UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-07704
Schwab Capital Trust – Schwab Fundamental Global Real Estate Index Fund
(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 Capital Trust
211 Main Street, San Francisco, California 94105
(Name and address of agent for service)
Registrant’s telephone number, including area code: (415) 636-7000
Date of fiscal year end: February 28
Date of reporting period: February 28, 2015
Item 1: Report(s) to Shareholders.
Annual report dated February 28, 2015, enclosed.
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Schwab Fundamental Global Real Estate Index Fund
Annual Report
February 28, 2015
This page is intentionally left blank.
Fund investment adviser: Charles Schwab Investment Management, Inc. (CSIM).
Distributor: Charles Schwab & Co., Inc. (Schwab)
The Sector/Industry classifications in this report use the Global Industry Classification Standard (GICS), which was developed by and is the exclusive property of 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 Schwab. The Industry classifications used in the schedules of Portfolio Holdings are sub-categories of Sector classifications.
The performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment will fluctuate so that an investor’s shares may be worth more or less than their original cost. Current performance may be lower or higher than performance data quoted. To obtain performance information current to the most recent month end, please visit www.csimfunds.com.
| Total Returns From Inception (October 22, 2014) to February 28, 2015 |
| Schwab Fundamental Global Real Estate Index Fund (Ticker Symbol: SFREX) | 8.47%* |
| Russell Fundamental Global Select Real Estate Index (Net)** | 8.66% |
| Fund Category: Morningstar Global Real Estate | 8.38% |
| Performance Details | pages 6-7 |
| |
| Minimum Initial Investment1 | $100 |
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
Fund expenses may have been partially absorbed by CSIM and its affiliates. Without these reductions, the fund’s total return would have been lower. Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption of fund shares.
Source for category information: Morningstar, Inc. The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
Index ownership—“Russell Fundamental Global Select Real Estate Index” is a joint trademark of Russell Investments (“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 Global Real Estate Index Fund 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.
| * | Total return for the report period presented in the table differs from the return in the Financial Highlights. The total return presented in the above table is calculated based on the NAV at which shareholder transactions were processed. The total return presented in the Financial Highlights section of the report is calculated in the same manner, but also takes into account certain adjustments that are necessary under generally accepted accounting principles required in the annual and semi-annual reports. |
| ** | The total return cited for the index is calculated net of foreign withholding taxes. |
| 1 | Please see the fund's prospectus for further detail and eligibility requirements. |
2Schwab Fundamental Global Real Estate Index Fund
Marie Chandoha is President and CEO of Charles Schwab Investment Management, Inc. and the fund covered in this report.
Dear Shareholder,
At Charles Schwab Investment Management, we provide funds that are designed to be part of the foundation of a diversified portfolio. The Schwab Fundamental Global Real Estate Index Fund represents an important part of our product line-up, and is discussed in this annual report. The fund was launched on October 22, 2014, and represents an exciting expansion to our fundamentally weighted products.
In recent years, fundamentally weighted strategies have experienced considerable asset growth. Unlike traditional equity indices that are often weighted by market capitalization, fundamentally weighted indices select and weight stocks by objective non-price measures, such as dividends, cash flow, and sales. By using this weighting methodology, such funds can serve as an effective complement to capitalization-weighted index funds and actively managed investment vehicles.
From the fund’s inception through the reporting period ended February 28, 2015, the fund closely tracked the 8.7% return of the Russell Fundamental Global Select Real Estate Index.1 The low yield environment enhanced the appeal of income-oriented investments such as real estate securities, as many central banks around the world kept interest rates low to stimulate economic growth. Real estate investment trusts in the U.S. performed particularly well, helped by relatively stable economic growth, declining vacancy rates, and increased rental growth, while generally outperforming international real estate securities.
Asset Class Performance Comparison % returns during the period from inception (10/22/2014) to 2/28/2015
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 Global Real Estate Index Fund3
From the President continued
From the fund’s inception through the reporting period ended February 28, 2015, the fund closely tracked the 8.7% return of the Russell Fundamental Global Select Real Estate Index.1
For more information about the Schwab Fundamental Global Real Estate Index Fund, please continue reading this report. In addition, you can find further details about this fund by visiting our new website at www.csimfunds.com, which provides improved functionality, enhanced design, and access to industry insights. We are also happy to hear from you at 1-800-435-4000.
Sincerely,
| 1 | The total return cited is calculated net of foreign withholding taxes. |
4Schwab Fundamental Global Real Estate Index Fund
 | Agnes Hong, CFA, Vice President and Head of Passive Equity Strategies, leads the portfolio management teams of Schwab’s index mutual funds and equity ETFs. She also has overall responsibility for all aspects of the 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 over 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 over four years as a senior financial analyst with Union Bank of California. |
Schwab Fundamental Global Real Estate Index Fund5
Schwab Fundamental Global Real Estate Index Fund
The Schwab Fundamental Global Real Estate Index Fund (the fund) seeks investment results that correspond generally (before fees and expenses) to the total return of the Russell Fundamental Global Select Real Estate Index (the index). The index measures the performance of real estate companies, including real estate investment trusts (REITs), in U.S. and non-U.S. markets, including developed and emerging markets. To pursue its investment objective, the fund invests in a statistical sample of the securities included in the index that collectively has a similar investment profile to the index. Due to the use of statistical sampling, the fund may not hold all of the securities in the index. For more information concerning the fund’s investment objective, strategies, and risks, please see the fund’s prospectus.
Market Highlights. Global real estate securities produced positive returns for the reporting period, in part due to a drop in long-term interest rates and stronger real estate fundamentals, such as solid rent growth. Though many international currencies depreciated versus the U.S. dollar which generally reduced returns on overseas investments in U.S. dollar terms, many global real estate markets overcame this obstacle and performed well during the reporting period. Within the index, real estate securities from India and Germany outperformed, while real estate securities from Brazil and the United Arab Emirates underperformed by comparison.
Performance. The fund returned 8.47% for the reporting period of fund inception, October 22, 2014, to February 28, 2015, while the index returned 8.66%1 for the same period. Differences between the return of the fund and the return of the index may be attributable to, among other things, the trading and management costs incurred by the fund and not the index.
Contributors and Detractors. Brazilian real estate securities were among the biggest detractors from the total return of the fund. Real estate securities from Brazil represented an average weight of approximately 1% of the fund and returned approximately -25% in U.S. dollar terms. One example from this market is PDG Realty S.A. Empreendimentos e Participacoes, a real estate investment company that operates in different segments of the real estate market, including residential development, residential allotments, and commercial properties aimed at generating rental income. The fund’s holdings of PDG Realty S.A. Empreendimentos e Participacoes returned approximately -61% in U.S. dollar terms. The fund’s real estate holding from the United Arab Emirates also performed poorly, representing an average weight of less than 1% of the fund and returning -18% in U.S. dollar terms.
Real estate securities from the U.S. were among the biggest contributors to the returns of both the index and the fund. These securities represented an average weight of approximately 44% of the fund and returned approximately 10%. One example from this market is Simon Property Group, Inc., a self-administered and self-managed REIT. The fund’s holdings of Simon Property Group, Inc. returned approximately 13%. Australian real estate securities also contributed meaningfully to the fund’s performance. Real estate securities from Australia represented an average weight of approximately 9% of the fund and returned approximately 9% in U.S. dollar terms.
As of 02/28/15:
| Statistics |
| Number of Holdings | 228 |
| Weighted Average Market Cap (millions) | $14,412 |
| Price/Earnings Ratio (P/E) | 16.9 |
| Price/Book Ratio (P/B) | 1.5 |
| Portfolio Turnover Rate | 4% |
| Industry Weightings % of Investments |
| Real Estate Management & Development | 30.3% |
| Retail REITs | 19.5% |
| Specialized REITs | 14.1% |
| Office REITs | 12.3% |
| Diversified REITs | 12.0% |
| Residential REITs | 7.1% |
| Industrial REITs | 2.9% |
| Homebuilding | 1.0% |
| Short-Term Investments | 0.8% |
| Total | 100.0% |
| Top Holdings % of Net Assets2 |
| Simon Property Group, Inc. | 3.0% |
| Westfield Corp. | 2.5% |
| Mitsui Fudosan Co., Ltd. | 2.1% |
| Mitsubishi Estate Co., Ltd. | 2.1% |
| Equity Residential | 1.8% |
| Vornado Realty Trust | 1.7% |
| Cheung Kong (Holdings) Ltd. | 1.7% |
| Unibail-Rodamco SE | 1.6% |
| Daito Trust Construction Co., Ltd. | 1.6% |
| Public Storage | 1.6% |
| Total | 19.7% |
Management views and portfolio holdings may have changed since the report date.
An index is a statistical composite of a specified financial market or sector. Unlike the fund, an index does not actually hold a portfolio of securities and its return is not inclusive of trading and management costs incurred by the fund.
Source of Sector Classification: S& P and MSCI.
| 1 | The total return cited for the index is calculated net of foreign withholding taxes. |
| 2 | This list is not a recommendation of any security by the investment adviser. |
6Schwab Fundamental Global Real Estate Index Fund
Schwab Fundamental Global Real Estate Index Fund
Performance and Fund Facts as of 02/28/15
The performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value of an investment will fluctuate so that an investor’s shares may be worth more or less than their original cost. Current performance may be lower or higher than performance data quoted. To obtain performance information current to the most recent month end, please visit www.csimfunds.com.
October 22, 2014 – February 28, 2015
Performance of Hypothetical
$10,000 Investment1
| Fund and Inception Date | Since Inception |
| Fund: Schwab Fundamental Global Real Estate Index Fund (10/22/14) | 8.47%* |
| Russell Fundamental Global Select Real Estate Index (Net) | 8.66% |
| FTSE EPRA/NAREIT Global Index (Net) | 8.71% |
| Fund Category: Morningstar Global Real Estate | 8.38% |
Fund Expense Ratios3: Net 0.49%; Gross 0.69%
Country Weightings % of Investments
| United States | 44.8% |
| Japan | 12.0% |
| Hong Kong | 9.0% |
| Australia | 8.9% |
| China | 5.8% |
| France | 4.4% |
| United Kingdom | 4.2% |
| Other Countries | 10.9% |
| Total | 100.0% |
All total returns on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized.
For index definitions, please see the Glossary.
The fund's performance relative to the index may be affected by fair value pricing, see financial note 2 for more information.
Small-company stocks are subject to greater volatility than many other asset classes.
International investments are subject to additional risks such as currency fluctuation, geopolitical risk and the potential for illiquid markets. Investing in emerging markets may accentuate these risks.
The fund is subject to risks associated with the direct ownership of real estate securities and an investment in the fund will be closely linked to the performance of the real estate markets.
Index ownership — “Russell Fundamental Global Select Real Estate Index” is a joint trademark of Russell Investments (“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 Global Real Estate Index Fund 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.
| * | Total return for the report period presented in the table differs from the return in the Financial Highlights. The total return presented in the above table is calculated based on the NAV at which shareholder transactions were processed. The total return presented in the Financial Highlights section of the report is calculated in the same manner, but also takes into account certain adjustments that are necessary under generally accepted accounting principles required in the annual and semi-annual reports. |
| 1 | Fund expenses may have been partially absorbed by the investment adviser and its affiliates. Without these reductions, the fund’s returns may have been lower. Performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. |
| 2 | Source for category information: Morningstar, Inc. |
| 3 | As stated in the fund's prospectus. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual ratios during the reporting period, refer to the Financial Highlights section of the financial statements. |
Schwab Fundamental Global Real Estate Index Fund7
Fund Expenses (Unaudited)
Examples for a $1,000 Investment
As a fund shareholder, you may incur two types of costs: (1) transaction costs, such as redemption fees; and, (2) ongoing costs, including management fees, transfer agent and shareholder services fees, and other fund expenses.
The expense examples below are intended to help you understand your ongoing cost (in dollars) of investing in a fund and to compare this cost with the ongoing cost of investing in other mutual funds. The Hypothetical expense examples are based on an investment of $1,000 invested for the six months beginning September 1, 2014 and held through February 28, 2015. The Actual expense examples are based on an investment of $1,000 invested for the period beginning from commencement of operations on October 22, 2014 and held through February 28, 2015.
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 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, such as redemption fees. Therefore, the hypothetical return lines of the table are useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
| �� | Expense Ratio1
(Annualized) | Beginning
Account Value | Ending
Account Value
(Net of Expenses)
at 2/28/15 | Expenses Paid
During Period2,3 |
| Schwab Fundamental Global Real Estate Index Fund | | | | |
| Actual Return | 0.13% | $1,000.00 | $ 1,085.70 | $0.48 |
| Hypothetical 5% Return | 0.13% | $1,000.00 | $1,024.15 | $ 0.65 |
| 1 | The expense ratio provided is for the period from 10/22/14 (commencement of operations) through 2/28/15 and is a blended ratio. See financial note 4. |
| 2 | Actual expenses for the fund are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by the 130 days of the period from commencement of operations on 10/22/14 through 2/28/15, and divided by 365 days of the fiscal year. |
| 3 | Hypothetical expenses for the fund are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by the 181 days of the period, and divided by 365 days of the fiscal year. |
8Schwab Fundamental Global Real Estate Index Fund
Schwab Fundamental Global Real Estate Index Fund
Financial Statements
Financial Highlights
| | 10/22/14 1–
2/28/15 | | | | | |
| Per-Share Data ($) |
| Net asset value at beginning of period | 10.00 | | | | | |
| Income (loss) from investment operations: | | | | | | |
| Net investment income (loss)2 | 0.10 | | | | | |
| Net realized and unrealized gains (losses) | 0.75 | | | | | |
| Total from investment operations | 0.85 | | | | | |
| Less distributions: | | | | | | |
| Distributions from net investment income | (0.11) | | | | | |
| Distributions from net realized gains | (0.00) 3 | | | | | |
| Net asset value at end of period | 10.74 | | | | | |
| Total return (%) | 8.57 4 | | | | | |
| Ratios/Supplemental Data (%) |
| Ratios to average net assets: | | | | | | |
| Net operating expenses | 0.13 5,6 | | | | | |
| Gross operating expenses | 2.58 5 | | | | | |
| Net investment income (loss) | 2.62 5 | | | | | |
| Portfolio turnover rate | 4 4 | | | | | |
| Net assets, end of period ($ x 1,000,000) | 105 | | | | | |
| |
1
Commencement of operations.
2
Calculated based on the average shares outstanding during the period.
3
Amount is less than $0.005.
4
Not annualized.
5
Annualized (except for offering costs).
6
The ratio presented for period ended 2/28/15 is a blended ratio. See financial note 4.
Schwab Fundamental Global Real Estate Index Fund
Portfolio Holdings as of February 28, 2015
This section shows all the securities in the fund's portfolio and their values as of the report date.
The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at http://www.sec.gov and may be viewed and copied at the SEC's Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after calendar quarters on the fund's website at www.csimfunds.com/schwabfunds_prospectus.
| Holdings by Category | Cost
($) | Value
($) |
| 99.3% | Common Stock | 99,173,816 | 104,488,108 |
| 0.8% | Short-Term Investments | 856,511 | 856,511 |
| 100.1% | Total Investments | 100,030,327 | 105,344,619 |
| (0.1)% | Other Assets and Liabilities, Net | | (66,545) |
| 100.0% | Net Assets | | 105,278,074 |
| Security | Number
of Shares | Value
($) |
| Common Stock 99.3% of net assets |
| Australia 8.8% |
| Real Estate 8.8% |
| Charter Hall Retail REIT | 37,930 | 135,006 |
| Cromwell Property Group | 112,869 | 103,060 |
| Dexus Property Group | 106,982 | 658,779 |
| Goodman Group | 121,512 | 591,568 |
| Investa Office Fund | 62,954 | 197,437 |
| Lend Lease Group | 104,749 | 1,417,513 |
| Mirvac Group | 505,085 | 819,505 |
| Novion Property Group | 238,978 | 459,904 |
| Stockland | 449,547 | 1,645,465 |
| The GPT Group | 160,445 | 588,767 |
| Westfield Corp. | 344,589 | 2,638,942 |
| | | 9,255,946 |
| Austria 0.3% |
| Real Estate 0.3% |
| IMMOFINANZ AG * | 104,794 | 318,855 |
| Belgium 0.4% |
| Real Estate 0.4% |
| Befimmo S.A. | 1,842 | 133,091 |
| Cofinimmo S.A. | 2,160 | 266,893 |
| | | 399,984 |
| Security | Number
of Shares | Value
($) |
| Brazil 1.0% |
| Consumer Durables & Apparel 0.6% |
| Cyrela Brazil Realty S.A. Empreendimentos e Participacoes | 62,320 | 254,219 |
| Even Construtora e Incorporadora S.A. | 83,842 | 135,565 |
| Gafisa S.A. | 137,699 | 101,865 |
| PDG Realty S.A. Empreendimentos e Participacoes * | 710,661 | 117,661 |
| | | 609,310 |
| Real Estate 0.4% |
| BR Malls Participacoes S.A. | 30,354 | 180,814 |
| BR Properties S.A. | 20,130 | 82,186 |
| Multiplan Empreendimentos Imobiliarios S.A. | 8,360 | 160,648 |
| | | 423,648 |
| | | 1,032,958 |
| Canada 1.6% |
| Real Estate 1.6% |
| Boardwalk Real Estate Investment Trust | 2,665 | 126,311 |
| Calloway Real Estate Investment Trust | 7,530 | 183,235 |
| Canadian Real Estate Investment Trust | 3,603 | 134,885 |
| Cominar Real Estate Investment Trust | 6,162 | 97,204 |
| Dream Office Real Estate Investment Trust | 3,823 | 83,824 |
| First Capital Realty, Inc. | 10,258 | 161,161 |
| FirstService Corp. | 1,833 | 111,174 |
| Granite Real Estate Investment Trust | 5,923 | 214,727 |
| H&R Real Estate Investment Trust | 11,773 | 227,719 |
| RioCan Real Estate Investment Trust | 15,961 | 373,713 |
| | | 1,713,953 |
| China 5.8% |
| Real Estate 5.8% |
| Agile Property Holdings Ltd. | 606,000 | 359,893 |
| China Overseas Land & Investment Ltd. | 374,000 | 1,140,633 |
| China Resources Land Ltd. | 172,000 | 456,756 |
| China Vanke Co., Ltd., Class H * | 148,100 | 340,109 |
| Country Garden Holdings Co., Ltd. | 775,000 | 308,429 |
| Evergrande Real Estate Group Ltd. | 891,000 | 393,179 |
| Franshion Properties China Ltd. | 406,000 | 119,229 |
| Greentown China Holdings Ltd. | 117,000 | 103,336 |
| Guangzhou R&F Properties Co., Ltd., Class H | 327,200 | 381,141 |
| Kerry Properties Ltd. | 125,000 | 417,260 |
Schwab Fundamental Global Real Estate Index Fund
Portfolio Holdings continued
| Security | Number
of Shares | Value
($) |
| KWG Property Holding Ltd. | 218,500 | 141,913 |
| Longfor Properties Co., Ltd. | 102,000 | 134,076 |
| Poly Property Group Co., Ltd. | 338,000 | 165,112 |
| Shenzhen Investment Ltd. | 424,000 | 133,882 |
| Shimao Property Holdings Ltd. | 172,500 | 366,340 |
| Shui On Land Ltd. | 487,500 | 113,120 |
| Sino-Ocean Land Holdings Ltd. | 565,500 | 353,953 |
| SOHO China Ltd. | 412,000 | 294,454 |
| Sunac China Holdings Ltd. | 248,000 | 229,186 |
| Yuexiu Property Co., Ltd. | 904,000 | 181,835 |
| | | 6,133,836 |
| France 4.4% |
| Real Estate 4.4% |
| Fonciere Des Regions | 5,780 | 596,944 |
| Gecina S.A. | 3,276 | 430,037 |
| ICADE | 5,698 | 510,236 |
| Klepierre | 14,159 | 691,430 |
| Mercialys S.A. | 8,418 | 207,177 |
| Nexity S.A. | 11,874 | 488,546 |
| Unibail-Rodamco SE | 5,930 | 1,706,015 |
| | | 4,630,385 |
| Germany 0.5% |
| Real Estate 0.5% |
| Deutsche Euroshop AG | 3,670 | 187,512 |
| GAGFAH S.A. * | 12,035 | 278,617 |
| | | 466,129 |
| Hong Kong 9.0% |
| Real Estate 9.0% |
| Cheung Kong (Holdings) Ltd. | 90,000 | 1,781,443 |
| Great Eagle Holdings Ltd. | 43,000 | 148,650 |
| Hang Lung Group Ltd. | 81,000 | 377,949 |
| Hang Lung Properties Ltd. | 168,000 | 476,416 |
| Henderson Land Development Co., Ltd. | 58,000 | 396,408 |
| Hongkong Land Holdings Ltd. | 96,000 | 724,800 |
| Hysan Development Co., Ltd. | 32,000 | 153,680 |
| New World Development Co., Ltd. | 642,000 | 756,745 |
| Sino Land Co., Ltd. | 308,000 | 503,930 |
| Sun Hung Kai Properties Ltd. | 88,000 | 1,378,922 |
| Swire Properties Ltd. | 78,200 | 259,516 |
| The Link REIT | 132,500 | 846,574 |
| The Wharf Holdings Ltd. | 137,000 | 998,769 |
| Wheelock & Co., Ltd. | 129,000 | 692,555 |
| | | 9,496,357 |
| Italy 0.1% |
| Real Estate 0.1% |
| Beni Stabili S.p.A | 183,339 | 150,001 |
| Security | Number
of Shares | Value
($) |
| Japan 12.0% |
| Real Estate 12.0% |
| Advance Residence Investment Corp. | 110 | 275,842 |
| Aeon Mall Co., Ltd. | 13,900 | 269,807 |
| Daito Trust Construction Co., Ltd. | 15,600 | 1,691,074 |
| Frontier Real Estate Investment Corp. | 22 | 103,696 |
| Japan Excellent, Inc. | 131 | 171,823 |
| Japan Prime Realty Investment Corp. | 65 | 234,045 |
| Japan Real Estate Investment Corp. | 93 | 464,653 |
| Japan Retail Fund Investment Corp. | 213 | 457,757 |
| Kenedix Office Investment Corp. | 37 | 211,483 |
| Leopalace21 Corp. * | 61,600 | 338,180 |
| MID REIT, Inc. | 40 | 101,000 |
| Mitsubishi Estate Co., Ltd. | 93,000 | 2,172,950 |
| Mitsui Fudosan Co., Ltd. | 80,000 | 2,198,367 |
| Mori Trust Sogo REIT, Inc. | 60 | 129,695 |
| Nippon Accommodations Fund, Inc. | 26 | 99,758 |
| Nippon Building Fund, Inc. | 115 | 578,391 |
| Nomura Real Estate Holdings, Inc. | 28,800 | 509,846 |
| Nomura Real Estate Office Fund, Inc. | 60 | 299,038 |
| NTT Urban Development Corp. | 16,300 | 167,507 |
| Orix JREIT, Inc. | 173 | 247,838 |
| Relo Holdings, Inc. | 1,500 | 120,996 |
| Sumitomo Realty & Development Co., Ltd. | 33,000 | 1,137,005 |
| Tokyo Tatemono Co., Ltd. | 40,000 | 297,115 |
| Top REIT, Inc. | 21 | 89,906 |
| United Urban Investment Corp. | 165 | 268,797 |
| | | 12,636,569 |
| Netherlands 1.2% |
| Real Estate 1.2% |
| Corio N.V. | 10,274 | 569,956 |
| Eurocommercial Properties N.V. CVA | 4,384 | 203,699 |
| Vastned Retail N.V. | 3,915 | 203,937 |
| Wereldhave N.V. | 3,531 | 242,591 |
| | | 1,220,183 |
| Singapore 2.3% |
| Real Estate 2.3% |
| Ascendas Real Estate Investment Trust | 165,000 | 299,043 |
| CapitaCommercial Trust | 146,000 | 189,082 |
| CapitaLand Ltd. | 256,000 | 673,989 |
| CapitaMall Trust | 195,000 | 302,003 |
| Global Logistic Properties Ltd. | 88,000 | 167,123 |
| Keppel Land Ltd. | 80,000 | 266,899 |
Schwab Fundamental Global Real Estate Index Fund
Portfolio Holdings continued
| Security | Number
of Shares | Value
($) |
| Suntec Real Estate Investment Trust | 145,000 | 207,606 |
| UOL Group Ltd. | 55,000 | 316,426 |
| | | 2,422,171 |
| South Africa 1.0% |
| Real Estate 1.0% |
| Capital Property Fund | 102,787 | 123,814 |
| Emira Property Fund | 69,067 | 108,482 |
| Growthpoint Properties Ltd. | 175,770 | 447,111 |
| Redefine Properties Ltd. | 218,101 | 221,386 |
| SA Corporate Real Estate Fund Nominees Pty Ltd. | 415,068 | 181,447 |
| | | 1,082,240 |
| Sweden 0.9% |
| Diversified Financials 0.3% |
| LE Lundbergfortagen AB, B Shares | 5,375 | 259,147 |
| Real Estate 0.6% |
| Castellum AB | 15,215 | 260,566 |
| Fabege AB | 13,995 | 212,497 |
| Kungsleden AB | 23,321 | 191,684 |
| | | 664,747 |
| | | 923,894 |
| Switzerland 0.4% |
| Real Estate 0.4% |
| Allreal Holding AG - Reg'd * | 1,205 | 184,901 |
| Swiss Prime Site AG - Reg'd * | 3,024 | 275,574 |
| | | 460,475 |
| Taiwan 0.7% |
| Real Estate 0.7% |
| Chong Hong Construction Co., Ltd. | 37,000 | 76,361 |
| Farglory Land Development Co., Ltd. | 112,000 | 133,540 |
| Highwealth Construction Corp. | 171,000 | 363,565 |
| Huaku Development Co., Ltd. | 66,000 | 124,787 |
| Ruentex Development Co., Ltd. | 51,000 | 76,128 |
| | | 774,381 |
| United Arab Emirates 0.4% |
| Real Estate 0.4% |
| Emaar Properties PJSC | 209,005 | 423,557 |
| United Kingdom 4.3% |
| Real Estate 4.3% |
| Derwent London plc | 4,139 | 213,770 |
| Hammerson plc | 65,155 | 678,766 |
| Intu Properties plc | 86,307 | 470,239 |
| Land Securities Group plc | 72,456 | 1,402,188 |
| Savills plc | 20,643 | 232,510 |
| Segro plc | 92,541 | 614,193 |
| Security | Number
of Shares | Value
($) |
| Shaftesbury plc | 8,060 | 100,992 |
| The British Land Co., plc | 59,149 | 755,161 |
| | | 4,467,819 |
| United States 44.2% |
| Diversified Financials 0.2% |
| WisdomTree India Earnings Fund | 8,049 | 194,705 |
| Real Estate 44.0% |
| Alexandria Real Estate Equities, Inc. | 5,012 | 480,701 |
| American Campus Communities, Inc. | 6,331 | 261,280 |
| American Tower Corp. | 14,458 | 1,433,366 |
| Apartment Investment & Management Co., Class A | 22,614 | 852,096 |
| Ashford Hospitality Trust, Inc. | 12,794 | 136,256 |
| AvalonBay Communities, Inc. | 5,974 | 1,005,663 |
| BioMed Realty Trust, Inc. | 15,603 | 347,011 |
| Boston Properties, Inc. | 9,707 | 1,333,839 |
| Brandywine Realty Trust | 23,203 | 367,768 |
| Camden Property Trust | 6,723 | 489,367 |
| CBL & Associates Properties, Inc. | 22,861 | 457,677 |
| CBRE Group, Inc., Class A * | 15,972 | 547,201 |
| Columbia Property Trust, Inc. | 13,748 | 355,936 |
| Corporate Office Properties Trust | 12,149 | 357,181 |
| Corrections Corp. of America | 19,047 | 759,785 |
| Cousins Properties, Inc. | 10,063 | 107,976 |
| Crown Castle International Corp. | 11,963 | 1,032,527 |
| DCT Industrial Trust, Inc. | 6,565 | 236,865 |
| DDR Corp. | 20,956 | 396,907 |
| DiamondRock Hospitality Co. | 19,129 | 276,988 |
| Digital Realty Trust, Inc. | 10,155 | 674,089 |
| Douglas Emmett, Inc. | 10,925 | 315,405 |
| Duke Realty Corp. | 33,318 | 711,672 |
| EastGroup Properties, Inc. | 2,506 | 157,878 |
| EPR Properties | 5,046 | 307,856 |
| Equity Commonwealth * | 18,240 | 482,448 |
| Equity LifeStyle Properties, Inc. | 4,127 | 222,321 |
| Equity One, Inc. | 3,854 | 103,210 |
| Equity Residential | 24,527 | 1,889,315 |
| Essex Property Trust, Inc. | 2,480 | 551,626 |
| Extra Space Storage, Inc. | 3,714 | 244,307 |
| Federal Realty Investment Trust | 4,183 | 594,111 |
| Franklin Street Properties Corp. | 7,748 | 97,857 |
| General Growth Properties, Inc. | 34,774 | 1,008,794 |
| Government Properties Income Trust | 4,281 | 100,133 |
| HCP, Inc. | 34,073 | 1,443,332 |
| Health Care REIT, Inc. | 13,585 | 1,047,539 |
| Healthcare Realty Trust, Inc. | 9,172 | 261,769 |
| Healthcare Trust of America, Inc., Class A | 4,322 | 119,935 |
| Hersha Hospitality Trust | 15,021 | 100,791 |
| Highwoods Properties, Inc. | 8,655 | 394,755 |
| Home Properties, Inc. | 5,260 | 351,210 |
| Hospitality Properties Trust | 26,906 | 828,974 |
| Host Hotels & Resorts, Inc. | 59,783 | 1,255,443 |
Schwab Fundamental Global Real Estate Index Fund
Portfolio Holdings continued
| Security | Number
of Shares | Value
($) |
| Inland Real Estate Corp. | 12,301 | 131,621 |
| Investors Real Estate Trust | 10,931 | 83,731 |
| Jones Lang LaSalle, Inc. | 4,669 | 752,876 |
| Kilroy Realty Corp. | 4,220 | 312,153 |
| Kimco Realty Corp. | 34,540 | 907,711 |
| LaSalle Hotel Properties | 6,999 | 272,401 |
| Lexington Realty Trust | 23,180 | 251,039 |
| Liberty Property Trust | 16,742 | 623,137 |
| Mack-Cali Realty Corp. | 26,339 | 495,437 |
| Medical Properties Trust, Inc. | 7,700 | 116,578 |
| Mid-America Apartment Communities, Inc. | 3,977 | 288,213 |
| National Retail Properties, Inc. | 6,973 | 280,594 |
| Omega Healthcare Investors, Inc. | 6,745 | 270,205 |
| Pennsylvania Real Estate Investment Trust | 9,404 | 214,223 |
| Piedmont Office Realty Trust, Inc., Class A | 31,410 | 575,745 |
| Post Properties, Inc. | 3,379 | 192,164 |
| Prologis, Inc. | 22,881 | 977,248 |
| PS Business Parks, Inc. | 1,700 | 141,406 |
| Public Storage | 8,460 | 1,668,481 |
| Realty Income Corp. | 8,270 | 413,996 |
| Regency Centers Corp. | 8,026 | 526,746 |
| Retail Properties of America, Inc., Class A | 21,966 | 347,722 |
| RLJ Lodging Trust | 7,819 | 248,722 |
| Ryman Hospitality Properties, Inc. | 3,377 | 202,958 |
| Sabra Health Care REIT, Inc. | 7,530 | 246,156 |
| Senior Housing Properties Trust | 16,844 | 376,463 |
| Simon Property Group, Inc. | 16,466 | 3,134,468 |
| SL Green Realty Corp. | 4,251 | 539,579 |
| Sovran Self Storage, Inc. | 2,093 | 192,598 |
| Sun Communities, Inc. | 2,851 | 192,699 |
| Sunstone Hotel Investors, Inc. | 12,241 | 213,605 |
| Tanger Factory Outlet Centers, Inc. | 5,735 | 203,306 |
| Taubman Centers, Inc. | 4,358 | 315,258 |
| The Geo Group, Inc. | 7,439 | 320,993 |
| The Macerich Co. | 9,771 | 817,344 |
| UDR, Inc. | 19,520 | 623,469 |
| Ventas, Inc. | 19,876 | 1,480,166 |
| Vornado Realty Trust | 16,299 | 1,793,542 |
| Washington Real Estate Investment Trust | 9,990 | 283,117 |
| Weingarten Realty Investors | 13,747 | 497,916 |
| WP Carey, Inc. | 3,744 | 256,764 |
| | | 46,283,710 |
| | | 46,478,415 |
| Total Common Stock |
| (Cost $99,173,816) | | 104,488,108 |
Security
Rate, Maturity Date | Face Amount
Local Currency | Value
($) |
| Short-Term Investments 0.8% of net assets |
| Time Deposits 0.7% |
| Brown Brothers Harriman |
| Australian Dollar | | |
| 1.19%, 03/02/15 | 144,167 | 112,653 |
| Canadian Dollar | | |
| 0.10%, 03/02/15 | 1,132 | 906 |
| Singapore Dollar | | |
| 0.01%, 03/02/15 | 4,912 | 3,604 |
| DNB |
| US Dollar | | |
| 0.03%, 03/02/15 | 679,349 | 679,349 |
| | | 796,512 |
| U.S. Treasury Obligations 0.1% |
| U.S. Treasury Bills |
| 0.00%, 03/19/15 (a)(b) | 30,000 | 30,000 |
| 0.01%, 03/19/15 (a)(b) | 10,000 | 10,000 |
| 0.02%, 03/19/15 (a)(b) | 10,000 | 10,000 |
| 0.05%, 03/19/15 (a)(b) | 10,000 | 9,999 |
| | | 59,999 |
| Total Short-Term Investments |
| (Cost $856,511) | | 856,511 |
End of Investments.
At 02/28/15, the tax basis cost of the fund's investments was $101,186,245 and the unrealized appreciation and depreciation were $5,231,216 and ($1,072,842), respectively, with a net unrealized appreciation of $4,158,374.
As of 02/28/15, the values of certain foreign securities held by the fund aggregating $53,765,074 were adjusted from their closing market values in accordance with international fair valuation procedures approved by the fund's Board of Trustees.
| * | Non-income producing security. |
| (a) | The rate shown is the purchase yield. |
| (b) | All or a portion of this security is held as collateral for open futures contracts. |
| | |
| CVA – | Dutch Certificate |
| Reg'd – | Registered |
| REIT – | Real Estate Investment Trust |
In addition to the above, the fund held the following at 02/28/15:
| | Number of
Contracts | Contract
Value
($) | Unrealized
Depreciation
($) |
| Futures Contracts | | | |
| S&P 500 Index, e-mini, Long, expires 03/20/15 | 6 | 630,840 | (1,334) |
Schwab Fundamental Global Real Estate Index Fund
Portfolio Holdings continued
The following is a summary of the inputs used to value the fund's investments as of February 28, 2015 (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 | | $— | | $36,128,178 | | $— | | $36,128,178 | |
| Brazil 1 | | 1,032,958 | | — | | — | | 1,032,958 | |
| Canada 1 | | 1,713,953 | | — | | — | | 1,713,953 | |
| China | | | | | | | | | |
| Real Estate | | 103,336 | | 6,030,500 | | — | | 6,133,836 | |
| Hong Kong | | | | | | | | | |
| Real Estate | | 724,800 | | 8,771,557 | | — | | 9,496,357 | |
| Singapore | | | | | | | | | |
| Real Estate | | 488,125 | | 1,934,046 | | — | | 2,422,171 | |
| South Africa | | | | | | | | | |
| Real Estate | | 181,447 | | 900,793 | | — | | 1,082,240 | |
| United States1 | | 46,478,415 | | — | | — | | 46,478,415 | |
| Short-Term Investments1 | | — | | 856,511 | | — | | 856,511 | |
| Total | | $50,723,034 | | $54,621,585 | | $— | | $105,344,619 | |
Liabilities Valuation Input
| | | | | | | | | |
| | | | | | | | | |
| Other Financial Instruments | | | | | | | | | |
| Futures Contracts2 | | ($1,334) | | $— | | $— | | ($1,334) | |
| 1 | As categorized in Portfolio Holdings. |
| 2 | Futures contracts are not included in Investments in the schedule of portfolio holdings and are valued at unrealized appreciation or depreciation. |
The fund's policy is to recognize transfers between Level 1, Level 2 and Level 3 as of the beginning of the period. There were no transfers between Level 1, Level 2 and Level 3 for the period ended February 28, 2015.
Schwab Fundamental Global Real Estate Index Fund
Statement of
Assets and Liabilities
As of February 28, 2015
| Assets |
| Investments, at value (cost $100,030,327) | | $105,344,619 |
| Foreign currency, at value (cost $13,574) | | 13,575 |
| Receivables: | | |
| Investments sold | | 197 |
| Fund shares sold | | 410,097 |
| Dividends | | 95,387 |
| Foreign tax reclaims | | 1,197 |
| Prepaid offering costs | + | 65,847 |
| Total assets | | 105,930,919 |
| Liabilities |
| Payables: | | |
| Investments bought | | 395,277 |
| Investment adviser and administrator fees | | 4,448 |
| Shareholder service fees | | 1,744 |
| Offering costs | | 65,847 |
| Fund shares redeemed | | 43,104 |
| Variation margin on futures contracts | | 1,394 |
| Accrued expenses | + | 141,031 |
| Total liabilities | | 652,845 |
| Net Assets |
| Total assets | | 105,930,919 |
| Total liabilities | – | 652,845 |
| Net assets | | $105,278,074 |
| Net Assets by Source | | |
| Capital received from investors | | 100,018,918 |
| Net investment income not yet distributed | | 17,433 |
| Net realized capital losses | | (72,854) |
| Net unrealized capital appreciation | | 5,314,577 |
| Net Asset Value (NAV) |
| Net Assets | ÷ | Shares
Outstanding | = | NAV |
| $105,278,074 | | 9,806,970 | | $10.74 |
| | | | | |
Schwab Fundamental Global Real Estate Index Fund
Statement of
Operations
For the period October 22, 2014* through February 28, 2015
| Investment Income |
| Dividends (net of foreign withholding taxes of $40,935) | | $840,632 |
| Interest | + | 205 |
| Total investment income | | 840,837 |
| Expenses |
| Investment adviser and administrator fees | | 122,608 |
| Shareholder service fees | | 30,652 |
| Registration fees | | 418,445 |
| Custodian fees | | 101,867 |
| Offering costs | | 36,425 |
| Professional fees | | 32,758 |
| Shareholder reports | | 26,250 |
| Index fee | | 23,449 |
| Transfer agent fees | | 10,076 |
| Portfolio accounting fees | | 5,731 |
| Independent trustees' fees | | 1,714 |
| Other expenses | + | 3,959 |
| Total expenses | | 813,934 |
| Expense reduction by CSIM and its affiliates | – | 775,150 |
| Net expenses | – | 38,784 |
| Net investment income | | 802,053 |
| Realized and Unrealized Gains (Losses) |
| Net realized gains on investments | | 85,982 |
| Net realized losses on futures contracts | | (28,279) |
| Net realized gains on foreign currency transactions | + | 4,406 |
| Net realized gains | | 62,109 |
| Net change in unrealized appreciation (depreciation) on investments | | 5,314,292 |
| Net change in unrealized appreciation (depreciation) on futures contracts | | (1,334) |
| Net change in unrealized appreciation (depreciation) on foreign currency translations | + | 1,619 |
| Net change in unrealized appreciation (depreciation) | + | 5,314,577 |
| Net realized and unrealized gains | | 5,376,686 |
| Increase in net assets resulting from operations | | $6,178,739 |
| * | Commencement of operations. |
Schwab Fundamental Global Real Estate Index Fund
Statement of
Changes in Net Assets
For the current period only. Because the fund commenced operations on October 22, 2014, it has no prior report period.
| Operations |
| | 10/22/14*-2/28/15 |
| Net investment income | | $802,053 |
| Net realized gains | | 62,109 |
| Net change in unrealized appreciation (depreciation) | + | 5,314,577 |
| Increase in net assets from operations | | 6,178,739 |
| Distributions to Shareholders |
| Distributions from net investment income | | (916,331) |
| Distributions from net realized gains | + | (3,252) |
| Total distributions | | ($919,583) |
| Transactions in Fund Shares | |
| | | 10/22/14*-2/28/15 |
| | | SHARES | VALUE |
| Shares sold | | 10,123,658 | $103,354,738 |
| Shares reinvested | | 69,163 | 719,990 |
| Shares redeemed | + | (385,851) | (4,055,810) |
| Net transactions in fund shares | | 9,806,970 | $100,018,918 |
| Shares Outstanding and Net Assets | |
| | | 10/22/14*-2/28/15 |
| | | SHARES | NET ASSETS |
| Beginning of period | | — | $— |
| Total increase | + | 9,806,970 | 105,278,074 |
| End of period | | 9,806,970 | $105,278,074 |
| Net investment income not yet distributed | | | $17,433 |
| * | Commencement of operations. |
Schwab Fundamental Global Real Estate Index Fund
1. Business Structure of the Fund:
Schwab Fundamental Global Real Estate Index Fund is a series of Schwab Capital Trust (the “trust”), a no-load, open-end management investment company. The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”). The list below shows all the funds in the trust as of the end of the period, including the fund discussed in this report, which is highlighted:
| Schwab Capital Trust (organized May 7, 1993) | Schwab Large-Cap Growth Fund |
| Schwab Fundamental Global Real Estate Index Fund | Schwab Small-Cap Equity Fund |
| Schwab Fundamental US Large Company Index Fund | Schwab Hedged Equity Fund |
| Schwab Fundamental US Small Company Index Fund | Schwab Financial Services Fund |
| Schwab Fundamental International Large Company Index Fund | Schwab Health Care Fund |
| Schwab Fundamental International Small Company Index Fund | Schwab International Core Equity Fund |
| Schwab Fundamental Emerging Markets Large Company Index Fund | Schwab Target 2010 Fund |
| Schwab S&P 500 Index Fund | Schwab Target 2015 Fund |
| Schwab Small-Cap Index Fund | Schwab Target 2020 Fund |
| Schwab Total Stock Market Index Fund | Schwab Target 2025 Fund |
| Schwab International Index Fund | Schwab Target 2030 Fund |
| Schwab MarketTrack All Equity Portfolio | Schwab Target 2035 Fund |
| Schwab MarketTrack Growth Portfolio | Schwab Target 2040 Fund |
| Schwab MarketTrack Balanced Portfolio | Schwab Target 2045 Fund |
| Schwab MarketTrack Conservative Portfolio | Schwab Target 2050 Fund |
| Laudus Small-Cap MarketMasters Fund | Schwab Target 2055 Fund |
| Laudus International MarketMasters Fund | Schwab Monthly Income Fund - Moderate Payout |
| Schwab Balanced Fund | Schwab Monthly Income Fund - Enhanced Payout |
| Schwab Core Equity Fund | Schwab Monthly Income Fund - Maximum Payout |
| Schwab Dividend Equity Fund | |
Schwab Fundamental Global Real Estate Index Fund offers one share class. Shares are bought and sold (subject to a redemption fee, see financial note 9) at closing net asset value per share (“NAV”), which is the price for all outstanding shares of a fund. Each share has a par value of 1/1,000 of a cent, and the fund's Board of Trustees (the “Board”) may authorize the issuance of as many shares as necessary.
The fund commenced operations on October 22, 2014.
The fund maintains its own account for purposes of holding assets and accounting, and is considered a separate entity for tax purposes. Within its account, the fund may also keep certain assets in segregated accounts, as required by securities law.
2. Significant Accounting Policies:
The following is a summary of the significant accounting policies the fund uses in its preparation of financial statements. The fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standard Codification Topic 946 Financial Services - Investment Companies. The accounting policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
(a) Security Valuation:
Under procedures approved by the Board, the investment adviser has formed a Pricing Committee to administer the pricing and valuation of portfolio securities and other assets and to ensure that prices used for internal purposes or provided by third parties reasonably reflect fair market value. Among other things, these procedures allow the fund to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value.
The fund values the securities in its portfolio every business day. The fund uses the following policies to value various types of securities:
• Securities traded on an exchange or over-the-counter: 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.
Schwab Fundamental Global Real Estate Index Fund
Financial Notes (continued)
2. Significant Accounting Policies (continued):
• Securities for which no quoted value is available: The Board has adopted procedures to fair value the fund’s securities when market prices are not “readily available” or are unreliable. For example, a fund may fair value a security when it is de-listed or its trading is halted or suspended; when a security’s primary pricing source is unable or unwilling to provide a price; or when a security’s primary trading market is closed during regular market hours. The fund makes fair value determinations in good faith in accordance with the fund’s valuation procedures. The Pricing Committee considers a number of factors, including unobservable market inputs when arriving at fair value. The Pricing Committee may employ techniques such as the review of related or comparable assets or liabilities, related market activities, recent transactions, market multiples, book values, transactional back-testing, disposition analysis and other relevant information. The Pricing Committee regularly reviews these inputs and assumptions to calibrate the valuations. 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 fund pursuant to the valuation procedures.
• Foreign equity security fair valuation: The Board has adopted procedures to fair value foreign equity securities that are traded in markets that close prior to the fund valuing its holdings. By fair valuing securities whose prices may have been affected by events occurring after the close of trading, the fund seeks to establish prices that investors might expect to realize upon the current sales of these securities. This methodology is designed to deter “arbitrage” market timers, who seek to exploit delays between the change in the value of the fund’s portfolio holdings and the NAV of the fund’s shares, and seeks to help ensure that the prices at which the fund’s shares are purchased and redeemed are fair and do not result in dilution of shareholder interest or other harm to shareholders. When fair value pricing is used at the open or close of a reporting period, it may cause a temporary divergence between the return of the fund and that of its comparative index or benchmark. The Board regularly reviews fair value determinations made by the fund pursuant to these procedures.
• Futures contracts (“futures”): Futures 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 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 futures contracts.
• Level 2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)—Investments that trade in markets that are not considered to be active, but whose values are based on quoted market prices, dealer quotations or valuations provided by alternative pricing sources supported by observable inputs are classified as Level 2 prices. These generally include U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage products, less liquid listed equities, and state, municipal and provincial obligations. In addition, international securities whose markets close hours before the fund values its holdings may require fair valuations due to significant movement in the U.S. markets occurring after the daily close of the foreign markets. The Board has approved a vendor that calculates fair valuations of international equity securities based on a number of factors that appear to correlate to the movements in the U.S. markets. As investments whose values are classified as Level 2 prices include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.
Schwab Fundamental Global Real Estate Index Fund
Financial Notes (continued)
2. Significant Accounting Policies (continued):
• Level 3—significant unobservable inputs (including the fund's own assumptions in determining the fair value of investments)—Investments whose values are classified as Level 3 prices have significant unobservable inputs, as they may trade infrequently or not at all. When observable prices are not available for these securities, the fund uses one or more valuation techniques for which sufficient and reliable data is available. The inputs used by the fund in estimating the value of Level 3 prices may include the original transaction price, quoted prices for similar securities or assets in active markets, completed or pending third-party transactions in the underlying investment or comparable issuers, and changes in financial ratios or cash flows. Level 3 prices may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the fund in the absence of market information. Assumptions used by the fund due to the lack of observable inputs may significantly impact the resulting fair value and therefore the fund's results of operations.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The levels associated with valuing the fund's investments as of February 28, 2015 are disclosed in the Portfolio Holdings.
(b) Accounting Policies for certain Portfolio Investments (if held):
Futures Contracts: Futures contracts are instruments that represent an agreement between two parties that obligates one party to buy, and the other party to sell, specific instruments at an agreed upon price on a stipulated future date. The fund must give the broker a deposit of cash and/or securities (initial margin) whenever it enters into a futures contract. The amount of the deposit may vary from one contract to another. Subsequent payments (variation margin) are made or received by the fund depending on the daily fluctuations in the value of the futures contract and are accounted for as unrealized appreciation or depreciation until the contract is closed, at which time the gains or losses are realized. Futures are traded publicly on exchanges, and their market value may change daily.
Real Estate Investment Trusts: The fund may own shares of real estate investment trusts (“REITs”) which report information on the source of their distributions annually. Certain distributions received from U.S. REITs during the year, which are known to be a return of capital or realized gains, are recorded as a reduction to the cost of the individual U.S. REITs or realized gains on investments, respectively.
Passive Foreign Investment Companies: The fund may own shares in certain foreign corporations that meet the Internal Revenue Code definition of a passive foreign investment company (“PFIC”). The fund may elect for tax purposes to mark-to-market annually the shares of each PFIC lot held and would be required to distribute as ordinary income to shareholders any such marked-to-market gains (as well as any gains realized on sale).
(c) Security Transactions:
Security transactions are recorded as of the date the order to buy or sell the security is executed. Realized gains and losses from security transactions are based on the identified costs of the securities involved.
Assets and liabilities denominated in foreign currencies are reported in U.S. dollars. For assets and liabilities held on a given date, the dollar value is based on market exchange rates in effect on that date. Transactions involving foreign currencies, including purchases, sales, income receipts and expense payments, are calculated using exchange rates in effect on the transaction date. Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions and the differences between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period. These realized and unrealized foreign exchange gains or losses are reported in foreign currency transactions or translations on the Statement of Operations. The fund does not isolate the portion of the fluctuations on investments resulting from changes in foreign currency exchange rates from the fluctuations in market prices of investments held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.
Gains realized by the fund on the sale of securities in certain foreign countries may be subject to non-U.S. taxes. In those instances, the fund records a liability based on unrealized gains to provide for potential non-U.S. taxes payable upon the sale of these securities.
Schwab Fundamental Global Real Estate Index Fund
Financial Notes (continued)
2. Significant Accounting Policies (continued):
When the fund closes out a futures position, it calculates the difference between the value of the position at the beginning and at the end of the contract, and records a realized gain or loss accordingly.
(d) Investment Income:
Interest income is recorded as it accrues. Dividends and distributions from portfolio securities and underlying funds are recorded on the date they are effective (the ex-dividend date), although the fund records certain foreign security dividends on the day it learns of the ex-dividend date.
Income received from foreign sources may result in withholding tax. Withholding taxes are accrued at the same time as the related income if the tax rate is fixed and known, unless a tax withheld is reclaimable from the local tax authorities in which case it is recorded as receivable. If the tax rate is not known or estimable, such expense or reclaim receivable is recorded when the net proceeds are received.
(e) Expenses:
Expenses that are specific to a fund are charged directly to the fund. Expenses that are common to all funds within the trust generally are allocated among the funds in proportion to their average daily net assets.
(f) Distributions to Shareholders:
The fund generally makes distributions from net investment income, if any, quarterly and from net realized capital gains, if any, once a year.
(g) Accounting Estimates:
The accounting policies described in this report conform to GAAP. Notwithstanding this, shareholders should understand that in order to follow these principles, fund management has to make estimates and assumptions that affect the information reported in the financial statements. It’s possible that once the results are known, they may turn out to be different from these estimates and these differences may be material.
(h) Federal Income Taxes:
The fund intends to meet federal income and excise tax requirements for regulated investment companies. Accordingly, the fund distributes substantially all of its net investment income and realized net capital gains, if any, to its respective shareholders each year. As long as the fund meets the tax requirements, it is not required to pay federal income tax.
(i) Foreign Taxes:
The fund may be subject to foreign taxes (a portion of which may be reclaimable) on income, corporate events, foreign currency exchanges and capital gains on investments. All foreign taxes are recorded in accordance with the applicable foreign tax regulations and rates that exist in foreign markets in which the fund invests. These foreign taxes, if any, are paid by the fund and are disclosed in the Statement of Operations. Foreign taxes payable as of February 28, 2015, if any, are reflected in the fund’s Statement of Assets and Liabilities.
(j) Indemnification:
Under the fund’s organizational documents, the officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the fund. In addition, in the normal course of business the fund enters into contracts with its vendors and others that provide general indemnifications. The fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the fund. However, based on experience, the fund expects the risk of loss attributable to these arrangements to be remote.
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.
Schwab Fundamental Global Real Estate Index Fund
Financial Notes (continued)
3. Risk Factors (continued):
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 the fund will fluctuate, which means that an investor could lose money.
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.
Investment Style Risk. The fund invests in global real estate companies, including REITs, as measured by the index. It follows those stocks 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 the index.
Small- and Mid-Cap Risk. Even the larger REITs and other real estate companies may be small- to medium-sized companies in relation to the equity markets as a whole. Historically, mid- and small-cap stocks have been riskier than large-cap stocks. Mid- and small-cap companies themselves may be more vulnerable to adverse business or economic events than larger, more established companies. Stock prices of smaller companies may be based in substantial part on future expectations rather than current achievements and may move sharply, especially during market upturns and downturns. During a period when mid- and small-cap stocks fall behind other types of investments—bonds or large-cap stocks, for instance—the fund’s small- and mid-cap holdings could reduce performance.
Real Estate Investment Risk. Due to the composition of the index, the fund will concentrate its investments in real estate companies and companies related to the real estate industry. As such, the fund is subject to risks associated with the direct ownership of real estate securities and an investment in the fund will be closely linked to the performance of the real estate markets. These risks include, among others, declines in the value of real estate; risks related to general and local economic conditions; possible lack of availability of mortgage funds or other limits to accessing the credit or capital markets; default by borrowers or tenants, particularly during an economic downturn; and changes in interest rates.
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, 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.
Foreign Investment Risk. The 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 the 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 ADRs, GDRs, and EDRs, which are receipts issued by U.S. and foreign banks that represent shares of foreign-based corporations. Investments in ADRs, GDRs, and EDRs may be less liquid than the underlying shares in their primary trading market and GDRs, many of which are issued by companies in emerging markets, may be more volatile. To the extent the 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 it may be subject to increased price volatility.
Emerging Market Risk. Emerging market countries may be more likely to experience political turmoil or rapid changes in market or economic conditions than more developed countries. Such 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 other countries. As a result, there will tend to be an increased risk of price volatility associated with the fund's investments in emerging market countries and, at times, it may be difficult to value such investments.
Schwab Fundamental Global Real Estate Index Fund
Financial Notes (continued)
3. Risk Factors (continued):
Sampling Index Tracking Risk. The fund may not fully replicate the index and may hold securities not included in the index. As a result, the fund will be subject to the risk that the investment adviser’s investment management strategy, the implementation of which is subject to a number of constraints, may not produce the intended results. Because the fund utilizes a sampling approach, it may not track the return of the index as well as it would if the fund purchased all of the securities in its benchmark index.
Tracking Error Risk. As an index fund, the fund seeks to track the performance of the index, although it may not be successful in doing so. The divergence between the performance of the fund and the index, positive or negative, is called “tracking error.” Tracking error can be caused by many factors and it may be significant. For example, the fund may not invest in certain securities in the index, or match the securities’ weightings to the index, due to regulatory, operational, custodial or liquidity constraints; corporate transactions; asset valuations; transaction costs and timing; tax considerations; and index rebalancing, which may result in tracking error.
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, country, 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, country, or asset class.
Derivatives Risk. The fund may use derivatives to enhance returns or hedge against market declines. Examples of derivatives are options, futures, options on futures and swaps. An option is the right to buy or sell an instrument at a specific price before a specific date. A futures contract 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 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 market risk and liquidity 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 derivative transaction may not fulfill its contractual obligations. Leverage risk is the risk that a small percentage of assets invested in derivatives can have a disproportionately larger 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 principal 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.
Exchange-Traded Fund (“ETF”) Risk. The fund may purchase shares of ETFs to gain exposure to a particular portion of the market while awaiting an opportunity to purchase securities directly. When the fund invests in an ETF, in addition to directly bearing the expenses associated with its own operation, it will bear a proportionate share of the ETF’s expenses. Therefore, it may be more costly to own an ETF than to own the underlying securities directly. In addition, while the risks of owning shares of an ETF generally reflect the risks of owning the underlying securities the ETF is design to track, lack of liquidity in an ETF can result in its value being more volatile than the underlying portfolio of securities.
Liquidity Risk. A particular investment may be difficult to purchase or sell. The fund may be unable to sell illiquid securities at an advantageous time or price.
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:
Charles Schwab Investment Management, Inc. (“CSIM” or the “investment adviser”), a wholly owned subsidiary of The Charles Schwab Corporation, serves as the fund's investment adviser and administrator pursuant to an Investment Advisory and Administration Agreement (“Advisory Agreement”) between CSIM and the trust.
Schwab Fundamental Global Real Estate Index Fund
Financial Notes (continued)
4. Affiliates and Affiliated Transactions (continued):
For its advisory and administrative services to the fund, CSIM is entitled to receive an annual fee, payable monthly, based on a percentage of the fund’s average daily net assets as follows:
| % of Average Daily Net Assets | |
| First $500 million | 0.40% |
| $500 million to $5 billion | 0.38% |
| $5 billion to $10 billion | 0.36% |
| Over $10 billion | 0.34% |
The Board has adopted a Shareholder Servicing Plan (the “Plan”) on behalf of the fund. The Plan enables the fund to bear expenses relating to the provision by service providers, including Charles Schwab & Co., Inc. (a broker-dealer affiliate of CSIM, “Schwab”), of certain account maintenance, customer liaison and shareholder services to the current shareholders of the fund. Schwab serves as the fund's paying agent under the Plan for making payments of the shareholder service fee due to the service providers (other than Schwab). All shareholder service fees paid by the fund to Schwab in its capacity as the fund's paying agent will be passed through to the service providers, and Schwab will not retain any portion of such fees.
Pursuant to the Plan, the fund’s shares are subject to an annual shareholder servicing fee up to 0.10%. The shareholder servicing fee paid to a particular service provider is made pursuant to its written agreement with Schwab (or, in the case of payments made to Schwab, pursuant to Schwab’s written agreement with the fund). Payments under the Plan are made as described above regardless of Schwab’s or the service provider’s actual cost of providing the services. If the cost of providing the services under the Plan is less than the payment received, the unexpended portion of the fees may be retained as profit by Schwab or the service provider.
Although these agreements specify certain fees for these services, CSIM and its affiliates have made an additional agreement with the fund, for so long as CSIM serves as the investment adviser to the fund, which may only be amended or terminated with the approval of the Board, to limit the total annual fund operating expenses charged, excluding interest, taxes and certain non-routine expenses (“expense limitation”) to 0.49%.
For the period October 22, 2014 (Commencement of Operations) through January 31, 2015, CSIM agreed to waive the fund's net operating expenses to 0.00% (excluding interest, taxes and certain non-routine expenses).
Total offering costs of approximately $102,000 paid in connection with the offering of shares of the fund are amortized on a straight line basis over 12 months from the date the fund commenced operations. CSIM has agreed to reimburse the fund for all offering costs.
CSIM has a licensing agreement with the Frank Russell Company to use certain Russell indices and trademarks in connection with the offering and operation of certain registered investment companies. The fund entered into a sub-license agreement with CSIM pursuant to which CSIM has agreed to sub-license certain Russell indices and trademarks to the fund. Under the sub-license agreement, the fund pays its pro rata share of licensing fees.
Pursuant to an exemptive order issued by the SEC, the fund may enter into interfund borrowing and lending transactions with other Schwab Funds. All loans are for temporary or emergency purposes only. The interest rate to be charged on a loan is the average of the overnight repurchase agreement rate and the short-term bank loan rate. The interfund lending facility is subject to the oversight and periodic review by the Board. The fund had no interfund borrowing or lending activity during the period.
5. 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 did not pay any of these interested persons for their services as trustees, but it did pay non-interested persons (independent trustees), as noted on the fund’s Statement of Operations. For information regarding the trustees, please refer to the Trustees and Officers table at the end of this report.
Schwab Fundamental Global Real Estate Index Fund
Financial Notes (continued)
6. Borrowing from Banks:
The fund has access to custodian overdraft facilities, an uncommitted line of credit of $100 million with Bank of America, N.A. and an uncommitted line of credit of $50 million with Brown Brothers Harriman & Co. The fund pays interest on the amounts it borrows at rates that are negotiated periodically.
There were no borrowings from the lines of credit by the fund during the period. However, the fund may have utilized its overdraft facility and incurred an interest expense, which is disclosed on the fund's Statement of Operations, if any. The interest expense is determined based on a negotiated rate above the current Federal Funds Rate.
7. Derivatives:
The fund entered into equity index futures contracts during the report period. The fund invested in futures to equitize available cash. The fair value and variation margin for futures contracts held at February 28, 2015 are presented on the 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 fund’s accounting policies with respect to futures contracts and financial note 3 for disclosures concerning the risks of investing in futures contracts. During the period, the month-end average contract values of futures contracts held by the fund was $297,689 and the month-end average number of contracts held was 3.
8. Purchases and Sales/Maturities of Investment Securities:
For the period ended February 28, 2015, purchases and sales/maturities of securities (excluding short-term obligations) were as follows:
| Purchases of Securities | | Sales/Maturities of Securities |
| $102,325,167 | | $3,130,626 |
9. Redemption Fee:
The fund charges a 2.00% redemption fee on shares sold or exchanged within 30 days of the original purchase date. Such amounts are netted against redemption proceeds on the Statement of Changes in Net Assets. The redemption fees charged during the current period are:
Current Period
(10/22/14*-2/28/15) |
| $5,119 |
| * | Commencement of operations. |
10. Federal Income Taxes:
As of February 28, 2015, the components of distributable earnings on a tax-basis were as follows:
| Undistributed ordinary income | $1,098,971 |
| Undistributed long-term capital gains | — |
| Unrealized appreciation on investments | 5,231,216 |
| Unrealized depreciation on investments | (1,072,842) |
| Other unrealized appreciation (depreciation) | 1,811 |
| Net unrealized appreciation (depreciation) | $4,160,185 |
The primary differences between book-basis and tax-basis unrealized appreciation or unrealized depreciation of investments are the tax deferral of losses on wash sales and PFICs.
Capital loss carryforwards may be used to offset future realized capital gains for federal income tax purposes. As of February 28, 2015, the fund had no capital loss carryforwards.
Schwab Fundamental Global Real Estate Index Fund
Financial Notes (continued)
10. Federal Income Taxes (continued):
For tax purposes, realized net capital losses and late-year ordinary losses incurred after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. For the year ended February 28, 2015, the fund had no capital losses deferred and no capital loss carryforwards utilized.
The tax-basis components of distributions paid during the current fiscal year were as follows:
| Current period distributions | |
| Ordinary income | $915,589 |
| Long-term capital gains | 3,994 |
| Return of capital | — |
Distributions paid to shareholders are based on net investment income and net realized gains determined on a tax basis, which may differ from net investment income and net realized gains for financial reporting purposes. These differences are due primarily to differing treatment for items such as PFICs, non-U.S. currency gains and losses, and capital losses related to wash sales. The fiscal year in which amounts are distributed may differ from the year in which the net investment income and net realized gains are recorded by the fund for financial reporting purposes. The fund may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes.
Permanent book and tax basis differences may result in reclassifications between components of net assets as required. The adjustments will have no impact on net assets or the results of operations. As of February 28, 2015, the fund made the following reclassifications:
| Capital shares | $— |
| Undistributed net investment income | 131,711 |
| Net realized capital gains (losses) | (131,711) |
As of February 28, 2015, management has reviewed the tax positions for open periods (for federal purposes, three years from the date of filing and for state purposes, four years from the date of filing) as applicable to the fund, and has determined that no provision for income tax is required in the fund’s financial statements. The fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. During the period ended February 28, 2015, the fund did not incur any interest or penalties.
11. Subsequent Events:
Management has determined there are no subsequent events or transactions through the date the financial statements were issued that would have materially impacted the financial statements as presented.
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of:
Schwab Fundamental Global Real Estate Index Fund
In our opinion, the accompanying statement of assets and liabilities, including the portfolio holdings, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Schwab Fundamental Global Real Estate Index Fund (one of the funds constituting Schwab Capital Trust, hereafter referred to as the “Fund”) at February 28, 2015, the results of its operations, the changes in its net assets and the financial highlights for the period October 22, 2014 (commencement of operations) through February 28, 2015, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at February 28, 2015 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
April 16, 2015
Other Federal Tax Information (unaudited)
The fund may elect to pass on the benefits of the foreign tax credit of $36,660 to its shareholders for the period ended February 28, 2015. The respective foreign source income of the fund is $458,481.
For the period ended February 28, 2015, the fund designated $37,431 of the dividend distributions as qualified dividends for the purpose of the maximum rate under section 1(h)(11) of the Internal Revenue Code. Shareholders will be notified in January 2016 via IRS form 1099 of the amounts for use in preparing their 2015 income tax return.
Under Section 852 (b)(3)(C) of the Internal Revenue Code, the fund hereby designates $3,994 as long-term capital gain dividends for the fiscal year ended February 28, 2015.
Investment Advisory Agreement Approval
The Investment Company Act of 1940 (the “1940 Act”) requires that initial approval of, as well as the continuation of, a fund’s investment advisory agreement must be specifically approved (1) by the vote of the trustees or by a vote of the shareholders of the fund, and (2) by the vote of a majority of the trustees who are not parties to the investment advisory agreement or “interested persons” of any party (the “Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. In connection with such approvals, the fund’s trustees must request and evaluate, and the investment adviser is required to furnish, such information as may be reasonably necessary to evaluate the terms of the investment advisory agreement.
Initial Approval of Investment Advisory Agreement
The Board of Trustees (the “Board” or the “Trustees”, as appropriate) called and held a meeting on June 3, 2014, in part, for the purpose of considering whether to appoint Charles Schwab Investment Management, Inc. (“CSIM”) as investment adviser to Schwab Fundamental Global Real Estate Index Fund (the “Fund”) under the investment advisory agreement between Schwab Capital Trust (the “Trust”) and CSIM (the “Agreement”). In preparation for the meeting, the Board reviewed a variety of materials provided by CSIM with respect to the services to be provided to the Fund under the Agreement. In recognition of the fact that the Fund had not yet commenced operations, the Board also took into account the detailed information about other funds within the Trust that the Board reviews during the course of each year, including information that relates to fund operations and fund performance. The Independent Trustees receive advice from independent counsel to the Independent Trustees. In addition, the Independent Trustees met in executive session outside the presence of fund management and participated in question and answer sessions with representatives of CSIM.
At the meeting on June 3, 2014, the Board, including a majority of the Independent Trustees, approved the Agreement with respect to the Fund. The Board’s approval was based on consideration and evaluation of a variety of specific factors discussed at this meeting and/or at prior meetings of the Board, including:
| 1. | the nature, extent and quality of the services to be provided to the Fund under the Agreement, including the resources CSIM and its affiliates will dedicate to the Fund; |
| 2. | CSIM’s investment performance in managing other funds having relevant investment objectives and strategies; |
| 3. | the Fund’s estimated expenses and how those expenses compare to those of certain other comparable mutual funds; |
| 4. | the profitability of CSIM and its affiliates, including Charles Schwab & Co., Inc. (“Schwab”), with respect to management of other similar 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 Fund grows and whether fee levels in the Agreement relating to the Fund reflects those economies of scale for the benefit of Fund investors. |
Nature, Extent and Quality of Services. The Board considered the nature, extent and quality of the services to be provided by CSIM to the Fund and the resources CSIM and its affiliates will dedicate to the Fund. In this regard, the Trustees evaluated, among other things, CSIM’s personnel, experience, track record and compliance program. The Trustees also considered Schwab’s wide range of products, services and channel alternatives such as free advice, investment research tools and Internet access and an array of account features that may be expected to benefit the Fund and its shareholders. Based on this evaluation, the Board concluded, within the context of its full deliberations that the nature, extent and quality of services to be provided by CSIM to the Fund and the resources CSIM and its affiliates will dedicate to the Fund supported approval of the Agreement with respect to the Fund.
Performance. With regard to Fund performance, since the Fund had not commenced operations and therefore did not have any performance of its own, the Board considered performance of other funds advised by CSIM having comparable investment objectives in determining whether to approve the Agreement with respect to the Fund. The Trustees also considered both risk and shareholder risk expectations for the Fund. Based on this evaluation the Board concluded, within the context of its full deliberations, that the performance of CSIM supported approval of the Agreement with respect to the Fund.
Fund Expenses. With respect to the Fund’s expenses, the Trustees considered the rate of compensation called for by the Agreement, and the Fund’s estimated net operating expense ratio in comparison to those of other comparable mutual funds. The Trustees also considered CSIM’s and Schwab’s commitment to waive management and other fees to prevent total Fund expenses from exceeding a specified cap. The Trustees also considered CSIM’s contractual commitment to keep the Fund’s expense cap for so long as CIMS serves as the adviser to such Fund. Following such evaluation, the Board concluded, within the context of its
full deliberations, that the expenses of the Fund are reasonable and supported approval of the Agreement with respect to the Fund.
Profitability. With regard to profitability, the Trustees considered the compensation flowing to CSIM and its affiliates directly or indirectly. The Trustees also considered any other benefits to be derived by CSIM from its relationship with the Fund. The Trustees considered whether the compensation and profitability under the Agreement and other service agreements were reasonable and justified in light of the quality of all services rendered to the Fund by CSIM and its affiliates. Based on this evaluation, the Board concluded, within the context of its full deliberations, that the expected profitability of CSIM, albeit uncertain, is reasonable and supported approval of the Agreement with respect to the Fund.
Economies of Scale. Recognizing that the Fund had not yet commenced operations and had no assets, the Trustees
considered the possible development of any economies of scale through various efficiencies that may result from increases in the Fund’s assets and whether those could be expected to be passed along to the Fund’s shareholders. Based on this evaluation, the Board concluded, within the context of its full deliberations, that the Fund may be expected to obtain reasonable benefit from economies of scale if such economies develop.
In the course of their deliberations, the Trustees did not identify any particular information or factor that was all important or controlling. Based on the Trustees’ deliberation and their evaluation of the information described above, the Board, including a majority of the Independent Trustees, unanimously approved the Agreement as it relates to the Fund and concluded that the compensation under the Agreement relating to the Fund is fair and reasonable in light of such services and expenses and such other matters as the Trustees have considered to be relevant in the exercise of their reasonable judgment.
Trustees and Officers
The tables below give information about the trustees and officers of Schwab Capital Trust, which includes the fund covered in this report. The “Fund Complex” includes The Charles Schwab Family of Funds, Schwab Capital Trust, Schwab Investments, Schwab Annuity Portfolios, Schwab Strategic Trust, Laudus Trust and Laudus Institutional Trust. The Fund Complex includes 95 funds.
The address for all trustees and officers is 211 Main Street, San Francisco, CA 94105. You can find more information about the trustees and officers in the Statement of Additional Information, which is available free by calling 1-800-435-4000.
| Independent Trustees |
Name, Year of Birth,
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 |
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 and Laudus Institutional Trust since 2010) | 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 – present). | 74 | Director, Gilead Sciences, Inc. (2005 – present)
|
David L. Mahoney
1954
Trustee
(Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios, Laudus Trust and Laudus Institutional Trust since 2011) | Private Investor. | 74 | 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 and Schwab Annuity Portfolios, Laudus Trust and Laudus Institutional Trust since 2011) | 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) | 74 | Director, KLA-Tencor Corporation (2008 – present) |
Charles A. Ruffel
1956
Trustee
(Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios, Laudus Trust and Laudus Institutional Trust since 2015) | Managing Partner and Co-Founder, Kudu Advisors, LLC (financial services) (May 2009 – present); Director, Asset International, Inc. (publisher of financial services information) (Jan. 2009 – Nov. 2014). | 95 | None. |
| 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 |
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 and Laudus Institutional Trust since 2010) | Chairman, Chief Executive Officer and Founder of Smith Graham & Co. (investment advisors) (Mar. 1990 – present). | 74 | 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 and Laudus Institutional Trust since 2010) | Senior Consultant, Goldman Sachs & Co., Inc. (investment banking and securities firm) (Jan. 2008 – present); Partner, Colgin Partners, LLC (vineyards) (Feb. 1998 – present). | 74 | Board Member and Chairman of the Audit Committee, Isis Pharmaceuticals (1994 – present) |
| Interested Trustees |
Name, Year of Birth,
and Position(s) with
the trust; (Terms of
office, and length of
Time Served) | Principal Occupations
During the Past Five Years | Number of
Portfolios in
Fund Complex
Overseen by
the Trustee | Other Directorships |
Charles R. Schwab2
1937
Chairman and Trustee
(Chairman and Trustee of The Charles Schwab Family of Funds since 1989; Schwab Investments since 1991; Schwab Capital Trust since 1993; Schwab Annuity Portfolios since 1994; Laudus Trust and Laudus Institutional Trust since 2010) | Chairman and Director, The Charles Schwab Corporation (1986 – present); Chairman and Director of Charles Schwab & Co., Inc. (1971 – present); Chairman and Director of Charles Schwab Investment Management, Inc. (1989 – present); Chairman and Director of Charles Schwab Bank (2003 – present); Chairman and Chief Executive Officer of Schwab (SIS) Holdings Inc. I and Schwab International Holdings, Inc. (1996 – present); and Director, Chairman and Chief Executive Officer, Schwab Holdings, Inc. (1979 – present). | 74 | Chairman and Director, The Charles Schwab Corporation (1986 – present)
Director, Yahoo! Inc. (2014 – present) |
Walter W. Bettinger II2
1960
Trustee
(Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Laudus Trust and Laudus Institutional Trust since 2010) | Director, President and Chief Executive Officer, The Charles Schwab Corporation and Charles Schwab & Co., Inc. (2008 – present); Director, Charles Schwab Bank (2006 – present); and Director Schwab Holdings, Inc. (2008 – present). | 95 | Director, The Charles Schwab Corporation (2008 – present) |
| Officers of the Trust |
Name, Year of Birth, and Position(s)
with the trust; (Terms of office, and
length of Time Served3) | Principal Occupations During the Past Five Years |
Marie Chandoha
1961
President and Chief Executive Officer
(Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Laudus Trust and Laudus Institutional Trust since 2010) | Director, President and Chief Executive Officer (Dec. 2010 – present), Chief Investment Officer (Sept. 2010 – Oct. 2011), Charles Schwab Investment Management, Inc.; President, Chief Executive Officer (Dec. 2010 – present), and Chief Investment Officer (Sept. 2010 – Oct. 2011), Schwab Funds, Laudus Funds and Schwab ETFs; Director, Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited (January 2011 – present); Global Head of Fixed Income Business Division, BlackRock, Inc. (formerly Barclays Global Investors) (March 2007 – August 2010). |
George Pereira
1964
Treasurer and Principal Financial Officer, Schwab Funds
Treasurer and Chief Financial Officer, Laudus Funds
(Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2004; Laudus Trust and Laudus Institutional Trust since 2006) | Senior Vice President and Chief Financial Officer (Nov. 2004 – present), Chief Operating Officer (Jan. 2011 – present), Charles Schwab Investment Management, Inc.; Treasurer and Chief Financial Officer, Laudus Funds (June 2006 – present); Treasurer and Principal Financial Officer, Schwab Funds (Nov. 2004 – present) and Schwab ETFs (Oct. 2009 – present); Director, Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited (April 2005 – present). |
Omar Aguilar
1970
Senior Vice President and Chief Investment Officer – Equities
(Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Laudus Trust and Laudus Institutional Trust since 2011) | Senior Vice President and Chief Investment Officer – Equities, Charles Schwab Investment Management, Inc. (April 2011 – present); Senior Vice President and Chief Investment Officer – Equities, Schwab Funds, 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 – April 2011); Head of Quantitative Equity, ING Investment Management (July 2004 – Jan. 2009). |
Brett Wander
1961
Senior Vice President and Chief Investment Officer – Fixed Income
(Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Laudus Trust and Laudus Institutional Trust since 2011) | Senior Vice President and Chief Investment Officer – Fixed Income, Charles Schwab Investment Management, Inc. (April 2011 – present); Senior Vice President and Chief Investment Officer – Fixed Income, Schwab Funds, 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 (April 2006 – Jan. 2008). |
David Lekich
1964
Chief Legal Officer and Secretary, Schwab Funds
Vice President and Assistant Clerk, Laudus Funds
(Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Laudus Trust and Laudus Institutional Trust since 2011) | Senior Vice President (Sept. 2011 – present), Vice President (March 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 (April 2011 – present) and Chief Legal Officer (Dec. 2011 – present), Schwab Funds; Vice President and Assistant Clerk, Laudus Funds (April 2011 – present); Secretary (May 2011 – present) and Chief Legal Officer (Nov. 2011 – present), Schwab ETFs. |
Catherine MacGregor
1964
Vice President and Assistant Secretary, Schwab Funds
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, Laudus Trust and Laudus Institutional Trust since 2005) | Vice President, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. (July 2005 – present); Vice President (Dec. 2005 – present), Chief Legal Officer and Clerk (March 2007 – present), Laudus Funds; Vice President (Nov. 2005 – present) and Assistant Secretary (June 2007 – present), Schwab Funds; Vice President and Assistant Secretary, Schwab ETFs (Oct. 2009 – present). |
| 1 | Trustees remain in office until they resign, retire or are removed by shareholder vote. The Schwab and Laudus Funds’ retirement policy requires that independent trustees retire at age 72 or after twenty years as a trustee, whichever comes first. In addition, the retirement policy requires any independent trustee of Schwab Funds or Laudus Funds to retire from all Boards upon their required retirement date from either Board |
| 2 | Mr. Schwab and Mr. Bettinger 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 Boards. |
Glossary
asset allocation The practice of dividing a portfolio among different asset classes, with each asset class assigned a particular percentage.
asset class A group of securities with similar structure and basic characteristics. Stocks, bonds and cash are the three main examples of asset classes.
beta A historical measure of an investment’s volatility relative to a market index (usually the S&P 500®). The index is defined as having a beta of 1.00. Investments with a beta higher than 1.00 have been more volatile than the index; those with a beta of less than 1.00 have been less volatile.
Barclays U.S. Aggregate Bond Index A broad-based benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, mortgage-backed securities (agency fixed-rate and hybrid ARM pass-throughs), asset-backed securities, and commercial mortgage-backed securities.
bond A security representing a loan from the investor to the issuer. A bond typically pays interest at a fixed rate (the “coupon rate”) until a specified date (the “maturity date”), at which time the issuer returns the money borrowed (“principal” or “face value”) to the bondholder. Because of their structure, bonds are sometimes called “fixed income securities” or “debt securities.”
An individual bond is subject to the credit risk of the issuer. Changes in interest rates can affect a bond’s market value prior to call or maturity. There is no guarantee that a bond’s yield to call or maturity will provide a positive return over the rate of inflation.
cap, capitalization See “market cap.”
capital gain, capital loss The difference between the amount paid for an investment and its value at a later time. If the investment has been sold, the capital gain or loss is considered a realized gain or loss. If the investment is still held, the gain or loss is still “on paper” and is considered unrealized.
earnings growth rate For a mutual fund, the average yearly rate at which the earnings of the companies in the fund’s portfolio have grown, measured over the past five years.
earnings per share (EPS) A company’s earnings, or net income, for the past 12 months, divided by the number of shares outstanding.
expense ratio The amount that is taken from a mutual fund’s assets each year to cover the fund’s operating expenses. An expense ratio of 0.50% means that a fund’s expenses amount to half of one percent of its average net assets a year.
FTSE EPRA/NAREIT Global Index An index that is designed to provide a diverse representation of publicly traded equity REITs and listed property companies worldwide. The index constituents are free-float adjusted, and screened on liquidity, size and revenue. The index is comprised of about 34 countries in 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.
market cap, market capitalization The value of a company as determined by the total value of all shares of its stock outstanding.
median market cap The midpoint of the range of market caps of the stocks held by a fund. There are different ways of calculating median market cap. With a simple median, half of the stocks in the fund’s portfolio would be larger than the median, and half would be smaller. With a weighted median (the type that is calculated for these funds), half of the fund’s assets are invested in stocks that are larger than the median market cap, and half in stocks that are smaller.
MSCI EAFE (Europe, Australasia, Far East) Index A free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada. The Net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes.
net asset value (NAV) The value of one share of a mutual fund. NAV is calculated by taking the fund’s total assets, subtracting liabilities, and dividing by the number of shares outstanding.
outstanding shares, shares outstanding When speaking of a company or mutual fund, indicates all shares currently held by investors.
price-to-book ratio (P/B) The market price of a company’s stock compared with its “book value.” A mutual fund’s P/B is the weighted average of the P/B of all stocks in the fund’s portfolio.
price-to-earnings ratio (P/E) The market price of a company’s stock compared with earnings over the past year. A mutual fund’s P/E is the weighted average of the P/E of all stocks in the fund’s portfolio.
real estate investment trust (REIT) Real estate companies that own and commonly operate income producing commercial and/or residential real estate.
real estate operating companies (REOC) Real estate companies that engage in the development, management or financing of real estate.
return on equity (ROE) The average yearly rate of return for each dollar of investors’ money, measured over the past five years.
Russell Fundamental Global Select Real Estate Index An index that ranks and weights global real estate securities by three fundamental measures of company size—adjusted sales, retained operating cash flow and dividends plus buybacks—rather than by market capitalization. Fundamental scores are created using the members of the Russell Fundamental Global Index classified as Real Estate or Real Estate Investment Trusts according to the Russell Global Sectors classification scheme. Mortgage and Timber REITs are excluded. Securities are ranked by each fundamental factor, and individual factor weights are averaged to determine overall fundamental weights. Once the index has been created it is rebalanced quarterly using a tranche methodology.
S&P 500 Index A market capitalization index that is designed to measure the performance of 500 leading publicly held companies in leading industries of the U.S. economy.
stock A share of ownership, or equity, in the issuing company.
total return The percentage that an investor would have earned or lost on an investment in the fund assuming dividends and distributions were reinvested.
weighted average For mutual funds, an average that gives the same weight to each security as the security represents in the fund’s portfolio.
yield The income paid out by an investment, expressed as a percentage of the investment’s market value.
PRIVACY NOTICE
THIS IS NOT PART OF THE SHAREHOLDER REPORT
A Commitment to Your Privacy
Your Privacy Is Not for Sale
We do not and will not sell your personal information to anyone, for any reason.
We are committed to protecting the privacy of information we maintain about you. Below are details about our commitment, including the types of information we collect and how we use and share that information. This Privacy Notice applies to you only if you are an individual who invests directly in the funds by placing orders through the funds’ transfer agent. If you place orders through your brokerage account at Charles Schwab & Co., Inc. or an account with another broker-dealer, investment advisor, 401(k) plan, employee benefit plan, administrator, bank or other financial intermediary, you are covered by the privacy policies of that financial institution and should consult those policies.
How We Collect Information About You
We collect personal information about you in a number of ways.
• APPLICATION AND REGISTRATION
INFORMATION.
We collect personal information from you when you open an account or utilize one of our services. We may also collect information about you from third parties such as consumer reporting agencies to verify your identity. The information we collect may include personal information, including your Social Security number, as well as details about your interests, investments and investment experience.
• TRANSACTION AND EXPERIENCE INFORMATION.
Once your account has been opened, we collect and maintain personal information about your account activity, including your transactions, balances, positions and history. This information allows us to administer your account and provide the services you have requested.
• WEBSITE USAGE.
When you visit our websites, we may use devices known as “cookies,” graphic interchange format files (GIFs), or other similar web tools to enhance your web experience. These
tools help us to recognize you, maintain your web session, and provide a more personalized experience. To learn more, please go to www.schwab.com/privacy.
How We Share and Use Your Information
We provide access to information about you to our affiliated companies, outside companies and other third parties in certain limited circumstances, including:
• to help us process transactions for your account;
• when we use other companies to provide services for us, such as printing and mailing your account statements;
• when we believe that disclosure is required or permitted under law (for example, to cooperate with regulators or law enforcement, resolve consumer disputes, perform credit/authentication checks, or for risk control).
State Laws
We will comply with state laws that apply to the disclosure or use of information about you.
Safeguarding Your Information — Security Is a Partnership
We take precautions to ensure the information we collect about you is protected and is accessed only by authorized individuals or organizations.
Companies we use to provide support services are not allowed to use information about our shareholders for their own purposes and are contractually obligated to maintain strict confidentiality. We limit their use of information to the performance of the specific services we have requested.
We restrict access to personal information by our employees and agents. Our employees are trained about privacy and are required to safeguard personal information.
We maintain physical, electronic and procedural safeguards that comply with federal standards to guard your nonpublic personal information.
Contact Us
To provide us with updated information, report suspected fraud or identity theft, or for any other questions, please call the number below.
Schwab Funds® direct investors: 1-800-407-0256
© 2014 Schwab Funds. All rights reserved.
Schwab Funds® offers you an extensive family of mutual funds, each one based on a clearly defined investment approach and using disciplined management strategies. The list at right shows all currently available Schwab Funds.
Whether you are an experienced investor or just starting out, Schwab Funds can help you achieve your financial goals. An investor should consider a fund’s investment objectives, risks, charges and expenses carefully before investing or sending money. This and other important information can be found in the fund’s prospectus. Please call 1-800-435-4000 for a prospectus and brochure for any Schwab Fund. Please read the prospectus carefully before you invest. This report must be preceded or accompanied by a current prospectus.
Proxy Voting Policies, Procedures and Results
A description of the proxy voting policies and procedures used to determine how to vote proxies on behalf of the funds is available without charge, upon request, by visiting the Schwab Funds’ website at www.csimfunds.com/schwabfunds_prospectus, the SEC’s website at http://www.sec.gov, or by contacting Schwab Funds at 1-800-435-4000.
Information regarding how a fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available, without charge, by visiting the fund’s website at www.csimfunds.com/schwabfunds_prospectus or the SEC’s website at http://www.sec.gov.
The Schwab Funds Family®
Stock Funds
Schwab Core Equity Fund™
Schwab Dividend Equity Fund™
Schwab Large-Cap Growth Fund™
Schwab Small-Cap Equity Fund™
Schwab Hedged Equity Fund™
Schwab Financial Services Fund™
Schwab Health Care Fund™
Schwab® International Core Equity Fund
Schwab Fundamental US Large Company Index Fund
Schwab Fundamental US Small Company Index Fund
Schwab Fundamental International Large Company Index Fund
Schwab Fundamental International Small Company Index Fund
Schwab Fundamental Emerging Markets Large Company Index Fund
Schwab Fundamental Global Real Estate Index Fund
Schwab Global Real Estate Fund™
Schwab® S&P 500 Index Fund
Schwab 1000 Index® Fund
Schwab Small-Cap Index Fund®
Schwab Total Stock Market Index Fund®
Schwab International Index Fund®
Asset Allocation Funds
Schwab Balanced Fund™
Schwab MarketTrack All Equity Portfolio™
Schwab MarketTrack Growth Portfolio™
Schwab MarketTrack Balanced Portfolio™
Schwab MarketTrack Conservative Portfolio™
Schwab Target 2010 Fund
Schwab Target 2015 Fund
Schwab Target 2020 Fund
Schwab Target 2025 Fund
Schwab Target 2030 Fund
Schwab Target 2035 Fund
Schwab Target 2040 Fund
Schwab Target 2045 Fund
Schwab Target 2050 Fund
Schwab Target 2055 Fund
Schwab® Monthly Income Fund – Moderate Payout
Schwab® Monthly Income Fund – Enhanced Payout
Schwab® Monthly Income Fund – Maximum Payout
Bond Funds
Schwab Short-Term Bond Market Fund™
Schwab Intermediate-Term Bond Fund™
Schwab Total Bond Market Fund™
Schwab GNMA Fund™
Schwab® Treasury Inflation Protected Securities Index Fund
Schwab Tax-Free Bond Fund™
Schwab California Tax-Free Bond Fund™
Schwab Money Funds
Schwab offers an array of money market funds1. Choose from taxable or tax-advantaged alternatives. Many can be linked to your eligible Schwab account to “sweep” cash balances automatically, subject to availability, when you’re between investments. Or, for your larger cash reserves, choose one of our Value Advantage Investments®.
| 1 | Investments in money market funds are neither insured nor guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency and, although they seek to preserve the value of your investment at $1 per share, it is possible to lose money. |
Investment Adviser
Charles Schwab Investment Management, Inc.
211 Main Street, San Francisco, CA 94105
Funds
Schwab Funds®
P.O. Box 3812, Englewood, CO 80155-3812
This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus.
© 2015 Charles Schwab & Co., Inc. All rights reserved.
Member SIPC®
Printed on recycled paper.
MFR85263-00
00137728
Item 2: Code of Ethics.
| (a) | Registrant has adopted a code of ethics that applies to its principal executive officer, principal financial officer, and any other persons who perform a similar function, regardless of whether these individuals are employed by Registrant or a third party. |
| (c) | During the period covered by the report, no amendments were made to the provisions of this code of ethics. |
| (d) | During the period covered by the report, Registrant did not grant any waivers, including implicit waivers, from the provisions of this code of ethics. |
| (f)(1) | Registrant has filed this code of ethics as an exhibit pursuant to Item 12(a)(1) of Form N-CSR. |
Item 3: Audit Committee Financial Expert.
Registrant’s Board of Trustees has determined that Gerald Smith and Kiran Patel, each currently serving on its audit committee, are each an “audit committee financial expert,” as such term is defined in Item 3 of Form N-CSR. Each member of Registrant’s audit committee is “independent” under the standards set forth in Item 3 of Form N-CSR.
The designation of each of Mr. Smith and Mr. Patel as an “audit committee financial expert” pursuant to Item 3 of Form N-CSR does not (i) impose upon such individual any duties, obligations, or liability that are greater than the duties, obligations and liability imposed upon such individual as a member of Registrant’s audit committee or Board of Trustees in the absence of such designation; and (ii) affect the duties, obligations or liability of any other member of Registrant’s audit committee or Board of Trustees.
Item 4: Principal Accountant Fees and Services.
Registrant is composed of thirty-eight series. One series has a fiscal year-end of February 28, whose annual financial statements are reported in Item 1, thirty-four series have a fiscal year-end of October 31, and three series have a fiscal year-end of December 31. Principal accountant fees disclosed in Items 4(a)-(d) and 4(g) include fees billed for services rendered to the thirty-eight series live during 2015 and 2014, based on their respective 2015 and 2014 fiscal years, as applicable.
The following table presents fees billed by the principal accountant in each of the last two fiscal years for the services rendered to the Funds:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (a) Audit Fees | | | (b) Audit-Related Fees1 | | | (c) Tax Fees2 | | | (d) All Other Fees3 | |
Fiscal Year
2015 | | | Fiscal Year
2014 | | | Fiscal Year
2015 | | | Fiscal Year
2014 | | | Fiscal Year
2015 | | | Fiscal Year
2014 | | | Fiscal Year
2015 | | | Fiscal Year
2014 | |
| $ | 1,419,234 | | | $ | 1,390,778 | | | $ | 0 | | | $ | 0 | | | $ | 101,456 | | | $ | 99,131 | | | $ | 19,357 | | | $ | 19,357 | |
| 1 | The nature of the services includes assurance and related services reasonably related to the performance of the audit of financial statements not included in Audit Fees. |
| 2 | The nature of the services includes tax compliance, tax advice and tax planning. |
| 3 | The nature of the services include agreed upon procedures relating to Charles Schwab Investment Management., Inc.’s, (“CSIM”) expenses for purposes of Section 15(c) of the Investment Company Act of 1940. |
| | | | |
| (e) | | (1) | | Registrant’s audit committee does not have pre-approval policies and procedures as described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. |
| | |
| | (2) | | There were no services described in each of paragraphs (b) through (d) above (including services required to be approved by Registrant’s audit committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X) that were approved by Registrant’s audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. |
| |
| (f) | | Not applicable. |
| |
| (g) | | Below are the aggregate non-audit fees billed in each of the last two fiscal years by Registrant’s principal accountant for services rendered to Registrant, to Registrant’s investment adviser, and to any entity controlling, controlled by, or under common control with Registrant’s investment adviser that provides ongoing services to Registrant. |
| |
| | 2015: $120,813 2014: $118,488 |
Although not required to be included in the amounts disclosed under this paragraph (g) or any other paragraph of this Item 4, below are the aggregate fees billed in each of the last two fiscal years by Registrant’s principal accountant for tax compliance services rendered to U.S. Trust, an entity under common control with Registrant’s investment adviser that does not provide services to Registrant.
| (h) | During the past fiscal year, all non-audit services provided by Registrant’s principal accountant to either Registrant’s investment adviser or to any entity controlling, controlled by, or under common control with Registrant’s investment adviser that provides ongoing services to Registrant were pre-approved. Included in the audit committee’s pre-approval was the review and consideration as to whether the provision of these non-audit services is compatible with maintaining the principal accountant’s independence. |
Item 5: Audit Committee of Listed Registrants.
Not applicable.
Item 6: Schedule of Investments.
The schedules of investments are included as part of the report to shareholders filed under Item 1 of this Form.
Item 7: Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8: Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9: Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10: Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11: Controls and Procedures.
| (a) | Based on their evaluation of Registrant’s disclosure controls and procedures, as of a date within 90 days of the filing date, Registrant’s Chief Executive Officer, Marie Chandoha and Registrant’s Principal Financial Officer, George Pereira, have concluded that Registrant’s disclosure controls and procedures are: (i) reasonably designed to ensure that information required to be disclosed in this report is appropriately communicated to Registrant’s officers to allow timely decisions regarding disclosures required in this report; (ii) reasonably designed to ensure that information required to be disclosed in this report is recorded, processed, summarized and reported in a timely manner; and (iii) are effective in achieving the goals described in (i) and (ii) above. |
| (b) | During the second fiscal quarter of the period covered by this report, there have been no changes in Registrant’s internal control over financial reporting that the above officers believe to have materially affected, or to be reasonably likely to materially affect, Registrant’s internal control over financial reporting. |
Item 12: Exhibits.
| (a) (1) | Registrant’s code of ethics (that is the subject of the disclosure required by Item 2(a)) is attached. |
| | (2) | Separate certifications for Registrant’s principal executive officer and principal financial officer, as required by Rule 30a-2(a) under the 1940 Act, are attached. |
| (b) | A certification for Registrant’s principal executive officer and principal financial officer, as required by Rule 30a-2(b) under the 1940 Act, is attached. This certification is being |
| | furnished to the Securities and Exchange Commission solely pursuant to 18 U.S.C. section 1350 and is not being filed as part of the Form N-CSR with the Commission. |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | |
| (Registrant) Schwab Capital Trust |
| |
| By: | | /s/ Marie Chandoha |
| | Marie Chandoha |
| | Chief Executive Officer |
Date: 4/14/15
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | |
| By: | | /s/ Marie Chandoha |
| | Marie Chandoha |
| | Chief Executive Officer |
Date: 4/14/15
| | |
| By: | | /s/ George Pereira |
| | George Pereira |
| | Principal Financial Officer |
Date: 4/14/15
