N-CSR

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 – Monthly Income Funds

(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, 2022

Item 1: Report(s) to Shareholders.

Annual Report | December 31, 2022

Schwab Monthly Income Funds

Schwab Monthly Income Fund –
Target Payout

(formerly Schwab Monthly Income Fund –
Moderate Payout)

Schwab Monthly Income Fund –
Flexible Payout

(formerly Schwab Monthly Income Fund –
Enhanced Payout)

Schwab Monthly Income Fund –
Income Payout

(formerly Schwab Monthly Income Fund –
Maximum Payout)

This page is intentionally left blank.

Schwab Monthly Income Funds

In This Report

Performance at a Glance	2
From the President	3
The Investment Environment	4
Fund Management	6
Performance and Fund Facts
Schwab Monthly Income Fund – Target Payout	7
Schwab Monthly Income Fund – Flexible Payout	10
Schwab Monthly Income Fund – Income Payout	13
Fund Expenses	16
Financial Statements and Portfolio Holdings
Schwab Monthly Income Fund – Target Payout	17
Schwab Monthly Income Fund – Flexible Payout	23
Schwab Monthly Income Fund – Income Payout	29
Financial Notes	35
Report of Independent Registered Public Accounting Firm	45
Other Federal Tax Information	46
Liquidity Risk Management Program	47
Trustees and Officers	48
Glossary	52

Fund investment adviser: Charles Schwab Investment Management, Inc., dba Schwab Asset ManagementTM

Distributor: Charles Schwab & Co., Inc. (Schwab)

Schwab Monthly Income Funds | Annual Report1

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.schwabassetmanagement.com/schwabfunds_prospectus.

Total Returns for the 12 Months Ended December 31, 2022
Schwab Monthly Income Fund – Target Payout (Ticker Symbol: SWJRX)	-12.85%
Target Payout Composite Index1	-13.08%
Fund Category: Morningstar Allocation - 30% to 50% Equity2	-13.31%
Performance Details	pages 7-9

Schwab Monthly Income Fund – Flexible Payout (Ticker Symbol: SWKRX)	-12.50%
Flexible Payout Composite Index3	-12.64%
Fund Category: Morningstar Allocation - 30% to 50% Equity2	-13.31%
Performance Details	pages 10-12

Schwab Monthly Income Fund – Income Payout (Ticker Symbol: SWLRX)	-12.50%
Income Payout Composite Index4	-12.48%
Fund Category: Morningstar Allocation - 15% to 30% Equity2	-10.84%
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 the investment adviser 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.

Effective September 12, 2022, the Moderate Payout Composite Index changed its name to Target Payout Composite Index.

Source for category information: Morningstar, Inc. The Morningstar Category return represents all active and index mutual funds and ETFs within the category as of the report date.

Effective September 12, 2022, the Enhanced Payout Composite Index changed its name to Flexible Payout Composite Index.

Effective September 12, 2022, the Maximum Payout Composite Index changed its name to Income Payout Composite Index.

2Schwab Monthly Income Funds | Annual Report

Schwab Monthly Income Funds

From the President

Jonathan de St. Paer
President of Schwab Asset
Management and the funds
covered in this report.

Dear Shareholder,

Financial markets faced a tough environment in 2022, as both equity and fixed-income asset classes came under pressure due to rampant inflation, rising interest rates, and increasing geopolitical uncertainty. Focus shifted early in the year from the ongoing COVID-19 pandemic to Russia’s invasion of Ukraine in late-February. Inflation, already ticking up at the start of the year, accelerated in the face of spiking commodity prices exacerbated by the war in Ukraine. Central banks, led by the U.S. Federal Reserve, aggressively hiked interest rates to slow economic growth and curb inflation. The U.S. federal funds rate increased from near zero in January and February to over 4% by December, the most rapid increase since the early 1980s. Inflation and rising interest rates slowed economic growth and raised the possibility of a recession, undermining stock prices. The S&P 500® Index, a bellwether for the overall U.S. equities market, posted its largest calendar year drop since the 2008 recession, returning -18.1% for the year. Within the S&P 500® Index, nine out of 11 sectors lost ground, with energy and utilities the only exceptions. At the same time, rising interest rates drove bond yields higher, broadly undermining security prices. (Bond yields and bond prices typically move in opposite directions.) The broad U.S. bond market, as measured by the Bloomberg US Aggregate Bond Index, suffered its steepest decline on record, returning -13.0% for the year.

Economic and political uncertainties may continue to roil financial markets over the short term particularly until inflation has been brought under control and the economy resumes an upward trajectory. At Schwab Asset Management, we believe maintaining a diversified, long-term investing plan that reflects your risk tolerance and long-term financial goals is important in the face of short-term uncertainty. The Schwab Monthly Income Funds can help you stick to your investment plan despite economic and market volatility, combining income-generating fixed-income investments with varying levels of equity exposure.

Effective September 12, 2022, Schwab Asset Management updated the funds’ payout strategies and target payouts. We believe that these updates can provide higher yield potential and additional diversification for shareholders. With a choice of three strategies, including Income Payout, Flexible Payout, and Target Payout, investors can choose the monthly payout approach that best corresponds to their individual income preferences, while taking advantage of low management fees and built-in portfolio diversification across asset classes.

Thank you for investing with Schwab Asset 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.schwabassetmanagement.com. We are also happy to hear from you at 1-877-824-5615.

Sincerely,

“Financial markets faced a tough environment in 2022, as both equity and fixed-income asset classes came under pressure due to rampant inflation, rising interest rates, and increasing geopolitical uncertainty.”

Past performance is no guarantee of 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.

Schwab Asset Management is the dba name for Charles Schwab Investment Management, Inc., the investment adviser for Schwab Funds and Schwab ETFs.

Schwab Monthly Income Funds | Annual Report3

Schwab Monthly Income Funds

The Investment Environment

For the 12-month reporting period ended December 31, 2022, several key U.S. stock indices posted their largest calendar year drop since the 2008 recession and the Bloomberg US Aggregate Bond Index suffered its worst calendar year performance since its inception in 1976, with longer-term bonds underperforming shorter-term bonds. Inflation spiked, interest rates rose, and economic growth around the world slowed. The ongoing war between Russia and Ukraine and the continuing, albeit uneven, fallout from the COVID-19 pandemic weighed on economies and markets around the world. Oil prices peaked at over $120 per barrel in early March as sanctions were imposed on Russian imports—and again in June on supply-and-demand imbalances—but retreated through most of the rest of the reporting period, ending it at just over $80 per barrel. The U.S. dollar strengthened against a basket of international currencies over the reporting period, generally decreasing the returns on overseas investments in U.S. dollar terms. For the reporting period, the S&P 500® Index, a bellwether for the overall U.S. stock market, returned -18.11%. The MSCI EAFE® Index (Net)*, a broad measure of developed international equity performance, returned -14.45%. Emerging market equities were weaker, with the MSCI Emerging Markets Index (Net)* returning -20.09%. Among U.S. and international bonds, the Bloomberg US Aggregate Bond Index returned -13.01% and the FTSE non-US Dollar World Government Bond Index returned -22.07%.

As inflation continued to rise and U.S. Federal Reserve (Fed) monetary policy shifted, bond yields began to climb early in 2022, for the most part maintaining that trajectory through the first three quarters of the year, exerting downward pressure on bond prices. (Bond yields and bond prices typically move in opposite directions.) In the final quarter, longer-term yields became more volatile and prices rebounded slightly, leading to an inversion of certain parts of the yield curve. Over the reporting period, the yield on the 10-year U.S. Treasury rose from 1.52% to 3.88%. Short-term rates also rose sharply, with the yield on the three-month U.S. Treasury climbing from 0.06% to 4.42% over the reporting period, ending the year just slightly off its one-year high.

Asset Class Performance Comparison % returns during the 12 months ended December 31, 2022

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 Schwab Asset Management.

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.

4Schwab Monthly Income Funds | Annual Report

Schwab Monthly Income Funds

The Investment Environment (continued)

In the United States, amid fading government stimuli, ongoing supply chain disruptions, persisting inflation, and a widening U.S. trade deficit, gross domestic product (GDP) contracted for the first two quarters of 2022, decreasing at an annualized rate of -1.6% and -0.6% for the first and second quarters, respectively. GDP grew at an annualized rate of 3.2% for the third quarter of 2022, driven primarily by energy exports and consumer spending. Inflation rose steadily in the first half of the year, hitting a 40-year high in June, before declining through the end of the reporting period as certain consumer and energy prices began to recede. The unemployment rate remained low despite inflationary pressures, ending the reporting period at pre-pandemic lows.

Outside the United States, conditions were similar. The eurozone, despite considerable headwinds, managed to maintain positive, albeit waning, GDP growth for the first, second, and third quarters of 2022 on easing COVID-19 restrictions and an increase in tourism in response to pent-up demand. The United Kingdom posted small gains in GDP growth for the first two quarters of 2022, in part driven by increases in COVID-19 testing and tracing and an expansion of its vaccination program but contracted slightly in the third quarter of 2022 on reduced household spending. Among emerging markets, China’s GDP growth turned negative for the second quarter as it dealt with numerous headwinds including lockdowns and quarantines, declining domestic consumption, and a severe property downturn, but by the third quarter, GDP growth was again positive, buoyed by a series of policies and stimuli implemented to revive economic activity. India’s GDP growth remained positive throughout the reporting period, and was particularly strong in the second quarter, but third-quarter GDP growth waned as high prices and rising interest rates weighed on demand.

Monetary policy around the world varied as central banks responded to the rapidly changing conditions. In the United States, after maintaining the federal funds rate in a range of 0.00% to 0.25% through mid-March 2022, the Fed shifted its stance as inflation continued to rise and indicators of economic activity and employment continued to strengthen. After issuing successively stronger signals that interest rates could begin to rise sooner in 2022 than previously anticipated, the Fed raised the federal funds rate seven times during the reporting period—by 0.25% in mid-March, 0.50% in early May, 0.75% in mid-June, 0.75% in late July, 0.75% in late September, 0.75% in early November, and 0.50% in mid-December. The federal funds rate ended the reporting period in a range of 4.25% to 4.50%. The Fed wrapped up its bond-buying program in March, and in June began to reduce the $9 trillion in assets held on its balance sheet, vowing to be even more aggressive than during its last round of quantitative tightening between 2017 and 2019. In developed international countries, central banks wrestled with similar issues. After holding its policy rate unchanged since March 2016, at 0.00%, the European Central Bank raised its interest rate four times over the reporting period in an effort to dampen demand and control inflation, which in October rose into double-digits. The Bank of England raised its key official bank rate eight times during the reporting period, bringing borrowing costs to a 14-year high as the Bank of England wrestled with soaring inflation. In contrast, the Bank of Japan continued to uphold its short-term interest rate target of -0.1%, unchanged since 2016, but in late December unexpectedly announced that it would widen the band around the yield target on its 10-year government bond, which pushed the yen higher and effectively marked the end of an extended period in which Japan was the only major developed country to resist raising rates. Monetary policy rates in emerging markets for the most part rose, with a few exceptions. Central banks in India, Indonesia, Brazil, Mexico, and Pakistan all raised their rates multiple times over the reporting period to counteract the impacts of inflation. In contrast, China cut its prime rate twice during the period, in part following a resurgence of COVID-19 cases and a lingering property downturn. Russia, which had raised its benchmark policy rate to 20% in late February amid the broadening fallout of Western sanctions in retaliation against Russia’s invasion of Ukraine, subsequently reduced it multiple times by the end of the reporting period.

Schwab Monthly Income Funds | Annual Report5

Schwab Monthly Income Funds

Fund Management

Zifan Tang, Ph.D., CFA, Senior Portfolio Manager for Schwab Asset Management, is responsible for the

co-management of the funds. Prior to joining Schwab 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).

Drew Hayes, CFA, Portfolio Manager for Schwab Asset Management, is responsible for the co-management

of the funds. Mr. Hayes has been with Schwab since 2006. Before becoming a portfolio manager, he spent

seven years as a senior fixed income specialist for Schwab Wealth Advisory, Inc. Prior to that, he worked as a

bond investment specialist for two years and as a registered representative for two years for Charles

Schwab & Co., Inc.

Patrick Kwok, CFA, Portfolio Manager for Schwab Asset Management, is responsible for the co-management

of the funds. Previously, Mr. Kwok served as an associate portfolio manager from 2012 to 2016. Prior to that,

he worked as a fund administration manager, where he was responsible for oversight of sub-advisers, trading,

cash management, and fund administration supporting the Charles Schwab Trust Bank Collective Investment

Trusts and multi-asset Schwab Funds. Prior to joining Schwab Asset Management 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.

6Schwab Monthly Income Funds | Annual Report

Schwab Monthly Income Fund – Target Payout as of December 31, 2022

The Schwab Monthly Income Funds (the funds) seek to provide current income and, as a secondary investment objective, capital appreciation. 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 Schwab ETFs complex, but also may invest directly in equity and fixed-income securities, cash and cash equivalents (including money market securities), as well as unaffiliated mutual funds or exchange-traded funds (ETFs) 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 – Target Payout (the fund) is designed to offer shareholders an annual payout of approximately 5%1 during most market environments. However, the fund’s actual annual payout could be higher or lower based on the market environment during that year. The fund uses the internally calculated Target Payout Composite Index (the composite index) as a performance gauge.

Market Highlights. For the 12-month reporting period ended December 31, 2022, several key U.S. stock indices posted their largest calendar year drop since the 2008 recession and the Bloomberg US Aggregate Bond Index suffered its worst calendar year performance since its inception in 1976, with longer-term bonds underperforming shorter-term bonds. Inflation spiked, interest rates rose, and economic growth around the world slowed. The ongoing war between Russia and Ukraine and the continuing, albeit uneven, fallout from the COVID-19 pandemic weighed on economies and markets around the world. Oil prices peaked at over $120 per barrel in early March as sanctions were imposed on Russian imports—and again in June on supply-and-demand imbalances—but retreated through most of the rest of the reporting period, ending it at just over $80 per barrel. The U.S. dollar strengthened against a basket of international currencies over the reporting period, generally decreasing the returns on overseas investments in U.S. dollar terms. As inflation continued to rise and U.S. Federal Reserve monetary policy shifted, bond yields began to climb early in 2022, for the most part maintaining that trajectory through the first three quarters of the year, exerting downward pressure on bond prices. (Bond yields and bond prices typically move in opposite directions.)

Performance. The fund’s distribution yield (payout) was 3.08%2 for the year ended December 31, 2022, generally in line with the investment adviser’s expectations in a rising interest rate environment and given the updates to the fund’s strategy that were effective September 12, 2022. For the 12-month reporting period, the fund’s total return was -12.85%, while the composite index returned -13.08%.

Positioning and Strategies. Effective September 12, 2022, updates were made to the fund’s investment strategy, including the managed payout policy, and new sub-asset classes and underlying funds were added for investment by the fund. 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.

The fund’s fixed-income exposure was the largest detractor from the total return of the fund. The Schwab U.S. Aggregate Bond Index Fund was the largest detractor from the total return of the fund, returning approximately -13% for the reporting period and generally tracking its comparative index component. The Schwab Long-Term U.S. Treasury ETF, the Cohen & Steers Preferred Securities and Income Fund, the Schwab 5-10 Year Corporate Bond ETF, and the BlackRock High Yield Bond Portfolio were added to the fund in September 2022 as part of the updates to the fund’s strategy and detracted from the total return of the fund. The T. Rowe Price Institutional Floating Rate Fund was also added in September 2022 and contributed slightly to the total return of the fund.

The fund’s international equity exposure detracted from the total return of the fund. The Schwab International Opportunities Fund was removed from the fund in September 2022 as part of the updates to the fund’s strategy and detracted from the total return of the fund, returning approximately -29% while held by the fund and underperforming its comparative index component. The Schwab International Dividend Equity ETF was added to the fund in September 2022 as part of the updates to the fund’s strategy and contributed to the total return of the fund, returning approximately 3% while held by the fund, outperforming its comparative index component.

The fund’s real estate exposure, the Schwab Global Real Estate Fund, detracted from the total return of the fund, returning approximately -25% for the reporting period and slightly underperforming its comparative index component.

The fund’s U.S. equity exposure was the smallest detractor from the total return of the fund. The Schwab U.S. Dividend Equity ETF was added to the fund in September 2022 as part of the updates to the fund’s strategy and was the largest contributor to the total return of the fund, returning approximately 3% while held by the fund and generally tracking its comparative index component. The Schwab Dividend Equity Fund was removed from the fund in September 2022 and detracted from the total return of the fund.

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

For more information about payouts, please see the fund’s prospectus.

Distributions may exceed income available and may include capital gains or return of capital to help reach the annual payout rate. A return of capital is a distribution from the shareholder’s investment principal, rather than net profits from the fund’s returns. Shareholders who receive periodic distributions consisting of a return of capital may be under the impression that they are receiving net profits when they are not. Return of capital reduces your cost basis in the fund’s shares and is not taxable to you until your cost basis has been reduced to zero. The tax-basis of distributions are finalized at fiscal year-end and may be recharacterized from income distributions to capital gains or return of capital.

Schwab Monthly Income Funds | Annual Report7

Schwab Monthly Income Fund – Target Payout

Performance and Fund Facts as of December 31, 2022

Performance of Hypothetical $10,000 Investment (December 31, 2012 – December 31, 2022)1,2

Average Annual Total Returns1

Fund and Inception Date	1 Year	5 Years	10 Years
Fund: Schwab Monthly Income Fund – Target Payout (3/28/08)	-12.85%	1.80%	3.88%
S&P 500® Index	-18.11%	9.42%	12.56%
Bloomberg US Aggregate Bond Index	-13.01%	0.02%	1.06%
Target Payout Composite Index2	-13.08%	3.64%	5.26%
Fund Category: Morningstar Allocation – 30% to 50% Equity3	-13.31%	2.33%	4.09%
Fund Expense Ratios4: Net 0.25%; Gross 0.43%

For index definitions, please see the Glossary.

The fund’s routine expenses have been absorbed by the investment adviser 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.

Effective September 12, 2022, the Moderate Payout Composite Index changed its name to Target Payout Composite Index.

Source for category information: Morningstar, Inc. The Morningstar Category return represents all active and index mutual funds and ETFs within the category as of the report date.

As stated in the prospectus. Includes 0.25% of acquired fund fees and expenses (AFFE), which are based on estimated amounts 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 Schwab Asset Management 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.

8Schwab Monthly Income Funds | Annual Report

Schwab Monthly Income Fund – Target Payout

Performance and Fund Facts as of December 31, 2022 (continued)

Statistics

Number of Holdings	10
Portfolio Turnover Rate	82%
12-Month Distribution Yield	3.08%1,2

Asset Class Weightings % of Investments3,4

Top Holdings % of Net Assets3,5,6

Portfolio holdings may have changed since the report date.

Calculation reflects the fund’s monthly income distributions for the last 12 months divided by the fund’s Net Asset Value as of the end of the reporting period. 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.

The fund intends to primarily invest in a combination of Schwab Funds and Schwab ETFs. The fund may also invest directly in equity and fixed-income securities, as well as other unaffiliated mutual funds or ETFs, and cash and cash equivalents (including money market securities).

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.

This list is not a recommendation of any security by the investment adviser.

The holdings listed exclude any temporary liquidity investments.

Schwab Monthly Income Funds | Annual Report9

Schwab Monthly Income Fund – Flexible Payout as of December 31, 2022

The Schwab Monthly Income Fund – Flexible Payout (the fund) is designed to offer shareholders an annual payout of 4% to 6%1 during most market environments. In addition, the fund seeks to maximize the annual payout while also maintaining or growing the level of investment over the long term. However, the fund’s actual annual payout could be higher or lower based on the market environment during that year and other forward-looking factors. The fund uses the internally calculated Flexible Payout Composite Index (the composite index) as a performance gauge.

Performance. The fund’s distribution yield (payout) was 2.96%2 for the year ended December 31, 2022, generally in line with the investment adviser’s expectations in a rising interest rate environment and given the updates to the fund’s strategy that were effective September 12, 2022. For the 12-month reporting period, the fund’s total return was -12.50%, with the composite index returning -12.64%.

The fund’s fixed-income exposure was the largest detractor from the total return of the fund. The Schwab U.S. Aggregate Bond Index Fund was the largest detractor from the total return of the fund, returning approximately -13% for the reporting period and generally tracking its comparative index component. The Schwab Long-Term U.S. Treasury ETF, the Cohen & Steers Preferred Securities and Income Fund, the Schwab 5-10 Year Corporate Bond ETF, and the BlackRock High Yield Bond Portfolio were added to the fund in September 2022 as part of the updates to the fund’s strategy and detracted from the total return of the fund. The T. Rowe Price Institutional Floating Rate Fund and Schwab 1-5 Year Corporate Bond ETF were also added in September 2022 and contributed slightly to the total return of the fund.

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

For more information about payouts, please see the fund’s prospectus.

10Schwab Monthly Income Funds | Annual Report

Schwab Monthly Income Fund – Flexible Payout

Performance and Fund Facts as of December 31, 2022

Performance of Hypothetical $10,000 Investment (December 31, 2012 – December 31, 2022)1,2

Average Annual Total Returns1

Fund and Inception Date	1 Year	5 Years	10 Years
Fund: Schwab Monthly Income Fund – Flexible Payout (3/28/08)	-12.50%	1.36%	2.95%
S&P 500® Index	-18.11%	9.42%	12.56%
Bloomberg US Aggregate Bond Index	-13.01%	0.02%	1.06%
Flexible Payout Composite Index2	-12.64%	2.64%	3.95%
Fund Category: Morningstar Allocation – 30% to 50% Equity3	-13.31%	2.33%	4.09%
Fund Expense Ratios4: Net 0.25%; Gross 0.35%

For index definitions, please see the Glossary.

Effective September 12, 2022, the Enhanced Payout Composite Index changed its name to Flexible Payout Composite Index.

Source for category information: Morningstar, Inc. The Morningstar Category return represents all active and index mutual funds and ETFs within the category as of the report date.

As stated in the prospectus. Includes 0.25% of acquired fund fees and expenses (AFFE), which are based on estimated amounts 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 Schwab Asset Management 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.

Schwab Monthly Income Funds | Annual Report11

Schwab Monthly Income Fund – Flexible Payout

Performance and Fund Facts as of December 31, 2022 (continued)

Statistics

Number of Holdings	10
Portfolio Turnover Rate	78%
12-Month Distribution Yield	2.96%1,2

Asset Class Weightings % of Investments3,4

Top Holdings % of Net Assets3,5,6

Portfolio holdings may have changed since the report date.

This list is not a recommendation of any security by the investment adviser.

The holdings listed exclude any temporary liquidity investments.

12Schwab Monthly Income Funds | Annual Report

Schwab Monthly Income Fund – Income Payout as of December 31, 2022

The Schwab Monthly Income Fund – Income Payout (the fund) is designed to offer shareholders an annual payout based on underlying fund yields and the market environment. The fund’s anticipated annual payout is expected to be 0% to 3% during a low interest rate environment, 3% to 5% during a normal interest rate environment, and 5+% during a high interest rate environment.1 However, the fund’s actual annual payout could be higher or lower based on the interest rate environment and other market factors occurring during that year. The fund uses the internally calculated Income Payout Composite Index (the composite index) as a performance gauge.

Performance. The fund’s distribution yield (payout) was 2.42%2 for the year ended December 31, 2022, generally in line with the investment adviser’s expectations in a rising interest rate environment and given the updates to the fund’s strategy that were effective September 12, 2022. For the 12-month reporting period, the fund’s total return was -12.50%, with the composite index returning -12.48%.

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

For more information about payouts, please see the fund’s prospectus.

Does not expect to include capital gains or return of capital to help reach the annual payout rate. A return of capital is a distribution from the shareholder’s investment principal, rather than net profits from the fund’s returns. Shareholders who receive periodic distributions consisting of a return of capital may be under the impression that they are receiving net profits when they are not. Return of capital reduces your cost basis in the fund’s shares and is not taxable to you until your cost basis has been reduced to zero. The tax-basis of distributions are finalized at fiscal year-end and may be recharacterized from income distributions to capital gains or return of capital.

Schwab Monthly Income Funds | Annual Report13

Schwab Monthly Income Fund – Income Payout

Performance and Fund Facts as of December 31, 2022

Performance of Hypothetical $10,000 Investment (December 31, 2012 – December 31, 2022)1,2

Average Annual Total Returns1

Fund and Inception Date	1 Year	5 Years	10 Years
Fund: Schwab Monthly Income Fund – Income Payout (3/28/08)	-12.50%	0.79%	1.95%
S&P 500® Index	-18.11%	9.42%	12.56%
Bloomberg US Aggregate Bond Index	-13.01%	0.02%	1.06%
Income Payout Composite Index2	-12.48%	1.54%	2.58%
Fund Category: Morningstar Allocation – 15% to 30% Equity3	-10.84%	1.35%	2.50%
Fund Expense Ratios4: Net 0.21%; Gross 0.32%

For index definitions, please see the Glossary.

Effective September 12, 2022, the Maximum Payout Composite Index changed its name to Income Payout Composite Index.

Source for category information: Morningstar, Inc. The Morningstar Category return represents all active and index mutual funds and ETFs within the category as of the report date.

As stated in the prospectus. Includes 0.21% of acquired fund fees and expenses (AFFE), which are based on estimated amounts 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 Schwab Asset Management 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.

14Schwab Monthly Income Funds | Annual Report

Schwab Monthly Income Fund – Income Payout

Performance and Fund Facts as of December 31, 2022 (continued)

Statistics

Number of Holdings	12
Portfolio Turnover Rate	68%
12-Month Distribution Yield	2.42%1,2

Asset Class Weightings % of Investments3,4

Top Holdings % of Net Assets3,5,6

Portfolio holdings may have changed since the report date.

This list is not a recommendation of any security by the investment adviser.

The holdings listed exclude any temporary liquidity investments.

Schwab Monthly Income Funds | Annual Report15

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 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, 2022 and held through December 31, 2022.

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 7/1/22	ENDING ACCOUNT VALUE (NET OF EXPENSES) AT 12/31/222	EXPENSES PAID DURING PERIOD 7/1/22-12/31/222,5	EFFECTIVE EXPENSES PAID DURING PERIOD 7/1/22-12/31/224,5
Schwab Monthly Income Fund – Target Payout
Actual Return	0.00%	0.37%	$1,000.00	$1,006.00	$0.00	$1.87
Hypothetical 5% Return	0.00%	0.37%	$1,000.00	$1,025.21	$0.00	$1.89
Schwab Monthly Income Fund – Flexible Payout
Actual Return	0.00%	0.32%	$1,000.00	$997.60	$0.00	$1.61
Hypothetical 5% Return	0.00%	0.32%	$1,000.00	$1,025.21	$0.00	$1.63
Schwab Monthly Income Fund – Income Payout
Actual Return	0.00%	0.23%	$1,000.00	$986.60	$0.00	$1.15
Hypothetical 5% Return	0.00%	0.23%	$1,000.00	$1,025.21	$0.00	$1.17

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 expenses and the expense ratio; may differ from the acquired fund fees and expenses and the expense ratio in the prospectus.
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 184 days in the period, and divided by 365 days in the fiscal year.

16Schwab Monthly Income Funds | Annual Report

Schwab Monthly Income Fund – Target Payout

Financial Statements

FINANCIAL HIGHLIGHTS

	1/1/22– 12/31/22	1/1/21– 12/31/21	1/1/20– 12/31/20	1/1/19– 12/31/19	1/1/18– 12/31/18
Per-Share Data
Net asset value at beginning of period	$11.99	$11.38	$11.09	$10.05	$11.09
Income (loss) from investment operations:
Net investment income (loss)1	0.30	0.24	0.21	0.29	0.23
Net realized and unrealized gains (losses)	(1.83)	0.81	0.36	1.34	(0.92)
Total from investment operations	(1.53)	1.05	0.57	1.63	(0.69)
Less distributions:
Distributions from net investment income	(0.30)	(0.37)	(0.21)	(0.29)	(0.24)
Distributions from net realized gains	(0.54)	(0.07)	(0.07)	(0.30)	(0.11)
Total distributions	(0.84)	(0.44)	(0.28)	(0.59)	(0.35)
Net asset value at end of period	$9.62	$11.99	$11.38	$11.09	$10.05
Total return	(12.85%)	9.23%	5.32%	16.41%	(6.31%)
Ratios/Supplemental Data
Ratios to average net assets:
Net operating expenses2	0.00%3	0.00%	0.00%	0.00%	0.00%
Gross operating expenses2	0.21%3	0.18%	0.21%	0.24%	0.19%
Net investment income (loss)	2.79%	1.99%	1.93%	2.68%	2.17%
Portfolio turnover rate	82%	11%	30%	30%	20%
Net assets, end of period (x 1,000)	$40,127	$53,397	$44,663	$46,606	$41,358

1	Calculated based on the average shares outstanding during the period.
2	Ratio excludes acquired fund fees and expenses, which are indirect expenses incurred by the fund through its investments in underlying funds.
3	Ratio includes less than 0.005% of non-routine proxy expenses.

See financial notes

Schwab Monthly Income Funds | Annual Report17

Schwab Monthly Income Fund – Target Payout

Portfolio Holdings as of December 31, 2022

This section shows all the securities in the fund’s portfolio and their values as of the report date, including a summary of the fund’s transactions with its affiliated underlying funds during the period.

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. You can also obtain this information at no cost on the fund’s website at www.schwabassetmanagement.com/schwabfunds_prospectus, by calling 1-866-414-6349, or by sending an email request to orders@mysummaryprospectus.com. 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.

SECURITY	VALUE AT 12/31/21	PURCHASES	SALES	REALIZED GAINS (LOSSES)	NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)	VALUE AT 12/31/22	BALANCE OF SHARES HELD AT 12/31/22	DISTRIBUTIONS RECEIVED(a)
AFFILIATED UNDERLYING FUNDS 78.3% OF NET ASSETS

U.S. Stocks 20.1%
Large-Cap 20.1%
Schwab Dividend Equity Fund	$15,338,285	$1,095,884	($15,255,036)	$1,077,757	($2,256,890)	$—	—	$132,665
Schwab U.S. Dividend Equity ETF	—	8,882,390	(922,523)	1,491	125,275	8,086,633	107,051	152,307
						8,086,633

International Stocks 19.8%
Developed Markets 19.8%
Schwab International Dividend Equity ETF	—	8,973,048	(1,039,893)	(25,986)	26,596	7,933,765	353,870	206,860
Schwab International Opportunities Fund (formerly Laudus International MarketMasters Fund)	6,399,734	498,865	(5,224,110)	(438,356)	(1,236,133)	—	—	—
						7,933,765

Real Estate 9.9%
Global Real Estate 9.9%
Schwab Global Real Estate Fund	3,989,654	1,709,132	(589,630)	(25,379)	(1,127,333)	3,956,444	648,597	99,512

Fixed Income 27.4%
Intermediate-Term Bond 20.4%
Schwab 5-10 Year Corporate Bond ETF	—	1,392,512	(97,319)	(7,374)	(72,830)	1,214,989	28,190	27,114
Schwab U.S. Aggregate Bond Index Fund	26,523,871	1,509,141	(17,553,022)	(1,887,850)	(1,621,318)	6,970,822	790,343	423,275
						8,185,811
Long-Term Government Bond 7.0%
Schwab Long-Term U.S. Treasury ETF	—	3,217,867	(215,419)	(10,686)	(181,125)	2,810,637	79,757	28,596
						10,996,448

Money Market Funds 1.1%
Schwab Variable Share Price Money Fund, Ultra Shares, 4.42% (b)	425,343	7,099	—	—	1	432,443	432,313	7,120
Total Affiliated Underlying Funds (Cost $32,165,351)	$52,676,887	$27,285,938	($40,896,952)	($1,316,383)	($6,343,757)	$31,405,733		$1,077,449

UNAFFILIATED UNDERLYING FUNDS 21.2% OF NET ASSETS

Fixed Income 21.2%
Floating Rate Loan 3.1%
T Rowe Price Institutional Floating Rate Fund, Investor Class						$1,225,909	133,541
High-Yield Bond 11.1%
BlackRock High Yield Bond Portfolio, Class K						4,449,418	670,093

See financial notes

18Schwab Monthly Income Funds | Annual Report

Schwab Monthly Income Fund – Target Payout

Portfolio Holdings as of December 31, 2022 (continued)

SECURITY	VALUE AT 12/31/21	PURCHASES	SALES	REALIZED GAINS (LOSSES)	NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)	VALUE AT 12/31/22	BALANCE OF SHARES HELD AT 12/31/22	DISTRIBUTIONS RECEIVED(a)
Preferred 7.0%
Cohen & Steers Preferred Securities & Income Fund, Inc., Class I						$2,830,310	240,877
						8,505,637
Total Unaffiliated Underlying Funds (Cost $8,784,924)						$8,505,637
Total Investments in Securities (Cost $40,950,275)						$39,911,370

(a)	Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. Amounts shown are only presented for affiliated underlying funds, which are presented in the corresponding line-item in the Statement of Operations, if applicable (see financial note 2(c) for additional information).
(b)	The rate shown is the annualized 7-day yield.

ETF —

Exchange traded fund

At December 31, 2022, all of the fund’s investment securities were classified as Level 1. Fund investments in mutual funds and ETFs are classified as Level 1, without consideration to the classification level of the underlying securities held by the mutual funds and

ETFs, which could be Level 1, Level 2 or Level 3 (see financial note 2(a) for additional information).

See financial notes

Schwab Monthly Income Funds | Annual Report19

Schwab Monthly Income Fund – Target Payout

Statement of Assets and Liabilities

As of December 31, 2022

Assets
Investments in securities, at value - affiliated (cost $32,165,351)		$31,405,733
Investments in securities, at value - unaffiliated (cost $8,784,924)		8,505,637
Receivables:
Investments sold		776,674
Dividends		63,704
Fund shares sold		24,006
Due from investment adviser		16,860
Prepaid expenses	+	14,772
Total assets		40,807,386

Liabilities
Payables:
Fund shares redeemed		321,762
Due to custodian		268,644
Investments bought		55,593
Independent trustees’ fees		46
Accrued expenses	+	34,428
Total liabilities		680,473
Net assets		$40,126,913

Net Assets by Source
Capital received from investors		$43,753,619
Total distributable loss	+	(3,626,706)
Net assets		$40,126,913

Net Asset Value (NAV)
Net Assets	÷	Shares Outstanding	=	NAV
$40,126,913		4,170,753		$9.62

See financial notes

20Schwab Monthly Income Funds | Annual Report

Schwab Monthly Income Fund – Target Payout

Statement of Operations

For the period January 1, 2022 through December 31, 2022
Investment Income
Dividends received from securities - affiliated		$1,077,449
Dividends received from securities - unaffiliated	+	180,666
Total investment income		1,258,115

Expenses
Professional fees		35,211
Registration fees		21,052
Portfolio accounting fees		17,838
Independent trustees’ fees		6,852
Shareholder reports		6,706
Proxy fees1		1,803
Transfer agent fees		1,520
Custodian fees		649
Other expenses	+	4,399
Total expenses		96,030
Expense reduction	–	94,227
Net expenses	–	1,803
Net investment income		1,256,312

REALIZED AND UNREALIZED GAINS (LOSSES)
Net realized losses on sales of securities - affiliated		(1,316,383)
Net realized losses on sales of securities - unaffiliated	+	(25,592)
Net realized losses		(1,341,975)
Net change in unrealized appreciation (depreciation) on securities - affiliated		(6,343,757)
Net change in unrealized appreciation (depreciation) on securities - unaffiliated	+	(279,287)
Net change in unrealized appreciation (depreciation)	+	(6,623,044)
Net realized and unrealized losses		(7,965,019)
Decrease in net assets resulting from operations		($6,708,707)

1	Proxy fees are non-routine expenses (see financial note 4 for additional information).

See financial notes

Schwab Monthly Income Funds | Annual Report21

Schwab Monthly Income Fund – Target Payout

Statement of Changes in Net Assets

For the current and prior report periods

OPERATIONS
	1/1/22-12/31/22		1/1/21-12/31/21
Net investment income		$1,256,312	$986,759
Net realized gains (losses)		(1,341,975)	2,744,912
Net change in unrealized appreciation (depreciation)	+	(6,623,044)	497,866
Increase (decrease) in net assets resulting from operations		($6,708,707)	$4,229,537

DISTRIBUTIONS TO SHAREHOLDERS
Total distributions		($3,427,395)	($1,862,595)

TRANSACTIONS IN FUND SHARES
	1/1/22-12/31/22			1/1/21-12/31/21
		SHARES	VALUE	SHARES	VALUE
Shares sold		580,941	$6,318,541	1,345,116	$16,044,571
Shares reinvested		198,651	1,964,259	91,349	1,092,884
Shares redeemed	+	(1,063,647)	(11,416,732)	(904,827)	(10,770,327)
Net transactions in fund shares		(284,055)	($3,133,932)	531,638	$6,367,128

SHARES OUTSTANDING AND NET ASSETS
	1/1/22-12/31/22			1/1/21-12/31/21
		SHARES	NET ASSETS	SHARES	NET ASSETS
Beginning of period		4,454,808	$53,396,947	3,923,170	$44,662,877
Total increase (decrease)	+	(284,055)	(13,270,034)	531,638	8,734,070
End of period		4,170,753	$40,126,913	4,454,808	$53,396,947

See financial notes

22Schwab Monthly Income Funds | Annual Report

Schwab Monthly Income Fund – Flexible Payout

Financial Statements

FINANCIAL HIGHLIGHTS

	1/1/22– 12/31/22	1/1/21– 12/31/21	1/1/20– 12/31/20	1/1/19– 12/31/19	1/1/18– 12/31/18
Per-Share Data
Net asset value at beginning of period	$12.02	$11.82	$11.49	$10.58	$11.38
Income (loss) from investment operations:
Net investment income (loss)1	0.31	0.24	0.23	0.31	0.25
Net realized and unrealized gains (losses)	(1.81)	0.44	0.45	1.13	(0.72)
Total from investment operations	(1.50)	0.68	0.68	1.44	(0.47)
Less distributions:
Distributions from net investment income	(0.29)	(0.34)	(0.23)	(0.31)	(0.26)
Distributions from net realized gains	(0.44)	(0.14)	(0.12)	(0.22)	(0.07)
Total distributions	(0.73)	(0.48)	(0.35)	(0.53)	(0.33)
Net asset value at end of period	$9.79	$12.02	$11.82	$11.49	$10.58
Total return	(12.50%)	5.73%	6.11%	13.79%	(4.20%)
Ratios/Supplemental Data
Ratios to average net assets:
Net operating expenses2	0.00%3	0.00%	0.00%	0.00%	0.00%
Gross operating expenses2	0.15%3	0.10%	0.12%	0.14%	0.12%
Net investment income (loss)	2.88%	1.99%	2.06%	2.75%	2.28%
Portfolio turnover rate	78%	20%	28%	31%	9%
Net assets, end of period (x 1,000)	$67,701	$100,081	$89,691	$85,595	$76,552

1	Calculated based on the average shares outstanding during the period.
2	Ratio excludes acquired fund fees and expenses, which are indirect expenses incurred by the fund through its investments in underlying funds.
3	Ratio includes less than 0.005% of non-routine proxy expenses.

See financial notes

Schwab Monthly Income Funds | Annual Report23

Schwab Monthly Income Fund – Flexible Payout

Portfolio Holdings as of December 31, 2022

SECURITY	VALUE AT 12/31/21	PURCHASES	SALES	REALIZED GAINS (LOSSES)	NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)	VALUE AT 12/31/22	BALANCE OF SHARES HELD AT 12/31/22	DISTRIBUTIONS RECEIVED(a)
AFFILIATED UNDERLYING FUNDS 78.4% OF NET ASSETS

U.S. Stocks 20.1%
Large-Cap 20.1%
Schwab Dividend Equity Fund	$19,782,883	$581,282	($18,901,976)	$2,272,676	($3,734,865)	$—	—	$164,476
Schwab U.S. Dividend Equity ETF	—	15,216,644	(1,805,731)	9,830	173,209	13,593,952	179,957	263,594
						13,593,952

International Stocks 19.7%
Developed Markets 19.7%
Schwab International Dividend Equity ETF	—	15,376,598	(2,005,375)	(80,818)	47,253	13,337,658	594,900	354,872
Schwab International Opportunities Fund (formerly Laudus International MarketMasters Fund)	8,184,095	161,453	(6,275,552)	126,872	(2,196,868)	—	—	—
						13,337,658

Real Estate 9.8%
Global Real Estate 9.8%
Schwab Global Real Estate Fund	5,248,925	4,336,900	(1,250,224)	(5,845)	(1,658,376)	6,671,380	1,093,669	146,917

Fixed Income 27.4%
Intermediate-Term Bond 20.5%
Schwab 5-10 Year Corporate Bond ETF	—	2,496,895	(326,268)	(16,260)	(121,728)	2,032,639	47,161	47,853
Schwab U.S. Aggregate Bond Index Fund	64,832,861	1,529,039	(46,359,448)	(5,036,198)	(3,156,714)	11,809,540	1,338,950	956,459
						13,842,179
Long-Term Government Bond 6.9%
Schwab Long-Term U.S. Treasury ETF	—	5,595,390	(591,807)	(23,461)	(303,069)	4,677,053	132,720	48,974
						18,519,232

Money Market Funds 1.4%
Schwab Variable Share Price Money Fund, Ultra Shares, 4.42% (b)	927,905	15,487	—	—	2	943,394	943,111	15,531
Total Affiliated Underlying Funds (Cost $54,029,321)	$98,976,669	$45,309,688	($77,516,381)	($2,753,204)	($10,951,156)	$53,065,616		$1,998,676

UNAFFILIATED UNDERLYING FUNDS 21.1% OF NET ASSETS

Fixed Income 21.1%
Floating Rate Loan 3.1%
T Rowe Price Institutional Floating Rate Fund, Investor Class						$2,059,104	224,303
High-Yield Bond 11.0%
BlackRock High Yield Bond Portfolio, Class K						7,466,379	1,124,455

See financial notes

24Schwab Monthly Income Funds | Annual Report

Schwab Monthly Income Fund – Flexible Payout

Portfolio Holdings as of December 31, 2022 (continued)

SECURITY	VALUE AT 12/31/21	PURCHASES	SALES	REALIZED GAINS (LOSSES)	NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)	VALUE AT 12/31/22	BALANCE OF SHARES HELD AT 12/31/22	DISTRIBUTIONS RECEIVED(a)
Preferred 7.0%
Cohen & Steers Preferred Securities & Income Fund, Inc., Class I						$4,747,746	404,063
						14,273,229
Total Unaffiliated Underlying Funds (Cost $14,738,816)						$14,273,229
Total Investments in Securities (Cost $68,768,137)						$67,338,845

(a)	Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. Amounts shown are only presented for affiliated underlying funds, which are presented in the corresponding line-item in the Statement of Operations, if applicable (see financial note 2(c) for additional information).
(b)	The rate shown is the annualized 7-day yield.

ETF —

Exchange traded fund

ETFs, which could be Level 1, Level 2 or Level 3 (see financial note 2(a) for additional information).

See financial notes

Schwab Monthly Income Funds | Annual Report25

Schwab Monthly Income Fund – Flexible Payout

Statement of Assets and Liabilities

As of December 31, 2022

Assets
Investments in securities, at value - affiliated (cost $54,029,321)		$53,065,616
Investments in securities, at value - unaffiliated (cost $14,738,816)		14,273,229
Receivables:
Investments sold		876,556
Dividends		106,860
Fund shares sold		36,122
Due from investment adviser		23,404
Prepaid expenses	+	15,051
Total assets		68,396,838

Liabilities
Payables:
Due to custodian		287,814
Fund shares redeemed		276,993
Investments bought		94,223
Independent trustees’ fees		47
Accrued expenses	+	36,342
Total liabilities		695,419
Net assets		$67,701,419

Net Assets by Source
Capital received from investors		$73,037,173
Total distributable loss	+	(5,335,754)
Net assets		$67,701,419

Net Asset Value (NAV)
Net Assets	÷	Shares Outstanding	=	NAV
$67,701,419		6,917,947		$9.79

See financial notes

26Schwab Monthly Income Funds | Annual Report

Schwab Monthly Income Fund – Flexible Payout

Statement of Operations

For the period January 1, 2022 through December 31, 2022
Investment Income
Dividends received from securities - affiliated		$1,998,676
Dividends received from securities - unaffiliated	+	303,410
Total investment income		2,302,086

Expenses
Professional fees		46,128
Registration fees		22,873
Portfolio accounting fees		18,184
Shareholder reports		10,778
Independent trustees’ fees		6,957
Proxy fees1		3,204
Transfer agent fees		1,878
Custodian fees		1,515
Other expenses	+	4,706
Total expenses		116,223
Expense reduction	–	113,019
Net expenses	–	3,204
Net investment income		2,298,882

REALIZED AND UNREALIZED GAINS (LOSSES)
Net realized losses on sales of securities - affiliated		(2,753,204)
Net realized losses on sales of securities - unaffiliated	+	(67,666)
Net realized losses		(2,820,870)
Net change in unrealized appreciation (depreciation) on securities - affiliated		(10,951,156)
Net change in unrealized appreciation (depreciation) on securities - unaffiliated	+	(465,587)
Net change in unrealized appreciation (depreciation)	+	(11,416,743)
Net realized and unrealized losses		(14,237,613)
Decrease in net assets resulting from operations		($11,938,731)

1	Proxy fees are non-routine expenses (see financial note 4 for additional information).

See financial notes

Schwab Monthly Income Funds | Annual Report27

Schwab Monthly Income Fund – Flexible Payout

Statement of Changes in Net Assets

For the current and prior report periods

OPERATIONS
	1/1/22-12/31/22		1/1/21-12/31/21
Net investment income		$2,298,882	$1,959,625
Net realized gains (losses)		(2,820,870)	3,952,366
Net change in unrealized appreciation (depreciation)	+	(11,416,743)	(542,920)
Increase (decrease) in net assets resulting from operations		($11,938,731)	$5,369,071

DISTRIBUTIONS TO SHAREHOLDERS
Total distributions		($5,096,634)	($3,863,797)

TRANSACTIONS IN FUND SHARES
	1/1/22-12/31/22			1/1/21-12/31/21
		SHARES	VALUE	SHARES	VALUE
Shares sold		472,202	$5,252,310	3,079,304	$37,078,468
Shares reinvested		319,785	3,221,892	199,243	2,401,008
Shares redeemed	+	(2,201,237)	(23,818,158)	(2,536,848)	(30,595,287)
Net transactions in fund shares		(1,409,250)	($15,343,956)	741,699	$8,884,189

SHARES OUTSTANDING AND NET ASSETS
	1/1/22-12/31/22			1/1/21-12/31/21
		SHARES	NET ASSETS	SHARES	NET ASSETS
Beginning of period		8,327,197	$100,080,740	7,585,498	$89,691,277
Total increase (decrease)	+	(1,409,250)	(32,379,321)	741,699	10,389,463
End of period		6,917,947	$67,701,419	8,327,197	$100,080,740

See financial notes

28Schwab Monthly Income Funds | Annual Report

Schwab Monthly Income Fund – Income Payout

Financial Statements

FINANCIAL HIGHLIGHTS

	1/1/22– 12/31/22	1/1/21– 12/31/21	1/1/20– 12/31/20	1/1/19– 12/31/19	1/1/18– 12/31/18
Per-Share Data
Net asset value at beginning of period	$10.72	$10.80	$10.33	$9.60	$10.15
Income (loss) from investment operations:
Net investment income (loss)1	0.26	0.22	0.23	0.29	0.24
Net realized and unrealized gains (losses)	(1.59)	0.03	0.47	0.77	(0.48)
Total from investment operations	(1.33)	0.25	0.70	1.06	(0.24)
Less distributions:
Distributions from net investment income	(0.22)	(0.26)	(0.22)	(0.28)	(0.24)
Distributions from net realized gains	(0.20)	(0.07)	(0.01)	(0.05)	(0.07)
Total distributions	(0.42)	(0.33)	(0.23)	(0.33)	(0.31)
Net asset value at end of period	$8.97	$10.72	$10.80	$10.33	$9.60
Total return	(12.50%)	2.33%	6.93%	11.18%	(2.31%)
Ratios/Supplemental Data
Ratios to average net assets:
Net operating expenses2	0.00%3	0.00%	0.00%	0.00%	0.00%
Gross operating expenses2	0.14%3	0.11%	0.14%	0.23%	0.20%
Net investment income (loss)	2.74%	1.99%	2.17%	2.85%	2.42%
Portfolio turnover rate	68%	25%	23%	31%	11%
Net assets, end of period (x 1,000)	$71,382	$112,619	$112,043	$62,526	$40,213

1	Calculated based on the average shares outstanding during the period.
2	Ratio excludes acquired fund fees and expenses, which are indirect expenses incurred by the fund through its investments in underlying funds.
3	Ratio includes less than 0.005% of non-routine proxy expenses.

See financial notes

Schwab Monthly Income Funds | Annual Report29

Schwab Monthly Income Fund – Income Payout

Portfolio Holdings as of December 31, 2022

SECURITY	VALUE AT 12/31/21	PURCHASES	SALES	REALIZED GAINS (LOSSES)	NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)	VALUE AT 12/31/22	BALANCE OF SHARES HELD AT 12/31/22	DISTRIBUTIONS RECEIVED(a)
AFFILIATED UNDERLYING FUNDS 80.4% OF NET ASSETS

U.S. Stocks 13.3%
Large-Cap 13.3%
Schwab Dividend Equity Fund	$12,125,554	$265,786	($11,520,796)	$1,439,087	($2,309,631)	$—	—	$96,929
Schwab U.S. Dividend Equity ETF	—	10,631,129	(1,277,420)	10,423	151,113	9,515,245	125,963	179,444
						9,515,245

International Stocks 10.4%
Developed Markets 10.4%
Schwab International Dividend Equity ETF	—	8,825,632	(1,361,765)	(58,684)	37,674	7,442,857	331,974	194,371
Schwab International Opportunities Fund (formerly Laudus International MarketMasters Fund)	4,953,292	—	(3,728,204)	(555,805)	(669,283)	—	—	—
						7,442,857

Real Estate 6.0%
Global Real Estate 6.0%
Schwab Global Real Estate Fund	3,298,902	3,157,620	(1,180,193)	(24,664)	(1,015,307)	4,236,358	694,485	91,132

Fixed Income 49.3%
Intermediate-Term Bond 43.3%
Schwab 1-5 Year Corporate Bond ETF	—	6,372,236	(612,158)	(11,304)	(56,750)	5,692,024	121,391	39,503
Schwab 5-10 Year Corporate Bond ETF	—	7,254,616	(532,940)	(36,721)	(222,326)	6,462,629	149,945	105,334
Schwab U.S. Aggregate Bond Index Fund	89,301,124	1,671,159	(61,014,514)	(8,448,289)	(2,732,174)	18,777,306	2,128,946	1,310,621
						30,931,959
Long-Term Government Bond 6.0%
Schwab Long-Term U.S. Treasury ETF	—	4,885,019	(319,633)	(16,576)	(293,087)	4,255,723	120,764	44,068
						35,187,682

Money Market Funds 1.4%
Schwab Variable Share Price Money Fund, Ultra Shares, 4.42% (b)	1,175,843	17,816	(200,000)	(40)	23	993,642	993,344	17,855
Total Affiliated Underlying Funds (Cost $60,006,034)	$110,854,715	$43,081,013	($81,747,623)	($7,702,573)	($7,109,748)	$57,375,784		$2,079,257

UNAFFILIATED UNDERLYING FUNDS 19.2% OF NET ASSETS

Fixed Income 19.0%
Floating Rate Loan 3.0%
T Rowe Price Institutional Floating Rate Fund, Investor Class						$2,124,149	231,389
High-Yield Bond 9.0%
BlackRock High Yield Bond Portfolio, Class K						6,424,785	967,588

See financial notes

30Schwab Monthly Income Funds | Annual Report

Schwab Monthly Income Fund – Income Payout

Portfolio Holdings as of December 31, 2022 (continued)

SECURITY	VALUE AT 12/31/21	PURCHASES	SALES	REALIZED GAINS (LOSSES)	NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION)	VALUE AT 12/31/22	BALANCE OF SHARES HELD AT 12/31/22	DISTRIBUTIONS RECEIVED(a)
Preferred 7.0%
Cohen & Steers Preferred Securities & Income Fund, Inc., Class I						$5,020,194	427,251
						13,569,128

Money Market Funds 0.2%
State Street Institutional U.S. Government Money Market Fund, Premier Class, 4.12% (b)						179,173	179,173
Total Unaffiliated Underlying Funds (Cost $14,203,950)						$13,748,301
Total Investments in Securities (Cost $74,209,984)						$71,124,085

(a)	Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds. Amounts shown are only presented for affiliated underlying funds, which are presented in the corresponding line-item in the Statement of Operations, if applicable (see financial note 2(c) for additional information).
(b)	The rate shown is the annualized 7-day yield.

ETF —

Exchange traded fund

ETFs, which could be Level 1, Level 2 or Level 3 (see financial note 2(a) for additional information).

See financial notes

Schwab Monthly Income Funds | Annual Report31

Schwab Monthly Income Fund – Income Payout

Statement of Assets and Liabilities

As of December 31, 2022

Assets
Investments in securities, at value - affiliated (cost $60,006,034)		$57,375,784
Investments in securities, at value - unaffiliated (cost $14,203,950)		13,748,301
Receivables:
Investments sold		779,821
Dividends		119,990
Fund shares sold		39,500
Due from investment adviser		24,226
Prepaid expenses	+	15,419
Total assets		72,103,041

Liabilities
Payables:
Fund shares redeemed		575,845
Investments bought		107,754
Independent trustees’ fees		47
Accrued expenses	+	37,827
Total liabilities		721,473
Net assets		$71,381,568

Net Assets by Source
Capital received from investors		$82,778,863
Total distributable loss	+	(11,397,295)
Net assets		$71,381,568

Net Asset Value (NAV)
Net Assets	÷	Shares Outstanding	=	NAV
$71,381,568		7,959,724		$8.97

See financial notes

32Schwab Monthly Income Funds | Annual Report

Schwab Monthly Income Fund – Income Payout

Statement of Operations

For the period January 1, 2022 through December 31, 2022
Investment Income
Dividends received from securities - affiliated		$2,079,257
Dividends received from securities - unaffiliated	+	289,045
Total investment income		2,368,302

Expenses
Professional fees		48,136
Registration fees		23,589
Portfolio accounting fees		18,254
Shareholder reports		14,248
Independent trustees’ fees		6,982
Proxy fees1		3,489
Transfer agent fees		1,725
Custodian fees		968
Other expenses	+	4,790
Total expenses		122,181
Expense reduction	–	118,692
Net expenses	–	3,489
Net investment income		2,364,813

REALIZED AND UNREALIZED GAINS (LOSSES)
Net realized losses on sales of securities - affiliated		(7,702,573)
Net realized losses on sales of securities - unaffiliated	+	(43,960)
Net realized losses		(7,746,533)
Net change in unrealized appreciation (depreciation) on securities - affiliated		(7,109,748)
Net change in unrealized appreciation (depreciation) on securities - unaffiliated	+	(455,649)
Net change in unrealized appreciation (depreciation)	+	(7,565,397)
Net realized and unrealized losses		(15,311,930)
Decrease in net assets resulting from operations		($12,947,117)

1	Proxy fees are non-routine expenses (see financial note 4 for additional information).

See financial notes

Schwab Monthly Income Funds | Annual Report33

Schwab Monthly Income Fund – Income Payout

Statement of Changes in Net Assets

For the current and prior report periods

OPERATIONS
	1/1/22-12/31/22		1/1/21-12/31/21
Net investment income		$2,364,813	$2,247,568
Net realized gains (losses)		(7,746,533)	1,770,708
Net change in unrealized appreciation (depreciation)	+	(7,565,397)	(1,740,710)
Increase (decrease) in net assets resulting from operations		($12,947,117)	$2,277,566

DISTRIBUTIONS TO SHAREHOLDERS
Total distributions		($3,491,475)	($3,387,702)

TRANSACTIONS IN FUND SHARES
	1/1/22-12/31/22			1/1/21-12/31/21
		SHARES	VALUE	SHARES	VALUE
Shares sold		1,055,280	$10,635,381	5,817,574	$62,845,934
Shares reinvested		230,261	2,129,699	194,332	2,091,664
Shares redeemed	+	(3,835,880)	(37,563,734)	(5,871,515)	(63,251,350)
Net transactions in fund shares		(2,550,339)	($24,798,654)	140,391	$1,686,248

SHARES OUTSTANDING AND NET ASSETS
	1/1/22-12/31/22			1/1/21-12/31/21
		SHARES	NET ASSETS	SHARES	NET ASSETS
Beginning of period		10,510,063	$112,618,814	10,369,672	$112,042,702
Total increase (decrease)	+	(2,550,339)	(41,237,246)	140,391	576,112
End of period		7,959,724	$71,381,568	10,510,063	$112,618,814

See financial notes

34Schwab Monthly Income Funds | Annual Report

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 - Target Payout	Schwab International Opportunities Fund
Schwab Monthly Income Fund - Flexible Payout	Schwab Balanced Fund
Schwab Monthly Income Fund - Income Payout	Schwab Core Equity Fund
Schwab Target 2010 Fund	Schwab Dividend Equity Fund
Schwab Target 2015 Fund	Schwab Large-Cap Growth Fund
Schwab Target 2020 Fund	Schwab Small-Cap 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 Target 2065 Fund	Schwab Target 2010 Index Fund
Schwab S&P 500 Index Fund	Schwab Target 2015 Index Fund
Schwab Small-Cap Index Fund®	Schwab Target 2020 Index Fund
Schwab Total Stock Market Index Fund®	Schwab Target 2025 Index Fund
Schwab U.S. Large-Cap Growth Index Fund	Schwab Target 2030 Index Fund
Schwab U.S. Large-Cap Value Index Fund	Schwab Target 2035 Index Fund
Schwab U.S. Mid-Cap Index Fund	Schwab Target 2040 Index Fund
Schwab International Index Fund®	Schwab Target 2045 Index Fund
Schwab MarketTrack All Equity Portfolio™	Schwab Target 2050 Index Fund
Schwab MarketTrack Growth Portfolio™	Schwab Target 2055 Index Fund
Schwab MarketTrack Balanced Portfolio™	Schwab Target 2060 Index Fund
Schwab MarketTrack Conservative Portfolio™	Schwab Target 2065 Index Fund

Effective September 12, 2022, Schwab Monthly Income Fund - Moderate Payout changed its name to Schwab Monthly Income Fund - Target Payout, Schwab Monthly Income Fund - Enhanced Payout changed its name to Schwab Monthly Income Fund - Flexible Payout, and Schwab Monthly Income Fund - Maximum Payout changed its name to Schwab Monthly Income Fund - Income Payout.

The Schwab Monthly Income Funds are “fund of funds.” Each of the funds seeks to achieve its investment objective by investing primarily in a combination of Schwab Funds and Schwab Exchange-Traded Funds (ETFs) and may also invest in other unaffiliated, third-party mutual funds (all such mutual funds and ETFs referred to as “underlying 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 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).

Schwab Monthly Income Funds | Annual Report35

Schwab Monthly Income Funds

Financial Notes (continued)

2. Significant Accounting Policies (continued):

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 with the U.S. Securities and Exchange Commission (SEC) and are available on the SEC’s website at www.sec.gov.

(a) Security Valuation:

Pursuant to Rule 2a-5 under the 1940 Act, the Board has designated authority to a Valuation Designee, the funds’ investment adviser, to make fair valuation determinations under adopted procedures, subject to Board oversight. The investment adviser has formed a Pricing Committee to administer the pricing and valuation of portfolio securities and other assets and liabilities and to ensure that prices used for internal purposes or provided by third parties reasonably reflect fair value. The Valuation Designee may utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value.

Securities held in the funds’ portfolio are valued every business day. The following valuation policies and procedures are used by the Valuation Designee to value various types of securities:

• Securities traded on an exchange or over-the-counter: Traded securities are valued at the closing value for the day, or, on days when no closing value has been reported, at the mean of the most recent bid and ask quotes.

• Mutual funds: Mutual funds are valued at their respective NAVs.

• Securities for which no quoted value is available: The Valuation Designee has adopted procedures to fair value each fund’s securities when market prices are not “readily available” or are unreliable. For example, a security may be fair valued when it’s 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. Fair value determinations are made in good faith in accordance with adopted valuation procedures. The Valuation Designee considers a number of factors, including unobservable market inputs when arriving at fair value. The Valuation Designee may employ methods 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. 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.

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 methods 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 it is determined 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 the Valuation Designee’s judgment will be required to estimate fair value.

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

• Level 1 — quoted prices in active markets for identical investments — Investments whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 prices, include active listed equities and underlying funds. Underlying funds are classified as Level 1 prices, without consideration to the classification level of the underlying securities held.

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

• Level 3 — significant unobservable inputs (including the Valuation Designee’s 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 readily available for these securities, one or more valuation methods are used for which sufficient and reliable data is available. The inputs used in estimating the value of Level 3 prices

36Schwab Monthly Income Funds | Annual Report

Schwab Monthly Income Funds

Financial Notes (continued)

2. Significant Accounting Policies (continued):

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 in the absence of market information. Assumptions used due to the lack of observable inputs may significantly impact the resulting fair value and therefore a fund’s results of operations.

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

As disclosed in the Portfolio Holdings, as of December 31, 2022, all of the funds’ investments were classified as Level 1.

(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.

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). 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, if any, monthly and from net realized capital gains, if any, once a year. To receive a distribution, you must be a registered shareholder on the record date. Distributions are paid to shareholders on the payable date.

The amount of the distributions made by the Schwab Monthly Income Fund — Target Payout and the Schwab Monthly Income Fund - Flexible Payout may exceed the amount of the fund’s net income and capital gains available for distribution. In that case, some or all of the distributions made by the Schwab Monthly Income Fund - Target Payout and the Schwab Monthly Income Fund - Flexible Payout may constitute a return of capital to shareholders. At the end of the year, the funds may be required under the applicable Internal Revenue Code to recharacterize distributions for the year among ordinary income, capital gains, and return of capital (if any) for purposes of tax reporting to shareholders. Although it cannot be guaranteed, the Schwab Monthly Income Fund - Income Payout does not expect to make distributions that will be treated as return of capital. Shareholders who receive periodic distributions consisting of a return of capital may be under the impression that they are receiving net income when they are not. A return of capital is a distribution from the shareholder’s investment principal, rather than net income from the fund’s returns. Shareholders should not assume that the source of a distribution from the fund is net income. For additional information see financial note 3, Risk Factors Managed Payout Risk and financial note 8, Federal Income Taxes.

(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.

Schwab Monthly Income Funds | Annual Report37

Schwab Monthly Income Funds

Financial Notes (continued)

2. Significant Accounting Policies (continued):

(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) Regulatory Update:

Effective January 24, 2023, the SEC adopted rule and form amendments to require mutual funds and ETFs to transmit concise and visually engaging streamlined annual and semiannual reports to shareholders that highlight key information deemed important for retail investors to assess and monitor their fund investments. Other information, including financial statements, will no longer appear in a streamlined shareholder report but must be available online, delivered free of charge upon request, and filed on a semiannual basis on Form N-CSR. The rule and form amendments have a compliance date of July 24, 2024. At this time, management is evaluating the impact of these rule and form amendment changes on the content of the current shareholder report and the newly created annual and semiannual streamlined shareholder reports.

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.

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 a fund to underperform other funds with a similar investment objective. The funds are not managed to maximize tax efficiency for taxable shareholder accounts. Investors should consider whether the funds are an appropriate investment in light of their current financial position and retirement needs.

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 a 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. Markets may be impacted by economic, political, regulatory and other conditions, including economic sanctions and other government actions. In addition, the occurrence of global events, such as war, terrorism, environmental disasters, natural disasters and epidemics may also negatively affect the financial markets. 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.

ETF Risk. When a 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.

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.

38Schwab Monthly Income Funds | Annual Report

Schwab Monthly Income Funds

Financial Notes (continued)

3. Risk Factors (continued):

Managed Payout Risk. Because Schwab Monthly Income Fund - Target Payout and Schwab Monthly Income Fund - Flexible Payout are expected to make monthly payments regardless of investment performance, the amount of each fund’s distributions in respect of any period often will exceed the amount of that fund’s income and gains for that period. In that case, some or all of the fund’s distributions may constitute a return of capital to shareholders. It is possible for each fund to suffer substantial investment losses and simultaneously experience additional asset reductions as a result of its payments to shareholders under the managed payout policy. In addition, in order to make the payments called for under each fund’s managed payout policy, the fund may have to sell portfolio securities at a time when it would not otherwise do so.

A return of capital distribution generally will not be taxable but will decrease the shareholder’s cost basis in the shares of a fund and will result in a higher capital gain or lower capital loss when those shares on which the distribution was received are sold. Once a shareholder’s cost basis is reduced to zero, further distributions will be treated as capital gain, if the shareholder holds shares of the fund as capital assets. A distribution constituting a return of capital is not a distribution of income or capital gains earned by the fund, and should not be confused with the fund’s “yield” or “income.”

Direct Investment Risk. The funds may invest directly in cash, cash equivalents and equity and fixed-income securities, including money market securities to maintain their allocations. 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.

Portfolio Turnover Risk. High portfolio turnover may result in a fund paying higher levels of transaction costs and may generate greater tax liabilities for shareholders. Portfolio turnover risk may cause a fund’s performance to be less than expected.

Underlying Fund Investment Risk. Before investing in the funds, investors should assess 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 economic conditions, among other things, may result in a change in interest rates. A rise in interest rates could cause an underlying fund’s share price to fall. 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 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, are more volatile, involve greater risk of price declines and may be more susceptible to economic downturns 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

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Schwab Monthly Income Funds

Financial Notes (continued)

3. Risk Factors (continued):

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.

• High-Yield Risk. An underlying fund’s investments in high-yield securities and unrated securities of similar credit quality (junk bonds) are subject to greater levels of credit and liquidity risks, and may be more volatile than higher-rated securities. High-yield securities are considered predominately speculative with respect to the issuer’s continuing ability to make principal and interest payments.

• Floating Rate Loan Risk. Transactions involving floating rate loans may have significantly longer settlement periods than more traditional bond investments (settlement can take longer than 7 days) and often involve borrowers whose financial condition is troubled or highly leveraged, which increases the risk that the underlying fund may not receive its proceeds in a timely manner and that the underlying fund may incur unexpected losses in order to pay redemption proceeds to its shareholders. In addition, loans are not registered or regulated under the federal securities laws like most stocks and bonds, so investors in loans have less protection against improper practices than investors in registered securities. While a loan assignment typically transfers all legal and economic rights to the buyer, a loan participation typically allows the seller to maintain legal title to the loan, meaning the buyer of a loan participation generally has no direct rights against the borrower and is exposed to credit risk of both the borrower and seller of the participation.

• 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 $1.00 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 $1.00 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 a 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.

• Tracking Error Risk. Each underlying index fund seeks to track the performance of its respective index, although it may not be successful in doing so. The divergence between the performance of an underlying fund and its index, positive or negative, is called “tracking error.” Tracking error can be caused by many factors and it may be significant. If an underlying fund utilizes a sampling approach, it may not track the return of the index as well as it would if the underlying fund purchased all of the securities in the index.

• 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.

• 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 Risk. An underlying fund in which the fund may invest may have a policy of concentrating its investments in real estate companies and companies related to the real estate industry. As such, an underlying fund is subject to risks associated with the direct ownership of real estate securities and the fund’s investment in such an underlying fund is subject to risks associated with the direct ownership of real estate securities and an investment in the underlying fund will be

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Schwab Monthly Income Funds

Financial Notes (continued)

3. Risk Factors (continued):

closely linked to the performance of the real estate markets. These risks include, among others, declines in the value of real estate; risks related to general and local economic conditions;possible lack of availability of mortgage funds or other limits to accessing the credit or capital markets; defaults by borrowers or tenants, particularly during an economic downturn; and changes in interest rates.

• 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.

• 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.

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., dba Schwab Asset Management, 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 the investment adviser and the trust. The investment adviser does not receive a fee for the services it performs for the funds. However, the investment adviser is entitled to receive an annual management fee from each of the affiliated Schwab Funds and ETFs that serve as underlying funds.

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., a broker-dealer affiliate of the investment adviser (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

The investment adviser and its affiliates have agreed with the funds, for so long as the investment adviser serves as the investment adviser to the funds, which may only be amended or terminated with the approval of the Board, to limit the total annual fund operating expenses charged, excluding interest, taxes and certain non-routine expenses 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.

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Schwab Monthly Income Funds

Financial Notes (continued)

4. Affiliates and Affiliated Transactions (continued):

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, 2022, each Schwab Monthly Income Fund’s ownership percentages of other related funds’ shares are:

UNDERLYING FUNDS	SCHWAB MONTHLY INCOME FUND – TARGET PAYOUT	SCHWAB MONTHLY INCOME FUND – FLEXIBLE PAYOUT	SCHWAB MONTHLY INCOME FUND – INCOME PAYOUT
Schwab 1-5 Year Corporate Bond ETF	—%	—%	1.5%
Schwab 5-10 Year Corporate Bond ETF	0.4%	0.6%	2.0%
Schwab Global Real Estate Fund	1.4%	2.3%	1.5%
Schwab International Dividend Equity ETF	1.5%	2.5%	1.4%
Schwab Long-Term U.S. Treasury ETF	1.5%	2.5%	2.3%
Schwab U.S. Aggregate Bond Index Fund	0.2%	0.3%	0.4%
Schwab U.S. Dividend Equity ETF	0.0%*	0.0%*	0.0%*
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 the 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 the investment adviser 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 funds did not pay any of these interested persons for their services as trustees, but 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.

6. Borrowing from Banks:

During the period, the funds were participants with other funds in the Fund Complex in a joint, syndicated, committed $850 million line of credit (the Syndicated Credit Facility), which matured on September 29, 2022. On September 29, 2022, the Syndicated Credit Facility was amended to run for a new 364 day period with the credit line amount increasing to $1 billion, maturing on September 28, 2023. 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 funds in the Fund Complex in a joint, unsecured, uncommitted $400 million line of credit (the Uncommitted Credit Facility), with State Street Bank and Trust Company, which matured on September 29, 2022. On September 29, 2022, the Uncommitted Credit Facility was amended to run for a new 364 day period with the line of credit amount remaining unchanged, maturing on September 28, 2023. 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 each fund’s Statement of Operations, if any. The interest expense is determined based on a negotiated rate above the current Federal Funds Rate.

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Schwab Monthly Income Funds

Financial Notes (continued)

7. Purchases and Sales of Investment Securities:

For the period ended December 31, 2022, purchases and sales of securities (excluding short-term obligations) were as follows:

	PURCHASES OF SECURITIES	SALES OF SECURITIES
Schwab Monthly Income Fund – Target Payout	$36,789,056	$41,589,554
Schwab Monthly Income Fund – Flexible Payout	62,056,191	79,456,401
Schwab Monthly Income Fund – Income Payout	58,533,878	83,131,748

8. Federal Income Taxes:

As of December 31, 2022, the tax basis cost of the funds’ investments and gross unrealized appreciation and depreciation were as follows:

	TAX COST	GROSS UNREALIZED APPRECIATION	GROSS UNREALIZED DEPRECIATION	NET UNREALIZED APPRECIATION (DEPRECIATION)
Schwab Monthly Income Fund – Target Payout	$41,294,259	$218,324	($1,601,213)	($1,382,889)
Schwab Monthly Income Fund – Flexible Payout	68,963,800	714,035	(2,338,990)	(1,624,955)
Schwab Monthly Income Fund – Income Payout	74,498,945	188,810	(3,563,670)	(3,374,860)

As of December 31, 2022, the components of distributable earnings on a tax basis were as follows:

	UNDISTRIBUTED ORDINARY INCOME	NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS	CAPITAL LOSS CARRYFORWARDS AND OTHER LOSSES	TOTAL
Schwab Monthly Income Fund – Target Payout	$40,400	($1,382,889)	($2,284,217)	($3,626,706)
Schwab Monthly Income Fund – Flexible Payout	201,966	(1,624,955)	(3,912,765)	(5,335,754)
Schwab Monthly Income Fund – Income Payout	455,306	(3,374,860)	(8,477,741)	(11,397,295)

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 have no expiration and may be used to offset future realized capital gains for federal income tax purposes. As of December 31, 2022, the funds had capital loss carryforwards as follows:


Schwab Monthly Income Fund – Target Payout	$2,284,217
Schwab Monthly Income Fund – Flexible Payout	3,912,765
Schwab Monthly Income Fund – Income Payout	8,477,741

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

	CURRENT FISCAL YEAR END DISTRIBUTIONS		PRIOR FISCAL YEAR END DISTRIBUTIONS
	ORDINARY INCOME	LONG-TERM CAPITAL GAINS	ORDINARY INCOME	LONG-TERM CAPITAL GAINS
Schwab Monthly Income Fund – Target Payout	$1,309,466	$2,117,929	$1,564,456	$298,139
Schwab Monthly Income Fund – Flexible Payout	2,244,284	2,852,350	2,767,784	1,096,013
Schwab Monthly Income Fund – Income Payout	1,923,056	1,568,419	2,738,360	649,342

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. The funds may also designate a portion of the amount paid to redeeming shareholders as a distribution for tax purposes. During the fiscal year ended December 31, 2022, there were no return of capital distributions paid by any of the funds.

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Schwab Monthly Income Funds

Financial Notes (continued)

8. Federal Income Taxes (continued):

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, 2022, 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, 2022, 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 - Target Payout (formerly Monthly Income Fund - Moderate Payout), Schwab Monthly Income Fund - Flexible Payout (formerly Schwab Monthly Income Fund - Enhanced Payout) and Schwab Monthly Income Fund - Income Payout (formerly the Schwab Monthly Income Fund - Maximum Payout)

Opinion on the Financial Statements and Financial Highlights

We have audited the accompanying statements of assets and liabilities, including the portfolio holdings, of Schwab Monthly Income Fund - Target Payout, Schwab Monthly Income Fund - Flexible Payout, and Schwab Monthly Income Fund - Income Payout (the “Funds”), three of the funds constituting Schwab Capital Trust, as of December 31, 2022, the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the three years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of each of the Funds as of December 31, 2022, and the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended in conformity with accounting principles generally accepted in the United States of America. The financial highlights for each of the two years in the period ended December 31, 2019 were audited by other auditors, whose report, dated February 18, 2020, expressed an unqualified opinion on such financial highlights.

Basis for Opinion

These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements and financial highlights 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 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 and financial highlights are free of material misstatement, whether due to error or fraud. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, 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 and financial highlights. 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 and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2022, by correspondence with the custodian and transfer agent. We believe that our audits provide a reasonable basis for our opinion.

Deloitte & Touche LLP
Denver, Colorado
February 16, 2023

We have served as the auditor of one or more investment companies in the Schwab Funds Complex since 2020.

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Schwab Monthly Income Funds

Other Federal Tax Information (unaudited)

The funds may elect to pass through, under section 853(a) of the Internal Revenue Code, the foreign tax credit to their shareholders for the fiscal year ended December 31, 2022. The foreign tax credit and the foreign source income amounts are as follows:

	FOREIGN TAX CREDIT	FOREIGN SOURCE INCOME
Schwab Monthly Income Fund – Target Payout	$18,280	$206,860
Schwab Monthly Income Fund – Flexible Payout	31,360	354,872
Schwab Monthly Income Fund – Income Payout	17,176	194,371

For corporate shareholders, the following percentage of the funds’ dividend distributions paid during the fiscal year ended December 31, 2022, qualify for the corporate dividends received deduction:


Schwab Monthly Income Fund – Target Payout	23.43%
Schwab Monthly Income Fund – Flexible Payout	20.73%
Schwab Monthly Income Fund – Income Payout	16.44%

For the fiscal year ended December 31, 2022, 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 2023 via IRS Form 1099 of the amounts for use in preparing their 2022 income tax return.

Schwab Monthly Income Fund – Target Payout	$548,149
Schwab Monthly Income Fund – Flexible Payout	871,697
Schwab Monthly Income Fund – Income Payout	554,458

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, 2022:

Schwab Monthly Income Fund – Target Payout	$2,117,929
Schwab Monthly Income Fund – Flexible Payout	2,852,350
Schwab Monthly Income Fund – Income Payout	1,568,419

For the fiscal year ended December 31, 2022, the funds designate the following amounts as dividends eligible for the 20% qualified business income deduction under section 199A of the Internal Revenue Code. Shareholders will be notified in January 2023 via IRS Form 1099 of the amounts for use in preparing their 2022 income tax return.

Schwab Monthly Income Fund – Target Payout	$18,383
Schwab Monthly Income Fund – Flexible Payout	27,169
Schwab Monthly Income Fund – Income Payout	16,947

For the fiscal year ended December 31, 2022, the funds designate the following percentage of dividend income as business interest income under section 163(j) of the Internal Revenue Code:


Schwab Monthly Income Fund – Target Payout	43.05%
Schwab Monthly Income Fund – Flexible Payout	53.36%
Schwab Monthly Income Fund – Income Payout	84.41%

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Schwab Monthly Income Funds

Liquidity Risk Management Program (unaudited)

The funds have adopted and implemented a liquidity risk management program (the “program”) as required by Rule 22e-4 under the Investment Company Act of 1940, as amended. The funds’ Board of Trustees (the “Board”) has designated the funds’ investment adviser, Charles Schwab Investment Management, Inc., dba Schwab Asset Management, as the administrator of the program. Personnel of the investment adviser or its affiliates conduct the day-to-day operation of the program.

Under the program, the investment adviser manages a fund’s liquidity risk, which is the risk that the fund could not meet shareholder redemption requests without significant dilution of remaining shareholders’ interests in the fund. The program is reasonably designed to assess and manage a fund’s liquidity risk, taking into consideration the fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions; its historical redemption history and shareholder concentrations; and its cash holdings and access to other funding sources, including the custodian overdraft facility and lines of credit. The investment adviser’s process of determining the degree of liquidity of each fund’s investments is supported by third-party liquidity assessment vendors.

The funds’ Board reviewed a report at its meeting held on September 19, 2022 prepared by the investment adviser regarding the operation and effectiveness of the program for the period June 1, 2021, through May 31, 2022, which included individual fund liquidity risk metrics. No significant liquidity events impacting any of the funds were noted in the report. In addition, the investment adviser provided its assessment that the program had been operating effectively in managing each fund’s liquidity risk.

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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 105 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
Michael J. Beer 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 2022)	Retired. Director, President and Chief Executive Officer (Dec. 2016 – Sept. 2019), Principal Funds (investment management).	105	Director (2016 – 2019), Principal Funds, Inc.
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.	105	None
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.	105	None
David L. Mahoney 1954 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust since 2011; Schwab Strategic Trust since 2016)	Private Investor.	105	Director (2004 – present), Corcept Therapeutics Incorporated Director (2009 – 2021), 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).	105	None

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Independent Trustees (continued)
Name, Year of Birth, and Position(s) with the trust (Terms of office, and length of Time Served1)	Principal Occupations During the Past Five Years	Number of Portfolios in Fund Complex Overseen by the Trustee	Other Directorships
Kimberly S. Patmore 1956 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2016)	Consultant (2008 – present), Patmore Management Consulting (management consulting).	105	None
J. Derek Penn 1957 Trustee (Trustee of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2021)	Head of Equity Sales and Trading (2006 – 2018), BNY Mellon (financial services).	105	None

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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)	Co-Chairman of the Board (July 2022 – present), Director and Chief Executive Officer (Oct. 2008 – present) and President (Feb. 2007 – Oct. 2021), The Charles Schwab Corporation; President and Chief Executive Officer (Oct. 2008 – Oct. 2021) and Director (May 2008 – Oct. 2021), Charles Schwab & Co., Inc.; Director (Apr. 2006 – present), Charles Schwab Bank, SSB; Director (Nov. 2017 – present), Charles Schwab Premier Bank, SSB; Director (July 2019 – present), Charles Schwab Trust Bank; Director (May 2008 – present), Chief Executive Officer (Aug. 2017 – present) and President (Aug. 2017 – Nov. 2021), Schwab Holdings, Inc.; Director (Oct. 2020 – present), TD Ameritrade Holding Corporation; Director (July 2016 – Oct. 2021), Charles Schwab Investment Management, Inc.	105	Director (2008 – present), The Charles Schwab Corporation
Richard A. Wurster2 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 2022)	President (Oct. 2021 – present) and Executive Vice President – Schwab Asset Management Solutions (Apr. 2019 – Oct. 2021), The Charles Schwab Corporation; President, Director (Oct. 2021 – present), Executive Vice President – Schwab Asset Management Solutions (July 2019 – Oct. 2021) and Senior Vice President – Advisory (May 2016 – July 2019), Charles Schwab & Co., Inc.; President (Nov. 2021 – present), Schwab Holdings, Inc.; Director (Oct. 2021 – present) and Chief Executive Officer (Nov. 2019 – Jan. 2022), Charles Schwab Investment Management, Inc.; Director, Chief Executive Officer and President (Mar. 2018 – Oct. 2022), Charles Schwab Investment Advisory, Inc.; Chief Executive Officer (July 2016 – Apr. 2018) and President (Mar. 2017 – Apr. 2018), ThomasPartners, Inc.; Chief Executive Officer (July 2016 – Apr. 2018), Windhaven Investment Management, Inc.	105	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), Chief Operating Officer (Jan. 2021 – present), and Chief Executive Officer (Apr. 2019 – Nov. 2019), Charles Schwab Investment Management, Inc.; Senior Vice President (June 2020 – Mar. 2022) and Chief Operating Officer (Jan. 2021 – Mar. 2022), Charles Schwab Investment Advisory, Inc.; Chief Executive Officer (Apr. 2019 – present), President (Nov. 2018 – present) and Trustee (Apr. 2019 – Dec. 2020), Schwab Funds, Laudus Trust and Schwab ETFs; Managing Director (May 2022 – present), Senior Vice President (Apr. 2019 – May 2022) and Senior Vice President – Strategy and Product Development (CSIM) (Jan. 2014 – Mar. 2019), Charles Schwab & Co., Inc.
Mark Fischer 1970 Chief Operating 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)	Chief Operating Officer (Dec. 2020 – present) and Treasurer and Chief Financial Officer (Jan. 2016 – Dec. 2022), Schwab Funds, Laudus Trust and Schwab ETFs; Chief Financial Officer (Mar. 2020 – present) and Vice President (Oct. 2013 – present), Charles Schwab Investment Management, Inc.
Dana Smith 1965 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 2023)	Treasurer and Chief Financial Officer (Jan. 2023 – present) and Assistant Treasurer (Dec. 2015 – Dec. 2022), Schwab Funds, Laudus Trust and Schwab ETFs; Vice President (Mar. 2022 – present) and Director (Oct. 2015 – Mar. 2022), Charles Schwab Investment Management, 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
Omar Aguilar 1970 Vice President and Chief Investment Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2011)	Chief Executive Officer (Jan. 2022 – present), Chief Investment Officer (Apr. 2011 – present) and Senior Vice President (Apr. 2011 – Dec. 2021), Charles Schwab Investment Management, Inc.; Director, Chief Executive Officer and President (Oct. 2022 – present), Charles Schwab Investment Advisory, Inc.; Vice President and Chief Investment Officer (June 2011 – present), Schwab Funds, Laudus Trust and Schwab ETFs.
Brett Wander 1961 Vice President and Chief Investment Officer (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.; Vice President and Chief Investment Officer (June 2011 – present), Schwab Funds, Laudus Trust and Schwab ETFs.
William P. McMahon, Jr. 1972 Vice President and Chief Investment Officer (Officer of The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios, Schwab Strategic Trust and Laudus Trust since 2021)	Senior Vice President and Chief Investment Officer (Jan. 2020 – present), Charles Schwab Investment Management, Inc.; Vice President and Chief Investment Officer (June 2021 – present), Schwab Funds, Laudus Trust and Schwab ETFs; Senior Vice President and Chief Investment Officer – ThomasPartners Strategies (Apr. 2018 – Dec. 2019), Charles Schwab Investment Advisory, Inc.; Senior Vice President and Chief Investment Officer (May 2001 – Apr. 2018), ThomasPartners, Inc.
Catherine MacGregor 1964 Chief Legal Officer and Secretary, Schwab Funds and Schwab ETFs Chief Legal Officer, Vice President and Clerk, Laudus Trust (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)	Chief Legal Officer (Mar. 2022 – present) and Vice President (Sept. 2005 – present), Charles Schwab Investment Management, Inc.; Managing Director (May 2022 – present) and Vice President (July 2005 – May 2022), Charles Schwab & Co., Inc.; Vice President (Dec. 2005 – present) and Chief Legal Officer and Clerk (Mar. 2007 – present), Laudus Trust; Chief Legal Officer and Secretary (Oct. 2021 – present), Vice President (Nov. 2005 – Oct. 2021) and Assistant Secretary (June 2007 – Oct. 2021), Schwab Funds; Chief Legal Officer and Secretary (Oct. 2021 – present), Vice President and Assistant Secretary (Oct. 2009 – Oct. 2021), Schwab ETFs.

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.

Mr. Bettinger and Mr. Wurster are Interested Trustees. Mr. Bettinger and Mr. Wurster are Interested Trustees because each owns stock of The Charles Schwab Corporation (CSC), the parent company of Charles Schwab Investment Management, Inc., the investment adviser for the trusts in the Fund Complex, and is an employee of Charles Schwab & Co., Inc. (Schwab), the principal underwriter for The Charles Schwab Family of Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and Laudus Trust.

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 US 1–5 Year Corporate Bond Index An index that measures the performance of U.S. investment grade, taxable corporate bonds with maturities greater than or equal to one year and less than five years that have $300 million or more of outstanding face value. The securities in the index must be denominated in U.S. dollars and must be fixed-rate. The index includes securities publicly issued by U.S. and non-U.S. industrial, utility and financial issuers. The index excludes certain types of securities, including contingent capital securities, inflation-linked bonds, floating-rate issues, taxable and tax-exempt municipal securities, structured notes and pass-through certificates. The index is market capitalization weighted and the securities in the index are updated on the last business day of each month.

Bloomberg US 5–10 Year Corporate Bond Index An index that measures the performance of U.S. investment grade, taxable corporate bonds with maturities greater than or equal to five years and less than ten years that have $300 million or more of outstanding face value. The securities in the index must be denominated in U.S. dollars and must be fixed-rate. The index includes securities publicly issued by U.S. and non-U.S. industrial, utility and financial issuers. The index excludes certain types of securities, including contingent capital securities, inflation-linked bonds, floating-rate bonds, taxable and tax-exempt municipal securities, structured notes and pass-through certificates. The index is market capitalization weighted and the securities in the index are updated on the last business day of each month.

Bloomberg 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 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 US Long Treasury Index An index that includes all publicly issued, U.S. Treasury securities that have a remaining maturity of ten or more years, are rated investment grade, and have $300 million or more of outstanding face value. The securities in the index must be denominated in U.S. dollars and must be fixed-rate and non-convertible. The index excludes U.S. Treasury stripped securities. The index is market capitalization weighted and the securities in the index are updated on the last business day of each month.

Bloomberg 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.

Dow Jones International Dividend 100 Index (Net) An index that is designed to measure the performance of high dividend yielding stocks issued by companies in developed and emerging countries outside of the United States that have a record of consistently paying dividends, selected for fundamental strength based on financial ratios and lower volatility. The 100-component index is derived from the constituents of the Dow Jones Global ex-U.S. Large-Cap Index and the Dow Jones Global ex-U.S. Mid-Cap Index, and excludes real estate investment trusts (REITs). It is modified market capitalization weighted. The Net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes.

Dow Jones U.S. Dividend 100 Index An index that is designed to measure the performance of high dividend yielding stocks issued by U.S. companies that have a record of consistently paying dividends, selected for fundamental strength relative to their peers, based on financial ratios. The 100-component index is a subset of the Dow Jones U.S. Broad Market Index, which includes the 2,500 largest U.S. stocks based on full market capitalization and excludes real estate investment trusts (REITs). It is modified market capitalization weighted.

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.

Flexible Payout Composite Index Effective September 12, 2022, the Enhanced Payout Composite Index changed its name to Flexible Payout Composite Index. The Flexible Payout Composite Index is a custom blended index developed by Schwab Asset Management based on a comparable portfolio asset allocation. Effective September 13, 2022, the Flexible Payout Composite Index is composed of 2% Bloomberg US Treasury Bills 1-3 Month Index, 20% Dow Jones U.S. Dividend 100 Index, 20% Dow Jones International Dividend 100 Index (Net), 10% FTSE EPRA Nareit Global Index (Net), 17% Bloomberg US Aggregate

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Bond Index, 3% Bloomberg US 5-10 Year Corporate Bond Index, 7% Bloomberg US Long Treasury Index, 11% Bloomberg US High Yield 2% Issuer Cap Index, 7% ICE BofA Fixed Rate Preferred Securities Index, and 3% Morningstar LSTA US Performing Loans Index. From January 29, 2019 to September 12, 2022, the Flexible Payout Composite Index was composed of 19.5% S&P 500 Index, 8.1% MSCI EAFE Index (Net), 4.9% FTSE EPRA Nariet Global Index (Net), 65.5% Bloomberg US Aggregate Bond Index, and 2.0% Bloomberg US Treasury Bills 1-3 Month Index. From April 1, 2013 to January 29, 2019, the Flexible 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 US Aggregate Bond Index, 26.2% Bloomberg US Intermediate Aggregate Bond Index, and 2.0% Bloomberg US Treasury Bills 1-3 Month Index. Prior to April 1, 2013, the Flexible Payout Composite Index was composed of 25% S&P 500 Index and 75% Bloomberg US Aggregate Bond Index. Percentages listed may not total to 100% due to rounding.

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.

Income Payout Composite Index Effective September 12, 2022, the Maximum Payout Composite Index changed its name to Income Payout Composite Index. The Income Payout Composite Index is a custom blended index developed by Schwab Asset Management based on a comparable portfolio asset allocation. Effective September 13, 2022, the Income Payout Composite Index is composed of 2% Bloomberg US Treasury Bills 1-3 Month Index, 13% Dow Jones U.S. Dividend 100 Index, 11% Dow Jones International Dividend 100 Index (Net), 6% FTSE EPRA Nareit Global Index (Net), 26% Bloomberg US Aggregate Bond Index, 9% Bloomberg US 5-10 Year Corporate Bond Index, 8% Bloomberg US 1-5 Year Corporate Bond Index, 6% Bloomberg US Long Treasury Index, 9% Bloomberg US High Yield 2% Issuer Cap Index, 7% ICE BofA Fixed Rate Preferred Securities Index, and 3% Morningstar LSTA US Performing Loans Index. From January 29, 2019 to September 12, 2022 the Income 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), 80.5% Bloomberg US Aggregate Bond Index, and 2.0% Bloomberg US Treasury Bills 1-3 Month Index. From April 1, 2013 to January 29, 2019, the Income 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 US Aggregate Bond Index, 32.2% Bloomberg US Intermediate Aggregate Bond Index, and 2.0% Bloomberg US Treasury Bills 1-3 Month Index. Prior to April 1, 2013, the Income Payout Composite Index was composed of 10% S&P 500 Index and 90% Bloomberg US Aggregate Bond Index. Percentages listed may not total to 100% due to rounding.

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

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.

Target Payout Composite Index Effective September 12, 2022, the Moderate Payout Composite Index changed its name to Target Payout Composite Index. The Target Payout Composite Index is a custom blended index developed by Schwab Asset Management based on a comparable portfolio asset allocation. Effective September 13, 2022, the Target Payout Composite Index is composed of 2% Bloomberg US Treasury Bills 1-3 Month Index, 20% Dow Jones U.S. Dividend 100 Index, 20% Dow Jones International Dividend 100 Index (Net), 10% FTSE EPRA Nareit Global Index (Net), 17% Bloomberg US Aggregate Bond Index, 3% Bloomberg US 5-10 Year Corporate Bond Index, 7% Bloomberg US Long Treasury Index, 11% Bloomberg US High Yield 2% Issuer Cap Index, 7% ICE BofA Fixed Rate Preferred Securities Index, and 3% Morningstar LSTA US Performing Loans Index. From January 29, 2019 to September 12, 2022, the Target 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), 50.5% Bloomberg US Aggregate Bond Index, and 2.0% Bloomberg US Treasury Bills 1-3 Month Index. From April 1, 2013 to January 29, 2019, the Target 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 US Aggregate Bond Index, 20.2% Bloomberg US Intermediate Aggregate Bond Index, and 2.0% Bloomberg US Treasury Bills 1-3 Month Index. Prior to April 1, 2013, the Target Payout Composite Index was composed of 40% S&P 500 Index and 60% Bloomberg US Aggregate Bond Index. Percentages listed may not total to 100% due to rounding.

Schwab Monthly Income Funds | Annual Report53

Schwab Monthly Income Funds

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 income distributions for the last 12 months divided by the fund’s Net Asset Value as of the end of the reporting period. Distributions may exceed income available and may include capital gains or return of capital to help reach the annual payout rate. A return of capital is a distribution from the shareholder’s investment principal, rather than net profits from the fund’s returns. Shareholders who receive periodic distributions consisting of a return of capital may be under the impression that they are receiving net profits when they are not. Return

of capital reduces your cost basis in the fund’s shares and is not taxable to you until your cost basis has been reduced to zero. The tax-basis of distributions are finalized at fiscal year-end and may be recharacterized from income distributions to capital gains or return of capital.

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.

54Schwab Monthly Income Funds | Annual Report

Notes

Schwab Monthly Income Funds

Schwab Asset Management

With a straightforward lineup of core products and solutions for building the foundation of a portfolio, Schwab Asset 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.schwabassetmanagement.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.schwabassetmanagement.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 Health Care Fund

Schwab International Core Equity Fund

Schwab International Opportunities Fund

Schwab Select Large Cap Growth 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 Opportunistic Municipal Bond Fund

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., dba Schwab Asset Management

211 Main Street, San Francisco, CA 94105

Funds

Schwab Funds

1-877-824-5615

State, local, and the Federal Alternative Minimum Tax may apply. Capital gains are not exempt from Federal Taxation.

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.

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MFR45803-11
00282279

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 13(a)(1) of Form N-CSR.

Item 3: Audit Committee Financial Expert.

Registrant’s Board of Trustees has determined that Kimberly S. Patmore and J. Derek Penn, 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 Ms. Patmore and Mr. Penn 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-two 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-end of the last day of February, twelve 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 the fifty-two operational series during 2022/2023 and 2021/2022, based on their respective 2022/2023 and 2021/2022 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 Fees¹				(b) Audit-Related Fees²				(c) Tax Fees³				(d) All Other Fees
Fiscal Year 2022/2023		Fiscal Year 2021/2022		Fiscal Year 2022/2023		Fiscal Year 2021/2022		Fiscal Year 2022/2023		Fiscal Year 2021/2022		Fiscal Year 2022/2023		Fiscal Year 2021/2022
$	1,195,825	$	1,187,075	$	90,000	$	90,000	$	161,200	$	161,200	$	0	$	0

¹	The nature of the services includes audit of the registrant’s annual financial statements and normally provided services in connection with regulatory filings for those fiscal years.

²	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.

³	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 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.


2022: $3,031,117		2021: $3,088,431

(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.

(i)

Not applicable.

(j)

Not applicable.

Item 5: Audit Committee of Listed Registrants.

Not applicable.

Item 6: Schedule of Investments.

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

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

Not applicable.

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

Not applicable.

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

Not applicable.

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

Not applicable.

Item 11: Controls and Procedures.

(a)

Based on their evaluation of Registrant’s disclosure controls and procedures, as of a date within 90 days of the filing date, Registrant’s Chief Executive Officer, Jonathan de St. Paer and Registrant’s Chief Financial Officer, Dana Smith, 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.

(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 – Monthly Income Funds


By:		/s/ Jonathan de St. Paer
		Jonathan de St. Paer Chief Executive Officer

Date:		February 16, 2023

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 16, 2023

By:		/s/ Dana Smith
		Dana Smith Chief Financial Officer

Date:		February 16, 2023


Title	Name	Phone Number
Chief Compliance Officer	Michael F. Hogan	415-667-1987

Chief Legal Officer of Schwab Funds and Schwab ETFs	Catherine MacGregor	415-667-0650

The Charles Schwab Corporation Ombudsperson	Scott Ferber, Esq, King & Spalding	(202) 626-9550


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


/s/ Jonathan de St. Paer				Date: February 16, 2023
Jonathan de St. Paer
Chief Executive Officer

/s/ Dana Smith				Date: February 16, 2023
Dana Smith
Chief Financial Officer