UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT
OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-8314
Schwab Annuity Portfolios
211 Main Street, San Francisco, California | 94105 | |
(Address of principal executive offices) | (Zip code) |
Randall W. Merk
Schwab Annuity Portfolios
211 Main Street, San Francisco, California 94105
(Name and address of agent for service)
Schwab Annuity Portfolios
211 Main Street, San Francisco, California 94105
Registrant’s telephone number, including area code: (415) 636-7000
Date of fiscal year end: December 31
Date of reporting period: June 30, 2010
Item 1: Report(s) to Shareholders.
Large-Cap Blend | |||
Schwab MarketTrack Growth Portfolio IItm | |||
Balanced Semiannual report dated June 30, 2010 |
An investor should consider a fund’s investment objectives, risks, and charges and expenses carefully before investing or sending money. This and other important information can be found in the fund’s prospectus. Please call 1-888-311-4887 for a prospectus. Please read the prospectus carefully before you invest.
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 Schwab’s website at www.schwabfunds.com/prospectus, the SEC’s website at www.sec.gov, or by contacting Schwab Funds at 1-800-435-4000.
Information regarding how a fund voted proxies relating to portfolio securities during the most recent twelve-month period ended December 31 is available, without charge, by visiting Schwab’s website at www.schwabfunds.com/prospectus or the SEC’s website at www.sec.gov.
The Sector/Industry classifications in this report use the Global Industry Classification Standard (GICS) which was developed by and is the exclusive property of Morgan Stanley Capital International Inc. (MSCI) and Standard & Poor’s (S&P). GICS is a service mark of MSCI and S&P and has been licensed for use by Charles Schwab & Co., Inc. The Industry classifications used in the schedules of Portfolio Holdings are sub-categories of Sector classifications.
The Investment Environment
The pace of the U.S. economy’s recovery remained uneven during the six-month period. The Federal Reserve (Fed) recently reported that the “the economic recovery is proceeding” and that “the labor market is improving gradually,” but challenges remain. With the labor market improving gradually, spending by consumers and businesses also inched upward. However, these mild advances were constrained by a national unemployment rate that hovered around 10% and a housing market that continued to struggle. Real Gross Domestic Product (GDP) growth, another market indicator, increased by 2.7% for the first quarter of 2010, which contrasted with its increase of 5.6% for the fourth quarter of 2009. GDP is the output of goods and services produced by labor and property in the United States.
At the international level, financial markets fluctuated during the reporting period. In Europe, sovereign debt obligations reached unprecedented levels, and were followed by downgrades in the ratings of many foreign credit securities. The news caused temporary turmoil in the U.S. and global financial markets in early May. While the markets have seen some recovery to pre-May levels, central banks remain attentive to debt ratios, monetary exchange rates, interest rates, and inflation measurements.
The U.S. equity markets outperformed international equity markets during the six-month period, however both had negative returns. For example, the S&P 500® Index, which is usually seen as a bellwether for domestic financial markets, returned −6.65%. All sectors in the S&P 500 had negative returns. For the international equity markets, the MSCI EAFE Index (Gross) returned −12.93%.
In the U.S. fixed income markets, accommodative Federal Reserve policy in the form of a near-zero federal funds rate continued, and recent statements from the Fed affirmed that rates will remain low “for an extended period.” In addition, the euro-debt concerns that crystallized in May put downward pressure on U.S. Treasury rates for intermediate- and longer-term bonds. During this time, investors sought a safe haven in U.S. Treasuries, causing prices to increase and yields to decrease to a range of two-to-three percent for the intermediate- and longer-term bonds.
The low interest rate environment, combined with a limited supply of short-term, high-quality taxable and tax-free credit securities, also suppressed short-term yields in the fixed income markets, to nearly zero percent. Securities normally purchased by money market funds were in short supply and had low rates of return.
Similar to the intermediate returns seen in U.S. Treasuries, returns for intermediate-term taxable securities, as reflected in the Barclays Capital U.S. Aggregate Intermediate Bond Index, were positive and stood at 4.78% for the six-month period. On the tax-free side, returns were more modest. The Barclays Capital General Muni Bond Index returned 3.31% for the same time frame. Overall, the past six months were characterized by negative returns in the U.S. and international equity markets, with modest relief provided by the fixed income markets.
Asset Class Performance Comparison % returns during the report period
This graph compares the performance of various asset classes during the report period. Final performance figures for the period are in the key below.
−6.65% | S&P 500® Index: measures U.S. large-cap stocks | |||
−1.95% | Russell 2000® Index: measures U.S. small-cap stocks | |||
−12.93% | MSCI EAFE® Index (Gross): measures (in U.S. dollars) large-cap stocks in Europe, Australasia and the Far East | |||
5.33% | Barclays Capital U.S. Aggregate Bond Index: measures the U.S. bond market | |||
0.05% | Three-Month U.S. Treasury Bills (T-bills): measures short-term U.S. Treasury obligations |
Nothing in this report represents a recommendation of a security by the investment adviser.
Manager views and portfolio holdings may have changed since the report date.
Schwab MarketTrack Growth Portfolio II 1
Portfolio Management
Daniel Kern, CFA, a managing director and portfolio manager of the investment adviser, is responsible for the day-to-day management of the fund. He has been the portfolio manager of the fund since 2008. From 2003, until his appointment to his current position, he held vice president level positions in product development, investment operations and audit at the firm. Prior to joining the firm in 2003, he worked for more than 13 years in the investment management industry, with more than 6 of those years spent in portfolio management. |
2 Schwab MarketTrack Growth Portfolio II
Schwab MarketTrack Growth Portfolio II™
The Schwab MarketTrack Growth Portfolio II incorporates a mix of different asset classes, and invests mainly in a combination of other Schwab Funds, most of which are managed using indexing strategies. Accordingly, returns over a given period will reflect a blend of returns of the underlying asset classes and will depend on their relative weightings in the portfolio. By spreading exposure over various asset classes, the MarketTrack Growth Portfolio II is designed to provide more stable returns while seeking to reduce risk during market fluctuations.
The Schwab MarketTrack Growth Portfolio II (the fund) returned -5.15%, while its comparative index, the Growth Composite Index, returned -5.19%. (For current allocations of the Growth Composite Index, please refer to footnote 1 on the following page.) The fund focuses on stock investments, while including some bonds and cash investments, remaining close to the target allocations of 80% stocks, 15% bonds, and 5% cash.
The fund’s negative performance was primarily driven by its exposure to equity markets, which experienced losses and high volatility during the period as concerns over the European debt crisis dampened investor sentiment. When looking at the top fund holdings in the portfolio, the Schwab International Index Fund was the weakest performer, returning -14.56%. The Schwab S&P 500 Index Fund and the Schwab Small-Cap Index Fund returned -6.63% and -1.31%, respectively, as U.S. stocks generally outperformed international stocks during the period, but still remained in the negative territory.
On the fixed income side, performance was generally positive as risk aversion returned and demand put upward pressure on prices. The Schwab Total Bond Market Fund was the strongest performer in the top fund holdings, returning 5.10%. Returns for the Schwab Value Advantage Money Fund (Institutional Shares) were also positive at 0.04%, but reflected the impact of the low interest rate environment on yields of short-term securities.
As of 6/30/10:
Statistics
Number of Holdings | 510 | |
Weighted Average Market Cap ($ x 1,000,000) | $44,512 | |
Price/Earnings Ratio (P/E) | (4.8) | |
Price/Book Ratio (P/B) | 2.0 | |
Portfolio Turnover Rate1 | 9% |
Asset Class Weightings % of Investments
Large-Cap Stocks | 39.6% | |
Small-Cap Stocks | 19.7% | |
International Stocks | 19.8% | |
Bonds | 15.8% | |
Short-Term Investments | 5.1% | |
Total | 100.0% |
Top Holdings % Net Assets2
Schwab S&P 500 Index Fund | 25.9% | |
Schwab International Index Fund | 19.8% | |
Schwab Small-Cap Index Fund | 19.7% | |
Schwab Total Bond Market Fund | 15.8% | |
Schwab Value Advantage Money Fund, Institutional Shares | 3.2% | |
Exxon Mobil Corp. | 0.4% | |
Apple, Inc. | 0.3% | |
Microsoft Corp. | 0.3% | |
International Business Machines Corp. | 0.3% | |
The Procter & Gamble Co. | 0.3% | |
Total | 86.0% |
Manager views and portfolio holdings may have changed since the report date.
Small-company stocks are subject to greater volatility than other asset categories.
Foreign securities can involve risks such as political and economic instability and currency risk.
1 | Not annualized. | |
2 | This list is not a recommendation of any security by the investment adviser. |
Schwab MarketTrack Growth Portfolio II 3
Schwab MarketTrack Growth Portfolio IItm
Performance Summary as of 6/30/10
The performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value will fluctuate so that an investor’s shares may be worth more or less than their original cost. Current performance may be lower or higher than performance data quoted. To obtain performance information current to the most recent month end, please visit www.schwabfunds.com/prospectus.
June 30, 2000 – June 30, 2010
Performance of a Hypothetical
$10,000 Investment1
Performance of a Hypothetical
$10,000 Investment1
Average Annual Total Returns1,2,3
Portfolio and Inception Date | 6 Months | 1 Year | 5 Years | 10 Years | ||||||||||||||||
Portfolio: Schwab MarketTrack Growth Portfolio IItm (11/1/96) | -5.15 | % | 12.94 | % | 0.83 | % | 0.78 | % | ||||||||||||
Growth Composite Index | -5.19 | % | 12.52 | % | 1.32 | % | 0.96 | % | ||||||||||||
S&P 500® Index | -6.65 | % | 14.43 | % | -0.79 | % | -1.59 | % | ||||||||||||
Barclays Capital U.S. Aggregate Bond Index | 5.33 | % | 9.50 | % | 5.54 | % | 6.47 | % | ||||||||||||
Fund Category: Morningstar Large-Cap Blend | -7.81 | % | 12.00 | % | -2.06 | % | -1.92 | % |
Portfolio Expense Ratios4: Net 0.70%; Gross 0.96%
Style Assessment5
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. Performance results less than one year are not annualized.
1 | The Growth Composite Index is a custom blended index developed by CSIM based on a comparable portfolio asset allocation and calculated using the following portion allocations: 60% Dow Jones U.S. Total Stock Market Index, 20% MSCI EAFE Index, 15% Barclays Capital U.S. Aggregate Bond Index, and 5% Barclays Capital U.S. Treasury Bills: 1-3 Months Index. The index is maintained by Charles Schwab Investment Management, Inc. | |
2 | Portfolio expenses have been partially absorbed by CSIM and Schwab. Without these reductions, the portfolio’s returns would have been lower. These returns do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. | |
3 | Source for category information: Morningstar, Inc. | |
4 | As stated in the prospectus. Includes expenses of the Underlying Funds in which the Portfolio invests. The annualized weighted average expense ratio of the Underlying Funds was 0.20%. Net Expense: Expenses reduced by a contractual fee waiver in effect through at least 4/29/12. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual ratios during the period, refer to the financial highlights section of the financial statements. | |
5 | Source: Morningstar, Inc. This style assessment is the result of evaluating the portfolio based on a ten-factor model for value and growth characteristics. The portfolio’s market capitalization placement is determined by the geometric mean of its holdings’ market capitalizations. The assessment reflects the portfolio’s holdings as of 6/30/10, which may have changed since then, and is not a precise indication of risk or performance—past, present, or future. |
4 Schwab MarketTrack Growth Portfolio II
Fund Expenses (Unaudited)
Examples for a $1,000 Investment
The fund incurs ongoing costs, such as management fees, transfer agent and shareholder services fees, and other fund expenses.
The expense examples below are intended to help you understand your ongoing cost (in dollars) of investing in a fund and to compare this cost with the ongoing cost of investing in other mutual funds. These examples are based on an investment of $1,000 invested for six months beginning January 1, 2010 and held through June 30, 2010.
The Actual Return line in the table below provides information about actual account values and actual expenses. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value ¸ $1,000 = 8.6), then multiply the result by the number given for your fund or share class under the heading entitled “Expenses Paid During Period.”
The Hypothetical Return line in the table below provides information about hypothetical account values and hypothetical expenses based on a fund’s or share class’ actual expense ratio and an assumed return of 5% per year before expenses. Because the return used is not an actual return, it may not be used to estimate the actual ending account value or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs.
Ending | ||||||||||||||||
Beginning | Account Value | Expenses Paid | ||||||||||||||
Expense Ratio1 | Account Value | (Net of Expenses) | During Period2 | |||||||||||||
(Annualized) | at 1/1/10 | at 6/30/10 | 1/1/10–6/30/10 | |||||||||||||
Schwab MarketTrack Growth Portfolio IItm | ||||||||||||||||
Actual Return | 0.50% | $ | 1,000 | $ | 948.50 | $ | 2.42 | |||||||||
Hypothetical 5% Return | 0.50% | $ | 1,000 | $ | 1,022.32 | $ | 2.51 |
1 | Based on the most recent six-month expense ratio; may differ from the expense ratio provided in Financial Highlights; does not include expenses of underlying funds in which the portfolio invests. | |
2 | Expenses for the portfolio are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by 181 days of the period, and divided by 365 days of the fiscal year. |
Schwab MarketTrack Growth Portfolio II 5
Schwab MarketTrack Growth Portfolio II™
Financial Statements
Financial Highlights
1/1/10– | 1/1/09– | 1/1/08– | 1/1/07– | 1/1/06– | 1/1/05– | |||||||||||||||||||||
6/30/10* | 12/31/09 | 12/31/08 | 12/31/07 | 12/31/06 | 12/31/05 | |||||||||||||||||||||
Per-Share Data ($) | ||||||||||||||||||||||||||
Net asset value at beginning of period | 13.40 | 11.09 | 17.76 | 17.64 | 15.53 | 14.87 | ||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||
Net investment income (loss) | 0.02 | 0.25 | 0.36 | 0.37 | 0.33 | 0.24 | ||||||||||||||||||||
Net realized and unrealized gains (losses) | (0.71 | ) | 2.41 | (5.95 | ) | 0.63 | 2.00 | 0.62 | ||||||||||||||||||
Total from investment operations | (0.69 | ) | 2.66 | (5.59 | ) | 1.00 | 2.33 | 0.86 | ||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||
Distributions from net investment income | — | (0.35 | ) | (0.41 | ) | (0.45 | ) | (0.22 | ) | (0.20 | ) | |||||||||||||||
Distributions from net realized gains | — | — | (0.67 | ) | (0.43 | ) | — | — | ||||||||||||||||||
Total distributions | — | (0.35 | ) | (1.08 | ) | (0.88 | ) | (0.22 | ) | (0.20 | ) | |||||||||||||||
Net asset value at end of period | 12.71 | 13.40 | 11.09 | 17.76 | 17.64 | 15.53 | ||||||||||||||||||||
Total return (%) | (5.15 | )1 | 24.02 | (31.35 | ) | 5.64 | 15.02 | 5.77 | ||||||||||||||||||
Ratios/Supplemental Data (%) | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||
Net operating expenses2 | 0.50 | 3 | 0.50 | 0.50 | 0.50 | 0.50 | 0.48 | |||||||||||||||||||
Gross operating expenses2 | 0.76 | 3 | 0.77 | 0.73 | 0.67 | 0.70 | 0.68 | |||||||||||||||||||
Net investment income (loss) | 0.28 | 3 | 2.03 | 2.23 | 2.06 | 2.28 | 1.66 | |||||||||||||||||||
Portfolio turnover rate | 9 | 1 | 12 | 14 | 6 | 33 | 5 | |||||||||||||||||||
Net assets, end of period ($ x 1,000,000) | 34 | 36 | 30 | 48 | 46 | 37 |
* Unaudited.
1 Not annualized.
2 The expenses incurred by underlying funds in which the fund invests are not included in this ratio.
3 Annualized.
6 See financial notes
Schwab MarketTrack Growth Portfolio II
Portfolio Holdings as of June 30, 2010 (Unaudited)
This section shows all the securities in the fund’s portfolio and their values as of the report date.
The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the SEC’s website at http://www.sec.gov and may be viewed and copied at the SEC’s Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on a fund’s most recent Form N-Q is also available by visiting Schwab’s website at www.schwabfunds.com/prospectus.
Cost | Value | |||||||||||
Holdings by Category | ($) | ($) | ||||||||||
13 | .7% | Common Stock | 3,238,650 | 4,608,082 | ||||||||
84 | .6% | Other Investment Companies | 29,043,842 | 28,411,270 | ||||||||
1 | .8% | Short-Term Investment | 616,960 | 616,960 | ||||||||
100 | .1% | Total Investments | 32,899,452 | 33,636,312 | ||||||||
(0 | .1)% | Other Assets and Liabilities, Net | (19,694 | ) | ||||||||
100 | .0% | Net Assets | 33,616,618 |
Number | Value | |||||||
Security | of Shares | ($) | ||||||
Common Stock 13.7% of net assets | ||||||||
Automobiles & Components 0.1% | ||||||||
Ford Motor Co. * | 883 | 8,901 | ||||||
Harley-Davidson, Inc. | 128 | 2,845 | ||||||
Johnson Controls, Inc. | 273 | 7,335 | ||||||
The Goodyear Tire & Rubber Co. * | 84 | 835 | ||||||
19,916 | ||||||||
Banks 0.4% | ||||||||
BB&T Corp. | 253 | 6,656 | ||||||
Comerica, Inc. | 78 | 2,873 | ||||||
Fifth Third Bancorp | 262 | 3,220 | ||||||
First Horizon National Corp. * | 69 | 789 | ||||||
Hudson City Bancorp, Inc. | 200 | 2,448 | ||||||
Huntington Bancshares, Inc. | 118 | 654 | ||||||
KeyCorp | 191 | 1,469 | ||||||
M&T Bank Corp. | 37 | 3,143 | ||||||
Marshall & Ilsley Corp. | 106 | 761 | ||||||
People’s United Financial, Inc. | 200 | 2,700 | ||||||
PNC Financial Services Group, Inc. | 148 | 8,362 | ||||||
Regions Financial Corp. | 344 | 2,264 | ||||||
SunTrust Banks, Inc. | 175 | 4,077 | ||||||
U.S. Bancorp | 852 | 19,042 | ||||||
Wells Fargo & Co. | 2,484 | 63,590 | ||||||
Zions Bancorp | 50 | 1,079 | ||||||
123,127 | ||||||||
Capital Goods 1.1% | ||||||||
3M Co. | 357 | 28,199 | ||||||
Caterpillar, Inc. | 317 | 19,042 | ||||||
Cummins, Inc. | 88 | 5,731 | ||||||
Danaher Corp. | 224 | 8,315 | ||||||
Deere & Co. | 226 | 12,584 | ||||||
Dover Corp. | 97 | 4,054 | ||||||
Eaton Corp. | 71 | 4,646 | ||||||
Emerson Electric Co. | 388 | 16,952 | ||||||
Fastenal Co. | 75 | 3,764 | ||||||
Flowserve Corp. | 100 | 8,480 | ||||||
Fluor Corp. | 84 | 3,570 | ||||||
General Dynamics Corp. | 189 | 11,068 | ||||||
General Electric Co. | 5,232 | 75,445 | ||||||
Goodrich Corp. | 59 | 3,909 | ||||||
Honeywell International, Inc. | 394 | 15,378 | ||||||
Illinois Tool Works, Inc. | 196 | 8,091 | ||||||
ITT Corp. | 88 | 3,953 | ||||||
Jacobs Engineering Group, Inc. * | 100 | 3,644 | ||||||
L-3 Communications Holdings, Inc. | 58 | 4,109 | ||||||
Lockheed Martin Corp. | 169 | 12,590 | ||||||
Masco Corp. | 196 | 2,109 | ||||||
Northrop Grumman Corp. | 165 | 8,983 | ||||||
PACCAR, Inc. | 181 | 7,216 | ||||||
Pall Corp. | 60 | 2,062 | ||||||
Parker Hannifin Corp. | 84 | 4,659 | ||||||
Precision Castparts Corp. | 100 | 10,292 | ||||||
Quanta Services, Inc. * | 100 | 2,065 | ||||||
Raytheon Co. | 212 | 10,259 | ||||||
Rockwell Automation, Inc. | 83 | 4,074 | ||||||
Rockwell Collins, Inc. | 82 | 4,357 | �� | |||||
Roper Industries, Inc. | 50 | 2,798 | ||||||
Snap-on, Inc. | 27 | 1,105 | ||||||
Textron, Inc. | 124 | 2,104 | ||||||
The Boeing Co. | 378 | 23,719 | ||||||
United Technologies Corp. | 480 | 31,157 | ||||||
W.W. Grainger, Inc. | 37 | 3,680 | ||||||
374,163 | ||||||||
Commercial & Professional Supplies 0.1% | ||||||||
Avery Dennison Corp. | 53 | 1,703 | ||||||
Cintas Corp. | 66 | 1,582 | ||||||
Equifax, Inc. | 62 | 1,740 | ||||||
Iron Mountain, Inc. | 100 | 2,246 | ||||||
Pitney Bowes, Inc. | 108 | 2,371 | ||||||
R.R. Donnelley & Sons Co. | 103 | 1,686 | ||||||
Republic Services, Inc. | 201 | 5,976 | ||||||
Robert Half International, Inc. | 82 | 1,931 | ||||||
Stericycle, Inc. * | 60 | 3,935 | ||||||
The Dun & Bradstreet Corp. | 50 | 3,356 | ||||||
Waste Management, Inc. | 261 | 8,167 | ||||||
34,693 | ||||||||
Consumer Durables & Apparel 0.1% | ||||||||
Coach, Inc. | 181 | 6,616 | ||||||
D.R. Horton, Inc. | 128 | 1,258 | ||||||
Eastman Kodak Co. * | 135 | 586 | ||||||
Fortune Brands, Inc. | 70 | 2,743 | ||||||
Harman International Industries, Inc. * | 32 | 956 | ||||||
Hasbro, Inc. | 85 | 3,493 | ||||||
Jones Apparel Group, Inc. | 55 | 872 | ||||||
Leggett & Platt, Inc. | 87 | 1,745 | ||||||
Lennar Corp., Class A | 64 | 890 | ||||||
Liz Claiborne, Inc. * | 50 | 211 | ||||||
Mattel, Inc. | 183 | 3,872 |
See financial notes 7
Schwab MarketTrack Growth Portfolio II
Portfolio Holdings (Unaudited) continued
Number | Value | |||||||
Security | of Shares | ($) | ||||||
Newell Rubbermaid, Inc. | 129 | 1,889 | ||||||
NIKE, Inc., Class B | 178 | 12,024 | ||||||
Polo Ralph Lauren Corp. | 30 | 2,189 | ||||||
Pulte Group, Inc. * | 159 | 1,316 | ||||||
Stanley Black & Decker, Inc. | 80 | 4,042 | ||||||
VF Corp. | 42 | 2,990 | ||||||
Whirlpool Corp. | 36 | 3,161 | ||||||
50,853 | ||||||||
Consumer Services 0.3% | ||||||||
Apollo Group, Inc., Class A * | 67 | 2,845 | ||||||
Carnival Corp. | 205 | 6,199 | ||||||
Darden Restaurants, Inc. | 63 | 2,448 | ||||||
DeVry, Inc. | 50 | 2,625 | ||||||
H&R Block, Inc. | 156 | 2,448 | ||||||
International Game Technology | 159 | 2,496 | ||||||
Marriott International, Inc., Class A | 152 | 4,551 | ||||||
McDonald’s Corp. | 594 | 39,127 | ||||||
Starbucks Corp. | 361 | 8,772 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | 103 | 4,267 | ||||||
Wyndham Worldwide Corp. | 95 | 1,913 | ||||||
Wynn Resorts Ltd. | 50 | 3,814 | ||||||
Yum! Brands, Inc. | 260 | 10,150 | ||||||
91,655 | ||||||||
Diversified Financials 1.0% | ||||||||
American Express Co. | 585 | 23,224 | ||||||
Ameriprise Financial, Inc. | 118 | 4,263 | ||||||
Bank of America Corp. | 4,921 | 70,715 | ||||||
Bank of New York Mellon Corp. | 540 | 13,332 | ||||||
Capital One Financial Corp. | 142 | 5,722 | ||||||
Citigroup, Inc. * | 10,389 | 39,063 | ||||||
CME Group, Inc. | 15 | 4,223 | ||||||
Discover Financial Services | 254 | 3,551 | ||||||
E*TRADE Financial Corp. * | 19 | 224 | ||||||
Federated Investors, Inc., Class B | 40 | 828 | ||||||
Franklin Resources, Inc. | 72 | 6,206 | ||||||
IntercontinentalExchange, Inc. * | 35 | 3,956 | ||||||
Invesco Ltd. | 153 | 2,575 | ||||||
Janus Capital Group, Inc. | 102 | 906 | ||||||
JPMorgan Chase & Co. | 1,849 | 67,692 | ||||||
Legg Mason, Inc. | 59 | 1,654 | ||||||
Leucadia National Corp. * | 100 | 1,951 | ||||||
Moody’s Corp. | 116 | 2,311 | ||||||
Morgan Stanley | 508 | 11,791 | ||||||
Northern Trust Corp. | 87 | 4,063 | ||||||
NYSE Euronext | 100 | 2,763 | ||||||
SLM Corp. * | 197 | 2,047 | ||||||
State Street Corp. | 157 | 5,310 | ||||||
T. Rowe Price Group, Inc. | 126 | 5,593 | ||||||
The Charles Schwab Corp. (a) | 488 | 6,920 | ||||||
The Goldman Sachs Group, Inc. | 206 | 27,042 | ||||||
The NASDAQ OMX Group, Inc. * | 150 | 2,667 | ||||||
320,592 | ||||||||
Energy 1.5% | ||||||||
Anadarko Petroleum Corp. | 220 | 7,940 | ||||||
Apache Corp. | 156 | 13,134 | ||||||
Baker Hughes, Inc. | 222 | 9,229 | ||||||
Cabot Oil & Gas Corp. | 40 | 1,253 | ||||||
Cameron International Corp. * | 100 | 3,252 | ||||||
Chesapeake Energy Corp. | 176 | 3,687 | ||||||
Chevron Corp. | 1,053 | 71,457 | ||||||
ConocoPhillips | 780 | 38,290 | ||||||
CONSOL Energy, Inc. | 100 | 3,376 | ||||||
Denbury Resources, Inc. * | 100 | 1,464 | ||||||
Devon Energy Corp. | 210 | 12,793 | ||||||
Diamond Offshore Drilling, Inc. | 30 | 1,866 | ||||||
El Paso Corp. | 311 | 3,455 | ||||||
EOG Resources, Inc. | 114 | 11,214 | ||||||
Exxon Mobil Corp. | 2,570 | 146,670 | ||||||
FMC Technologies, Inc. * | 100 | 5,266 | ||||||
Halliburton Co. | 488 | 11,980 | ||||||
Helmerich & Payne, Inc. | 100 | 3,652 | ||||||
Hess Corp. | 111 | 5,588 | ||||||
Marathon Oil Corp. | 346 | 10,757 | ||||||
Massey Energy Co. | 20 | 547 | ||||||
Murphy Oil Corp. | 79 | 3,914 | ||||||
Nabors Industries Ltd. * | 149 | 2,625 | ||||||
National Oilwell Varco, Inc. | 164 | 5,424 | ||||||
Noble Energy, Inc. | 100 | 6,033 | ||||||
Occidental Petroleum Corp. | 406 | 31,323 | ||||||
Peabody Energy Corp. | 100 | 3,913 | ||||||
Pioneer Natural Resources Co. | 100 | 5,945 | ||||||
Range Resources Corp. | 100 | 4,015 | ||||||
Rowan Cos., Inc. * | 52 | 1,141 | ||||||
Schlumberger Ltd. | 559 | 30,935 | ||||||
Smith International, Inc. | 100 | 3,765 | ||||||
Southwestern Energy Co. * | 160 | 6,182 | ||||||
Spectra Energy Corp. | 293 | 5,881 | ||||||
Sunoco, Inc. | 64 | 2,225 | ||||||
Tesoro Corp. | 100 | 1,167 | ||||||
The Williams Cos., Inc. | 282 | 5,155 | ||||||
Valero Energy Corp. | 294 | 5,286 | ||||||
491,799 | ||||||||
Food & Staples Retailing 0.4% | ||||||||
Costco Wholesale Corp. | 223 | 12,227 | ||||||
CVS Caremark Corp. | 740 | 21,697 | ||||||
Safeway, Inc. | 212 | 4,168 | ||||||
SUPERVALU, Inc. | 96 | 1,041 | ||||||
Sysco Corp. | 294 | 8,399 | ||||||
The Kroger Co. | 344 | 6,773 | ||||||
Wal-Mart Stores, Inc. | 1,132 | 54,415 | ||||||
Walgreen Co. | 478 | 12,763 | ||||||
Whole Foods Market, Inc. * | 66 | 2,377 | ||||||
123,860 | ||||||||
Food, Beverage & Tobacco 0.8% | ||||||||
Altria Group, Inc. | 987 | 19,779 | ||||||
Archer-Daniels-Midland Co. | 309 | 7,978 | ||||||
Brown-Forman Corp., Class B | 50 | 2,861 | ||||||
Campbell Soup Co. | 88 | 3,153 | ||||||
Coca-Cola Enterprises, Inc. | 144 | 3,724 | ||||||
ConAgra Foods, Inc. | 245 | 5,713 | ||||||
Constellation Brands, Inc., Class A * | 94 | 1,468 | ||||||
Dean Foods Co. * | 65 | 655 | ||||||
Dr Pepper Snapple Group, Inc. | 100 | 3,739 |
8 See financial notes
Schwab MarketTrack Growth Portfolio II
Portfolio Holdings (Unaudited) continued
Number | Value | |||||||
Security | of Shares | ($) | ||||||
General Mills, Inc. | 336 | 11,935 | ||||||
H.J. Heinz Co. | 158 | 6,829 | ||||||
Hormel Foods Corp. | 50 | 2,024 | ||||||
Kellogg Co. | 118 | 5,935 | ||||||
Kraft Foods, Inc., Class A | 883 | 24,724 | ||||||
Lorillard, Inc. | 74 | 5,327 | ||||||
McCormick & Co., Inc. - Non Voting Shares | 63 | 2,391 | ||||||
Mead Johnson Nutrition Co. | 100 | 5,012 | ||||||
Molson Coors Brewing Co., Class B | 50 | 2,118 | ||||||
PepsiCo, Inc. | 803 | 48,943 | ||||||
Philip Morris International, Inc. | 887 | 40,660 | ||||||
Reynolds American, Inc. | 80 | 4,170 | ||||||
Sara Lee Corp. | 359 | 5,062 | ||||||
The Coca-Cola Co. | 974 | 48,817 | ||||||
The Hershey Co. | 84 | 4,026 | ||||||
The J.M. Smucker Co. | 126 | 7,588 | ||||||
Tyson Foods, Inc., Class A | 99 | 1,623 | ||||||
276,254 | ||||||||
Health Care Equipment & Services 0.6% | ||||||||
Aetna, Inc. | 268 | 7,070 | ||||||
AmerisourceBergen Corp. | 196 | 6,223 | ||||||
Baxter International, Inc. | 306 | 12,436 | ||||||
Becton Dickinson & Co. | 118 | 7,979 | ||||||
Boston Scientific Corp. * | 545 | 3,161 | ||||||
C.R. Bard, Inc. | 50 | 3,877 | ||||||
Cardinal Health, Inc. | 199 | 6,688 | ||||||
CareFusion Corp. * | 99 | 2,247 | ||||||
Cerner Corp. * | 50 | 3,795 | ||||||
CIGNA Corp. | 174 | 5,404 | ||||||
Coventry Health Care, Inc. * | 75 | 1,326 | ||||||
DENTSPLY International, Inc. | 100 | 2,991 | ||||||
Express Scripts, Inc. * | 280 | 13,166 | ||||||
Hospira, Inc. * | 77 | 4,424 | ||||||
Humana, Inc. * | 78 | 3,562 | ||||||
Intuitive Surgical, Inc. * | 20 | 6,312 | ||||||
Laboratory Corp. of America Holdings * | 60 | 4,521 | ||||||
McKesson Corp. | 144 | 9,671 | ||||||
Medco Health Solutions, Inc. * | 290 | 15,973 | ||||||
Medtronic, Inc. | 571 | 20,710 | ||||||
Patterson Cos., Inc. | 66 | 1,883 | ||||||
Quest Diagnostics, Inc. | 76 | 3,783 | ||||||
St. Jude Medical, Inc. * | 173 | 6,244 | ||||||
Stryker Corp. | 139 | 6,958 | ||||||
Tenet Healthcare Corp. * | 223 | 968 | ||||||
UnitedHealth Group, Inc. | 641 | 18,204 | ||||||
Varian Medical Systems, Inc. * | 60 | 3,137 | ||||||
WellPoint, Inc. * | 312 | 15,266 | ||||||
Zimmer Holdings, Inc. * | 118 | 6,378 | ||||||
204,357 | ||||||||
Household & Personal Products 0.4% | ||||||||
Avon Products, Inc. | 214 | 5,671 | ||||||
Colgate-Palmolive Co. | 243 | 19,139 | ||||||
Kimberly-Clark Corp. | 219 | 13,278 | ||||||
The Clorox Co. | 72 | 4,475 | ||||||
The Estee Lauder Cos., Inc., Class A | 57 | 3,177 | ||||||
The Procter & Gamble Co. | 1,483 | 88,950 | ||||||
134,690 | ||||||||
Insurance 0.5% | ||||||||
Aflac, Inc. | 235 | 10,027 | ||||||
American International Group, Inc. * | 61 | 2,101 | ||||||
Aon Corp. | 153 | 5,679 | ||||||
Assurant, Inc. | 80 | 2,776 | ||||||
Berkshire Hathaway, Inc., Class B * | 811 | 64,629 | ||||||
Cincinnati Financial Corp. | 83 | 2,147 | ||||||
Genworth Financial, Inc., Class A * | 179 | 2,340 | ||||||
Lincoln National Corp. | 134 | 3,255 | ||||||
Loews Corp. | 89 | 2,965 | ||||||
Marsh & McLennan Cos., Inc. | 258 | 5,818 | ||||||
MetLife, Inc. | 358 | 13,518 | ||||||
Principal Financial Group, Inc. | 132 | 3,094 | ||||||
Prudential Financial, Inc. | 234 | 12,556 | ||||||
The Allstate Corp. | 305 | 8,763 | ||||||
The Chubb Corp. | 190 | 9,502 | ||||||
The Hartford Financial Services Group, Inc. | 144 | 3,187 | ||||||
The Progressive Corp. | 376 | 7,039 | ||||||
The Travelers Cos., Inc. | 329 | 16,203 | ||||||
Torchmark Corp. | 50 | 2,475 | ||||||
Unum Group | 142 | 3,081 | ||||||
XL Group plc | 83 | 1,329 | ||||||
182,484 | ||||||||
Materials 0.4% | ||||||||
Air Products & Chemicals, Inc. | 106 | 6,870 | ||||||
Airgas, Inc. | 40 | 2,488 | ||||||
AK Steel Holding Corp. | 75 | 894 | ||||||
Alcoa, Inc. | 412 | 4,145 | ||||||
Allegheny Technologies, Inc. | 40 | 1,768 | ||||||
Ashland, Inc. | 39 | 1,810 | ||||||
Ball Corp. | 50 | 2,641 | ||||||
Bemis Co., Inc. | 50 | 1,350 | ||||||
CF Industries Holdings, Inc. | 25 | 1,586 | ||||||
Cliffs Natural Resources, Inc. | 100 | 4,716 | ||||||
E.I. du Pont de Nemours & Co. | 435 | 15,047 | ||||||
Eastman Chemical Co. | 39 | 2,081 | ||||||
Ecolab, Inc. | 87 | 3,907 | ||||||
FMC Corp. | 30 | 1,723 | ||||||
Freeport-McMoRan Copper & Gold, Inc. | 152 | 8,988 | ||||||
International Flavors & Fragrances, Inc. | 38 | 1,612 | ||||||
International Paper Co. | 234 | 5,295 | ||||||
MeadWestvaco Corp. | 86 | 1,909 | ||||||
Monsanto Co. | 254 | 11,740 | ||||||
Newmont Mining Corp. | 211 | 13,027 | ||||||
Nucor Corp. | 146 | 5,589 | ||||||
Owens-Illinois, Inc. * | 100 | 2,645 | ||||||
Pactiv Corp. * | 68 | 1,894 | ||||||
PPG Industries, Inc. | 79 | 4,772 | ||||||
Praxair, Inc. | 152 | 11,550 | ||||||
Sealed Air Corp. | 78 | 1,538 | ||||||
Sigma-Aldrich Corp. | 78 | 3,887 | ||||||
The Dow Chemical Co. | 457 | 10,840 | ||||||
The Sherwin-Williams Co. | 53 | 3,667 |
See financial notes 9
Schwab MarketTrack Growth Portfolio II
Portfolio Holdings (Unaudited) continued
Number | Value | |||||||
Security | of Shares | ($) | ||||||
Titanium Metals Corp. * | 50 | 880 | ||||||
United States Steel Corp. | 52 | 2,005 | ||||||
Vulcan Materials Co. | 48 | 2,104 | ||||||
Weyerhaeuser Co. | 116 | 4,083 | ||||||
149,051 | ||||||||
Media 0.5% | ||||||||
CBS Corp., Class B - Non Voting Shares | 396 | 5,120 | ||||||
Comcast Corp., Class A | 1,516 | 26,333 | ||||||
DIRECTV, Class A * | 500 | 16,960 | ||||||
Discovery Communications, Inc., Class A * | 200 | 7,142 | ||||||
Gannett Co., Inc. | 112 | 1,508 | ||||||
Meredith Corp. | 20 | 623 | ||||||
News Corp., Class A | 1,135 | 13,575 | ||||||
Omnicom Group, Inc. | 168 | 5,762 | ||||||
Scripps Networks Interactive, Class A | 41 | 1,654 | ||||||
The Interpublic Group of Cos., Inc. * | 204 | 1,455 | ||||||
The McGraw-Hill Cos., Inc. | 173 | 4,868 | ||||||
The New York Times Co., Class A * | 74 | 640 | ||||||
The Walt Disney Co. | 911 | 28,696 | ||||||
The Washington Post, Class B | 2 | 821 | ||||||
Time Warner Cable, Inc. | 161 | 8,385 | ||||||
Time Warner, Inc. | 643 | 18,589 | ||||||
Viacom Inc., Class B | 365 | 11,450 | ||||||
153,581 | ||||||||
Pharmaceuticals, Biotechnology & Life Sciences 1.1% | ||||||||
Abbott Laboratories | 729 | 34,103 | ||||||
Allergan, Inc. | 142 | 8,273 | ||||||
Amgen, Inc. * | 552 | 29,035 | ||||||
Biogen Idec, Inc. * | 162 | 7,687 | ||||||
Bristol-Myers Squibb Co. | 926 | 23,094 | ||||||
Celgene Corp. * | 100 | 5,082 | ||||||
Cephalon, Inc. * | 70 | 3,972 | ||||||
Eli Lilly & Co. | 534 | 17,889 | ||||||
Forest Laboratories, Inc. * | 155 | 4,252 | ||||||
Genzyme Corp. * | 122 | 6,194 | ||||||
Gilead Sciences, Inc. * | 436 | 14,946 | ||||||
Johnson & Johnson | 1,408 | 83,156 | ||||||
King Pharmaceuticals, Inc. * | 115 | 873 | ||||||
Life Technologies Corp. * | 38 | 1,795 | ||||||
Merck & Co., Inc. | 1,438 | 50,287 | ||||||
Millipore Corp. * | 25 | 2,666 | ||||||
Mylan, Inc. * | 104 | 1,772 | ||||||
PerkinElmer, Inc. | 62 | 1,282 | ||||||
Pfizer, Inc. | 4,106 | 58,552 | ||||||
Thermo Fisher Scientific, Inc. * | 195 | 9,565 | ||||||
Waters Corp. * | 49 | 3,170 | ||||||
Watson Pharmaceuticals, Inc. * | 49 | 1,988 | ||||||
369,633 | ||||||||
Real Estate 0.1% | ||||||||
Apartment Investment & Management Co., Class A | 65 | 1,259 | ||||||
AvalonBay Communities, Inc. | 31 | 2,895 | ||||||
Boston Properties, Inc. | 43 | 3,068 | ||||||
CB Richard Ellis Group, Inc., Class A * | 80 | 1,089 | ||||||
Equity Residential | 138 | 5,746 | ||||||
HCP, Inc. | 100 | 3,225 | ||||||
Health Care REIT, Inc. | 100 | 4,212 | ||||||
Host Hotels & Resorts, Inc. | 204 | 2,750 | ||||||
Kimco Realty Corp. | 101 | 1,357 | ||||||
Plum Creek Timber Co., Inc. | 88 | 3,039 | ||||||
ProLogis | 116 | 1,175 | ||||||
Public Storage | 40 | 3,516 | ||||||
Simon Property Group, Inc. | 88 | 7,106 | ||||||
Ventas, Inc. | 100 | 4,695 | ||||||
Vornado Realty Trust | 58 | 4,231 | ||||||
49,363 | ||||||||
Retailing 0.5% | ||||||||
Abercrombie & Fitch Co., Class A | 50 | 1,534 | ||||||
Amazon.com, Inc. * | 146 | 15,952 | ||||||
AutoNation, Inc. * | 70 | 1,365 | ||||||
AutoZone, Inc. * | 27 | 5,217 | ||||||
Bed Bath & Beyond, Inc. * | 132 | 4,895 | ||||||
Best Buy Co., Inc. | 192 | 6,501 | ||||||
Big Lots, Inc. * | 88 | 2,824 | ||||||
CarMax, Inc. * | 100 | 1,990 | ||||||
Dillard’s, Inc., Class A | 30 | 645 | ||||||
Expedia, Inc. | 100 | 1,878 | ||||||
Family Dollar Stores, Inc. | 74 | 2,789 | ||||||
GameStop Corp., Class A * | 100 | 1,879 | ||||||
Genuine Parts Co. | 81 | 3,195 | ||||||
J.C. Penney Co., Inc. | 109 | 2,341 | ||||||
Kohl’s Corp. * | 164 | 7,790 | ||||||
Limited Brands, Inc. | 165 | 3,641 | ||||||
Lowe’s Cos., Inc. | 738 | 15,070 | ||||||
Macy’s, Inc. | 256 | 4,582 | ||||||
Nordstrom, Inc. | 103 | 3,316 | ||||||
O’Reilly Automotive, Inc. * | 100 | 4,756 | ||||||
Office Depot, Inc. * | 139 | 562 | ||||||
Priceline.com, Inc. * | 20 | 3,531 | ||||||
RadioShack Corp. | 11 | 215 | ||||||
Ross Stores, Inc. | 100 | 5,329 | ||||||
Sears Holdings Corp. * | 48 | 3,103 | ||||||
Staples, Inc. | 344 | 6,553 | ||||||
Target Corp. | 417 | 20,504 | ||||||
The Gap, Inc. | 271 | 5,274 | ||||||
The Home Depot, Inc. | 899 | 25,235 | ||||||
The TJX Cos., Inc. | 217 | 9,103 | ||||||
Tiffany & Co. | 68 | 2,578 | ||||||
Urban Outfitters, Inc. * | 40 | 1,376 | ||||||
175,523 | ||||||||
Semiconductors & Semiconductor Equipment 0.4% | ||||||||
Advanced Micro Devices, Inc. * | 228 | 1,669 | ||||||
Altera Corp. | 171 | 4,242 | ||||||
Analog Devices, Inc. | 174 | 4,848 | ||||||
Applied Materials, Inc. | 750 | 9,015 | ||||||
Broadcom Corp., Class A | 208 | 6,858 | ||||||
First Solar, Inc. * | 30 | 3,415 | ||||||
Intel Corp. | 2,783 | 54,129 | ||||||
KLA-Tencor Corp. | 95 | 2,648 | ||||||
Linear Technology Corp. | 144 | 4,005 |
10 See financial notes
Schwab MarketTrack Growth Portfolio II
Portfolio Holdings (Unaudited) continued
Number | Value | |||||||
Security | of Shares | ($) | ||||||
LSI Corp. * | 186 | 856 | ||||||
MEMC Electronic Materials, Inc. * | 100 | 988 | ||||||
Microchip Technology, Inc. | 100 | 2,774 | ||||||
Micron Technology, Inc. * | 319 | 2,708 | ||||||
National Semiconductor Corp. | 159 | 2,140 | ||||||
Novellus Systems, Inc. * | 64 | 1,623 | ||||||
NVIDIA Corp. * | 241 | 2,461 | ||||||
Teradyne, Inc. * | 94 | 916 | ||||||
Texas Instruments, Inc. | 757 | 17,623 | ||||||
Xilinx, Inc. | 164 | 4,143 | ||||||
127,061 | ||||||||
Software & Services 1.2% | ||||||||
Adobe Systems, Inc. * | 283 | 7,480 | ||||||
Akamai Technologies, Inc. * | 100 | 4,057 | ||||||
Autodesk, Inc. * | 110 | 2,680 | ||||||
Automatic Data Processing, Inc. | 274 | 11,031 | ||||||
BMC Software, Inc. * | 101 | 3,498 | ||||||
CA, Inc. | 215 | 3,956 | ||||||
Citrix Systems, Inc. * | 85 | 3,590 | ||||||
Cognizant Technology Solutions Corp., Class A * | 120 | 6,007 | ||||||
Computer Sciences Corp. | 89 | 4,027 | ||||||
Compuware Corp. * | 182 | 1,452 | ||||||
eBay, Inc. * | 545 | 10,687 | ||||||
Electronic Arts, Inc. * | 143 | 2,059 | ||||||
Fidelity National Information Services, Inc. | 70 | 1,877 | ||||||
Fiserv, Inc. * | 88 | 4,018 | ||||||
Google, Inc., Class A * | 96 | 42,715 | ||||||
International Business Machines Corp. | 741 | 91,499 | ||||||
Intuit, Inc. * | 166 | 5,772 | ||||||
MasterCard, Inc., Class A | 40 | 7,981 | ||||||
McAfee, Inc. * | 100 | 3,072 | ||||||
Microsoft Corp. | 4,204 | 96,734 | ||||||
Monster Worldwide, Inc. * | 60 | 699 | ||||||
Novell, Inc. * | 185 | 1,051 | ||||||
Oracle Corp. | 1,784 | 38,285 | ||||||
Paychex, Inc. | 159 | 4,129 | ||||||
Red Hat, Inc. * | 100 | 2,894 | ||||||
SAIC, Inc. * | 200 | 3,348 | ||||||
Salesforce.com, Inc. * | 75 | 6,437 | ||||||
Symantec Corp. * | 493 | 6,843 | ||||||
Teradata Corp. * | 87 | 2,652 | ||||||
Total System Services, Inc. | 100 | 1,360 | ||||||
VeriSign, Inc. * | 116 | 3,080 | ||||||
Visa, Inc., Class A | 200 | 14,150 | ||||||
Western Union Co. | 362 | 5,397 | ||||||
Yahoo!, Inc. * | 598 | 8,270 | ||||||
412,787 | ||||||||
Technology Hardware & Equipment 1.0% | ||||||||
Agilent Technologies, Inc. * | 202 | 5,743 | ||||||
Amphenol Corp., Class A | 100 | 3,928 | ||||||
Apple, Inc. * | 402 | 101,115 | ||||||
Aviat Networks, Inc. * | 24 | 87 | ||||||
Cisco Systems, Inc. * | 2,910 | 62,012 | ||||||
Corning, Inc. | 731 | 11,806 | ||||||
Dell, Inc. * | 1,113 | 13,423 | ||||||
EMC Corp. * | 1,124 | 20,569 | ||||||
FLIR Systems, Inc. * | 100 | 2,909 | ||||||
Harris Corp. | 100 | 4,165 | ||||||
Hewlett-Packard Co. | 1,338 | 57,909 | ||||||
Jabil Circuit, Inc. | 83 | 1,104 | ||||||
JDS Uniphase Corp. * | 99 | 974 | ||||||
Juniper Networks, Inc. * | 200 | 4,564 | ||||||
Lexmark International, Inc., Class A * | 52 | 1,718 | ||||||
Molex, Inc. | 68 | 1,240 | ||||||
Motorola, Inc. * | 1,182 | 7,707 | ||||||
NetApp, Inc. * | 178 | 6,641 | ||||||
QLogic Corp. * | 76 | 1,263 | ||||||
QUALCOMM, Inc. | 783 | 25,714 | ||||||
SanDisk Corp. * | 88 | 3,702 | ||||||
Tellabs, Inc. | 214 | 1,367 | ||||||
Western Digital Corp. * | 100 | 3,016 | ||||||
Xerox Corp. | 711 | 5,716 | ||||||
348,392 | ||||||||
Telecommunication Services 0.4% | ||||||||
American Tower Corp., Class A * | 200 | 8,900 | ||||||
AT&T, Inc. | 2,961 | 71,627 | ||||||
CenturyLink, Inc. | 150 | 4,996 | ||||||
Frontier Communications Corp. | 156 | 1,109 | ||||||
MetroPCS Communications, Inc. * | 100 | 819 | ||||||
Qwest Communications International, Inc. | 735 | 3,859 | ||||||
Sprint Nextel Corp. * | 1,405 | 5,957 | ||||||
Verizon Communications, Inc. | 1,384 | 38,780 | ||||||
Windstream Corp. | 189 | 1,996 | ||||||
138,043 | ||||||||
Transportation 0.3% | ||||||||
C.H. Robinson Worldwide, Inc. | 100 | 5,566 | ||||||
CSX Corp. | 206 | 10,224 | ||||||
Expeditors International of Washington, Inc. | 100 | 3,451 | ||||||
FedEx Corp. | 143 | 10,026 | ||||||
Norfolk Southern Corp. | 196 | 10,398 | ||||||
Ryder System, Inc. | 29 | 1,167 | ||||||
Southwest Airlines Co. | 336 | 3,733 | ||||||
Union Pacific Corp. | 250 | 17,377 | ||||||
United Parcel Service, Inc., Class B | 516 | 29,355 | ||||||
91,297 | ||||||||
Utilities 0.5% | ||||||||
Allegheny Energy, Inc. | 78 | 1,613 | ||||||
Ameren Corp. | 96 | 2,282 | ||||||
American Electric Power Co., Inc. | 187 | 6,040 | ||||||
CenterPoint Energy, Inc. | 147 | 1,934 | ||||||
CMS Energy Corp. | 105 | 1,538 | ||||||
Consolidated Edison, Inc. | 117 | 5,043 | ||||||
Constellation Energy Group, Inc. | 85 | 2,741 | ||||||
Dominion Resources, Inc. | 278 | 10,770 | ||||||
DTE Energy Co. | 85 | 3,877 | ||||||
Duke Energy Corp. | 586 | 9,376 | ||||||
Edison International | 155 | 4,917 | ||||||
Entergy Corp. | 98 | 7,019 | ||||||
EQT Corp. | 100 | 3,614 |
See financial notes 11
Schwab MarketTrack Growth Portfolio II
Portfolio Holdings (Unaudited) continued
Number | Value | |||||||
Security | of Shares | ($) | ||||||
Exelon Corp. | 315 | 11,961 | ||||||
FirstEnergy Corp. | 157 | 5,531 | ||||||
Integrys Energy Group, Inc. | 15 | 656 | ||||||
NextEra Energy, Inc. | 190 | 9,264 | ||||||
Nicor, Inc. | 32 | 1,296 | ||||||
NiSource, Inc. | 130 | 1,885 | ||||||
Northeast Utilities | 100 | 2,548 | ||||||
NRG Energy, Inc. * | 100 | 2,121 | ||||||
ONEOK, Inc. | 100 | 4,325 | ||||||
Pepco Holdings, Inc. | 100 | 1,568 | ||||||
PG&E Corp. | 163 | 6,699 | ||||||
Pinnacle West Capital Corp. | 47 | 1,709 | ||||||
PPL Corp. | 179 | 4,466 | ||||||
Progress Energy, Inc. | 120 | 4,706 | ||||||
Public Service Enterprise Group, Inc. | 236 | 7,394 | ||||||
Questar Corp. | 80 | 3,639 | ||||||
SCANA Corp. | 100 | 3,576 | ||||||
Sempra Energy | 123 | 5,755 | ||||||
Southern Co. | 350 | 11,648 | ||||||
TECO Energy, Inc. | 99 | 1,492 | ||||||
The AES Corp. * | 311 | 2,874 | ||||||
Wisconsin Energy Corp. | 100 | 5,074 | ||||||
Xcel Energy, Inc. | 192 | 3,957 | ||||||
164,908 | ||||||||
Total Common Stock | ||||||||
(Cost $3,238,650) | 4,608,082 | |||||||
Other Investment Companies 84.6% of net assets | ||||||||
Schwab International Index Fund (a) | 470,059 | 6,674,843 | ||||||
Schwab S&P 500 Index Fund (a) | 538,760 | 8,722,528 | ||||||
Schwab Small-Cap Index Fund (a) | 399,668 | 6,618,502 | ||||||
Schwab Total Bond Market Fund (a) | 574,203 | 5,311,377 | ||||||
Schwab Value Advantage Money Fund, Institutional Prime Shares (a) | 1,084,020 | 1,084,020 | ||||||
Total Other Investment Companies | ||||||||
(Cost $29,043,842) | 28,411,270 | |||||||
Issuer | Face Amount | Value | ||||||
Rate, Maturity Date | ($) | ($) | ||||||
Short-Term Investment 1.8% of net assets | ||||||||
Time Deposit 1.8% | ||||||||
Wells Fargo | ||||||||
0.03%, 07/01/10 | 616,960 | 616,960 | ||||||
Total Short-Term Investment | ||||||||
(Cost $616,960) | 616,960 | |||||||
End of Investments. |
At 06/30/10, the tax basis cost of the fund’s investments was $33,611,877 and the unrealized appreciation and depreciation were $1,860,899 and ($1,836,464), respectively, with a net unrealized appreciation of $24,435.
* | Non-income producing security. | |
(a) | Issuer is affiliated with the fund’s adviser. |
REIT — | Real Estate Investment Trust. |
12 See financial notes
Schwab MarketTrack Growth Portfolio II
Statement of
Assets and Liabilities
As of June 30, 2010; unaudited.
Assets | ||||||
Investments in affiliated underlying funds and stocks, at value (cost $29,046,716) | $28,418,189 | |||||
Investments in unaffiliated issuers, at value (cost $3,852,736) | + | 5,218,123 | ||||
Total investments, at value (cost $32,899,452) | 33,636,312 | |||||
Receivables: | ||||||
Dividends | 20,548 | |||||
Fund shares sold | 7,357 | |||||
Interest | 1 | |||||
Prepaid expenses | + | 228 | ||||
Total assets | 33,664,446 | |||||
Liabilities | ||||||
Payables: | ||||||
Investments bought | 14,341 | |||||
Investment adviser and administrator fees | 469 | |||||
Accrued expenses | + | 33,018 | ||||
Total liabilities | 47,828 | |||||
Net Assets | ||||||
Total assets | 33,664,446 | |||||
Total liabilities | − | 47,828 | ||||
Net assets | $33,616,618 | |||||
Net Assets by Source | ||||||
Capital received from investors | 35,778,610 | |||||
Net investment income not yet distributed | 682,297 | |||||
Net realized capital losses | (3,581,438 | ) | ||||
Net unrealized capital gains | 737,149 | |||||
Net Asset Value (NAV) |
Shares | ||||||||||||
Net Assets | ÷ | Outstanding | = | NAV | ||||||||
$33,616,618 | 2,645,544 | $12.71 |
See financial notes 13
Schwab MarketTrack Growth Portfolio II
Statement of
Operations
For January 1, 2010 through June 30, 2010; unaudited.
Investment Income | ||||||
Dividends received from affiliated underlying funds and stocks | $90,819 | |||||
Dividends received from unaffiliated issuers (net of foreign withholding taxes of $2) | 49,612 | |||||
Interest | + | 232 | ||||
Total investment income | 140,663 | |||||
Expenses | ||||||
Investment adviser fees | 78,894 | |||||
Professional fees | 18,801 | |||||
Shareholder reports | 14,706 | |||||
Accounting and administration fees | 10,747 | |||||
Trustees’ fees | 7,125 | |||||
Transfer agent fees | 3,181 | |||||
Custodian fees | 1,909 | |||||
Other expenses | + | 1,185 | ||||
Total expenses | 136,548 | |||||
Expense reduction by adviser and Schwab | − | 46,875 | ||||
Net expenses | − | 89,673 | ||||
Net investment income | 50,990 | |||||
Realized and Unrealized Gains (Losses) | ||||||
Net realized losses on sales of affiliated underlying funds | (220,284 | ) | ||||
Net realized gains on unaffiliated investments | + | 10,428 | ||||
Net realized losses | (209,856 | ) | ||||
Net unrealized gains on affiliated underlying funds and stocks | (1,365,256 | ) | ||||
Net unrealized losses on unaffiliated investments | + | (376,879 | ) | |||
Net unrealized losses | + | (1,742,135 | ) | |||
Net realized and unrealized losses | (1,951,991 | ) | ||||
Decrease in net assets resulting from operations | ($1,901,001 | ) |
14 See financial notes
Schwab MarketTrack Growth Portfolio II
Statements of
Changes in Net Assets
For the current and prior report periods.
Figures for the current period are unaudited.
Figures for the current period are unaudited.
Operations | ||||||||||
1/1/10-6/30/10 | 1/1/09-12/31/09 | |||||||||
Net investment income | $50,990 | $631,187 | ||||||||
Net realized losses | (209,856 | ) | (1,838,139 | ) | ||||||
Net unrealized gains (losses) | + | (1,742,135 | ) | 8,016,849 | ||||||
Increase (Decrease) in net assets from operations | (1,901,001 | ) | 6,809,897 | |||||||
Distributions to Shareholders | ||||||||||
Distributions from net investment income | $— | $911,590 |
Transactions in Fund Shares
1/1/10-6/30/10 | 1/1/09-12/31/09 | |||||||||||||||||
SHARES | VALUE | SHARES | VALUE | |||||||||||||||
Shares sold | 161,603 | $2,238,313 | 356,758 | $4,183,221 | ||||||||||||||
Shares reinvested | — | — | 69,059 | 911,590 | ||||||||||||||
Shares redeemed | + | (194,385 | ) | (2,606,412 | ) | (495,310 | ) | (5,589,707 | ) | |||||||||
Net transactions in fund shares | (32,782 | ) | ($368,099 | ) | (69,493 | ) | ($494,896 | ) | ||||||||||
Shares Outstanding and Net Assets | ||||||||||||||||||
1/1/10-6/30/10 | 1/1/09-12/31/09 | |||||||||||||||||
SHARES | NET ASSETS | SHARES | NET ASSETS | |||||||||||||||
Beginning of period | 2,678,326 | $35,885,718 | 2,747,819 | $30,482,307 | ||||||||||||||
Total increase or decrease | + | (32,782 | ) | (2,269,100 | ) | (69,493 | ) | 5,403,411 | ||||||||||
End of period | 2,645,544 | $33,616,618 | 2,678,326 | $35,885,718 | ||||||||||||||
Net investment income not yet distributed | $682,297 | $631,307 |
See financial notes 15
Schwab MarketTrack Growth Portfolio II
Financial Notes, unaudited
1. Business Structure of the Fund:
Schwab MarketTrack Growth Portfolio II is a series of Schwab Annuity Portfolios, (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 including the fund discussed in this report, which is highlighted:
Schwab Annuity Portfolios (organized January 21, 1994) Schwab Money Market Portfolio Schwab MarketTrack Growth Portfolio II Schwab S&P 500 Index Portfolio | ||
The Schwab MarketTrack Growth Portfolio II is primarily a “fund of funds” as it invests a major portion of its assets in a combination of other Schwab Funds (underlying funds) to achieve its investment objectives and maintain its asset allocation. In addition, the fund may purchase individual securities to achieve its investment objectives. The fund bears its share of the allocable expenses of the underlying funds in which it invests. Such expenses are reflected in the net assets value of the underlying fund.
Schwab MarketTrack Growth Portfolio II offers one share class. Shares are bought and sold at closing net asset value (“NAV”) which is the price for all outstanding shares of the fund. Each share has a par value of 1/1,000 of a cent, and the trustees may authorize the issuance of as many shares as necessary.
The fund is intended as an investment vehicle for variable annuity contracts and variable life insurance policies to be offered by separate accounts of participating life insurance companies and for pension and retirement plans qualified under the Internal Revenue Code of 1986, as amended.
The fund maintains its own account for purposes of holding assets and accounting, and is considered a separate entity for tax purposes. Within its account, the fund may also keep certain assets in segregated accounts, as required by securities laws.
2. Significant Accounting Policies:
The following is a summary of the significant accounting policies the fund uses in its preparation of financial statements. The accounting policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
(a) Security Valuation:
The fund values the securities in its portfolio every business day. The fund uses the following policies to value various types of securities:
• | Securities traded on an exchange or over-the-counter: valued at the closing value for the day, or, on days when no closing value has been reported, halfway between the most recent bid and asked quotes. Securities that are primarily traded on foreign exchanges are valued at the closing values of such securities on their respective exchanges with these values then translated into U.S. dollars at the valuation date exchange rate. | |
• | Securities for which no quoted value is available: The Board of Trustees has adopted procedures to fair value the fund’s securities when market prices are not “readily available” or are unreliable. For example, the fund may fair value a security when a security is de-listed or its trading is halted or suspended; when a security’s primary pricing source is unable or unwilling to provide a price; or when a security’s primary trading market is closed during regular market hours. Each fund makes fair value determinations in good faith in accordance with the fund’s valuation procedures. The Board of Trustees regularly reviews fair value determinations made by the fund pursuant to the procedures. | |
• | Underlying funds: valued at their respective net asset values as determined by the underlying funds in accordance with the 1940 Act for a given day. | |
• | Short-term securities (60 days or less to maturity): valued at amortized cost, which approximates market value. |
In accordance with the authoritative guidance on fair value measurements and disclosures under GAAP, the fund discloses the fair value of its investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure the fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or
16
Schwab MarketTrack Growth Portfolio II
Financial Notes, unaudited (continued)
2. Significant Accounting Policies (continued):
liabilities (level 1 measurement) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (level 3 measurements).
The fund adopted the authoritative guidance under GAAP on determining fair value when the volume and level of activity for the asset or liability have significantly decreased and identifying transactions that are not orderly. Accordingly, if the fund determines that either the volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and management judgment will be required to estimate fair value.
The guidance establishes three levels of the fair value hierarchy as follows:
• | Level 1 — quoted prices in active markets for identical securities — Investments whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 prices, include active listed equities. The fund does not adjust the quoted price for such instruments, even in situations where the fund holds a large position and a sale could reasonably impact the quoted prices. | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) — Investments that trade in markets that are not considered to be active, but whose values are based on quoted market prices, dealer quotations or valuations provided by alternative pricing sources supported by observable inputs are classified as Level 2 prices. These generally include certain U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage products, less liquid listed equities, and state, municipal and provincial obligations. In addition, international securities whose markets close hours before the fund values its holdings may require fair valuations due to significant movement in the U.S. markets occurring after the daily close of the foreign markets. The Board of Trustees has approved a vendor that would calculate fair valuations of international equity securities based on a number of factors that appear to correlate to the movements in the U.S. markets. As investments whose values are classified as Level 2 prices include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or nontransferability, which are generally based on available market information. | |
• | Level 3 — significant unobservable inputs (including the fund’s own assumption in determining the fair value of investments) — Investments whose values are classified as Level 3 prices have significant unobservable inputs, as they may trade infrequently or not at all. When observable prices are not available for these securities, the fund uses one or more valuation techniques for which sufficient and reliable data is available. The inputs used by the fund in estimating the value of Level 3 prices may include the original transaction price, quoted prices for similar securities or assets in active markets, completed or pending third-party transactions in the underlying investment or comparable issuers, and changes in financial ratios or cash flows. Level 3 prices may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the fund in the absence of market information. Assumptions used by the fund due to the lack of observable inputs may significantly impact the resulting fair value and therefore the fund’s results of operations. |
17
Schwab MarketTrack Growth Portfolio II
Financial Notes, unaudited (continued)
2. Significant Accounting Policies (continued):
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following is a summary of the inputs used to value the fund’s investments as of June 30, 2010:
Schwab MarketTrack Growth Portfolio II
Quoted Prices in | Significant | |||||||||||||||
Active Markets for | Significant Other | Unobservable | ||||||||||||||
Identical Assets | Observable Inputs | Inputs | ||||||||||||||
Description | (Level 1) | (Level 2) | (Level 3) | Total* | ||||||||||||
Common Stock(a) | $4,608,082 | $— | $— | $4,608,082 | ||||||||||||
Other Investment Companies | 28,411,270 | — | — | 28,411,270 | ||||||||||||
Short-Term Investment(a) | — | 616,960 | — | 616,960 | ||||||||||||
Total | $33,019,352 | $616,960 | $— | $33,636,312 | ||||||||||||
* | The fund had no Other Financial Investments. | |
(a) | As categorized in Portfolio Holdings. |
(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.
Assets and liabilities denominated in foreign currencies are reported in U.S. dollars. For assets and liabilities held on a given date, the dollar value is based on market exchange rates in effect on that date. Transactions involving foreign currencies, including purchases, sales, income receipts and expense payments, are calculated using exchange rates in effect on the transaction date. The fund does not isolate the portion of the fluctuations on investments resulting from changes in foreign currency exchange rates from the fluctuations in market prices of investments held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.
(c) Investment Income:
Interest income is recorded as it accrues. Dividends and distributions from portfolio securities and underlying funds are recorded on the date they are effective (the ex-dividend date), although the fund records certain foreign security dividends on the day it learns of the ex-dividend date.
Income received from foreign sources may result in withholding tax. Withholding taxes are accrued at the same time as the related income if the tax rate is fixed and known, unless a tax withheld is reclaimable from the local tax authorities in which case it is recorded as receivable. If the tax rate is not known or estimable, such expense or reclaim receivable is recorded when the note proceeds are received.
(d) Expenses:
Expenses that are specific to a fund are charged directly to the fund. Expenses that are common to all fund’s within the trust generally are allocated among the fund’s in proportion to their average daily net assets.
(e) Distributions to Shareholders:
The fund makes distributions from net investment income and net realized capital gains, if any, once a year.
(f) Accounting Estimates:
The accounting policies described in this report conform to accounting principles generally accepted in the United States of America. Notwithstanding this, shareholders should understand that in order to follow these principles, fund management has to make estimates and assumptions that affect the information reported in the financial statements. It’s possible that once the results are known, they may turn out to be different from these estimates.
18
Schwab MarketTrack Growth Portfolio II
Financial Notes, unaudited (continued)
2. Significant Accounting Policies (continued):
(g) Federal Income Taxes:
The fund intends to meet federal income and excise tax requirements for regulated investment companies. Accordingly, the fund distributes substantially all of its net investment income and realized net capital gains, if any, to the participating insurance company’s (shareholders) separate accounts each year. As long as the fund meets the tax requirements, it is not required to pay federal income tax.
(h) Indemnification:
Under the fund’s organizational documents, the officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the fund. In addition, in the normal course of business the fund enters into contracts with its vendors and others that provide general indemnifications. The fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the fund. However, based on experience, the fund expects the risk of loss to be remote.
3. Risk Factors:
Investing in the fund may involve certain risks as discussed in the fund’s prospectus, including, but not limited to, those described below:
The fund is subject to asset allocation risk, which is the risk that the selection of the underlying funds and the allocation of the fund’s assets among the various asset classes and market segments will cause the fund to underperform other funds with a similar investment objective.
Stock and bond markets rise and fall daily. As with any investment whose performance is tied to these markets, the value of your investment in the fund will fluctuate, which means that you could lose money.
The value of your investment in the fund is based primarily on the prices of the underlying funds that the fund purchases. In turn, the price of each underlying fund is based on the value of its securities. Before investing in the fund, investors should assess the risks associated with the underlying funds in which the fund may invest and the types of investments made by those underlying funds. These risks include any combination of the risks described below, although the fund’s exposure to a particular risk will be proportionate to the fund’s overall asset allocation and underlying fund allocation.
An investment in an underlying fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The fund may experience losses with respect to its investment in an underlying fund. Further, there is no guarantee that an underlying fund will be able to achieve its objective.
The underlying funds seek to track the performance of various segments of the stock market, as measured by their respective indices. Each underlying fund follows these stocks during upturns as well as downturns. Because of their indexing strategy, the underlying funds do not take steps to reduce market exposure or to lessen the effects of a declining market. In addition, because of an underlying fund’s expenses, the underlying fund’s performance is normally below that of the index.
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, the equity market tends to move in cycles which may cause stock prices to fall over short or extended periods of time.
As an index fund, each underlying fund seeks to track the performance of its benchmark indices, although it may not be successful in doing so. The divergence between the performance of a fund and its benchmark index, positive or negative, is called “tracking error.” Tracking error can be caused by many factors and it may be significant.
Many of the risks of the underlying funds are associated with its investment in the large-cap segments of the stock market. Large-cap stocks tend to go in and out of favor based on market and economic conditions. During a period when large-cap stocks fall behind other types of investments — bonds or mid- or small-cap stocks, for instance— an underlying fund’s large-cap holdings could reduce performance.
Historically, small-cap stocks have been riskier than large- and mid-cap stocks and their prices may move sharply, especially during market upturns and downturns. Small-cap companies may be more vulnerable to adverse business or economic events
19
Schwab MarketTrack Growth Portfolio II
Financial Notes, unaudited (continued)
3. Risk Factors (continued):
than larger, more established companies. During a period when small-cap stocks fall behind other types of investments — bonds or large-cap stocks, for instance — an underlying fund’s small-cap holdings could reduce performance.
An underlying fund’s investments in securities of foreign issuers may involve certain risks that are greater than those associated with investments in securities of U.S. issuers. These include risks of adverse changes in foreign economic, political, regulatory and other conditions; changes in currency exchange rates or exchange control regulations (including limitations on currency movements and exchanges); differing accounting, auditing, financial reporting and legal standards and practices; differing securities market structures; and higher transaction costs. These risks may be heightened in connection with investments in emerging markets.
As a result of an underlying fund’s investments in securities denominated in, and/or receiving revenues in, foreign currencies, the fund will be subject to currency risk. This is the risk that those currencies will decline in value relative to the U.S. dollar, or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency hedged. In either event, the dollar value of an investment in a fund would be adversely affected.
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 and could cause the fund to lose more than the principal 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 the fund.
Bond prices generally fall when interest rates rise. Bonds with longer maturities tend to be more sensitive to this risk. Underlying fund performance also could be affected if an issuer or guarantor of a bond held by the fund fails to make timely principal or interest payments or otherwise honor its obligations. Lower-quality bonds are considered speculative with respect to its issuer’s ability to make timely payments or otherwise honor its obligations. In addition, prices of lower-quality bonds tend to be more volatile than those of investment-grade bonds, and may fall based on bad news about the issuer, an industry or the overall economy.
A particular investment may be difficult to purchase or sell. An underlying fund may be unable to sell illiquid securities at an advantageous time or price.
An underlying fund may lend its portfolio securities to brokers, dealers, and other financial institutions. Securities lending involves the risk of loss of rights in the collateral or delay in recovery of the collateral if the borrower fails to return the security loaned or becomes insolvent.
The fund may invest directly in individual securities to maintain its allocations. The fund’s direct investment in these securities is subject to the same or similar risks as an underlying fund’s investment in the same security.
Your investment in the fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
Please refer to the fund’s prospectus for a more complete description of the principal risks of investing in the fund.
4. Affiliates and Affiliated Transactions:
Charles Schwab Investment Management, Inc. (“CSIM” or the “investment adviser”), a wholly owned subsidiary of The Charles Schwab Corporation, serves as the fund’s investment adviser and administrator pursuant to an Investment Advisory and Administration Agreement (“Advisory Agreement”) between it and the trust.
For its advisory and administrative services to the fund, the investment adviser is entitled to receive an annual fee payable monthly based on the fund’s average daily net assets described as follows:
Average Daily Net Assets | |||||
First $500 million | 0.44 | % | |||
Over $500 million | 0.39 | % |
Although this agreement specifies certain fees for these services, CSIM and Schwab have made an additional agreement with the fund to limit (“expense limitation”) the total annual fund reporting expenses, excluding interest, taxes and certain non-routine
20
Schwab MarketTrack Growth Portfolio II
Financial Notes, unaudited (continued)
4. Affiliates and Affiliated Transactions (continued):
expenses, to 0.50% through April 29, 2012, which may only be amended or terminated with the approval of the fund’s board of trustees.
The fund may engage in certain transactions involving related parties. Pursuant to an exemptive order issued by the SEC, the fund may invest in other related funds. As of June 30, 2010, the percentages of shares of other related funds owned by the MarketTrack Growth Portfolio II Fund are:
Schwab Equity Index Funds: | |||||
S&P 500 Index Fund | 0.1 | % | |||
International Index Fund | 0.5 | % | |||
Small-Cap Index Fund | 0.5 | % | |||
Schwab Bond Funds: | |||||
Total Bond Market Fund | 0.6 | % | |||
Schwab Money Funds: | |||||
Value Advantage Money Fund | 0.0 | % | * |
* | Less than 0.1%. |
The fund may make direct transactions with certain other Schwab Funds when practical. When one fund is seeking to sell a security that another is seeking to buy, an interfund transaction can allow both funds to benefit by reducing transaction costs. This practice is limited to funds that share the same investment adviser, trustees and officers. As of June 30, 2010, the fund had no direct security transactions with other Schwab Funds.
Below is a summary of the affiliated transactions for each underlying funds during the period ended June 30, 2010
Realized | Distribution | |||||||||||||||||||||||||||
Balance of | Gross | Gross | Balance of | Market | Gain (Loss) | Received* | ||||||||||||||||||||||
Shares Held | Additions | Sales | Shares Held | Value at | 1/1/2009 to | 1/1/2009 to | ||||||||||||||||||||||
Underlying Fund | at 12/31/09 | 06/30/10 | 06/30/10 | at 06/30/10 | 06/30/10 | 06/30/10 | 06/30/10 | |||||||||||||||||||||
Schwab S&P 500 Index Fund | 552,487 | 17,533 | 31,260 | 538,760 | 8,722,528 | (91,072 | ) | — | ||||||||||||||||||||
Schwab International Index Fund | 429,352 | 57,340 | 16,633 | 470,059 | 6,674,843 | (27,178 | ) | — | ||||||||||||||||||||
Schwab Small-Cap Index Fund | 429,941 | 4,244 | 34,517 | 399,668 | 6,618,502 | (37,941 | ) | — | ||||||||||||||||||||
Schwab Total Bond Market Fund | 596,749 | 73,410 | 95,956 | 574,203 | 5,311,377 | (64,093 | ) | 90,693 | ||||||||||||||||||||
Schwab Value Advantage Money Fund, Select Shares | 1,083,965 | 54 | 1,084,019 | — | — | — | 56 | |||||||||||||||||||||
Schwab Value Advantage Money Fund, Institutional Prime Shares | — | 1,084,019 | — | 1,084,019 | 1,084,019 | — | 12 | |||||||||||||||||||||
The Charles Schwab Corp. | 488 | — | — | 488 | 6,920 | — | 58 | |||||||||||||||||||||
Total | $28,418,189 | ($220,284 | ) | $90,819 | ||||||||||||||||||||||||
* | Distributions received include distributions from net investment income and from capital gains from the underlying funds. |
Pursuant to an exemptive order issued by the SEC, the fund may enter into interfund borrowing and lending transactions with other Schwab Funds. All loans are for temporary or emergency purposes only. The interest rate charged on the loan is the average of the overnight repurchase agreement rate and the short-term bank loan rate. The interfund lending facility is subject to the oversight and periodic review of the Board of Trustees of the Schwab Funds. The fund had no interfund borrowing or lending activity during the period.
21
Schwab MarketTrack Growth Portfolio II
Financial Notes, unaudited (continued)
5. Board of Trustees:
Trustees may include people who are officers and/or directors of the investment adviser or Schwab. Federal securities law limits the percentage of such “interested persons” who may serve on a trust’s board, and the trust was in compliance with these limitations throughout the report period. The trust did not pay any of these persons for their service as trustees, but it did pay non-interested persons (independent trustees), as noted in the fund’s Statement of Operations.
6. Borrowing from Banks:
The fund may borrow money from banks and custodians. The fund has custodian overdraft facilities, a committed line of credit of $150 million with State Street Bank and Trust Company, an uncommitted line of credit of $100 million with Bank of America, N.A. and an uncommitted line of credit of $50 million with Brown Brother Harriman. The fund pays interest on the amounts it borrows at rates that are negotiated periodically. The fund also pays an annual fee to State Street Bank and Trust Company for the committed line of credit.
There were no borrowings from the lines of credit for the fund during the period. However, the fund utilized its overdraft facility and incurred interest expense, which is disclosed in the Statement of Operations. The interest expense is determined based on a negotiated rate above the current Federal Funds rate.
7. Purchases and Sales of Investment Securities:
For the period ended June 30, 2010, purchases and sales of securities (excluding short-term obligations) were as follows:
�� | ||||||
Purchases of Securities | Sales/Maturities of Securities | |||||
$3,115,081 | $3,384,223 |
8. Federal Income Taxes:
Capital loss carry forwards may be used to offset future realized capital gains for federal income tax purposes. As of December 31, 2009, the fund had capital loss carry forwards available to offset net capital gains before the expiration date:
Expiration Date | ||||
December 31, 2016 | $537,408 | |||
December 31, 2017 | 2,119,029 | |||
Total | $2,656,437 | |||
For tax purposes, realized net capital losses, incurred after October 31, may be deferred and treated as occurring on the first day of the following fiscal year. As of December 31, 2009, the fund had deferred realized net capital losses of $56,801 and there were no capital losses being utilized to offset capital gains.
As of December 31, 2009, management has reviewed the tax positions for open periods (for federal purposes, three years from the date of filing and for state purposes, four years from the date of filing) as applicable to the fund, and has determined that no provision for income tax is required in the fund’s financial statements. The fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. During the period ended December 31, 2009, the fund did not incur any interest or penalties. The fund is not subject to examination by U.S. federal tax authorities for tax years before 2006 and by state tax authorities for tax years before 2005.
9. Subsequent Events:
Management has evaluated subsequent events and transactions through the date the financial statements were available to be issued and determined that there are no such events or transactions that would have materially impacted the financial statements as presented.
22
Investment Advisory Agreement Approval
The Investment Company Act of 1940 (the “1940 Act”) requires that initial approval of, as well as the continuation of, a fund’s investment advisory agreement must be specifically approved (1) by the vote of the trustees or by a vote of the shareholders of the fund, and (2) by the vote of a majority of the trustees who are not parties to the investment advisory agreement or “interested persons” of any party (the “Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. In connection with such approvals, the fund’s trustees must request and evaluate, and the investment adviser is required to furnish, such information as may be reasonably necessary to evaluate the terms of the investment advisory agreement.
The Board of Trustees (the “Board” or the “Trustees”, as appropriate) calls and holds one or more meetings each year that are dedicated, in whole or in part, to considering whether to renew the investment advisory agreement between Schwab Annuity Portfolios (the “Trust”) and Charles Schwab Investment Management, Inc. (“CSIM”) (the “Agreement”) with respect to the existing funds in the Trust, including Schwab MarketTrack Growth Portfolio II, and to review certain other agreements pursuant to which CSIM provides investment advisory services to certain other registered investment companies. In preparation for the meeting(s), the Board requests and reviews a wide variety of materials provided by CSIM, including information about CSIM’s affiliates, personnel and operations. The Board also receives extensive data provided by third parties. This information is in addition to the detailed information about the fund that the Board reviews during the course of each year, including information that relates to fund operations and fund performance. The Independent Trustees receive advice from independent counsel to the Independent Trustees, including a memorandum regarding the responsibilities of trustees for the approval of investment advisory agreements. In addition, the Independent Trustees meet in executive session outside the presence of fund management and participate in question and answer sessions with representatives of CSIM.
The Board, including a majority of the Independent Trustees, considered information specifically relating to its consideration of continuance of the Agreement with respect to the fund at meetings held on April 28, 2010, and June 3, 2010, and approved the renewal of the Agreement with respect to the fund for an additional one year term at the meeting held on June 3, 2010. The Board’s approval of the Agreement with respect to the fund was based on consideration and evaluation of a variety of specific factors discussed at these meetings and at prior meetings, including:
1. | the nature, extent and quality of the services provided to the fund under the Agreement, including the resources of CSIM and its affiliates dedicated to the fund; |
2. | the fund’s investment performance and how it compared to that of certain other comparable mutual funds; |
3. | the fund’s expenses and how those expenses compared to those of certain other comparable mutual funds; |
4. | the profitability of CSIM and its affiliates, including Charles Schwab & Co., Inc. (“Schwab”), with respect to the fund, including both direct and indirect benefits accruing to CSIM and its affiliates; and |
5. | the extent to which economies of scale would be realized as the fund grows and whether fee levels in the Agreement reflect those economies of scale for the benefit of fund investors. |
Nature, Extent and Quality of Services. The Board considered the nature, extent and quality of the services provided by CSIM to the fund and the resources of CSIM and its affiliates dedicated to the fund. In this regard, the Trustees evaluated, among other things, CSIM’s personnel, experience, track record and compliance program. The Trustees also considered Schwab’s wide range of products, services, and channel alternatives such as free advice, investment research tools and Internet access and an array of account features that benefit the fund and its shareholders. Following such evaluation, the Board concluded, within the context of its full deliberations, that the nature, extent and quality of services provided by CSIM to the fund and the resources of CSIM and its affiliates dedicated to the fund supported renewal of the Agreement with respect to the fund.
Fund Performance. The Board considered the fund’s performance in determining whether to renew the Agreement with respect to the fund. Specifically, the Trustees considered the fund’s performance relative to a peer category of other mutual funds and appropriate indices/benchmarks, in light of total return and market trends. As part of this review, the Trustees considered the composition of the peer category, selection criteria and the reputation of the third party who prepared the peer category analysis. In evaluating the performance of the fund, the Trustees considered both risk and shareholder risk expectations for the fund and the appropriateness of the benchmark used to compare the performance of the fund. The Trustees further considered the level of fund performance in the context of its review of fund expenses and adviser profitability discussed below. Following such evaluation the Board concluded, within the context of its full
23
deliberations, that the performance of the fund supported renewal of the Agreement with respect to the fund.
Fund Expenses. With respect to the fund’s expenses, the Trustees considered the rate of compensation called for by the Agreement, and the fund’s net operating expense ratio, in each case, in comparison to those of other comparable mutual funds, such peer groups and comparisons having been selected and calculated by an independent third party. The Trustees considered the effects of CSIM’s and Schwab’s historical practice of voluntarily waiving management and other fees to prevent total fund expenses from exceeding a specified cap. The Trustees also considered fees charged by CSIM to other mutual funds and to other types of accounts, such as wrap accounts, but, with respect to such other types of accounts, accorded less weight to such comparisons due to the different legal, regulatory, compliance and operating features of mutual funds as compared to these other types of accounts, and the unique insurance dedicated distribution arrangements of the fund as compared to other funds managed by CSIM. Following such evaluation, the Board concluded, within the context of its full deliberations, that the expenses of the fund are reasonable and supported renewal of the Agreement with respect to the fund.
Profitability. With regard to profitability, the Trustees considered the compensation flowing to CSIM and its affiliates, directly or indirectly. In this connection, the Trustees reviewed management’s profitability analyses, together with certain commentary thereon from an independent accounting firm. The Trustees also considered any other benefits derived by CSIM from its relationship with the fund, such as whether, by virtue of its management of the fund, CSIM obtains investment information or other research resources that aid it in providing advisory services to other clients. The Trustees considered whether the varied levels of compensation and profitability with respect to the fund under the Agreement and other service agreements were reasonable and justified in light of the quality of all services rendered to the fund by CSIM and its affiliates. Based on this evaluation, the Board concluded, within the context of its full deliberations, that the profitability of CSIM is reasonable and supported renewal of the Agreement with respect to the fund.
Economies of Scale. The Trustees considered the existence of any economies of scale and whether those are passed along to the fund’s shareholders through a graduated investment advisory fee schedule or other means, including any fee waivers by CSIM and its affiliates. In this regard, and consistent with their consideration of fund expenses, the Trustees considered that CSIM and Schwab have previously committed resources to minimize the effects on shareholders of diseconomies of scale during periods when fund assets were relatively small through their contractual expense waivers. For example, such diseconomies of scale may particularly affect newer funds or funds with investment strategies that are from time to time out of favor, but shareholders may benefit from the continued availability of such funds at subsidized expense levels. Based on this evaluation, the Board concluded, within the context of its full deliberations, that the fund obtains reasonable benefit from economies of scale.
In the course of their deliberations, the Trustees did not identify any particular information or factor that was all important or controlling. Based on the Trustees’ deliberation and their evaluation of the information described above, the Board, including all of the Independent Trustees, approved the continuation of the Agreement with respect to the fund and concluded that the compensation under the Agreement with respect to the fund is fair and reasonable in light of such services and expenses and such other matters as the Trustees have considered to be relevant in the exercise of their reasonable judgment.
24
Trustees and Officers
The tables below give information about the trustees and officers for Schwab Annuity Portfolios which includes the fund covered in this report. The “Fund Complex” includes The Charles Schwab Family of Funds, Schwab Capital Trust, Schwab Investments, Schwab Annuity Portfolios, Schwab Strategic Trust, Laudus Trust and Laudus Institutional Trust. The Fund Complex includes 84 funds.
The address for all trustees and officers is 211 Main Street, San Francisco, CA 94105. You can find more information about the trustees and officers in the Statement of Additional Information, which is available free by calling 1-800-435-4000.
Independent Trustees
Name, Year of Birth, | Number of | |||||
and Position(s) with | Portfolios in | |||||
the trust; (Terms of | Fund Complex | |||||
office, and length of | Principal Occupations | Overseen by | ||||
Time Served1) | During the Past Five Years | the Trustee | Other Directorships | |||
Mariann Byerwalter 1960 Trustee (Trustee of Schwab Annuity Portfolios since 2000.) | Chairman of JDN Corporate Advisory LLC. | 73 | Director, Redwood Trust, Inc. (1998 – present) Director, PMI Group Inc. (2001 – 2009) Director, Excelsior Funds (2006 – 2007) | |||
John F. Cogan 1947 Trustee (Trustee of Schwab Annuity Portfolios since 2008.) | Senior Fellow: The Hoover Institution at Stanford University (Oct. 1979 – present); Senior Fellow Stanford Institute for Economic Policy Research; Professor of Public Policy, Stanford University (Sept. 1994 – present). | 73 | Director, Gilead Sciences, Inc. (2005 – present) Director, Monaco Coach Corporation (2005 – 2009) | |||
William A. Hasler 1941 Trustee (Trustee of Schwab Annuity Portfolios since 2000.) | Dean Emeritus, Haas School of Business, University of California, Berkeley (July 1998 – present). | 73 | Director, Ditech Networks Corporation (1997 – present) Director, TOUSA (1998 – present) Director, Mission West Properties (1998 – present) Director, Globalstar, Inc. (2009 – present) Director, Harris-Stratex Networks (2001 – present) Director, Aphton Corp. (1991 – 2007) Director, Solectron Corporation (1998 – 2007) Director, Genitope Corporation (2000 – 2009) Director, Excelsior Funds (2006 – 2007) | |||
Gerald B. Smith 1950 Trustee (Trustee of Schwab Annuity Portfolios since 2000.) | Chairman, Chief Executive Officer and Founder of Smith Graham & Co. (investment advisors) (1990 – present). | 73 | Lead Independent Director, Board of Cooper Industries (2002 – present) Director and Chairman of the Audit Committee, Oneok Partners LP (2003 – present) Director, Oneok, Inc (2009 – present) | |||
Donald R. Stephens 1938 Trustee (Trustee of Schwab Annuity Portfolios since 1994.) | Managing Partner, D.R. Stephens & Company (investments) (1973 – present). | 73 | None | |||
25
Independent Trustees (continued)
Name, Year of Birth, | Number of | |||||
and Position(s) with | Portfolios in | |||||
the trust; (Terms of | Fund Complex | |||||
office, and length of | Principal Occupations | Overseen by | ||||
Time Served1) | During the Past Five Years | the Trustee | Other Directorships | |||
Joseph H. Wender 1944 Trustee (Trustee of Schwab Annuity Portfolios since 2008.) | Senior Consultant, Goldman Sachs & Co., Inc. (Jan. 2008- present); Partner, Colgin Partners, LLC (vineyards) (February 1998 – present); Senior Director, Chairman of the Finance Committee, GSC Group (July 2005 – Dec. 2007); General Partner, Goldman Sachs & Co., Inc. (Oct. 1982 – June 2005). | 73 | Board Member and Chairman of the Audit Committee, Isis Pharmaceuticals (1994 – present) | |||
Michael W. Wilsey 1943 Trustee (Trustee of Schwab Annuity Portfolios since 1993.) | Chairman and Chief Executive Officer, Wilsey Bennett, Inc. (real estate investment and management, and other investments). | 73 | None | |||
Interested Trustees
Name, Year of Birth, | Number of | |||||
and Position(s) with | Portfolios in | |||||
the trust; (Terms of | Fund Complex | |||||
office, and length of | Principal Occupations | Overseen by | ||||
Time Served ) | During the Past Five Years | the Trustee | Other Directorships | |||
Charles R. Schwab2 1937 Chairman and Trustee (Chairman and Trustee of Schwab Annuity Portfolios since 1994.) | Chairman and Director, The Charles Schwab Corporation, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc., Charles Schwab Bank, N. A.; Chairman and Chief Executive Officer, Schwab (SIS) Holdings Inc. I, Schwab International Holdings, Inc.; Chief Executive Officer, Schwab Holdings, Inc.; Through June 2007, Director, U.S. Trust Company, N. A., U.S. Trust Corporation, United States Trust Company of New York. Until October 2008, Chief Executive Officer, The Charles Schwab Corporation, Charles Schwab & Co., Inc. | 73 | None | |||
Walter W. Bettinger II2 1960 Trustee (Trustee of Schwab Annuity Portfolios since 2008.) | As of October 2008, President and Chief Executive Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation. Since October 2008, Director, The Charles Schwab Corporation. Since May 2008, Director, Charles Schwab & Co., Inc. and Schwab Holdings, Inc. Since 2006, Director, Charles Schwab Bank. From 2004 through 2007, Executive Vice President and President, Schwab Investor Services. From 2004 through 2005, Executive Vice President and Chief Operating Officer, Individual Investor Enterprise, and from 2002 through 2004, Executive Vice President, Corporate Services. Until October 2008, President and Chief Operating Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation. | 84 | None | |||
26
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 | |
Randall W. Merk 1954 President and Chief Executive Officer (Officer of Schwab Annuity Portfolios since 2004.) | Executive Vice President and President, Investment Management Services, Charles Schwab & Co., Inc. (August 2004 – present); Executive Vice President, Charles Schwab & Co., Inc. (2002 – present); Director, President and Chief Executive Officer, Charles Schwab Investment Management, Inc. (August 2007 – present); Director, Charles Schwab Asset Management (Ireland) Limited and Charles Schwab Worldwide Funds PLC (Sept. 2002 – present); President and Chief Executive Officer, Schwab Strategic Trust (Oct. 2009 – present); Trustee (June 2006 – Dec. 2009), President and Chief Executive Officer (July 2007 – March 2008, July 2010 – present), Laudus Trust and Laudus Institutional Trust; President and Chief Executive Officer, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc. and Excelsior Funds Trust (June 2006 – June 2007). | |
George Pereira 1964 Treasurer and Principal Financial Officer (Officer of Schwab Annuity Portfolios since 2004.) | Senior Vice President and Chief Financial Officer, Charles Schwab Investment Management, Inc. (November 2004 – present); Treasurer and Chief Financial Officer, Laudus Trust and Laudus Institutional Trust (2006 – present); Treasurer and Principal Financial Officer, Schwab Strategic Trust (Oct. 2009 – present); Director, Charles Schwab Worldwide Fund, PLC and Charles Schwab Asset Management (Ireland) Limited (April 2005 – present); Treasurer, Chief Financial Officer and Chief Accounting Officer, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc., and Excelsior Funds Trust (June 2006 – June 2007). | |
Koji E. Felton 1961 Secretary and Chief Legal Officer (Officer of Schwab Annuity Portfolios since 1998.) | Senior Vice President, Chief Counsel and Corporate Secretary, Charles Schwab Investment Management, Inc. (July 2000 – present); Senior Vice President and Deputy General Counsel, Charles Schwab & Co., Inc. (June 1998 – present); Vice President and Assistant Clerk, Laudus Trust and Laudus Institutional Trust (Jan. 2010 – present); Chief Legal Officer and Secretary, Schwab Strategic Trust (Oct. 2009 – present); Chief Legal Officer and Secretary, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc., and Excelsior Funds Trust (June 2006 – June 2007). | |
Catherine MacGregor 1964 Vice President (Officer of Schwab Annuity Portfolios since 2005.) | Vice President, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. (July 2005 – present); Vice President (Dec. 2005 – present), Chief Legal Officer and Clerk (March 2007 – present) of Laudus Trust and Laudus Institutional Trust; Vice President, Schwab Strategic Trust (Oct. 2009 – present). | |
Michael Haydel 1972 Vice President (Officer of Schwab Annuity Portfolios since 2006.) | Vice President, Asset Management Client Services, Charles Schwab & Co., Inc. (2004 – present); Vice President (Sept. 2005 – present), Anti-Money Laundering Officer (Oct. 2005 – Feb. 2009), Laudus Trust, Laudus Institutional Trust; Vice President, Schwab Strategic Trust (Oct. 2009 – present). | |
1 | Trustees remain in office until they resign, retire or are removed by shareholder vote. The Schwab Funds® retirement policy requires that independent trustees elected after January 1, 2000 retire at age 72 or after 20 years of service as a trustee, whichever comes first, provided that any trustee who serves on both Schwab Funds and Laudus Funds retires from both boards when first required to retire by either board. Independent trustees elected prior to January 1, 2000 will retire on the following schedule: Messrs. Stephens and Wilsey will retire on December 31, 2010. | |
2 | Mr. Schwab and Mr. Bettinger are Interested Trustees because they are employees of Schwab and/or the investment adviser. In addition to their employment with Schwab and/or the investment adviser, Messrs. Schwab and Bettinger also own stock of The Charles Schwab Corporation. | |
3 | The President, Treasurer and Secretary hold office until their respective successors are chosen and qualified or until he or she sooner dies, resigns, is removed or becomes disqualified. Each of the other officers serves at the pleasure of the Board. |
27
Money Market | |||
Schwab Money Market Portfoliotm | |||
Money Market Semiannual report dated June 30, 2010 |
An investor should consider a fund’s investment objectives, risks, and charges and expenses carefully before investing or sending money. This and other important information can be found in the fund’s prospectus. Please call 1-888-311-4887 for a prospectus. Please read the prospectus carefully before you invest.
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 Schwab’s website at www.schwabfunds.com/prospectus, the SEC’s website at www.sec.gov, or by contacting Schwab Funds at 1-800-435-4000.
Information regarding how a fund voted proxies relating to portfolio securities during the most recent twelve-month period ended December 31 is available, without charge, by visiting Schwab’s website at www.schwabfunds.com/prospectus or the SEC’s website at www.sec.gov.
Karen Wiggan, a managing director and portfolio manager of the investment adviser, is responsible for the overall management of the portfolio. She joined the firm in 1987 and has worked in fixed-income portfolio management since 1991.
The Investment Environment
The pace of the U.S. economy’s recovery remained uneven during the six-month period. The Federal Reserve (Fed) recently reported that the “the economic recovery is proceeding” and that “the labor market is improving gradually,” but challenges remain. With the labor market improving gradually, spending by consumers and businesses also inched upward. However, these mild advances were constrained by a national unemployment rate that hovered around 10% and a housing market that continued to struggle. Real Gross Domestic Product (GDP) growth, another market indicator, increased by 2.7% for the first quarter of 2010, which contrasted with its increase of 5.6% for the fourth quarter of 2009. GDP is the output of goods and services produced by labor and property in the United States.
At the international level, financial markets fluctuated during the reporting period. In Europe, sovereign debt obligations reached unprecedented levels, and were followed by downgrades in the ratings of many foreign credit securities. The news caused temporary turmoil in the U.S. and global financial markets in early May. While the markets have seen some recovery to pre-May levels, central banks remain attentive to debt ratios, monetary exchange rates, interest rates, and inflation measurements.
The U.S. equity markets outperformed international equity markets during the six-month period, however both had negative returns. For example, the S&P 500® Index, which is usually seen as a bellwether for domestic financial markets, returned −6.65%. All sectors in the S&P 500 had negative returns. For the international equity markets, the MSCI EAFE Index (Gross) returned −12.93%.
In the U.S. fixed income markets, accommodative Federal Reserve policy in the form of a near-zero federal funds rate continued, and recent statements from the Fed affirmed that rates will remain low “for an extended period.” In addition, the euro-debt concerns that crystallized in May put downward pressure on U.S. Treasury rates for intermediate- and longer-term bonds. During this time, investors sought a safe haven in U.S. Treasuries, causing prices to increase and yields to decrease to a range of two-to-three percent for the intermediate- and longer-term bonds.
The low interest rate environment, combined with a limited supply of short-term, high-quality taxable and tax-free credit securities, also suppressed short-term yields in the fixed income markets, to nearly zero percent. Securities normally purchased by money market funds were in short supply and had low rates of return. This shortage, combined with the prevailing low interest rates, depressed yields throughout the money market industry, causing yields on most money market funds to stay below 0.10% for the six-month period. In response to these market conditions, many money market fund managers waived fees to maintain positive net yields and a stable $1 NAV (net asset value).
Schwab Money Market Portfoliotm 1
The Investment Environment continued
Similar to the intermediate returns seen in U.S. Treasuries, returns for intermediate-term taxable securities, as reflected in the Barclays Capital U.S. Aggregate Intermediate Bond Index, were positive and stood at 4.78% for the six-month period. On the tax-free side, returns were more modest. The Barclays Capital General Muni Bond Index returned 3.31% for the same time frame. Overall, the past six months were characterized by negative returns in the U.S. and international equity markets, with modest relief provided by the fixed income markets.
Nothing in this report represents a recommendation of a security by the investment adviser.
Manager views and portfolio holdings may have changed since the report date.
2 Schwab Money Market Portfoliotm
Schwab Money Market Portfolio™
The Schwab Money Market Portfolio (the fund) provided safety and liquidity to shareholders throughout the reporting period. The supply of agency discount notes issued by Freddie Mac, Fannie Mae, and the Federal Home Loan Banks remained steady during the six-month period, but demand for these securities was high. This environment led to a decline in yields for short-term agency securities. The fund’s low yield was a product of these low yielding discount notes, in combination with an overall low interest rate environment. In an effort to bolster the yield of the fund, the investment adviser increased its holdings in repurchase agreements during the reporting period.
The increased demand for short-term securities was driven, in part, by the new regulatory requirements from the U.S. Securities and Exchange Commission to shorten the Weighted Average Maturity (WAM)—an indication of sensitivity to changes in interest rates. These new regulations require a money fund to hold a certain percentage of its assets in cash, or securities that can be readily converted into cash, and to have a WAM that is no longer than 60 days. However, these regulations did not materially impact the management of the fund during the reporting period because the fund was already predominantly invested in such highly liquid securities, and had maintained an overall WAM of 60 days or less. During the six-month period, the WAM for the fund ranged from a high of 52 days to a low of 20 days.
Charles Schwab & Co., Inc. (Schwab) and the fund’s investment adviser continued to voluntarily waive certain fees or expenses to maintain a positive net yield for the fund.* For more information about the fund’s yield, please see the charts and relevant footnotes on the next page.
As of 6/30/10:
Portfolio Composition by Maturity1
% of Investments | ||
1-15 Days | 56.0% | |
16-30 Days | 11.2% | |
31-60 Days | 27.7% | |
61-90 Days | 4.5% | |
91-120 Days | 0.6% |
Statistics
Weighted Average Maturity2 | 20 Days | |
Credit Quality of Holdings3 % of portfolio | 100% Tier 1 |
Portfolio Composition by Security Type4
% of Investments | ||
Government Agency5 | 73.2% | |
Repurchase Agreement | 26.8% | |
Total | 100.0% |
An investment in a money fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Although money funds seek to preserve the value of your investment at $1 per share, it is possible to lose money by investing in a money fund.
Portfolio holdings may have changed since the report date.
* | Schwab and the investment adviser may recapture expenses or fees they voluntarily waived until the third anniversary of the end of the fiscal year in which such waiver occurs, subject to certain limitations. For more information on the potential impact of such recapture on future yields, please see Note 4 of the Financial Notes section. | |
1 | As shown in the Portfolio Holdings section of the shareholder report. | |
2 | Money funds must maintain a dollar-weighted average maturity of no longer than 60 days (effective June 30, 2010), and cannot invest in any security whose effective maturity is longer than 397 days (approximately 13 months). | |
3 | Based on ratings from Moody’s Investors Service, Standard & Poor’s Corp. and/or Fitch Ratings or, if unrated, is determined to be of comparable quality. The fund may use different ratings provided by other rating agencies for purposes of determining compliance with the fund’s investment policies. The fund itself has not been rated by an independent credit rating agency. | |
4 | Portfolio Composition is calculated using the Par Value of Investments. | |
5 | Includes debt issued by Straight A Funding LLC, which the U.S. Securities and Exchange Commission (SEC) has stated is permissible for money market funds to treat as government securities for the purpose of compliance with the diversification requirements of Rule 2a-7(c)(4)(i). |
Schwab Money Market Portfoliotm 3
Performance and Fund Facts as of 6/30/10
The performance data quoted represents past performance. Past performance does not guarantee future results. Current performance may be lower or higher than performance data quoted. To obtain more current performance information, please visit www.schwabfunds.com/prospectus.
Weighted Average Maturity Trend for previous 12 months
Money funds must maintain a dollar-weighted average maturity of no longer than 60 days (effective June 30, 2010), and cannot invest in any security whose effective maturity is longer than 397 days (approximately 13 months).
7-Day Average Yield Trend for previous 12 months
Seven-Day Yields1,2
The seven-day yield is the income generated by the fund’s portfolio holdings minus the fund’s operating expenses. The seven-day yields are calculated using standard SEC formulas. The effective yield includes the effect of reinvesting daily dividends. Please remember that money market fund yields fluctuate.
Schwab Money | ||
Market Portfolio | ||
Seven-Day Yield | 0.01% | |
Seven-Day Effective Yield | 0.01% | |
An investment in a money fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Although money funds seek to preserve the value of your investment at $1 per share, it is possible to lose money by investing in a money fund.
Portfolio holdings may have changed since the report date.
1 | Portfolio yields do not reflect the additional fees and expenses imposed by the insurance company under the variable insurance product contract. If those contract fees and expenses were included, the yields would be less than those shown. Please refer to the variable insurance product prospectus for a complete listing of these expenses. | |
2 | Schwab and the investment adviser have voluntarily waived expenses to maintain a positive net yield for the fund (voluntary expense waiver). Without the voluntary expense waiver, the fund’s yield would have been lower. The voluntary expense waiver added 0.28% to the seven-day yield. Please see Note 4 in the Financial Notes section for additional details. |
4 Schwab Money Market Portfoliotm
Fund Expenses (Unaudited)
Examples for a $1,000 Investment
The fund incurs ongoing costs, such as management fees, transfer agent and shareholder services fees, and other fund expenses.
The expense examples below are intended to help you understand your ongoing cost (in dollars) of investing in a fund and to compare this cost with the ongoing cost of investing in other mutual funds. These examples are based on an investment of $1,000 invested for six months beginning January 1, 2010 and held through June 30, 2010.
The Actual Return line in the table below provides information about actual account values and actual expenses. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value ¸ $1,000 = 8.6), then multiply the result by the number given for your fund or share class under the heading entitled “Expenses Paid During Period.”
The Hypothetical Return line in the table below provides information about hypothetical account values and hypothetical expenses based on a fund’s or share class’ actual expense ratio and an assumed return of 5% per year before expenses. Because the return used is not an actual return, it may not be used to estimate the actual ending account value or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs.
Ending | ||||||||||||||||
Beginning | Account Value | Expenses Paid | ||||||||||||||
Expense Ratio1 | Account Value | (Net of Expenses) | During Period2 | |||||||||||||
(Annualized) | at 1/1/10 | at 6/30/10 | 1/1/10–6/30/10 | |||||||||||||
Schwab Money Market Portfoliotm | ||||||||||||||||
Actual Return | 0.24% | $ | 1,000 | $ | 1,000.10 | $ | 1.19 | |||||||||
Hypothetical 5% Return | 0.24% | $ | 1,000 | $ | 1,023.60 | $ | 1.20 |
1 | Based on the most recent six-month expense ratio; may differ from the expense ratio provided in Financial Highlights. | |
2 | Expenses for the portfolio are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by 181 days of the period, and divided by 365 days of the fiscal year. |
Schwab Money Market Portfoliotm 5
Schwab Money Market Portfolio™
Financial Statements
Financial Highlights
1/1/10– | 1/1/09– | 1/1/08– | 1/1/07– | 1/1/06– | 1/1/05– | |||||||||||||||||||||
6/30/10* | 12/31/09 | 12/31/08 | 12/31/07 | 12/31/06 | 12/31/05 | |||||||||||||||||||||
Per-Share Data ($) | ||||||||||||||||||||||||||
Net asset value at beginning of period | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | ||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||
Net investment income (loss) | 0.00 | 1 | 0.00 | 1 | 0.02 | 0.05 | 0.05 | 0.03 | ||||||||||||||||||
Net realized and unrealized gains (losses) | (0.00 | )1 | 0.00 | 1 | — | — | — | — | ||||||||||||||||||
Total from investment operations | (0.00 | )1 | 0.00 | 1 | 0.02 | 0.05 | 0.05 | 0.03 | ||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||
Distributions from net investment income | (0.00 | )1 | (0.00 | )1 | (0.02 | ) | (0.05 | ) | (0.05 | ) | (0.03 | ) | ||||||||||||||
Net asset value at end of period | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | ||||||||||||||||||||
Total return (%) | 0.01 | 2 | 0.10 | 2.12 | 4.74 | 4.61 | 2.75 | |||||||||||||||||||
Ratios/Supplemental Data (%) | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||
Net operating expenses | 0.24 | 3 | 0.34 | 4 | 0.42 | 0.44 | 0.46 | 0.47 | ||||||||||||||||||
Gross operating expenses | 0.46 | 3 | 0.47 | 0.42 | 0.44 | 0.46 | 0.47 | |||||||||||||||||||
Net investment income (loss) | (0.06 | )3 | 0.12 | 2.06 | 4.62 | 4.55 | 2.74 | |||||||||||||||||||
Net assets, end of period ($ x 1,000,000) | 162 | 163 | 268 | 215 | 159 | 133 |
* Unaudited.
1 Per-share amount was less than $0.01.
2 Not annualized.
3 Annualized.
4 The ratio of net operating expenses would have been 0.31% if certain non-routine expenses (participation fees for the Treasury’s Temporary Guarantee Program for Money Market Funds) had not been incurred.
6 See financial notes
Schwab Money Market Portfolio
Portfolio Holdings as of June 30, 2010 (Unaudited)
This section shows all the securities in the fund’s portfolio and their values as of the report date.
The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the SEC’s website at http://www.sec.gov and may be viewed and copied at the SEC’s Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on a fund’s most recent Form N-Q is also available by visiting Schwab’s website at www.schwabfunds.com/prospectus.
For fixed rate obligations, the rate shown is the effective yield at the time of purchase, except U.S. Treasury notes, for which the rate shown is the interest rate (the rate established when the obligation was issued). For variable-rate obligations, the rate shown is the rate as of the report date and the maturity date shown is the next interest rate change date.
Cost | Value | |||||||||||
Holdings by Category | ($) | ($) | ||||||||||
67 | .2% | Federal Agency Securities | 108,721,774 | 108,721,774 | ||||||||
4 | .9% | U.S. Government Securities | 7,997,367 | 7,997,367 | ||||||||
26 | .4% | Other Investments | 42,622,877 | 42,622,877 | ||||||||
98 | .5% | Total Investments | 159,342,018 | 159,342,018 | ||||||||
1 | .5% | Other Assets and Liabilities, Net | 2,360,785 | |||||||||
100 | .0% | Net Assets | 161,702,803 |
Issuer | Face Amount | Value | ||||||
Rate, Maturity Date | ($) | ($) | ||||||
Federal Agency Securities 67.2% of net assets | ||||||||
Fixed-Rate Coupon Notes 3.6% | ||||||||
Fannie Mae | ||||||||
0.31%, 08/11/10 | 3,230,000 | 3,246,612 | ||||||
0.26%, 08/12/10 | 1,553,000 | 1,558,356 | ||||||
Federal Home Loan Bank | ||||||||
0.53%, 10/20/10 | 1,000,000 | 999,886 | ||||||
5,804,854 | ||||||||
Fixed-Rate Discount Notes 62.4% | ||||||||
Fannie Mae | ||||||||
0.08% - 0.20%, 07/07/10 | 6,500,000 | 6,499,821 | ||||||
0.20%, 07/12/10 | 1,000,000 | 999,939 | ||||||
0.13%, 07/16/10 | 3,200,000 | 3,199,827 | ||||||
0.20%, 07/19/10 | 2,280,000 | 2,279,772 | ||||||
0.24%, 08/03/10 | 3,700,000 | 3,699,186 | ||||||
0.20%, 08/04/10 | 3,500,000 | 3,499,339 | ||||||
0.21%, 08/16/10 | 2,800,000 | 2,799,249 | ||||||
0.25%, 09/08/10 | 2,075,000 | 2,074,006 | ||||||
0.25%, 09/20/10 | 1,500,000 | 1,499,156 | ||||||
Federal Home Loan Bank | ||||||||
0.20%, 07/02/10 | 2,500,000 | 2,499,986 | ||||||
0.07% - 0.20%, 07/07/10 | 4,400,000 | 4,399,927 | ||||||
0.08% - 0.20%, 07/09/10 | 3,415,000 | 3,414,907 | ||||||
0.20%, 07/21/10 | 2,800,000 | 2,799,689 | ||||||
0.20%, 08/04/10 | 1,300,000 | 1,299,754 | ||||||
0.20% - 0.21%, 08/06/10 | 8,600,000 | 8,598,260 | ||||||
0.20%, 08/25/10 | 1,000,000 | 999,694 | ||||||
Freddie Mac | ||||||||
0.18% - 0.19%, 07/06/10 | 6,100,000 | 6,099,846 | ||||||
0.10%, 07/07/10 | 1,100,000 | 1,099,982 | ||||||
0.20%, 07/09/10 | 3,000,000 | 2,999,867 | ||||||
0.20%, 07/12/10 | 1,200,000 | 1,199,927 | ||||||
0.19%, 07/13/10 | 2,200,000 | 2,199,861 | ||||||
0.20%, 07/14/10 | 2,260,000 | 2,259,837 | ||||||
0.20%, 07/19/10 | 8,500,000 | 8,499,168 | ||||||
0.20%, 07/26/10 | 1,000,000 | 999,861 | ||||||
0.21%, 08/03/10 | 1,700,000 | 1,699,680 | ||||||
0.20%, 08/09/10 | 11,700,000 | 11,697,465 | ||||||
0.25%, 09/21/10 | 1,600,000 | 1,599,089 | ||||||
Tennessee Valley Authority | ||||||||
0.05%, 07/06/10 | 10,000,000 | 9,999,930 | ||||||
100,917,025 | ||||||||
Variable-Rate Coupon Note 1.2% | ||||||||
Freddie Mac | ||||||||
0.51%, 09/24/10 | 2,000,000 | 1,999,895 | ||||||
Total Federal Agency Securities | ||||||||
(Cost $108,721,774) | 108,721,774 | |||||||
U.S. Government Securities 4.9% of net assets | ||||||||
Other Government Related 4.9% | ||||||||
Straight A Funding, L.L.C. | ||||||||
0.32%, 07/08/10 (a)(b)(c)(d) | 3,000,000 | 2,999,814 | ||||||
0.39%, 08/04/10 (a)(b)(c)(d) | 2,000,000 | 1,999,263 | ||||||
0.38%, 08/24/10 (a)(b)(c)(d) | 3,000,000 | 2,998,290 | ||||||
Total U.S. Government Securities | ||||||||
(Cost $7,997,367) | 7,997,367 | |||||||
Face/Maturity | ||||||||
Issuer | Amount | Value | ||||||
Rate, Maturity Date | ($) | ($) | ||||||
Other Investments 26.4% of net assets | ||||||||
Repurchase Agreements 26.4% | ||||||||
Barclays Capital, Inc. | ||||||||
Tri-Party Repurchase Agreement Collateralized by U.S. Treasury Securities with a value of $20,400,016 | ||||||||
0.01%, issued 06/30/10, due 07/01/10 | 20,000,006 | 20,000,000 | ||||||
Credit Suisse Securities (USA), L.L.C. | ||||||||
Tri-Party Repurchase Agreement Collateralized by U.S. Treasury Securities with a value of $23,076,258 | ||||||||
0.01%, issued 06/30/10, due 07/01/10 | 22,622,883 | 22,622,877 | ||||||
Total Other Investments | ||||||||
(Cost $42,622,877) | 42,622,877 | |||||||
End of Investments. |
See financial notes 7
Schwab Money Market Portfolio
Portfolio Holdings (Unaudited) continued
At 06/30/10, the tax basis cost of the fund’s investments was $159,342,018.
(a) | Credit-enhanced security. | |
(b) | Asset-backed security. | |
(c) | Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registrations, normally to qualified institutional buyers. At the period end, the value of these amounted to $7,997,367 or 4.9% of net assets. | |
(d) | The U.S. Securities and Exchange Commission has stated that it is permissible for money market funds to treat Straight A Funding LLC securities as government securities for the purpose of compliance with the diversification requirements of Rule 2a-7(c)(4)(i). |
8 See financial notes
Schwab Money Market Portfolio
Statement of
Assets and Liabilities
As of June 30, 2010; unaudited.
Assets | ||||||
Investments, at cost and value (Note 2a) | $116,719,141 | |||||
Repurchase agreements, at cost and value | + | 42,622,877 | ||||
Total investments, at cost and value | 159,342,018 | |||||
Cash | 1 | |||||
Receivables: | ||||||
Fund shares sold | 2,484,701 | |||||
Interest | 84,312 | |||||
Prepaid expenses | + | 1,123 | ||||
Total assets | 161,912,155 | |||||
Liabilities | ||||||
Payables: | ||||||
Investment adviser and administrator fees | 820 | |||||
Fund shares redeemed | 181,957 | |||||
Distributions to shareholders | 659 | |||||
Accrued expenses | + | 25,916 | ||||
Total liabilities | 209,352 | |||||
Net Assets | ||||||
Total assets | 161,912,155 | |||||
Total liabilities | − | 209,352 | ||||
Net assets | $161,702,803 | |||||
Net Assets by Source | ||||||
Capital received from investors | 161,703,863 | |||||
Net realized capital losses | (1,060 | ) | ||||
Net Asset Value (NAV) |
Shares | ||||||||||||
Net Assets | ÷ | Outstanding | = | NAV | ||||||||
$161,702,803 | 161,749,666 | $1.00 |
See financial notes 9
Schwab Money Market Portfolio
Statement of
Operations
For January 1, 2010 through June 30, 2010; unaudited.
Investment Income | ||||||
Interest | $140,258 | |||||
Expenses | ||||||
Investment adviser and administrator fees | 274,621 | |||||
Shareholder reports | 21,626 | |||||
Portfolio accounting fees | 19,916 | |||||
Professional fees | 18,220 | |||||
Trustees’ fees | 13,171 | |||||
Custodian fees | 4,535 | |||||
Transfer agent fees | 3,668 | |||||
Other expenses | + | 3,088 | ||||
Total expenses | 358,845 | |||||
Expense reduction by adviser and Schwab | − | 168,950 | ||||
Net expenses | − | 189,895 | ||||
Net investment loss | (49,637 | ) | ||||
Realized Gains (Losses) | ||||||
Net realized losses on investments | (1,060 | ) | ||||
Decrease in net assets resulting from operations | ($50,697 | ) |
10 See financial notes
Schwab Money Market Portfolio
Statements of
Changes in Net Assets
For current and prior report periods.
Figures for the current period are unaudited.
Figures for the current period are unaudited.
Operations | ||||||||||
1/1/10-6/30/10 | 1/1/09-12/31/09 | |||||||||
Net investment income (loss) | ($49,637 | ) | $260,381 | |||||||
Net realized gains (losses) | + | (1,060 | ) | 58,743 | ||||||
Increase (Decrease) in net assets from operations | (50,697 | ) | 319,124 | |||||||
Distributions to Shareholders | ||||||||||
Distributions from net investment income | 7,840 | 260,381 | ||||||||
Transactions in Fund Shares* | ||||||||||
Shares sold | 79,979,931 | 97,360,949 | ||||||||
Shares reinvested | 7,187 | 259,833 | ||||||||
Shares redeemed | + | (81,479,514 | ) | (202,445,194 | ) | |||||
Net transactions in fund shares | (1,492,396 | ) | (104,824,412 | ) | ||||||
Net Assets | ||||||||||
Beginning of period | 163,253,736 | 268,019,405 | ||||||||
Total decrease | + | (1,550,933 | ) | (104,765,669 | ) | |||||
End of period | $161,702,803 | $163,253,736 | ||||||||
Net investment income not yet distributed | $— | $57,477 |
* | Transactions took place at $1.00 per share; figures for share quantities are the same as for dollars. |
See financial notes 11
Schwab Money Market Portfolio
Financial Notes, unaudited
1. Business Structure of the Fund:
Schwab Money Market Portfolio is a series of Schwab Annuity Portfolios (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 including the fund discussed in this report, which is highlighted:
Schwab Annuity Portfolios (organized January 21, 1994) Schwab Money Market Portfolio Schwab MarketTrack Growth Portfolio II Schwab S&P 500 Index Portfolio | ||
Schwab Money Market Portfolio offers one share class. Shares are bought and sold at $1.00 per share. Each share has a par value of 1/1,000 of a cent, and the trustees may authorize the issuance of as many shares as necessary.
The fund is intended as an investment vehicle for variable annuity contracts and variable life insurance policies to be offered by separate accounts of participating life insurance companies and for pension and retirement plans qualified under the Internal Revenue Code of 1986, as amended.
The fund maintains its own account for purposes of holding assets and accounting, and is considered a separate entity for tax purposes. Within its account, the fund may also keep certain assets in segregated accounts, as required by securities laws.
2. Significant Accounting Policies:
The following is a summary of the significant accounting policies the fund uses in the preparation of financial statements. The accounting policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
(a) Security Valuation:
Securities in the fund are valued at amortized cost (which approximates market value) as permitted in accordance with Rule 2a-7 of the 1940 Act. In the event that security valuations do not approximate market value, securities may be valued as determined in accordance with procedures adopted by the Board of Trustees.
In accordance with the authoritative guidance on fair value measurements and disclosures under GAAP, the fund discloses the fair value of its investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure the fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (level 3 measurements).
The fund adopted the authoritative guidance under GAAP on determining fair value when the volume and level of activity for the asset or liability have significantly decreased and identifying transactions that are not orderly. Accordingly, if the fund determines that either the volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and management judgment will be required to estimate fair value.
The guidance establishes three levels of the fair value hierarchy as follows:
• | Level 1 — quoted prices in active markets for identical securities — Investments whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 prices, include active listed equities. The fund does not adjust the quoted price for such instruments, even in situations where the fund holds a large position and a sale could reasonably impact the quoted prices. | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) — Investments that trade in markets that are not considered to be active, but whose values are based on quoted market prices, dealer quotations or valuations provided by alternative pricing sources supported by observable inputs are classified as Level 2 prices. These generally include U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage products, less liquid listed equities, and state, municipal and provincial obligations. In addition, international securities whose markets close hours before the fund values its holdings may require fair valuations due to significant movement in the U.S. markets occurring after the daily |
12
Schwab Money Market Portfolio
Financial Notes, unaudited (continued)
2. Significant Accounting Policies (continued):
close of the foreign markets. The Board of Trustees has approved a vendor that would calculate fair valuations of international equity securities based on a number of factors that appear to correlate to the movements in the U.S. markets. As investments whose values are classified as Level 2 prices include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or nontransferability, which are generally based on available market information. Securities held by money funds operating under Rule 2a-7 of the 1940 Act are valued at amortized cost which approximates current market value and are considered to be valued using Level 2 inputs. |
• | Level 3 — significant unobservable inputs (including the fund’s own assumption in determining the fair value of investments) — Investments whose values are classified as Level 3 prices have significant unobservable inputs, as they may trade infrequently or not at all. When observable prices are not available for these securities, the fund uses one or more valuation techniques for which sufficient and reliable data is available. The inputs used by the fund in estimating the value of Level 3 prices may include the original transaction price, quoted prices for similar securities or assets in active markets, completed or pending third-party transactions in the underlying investment or comparable issuers, and changes in financial ratios or cash flows. Level 3 prices may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the fund in the absence of market information. Assumptions used by the fund due to the lack of observable inputs may significantly impact the resulting fair value and therefore the fund’s results of operations. |
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. At June 30, 2010, all of the fund’s investment securities were classified as Level 2. The breakdown of the fund’s investments into major categories is disclosed on the fund holdings.
(b) Portfolio Investments:
Delayed-Delivery: The fund may buy securities on a delayed-delivery basis. In these transactions, the fund agrees to buy a security for a stated price, with settlement generally occurring within two weeks. If the security’s value falls before settlement occurs, the fund could end up paying more for the security than its market value at the time of settlement. The fund has set aside sufficient securities as collateral for those securities bought on a delayed-delivery basis.
Repurchase Agreements: The fund may enter into repurchase agreements. In a repurchase agreement, a fund buys a security from another party (usually a financial institution) with the agreement that it be sold back in the future. The date, price and other conditions are all specified when the agreement is created.
The funds’ repurchase agreements are fully collateralized by cash, U.S. government securities, U.S. government agency securities or other securities. All collateral is held by the fund’s custodian (or, with tri-party agreements, the agent’s bank) and is monitored daily to ensure that its market value is at least equal to the repurchase price under the agreement.
(c) Security Transactions:
Security transactions are recorded as of the date the order to buy or sell the security is executed. Realized gains and losses from security transactions are based on the identified costs of the securities involved.
(d) Investment Income:
Interest income is recorded as it accrues. If the fund buys a debt security at a discount (less than face value) or a premium (more than face value), it amortizes the discount or premium from the current date to maturity. The fund then increases (in the case of discounts) or reduces (in the case of premiums) the income it records from the security. If the security is callable (meaning that the issuer has the option to pay it off before its maturity date), then the fund amortizes the premium to the security’s call date and price, rather than the maturity date and price.
(e) Expenses:
Expenses that are specific to a fund are charged directly to the fund. Expenses that are common to all funds within the trust generally are allocated among the funds in proportion to their average daily net assets.
13
Schwab Money Market Portfolio
Financial Notes, unaudited (continued)
2. Significant Accounting Policies (continued):
(f) Distributions to Shareholders:
The fund declares distributions from net investment income, if any, every day it is open for business. These distributions are paid out to the insurance company separate accounts once a month. The fund makes distributions from net realized capital gains, if any, once a year.
(g) Custody Credit:
The fund has an arrangement with its custodian bank, State Street Bank and Trust Company, under which the fund receives a credit for its uninvested cash balance to offset its custody fees and accounting fees. The credit amounts (if any) are disclosed in the Statement of Operations as a reduction to the fund’s operating expenses.
(h) Accounting Estimates:
The accounting policies described in this report conform to accounting principles generally accepted in the United States of America. Notwithstanding this, shareholders should understand that in order to follow these principles, fund management has to make estimates and assumptions that affect the information reported in the financial statements. It’s possible that once the results are known, they may turn out to be different from these estimates.
(i) Federal Income Taxes:
The fund intends to meet federal income and excise tax requirements for regulated investment companies. Accordingly, the fund distributes substantially all of its net investment income and realized net capital gains (if any) to the participating insurance company’s (shareholders) separate accounts each year. As long as the fund meets the tax requirements, it is not required to pay federal income tax.
(j) Indemnification:
Under the fund’s organizational documents, the officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the fund. In addition, in the normal course of business the fund enters into contracts with its vendors and others that provide general indemnifications. The fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the fund. However, based on experience, the fund expects the risk of loss to be remote.
3. Risk Factors:
Investing in the fund may involve certain risks as described in the fund’s prospectus, including , but not limited to, those described below. Any of these risks could cause an investor to lose money.
Your investment in the fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the fund.
Interest rates rise and fall over time. As with any investment whose yield reflects current interest rates, the fund’s yield will change over time. During periods when interest rates are low, the fund’s yield (and total return) also will be low. In addition, to the extent the fund makes any reimbursement payments to the investment adviser and/or its affiliates, the fund’s yield would be lower.
The fund is subject to the risk that a decline in the credit quality of a fund investment could cause the fund to lose money or underperform. The fund could lose money if the issuer or guarantor of a fund investment fails to make timely principal or interest payments or otherwise honor its obligations. The negative perceptions of an issuer’s ability to make such payments could also cause the price of that investment to decline. The credit quality of the fund’s holdings can change rapidly in certain market environments and any default on the part of a single fund investment could cause the fund’s share price or yield to fall. The additional risks of foreign investments are due to reasons ranging from a lack of issuer information to the risk of political uncertainties. Many of the U.S. government securities that the fund invests in are not backed by the full faith and credit of the United States government, which means they are neither issued nor guaranteed by the U.S. Treasury. Issuers of securities such as Fannie Mae, Freddie Mac and the Federal Home Loan Banks (FHLB) maintain limited lines of credit with the U.S. Treasury. Other securities, such as obligations issued by the Federal Farm Credit Banks Funding Corporation (FFCB), are supported solely
14
Schwab Money Market Portfolio
Financial Notes, unaudited (continued)
3. Risk Factors (continued):
by the credit of the issuer. There can be no assurance that the U.S. government will provide financial support to securities of its agencies and instrumentalities if it is not obligated to do so under law. Also, any government guarantees on securities the fund owns do not extend to shares of the fund itself.
On September 7, 2008, the U.S. Treasury announced a federal takeover of Fannie Mae and Freddie Mac, placing the two federal instrumentalities in conservatorship. The actions of the U.S. Treasury are intended to ensure that Fannie Mae and Freddie Mac maintain a positive net worth and meet their financial obligations, preventing mandatory triggering of receivership. No assurance can be given that the U.S. Treasury initiatives will be successful.
Any actively managed mutual fund is subject to the risk that its investment adviser will make poor security selections. The fund’s investment 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. The investment adviser’s maturity decisions will also affect the fund’s yield, and in unusual circumstances potentially could affect its share price. To the extent that the investment adviser anticipates interest rate trends imprecisely, the fund’s yield at times could lag those of other money market funds.
Liquidity risk exists when particular investments are difficult to purchase or sell. The market for certain investments may become illiquid due to specific adverse changes in the conditions of a particular issuer or under adverse market or economic conditions independent of the issuer. The fund’s investments in illiquid securities may reduce the returns of the fund because it may be unable to sell the illiquid securities at an advantageous time or price. Further, transactions in illiquid securities may entail transaction costs that are higher than those for transactions in liquid securities.
The fund may experience periods of heavy redemptions that could cause the fund to liquidate its assets at inopportune times or at a loss or depressed value, particularly during periods of declining or illiquid markets. Redemptions by a few large investors in the fund may have a significant adverse effect on the fund’s ability to maintain a stable $1.00 share price. In the event any money market fund fails to maintain a stable net asset value, other money market funds, including the fund, could face a market-wide risk of increased redemption pressures, potentially jeopardizing the stability of their $1.00 share prices.
The fund is not designed to offer capital appreciation. In exchange for their emphasis on stability and liquidity, money market investments may offer lower long-term performance than stock or bond investments.
Please refer to the fund’s prospectus for a more complete description of the principal risks of investing in the fund.
4. Affiliates and Affiliated Transactions:
Charles Schwab Investment Management, Inc. (“CSIM” or the “investment adviser”), a wholly owned subsidiary of The Charles Schwab Corporation, serves as the fund’s investment adviser and administrator pursuant to an Investment Advisory and Administration Agreement (“Advisory Agreement”) between it and the trust.
For its advisory and administrative services to the fund, CSIM is entitled to receive an annual fee payable monthly based on the fund’s average daily net assets described as follows:
Average Daily Net Assets | |||||
First $1 billion | 0.35 | % | |||
$1 billion to $10 billion | 0.32 | % | |||
$10 billion to $20 billion | 0.30 | % | |||
$20 billion to $40 billion | 0.27 | % | |||
Over $40 billion | 0.25 | % |
Contractual Expense Limitation
Although the foregoing agreement specifies certain fees for these services, CSIM and Schwab have made an additional agreement with the fund to limit (“expense limitation”) the total annual fund operating expenses, excluding interest, taxes, and certain non-routine expenses to 0.5% through April 29, 2012, which may only be amended or terminated with the approval of the fund’s Board of Trustees.
15
Schwab Money Market Portfolio
Financial Notes, unaudited (continued)
4. Affiliates and Affiliated Transactions (continued):
Voluntary Expense Waiver/Reimbursement
In addition to the contractual expense limitation agreement noted above, Schwab and the investment adviser also may waive and/or reimburse expenses to the extent necessary to maintain a positive net yield for the fund. Schwab and the investment adviser may recapture from the fund any of these expenses or fees they have waived and/or reimbursed until the third anniversary of the end of the fiscal year in which such waiver and/or reimbursement occurs, subject to certain limitations. The reimbursement payments by the fund to Schwab and/or the investment adviser are considered “non-routine expenses” and are not subject to any net operating expense limitations in effect at the time of such payment. This recapture could negatively affect the fund’s future yield.
As of June 30, 2010 the balance of recoupable expenses is as follows:
Schwab | ||||
Expiration Date | Money Market Portfolio | |||
December 31, 2012 | $267,054 | |||
December 31, 2013 | 165,282 | |||
Total | $432,336 | |||
The fund may engage in direct transactions with certain other Schwab Funds when practical. When one fund is seeking to sell a security that another is seeking to buy, an interfund transaction can allow both funds to benefit by reducing transaction costs. This practice is limited to funds that share the same investment adviser, trustees and officers. For the period ended June 30, 2010, the fund had no direct security transactions with other Schwab Funds.
Pursuant to an exemptive order issued by the SEC, the fund may enter into interfund borrowing and lending transactions with other Schwab Funds. All loans are for temporary or emergency purposes only. The interest rate charged on the loan is the average of the overnight repurchase agreement rate and the short-term bank loan rate. The interfund lending facility is subject to the oversight and periodic review of the Board of Trustees of the Schwab Funds. The fund had no interfund borrowing or lending activity during the period.
5. Board of Trustees:
Trustees may include people who are officers and/or directors of the investment adviser or Schwab. Federal securities law limits the percentage of such “interested persons” who may serve on a trust’s board, and the trust was in compliance with these limitations throughout the report period. The trust did not pay any of these persons for their service as trustees, but it did pay non-interested persons (independent trustees), as noted in the fund’s Statement of Operations.
6. Borrowing from Banks:
The fund may borrow money from banks and custodians. The fund has custodian overdraft facilities, a committed line of credit of $150 million with State Street Bank and Trust Company an uncommitted line of credit of $100 million with Bank of America, N.A. and an uncommitted line of credit of $50 million with Brown Brothers Harriman. The fund pays interest on the amounts it borrows at rates that are negotiated periodically. The fund also pays an annual fee to State Street Bank and Trust Company for the committed line of credit.
There was no borrowing from the lines of credit during the period. However, the fund utilized its overdraft facility and incurred interest expense, which is disclosed in the Statement of Operations, if any. The interest expense is determined based on a negotiated rate above the current Federal Funds rate.
7. Federal Income Taxes:
Capital loss carry forwards may be used to offset future realized capital gains for federal income tax purposes. As of December 31, 2009, the fund had no capital loss carry forwards available to offset net capital gains before the expiration dates.
For tax purposes, realized net capital losses, occurring after October 31, may be deferred and treated as occurring on the first day of the following year. For the period ended December 31, 2009, the fund had no deferred realized net capital losses and the capital losses utilized to offset capital gains were $206.
16
Schwab Money Market Portfolio
Financial Notes, unaudited (continued)
7. Federal Income Taxes (continued):
As of December 31, 2009, management has reviewed the tax positions for open periods (for federal purposes, three years from the date of filing and for state purposes, four years from the date of filing) as applicable to the fund, and has determined that no provision for income tax is required in the fund’s financial statements. The fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. During the period ended December 31, 2009, the fund did not incur any interest or penalties. The fund is not subject to examination by U.S. federal tax authorities for tax years before 2006 and by state tax authorities for tax years before 2005.
8. Subsequent Events:
Management has evaluated subsequent events and transactions through the date the financial statements were available to be issued and determined that there are no such events or transactions that would have materially impacted the financial statements as presented.
17
Investment Advisory Agreement Approval
The Investment Company Act of 1940 (the “1940 Act”) requires that initial approval of, as well as the continuation of, a fund’s investment advisory agreement must be specifically approved (1) by the vote of the trustees or by a vote of the shareholders of the fund, and (2) by the vote of a majority of the trustees who are not parties to the investment advisory agreement or “interested persons” of any party (the “Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. In connection with such approvals, the fund’s trustees must request and evaluate, and the investment adviser is required to furnish, such information as may be reasonably necessary to evaluate the terms of the investment advisory agreement.
The Board of Trustees (the “Board” or the “Trustees”, as appropriate) calls and holds one or more meetings each year that are dedicated, in whole or in part, to considering whether to renew the investment advisory agreement between Schwab Annuity Portfolios (the “Trust”) and Charles Schwab Investment Management, Inc. (“CSIM”) (the “Agreement”) with respect to the existing funds in the Trust, including Schwab Money Market Portfolio, and to review certain other agreements pursuant to which CSIM provides investment advisory services to certain other registered investment companies. In preparation for the meeting(s), the Board requests and reviews a wide variety of materials provided by CSIM, including information about CSIM’s affiliates, personnel and operations. The Board also receives extensive data provided by third parties. This information is in addition to the detailed information about the fund that the Board reviews during the course of each year, including information that relates to fund operations and fund performance. The Independent Trustees receive advice from independent counsel to the Independent Trustees, including a memorandum regarding the responsibilities of trustees for the approval of investment advisory agreements. In addition, the Independent Trustees meet in executive session outside the presence of fund management and participate in question and answer sessions with representatives of CSIM.
The Board, including a majority of the Independent Trustees, considered information specifically relating to its consideration of continuance of the Agreement with respect to the fund at meetings held on April 28, 2010, and June 3, 2010, and approved the renewal of the Agreement with respect to the fund for an additional one year term at the meeting held on June 3, 2010. The Board’s approval of the Agreement with respect to the fund was based on consideration and evaluation of a variety of specific factors discussed at these meetings and at prior meetings, including:
1. | the nature, extent and quality of the services provided to the fund under the Agreement, including the resources of CSIM and its affiliates dedicated to the fund; |
2. | the fund’s investment performance and how it compared to that of certain other comparable mutual funds; |
3. | the fund’s expenses and how those expenses compared to those of certain other comparable mutual funds; |
4. | the profitability of CSIM and its affiliates, including Charles Schwab & Co., Inc. (“Schwab”), with respect to the fund, including both direct and indirect benefits accruing to CSIM and its affiliates; and |
5. | the extent to which economies of scale would be realized as the fund grows and whether fee levels in the Agreement reflect those economies of scale for the benefit of fund investors. |
Nature, Extent and Quality of Services. The Board considered the nature, extent and quality of the services provided by CSIM to the fund and the resources of CSIM and its affiliates dedicated to the fund. In this regard, the Trustees evaluated, among other things, CSIM’s personnel, experience, track record and compliance program. The Trustees also considered Schwab’s wide range of products, services, and channel alternatives such as free advice, investment research tools and Internet access and an array of account features that benefit the fund and its shareholders. Following such evaluation, the Board concluded, within the context of its full deliberations, that the nature, extent and quality of services provided by CSIM to the fund and the resources of CSIM and its affiliates dedicated to the fund supported renewal of the Agreement with respect to the fund.
Fund Performance. The Board considered the fund’s performance in determining whether to renew the Agreement with respect to the fund. Specifically, the Trustees considered the fund’s performance relative to a peer category of other mutual funds and appropriate indices/benchmarks, in light of total return and market trends. As part of this review, the Trustees considered the composition of the peer category, selection criteria and the reputation of the third party who prepared the peer category analysis. In evaluating the performance of the fund, the Trustees considered both risk and shareholder risk expectations for the fund and the appropriateness of the benchmark used to compare the performance of the fund. The Trustees further considered the level of fund performance in the context of its review of fund expenses and adviser profitability discussed below. Following such evaluation the Board concluded, within the context of its full
18
deliberations, that the performance of the fund supported renewal of the Agreement with respect to the fund.
Fund Expenses. With respect to the fund’s expenses, the Trustees considered the rate of compensation called for by the Agreement, and the fund’s net operating expense ratio, in each case, in comparison to those of other comparable mutual funds, such peer groups and comparisons having been selected and calculated by an independent third party. The Trustees considered the effects of CSIM’s and Schwab’s historical practice of voluntarily waiving management and other fees to prevent total fund expenses from exceeding a specified cap. The Trustees also considered fees charged by CSIM to other mutual funds and to other types of accounts, such as wrap accounts, but, with respect to such other types of accounts, accorded less weight to such comparisons due to the different legal, regulatory, compliance and operating features of mutual funds as compared to these other types of accounts, and the unique insurance dedicated distribution arrangements of the fund as compared to other funds managed by CSIM. Following such evaluation, the Board concluded, within the context of its full deliberations, that the expenses of the fund are reasonable and supported renewal of the Agreement with respect to the fund.
Profitability. With regard to profitability, the Trustees considered the compensation flowing to CSIM and its affiliates, directly or indirectly. In this connection, the Trustees reviewed management’s profitability analyses, together with certain commentary thereon from an independent accounting firm. The Trustees also considered any other benefits derived by CSIM from its relationship with the fund, such as whether, by virtue of its management of the fund, CSIM obtains investment information or other research resources that aid it in providing advisory services to other clients. The Trustees considered whether the varied levels of compensation and profitability with respect to the fund under the Agreement and other service agreements were reasonable and justified in light of the quality of all services rendered to the fund by CSIM and its affiliates. Based on this evaluation, the Board concluded, within the context of its full deliberations, that the profitability of CSIM is reasonable and supported renewal of the Agreement with respect to the fund.
Economies of Scale. The Trustees considered the existence of any economies of scale and whether those are passed along to the fund’s shareholders through a graduated investment advisory fee schedule or other means, including any fee waivers by CSIM and its affiliates. In this regard, and consistent with their consideration of fund expenses, the Trustees considered that CSIM and Schwab have previously committed resources to minimize the effects on shareholders of diseconomies of scale during periods when fund assets were relatively small through their contractual expense waivers. For example, such diseconomies of scale may particularly affect newer funds or funds with investment strategies that are from time to time out of favor, but shareholders may benefit from the continued availability of such funds at subsidized expense levels. Based on this evaluation, the Board concluded, within the context of its full deliberations, that the fund obtains reasonable benefit from economies of scale.
In the course of their deliberations, the Trustees did not identify any particular information or factor that was all important or controlling. Based on the Trustees’ deliberation and their evaluation of the information described above, the Board, including all of the Independent Trustees, approved the continuation of the Agreement with respect to the fund and concluded that the compensation under the Agreement with respect to the fund is fair and reasonable in light of such services and expenses and such other matters as the Trustees have considered to be relevant in the exercise of their reasonable judgment.
19
Trustees and Officers
The tables below give information about the trustees and officers for Schwab Annuity Portfolios which includes the fund covered in this report. The “Fund Complex” includes The Charles Schwab Family of Funds, Schwab Capital Trust, Schwab Investments, Schwab Annuity Portfolios, Schwab Strategic Trust, Laudus Trust and Laudus Institutional Trust. The Fund Complex includes 84 funds.
The address for all trustees and officers is 211 Main Street, San Francisco, CA 94105. You can find more information about the trustees and officers in the Statement of Additional Information, which is available free by calling 1-800-435-4000.
Independent Trustees
Name, Year of Birth, | Number of | |||||
and Position(s) with | Portfolios in | |||||
the trust; (Terms of | Fund Complex | |||||
office, and length of | Principal Occupations | Overseen by | ||||
Time Served1) | During the Past Five Years | the Trustee | Other Directorships | |||
Mariann Byerwalter 1960 Trustee (Trustee of Schwab Annuity Portfolios since 2000.) | Chairman of JDN Corporate Advisory LLC. | 73 | Director, Redwood Trust, Inc. (1998 – present) Director, PMI Group Inc. (2001 – 2009) Director, Excelsior Funds (2006 – 2007) | |||
John F. Cogan 1947 Trustee (Trustee of Schwab Annuity Portfolios since 2008.) | Senior Fellow: The Hoover Institution at Stanford University (Oct. 1979 – present); Senior Fellow Stanford Institute for Economic Policy Research; Professor of Public Policy, Stanford University (Sept. 1994 – present). | 73 | Director, Gilead Sciences, Inc. (2005 – present) Director, Monaco Coach Corporation (2005 – 2009) | |||
William A. Hasler 1941 Trustee (Trustee of Schwab Annuity Portfolios since 2000.) | Dean Emeritus, Haas School of Business, University of California, Berkeley (July 1998 – present). | 73 | Director, Ditech Networks Corporation (1997 – present) Director, TOUSA (1998 – present) Director, Mission West Properties (1998 – present) Director, Globalstar, Inc. (2009 – present) Director, Harris-Stratex Networks (2001 – present) Director, Aphton Corp. (1991 – 2007) Director, Solectron Corporation (1998 – 2007) Director, Genitope Corporation (2000 – 2009) Director, Excelsior Funds (2006 – 2007) | |||
Gerald B. Smith 1950 Trustee (Trustee of Schwab Annuity Portfolios since 2000.) | Chairman, Chief Executive Officer and Founder of Smith Graham & Co. (investment advisors) (1990 – present). | 73 | Lead Independent Director, Board of Cooper Industries (2002 – present) Director and Chairman of the Audit Committee, Oneok Partners LP (2003 – present) Director, Oneok, Inc (2009 – present) | |||
Donald R. Stephens 1938 Trustee (Trustee of Schwab Annuity Portfolios since 1994.) | Managing Partner, D.R. Stephens & Company (investments) (1973 – present). | 73 | None | |||
20
Independent Trustees (continued)
Name, Year of Birth, | Number of | |||||
and Position(s) with | Portfolios in | |||||
the trust; (Terms of | Fund Complex | |||||
office, and length of | Principal Occupations | Overseen by | ||||
Time Served1) | During the Past Five Years | the Trustee | Other Directorships | |||
Joseph H. Wender 1944 Trustee (Trustee of Schwab Annuity Portfolios since 2008.) | Senior Consultant, Goldman Sachs & Co., Inc. (Jan. 2008- present); Partner, Colgin Partners, LLC (vineyards) (February 1998 – present); Senior Director, Chairman of the Finance Committee, GSC Group (July 2005 – Dec. 2007); General Partner, Goldman Sachs & Co., Inc. (Oct. 1982 – June 2005). | 73 | Board Member and Chairman of the Audit Committee, Isis Pharmaceuticals (1994 – present) | |||
Michael W. Wilsey 1943 Trustee (Trustee of Schwab Annuity Portfolios since 1993.) | Chairman and Chief Executive Officer, Wilsey Bennett, Inc. (real estate investment and management, and other investments). | 73 | None | |||
Interested Trustees
Name, Year of Birth, | Number of | |||||
and Position(s) with | Portfolios in | |||||
the trust; (Terms of | Fund Complex | |||||
office, and length of | Principal Occupations | Overseen by | ||||
Time Served ) | During the Past Five Years | the Trustee | Other Directorships | |||
Charles R. Schwab2 1937 Chairman and Trustee (Chairman and Trustee of Schwab Annuity Portfolios since 1994.) | Chairman and Director, The Charles Schwab Corporation, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc., Charles Schwab Bank, N. A.; Chairman and Chief Executive Officer, Schwab (SIS) Holdings Inc. I, Schwab International Holdings, Inc.; Chief Executive Officer, Schwab Holdings, Inc.; Through June 2007, Director, U.S. Trust Company, N. A., U.S. Trust Corporation, United States Trust Company of New York. Until October 2008, Chief Executive Officer, The Charles Schwab Corporation, Charles Schwab & Co., Inc. | 73 | None | |||
Walter W. Bettinger II2 1960 Trustee (Trustee of Schwab Annuity Portfolios since 2008.) | As of October 2008, President and Chief Executive Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation. Since October 2008, Director, The Charles Schwab Corporation. Since May 2008, Director, Charles Schwab & Co., Inc. and Schwab Holdings, Inc. Since 2006, Director, Charles Schwab Bank. From 2004 through 2007, Executive Vice President and President, Schwab Investor Services. From 2004 through 2005, Executive Vice President and Chief Operating Officer, Individual Investor Enterprise, and from 2002 through 2004, Executive Vice President, Corporate Services. Until October 2008, President and Chief Operating Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation. | 84 | None | |||
21
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 | |
Randall W. Merk 1954 President and Chief Executive Officer (Officer of Schwab Annuity Portfolios since 2004.) | Executive Vice President and President, Investment Management Services, Charles Schwab & Co., Inc. (August 2004 – present); Executive Vice President, Charles Schwab & Co., Inc. (2002 – present); Director, President and Chief Executive Officer, Charles Schwab Investment Management, Inc. (August 2007 – present); Director, Charles Schwab Asset Management (Ireland) Limited and Charles Schwab Worldwide Funds PLC (Sept. 2002 – present); President and Chief Executive Officer, Schwab Strategic Trust (Oct. 2009 – present); Trustee (June 2006 – Dec. 2009), President and Chief Executive Officer (July 2007 – March 2008, July 2010 – present), Laudus Trust and Laudus Institutional Trust; President and Chief Executive Officer, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc. and Excelsior Funds Trust (June 2006 – June 2007). | |
George Pereira 1964 Treasurer and Principal Financial Officer (Officer of Schwab Annuity Portfolios since 2004.) | Senior Vice President and Chief Financial Officer, Charles Schwab Investment Management, Inc. (November 2004 – present); Treasurer and Chief Financial Officer, Laudus Trust and Laudus Institutional Trust (2006 – present); Treasurer and Principal Financial Officer, Schwab Strategic Trust (Oct. 2009 – present); Director, Charles Schwab Worldwide Fund, PLC and Charles Schwab Asset Management (Ireland) Limited (April 2005 – present); Treasurer, Chief Financial Officer and Chief Accounting Officer, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc., and Excelsior Funds Trust (June 2006 – June 2007). | |
Koji E. Felton 1961 Secretary and Chief Legal Officer (Officer of Schwab Annuity Portfolios since 1998.) | Senior Vice President, Chief Counsel and Corporate Secretary, Charles Schwab Investment Management, Inc. (July 2000 – present); Senior Vice President and Deputy General Counsel, Charles Schwab & Co., Inc. (June 1998 – present); Vice President and Assistant Clerk, Laudus Trust and Laudus Institutional Trust (Jan. 2010 – present); Chief Legal Officer and Secretary, Schwab Strategic Trust (Oct. 2009 – present); Chief Legal Officer and Secretary, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc., and Excelsior Funds Trust (June 2006 – June 2007). | |
Catherine MacGregor 1964 Vice President (Officer of Schwab Annuity Portfolios since 2005.) | Vice President, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. (July 2005 – present); Vice President (Dec. 2005 – present), Chief Legal Officer and Clerk (March 2007 – present) of Laudus Trust and Laudus Institutional Trust; Vice President, Schwab Strategic Trust (Oct. 2009 – present). | |
Michael Haydel 1972 Vice President (Officer of Schwab Annuity Portfolios since 2006.) | Vice President, Asset Management Client Services, Charles Schwab & Co., Inc. (2004 – present); Vice President (Sept. 2005 – present), Anti-Money Laundering Officer (Oct. 2005 – Feb. 2009), Laudus Trust, Laudus Institutional Trust; Vice President, Schwab Strategic Trust (Oct. 2009 – present). | |
1 | Trustees remain in office until they resign, retire or are removed by shareholder vote. The Schwab Funds® retirement policy requires that independent trustees elected after January 1, 2000 retire at age 72 or after 20 years of service as a trustee, whichever comes first, provided that any trustee who serves on both Schwab Funds and Laudus Funds retires from both boards when first required to retire by either board. Independent trustees elected prior to January 1, 2000 will retire on the following schedule: Messrs. Stephens and Wilsey will retire on December 31, 2010. | |
2 | Mr. Schwab and Mr. Bettinger are Interested Trustees because they are employees of Schwab and/or the investment adviser. In addition to their employment with Schwab and/or the investment adviser, Messrs. Schwab and Bettinger also own stock of The Charles Schwab Corporation. | |
3 | The President, Treasurer and Secretary hold office until their respective successors are chosen and qualified or until he or she sooner dies, resigns, is removed or becomes disqualified. Each of the other officers serves at the pleasure of the Board. |
22
Large-Cap Blend | |||
Schwab S&P 500 Index Portfolio | |||
Large-Cap Semiannual report dated June 30, 2010 |
An investor should consider a fund’s investment objectives, risks, and charges and expenses carefully before investing or sending money. This and other important information can be found in the fund’s prospectus. Please call 1-888-311-4887 for a prospectus. Please read the prospectus carefully before you invest.
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 Schwab’s website at www.schwabfunds.com/prospectus, the SEC’s website at www.sec.gov, or by contacting Schwab Funds at 1-800-435-4000.
Information regarding how a fund voted proxies relating to portfolio securities during the most recent twelve-month period ended December 31 is available, without charge, by visiting Schwab’s website at www.schwabfunds.com/prospectus or the SEC’s website at www.sec.gov.
The Sector/Industry classifications in this report use the Global Industry Classification Standard (GICS) which was developed by and is the exclusive property of Morgan Stanley Capital International Inc. (MSCI) and Standard & Poor’s (S&P). GICS is a service mark of MSCI and S&P and has been licensed for use by Charles Schwab & Co., Inc. The Industry classifications used in the schedules of Portfolio Holdings are sub-categories of Sector classifications.
The Investment Environment
The pace of the U.S. economy’s recovery remained uneven during the six-month period. The Federal Reserve (Fed) recently reported that the “the economic recovery is proceeding” and that “the labor market is improving gradually,” but challenges remain. With the labor market improving gradually, spending by consumers and businesses also inched upward. However, these mild advances were constrained by a national unemployment rate that hovered around 10% and a housing market that continued to struggle. Real Gross Domestic Product (GDP) growth, another market indicator, increased by 2.7% for the first quarter of 2010, which contrasted with its increase of 5.6% for the fourth quarter of 2009. GDP is the output of goods and services produced by labor and property in the United States.
At the international level, financial markets fluctuated during the reporting period. In Europe, sovereign debt obligations reached unprecedented levels, and were followed by downgrades in the ratings of many foreign credit securities. The news caused temporary turmoil in the U.S. and global financial markets in early May. While the markets have seen some recovery to pre-May levels, central banks remain attentive to debt ratios, monetary exchange rates, interest rates, and inflation measurements.
The U.S. equity markets outperformed international equity markets during the six-month period, however both had negative returns. For example, the S&P 500® Index, which is usually seen as a bellwether for domestic financial markets, returned −6.65%. All sectors in the S&P 500 had negative returns. For the international equity markets, the MSCI EAFE Index (Gross) returned −12.93%.
In the U.S. fixed income markets, accommodative Federal Reserve policy in the form of a near-zero federal funds rate continued, and recent statements from the Fed affirmed that rates will remain low “for an extended period.” In addition, the euro-debt concerns that crystallized in May put downward pressure on U.S. Treasury rates for intermediate- and longer-term bonds. During this time, investors sought a safe haven in U.S. Treasuries, causing prices to increase and yields to decrease to a range of two-to-three percent for the intermediate- and longer-term bonds.
The low interest rate environment, combined with a limited supply of short-term, high-quality taxable and tax-free credit securities, also suppressed short-term yields in the fixed income markets, to nearly zero percent. Securities normally purchased by money market funds were in short supply and had low rates of return.
Similar to the intermediate returns seen in U.S. Treasuries, returns for intermediate-term taxable securities, as reflected in the Barclays Capital U.S. Aggregate Intermediate Bond Index, were positive and stood at 4.78% for the six-month period. On the tax-free side, returns were more modest. The Barclays Capital General Muni Bond Index returned 3.31% for the same time frame. Overall, the past six months were characterized by negative returns in the U.S. and international equity markets, with modest relief provided by the fixed income markets.
Asset Class Performance Comparison % returns during the report period
This graph compares the performance of various asset classes during the report period. Final performance figures for the period are in the key below.
−6.65% | S&P 500® Index: measures U.S. large-cap stocks | |||
−1.95% | Russell 2000® Index: measures U.S. small-cap stocks | |||
−12.93% | MSCI EAFE® Index (Gross): measures (in U.S. dollars) large-cap stocks in Europe, Australasia and the Far East | |||
5.33% | Barclays Capital U.S. Aggregate Bond Index: measures the U.S. bond market | |||
0.05% | Three-Month U.S. Treasury Bills (T-bills): measures short-term U.S. Treasury obligations |
Nothing in this report represents a recommendation of a security by the investment adviser.
Manager views and portfolio holdings may have changed since the report date.
Schwab S&P 500 Index Portfolio 1
Portfolio Management
Larry Mano, a managing director and portfolio manager of the investment adviser, is responsible for the day-to-day co-management of the portfolio. Prior to joining the firm in November 1998, he worked for 20 years in equity management. | ||
Ron Toll, a portfolio manager of the investment adviser, is responsible for the day-to-day co-management of the portfolio. He joined the firm in 1998, became Manager, Portfolio Operations in 2000, Manager, Portfolio Operations and Analytics in 2005 and was named to his current position in 2007. |
2 Schwab S&P 500 Index Portfolio
Schwab S&P 500 Index Portfolio
The Schwab S&P 500 Index Portfolio (the fund) returned -6.77% for the six-month period, while the fund’s comparative index, the S&P 500 Index, returned -6.65%. Unlike the fund, the index does not include operational and transactional costs. The S&P 500 Index includes the stocks of 500 leading U.S. publicly traded companies from a broad range of industries and is market-capitalization weighted. Therefore, its returns are most influenced by the largest companies in the index.
When looking at returns in the S&P 500 Index on a sector specific level, all sectors had negative performance for the period. Industrials was the best performing sector, returning -0.85%, and Materials was the weakest sector returning -12.87%. The U.S. equity market was characterized by negative returns for small-, mid-, and large-cap stocks, and in both the value and growth categories. While small-cap stocks outperformed large- and mid-cap, the equity market was challenged throughout the period.
6/30/10:
Style Assessment1
Statistics
Number of Holdings | 503 | |
Weighted Average Market Cap ($ x 1,000,000) | $72,869 | |
Price/Earnings Ratio (P/E) | 16.2 | |
Price/Book Ratio (P/B) | 2.0 | |
Portfolio Turnover Rate2 | 2% |
Sector Weightings % of Investments
Information Technology | 18.7% | |
Financials | 16.1% | |
Health Care | 12.1% | |
Consumer Staples | 11.6% | |
Energy | 10.6% | |
Industrials | 10.4% | |
Consumer Discretionary | 10.1% | |
Utilities | 3.8% | |
Materials | 3.4% | |
Telecommunication Services | 3.0% | |
Other | 0.2% | |
Total | 100.0% |
Top Holdings % of Net Assets3
Exxon Mobil Corp. | 3.1% | |
Apple, Inc. | 2.4% | |
Microsoft Corp. | 1.9% | |
The Procter & Gamble Co. | 1.9% | |
Johnson & Johnson | 1.7% | |
International Business Machines Corp. | 1.7% | |
General Electric Co. | 1.6% | |
JPMorgan Chase & Co. | 1.6% | |
Bank of America Corp. | 1.5% | |
AT&T, Inc. | 1.5% | |
Total | 18.9% |
Manager views and portfolio holdings may have changed since the report date.
Source of Sector Classification: S&P and MSCI.
Standard & Poor’s®, S&P®, S&P 500®, Standard & Poor’s 500® and 500® are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by the portfolio. The portfolio is not sponsored, endorsed, sold or promoted by Standard & Poor’s, and Standard & Poor’s makes no representation regarding the advisability of investing in the portfolio.
1 | Source: Morningstar, Inc. This style assessment is the result of evaluating the portfolio based on a ten-factor model for value and growth characteristics. The portfolio’s market capitalization placement is determined by the geometric mean of its holdings’ market capitalizations. The assessment reflects the portfolio as of 6/30/10, which may have changed since then, and is not a precise indication of risk or performance—past, present, or future. | |
2 | Not annualized. | |
3 | This list is not a recommendation of any security by the investment adviser. |
Schwab S&P 500 Index Portfolio 3
Schwab S&P 500 Index Portfolio
Performance Summary as of 6/30/10
The performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value will fluctuate so that an investor’s shares may be worth more or less than their original cost. Current performance may be lower or higher than performance data quoted. To obtain performance information current to the most recent month end, please visit www.schwabfunds.com/prospectus.
June 30, 2000 – June 30, 2010
Performance of a Hypothetical
$10,000 Investment
Performance of a Hypothetical
$10,000 Investment
Average Annual Total Returns1,2
Portfolio and Inception Date | 6 Months | 1 Year | 5 Years | 10 Years | ||||||||||||||||
Portfolio: Schwab S&P 500 Index Portfolio (11/1/96) | -6.77 | % | 14.08 | % | -0.82 | % | -1.75 | % | ||||||||||||
S&P 500® Index | -6.65 | % | 14.43 | % | -0.79 | % | -1.59 | % | ||||||||||||
Fund Category: Morningstar Large-Cap Blend | -7.81 | % | 12.00 | % | -2.06 | % | -1.92 | % |
Portfolio Expense Ratios3: Net 0.28%; Gross 0.29%
All figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly.
1 | Standard & Poor’s®, S&P®, S&P 500®, Standard & Poor’s 500® and 500® are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by the portfolio. The portfolio is not sponsored, endorsed, sold or promoted by Standard & Poor’s, and Standard & Poor’s makes no representation regarding the advisability of investing in the portfolio. | |
2 | Source for category information: Morningstar, Inc. | |
3 | As stated in the prospectus. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual ratios during the period, refer to the financial highlights section of the financial statements. |
4 Schwab S&P 500 Index Portfolio
Fund Expenses (Unaudited)
Examples for a $1,000 Investment
The fund incurs ongoing costs, such as management fees, transfer agent and shareholder services fees, and other fund expenses.
The expense examples below are intended to help you understand your ongoing cost (in dollars) of investing in a fund and to compare this cost with the ongoing cost of investing in other mutual funds. These examples are based on an investment of $1,000 invested for six months beginning January 1, 2010 and held through June 30, 2010.
The Actual Return line in the table below provides information about actual account values and actual expenses. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value ¸ $1,000 = 8.6), then multiply the result by the number given for your fund or share class under the heading entitled “Expenses Paid During Period.”
The Hypothetical Return line in the table below provides information about hypothetical account values and hypothetical expenses based on a fund’s or share class’ actual expense ratio and an assumed return of 5% per year before expenses. Because the return used is not an actual return, it may not be used to estimate the actual ending account value or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs.
Ending | ||||||||||||||||
Beginning | Account Value | Expenses Paid | ||||||||||||||
Expense Ratio1 | Account Value | (Net of Expenses) | During Period2 | |||||||||||||
(Annualized) | at 1/1/10 | at 6/30/10 | 1/1/10–6/30/10 | |||||||||||||
Schwab S&P 500 Index Portfolio | ||||||||||||||||
Actual Return | 0.27% | $ | 1,000 | $ | 932.30 | $ | 1.29 | |||||||||
Hypothetical 5% Return | 0.27% | $ | 1,000 | $ | 1,023.46 | $ | 1.35 |
1 | Based on the most recent six-month expense ratio; may differ from the expense ratio provided in Financial Highlights. | |
2 | Expenses for the portfolio are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by 181 days of the period, and divided by 365 days of the fiscal year. |
Schwab S&P 500 Index Portfolio 5
Schwab S&P 500 Index Portfolio
Financial Statements
Financial Highlights
1/1/10– | 1/1/09– | 1/1/08– | 1/1/07– | 1/1/06– | 1/1/05– | |||||||||||||||||||||
6/30/10* | 12/31/09 | 12/31/08 | 12/31/07 | 12/31/06 | 12/31/05 | |||||||||||||||||||||
Per-Share Data ($) | ||||||||||||||||||||||||||
Net asset value at beginning of period | 16.24 | 13.18 | 21.37 | 20.60 | 18.09 | 17.56 | ||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||
Net investment income (loss) | 0.16 | 0.31 | 0.37 | 0.39 | 0.34 | 0.31 | ||||||||||||||||||||
Net realized and unrealized gains (losses) | (1.26 | ) | 3.14 | (8.18 | ) | 0.71 | 2.48 | 0.53 | ||||||||||||||||||
Total from investment operations | (1.10 | ) | 3.45 | (7.81 | ) | 1.10 | 2.82 | 0.84 | ||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||
Distributions from net investment income | — | (0.39 | ) | (0.38 | ) | (0.33 | ) | (0.31 | ) | (0.31 | ) | |||||||||||||||
Net asset value at end of period | 15.14 | 16.24 | 13.18 | 21.37 | 20.60 | 18.09 | ||||||||||||||||||||
Total return (%) | (6.77 | )1 | 26.18 | (36.56 | ) | 5.34 | 15.60 | 4.75 | ||||||||||||||||||
Ratios/Supplemental Data (%) | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||
Net operating expenses | 0.27 | 2 | 0.28 | 0.26 | 0.25 | 0.28 | 0.27 | |||||||||||||||||||
Gross operating expenses | 0.28 | 2 | 0.30 | 0.26 | 0.25 | 0.31 | 0.30 | |||||||||||||||||||
Net investment income (loss) | 1.71 | 2 | 2.10 | 2.10 | 1.74 | 1.67 | 1.59 | |||||||||||||||||||
Portfolio turnover rate | 2 | 1 | 4 | 3 | 2 | 3 | 4 | |||||||||||||||||||
Net assets, end of period ($ x 1,000,000) | 113 | 127 | 105 | 169 | 167 | 157 |
* Unaudited.
1 Not annualized.
2 Annualized.
6 See financial notes
Schwab S&P 500 Index Portfolio
Portfolio Holdings as of June 30, 2010 (Unaudited)
This section shows all the securities in the fund’s portfolio and their values as of the report date.
The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the SEC’s website at http://www.sec.gov and may be viewed and copied at the SEC’s Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on a fund’s most recent Form N-Q is also available by visiting Schwab’s website at www.schwabfunds.com/prospectus.
Cost | Value | |||||||||||
Holdings by Category | ($) | ($) | ||||||||||
99 | .7% | Common Stock | 97,479,688 | 112,523,075 | ||||||||
0 | .2% | Short-Term Investments | 245,380 | 245,362 | ||||||||
99 | .9% | Total Investments | 97,725,068 | 112,768,437 | ||||||||
0 | .2% | Collateral Invested for Securities on Loan | 245,676 | 245,676 | ||||||||
(0 | .1)% | Other Assets and Liabilities, Net | (111,266 | ) | ||||||||
100 | .0% | Net Assets | 112,902,847 |
Number | Value | |||||||
Security | of Shares | ($) | ||||||
Common Stock 99.7% of net assets | ||||||||
Automobiles & Components 0.6% | ||||||||
Ford Motor Co. * | 38,812 | 391,226 | ||||||
Harley-Davidson, Inc. | 3,256 | 72,381 | ||||||
Johnson Controls, Inc. | 7,500 | 201,525 | ||||||
The Goodyear Tire & Rubber Co. * | 2,500 | 24,850 | ||||||
689,982 | ||||||||
Banks 3.1% | ||||||||
BB&T Corp. | 8,820 | 232,054 | ||||||
Comerica, Inc. | 2,330 | 85,814 | ||||||
Fifth Third Bancorp | 7,705 | 94,694 | ||||||
First Horizon National Corp. * | 3,005 | 34,405 | ||||||
Hudson City Bancorp, Inc. | 5,700 | 69,768 | ||||||
Huntington Bancshares, Inc. | 4,856 | 26,902 | ||||||
KeyCorp | 8,700 | 66,903 | ||||||
M&T Bank Corp. | 1,071 | 90,981 | ||||||
Marshall & Ilsley Corp. | 3,438 | 24,685 | ||||||
People’s United Financial, Inc. | 4,600 | 62,100 | ||||||
PNC Financial Services Group, Inc. | 6,411 | 362,222 | ||||||
Regions Financial Corp. | 15,227 | 100,194 | ||||||
SunTrust Banks, Inc. | 6,400 | 149,120 | ||||||
U.S. Bancorp | 22,999 | 514,028 | ||||||
Wells Fargo & Co. | 62,358 | 1,596,365 | ||||||
Zions Bancorp | 1,508 | 32,528 | ||||||
3,542,763 | ||||||||
Capital Goods 7.8% | ||||||||
3M Co. | 8,630 | 681,684 | ||||||
Caterpillar, Inc. | 7,480 | 449,324 | ||||||
Cummins, Inc. | 2,400 | 156,312 | ||||||
Danaher Corp. | 6,252 | 232,074 | ||||||
Deere & Co. | 5,240 | 291,763 | ||||||
Dover Corp. | 2,300 | 96,117 | ||||||
Eaton Corp. | 1,740 | 113,866 | ||||||
Emerson Electric Co. | 9,360 | 408,938 | ||||||
Fastenal Co. | 1,276 | 64,042 | ||||||
Flowserve Corp. | 600 | 50,880 | ||||||
Fluor Corp. | 2,200 | 93,500 | ||||||
General Dynamics Corp. | 4,710 | 275,818 | ||||||
General Electric Co. | 128,568 | 1,853,950 | ||||||
Goodrich Corp. | 1,660 | 109,975 | ||||||
Honeywell International, Inc. | 9,337 | 364,423 | ||||||
Illinois Tool Works, Inc. | 4,844 | 199,960 | ||||||
ITT Corp. | 2,380 | 106,910 | ||||||
Jacobs Engineering Group, Inc. * | 1,500 | 54,660 | ||||||
L-3 Communications Holdings, Inc. | 1,500 | 106,260 | ||||||
Lockheed Martin Corp. | 3,930 | 292,785 | ||||||
Masco Corp. | 5,010 | 53,908 | ||||||
Northrop Grumman Corp. | 3,654 | 198,924 | ||||||
PACCAR, Inc. | 4,194 | 167,215 | ||||||
Pall Corp. | 1,400 | 48,118 | ||||||
Parker Hannifin Corp. | 2,035 | 112,861 | ||||||
Precision Castparts Corp. | 1,700 | 174,964 | ||||||
Quanta Services, Inc. * | 2,500 | 51,625 | ||||||
Raytheon Co. | 4,610 | 223,078 | ||||||
Rockwell Automation, Inc. | 1,690 | 82,962 | ||||||
Rockwell Collins, Inc. | 2,000 | 106,260 | ||||||
Roper Industries, Inc. | 1,200 | 67,152 | ||||||
Snap-on, Inc. | 800 | 32,728 | ||||||
Textron, Inc. | 3,400 | 57,698 | ||||||
The Boeing Co. | 9,196 | 577,049 | ||||||
United Technologies Corp. | 11,430 | 741,921 | ||||||
W.W. Grainger, Inc. | 800 | 79,560 | ||||||
8,779,264 | ||||||||
Commercial & Professional Supplies 0.7% | ||||||||
Avery Dennison Corp. | 1,100 | 35,343 | ||||||
Cintas Corp. | 1,157 | 27,733 | ||||||
Equifax, Inc. | 1,600 | 44,896 | ||||||
Iron Mountain, Inc. | 2,400 | 53,904 | ||||||
Pitney Bowes, Inc. | 2,800 | 61,488 | ||||||
R.R. Donnelley & Sons Co. | 2,560 | 41,907 | ||||||
Republic Services, Inc. | 4,236 | 125,936 | ||||||
Robert Half International, Inc. | 1,550 | 36,503 | ||||||
Stericycle, Inc. * | 1,100 | 72,138 | ||||||
The Dun & Bradstreet Corp. | 700 | 46,984 | ||||||
Waste Management, Inc. | 6,127 | 191,714 | ||||||
738,546 | ||||||||
Consumer Durables & Apparel 1.0% | ||||||||
Coach, Inc. | 3,700 | 135,235 | ||||||
D.R. Horton, Inc. | 2,500 | 24,575 | ||||||
Eastman Kodak Co. * | 3,155 | 13,693 | ||||||
Fortune Brands, Inc. | 1,607 | 62,962 | ||||||
Harman International Industries, Inc. * | 800 | 23,912 | ||||||
Hasbro, Inc. | 1,475 | 60,623 | ||||||
Leggett & Platt, Inc. | 2,300 | 46,138 | ||||||
Lennar Corp., Class A | 1,600 | 22,256 | ||||||
Mattel, Inc. | 4,700 | 99,452 | ||||||
Newell Rubbermaid, Inc. | 3,924 | 57,447 |
See financial notes 7
Schwab S&P 500 Index Portfolio
��
Portfolio Holdings (Unaudited) continued
Number | Value | |||||||
Security | of Shares | ($) | ||||||
NIKE, Inc., Class B | 4,620 | 312,081 | ||||||
Polo Ralph Lauren Corp. | 700 | 51,072 | ||||||
Pulte Group, Inc. * | 3,365 | 27,862 | ||||||
Stanley Black & Decker, Inc. | 1,423 | 71,890 | ||||||
VF Corp. | 1,110 | 79,010 | ||||||
Whirlpool Corp. | 933 | 81,936 | ||||||
1,170,144 | ||||||||
Consumer Services 1.8% | ||||||||
Apollo Group, Inc., Class A * | 1,327 | 56,358 | ||||||
Carnival Corp. | 5,222 | 157,913 | ||||||
Darden Restaurants, Inc. | 1,590 | 61,771 | ||||||
DeVry, Inc. | 600 | 31,494 | ||||||
H&R Block, Inc. | 4,200 | 65,898 | ||||||
International Game Technology | 4,200 | 65,940 | ||||||
Marriott International, Inc., Class A | 3,057 | 91,527 | ||||||
McDonald’s Corp. | 12,910 | 850,382 | ||||||
Starbucks Corp. | 9,520 | 231,336 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | 2,340 | 96,946 | ||||||
Wyndham Worldwide Corp. | 2,280 | 45,919 | ||||||
Wynn Resorts Ltd. | 800 | 61,016 | ||||||
Yum! Brands, Inc. | 5,600 | 218,624 | ||||||
2,035,124 | ||||||||
Diversified Financials 7.7% | ||||||||
American Express Co. | 14,580 | 578,826 | ||||||
Ameriprise Financial, Inc. | 3,278 | 118,434 | ||||||
Bank of America Corp. | 120,867 | 1,736,859 | ||||||
Bank of New York Mellon Corp. | 14,777 | 364,844 | ||||||
Capital One Financial Corp. | 5,480 | 220,844 | ||||||
Citigroup, Inc. * | 258,099 | 970,452 | ||||||
CME Group, Inc. | 760 | 213,978 | ||||||
Discover Financial Services | 6,890 | 96,322 | ||||||
E*TRADE Financial Corp. * | 516 | 6,099 | ||||||
Federated Investors, Inc., Class B | 1,100 | 22,781 | ||||||
Franklin Resources, Inc. | 1,900 | 163,761 | ||||||
IntercontinentalExchange, Inc. * | 1,000 | 113,030 | ||||||
Invesco Ltd. | 5,100 | 85,833 | ||||||
Janus Capital Group, Inc. | 1,941 | 17,236 | ||||||
JPMorgan Chase & Co. | 47,821 | 1,750,727 | ||||||
Legg Mason, Inc. | 1,500 | 42,045 | ||||||
Leucadia National Corp. * | 2,300 | 44,873 | ||||||
Moody’s Corp. | 2,680 | 53,386 | ||||||
Morgan Stanley | 16,680 | 387,143 | ||||||
Northern Trust Corp. | 3,070 | 143,369 | ||||||
NYSE Euronext | 3,300 | 91,179 | ||||||
SLM Corp. * | 5,900 | 61,301 | ||||||
State Street Corp. | 5,900 | 199,538 | ||||||
T. Rowe Price Group, Inc. | 3,100 | 137,609 | ||||||
The Charles Schwab Corp. (a) | 11,906 | 168,827 | ||||||
The Goldman Sachs Group, Inc. | 6,317 | 829,233 | ||||||
The NASDAQ OMX Group, Inc. * | 1,800 | 32,004 | ||||||
8,650,533 | ||||||||
Energy 10.6% | ||||||||
Anadarko Petroleum Corp. | 6,094 | 219,932 | ||||||
Apache Corp. | 4,108 | 345,852 | ||||||
Baker Hughes, Inc. | 5,121 | 212,880 | ||||||
Cabot Oil & Gas Corp. | 1,300 | 40,716 | ||||||
Cameron International Corp. * | 2,800 | 91,056 | ||||||
Chesapeake Energy Corp. | 7,100 | 148,745 | ||||||
Chevron Corp. | 24,316 | 1,650,084 | ||||||
ConocoPhillips | 18,252 | 895,991 | ||||||
CONSOL Energy, Inc. | 2,300 | 77,648 | ||||||
Denbury Resources, Inc. * | 3,300 | 48,312 | ||||||
Devon Energy Corp. | 5,363 | 326,714 | ||||||
Diamond Offshore Drilling, Inc. (b) | 600 | 37,314 | ||||||
El Paso Corp. | 9,041 | 100,445 | ||||||
EOG Resources, Inc. | 3,014 | 296,487 | ||||||
Exxon Mobil Corp. | 62,076 | 3,542,677 | ||||||
FMC Technologies, Inc. * | 1,500 | 78,990 | ||||||
Halliburton Co. | 10,820 | 265,631 | ||||||
Helmerich & Payne, Inc. | 1,100 | 40,172 | ||||||
Hess Corp. | 3,410 | 171,659 | ||||||
Marathon Oil Corp. | 8,864 | 275,582 | ||||||
Massey Energy Co. | 1,000 | 27,350 | ||||||
Murphy Oil Corp. | 2,332 | 115,551 | ||||||
Nabors Industries Ltd. * | 4,000 | 70,480 | ||||||
National Oilwell Varco, Inc. | 4,586 | 151,659 | ||||||
Noble Energy, Inc. | 2,000 | 120,660 | ||||||
Occidental Petroleum Corp. | 10,000 | 771,500 | ||||||
Peabody Energy Corp. | 3,300 | 129,129 | ||||||
Pioneer Natural Resources Co. | 1,600 | 95,120 | ||||||
Range Resources Corp. | 1,700 | 68,255 | ||||||
Rowan Cos., Inc. * | 1,200 | 26,328 | ||||||
Schlumberger Ltd. | 14,340 | 793,576 | ||||||
Smith International, Inc. | 2,500 | 94,125 | ||||||
Southwestern Energy Co. * | 4,400 | 170,016 | ||||||
Spectra Energy Corp. | 7,781 | 156,165 | ||||||
Sunoco, Inc. | 1,240 | 43,115 | ||||||
Tesoro Corp. | 1,800 | 21,006 | ||||||
The Williams Cos., Inc. | 7,600 | 138,928 | ||||||
Valero Energy Corp. | 6,960 | 125,141 | ||||||
11,984,991 | ||||||||
Food & Staples Retailing 2.6% | ||||||||
Costco Wholesale Corp. | 5,400 | 296,082 | ||||||
CVS Caremark Corp. | 16,735 | 490,670 | ||||||
Safeway, Inc. | 4,540 | 89,256 | ||||||
SUPERVALU, Inc. | 2,435 | 26,395 | ||||||
Sysco Corp. | 7,400 | 211,418 | ||||||
The Kroger Co. | 8,040 | 158,308 | ||||||
Wal-Mart Stores, Inc. | 25,910 | 1,245,494 | ||||||
Walgreen Co. | 12,145 | 324,272 | ||||||
Whole Foods Market, Inc. * | 1,800 | 64,836 | ||||||
2,906,731 | ||||||||
Food, Beverage & Tobacco 6.2% | ||||||||
Altria Group, Inc. | 25,364 | 508,295 | ||||||
Archer-Daniels-Midland Co. | 8,100 | 209,142 | ||||||
Brown-Forman Corp., Class B | 880 | 50,362 | ||||||
Campbell Soup Co. | 2,300 | 82,409 | ||||||
Coca-Cola Enterprises, Inc. | 4,000 | 103,440 | ||||||
ConAgra Foods, Inc. | 5,470 | 127,560 | ||||||
Constellation Brands, Inc., Class A * | 2,300 | 35,926 | ||||||
Dean Foods Co. * | 1,700 | 17,119 | ||||||
Dr Pepper Snapple Group, Inc. | 3,000 | 112,170 |
8 See financial notes
Schwab S&P 500 Index Portfolio
Portfolio Holdings (Unaudited) continued
Number | Value | |||||||
Security | of Shares | ($) | ||||||
General Mills, Inc. | 7,958 | 282,668 | ||||||
H.J. Heinz Co. | 3,870 | 167,261 | ||||||
Hormel Foods Corp. | 900 | 36,432 | ||||||
Kellogg Co. | 3,000 | 150,900 | ||||||
Kraft Foods, Inc., Class A | 20,890 | 584,920 | ||||||
Lorillard, Inc. | 1,836 | 132,155 | ||||||
McCormick & Co., Inc. - Non Voting Shares | 1,700 | 64,532 | ||||||
Mead Johnson Nutrition Co. | 2,500 | 125,300 | ||||||
Molson Coors Brewing Co., Class B | 1,678 | 71,080 | ||||||
PepsiCo, Inc. | 19,648 | 1,197,546 | ||||||
Philip Morris International, Inc. | 22,644 | 1,038,001 | ||||||
Reynolds American, Inc. | 2,156 | 112,371 | ||||||
Sara Lee Corp. | 8,400 | 118,440 | ||||||
The Coca-Cola Co. | 27,702 | 1,388,424 | ||||||
The Hershey Co. | 2,244 | 107,555 | ||||||
The J.M. Smucker Co. | 1,446 | 87,078 | ||||||
Tyson Foods, Inc., Class A | 2,486 | 40,746 | ||||||
6,951,832 | ||||||||
Health Care Equipment & Services 4.1% | ||||||||
Aetna, Inc. | 5,080 | 134,010 | ||||||
AmerisourceBergen Corp. | 3,660 | 116,205 | ||||||
Baxter International, Inc. | 7,350 | 298,704 | ||||||
Becton Dickinson & Co. | 3,000 | 202,860 | ||||||
Boston Scientific Corp. * | 16,590 | 96,222 | ||||||
C.R. Bard, Inc. | 1,120 | 86,834 | ||||||
Cardinal Health, Inc. | 4,634 | 155,749 | ||||||
CareFusion Corp. * | 2,417 | 54,866 | ||||||
Cerner Corp. * | 800 | 60,712 | ||||||
CIGNA Corp. | 3,380 | 104,983 | ||||||
Coventry Health Care, Inc. * | 2,050 | 36,244 | ||||||
DaVita, Inc. * | 800 | 49,952 | ||||||
DENTSPLY International, Inc. | 2,000 | 59,820 | ||||||
Express Scripts, Inc. * | 6,728 | 316,351 | ||||||
Hospira, Inc. * | 2,100 | 120,645 | ||||||
Humana, Inc. * | 2,100 | 95,907 | ||||||
Intuitive Surgical, Inc. * | 500 | 157,810 | ||||||
Laboratory Corp. of America Holdings * | 1,304 | 98,256 | ||||||
McKesson Corp. | 3,216 | 215,987 | ||||||
Medco Health Solutions, Inc. * | 5,586 | 307,677 | ||||||
Medtronic, Inc. | 13,549 | 491,422 | ||||||
Patterson Cos., Inc. | 980 | 27,959 | ||||||
Quest Diagnostics, Inc. | 1,960 | 97,549 | ||||||
St. Jude Medical, Inc. * | 4,204 | 151,722 | ||||||
Stryker Corp. | 3,260 | 163,196 | ||||||
Tenet Healthcare Corp. * | 6,500 | 28,210 | ||||||
UnitedHealth Group, Inc. | 13,910 | 395,044 | ||||||
Varian Medical Systems, Inc. * | 1,000 | 52,280 | ||||||
WellPoint, Inc. * | 5,336 | 261,090 | ||||||
Zimmer Holdings, Inc. * | 2,684 | 145,070 | ||||||
4,583,336 | ||||||||
Household & Personal Products 2.8% | ||||||||
Avon Products, Inc. | 5,116 | 135,574 | ||||||
Colgate-Palmolive Co. | 6,020 | 474,135 | ||||||
Kimberly-Clark Corp. | 5,126 | 310,789 | ||||||
The Clorox Co. | 1,700 | 105,672 | ||||||
The Estee Lauder Cos., Inc., Class A | 1,500 | 83,595 | ||||||
The Procter & Gamble Co. | 34,973 | 2,097,681 | ||||||
3,207,446 | ||||||||
Insurance 3.9% | ||||||||
Aflac, Inc. | 5,750 | 245,353 | ||||||
American International Group, Inc. (b)* | 1,671 | 57,549 | ||||||
Aon Corp. | 3,210 | 119,155 | ||||||
Assurant, Inc. | 1,500 | 52,050 | ||||||
Berkshire Hathaway, Inc., Class B * | 19,938 | 1,588,859 | ||||||
Cincinnati Financial Corp. | 2,335 | 60,407 | ||||||
Genworth Financial, Inc., Class A * | 5,000 | 65,350 | ||||||
Lincoln National Corp. | 3,662 | 88,950 | ||||||
Loews Corp. | 3,788 | 126,178 | ||||||
Marsh & McLennan Cos., Inc. | 6,400 | 144,320 | ||||||
MetLife, Inc. | 9,807 | 370,312 | ||||||
Principal Financial Group, Inc. | 3,563 | 83,517 | ||||||
Prudential Financial, Inc. | 5,670 | 304,252 | ||||||
The Allstate Corp. | 6,440 | 185,021 | ||||||
The Chubb Corp. | 3,880 | 194,039 | ||||||
The Hartford Financial Services Group, Inc. | 4,630 | 102,462 | ||||||
The Progressive Corp. | 8,080 | 151,258 | ||||||
The Travelers Cos., Inc. | 6,239 | 307,271 | ||||||
Torchmark Corp. | 1,200 | 59,412 | ||||||
Unum Group | 4,276 | 92,789 | ||||||
XL Group plc | 3,900 | 62,439 | ||||||
4,460,943 | ||||||||
Materials 3.4% | ||||||||
Air Products & Chemicals, Inc. | 2,520 | 163,321 | ||||||
Airgas, Inc. | 1,100 | 68,420 | ||||||
AK Steel Holding Corp. | 1,125 | 13,410 | ||||||
Alcoa, Inc. | 11,072 | 111,384 | ||||||
Allegheny Technologies, Inc. | 1,270 | 56,121 | ||||||
Ball Corp. | 1,200 | 63,396 | ||||||
Bemis Co., Inc. | 1,400 | 37,800 | ||||||
CF Industries Holdings, Inc. | 700 | 44,415 | ||||||
Cliffs Natural Resources, Inc. | 1,700 | 80,172 | ||||||
E.I. du Pont de Nemours & Co. | 11,014 | 380,974 | ||||||
Eastman Chemical Co. | 1,000 | 53,360 | ||||||
Ecolab, Inc. | 2,504 | 112,455 | ||||||
FMC Corp. | 700 | 40,201 | ||||||
Freeport-McMoRan Copper & Gold, Inc. | 5,502 | 325,333 | ||||||
International Flavors & Fragrances, Inc. | 1,000 | 42,420 | ||||||
International Paper Co. | 5,198 | 117,631 | ||||||
MeadWestvaco Corp. | 2,549 | 56,588 | ||||||
Monsanto Co. | 6,550 | 302,741 | ||||||
Newmont Mining Corp. | 5,946 | 367,106 | ||||||
Nucor Corp. | 4,000 | 153,120 | ||||||
Owens-Illinois, Inc. * | 2,200 | 58,190 | ||||||
Pactiv Corp. * | 1,800 | 50,130 | ||||||
PPG Industries, Inc. | 1,900 | 114,779 | ||||||
Praxair, Inc. | 3,645 | 276,984 | ||||||
Sealed Air Corp. | 2,428 | 47,880 | ||||||
Sigma-Aldrich Corp. | 1,282 | 63,882 |
See financial notes 9
Schwab S&P 500 Index Portfolio
Portfolio Holdings (Unaudited) continued
Number | Value | |||||||
Security | of Shares | ($) | ||||||
The Dow Chemical Co. | 13,805 | 327,455 | ||||||
The Sherwin-Williams Co. | 1,133 | 78,392 | ||||||
Titanium Metals Corp. * | 1,000 | 17,590 | ||||||
United States Steel Corp. | 1,500 | 57,825 | ||||||
Vulcan Materials Co. | 1,100 | 48,213 | ||||||
Weyerhaeuser Co. | 2,800 | 98,560 | ||||||
3,830,248 | ||||||||
Media 3.1% | ||||||||
CBS Corp., Class B - Non Voting Shares | 8,080 | 104,474 | ||||||
Comcast Corp., Class A | 34,113 | 592,543 | ||||||
DIRECTV, Class A * | 11,380 | 386,009 | ||||||
Discovery Communications, Inc., Class A * | 3,300 | 117,843 | ||||||
Gannett Co., Inc. | 2,960 | 39,842 | ||||||
Meredith Corp. | 300 | 9,339 | ||||||
News Corp., Class A | 28,074 | 335,765 | ||||||
Omnicom Group, Inc. | 3,740 | 128,282 | ||||||
Scripps Networks Interactive, Class A | 1,000 | 40,340 | ||||||
The Interpublic Group of Cos., Inc. * | 4,997 | 35,629 | ||||||
The McGraw-Hill Cos., Inc. | 3,730 | 104,962 | ||||||
The New York Times Co., Class A * | 1,700 | 14,705 | ||||||
The Walt Disney Co. | 23,620 | 744,030 | ||||||
The Washington Post, Class B | 30 | 12,314 | ||||||
Time Warner Cable, Inc. | 4,009 | 208,789 | ||||||
Time Warner, Inc. | 13,974 | 403,988 | ||||||
Viacom Inc., Class B | 7,580 | 237,785 | ||||||
3,516,639 | ||||||||
Pharmaceuticals, Biotechnology & Life Sciences 8.1% | ||||||||
Abbott Laboratories | 18,955 | 886,715 | ||||||
Allergan, Inc. | 3,810 | 221,971 | ||||||
Amgen, Inc. * | 11,964 | 629,306 | ||||||
Biogen Idec, Inc. * | 3,250 | 154,213 | ||||||
Bristol-Myers Squibb Co. | 20,600 | 513,764 | ||||||
Celgene Corp. * | 5,750 | 292,215 | ||||||
Cephalon, Inc. * | 900 | 51,075 | ||||||
Eli Lilly & Co. | 12,220 | 409,370 | ||||||
Forest Laboratories, Inc. * | 4,070 | 111,640 | ||||||
Genzyme Corp. * | 3,300 | 167,541 | ||||||
Gilead Sciences, Inc. * | 10,978 | 376,326 | ||||||
Johnson & Johnson | 33,138 | 1,957,130 | ||||||
King Pharmaceuticals, Inc. * | 3,466 | 26,307 | ||||||
Life Technologies Corp. * | 1,839 | 86,893 | ||||||
Merck & Co., Inc. | 37,429 | 1,308,892 | ||||||
Millipore Corp. * | 500 | 53,325 | ||||||
Mylan, Inc. * | 2,691 | 45,855 | ||||||
PerkinElmer, Inc. | 1,700 | 35,139 | ||||||
Pfizer, Inc. | 97,196 | 1,386,015 | ||||||
Thermo Fisher Scientific, Inc. * | 4,890 | 239,854 | ||||||
Waters Corp. * | 1,200 | 77,640 | ||||||
Watson Pharmaceuticals, Inc. * | 1,500 | 60,855 | ||||||
9,092,041 | ||||||||
Real Estate 1.4% | ||||||||
Apartment Investment & Management Co., Class A | 1,877 | 36,357 | ||||||
AvalonBay Communities, Inc. | 1,034 | 96,545 | ||||||
Boston Properties, Inc. | 1,716 | 122,419 | ||||||
CB Richard Ellis Group, Inc., Class A * | 2,900 | 39,469 | ||||||
Equity Residential | 3,500 | 145,740 | ||||||
HCP, Inc. | 3,400 | 109,650 | ||||||
Health Care REIT, Inc. | 1,400 | 58,968 | ||||||
Host Hotels & Resorts, Inc. | 7,760 | 104,605 | ||||||
Kimco Realty Corp. | 3,910 | 52,550 | ||||||
Plum Creek Timber Co., Inc. | 2,060 | 71,132 | ||||||
ProLogis | 5,000 | 50,650 | ||||||
Public Storage | 1,600 | 140,656 | ||||||
Simon Property Group, Inc. | 3,537 | 285,613 | ||||||
Ventas, Inc. | 1,900 | 89,205 | ||||||
Vornado Realty Trust | 1,963 | 143,201 | ||||||
1,546,760 | ||||||||
Retailing 3.5% | ||||||||
Abercrombie & Fitch Co., Class A | 500 | 15,345 | ||||||
Amazon.com, Inc. * | 4,000 | 437,040 | ||||||
AutoNation, Inc. (b)* | 1,000 | 19,500 | ||||||
AutoZone, Inc. * | 400 | 77,288 | ||||||
Bed Bath & Beyond, Inc. * | 3,016 | 111,833 | ||||||
Best Buy Co., Inc. | 4,225 | 143,058 | ||||||
Big Lots, Inc. * | 1,400 | 44,926 | ||||||
CarMax, Inc. * | 2,500 | 49,750 | ||||||
Expedia, Inc. | 2,600 | 48,828 | ||||||
Family Dollar Stores, Inc. | 2,000 | 75,380 | ||||||
GameStop Corp., Class A * | 2,000 | 37,580 | ||||||
Genuine Parts Co. | 2,000 | 78,900 | ||||||
J.C. Penney Co., Inc. | 2,900 | 62,292 | ||||||
Kohl’s Corp. * | 3,710 | 176,225 | ||||||
Limited Brands, Inc. | 3,908 | 86,250 | ||||||
Lowe’s Cos., Inc. | 17,740 | 362,251 | ||||||
Macy’s, Inc. | 5,922 | 106,004 | ||||||
Nordstrom, Inc. | 2,350 | 75,647 | ||||||
O’Reilly Automotive, Inc. * | 1,800 | 85,608 | ||||||
Office Depot, Inc. * | 3,500 | 14,140 | ||||||
Priceline.com, Inc. * | 500 | 88,270 | ||||||
RadioShack Corp. | 259 | 5,053 | ||||||
Ross Stores, Inc. | 1,500 | 79,935 | ||||||
Sears Holdings Corp. (b)* | 605 | 39,113 | ||||||
Staples, Inc. | 9,150 | 174,307 | ||||||
Target Corp. | 9,020 | 443,513 | ||||||
The Gap, Inc. | 6,376 | 124,077 | ||||||
The Home Depot, Inc. | 20,865 | 585,681 | ||||||
The TJX Cos., Inc. | 5,010 | �� | 210,169 | |||||
Tiffany & Co. | 1,126 | 42,687 | ||||||
Urban Outfitters, Inc. * | 1,200 | 41,268 | ||||||
3,941,918 | ||||||||
Semiconductors & Semiconductor Equipment 2.6% | ||||||||
Advanced Micro Devices, Inc. * | 5,530 | 40,480 | ||||||
Altera Corp. | 3,680 | 91,301 | ||||||
Analog Devices, Inc. | 3,830 | 106,704 | ||||||
Applied Materials, Inc. | 16,670 | 200,373 |
10 See financial notes
Schwab S&P 500 Index Portfolio
Portfolio Holdings (Unaudited) continued
Number | Value | |||||||
Security | of Shares | ($) | ||||||
Broadcom Corp., Class A | 5,155 | 169,960 | ||||||
First Solar, Inc. (b)* | 600 | 68,298 | ||||||
Intel Corp. | 66,521 | 1,293,833 | ||||||
KLA-Tencor Corp. | 2,300 | 64,124 | ||||||
Linear Technology Corp. | 2,530 | 70,359 | ||||||
LSI Corp. * | 5,410 | 24,886 | ||||||
MEMC Electronic Materials, Inc. * | 2,900 | 28,652 | ||||||
Microchip Technology, Inc. | 2,500 | 69,350 | ||||||
Micron Technology, Inc. * | 8,800 | 74,712 | ||||||
National Semiconductor Corp. | 3,400 | 45,764 | ||||||
Novellus Systems, Inc. * | 1,300 | 32,968 | ||||||
NVIDIA Corp. * | 7,200 | 73,512 | ||||||
Teradyne, Inc. * | 2,100 | 20,475 | ||||||
Texas Instruments, Inc. | 14,960 | 348,269 | ||||||
Xilinx, Inc. | 3,800 | 95,988 | ||||||
2,920,008 | ||||||||
Software & Services 8.6% | ||||||||
Adobe Systems, Inc. * | 6,500 | 171,795 | ||||||
Akamai Technologies, Inc. * | 2,000 | 81,140 | ||||||
Autodesk, Inc. * | 2,720 | 66,259 | ||||||
Automatic Data Processing, Inc. | 6,313 | 254,161 | ||||||
BMC Software, Inc. * | 2,160 | 74,801 | ||||||
CA, Inc. | 5,344 | 98,330 | ||||||
Citrix Systems, Inc. * | 2,360 | 99,663 | ||||||
Cognizant Technology Solutions Corp., Class A * | 3,600 | 180,216 | ||||||
Computer Sciences Corp. | 1,800 | 81,450 | ||||||
Compuware Corp. * | 3,750 | 29,925 | ||||||
eBay, Inc. * | 13,788 | 270,383 | ||||||
Electronic Arts, Inc. * | 4,058 | 58,435 | ||||||
Fidelity National Information Services, Inc. | 3,000 | 80,460 | ||||||
Fiserv, Inc. * | 1,960 | 89,494 | ||||||
Google, Inc., Class A * | 2,913 | 1,296,139 | ||||||
International Business Machines Corp. | 15,645 | 1,931,844 | ||||||
Intuit, Inc. * | 3,796 | 131,987 | ||||||
MasterCard, Inc., Class A | 1,100 | 219,483 | ||||||
McAfee, Inc. * | 2,000 | 61,440 | ||||||
Microsoft Corp. | 91,888 | 2,114,343 | ||||||
Monster Worldwide, Inc. * | 1,704 | 19,852 | ||||||
Novell, Inc. * | 5,200 | 29,536 | ||||||
Oracle Corp. | 47,080 | 1,010,337 | ||||||
Paychex, Inc. | 3,850 | 99,984 | ||||||
Red Hat, Inc. * | 2,000 | 57,880 | ||||||
SAIC, Inc. * | 2,500 | 41,850 | ||||||
Salesforce.com, Inc. * | 1,054 | 90,454 | ||||||
Symantec Corp. * | 9,641 | 133,817 | ||||||
Teradata Corp. * | 2,100 | 64,008 | ||||||
Total System Services, Inc. | 2,600 | 35,360 | ||||||
VeriSign, Inc. * | 2,025 | 53,764 | ||||||
Visa, Inc., Class A | 5,500 | 389,125 | ||||||
Western Union Co. | 8,859 | 132,088 | ||||||
Yahoo!, Inc. * | 14,910 | 206,205 | ||||||
9,756,008 | ||||||||
Technology Hardware & Equipment 7.5% | ||||||||
Agilent Technologies, Inc. * | 4,267 | 121,311 | ||||||
Amphenol Corp., Class A | 2,100 | 82,488 | ||||||
Apple, Inc. * | 10,870 | 2,734,131 | ||||||
Cisco Systems, Inc. * | 68,998 | 1,470,347 | ||||||
Corning, Inc. | 19,050 | 307,657 | ||||||
Dell, Inc. * | 20,872 | 251,716 | ||||||
EMC Corp. * | 25,262 | 462,295 | ||||||
FLIR Systems, Inc. * | 1,900 | 55,271 | ||||||
Harris Corp. | 1,400 | 58,310 | ||||||
Hewlett-Packard Co. | 28,293 | 1,224,521 | ||||||
Jabil Circuit, Inc. | 2,127 | 28,289 | ||||||
JDS Uniphase Corp. * | 2,519 | 24,787 | ||||||
Juniper Networks, Inc. * | 6,600 | 150,612 | ||||||
Lexmark International, Inc., Class A * | 760 | 25,103 | ||||||
Molex, Inc. | 1,800 | 32,832 | ||||||
Motorola, Inc. * | 28,835 | 188,004 | ||||||
NetApp, Inc. * | 4,100 | 152,971 | ||||||
QLogic Corp. * | 1,190 | 19,778 | ||||||
QUALCOMM, Inc. | 20,220 | 664,025 | ||||||
SanDisk Corp. * | 2,900 | 122,003 | ||||||
Tellabs, Inc. | 4,730 | 30,225 | ||||||
Western Digital Corp. * | 2,800 | 84,448 | ||||||
Xerox Corp. | 16,567 | 133,199 | ||||||
8,424,323 | ||||||||
Telecommunication Services 3.0% | ||||||||
American Tower Corp., Class A * | 4,870 | 216,715 | ||||||
AT&T, Inc. | 71,058 | 1,718,893 | ||||||
CenturyLink, Inc. | 3,641 | 121,282 | ||||||
Frontier Communications Corp. (b) | 4,298 | 30,559 | ||||||
MetroPCS Communications, Inc. * | 1,700 | 13,923 | ||||||
Qwest Communications International, Inc. | 19,896 | 104,454 | ||||||
Sprint Nextel Corp. * | 37,759 | 160,098 | ||||||
Verizon Communications, Inc. | 34,154 | 956,995 | ||||||
Windstream Corp. | 5,335 | 56,337 | ||||||
3,379,256 | ||||||||
Transportation 1.9% | ||||||||
C.H. Robinson Worldwide, Inc. | 2,100 | 116,886 | ||||||
CSX Corp. | 4,920 | 244,180 | ||||||
Expeditors International of Washington, Inc. | 2,500 | 86,275 | ||||||
FedEx Corp. | 3,920 | 274,831 | ||||||
Norfolk Southern Corp. | 4,600 | 244,030 | ||||||
Ryder System, Inc. | 600 | 24,138 | ||||||
Southwest Airlines Co. | 7,886 | 87,613 | ||||||
Union Pacific Corp. | 6,180 | 429,572 | ||||||
United Parcel Service, Inc., Class B | 12,005 | 682,964 | ||||||
2,190,489 | ||||||||
Utilities 3.7% | ||||||||
Allegheny Energy, Inc. | 2,241 | 46,344 | ||||||
Ameren Corp. | 2,800 | 66,556 | ||||||
American Electric Power Co., Inc. | 5,370 | 173,451 | ||||||
CenterPoint Energy, Inc. | 4,550 | 59,878 | ||||||
CMS Energy Corp. | 2,960 | 43,364 | ||||||
Consolidated Edison, Inc. | 3,250 | 140,075 | ||||||
Constellation Energy Group, Inc. | 2,500 | 80,625 | ||||||
Dominion Resources, Inc. | 7,250 | 280,865 |
See financial notes 11
Schwab S&P 500 Index Portfolio
Portfolio Holdings (Unaudited) continued
Number | Value | |||||||
Security | of Shares | ($) | ||||||
DTE Energy Co. | 2,000 | 91,220 | ||||||
Duke Energy Corp. | 15,783 | 252,528 | ||||||
Edison International | 3,800 | 120,536 | ||||||
Entergy Corp. | 2,327 | 166,660 | ||||||
EQT Corp. | 1,700 | 61,438 | ||||||
Exelon Corp. | 7,940 | 301,482 | ||||||
FirstEnergy Corp. | 3,808 | 134,156 | ||||||
Integrys Energy Group, Inc. | 697 | 30,487 | ||||||
NextEra Energy, Inc. | 5,150 | 251,114 | ||||||
Nicor, Inc. | 610 | 24,705 | ||||||
NiSource, Inc. | 3,646 | 52,867 | ||||||
Northeast Utilities | 2,000 | 50,960 | ||||||
NRG Energy, Inc. * | 3,200 | 67,872 | ||||||
ONEOK, Inc. | 1,300 | 56,225 | ||||||
Pepco Holdings, Inc. | 2,850 | 44,688 | ||||||
PG&E Corp. | 4,600 | 189,060 | ||||||
Pinnacle West Capital Corp. | 1,350 | 49,086 | ||||||
PPL Corp. | 4,710 | 117,514 | ||||||
Progress Energy, Inc. | 3,480 | 136,486 | ||||||
Public Service Enterprise Group, Inc. | 6,250 | 195,812 | ||||||
Questar Corp. | 2,100 | 95,529 | ||||||
SCANA Corp. | 1,600 | 57,216 | ||||||
Sempra Energy | 2,931 | 137,141 | ||||||
Southern Co. | 9,960 | 331,469 | ||||||
TECO Energy, Inc. | 2,840 | 42,799 | ||||||
The AES Corp. * | 8,350 | 77,154 | ||||||
Wisconsin Energy Corp. | 1,450 | 73,573 | ||||||
Xcel Energy, Inc. | 5,959 | 122,815 | ||||||
4,223,750 | ||||||||
Total Common Stock | ||||||||
(Cost $97,479,688) | 112,523,075 | |||||||
Issuer | Face Amount | Value | ||||||
Rate, Maturity Date | ($) | ($) | ||||||
Short-Term Investments 0.2% of net assets | ||||||||
Time Deposit 0.1% | ||||||||
Wells Fargo | ||||||||
0.03%, 07/01/10 | 125,399 | 125,399 | ||||||
U.S. Treasury Bill 0.1% | ||||||||
U.S. Treasury Bills | ||||||||
0.08%, 09/16/10 (c) | 120,000 | 119,963 | ||||||
Total Short-Term Investments | ||||||||
(Cost $245,380) | 245,362 | |||||||
End of Investments. | ||||||||
Number | Value | |||||||
Security | of Shares | ($) | ||||||
Collateral Invested for Securities on Loan 0.2% of net assets | ||||||||
Invesco Short Term Investments Trust Government & Agency Portfolio | 245,676 | 245,676 | ||||||
Total Collateral Invested for Securities on Loan | ||||||||
(Cost $245,676) | 245,676 | |||||||
End of collateral invested for securities on loan. |
At 06/30/10, the tax basis cost of the fund’s investments was $100,435,781 and the unrealized appreciation and depreciation were $32,402,471 and ($20,069,815), respectively, with a net unrealized appreciation of $12,332,656.
* | Non-income producing security. | |
(a) | Issuer is affiliated with the fund’s adviser. | |
(b) | All or a portion of this security is on loan. | |
(c) | All or a portion of this security is held as collateral for open futures contracts. |
REIT — | Real Estate Investment Trust. |
In addition to the above, the fund held the following at 06/30/10.
Contract | Unrealized | |||||||||||
Number of | Value | Losses | ||||||||||
Contracts | ($) | ($) | ||||||||||
Futures Contract | ||||||||||||
S&P 500 Index, e-mini, Long, expires 09/17/10 | 5 | 256,650 | (11,784 | ) |
12 See financial notes
Schwab S&P 500 Index Portfolio
Statement of
Assets and Liabilities
As of June 30, 2010; unaudited.
Assets | ||||||
Investments in affiliated issuers, at value including securities on loan of $239,652 (cost $104,610) | $168,827 | |||||
Investments in unaffiliated issuers, at value (cost $97,620,458) | + | 112,599,610 | ||||
Total investments, at value (cost $97,725,068) | 112,768,437 | |||||
Collateral invested for securities on loan | 245,676 | |||||
Receivables: | ||||||
Dividends | 154,980 | |||||
Fund shares sold | 73,939 | |||||
Income from securities on loan | 883 | |||||
Prepaid expenses | + | 1,216 | ||||
Total assets | 113,245,131 | |||||
Liabilities | ||||||
Collateral held for securities on loan | 245,676 | |||||
Payables: | ||||||
Investment adviser and administrator fees | 832 | |||||
Fund shares redeemed | 68,062 | |||||
Due to brokers for futures | 2,175 | |||||
Accrued expenses | + | 25,539 | ||||
Total liabilities | 342,284 | |||||
Net Assets | ||||||
Total assets | 113,245,131 | |||||
Total liabilities | − | 342,284 | ||||
Net assets | $112,902,847 | |||||
Net Assets by Source | ||||||
Capital received from investors | 113,375,591 | |||||
Net investment income not yet distributed | 3,363,788 | |||||
Net realized capital losses | (18,876,071 | ) | ||||
Net unrealized capital gains | 15,039,539 | |||||
Net Asset Value (NAV) |
Shares | ||||||||||||
Net Assets | ÷ | Outstanding | = | NAV | ||||||||
$112,902,847 | 7,459,416 | $15.14 |
See financial notes 13
Schwab S&P 500 Index Portfolio
Statement of
Operations
For January 1, 2010 through June 30, 2010; unaudited.
Investment Income | ||||||
Dividends received from affiliated issuer | $1,465 | |||||
Dividends received from unaffiliated issuers | 1,236,598 | |||||
Interest | 149 | |||||
Securities on loan | + | 4,761 | ||||
Total investment income | 1,242,973 | |||||
Expenses | ||||||
Investment adviser fees | 94,099 | |||||
Accounting and administration fees | 21,558 | |||||
Professional fees | 18,466 | |||||
Shareholder reports | 14,792 | |||||
Trustees’ fees | 11,723 | |||||
Custodian fees | 3,839 | |||||
Transfer agent fees | 3,222 | |||||
Interest expense | 340 | |||||
Other expenses | + | 9,385 | ||||
Total expenses | 177,424 | |||||
Expense reduction by adviser and Schwab | − | 5,317 | ||||
Net expenses | − | 172,107 | ||||
Net investment income | 1,070,866 | |||||
Realized and Unrealized Gains (Losses) | ||||||
Net realized gains on affiliated issuer | 2,236 | |||||
Net realized losses on unaffiliated investments | (72,518 | ) | ||||
Net realized losses on futures contracts | + | (88,169 | ) | |||
Net realized losses | (158,451 | ) | ||||
Net unrealized losses on investments | (9,122,347 | ) | ||||
Net unrealized losses on affiliated issuer | (58,158 | ) | ||||
Net unrealized losses on futures contracts | + | (11,784 | ) | |||
Net unrealized losses | + | (9,192,289 | ) | |||
Net realized and unrealized losses | (9,350,740 | ) | ||||
Decrease in net assets resulting from operations | ($8,279,874 | ) |
14 See financial notes
Schwab S&P 500 Index Portfolio
Statements of
Changes in Net Assets
For the current and prior report periods.
Figures for the current period are unaudited.
Figures for the current period are unaudited.
Operations | ||||||||||
1/1/10-6/30/10 | 1/1/09-12/31/09 | |||||||||
Net investment income | $1,070,866 | $2,288,847 | ||||||||
Net realized losses | (158,451 | ) | (1,905,316 | ) | ||||||
Net unrealized gains (losses) | + | (9,192,289 | ) | 25,980,753 | ||||||
Increase (Decrease) in net assets from operations | (8,279,874 | ) | 26,364,284 | |||||||
Distributions to Shareholders | ||||||||||
Distributions from net investment income | $— | $2,952,444 |
Transactions in Fund Shares
1/1/10-6/30/10 | 1/1/09-12/31/09 | |||||||||||||||||
SHARES | VALUE | SHARES | VALUE | |||||||||||||||
Shares sold | 655,132 | $10,816,722 | 1,438,718 | $19,966,369 | ||||||||||||||
Shares reinvested | — | — | 183,953 | 2,952,444 | ||||||||||||||
Shares redeemed | + | (997,424 | ) | (16,372,590 | ) | (1,820,544 | ) | (24,998,997 | ) | |||||||||
Net transactions in fund shares | (342,292 | ) | ($5,555,868 | ) | (197,873 | ) | ($2,080,184 | ) | ||||||||||
Shares Outstanding and Net Assets | ||||||||||||||||||
1/1/10-6/30/10 | 1/1/09-12/31/09 | |||||||||||||||||
SHARES | NET ASSETS | SHARES | NET ASSETS | |||||||||||||||
Beginning of period | 7,801,708 | $126,738,589 | 7,999,581 | $105,406,933 | ||||||||||||||
Total increase or decrease | + | (342,292 | ) | (13,835,742 | ) | (197,873 | ) | 21,331,656 | ||||||||||
End of period | 7,459,416 | $112,902,847 | 7,801,708 | $126,738,589 | ||||||||||||||
Net investment income not yet distributed | $3,363,788 | $2,292,922 |
See financial notes 15
Schwab S&P 500 Index Portfolio
Financial Notes, unaudited
1. Business Structure of the Fund:
Schwab S&P 500 Index Portfolio is a series of Schwab Annuity Portfolios (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 including the fund discussed in this report, which is highlighted:
Schwab Annuity Portfolios (organized January 21, 1994) Schwab Money Market Portfolio Schwab MarketTrack Growth Portfolio II Schwab S&P 500 Index Portfolio | ||
Schwab S&P 500 Index Portfolio offers one share class. Shares are bought and sold at closing net asset value (“NAV”), which is the price for all outstanding shares of the fund. Each share has a par value of 1/1,000 of a cent, and the trustees may authorize the issuance of as many shares as necessary.
The fund is intended as an investment vehicle for variable annuity contracts and variable life insurance policies to be offered by separate accounts of participating life insurance companies and for pension and retirement plans qualified under the Internal Revenue Code of 1986, as amended.
The fund maintains its own account for purposes of holding assets and accounting, and is considered a separate entity for tax purposes. Within its account, the fund may also keep certain assets in segregated accounts, as required by securities law.
2. Significant Accounting Policies:
The following is a summary of the significant accounting policies the fund uses in its preparation of financial statements. The accounting policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
(a) Security Valuation:
The fund values the securities in its portfolio every business day. The fund uses the following policies to value various types of securities:
• | Securities traded on an exchange or over-the-counter: valued at the closing value for the day, or, on days when no closing value has been reported, halfway between the most recent bid and asked quotes. Securities that are primarily traded on foreign exchanges are valued at the closing values of such securities on their respective exchanges with these values then translated into U.S. dollars at the valuation date exchange rate. | |
• | Securities for which no quoted value is available: The Board of Trustees has adopted procedures to fair value the fund’s securities when market prices are not “readily available” or are unreliable. For example, the fund may fair value a security when a security is de-listed or its trading is halted or suspended; when a security’s primary pricing source is unable or unwilling to provide a price; or when a security’s primary trading market is closed during regular market hours. Each fund makes fair value determinations in good faith in accordance with the fund’s valuation procedures. The Board of Trustees regularly reviews fair value determinations made by the fund pursuant to the procedures. | |
• | Short-term securities (60 days or less to maturity): valued at amortized cost, which approximates market value. |
In accordance with the authoritative guidance on fair value measurements and disclosures under GAAP, the fund discloses the fair value of its investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure the fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (level 3 measurements).
The fund adopted the authoritative guidance under GAAP on determining fair value when the volume and level of activity for the asset or liability have significantly decreased and identifying transactions that are not orderly. Accordingly, if the fund determines that either the volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and management judgment will be required to estimate fair value.
16
Schwab S&P 500 Index Portfolio
Financial Notes, unaudited (continued)
2. Significant Accounting Policies (continued):
The guidance establishes three levels of the fair value hierarchy as follows:
• | Level 1 — quoted prices in active markets for identical securities — Investments whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 prices, include active listed equities. The fund does not adjust the quoted price for such instruments, even in situations where the fund holds a large position and a sale could reasonably impact the quoted prices. | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) — Investments that trade in markets that are not considered to be active, but whose values are based on quoted market prices, dealer quotations or valuations provided by alternative pricing sources supported by observable inputs are classified as Level 2 prices. These generally include U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage products, less liquid listed equities, and state, municipal and provincial obligations. In addition, international securities whose markets close hours before the fund values its holdings may require fair valuations due to significant movement in the U.S. markets occurring after the daily close of the foreign markets. The Board of Trustees has approved a vendor that would calculate fair valuations of international equity securities based on a number of factors that appear to correlate to the movements in the U.S. markets. As investments whose values are classified as Level 2 prices include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or nontransferability, which are generally based on available market information. | |
• | Level 3 — significant unobservable inputs (including the fund’s own assumption in determining the fair value of investments) — Investments whose values are classified as Level 3 prices have significant unobservable inputs, as they may trade infrequently or not at all. When observable prices are not available for these securities, the fund uses one or more valuation techniques for which sufficient and reliable data is available. The inputs used by the fund in estimating the value of Level 3 prices may include the original transaction price, quoted prices for similar securities or assets in active markets, completed or pending third-party transactions in the underlying investment or comparable issuers, and changes in financial ratios or cash flows. Level 3 prices may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the fund in the absence of market information. Assumptions used by the fund due to the lack of observable inputs may significantly impact the resulting fair value and therefore the fund’s results of operations. |
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following is a summary of the inputs used to value the funds’ investments as of June 30, 2010:
Schwab S&P 500 Index Portfolio
ASSETS VALUATION INPUT
Quoted Prices in | Significant | |||||||||||||||
Active Markets for | Significant Other | Unobservable | ||||||||||||||
Identical Assets | Observable Inputs | Inputs | ||||||||||||||
Description | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
Common Stock(a) | $112,523,075 | $— | $— | $112,523,075 | ||||||||||||
Short-Term Investments(a) | — | 245,362 | — | 245,362 | ||||||||||||
Total | $112,523,075 | $245,362 | $— | $112,768,437 | ||||||||||||
Other Financial Instruments Collateral Invested for Securities on Loan | $245,676 | $— | $— | $245,676 | ||||||||||||
LIABILITIES VALUATION INPUT | ||||||||||||||||
Other Financial Instruments Futures Contract* | $(11,784 | ) | $— | $— | $(11,784 | ) |
* | Futures contracts are not included in Investments and are valued at the unrealized appreciation or depreciation. | |
(a) | As categorized in Portfolio Holdings. |
17
Schwab S&P 500 Index Portfolio
Financial Notes, unaudited (continued)
2. Significant Accounting Policies (continued):
(b) Portfolio Investments:
Securities Lending: Under the Securities Lending Program, a fund (the “Lender”) may make short-term loans of their securities to another party (the “Borrower”) to generate additional revenue from their portfolio. The Borrower provides cash, U.S. government securities or letters of credit as collateral against the loans in an amount at least equal to 100% of the market value of the loaned securities.
The cash collateral of securities loaned is invested in registered 2a-7 money market portfolios. The investments of collateral are mark-to-market daily and the value of the collateral must be at least 100% of the market value of the loan securities each day. If the value of the collateral falls below 100% it will be adjusted the following day.
(c) Security Transactions:
Security transactions are recorded as of the date the order to buy or sell the security is executed. Realized gains and losses from security transactions are based on the identified costs of the securities involved.
Assets and liabilities denominated in foreign currencies are reported in U.S. dollars. For assets and liabilities held on a given date, the dollar value is based on market exchange rates in effect on that date. Transactions involving foreign currencies, including purchases, sales, income receipts and expense payments, are calculated using exchange rates in effect on the transaction date. The fund does not isolate the portion of the fluctuations on investments resulting from changes in foreign currency exchange rates from the fluctuations in market prices of investments held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.
(d) Investment Income:
Interest income is recorded as it accrues. Dividends and distributions from portfolio securities and underlying funds are recorded on the date they are effective (the ex-dividend date), although the fund records certain foreign security dividends on the day it learns of the ex-dividend date.
Income received from foreign sources may result in withholding tax. Withholding taxes are accrued at the same time as the related income if the tax rate is fixed and known, unless a tax withheld is reclaimable from the local tax authorities in which case it is recorded as receivable. If the tax rate is not known or estimable, such expense or reclaim receivable is recorded when the note proceeds are received.
(e) Expenses:
Expenses that are specific to a fund are charged directly to the fund. Expenses that are common to all funds within the trust generally are allocated among the funds in proportion to their average daily net assets.
(f) Distributions to Shareholders:
The fund makes distributions from net investment income and net realized capital gains, if any, once a year.
(g) Custody Credit:
The fund has an arrangement with their custodian bank, State Street Bank and Trust Company, under which the fund receives a credit for its uninvested cash balance to offset its custody fees and accounting fees. The credit amounts, if any, are disclosed in the Statement of Operations as a reduction to the fund’s operating expenses.
(h) Accounting Estimates:
The accounting policies described in this report conform to accounting principles generally accepted in the United States of America. Notwithstanding this, shareholders should understand that in order to follow these principles, fund management has to make estimates and assumptions that affect the information reported in the financial statements. It’s possible that once the results are known, they may turn out to be different from these estimates.
(i) Federal Income Taxes:
The fund intends to meet federal income and excise tax requirements for regulated investment companies. Accordingly, the fund distributes substantially all of its net investment income and realized net capital gains, if any, to the participating insurance
18
Schwab S&P 500 Index Portfolio
Financial Notes, unaudited (continued)
2. Significant Accounting Policies (continued):
company’s (shareholders) separate accounts each year. As long as a fund meets the tax requirements, it is not required to pay federal income tax.
(j) Indemnification:
Under the fund’s organizational documents, the officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the fund. In addition, in the normal course of business the fund enters into contracts with its vendors and others that provide general indemnifications. The fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the fund. However, based on experience, the fund expects the risk of loss to be remote.
3. Risk Factors:
Investing in the fund may involve certain risks as described in the fund’s prospectus, including, but not limited to, those described below. Any of these risks could cause an investor to lose money.
Equity markets rise and fall daily. As with any investment whose performance is tied to these markets, the value of your investment in the fund will fluctuate, which means that you could lose money.
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.
The fund primarily follows the large-cap portion of the U.S. stock market, as measured by the index. It follows these stocks during upturns as well as downturns. Because of its indexing strategy, the fund does not take steps to reduce market exposure or to lessen the effects of a declining market. In addition, because of the fund’s expenses, the fund’s performance is normally below that of the index.
As an index fund, the fund seeks to track the performance of its benchmark index, although it may not be successful in doing so. The divergence between the performance of a fund and its benchmark index, positive or negative, is called “tracking error.” Tracking error can be caused by many factors and it may be significant.
Although the S&P 500 Index encompasses stocks from many different sectors of the economy, its performance primarily reflects that of large-cap stocks, which tend to go in and out of favor based on market and economic conditions. As a result, during a period when these stocks fall behind other types of investments—bonds or mid- or small-cap stocks, for instance—the fund’s large-cap holdings could reduce performance.
The fund’s use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments and could cause the fund to lose more than the principal 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 the fund.
A particular investment may be difficult to purchase or sell. The fund may be unable to sell illiquid securities at an advantageous time or price.
Securities lending involves the risk of loss of rights in the collateral or delay in recovery of the collateral if the borrower fails to return the security loaned or becomes insolvent.
Your investment in the fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
Please refer to the fund’s prospectus for a more complete description of the principal risks of investing in the fund.
4. Affiliates and Affiliated Transactions:
Charles Schwab Investment Management, Inc. (“CSIM” or the “investment adviser”), a wholly owned subsidiary of The Charles Schwab Corporation, serves as the fund’s investment adviser and administrator pursuant to an Investment Advisory and Administration Agreement (“Advisory Agreement”) between it and the trust.
19
Schwab S&P 500 Index Portfolio
Financial Notes, unaudited (continued)
4. Affiliates and Affiliated Transactions (continued):
For its advisory and administrative services to the fund, CSIM is entitled to receive an annual fee payable monthly based on the fund’s average daily net assets described as follows:
Average daily net assets | |||||
First $500 million | 0.15 | % | |||
$500 million to $5 billion | 0.09 | % | |||
$5 billion to $10 billion | 0.08 | % | |||
Over $10 billion | 0.07 | % |
Although this agreement specifies certain fees for these services, CSIM and Schwab have made an additional agreement with the fund to limit (“expense limitation”) the total annual fund operating expenses, excluding interest, taxes and certain non-routine expenses, to 0.28% through April 29, 2012, which may only be amended or terminated with the approval of the fund’s Board of Trustees.
The fund may engage in certain transactions involving related parties. For instance, the fund may own shares of The Charles Schwab Corporation if that company is included in an index which the fund uses as part of an indexing strategy.
The fund may make direct transactions with certain other Schwab Funds when practical. When one fund is seeking to sell a security that another is seeking to buy, an interfund transaction can allow both funds to benefit by reducing transaction costs. This practice is limited to funds that share the same investment adviser, trustees and officers. As of June 30, 2010, the fund had no direct security transactions with other Schwab Funds.
Pursuant to an exemptive order issued by the SEC, the fund may enter into interfund borrowing and lending transactions with other Schwab Funds. All loans are for temporary or emergency purposes only. The interest rate charged on the loan is the average of the overnight repurchase agreement rate and the short-term bank loan rate. The interfund lending facility is subject to the oversight and periodic review of the Board of Trustees of the Schwab Funds. The fund had no interfund borrowing or lending activity during the period.
5. Board of Trustees:
Trustees may include people who are officers and/or directors of the investment adviser or Schwab. Federal securities law limits the percentage of such “interested persons” who may serve on a trust’s board, and the trust was in compliance with these limitations throughout the report period. The trust did not pay any of these persons for their service as trustees, but it did pay non-interested persons (independent trustees), as noted in the fund’s Statement of Operations.
6. Borrowing from Banks:
The fund may borrow money from banks and custodians. The fund has custodian overdraft facilities, a committed line of credit of $150 million with State Street Bank and Trust Company, an uncommitted line of credit of $100 million with Bank of America, N.A. and an uncommitted line of credit of $50 million with Brown Brother Harriman. The fund pays interest on the amounts it borrows at rates that are negotiated periodically. The fund also pays an annual fee to State Street Bank and Trust Company for the committed line of credit.
There were no borrowings from the lines of credit during the period. However, the fund utilized its overdraft facility and incurred interest expense, which is disclosed in the Statement of Operations, if any. The interest expense is determined based on a negotiated rate above the current Federal Funds rate.
7. Purchases and Sales of Investment Securities:
For the period ended June 30, 2010, purchases and sales of securities (excluding short-term obligations) were as follows:
Purchases of Securities | Sales/Maturities of Securities | |||||
$2,380,435 | $6,608,630 |
20
Schwab S&P 500 Index Portfolio
Financial Notes, unaudited (continued)
8. Federal Income Taxes:
Capital loss carry forwards may be used to offset future realized capital gains for federal income tax purposes. As of December 31, 2009, the fund had capital loss carry forwards available to offset net capital gains before the expiration dates:
Expiration Date | ||||
December 31, 2010 | 7,809,978 | |||
December 31, 2011 | 38,119 | |||
December 31, 2012 | 359,506 | |||
December 31, 2013 | 2,128,687 | |||
December 31, 2014 | 880,924 | |||
December 31, 2015 | — | |||
December 31, 2016 | 2,899,868 | |||
December 31, 2017 | 1,365,160 | |||
Total | $15,482,242 | |||
As of December 31, 2009, the fund had no deferred realized net capital losses and there were no capital losses utilized to offset capital gains. The fund had a capital loss of $1,820,566 that expired in 2009.
As of December 31, 2009, management has reviewed the tax positions for open periods (for federal purposes, three years from the date of filing and for state purposes, four years from the date of filing) as applicable to the fund, and has determined that no provision for income tax is required in the fund’s financial statements. The fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. During the period ended December 31, 2009, the fund did not incur any interest or penalties. The fund is not subject to examination by U.S. federal tax authorities for tax years before 2006 and by state tax authorities for tax years before 2005.
9. Subsequent Events:
Management has evaluated subsequent events and transactions through the date the financial statements were available to be issued and determined that there are no such events or transactions that would have materially impacted the financial statements as presented.
21
Investment Advisory Agreement Approval
The Investment Company Act of 1940 (the “1940 Act”) requires that initial approval of, as well as the continuation of, a fund’s investment advisory agreement must be specifically approved (1) by the vote of the trustees or by a vote of the shareholders of the fund, and (2) by the vote of a majority of the trustees who are not parties to the investment advisory agreement or “interested persons” of any party (the “Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. In connection with such approvals, the fund’s trustees must request and evaluate, and the investment adviser is required to furnish, such information as may be reasonably necessary to evaluate the terms of the investment advisory agreement.
The Board of Trustees (the “Board” or the “Trustees”, as appropriate) calls and holds one or more meetings each year that are dedicated, in whole or in part, to considering whether to renew the investment advisory agreement between Schwab Annuity Portfolios (the “Trust”) and Charles Schwab Investment Management, Inc. (“CSIM”) (the “Agreement”) with respect to the existing funds in the Trust, including Schwab S&P 500 Index Portfolio, and to review certain other agreements pursuant to which CSIM provides investment advisory services to certain other registered investment companies. In preparation for the meeting(s), the Board requests and reviews a wide variety of materials provided by CSIM, including information about CSIM’s affiliates, personnel and operations. The Board also receives extensive data provided by third parties. This information is in addition to the detailed information about the fund that the Board reviews during the course of each year, including information that relates to fund operations and fund performance. The Independent Trustees receive advice from independent counsel to the Independent Trustees, including a memorandum regarding the responsibilities of trustees for the approval of investment advisory agreements. In addition, the Independent Trustees meet in executive session outside the presence of fund management and participate in question and answer sessions with representatives of CSIM.
The Board, including a majority of the Independent Trustees, considered information specifically relating to its consideration of continuance of the Agreement with respect to the fund at meetings held on April 28, 2010, and June 3, 2010, and approved the renewal of the Agreement with respect to the fund for an additional one year term at the meeting held on June 3, 2010. The Board’s approval of the Agreement with respect to the fund was based on consideration and evaluation of a variety of specific factors discussed at these meetings and at prior meetings, including:
1. | the nature, extent and quality of the services provided to the fund under the Agreement, including the resources of CSIM and its affiliates dedicated to the fund; |
2. | the fund’s investment performance and how it compared to that of certain other comparable mutual funds; |
3. | the fund’s expenses and how those expenses compared to those of certain other comparable mutual funds; |
4. | the profitability of CSIM and its affiliates, including Charles Schwab & Co., Inc. (“Schwab”), with respect to the fund, including both direct and indirect benefits accruing to CSIM and its affiliates; and |
5. | the extent to which economies of scale would be realized as the fund grows and whether fee levels in the Agreement reflect those economies of scale for the benefit of fund investors. |
Nature, Extent and Quality of Services. The Board considered the nature, extent and quality of the services provided by CSIM to the fund and the resources of CSIM and its affiliates dedicated to the fund. In this regard, the Trustees evaluated, among other things, CSIM’s personnel, experience, track record and compliance program. The Trustees also considered Schwab’s wide range of products, services, and channel alternatives such as free advice, investment research tools and Internet access and an array of account features that benefit the fund and its shareholders. Following such evaluation, the Board concluded, within the context of its full deliberations, that the nature, extent and quality of services provided by CSIM to the fund and the resources of CSIM and its affiliates dedicated to the fund supported renewal of the Agreement with respect to the fund.
Fund Performance. The Board considered the fund’s performance in determining whether to renew the Agreement with respect to the fund. Specifically, the Trustees considered the fund’s performance relative to a peer category of other mutual funds and appropriate indices/benchmarks, in light of total return and market trends. As part of this review, the Trustees considered the composition of the peer category, selection criteria and the reputation of the third party who prepared the peer category analysis. In evaluating the performance of the fund, the Trustees considered both risk and shareholder risk expectations for the fund and the appropriateness of the benchmark used to compare the performance of the fund. The Trustees further considered the level of fund performance in the context of its review of fund expenses and adviser profitability discussed below. Following such evaluation the Board concluded, within the context of its full
22
deliberations, that the performance of the fund supported renewal of the Agreement with respect to the fund.
Fund Expenses. With respect to the fund’s expenses, the Trustees considered the rate of compensation called for by the Agreement, and the fund’s net operating expense ratio, in each case, in comparison to those of other comparable mutual funds, such peer groups and comparisons having been selected and calculated by an independent third party. The Trustees considered the effects of CSIM’s and Schwab’s historical practice of voluntarily waiving management and other fees to prevent total fund expenses from exceeding a specified cap. The Trustees also considered fees charged by CSIM to other mutual funds and to other types of accounts, such as wrap accounts, but, with respect to such other types of accounts, accorded less weight to such comparisons due to the different legal, regulatory, compliance and operating features of mutual funds as compared to these other types of accounts, and the unique insurance dedicated distribution arrangements of the fund as compared to other funds managed by CSIM. Following such evaluation, the Board concluded, within the context of its full deliberations, that the expenses of the fund are reasonable and supported renewal of the Agreement with respect to the fund.
Profitability. With regard to profitability, the Trustees considered the compensation flowing to CSIM and its affiliates, directly or indirectly. In this connection, the Trustees reviewed management’s profitability analyses, together with certain commentary thereon from an independent accounting firm. The Trustees also considered any other benefits derived by CSIM from its relationship with the fund, such as whether, by virtue of its management of the fund, CSIM obtains investment information or other research resources that aid it in providing advisory services to other clients. The Trustees considered whether the varied levels of compensation and profitability with respect to the fund under the Agreement and other service agreements were reasonable and justified in light of the quality of all services rendered to the fund by CSIM and its affiliates. Based on this evaluation, the Board concluded, within the context of its full deliberations, that the profitability of CSIM is reasonable and supported renewal of the Agreement with respect to the fund.
Economies of Scale. The Trustees considered the existence of any economies of scale and whether those are passed along to the fund’s shareholders through a graduated investment advisory fee schedule or other means, including any fee waivers by CSIM and its affiliates. In this regard, and consistent with their consideration of fund expenses, the Trustees considered that CSIM and Schwab have previously committed resources to minimize the effects on shareholders of diseconomies of scale during periods when fund assets were relatively small through their contractual expense waivers. For example, such diseconomies of scale may particularly affect newer funds or funds with investment strategies that are from time to time out of favor, but shareholders may benefit from the continued availability of such funds at subsidized expense levels. Based on this evaluation, the Board concluded, within the context of its full deliberations, that the fund obtains reasonable benefit from economies of scale.
In the course of their deliberations, the Trustees did not identify any particular information or factor that was all important or controlling. Based on the Trustees’ deliberation and their evaluation of the information described above, the Board, including all of the Independent Trustees, approved the continuation of the Agreement with respect to the fund and concluded that the compensation under the Agreement with respect to the fund is fair and reasonable in light of such services and expenses and such other matters as the Trustees have considered to be relevant in the exercise of their reasonable judgment.
23
Trustees and Officers
The tables below give information about the trustees and officers for Schwab Annuity Portfolios which includes the fund covered in this report. The “Fund Complex” includes The Charles Schwab Family of Funds, Schwab Capital Trust, Schwab Investments, Schwab Annuity Portfolios, Schwab Strategic Trust, Laudus Trust and Laudus Institutional Trust. The Fund Complex includes 84 funds.
The address for all trustees and officers is 211 Main Street, San Francisco, CA 94105. You can find more information about the trustees and officers in the Statement of Additional Information, which is available free by calling 1-800-435-4000.
Independent Trustees
Name, Year of Birth, | Number of | |||||
and Position(s) with | Portfolios in | |||||
the trust; (Terms of | Fund Complex | |||||
office, and length of | Principal Occupations | Overseen by | ||||
Time Served1) | During the Past Five Years | the Trustee | Other Directorships | |||
Mariann Byerwalter 1960 Trustee (Trustee of Schwab Annuity Portfolios since 2000.) | Chairman of JDN Corporate Advisory LLC. | 73 | Director, Redwood Trust, Inc. (1998 – present) Director, PMI Group Inc. (2001 – 2009) Director, Excelsior Funds (2006 – 2007) | |||
John F. Cogan 1947 Trustee (Trustee of Schwab Annuity Portfolios since 2008.) | Senior Fellow: The Hoover Institution at Stanford University (Oct. 1979 – present); Senior Fellow Stanford Institute for Economic Policy Research; Professor of Public Policy, Stanford University (Sept. 1994 – present). | 73 | Director, Gilead Sciences, Inc. (2005 – present) Director, Monaco Coach Corporation (2005 – 2009) | |||
William A. Hasler 1941 Trustee (Trustee of Schwab Annuity Portfolios since 2000.) | Dean Emeritus, Haas School of Business, University of California, Berkeley (July 1998 – present). | 73 | Director, Ditech Networks Corporation (1997 – present) Director, TOUSA (1998 – present) Director, Mission West Properties (1998 – present) Director, Globalstar, Inc. (2009 – present) Director, Harris-Stratex Networks (2001 – present) Director, Aphton Corp. (1991 – 2007) Director, Solectron Corporation (1998 – 2007) Director, Genitope Corporation (2000 – 2009) Director, Excelsior Funds (2006 – 2007) | |||
Gerald B. Smith 1950 Trustee (Trustee of Schwab Annuity Portfolios since 2000.) | Chairman, Chief Executive Officer and Founder of Smith Graham & Co. (investment advisors) (1990 – present). | 73 | Lead Independent Director, Board of Cooper Industries (2002 – present) Director and Chairman of the Audit Committee, Oneok Partners LP (2003 – present) Director, Oneok, Inc (2009 – present) | |||
Donald R. Stephens 1938 Trustee (Trustee of Schwab Annuity Portfolios since 1994.) | Managing Partner, D.R. Stephens & Company (investments) (1973 – present). | 73 | None | |||
24
Independent Trustees (continued)
Name, Year of Birth, | Number of | |||||
and Position(s) with | Portfolios in | |||||
the trust; (Terms of | Fund Complex | |||||
office, and length of | Principal Occupations | Overseen by | ||||
Time Served1) | During the Past Five Years | the Trustee | Other Directorships | |||
Joseph H. Wender 1944 Trustee (Trustee of Schwab Annuity Portfolios since 2008.) | Senior Consultant, Goldman Sachs & Co., Inc. (Jan. 2008- present); Partner, Colgin Partners, LLC (vineyards) (February 1998 – present); Senior Director, Chairman of the Finance Committee, GSC Group (July 2005 – Dec. 2007); General Partner, Goldman Sachs & Co., Inc. (Oct. 1982 – June 2005). | 73 | Board Member and Chairman of the Audit Committee, Isis Pharmaceuticals (1994 – present) | |||
Michael W. Wilsey 1943 Trustee (Trustee of Schwab Annuity Portfolios since 1993.) | Chairman and Chief Executive Officer, Wilsey Bennett, Inc. (real estate investment and management, and other investments). | 73 | None | |||
Interested Trustees
Name, Year of Birth, | Number of | |||||
and Position(s) with | Portfolios in | |||||
the trust; (Terms of | Fund Complex | |||||
office, and length of | Principal Occupations | Overseen by | ||||
Time Served ) | During the Past Five Years | the Trustee | Other Directorships | |||
Charles R. Schwab2 1937 Chairman and Trustee (Chairman and Trustee of Schwab Annuity Portfolios since 1994.) | Chairman and Director, The Charles Schwab Corporation, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc., Charles Schwab Bank, N. A.; Chairman and Chief Executive Officer, Schwab (SIS) Holdings Inc. I, Schwab International Holdings, Inc.; Chief Executive Officer, Schwab Holdings, Inc.; Through June 2007, Director, U.S. Trust Company, N. A., U.S. Trust Corporation, United States Trust Company of New York. Until October 2008, Chief Executive Officer, The Charles Schwab Corporation, Charles Schwab & Co., Inc. | 73 | None | |||
Walter W. Bettinger II2 1960 Trustee (Trustee of Schwab Annuity Portfolios since 2008.) | As of October 2008, President and Chief Executive Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation. Since October 2008, Director, The Charles Schwab Corporation. Since May 2008, Director, Charles Schwab & Co., Inc. and Schwab Holdings, Inc. Since 2006, Director, Charles Schwab Bank. From 2004 through 2007, Executive Vice President and President, Schwab Investor Services. From 2004 through 2005, Executive Vice President and Chief Operating Officer, Individual Investor Enterprise, and from 2002 through 2004, Executive Vice President, Corporate Services. Until October 2008, President and Chief Operating Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation. | 84 | None | |||
25
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 | |
Randall W. Merk 1954 President and Chief Executive Officer (Officer of Schwab Annuity Portfolios since 2004.) | Executive Vice President and President, Investment Management Services, Charles Schwab & Co., Inc. (August 2004 – present); Executive Vice President, Charles Schwab & Co., Inc. (2002 – present); Director, President and Chief Executive Officer, Charles Schwab Investment Management, Inc. (August 2007 – present); Director, Charles Schwab Asset Management (Ireland) Limited and Charles Schwab Worldwide Funds PLC (Sept. 2002 – present); President and Chief Executive Officer, Schwab Strategic Trust (Oct. 2009 – present); Trustee (June 2006 – Dec. 2009), President and Chief Executive Officer (July 2007 – March 2008, July 2010 – present), Laudus Trust and Laudus Institutional Trust; President and Chief Executive Officer, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc. and Excelsior Funds Trust (June 2006 – June 2007). | |
George Pereira 1964 Treasurer and Principal Financial Officer (Officer of Schwab Annuity Portfolios since 2004.) | Senior Vice President and Chief Financial Officer, Charles Schwab Investment Management, Inc. (November 2004 – present); Treasurer and Chief Financial Officer, Laudus Trust and Laudus Institutional Trust (2006 – present); Treasurer and Principal Financial Officer, Schwab Strategic Trust (Oct. 2009 – present); Director, Charles Schwab Worldwide Fund, PLC and Charles Schwab Asset Management (Ireland) Limited (April 2005 – present); Treasurer, Chief Financial Officer and Chief Accounting Officer, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc., and Excelsior Funds Trust (June 2006 – June 2007). | |
Koji E. Felton 1961 Secretary and Chief Legal Officer (Officer of Schwab Annuity Portfolios since 1998.) | Senior Vice President, Chief Counsel and Corporate Secretary, Charles Schwab Investment Management, Inc. (July 2000 – present); Senior Vice President and Deputy General Counsel, Charles Schwab & Co., Inc. (June 1998 – present); Vice President and Assistant Clerk, Laudus Trust and Laudus Institutional Trust (Jan. 2010 – present); Chief Legal Officer and Secretary, Schwab Strategic Trust (Oct. 2009 – present); Chief Legal Officer and Secretary, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc., and Excelsior Funds Trust (June 2006 – June 2007). | |
Catherine MacGregor 1964 Vice President (Officer of Schwab Annuity Portfolios since 2005.) | Vice President, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. (July 2005 – present); Vice President (Dec. 2005 – present), Chief Legal Officer and Clerk (March 2007 – present) of Laudus Trust and Laudus Institutional Trust; Vice President, Schwab Strategic Trust (Oct. 2009 – present). | |
Michael Haydel 1972 Vice President (Officer of Schwab Annuity Portfolios since 2006.) | Vice President, Asset Management Client Services, Charles Schwab & Co., Inc. (2004 – present); Vice President (Sept. 2005 – present), Anti-Money Laundering Officer (Oct. 2005 – Feb. 2009), Laudus Trust, Laudus Institutional Trust; Vice President, Schwab Strategic Trust (Oct. 2009 – present). | |
1 | Trustees remain in office until they resign, retire or are removed by shareholder vote. The Schwab Funds® retirement policy requires that independent trustees elected after January 1, 2000 retire at age 72 or after 20 years of service as a trustee, whichever comes first, provided that any trustee who serves on both Schwab Funds and Laudus Funds retires from both boards when first required to retire by either board. Independent trustees elected prior to January 1, 2000 will retire on the following schedule: Messrs. Stephens and Wilsey will retire on December 31, 2010. | |
2 | Mr. Schwab and Mr. Bettinger are Interested Trustees because they are employees of Schwab and/or the investment adviser. In addition to their employment with Schwab and/or the investment adviser, Messrs. Schwab and Bettinger also own stock of The Charles Schwab Corporation. | |
3 | The President, Treasurer and Secretary hold office until their respective successors are chosen and qualified or until he or she sooner dies, resigns, is removed or becomes disqualified. Each of the other officers serves at the pleasure of the Board. |
26
Item 2: Code of Ethics.
Not applicable to this semi-annual report.
Item 3: Audit Committee Financial Expert.
Not applicable to this semi-annual report. |
Item 4: Principal Accountant Fees and Services.
Not applicable to this semi-annual report.
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 Company and Affiliated Purchasers.
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, Randall W. Merk and Registrant’s Principal Financial Officer, George Pereira, have concluded that Registrant’s disclosure controls and procedures are: (i) reasonably designed to ensure that information required to be disclosed in this report is appropriately communicated to Registrant’s officers to allow timely decisions regarding disclosures required in this report; (ii) reasonably designed to ensure that information required to be disclosed in this report is recorded, processed, summarized and reported in a timely manner; and (iii) are effective in achieving the goals described in (i) and (ii) above. |
(b) | During the second fiscal quarter of the period covered by this report, there have been no changes in Registrant’s internal control over financial reporting that the above officers believe to have materially affected, or to be reasonably likely to materially affect, Registrant’s internal control over financial reporting. |
Item 12: Exhibits.
(a) | (1) | Code of ethics — not applicable to this semi-annual report. | |
(2) | Separate certifications for Registrant’s principal executive officer and principal financial officer, as required by Rule 30a-2(a) under the 1940 Act, are attached. | ||
(3) | Not applicable. | ||
(b) | A certification for Registrant’s principal executive officer and principal financial officer, as required by Rule 30a-2(b) under the 1940 Act, is attached. This certification is being furnished to the Securities and Exchange Commission solely pursuant to 18 U.S.C. section 1350 and is not being filed as part of the Form N-CSR with the Commission. |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Schwab Annuity Portfolios
By: | /s/ Randall W. Merk | |||
Randall W. Merk President and Chief Executive Officer | ||||
Date: | 08/14/2010 | |||
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/ Randall W. Merk | |||
Randall W. Merk President and Chief Executive Officer | ||||
Date: | 08/14/2010 | |||
By: | /s/ George Pereira | |||
George Pereira Treasurer and Principal Financial Officer | ||||
Date: | 08/11/2010 | |||