0001193125-20-058639.txt : 20200302 0001193125-20-058639.hdr.sgml : 20200302 20200302134702 ACCESSION NUMBER: 0001193125-20-058639 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 20191231 FILED AS OF DATE: 20200302 DATE AS OF CHANGE: 20200302 EFFECTIVENESS DATE: 20200302 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCHWAB CAPITAL TRUST CENTRAL INDEX KEY: 0000904333 IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-07704 FILM NUMBER: 20675945 BUSINESS ADDRESS: STREET 1: 211 MAIN STREET CITY: SAN FRANCISCO STATE: CA ZIP: 94105 BUSINESS PHONE: 1-415-667-7000 MAIL ADDRESS: STREET 1: 211 MAIN STREET CITY: SAN FRANCISCO STATE: CA ZIP: 94105 0000904333 S000021072 Schwab Monthly Income Fund - Moderate Payout C000059932 Schwab Monthly Income Fund - Moderate Payout SWJRX 0000904333 S000021073 Schwab Monthly Income Fund - Enhanced Payout C000059933 Schwab Monthly Income Fund - Enhanced Payout SWKRX 0000904333 S000021074 Schwab Monthly Income Fund - Maximum Payout C000059934 Schwab Monthly Income Fund - Maximum Payout SWLRX N-CSR 1 d786263dncsr.htm N-CSR N-CSR
Table of Contents

 

 

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

(Exact name of registrant as specified in charter)

 

 

211 Main Street, San Francisco, California 94105

(Address of principal executive offices) (Zip code)

 

 

Jonathan de St. Paer

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: December 31

Date of reporting period: December 31, 2019

 

 

Item 1: Report(s) to Shareholders.

 

 

 


Table of Contents
Annual Report  |  December 31, 2019
Schwab Monthly Income Funds

Schwab Monthly Income Fund –
Moderate Payout
Schwab Monthly Income Fund –
Enhanced Payout
Schwab Monthly Income Fund –
Maximum Payout
New Notice Regarding Shareholder Report Delivery Options
Beginning on January 1, 2021, paper copies of a fund’s shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from a fund or from your financial intermediary (such as a bank or broker-dealer). Instead, the reports will be made available on a fund’s website www.schwabfunds.com/schwabfunds_prospectus, and you will be notified by mail each time a report is posted and the mailing will provide a website link to access the report. You will continue to receive other fund regulatory documents (such as prospectuses or supplements) in paper unless you have elected to receive all fund documents electronically.
If you would like to receive a fund’s future shareholder reports in paper free of charge after January 1, 2021, you can make that request:
•  If you invest through Charles Schwab & Co, Inc. (broker-dealer), by calling 1-866-345-5954 and using the unique identifier attached to this mailing;
•  If you invest through another financial intermediary (such as a bank or broker-dealer) by contacting them directly; or
•  If owned directly through a fund by calling 1-800-407-0256.
If you already receive shareholder reports and other fund documents electronically, you will not be affected by this change and you need not take any action.

 

This page is intentionally left blank.

 

Fund investment adviser: Charles Schwab Investment Management, Inc. (CSIM)
Distributor: Charles Schwab & Co., Inc. (Schwab)
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Schwab Monthly Income Funds
Performance at a Glance

The performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value will fluctuate so that an investor’s shares may be worth more or less than their original cost. Current performance may be lower or higher than performance data quoted. To obtain performance information current to the most recent month end, please visit www.schwabfunds.com/schwabfunds_prospectus.
Total Returns for the 12 Months Ended December 31, 2019
Schwab Monthly Income Fund – Moderate Payout (Ticker Symbol: SWJRX) 16.41%
Moderate Payout Composite Index 17.46%
Fund Category: Morningstar Allocation - 30% to 50% Equity1 14.81%
Performance Details pages 7-9
Schwab Monthly Income Fund – Enhanced Payout (Ticker Symbol: SWKRX) 13.79%
Enhanced Payout Composite Index 14.61%
Fund Category: Morningstar Allocation - 30% to 50% Equity1 14.81%
Performance Details pages 10-12
Schwab Monthly Income Fund – Maximum Payout (Ticker Symbol: SWLRX) 11.18%
Maximum Payout Composite Index 11.79%
Fund Category: Morningstar Allocation - 15% to 30% Equity1 11.20%
Performance Details pages 13-15
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.
The components that make up each of the composite indices may vary over time. For index definitions, please see the Glossary.
Fund expenses have been absorbed by CSIM and its affiliates. Without these reductions, the funds’ returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.
1 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.
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Schwab Monthly Income Funds
From the President

Jonathan de St. Paer
President of Charles Schwab
Investment Management, Inc.
and the funds covered
in this report.
Dear Shareholder,
For many of us, the beginning of a new year is not only a time of resolution setting, but also an opportunity for reflection. Looking back on 2019, there are a number of events that may stand out for investors. Most striking perhaps was the performance of the stock market, which entered the new year continuing the longest bull market cycle in history, reaching 129 months by the end of 2019. Another noteworthy milestone was the Federal Reserve (the Fed) cutting interest rates in 2019—not once, but three times. This was also the first time the Fed had done so since the end of 2008. In this environment, the Bloomberg Barclays US Aggregate Bond Index, a benchmark for the overall U.S. fixed income market, returned 8.7% for the year ended December 31, 2019, as falling yields pushed up bond prices. The S&P 500® Index, a bellwether for U.S. stocks, returned 31.5% for the same period, its second-best annual performance of the past two decades.
When there is strong and sustained investment performance such as this, many investors can’t imagine that the tide could quickly change and some of their gains could potentially be reversed. At Charles Schwab Investment Management, we know from our research in behavioral finance that one of the common pitfalls investors can be vulnerable to is known as “recency bias.” This is a tendency to be influenced by recent news, events, or experiences, and can often lead to an assumption that what has been happening will continue to happen. It’s critical that investors remember that all market cycles, no matter how long and whether up or down, ultimately come to an end at some point.
That’s a key reason why we believe investors should focus on ensuring that they have an appropriate asset allocation for their stage in life, investment goals, and risk tolerance. The Schwab Monthly Income Funds are prime examples of how we can help in this regard, designed as convenient all-in-one portfolio solutions for those seeking income to help fund their retirement or for other purposes.
The funds seek to generate a steady stream of income regardless of market conditions. Three diversified income solutions let investors decide how they want to balance their desire for income with the opportunity for growth. The Schwab Monthly Income Fund – Maximum Payout is designed to have the highest payouts and, with a smaller allocation to stocks, the least focus on growth potential. The Schwab Monthly Income Fund – Moderate Payout is managed to have a more moderate payout focus, yet the highest growth potential. The Schwab Monthly Income Fund – Enhanced Payout sits between the two. All three solutions offer investors access to an appropriate mix of risk, return and income in the convenience of a single fund.
Thank you for investing with Charles Schwab Investment Management, and for trusting us to help you achieve your financial goals. For more information about the Schwab Monthly Income Funds, please continue reading this report. In addition, you can find further details about these funds by visiting our website at www.schwabfunds.com. We are also happy to hear from you at 1-877-824-5615.
Sincerely,
Looking back on 2019, there are a number of events that may stand out for investors. Most striking perhaps was the performance of the stock market, which entered the new year continuing the longest bull market cycle in history, reaching 129 months by the end of 2019.
Past performance cannot guarantee future results.
Diversification and asset allocation strategies do not ensure a profit and cannot protect against losses in a declining market.
Management views may have changed since the report date.
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Schwab Monthly Income Funds
The Investment Environment

For the 12-month reporting period ended December 31, 2019, global equity and fixed income markets generated strong returns. Following significant volatility and steep declines in December 2018, both U.S. and international stocks staged a strong recovery despite several setbacks, primarily related to the trade war between the U.S. and China, which saw a partial resolution in the final month of the reporting period. In the U.S., steady, albeit slowing, economic growth, three interest rate cuts by the Federal Reserve (Fed), and robust consumer spending helped propel U.S. stock markets to record highs. Fixed-income markets, particularly corporate bond markets, also demonstrated strength throughout the period although U.S. Treasuries also posted relatively strong gains. For the reporting period, the S&P 500® Index, a bellwether for the overall U.S. stock market, returned 31.49% and the Bloomberg Barclays US Aggregate Bond Index returned 8.72%. The FTSE non-US Dollar World Government Bond Index returned 5.32%. Equity markets outside the U.S. displayed robust resilience despite slowing economic momentum due to uncertainties from several fronts, including trade, inflation, and geopolitical concerns. In this environment, many central banks maintained their generally low interest rates or reduced their policy rates. Over the period, the U.S. dollar strengthened slightly against a basket of international currencies, generally reducing the returns on overseas investments in U.S. dollar terms. The MSCI EAFE® Index (Net)*, a broad measure of developed international equity performance, returned 22.01%, while the MSCI Emerging Markets Index (Net)* returned 18.42%.
Economic growth around the globe was uneven over the reporting period. Despite escalating trade tensions with China over much of the reporting period, the U.S. economy maintained steady growth in its tenth year of expansion, although at a declining pace. After concerns of economic weakness intensified late in 2018, the U.S. economic outlook brightened considerably in the first six months of 2019. In the third quarter of 2019, signs of slowing growth increased amid a weakening global economy, waning manufacturing activity, and the ongoing U.S.-China trade war. However, in the fourth quarter, a partial trade resolution between the U.S. and China relieved much of the pressure. U.S. gross domestic product (GDP) grew at an annual rate of 2.1% in the third quarter of 2019, up slightly from 2.0% in the second quarter, but down from 3.1% in the first quarter of 2019. The unemployment rate ended the reporting period at a 50-year low. After reaching a near 18-year high during the summer, consumer confidence edged lower by December, although it remained a stable source of GDP growth in the U.S. Inflation remained benign.
Asset Class Performance Comparison % returns during the 12 months ended December 31, 2019    
 
Index figures assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged and cannot be invested in directly. Performance results less than one year are not annualized. 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 may have changed since the report date.
* The net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes.
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Schwab Monthly Income Funds
The Investment Environment (continued)

Outside the U.S., conditions were softer, dampened by trade issues, slowing economic output, and geopolitical concerns. Oil prices, which had fallen steeply in the fourth quarter of 2018, rebounded through the first four months of 2019, as major exporters sought to curb supply and central banks took steps to ease growth-related fears, before dipping in May when trade concerns escalated. Oil prices remained volatile through period end. In the eurozone, growth slowed, subdued by higher inflation and tepid wage growth that constrained consumer spending. The United Kingdom’s economy grew in the first and third quarters of 2019, but contracted in the second quarter amid ongoing and intensifying Brexit-related economic and political uncertainty. Japan’s economy experienced modest, although slowing, GDP growth throughout the year.
In response to the economic environment, to bolster growth, and to ensure stability given ongoing trade tensions, a number of central banks reduced their policy rates, including the U.S., while others maintained their generally low—and for some international central banks, negative—interest rates. In the U.S., after raising interest rates four times in 2018, the Fed held rates unchanged through the first half of 2019. But amid growing signs of global weakness that threatened to dampen U.S. economic growth, along with continued low inflation and weakness in manufacturing, the Fed enacted three interest rate cuts by the end of the period—in July, September, and October. Following the October interest rate cut, the Fed signaled that further interest rate cuts would be unlikely provided the economy continues to expand moderately and the labor market remains strong. The federal funds target rate ended the reporting period in a range of 1.50% to 1.75%. Outside the U.S., the European Central Bank held interest rates steady and launched an asset-purchase program to help stimulate the economy. The Bank of Japan maintained its short-term interest rate target of –0.1% throughout the period. Despite ongoing Brexit-related uncertainties, the Bank of England maintained its key official bank rate of 0.75% throughout the period, where it has remained since August 2018. Central banks in several key emerging market economies—including India, Thailand, and China—lowered their policy rates in response to inflation and trade-related pressures.
Bond prices generally rose over the reporting period as yields fell. (Bond yields and bond prices move in opposite directions.) Short-term yields, which typically respond to changes in the federal funds rate, remained relatively flat for the first five months of the period before declining as the Fed implemented interest rate cuts, with the three-month Treasury yield falling from 2.45% at the outset of the period to 1.55% at the end of the period. Longer-term yields, which are influenced more by economic growth and inflation expectations, trended downward over most of the period before moderating in the last four months. During the reporting period, the U.S. Treasury yield curve flattened with portions of the yield curve inverting, which is often an indicator of a possible recession, before normalizing in the last quarter of the year. Over the reporting period, the 10-year Treasury yield fell from 2.69% to 1.92%. Outside the U.S., bond yields generally remained low.
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Schwab Monthly Income Funds
Fund Management

Zifan Tang, Ph.D., CFA, Senior Portfolio Manager, is responsible for the co-management of the funds. Prior to joining CSIM in 2012, Ms. Tang was a product manager at Thomson Reuters and, from 1997 to 2009, worked as a portfolio manager at Barclays Global Investors (now known as BlackRock, Inc.).
    
Patrick Kwok, CFA, Portfolio Manager, is responsible for the co-management of the funds. Prior to joining CSIM in 2008, Mr. Kwok spent two years as an asset operations specialist at Charles Schwab Trust Company. He also worked for one year at State Street Bank & Trust as a portfolio accountant and pricing specialist.
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Schwab Monthly Income Fund – Moderate Payout as of December 31, 2019

The Schwab Monthly Income Funds (the funds) seek to provide current income, with capital appreciation as a secondary investment objective. The funds have a fund-of-funds structure that involves holding equity, fixed income, and money market funds selected from within the Schwab Funds and Laudus Funds complex, but each also may invest directly in equity and fixed income securities, cash and cash equivalents (including money market securities), exchange-traded funds (ETFs) and nonproprietary mutual funds to accomplish these objectives. Holdings are based on each fund’s asset allocation, with returns reflecting the combined performance and respective weightings of the underlying investments.
The Schwab Monthly Income Fund – Moderate Payout (the fund) is designed to offer investors a targeted annual payout of 3% to 4%1 and an increase in capital over the long term. However, the fund’s actual annual payout could be higher or lower than the targeted annual payout based on the interest rate environment and other market factors occurring during that year. During a low interest rate environment, the fund’s anticipated annual payout is generally expected to be 1% to 3%, and during a high interest rate environment, is expected to be 3% to 6%. The fund uses the internally calculated, custom-blended Moderate Payout Composite Index (the composite index) as a performance gauge.
Market Highlights. Over the 12-month reporting period ended December 31, 2019, global equity and fixed income markets generated strong returns. Following significant volatility and steep declines in December 2018, both U.S. and international stocks staged a strong recovery despite several setbacks—primarily related to the trade war between the U.S. and China, which saw a partial resolution in the final month of the reporting period. In the U.S., steady, albeit slowing, economic growth, three interest rate cuts by the Federal Reserve (Fed), and robust consumer spending helped propel U.S. stock markets to record highs. Fixed-income markets, particularly corporate bond markets, also demonstrated strength throughout the period although U.S. Treasuries also posted relatively strong gains.
Performance. The fund’s distribution yield (payout) was 2.64% for the year ended December 31, 2019, generally in line with the investment adviser’s expectations in a low interest rate environment. For the 12-month reporting period, the fund’s total return was 16.41%, while the composite index returned 17.46%.
Positioning and Strategies. Although the fund’s allocations to equities and fixed income vary within certain established parameters, they were broadly aligned with those of the composite index.
All four of the fund’s non-cash asset classes contributed positively to the fund’s total return for the reporting period, although two underperformed their respective composite index benchmark component, leading to the fund’s underperformance of the composite index.
The fund’s U.S. large-cap equity exposure was the greatest contributor to the fund’s total return, but was the largest detractor from relative performance. The Schwab Dividend Equity Fund was the top contributor to the fund’s total return. The Schwab Dividend Equity Fund returned approximately 24.3% for the reporting period, underperforming the S&P 500® Index, the composite index’s underlying U.S. large-cap equity component, which returned approximately 31.5% for the reporting period.
The fund’s fixed-income exposure contributed to the fund’s total return, but detracted slightly from relative performance. In January 2019, the fund’s intermediate-term bond allocation, the Schwab Intermediate-Term Bond Fund, was transitioned into the fund’s core bond allocation, the Schwab U.S. Aggregate Bond Index Fund. The Schwab Intermediate-Term Bond Fund returned approximately 0.1% while held by the fund, slightly underperforming its benchmark. The Schwab U.S. Aggregate Bond Index Fund returned approximately 8.6% for the reporting period, generally tracking its benchmark, the Bloomberg Barclays US Aggregate Bond Index.
The fund’s international equity exposure contributed to the fund’s total return and relative performance. The Laudus International MarketMasters Fund returned approximately 26.1% for the reporting period versus its comparative index, the MSCI EAFE® Index (Net), which returned approximately 22.0% for the reporting period.
The fund’s real estate exposure also contributed to the fund’s total return and relative performance. The Schwab Global Real Estate Fund returned approximately 27.8% for the reporting period, outperforming its benchmark, the FTSE EPRA Nareit Global Index (Net), which returned approximately 22.5% for the reporting period.
    
Management views and portfolio holdings may have changed since the report date.
1 For more information about payouts, please see the fund’s prospectus.
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Schwab Monthly Income Fund – Moderate Payout
Performance and Fund Facts as of December 31, 2019

The performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value will fluctuate so that an investor’s shares may be worth more or less than their original cost. Current performance may be lower or higher than performance data quoted. To obtain performance information current to the most recent month end, please visit www.schwabfunds.com/schwabfunds_prospectus.    
 
Performance of Hypothetical $10,000 Investment (December 31, 2009 – December 31, 2019)1
 
Average Annual Total Returns1
Fund and Inception Date 1 Year 5 Years 10 Years
Fund: Schwab Monthly Income Fund – Moderate Payout (3/28/08) 16.41% 4.74% 6.08%
Moderate Payout Composite Index 17.46% 6.14% 7.32%
S&P 500® Index 31.49% 11.70% 13.56%
Bloomberg Barclays US Aggregate Bond Index 8.72% 3.05% 3.75%
Fund Category: Morningstar Allocation – 30% to 50% Equity2 14.81% 4.66% 6.19%
Fund Expense Ratios3: Net 0.50%; Gross 0.69%
    
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.
The first index listed for the fund is the fund’s primary benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.
For index definitions, please see the Glossary.
1 The fund’s routine expenses have been absorbed by CSIM and its affiliates. Without these reductions, the fund’s returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.
2 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.
3 As stated in the prospectus. Includes 0.50% of acquired fund fees and expenses (AFFE), which are based on estimated amounts for the current fiscal year and are indirect expenses incurred by the fund through its investments in the underlying funds. 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 expense ratios during the period, not including AFFE, refer to the financial highlights section of the financial statements.
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Schwab Monthly Income Fund – Moderate Payout
Performance and Fund Facts as of December 31, 2019 (continued)

Statistics
Number of Holdings 6
Portfolio Turnover Rate 30%
12-Month Distribution Yield 2.64% 1
Asset Class Weightings % of Investments2,3
 
    
Top Holdings % of Net Assets4,5
    
Portfolio holdings may have changed since the report date.
1 Calculation reflects the fund’s monthly ordinary income distributions for the last 12 months divided by the fund’s Net Asset Value as of the end of the reporting period. Distribution yield does not include capital gains distributions. Fund expenses may have been partially absorbed by the investment adviser and its affiliates. Without these reductions, the total return/yield may have been lower.
2 The fund intends to invest in a combination of the underlying funds; however, the fund may also invest directly in equity and fixed income securities, exchange-traded funds, nonproprietary mutual funds, and cash and cash equivalents, including money market securities.
3 The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets.
4 This list is not a recommendation of any security by the investment adviser.
5 The holdings listed exclude any temporary liquidity investments.
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Schwab Monthly Income Fund – Enhanced Payout as of December 31, 2019

The Schwab Monthly Income Funds (the funds) seek to provide current income, with capital appreciation as a secondary investment objective. The funds have a fund-of-funds structure that involves holding equity, fixed income, and money market funds selected from within the Schwab Funds and Laudus Funds complex, but each also may invest directly in equity and fixed income securities, cash and cash equivalents (including money market securities), exchange-traded funds (ETFs) and nonproprietary mutual funds to accomplish these objectives. Holdings are based on each fund’s asset allocation, with returns reflecting the combined performance and respective weightings of the underlying investments.
The Schwab Monthly Income Fund – Enhanced Payout (the fund) is designed to offer investors a targeted annual payout of 4% to 5%1 and an increase in capital over the long term. However, the fund’s actual annual payout could be higher or lower than the targeted annual payout based on the interest rate environment and other market factors occurring during that year. During a low interest rate environment, the fund’s anticipated annual payout is generally expected to be 1% to 4%, and during a high interest rate environment, is expected to be 4% to 7%. The fund uses the internally calculated Enhanced Payout Composite Index (the composite index) as a performance gauge.
Market Highlights. Over the 12-month reporting period ended December 31, 2019, global equity and fixed income markets generated strong returns. Following significant volatility and steep declines in December 2018, both U.S. and international stocks staged a strong recovery despite several setbacks—primarily related to the trade war between the U.S. and China, which saw a partial resolution in the final month of the reporting period. In the U.S., steady, albeit slowing, economic growth, three interest rate cuts by the Federal Reserve (Fed), and robust consumer spending helped propel U.S. stock markets to record highs. Fixed-income markets, particularly corporate bond markets, also demonstrated strength throughout the period although U.S. Treasuries also posted relatively strong gains.
Performance. The fund’s distribution yield (payout) was 2.70% for the year ended December 31, 2019, generally in line with the investment adviser’s expectations in a low interest rate environment. For the 12-month reporting period, the fund’s total return was 13.79%, with the composite index returning 14.61%.
Positioning and Strategies. Although the fund’s allocations to equities and fixed income vary within certain established parameters, they were broadly aligned with those of the composite index.
All four of the fund’s non-cash asset classes contributed positively to the fund’s total return for the reporting period, although two underperformed their respective composite index benchmark component, leading to the fund’s underperformance of the composite index.
The fund’s fixed-income exposure was the greatest contributor to the fund’s total return, but detracted slightly from relative performance. In January 2019, the fund’s intermediate-term bond allocation, the Schwab Intermediate-Term Bond Fund, was transitioned into the fund’s core bond allocation, the Schwab U.S. Aggregate Bond Index Fund. The Schwab Intermediate-Term Bond Fund returned approximately 0.1% while held by the fund, slightly underperforming its benchmark. The Schwab U.S. Aggregate Bond Index Fund was the largest contributor to the fund’s total return, returning approximately 8.6% for the reporting period, and generally tracking its benchmark, the Bloomberg Barclays US Aggregate Bond Index.
The fund’s U.S. large-cap equity exposure contributed to the fund’s total return, but was the largest detractor from relative performance. The Schwab Dividend Equity Fund returned approximately 24.3% for the reporting period, underperforming the S&P 500® Index, the composite index’s underlying U.S. large-cap equity component, which returned approximately 31.5% for the reporting period.
The fund’s international equity exposure contributed to the fund’s total return and relative performance. The Laudus International MarketMasters Fund returned approximately 26.1% for the reporting period versus its comparative index, the MSCI EAFE® Index (Net), which returned approximately 22.0% for the reporting period.
The fund’s real estate exposure also contributed to the fund’s total return and relative performance. The Schwab Global Real Estate Fund returned approximately 27.8% for the reporting period, outperforming its benchmark, the FTSE EPRA Nareit Global Index (Net), which returned approximately 22.5% for the reporting period.
    
Management views and portfolio holdings may have changed since the report date.
1 For more information about payouts, please see the fund’s prospectus.
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Schwab Monthly Income Fund – Enhanced Payout
Performance and Fund Facts as of December 31, 2019

The performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value will fluctuate so that an investor’s shares may be worth more or less than their original cost. Current performance may be lower or higher than performance data quoted. To obtain performance information current to the most recent month end, please visit www.schwabfunds.com/schwabfunds_prospectus.    
 
Performance of Hypothetical $10,000 Investment (December 31, 2009 – December 31, 2019)1
 
Average Annual Total Returns1
Fund and Inception Date 1 Year 5 Years 10 Years
Fund: Schwab Monthly Income Fund – Enhanced Payout (3/28/08) 13.79% 4.11% 5.16%
Enhanced Payout Composite Index 14.61% 5.16% 6.12%
S&P 500® Index 31.49% 11.70% 13.56%
Bloomberg Barclays US Aggregate Bond Index 8.72% 3.05% 3.75%
Fund Category: Morningstar Allocation – 30% to 50% Equity2 14.81% 4.66% 6.19%
Fund Expense Ratios3: Net 0.35%; Gross 0.47%
    
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.
The first index listed for the fund is the fund’s primary benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.
For index definitions, please see the Glossary.
1 The fund’s routine expenses have been absorbed by CSIM and its affiliates. Without these reductions, the fund’s returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.
2 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.
3 As stated in the prospectus. Includes 0.35% of acquired fund fees and expenses (AFFE), which are based on estimated amounts for the current fiscal year and are indirect expenses incurred by the fund through its investments in the underlying funds. Net Expense: Expenses reduced by a contractual fee waiver for so long as CSIM serves as the adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual expense ratios during the period, not including AFFE, refer to the financial highlights section in the financial statements.
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Schwab Monthly Income Fund – Enhanced Payout
Performance and Fund Facts as of December 31, 2019 (continued)

Statistics
Number of Holdings 6
Portfolio Turnover Rate 31%
12-Month Distribution Yield 2.70% 1
Asset Class Weightings % of Investments2,3
 
    
Top Holdings % of Net Assets4,5
    
Portfolio holdings may have changed since the report date.
1 Calculation reflects the fund’s monthly ordinary income distributions for the last 12 months divided by the fund’s Net Asset Value as of the end of the reporting period. Distribution yield does not include capital gains distributions. Fund expenses may have been partially absorbed by the investment adviser and its affiliates. Without these reductions, the total return/yield may have been lower.
2 The fund intends to invest in a combination of the underlying funds; however, the fund may also invest directly in equity and fixed income securities, exchange-traded funds, nonproprietary mutual funds, and cash and cash equivalents, including money market securities.
3 The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets.
4 This list is not a recommendation of any security by the investment adviser.
5 The holdings listed exclude any temporary liquidity investments.
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Schwab Monthly Income Fund – Maximum Payout as of December 31, 2019

The Schwab Monthly Income Funds (the funds) seek to provide current income, with capital appreciation as a secondary investment objective. The funds have a fund-of-funds structure that involves holding equity, fixed income, and money market funds selected from within the Schwab Funds and Laudus Funds complex, but each also may invest directly in equity and fixed income securities, cash and cash equivalents (including money market securities), exchange-traded funds (ETFs) and nonproprietary mutual funds to accomplish these objectives. Holdings are based on each fund’s asset allocation, with returns reflecting the combined performance and respective weightings of the underlying investments.
The Schwab Monthly Income Fund – Maximum Payout (the fund) is designed to offer investors a targeted annual payout of 5% to 6%1 and an increase in capital over the long term. However, the fund’s actual annual payout could be higher or lower than the targeted annual payout based on the interest rate environment and other market factors occurring during that year. During a low interest rate environment, the fund’s anticipated annual payout is generally expected to be 1% to 5%, and during a high interest rate environment, is expected to be 5% to 8%. The fund uses the internally calculated Maximum Payout Composite Index (the composite index) as a performance gauge.
Market Highlights. Over the 12-month reporting period ended December 31, 2019, global equity and fixed income markets generated strong returns. Following significant volatility and steep declines in December 2018, both U.S. and international stocks staged a strong recovery despite several setbacks—primarily related to the trade war between the U.S. and China, which saw a partial resolution in the final month of the reporting period. In the U.S., steady, albeit slowing, economic growth, three interest rate cuts by the Federal Reserve (Fed), and robust consumer spending helped propel U.S. stock markets to record highs. Fixed-income markets, particularly corporate bond markets, also demonstrated strength throughout the period although U.S. Treasuries also posted relatively strong gains.
Performance. The fund’s distribution yield (payout) was 2.71% for the year ended December 31, 2019, generally in line with the investment adviser’s expectations in a low interest rate environment. For the 12-month reporting period, the fund’s total return was 11.18%, with the composite index returning 11.79%.
Positioning and Strategies. Although the fund’s allocations to equities and fixed income vary within certain established parameters, they were broadly aligned with those of the composite index.
All four of the fund’s non-cash asset classes contributed positively to the fund’s total return for the reporting period, although two underperformed their respective composite index benchmark component, leading to the fund’s underperformance of the composite index.
The fund’s fixed-income exposure was the greatest contributor to the fund’s total return, but detracted slightly from relative performance. In January 2019, the fund’s intermediate-term bond allocation, the Schwab Intermediate-Term Bond Fund, was transitioned into the fund’s core bond allocation, the Schwab U.S. Aggregate Bond Index Fund. The Schwab Intermediate-Term Bond Fund returned approximately 0.1% while held by the fund, slightly underperforming its benchmark. The Schwab U.S. Aggregate Bond Index Fund was the largest contributor to the fund’s total return, returning approximately 8.6% for the reporting period, and generally tracking its benchmark, the Bloomberg Barclays US Aggregate Bond Index.
The fund’s U.S. large-cap equity exposure contributed to the fund’s total return, but was the largest detractor from relative performance. The Schwab Dividend Equity Fund returned approximately 24.3% for the reporting period, underperforming the S&P 500® Index, the composite index’s underlying U.S. large-cap equity component, which returned approximately 31.5% for the reporting period.
The fund’s international equity exposure contributed to the fund’s total return and relative performance. The Laudus International MarketMasters Fund returned approximately 26.1% for the reporting period versus its comparative index, the MSCI EAFE® Index (Net), which returned approximately 22.0% for the reporting period.
The fund’s real estate exposure also contributed to the fund’s total return and relative performance. The Schwab Global Real Estate Fund returned approximately 27.8% for the reporting period, outperforming its benchmark, the FTSE EPRA Nareit Global Index (Net), which returned approximately 22.5% for the reporting period.
    
Management views and portfolio holdings may have changed since the report date.
1 For more information about payouts, please see the fund’s prospectus.
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Schwab Monthly Income Fund – Maximum Payout
Performance and Fund Facts as of December 31, 2019

The performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value will fluctuate so that an investor’s shares may be worth more or less than their original cost. Current performance may be lower or higher than performance data quoted. To obtain performance information current to the most recent month end, please visit www.schwabfunds.com/schwabfunds_prospectus.    
 
Performance of Hypothetical $10,000 Investment (December 31, 2009 – December 31, 2019)1
 
Average Annual Total Returns1
Fund and Inception Date 1 Year 5 Years 10 Years
Fund: Schwab Monthly Income Fund – Maximum Payout (3/28/08) 11.18% 3.44% 4.00%
Maximum Payout Composite Index 11.79% 4.16% 4.90%
S&P 500® Index 31.49% 11.70% 13.56%
Bloomberg Barclays US Aggregate Bond Index 8.72% 3.05% 3.75%
Fund Category: Morningstar Allocation – 15% to 30% Equity2 11.20% 3.76% 5.01%
Fund Expense Ratios3: Net 0.21%; Gross 0.41%
    
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.
The first index listed for the fund is the fund’s primary benchmark, as shown in the prospectus. Additional indices shown are provided for comparative purposes.
For index definitions, please see the Glossary.
1 The fund’s routine expenses have been absorbed by CSIM and its affiliates. Without these reductions, the fund’s returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.
2 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.
3 As stated in the prospectus. Includes 0.21% of acquired fund fees and expenses (AFFE), which are based on estimated amounts for the current fiscal year and are indirect expenses incurred by the fund through its investments in the underlying funds. Net Expense: Expenses reduced by a contractual fee waiver for so long as CSIM serves as the adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual expense ratios during the period, not including AFFE, refer to the financial highlights section in the financial statements.
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Schwab Monthly Income Fund – Maximum Payout
Performance and Fund Facts as of December 31, 2019 (continued)

Statistics
Number of Holdings 6
Portfolio Turnover Rate 31%
12-Month Distribution Yield 2.71% 1
Asset Class Weightings % of Investments2,3
 
    
Top Holdings % of Net Assets4,5
    
Portfolio holdings may have changed since the report date.
1 Calculation reflects the fund’s monthly ordinary income distributions for the last 12 months divided by the fund’s Net Asset Value as of the end of the reporting period. Distribution yield does not include capital gains distributions. Fund expenses may have been partially absorbed by the investment adviser and its affiliates. Without these reductions, the total return/yield may have been lower.
2 The fund intends to invest in a combination of the underlying funds; however, the fund may also invest directly in equity and fixed income securities, exchange-traded funds, nonproprietary mutual funds, and cash and cash equivalents, including money market securities.
3 The percentage may differ from the Portfolio Holdings because the above calculation is based on a percentage of total investments, whereas the calculation in the Portfolio Holdings is based on a percentage of net assets.
4 This list is not a recommendation of any security by the investment adviser.
5 The holdings listed exclude any temporary liquidity investments.
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Schwab Monthly Income Funds
Fund Expenses (Unaudited)
Examples for a $1,000 Investment
As a fund shareholder, you may incur two types of costs: (1) transaction costs; and (2) ongoing costs, including management fees, transfer agent fees, and other fund expenses.
The expense examples below are intended to help you understand your ongoing cost (in dollars) of investing in a fund and to compare this cost with the ongoing cost of investing in other mutual funds. These examples are based on an investment of $1,000 invested for six months beginning July 1, 2019 and held through December 31, 2019.
Actual Return lines in the table below provide information about actual account values and actual expenses. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value ÷ $1,000 = 8.6), then multiply the result by the number given for your fund under the heading entitled “Expenses Paid During Period.”
Hypothetical Return lines in the table below provide information about hypothetical account values and hypothetical expenses based on a fund’s actual expense ratio and an assumed return of 5% per year before expenses. Because the return used is not an actual return, it may not be used to estimate the actual ending account value or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in a fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only, and do not reflect any transactional costs. 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 Ratio
(Annualized)1,2
Effective
Expense Ratio
(Annualized)3,4
Beginning
Account Value
at 7/1/19
Ending
Account Value
(Net of Expenses)
at 12/31/192
Expenses Paid
During Period
7/1/19-12/31/192,5
Effective
Expenses Paid
During Period
7/1/19-12/31/194,5
Schwab Monthly Income Fund - Moderate Payout            
Actual Return 0.00% 0.50% $1,000.00 $1,050.60 $0.00 $2.58
Hypothetical 5% Return 0.00% 0.50% $1,000.00 $1,025.20 $0.00 $2.55
Schwab Monthly Income Fund - Enhanced Payout            
Actual Return 0.00% 0.36% $1,000.00 $1,042.50 $0.00 $1.85
Hypothetical 5% Return 0.00% 0.36% $1,000.00 $1,025.20 $0.00 $1.84
Schwab Monthly Income Fund - Maximum Payout            
Actual Return 0.00% 0.21% $1,000.00 $1,034.00 $0.00 $1.08
Hypothetical 5% Return 0.00% 0.21% $1,000.00 $1,025.20 $0.00 $1.07
    
1 Based on the most recent six-month expense ratio.
2 Excludes acquired fund fees and expenses, which are indirect expenses incurred by the fund through its investments in underlying funds.
3 Based on the most recent six-month acquired fund fees and expense ratio; may differ from the acquired fund fees and expenses ratios in the prospectus, which are based on estimated amounts for the current fiscal year.
4 Includes acquired fund fees and expenses, which are indirect expenses incurred by the fund through its investments in underlying funds.
5 Expenses for each fund are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by the 184 days of the period, and divided by the 365 days of the fiscal year.
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Schwab Monthly Income Fund – Moderate Payout
Financial Statements
Financial Highlights
  1/1/19–
12/31/19
1/1/18–
12/31/18
1/1/17–
12/31/17
1/1/16–
12/31/16
1/1/15–
12/31/15
 
Per-Share Data
Net asset value at beginning of period $10.05 $11.09 $10.31 $10.46 $11.21  
Income (loss) from investment operations:            
Net investment income (loss)1 0.29 0.23 0.23 0.21 0.22  
Net realized and unrealized gains (losses) 1.34 (0.92) 0.87 0.26 (0.24)  
Total from investment operations 1.63 (0.69) 1.10 0.47 (0.02)  
Less distributions:            
Distributions from net investment income (0.29) (0.24) (0.32) (0.22) (0.28)  
Distributions from net realized gains (0.30) (0.11) (0.40) (0.45)  
Total distributions (0.59) (0.35) (0.32) (0.62) (0.73)  
Net asset value at end of period $11.09 $10.05 $11.09 $10.31 $10.46  
Total return 16.41% (6.31%) 10.80% 4.58% (0.24%)  
Ratios/Supplemental Data
Ratios to average net assets:            
Net operating expenses2 0.00% 0.00% 0.00% 0.00% 0.00% 3,4  
Gross operating expenses2 0.24% 0.19% 0.20% 0.18% 0.23%  
Net investment income (loss) 2.68% 2.17% 2.11% 1.99% 1.98%  
Portfolio turnover rate 30% 20% 41% 5 9% 14%  
Net assets, end of period (x 1,000,000) $47 $41 $49 $45 $48  
 
1
Calculated based on the average shares outstanding during the period.
2
The expenses incurred by underlying funds in which the fund invests are not included in this ratio.
3
Less than 0.005%.
4
The ratio of net operating expenses would have been 0.00%, if certain non-routine expenses had not been incurred.
5
The portfolio turnover rate increased due to the in-kind transactions relating to Schwab Total Bond Market Fund and Schwab U.S. Aggregate Bond Index Fund. There were no transaction costs associated with these transactions. For comparison purposes, portfolio turnover rate would have been 14% without including these transactions.
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See financial notes

 

Schwab Monthly Income Fund – Moderate Payout
Portfolio Holdings as of December 31, 2019

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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the SEC’s website at www.sec.gov. The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after the end of the month on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus.    
 
Security Number
of Shares
Value ($)
Affiliated Underlying Funds 99.1% of net assets
 
Equity Funds 48.1%
Global Real Estate 7.1%
Schwab Global Real Estate Fund 409,041 3,333,687
International 12.1%
Laudus International MarketMasters Fund 235,630 5,643,347
Large-Cap 28.9%
Schwab Dividend Equity Fund 896,133 13,450,958
    22,427,992
 
Fixed-Income Funds 49.7%
Intermediate-Term Bond 49.7%
Schwab U.S. Aggregate Bond Index Fund 2,245,453 23,173,073
 
Money Market Fund 1.3%
Schwab Variable Share Price Money Fund, Ultra Shares 1.69% (a) 572,421 572,650
Total Affiliated Underlying Funds
(Cost $42,373,260)   46,173,715
Security Number
of Shares
Value ($)
Unaffiliated Underlying Fund 0.7% of net assets
 
Money Market Fund 0.7%
State Street Institutional U.S. Government Money Market Fund, Premier Class 1.53% (a) 354,030 354,030
Total Unaffiliated Underlying Fund
(Cost $354,030)   354,030
(a) The rate shown is the 7-day yield.
 
Below is a summary of the fund’s transactions with its affiliated underlying funds during the period ended December 31, 2019:
Affiliated Underlying Funds Market
Value at
12/31/18
Gross
Purchases
Gross
Sales
Realized
Gains (Losses)
Net Change
in Unrealized
Appreciation
(depreciation)
Market
Value at
12/31/19
Balance
of Shares
Held at
12/31/19
Distributions
Received*
Laudus International MarketMasters Fund (formerly Laudus International MarketMasters, Select Shares) $4,959,735 $428,641 ($864,000) ($77,931) $1,196,902 $5,643,347 235,630 $107,641
Schwab Dividend Equity Fund 11,792,966 1,990,786 (2,218,000) (280,214) 2,165,420 13,450,958 896,133 879,786
Schwab Global Real Estate Fund 2,962,885 378,782 (546,000) 42,205 495,815 3,333,687 409,041 238,781
Schwab Intermediate-Term Bond Fund 7,429,908 (7,410,216) (229,736) 210,044 14,158
Schwab U.S. Aggregate Bond Index Fund 13,407,705 10,485,664 (1,876,000) (938) 1,156,642 23,173,073 2,245,453 622,315
Schwab Variable Share Price Money Fund, Ultra Shares 560,100 12,437 113 572,650 572,421 12,484
Total $41,113,299 $13,296,310 ($12,914,216) ($546,614) $5,224,936 $46,173,715   $1,875,165
* Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds.
   

At December 31, 2019, all of the fund’s investment securities were classified as Level 1. Fund investments in underlying mutual funds are classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3. (See financial note 2(a) for additional information)
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See financial notes

 

Schwab Monthly Income Fund – Moderate Payout
Statement of Assets and Liabilities

As of December 31, 2019
Assets
Investments in affiliated underlying funds, at value (cost $42,373,260)   $46,173,715
Investments in unaffiliated underlying funds, at value (cost $354,030)   354,030
Receivables:    
Fund shares sold   131,327
Dividends   57,286
Due from investment adviser   10,928
Prepaid expenses + 3,739
Total assets   46,731,025
Liabilities
Payables:    
Investments bought   54,853
Independent trustees’ fees   21
Fund shares redeemed   40,887
Accrued expenses + 28,833
Total liabilities   124,594
Net Assets
Total assets   46,731,025
Total liabilities 124,594
Net assets   $46,606,431
Net Assets by Source    
Capital received from investors   43,302,944
Total distributable earnings   3,303,487
    
Net Asset Value (NAV)
Net Assets ÷ Shares
Outstanding
= NAV
$46,606,431   4,204,355   $11.09
         
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Schwab Monthly Income Funds  |  Annual Report
See financial notes

 

Schwab Monthly Income Fund – Moderate Payout
Statement of Operations

For the period January 1, 2019 through December 31, 2019
Investment Income
Dividends received from affiliated underlying funds   $1,164,454
Dividends received from unaffiliated underlying funds + 5,432
Total investment income   1,169,886
Expenses
Professional fees   31,698
Registration fees   21,413
Portfolio accounting fees   21,375
Shareholder reports   14,117
Independent trustees’ fees   7,943
Transfer agent fees   1,898
Custodian fees   901
Other expenses + 5,448
Total expenses   104,793
Expense reduction by CSIM and its affiliates 104,793
Net expenses
Net investment income   1,169,886
Realized and Unrealized Gains (Losses)
Realized capital gain distributions received from affiliated underlying funds   710,711
Net realized losses on sales of affiliated underlying funds + (546,614)
Net realized gains   164,097
Net change in unrealized appreciation (depreciation) on affiliated underlying funds + 5,224,936
Net realized and unrealized gains   5,389,033
Increase in net assets resulting from operations   $6,558,919
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Schwab Monthly Income Funds  |  Annual Report
See financial notes

 

Schwab Monthly Income Fund – Moderate Payout
Statement of Changes in Net Assets

For the current and prior report periods
Operations  
  1/1/19-12/31/19 1/1/18-12/31/18
Net investment income   $1,169,886 $1,024,574
Net realized gains   164,097 1,073,413
Net change in unrealized appreciation (depreciation) + 5,224,936 (5,162,466)
Increase (decrease) in net assets from operations   6,558,919 (3,064,479)
Distributions to Shareholders  
Total distributions   ($2,415,500) ($1,487,830)
    
Transactions in Fund Shares      
    1/1/19-12/31/19 1/1/18-12/31/18
    SHARES VALUE SHARES VALUE
Shares sold   835,441 $9,132,983 1,400,217 $15,307,824
Shares reinvested   137,230 1,510,728 90,550 945,686
Shares redeemed + (881,615) (9,538,580) (1,756,913) (18,897,285)
Net transactions in fund shares   91,056 $1,105,131 (266,146) ($2,643,775)
Shares Outstanding and Net Assets      
    1/1/19-12/31/19 1/1/18-12/31/18
    SHARES NET ASSETS SHARES NET ASSETS
Beginning of period   4,113,299 $41,357,881 4,379,445 $48,553,965
Total increase or decrease + 91,056 5,248,550 (266,146) (7,196,084)
End of period   4,204,355 $46,606,431 4,113,299 $41,357,881
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Schwab Monthly Income Funds  |  Annual Report
See financial notes

 

Schwab Monthly Income Fund – Enhanced Payout
Financial Statements
Financial Highlights
  1/1/19–
12/31/19
1/1/18–
12/31/18
1/1/17–
12/31/17
1/1/16–
12/31/16
1/1/15–
12/31/15
 
Per-Share Data
Net asset value at beginning of period $10.58 $11.38 $10.81 $10.92 $11.18  
Income (loss) from investment operations:            
Net investment income (loss)1 0.31 0.25 0.24 0.22 0.22  
Net realized and unrealized gains (losses) 1.13 (0.72) 0.64 0.18 (0.22)  
Total from investment operations 1.44 (0.47) 0.88 0.40  
Less distributions:            
Distributions from net investment income (0.31) (0.26) (0.31) (0.24) (0.26)  
Distributions from net realized gains (0.22) (0.07) (0.27)  
Total distributions (0.53) (0.33) (0.31) (0.51) (0.26)  
Net asset value at end of period $11.49 $10.58 $11.38 $10.81 $10.92  
Total return 13.79% (4.20%) 8.19% 3.69% 0.02%  
Ratios/Supplemental Data
Ratios to average net assets:            
Net operating expenses2 0.00% 0.00% 0.00% 0.00% 0.00% 3,4  
Gross operating expenses2 0.14% 0.12% 0.11% 0.10% 0.13%  
Net investment income (loss) 2.75% 2.28% 2.14% 2.01% 1.99%  
Portfolio turnover rate 31% 9% 50% 5 6% 11%  
Net assets, end of period (x 1,000,000) $86 $77 $95 $94 $97  
 
1
Calculated based on the average shares outstanding during the period.
2
The expenses incurred by underlying funds in which the fund invests are not included in this ratio.
3
Less than 0.005%.
4
The ratio of net operating expenses would have been 0.00%, if certain non-routine expenses had not been incurred.
5
The portfolio turnover rate increased due to the in-kind transactions relating to Schwab Total Bond Market Fund and Schwab U.S. Aggregate Bond Index Fund. There were no transaction costs associated with these transactions. For comparison purposes, portfolio turnover rate would have been 13% without including these transactions.
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Schwab Monthly Income Funds  |  Annual Report
See financial notes

 

Schwab Monthly Income Fund – Enhanced Payout
Portfolio Holdings as of December 31, 2019

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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the SEC’s website at www.sec.gov. The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after the end of the month on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus.    
 
Security Number
of Shares
Value ($)
Affiliated Underlying Funds 99.2% of net assets
 
Equity Funds 33.2%
Global Real Estate 4.9%
Schwab Global Real Estate Fund 513,662 4,186,346
International 8.4%
Laudus International MarketMasters Fund 300,906 7,206,709
Large-Cap 19.9%
Schwab Dividend Equity Fund 1,132,499 16,998,813
    28,391,868
 
Fixed-Income Fund 64.7%
Intermediate-Term Bond 64.7%
Schwab U.S. Aggregate Bond Index Fund 5,368,149 55,399,302
 
Money Market Fund 1.3%
Schwab Variable Share Price Money Fund, Ultra Shares 1.69% (a) 1,072,053 1,072,482
Total Affiliated Underlying Funds
(Cost $77,182,915)   84,863,652
Security Number
of Shares
Value ($)
Unaffiliated Underlying Fund 0.3% of net assets
 
Money Market Fund 0.3%
State Street Institutional U.S. Government Money Market Fund, Premier Class 1.53% (a) 284,969 284,969
Total Unaffiliated Underlying Fund
(Cost $284,969)   284,969
(a) The rate shown is the 7-day yield.
 
Below is a summary of the fund’s transactions with its affiliated underlying funds during the period ended December 31, 2019:
Affiliated Underlying Funds Market
Value at
12/31/18
Gross
Purchases
Gross
Sales
Realized
Gains (Losses)
Net Change
in Unrealized
Appreciation
(depreciation)
Market
Value at
12/31/19
Balance
of Shares
Held at
12/31/19
Distributions
Received*
Laudus International MarketMasters Fund (formerly Laudus International MarketMasters, Select Shares) $6,002,185 $382,460 ($580,000) $9,613 $1,392,451 $7,206,709 300,906 $137,461
Schwab Dividend Equity Fund 14,643,452 1,954,189 (1,979,000) (192,437) 2,572,609 16,998,813 1,132,499 1,110,189
Schwab Global Real Estate Fund 3,708,535 297,811 (499,000) 111,044 567,956 4,186,346 513,662 297,810
Schwab Intermediate-Term Bond Fund 18,995,825 (18,948,119) (288,935) 241,229 35,254
Schwab U.S. Aggregate Bond Index Fund 31,362,616 24,228,464 (2,972,000) 18,628 2,761,594 55,399,302 5,368,149 1,499,592
Schwab Variable Share Price Money Fund, Ultra Shares 1,048,978 23,293 211 1,072,482 1,072,053 23,382
Total $75,761,591 $26,886,217 ($24,978,119) ($342,087) $7,536,050 $84,863,652   $3,103,688
* Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds.
   

At December 31, 2019, all of the fund’s investment securities were classified as Level 1. Fund investments in underlying mutual funds are classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3. (See financial note 2(a) for additional information)
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Schwab Monthly Income Funds  |  Annual Report
See financial notes

 

Schwab Monthly Income Fund – Enhanced Payout
Statement of Assets and Liabilities

As of December 31, 2019
Assets
Investments in affiliated underlying funds, at value (cost $77,182,915)   $84,863,652
Investments in unaffiliated underlying funds, at value (cost $284,969)   284,969
Receivables:    
Fund shares sold   455,112
Dividends   135,590
Due from investment adviser   12,707
Prepaid expenses + 4,550
Total assets   85,756,580
Liabilities
Payables:    
Investments bought   130,152
Independent trustees’ fees   22
Fund shares redeemed   532
Accrued expenses + 30,754
Total liabilities   161,460
Net Assets
Total assets   85,756,580
Total liabilities 161,460
Net assets   $85,595,120
Net Assets by Source    
Capital received from investors   77,636,773
Total distributable earnings   7,958,347
    
Net Asset Value (NAV)
Net Assets ÷ Shares
Outstanding
= NAV
$85,595,120   7,451,576   $11.49
         
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Schwab Monthly Income Fund – Enhanced Payout
Statement of Operations

For the period January 1, 2019 through December 31, 2019
Investment Income
Dividends received from affiliated underlying funds   $2,210,117
Dividends received from unaffiliated underlying funds + 9,972
Total investment income   2,220,089
Expenses
Professional fees   35,862
Portfolio accounting fees   21,781
Registration fees   21,450
Shareholder reports   19,382
Independent trustees’ fees   8,122
Transfer agent fees   2,878
Custodian fees   575
Other expenses + 5,798
Total expenses   115,848
Expense reduction by CSIM and its affiliates 115,848
Net expenses
Net investment income   2,220,089
Realized and Unrealized Gains (Losses)
Realized capital gain distributions received from affiliated underlying funds   893,571
Net realized losses on sales of affiliated underlying funds + (342,087)
Net realized gains   551,484
Net change in unrealized appreciation (depreciation) on affiliated underlying funds + 7,536,050
Net realized and unrealized gains   8,087,534
Increase in net assets resulting from operations   $10,307,623
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Schwab Monthly Income Fund – Enhanced Payout
Statement of Changes in Net Assets

For the current and prior report periods
Operations  
  1/1/19-12/31/19 1/1/18-12/31/18
Net investment income   $2,220,089 $1,950,009
Net realized gains   551,484 1,721,063
Net change in unrealized appreciation (depreciation) + 7,536,050 (7,337,968)
Increase (decrease) in net assets from operations   10,307,623 (3,666,896)
Distributions to Shareholders  
Total distributions   ($3,866,624) ($2,455,563)
    
Transactions in Fund Shares      
    1/1/19-12/31/19 1/1/18-12/31/18
    SHARES VALUE SHARES VALUE
Shares sold   1,442,946 $16,376,802 1,207,204 $13,467,215
Shares reinvested   219,480 2,502,629 141,660 1,544,742
Shares redeemed + (1,446,268) (16,277,099) (2,486,372) (27,631,074)
Net transactions in fund shares   216,158 $2,602,332 (1,137,508) ($12,619,117)
Shares Outstanding and Net Assets      
    1/1/19-12/31/19 1/1/18-12/31/18
    SHARES NET ASSETS SHARES NET ASSETS
Beginning of period   7,235,418 $76,551,789 8,372,926 $95,293,365
Total increase or decrease + 216,158 9,043,331 (1,137,508) (18,741,576)
End of period   7,451,576 $85,595,120 7,235,418 $76,551,789
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Schwab Monthly Income Fund – Maximum Payout
Financial Statements
Financial Highlights
  1/1/19–
12/31/19
1/1/18–
12/31/18
1/1/17–
12/31/17
1/1/16–
12/31/16
1/1/15–
12/31/15
 
Per-Share Data
Net asset value at beginning of period $9.60 $10.15 $9.85 $9.95 $10.37  
Income (loss) from investment operations:            
Net investment income (loss)1 0.29 0.24 0.22 0.20 0.21  
Net realized and unrealized gains (losses) 0.77 (0.48) 0.33 0.09 (0.18)  
Total from investment operations 1.06 (0.24) 0.55 0.29 0.03  
Less distributions:            
Distributions from net investment income (0.28) (0.24) (0.25) (0.22) (0.23)  
Distributions from net realized gains (0.05) (0.07) (0.17) (0.22)  
Total distributions (0.33) (0.31) (0.25) (0.39) (0.45)  
Net asset value at end of period $10.33 $9.60 $10.15 $9.85 $9.95  
Total return 11.18% (2.31%) 5.64% 2.97% 0.22%  
Ratios/Supplemental Data
Ratios to average net assets:            
Net operating expenses2 0.00% 0.00% 0.00% 3,4 0.00% 0.00% 3,4  
Gross operating expenses2 0.23% 0.20% 0.20% 0.18% 0.23%  
Net investment income (loss) 2.85% 2.42% 2.17% 2.02% 2.01%  
Portfolio turnover rate 31% 11% 63% 5 9% 14%  
Net assets, end of period (x 1,000,000) $63 $40 $48 $47 $50  
 
1
Calculated based on the average shares outstanding during the period.
2
The expenses incurred by underlying funds in which the fund invests are not included in this ratio.
3
Less than 0.005%.
4
The ratio of net operating expenses would have been 0.00%, if certain non-routine expenses had not been incurred.
5
The portfolio turnover rate increased due to the in-kind transactions relating to Schwab Total Bond Market Fund and Schwab U.S. Aggregate Bond Index Fund. There were no transaction costs associated with these transactions. For comparison purposes, portfolio turnover rate would have been 16% without including these transactions.
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Schwab Monthly Income Fund – Maximum Payout
Portfolio Holdings as of December 31, 2019

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 U.S. Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-PORT Part F. The fund’s Form N-PORT Part F is available on the SEC’s website at www.sec.gov. The fund also makes available its complete schedule of portfolio holdings 15 to 20 days after the end of the month on the fund’s website at www.schwabfunds.com/schwabfunds_prospectus.    
 
Security Number
of Shares
Value ($)
Affiliated Underlying Funds 98.7% of net assets
 
Equity Funds 18.1%
Global Real Estate 2.6%
Schwab Global Real Estate Fund 203,112 1,655,362
International 4.6%
Laudus International MarketMasters Fund 121,108 2,900,535
Large-Cap 10.9%
Schwab Dividend Equity Fund 452,306 6,789,111
    11,345,008
 
Fixed-Income Fund 79.5%
Intermediate-Term Bond 79.5%
Schwab U.S. Aggregate Bond Index Fund 4,819,036 49,732,452
 
Money Market Fund 1.1%
Schwab Variable Share Price Money Fund, Ultra Shares 1.69% (a) 671,631 671,900
Total Affiliated Underlying Funds
(Cost $58,657,864)   61,749,360
Security Number
of Shares
Value ($)
Unaffiliated Underlying Fund 0.8% of net assets
 
Money Market Fund 0.8%
State Street Institutional U.S. Government Money Market Fund, Premier Class 1.53% (a) 492,391 492,391
Total Unaffiliated Underlying Fund
(Cost $492,391)   492,391
(a) The rate shown is the 7-day yield.
 
Below is a summary of the fund’s transactions with its affiliated underlying funds during the period ended December 31, 2019:
Affiliated Underlying Funds Market
Value at
12/31/18
Gross
Purchases
Gross
Sales
Realized
Gains (Losses)
Net Change
in Unrealized
Appreciation
(depreciation)
Market
Value at
12/31/19
Balance
of Shares
Held at
12/31/19
Distributions
Received*
Laudus International MarketMasters Fund (formerly Laudus International MarketMasters Fund, Select Shares) $1,692,124 $999,012 ($234,000) ($6,987) $450,386 $2,900,535 121,108 $53,013
Schwab Dividend Equity Fund 4,068,770 2,396,169 (335,000) (10,249) 669,421 6,789,111 452,306 417,169
Schwab Global Real Estate Fund 1,061,053 547,957 (141,000) 8,602 178,750 1,655,362 203,112 106,957
Schwab Intermediate-Term Bond Fund 12,289,523 (12,257,141) (230,136) 197,754 23,179
Schwab U.S. Aggregate Bond Index Fund 20,372,236 29,030,637 (1,538,000) (12,903) 1,880,482 49,732,452 4,819,036 1,084,257
Schwab Variable Share Price Money Fund, Ultra Shares 509,747 162,035 118 671,900 671,631 12,104
Total $39,993,453 $33,135,810 ($14,505,141) ($251,673) $3,376,911 $61,749,360   $1,696,679
* Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds.
   

At December 31, 2019, all of the fund’s investment securities were classified as Level 1. Fund investments in underlying mutual funds are classified as Level 1, without consideration to the classification level of the investments held by the underlying mutual funds, which could be Level 1, Level 2 or Level 3. (See financial note 2(a) for additional information)
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Schwab Monthly Income Fund – Maximum Payout
Statement of Assets and Liabilities

As of December 31, 2019
Assets
Investments in affiliated underlying funds, at value (cost $58,657,864)   $61,749,360
Investments in unaffiliated underlying funds, at value (cost $492,391)   492,391
Receivables:    
Fund shares sold   480,168
Dividends   118,096
Due from investment adviser   12,660
Prepaid expenses + 7,437
Total assets   62,860,112
Liabilities
Payables:    
Investments bought   113,742
Independent trustees’ fees   22
Fund shares redeemed   190,403
Accrued expenses + 30,009
Total liabilities   334,176
Net Assets
Total assets   62,860,112
Total liabilities 334,176
Net assets   $62,525,936
Net Assets by Source    
Capital received from investors   59,563,486
Total distributable earnings   2,962,450
    
Net Asset Value (NAV)
Net Assets ÷ Shares
Outstanding
= NAV
$62,525,936   6,050,996   $10.33
         
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Schwab Monthly Income Fund – Maximum Payout
Statement of Operations

For the period January 1, 2019 through December 31, 2019
Investment Income
Dividends received from affiliated underlying funds   $1,347,842
Dividends received from unaffiliated underlying funds + 7,052
Total investment income   1,354,894
Expenses
Professional fees   31,667
Registration fees   23,464
Portfolio accounting fees   21,374
Shareholder reports   16,353
Independent trustees’ fees   7,944
Transfer agent fees   2,041
Custodian fees   561
Other expenses + 5,461
Total expenses   108,865
Expense reduction by CSIM and its affiliates 108,865
Net expenses
Net investment income   1,354,894
Realized and Unrealized Gains (Losses)
Realized capital gain distributions received from affiliated underlying funds   348,837
Net realized losses on sales of affiliated underlying funds + (251,673)
Net realized gains   97,164
Net change in unrealized appreciation (depreciation) on affiliated underlying funds + 3,376,911
Net realized and unrealized gains   3,474,075
Increase in net assets resulting from operations   $4,828,969
30
Schwab Monthly Income Funds  |  Annual Report
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Schwab Monthly Income Fund – Maximum Payout
Statement of Changes in Net Assets

For the current and prior report periods
Operations  
  1/1/19-12/31/19 1/1/18-12/31/18
Net investment income   $1,354,894 $1,098,139
Net realized gains   97,164 251,359
Net change in unrealized appreciation (depreciation) + 3,376,911 (2,434,536)
Increase (decrease) in net assets from operations   4,828,969 (1,085,038)
Distributions to Shareholders  
Total distributions   ($1,671,665) ($1,410,178)
    
Transactions in Fund Shares      
    1/1/19-12/31/19 1/1/18-12/31/18
    SHARES VALUE SHARES VALUE
Shares sold   3,258,193 $33,223,959 1,502,087 $14,921,431
Shares reinvested   101,722 1,036,494 85,825 838,844
Shares redeemed + (1,496,811) (15,105,259) (2,175,939) (21,526,956)
Net transactions in fund shares   1,863,104 $19,155,194 (588,027) ($5,766,681)
Shares Outstanding and Net Assets      
    1/1/19-12/31/19 1/1/18-12/31/18
    SHARES NET ASSETS SHARES NET ASSETS
Beginning of period   4,187,892 $40,213,438 4,775,919 $48,475,335
Total increase or decrease + 1,863,104 22,312,498 (588,027) (8,261,897)
End of period   6,050,996 $62,525,936 4,187,892 $40,213,438
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Schwab Monthly Income Funds  |  Annual Report
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Schwab Monthly Income Funds
Financial Notes

1. Business Structure of the Funds:
Each of the funds in this report 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 funds discussed in this report, which are highlighted:
SCHWAB CAPITAL TRUST (ORGANIZED MAY 7, 1993)
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 Target 2010 Fund Schwab Large-Cap Growth Fund
Schwab Target 2015 Fund Schwab Small-Cap Equity Fund
Schwab Target 2020 Fund Schwab Hedged Equity Fund
Schwab Target 2025 Fund Schwab Health Care Fund
Schwab Target 2030 Fund Schwab International Core Equity Fund
Schwab Target 2035 Fund Schwab Fundamental US Large Company Index Fund
Schwab Target 2040 Fund Schwab Fundamental US Small Company Index Fund
Schwab Target 2045 Fund Schwab Fundamental International Large Company Index Fund
Schwab Target 2050 Fund Schwab Fundamental International Small Company Index Fund
Schwab Target 2055 Fund Schwab Fundamental Emerging Markets Large Company Index Fund
Schwab Target 2060 Fund Schwab Fundamental Global Real Estate Index Fund
Schwab S&P 500 Index Fund Schwab Target 2010 Index Fund
Schwab Small-Cap Index Fund® Schwab Target 2015 Index Fund
Schwab Total Stock Market Index Fund® Schwab Target 2020 Index Fund
Schwab U.S. Large-Cap Growth Index Fund Schwab Target 2025 Index Fund
Schwab U.S. Large-Cap Value Index Fund Schwab Target 2030 Index Fund
Schwab U.S. Mid-Cap Index Fund Schwab Target 2035 Index Fund
Schwab International Index Fund® Schwab Target 2040 Index Fund
Schwab MarketTrack All Equity Portfolio™ Schwab Target 2045 Index Fund
Schwab MarketTrack Growth Portfolio™ Schwab Target 2050 Index Fund
Schwab MarketTrack Balanced Portfolio™ Schwab Target 2055 Index Fund
Schwab MarketTrack Conservative Portfolio™ Schwab Target 2060 Index Fund
Laudus International MarketMasters Fund™  
The Schwab Monthly Income Funds are “fund of funds.” Each of the funds seeks to achieve its investment objective by investing in a combination of other Schwab and/or Laudus Funds and other unaffiliated, third-party mutual funds, in accordance with its target portfolio allocation. Each fund may also invest directly in equity and fixed income securities, cash and cash equivalents, including money market securities and exchange-traded funds (ETFs).
Each fund in this report offers one share class. Shares are bought and sold 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 funds’ Board of Trustees (the Board) may authorize the issuance of as many shares as necessary.
Each fund maintains its own account for purposes of holding assets and accounting, and is considered a separate entity for tax purposes. Within its account, each fund may also keep certain assets in segregated accounts, as required by securities law.

    
2. Significant Accounting Policies:
The following is a summary of the significant accounting policies the funds use in their preparation of financial statements. The funds follow the investment company accounting and reporting guidance of the Financial Accounting Standards Board (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).
The financial statements of the funds should be read in conjunction with the underlying funds’ financial statements. For more information about the underlying funds’ operations and policies, please refer to those funds’ semiannual and annual reports, which are filed and available on the U.S. Securities and Exchange Commissions (SEC) website at www.sec.gov.
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Schwab Monthly Income Funds
Financial Notes (continued)

2. Significant Accounting Policies (continued):
(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 funds to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value.
The funds value the securities in their portfolios every business day. The funds use the following policies to value various types of securities:
•   Underlying funds: Mutual funds are valued at their respective NAVs.
•   Securities for which no quoted value is available: The Board has adopted procedures to fair value each fund’s securities when market prices are not “readily available” or are unreliable. For example, a fund may fair value a security when it is de-listed or its trading is halted or suspended; when a security’s primary pricing source is unable or unwilling to provide a price; or when a security’s primary trading market is closed during regular market hours. Each fund makes fair value determinations in good faith in accordance with the fund’s valuation procedures. The Pricing Committee considers a number of factors, including unobservable market inputs when arriving at fair value. The Pricing Committee may employ techniques such as the review of related or comparable assets or liabilities, related market activities, recent transactions, market multiples, book values, transactional back-testing, disposition analysis and other relevant information. The Pricing Committee regularly reviews these inputs and assumptions to calibrate the valuations. Due to the subjective and variable nature of fair value pricing, there can be no assurance that a fund could obtain the fair value assigned to the security upon the sale of such security. The Board convenes on a regular basis to review fair value determinations made by the funds pursuant to the valuation procedures.
In accordance with the authoritative guidance on fair value measurements and disclosures under GAAP, the funds disclose the fair value of their investments in a hierarchy that prioritizes the significant inputs to valuation techniques used to measure the fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). If inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the valuation. If the funds determine that either the volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and management judgment will be required to estimate fair value.
The three levels of the fair value hierarchy are as follows:
•   Level 1quoted prices in active markets for identical securitiesInvestments 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. Investments in mutual funds are valued daily at their NAVs, which are classified as Level 1 prices, without consideration to the classification level of the specific investments held by an underlying fund.
•   Level 2other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)Investments that trade in markets that are not considered to be active, but whose values are based on quoted market prices, dealer quotations or valuations provided by alternative pricing sources supported by observable inputs are classified as Level 2 prices. These generally include U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage products, less liquid listed equities, and state, municipal and provincial obligations.
•   Level 3significant unobservable inputs (including the funds’ own assumptions in determining the fair value of investments)Investments whose values are classified as Level 3 prices have significant unobservable inputs, as they may trade infrequently or not at all. When observable prices are not available for these securities, the funds use one or more valuation techniques for which sufficient and reliable data is available. The inputs used by the funds in estimating the value of Level 3 prices may include the original transaction price, quoted prices for similar securities or assets in active markets, completed or pending third-party transactions in the underlying investment or comparable issuers, and changes in financial ratios or cash flows. Level 3 prices may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the funds in the absence of market information. Assumptions used by the funds due to the lack of observable inputs may significantly impact the resulting fair value and therefore the funds’ results of operations.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
As disclosed in the Portfolio Holdings, as of December 31, 2019, all of the funds’ investments were classified as Level 1.
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Schwab Monthly Income Funds
Financial Notes (continued)

2. Significant Accounting Policies (continued):
(b) 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.
(c) Investment Income:
Interest income is recorded as it accrues. Dividends and distributions from portfolio securities and underlying funds are recorded on the date they are effective (the ex-dividend date), although the funds record certain foreign security dividends on the day they learn of the ex-dividend date. Any distributions from underlying funds are recorded in accordance with the character of the distributions as designated by the underlying funds.
(d) Expenses:
Expenses that are specific to a fund are charged directly to the fund. Expenses that are common to more than one fund in the trusts generally are allocated among those funds in proportion to their average daily net assets. Each fund bears its share of the acquired fund fees and expenses of the underlying funds, which are indirect expenses incurred by the fund through its investments in the underlying funds. Such expenses are reflected in the net asset values of the underlying funds.
(e) Distributions to Shareholders:
The funds make distributions from net investment income monthly and from net realized capital gains, if any, once a year.
(f) 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.
(g) Federal Income Taxes:
The funds intend to meet federal income and excise tax requirements for regulated investment companies under subchapter M of the Internal Revenue Code, as amended. Accordingly, the funds distribute substantially all of their net investment income and net realized capital gains, if any, to their respective shareholders each year. As long as a fund meets the tax requirements, it is not required to pay federal income tax.
(h) Indemnification:
Under the funds’ organizational documents, the officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the funds. In addition, in the normal course of business the funds enter into contracts with their vendors and others that provide general indemnifications. The funds’ maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the funds. However, based on experience, the funds expect the risk of loss attributable to these arrangements to be remote.
(i) Recent Accounting Standards:
In August 2018, the FASB issued Accounting Standards Update “Fair Value Measurement (Topic 820)” (ASU 2018-13) which modifies the disclosure requirements for fair value measurement by removing, modifying, or adding certain disclosures. The amendments are effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. The funds are permitted to early adopt any removed or modified disclosures upon issuance of this update and delay adoption of the additional disclosures until their effective date. The funds have early adopted certain removed or modified disclosures, including the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and the policy for timing of transfers between levels upon issuance of ASU 2018-13, and have delayed adoption of the additional disclosures until their effective date. At this time, management is currently evaluating the impact that the adoption of the additional disclosures will have on the funds’ financial statements.

    
3. Risk Factors:
Investing in the funds may involve certain risks, as discussed in the funds’ prospectus, including, but not limited to, those described below. Any of these risks could cause an investor to lose money.
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Schwab Monthly Income Funds
Financial Notes (continued)

3. Risk Factors (continued):
Asset Allocation Risk. The funds are subject to the risk that the selection of the underlying funds and the allocation of a fund’s assets among the various asset classes and market segments may cause the fund to underperform other funds with a similar investment objective.
Conflicts of Interest Risk. The investment adviser’s authority to select and substitute underlying funds from a variety of affiliated and unaffiliated mutual funds and ETFs may create a conflict of interest because the fees paid to it and its affiliates by some underlying funds are higher than the fees paid by other underlying funds. The investment adviser also may have an incentive to select an affiliated underlying fund for other reasons, including to increase assets under management or to support new investment strategies. In addition, other conflicts of interest may exist where the best interests of the affiliated underlying fund may not be aligned with those of the fund. However, the investment adviser is a fiduciary to the fund and is legally obligated to act in the fund’s best interests when selecting underlying funds.
Market Risk. Financial markets rise and fall in response to a variety of factors, sometimes rapidly and unpredictably. 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 over short or long periods.
Structural Risk. The funds’ monthly income payments will be made from fund assets and will reduce the amount of assets available for investment by the fund. Even if a fund’s capital grows over time, such growth may be insufficient to enable the fund to maintain the amount of its targeted annual payout and targeted monthly income payments. A fund’s investment losses may reduce the amount of future cash income payments an investor will receive from the fund. The dollar amount of a fund’s monthly income payments could vary substantially from one year to the next and over time depending on several factors, including the performance of the financial markets in which the fund invests, the allocation of fund assets across different asset classes and investments, the performance of the fund’s investment strategies, and the amount and timing of prior distributions by the fund. It is also possible for payments to go down substantially from one year to the next and over time depending on the timing of an investor’s investments in the fund. Any redemptions will proportionately reduce the amount of future cash income payments to be received from the fund. There is no guarantee that the fund will make monthly income payments to its shareholders or, if made, that the fund’s monthly income payments to shareholders will remain at a fixed amount.
Direct Investment Risk. The funds may invest directly in cash, cash equivalents and equity and fixed income securities, including money market securities. A fund’s direct investment in these securities is subject to the same or similar risks as an underlying fund’s investment in the same securities.
Underlying Fund Investment Risk. The funds are subject to the risks associated with the underlying funds in which a fund may invest, which include any combination of the risks described below.
•   Investment Risk. The funds may experience losses with respect to their investment in an underlying fund. Further, there is no guarantee that an underlying fund will be able to achieve its objective.
•   Management Risk. Certain underlying funds are actively managed mutual funds. An underlying fund’s adviser applies its own investment techniques and risk analyses in making investment decisions for the fund, but there can be no guarantee that they will produce the desired results or cause the underlying fund to meet its objectives.
•   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.
•   Market Capitalization Risk. Securities issued by companies of different market capitalizations tend to go in and out of favor based on market and economic conditions. During a period when securities of a particular market capitalization fall behind other types of investments, an underlying fund’s performance could be impacted.
•   Concentration Risk. To the extent that an underlying 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, the underlying fund may be adversely affected by the performance of those securities, may be subject to increased price volatility and may be more vulnerable to adverse economic, market, political, or regulatory occurrences affecting that market, industry, group of industries, sector, country or asset class.
•   Fixed Income Risk. Interest rates rise and fall over time, which will affect an underlying fund’s yield and share price. A change in a central bank’s monetary policy or improving economic conditions, among other things, may result in an increase in interest rates. A sharp rise in interest rates could cause an underlying fund to lose value. The credit quality of a portfolio investment could also cause an underlying fund’s share price to fall. An underlying fund could lose money if the issuer or guarantor of a portfolio investment or the counterparty to a derivatives contract fails to make timely principal or interest payments or
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Schwab Monthly Income Funds
Financial Notes (continued)

3. Risk Factors (continued):
otherwise honor its obligations. Fixed-income securities may be paid off earlier or later than expected. Either situation could cause an underlying fund to hold securities paying lower-than-market rates of interest, which could hurt the fund’s yield or share price. Below investment-grade bonds (junk bonds) involve greater credit risk than investment-grade securities.
•   Foreign Investment Risk. An underlying fund’s investments in securities of foreign issuers involve certain risks that may be 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 an underlying fund’s investments, and could impair the underlying fund’s ability to meet its investment objective or invest in accordance with its investment strategy. There is a risk that investments in securities denominated in, and/or receiving revenues in, foreign currencies will decline in value relative to the U.S. dollar.
•   Derivatives Risk. An underlying 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. An underlying fund’s use of derivatives could reduce the underlying fund’s performance, increase volatility, and could cause the underlying fund to lose more than the initial amount invested. In addition, investments in derivatives may involve leverage, which means a small percentage of assets invested in derivatives can have a disproportionately large impact on an underlying fund.
•   Leverage Risk. Certain underlying fund transactions, such as derivatives transactions, short sales, reverse repurchase agreements, and mortgage dollar rolls, may give rise to a form of leverage and may expose an underlying fund to greater risk. Leverage tends to magnify the effect of any decrease or increase in the value of an underlying fund’s portfolio securities, which means even a small amount of leverage can have a disproportionately large impact on the fund.
•   Money Market Fund Risk. A fund may invest in underlying money market funds that either seek to maintain a stable $1 net asset value (“stable share price money market funds”) or that have a share price that fluctuates (“variable share price money market funds”). Although an underlying stable share price money market fund seeks to maintain a stable $1 net asset value, it is possible to lose money by investing in such a money market fund. Because the share price of an underlying variable share price money market fund will fluctuate, when the fund sells the shares it owns they may be worth more or less than what the fund originally paid for them. In addition, neither type of money market fund is designed to offer capital appreciation. Certain underlying money market funds may impose a fee upon the sale of shares or may temporarily suspend the ability to sell shares if such fund’s liquidity falls below required minimums.
•   Liquidity Risk. An underlying fund may be unable to sell certain securities, such as illiquid securities, readily at a favorable time or price, or the underlying fund may have to sell them at a loss.
•   ETF Risk. When an underlying fund invests in an ETF, it will bear a proportionate share of the ETF’s expenses. In addition, lack of liquidity in the market for an ETF’s shares can result in its value being more volatile than the underlying portfolio of securities.
•   Securities Lending Risk. Certain underlying funds engage in securities lending, which involves the risk of loss of rights in, or delay in recovery of, the loaned securities if the borrower fails to return the security loaned or becomes insolvent.
•   Real Estate Investment Trusts (REITs) Risk. An underlying fund’s investments in REITs will be subject to the risks associated with the direct ownership of real estate, including fluctuations in the value of underlying properties, defaults by borrowers or tenants, access to capital, changes in interest rates and risks related to general or local economic conditions. REITs are also subject to certain additional risks, for example, REITs may have their investments in relatively few properties, a small geographic area or a single property type. In addition, REITs have their own expenses, and an underlying fund will bear a proportionate share of those expenses.
•   Mortgage-Backed and Mortgage Pass-Through Securities Risk. Certain of the mortgage-backed securities in which an underlying fund may invest are not backed by the full faith and credit of the U.S. government and there can be no assurance that the U.S. government would provide financial support where it was not obligated to do so. Mortgage-backed securities tend to increase in value less than other debt securities when interest rates decline, but are subject to similar or greater risk of decline in market value during periods of rising interest rates. Transactions in mortgage pass-through securities primarily occur through to be announced (TBA) transactions. Default by or bankruptcy of a counterparty to a TBA transaction would expose an underlying fund to possible losses.
•   Portfolio Turnover Risk. Certain of the underlying funds may buy and sell portfolio securities actively. If they do, their portfolio turnover rate and transaction costs will rise, which may lower the underlying fund’s performance and may increase the likelihood of capital gains distributions.
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Schwab Monthly Income Funds
Financial Notes (continued)

3. Risk Factors (continued):
Please refer to the funds’ prospectus for a more complete description of the principal risks of investing in the funds.

    
4. Affiliates and Affiliated Transactions:
Investment Adviser
Charles Schwab Investment Management, Inc. (CSIM or the investment adviser), a wholly owned subsidiary of The Charles Schwab Corporation, serves as each fund’s investment adviser and administrator pursuant to an Investment Advisory and Administration Agreement between it and the trust.
Shareholder Servicing
The Board has adopted a Shareholder Servicing Plan (the Plan) on behalf of the funds. The Plan enables each fund to bear expenses relating to the provision by financial intermediaries, including Charles Schwab & Co., Inc. (Schwab), a broker-dealer affiliate of CSIM (together, service providers), of certain shareholder services to the current shareholders of the funds. The funds are not subject to any fees under the Plan.
Expense Limitation
CSIM and its affiliates have agreed with the funds, for so long as CSIM serves as the investment adviser to the funds, which may only be amended or terminated with approval of the Board, to limit the total annual fund operating expenses charged, excluding interest, taxes and certain non-routine expenses to 0.00%.
The agreement to limit the funds’ total expenses charged is limited to each fund’s direct operating expenses and, therefore, does not apply to acquired fund fees and expenses, which are indirect expenses incurred by a fund through its investments in the underlying funds.
Investments in Affiliates
The funds may engage in certain transactions involving related parties. Pursuant to an exemptive order issued by the SEC, the funds may invest in other related funds. As of December 31, 2019, each Schwab Monthly Income Fund’s ownership percentages of other related funds’ shares are:
Underlying Funds Schwab
Monthly Income Fund -
Moderate Payout
Schwab
Monthly Income Fund -
Enhanced Payout
Schwab
Monthly Income Fund -
Maximum Payout
Laudus International MarketMasters Fund 0.4% 0.5% 0.2%
Schwab Dividend Equity Fund 1.6% 2.0% 0.8%
Schwab Global Real Estate Fund 1.0% 1.3% 0.5%
Schwab U.S. Aggregate Bond Index Fund 0.7% 1.7% 1.5%
Schwab Variable Share Price Money Fund, Ultra Shares 0.0%* 0.0%* 0.0%*
* Less than 0.05%
Interfund Borrowing and Lending
Pursuant to an exemptive order issued by the SEC, the funds may enter into interfund borrowing and lending transactions with other funds in the Fund Complex (for definition refer to Trustees and Officers section). All loans are for temporary or emergency purposes and the interest rate to be charged will be the average of the overnight repurchase agreement rate and the short-term bank loan rate. All loans are subject to numerous conditions designed to ensure fair and equitable treatment of all participating funds. The interfund lending facility is subject to the oversight and periodic review by the Board. The funds 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 each fund’s Statement of Operations. For information regarding the trustees, please refer to the Trustees and Officers table at the end of this report.
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Schwab Monthly Income Funds
Financial Notes (continued)

6. Borrowing from Banks:
During the period, the funds were participants with other U.S. registered investment companies managed by CSIM in a joint, syndicated, committed $750 million line of credit (the Syndicated Credit Facility), which matured on October 3, 2019. On October 3, 2019, the Syndicated Credit Facility was amended to run for a new 364 day period with the line of credit amount remaining unchanged, maturing on October 1, 2020. Under the terms of the Syndicated Credit Facility, in addition to the interest charged on any borrowings by a fund, each fund paid a commitment fee of 0.15% per annum on the funds’ proportionate share of the unused portion of the Syndicated Credit Facility.
During the period, the funds were participants with other U.S. registered investment companies managed by CSIM in a joint, unsecured, uncommitted $500 million line of credit (the Uncommitted Credit Facility), with State Street Bank and Trust Company, which matured on November 29, 2019. On November 29, 2019, the Uncommitted Credit Facility was amended to run for a new 364 day period, maturing on November 27, 2020. Under the terms of the Uncommitted Credit Facility, each fund pays interest on the amount a fund borrows. There were no borrowings from either line of credit during the period.
The funds also have access to custodian overdraft facilities. A fund may have utilized the overdraft facility and incurred an interest expense, which is disclosed on the fund’s Statement of Operations, if any. The interest expense is determined based on a negotiated rate above the current Federal Funds Rate.

    
7. Purchases and Sales of Investment Securities:
For the period ended December 31, 2019, purchases and sales of securities (excluding short-term obligations) were as follows:
  Purchases
of Securities
Sales
of Securities
Schwab Monthly Income Fund - Moderate Payout $13,296,310 $12,914,216
Schwab Monthly Income Fund - Enhanced Payout 26,886,217 24,978,119
Schwab Monthly Income Fund - Maximum Payout 33,135,810 14,505,141

    
8. Federal Income Taxes:
As of December 31, 2019, the tax basis cost of the funds’ investments and gross unrealized appreciation and depreciation were as follows:
  Schwab
Monthly Income Fund -
Moderate Payout
  Schwab
Monthly Income Fund -
Enhanced Payout
  Schwab
Monthly Income Fund -
Maximum Payout
Tax cost $43,523,125   $77,724,906   $59,346,324
Gross unrealized appreciation $3,004,620   $7,475,373   $2,939,710
Gross unrealized depreciation   (51,658)   (44,283)
Net unrealized appreciation (depreciation) $3,004,620   $7,423,715   $2,895,427
As of December 31, 2019, the components of distributable earnings on a tax basis were as follows:
  Schwab
Monthly Income Fund -
Moderate Payout
  Schwab
Monthly Income Fund -
Enhanced Payout
  Schwab
Monthly Income Fund -
Maximum Payout
Undistributed ordinary income $6,882   $16,337   $8,782
Undistributed long-term capital gains 291,985   518,295   58,241
Net unrealized appreciation (depreciation) on investments 3,004,620   7,423,715   2,895,427
Total $3,303,487   $7,958,347   $2,962,450
The primary difference between book basis and tax basis unrealized appreciation or unrealized depreciation of investments is the tax deferral of losses on wash sales. The tax cost of the funds’ investments, disclosed above, have been adjusted from their book amounts to reflect these unrealized appreciation or depreciation differences, as applicable.
Capital loss carryforwards may be used to offset future realized capital gains for federal income tax purposes. As of December 31, 2019, the funds had no capital loss carryforwards available to offset future net capital gains.
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Schwab Monthly Income Funds
Financial Notes (continued)

8. Federal Income Taxes (continued):
The tax basis components of distributions paid during the current and prior fiscal years were as follows:
  Schwab
Monthly Income Fund -
Moderate Payout
Schwab
Monthly Income Fund -
Enhanced Payout
Schwab
Monthly Income Fund -
Maximum Payout
Current period distributions      
Ordinary income $1,174,740 $2,225,772 $1,355,845
Long-term capital gains 1,240,760 1,640,852 315,820
Prior period distributions      
Ordinary income $1,040,314 $1,969,130 $1,100,328
Long-term capital gains 447,516 486,433 309,850
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 reflect the differing character of certain income items and net realized gains and losses for financial statement and tax purposes, and may result in reclassification among certain capital accounts on the financial statements.
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 December 31, 2019, management has reviewed the tax positions for open periods (for federal purposes, three years from the date of filing and for state purposes, four years from the date of filing) as applicable to the funds, and has determined that no provision for income tax is required in the funds’ financial statements. The funds recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. During the fiscal year ended December 31, 2019, the funds did not incur any interest or penalties.

    
9. Subsequent Events:
Management has determined there are no subsequent events or transactions through the date the financial statements were issued that would have materially impacted the financial statements as presented.
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Schwab Monthly Income Funds
Report of Independent Registered Public Accounting Firm

To the Board of Trustees of Schwab Capital Trust and Shareholders of Schwab Monthly Income Fund - Moderate Payout, Schwab Monthly Income Fund - Enhanced Payout and Schwab Monthly Income Fund - Maximum Payout
Opinions on the Financial Statements
We have audited the accompanying statements of assets and liabilities, including the portfolio holdings, of Schwab Monthly Income Fund - Moderate Payout, Schwab Monthly Income Fund - Enhanced Payout and Schwab Monthly Income Fund - Maximum Payout (three of the funds constituting Schwab Capital Trust, hereafter collectively referred to as the “Funds”) as of December 31, 2019, the related statements of operations for the year ended December 31, 2019, the statements of changes in net assets for each of the two years in the period ended December 31, 2019, including the related notes, and the financial highlights for each of the five years in the period ended December 31, 2019 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of each of the Funds as of December 31, 2019, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period ended December 31, 2019 and each of the financial highlights for each of the five years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinions
These financial statements are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of December 31, 2019 by correspondence with the custodian, transfer agents and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinions.
/s/PricewaterhouseCoopers LLP
San Francisco, California
February 18, 2020
We have served as the auditor of one or more investment companies in the Schwab Funds Complex since 1989.
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Schwab Monthly Income Funds
Other Federal Tax Information (unaudited)

The funds may elect to pass on the benefits of the foreign tax credit to their shareholders for the fiscal year ended December 31, 2019. The foreign tax credit and the foreign source income amounts are as follows:
  Foreign Tax Credit Foreign Source Income
Schwab Monthly Income Fund — Moderate Payout $18,546 $135,417
Schwab Monthly Income Fund — Enhanced Payout 23,400 170,224
Schwab Monthly Income Fund — Maximum Payout 9,091 66,285
For corporate shareholders, the following percentage of the funds’ dividend distributions paid during the fiscal year ended December 31, 2019, qualify for the corporate dividends received deduction:
  Percentage
Schwab Monthly Income Fund — Moderate Payout 16.53
Schwab Monthly Income Fund — Enhanced Payout 11.20
Schwab Monthly Income Fund — Maximum Payout 6.02
For the fiscal year ended December 31, 2019, the funds designate the following amounts 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 2020 via IRS Form 1099 of the amounts for use in preparing their 2019 income tax return.
   
Schwab Monthly Income Fund — Moderate Payout $295,605
Schwab Monthly Income Fund — Enhanced Payout 377,479
Schwab Monthly Income Fund — Maximum Payout 130,598
Under section 852(b)(3)(C) of the Internal Revenue Code, the funds hereby designate the following amounts as long-term capital gain dividends for the fiscal year ended December 31, 2019:
   
Schwab Monthly Income Fund — Moderate Payout $1,240,760
Schwab Monthly Income Fund — Enhanced Payout 1,640,852
Schwab Monthly Income Fund — Maximum Payout 315,820
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Schwab Monthly Income Funds
Trustees and Officers

The tables below give information about the trustees and officers of Schwab Capital Trust, which includes the funds covered in this report. The “Fund Complex” includes The Charles Schwab Family of Funds, Schwab Capital Trust, Schwab Investments, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust. The Fund Complex includes 99 funds.
The address for all trustees and officers is 211 Main Street, San Francisco, CA 94105. You can find more information about the trustees and officers in the funds’ Statement of Additional Information, which is available free by calling 1-877-824-5615.
Independent Trustees
Name, Year of Birth, and
Position(s) with the trust
(Terms of office, and
length of Time Served1)
Principal Occupations
During the Past Five Years
Number of
Portfolios in
Fund Complex
Overseen by
the Trustee
Other Directorships
Robert W. Burns
1959
Trustee
(Trustee of Schwab Strategic Trust since 2009; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016)
Retired/Private Investor (Jan. 2009 – present). Formerly, Managing Director, Pacific Investment Management Company, LLC (PIMCO) (investment management firm) and President, PIMCO Funds. 99 None
John F. Cogan
1947
Trustee
(Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Laudus Trust since 2010; Schwab Strategic Trust since 2016)
Senior Fellow (Oct. 1979 – present), The Hoover Institution at Stanford University (public policy think tank); Senior Fellow (2000 – present), Stanford Institute for Economic Policy Research; Professor of Public Policy (1994 – 2015), Stanford University. 99 Director (2005 – present), Gilead Sciences, Inc.
Nancy F. Heller
1956
Trustee
(Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2018)
Retired. President and Chairman (2014 – 2016), TIAA Charitable (financial services); Senior Managing Director (2003 – 2016), TIAA (financial services). 99 None
Stephen Timothy Kochis
1946
Trustee
(Trustee of Schwab Strategic Trust since 2012; The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2016)
CEO and Owner (May 2012 – present), Kochis Global (wealth management consulting). 99 None
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Schwab Monthly Income Funds
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
David L. Mahoney
1954
Trustee
(Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016)
Private Investor. 99 Director (2004 – present), Corcept Therapeutics Incorporated
Director (2009 – present), Adamas Pharmaceuticals, Inc.
Director (2003 – 2019), Symantec Corporation
Jane P. Moncreiff
1961
Trustee
(Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2019)
Consultant (2018 – present), Fulham Advisers LLC (management consulting); Chief Investment Officer (2009 – 2017), CareGroup Healthcare System, Inc. (healthcare). 99 None
Kiran M. Patel
1948
Trustee
(Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016)
Retired. Executive Vice President and General Manager of Small Business Group (Dec. 2008 – Sept. 2013), Intuit, Inc. (financial software and services firm for consumers and small businesses). 99 Director (2008 – present), KLA-Tencor Corporation
Kimberly S. Patmore
1956
Trustee
(Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016)
Consultant (2008 – present), Patmore Management Consulting (management consulting). 99 None
Gerald B. Smith
1950
Trustee
(Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2000; Laudus Trust since 2010; Schwab Strategic Trust since 2016)
Chairman, Chief Executive Officer and Founder (Mar. 1990 – present), Smith Graham & Co. (investment advisors). 99 Director (2012 – present), Eaton Corporation plc
    
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Schwab Monthly Income Funds
Interested Trustees
Name, Year of Birth, and
Position(s) with the trust
(Terms of office, and
length of Time Served1)
Principal Occupations
During the Past Five Years
Number of
Portfolios in
Fund Complex
Overseen by
the Trustee
Other Directorships
Walter W. Bettinger II2
1960
Chairman and Trustee
(Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2008; Schwab Strategic Trust since 2009; Laudus Trust since 2010)
Director, President and Chief Executive Officer (Oct. 2008 – present), The Charles Schwab Corporation; President and Chief Executive Officer (Oct. 2008 – present) and Director (May 2008 – present), Charles Schwab & Co., Inc.; Director (Apr. 2006 – present), Charles Schwab Bank; Director (Nov. 2017 – present), Charles Schwab Premier Bank; Director (July 2019 – present), Charles Schwab Trust Bank; Director (May 2008 – present) and President and Chief Executive Officer (Aug. 2017 – present), Schwab Holdings, Inc.; Director (July 2016 – present), Charles Schwab Investment Management, Inc. 99 Director (2008 – present), The Charles Schwab Corporation
Jonathan de St. Paer2
1973
Trustee
(Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2019)
Director (Apr. 2019 – present), President (Oct. 2018 – present), and Chief Executive Officer (Apr. 2019 – Nov. 2019), Charles Schwab Investment Management, Inc.; Trustee and Chief Executive Officer (Apr. 2019 – present) and President (Nov. 2018 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Director (Apr. 2019 – present), Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited; Senior Vice President (Apr. 2019 – present), Senior Vice President – Strategy and Product Development (CSIM) (Jan. 2014 – Mar. 2019), and Vice President (Jan. 2009 – Dec. 2013), Charles Schwab & Co., Inc. 99 None
Joseph R. Martinetto2
1962
Trustee
(Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016)
Chief Operating Officer (Feb. 2018 – present) and Senior Executive Vice President (July 2015 – Feb. 2018), The Charles Schwab Corporation; Senior Executive Vice President (July 2015 – present), Charles Schwab & Co., Inc.; Chief Financial Officer (July 2015 – Aug. 2017) and Executive Vice President and Chief Financial Officer (May 2007 – July 2015), The Charles Schwab Corporation and Charles Schwab & Co., Inc.; Director (May 2007 – present), Charles Schwab & Co., Inc.; Director (Apr. 2010 – present) and Chief Executive Officer (July 2013 – Apr. 2015), Charles Schwab Bank; Director (Nov. 2017 – present), Charles Schwab Premier Bank; Director (May 2007 – present), Chief Financial Officer (May 2007 – Aug. 2017), Senior Executive Vice President (Feb. 2016 – present), and Executive Vice President (May 2007 – Feb. 2016), Schwab Holdings, Inc. 99 None
    
Officers of the Trust
Name, Year of Birth, and Position(s) with the trust
(Terms of office, and length of Time Served3)
Principal Occupations During the Past Five Years
Jonathan de St. Paer
1973
President and Chief Executive Officer
(Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2018)
Director (Apr. 2019 – present), President (Oct. 2018 – present), and Chief Executive Officer (Apr. 2019 – Nov. 2019), Charles Schwab Investment Management, Inc.; Trustee and Chief Executive Officer (Apr. 2019 – present) and President (Nov. 2018 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Director (Apr. 2019 – present), Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited; Senior Vice President (Apr. 2019 – present), Senior Vice President – Strategy and Product Development (CSIM) (Jan. 2014 – Mar. 2019), and Vice President (Jan. 2009 – Dec. 2013), Charles Schwab & Co., Inc.
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Officers of the Trust (continued)
Name, Year of Birth, and Position(s) with the trust
(Terms of office, and length of Time Served3)
Principal Occupations During the Past Five Years
Mark Fischer
1970
Treasurer and Chief Financial Officer
(Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2013)
Treasurer and Chief Financial Officer (Jan. 2016 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Assistant Treasurer (Dec. 2013 – Dec. 2015), Schwab Funds and Laudus Funds; Assistant Treasurer (Nov. 2013 – Dec. 2015), Schwab ETFs; Vice President (Oct. 2013 – present), Charles Schwab Investment Management, Inc.; Executive Director (Apr. 2011 – Sept. 2013), J.P. Morgan Investor Services; Assistant Treasurer (May 2005 – Mar. 2011), Massachusetts Financial Service Investment Management.
George Pereira
1964
Senior Vice President and Chief Operating Officer
(Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios since 2004; Laudus Trust since 2006; Schwab Strategic Trust since 2009)
Senior Vice President and Chief Financial Officer (Nov. 2004 – present) and Chief Operating Officer (Jan. 2011 – present), Charles Schwab Investment Management, Inc.; Senior Vice President and Chief Operating Officer (Jan. 2016 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Treasurer and Chief Financial Officer (June 2006 – Dec. 2015), Laudus Funds; Treasurer and Principal Financial Officer (Nov. 2004 – Dec. 2015), Schwab Funds; Treasurer and Principal Financial Officer (Oct. 2009 – Dec. 2015), Schwab ETFs; Director (Apr. 2005 – present), Charles Schwab Worldwide Funds plc and Charles Schwab Asset Management (Ireland) Limited.
Omar Aguilar
1970
Senior Vice President and Chief Investment Officer – Equities and Multi-Asset Strategies
(Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011)
Senior Vice President and Chief Investment Officer (Apr. 2011 – present), Charles Schwab Investment Management, Inc.; Senior Vice President and Chief Investment Officer – Equities and Multi-Asset Strategies (June 2011 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Head of the Portfolio Management Group and Vice President of Portfolio Management (May 2009 – Apr. 2011), Financial Engines, Inc. (investment management firm); Head of Quantitative Equity (July 2004 – Jan. 2009), ING Investment Management.
Brett Wander
1961
Senior Vice President and Chief Investment Officer – Fixed Income
(Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011)
Senior Vice President and Chief Investment Officer (Apr. 2011 – present), Charles Schwab Investment Management, Inc.; Senior Vice President and Chief Investment Officer – Fixed Income (June 2011 – present), Schwab Funds, Laudus Funds and Schwab ETFs; Senior Managing Director and Global Head of Active Fixed-Income Strategies (Jan. 2008 – Oct. 2010), State Street Global Advisors; Director of Alpha Strategies (Apr. 2006 – Jan. 2008), Loomis, Sayles & Company (investment management firm).
David Lekich
1964
Chief Legal Officer and Secretary, Schwab Funds and Schwab ETFs
Vice President and Assistant Clerk, Laudus Funds
(Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011)
Senior Vice President (Sept. 2011 – present) and Vice President (Mar. 2004 – Sept. 2011), Charles Schwab & Co., Inc.; Senior Vice President and Chief Counsel (Sept. 2011 – present) and Vice President (Jan. 2011 – Sept. 2011), Charles Schwab Investment Management, Inc.; Secretary (Apr. 2011 – present) and Chief Legal Officer (Dec. 2011 – present), Schwab Funds; Vice President and Assistant Clerk (Apr. 2011 – present), Laudus Funds; Secretary (May 2011 – present) and Chief Legal Officer (Nov. 2011 – present), Schwab ETFs.
Catherine MacGregor
1964
Vice President and Assistant Secretary, Schwab Funds and Schwab ETFs
Chief Legal Officer, Vice President and Clerk, Laudus Funds
(Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2005; Schwab Strategic Trust since 2009)
Vice President (July 2005 – present), Charles Schwab & Co., Inc.; Vice President (Sept. 2005 – present), Charles Schwab Investment Management, Inc.; Vice President (Dec. 2005 – present) and Chief Legal Officer and Clerk (Mar. 2007 – present), Laudus Funds; Vice President (Nov. 2005 – present) and Assistant Secretary (June 2007 – present), Schwab Funds; Vice President and Assistant Secretary (Oct. 2009 – present), Schwab ETFs.
1 Each Trustee shall hold office until the election and qualification of his or her successor, or until he or she dies, resigns or is removed. The retirement policy requires that each independent trustee retire by December 31 of the year in which the Trustee turns 74 or the Trustee’s twentieth year of service as an independent trustee on any trust in the Fund Complex, whichever occurs first.
2 Mr. Bettinger, Mr. de St. Paer and Mr. Martinetto are Interested Trustees. Mr. Bettinger is an Interested Trustee because he owns stock of The Charles Schwab Corporation (CSC), the parent company of Charles Schwab Investment Management, Inc. (CSIM), the investment adviser for the trusts in the Fund Complex, is an employee and director of Charles Schwab & Co., Inc. (CS&Co), the principal underwriter for The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust, and is a director of CSIM. Mr. de St. Paer is an Interested Trustee because he owns stock of CSC and is an employee and director of CSIM. Mr. Martinetto is an Interested Trustee because he owns stock of CSC and is an employee and director of CS&Co.
3 The President, Treasurer and Secretary/Clerk hold office until their respective successors are chosen and qualified or until he or she sooner dies, resigns, is removed or becomes disqualified. Each of the other officers serves at the pleasure of the Board.
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Glossary

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.
Bloomberg Barclays US Aggregate Bond Index   An index that is a broad-based benchmark measuring the performance of the U.S. investment grade, taxable bond market, including U.S. Treasuries, government-related and corporate bonds, mortgage pass-through securities, commercial mortgage-backed securities, and asset-backed securities that are publicly available for sale in the United States. To be eligible for inclusion in the index, securities must be fixed rate, non-convertible, U.S. dollar denominated with at least $300 million or more of outstanding face value and have one or more years remaining to maturity. The index excludes certain types of securities, including tax-exempt state and local government series bonds, structured notes embedded with swaps or other special features, private placements, floating rate securities, inflation-linked bonds and Eurobonds. The index is market capitalization weighted and the securities in the index are updated on the last business day of each month.
Bloomberg Barclays US Intermediate Aggregate Bond Index  An index that represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities.
Bloomberg Barclays US Treasury Bills 1–3 Month Index  An index that includes all publicly issued zero-coupon U.S. Treasury Bills that have a remaining maturity of less than 3 months but more than 1 month, are rated investment grade and have $300 million or more of outstanding face value. It excludes zero-coupon STRIPS.
bond  A security representing a loan from the investor to the issuer. A bond typically pays interest at a fixed rate (the coupon rate) until a specified date (the maturity date), at which time the issuer returns the money borrowed (principal or face value) to the bondholder. Because of their structure, bonds are sometimes called “fixed income securities” or “debt securities.”
An individual bond is subject to the credit risk of the issuer. Changes in interest rates can affect a bond’s market value prior to call or maturity. There is no guarantee that a bond’s yield to call or maturity will provide a positive return over the rate of inflation.
bond fund  A bond fund is subject to the same credit, interest rate, and inflation risks as bonds. In addition, a bond fund incurs ongoing fees and expenses. A bond fund’s net asset value will fluctuate with the price of the underlying bonds and the portfolio turnover activity; return of principal is not guaranteed.
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.
Enhanced Payout Composite Index  A custom blended index developed by CSIM based on a comparable portfolio asset allocation. Effective January 29, 2019, the Enhanced Payout Composite Index is composed of 19.5% S& P 500 Index, 8.1% MSCI EAFE Index (Net), 4.9% FTSE EPRA Nareit Global Index (Net), 65.5% Bloomberg Barclays US
Aggregate Bond Index, and 2.0% Bloomberg Barclays US Treasury Bills 1-3 Month Index. From April 1, 2013 to January 29, 2019, the Enhanced Payout Composite Index was composed of 19.5% S&P 500 Index, 8.1% MSCI EAFE Index (Net), 4.9% FTSE EPRA Nareit Global Index (Net), 39.3% Bloomberg Barclays US Aggregate Bond Index, 26.2% Bloomberg Barclays US Intermediate Aggregate Bond Index, and 2.0% Bloomberg Barclays US Treasury Bills 1–3 Month Index. Prior to April 1, 2013, the Enhanced Payout Composite Index was composed of 25% S&P 500 Index and 75% Bloomberg Barclays US Aggregate Bond Index. Percentages listed may not total to 100% due to rounding.
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 (Net)  An index that provides a diverse representation of publicly traded equity real estate investment trusts (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 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 resident in the same country as the remitting company and who do not benefit from double taxation treaties.
FTSE non-US Dollar World Government Bond Index  A market capitalization index that measures the total rate of return performance for the government bonds of 22 countries, excluding the U.S., with a remaining maturity of at least 1 year.
market cap, market capitalization  The value of a company as determined by the total value of all shares of its stock outstanding.
Maximum Payout Composite Index  A custom blended index developed by CSIM based on a comparable portfolio asset allocation. Effective January 29, 2019, the Maximum Payout Composite Index is composed of 10.5% S&P 500 Index, 4.4% MSCI EAFE Index (Net), 2.6% FTSE EPRA Nareit Global Index (Net), 80.5% Bloomberg Barclays US Aggregate Bond Index, and 2.0% Bloomberg Barclays US Treasury Bills 1-3 Month Index. From April 1, 2013 to January 29, 2019, the Maximum Payout Composite Index was composed of 10.5% S&P 500 Index, 4.4% MSCI EAFE Index (Net), 2.6% FTSE EPRA Nareit Global Index (Net), 48.3% Bloomberg Barclays US Aggregate Bond Index, 32.2% Bloomberg Barclays US Intermediate Aggregate Bond Index, and 2.0% Bloomberg Barclays US Treasury Bills 1–3 Month Index. Prior to April 1, 2013, the Maximum Payout Composite Index was composed of 10% S& P 500 Index and 90% Bloomberg Barclays US Aggregate Bond Index. Percentages listed may not total to 100% due to rounding.
Moderate Payout Composite Index  A custom blended index developed by CSIM based on a comparable portfolio asset allocation. Effective January 29, 2019, the Moderate Payout Composite Index is composed of 28.5% S& P 500® Index, 11.9% MSCI EAFE Index (Net), 7.1% FTSE EPRA Nareit Global Index (Net), 50.5% Bloomberg Barclays US Aggregate Bond Index, and 2.0% Bloomberg Barclays US Treasury Bills 1-3 Month Index. From April 1, 2013 to January 29, 2019, the Moderate Payout Composite Index was composed of 28.5% S&P 500 Index, 11.9% MSCI EAFE Index (Net), 7.1% FTSE EPRA Nareit Global Index (Net), 30.3% Bloomberg Barclays US Aggregate Bond Index, 20.2% Bloomberg Barclays US Intermediate Aggregate Bond Index, and
 
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Schwab Monthly Income Funds
2.0% Bloomberg Barclays US Treasury Bills 1-3 Month Index. Prior to April 1, 2013, the Moderate Payout Composite Index was composed of 40% S&P 500 Index and 60% Bloomberg Barclays US Aggregate Bond Index. Percentages listed may not total to 100% due to rounding.
MSCI EAFE Index (Net)  A free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets in Europe, Australasia, and the Far East. The Net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes; returns are calculated applying dividend withholding rates applicable to non-resident persons who do not benefit from double taxation treaties.
MSCI Emerging Markets Index (Net)  A free float-adjusted market capitalization weighted index that is designed to measure equity market performance in the global emerging markets. This series approximates the minimum possible dividend reinvestment. The returns are calculated applying dividend withholding rates applicable to non-resident persons who do not benefit from double taxation treaties.
net asset value (NAV)  The value of one share of a 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.
return on equity (ROE)  The average yearly rate of return for each dollar of investors’ money, measured over the past five years.
Russell 2000 Index  An index that measures the performance of the 2,000 smallest companies in the Russell 3000 Index. The Russell 3000 Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market.
S&P 500 Index  An index that is designed to measure the performance of 500 leading publicly traded companies from a broad range of industries.
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.
12-Month Distribution Yield  reflects the fund’s monthly ordinary income distributions for the last 12 months divided by the fund’s Net Asset Value as of the end of the reporting period. Distribution yield does not include capital gains distributions.
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.
 
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Schwab Monthly Income Funds
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; and
•   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
© 2019 Schwab Funds. All rights reserved.
 
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Notes

 

Notes

 

Notes
    

 

Schwab Monthly Income Funds
Charles Schwab Investment Management

With a straightforward lineup of core products and solutions for building the foundation of a portfolio, Charles Schwab Investment Management advocates for investors of all sizes with a steadfast focus on lowering costs and reducing unnecessary complexity. The list below shows all currently available Schwab Funds®.
Investors should carefully consider information contained in the prospectus, or if available, the summary prospectus, including investment objectives, risks, charges and expenses before investing. Please call 1-877-824-5615 for a prospectus 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.schwabfunds.com/schwabfunds_prospectus, the SEC’s website at www.sec.gov, or by contacting Schwab Funds at 1-877-824-5615.
Information regarding how a fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available, without charge, by visiting the fund’s website at www.schwabfunds.com/schwabfunds_prospectus or the SEC’s website at www.sec.gov.
    
    
Schwab Funds
Equity Funds
Schwab Core Equity Fund
Schwab Dividend Equity Fund
Schwab Large-Cap Growth Fund
Schwab Small-Cap Equity Fund
Schwab Hedged Equity 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 U.S. Large-Cap Growth Index Fund
Schwab U.S. Large-Cap Value Index Fund
Schwab U.S. Mid-Cap Index Fund
Schwab International Index Fund®
Asset Allocation Funds
Schwab Balanced Fund
Schwab MarketTrack Portfolios®
Schwab Target Funds
Schwab Target Index Funds
Schwab Monthly Income Funds
Bond Funds
Schwab Treasury Inflation Protected Securities Index Fund
Schwab U.S. Aggregate Bond Index Fund
Schwab Short-Term Bond Index Fund
Schwab Tax-Free Bond Fund1
Schwab California Tax-Free Bond Fund1
Schwab Money Funds2
Schwab provides a broad choice of taxable and tax-exempt money market funds for both retail and institutional client types.    
 
    
    
 
 
 
 
 
 
 
Investment Adviser
Charles Schwab Investment Management, Inc.
211 Main Street, San Francisco, CA 94105
Funds
Schwab Funds
1-877-824-5615
© 2020 Charles Schwab & Co., Inc. All rights reserved.
Member SIPC®
Printed on recycled paper.
    
¹ State, local, and the Federal Alternative Minimum Tax may apply. Capital gains are not exempt from Federal Taxation.
² You could lose money by investing in the Schwab Money Funds. All Schwab Money Funds with the exception of Schwab Variable Share Price Money Fund seek to preserve the value of your investment at $1.00 per share, but cannot guarantee they will do so. Because the share price of Schwab Variable Share Price Money Fund will fluctuate, when you sell your shares they may be worth more or less than what you originally paid for them. All Schwab Money Funds with the exception of Schwab Government Money Fund, Schwab Retirement Government Money Fund, Schwab U.S. Treasury Money Fund, Schwab Treasury Obligations Money Fund and Schwab Government Money Market Portfolio may impose a fee upon the sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Schwab Money Funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Schwab Money Funds’ sponsor has no legal obligation to provide financial support to the Funds, and you should not expect that the sponsor will provide financial support to the Funds at any time.

 

This page is intentionally left blank.

 

MFR45803-08
00240575


Table of Contents

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 Kiran M. Patel and Kimberly S. Patmore, each currently serving on its audit, compliance and valuation 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, compliance and valuation committee is “independent” under the standards set forth in Item 3 of Form N-CSR.

The designation of each of Mr. Patel and Ms. Patmore 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, compliance and valuation 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, compliance and valuation committee or Board of Trustees.

Item 4: Principal Accountant Fees and Services.

Registrant is composed of fifty-one operational series. Three series have a fiscal year-end of December 31, whose annual financial statements are reported in Item 1, one series has a fiscal year-


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end of February 28, eleven series have a fiscal year-end of March 31, and thirty-six series have a fiscal year-end of October 31. Principal accountant fees disclosed in Items 4(a)-(d) and 4(g) include fees billed for services rendered to each of the fifty-one operational series based on their respective 2019 fiscal year and fifty-two operational series based on their respective 2018 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 Fees

Fiscal Year

2019

  

Fiscal Year

2018

   Fiscal Year
2019
   Fiscal Year
2018
   Fiscal Year
2019
   Fiscal Year
2018
   Fiscal Year
2019
   Fiscal Year
2018

$1,517,001

   $1,473,405    $87,870    $84,840    $177,307    $189,592    $0    $0

 

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.

 

(e) (1) 

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

 

2019: $265,177

   2018: $ 274,432  


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(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, compliance and valuation 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.


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(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, Jonathan de St. Paer and Registrant’s Chief Financial Officer, Mark Fischer, 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 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: Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.

Not applicable.

Item 13: Exhibits.

 

(a) (1)  

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

 

     (2)  

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

 

     (3)  

Not applicable.

 

(b)

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

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


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By:  

/s/ Jonathan de St. Paer

 

Jonathan de St. Paer

Chief Executive Officer

Date:   February 18, 2020

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/ Jonathan de St. Paer

 

Jonathan de St. Paer

Chief Executive Officer

Date:   February 18, 2020

 

By:  

/s/ Mark Fischer

 

Mark Fischer

Chief Financial Officer

Date:   February 18, 2020
EX-99.CODEETH 2 d786263dex99codeeth.htm EX-99.CODEETH EX-99.CODEETH
F.II.1.B.   CODE OF BUSINESS CONDUCT AND ETHICS

CODE OF BUSINESS CONDUCT AND ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS SCHWAB FUNDS:

THE CHARLES SCHWAB FAMILY OF FUNDS

SCHWAB INVESTMENTS

SCHWAB CAPITAL TRUST

SCHWAB ANNUITY PORTFOLIOS

LAUDUS FUNDS:

LAUDUS TRUST

SCHWAB ETFS:

SCHWAB STRATEGIC TRUST

I. SCOPE

This Code of Business Conduct and Ethics (the “Code”) for the Schwab Funds, Laudus Funds and Schwab ETFs (the “Funds”) covers the Principal Executive Officer and Principal Financial Officer and any other officers who serve a similar function (each an “Officer”) of all of the investment companies within the Funds’ complex and applies to their service to the Funds.

II. INTRODUCTION

The Funds are committed to the highest standards of ethical conduct. The Code consists of an outline of policies regarding conduct pertaining to legal compliance, personal conflicts of interest, confidentiality and privacy, and certain business practices. You are responsible for reviewing the Code and for acting in compliance with the Code in your daily activities.

The Code is not exhaustive; it provides guidance for carrying out your responsibilities on behalf of the Funds and observing the highest standards of ethical conduct. Because the Code does not address every possible situation that may arise, you are responsible for exercising good judgment, applying ethical principles, and raising questions when in doubt. Your integrity and good judgment reflect on the Funds’ brand and reputation, and are the foundation of trust for our shareholder and business relationships.

If you are unsure of what to do in any situation or how to interpret the provisions of the Code, seek guidance before you act. Use the Funds’ resources, including the Chief Legal Officer or the Chief Compliance Officer. If you feel that it is not appropriate to discuss a matter with the Chief Legal Officer or the Chief Compliance Officer, you may contact the Ombudsperson for The Charles Schwab Corporation.

CONTACT INFORMATION

 

Title    Name    Phone Number

Chief Compliance Officer

  

Michael F. Hogan

   415-667-1987

Chief Legal Officer of CSIM,

  

David Lekich

   415-667-0660

Schwab Funds and Schwab

     

ETFs

     

Chief Legal Officer of Laudus

  

Catherine MacGregor

   415-667-0650

Funds

     

The Charles Schwab

  

Alicia O’Brien, Esq, King &

   (202) 626-5575

Corporation Ombudsperson

  

Spalding

  

 

The information contained herein is the property of Charles Schwab and may not be copied, used or disclosed in whole or in part, stored in a retrieval system or transmitted in any form or by any means (electronic, mechanical, reprographic, recording, or otherwise) outside of Charles Schwab without prior permission of the Mutual Fund’s Chief Compliance Officer or his/her designee.       1


F.II.1.B.   CODE OF BUSINESS CONDUCT AND ETHICS

 

III. POLICIES

In executing your responsibilities on behalf of the Funds, your conduct should reflect positively on the Funds. A strong personal sense of ethics should always play a significant role in guiding you towards a proper course of action. The appearance of impropriety can be as harmful to the Funds’ reputation as improper conduct.

The Funds’ business is subject to various laws, rules and regulations, including federal securities and state and local laws. Although you are not expected to know the details of the myriad of laws governing our business, you are expected to be familiar with and comply with policies and procedures that apply to your business unit and complete any required training that applies to you (e.g., training regarding privacy or anti-money laundering).

A. PERSONAL CONFLICTS OF INTEREST

It is important that you do not place yourself in a position that would cloud your judgment in carrying out the business affairs of the Funds. A “personal conflict of interest” occurs when your private interest interferes in any way — or even appears to interfere — with the interests of the Funds. You have a duty to report any material transaction or relationship to the Chief Compliance Officer that reasonably could be expected to be or to create a conflict of interest with the Funds.

Officers, in addition to their obligation to the Funds, may also be an officer or employee of CSIM or a CSIM affiliate. As a result, this Code recognizes that the Officers will, in the normal course of their duties (whether formally for the Funds or for CSIM, or for both), be involved in establishing policies and implementing decisions that will have different effects on CSIM and the Funds. The participation of the Officers in such activities is inherent in the contractual relationship between the Funds and CSIM and is consistent with the performance by the Officers of their duties as officers of the Funds. Thus, if performed in conformity with the provisions of the Investment Company Act of 1940 and the Investment Advisers Act of 1940, such activities will be deemed under the Code to have been handled ethically. In addition, it is recognized by the Trustees that the Officers may also be officers or employees of one or more other investment companies covered by this or other codes.

B. INSIDE INFORMATION

Do not trade on inside information or disclose inside information to anyone except those who have a need to know it in order to fulfill their responsibilities for the Funds and in accordance with the Funds’ policy. This applies to information regarding the Funds, The Charles Schwab Corporation and its subsidiaries, and any other publicly traded company.

Generally, material information is any information that an investor would likely consider important in deciding whether to buy, sell or hold securities or that could affect the market price of the securities. Examples include actual or estimated financial results or change in dividends; significant discoveries or product developments; possible mergers, acquisitions or divestitures; major changes in business strategies; obtaining or losing significant contracts; and threatened major litigation or related developments. If you have or receive information and are unsure whether it is within the definition of inside information or whether its release might be contrary to a fiduciary or other obligation, contact the Chief Compliance Officer prior to disclosing any such information.

You must not use the Funds’ non-public holdings or transactions information in any way to influence your trades or the trades of other shareholders, including those of other employees, officers and directors. Trading ahead of shareholder or the Funds’ transactions (frontrunning) and following shareholder or the Funds’ transactions (piggybacking or shadowing) is prohibited.

 

The information contained herein is the property of Charles Schwab and may not be copied, used or disclosed in whole or in part, stored in a retrieval system or transmitted in any form or by any means (electronic, mechanical, reprographic, recording, or otherwise) outside of Charles Schwab without prior permission of the Mutual Fund’s Chief Compliance Officer or his/her designee.       2


F.II.1.B.   CODE OF BUSINESS CONDUCT AND ETHICS

 

C. ACCEPTANCE OF GIFTS OR ENTERTAINMENT

You must not accept gifts or entertainment from shareholders, vendors, suppliers, competitors or other employees where they present a conflict of interest or create the appearance of impropriety. You must adhere to the CSIM and The Charles Schwab Corporation policies regarding gifts and entertainment, and apply the more stringent restrictions.

D. CONFIDENTIALITY OF INFORMATION AND PRIVACY

Information concerning the identity of the Funds’ underlying shareholders and their transactions and accounts is confidential. Such information may not be disclosed to persons working on behalf of the Funds except as they may need to know it in order to fulfill their responsibilities to the Funds. You may not disclose such information to anyone or any firm outside the Funds unless (i) the outside firm needs to know the information in order to perform services for the Funds and is bound to maintain its confidentiality; (ii) when the shareholder has consented or been given an opportunity to request that the information not be shared; (iii) as required by law; or (iv) as authorized by the Chief Legal Officer or Chief Compliance Officer.

The Funds are committed to safeguarding their customers’ privacy. We do not sell any personally identifiable customer information. Sharing of such information with third parties is limited to situations related to the processing and servicing of customer accounts, and to specifically delineated exceptions in the federal privacy law. We share information with our affiliates to the extent permitted by federal law. You must be familiar with the procedural and systemic safeguards we maintain to protect this information.

You have the responsibility to safeguard the Funds’ proprietary information. Proprietary information includes intellectual property (copyrights, trademarks or patents or trade secrets), particular know-how (business or organizational designs, or business, marketing or service plans or ideas) and sensitive information about the Funds (databases, records, salary information or unpublished financial reports).

E. PROTECTION AND USE OF FUNDS’ ASSETS

You are obligated to protect the Funds’ assets and ensure their efficient use. Theft, carelessness and waste have a direct impact on the Funds. The Funds’ equipment should not be used for non-Funds’ business, though incidental personal use may be permitted.

F. FINANCIAL DISCLOSURES

The Funds are committed to providing full, fair, accurate, timely and understandable disclosure in reports and documents that the Funds file with, or submit to, the Securities and Exchange Commission and other regulatory agencies and in other public communications made by the Funds. You are required to comply with the Funds’ policies and procedures to provide such full, fair, accurate, timely and understandable disclosure.

G. CONDUCT OF AUDITS

Neither you nor any other person acting under your direction shall directly or indirectly take any action to fraudulently influence, coerce, manipulate, or mislead any independent public or certified public accountant engaged in the performance of an audit or review of the Funds’ financial statements.

Types of conduct that constitute improper influence include, but are not limited to, directly or indirectly:

 

   

Offering or paying bribes or other financial incentives, including offering future employment or contracts for non-audit services

 

The information contained herein is the property of Charles Schwab and may not be copied, used or disclosed in whole or in part, stored in a retrieval system or transmitted in any form or by any means (electronic, mechanical, reprographic, recording, or otherwise) outside of Charles Schwab without prior permission of the Mutual Fund’s Chief Compliance Officer or his/her designee.       3


F.II.1.B.   CODE OF BUSINESS CONDUCT AND ETHICS

 

   

Providing an auditor with inaccurate or misleading legal analysis

 

   

Threatening to cancel or canceling existing non-audit or audit engagements if the auditor objects to the issuer’s accounting

 

   

Seeking to have a partner removed from the audit engagement because the partner objects to the Funds’ accounting

 

   

Blackmailing

 

   

Making physical threats

H. RECORDKEEPING

You must be familiar with the Funds’ record retention policies and always retain or destroy records according to them. In the event of litigation, governmental investigation or the threat of such action, you should consult the Chief Legal Officer or the Chief Compliance Officer regarding record retention.

The Funds’ books, records and accounts must conform both to applicable legal requirements and to the Funds’ internal controls and policies.

Unrecorded or “off-the-books” funds or assets are prohibited unless permitted by applicable law or regulation. Business records must not contain exaggeration, derogatory remarks, guesswork, or inappropriate characterizations of people and companies. This applies equally to email, internal memoranda, formal reports, and all other forms of business records.

I. SALES PRACTICES

If you transact business for shareholders, you are required to know and observe the Funds’ specific policies and procedures for shareholder sales and transactions, such as the content and use of sales materials, documentation for transactions, quotations and suitability. Likewise, if you transact business with third parties (such as vendors or suppliers), you will be required to know and observe the Funds’ policies and procedures for such transactions, such as marketing policies, procedures for performing due diligence on third parties, and obtaining proper authorizations for any agreements. You must be familiar with any enumerated policies and procedures governing your sales activities and use good judgment in complying with them.

J. COMPETITION AND FAIR DEALING

We operate our business fairly and honestly. We seek competitive advantage through performance and never through unethical or illegal business practices. It is our policy to comply with anti-trust laws. These laws are complex and not easily summarized, but at a minimum require that there be no agreement or understanding between the Funds and their competitors that affect prices, terms or conditions of sale or that unreasonably restrain full and fair competition. You must always respect the rights of and deal fairly with the Funds’ shareholders and competitors. You must never take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other unfair dealing practice.

K. PROHIBITION OF BRIBERY AND KICKBACKS

Our policies prohibit bribery or kickbacks of any kind and to anyone in the conduct of our business. The U.S. government has a number of laws and regulations applicable specifically to business gratuities that may be offered to or accepted by U.S. and foreign government personnel. The promise, offer or delivery to an official or employee of the U.S. government or an official, employee or candidate of a foreign government of a gift, favor, payment or other gratuity in violation of these rules would not only violate the Funds’ policy but could also be a criminal offense. Similarly, federal law, as well as the laws of many states, prohibits engaging in “commercial bribery.” Commercial bribery involves soliciting, demanding or agreeing to accept

 

The information contained herein is the property of Charles Schwab and may not be copied, used or disclosed in whole or in part, stored in a retrieval system or transmitted in any form or by any means (electronic, mechanical, reprographic, recording, or otherwise) outside of Charles Schwab without prior permission of the Mutual Fund’s Chief Compliance Officer or his/her designee.       4


F.II.1.B.   CODE OF BUSINESS CONDUCT AND ETHICS

 

anything of value from any person intending to influence or be rewarded in connection with any business or transaction, and prohibits all such behavior, for example, with respect to vendors, competitors, shareholders, and government employees.    

L. WAIVERS

Waivers of the Code may be made only by the Trustees, and will be promptly disclosed publicly as required by law.

M. CODE AMENDMENTS

This Code may not be amended except in written form, which is specifically approved or ratified by a majority of the Trustees including a majority of the independent Trustees. Any amendments will, to the extent required, be disclosed in accordance with law.

N. CONFIDENTIALITY

All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Trustees, CSIM, The Charles Schwab Corporation and their respective counsel. However, nothing contained in this Code or in any applicable employement or severance agreement(s) should be interpreted as prohibiting employees or former employees from voluntarily communicating with the Securities and Exchange Commission or other authorities regarding possible violations of law or from recovering a whistleblower award.

III. ESCALATION AND PROHIBITION AGAINST RETALIATION

If you know of, or reasonably believe there is, a violation of this Code, you must report that information immediately to the Funds’ Chief Compliance Officer. Depending on the possible violation, you may also be required to report it pursuant to The Charles Schwab Corporation Code of Business Conduct and CSIM compliance policies and procedures. You should not conduct preliminary investigations unless authorized to do so by the Compliance Department.

No Officer will be retaliated against for making a good faith complaint or for bringing inappropriate conduct to the attention of the Funds’ personnel, Ombudsperson or Trustees, for assisting another employee or applicant in making a good faith report, for cooperating in an investigation, or for filing an administrative claim with a state or federal governmental agency. Any Officer who in good faith raises an issue regarding a possible violation of law, regulation or company policy or any suspected illegal or unethical behavior will be protected from retaliation.

If you have violated the Code, however, making a report will not protect you from the consequences of your actions. You can be subject to discipline up to and including termination of employment if you violate the Code or fail to report violations that come to your attention.

Any employee who engages in retaliatory conduct in violation of our policies will be subject to disciplinary action, up to and including termination of employment. If you reasonably believe retaliatory conduct has occurred, you must report such conduct to the Funds’ Chief Compliance Officer.

 

The information contained herein is the property of Charles Schwab and may not be copied, used or disclosed in whole or in part, stored in a retrieval system or transmitted in any form or by any means (electronic, mechanical, reprographic, recording, or otherwise) outside of Charles Schwab without prior permission of the Mutual Fund’s Chief Compliance Officer or his/her designee.       5


F.II.1.B.   CODE OF BUSINESS CONDUCT AND ETHICS

 

IV. PROCEDURES

A. OFFICERS

 

   

Read and be familiar with conduct rules outlined in the Code, and periodically review them.

 

   

Affirm in writing to the Trustees that you have received, read and understand the Code.

 

   

Annually affirm to the Trustees that you have complied with the requirements of the Code.

 

   

Comply with the conduct standards outlined in this Code in all dealings and actions, including those with shareholders, the public, and vendors.

 

   

Report any material transaction or relationship to the Chief Compliance Officer that reasonably could be expected to be or to create a personal conflict of interest with the Funds.

 

   

Report in a timely manner to the Chief Compliance Officer any conduct that may constitute a violation of the Code, the Funds’ policies, or laws, rules and regulations.

 

   

Raise questions or concerns about conduct issues with your supervisor, the Chief Legal Officer or Chief Compliance Officer, and seek advice when in doubt.

 

   

Cooperate with management during fact-finding investigations and comply with any confidentiality rules imposed.

B. CHIEF COMPLIANCE OFFICER

 

   

The Chief Compliance Officer, upon becoming notified of potential violation of this Code, will conduct, facilitate or delegate a review of the matter and will report to the Chairperson of the affected Fund’s Audit, Compliance and Valuation Committee any violations of this Code that he or she believes to be material.

 

   

The Chief Compliance Officer, upon becoming notified of a personal conflict of interest between an Officer and the Funds that the Chief Compliance Officer deems to be material, will report the issue to the Chairperson of the affected Fund’s Audit, Compliance and Valuation Committee and will work with the Chief Legal Officer and other appropriate parties to ensure that any required disclosures are made.

C. TRUSTEES

 

   

The Board of Trustees will consider appropriate action to address any violations of the Code that they deem to be material, which may include review of and appropriate modification to applicable policies and procedures, notification to appropriate personnel of CSIM or its board of directors, notification to appropriate personnel of The Charles Schwab Corporation or its board of directors, or a recommendation to dismiss the Officer.

VI. REGULATORY AUTHORITY

This Code constitutes the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds, CSIM, Charles Schwab & Co., Inc., The Charles Schwab Corporation or other Fund service providers govern or purport to govern the behavior or activities of an Officer who is subject to this Code, they are superseded by this Code to the extent that they conflict with the provisions of this Code. CSIM’s, the Funds’ and Charles Schwab & Co. Inc.’s (as distributor) joint code of ethics under Rule 17j-1 pursuant to the Investment Company Act of 1940 and Rule 204A-1 of the Investment Advisers Act of 1940 and CSIM’s, Charles Schwab & Co., Inc.’s, and The Charles Schwab Corporation’s policies and procedures set forth in their respective compliance manuals and elsewhere are separate requirements applying to the Officers and are not part of this Code.

VERSION HISTORY

Adopted Schwab and Laudus Funds: June 15, 2011, Schwab ETFs: August 4, 2011

 

The information contained herein is the property of Charles Schwab and may not be copied, used or disclosed in whole or in part, stored in a retrieval system or transmitted in any form or by any means (electronic, mechanical, reprographic, recording, or otherwise) outside of Charles Schwab without prior permission of the Mutual Fund’s Chief Compliance Officer or his/her designee.       6


F.II.1.B.   CODE OF BUSINESS CONDUCT AND ETHICS

 

Revised August 8, 2013; December 11, 2015; August 25, 2016; December 11, 2017; September 25, 2018 (no changes); December 12, 2019

END

 

The information contained herein is the property of Charles Schwab and may not be copied, used or disclosed in whole or in part, stored in a retrieval system or transmitted in any form or by any means (electronic, mechanical, reprographic, recording, or otherwise) outside of Charles Schwab without prior permission of the Mutual Fund’s Chief Compliance Officer or his/her designee.       7
EX-99.CERT 3 d786263dex99cert.htm EX-99.CERT EX-99.CERT

CERTIFICATIONS

I, Jonathan de St. Paer, certify that:

1. I have reviewed this report on Form N-CSR of Schwab Capital Trust - Monthly Income Funds;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s Board of Trustees (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and


b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: February 18, 2020      

/s/ Jonathan de St. Paer

     

Jonathan de St. Paer

Chief Executive Officer


CERTIFICATIONS

I, Mark Fischer, certify that:

1. I have reviewed this report on Form N-CSR of Schwab Capital Trust – Monthly Income Funds;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s Board of Trustees (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and


b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: February 18, 2020      

/s/ Mark Fischer

     

Mark Fischer

Chief Financial Officer

EX-99.906CERT 4 d786263dex99906cert.htm EX-99.906CERT EX-99.906CERT

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report for Schwab Capital Trust – Monthly Income Funds (“issuer”) on Form N-CSR for the period ended December 31, 2019 (“periodic report”), each of the undersigned, being the Chief Executive Officer and Chief Financial Officer, hereby certifies, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The periodic report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the issuer for the period presented therein.

 

/s/ Jonathan de St. Paer

    Date:   February 18, 2020
Jonathan de St. Paer      
Chief Executive Officer      

/s/ Mark Fischer

    Date:   February 18, 2020
Mark Fischer      
Chief Financial Officer      

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.

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