Trust	762,730	12,302,835
Columbia Property Trust, Inc.	489,844	11,550,522
Corporate Office Properties Trust	413,971	11,806,453
Douglas Emmett, Inc.	602,624	22,634,558
Equity Commonwealth *	545,577	17,071,104
Franklin Street Properties Corp.	435,044	5,464,153
Highwoods Properties, Inc.	417,233	22,130,038
Hudson Pacific Properties, Inc.	450,083	15,064,278
Kilroy Realty Corp.	395,240	28,706,281
Mack-Cali Realty Corp.	392,811	10,904,433
New York REIT, Inc.	643,012	6,211,496
Parkway Properties, Inc.	323,211	5,817,798
Piedmont Office Realty Trust, Inc., Class A	622,654	13,455,553
SL Green Realty Corp.	419,649	49,401,080
Tier REIT, Inc.	220,450	3,531,609
Vornado Realty Trust	758,681	78,379,334
		443,566,642
Residential REITs 18.9%
American Campus Communities, Inc.	551,505	27,635,916
American Homes 4 Rent, Class A	753,502	16,479,089
Apartment Investment & Management Co., Class A	668,057	30,182,815
AvalonBay Communities, Inc.	585,865	102,532,234
Camden Property Trust	373,678	32,797,718
Colony Starwood Homes	158,150	4,902,650
Education Realty Trust, Inc.	304,343	13,789,781
Equity LifeStyle Properties, Inc.	343,611	26,640,161
Equity Residential	1,553,086	100,748,689
Essex Property Trust, Inc.	279,883	63,561,429
Mid-America Apartment Communities, Inc.	323,458	30,401,817
Monogram Residential Trust, Inc.	658,930	6,931,944
NexPoint Residential Trust, Inc.	87,580	1,831,298
Post Properties, Inc.	228,596	15,151,343
Silver Bay Realty Trust Corp.	155,318	2,955,701
Sun Communities, Inc.	273,112	20,898,530
UDR, Inc.	1,139,258	41,218,354
		538,659,469

10 See financial notes

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Schwab U.S. REIT ETF

Portfolio Holdings (Unaudited) continued

Security	Number of Shares	Value ($)
Retail REITs 26.2%
Acadia Realty Trust	319,348	11,796,715
Brixmor Property Group, Inc.	1,114,065	31,817,696
CBL & Associates Properties, Inc.	584,599	8,342,228
Cedar Realty Trust, Inc.	318,470	2,410,818
DDR Corp.	1,285,022	24,299,766
Equity One, Inc.	389,047	12,076,019
Federal Realty Investment Trust	303,079	48,189,561
General Growth Properties, Inc.	2,483,675	72,374,290
Kimco Realty Corp.	1,790,531	53,805,457
Kite Realty Group Trust	351,540	10,152,475
Pennsylvania Real Estate Investment Trust	297,827	7,472,479
Ramco-Gershenson Properties Trust	336,533	6,538,836
Regency Centers Corp.	447,731	36,060,255
Retail Opportunity Investments Corp.	465,439	10,383,944
Saul Centers, Inc.	49,954	3,310,951
Seritage Growth Properties, Class A (a)	62,050	2,761,225
Simon Property Group, Inc.	1,321,396	284,721,196
Tanger Factory Outlet Centers, Inc.	405,709	16,488,014
Taubman Centers, Inc.	253,823	19,714,432
The Macerich Co.	538,400	44,089,576
Urban Edge Properties	377,115	10,808,116
Washington Prime Group, Inc.	765,180	10,513,573
Weingarten Realty Investors	493,291	20,348,254
		748,475,876
Specialized REITs 10.5%
CubeSmart	732,614	20,168,863
Digital Realty Trust, Inc.	629,859	62,412,728
DuPont Fabros Technology, Inc.	323,674	13,723,778
Extra Space Storage, Inc.	527,159	42,462,658
Life Storage, Inc.	204,724	18,425,160
National Storage Affiliates Trust	156,884	3,186,314
Public Storage	626,103	140,209,506
		300,589,007
Total Common Stock
(Cost $2,501,042,278)		2,848,811,975

Security	Number of Shares	Value ($)
Other Investment Companies 0.1% of net assets
Equity Fund 0.1%
SPDR Dow Jones REIT ETF	25,400	2,545,588
Money Market Fund 0.0%
State Street Institutional U.S. Government Money Market Fund, Premier Class 0.26% (b)	212,857	212,857
Securities Lending Collateral 0.0%
Wells Fargo Government Money Market Fund, Select Class 0.32% (b)	1,443,000	1,443,000
Total Other Investment Companies
(Cost $4,175,912)		4,201,445

End of Investments

At 08/31/16, the tax basis cost of the fund's investments was $2,507,799,443 and the unrealized appreciation and depreciation were $356,213,240 and ($10,999,263), respectively, with a net unrealized appreciation of $345,213,977.

*	Non-income producing security.
(a)	All or a portion of this security is on loan. Securities on loan were valued at $1,388,400.
(b)	The rate shown is the 7-day yield.

ETF —	Exchange-traded fund
REIT —	Real Estate Investment Trust

The following is a summary of the inputs used to value the fund’s investments as of August 31, 2016 (see financial note 2(a) for additional information):

Description	Quoted Prices in Active Markets for Identical Assets (Level 1)	Other Significant Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total
Common Stock¹	$2,848,811,975	$—	$—	$2,848,811,975
Other Investment Companies¹	4,201,445	—	—	4,201,445
Total	$2,853,013,420	$—	$—	$2,853,013,420

¹	As categorized in Portfolio Holdings.

The fund's policy is to recognize transfers between Level 1, Level 2 and Level 3 as of the beginning of the fiscal year. There were no transfers between Level 1, Level 2 and Level 3 for the period ended August 31, 2016.

See financial notes 11

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Statement of

Assets and Liabilities

As of August 31, 2016; unaudited

Assets
Investments, at value (cost $2,503,775,190) including securities on loan of $1,388,400		$2,851,570,420
Collateral invested for securities on loan, at value (cost $1,443,000)	+	1,443,000
Total investments, at value (cost $2,505,218,190)		2,853,013,420
Receivables:
Fund shares sold		6,570,647
Dividends		1,117,960
Income from securities on loan	+	1,976
Total assets		2,860,704,003
Liabilities
Collateral held for securities on loan		1,443,000
Payables:
Investments bought		6,556,037
Investment adviser fees	+	168,229
Total liabilities		8,167,266
Net Assets
Total assets		2,860,704,003
Total liabilities	–	8,167,266
Net assets		$2,852,536,737
Net Assets by Source
Capital received from investors		2,483,617,290
Net investment income not yet distributed		32,775,645
Net realized capital losses		(11,651,428)
Net unrealized capital appreciation		347,795,230

Net Asset Value (NAV)
Net Assets	÷	Shares Outstanding	=	NAV
$2,852,536,737		65,150,000		$43.78

12 See financial notes

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Schwab U.S. REIT ETF

Statement of

Operations

For the period March 1, 2016 through August 31, 2016; unaudited

Investment Income
Dividends		$49,929,230
Securities on loan	+	38,537
Total investment income		49,967,767
Expenses
Investment adviser fees		829,485
Total expenses	–	829,485
Net investment income		49,138,282
Realized and Unrealized Gains (Losses)
Net realized losses on investments		(10,946,483)
Net realized gains on in-kind redemptions	+	2,111,517
Net realized losses		(8,834,966)
Net change in unrealized appreciation (depreciation) on investments	+	301,919,674
Net realized and unrealized gains		293,084,708
Increase in net assets resulting from operations		$342,222,990

See financial notes 13

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Schwab U.S. REIT ETF

Statement of

Changes in Net Assets

For the current and prior report periods

Figures for the current period are unaudited

Operations
	3/1/16-8/31/16		3/1/15-2/29/16
Net investment income		$49,138,282	$42,924,967
Net realized gains (losses)		(8,834,966)	44,259,722
Net change in unrealized appreciation (depreciation)	+	301,919,674	(139,593,710)
Increase (decrease) in net assets resulting from operations		342,222,990	(52,409,021)
Distributions to Shareholders
Distributions from net investment income		($22,680,635)	($40,950,395)

Transactions in Fund Shares
		3/1/16-8/31/16		3/1/15-2/29/16
		SHARES	VALUE	SHARES	VALUE
Shares sold		17,150,000	$724,497,110	22,700,000	$876,203,124
Shares redeemed	+	(350,000)	(14,710,288)	(6,050,000)	(228,941,698)
Net transactions in fund shares		16,800,000	$709,786,822	16,650,000	$647,261,426
Shares Outstanding and Net Assets
		3/1/16-8/31/16		3/1/15-2/29/16
		SHARES	NET ASSETS	SHARES	NET ASSETS
Beginning of period		48,350,000	$1,823,207,560	31,700,000	$1,269,305,550
Total increase	+	16,800,000	1,029,329,177	16,650,000	553,902,010
End of period		65,150,000	$2,852,536,737	48,350,000	$1,823,207,560
Net investment income not yet distributed			$32,775,645		$6,317,998

14 See financial notes

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Schwab U.S. REIT ETF

Financial Notes, unaudited

1. Business Structure of the Fund:

Schwab U.S. REIT ETF 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 operational funds in the trust as of the end of the period, including the fund discussed in this report, which is highlighted:

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

The fund issues and redeems shares at its net asset value per share (NAV) only in large blocks of shares, typically 50,000 shares or more (Creation Units). These transactions are usually in exchange for a basket of securities and/or an amount of cash. As a practical matter, only institutions or large investors purchase or redeem Creation Units. Except when aggregated in Creation Units, shares of the fund are not redeemable securities.

Individual shares of the fund trade on national securities exchanges and elsewhere during the trading day and can only be bought and sold at market prices throughout the trading day through a broker-dealer. Because fund shares trade at market prices rather than NAV, shares may trade at a price greater than NAV (premium) or less than NAV (discount).

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

2. Significant Accounting Policies:

The following is a summary of the significant accounting policies the fund uses in its preparation of financial statements. The fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standard Codification Topic 946 Financial Services — Investment Companies. The accounting policies are in conformity with accounting principles generally accepted in the United States of America (GAAP).

The fund may invest in certain other investment companies (underlying funds). For more information about the underlying funds' operations and policies, please refer to those funds' semiannual and annual reports, which are filed with the U.S. Securities and Exchange Commission (SEC).

(a) Security Valuation:

Under procedures approved by the fund's Board of Trustees (the Board), the investment adviser has formed a Pricing Committee to administer the pricing and valuation of portfolio securities and other assets and to ensure that prices used for internal purposes or provided by third parties reasonably reflect fair market value. Among other things, these procedures allow the fund to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value.

The fund values the securities in its portfolio every business day. The fund uses the following policies to value various types of securities:

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

• Securities for which no quoted value is available: The Board has adopted procedures to fair value the fund’s securities when market prices are not “readily available” or are unreliable. For example, a fund may fair value a security when it is

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Schwab U.S. REIT ETF

Financial Notes, unaudited (continued)

2. Significant Accounting Policies (continued):

de-listed or its trading is halted or suspended; when a security’s primary pricing source is unable or unwilling to provide a price; or when a security’s primary trading market is closed during regular market hours. The fund makes fair value determinations in good faith in accordance with the fund’s valuation procedures. The Pricing Committee considers a number of factors, including unobservable market inputs when arriving at fair value. The Pricing Committee may employ techniques such as the review of related or comparable assets or liabilities, related market activities, recent transactions, market multiples, book values, transactional back-testing, disposition analysis and other relevant information. The Pricing Committee regularly reviews these inputs and assumptions to calibrate the valuations. Due to the subjective and variable nature of fair value pricing, there can be no assurance that the fund could obtain the fair value assigned to the security upon the sale of such security. The Board convenes on a regular basis to review fair value determinations made by the fund pursuant to the valuation procedures.

• Short-term securities (60 days or less to maturity): A short-term security may be valued at its amortized cost when it approximates the security's market value.

• Underlying funds: Mutual funds are valued at their respective NAVs. Exchange-traded funds (ETFs) traded on a recognized securities exchange are valued at the last reported sale price that day or the official closing price, if applicable.

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

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

• Level 1—quoted prices in active markets for identical securities—Investments whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 prices, include active listed equities and ETFs. Investments in mutual funds are valued daily at their NAV, and investments in ETFs are valued daily at the last reported sale price or the official closing price, which are classified as Level 1 prices, without consideration to the classification level of the specific investments held by an underlying fund.

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

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

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

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Schwab U.S. REIT ETF

Financial Notes, unaudited (continued)

2. Significant Accounting Policies (continued):

The levels associated with valuing the fund's investments as of August 31, 2016 are disclosed in the Portfolio Holdings.

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

Securities Lending: Under the trust's Securities Lending Program, the fund (lender) may make short-term loans of its securities to another party (borrower) to generate additional revenue for the fund. The borrower pledges collateral in the form of cash, securities issued or fully guaranteed by the U.S. government or foreign governments, or letters of credit issued by a bank. Collateral at the individual loan level is required to be maintained on a daily marked-to-market basis in an amount at least equal to the current value of the securities loaned. The lending agent provides the fund with indemnification against borrower default (the borrower fails to return the security on loan) reducing the risk of loss as a result of default. The cash collateral of securities loaned is currently invested in money market portfolios operating under Rule 2a-7 of the 1940 Act. The fund bears the risk of loss with respect to the investment of cash collateral. The terms of the securities lending agreement allow the fund or the lending agent to terminate any loan at any given time and the securities must be returned within the earlier of the standard trade settlement period or the specified time period under the relevant securities lending agreements. Securities lending income, as disclosed in the fund’s Statement of Operations, if applicable, represents the income earned from the investment of the cash collateral plus any fees paid by borrowers, less the fees paid to the lending agent and broker rebates which are subject to adjustments pursuant to the securities lending agreement. On loans not collateralized by cash, a fee is received from the borrower, and is allocated between the fund and the lending agent. The aggregate market value of securities loaned will not at any time exceed one-third of the total assets of the fund, including collateral received from the loan (at market value computed at the time of the loan). Total costs and expenses, including lending agent fees and broker rebates, associated with securities lending activities under the trust’s Securities Lending Program paid to the unaffiliated lending agents start at 10% of gross lending revenue, with subsequent breakpoints to a low of 7.5%.

As of August 31, 2016, the fund had securities on loan, all of which were classified as common stocks. The value of the securities on loan and the related collateral as of August 31, 2016, if any, are disclosed in the fund's Portfolio Holdings. The value of the securities on loan and investment of cash collateral are also disclosed in the fund's Statement of Assets and Liabilities.

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

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

(d) Real Estate Investment Trusts:

The fund invests in real estate investment trusts (REITs) which report information on the source of their distributions annually. Certain distributions received from REITs during the year, which are known to be a return of capital or realized gains, are recorded as a reduction to the cost of the individual REITs or realized gains on investments, respectively.

(e) Investment Income:

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

(f) Expenses:

Pursuant to the Investment Advisory Agreement (Advisory Agreement) between Charles Schwab Investment Management, Inc. (CSIM or the investment adviser) and the trust, the investment adviser will pay the operating expenses of the fund, excluding interest expense, taxes, any brokerage expenses, and extraordinary or non-routine expenses. Interest expense, taxes, any brokerage expenses and extraordinary or non-routine expenses that are specific to the fund are charged directly to the fund.

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Schwab U.S. REIT ETF

Financial Notes, unaudited (continued)

2. Significant Accounting Policies (continued):

(g) Distributions to Shareholders:

The fund makes distributions from net investment income, if any, quarterly and from net realized capital gains, if any, once a year.

(h) Accounting Estimates:

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

(i) Federal Income Taxes:

The fund intends to meet federal income and excise tax requirements for regulated investment companies. Accordingly, the fund distributes substantially all of its net investment income and net realized capital gains, if any, to its shareholders each year. As long as the fund meets the tax requirements, it is not required to pay federal income tax.

(j) Indemnification:

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

3. Risk Factors:

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

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

Investment Style Risk. The fund is not actively managed. Therefore, the fund follows the securities included in the index during upturns as well as downturns. Because of its indexing strategy, the fund does not take steps to reduce market exposure or to lessen the effects of a declining market. In addition, because of the fund's expenses, the fund’s performance may be below that of its respective index.

Equity Risk. The prices of equity securities rise and fall daily. These price movements may result from factors affecting individual companies, industries or the securities market as a whole. In addition, equity markets tend to move in cycles which may cause stock prices to fall over short or extended periods of time.

Large-Cap Risk. The fund will invest in large-cap segments of the U.S. stock market. Large-cap stocks tend to go in and out of favor based on market and economic conditions. During a period when large-cap U.S. stocks fall behind other types of investments—mid- or small-cap stocks, for instance—the fund’s large-cap holdings could reduce performance.

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

REITs Risk. In addition to the risks associated with investing in securities of real estate companies and real estate related companies, REITs are subject to certain additional risks. Equity REITs may be affected by changes in the value of the underlying properties owned by the trusts. Further, REITs are dependent upon specialized management skills and cash flows,

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Schwab U.S. REIT ETF

Financial Notes, unaudited (continued)

3. Risk Factors (continued):

and may have their investments in relatively few properties, or in a small geographic area or a single property type. Failure of a company to qualify as a REIT under federal tax law may have adverse consequences to the fund. In addition, REITs have their own expenses, and the fund will bear a proportionate share of those expenses.

Real Estate Investment Risk. Due to the composition of the index, the fund concentrates its investments in real estate companies and companies related to the real estate industry. As such, the fund is subject to risks associated with the direct ownership of real estate securities and an investment in the fund will be closely linked to the performance of the real estate markets. These risks include, among others: declines in the value of real estate; risks related to general and local economic conditions; possible lack of availability of mortgage funds or other limits to accessing the credit or capital markets; defaults by borrowers or tenants, particularly during an economic downturn; and changes in interest rates.

Tracking Error Risk. As an index fund, the fund seeks to track the performance of its benchmark index, although it may not be successful in doing so. The divergence between the performance of the fund and its benchmark index, positive or negative, is called “tracking error.” Tracking error can be caused by many factors and it may be significant.

Derivatives Risk. The principal types of derivatives used by the fund are futures contracts. A futures contract is an agreement to buy or sell a financial instrument at a specific price on a specific day. The fund’s use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Certain of these risks, such as leverage risk, market risk and liquidity risk, are discussed elsewhere.

The fund’s use of derivatives is also subject to credit risk, lack-of-availability risk, valuation risk, correlation risk and tax risk. Credit risk is the risk that the counterparty to a derivative transaction may not fulfill its contractual obligations. Lack-of-availability risk is the risk that suitable derivative transactions may not be available in all circumstances for risk management or other purposes. Valuation risk is the risk that a particular derivative may be valued incorrectly. Correlation risk is the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset, rate or index. Tax risk is the risk that the use of derivatives may cause the fund to realize higher amounts of short-term capital gain. The fund’s use of derivatives could reduce the fund’s performance, increase the fund’s volatility, and cause the fund to lose more than the initial amount invested. The fund's use of derivatives that are subject to regulation by the Commodity Futures Trading Commission (CFTC) could cause the fund to become a commodity pool, which would require the fund to comply with certain CFTC rules.

Concentration Risk. To the extent that the fund's or the index's portfolio is concentrated in the securities of issuers in a particular market, industry, group of industries, sector or asset class (including the real estate industry, as described above), the fund may be adversely affected by the performance of those securities, may be subject to increased price volatility and may be more susceptible to adverse economic, market, political or regulatory occurrences affecting that market, industry, group of industries, sector or asset class.

Liquidity Risk. The fund may be unable to sell certain securities, such as illiquid securities, readily at a favorable time or price, or the fund may have to sell them at a loss.

Market Trading Risk. 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.

Shares of the Fund May Trade at Prices Other Than NAV. 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. The market price of the fund shares may deviate, sometimes significantly, from NAV during periods of market volatility.

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

4. Affiliates and Affiliated Transactions:

CSIM, a wholly owned subsidiary of The Charles Schwab Corporation, serves as the fund’s investment adviser pursuant to an Advisory Agreement between CSIM and the trust.

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Schwab U.S. REIT ETF

Financial Notes, unaudited (continued)

4. Affiliates and Affiliated Transactions (continued):

For its advisory services to the fund, CSIM is entitled to receive an annual fee, payable monthly, equal to 0.07% of the fund's average daily net assets.

Certain Schwab funds may own shares of other Schwab funds. The table below reflects the percentage of shares of the fund that are owned by other Schwab funds as of August 31, 2016.


Schwab VIT Balanced Portfolio	0.1%
Schwab VIT Balanced with Growth Portfolio	0.3%
Schwab VIT Growth Portfolio	0.3%
Schwab Target 2010 Index Fund	0.0%*
Schwab Target 2015 Index Fund	0.0%*
Schwab Target 2020 Index Fund	0.0%*
Schwab Target 2025 Index Fund	0.0%*
Schwab Target 2030 Index Fund	0.0%*
Schwab Target 2035 Index Fund	0.0%*
Schwab Target 2040 Index Fund	0.0%*
Schwab Target 2045 Index Fund	0.0%*
Schwab Target 2050 Index Fund	0.0%*
Schwab Target 2055 Index Fund	0.0%*
Schwab Target 2060 Index Fund	0.0%*

*	Less than 0.05%

The fund may engage in direct transactions with certain other Schwab funds when practical. When one fund is seeking to sell a security that another is seeking to buy, an interfund transaction can allow both funds to benefit by reducing transaction costs. This practice is limited to funds that share the same investment adviser, trustees and/or officers. For the period ended August 31, 2016, the fund's total aggregate security transactions with other Schwab funds was $8,448,210 and includes realized gains (losses) of ($604,665).

Pursuant to an exemptive order issued by the SEC, the fund may enter into interfund borrowing and lending transactions with other funds in the Fund Complex (for definition refer to Trustees and Officers section). All loans are for temporary or emergency purposes and the interest rate to be charged will be the average of the overnight repurchase agreement rate and the short-term bank loan rate. All loans are subject to numerous conditions designed to ensure fair and equitable treatment of all participating funds/portfolios. The interfund lending facility is subject to the oversight and periodic review of the Board. The fund had no interfund borrowing or lending activity during the period.

5. Other Service Providers:

SEI Investments Distribution Co. is the principal underwriter and distributor of shares of the fund.

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

State Street also serves as custodian and accountant for the fund. The custodian is responsible for the daily safekeeping of securities and cash held by the fund. The fund’s accountant maintains all books and records related to the fund’s transactions.

6. Board of Trustees:

The Board may include people who are officers and/or directors of CSIM or its affiliates. Federal securities law limits the percentage of such “interested persons” who may serve on a trust’s board, and the trust was in compliance with these limitations throughout the report period. The trust does not pay any interested or non-interested trustees (independent trustees). The independent trustees are paid by CSIM. For information regarding the trustees, please refer to the Trustees and Officers table at the end of this report.

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Schwab U.S. REIT ETF

Financial Notes, unaudited (continued)

7. Borrowing from Banks:

During the period, the fund was a participant with other U.S. registered investment companies managed by CSIM in a joint, syndicated, committed $530 million line of credit (the Credit Facility), which matured on October 6, 2016. Under the terms of the Credit Facility, in addition to the interest charged on any borrowings by a fund, the fund paid a commitment fee of 0.125% per annum on its proportionate share of the unused portion of the Credit Facility. There were no borrowings from the line of credit during the period. On October 6, 2016, the Credit Facility was amended to run for a new 364 day period with an increased line of $555 million and a commitment fee of 0.15% per annum.

The fund also has access to custodian overdraft facilities. The fund may have utilized the overdraft facility and incurred an interest expense, which is disclosed on the fund’s Statement of Operations, if any. The interest expense is determined based on a negotiated rate above the current Federal Funds Rate.

8. Purchases and Sales/Maturities of Investment Securities:

For the period ended August 31, 2016, purchases and sales/maturities of securities (excluding in-kind transactions and short-term obligations) were as follows:

	Purchases of Securities		Sales/Maturities of Securities
Schwab U.S. REIT ETF	$156,785,535		$127,438,865

9. In-Kind Transactions:

The consideration for the purchase of Creation Units of the fund often consists of the in-kind deposit of a designated portfolio of equity 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 are subject to a standard creation transaction fee and a standard redemption transaction fee paid to the custodian to offset transfer and other transaction costs associated with the issuance and redemption of Creation Units. Purchasers and redeemers of Creation Units for cash are subject to an additional variable charge paid to the fund that will offset the transaction costs to the fund of buying or selling portfolio securities. In addition, purchasers and redeemers of shares in Creation Units are responsible for payment of the costs of transferring securities to or out of the fund. From time to time, CSIM may cover the cost of any transaction fees when believed to be in the best interests of the fund.

The in-kind transactions for the period ended August 31, 2016 were as follows:

	In-Kind Purchases of Securities		In-Kind Sales of Securities
Schwab U.S. REIT ETF	$714,816,971		$8,097,148

For the period ended August 31, 2016, the fund realized net capital gains or losses resulting from in-kind redemptions of Creation Units. Because such gains or losses are not taxable to the fund and are not distributed to existing fund shareholders, the gains or losses are reclassified from accumulated net realized gains or losses to capital received from investors at the end of the fund's 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 August 31, 2016 are disclosed in the fund's Statement of Operations, if any.

10. Federal Income Taxes

As of February 29, 2016, the fund had no capital loss carryforwards.

As of February 29, 2016, management has reviewed the tax positions for open periods (for federal purposes, three years from the date of filing and for state purposes, four years from the date of filing) as applicable to the fund, and has determined that no provision for income tax is required in the fund's financial statements. The fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. During the period ended February 29, 2016, the fund did not incur any interest or penalties.

11. Subsequent Events:

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

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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 (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.

The Board of Trustees (Board or Trustees, as appropriate) calls and holds one or more meetings each year that are dedicated, in part, to considering whether to renew the investment advisory agreement (Agreement) between Schwab Strategic Trust (Trust) and Charles Schwab Investment Management, Inc. (CSIM) with respect to the existing funds in the Trust, including Schwab U.S. REIT ETF (Fund), 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 affiliates, personnel, business goals and priorities, profitability, third-party oversight, corporate structure and operations. The Board also receives extensive data provided by an independent provider of investment company data and an independent accounting firm. 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 the Fund’s operations and performance, legal and compliance matters, risk management, portfolio turnover, and sales and marketing activity. 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 Fund at meetings held on May 9, 2016 and June 1, 2016, and approved the renewal of the Agreement with respect to the Fund for an additional one-year term at the meeting held on June 1, 2016. The Board’s approval of the Agreement with respect to the Fund 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 Fund under the Agreement, including the resources of CSIM and its affiliates dedicated to the Fund;
2.	the Fund’s investment performance and how it compared to that of certain other comparable exchange-traded funds;
3.	the 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 Fund, 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 Fund 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 Fund and the resources of CSIM and its affiliates dedicated to the Fund. In this regard, the Trustees evaluated, among other things, CSIM’s experience, track record, compliance program, resources dedicated to hiring and retaining qualified personnel, and information security resources. The Trustees also considered information provided by CSIM relating to the Fund’s portfolio management team, portfolio strategy and risk oversight structure, and internal investment guidelines. The Trustees also considered investments in CSIM’s infrastructure. The Trustees also considered Schwab’s reputation in connection with the OneSource exchange-traded fund offering 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 provided by CSIM to the Fund and the resources of CSIM and its affiliates dedicated to the Fund supported renewal of the Agreement with respect to the Fund.

Fund Performance. The Board considered the Fund’s performance in determining whether to renew the Agreement with respect to the Fund. Specifically, the Trustees considered the Fund’s performance relative to a peer category of other exchange-traded funds and relevant 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

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and the selection criteria. In evaluating the performance of the Fund, the Trustees considered the risk profile for the 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 their review of Fund expenses and adviser profitability discussed below and also noted that performance is reviewed throughout the year by a designated committee of the Board and by the Board. 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 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 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 provider of investment company data. The Trustees noted that the Fund’s operating expense ratio was well below the average operating expense ratio charged by other funds in its peer group. 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 Fund.

Profitability. The Trustees considered the compensation flowing to CSIM and its affiliates, directly or indirectly and reviewed profitability on a pre-tax basis, without regard to distribution expenses. In this connection, the Trustees reviewed management’s profitability analyses together with certain commentary thereon from an independent accounting firm. The Trustees also reviewed profitability of CSIM relating to the Schwab fund complex as a whole,

noting the benefit to Fund shareholders of being part of the Schwab fund complex, including the allocations of certain fixed costs across other funds in the complex. 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 with respect to the Fund 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 profitability of CSIM is reasonable and supported renewal of the Agreement with respect to the Fund.

Economies of Scale. The Trustees considered the existence of any economies of scale and whether those are passed along to the Fund’s shareholders by way of the relatively low advisory fee and unitary fee structure of the Fund. Based on this evaluation, 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 Fund and concluded that the compensation under the Agreement with respect 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.

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Trustees and Officers

The tables below give information about the trustees and officers for the Schwab Strategic Trust, which includes the fund covered in this report. The “Fund Complex” includes The Charles Schwab Family of Funds, Schwab Capital Trust, Schwab Investments, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust. The Fund Complex includes 108 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 1-877-824-5615.

Independent Trustees
Name, Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served¹)	Principal Occupations During the Past Five Years	Number of Portfolios in Fund Complex Overseen by the Trustee	Other Directorships
Robert W. Burns 1959 Trustee (Trustee of Schwab Strategic Trust since 2009; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016)	Retired/Private Investor (Jan. 2009 – present). Formerly, Managing Director, Pacific Investment Management Company, LLC (PIMCO) and President, PIMCO Funds.	108	Director, PS Business Parks, Inc. (2005 – 2012)
John F. Cogan 1947 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Laudus Trust since 2010; Schwab Strategic Trust since 2016)	Senior Fellow, The Hoover Institution at Stanford University (Oct. 1979 – present); Senior Fellow, Stanford Institute for Economic Policy Research (2000 – present); Professor of Public Policy, Stanford University (1994 – 2015).	108	Director, Gilead Sciences, Inc. (2005 – present)
Stephen Timothy Kochis 1946 Trustee (Trustee of Schwab Strategic Trust since 2012; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016)	CEO and Owner, Kochis Global (wealth management consulting) (May 2012 – present); Chairman and CEO, Aspiriant, LLC (wealth management) (Jan. 2008 – Apr. 2012).	108	None
David L. Mahoney 1954 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016)	Private Investor.	108	Director, Symantec Corporation (2003 – present) Director, Corcept Therapeutics Incorporated (2004 – present) Director, Adamas Pharmaceuticals, Inc. (2009 – present)
Kiran M. Patel 1948 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016)	Retired. Executive Vice President and General Manager of Small Business Group, Intuit, Inc. (financial software and services firm for consumers and small businesses) (Dec. 2008 – Sept. 2013).	108	Director, KLA-Tencor Corporation (2008 – present)

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Independent Trustees (continued)
Name, Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served¹)	Principal Occupations During the Past Five Years	Number of Portfolios in Fund Complex Overseen by the Trustee	Other Directorships
Kimberly S. Patmore 1956 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016)	Consultant, Patmore Management Consulting (management consulting) (2008 – present).	108	None
Charles A. Ruffel 1956 Trustee (Trustee of Schwab Strategic Trust since 2009; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2015)	Co-Chief Executive Officer, Kudu Investment Management, LLC (financial services) (Jan. 2015 – present); Partner, Kudu Advisors, LLC (financial services) (June 2008 – Jan. 2015); Advisor, Asset International, Inc. (publisher of financial services information) (Aug. 2008 – Jan. 2015).	108	None
Gerald B. Smith 1950 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2000; Laudus Trust since 2010; Schwab Strategic Trust since 2016)	Chairman, Chief Executive Officer and Founder of Smith Graham & Co. (investment advisors) (Mar. 1990 – present).	108	Director, Eaton (2012 – present) Director and Chairman of the Audit Committee, Oneok Partners LP (2003 – 2013) Director, Oneok, Inc. (2009 – 2013) Lead Independent Director, Board of Cooper Industries (2002 – 2012)
Joseph H. Wender 1944 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Laudus Trust since 2010; Schwab Strategic Trust since 2016)	Senior Consultant, Goldman Sachs & Co., Inc. (investment banking and securities firm) (Jan. 2008 – present); Partner, Colgin Partners, LLC (vineyards) (Feb. 1998 – present).	108	Board Member and Chairman of the Audit Committee, Ionis Pharmaceuticals (1994 – present) Lead Independent Director and Chair of Audit Committee, OUTFRONT Media Inc. (2014 – present)

Interested Trustees
Name, Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served¹)	Principal Occupations During the Past Five Years	Number of Portfolios in Fund Complex Overseen by the Trustee	Other Directorships
Walter W. Bettinger II² 1960 Chairman and Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Schwab Strategic Trust since 2009; Laudus Trust since 2010)	Director, President and Chief Executive Officer, The Charles Schwab Corporation (Oct. 2008 – present); President and Chief Executive Officer (Oct. 2008 – present), Director (May 2008 – present), Charles Schwab & Co., Inc.; Director, Charles Schwab Bank (Apr. 2006 – present); and Director, Schwab Holdings, Inc. (May 2008 – present).	108	Director, The Charles Schwab Corporation (2008 – present)

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Interested Trustees (continued)
Name, Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served¹)	Principal Occupations During the Past Five Years	Number of Portfolios in Fund Complex Overseen by the Trustee	Other Directorships
Marie A. Chandoha² 1961 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016)	Director, President and Chief Executive Officer (Dec. 2010 – present), Chief Investment Officer (Sept. 2010 – Oct. 2011), Charles Schwab Investment Management, Inc.; Trustee (Jan. 2016 – present), President, Chief Executive Officer (Dec. 2010 – present), and Chief Investment Officer (Sept. 2010 – Oct. 2011), Schwab Funds, Laudus Funds and Schwab ETFs; Director, Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited (Jan. 2011 – present); Global Head of Fixed Income Business Division, BlackRock, Inc. (formerly Barclays Global Investors) (Mar. 2007 – Aug. 2010).	108	None
Joseph R. Martinetto² 1962 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016)	Senior Executive Vice President and Chief Financial Officer, The Charles Schwab Corporation and Charles Schwab & Co., Inc. (July 2015 – present); Executive Vice President and Chief Financial Officer of The Charles Schwab Corporation and Charles Schwab & Co., Inc. (May 2007 – July 2015); Director, Charles Schwab & Co., Inc. (May 2007 – present); Director (Apr. 2010 – present) and Chief Executive Officer (July 2013 – Apr. 2015), Charles Schwab Bank; Director, Executive Vice President and Chief Financial Officer, Schwab Holdings, Inc. (May 2007 – present).	108	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 A. Chandoha 1961 President and Chief Executive Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2010)	Director, President and Chief Executive Officer (Dec. 2010 – present), Chief Investment Officer (Sept. 2010 – Oct. 2011), Charles Schwab Investment Management, Inc.; Trustee (Jan. 2016 – present), President, Chief Executive Officer (Dec. 2010 – present), and Chief Investment Officer (Sept. 2010 – Oct. 2011), Schwab Funds, Laudus Funds and Schwab ETFs; Director, Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited (Jan. 2011 – present); Global Head of Fixed Income Business Division, BlackRock, Inc. (formerly Barclays Global Investors) (Mar. 2007 – Aug. 2010).
Mark Fischer 1970 Treasurer and Chief Financial Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2013)	Treasurer and Chief Financial Officer, Schwab Funds, Laudus Funds and Schwab ETFs (Jan. 2016 – present); Assistant Treasurer, Schwab Funds and Laudus Funds (Dec. 2013 – Dec. 2015), Schwab ETFs (Nov. 2013 – Dec. 2015); Vice President, Charles Schwab Investment Management, Inc. (Oct. 2013 – present); Executive Director, J.P. Morgan Investor Services (Apr. 2011 – Sept. 2013); Assistant Treasurer, Massachusetts Financial Service Investment Management (May 2005 – Mar. 2011).

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Officers of the Trust (continued)
Name, Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served³)	Principal Occupations During the Past Five Years
George Pereira 1964 Senior Vice President and Chief Operating Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2004; Laudus Trust since 2006; 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.; Senior Vice President and Chief Operating Officer (Jan. 2016 – present), Treasurer and Chief Financial Officer, Laudus Funds (June 2006 – Dec. 2015); Treasurer and Principal Financial Officer, Schwab Funds (Nov. 2004 – Dec. 2015) and Schwab ETFs (Oct. 2009 – Dec. 2015); Director, Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited (Apr. 2005 – present).
Omar Aguilar 1970 Senior Vice President and Chief Investment Officer – Equities and Multi-Asset Strategies (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011)	Senior Vice President and Chief Investment Officer – Equities and Multi-Asset Strategies, Charles Schwab Investment Management, Inc. (Apr. 2011 – present); Senior Vice President and Chief Investment Officer – Equities, Schwab Funds, Laudus Funds and Schwab ETFs (June 2011 – present); Head of the Portfolio Management Group and Vice President of Portfolio Management, Financial Engines, Inc. (May 2009 – Apr. 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 The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011)	Senior Vice President and Chief Investment Officer – Fixed Income, Charles Schwab Investment Management, Inc. (Apr. 2011 – present); Senior Vice President and Chief Investment Officer – Fixed Income, Schwab Funds, Laudus Funds and Schwab ETFs (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 (Apr. 2006 – Jan. 2008).
David Lekich 1964 Chief Legal Officer and Secretary, Schwab Funds and Schwab ETFs Vice President and Assistant Clerk, Laudus Funds (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011)	Senior Vice President (Sept. 2011 – present), Vice President (Mar. 2004 – Sept. 2011), Charles Schwab & Co., Inc.; Senior Vice President and Chief Counsel (Sept. 2011 – present), Vice President (Jan. 2011 – Sept. 2011), Charles Schwab Investment Management, Inc.; Secretary (Apr. 2011 – present) and Chief Legal Officer (Dec. 2011 – present), Schwab Funds; Vice President and Assistant Clerk, Laudus Funds (Apr. 2011 – present); Secretary (May 2011 – present) and Chief Legal Officer (Nov. 2011 – present), Schwab ETFs.
Catherine MacGregor 1964 Vice President and Assistant Secretary, Schwab Funds and Schwab ETFs Chief Legal Officer, Vice President and Clerk, Laudus Funds (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2005; Schwab Strategic Trust since 2009)	Vice President, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. (July 2005 – present); Vice President (Dec. 2005 – present), Chief Legal Officer and Clerk (Mar. 2007 – present), Laudus Funds; Vice President (Nov. 2005 – present) and Assistant Secretary (June 2007 – present), Schwab Funds; Vice President and Assistant Secretary, 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 retirement policy requires that each independent trustee retire by December 31 of the year in which the Trustee turns 74 or the Trustee’s twentieth year of service as an independent trustee on any trust in the Fund Complex, whichever occurs first.
²	Mr. Bettinger, Ms. Chandoha, and Mr. Martinetto are Interested Trustees because they own stock of The Charles Schwab Corporation, the parent company of the investment adviser.
³	The President, Treasurer and Secretary/Clerk hold office until their respective successors are chosen and qualified or until he or she sooner dies, resigns, is removed or becomes disqualified. Each of the other officers serves at the pleasure of the Board.

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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 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.

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

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

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

cap, capitalization See “market cap.”

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

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

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.

Dow Jones U.S. Select REIT Index A float-adjusted market capitalization weighted index comprised of real estate investment trusts (REITs).

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.

FTSE EPRA/NAREIT Global Index An index that is designed to provide a diverse representation of publicly traded equity REITs and listed property companies worldwide. The index constituents are free-float adjusted, and screened on liquidity, size and revenue. The index constituents are from developed and emerging markets. The Net of Tax Index is calculated based

on the maximum withholding tax rates applicable to dividends received by institutional investors who are not residents in the same country as the remitting company and who do not benefit from double taxation treaties. The Net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes.

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.

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

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

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.

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

MSCI EAFE (Europe, Australasia, Far East) Index A free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada. The Net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes; returns are calculated applying dividend withholding rates applicable to non-resident persons who do not benefit from double taxation treaties.

MSCI Emerging Markets Index A free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. The Net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes; returns are calculated applying dividend withholding rates applicable to non-resident persons who do not benefit from double taxation treaties.

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.

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outstanding shares, shares outstanding When speaking of the fund, indicates all shares currently held by investors.

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

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

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

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

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 benchmark 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.

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.

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

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

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

Notes

Notes

Notes

Schwab ETFs™ are designed to be low-cost, diversified investments which follow broad market indices and provide exposure to specific segments of the market. These ETFs can serve as part of the foundation of a diversified 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 1-877-824-5615 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.csimfunds.com/schwabetfs_prospectus, the SEC’s website at www.sec.gov, or by contacting Schwab ETFs at 1-877-824-5615.

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

Schwab ETFs™

U.S. ETFs

Schwab U.S. Broad Market ETF™
Schwab U.S. Large-Cap ETF™
Schwab U.S. Large-Cap Growth ETF™
Schwab U.S. Large-Cap Value ETF™
Schwab U.S. Mid-Cap ETF™
Schwab U.S. Small-Cap ETF™
Schwab U.S. Dividend Equity ETF™
Schwab U.S. REIT ETF™

International ETFs

Schwab International Equity ETF™
Schwab International Small-Cap Equity ETF™
Schwab Emerging Markets Equity ETF™

Fixed Income ETFs

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™

Fundamental Index* ETFs

Schwab Fundamental U.S. Broad Market Index ETF
Schwab Fundamental U.S. Large Company Index ETF
Schwab Fundamental U.S. Small Company Index ETF
Schwab Fundamental International Large Company Index ETF
Schwab Fundamental International Small Company Index ETF
Schwab Fundamental Emerging Markets Large Company
Index ETF

*	FUNDAMENTAL INDEX is a registered trademark of Research Affiliates LLC.

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Investment Adviser

Charles Schwab Investment Management, Inc.
211 Main Street, San Francisco, CA 94105

Schwab ETFs™

1-877-824-5615

This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus.
© 2016 Charles Schwab Investment Management, Inc. All rights reserved.
Printed on recycled paper.

MFR63740-05
00179041

Table of Contents

Semiannual report dated August 31, 2016, enclosed.

Schwab Fundamental Index* ETFs

Schwab Fundamental
U.S. Broad Market Index ETF

Schwab Fundamental
U.S. Large Company Index ETF

Schwab Fundamental
U.S. Small Company Index ETF

Schwab Fundamental
International Large Company
Index ETF

Schwab Fundamental
International Small Company
Index ETF

Schwab Fundamental
Emerging Markets Large
Company Index ETF

*	SCHWAB is a registered trademark of Charles Schwab & Co., Inc. FUNDAMENTAL INDEX is a registered trademark of Research Affiliates LLC.

This wrapper is not part of the shareholder report.

Schwab Fundamental Index* ETFs

Semiannual Report

August 31, 2016

Schwab Fundamental
U.S. Broad Market Index ETF

Schwab Fundamental
U.S. Large Company Index ETF

Schwab Fundamental
U.S. Small Company Index ETF

Schwab Fundamental
International Large Company
Index ETF

Schwab Fundamental
International Small Company
Index ETF

Schwab Fundamental
Emerging Markets Large
Company Index ETF

*	SCHWAB is a registered trademark of Charles Schwab & Co., Inc. FUNDAMENTAL INDEX is a registered trademark of Research Affiliates LLC.

This page is intentionally left blank.

In This Report

Performance at a Glance	2
From the President	3
The Investment Environment	5
Fund Management	6
Performance and Fund Facts
Schwab Fundamental U.S. Broad Market Index ETF	7
Schwab Fundamental U.S. Large Company Index ETF	8
Schwab Fundamental U.S. Small Company Index ETF	9
Schwab Fundamental International Large Company Index ETF	10
Schwab Fundamental International Small Company Index ETF	12
Schwab Fundamental Emerging Markets Large Company Index ETF	14
Fund Expenses	16
Financial Statements and Condensed Portfolio Holdings
Schwab Fundamental U.S. Broad Market Index ETF	17
Schwab Fundamental U.S. Large Company Index ETF	24
Schwab Fundamental U.S. Small Company Index ETF	31
Schwab Fundamental International Large Company Index ETF	38
Schwab Fundamental International Small Company Index ETF	45
Schwab Fundamental Emerging Markets Large Company Index ETF	52
Financial Notes	59
Investment Advisory Agreement Approval	69
Trustees and Officers	71
Glossary	75

Fund investment adviser: Charles Schwab Investment Management, Inc. (CSIM).

Distributor: SEI Investments Distribution Co. (SIDCO)

The Sector/Industry classifications in this report use the Global Industry Classification Standard (GICS), which was developed by and is the exclusive property of Morgan Stanley Capital International Inc. (MSCI) and Standard & Poor’s (S&P). GICS is a service mark of MSCI and S&P and has been licensed for use by Charles Schwab & Co., Inc. The Industry classifications used in the schedules of Condensed Portfolio Holdings are sub-categories of Sector classifications.

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Performance at a Glance

Total Returns for the 6 Months Ended August 31, 2016
Schwab Fundamental U.S. Broad Market Index ETF (Ticker Symbol: FNDB)
Market Price Return¹	14.22%
NAV Return¹	14.44%
Russell Fundamental U.S. Index	14.57%
ETF Category: Morningstar Large Value²	14.17%
Performance Details	page 7

Schwab Fundamental U.S. Large Company Index ETF (Ticker Symbol: FNDX)
Market Price Return¹	14.21%
NAV Return¹	14.13%
Russell Fundamental U.S. Large Company Index	14.23%
ETF Category: Morningstar Large Value²	14.17%
Performance Details	page 8

Schwab Fundamental U.S. Small Company Index ETF (Ticker Symbol: FNDA)
Market Price Return¹	18.21%
NAV Return¹	18.14%
Russell Fundamental U.S. Small Company Index	18.27%
ETF Category: Morningstar Small Blend²	18.10%
Performance Details	page 9

Total Returns for the 6 Months Ended August 31, 2016
Schwab Fundamental International Large Company Index ETF (Ticker Symbol: FNDF)
Market Price Return¹	12.88%
NAV Return¹	11.87%
Russell Fundamental Developed ex-U.S. Large Company Index (Net)*	11.84%
ETF Category: Morningstar Foreign Large Value²	12.62%
Performance Details	pages 10-11

Schwab Fundamental International Small Company Index ETF (Ticker Symbol: FNDC)
Market Price Return¹	15.12%
NAV Return¹	14.07%
Russell Fundamental Developed ex-U.S. Small Company Index (Net)*	14.12%
ETF Category: Morningstar Foreign Small/Mid Blend²	11.36%
Performance Details	pages 12-13

Schwab Fundamental Emerging Markets Large Company Index ETF (Ticker Symbol: FNDE)
Market Price Return¹	29.65%
NAV Return¹	30.03%
Russell Fundamental Emerging Markets Large Company Index (Net)*	30.41%
ETF Category: Morningstar Diversified Emerging Markets²	20.06%
Performance Details	pages 14-15

For index definitions, please see the Glossary.

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

Shares are bought and sold at market price, which may be higher or lower than the net asset value (NAV). Brokerage commissions will reduce returns.

Index ownership — each of the names identifying a Russell Fundamental Index is a joint trademark of Frank Russell Company (Russell) and Research Affiliates LLC (RA) and is used by the funds under license. “Research Affiliates” and “Fundamental Index” are trademarks of RA. Subject to RA’s intellectual property rights in certain content, Russell is the owner of all copyrights related to the Russell Fundamental Index Series. Russell is the owner of the trademarks and copyrights related to the Russell Indexes. Schwab Fundamental Index ETFs are not sponsored, endorsed, sold or promoted by Russell or RA, and Russell and RA do not make any representation regarding the advisability of investing in shares of the funds.

*	The total return cited for the index is calculated net of foreign withholding taxes.
¹	ETF performance must be shown based on both a market price and NAV basis. The fund’s per share 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. 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	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.

2Schwab Fundamental Index ETFs

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From the President

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

Dear Shareholder,

Over the six-month reporting period ended August 31, 2016, the Schwab Fundamental Index ETFs (the funds) generated robust returns even as concerns mounted that the bull market for stocks wouldn’t extend for another year. For the period, each of the funds generally tracked their respective indexes and posted double-digit returns, led by the Schwab Fundamental Emerging Markets Large Company Index ETF which returned 29.7%.

Some investors may have failed to benefit from stocks’ rally in recent months because they pulled money out of the market. Investors withdrew over $50 billion from stock funds in the first half of the year before making July one of the worst months for stock fund outflows in six years. Coming into the reporting period, many investors were skeptical about the market’s ability to appreciate further, especially in light of mixed economic data in the U.S. and slowing growth abroad. In addition, the United Kingdom’s unexpected decision to exit the European Union (also known as Brexit), added a new degree of uncertainty. And yet, stocks trudged on, continuing to reach new records even as events such as Brexit caused temporary pullbacks. Many emerging markets have proven particularly resilient, as investors seemed to be attracted to companies based in faster-growing economies.

At Charles Schwab Investment Management, we believe it’s important for investors to stay on track with their long-term investing plans and ignore the noise created by news headlines. Timing the market, trying to move in or out

Asset Class Performance Comparison % returns during the 6 months ended 8/31/2016

Index figures assume dividends and distributions were reinvested, and do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Past performance is not an indication of future results.

For index definitions, please see the Glossary.

Data source: Index provider websites and CSIM.

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

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

Schwab Fundamental Index ETFs3

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From the President continued

Over the six-month reporting period ended August 31, 2016, the Schwab Fundamental Index ETFs (the Funds) generated robust returns even as concerns mounted that the bull market for stocks wouldn’t extend for another year.

of investments based on predictions of where the market may move, is difficult for even the most seasoned professionals. And, moving in and out of the stock market means that you could miss out on some of the best days, which may exact a toll on returns.

We believe a more prudent approach is to ensure your investment portfolio is diversified. To help you, we offer a range of foundational products including cap-weighted and fundamentally weighted strategies, which tend to perform differently at different stages of an economic cycle. At the early to mid-stages of economic growth, cap-weighted strategies tend to perform better because they rely heavily on the biggest companies and more closely track the overall market. But in the late stages of an expansion, and even during recessions, fundamentally-weighted strategies that adjust weighting for factors such as adjusted sales, cash flow, and dividends plus buybacks, tend to outperform the market as investors focus on companies that are attractively valued.

Thank you for investing with Charles Schwab Investment Management, and for trusting us to help you achieve your financial goals. For more information about the Schwab Fundamental Index ETFs, please continue reading this report, or you can find further details about the funds by visiting our website at www.csimfunds.com. We are also happy to hear from you at 1-877-824-5615.

Sincerely,

4Schwab Fundamental Index ETFs

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The Investment Environment

Over the six-month reporting period ended August 31, 2016, most stock markets generated positive returns. The U.S. economy showed renewed signs of strength, an unchanged federal funds rate provided a tailwind to many emerging markets, and concerns lessened surrounding the global effects of China’s economic slowdown and the United Kingdom’s (U.K.) decision to leave the European Union (also known as Brexit). The S&P 500^® Index, a bellwether for the overall U.S. stock market, returned 13.60%, while the Russell 2000^® Index, a U.S. small-cap company benchmark, returned 20.87%. Internationally, the MSCI EAFE Index (Net), a broad measure of developed international equity performance, returned 10.35%, and the MSCI Emerging Markets Index (Net) returned 22.69% for the six-month reporting period. For the same period, the Schwab Fundamental Index ETFs all generated positive returns and tracked their respective indices.

U.S. economic data was relatively strong over the six months. Disposable personal income trended upward, while U.S. real gross domestic product continued to grow over the reporting period. In July, consumer spending increased for the fourth month in a row, and in August, the Conference Board’s consumer-confidence index rose to the highest reading since September 2015. Though U.S. nonfarm payroll employment and U.S. manufacturing numbers dropped noticeably in May, both measurements rebounded in June and July. However, some disappointing figures were announced toward the end of the reporting period. In July, U.S. retails sales came in unchanged and U.S. producer prices fell, despite expectations of growth in both areas. A month later, August nonfarm payroll numbers came in slightly below expectations.

During the six-month reporting period, uncertainty continued surrounding U.S. short-term interest rate policy. The Federal Reserve (Fed) left the federal funds rate unchanged at meetings in March, April, and June as concerns remained about lackluster global growth, low inflation, and the stability of the U.S. economic recovery. The pace of potential future short-term interest rate increases was further complicated by inconsistent labor numbers, as well as by the results of the Brexit vote. This decision sent the British pound down by more than 7% and triggered a sharp selloff in global equities, especially in bank stocks. Though volatility persisted in the days that immediately followed, many stocks were able to rebound as the reporting period continued. With inconsistent economic data, the Fed again left rates unchanged at its final meeting of the reporting period in July, but Fed officials noted that they believed the near-term risks to the economy had receded, increasing the chances of a rate hike by the end of 2016.

While moves toward tighter monetary policy in the U.S. stalled over the reporting period, many other countries’ central banks maintained or increased accommodative policy measures to combat struggling economic growth and low inflation. The European Central Bank (ECB) expanded its bond purchase program and cut its deposit rate further into negative territory. The ECB also launched a plan to provide cheap funding for European banks, enabling these banks to increase lending to both companies and consumers. Meanwhile, the Bank of Japan expanded its quantitative easing program over the reporting period and maintained negative interest rates, following central bank interest rate policies in Switzerland, Sweden, and Denmark. In emerging markets, several central banks, including those in both Turkey and Indonesia, also attempted to fuel economic growth by decreasing key interest rates over the reporting period.

Over the six months, many emerging markets rebounded from negative performances in 2015. Diminishing concerns about China’s decelerating economy and increased demand for yield helped support emerging markets, as did an overall weaker U.S. dollar. Though oil prices remained volatile, a general upward trend until June and a rebound in August helped many oil-producing countries, including Russia and China, to rally over the reporting period.

For index definitions, please see the Glossary.

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

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

Schwab Fundamental Index ETFs5

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Fund Management

Agnes Hong, CFA, Vice President and Senior Portfolio Manager, is responsible for the day-to-day co-management of the funds. Prior to joining CSIM in 2009, Ms. Hong spent five years as a portfolio manager at Barclays Global Investors (subsequently acquired by BlackRock), where she managed institutional index funds and quantitative active funds. Prior to that, Ms. Hong worked in management consulting and product management, servicing global financial services clients.

Chuck Craig, CFA, Managing Director and Senior Portfolio Manager, is responsible for the day-to-day co-management of the funds. Prior to joining CSIM in 2012, Mr. Craig worked at Guggenheim Funds (formerly Claymore Group), where he spent more than five years as a managing director of portfolio management and supervision, and three years as vice president of product research and development. Prior to that, he worked as an equity research analyst at First Trust Portfolios (formerly Niké Securities), and a trader and analyst at PMA Securities, Inc.

Jane Qin, Portfolio Manager, is responsible for the day-to-day co-management of the funds. Prior to joining CSIM in 2012, Ms. Qin spent more than four years at The Bank of New York Mellon Corporation. During that time, Ms. Qin spent more than two years as an associate equity portfolio manager and nearly two years as a performance analyst. She also worked at Wells Fargo Funds Management as a mutual fund analyst and at CIGNA Reinsurance in Risk Management group as a risk analyst.

6Schwab Fundamental Index ETFs

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Schwab Fundamental U.S. Broad Market Index ETF

Performance and Fund Facts as of 08/31/16

Average Annual Total Returns¹

Fund and Inception Date	6 Months	1 Year	Since Inception*
Fund: Schwab Fundamental U.S. Broad Market Index ETF (8/15/13)
Market Price Return²	14.22%	12.95%	9.45%
NAV Return²	14.44%	12.92%	9.43%
Russell Fundamental U.S. Index	14.57%	13.28%	9.77%
ETF Category: Morningstar Large Value³	14.17%	15.17%	9.72%

Fund Expense Ratio⁴: 0.32%

Statistics
Number of Holdings	1,400
Weighted Average Market Cap (millions)	$111,872
Price/Earnings Ratio (P/E)	39.0
Price/Book Ratio (P/B)	2.2
Portfolio Turnover Rate^5,6	6%

Sector Weightings % of Investments
Information Technology	15.1%
Financials	14.3%
Energy	13.7%
Consumer Discretionary	12.1%
Industrials	11.4%
Consumer Staples	10.7%
Health Care	10.4%
Materials	4.2%
Utilities	4.2%
Telecommunication Services	3.7%
Other	0.2%
Total	100.0%

Top Equity Holdings % of Net Assets⁷
Exxon Mobil Corp.	4.1%
Chevron Corp.	2.5%
AT&T, Inc.	2.1%
Microsoft Corp.	1.7%
Apple, Inc.	1.7%
Wal-Mart Stores, Inc.	1.4%
International Business Machines Corp.	1.4%
The Procter & Gamble Co.	1.3%
Intel Corp.	1.2%
General Electric Co.	1.2%
Total	18.6%

For index definitions, please see the Glossary.

Shares are bought and sold at market price, which may be higher or lower than the net asset value (NAV). Brokerage commissions will reduce returns.

Index ownership — “Russell Fundamental U.S. Index” is a joint trademark of Frank Russell Company (Russell) and Research Affiliates LLC (RA) and is used by the fund under license. “Research Affiliates” and “Fundamental Index” are trademarks of RA. Subject to RA’s intellectual property rights in certain content, Russell is the owner of all copyrights related to the Russell Fundamental Index Series. Russell is the owner of the trademarks and copyrights related to the Russell Indexes. Schwab Fundamental U.S. Broad Market Index ETF is not sponsored, endorsed, sold or promoted by Russell or RA, and Russell and RA do not make any representation regarding the advisability of investing in shares of the fund.

Portfolio holdings may have changed since the report date.

Source of Sector Classification: S&P and MSCI.

*	Inception (8/15/13) 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	ETF performance must be shown based on both a market price and NAV basis. The fund’s per share 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.
³	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.
⁴	As stated in the prospectus.
⁵	Not annualized.
⁶	Portfolio turnover rate excludes securities received or delivered from processing of in-kind creations or redemptions.
⁷	This list is not a recommendation of any security by the investment adviser.

Schwab Fundamental Index ETFs7

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Schwab Fundamental U.S. Large Company Index ETF

Performance and Fund Facts as of 08/31/16

Average Annual Total Returns¹

Fund and Inception Date	6 Months	1 Year	Since Inception*
Fund: Schwab Fundamental U.S. Large Company Index ETF (8/15/13)
Market Price Return²	14.21%	13.19%	9.49%
NAV Return²	14.13%	13.23%	9.48%
Russell Fundamental U.S. Large Company Index	14.23%	13.54%	9.83%
ETF Category: Morningstar Large Value³	14.17%	15.17%	9.72%

Fund Expense Ratio⁴: 0.32%

Statistics
Number of Holdings	650
Weighted Average Market Cap (millions)	$121,530
Price/Earnings Ratio (P/E)	37.5
Price/Book Ratio (P/B)	2.2
Portfolio Turnover Rate^5,6	6%

Sector Weightings % of Investments
Information Technology	15.2%
Energy	14.5%
Financials	13.5%
Consumer Discretionary	11.8%
Consumer Staples	11.2%
Health Care	10.8%
Industrials	10.6%
Utilities	4.2%
Telecommunication Services	4.0%
Materials	3.9%
Other	0.3%
Total	100.0%

Top Equity Holdings % of Net Assets⁷
Exxon Mobil Corp.	4.4%
Chevron Corp.	2.7%
AT&T, Inc.	2.3%
Microsoft Corp.	1.9%
Apple, Inc.	1.8%
Wal-Mart Stores, Inc.	1.6%
International Business Machines Corp.	1.5%
The Procter & Gamble Co.	1.4%
Intel Corp.	1.3%
General Electric Co.	1.3%
Total	20.2%

For index definitions, please see the Glossary.

Shares are bought and sold at market price, which may be higher or lower than the net asset value (NAV). Brokerage commissions will reduce returns.

Index ownership — “Russell Fundamental U.S. Large Company Index” is a joint trademark of Frank Russell Company (Russell) and Research Affiliates LLC (RA) and is used by the fund under license. “Research Affiliates” and “Fundamental Index” are trademarks of RA. Subject to RA’s intellectual property rights in certain content, Russell is the owner of all copyrights related to the Russell Fundamental Index Series. Russell is the owner of the trademarks and copyrights related to the Russell Indexes. Schwab Fundamental U.S. Large Company Index ETF is not sponsored, endorsed, sold or promoted by Russell or RA, and Russell and RA do not make any representation regarding the advisability of investing in shares of the fund.

Portfolio holdings may have changed since the report date.

Source of Sector Classification: S&P and MSCI.

*	Inception (8/15/13) 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	ETF performance must be shown based on both a market price and NAV basis. The fund’s per share 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.
³	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.
⁴	As stated in the prospectus.
⁵	Not annualized.
⁶	Portfolio turnover rate excludes securities received or delivered from processing of in-kind creations or redemptions.
⁷	This list is not a recommendation of any security by the investment adviser.

8Schwab Fundamental Index ETFs

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Schwab Fundamental U.S. Small Company Index ETF

Performance and Fund Facts as of 08/31/16

Average Annual Total Returns¹

Fund and Inception Date	6 Months	1 Year	Since Inception*
Fund: Schwab Fundamental U.S. Small Company Index ETF (8/15/13)
Market Price Return²	18.21%	10.40%	8.77%
NAV Return²	18.14%	10.48%	8.75%
Russell Fundamental U.S. Small Company Index	18.27%	10.73%	9.08%
ETF Category: Morningstar Small Blend³	18.10%	8.24%	7.00%

Fund Expense Ratio⁴: 0.32%

Statistics
Number of Holdings	873
Weighted Average Market Cap (millions)	$3,879
Price/Earnings Ratio (P/E)	94.2
Price/Book Ratio (P/B)	1.9
Portfolio Turnover Rate^5,6	18%

Sector Weightings % of Investments
Financials	23.6%
Industrials	20.3%
Consumer Discretionary	15.1%
Information Technology	13.3%
Materials	7.2%
Health Care	5.6%
Energy	4.2%
Utilities	4.0%
Consumer Staples	3.8%
Telecommunication Services	1.0%
Other	1.9%
Total	100.0%

Top Equity Holdings % of Net Assets⁷
Cliffs Natural Resources, Inc.	0.9%
Advanced Micro Devices, Inc.	0.5%
WPX Energy, Inc.	0.4%
Popular, Inc.	0.4%
SPX Corp.	0.3%
Validus Holdings Ltd.	0.3%
Quad/Graphics, Inc.	0.3%
Edgewell Personal care Co.	0.3%
Copart, Inc.	0.3%
SkyWest, Inc.	0.3%
Total	4.0%

For index definitions, please see the Glossary.

Shares are bought and sold at market price, which may be higher or lower than the net asset value (NAV). Brokerage commissions will reduce returns.

Small-company stocks may be subject to greater volatility than many other asset classes.

Index ownership — “Russell Fundamental U.S. Small Company Index” is a joint trademark of Frank Russell Company (Russell) and Research Affiliates LLC (RA) and is used by the fund under license. “Research Affiliates” and “Fundamental Index” are trademarks of RA. Subject to RA’s intellectual property rights in certain content, Russell is the owner of all copyrights related to the Russell Fundamental Index Series. Russell is the owner of the trademarks and copyrights related to the Russell Indexes. Schwab Fundamental U.S. Small Company Index ETF is not sponsored, endorsed, sold or promoted by Russell or RA, and Russell and RA do not make any representation regarding the advisability of investing in shares of the fund.

Portfolio holdings may have changed since the report date.

Source of Sector Classification: S&P and MSCI.

*	Inception (8/15/13) 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	ETF performance must be shown based on both a market price and NAV basis. The fund’s per share 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.
³	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.
⁴	As stated in the prospectus.
⁵	Not annualized.
⁶	Portfolio turnover rate excludes securities received or delivered from processing of in-kind creations or redemptions.
⁷	This list is not a recommendation of any security by the investment adviser.

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Schwab Fundamental International Large Company Index ETF

Performance and Fund Facts as of 08/31/16

Average Annual Total Returns¹

Fund and Inception Date	6 Months	1 Year	Since Inception*
Fund: Schwab Fundamental International Large Company Index ETF (8/15/13)
Market Price Return²	12.88%	1.01%	0.98%
NAV Return²	11.87%	0.53%	0.84%
Russell Fundamental Developed ex-U.S. Large Company Index (Net)	11.84%	0.61%	1.05%
ETF Category: Morningstar Foreign Large Value³	12.62%	1.95%	-0.18%

Fund Expense Ratio⁴: 0.32%

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. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.

For index definitions, please see the Glossary.

Shares are bought and sold at market price, which may be higher or lower than the net asset value (NAV). Brokerage commissions will reduce returns.

International investing may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations.

Index ownership — “Russell Fundamental Developed ex-U.S. Large Company Index” is a joint trademark of Frank Russell Company (Russell) and Research Affiliates LLC (RA) and is used by the fund under license. “Research Affiliates” and “Fundamental Index” are trademarks of RA. Subject to RA’s intellectual property rights in certain content, Russell is the owner of all copyrights related to the Russell Fundamental Series. Russell is the owner of the trademarks and copyrights related to the Russell Indexes. Schwab Fundamental International Large Company Index ETF is not sponsored, endorsed, sold or promoted by Russell or RA, and Russell and RA do not make any representation regarding the advisability of investing in shares of the fund.

*	Inception (8/15/13) 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	ETF performance must be shown based on both a market price and NAV basis. The fund’s per share 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.
³	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.
⁴	As stated in the prospectus.

10Schwab Fundamental Index ETFs

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Schwab Fundamental International Large Company Index ETF

Performance and Fund Facts as of 08/31/16 continued

Statistics
Number of Holdings	825
Weighted Average Market Cap (millions)	$52,866
Price/Earnings Ratio (P/E)	102.8
Price/Book Ratio (P/B)	1.3
Portfolio Turnover Rate^1,2	6%

Sector Weightings % of Investments
Financials	18.7%
Energy	13.6%
Industrials	13.1%
Consumer Discretionary	10.8%
Materials	10.5%
Consumer Staples	9.9%
Telecommunication Services	6.4%
Health Care	6.4%
Utilities	5.9%
Information Technology	4.1%
Other	0.6%
Total	100.0%

Top Equity Holdings % of Net Assets³
BP plc	2.4%
Total S.A.	1.9%
Royal Dutch Shell plc, A Shares	1.8%
Royal Dutch Shell plc, B Shares	1.6%
HSBC Holdings plc	1.2%
Nestle S.A. – Reg'd	1.2%
Banco Santander S.A.	1.2%
Toyota Motor Corp.	1.1%
Eni S.p.A.	0.9%
Vodafone Group plc	0.9%
Total	14.2%

Country Weightings % of Investments

Japan	21.8%
United Kingdom	15.6%
France	9.9%
Germany	9.2%
Canada	7.8%
Australia	6.3%

Switzerland	6.1%
Netherlands	5.7%
Spain	4.0%
Italy	3.0%
Other Countries	10.6%
Total	100.0%

Portfolio holdings may have changed since the report date.

Source of Sector Classification: S&P and MSCI.

¹	Not annualized.
²	Portfolio turnover rate excludes securities received or delivered from processing of in-kind creations or redemptions.
³	This list is not a recommendation of any security by the investment adviser.

Schwab Fundamental Index ETFs11

Table of Contents

Schwab Fundamental International Small Company Index ETF

Performance and Fund Facts as of 08/31/16

Average Annual Total Returns¹

Fund and Inception Date	6 Months	1 Year	Since Inception*
Fund: Schwab Fundamental International Small Company Index ETF (8/15/13)
Market Price Return²	15.12%	8.51%	5.25%
NAV Return²	14.07%	8.42%	5.14%
Russell Fundamental Developed ex-U.S. Small Company Index (Net)	14.12%	8.81%	5.70%
ETF Category: Morningstar Foreign Small/Mid Blend³	11.36%	5.18%	4.63%

Fund Expense Ratio⁴: 0.46%

For index definitions, please see the Glossary.

Shares are bought and sold at market price, which may be higher or lower than the net asset value (NAV). Brokerage commissions will reduce returns.

Small-company stocks may be subject to greater volatility than many other asset classes.

Index ownership — “Russell Fundamental Developed ex-U.S. Small Company Index” is a joint trademark of Frank Russell Company (Russell) and Research Affiliates LLC (RA) and is used by the fund under license. “Research Affiliates” and “Fundamental Index” are trademarks of RA. Subject to RA’s intellectual property rights in certain content, Russell is the owner of all copyrights related to the Russell Fundamental Index Series. Russell is the owner of the trademarks and copyrights related to the Russell Indexes. Schwab Fundamental International Small Company Index ETF is not sponsored, endorsed, sold or promoted by Russell or RA, and Russell and RA do not make any representation regarding the advisability of investing in shares of the fund.

*	Inception (8/15/13) 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	ETF performance must be shown based on both a market price and NAV basis. The fund’s per share 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.
³	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.
⁴	As stated in the prospectus.

12Schwab Fundamental Index ETFs

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Schwab Fundamental International Small Company Index ETF

Performance and Fund Facts as of 08/31/16 continued

Statistics
Number of Holdings	1,441
Weighted Average Market Cap (millions)	$3,201
Price/Earnings Ratio (P/E)	38.8
Price/Book Ratio (P/B)	1.3
Portfolio Turnover Rate^1,2	18%

Sector Weightings % of Investments
Industrials	23.8%
Consumer Discretionary	17.7%
Financials	15.3%
Materials	11.9%
Information Technology	9.6%
Consumer Staples	8.4%
Health Care	4.8%
Energy	3.8%
Utilities	2.0%
Telecommunication Services	1.2%
Other	1.5%
Total	100.0%

Top Equity Holdings % of Net Assets³
FamilyMart Co., Ltd.	0.5%
Waste Connection, Inc.	0.3%
Tokuyama Corp.	0.2%
DeNa Co., Ltd.	0.2%
IAMGOLD Corp.	0.2%
Serco Group plc	0.2%
OZ Minerals Ltd.	0.2%
Husqvarna AB, B shares	0.2%
Vedanta Resources plc	0.2%
Konami Holdings Corp.	0.2%
Total	2.4%

Country Weightings % of Investments

Japan	38.8%
United Kingdom	10.6%
Canada	8.2%
Australia	6.7%
Hong Kong	4.1%

France	3.8%
Germany	3.1%
Switzerland	2.9%
Other Countries	21.8%
Total	100.0%

Portfolio holdings may have changed since the report date.

Source of Sector Classification: S&P and MSCI.

¹	Not annualized.
²	Portfolio turnover rate excludes securities received or delivered from processing of in-kind creations or redemptions.
³	This list is not a recommendation of any security by the investment adviser.

Schwab Fundamental Index ETFs13

Table of Contents

Schwab Fundamental Emerging Markets Large Company Index ETF

Performance and Fund Facts as of 08/31/16

Average Annual Total Returns¹

Fund and Inception Date	6 Months	1 Year	Since Inception*
Fund: Schwab Fundamental Emerging Markets Large Company Index ETF (8/15/13)
Market Price Return²	29.65%	17.37%	-1.46%
NAV Return²	30.03%	18.35%	-1.42%
Russell Fundamental Emerging Markets Large Company Index (Net)	30.41%	19.16%	-0.83%
ETF Category: Morningstar Diversified Emerging Markets³	20.06%	9.96%	-1.82%

Fund Expense Ratio⁴: 0.47%

For index definitions, please see the Glossary.

Shares are bought and sold at market price, which may be higher or lower than the net asset value (NAV). Brokerage commissions will reduce returns.

Emerging markets involve heightened risks related to the same factors as international investing, as well as increased volatility and lower trading volume.

Index ownership — “Russell Fundamental Emerging Markets Large Company Index” is a joint trademark of Frank Russell Company (Russell) and Research Affiliates LLC (RA) and is used by the fund under license. “Research Affiliates” and “Fundamental Index” are trademarks of RA. Subject to RA’s intellectual property rights in certain content, Russell is the owner of all copyrights related to the Russell Fundamental Index Series. Russell is the owner of the trademarks and copyrights related to the Russell Indexes. Schwab Fundamental Emerging Markets Large Company Index ETF is not sponsored, endorsed, sold or promoted by Russell or RA, and Russell and RA do not make any representation regarding the advisability of investing in shares of the fund.

*	Inception (8/15/13) 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	ETF performance must be shown based on both a market price and NAV basis. The fund’s per share 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.
³	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.
⁴	As stated in the prospectus.

14Schwab Fundamental Index ETFs

Table of Contents

Schwab Fundamental Emerging Markets Large Company Index ETF

Performance and Fund Facts as of 08/31/16 continued

Statistics
Number of Holdings	295
Weighted Average Market Cap (millions)	$57,088
Price/Earnings Ratio (P/E)	35.5
Price/Book Ratio (P/B)	1.0
Portfolio Turnover Rate^1,2	8%

Sector Weightings % of Investments
Energy	25.1%
Financials	19.7%
Information Technology	16.8%
Materials	12.3%
Telecommunication Services	8.2%
Consumer Discretionary	5.5%
Utilities	4.0%
Consumer Staples	3.7%
Industrials	3.7%
Health Care	0.2%
Other	0.8%
Total	100.0%

Top Equity Holdings % of Net Assets³
Samsung Electronics Co., Ltd.	5.6%
Gazprom PAO	3.8%
Petroleo Brasileiro S.A.	3.1%
LUKOIL PJSC	2.9%
China Construction Bank Corp., H Shares	2.4%
Petroleo Brasileiro S.A.	2.2%
China Mobile Ltd.	2.0%
Taiwan Semiconductor Manufacturing Co., Ltd.	1.8%
Industrial & Commercial Bank of China Ltd., H Shares	1.8%
Itau Unibanco Holding S.A.	1.8%
Total	27.4%

Country Weightings % of Investments

Brazil	18.8%
Republic of Korea	17.9%
China	15.4%
Russia	12.3%
Taiwan	11.3%

South Africa	5.9%
India	4.0%
Mexico	2.9%
Other Countries	11.5%
Total	100.0%

Portfolio holdings may have changed since the report date.

Source of Sector Classification: S&P and MSCI.

¹	Not annualized.
²	Portfolio turnover rate excludes securities received or delivered from processing of in-kind creations or redemptions.
³	This list is not a recommendation of any security by the investment adviser.

Schwab Fundamental Index ETFs15

Table of Contents

Fund Expenses (Unaudited)

Examples for a $1,000 Investment

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 March 1, 2016 and held through August 31, 2016.

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 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 a 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.

	Expense Ratio¹ (Annualized)	Beginning Account Value at 3/1/16	Ending Account Value (Net of Expenses) at 8/31/16	Expenses Paid During Period² 3/1/16–8/31/16
Schwab Fundamental U.S. Broad Market Index ETF
Actual Return	0.32%	$1,000.00	$ 1,144.40	$ 1.73
Hypothetical 5% Return	0.32%	$1,000.00	$ 1,023.59	$ 1.63
Schwab Fundamental U.S. Large Company Index ETF
Actual Return	0.32%	$1,000.00	$ 1,141.30	$ 1.73
Hypothetical 5% Return	0.32%	$1,000.00	$ 1,023.59	$ 1.63
Schwab Fundamental U.S. Small Company Index ETF
Actual Return	0.32%	$1,000.00	$ 1,181.40	$ 1.76
Hypothetical 5% Return	0.32%	$1,000.00	$ 1,023.59	$ 1.63
Schwab Fundamental International Large Company Index ETF
Actual Return	0.32%	$1,000.00	$ 1,118.70	$ 1.71
Hypothetical 5% Return	0.32%	$1,000.00	$ 1,023.59	$ 1.63
Schwab Fundamental International Small Company Index ETF
Actual Return	0.46%	$1,000.00	$ 1,140.70	$2.48
Hypothetical 5% Return	0.46%	$1,000.00	$ 1,022.88	$ 2.35
Schwab Fundamental Emerging Markets Large Company Index ETF
Actual Return	0.46%	$1,000.00	$1,300.30	$ 2.67
Hypothetical 5% Return	0.46%	$1,000.00	$ 1,022.88	$ 2.35

¹	Based on the most recent six-month expense ratio; may differ from the expense ratio provided in the Financial Highlights. The expenses incurred by the underlying funds in which the funds invest are not included in this ratio.
²	Expenses for each fund are equal to the annualized expense ratio, multiplied by the average account value over the period, multiplied by 184 days of the period, and divided by 365 days of the fiscal year.

16Schwab Fundamental Index ETFs

Table of Contents

Schwab Fundamental U.S. Broad Market Index ETF

Financial Statements

Financial Highlights

	3/1/16– 8/31/16*	3/1/15– 2/29/16	3/1/14– 2/28/15	8/14/13 ¹– 2/28/14
Per-Share Data
Net asset value at beginning of period	$27.37	$30.54	$27.36	$25.00
Income (loss) from investment operations:
Net investment income (loss)	0.34 ²	0.65 ²	0.54	0.21
Net realized and unrealized gains (losses)	3.59	(3.18)	3.14	2.28
Total from investment operations	3.93	(2.53)	3.68	2.49
Less distributions:
Distributions from net investment income	(0.33)	(0.64)	(0.50)	(0.13)
Net asset value at end of period	$30.97	$27.37	$30.54	$27.36
Total return	14.44% ³	(8.34%)	13.54%	9.99% ³
Ratios/Supplemental Data
Ratios to average net assets:
Total expenses	0.32% ⁴	0.32%	0.32%	0.32% ⁴
Net investment income (loss)	2.28% ⁴	2.23%	2.14%	2.11% ⁴
Portfolio turnover rate⁵	6% ³	12%	10%	5% ³
Net assets, end of period (x 1,000)	$201,303	$166,985	$212,247	$58,823

*	Unaudited.

Commencement of operations.

Calculated based on the average shares outstanding during the period.

Not annualized.

⁴

Annualized.

⁵

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

See financial notes 17

Table of Contents

Schwab Fundamental U.S. Broad Market Index ETF

Condensed Portfolio Holdings as of August 31, 2016 (Unaudited)

This section shows the fund's 50 largest portfolio holdings in unaffiliated issuers, any holdings exceeding 1% of the fund's net assets as of the report date, and any affiliated issuers. The remaining securities held by the fund are grouped as "Other Securities" in each category. You can request a complete schedule of portfolio holdings as of the report date, free of charge, by calling Schwab ETFs™ at 1-877-824-5615. This complete schedule, filed on the fund's Form N-CSR(S), is also available on the SEC's website at www.sec.gov.

In addition, the fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website 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.csimfunds.com/schwabetfs_prospectus.

Holdings by Category		Cost ($)	Value ($)
99.6%	Common Stock	190,432,272	200,601,950
0.0%	Rights	1,852	2,205
0.2%	Other Investment Companies	326,517	326,517
99.8%	Total Investments	190,760,641	200,930,672
0.2%	Other Assets and Liabilities, Net		372,189
100.0%	Net Assets		201,302,861

Security	Number of Shares	% of Net Assets	Value ($)
Common Stock 99.6% of net assets
Automobiles & Components 1.3%
Other Securities		1.3	2,583,061
Banks 4.9%
Bank of America Corp.	80,738	0.6	1,303,111
Citigroup, Inc.	27,920	0.7	1,332,901
JPMorgan Chase & Co.	34,127	1.1	2,303,572
Wells Fargo & Co.	34,232	0.9	1,738,985
Other Securities		1.6	3,174,645
		4.9	9,853,214
Capital Goods 8.4%
3M Co.	5,050	0.5	905,162
General Electric Co.	76,103	1.2	2,377,458
United Technologies Corp.	9,697	0.5	1,032,052
Other Securities		6.2	12,512,657
		8.4	16,827,329
Commercial & Professional Services 1.1%
Other Securities		1.1	2,130,150
Consumer Durables & Apparel 1.3%
Other Securities		1.3	2,611,770

Security	Number of Shares	% of Net Assets	Value ($)
Consumer Services 1.9%
McDonald's Corp.	9,803	0.6	1,133,815
Other Securities		1.3	2,604,341
		1.9	3,738,156
Diversified Financials 4.0%
Berkshire Hathaway, Inc., Class B *	11,571	0.9	1,741,320
The Charles Schwab Corp. (a)	2,888	0.0	90,856
The Goldman Sachs Group, Inc.	5,982	0.5	1,013,710
Other Securities		2.6	5,238,333
		4.0	8,084,219
Energy 13.7%
Chevron Corp.	50,100	2.5	5,039,058
ConocoPhillips	40,219	0.8	1,650,990
Exxon Mobil Corp.	93,791	4.1	8,172,948
Occidental Petroleum Corp.	11,432	0.5	878,549
Phillips 66	13,647	0.5	1,070,607
Schlumberger Ltd.	13,564	0.5	1,071,556
Valero Energy Corp.	14,101	0.4	780,490
Other Securities		4.4	8,817,566
		13.7	27,481,764
Food & Staples Retailing 3.6%
Costco Wholesale Corp.	5,334	0.4	864,588
CVS Health Corp.	16,459	0.8	1,537,271
Wal-Mart Stores, Inc.	40,139	1.4	2,867,530
Other Securities		1.0	2,067,453
		3.6	7,336,842
Food, Beverage & Tobacco 4.9%
Altria Group, Inc.	12,191	0.4	805,703
Archer-Daniels-Midland Co.	17,049	0.4	746,064
PepsiCo, Inc.	12,691	0.7	1,354,764
Philip Morris International, Inc.	16,802	0.8	1,679,024
The Coca-Cola Co.	29,935	0.6	1,300,077
Other Securities		2.0	4,040,702
		4.9	9,926,334
Health Care Equipment & Services 5.2%
Anthem, Inc.	6,849	0.4	856,673
UnitedHealth Group, Inc.	10,536	0.7	1,433,423
Other Securities		4.1	8,264,651
		5.2	10,554,747
Household & Personal Products 2.1%
The Procter & Gamble Co.	30,322	1.3	2,647,414
Other Securities		0.8	1,488,058
		2.1	4,135,472
Insurance 3.5%
American International Group, Inc.	17,150	0.5	1,026,084
The Travelers Cos., Inc.	7,280	0.4	864,209
Other Securities		2.6	5,180,208
		3.5	7,070,501

18 See financial notes

Table of Contents

Schwab Fundamental U.S. Broad Market Index ETF

Condensed Portfolio Holdings (Unaudited) continued

Security	Number of Shares	% of Net Assets	Value ($)
Materials 4.2%
Other Securities		4.2	8,476,245
Media 2.9%
Comcast Corp., Class A	17,184	0.6	1,121,428
The Walt Disney Co.	10,283	0.5	971,332
Time Warner, Inc.	14,225	0.5	1,115,382
Other Securities		1.3	2,646,833
		2.9	5,854,975
Pharmaceuticals, Biotechnology & Life Sciences 5.1%
Amgen, Inc.	5,300	0.4	901,318
Johnson & Johnson	19,725	1.2	2,353,981
Merck & Co., Inc.	25,557	0.8	1,604,724
Pfizer, Inc.	63,040	1.1	2,193,792
Other Securities		1.6	3,274,767
		5.1	10,328,582
Real Estate 1.9%
Other Securities		1.9	3,906,137
Retailing 4.7%
Lowe's Cos., Inc.	11,812	0.4	904,327
Target Corp.	11,677	0.4	819,609
The Home Depot, Inc.	10,369	0.7	1,390,690
Other Securities		3.2	6,417,573
		4.7	9,532,199
Semiconductors & Semiconductor Equipment 2.9%
Intel Corp.	66,353	1.2	2,381,409
Other Securities		1.7	3,544,517
		2.9	5,925,926
Software & Services 7.1%
International Business Machines Corp.	17,395	1.4	2,763,718
Microsoft Corp.	59,342	1.7	3,409,791
Oracle Corp.	28,686	0.6	1,182,437
Other Securities		3.4	6,951,669
		7.1	14,307,615
Technology Hardware & Equipment 5.0%
Apple, Inc.	31,525	1.7	3,344,802
Cisco Systems, Inc.	48,136	0.7	1,513,396
HP, Inc.	85,506	0.6	1,228,721
Other Securities		2.0	3,982,087
		5.0	10,069,006
Telecommunication Services 3.7%
AT&T, Inc.	103,791	2.1	4,242,976
Verizon Communications, Inc.	44,683	1.2	2,338,261
Other Securities		0.4	898,131
		3.7	7,479,368

Security	Number of Shares	% of Net Assets	Value ($)
Transportation 2.0%
Union Pacific Corp.	8,325	0.4	795,287
Other Securities		1.6	3,183,999
		2.0	3,979,286
Utilities 4.2%
Other Securities		4.2	8,409,052
Total Common Stock
(Cost $190,432,272)			200,601,950

Rights 0.0% of net assets
Telecommunication Services 0.0%
Other Securities		0.0	2,205
Total Rights
(Cost $1,852)			2,205

Other Investment Companies 0.2% of net assets
Money Market Fund 0.1%
Other Securities		0.1	96,467
Securities Lending Collateral 0.1%
Other Securities		0.1	230,050
Total Other Investment Companies
(Cost $326,517)			326,517

End of Investments.

At 08/31/16, the tax basis cost of the fund's investments was $190,781,064 and the unrealized appreciation and depreciation were $21,662,185 and ($11,512,577), respectively, with a net unrealized appreciation of $10,149,608.

For the following notes, please refer to the complete schedule of portfolio holdings.

*	Non-income producing security.
(a)	Issuer is affiliated with the fund's investment adviser.
(b)	All or a portion of this security is on loan. Securities on loan were valued at $216,093.
(c)	The rate shown is the 7-day yield.
(d)	Fair-valued by management in accordance with procedures approved by the Board of Trustees.
(e)	Illiquid security. At the period end, the value of these amounted to $2,205 or 0.0% of net assets.

CVR —	Contingent Value Rights
REIT —	Real Estate Investment Trust

See financial notes 19

Table of Contents

Schwab Fundamental U.S. Broad Market Index ETF

Condensed Portfolio Holdings (Unaudited) continued

In addition to the above, the fund held the following at 08/31/16:

	Number of Contracts	Contract Value ($)	Unrealized Appreciation ($)
Futures Contracts
S&P 500 Index, e-mini, Long, expires 09/16/16	4	433,900	2,305

The following is a summary of the inputs used to value the fund’s investments as of August 31, 2016 (see financial note 2(a) for additional information):

Description	Quoted Prices in Active Markets for Identical Assets (Level 1)	Other Significant Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total
Common Stock¹	$200,601,950	$—	$—	$200,601,950
Rights ¹	—	—	2,205	2,205
Other Investment Companies¹	326,517	—	—	326,517
Total	$200,928,467	$—	$2,205	$200,930,672
Other Financial Instruments
Futures Contracts²	$2,305	$—	$—	$2,305

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

The following is a reconciliation of Level 3 investments for which significant unobservable inputs were used to determine fair value:

Investments in Securities	Balance as of February 29, 2016	Realized Gains (Losses)	Change in Unrealized Appreciation (Depreciation)	Gross Purchases	Gross Sales	Gross Transfers in	Gross Transfers out	Balance as of August 31, 2016
Common Stock	$13,492	$—	($3,266)	$—	($10,226)	$—	$—	$—
Rights	1,574	—	631	—	—	—	—	2,205
Total	$15,066	$—	($2,635)	$—	($10,226)	$—	$—	$2,205

All net realized and change in unrealized gains (losses) in the table above are reflected on the accompanying Statement of Operations. The change in net unrealized appreciation (depreciation) for Level 3 Investments held by the fund at August 31, 2016 was $631.

The fund's policy is to recognize transfers between Level 1, Level 2 and Level 3 as of the beginning of the fiscal year. There were security transfers out of Level 1 to Level 3 due to the result of fair valued securities for which no quoted value was available. There were no transfers between any other Levels for the period ended August 31, 2016.

20 See financial notes

Table of Contents

Schwab Fundamental U.S. Broad Market Index ETF

Statement of

Assets and Liabilities

As of August 31, 2016; unaudited

Assets
Investments in affiliated issuers, at value (cost $75,845)		$90,856
Investments in unaffiliated issuers, at value (cost $190,454,746) including securities on loan of $216,093		200,609,766
Collateral invested for securities on loan, at value (cost $230,050)	+	230,050
Total investments, at value (cost $190,760,641)		200,930,672
Cash		50,721
Deposit with broker for futures contracts		25,200
Receivables:
Dividends		580,706
Income from securities on loan	+	1,597
Total assets		201,588,896
Liabilities
Collateral held for securities on loan		230,050
Payables:
Investment adviser fees		54,845
Variation margin on futures contracts	+	1,140
Total liabilities		286,035
Net Assets
Total assets		201,588,896
Total liabilities	–	286,035
Net assets		$201,302,861
Net Assets by Source
Capital received from investors		191,948,752
Net investment income not yet distributed		908,359
Net realized capital losses		(1,726,586)
Net unrealized capital appreciation		10,172,336

Net Asset Value (NAV)
Net Assets	÷	Shares Outstanding	=	NAV
$201,302,861		6,500,001		$30.97

See financial notes 21

Table of Contents

Schwab Fundamental U.S. Broad Market Index ETF

Statement of

Operations

For the period March 1, 2016 through August 31, 2016; unaudited

Investment Income
Dividends received from affiliated issuer		$398
Dividends received from unaffiliated issuers (net of foreign withholding tax of $501)		2,472,849
Securities on loan	+	10,246
Total investment income		2,483,493
Expenses
Investment adviser fees		305,350
Total expenses	–	305,350
Net investment income		2,178,143
Realized and Unrealized Gains (Losses)
Net realized losses on investments		(770,419)
Net realized gains on futures contracts	+	66,025
Net realized losses		(704,394)
Net change in unrealized appreciation (depreciation) on affiliated issuer		18,073
Net change in unrealized appreciation (depreciation) on unaffiliated investments		23,077,038
Net change in unrealized appreciation (depreciation) on futures contracts	+	(10,338)
Net change in unrealized appreciation (depreciation)	+	23,084,773
Net realized and unrealized gains		22,380,379
Increase in net assets resulting from operations		$24,558,522

22 See financial notes

Table of Contents

Schwab Fundamental U.S. Broad Market Index ETF

Statement of

Changes in Net Assets

For the current and prior report periods

Figures for the current period are unaudited

Operations
	3/1/16-8/31/16		3/1/15-2/29/16
Net investment income		$2,178,143	$4,615,610
Net realized gains (losses)		(704,394)	5,430,716
Net change in unrealized appreciation (depreciation)	+	23,084,773	(28,543,145)
Increase (decrease) in net assets resulting from operations		24,558,522	(18,496,819)
Distributions to Shareholders
Distributions from net investment income		($2,056,310)	($4,591,356)

Transactions in Fund Shares
		3/1/16-8/31/16		3/1/15-2/29/16
		SHARES	VALUE	SHARES	VALUE
Shares sold		400,000	$11,816,118	950,000	$28,644,349
Shares redeemed	+	—	—	(1,800,000)	(50,818,638)
Net transactions in fund shares		400,000	$11,816,118	(850,000)	($22,174,289)
Shares Outstanding and Net Assets
		3/1/16-8/31/16		3/1/15-2/29/16
		SHARES	NET ASSETS	SHARES	NET ASSETS
Beginning of period		6,100,001	$166,984,531	6,950,001	$212,246,995
Total increase or decrease	+	400,000	34,318,330	(850,000)	(45,262,464)
End of period		6,500,001	$201,302,861	6,100,001	$166,984,531
Net investment income not yet distributed			$908,359		$786,526

See financial notes 23

Table of Contents

Schwab Fundamental U.S. Large Company Index ETF

Financial Statements

Financial Highlights

	3/1/16– 8/31/16*	3/1/15– 2/29/16	3/1/14– 2/28/15	8/14/13 ¹– 2/28/14
Per-Share Data
Net asset value at beginning of period	$27.57	$30.55	$27.27	$25.00
Income (loss) from investment operations:
Net investment income (loss)	0.36 ²	0.69 ²	0.52	0.21
Net realized and unrealized gains (losses)	3.51	(3.10)	3.25	2.18
Total from investment operations	3.87	(2.41)	3.77	2.39
Less distributions:
Distributions from net investment income	(0.31)	(0.57)	(0.49)	(0.12)
Net asset value at end of period	$31.13	$27.57	$30.55	$27.27
Total return	14.13% ³	(7.92%)	13.92%	9.59% ³
Ratios/Supplemental Data
Ratios to average net assets:
Total expenses	0.32% ⁴	0.32%	0.32%	0.32% ⁴
Net investment income (loss)	2.37% ⁴	2.39%	2.24%	2.20% ⁴
Portfolio turnover rate⁵	6% ³	11%	10%	6% ³
Net assets, end of period (x 1,000)	$1,445,825	$893,389	$336,043	$72,259

*	Unaudited.

Commencement of operations.

Calculated based on the average shares outstanding during the period.

Not annualized.

⁴

Annualized.

⁵

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

24 See financial notes

Table of Contents

Schwab Fundamental U.S. Large Company Index ETF

Condensed Portfolio Holdings as of August 31, 2016 (Unaudited)

Holdings by Category		Cost ($)	Value ($)
99.6%	Common Stock	1,387,666,205	1,440,924,284
0.3%	Other Investment Companies	4,042,234	4,042,234
99.9%	Total Investments	1,391,708,439	1,444,966,518
0.1%	Other Assets and Liabilities, Net		858,374
100.0%	Net Assets		1,445,824,892

Security	Number of Shares	% of Net Assets	Value ($)
Common Stock 99.6% of net assets
Automobiles & Components 1.3%
Other Securities		1.3	18,798,581
Banks 4.8%
Bank of America Corp.	624,783	0.7	10,083,998
Citigroup, Inc.	218,593	0.7	10,435,630
JPMorgan Chase & Co.	268,545	1.3	18,126,787
Wells Fargo & Co.	269,641	0.9	13,697,763
Other Securities		1.2	17,838,742
		4.8	70,182,920
Capital Goods 8.0%
3M Co.	39,510	0.5	7,081,772
General Electric Co.	592,291	1.3	18,503,171
United Technologies Corp.	75,990	0.6	8,087,616
Other Securities		5.6	81,513,918
		8.0	115,186,477
Commercial & Professional Services 0.7%
Other Securities		0.7	9,882,912
Consumer Durables & Apparel 1.2%
Other Securities		1.2	16,922,286

Security	Number of Shares	% of Net Assets	Value ($)
Consumer Services 1.6%
McDonald's Corp.	75,358	0.6	8,715,906
Other Securities		1.0	15,086,048
		1.6	23,801,954
Diversified Financials 4.0%
Berkshire Hathaway, Inc., Class B *	91,732	1.0	13,804,749
The Charles Schwab Corp. (a)	24,470	0.1	769,826
The Goldman Sachs Group, Inc.	45,392	0.5	7,692,128
Other Securities		2.4	34,945,184
		4.0	57,211,887
Energy 14.5%
Chevron Corp.	393,690	2.7	39,597,340
ConocoPhillips	315,695	0.9	12,959,280
Exxon Mobil Corp.	735,799	4.4	64,117,525
Occidental Petroleum Corp.	88,688	0.5	6,815,673
Phillips 66	106,583	0.6	8,361,436
Schlumberger Ltd.	104,662	0.6	8,268,298
Valero Energy Corp.	110,171	0.4	6,097,965
Other Securities		4.4	63,550,140
		14.5	209,767,657
Food & Staples Retailing 3.9%
Costco Wholesale Corp.	41,530	0.5	6,731,598
CVS Health Corp.	128,668	0.8	12,017,591
Wal-Mart Stores, Inc.	316,547	1.6	22,614,118
Other Securities		1.0	14,989,225
		3.9	56,352,532
Food, Beverage & Tobacco 5.1%
Altria Group, Inc.	94,971	0.4	6,276,633
Archer-Daniels-Midland Co.	135,289	0.4	5,920,247
PepsiCo, Inc.	98,149	0.7	10,477,406
Philip Morris International, Inc.	129,174	0.9	12,908,358
The Coca-Cola Co.	235,734	0.7	10,237,928
Other Securities		2.0	28,536,507
		5.1	74,357,079
Health Care Equipment & Services 5.4%
Anthem, Inc.	53,625	0.5	6,707,415
UnitedHealth Group, Inc.	83,727	0.8	11,391,058
Other Securities		4.1	59,916,459
		5.4	78,014,932
Household & Personal Products 2.2%
The Procter & Gamble Co.	239,910	1.5	20,946,542
Other Securities		0.7	10,780,416
		2.2	31,726,958
Insurance 3.5%
American International Group, Inc.	133,257	0.6	7,972,766
The Travelers Cos., Inc.	58,030	0.5	6,888,741
Other Securities		2.4	35,285,651
		3.5	50,147,158

See financial notes 25

Table of Contents

Schwab Fundamental U.S. Large Company Index ETF

Condensed Portfolio Holdings (Unaudited) continued

Security	Number of Shares	% of Net Assets	Value ($)
Materials 3.9%
Other Securities		3.9	56,946,851
Media 3.0%
Comcast Corp., Class A	134,147	0.6	8,754,433
The Walt Disney Co.	80,399	0.5	7,594,490
Time Warner, Inc.	111,609	0.6	8,751,262
Other Securities		1.3	18,393,880
		3.0	43,494,065
Pharmaceuticals, Biotechnology & Life Sciences 5.4%
Amgen, Inc.	41,360	0.5	7,033,682
Johnson & Johnson	153,323	1.2	18,297,567
Merck & Co., Inc.	200,784	0.9	12,607,227
Pfizer, Inc.	494,812	1.2	17,219,457
Other Securities		1.6	22,924,338
		5.4	78,082,271
Real Estate 1.2%
Other Securities		1.2	17,665,063
Retailing 4.7%
Lowe's Cos., Inc.	92,497	0.5	7,081,570
Target Corp.	92,697	0.4	6,506,402
The Home Depot, Inc.	81,535	0.8	10,935,474
Other Securities		3.0	43,108,501
		4.7	67,631,947
Semiconductors & Semiconductor Equipment 2.9%
Intel Corp.	525,274	1.3	18,852,084
Other Securities		1.6	23,737,670
		2.9	42,589,754
Software & Services 7.2%
International Business Machines Corp.	136,940	1.5	21,757,027
Microsoft Corp.	466,051	1.9	26,779,290
Oracle Corp.	226,320	0.6	9,328,910
Other Securities		3.2	46,459,540
		7.2	104,324,767
Technology Hardware & Equipment 5.0%
Apple, Inc.	246,427	1.8	26,145,905
Cisco Systems, Inc.	372,187	0.8	11,701,559
HP, Inc.	667,350	0.7	9,589,820
Other Securities		1.7	25,416,655
		5.0	72,853,939
Telecommunication Services 4.0%
AT&T, Inc.	808,655	2.3	33,057,816
Verizon Communications, Inc.	351,920	1.3	18,415,973
Other Securities		0.4	5,796,157
		4.0	57,269,946

Security	Number of Shares	% of Net Assets	Value ($)
Transportation 1.9%
Union Pacific Corp.	64,119	0.4	6,125,288
Other Securities		1.5	21,200,586
		1.9	27,325,874
Utilities 4.2%
Other Securities		4.2	60,386,474
Total Common Stock
(Cost $1,387,666,205)			1,440,924,284

Other Investment Companies 0.3% of net assets
Money Market Fund 0.1%
Other Securities		0.1	622,659
Securities Lending Collateral 0.2%
Other Securities		0.2	3,419,575
Total Other Investment Companies
(Cost $4,042,234)			4,042,234

End of Investments.

At 08/31/16, the tax basis cost of the fund's investments was $1,392,026,447 and the unrealized appreciation and depreciation were $93,089,700 and ($40,149,629), respectively, with a net unrealized appreciation of $52,940,071.

For the following notes, please refer to the complete schedule of portfolio holdings.

*	Non-income producing security.
(a)	Issuer is affiliated with the fund's adviser.
(b)	All or a portion of this security is on loan. Securities on loan were valued at $3,221,970.
(c)	The rate shown is the 7-day yield.

In addition to the above, the fund held the following at 08/31/16:

	Number of Contracts	Contract Value ($)	Unrealized Depreciation ($)
Futures Contracts
S&P 500 Index, e-mini, Long, expires 09/16/16	40	4,339,000	(17,152)

26 See financial notes

Table of Contents

Schwab Fundamental U.S. Large Company Index ETF

Condensed Portfolio Holdings (Unaudited) continued

The following is a summary of the inputs used to value the fund’s investments as of August 31, 2016 (see financial note 2(a) for additional information):

Assets Valuation Input

Description	Quoted Prices in Active Markets for Identical Assets (Level 1)	Other Significant Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total
Common Stock¹	$1,440,924,284	$—	$—	$1,440,924,284
Other Investment Companies¹	4,042,234	—	—	4,042,234
Total	$1,444,966,518	$—	$—	$1,444,966,518
Liabilities Valuation Input

Other Financial Instruments
Futures Contracts²	($17,152)	$—	$—	($17,152)

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

See financial notes 27

Table of Contents

Schwab Fundamental U.S. Large Company Index ETF

Statement of

Assets and Liabilities

As of August 31, 2016; unaudited

Assets
Investments in affiliated issuers, at value (cost $721,006)		$769,826
Investments in unaffiliated issuers, at value (cost $1,387,567,858) including securities on loan of $3,221,970		1,440,777,117
Collateral invested for securities on loan, at value (cost $3,419,575)	+	3,419,575
Total investments, at value (cost $1,391,708,439)		1,444,966,518
Deposit with broker for futures contracts		231,000
Receivables:
Fund shares sold		9,348,194
Dividends		4,269,406
Income from securities on loan	+	17,222
Total assets		1,458,832,340
Liabilities
Collateral held for securities on loan		3,419,575
Payables:
Investments bought		9,194,354
Investment adviser fees		382,119
Variation margin on futures contracts	+	11,400
Total liabilities		13,007,448
Net Assets
Total assets		1,458,832,340
Total liabilities	–	13,007,448
Net assets		$1,445,824,892
Net Assets by Source
Capital received from investors		1,390,825,598
Net investment income not yet distributed		6,340,658
Net realized capital losses		(4,582,291)
Net unrealized capital appreciation		53,240,927

Net Asset Value (NAV)
Net Assets	÷	Shares Outstanding	=	NAV
$1,445,824,892		46,450,001		$31.13

28 See financial notes

Table of Contents

Schwab Fundamental U.S. Large Company Index ETF

Statement of

Operations

For the period March 1, 2016 through August 31, 2016; unaudited

Investment Income
Dividends received from affiliated issuer		$1,649
Dividends received from unaffiliated issuers (net of foreign withholding tax of $2,336)		15,994,445
Securities on loan	+	85,917
Total investment income		16,082,011
Expenses
Investment adviser fees		1,911,669
Total expenses	–	1,911,669
Net investment income		14,170,342
Realized and Unrealized Gains (Losses)
Net realized losses on investments		(2,326,843)
Net realized gains on in-kind redemptions on affiliated issuer		578
Net realized gains on in-kind redemptions on unaffiliated investments		2,406,818
Net realized gains on futures contracts	+	427,895
Net realized gains		508,448
Net change in unrealized appreciation (depreciation) on affiliated issuer		131,920
Net change in unrealized appreciation (depreciation) on unaffiliated investments		125,856,310
Net change in unrealized appreciation (depreciation) on futures contracts	+	(112,346)
Net change in unrealized appreciation (depreciation)	+	125,875,884
Net realized and unrealized gains		126,384,332
Increase in net assets resulting from operations		$140,554,674

See financial notes 29

Table of Contents

Schwab Fundamental U.S. Large Company Index ETF

Statement of

Changes in Net Assets

For the current and prior report periods

Figures for the current period are unaudited

Operations
	3/1/16-8/31/16		3/1/15-2/29/16
Net investment income		$14,170,342	$17,018,181
Net realized gains		508,448	12,819,015
Net change in unrealized appreciation (depreciation)	+	125,875,884	(93,563,733)
Increase (decrease) in net assets resulting from operations		140,554,674	(63,726,537)
Distributions to Shareholders
Distributions from net investment income		($11,798,100)	($14,147,221)

Transactions in Fund Shares
		3/1/16-8/31/16		3/1/15-2/29/16
		SHARES	VALUE	SHARES	VALUE
Shares sold		14,500,000	$437,370,779	28,450,000	$834,612,024
Shares redeemed	+	(450,000)	(13,691,178)	(7,050,000)	(199,392,969)
Net transactions in fund shares		14,050,000	$423,679,601	21,400,000	$635,219,055
Shares Outstanding and Net Assets
		3/1/16-8/31/16		3/1/15-2/29/16
		SHARES	NET ASSETS	SHARES	NET ASSETS
Beginning of period		32,400,001	$893,388,717	11,000,001	$336,043,420
Total increase	+	14,050,000	552,436,175	21,400,000	557,345,297
End of period		46,450,001	$1,445,824,892	32,400,001	$893,388,717
Net investment income not yet distributed			$6,340,658		$3,968,416

30 See financial notes

Table of Contents

Schwab Fundamental U.S. Small Company Index ETF

Financial Statements

Financial Highlights

	3/1/16– 8/31/16*	3/1/15– 2/29/16	3/1/14– 2/28/15	8/14/13 ¹– 2/28/14
Per-Share Data
Net asset value at beginning of period	$26.47	$30.68	$28.44	$25.00
Income (loss) from investment operations:
Net investment income (loss)	0.25 ²	0.41 ²	0.34	0.12
Net realized and unrealized gains (losses)	4.53	(4.25)	2.22	3.41
Total from investment operations	4.78	(3.84)	2.56	3.53
Less distributions:
Distributions from net investment income	(0.17)	(0.37)	(0.32)	(0.09)
Net asset value at end of period	$31.08	$26.47	$30.68	$28.44
Total return	18.14% ³	(12.60%)	9.06%	14.14% ³
Ratios/Supplemental Data
Ratios to average net assets:
Total expenses	0.32% ⁴	0.32%	0.32%	0.32% ⁴
Net investment income (loss)	1.66% ⁴	1.43%	1.32%	1.16% ⁴
Portfolio turnover rate⁵	18% ³	23%	22%	9% ³
Net assets, end of period (x 1,000)	$965,157	$608,865	$187,141	$55,465

*	Unaudited.

Commencement of operations.

Calculated based on the average shares outstanding during the period.

Not annualized.

⁴

Annualized.

⁵

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

See financial notes 31

Table of Contents

Schwab Fundamental U.S. Small Company Index ETF

Condensed Portfolio Holdings as of August 31, 2016 (Unaudited)

Holdings by Category		Cost ($)	Value ($)
99.5%	Common Stock	897,452,361	960,788,063
0.0%	Rights	14,969	17,820
1.9%	Other Investment Companies	18,077,859	18,077,859
101.4%	Total Investments	915,545,189	978,883,742
(1.4%)	Other Assets and Liabilities, Net		(13,726,657)
100.0%	Net Assets		965,157,085

Security	Number of Shares	% of Net Assets	Value ($)
Common Stock 99.5% of net assets
Automobiles & Components 1.1%
Other Securities		1.1	10,770,925
Banks 5.4%
Popular, Inc.	79,552	0.4	3,127,189
Other Securities		5.0	48,381,960
		5.4	51,509,149
Capital Goods 12.7%
BWX Technologies, Inc.	69,074	0.3	2,680,762
Donaldson Co., Inc.	69,463	0.3	2,608,336
General Cable Corp.	160,940	0.3	2,595,962
Harsco Corp.	242,568	0.2	2,413,552
Kennametal, Inc.	96,086	0.3	2,686,565
Lennox International, Inc.	14,804	0.2	2,384,480
Masco Corp.	66,505	0.2	2,359,597
SPX Corp. *	165,414	0.3	3,132,941
Other Securities		10.6	101,878,229
		12.7	122,740,424
Commercial & Professional Services 5.0%
ABM Industries, Inc.	69,169	0.3	2,658,165
Copart, Inc. *	56,213	0.3	2,867,987
Quad/Graphics, Inc.	111,329	0.3	3,015,903
Other Securities		4.1	40,024,397
		5.0	48,566,452

Security	Number of Shares	% of Net Assets	Value ($)
Consumer Durables & Apparel 2.5%
Other Securities		2.5	24,215,028
Consumer Services 4.3%
Graham Holdings Co., Class B	5,072	0.3	2,487,055
Panera Bread Co., Class A *	11,376	0.2	2,470,298
Other Securities		3.8	36,783,029
		4.3	41,740,382
Diversified Financials 4.9%
Eaton Vance Corp.	57,540	0.3	2,303,326
Other Securities		4.6	44,620,358
		4.9	46,923,684
Energy 4.3%
Range Resources Corp.	60,014	0.2	2,314,740
WPX Energy, Inc. *	301,708	0.4	3,620,496
Other Securities		3.7	35,552,626
		4.3	41,487,862
Food & Staples Retailing 0.9%
Other Securities		0.9	8,778,983
Food, Beverage & Tobacco 2.4%
Fresh Del Monte Produce, Inc.	41,439	0.3	2,410,507
Universal Corp.	38,128	0.2	2,294,162
Other Securities		1.9	18,666,195
		2.4	23,370,864
Health Care Equipment & Services 3.6%
Other Securities		3.6	34,496,351
Household & Personal Products 0.6%
Edgewell Personal Care Co. *	37,071	0.3	2,966,051
Other Securities		0.3	2,452,810
		0.6	5,418,861
Insurance 4.0%
Allied World Assurance Co. Holdings AG	58,220	0.2	2,361,403
Old Republic International Corp.	132,911	0.3	2,555,879
Primerica, Inc.	46,183	0.3	2,629,198
Validus Holdings Ltd.	60,068	0.3	3,050,854
Other Securities		2.9	28,117,577
		4.0	38,714,911
Materials 7.3%
Cliffs Natural Resources, Inc. *	1,553,089	0.9	8,852,607
Crown Holdings, Inc. *	47,459	0.3	2,573,702
Martin Marietta Materials, Inc.	12,564	0.2	2,299,589
Southern Copper Corp.	96,645	0.3	2,495,374
Other Securities		5.6	53,932,764
		7.3	70,154,036

32 See financial notes

Table of Contents

Schwab Fundamental U.S. Small Company Index ETF

Condensed Portfolio Holdings (Unaudited) continued

Security	Number of Shares	% of Net Assets	Value ($)
Media 1.9%
Cinemark Holdings, Inc.	65,127	0.3	2,517,159
Sirius XM Holdings, Inc. *	566,584	0.2	2,345,658
Other Securities		1.4	13,795,181
		1.9	18,657,998
Pharmaceuticals, Biotechnology & Life Sciences 2.1%
Other Securities		2.1	20,616,403
Real Estate 9.8%
Equinix, Inc.	7,080	0.3	2,610,042
Liberty Property Trust	65,046	0.3	2,681,847
Rayonier, Inc.	93,392	0.3	2,571,082
Senior Housing Properties Trust	110,774	0.2	2,474,691
Other Securities		8.7	83,896,809
		9.8	94,234,471
Retailing 5.4%
Aaron's, Inc.	95,856	0.2	2,335,052
Burlington Stores, Inc. *	32,492	0.3	2,639,000
Rent-A-Center, Inc.	201,616	0.3	2,463,748
Ulta Salon, Cosmetics & Fragrance, Inc. *	9,597	0.2	2,372,474
Other Securities		4.4	42,610,973
		5.4	52,421,247
Semiconductors & Semiconductor Equipment 2.9%
Advanced Micro Devices, Inc. *	630,597	0.5	4,666,418
Other Securities		2.4	23,622,673
		2.9	28,289,091
Software & Services 6.0%
Convergys Corp.	82,189	0.2	2,451,698
CoreLogic, Inc. *	62,400	0.3	2,559,648
DST Systems, Inc.	20,612	0.2	2,504,564
Science Applications International Corp.	43,308	0.3	2,763,483
Other Securities		5.0	47,937,491
		6.0	58,216,884
Technology Hardware & Equipment 4.5%
Insight Enterprises, Inc. *	80,580	0.2	2,465,748
Other Securities		4.3	41,140,361
		4.5	43,606,109
Telecommunication Services 1.0%
Windstream Holdings, Inc. (a)	315,712	0.3	2,686,709
Other Securities		0.7	6,587,232
		1.0	9,273,941
Transportation 2.8%
Copa Holdings S.A., Class A (a)	33,972	0.3	2,596,480
SkyWest, Inc.	99,070	0.3	2,796,746
Other Securities		2.2	21,813,883
		2.8	27,207,109

Security	Number of Shares	% of Net Assets	Value ($)
Utilities 4.1%
Portland General Electric Co.	55,489	0.3	2,336,642
Questar Corp.	92,408	0.2	2,311,124
Other Securities		3.6	34,729,132
		4.1	39,376,898
Total Common Stock
(Cost $897,452,361)			960,788,063

Rights 0.0% of net assets
Telecommunication Services 0.0%
Other Securities		0.0	17,820
Total Rights
(Cost $14,969)			17,820

Other Investment Companies 1.9% of net assets
Money Market Fund 0.0%
Other Securities		0.0	270,889
Securities Lending Collateral 1.9%
Wells Fargo Government Money Market Fund, Select Class 0.32% (d)		1.9	17,806,970
Total Other Investment Companies
(Cost $18,077,859)			18,077,859

End of Investments.

At 08/31/16, the tax basis cost of the fund's investments was $916,125,776 and the unrealized appreciation and depreciation were $99,444,256 and ($36,686,290), respectively, with a net unrealized appreciation of $62,757,966.

For the following notes, please refer to the complete schedule of portfolio holdings.

*	Non-income producing security.
(a)	All or a portion of this security is on loan. Securities on loan were valued at $17,137,092.
(b)	Fair-valued by management in accordance with procedures approved by the Board of Trustees.
(c)	Illiquid security. At the period end, the value of these amounted to $17,820 or 0.0% of net assets.
(d)	The rate shown is the 7-day yield.

CVR —	Contingent Value Rights
REIT —	Real Estate Investment Trust

In addition to the above, the fund held the following at 08/31/16:

	Number of Contracts	Contract Value ($)	Unrealized Depreciation ($)
Futures Contracts
Russell 2000 Index, e-mini, Long, expires 09/16/16	25	3,097,000	(11,099)

See financial notes 33

Table of Contents

Schwab Fundamental U.S. Small Company Index ETF

Condensed Portfolio Holdings (Unaudited) continued

The following is a summary of the inputs used to value the fund’s investments as of August 31, 2016 (see financial note 2(a) for additional information):

Assets Valuation Input

Description	Quoted Prices in Active Markets for Identical Assets (Level 1)	Other Significant Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total
Common Stock¹	$960,788,063	$—	$—	$960,788,063
Rights ¹	—	—	17,820	17,820
Other Investment Companies¹	18,077,859	—	—	18,077,859
Total	$978,865,922	$—	$17,820	$978,883,742
Liabilities Valuation Input

Other Financial Instruments
Futures Contracts²	($11,099)	$—	$—	($11,099)

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

The following is a reconciliation of Level 3 investments for which significant unobservable inputs were used to determine fair value:

Investments in Securities	Balance as of February 29, 2016	Realized Gains (Losses)	Change in Unrealized Appreciation (Depreciation)	Gross Purchases	Gross Sales	Gross Transfers in	Gross Transfers out	Balance as of August 31, 2016
Rights	$12,723	$—	$5,097	$—	$—	$—	$—	$17,820
Total	$12,723	$—	$5,097	$—	$—	$—	$—	$17,820

34 See financial notes

Table of Contents

Schwab Fundamental U.S. Small Company Index ETF

Statement of

Assets and Liabilities

As of August 31, 2016; unaudited

Assets
Investments, at value (cost $897,738,219) including securities on loan of $17,137,092		$961,076,772
Collateral invested for securities on loan, at value (cost $17,806,970)	+	17,806,970
Total investments, at value (cost $915,545,189)		978,883,742
Cash		3,056,658
Deposit with broker for futures contracts		137,500
Receivables:
Investments sold		4,917
Fund shares sold		3,120,943
Dividends		1,038,826
Income from securities on loan	+	70,288
Total assets		986,312,874
Liabilities
Collateral held for securities on loan		17,806,970
Payables:
Investments bought		3,076,090
Investment adviser fees		254,979
Variation margin on futures contracts	+	17,750
Total liabilities		21,155,789
Net Assets
Total assets		986,312,874
Total liabilities	–	21,155,789
Net assets		$965,157,085
Net Assets by Source
Capital received from investors		916,932,246
Net investment income not yet distributed		2,923,248
Net realized capital losses		(18,025,863)
Net unrealized capital appreciation		63,327,454

Net Asset Value (NAV)
Net Assets	÷	Shares Outstanding	=	NAV
$965,157,085		31,050,001		$31.08

See financial notes 35

Table of Contents

Schwab Fundamental U.S. Small Company Index ETF

Statement of

Operations

For the period March 1, 2016 through August 31, 2016; unaudited

Investment Income
Dividends (net of foreign withholding tax of $2,098)		$7,399,322
Securities on loan	+	488,583
Total investment income		7,887,905
Expenses
Investment adviser fees		1,275,932
Total expenses	–	1,275,932
Net investment income		6,611,973
Realized and Unrealized Gains (Losses)
Net realized losses on investments		(10,877,191)
Net realized gains on in-kind redemptions		1,667,798
Net realized gains on futures contracts	+	298,920
Net realized losses		(8,910,473)
Net change in unrealized appreciation (depreciation) on investments		125,618,530
Net change in unrealized appreciation (depreciation) on futures contracts	+	(30,604)
Net change in unrealized appreciation (depreciation)	+	125,587,926
Net realized and unrealized gains		116,677,453
Increase in net assets resulting from operations		$123,289,426

36 See financial notes

Table of Contents

Schwab Fundamental U.S. Small Company Index ETF

Statement of

Changes in Net Assets

For the current and prior report periods

Figures for the current period are unaudited

Operations
	3/1/16-8/31/16		3/1/15-2/29/16
Net investment income		$6,611,973	$6,106,158
Net realized gains (losses)		(8,910,473)	1,371,574
Net change in unrealized appreciation (depreciation)	+	125,587,926	(75,127,788)
Increase (decrease) in net assets resulting from operations		123,289,426	(67,650,056)
Distributions to Shareholders
Distributions from net investment income		($4,512,720)	($5,384,415)

Transactions in Fund Shares
		3/1/16-8/31/16		3/1/15-2/29/16
		SHARES	VALUE	SHARES	VALUE
Shares sold		8,700,000	$257,129,884	19,750,000	$576,824,584
Shares redeemed	+	(650,000)	(19,614,528)	(2,850,000)	(82,066,528)
Net transactions in fund shares		8,050,000	$237,515,356	16,900,000	$494,758,056
Shares Outstanding and Net Assets
		3/1/16-8/31/16		3/1/15-2/29/16
		SHARES	NET ASSETS	SHARES	NET ASSETS
Beginning of period		23,000,001	$608,865,023	6,100,001	$187,141,438
Total increase	+	8,050,000	356,292,062	16,900,000	421,723,585
End of period		31,050,001	$965,157,085	23,000,001	$608,865,023
Net investment income not yet distributed			$2,923,248		$823,995

See financial notes 37

Table of Contents

Schwab Fundamental International Large Company Index ETF

Financial Statements

Financial Highlights

	3/1/16– 8/31/16*	3/1/15– 2/29/16	3/1/14– 2/28/15	8/14/13 ¹– 2/28/14
Per-Share Data
Net asset value at beginning of period	$22.08	$27.17	$28.26	$25.00
Income (loss) from investment operations:
Net investment income (loss)	0.49 ²	0.70 ²	0.30	0.36
Net realized and unrealized gains (losses)	2.13	(5.30)	(0.92) ³	3.04
Total from investment operations	2.62	(4.60)	(0.62)	3.40
Less distributions:
Distributions from net investment income	—	(0.49)	(0.47)	(0.14)
Net asset value at end of period	$24.70	$22.08	$27.17	$28.26
Total return	11.87 %⁴	(17.02%)	(2.11%)	13.60% ⁴
Ratios/Supplemental Data
Ratios to average net assets:
Total expenses	0.32 %⁵	0.32%	0.32%	0.32% ⁵
Net investment income (loss)	4.09 %⁵	2.80%	2.50%	4.00% ⁵
Portfolio turnover rate⁶	6 %⁴	12%	11%	8% ⁴
Net assets, end of period (x 1,000)	$1,284,310	$885,348	$290,670	$62,164

*	Unaudited.

Commencement of operations.

Calculated based on the average shares outstanding during the period.

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

⁴

Not annualized.

⁵

Annualized.

⁶

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

38 See financial notes

Table of Contents

Schwab Fundamental International Large Company Index ETF

Condensed Portfolio Holdings as of August 31, 2016 (Unaudited)

Holdings by Category		Cost ($)	Value ($)
98.8%	Common Stock	1,309,030,147	1,268,677,126
0.6%	Preferred Stock	8,262,655	7,509,649
0.5%	Other Investment Companies	7,326,488	7,326,488
99.9%	Total Investments	1,324,619,290	1,283,513,263
0.1%	Other Assets and Liabilities, Net		796,613
100.0%	Net Assets		1,284,309,876

Security	Number of Shares	% of Net Assets	Value ($)
Common Stock 98.8% of net assets
Australia 6.3%
Australia & New Zealand Banking Group Ltd.	279,779	0.4	5,656,209
BHP Billiton Ltd.	640,131	0.8	9,828,681
Commonwealth Bank of Australia	122,136	0.5	6,591,536
National Australia Bank Ltd.	259,265	0.4	5,327,217
Wesfarmers Ltd.	199,027	0.5	6,348,124
Westpac Banking Corp.	288,531	0.5	6,388,270
Other Securities		3.2	41,318,985
		6.3	81,459,022
Austria 0.3%
Other Securities		0.3	4,134,734
Belgium 0.8%
Other Securities		0.8	9,813,687
Canada 7.8%
Royal Bank of Canada	98,635	0.5	6,129,120
Suncor Energy, Inc.	251,251	0.5	6,809,562
The Bank of Nova Scotia	93,186	0.4	4,958,130
Other Securities		6.4	81,755,557
		7.8	99,652,369

Security	Number of Shares	% of Net Assets	Value ($)
Denmark 0.8%
Other Securities		0.8	10,299,549
Finland 1.0%
Other Securities		1.0	12,324,845
France 9.9%
BNP Paribas S.A.	127,510	0.5	6,476,557
Engie S.A.	491,939	0.6	7,829,445
Orange S.A.	443,247	0.5	6,758,289
Sanofi	107,295	0.7	8,253,847
Total S.A.	509,749	1.9	24,270,572
Other Securities		5.7	73,095,889
		9.9	126,684,599
Germany 8.6%
Allianz SE - Reg'd	41,245	0.5	6,134,833
BASF SE	133,978	0.8	10,877,987
Bayer AG - Reg'd	56,915	0.5	6,083,447
Daimler AG - Reg'd	118,326	0.6	8,181,245
Deutsche Telekom AG - Reg'd	448,817	0.6	7,483,049
E.ON SE	966,864	0.7	8,891,503
RWE AG *	340,808	0.4	5,566,463
Siemens AG - Reg'd	80,492	0.8	9,596,810
Other Securities		3.7	47,704,347
		8.6	110,519,684
Hong Kong 1.3%
Other Securities		1.3	16,415,771
Ireland 0.6%
Other Securities		0.6	8,148,042
Israel 0.4%
Other Securities		0.4	5,258,287
Italy 3.0%
Enel S.p.A.	1,763,773	0.6	7,775,100
Eni S.p.A.	793,282	0.9	11,962,826
Other Securities		1.5	19,005,902
		3.0	38,743,828
Japan 21.8%
Hitachi Ltd.	1,097,770	0.4	5,264,117
Honda Motor Co., Ltd.	245,647	0.6	7,528,409
Mitsubishi UFJ Financial Group, Inc.	1,043,771	0.4	5,692,379
Nippon Telegraph & Telephone Corp.	138,445	0.5	6,084,700
Toyota Motor Corp.	238,502	1.1	14,383,676
Other Securities		18.8	241,485,496
		21.8	280,438,777
Luxembourg 0.5%
Other Securities		0.5	6,339,361

See financial notes 39

Table of Contents

Schwab Fundamental International Large Company Index ETF

Condensed Portfolio Holdings (Unaudited) continued

Security	Number of Shares	% of Net Assets	Value ($)
Netherlands 5.8%
Koninklijke Ahold Delhaize N.V.	243,610	0.5	5,823,895
Royal Dutch Shell plc, A Shares	946,410	1.8	23,205,211
Royal Dutch Shell plc, B Shares	829,510	1.6	21,098,057
Other Securities		1.9	23,758,128
		5.8	73,885,291
New Zealand 0.1%
Other Securities		0.1	1,736,870
Norway 0.9%
Statoil A.S.A.	376,024	0.4	5,941,658
Other Securities		0.5	5,948,987
		0.9	11,890,645
Portugal 0.2%
Other Securities		0.2	2,909,729
Singapore 0.8%
Other Securities		0.8	10,405,428
Spain 4.0%
Banco Santander S.A.	3,245,468	1.2	14,530,846
Repsol S.A.	410,812	0.4	5,508,801
Telefonica S.A.	1,048,263	0.8	10,542,546
Other Securities		1.6	20,244,485
		4.0	50,826,678
Sweden 2.2%
Other Securities		2.2	27,880,572
Switzerland 6.1%
Glencore plc *	3,836,271	0.7	8,744,902
Nestle S.A. - Reg'd	190,922	1.2	15,214,689
Novartis AG - Reg'd	135,746	0.8	10,693,339
Roche Holding AG	34,111	0.7	8,325,091
Other Securities		2.7	35,182,243
		6.1	78,160,264
United Kingdom 15.6%
Anglo American plc *	514,485	0.4	5,254,454
AstraZeneca plc	132,875	0.7	8,542,951
BHP Billiton plc	425,410	0.4	5,515,319
BP plc	5,482,128	2.4	30,722,961
British American Tobacco plc	124,151	0.6	7,682,873
GlaxoSmithKline plc	438,750	0.7	9,418,196
HSBC Holdings plc	2,095,825	1.2	15,489,475
Rio Tinto plc	196,991	0.5	5,936,557
Tesco plc *	2,397,314	0.4	5,222,992
Vodafone Group plc	3,718,755	0.9	11,194,732
Other Securities		7.4	95,768,584
		15.6	200,749,094
Total Common Stock
(Cost $1,309,030,147)			1,268,677,126

Security	Number of Shares	% of Net Assets	Value ($)
Preferred Stock 0.6% of net assets
Germany 0.6%
Other Securities		0.6	7,132,334
Italy 0.0%
Other Securities		0.0	274,896
Spain 0.0%
Other Securities		0.0	102,419
Total Preferred Stock
(Cost $8,262,655)			7,509,649

Other Investment Companies 0.5% of net assets
United States 0.5%
Money Market Fund 0.2%
Other Securities		0.2	3,068,502
Securities Lending Collateral 0.3%
Other Securities		0.3	4,257,986
Total Other Investment Companies
(Cost $7,326,488)			7,326,488

End of Investments.

At 08/31/16, the tax basis cost of the fund's investments was $1,326,010,912 and the unrealized appreciation and depreciation were $54,564,364 and ($97,062,013) , respectively, with a net unrealized depreciation of ($42,497,649).

For the following notes, please refer to the complete schedule of portfolio holdings.

*	Non-income producing security.
(a)	The rate shown is the 7-day yield.
(b)	All or a portion of this security is on loan. Securities on loan were valued at $3,965,627.
(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 $98,602 or 0.0% of net assets.
(d)	Illiquid security. At the period end, the value of these amounted to $38,459 or 0.0% of net assets.
(e)	Fair-valued by management in accordance with procedures approved by the Board of Trustees.

ADR —	American Depositary Receipt
CDI —	CHESS Depositary Interest
CVA —	Dutch Certificate
Reg'd —	Registered
REIT —	Real Estate Investment Trust
RSP —	Risparmio (Convertible Savings Shares)

40 See financial notes

Table of Contents

Schwab Fundamental International Large Company Index ETF

Condensed Portfolio Holdings (Unaudited) continued

In addition to the above, the fund held the following at 08/31/16:

	Number of Contracts	Contract Value ($)	Unrealized Appreciation ($)
Futures Contracts
MSCI EAFE, e-mini, Long, expires 09/16/16	89	7,509,820	11,643

The following is a summary of the inputs used to value the fund’s investments as of August 31, 2016 (see financial note 2(a) for additional information):

Description	Quoted Prices in Active Markets for Identical Assets (Level 1)	Other Significant Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total
Common Stock¹	$1,187,218,104	$—	$—*	$1,187,218,104
Australia ¹	62,410,824	—	—	62,410,824
Materials	19,009,739	—	38,459	19,048,198
Preferred Stock¹	7,509,649	—	—	7,509,649
Other Investment Companies¹	7,326,488	—	—	7,326,488
Total	$1,283,474,804	$—	$38,459	$1,283,513,263
Other Financial Instruments
Futures Contracts²	$11,643	$—	$—	$11,643

*	Level 3 amount shown includes securities determined to have no value at August 31, 2016.
¹	As categorized in the complete schedule of Portfolio Holdings.
²	Futures contracts are not included in Investments in the schedule of Condensed Portfolio Holdings and are valued at unrealized appreciation or depreciation.

The following is a reconciliation of Level 3 investments for which significant unobservable inputs were used to determine fair value:

Investments in Securities	Balance as of February 29, 2016	Realized Gains (Losses)	Change in Unrealized Appreciation (Depreciation)	Gross Purchases	Gross Sales	Gross Transfers in	Gross Transfers out	Balance as of August 31, 2016
Common Stock
Australia	$—	$—	($195,049)	$44,035	$—	$151,014	$—	$—
Canada	—	—	(137,410)	103,230	—	72,639	—	38,459
Total	$—	$—	($332,459)	$147,265	$—	$223,653	$—	$38,459

See financial notes 41

Table of Contents

Schwab Fundamental International Large Company Index ETF

Statement of

Assets and Liabilities

As of August 31, 2016; unaudited

Assets
Investments, at value (cost $1,320,361,304) including securities on loan of $3,965,627		$1,279,255,277
Collateral invested for securities on loan, at value (cost $4,257,986)	+	4,257,986
Total investments, at value (cost $1,324,619,290)		1,283,513,263
Deposit with broker for futures contracts		373,800
Receivables:
Investments sold		913,506
Fund shares sold		9,911,362
Dividends		3,688,123
Foreign tax reclaims		712,772
Income from securities on loan	+	25,668
Total assets		1,299,138,494
Liabilities
Collateral held for securities on loan		4,257,986
Payables:
Investments bought		9,763,814
Investment adviser fees		342,444
Due to custodian		447,909
Variation margin on futures contracts	+	16,465
Total liabilities		14,828,618
Net Assets
Total assets		1,299,138,494
Total liabilities	–	14,828,618
Net assets		$1,284,309,876
Net Assets by Source
Capital received from investors		1,318,237,756
Net investment income not yet distributed		25,271,274
Net realized capital losses		(18,067,350)
Net unrealized capital depreciation		(41,131,804)

Net Asset Value (NAV)
Net Assets	÷	Shares Outstanding	=	NAV
$1,284,309,876		52,000,001		$24.70

42 See financial notes

Table of Contents

Schwab Fundamental International Large Company Index ETF

Statement of

Operations

For the period March 1, 2016 through August 31, 2016; unaudited

Investment Income
Dividends (net of foreign withholding tax of $2,455,873)		$24,242,598
Securities on loan	+	174,854
Total investment income		24,417,452
Expenses
Investment adviser fees		1,770,462
Total expenses	–	1,770,462
Net investment income		22,646,990
Realized and Unrealized Gains (Losses)
Net realized losses on investments		(8,689,440)
Net realized gains on futures contracts		337,941
Net realized gains on foreign currency transactions	+	135,690
Net realized losses		(8,215,809)
Net change in unrealized appreciation (depreciation) on investments		99,501,929
Net change in unrealized appreciation (depreciation) on futures contracts		22,002
Net change in unrealized appreciation (depreciation) on foreign currency translations	+	(27,949)
Net change in unrealized appreciation (depreciation)	+	99,495,982
Net realized and unrealized gains		91,280,173
Increase in net assets resulting from operations		$113,927,163

See financial notes 43

Table of Contents

Schwab Fundamental International Large Company Index ETF

Statement of

Changes in Net Assets

For the current and prior report periods

Figures for the current period are unaudited

Operations
	3/1/16-8/31/16		3/1/15-2/29/16
Net investment income		$22,646,990	$18,366,877
Net realized losses		(8,215,809)	(8,438,472)
Net change in unrealized appreciation (depreciation)	+	99,495,982	(145,661,363)
Increase (decrease) in net assets resulting from operations		113,927,163	(135,732,958)
Distributions to Shareholders
Distributions from net investment income		$—	($16,183,231)

Transactions in Fund Shares
		3/1/16-8/31/16		3/1/15-2/29/16
		SHARES	VALUE	SHARES	VALUE
Shares sold		11,900,000	$285,034,621	29,400,000	$746,594,038
Shares redeemed	+	—	—	—	—
Net transactions in fund shares		11,900,000	$285,034,621	29,400,000	$746,594,038
Shares Outstanding and Net Assets
		3/1/16-8/31/16		3/1/15-2/29/16
		SHARES	NET ASSETS	SHARES	NET ASSETS
Beginning of period		40,100,001	$885,348,092	10,700,001	$290,670,243
Total increase	+	11,900,000	398,961,784	29,400,000	594,677,849
End of period		52,000,001	$1,284,309,876	40,100,001	$885,348,092
Net investment income not yet distributed			$25,271,274		$2,624,284

44 See financial notes

Table of Contents

Schwab Fundamental International Small Company Index ETF

Financial Statements

Financial Highlights

	3/1/16– 8/31/16*	3/1/15– 2/29/16	3/1/14– 2/28/15	8/14/13 ¹– 2/28/14
Per-Share Data
Net asset value at beginning of period	$24.81	$27.22	$27.75	$25.00
Income (loss) from investment operations:
Net investment income (loss)	0.37 ²	0.43 ²	0.41	0.15
Net realized and unrealized gains (losses)	3.12	(2.49)	(0.53) ³	2.78
Total from investment operations	3.49	(2.06)	(0.12)	2.93
Less distributions:
Distributions from net investment income	—	(0.35)	(0.41)	(0.18)
Net asset value at end of period	$28.30	$24.81	$27.22	$27.75
Total return	14.07 %⁴	(7.64%)	(0.32%)	11.73% ⁴
Ratios/Supplemental Data
Ratios to average net assets:
Total expenses	0.46 %⁵	0.46%	0.46%	0.46% ⁵
Net investment income (loss)	2.66 %⁵	1.65%	1.73%	1.09% ⁵
Portfolio turnover rate⁶	18 %⁴	22%	21%	18% ⁴
Net assets, end of period (x 1,000)	$551,867	$379,667	$68,046	$24,977

*	Unaudited.

Commencement of operations.

Calculated based on the average shares outstanding during the period.

⁴

Not annualized.

⁵

Annualized.

⁶

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

See financial notes 45

Table of Contents

Schwab Fundamental International Small Company Index ETF

Condensed Portfolio Holdings as of August 31, 2016 (Unaudited)

Holdings by Category		Cost ($)	Value ($)
99.5%	Common Stock	527,058,646	549,236,602
0.2%	Preferred Stock	1,386,695	1,419,367
1.6%	Other Investment Companies	8,617,247	8,625,424
101.3%	Total Investments	537,062,588	559,281,393
(1.3%)	Other Assets and Liabilities, Net		(7,414,281)
100.0%	Net Assets		551,867,112

Security	Number of Shares	% of Net Assets	Value ($)
Common Stock 99.5% of net assets
Australia 6.8%
ASX Ltd.	23,370	0.1	898,385
Dexus Property Group	141,966	0.2	1,037,071
Fairfax Media Ltd.	1,265,592	0.2	936,889
Goodman Group	174,651	0.2	996,256
JB Hi-Fi Ltd.	41,945	0.1	935,941
Myer Holdings Ltd.	1,041,161	0.2	1,068,092
OZ Minerals Ltd.	252,329	0.2	1,211,786
Qantas Airways Ltd.	422,261	0.2	1,028,215
Sigma Pharmaceuticals Ltd.	1,097,854	0.2	1,006,613
Treasury Wine Estates Ltd.	116,748	0.2	985,343
Other Securities		5.0	27,460,670
		6.8	37,565,261
Austria 0.8%
Other Securities		0.8	4,641,513
Belgium 1.1%
Other Securities		1.1	5,956,408
Canada 8.4%
Bonavista Energy Corp.	388,709	0.2	1,028,025
IAMGOLD Corp. *	357,282	0.2	1,326,141
Pan American Silver Corp.	52,801	0.2	920,360
Silver Wheaton Corp.	36,806	0.2	932,458

Security	Number of Shares	% of Net Assets	Value ($)
Waste Connections, Inc.	23,860	0.3	1,819,620
Other Securities		7.3	40,177,579
		8.4	46,204,183
Denmark 1.3%
Other Securities		1.3	7,204,498
Finland 1.8%
Sanoma Oyj	114,403	0.2	1,055,644
Other Securities		1.6	8,611,037
		1.8	9,666,681
France 3.8%
Nexans S.A. *	21,344	0.2	1,145,328
UBISOFT Entertainment S.A. *	26,764	0.2	1,044,486
Other Securities		3.4	18,972,222
		3.8	21,162,036
Germany 2.9%
Symrise AG	13,558	0.2	996,765
Other Securities		2.7	15,134,135
		2.9	16,130,900
Hong Kong 4.2%
Other Securities		4.2	22,883,179
Ireland 0.8%
Other Securities		0.8	4,383,419
Israel 0.9%
Other Securities		0.9	4,977,501
Italy 2.5%
Other Securities		2.5	13,688,724
Japan 39.4%
COMSYS Holdings Corp.	52,954	0.2	1,000,871
DeNA Co., Ltd.	44,868	0.2	1,331,704
EDION Corp.	127,489	0.2	1,000,832
FamilyMart Co., Ltd. (b)	39,655	0.5	2,840,852
Fujikura Ltd.	159,876	0.2	898,032
Hitachi Chemical Co., Ltd.	50,880	0.2	1,096,944
Hitachi High-Technologies Corp.	29,891	0.2	1,108,251
Konami Holdings Corp.	32,884	0.2	1,161,996
Mitsubishi Gas Chemical Co., Inc.	164,434	0.2	1,112,813
Morinaga Milk Industry Co., Ltd.	154,744	0.2	982,905
Nichirei Corp.	113,380	0.2	1,123,551
Nippon Building Fund, Inc.	154	0.2	942,447
Nissin Foods Holdings Co., Ltd.	19,031	0.2	1,056,102
North Pacific Bank Ltd.	323,141	0.2	1,093,434
Taisho Pharmaceutical Holdings Co., Ltd.	10,874	0.2	996,621
Tokuyama Corp. *	355,168	0.2	1,449,035
Toyoda Gosei Co., Ltd.	40,817	0.2	939,973
Toyota Boshoku Corp.	42,904	0.2	980,983
Yamaha Corp.	31,493	0.2	1,021,502
Other Securities		35.3	195,071,076
		39.4	217,209,924

46 See financial notes

Table of Contents

Schwab Fundamental International Small Company Index ETF

Condensed Portfolio Holdings (Unaudited) continued

Security	Number of Shares	% of Net Assets	Value ($)
Luxembourg 0.5%
Other Securities		0.5	2,869,775
Netherlands 2.0%
X5 Retail Group N.V. GDR - Reg’d *	35,818	0.2	947,386
Other Securities		1.8	10,108,580
		2.0	11,055,966
New Zealand 1.3%
Meridian Energy Ltd.	511,175	0.2	1,075,486
Other Securities		1.1	6,245,921
		1.3	7,321,407
Norway 1.2%
Other Securities		1.2	6,827,184
Portugal 0.4%
Other Securities		0.4	2,089,959
Singapore 2.0%
Hutchison Port Holdings Trust	2,179,128	0.2	937,025
Other Securities		1.8	10,260,899
		2.0	11,197,924
Spain 1.8%
Fomento de Construcciones y Contratas S.A. *	91,582	0.2	956,958
Other Securities		1.6	9,072,031
		1.8	10,028,989
Sweden 2.0%
Husqvarna AB, B Shares	138,990	0.2	1,200,132
Other Securities		1.8	9,845,709
		2.0	11,045,841
Switzerland 2.9%
Other Securities		2.9	16,040,287
United Kingdom 10.7%
ARM Holdings plc	43,486	0.2	965,933
Evraz plc *	602,062	0.2	1,009,306
IHS Markit Ltd. *	25,705	0.2	959,311
KAZ Minerals plc *	407,099	0.1	912,800
Serco Group plc *	748,514	0.2	1,254,820
Vedanta Resources plc (b)	180,388	0.2	1,164,732
Other Securities		9.6	52,818,141
		10.7	59,085,043
Total Common Stock
(Cost $527,058,646)			549,236,602

Preferred Stock 0.2% of net assets
Germany 0.1%
Other Securities		0.1	1,112,060

Security	Number of Shares	% of Net Assets	Value ($)
Sweden 0.1%
Other Securities		0.1	307,307
Total Preferred Stock
(Cost $1,386,695)			1,419,367

Other Investment Companies 1.6% of net assets
United States 1.6%
Equity Fund 0.0%
Other Securities		0.0	203,400
Money Market Fund 0.2%
Other Securities		0.2	786,579
Securities Lending Collateral 1.4%
Wells Fargo Government Money Market Fund, Select Class 0.32% (a)		1.4	7,635,445
Total Other Investment Companies
(Cost $8,617,247)			8,625,424

End of Investments.

At 08/31/16, the tax basis cost of the fund's investments was $538,054,565 and the unrealized appreciation and depreciation were $54,045,640 and ($32,818,812), respectively, with a net unrealized appreciation of $21,226,828.

For the following notes, please refer to the complete schedule of portfolio holdings.

*	Non-income producing security.
(a)	The rate shown is the 7-day yield.
(b)	All or a portion of this security is on loan. Securities on loan were valued at $7,100,952.
(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 $2,866,432 or 0.5% of net assets.
(d)	Illiquid security. At the period end, the value of these amounted to $11,642 or 0.0% of net assets.
(e)	Fair-valued by management in accordance with procedures approved by the Board of Trustees.

ADR —	American Depositary Receipt
CDI —	CHESS Depositary Interest
ETF —	Exchange-traded fund
GDR —	Global Depositary Receipt
Reg'd —	Registered
REIT —	Real Estate Investment Trust
RSP —	Risparmio (Convertible Savings Shares)

See financial notes 47

Table of Contents

Schwab Fundamental International Small Company Index ETF

Condensed Portfolio Holdings (Unaudited) continued

In addition to the above, the fund held the following at 08/31/16:

	Number of Contracts	Contract Value ($)	Unrealized Depreciation ($)
Futures Contracts
MSCI EAFE, e-mini, Long, expires 09/16/16	10	843,800	(2,252)

The following is a summary of the inputs used to value the fund’s investments as of August 31, 2016 (see financial note 2(a) for additional information):

Assets Valuation Input

Description	Quoted Prices in Active Markets for Identical Assets (Level 1)	Other Significant Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total
Common Stock¹	$539,207,613	$—	$—*	$539,207,613
Spain ¹	7,284,203	—	—	7,284,203
Capital Goods	2,733,144	—	11,642	2,744,786
Preferred Stock¹	1,419,367	—	—	1,419,367
Other Investment Companies¹	8,625,424	—	—	8,625,424
Total	$559,269,751	$—	$11,642	$559,281,393
Liabilities Valuation Input

Other Financial Instruments
Futures Contracts²	($2,252)	$—	$—	($2,252)

*	Level 3 amount shown includes securities determined to have no value at August 31, 2016.
¹	As categorized in the complete schedule of Portfolio Holdings.
²	Futures contracts are not included in Investments in the schedule of Condensed Portfolio Holdings and are valued at unrealized appreciation or depreciation.

The following is a reconciliation of Level 3 investments for which significant unobservable inputs were used to determine fair value:

Investments in Securities	Balance as of February 29, 2016	Realized Gains (Losses)	Change in Unrealized Appreciation (Depreciation)	Gross Purchases	Gross Sales	Gross Transfers in	Gross Transfers out	Balance as of August 31, 2016
Common Stock
Spain	$—	$—	($1,715)	$13,357	$—	$—	$—	$11,642
Rights
Italy	12	—	(12)	—	—	—	—	—
Total	$12	$—	($1,727)	$13,357	$—	$—	$—	$11,642

48 See financial notes

Table of Contents

Schwab Fundamental International Small Company Index ETF

Statement of

Assets and Liabilities

As of August 31, 2016; unaudited

Assets
Investments, at value (cost $529,427,143) including securities on loan of $7,100,952		$551,645,948
Collateral invested for securities on loan, at value (cost $7,635,445)	+	7,635,445
Total investments, at value (cost $537,062,588)		559,281,393
Cash		134
Deposit with broker for futures contracts		21,000
Foreign currency, at value (cost $453,310)		450,984
Receivables:
Investments sold		1,323,557
Dividends		710,260
Foreign tax reclaims		147,282
Income from securities on loan	+	35,188
Total assets		561,969,798
Liabilities
Collateral held for securities on loan		7,635,445
Payables:
Investments bought		2,252,393
Investment adviser fees		214,732
Variation margin on futures contracts	+	116
Total liabilities		10,102,686
Net Assets
Total assets		561,969,798
Total liabilities	–	10,102,686
Net assets		$551,867,112
Net Assets by Source
Capital received from investors		534,882,224
Net investment income not yet distributed		6,029,912
Net realized capital losses		(11,251,459)
Net unrealized capital appreciation		22,206,435

Net Asset Value (NAV)
Net Assets	÷	Shares Outstanding	=	NAV
$551,867,112		19,500,001		$28.30

See financial notes 49

Table of Contents

Schwab Fundamental International Small Company Index ETF

Statement of

Operations

For the period March 1, 2016 through August 31, 2016; unaudited

Investment Income
Dividends (net of foreign withholding tax of $778,102)		$7,316,854
Interest		2,604
Securities on loan	+	144,798
Total investment income		7,464,256
Expenses
Investment adviser fees		1,100,871
Total expenses	–	1,100,871
Net investment income		6,363,385
Realized and Unrealized Gains (Losses)
Net realized losses on investments		(9,663,707)
Net realized gains on in-kind redemptions		2,235,331
Net realized gains on foreign currency transactions	+	130,880
Net realized losses		(7,297,496)
Net change in unrealized appreciation (depreciation) on investments		57,011,533
Net change in unrealized appreciation (depreciation) on futures contracts		(2,252)
Net change in unrealized appreciation (depreciation) on foreign currency translations	+	(12,673)
Net change in unrealized appreciation (depreciation)	+	56,996,608
Net realized and unrealized gains		49,699,112
Increase in net assets resulting from operations		$56,062,497

50 See financial notes

Table of Contents

Schwab Fundamental International Small Company Index ETF

Statement of

Changes in Net Assets

For the current and prior report periods

Figures for the current period are unaudited

Operations
	3/1/16-8/31/16		3/1/15-2/29/16
Net investment income		$6,363,385	$4,646,894
Net realized losses		(7,297,496)	(2,673,320)
Net change in unrealized appreciation (depreciation)	+	56,996,608	(36,748,503)
Increase (decrease) in net assets resulting from operations		56,062,497	(34,774,929)
Distributions to Shareholders
Distributions from net investment income		$—	($4,911,780)

Transactions in Fund Shares
		3/1/16-8/31/16		3/1/15-2/29/16
		SHARES	VALUE	SHARES	VALUE
Shares sold		4,600,000	$126,673,994	13,100,000	$359,784,798
Shares redeemed	+	(400,000)	(10,536,496)	(300,000)	(8,476,621)
Net transactions in fund shares		4,200,000	$116,137,498	12,800,000	$351,308,177
Shares Outstanding and Net Assets
		3/1/16-8/31/16		3/1/15-2/29/16
		SHARES	NET ASSETS	SHARES	NET ASSETS
Beginning of period		15,300,001	$379,667,117	2,500,001	$68,045,649
Total increase	+	4,200,000	172,199,995	12,800,000	311,621,468
End of period		19,500,001	$551,867,112	15,300,001	$379,667,117
Net investment income not yet distributed/Distributions in excess of net investment income			$6,029,912		($333,473)

See financial notes 51

Table of Contents

Schwab Fundamental Emerging Markets Large Company Index ETF

Financial Statements

Financial Highlights

	3/1/16– 8/31/16*	3/1/15– 2/29/16	3/1/14– 2/28/15	8/14/13 ¹– 2/28/14
Per-Share Data
Net asset value at beginning of period	$17.78	$24.16	$24.98	$25.00
Income (loss) from investment operations:
Net investment income (loss)	0.38 ²	0.57 ²	0.37	0.12
Net realized and unrealized gains (losses)	4.96	(6.58)	(0.87)	(0.00) ³
Total from investment operations	5.34	(6.01)	(0.50)	0.12
Less distributions:
Distributions from net investment income	—	(0.37)	(0.32)	(0.14)
Net asset value at end of period	$23.12	$17.78	$24.16	$24.98
Total return	30.03 %⁴	(24.92%)	(1.98%)	0.45% ⁴
Ratios/Supplemental Data
Ratios to average net assets:
Total expenses	0.46 %⁵	0.46%	0.46%	0.46% ⁵
Net investment income (loss)	3.58 %⁵	2.80%	2.20%	1.01% ⁵
Portfolio turnover rate⁶	8 %⁴	20%	13%	6% ⁴
Net assets, end of period (x 1,000)	$631,208	$359,092	$96,642	$22,482

*	Unaudited.

Commencement of operations.

Calculated based on the average shares outstanding during the period.

Per-share amount was less than $0.005.

⁴

Not annualized.

⁵

Annualized.

⁶

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

52 See financial notes

Table of Contents

Schwab Fundamental Emerging Markets Large Company Index ETF

Condensed Portfolio Holdings as of August 31, 2016 (Unaudited)

Holdings by Category		Cost ($)	Value ($)
86.7%	Common Stock	527,168,582	546,970,413
13.1%	Preferred Stock	67,178,273	82,472,165
0.8%	Other Investment Companies	5,311,958	5,311,958
100.6%	Total Investments	599,658,813	634,754,536
(0.6%)	Other Assets and Liabilities, Net		(3,546,381)
100.0%	Net Assets		631,208,155

Security	Number of Shares	% of Net Assets	Value ($)
Common Stock 86.7% of net assets
Brazil 8.2%
Ambev S.A.	682,417	0.6	4,049,596
Banco do Brasil S.A.	851,226	1.0	6,109,517
Petroleo Brasileiro S.A. *	3,070,235	2.2	13,994,454
Vale S.A.	1,695,692	1.4	8,882,745
Other Securities		3.0	18,627,913
		8.2	51,664,225
Chile 0.6%
Other Securities		0.6	3,726,322
China 15.5%
Bank of China Ltd., H Shares	16,514,389	1.2	7,430,331
China Construction Bank Corp., H Shares	19,941,533	2.4	14,910,999
China Mobile Ltd.	1,000,915	2.0	12,361,834
China Petroleum & Chemical Corp., H Shares	12,571,598	1.4	9,124,710
CNOOC Ltd.	5,058,844	1.0	6,215,333
Industrial & Commercial Bank of China Ltd., H Shares	17,793,902	1.8	11,309,367
PetroChina Co., Ltd., H Shares	6,641,150	0.7	4,434,996
Other Securities		5.0	31,895,415
		15.5	97,682,985
Colombia 0.4%
Other Securities		0.4	2,748,438

Security	Number of Shares	% of Net Assets	Value ($)
Czech Republic 0.2%
Other Securities		0.2	1,385,213
Greece 0.6%
Other Securities		0.6	3,464,120
Hungary 0.5%
Other Securities		0.5	2,977,017
India 4.1%
Reliance Industries Ltd. GDR (a)	175,953	0.9	5,489,734
Other Securities		3.2	20,254,933
		4.1	25,744,667
Indonesia 1.5%
Other Securities		1.5	9,178,777
Malaysia 1.8%
Other Securities		1.8	11,598,872
Mexico 2.9%
America Movil S.A.B. de C.V., Series L	7,429,133	0.7	4,433,364
Cemex S.A.B. de C.V., Series CPO *	3,123,715	0.4	2,577,608
Other Securities		1.8	11,330,939
		2.9	18,341,911
Peru 0.2%
Other Securities		0.2	977,370
Philippines 0.1%
Other Securities		0.1	880,336
Poland 1.8%
Polski Koncern Naftowy Orlen S.A.	165,049	0.5	2,742,834
Other Securities		1.3	8,386,240
		1.8	11,129,074
Republic of Korea 16.9%
Hyundai Heavy Industries Co., Ltd. *	28,803	0.6	3,551,939
Hyundai Mobis Co., Ltd.	15,272	0.6	3,568,032
Hyundai Motor Co.	45,376	0.9	5,412,563
Kia Motors Corp.	92,302	0.5	3,472,708
Korea Electric Power Corp.	52,444	0.4	2,728,029
LG Chem Ltd.	10,722	0.4	2,601,167
LG Display Co., Ltd.	119,525	0.5	3,221,279
LG Electronics, Inc.	62,635	0.5	2,893,007
POSCO	41,628	1.4	8,624,276
Samsung Electronics Co., Ltd.	24,518	5.6	35,622,565
Shinhan Financial Group Co., Ltd.	85,556	0.5	3,146,005
SK Hynix, Inc.	98,791	0.5	3,229,535
SK Innovation Co., Ltd.	36,496	0.7	4,762,482
Other Securities		3.8	23,763,531
		16.9	106,597,118

See financial notes 53

Table of Contents

Schwab Fundamental Emerging Markets Large Company Index ETF

Condensed Portfolio Holdings (Unaudited) continued

Security	Number of Shares	% of Net Assets	Value ($)
Russia 11.2%
Gazprom PAO *	11,758,518	3.8	24,284,526
LUKOIL PJSC *	412,092	2.9	18,371,259
MMC Norilsk Nickel PJSC *	17,780	0.4	2,604,314
Surgutneftegas *	13,146,338	1.0	6,275,155
Tatneft PAO *	640,360	0.5	3,113,967
Other Securities		2.6	16,330,274
		11.2	70,979,495
South Africa 5.9%
MTN Group Ltd.	655,725	0.8	5,356,622
Sasol Ltd.	213,224	0.9	5,364,020
Standard Bank Group Ltd.	310,797	0.4	2,812,226
Other Securities		3.8	23,711,176
		5.9	37,244,044
Taiwan 11.4%
Chunghwa Telecom Co., Ltd.	748,764	0.4	2,690,128
Hon Hai Precision Industry Co., Ltd.	3,555,374	1.6	9,860,321
Taiwan Semiconductor Manufacturing Co., Ltd.	2,071,352	1.8	11,489,197
Other Securities		7.6	48,096,549
		11.4	72,136,195
Thailand 1.6%
PTT PCL NVDR	401,000	0.6	4,042,958
Other Securities		1.0	6,185,735
		1.6	10,228,693
Turkey 1.3%
Other Securities		1.3	8,052,612
United Arab Emirates 0.0%
Other Securities		0.0	232,929
Total Common Stock
(Cost $527,168,582)			546,970,413

Preferred Stock 13.1% of net assets
Brazil 10.7%
Banco Bradesco S.A.	895,529	1.3	8,047,521
Companhia Energetica de Minas Gerais	1,175,085	0.5	3,179,539
Gerdau S.A.	1,412,391	0.6	3,965,771
Itau Unibanco Holding S.A.	1,003,971	1.8	11,130,051
Metalurgica Gerdau S.A.	2,448,303	0.4	2,808,833
Petroleo Brasileiro S.A. *	4,978,300	3.1	19,782,038
Vale S.A.	2,407,573	1.7	10,772,955
Other Securities		1.3	8,044,322
		10.7	67,731,030
Colombia 0.2%
Other Securities		0.2	894,989

Security	Number of Shares	% of Net Assets	Value ($)
Republic of Korea 1.1%
Samsung Electronics Co., Ltd.	4,161	0.8	4,940,954
Other Securities		0.3	1,975,530
		1.1	6,916,484
Russia 1.1%
AK Transneft OAO *	2,289	0.9	5,426,271
Other Securities		0.2	1,503,391
		1.1	6,929,662
Total Preferred Stock
(Cost $67,178,273)			82,472,165

Other Investment Companies 0.8% of net assets
United States 0.8%
Money Market Fund 0.8%
State Street Institutional U.S. Government Money Market Fund, Premier Class 0.26% (c)	5,045,258	0.8	5,045,258
Securities Lending Collateral 0.0%
Other Securities		0.0	266,700
Total Other Investment Companies
(Cost $5,311,958)			5,311,958

End of Investments.

At 08/31/16, the tax basis cost of the fund's investments was $607,964,262 and the unrealized appreciation and depreciation were $54,532,121 and ($27,741,847), respectively, with a net unrealized appreciation of $26,790,274.

For the following notes, please refer to the complete schedule of portfolio holdings.

*	Non-income producing security.
(a)	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 $6,045,340 or 1.0% of net assets.
(b)	All or a portion of this security is on loan. Securities on loan were valued at $245,724.
(c)	The rate shown is the 7-day yield.
(d)	Illiquid security. At the period end, the value of these amounted to $0 or 0.0% of net assets.
(e)	Fair-valued by management in accordance with procedures approved by the Board of Trustees.

ADR —	American Depositary Receipt
GDR —	Global Depositary Receipt
NVDR —	Non-Voting Depositary Receipt
Reg'd —	Registered

54 See financial notes

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Schwab Fundamental Emerging Markets Large Company Index ETF

Condensed Portfolio Holdings (Unaudited) continued

In addition to the above, the fund held the following at 08/31/16:

	Number of Contracts	Contract Value ($)	Unrealized Depreciation ($)
Futures Contracts
MSCI EAFE, e-mini, Long, expires 09/16/16	42	1,864,590	(17,702)

The following is a summary of the inputs used to value the fund’s investments as of August 31, 2016 (see financial note 2(a) for additional information):

Assets Valuation Input

Description	Quoted Prices in Active Markets for Identical Assets (Level 1)	Other Significant Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Total
Common Stock¹	$546,970,413	$—	$—*	$546,970,413
Preferred Stock¹	82,472,165	—	—	82,472,165
Other Investment Companies¹	5,311,958	—	—	5,311,958
Total	$634,754,536	$—	$—	$634,754,536
Liabilities Valuation Input

Other Financial Instruments
Futures Contracts²	($17,702)	$—	$—	($17,702)

*	Level 3 amount shown includes securities determined to have no value at August 31, 2016.
¹	As categorized in the complete schedule of Portfolio Holdings.
²	Futures contracts are not included in Investments in the schedule of Condensed Portfolio Holdings and are valued at unrealized appreciation or depreciation.

See financial notes 55

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Schwab Fundamental Emerging Markets Large Company Index ETF

Statement of

Assets and Liabilities

As of August 31, 2016; unaudited

Assets
Investments, at value (cost $599,392,113) including securities on loan of $245,724		$634,487,836
Collateral invested for securities on loan, at value (cost $266,700)	+	266,700
Total investments, at value (cost $599,658,813)		634,754,536
Cash		495
Deposit with broker for futures contracts		81,000
Foreign currency, at value (cost $3,398,145)		3,392,724
Receivables:
Fund shares sold		2,119,708
Dividends		567,577
Income from securities on loan		260
Foreign tax reclaims	+	100
Total assets		640,916,400
Liabilities
Collateral held for securities on loan		266,700
Payables:
Investments bought		8,907,368
Investment adviser fees		239,219
Foreign capital gains tax		277,866
Variation margin on futures contracts	+	17,092
Total liabilities		9,708,245
Net Assets
Total assets		640,916,400
Total liabilities	–	9,708,245
Net assets		$631,208,155
Net Assets by Source
Capital received from investors		601,717,430
Net investment income not yet distributed		9,714,185
Net realized capital losses		(15,025,395)
Net unrealized capital appreciation		34,801,935

Net Asset Value (NAV)
Net Assets	÷	Shares Outstanding	=	NAV
$631,208,155		27,300,001		$23.12

56 See financial notes

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Schwab Fundamental Emerging Markets Large Company Index ETF

Statement of

Operations

For the period March 1, 2016 through August 31, 2016; unaudited

Investment Income
Dividends (net of foreign withholding tax of $1,402,972)		$10,205,455
Securities on loan	+	362
Total investment income		10,205,817
Expenses
Investment adviser fees		1,163,314
Total expenses	–	1,163,314
Net investment income		9,042,503
Realized and Unrealized Gains (Losses)
Net realized losses on investments (net of foreign capital gains tax of $3,267)		(4,140,490)
Net realized gains on futures contracts		165,520
Net realized losses on foreign currency transactions	+	(48,235)
Net realized losses		(4,023,205)
Net change in unrealized appreciation (depreciation) on investments (net of change in foreign capital gain tax of ($277,866))		116,217,540
Net change in unrealized appreciation (depreciation) on futures contracts		(20,972)
Net change in unrealized appreciation (depreciation) on foreign currency translations	+	57,022
Net change in unrealized appreciation (depreciation)	+	116,253,590
Net realized and unrealized gains		112,230,385
Increase in net assets resulting from operations		$121,272,888

See financial notes 57

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Schwab Fundamental Emerging Markets Large Company Index ETF

Statement of

Changes in Net Assets

For the current and prior report periods

Figures for the current period are unaudited

Operations
	3/1/16-8/31/16		3/1/15-2/29/16
Net investment income		$9,042,503	$7,336,753
Net realized losses		(4,023,205)	(10,486,500)
Net change in unrealized appreciation (depreciation)	+	116,253,590	(78,840,410)
Increase (decrease) in net assets resulting from operations		121,272,888	(81,990,157)
Distributions to Shareholders
Distributions from net investment income		$—	($6,556,080)

Transactions in Fund Shares
		3/1/16-8/31/16		3/1/15-2/29/16
		SHARES	VALUE	SHARES	VALUE
Shares sold		7,100,000	$150,843,512	16,500,000	$357,682,826
Shares redeemed	+	—	—	(300,000)	(6,686,539)
Net transactions in fund shares		7,100,000	$150,843,512	16,200,000	$350,996,287
Shares Outstanding and Net Assets
		3/1/16-8/31/16		3/1/15-2/29/16
		SHARES	NET ASSETS	SHARES	NET ASSETS
Beginning of period		20,200,001	$359,091,755	4,000,001	$96,641,705
Total increase	+	7,100,000	272,116,400	16,200,000	262,450,050
End of period		27,300,001	$631,208,155	20,200,001	$359,091,755
Net investment income not yet distributed			$9,714,185		$671,682

58 See financial notes

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Schwab Fundamental Index ETFs

Financial Notes, unaudited

1. Business Structure of the Funds:

Each of the funds 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 operational funds in the trust as of the end of the period, including the funds discussed in this report, which are highlighted:

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

The funds issue and redeem shares at their net asset value per share (NAV) only in large blocks of shares, typically 50,000 shares or more (Creation Units). These transactions are usually in exchange for a basket of securities and/or an amount of cash. As a practical matter, only institutions or large investors purchase or redeem Creation Units. Except when aggregated in Creation Units, shares of the funds are not redeemable securities.

Individual shares of the funds trade on national securities exchanges and elsewhere during the trading day and can only be bought and sold at market prices throughout the trading day through a broker-dealer. Because fund shares trade at market prices rather than NAV, shares may trade at a price greater than NAV (premium) or less than NAV (discount).

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

2. Significant Accounting Policies:

The following is a summary of the significant accounting policies the funds use in their preparation of financial statements. The funds follow the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standard Codification Topic 946 Financial Services — Investment Companies. The accounting policies are in conformity with accounting principles generally accepted in the United States of America (GAAP).

The funds may invest in certain other investment companies (underlying funds). For specific investments in underlying funds, please refer to the complete schedule of portfolio holdings on Form N-CSR(S) for this reporting period, which is filed with the U.S. Securities and Exchange Commission (SEC). For more information about the underlying funds’ operations and policies, please refer to those funds’ semiannual and annual reports, which are filed with the SEC.

(a) Security Valuation:

Under procedures approved by the funds’ Board of Trustees (the Board), the investment adviser has formed a Pricing Committee to administer the pricing and valuation of portfolio securities and other assets and to ensure that prices used for internal purposes or provided by third parties reasonably reflect fair market value. Among other things, these procedures allow the funds to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value.

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

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Financial Notes, unaudited (continued)

2. Significant Accounting Policies (continued):

• Securities for which no quoted value is available: The Board has adopted procedures to fair value each fund’s securities when market prices are not “readily available” or are unreliable. For example, a fund may fair value a security when it is de-listed or its trading is halted or suspended; when a security’s primary pricing source is unable or unwilling to provide a price; or when a security’s primary trading market is closed during regular market hours. Each fund makes fair value determinations in good faith in accordance with the fund’s valuation procedures. The Pricing Committee considers a number of factors, including unobservable market inputs when arriving at fair value. The Pricing Committee may employ techniques such as the review of related or comparable assets or liabilities, related market activities, recent transactions, market multiples, book values, transactional back-testing, disposition analysis and other relevant information. The Pricing Committee regularly reviews these inputs and assumptions to calibrate the valuations. Due to the subjective and variable nature of fair value pricing, there can be no assurance that a fund could obtain the fair value assigned to the security upon the sale of such security. The Board convenes on a regular basis to review fair value determinations made by the funds pursuant to the valuation procedures.

• Futures contracts: Futures contracts are valued at their settlement prices as of the close of their exchanges.

• Short-term securities (60 days or less to maturity): A short-term security may be valued at its amortized cost when it approximates the security's market value.

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

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

• Level 1—quoted prices in active markets for identical securities—Investments whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 prices, include active listed equities, ETFs and futures contracts. Investments in mutual funds are valued daily at their NAVs, and investments in ETFs are valued daily at the last reported sale price or the official closing price, which are classified as Level 1 prices, without consideration to the classification level of the specific investments held by an underlying fund.

• Level 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.

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Financial Notes, unaudited (continued)

2. Significant Accounting Policies (continued):

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The levels associated with valuing the funds' investments as of August 31, 2016 are disclosed in the Condensed Portfolio Holdings.

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

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

Securities Lending: Under the trust’s Securities Lending Program, a fund (lender) may make short-term loans of its securities to another party (borrower) to generate additional revenue for the fund. The borrower pledges collateral in the form of cash, securities issued or fully guaranteed by the U.S. government or foreign governments, or letters of credit issued by a bank. Collateral at the individual loan level is required to be maintained on a daily marked-to-market basis in an amount at least equal to the current value of the securities loaned. The lending agent provides a fund with indemnification against borrower default (the borrower fails to return the security on loan) reducing the risk of loss as a result of default. The cash collateral of securities loaned is currently invested in money market portfolios operating under Rule 2a-7 of the 1940 Act. Each fund bears the risk of loss with respect to the investment of cash collateral. The terms of the securities lending agreements allow the funds or the lending agent to terminate any loan at any given time and the securities must be returned within the earlier of the standard trade settlement period or the specified time period under the relevant securities lending agreement. Securities lending income, as disclosed in each fund’s Statement of Operations, if applicable, represents the income earned from the investment of the cash collateral plus any fees paid by borrowers, less the fees paid to the lending agent and broker rebates which are subject to adjustments pursuant to the securities lending agreement. On loans not collateralized by cash, a fee is received from the borrower, and is allocated between a fund and the lending agent. The aggregate market value of securities loaned will not at any time exceed one-third of the total assets of a fund, including collateral received from the loan (at market value computed at the time of the loan). Total costs and expenses, including lending agent fees and broker rebates, associated with securities lending activities under the trust’s Securities Lending Program paid to the unaffiliated lending agents start at 10% of gross lending revenue, with subsequent breakpoints to a low of 7.5%.

As of August 31, 2016, the funds had securities on loan, all of which were classified as common stocks. The value of the securities on loan and the related collateral as of August 31, 2016, if any, are disclosed in each fund's Condensed Portfolio Holdings. The value of the securities on loan and the investment of cash collateral are also disclosed in each fund's Statement of Assets and Liabilities.

Assets and liabilities denominated in foreign currencies are reported in U.S. dollars. For assets and liabilities held on a given date, the dollar value is based on market exchange rates in effect on that date. Transactions involving foreign currencies, including purchases, sales, income receipts and expense payments, are calculated using exchange rates in effect on the transaction date. Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange appreciation or depreciation arises from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period. These realized

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Financial Notes, unaudited (continued)

2. Significant Accounting Policies (continued):

and unrealized foreign exchange gains or losses are reported in foreign currency transactions or translations on the Statement of Operations. The funds do not isolate the portion of the fluctuations on investments resulting from changes in foreign currency exchange rates from the fluctuations in market prices of investments held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.

Gains realized by the funds on the sale of securities in certain foreign countries may be subject to non-U.S. taxes. In those instances, the funds record a liability based on unrealized gains to provide for potential non-U.S. taxes payable upon the sale of these securities.

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

(d) Investment Income:

Interest income is recorded as it accrues. Dividends and distributions from portfolio securities and underlying funds are recorded on the date they are effective (the ex-dividend date), although the funds record certain foreign security dividends on the day they learn of the ex-dividend date. Any distributions from underlying funds are recorded in accordance with the character of the distributions as designated by the underlying funds.

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

(e) Expenses:

Pursuant to the Investment Advisory Agreement (Advisory Agreement) between Charles Schwab Investment Management, Inc. (CSIM or the investment adviser) and the trust, the investment adviser will pay the operating expenses of each fund, excluding interest expense, taxes, any brokerage expenses, and extraordinary or non-routine expenses. Interest expense, taxes, any brokerage expenses and extraordinary or non-routine expenses that are specific to a fund are charged directly to the fund.

(f) Distributions to Shareholders:

Schwab Fundamental U.S. Broad Market Index ETF, Schwab Fundamental U.S. Large Company Index ETF, and Schwab Fundamental U.S. Small Company Index ETF generally make distributions from net investment income, if any, quarterly. Schwab Fundamental International Large Company Index ETF, Schwab Fundamental International Small Company Index ETF, and Schwab Fundamental Emerging Markets Large Company Index ETF generally make distributions from net investment income, if any, annually. All funds generally make distributions from net realized capital gains, if any, once a year.

(g) Accounting Estimates:

(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 net realized capital gains, if any, to their respective shareholders each year. As long as a fund meets the tax requirements, it is not required to pay federal income tax.

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Financial Notes, unaudited (continued)

2. Significant Accounting Policies (continued):

(i) Foreign Taxes:

The funds may be subject to foreign taxes (a portion of which may be reclaimable) on income, corporate events, foreign currency exchanges and capital gains on investments. All foreign taxes are recorded in accordance with the applicable foreign tax regulations and rates that exist in foreign markets in which the funds invest. These foreign taxes, if any, are paid by the funds and are disclosed in the Statement of Operations. Foreign taxes payable as of August 31, 2016, if any, are reflected in each fund's Statement of Assets and Liabilities.

(j) Indemnification:

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

3. Risk Factors:

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

Market Risk. Equity markets rise and fall daily. As with any investment whose performance is tied to these markets, the value of an investment in a fund will fluctuate, which means that the investors could lose money.

Investment Style Risk. The funds are not actively managed. Therefore, each fund follows the securities included in its respective index during upturns as well as downturns. Because of their indexing strategies, 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 may be below that of their respective index.

Large-Cap Risk. Certain funds invest in large-cap stocks. Large-cap stocks tend to go in and out of favor based on market and economic conditions. During a period when large-cap stocks fall behind other types of investments—mid- or small-cap stocks, for instance—a fund’s large-cap holdings could reduce performance.

Mid-Cap Risk. Certain funds invest in mid-cap stocks. Mid-cap stocks tend to go in and out of favor based on market and economic conditions. Stocks of mid-cap companies tend to be more vulnerable to adverse business or economic events than larger, more established companies. During a period when mid-cap stocks fall behind other types of investments—bonds or large-cap stocks, for instance—a fund’s mid-cap holdings could reduce performance.

Small-Cap Risk. Certain funds invest in small-cap stocks. Historically, small-cap stocks have been riskier than large- and mid-cap stocks, and their prices may move sharply, especially during market upturns and downturns. Small-cap companies may be more vulnerable to adverse business or economic events than larger, more established companies. During a period when small-cap stocks fall behind other types of investments—large- or mid-cap stocks, for instance—a fund’s small-cap holdings could reduce performance.

Foreign Investment Risk. A fund’s investments in securities of foreign 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; changes in currency exchange rates or exchange control regulations (including limitations on currency movements and exchanges); the imposition of economic sanctions or other government restrictions; differing accounting, auditing, financial reporting and legal standards and practices; differing securities market structures; and higher transaction costs. These risks may negatively impact the value or liquidity of a fund's investments, and could impair the fund's ability to meet its investment objective or invest in accordance with its investment strategy. These risks may be heightened in connection with investments in emerging markets. Foreign securities also include American Depositary receipts (ADRs), Global Depositary receipts (GDRs), and European Depositary receipts (EDRs), which are receipts issued by U.S. and foreign banks that represent shares of foreign-based corporations. Investment in ADRs, GDRs and EDRs may be less liquid

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Financial Notes, unaudited (continued)

3. Risk Factors (continued):

than the underlying shares in their primary trading market and GDRs, many of which are issued by companies in emerging markets, may be more volatile. To the extent a fund's investments in a single country or a limited number of countries represent a larger percentage of the fund's assets, the fund's performance may be adversely affected by the economic, political and social conditions in those countries and the fund may be subject to increased price volatility.

Emerging Markets Risk. Certain funds invest in emerging markets. Emerging market countries may be more likely to experience political turmoil or rapid changes in market or economic conditions than more developed countries. Emerging market countries often have less uniformity in accounting and reporting requirements and greater risk associated with the custody of securities. In addition, the financial stability of issuers (including governments) in emerging market countries may be more precarious than in developed countries. As a result, there will tend to be an increased risk of price volatility associated with a fund’s investments in emerging market countries, which may be magnified by currency fluctuations relative to the U.S. dollar and, at times, it may be difficult to value such investments.

Sampling Index Tracking Risk. Certain funds may not fully replicate the index and may hold securities not included in the index. As a result, a 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 certain funds utilize a sampling approach they may not track the return of their respective index as well as they would if the funds purchased all of the securities in their respective index.

Tracking Error Risk. As index funds, each fund seeks to track the performance of its respective index, although it may not be successful in doing so. The divergence between the performance of a fund and the index, positive or negative, is called “tracking error.” Tracking error can be caused by many factors and it may be significant.

Derivatives Risk. Each fund may use derivatives to enhance returns or hedge against market declines. Examples of derivatives are options, futures, options on futures and swaps. An option is the right to buy or sell an instrument at a specific price before a specific date. A future is an agreement to buy or sell a financial instrument at a specific price on a specific day. A swap is an agreement whereby two parties agree to exchange payment streams calculated in relation to a rate, index, instrument or certain securities and a predetermined amount.

A fund’s use of derivative instruments involves risks different from, or possibly greater than the risks associated with investing directly in securities and other traditional investments. Certain of these risks, such as liquidity risk and market risk, are discussed elsewhere in this section. The fund’s use of derivatives is also subject to credit risk, leverage risk, lack of availability risk, valuation risk, correlation risk and tax risk. Lack of availability risk is the risk that suitable derivative transactions may not be available in all circumstances for risk management or other purposes. Credit risk is the risk that the counterparty to a derivatives transaction may not fulfill its obligations. Leverage risk is the risk that a small percentage of assets invested in derivatives can have a disproportionately large impact on the fund. Valuation risk is the risk that a particular derivative may be valued incorrectly. Correlation risk is the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset, rate or index. Tax risk is the risk that the use of derivatives may cause the fund to realize higher amounts of short-term capital gain. These risks could cause the fund to lose more than the initial amount invested. The use of derivatives, subject to regulation by the Commodity Futures Trading Commission (CFTC), could cause the fund to become a commodity pool, which would require the fund to comply with certain CFTC rules.

Liquidity Risk. A fund may be unable to sell certain securities, such as illiquid securities, readily at a favorable time or price, or a fund may have to sell them at a loss.

Securities Lending Risk. 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.

Concentration Risk. To the extent that a fund's or an index's portfolio is concentrated in the securities of issuers in a particular market, industry, group of industries, sector or asset class, the fund may be adversely affected by the performance of those securities, may be subject to increased price volatility and may be more susceptible to adverse economic, market, political or regulatory occurrences affecting that market, industry, group of industries, sector or asset class.

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Financial Notes, unaudited (continued)

3. Risk Factors (continued):

Shares of the Fund May Trade at Prices Other Than NAV. 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 a 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 a fund in the secondary market, and may receive less than NAV when they sell those shares in the secondary market. The market price of the fund shares may deviate, sometimes significantly, from NAV during periods of market volatility or as a result of other factors impacting foreign securities, including liquidity, irregular trading activity and timing differences between foreign markets where securities trade and the secondary market where fund shares are sold.

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:

CSIM, a wholly owned subsidiary of The Charles Schwab Corporation, serves as each fund’s investment adviser pursuant to an Advisory Agreement between CSIM and the trust.

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

Schwab Fundamental U.S. Broad Market Index ETF		Schwab Fundamental U.S. Large Company Index ETF		Schwab Fundamental U.S. Small Company Index ETF		Schwab Fundamental International Large Company Index ETF		Schwab Fundamental International Small Company Index ETF		Schwab Fundamental Emerging Markets Large Company Index ETF
0.32%		0.32%		0.32%		0.32%		0.46%		0.46%

The funds may engage in certain transactions involving affiliates. For instance, a fund may own shares of The Charles Schwab Corporation if that company is included in its index. Below is the summary of investment activities involving The Charles Schwab Corporation shares owned by the funds during the report period:

Fund	Balance of Shares Held at 2/29/16	Gross Purchases	Gross Sales	Balance of Shares Held at 8/31/16	Market Value at 8/31/16	Realized Gains (Losses) 3/1/16 to 8/31/16	Dividends Received 3/1/16 to 8/31/16
Schwab Fundamental U.S. Broad Market Index ETF	2,712	176	—	2,888	$90,856	$—	$398
Schwab Fundamental U.S. Large Company Index ETF	17,086	7,488	(104)	24,470	769,826	578	1,649

The funds may engage in direct transactions with certain other Schwab funds when practical. When one fund is seeking to sell a security that another is seeking to buy, an interfund transaction can allow both funds to benefit by reducing transaction costs. This practice is limited to funds that share the same investment adviser, trustees and/or officers. For the period ended August 31, 2016, each fund's total aggregate security transactions with other Schwab funds as well as any realized gains (losses) were as follows:

	Total Aggregate Transactions	Realized Gains (Losses)
Schwab Fundamental U.S. Broad Market Index ETF	$2,673,997	($903,427)
Schwab Fundamental U.S. Large Company Index ETF	25,779,662	(934,929)
Schwab Fundamental U.S. Small Company Index ETF	7,698,196	(1,802,873)
Schwab Fundamental International Large Company Index ETF	23,493,412	(909,528)
Schwab Fundamental International Small Company Index ETF	2,654,175	(414,326)
Schwab Fundamental Emerging Markets Large Company Index ETF	4,501,481	(341,917)

Pursuant to an exemptive order issued by the SEC, the funds may enter into interfund borrowing and lending transactions with other funds in the Fund Complex (for definition refer to Trustees and Officers section). All loans are for temporary or emergency purposes and the interest rate to be charged will be the average of the overnight repurchase agreement rate and the

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Financial Notes, unaudited (continued)

4. Affiliates and Affiliated Transactions (continued):

short-term bank loan rate. All loans are subject to numerous conditions designed to ensure fair and equitable treatment of all participating funds/portfolios. The interfund lending facility is subject to the oversight and periodic review of the Board. The funds had no interfund borrowing or lending activity during the period.

5. Other Service Providers:

SEI Investments Distribution Co. is the principal underwriter and distributor of shares of the funds.

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

6. Board of Trustees:

7. Borrowing from Banks:

During the period, the funds were participants with other U.S. registered investment companies managed by CSIM in a joint, syndicated, committed $530 million line of credit (the Credit Facility), which matured on October 6, 2016. Under the terms of the Credit Facility, in addition to the interest charged on any borrowings by a fund, each fund paid a commitment fee of 0.125% per annum on its proportionate share of the unused portion of the Credit Facility. There were no borrowings from the line of credit during the period. On October 6, 2016, the Credit Facility was amended to run for a new 364 day period with an increased line of $555 million and a commitment fee of 0.15% per annum.

The funds also have access to custodian overdraft facilities. A fund may have utilized the overdraft facility and incurred an interest expense, which is disclosed on the fund’s Statement of Operations, if any. The interest expense is determined based on a negotiated rate above the current Federal Funds Rate.

8. Derivatives:

Certain funds entered into equity index futures contracts during the report period. The funds invested in futures contracts to equitize available cash. The fair value and variation margin for futures contracts held at August 31, 2016 are presented on the Condensed Portfolio Holdings and Statement of Assets and Liabilities, respectively. The net realized and change in unrealized gains (losses) on futures contracts are presented on the Statement of Operations. Refer to financial note 2(b) for the funds’ accounting policies with respect to futures contracts and financial note 3 for disclosures concerning the risks of investing in futures contracts. During the period ended August 31, 2016, the month-end average contract values of futures contracts held by the funds and the month-end average number of contracts held were as follows:

	Contract Values	Number of Contracts
Schwab Fundamental U.S. Broad Market Index ETF	$402,606	4
Schwab Fundamental U.S. Large Company Index ETF	2,690,978	26
Schwab Fundamental U.S. Small Company Index ETF	1,445,027	12
Schwab Fundamental International Large Company Index ETF	4,366,958	53
Schwab Fundamental International Small Company Index ETF	140,633	2
Schwab Fundamental Emerging Markets Large Company Index ETF	634,413	15

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Financial Notes, unaudited (continued)

9. Purchases and Sales/Maturities of Investment Securities:

For the period ended August 31, 2016, purchases and sales/maturities of securities (excluding in-kind transactions and short-term obligations) were as follows:

	Purchases of Securities	Sales/Maturities of Securities
Schwab Fundamental U.S. Broad Market Index ETF	$11,873,043	$10,402,024
Schwab Fundamental U.S. Large Company Index ETF	82,656,186	67,596,994
Schwab Fundamental U.S. Small Company Index ETF	160,289,319	144,591,622
Schwab Fundamental International Large Company Index ETF	87,735,297	61,339,950
Schwab Fundamental International Small Company Index ETF	95,860,521	86,502,712
Schwab Fundamental Emerging Markets Large Company Index ETF	168,153,928	40,991,536

10. In-Kind Transactions:

The consideration for the purchase of Creation Units of a fund often consists of the in-kind deposit of a designated portfolio of equity 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 are subject to a standard creation transaction fee and a standard redemption transaction fee paid to the custodian to offset transfer and other transaction costs associated with the issuance and redemption of Creation Units. Purchasers and redeemers of Creation Units for cash are subject to an additional variable charge paid to the fund that will offset the transaction costs to the fund of buying or selling portfolio securities. In addition, purchasers and redeemers of shares in Creation Units are responsible for payment of the costs of transferring securities to or out of the fund. From time to time, CSIM may cover the cost of any transaction fees when believed to be in the best interests of a fund.

The in-kind transactions for the period ended August 31, 2016 were as follows:

	In-Kind Purchases of Securities	In-Kind Sales of Securities
Schwab Fundamental U.S. Broad Market Index ETF	$11,548,942	—
Schwab Fundamental U.S. Large Company Index ETF	427,268,354	10,451,236
Schwab Fundamental U.S. Small Company Index ETF	238,767,620	5,934,297
Schwab Fundamental International Large Company Index ETF	279,940,331	—
Schwab Fundamental International Small Company Index ETF	123,463,003	10,378,485
Schwab Fundamental Emerging Markets Large Company Index ETF	32,963,750	—

For the period ended August 31, 2016, the funds realized net capital gains or losses resulting from in-kind redemptions of 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 capital received from investors 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 August 31, 2016 are disclosed in the funds' Statements of Operations, if any.

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Financial Notes, unaudited (continued)

11. Federal Income Taxes

Capital loss carryforwards may be used to offset future realized capital gains for federal income tax purposes. As of February 29, 2016, the funds had capital loss carryforwards available to offset future net capital gains as follows:

Expiration Date	Schwab Fundamental U.S. Broad Market Index ETF	Schwab Fundamental U.S. Large Company Index ETF	Schwab Fundamental U.S. Small Company Index ETF	Schwab Fundamental International Large Company Index ETF	Schwab Fundamental International Small Company Index ETF	Schwab Fundamental Emerging Markets Large Company Index ETF
No expiration*	$1,050,504	$4,959,322	$9,026,549	$9,491,143	$3,803,715	$4,730,013
Total	$1,050,504	$4,959,322	$9,026,549	$9,491,143	$3,803,715	$4,730,013

*	As a result of the passage of the Regulated Investment Company Modernization Act of 2010, capital losses incurred after December 31, 2010 may now be carried forward indefinitely, but must retain the character of the original loss.

As of February 29, 2016, management has reviewed the tax positions for open periods (for federal purposes, three years from the date of filing and for state purposes, four years from the date of filing) as applicable to the funds, and has determined that no provision for income tax is required in the funds' financial statements. The funds recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. During the period ended February 29, 2016, the funds did not incur any interest or penalties.

12. Subsequent Events:

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Investment Advisory Agreement Approval

The Board of Trustees (Board or Trustees, as appropriate) calls and holds one or more meetings each year that are dedicated, in part, to considering whether to renew the investment advisory agreement (Agreement) between Schwab Strategic Trust (Trust) and Charles Schwab Investment Management, Inc. (CSIM) with respect to the existing funds in the Trust, including Schwab Fundamental U.S. Broad Market Index ETF, Schwab Fundamental U.S. Large Company Index ETF, Schwab Fundamental U.S. Small Company Index ETF, Schwab Fundamental International Large Company Index ETF, Schwab Fundamental International Small Company Index ETF, and Schwab Fundamental Emerging Markets Large Company Index ETF (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 affiliates, personnel, business goals and priorities, profitability, third-party oversight, corporate structure and operations. The Board also receives extensive data provided by an independent provider of investment company data and an independent accounting firm. 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 the Funds’ operations and performance, legal and compliance matters, risk management, portfolio turnover, and sales and marketing activity. 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 meetings held on May 9, 2016 and June 1, 2016, and approved the renewal of the Agreement with respect to the Funds for an additional one-year term at the meeting held on June 1, 2016. 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.	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 experience, track record, compliance program, resources dedicated to hiring and retaining qualified personnel, and information security resources. The Trustees also considered information provided by CSIM relating to the Funds’ portfolio management team, portfolio strategy and risk oversight structure, and internal investment guidelines. The Trustees also considered investments in CSIM’s infrastructure. The Trustees also considered Schwab’s reputation in connection with the OneSource exchange-traded fund offering 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 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 Funds. Specifically, the Trustees considered each Fund’s performance relative to a peer category of other exchange-traded funds and relevant indices/benchmarks, in light of total return, yield, if applicable, and market trends. As part of this review, the

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Trustees considered the composition of the peer category and the selection criteria. In evaluating the performance of each Fund, the Trustees considered the risk profile 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 their review of Fund expenses and adviser profitability discussed below and also noted that performance is reviewed throughout the year by a designated committee of the Board and by the Board. Following such evaluation the Board concluded, within the context of its full deliberations, that the performance of the Funds 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 each case in comparison to those of other comparable exchange-traded funds, such peer groups and comparisons having been selected and calculated by an independent provider of investment company data. The Trustees noted that each Fund’s operating expense ratio was well below the average operating expense ratio charged by other funds in its peer group. 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 Funds are reasonable and supported renewal of the Agreement with respect to the Funds.

noting the benefit to Fund shareholders of being part of the Schwab fund complex, including the allocations of certain fixed costs across other funds in the complex. 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, the Board concluded, within the context of its full deliberations, that the Funds obtain 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.

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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 and Laudus Trust. The Fund Complex includes 108 funds.

Independent Trustees
Name, Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served¹)	Principal Occupations During the Past Five Years	Number of Portfolios in Fund Complex Overseen by the Trustee	Other Directorships
Robert W. Burns 1959 Trustee (Trustee of Schwab Strategic Trust since 2009; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016)	Retired/Private Investor (Jan. 2009 – present). Formerly, Managing Director, Pacific Investment Management Company, LLC (PIMCO) and President, PIMCO Funds.	108	Director, PS Business Parks, Inc. (2005 – 2012)
John F. Cogan 1947 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Laudus Trust since 2010; Schwab Strategic Trust since 2016)	Senior Fellow, The Hoover Institution at Stanford University (Oct. 1979 – present); Senior Fellow, Stanford Institute for Economic Policy Research (2000 – present); Professor of Public Policy, Stanford University (1994 – 2015).	108	Director, Gilead Sciences, Inc. (2005 – present)
Stephen Timothy Kochis 1946 Trustee (Trustee of Schwab Strategic Trust since 2012; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016)	CEO and Owner, Kochis Global (wealth management consulting) (May 2012 – present); Chairman and CEO, Aspiriant, LLC (wealth management) (Jan. 2008 – Apr. 2012).	108	None
David L. Mahoney 1954 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016)	Private Investor.	108	Director, Symantec Corporation (2003 – present) Director, Corcept Therapeutics Incorporated (2004 – present) Director, Adamas Pharmaceuticals, Inc. (2009 – present)
Kiran M. Patel 1948 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016)	Retired. Executive Vice President and General Manager of Small Business Group, Intuit, Inc. (financial software and services firm for consumers and small businesses) (Dec. 2008 – Sept. 2013).	108	Director, KLA-Tencor Corporation (2008 – present)

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Independent Trustees (continued)
Name, Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served¹)	Principal Occupations During the Past Five Years	Number of Portfolios in Fund Complex Overseen by the Trustee	Other Directorships
Kimberly S. Patmore 1956 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016)	Consultant, Patmore Management Consulting (management consulting) (2008 – present).	108	None
Charles A. Ruffel 1956 Trustee (Trustee of Schwab Strategic Trust since 2009; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2015)	Co-Chief Executive Officer, Kudu Investment Management, LLC (financial services) (Jan. 2015 – present); Partner, Kudu Advisors, LLC (financial services) (June 2008 – Jan. 2015); Advisor, Asset International, Inc. (publisher of financial services information) (Aug. 2008 – Jan. 2015).	108	None
Gerald B. Smith 1950 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2000; Laudus Trust since 2010; Schwab Strategic Trust since 2016)	Chairman, Chief Executive Officer and Founder of Smith Graham & Co. (investment advisors) (Mar. 1990 – present).	108	Director, Eaton (2012 – present) Director and Chairman of the Audit Committee, Oneok Partners LP (2003 – 2013) Director, Oneok, Inc. (2009 – 2013) Lead Independent Director, Board of Cooper Industries (2002 – 2012)
Joseph H. Wender 1944 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Laudus Trust since 2010; Schwab Strategic Trust since 2016)	Senior Consultant, Goldman Sachs & Co., Inc. (investment banking and securities firm) (Jan. 2008 – present); Partner, Colgin Partners, LLC (vineyards) (Feb. 1998 – present).	108	Board Member and Chairman of the Audit Committee, Ionis Pharmaceuticals (1994 – present) Lead Independent Director and Chair of Audit Committee, OUTFRONT Media Inc. (2014 – present)

Interested Trustees
Name, Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served¹)	Principal Occupations During the Past Five Years	Number of Portfolios in Fund Complex Overseen by the Trustee	Other Directorships
Walter W. Bettinger II² 1960 Chairman and Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Schwab Strategic Trust since 2009; Laudus Trust since 2010)	Director, President and Chief Executive Officer, The Charles Schwab Corporation (Oct. 2008 – present); President and Chief Executive Officer (Oct. 2008 – present), Director (May 2008 – present), Charles Schwab & Co., Inc.; Director, Charles Schwab Bank (Apr. 2006 – present); and Director, Schwab Holdings, Inc. (May 2008 – present).	108	Director, The Charles Schwab Corporation (2008 – present)

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Interested Trustees (continued)
Name, Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served¹)	Principal Occupations During the Past Five Years	Number of Portfolios in Fund Complex Overseen by the Trustee	Other Directorships
Marie A. Chandoha² 1961 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016)	Director, President and Chief Executive Officer (Dec. 2010 – present), Chief Investment Officer (Sept. 2010 – Oct. 2011), Charles Schwab Investment Management, Inc.; Trustee (Jan. 2016 – present), President, Chief Executive Officer (Dec. 2010 – present), and Chief Investment Officer (Sept. 2010 – Oct. 2011), Schwab Funds, Laudus Funds and Schwab ETFs; Director, Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited (Jan. 2011 – present); Global Head of Fixed Income Business Division, BlackRock, Inc. (formerly Barclays Global Investors) (Mar. 2007 – Aug. 2010).	108	None
Joseph R. Martinetto² 1962 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016)	Senior Executive Vice President and Chief Financial Officer, The Charles Schwab Corporation and Charles Schwab & Co., Inc. (July 2015 – present); Executive Vice President and Chief Financial Officer of The Charles Schwab Corporation and Charles Schwab & Co., Inc. (May 2007 – July 2015); Director, Charles Schwab & Co., Inc. (May 2007 – present); Director (Apr. 2010 – present) and Chief Executive Officer (July 2013 – Apr. 2015), Charles Schwab Bank; Director, Executive Vice President and Chief Financial Officer, Schwab Holdings, Inc. (May 2007 – present).	108	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 A. Chandoha 1961 President and Chief Executive Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2010)	Director, President and Chief Executive Officer (Dec. 2010 – present), Chief Investment Officer (Sept. 2010 – Oct. 2011), Charles Schwab Investment Management, Inc.; Trustee (Jan. 2016 – present), President, Chief Executive Officer (Dec. 2010 – present), and Chief Investment Officer (Sept. 2010 – Oct. 2011), Schwab Funds, Laudus Funds and Schwab ETFs; Director, Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited (Jan. 2011 – present); Global Head of Fixed Income Business Division, BlackRock, Inc. (formerly Barclays Global Investors) (Mar. 2007 – Aug. 2010).
Mark Fischer 1970 Treasurer and Chief Financial Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2013)	Treasurer and Chief Financial Officer, Schwab Funds, Laudus Funds and Schwab ETFs (Jan. 2016 – present); Assistant Treasurer, Schwab Funds and Laudus Funds (Dec. 2013 – Dec. 2015), Schwab ETFs (Nov. 2013 – Dec. 2015); Vice President, Charles Schwab Investment Management, Inc. (Oct. 2013 – present); Executive Director, J.P. Morgan Investor Services (Apr. 2011 – Sept. 2013); Assistant Treasurer, Massachusetts Financial Service Investment Management (May 2005 – Mar. 2011).

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Officers of the Trust (continued)
Name, Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served³)	Principal Occupations During the Past Five Years
George Pereira 1964 Senior Vice President and Chief Operating Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2004; Laudus Trust since 2006; 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.; Senior Vice President and Chief Operating Officer (Jan. 2016 – present), Treasurer and Chief Financial Officer, Laudus Funds (June 2006 – Dec. 2015); Treasurer and Principal Financial Officer, Schwab Funds (Nov. 2004 – Dec. 2015) and Schwab ETFs (Oct. 2009 – Dec. 2015); Director, Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited (Apr. 2005 – present).
Omar Aguilar 1970 Senior Vice President and Chief Investment Officer – Equities and Multi-Asset Strategies (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011)	Senior Vice President and Chief Investment Officer – Equities and Multi-Asset Strategies, Charles Schwab Investment Management, Inc. (Apr. 2011 – present); Senior Vice President and Chief Investment Officer – Equities, Schwab Funds, Laudus Funds and Schwab ETFs (June 2011 – present); Head of the Portfolio Management Group and Vice President of Portfolio Management, Financial Engines, Inc. (May 2009 – Apr. 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 The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011)	Senior Vice President and Chief Investment Officer – Fixed Income, Charles Schwab Investment Management, Inc. (Apr. 2011 – present); Senior Vice President and Chief Investment Officer – Fixed Income, Schwab Funds, Laudus Funds and Schwab ETFs (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 (Apr. 2006 – Jan. 2008).
David Lekich 1964 Chief Legal Officer and Secretary, Schwab Funds and Schwab ETFs Vice President and Assistant Clerk, Laudus Funds (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011)	Senior Vice President (Sept. 2011 – present), Vice President (Mar. 2004 – Sept. 2011), Charles Schwab & Co., Inc.; Senior Vice President and Chief Counsel (Sept. 2011 – present), Vice President (Jan. 2011 – Sept. 2011), Charles Schwab Investment Management, Inc.; Secretary (Apr. 2011 – present) and Chief Legal Officer (Dec. 2011 – present), Schwab Funds; Vice President and Assistant Clerk, Laudus Funds (Apr. 2011 – present); Secretary (May 2011 – present) and Chief Legal Officer (Nov. 2011 – present), Schwab ETFs.
Catherine MacGregor 1964 Vice President and Assistant Secretary, Schwab Funds and Schwab ETFs Chief Legal Officer, Vice President and Clerk, Laudus Funds (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2005; Schwab Strategic Trust since 2009)	Vice President, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. (July 2005 – present); Vice President (Dec. 2005 – present), Chief Legal Officer and Clerk (Mar. 2007 – present), Laudus Funds; Vice President (Nov. 2005 – present) and Assistant Secretary (June 2007 – present), Schwab Funds; Vice President and Assistant Secretary, 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 retirement policy requires that each independent trustee retire by December 31 of the year in which the Trustee turns 74 or the Trustee’s twentieth year of service as an independent trustee on any trust in the Fund Complex, whichever occurs first.
²	Mr. Bettinger, Ms. Chandoha, and Mr. Martinetto are Interested Trustees because they own stock of The Charles Schwab Corporation, the parent company of the investment adviser.
³	The President, Treasurer and Secretary/Clerk hold office until their respective successors are chosen and qualified or until he or she sooner dies, resigns, is removed or becomes disqualified. Each of the other officers serves at the pleasure of the Board.

Table of Contents

Glossary

144A securities These securities may be sold only to qualified institutional buyers under Securities Act Rule 144A.

American Depositary Receipt (ADR) U.S. dollar-denominated receipts issued by U.S. banks or trust companies that represent shares of foreign-based corporations.

ask See “offer.”

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.

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

Bloomberg Barclays U.S. Treasury Bills 1 – 3 Months Index An index that includes all publicly issued zero-coupon U.S. Treasury Bills that have a remaining maturity of less than 3 months and more than 1 month, are rated investment grade, and have $250 million or more of outstanding face value.

cap, capitalization See “market cap.”

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

European Depositary Receipt (EDR) A negotiable security (receipt) that is issued by a European bank, and that represents shares of foreign-based corporations.

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

Global Depositary Receipt (GDR) A negotiable security (receipt) that is issued by a foreign bank, and that represents shares of foreign-based corporations.

gross domestic product (GDP) The output of goods and services produced by labor and property located in the United States.