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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
(Exact name of registrant as specified in charter)
101 Montgomery Street, San Francisco, California 94104 (Address of principal executive offices) (Zip code)
Randall W. Merk
Schwab Annuity Portfolios
101 Montgomery Street, San Francisco, California 94104 (Name and address of agent for service)
Schwab Annuity Portfolios
101 Montgomery Street, San Francisco, California 94104
Registrant’s telephone number, including area code: (415) 627-7000
Date of fiscal year end: December 31
Date of reporting period: June 30, 2008
Item 1: Report(s) to Shareholders.
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Money Market | |||
Schwab Money Market Portfoliotm | |||
Money Market Semiannual report for the period ended June 30, 2008 |
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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.schwab.com/schwabfunds, 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.schwab.com/schwabfunds or the SEC’s website at www.sec.gov.
The industry/sector classification of the fund’s portfolio holdings uses the Global Industry Classification Standard (GICS) which was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor’s. GICS is a service mark of MSCI and S&P and has been licensed for use by Charles Schwab & Co., Inc.
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The Investment Environment
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 U.S. Economy experienced heightened volatility and uncertainty throughout the period as it continued to factor in the impacts felt in the residential mortgage and credit shock that began last year. Bond markets, in particular, suffered in March as deleveraging, downgrades, and writedowns caused many financial institutions to seek new capital infusions and sell positions, further contributing to an already difficult investment environment. Toward the end of the reporting period, the unabated rise in oil, food, and other commodity prices became the primary concern of many investors. In combination with a relatively weak dollar, the rise in prices has been a boon for some investors, but has raised questions about sustainability and the impact of these high prices on current and long-term inflation.
An analysis of significant economic indicators presented mixed messages with regard to fundamentals. While Gross Domestic Product (GDP) expanded at an annual rate of 0.9% in the first quarter and 1.9% in the second quarter, indicating that the economy continued to grow, other figures were less encouraging. In June, consumer confidence slid to 50.4, according to the index maintained by the Conference Board, ebbing in both the first and second quarters this year. Unemployment was also worrisome as it crept up to 5.5%, marking a 22 year high. Headline inflation rose to 4.4% during the period, as the spread between core inflation and inflation including energy and food widened.
Oil and food prices had a substantial impact on investor sentiment and outlook throughout the period, the impacts of which were partially exacerbated by a weak dollar. According to some economists, speculation has driven the price of oil up faster and further than underlying fundamentals would suggest. Prices reached more than $140 per barrel, driven by speculation and currency differences, suggesting that prices may have decoupled from underlying demand. The dollar continued to be weak against other key currencies, such as the Yen and Euro, which has tended to magnify the total effect of higher prices on consumer spending and inflation, because both domestic goods and imports have become simultaneously more expensive.
Price volatility in all corners of the market spurred risk aversion throughout the period, as investors shed higher yielding and riskier assets in favor of securities that offered capital preservation. As the financial outlook for residential and corporate debt remained troublesome, investors shied away from asset-backed and collateralized debt in favor of Government issues or more transparent and less complex securities, such as Treasury bills and Commercial Paper. U.S. Treasuries in particular experienced a surge in demand because their Government backing protects them against default risk. While the demand for Treasuries sent prices up, it brought yields down to very low levels. As a result, the yield spread between short-term Treasuries and other short-term debt instruments widened.
Tepid economic growth, financial turmoil, and rising prices left the Federal Reserve (the Fed) in a precarious position with regard to interest rates. The supply of money (M2) expanded at a mediocre 1.2% rate during the period, an indication that lending remained tight despite Fed action. While the Fed cut rates from 4.25% to 2.00% in an effort to stimulate the economy, the consensus during the Federal Open Market Committee meeting in June was to leave rates unchanged. Many investors saw a pause in rate cuts as an indication that inflationary concerns have caught up with Fed action and that the next monetary policy move would be to tighten.
Schwab Money Market Portfolio 1
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The Investment Environment continued
The implications of interest rate cuts have put downward pressure on yields for short term debt instruments such as Certificates of Deposit and Commercial Paper. In a declining interest rate environment, the yields on money market funds typically track the fall in interest rates and tend to be places of safe haven during price volatility. While money market yields declined during the period, it seemed that investors considered inflationary risk as subordinate to capital preservation and low price volatility.
The Schwab Money Market Portfolio maintained a slightly longer weighted average maturity (WAM) relative to its peer group by focusing on selective extensions into longer-dated maturities, a stance that benefitted the portfolio in a falling rate environment. We felt the longer end of the yield curve represented value and provided a good opportunity to protect against short term market volatility. This action benefitted the portfolio’s performance as we extended the WAM early in the Fed’s cycle of lowering rates.
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 Portfolio
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Performance and Fund Facts as of 6/30/08
Seven-Day Yields1
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.
Seven-Day Yield | 1.82% | |||
Seven-Day Effective Yield | 1.84% | |||
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.
Statistics
Money funds must maintain a dollar-weighted average maturity of no longer than 90 days, and cannot invest in any security whose effective maturity is longer than 397 days (approximately 13 months).
Weighted Average Maturity | 49 days | |
Credit Quality of Holdings % of portfolio | 100% Tier 1 | |
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. To obtain current sub-account level performance information, please visit www.schwab.com/annuities. |
Schwab Money Market Portfolio 3
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Portfolio 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, 2008 and held through June 30, 2008.
Actual Return lines in the table below provide information about actual account values and actual expenses. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value ¸ $1,000 = 8.6), then multiply the result by the number given for your fund or share class under the heading entitled “Expenses Paid During Period.”
Hypothetical Return lines in the table below provide information about hypothetical account values and hypothetical expenses based on a fund’s 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 Ratio 1 | Account Value | (Net of Expenses) | During Period 2 | |||||||||||||
(Annualized) | at 1/1/08 | at 6/30/08 | 1/1/08 - 6/30/08 | |||||||||||||
Schwab Money Market Portfolio | ||||||||||||||||
Actual Return | 0.42% | $ | 1,000 | $ | 1,012.80 | $ | 2.10 | |||||||||
Hypothetical 5% Return | 0.42% | $ | 1,000 | $ | 1,022.77 | $ | 2.11 |
1 | Based on the most recent six-month expense ratio; may differ from the expense ratio provided in Financial Highlights. |
2 | Expenses for the fund are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by 182 days of the period, and divided by 366 days of the fiscal year. |
4 Schwab Money Market Portfolio
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Schwab Money Market Portfolio tm
Financial Statements
Financial Highlights
1/1/08– | 1/1/07– | 1/1/06– | 1/1/05– | 1/1/04– | 1/1/03– | |||||||||||||||||||||
6/30/08* | 12/31/07 | 12/31/06 | 12/31/05 | 12/31/04 | 12/31/03 | |||||||||||||||||||||
Per—Share Data ($) | ||||||||||||||||||||||||||
Net asset value at beginning of period | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | ||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||
Net investment income (loss) | 0.01 | 0.05 | 0.05 | 0.03 | 0.01 | 0.01 | ||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||
Distributions from net investment income | (0.01 | ) | (0.05 | ) | (0.05 | ) | (0.03 | ) | (0.01 | ) | (0.01 | ) | ||||||||||||||
Net asset value at end of period | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | ||||||||||||||||||||
Total return (%) | 1.28 | 1 | 4.74 | 4.61 | 2.75 | 0.90 | 0.74 | |||||||||||||||||||
Ratios/Supplemental Data (%) | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||
Net operating expenses | 0.42 | 2 | 0.44 | 0.46 | 0.47 | 0.46 | 0.44 | |||||||||||||||||||
Gross operating expenses | 0.42 | 2 | 0.44 | 0.46 | 0.47 | 0.46 | 0.44 | |||||||||||||||||||
Net investment income (loss) | 2.55 | 2 | 4.62 | 4.55 | 2.74 | 0.89 | 0.75 | |||||||||||||||||||
Net assets, end of period ($ x 1,000,000) | 231 | 215 | 159 | 133 | 116 | 141 |
* Unaudited.
1 Not annualized.
2 Annualized.
See financial notes 5
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Schwab Money Market Portfolio
Portfolio Holdings as of June 30, 2008 (Unaudited)
This section shows all the securities in the fund’s portfolio and their value 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.schwab.com/schwabfunds.
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 | ($ x 1,000) | ($ x 1,000) | ||||||||||
84 | .0% | Federal Agency Securities | 193,683 | 193,683 | ||||||||
14 | .4% | Other Investment | 33,329 | 33,329 | ||||||||
98 | .4% | Total Investments | 227,012 | 227,012 | ||||||||
1 | .6% | Other Assets and Liabilities | 3,652 | |||||||||
100 | .0% | Net Assets | 230,664 |
Issuer | Face Amount | Value | ||||||
Rate, Maturity Date | ($ x 1,000) | ($ x 1,000) | ||||||
Federal Agency Securities 84.0% of net assets | ||||||||
Fixed-Rate Coupon Notes 9.3% | ||||||||
Fannie Mae | ||||||||
2.15%, 08/15/08 | 5,882 | 5,890 | ||||||
Federal Farm Credit Bank | ||||||||
4.18%, 10/10/08 | 5,000 | 5,000 | ||||||
Federal Home Loan Bank | ||||||||
2.27%, 07/15/08 | 2,675 | 2,675 | ||||||
2.15%, 08/15/08 | 5,000 | 5,010 | ||||||
2.20%, 08/15/08 | 2,860 | 2,865 | ||||||
21,440 | ||||||||
Fixed-Rate Discount Notes 74.7% | ||||||||
Fannie Mae | ||||||||
2.12%, 07/02/08 | 3,000 | 3,000 | ||||||
2.12%, 07/03/08 | 1,079 | 1,079 | ||||||
2.19%, 07/07/08 | 2,904 | 2,903 | ||||||
2.00%, 07/09/08 | 4,475 | 4,473 | ||||||
2.14%, 07/21/08 | 1,900 | 1,898 | ||||||
2.01%, 07/23/08 | 2,400 | 2,397 | ||||||
2.25%, 07/23/08 | 1,000 | 999 | ||||||
2.15%, 08/01/08 | 2,000 | 1,996 | ||||||
2.26%, 08/01/08 | 3,439 | 3,432 | ||||||
2.28%, 08/01/08 | 1,100 | 1,098 | ||||||
2.10%, 08/04/08 | 3,000 | 2,994 | ||||||
2.11%, 08/08/08 | 1,080 | 1,078 | ||||||
2.12%, 08/08/08 | 1,090 | 1,088 | ||||||
2.05%, 08/20/08 | 1,450 | 1,446 | ||||||
2.10%, 08/20/08 | 2,000 | 1,994 | ||||||
2.23%, 09/03/08 | 1,350 | 1,345 | ||||||
2.12%, 09/08/08 | 1,150 | 1,145 | ||||||
2.15%, 09/12/08 | 1,000 | 996 | ||||||
2.40%, 09/17/08 | 2,000 | 1,990 | ||||||
2.53%, 10/31/08 | 1,643 | 1,629 | ||||||
2.23%, 11/12/08 | 1,510 | 1,498 | ||||||
2.58%, 11/14/08 | 1,325 | 1,312 | ||||||
2.63%, 11/19/08 | 2,500 | 2,475 | ||||||
Federal Farm Credit Bank | ||||||||
2.10%, 07/14/08 | 2,000 | 1,998 | ||||||
2.13%, 07/29/08 | 5,000 | 4,992 | ||||||
2.14%, 08/25/08 | 6,039 | 6,019 | ||||||
2.50%, 08/28/08 | 2,032 | 2,024 | ||||||
2.68%, 09/02/08 | 2,773 | 2,760 | ||||||
2.15%, 09/18/08 | 7,257 | 7,223 | ||||||
2.22%, 10/15/08 | 1,000 | 993 | ||||||
2.25%, 10/16/08 | 3,500 | 3,477 | ||||||
2.48%, 10/30/08 | 1,000 | 992 | ||||||
2.53%, 04/06/09 | 1,024 | 1,004 | ||||||
Federal Home Loan Bank | ||||||||
2.14%, 07/02/08 | 1,000 | 1,000 | ||||||
1.98%, 07/18/08 | 1,775 | 1,773 | ||||||
2.13%, 07/23/08 | 1,905 | 1,903 | ||||||
2.14%, 07/23/08 | 3,059 | 3,055 | ||||||
2.25%, 07/23/08 | 1,000 | 999 | ||||||
1.62%, 07/25/08 | 1,000 | 999 | ||||||
2.21%, 07/25/08 | 3,973 | 3,967 | ||||||
2.26%, 07/25/08 | 1,370 | 1,368 | ||||||
2.29%, 08/06/08 | 1,000 | 998 | ||||||
2.15%, 08/20/08 | 4,500 | 4,487 | ||||||
2.28%, 08/20/08 | 2,556 | 2,548 | ||||||
2.14%, 08/22/08 | 1,593 | 1,588 | ||||||
2.23%, 08/22/08 | 4,202 | 4,188 | ||||||
2.22%, 08/27/08 | 3,000 | 2,989 | ||||||
2.21%, 09/03/08 | 2,000 | 1,992 | ||||||
2.44%, 09/10/08 | 1,000 | 995 | ||||||
2.12%, 09/15/08 | 1,000 | 996 | ||||||
2.09%, 10/03/08 | 2,000 | 1,989 | ||||||
2.13%, 10/03/08 | 1,247 | 1,240 | ||||||
2.54%, 11/07/08 | 1,350 | 1,338 | ||||||
2.48%, 11/14/08 | 1,082 | 1,072 | ||||||
2.63%, 12/19/08 | 1,472 | 1,454 | ||||||
Freddie Mac | ||||||||
2.14%, 07/01/08 | 1,000 | 1,000 | ||||||
2.03%, 07/03/08 | 1,696 | 1,696 | ||||||
2.02%, 07/07/08 | 1,602 | 1,601 | ||||||
2.08%, 07/07/08 | 1,000 | 1,000 | ||||||
2.12%, 07/21/08 | 4,015 | 4,010 | ||||||
2.14%, 08/04/08 | 1,400 | 1,397 | ||||||
2.21%, 08/04/08 | 6,000 | 5,988 | ||||||
2.13%, 08/11/08 | 2,000 | 1,995 | ||||||
2.21%, 08/11/08 | 1,855 | 1,850 | ||||||
2.14%, 08/18/08 | 2,950 | 2,942 | ||||||
2.04%, 08/25/08 | 2,440 | 2,432 | ||||||
2.29%, 08/25/08 | 1,070 | 1,066 | ||||||
2.23%, 08/29/08 | 2,485 | 2,476 | ||||||
2.12%, 09/02/08 | 1,500 | 1,494 | ||||||
2.10%, 09/08/08 | 1,985 | 1,977 | ||||||
2.07%, 09/12/08 | 5,000 | 4,979 | ||||||
2.18%, 09/12/08 | 1,000 | 996 |
6 See financial notes
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Schwab Money Market Portfolio
Portfolio Holdings (Unaudited) continued
Issuer | Face Amount | Value | ||||||
Rate, Maturity Date | ($ x 1,000) | ($ x 1,000) | ||||||
2.28%, 09/18/08 | 1,046 | 1,041 | ||||||
2.14%, 09/25/08 | 1,500 | 1,492 | ||||||
2.29%, 09/25/08 | 1,000 | 995 | ||||||
2.17%, 09/29/08 | 2,188 | 2,176 | ||||||
2.42%, 09/29/08 | 1,550 | 1,541 | ||||||
2.30%, 10/14/08 | 1,041 | 1,034 | ||||||
2.42%, 10/14/08 | 1,347 | 1,338 | ||||||
2.45%, 10/28/08 | 2,713 | 2,691 | ||||||
2.51%, 11/20/08 | 1,224 | 1,212 | ||||||
2.10%, 12/08/08 | 1,150 | 1,139 | ||||||
172,243 | ||||||||
Total Federal Agency Securities (Cost $193,683) | 193,683 | |||||||
Face/Maturity | ||||||||
Issuer | Amount | Value | ||||||
Rate, Maturity Date | ($ x 1,000) | ($ x 1,000) | ||||||
Other Investment 14.4% of net assets | ||||||||
Repurchase Agreement 14.4% | ||||||||
Deutsche Bank Securities, Inc. | ||||||||
Tri-Party Repurchase Agreement collateralized by U.S. Treasury Securities with a value of $33,996. | ||||||||
1.75%, issued 06/30/08, | ||||||||
due 07/01/08 | 33,331 | 33,329 | ||||||
Total Other Investments (Cost $33,329) | 33,329 | |||||||
End of Investments. | ||||||||
(All dollar amounts are x 1,000) | ||||||||
At 06/30/08, the tax basis cost of the fund’s investments was $227,012. |
See financial notes 7
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Schwab Money Market Portfolio
Statement of
Assets and Liabilities
As of June 30, 2008; unaudited. All numbers x 1,000 except NAV.
Assets | ||||||
Investments, at cost and value (Note 2a) | $193,683 | |||||
Repurchase agreements, at cost and value | + | 33,329 | ||||
Total investments, at cost and value | 227,012 | |||||
Receivables: | ||||||
Fund shares sold | 3,707 | |||||
Interest | + | 265 | ||||
Total assets | 230,984 | |||||
Liabilities | ||||||
Payables: | ||||||
Investment adviser and administrator fees | 7 | |||||
Fund shares redeemed | 114 | |||||
Distributions to shareholders | 157 | |||||
Accrued expenses | + | 42 | ||||
Total liabilities | 320 | |||||
Net Assets | ||||||
Total assets | 230,984 | |||||
Total liabilities | − | 320 | ||||
Net assets | $230,664 | |||||
Net Assets by Source | ||||||
Capital received from investors | 230,666 | |||||
Net realized capital losses | (2 | ) |
Net Asset Value (NAV)
Shares | ||||||||||
Net Assets | ¸ | Outstanding | = | NAV | ||||||
$230,664 | 230,711 | $1.00 |
8 See financial notes
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Schwab Money Market Portfolio
Statement of
Operations
For January 1, 2008 to June 30, 2008; unaudited. All numbers x1,000.
Investment Income | ||||||
Interest | $3,356 | |||||
Expenses | ||||||
Investment adviser and administrator fees | 395 | |||||
Custodian fees | 6 | |||||
Portfolio accounting fees | 21 | |||||
Shareholder reports | 20 | |||||
Professional fees | 17 | |||||
Trustees’ fees | 19 | |||||
Other expenses | + | 1 | ||||
Total expenses | 479 | |||||
Custody credits | − | 1 | ||||
Net expenses | 478 | |||||
Increase (Decrease) in Net Assets from Operations | ||||||
Total investment income | 3,356 | |||||
Net expenses | − | 478 | ||||
Net investment income | 2,878 | |||||
Increase in net assets from operations | $2,878 |
See financial notes 9
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Schwab Money Market Portfolio
Statements of
Changes in Net Assets
For the current and prior report periods. All numbers x 1,000.
Figures for current period are unaudited.
Figures for current period are unaudited.
Operations |
1/1/08-06/30/08 | 1/1/07-12/31/07 | |||||||||
Net investment income | $2,878 | $8,540 | ||||||||
Increase in net assets from operations | 2,878 | 8,540 | ||||||||
Distributions to Shareholders | ||||||||||
Distributions from net investment income | $2,878 | $8,540 | ||||||||
Transactions in Fund Shares* | ||||||||||
Shares Sold | 128,100 | 288,488 | ||||||||
Shares Reinvested | 2,721 | 8,540 | ||||||||
Shares Redeemed | + | (115,560 | ) | (240,305 | ) | |||||
Net transactions in fund shares | 15,261 | 56,723 | ||||||||
Net Assets | ||||||||||
Beginning of period | 215,403 | 158,680 | ||||||||
Total Increase | + | 15,261 | 56,723 | |||||||
End of period | $230,664 | $215,403 |
* | Transactions took place at $1.00 per share; figures for share quantities are the same as for dollars. |
10 See financial notes
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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 (the “1940 Act”), as amended. The list below shows all the funds in the trust including the fund 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.
2. | Significant Accounting Policies: |
(All dollar amounts are x 1,000)
The following is a summary of the significant accounting policies the fund used in the preparation of the financial statements. The accounting policies are in conformity with accounting principles generally accepted in the United States of America.
(a) Security Valuation:
Securities in the fund are valued utilizing amortized cost (which approximates market value) permitted in accordance with Rule 2a-7 of the 1940 Act. When such valuations do not approximate market value, securities may be valued as determined in accordance with procedures adopted by the Board of Trustees.
(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. Any repurchase agreements with due dates later than seven days from issue dates may be subject to seven day put features for liquidity purposes.
The fund’s repurchase agreements will be fully collateralized by U.S. government 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 is 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 (that is, for 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.
11
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Schwab Money Market Portfolio
Financial Notes, unaudited (continued)
2. | Significant Accounting Policies (continued): (All dollar amounts are x 1,000) |
(e) Expenses:
Expenses that are specific to a fund or class within the trust are charged directly to that fund or class. 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 declares dividends every day it is open for business. These dividends, which are substantially equal to the fund’s net investment income for that day, are paid out to the insurance company separate accounts once a month. The fund may make distributions from any net realized capital gains once a year.
(g) Custody Credit:
The fund has an arrangement with its custodian bank 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 with 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 separate accounts each year. As long as the fund meets the tax requirements, it is not required to pay federal income tax.
The fund maintains its own account for purposes of holding assets and accounting, and is considered a separate entity for tax purposes.
(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.
(k) New Accounting Standards:
Financial Accounting Standards Board (“FASB”) Interpretation (FIN) No. 48 – Accounting for Uncertainty in Income Taxes – an Interpretation of SFAS No. 109, was issued in July 2006 and is effective for fiscal years beginning after December 15, 2006. This Interpretation provides new requirements for the recognition, measurement, and disclosure in the financial statements of a tax position taken or expected to be taken in a tax return when there is uncertainty about whether that tax position will ultimately be sustained. As of June 30, 2008, management has reviewed the tax positions for open years (December 31, 2004 through June 30, 2008), and determined that no provision for income tax is required in the fund’s financial statements.
The fund adopted FASB Statement of Financial Accounting Standards No. 157 (“FAS 157”), Fair Value Measurements, effective January 1, 2008. FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management has concluded that the adoption of FAS 157 is not expected to have a material impact on the fund’s financial statements.
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Schwab Money Market Portfolio
Financial Notes, unaudited (continued)
2. | Significant Accounting Policies (continued): (All dollar amounts are x 1,000) |
Various inputs are used in determining the value of the fund’s investments. FAS 157 establishes a three-tier hierarchy of inputs to establish a classification of fair value measurements for disclosure purposes. These inputs are summarized below in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical securities | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments) |
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 net assets as of June 30, 2008:
Investment in | ||||
Valuation Inputs | Securities* | |||
Level 1 — Quoted prices | — | |||
Level 2 — Other significant observable inputs | $227,012 | |||
Level 3 — Significant unobservable inputs | — | |||
Total | $227,012 |
* | The fund had no Other Financial Instruments. |
In March 2008, the FASB issued Statements of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about Funds’ derivative and hedging activities. Management is currently evaluating the impact of the adoption of SFAS 161 on the funds’ financial statement disclosures.
3. | Affiliates and Affiliated Transactions: |
(All dollar amounts are x 1,000)
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 $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% |
Charles Schwab & Co., Inc. (“Schwab”) is an affiliate of the investment adviser and is the trust’s transfer agent and shareholder services agent.
Schwab does not charge the fund for transfer agent and shareholder services fees.
Although these agreements specify certain fees for these services, CSIM has made additional agreements with the fund to limit the total expenses charged, excluding interest, taxes and certain non-routine expenses to 0.50% through April 29, 2009.
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. For the period ended June 30, 2008, the fund had no direct security transactions with other Schwab Funds.
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Schwab Money Market Portfolio
Financial Notes, unaudited (continued)
3. | Affiliates and Affiliated Transactions (continued): (All dollar amounts are x 1,000) |
Pursuant to an exemptive order issued by the SEC, the fund may enter into interfund borrowing and lending transactions within the 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. There was no interfund borrowing or lending activity for the fund during the period.
4. 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.
5. | Borrowing from Banks: |
The fund may borrow money from banks and custodians. The fund may obtain temporary bank loans through the trust to which it belongs, to use for meeting shareholder redemptions or for extraordinary or emergency purposes. The Schwab Funds have custodian overdraft facilities, a committed line of credit of $150 million with State Street Corp. and an uncommitted line of credit of $100 million with Bank of America, N.A. The fund pays interest on the amounts it borrows at rates that are negotiated periodically. There was no borrowing from the lines of credit for the fund during the period.
6. | Federal Income Taxes: |
(All dollar amounts are x 1,000)
Capital loss carry forwards may be used to offset future realized capital gains for federal income tax purposes. As of December 31, 2007, the fund had capital loss carry forwards of $2 available to offset net capital gains before the expiration date of December 31, 2008.
For tax purposes, realized capital losses occurring after October 31, may be deferred and treated as occurring on the first day of the following fiscal year. As of December 31, 2007, the fund had no deferred realized capital losses and the capital losses expired to offset capital gains were $9.
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Investment Advisory Agreement Approval
The Investment Company Act of 1940 (the “1940 Act”) requires that initial approval of, as well as the continuation of, a fund’s investment advisory agreement must be specifically approved (1) by the vote of the trustees or by a vote of the shareholders of the fund, and (2) by the vote of a majority of the trustees who are not parties to the investment advisory agreement or “interested persons” of any party (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 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 CSIM (the “Agreement”) with respect to existing funds in the Trust, including the 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 funds 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 the continuance of the Agreement at meetings held on May 16, 2008 and June 2, 2008, and approved the renewal of the Agreement for an additional one year term at the meeting held on June 2, 2008. The Board’s approval of the Agreement 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 funds under the Agreement, including the resources of CSIM and its affiliates dedicated to the funds; |
2. | each fund’s investment performance and how it compared to that of certain other comparable mutual funds; |
3. | each 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 each 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 funds grow and whether fee levels in the Agreement reflect those economies of scale for the benefit of fund investors. |
Nature, Extent and Quality of Services. The Board considered the nature, extent and quality of the services provided by CSIM to the funds and the resources of CSIM and its affiliates dedicated to the funds. In this regard, the Trustees evaluated, among other things, CSIM’s personnel, experience, track record and compliance program. The information considered by the Trustees included specific information concerning changes in the nature, extent and quality of services provided by CSIM since the Trustees had last considered approval of the Agreement. The Trustees also considered Schwab’s excellent reputation as a full service brokerage firm and its overall financial condition, and how this affects the success of the funds. Following such evaluation, the Board concluded, within the context of its full deliberations, that the nature, extent and quality of services provided by CSIM to the funds and the resources of CSIM and its affiliates dedicated to the funds supported renewal of the Agreement.
Fund Performance. The Board considered fund performance in determining whether to renew the Agreement. Specifically, the Trustees considered each fund’s performance relative to a peer group of other mutual funds and appropriate indices/benchmarks, in light of total return, yield, when applicable, and market trends. As part of this review, the Trustees considered the composition of the peer group, selection criteria and the reputation of the third party who prepared the peer group analysis. In evaluating the performance of each fund, the Trustees considered both risk and shareholder risk expectations for such fund and the appropriateness of the benchmark used to compare the performance of each 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 deliberations, that the performance of the funds supported renewal of the Agreement.
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Fund Expenses. With respect to the funds’ expenses, the Trustees considered the rate of compensation called for by the Agreement, and each 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 and offshore funds, 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 funds 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 funds are reasonable and supported renewal of the Agreement.
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 funds, such as whether, by virtue of its management of the funds, CSIM obtains investment information or other research resources that aid it in providing advisory services to other clients. The Trustees considered whether the varied levels of compensation and profitability under the Agreement and other service agreements were reasonable and justified in light of the quality of all services rendered to each 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.
Economies of Scale. The Trustees considered the existence of any economies of scale and whether those are passed along to a 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 funds obtain reasonable benefit from economies of scale.
In the course of their deliberations, the Trustees did not identify any particular information or factor that was all important or controlling. Based on the Trustees’ deliberation and their evaluation of the information described above, the Board, including all of the Independent Trustees, unanimously approved the continuation of the Agreement and concluded that the compensation under the Agreement is fair and reasonable in light of such services and expenses and such other matters as the Trustees have considered to be relevant in the exercise of their reasonable judgment.
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Trustees and Officers
The tables below give information as of June 30, 2008, 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, Laudus Trust and Laudus Institutional Trust. As of June 30, 2008, the Fund Complex included 84 funds.
The address for all trustees and officers is 101 Montgomery Street, San Francisco, CA 94104. 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 | ||||||||
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. | 84 | Board 1–Director, Redwood Trust, Inc. Board 2–Director, PMI Group, Inc. | |||||
John F. Cogan 1947 Trustee (Trustee of Schwab Annuity Portfolios since 2008.) | Senior Fellow: The Hoover Institution at Stanford University; Stanford Institute for Economic Policy Research; Professor of Public Policy, Stanford University | 69 | Board 1–Director, Gilead Sciences, Inc. Board 2–Director, Monaco Coach Corporation Board 3–Director, Venture Lending and Leasing, Inc. | |||||
William A. Hasler 1941 Trustee (Trustee of Schwab Annuity Portfolios since 2000.) | Retired. Dean Emeritus, Haas School of Business, University of California, Berkeley. Until February 2004, Co-Chief Executive Officer, Aphton Corp. (bio-pharmaceuticals). | 84 | Board 1–Director, Mission West Properties Board 2–Director, TOUSA Board 3–Director, Harris-Stratex Networks Board 4–Director, Genitope Corp. Board 5– Director, Ditech Networks Board 6–Director, Rubicon Limited | |||||
Gerald B. Smith 1950 Trustee (Trustee of Schwab Annuity Portfolios since 2000.) | Chairman, Chief Executive Officer and founder of Smith Graham & Co.(investment advisors). | 69 | Board 1–Board of Cooper Industries Board 2–Chairman of the Audit Committee of Oneok Partners LP | |||||
Donald R. Stephens 1938 Trustee (Trustee of Schwab Annuity Portfolios since 1989.) | Managing Partner, D. R. Stephens & Company (investments). | 69 | None. | |||||
Joseph H. Wender 1944 Trustee (Trustee of Schwab Annuity Portfolios since 2008.) | Senior Managing Director, Chairman of the Finance Committee, GSC Group; General Partner, Goldman Sachs & Co., until June 2005. | 69 | Board 1–Board Member and Chairman of the Audit Committee, Isis Pharmaceuticals | |||||
Michael W. Wilsey 1943 Trustee (Trustee of Schwab Annuity Portfolios since 1989.) | Chairman, Chief Executive Officer, Wilsey Bennett, Inc. (real estate investment and management, and other investments). | 69 | None. | |||||
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Interested Trustees | ||||||||
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 1989.) | Chairman, Chief Executive Officer and Director, The Charles Schwab Corporation, Charles Schwab & Co., Inc.; Chairman and Director, Charles 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 and Director, Schwab Holdings, Inc. Through June 2007, Director, U.S. Trust Company, N.A., U.S. Trust Company of New York. | 69 | None. | |||||
Walt W. Bettinger II2 1960 Trustee (Trustee of Schwab Annuity Portfolios since 2008.) | President and Chief Operating Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation; Director, Charles Schwab Bank; Executive Vice President and President – Schwab Investor Services, The Charles Schwab Corporation; Executive Vice President and President – Schwab Investor Services, Charles Schwab & Co., Inc.; Chairman and President, Schwab Retirement Plan Services, Inc.; President and Chief Executive Officer, The Charles Schwab Trust Company, Director, Charles Schwab Bank, N.A., Schwab Retirement Plan Services, and Schwab Retirement Technologies. | 69 | None. | |||||
Officers of the Trust | ||
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 2007.) | Executive Vice President and President, Investment Management Services, Charles Schwab & Co., Inc,; Executive Vice President, Charles Schwab & Co., Inc. (2002-present); President and Chief Executive Officer, Charles Schwab Investment Management, Inc. (2007-present); Director, Charles Schwab Asset Management (Ireland) Limited and Charles Schwab Worldwide Funds PLC. From September 2002 to July 2004, Chief Executive Officer and President, Charles Schwab Investment Management, Inc. and Executive Vice President, Charles Schwab & Co., Inc. | |
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.; Chief Financial Officer, Laudus Trust and Laudus Institutional Trust; Director, Charles Schwab Worldwide Fund, PLC and Charles Schwab Asset Management (Ireland) Limited. Through June 2007, Treasurer, Chief Financial Officer and Chief Accounting Officer, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc. and Excelsior Funds Trust; Chief Financial Officer, Mutual Fund Division, UST Advisors, Inc. From December 1999 to November 2004, Sr. Vice President, Financial Reporting, Charles Schwab & Co. Inc. | |
Jeffrey Mortimer 1963 Senior Vice President and Chief Investment Officer (Officer of Schwab Annuity Portfolios since 2004.) | Senior Vice President and Chief Investment Officer, Charles Schwab Investment Management, Inc.; President, CEO and Chief Investment Officer, Laudus Trust and Laudus Institutional Trust. Prior to March 31, 2008, Vice President and Chief Investment Officer, Laudus Trust and Laudus Institutional Trust. Prior to 2004, Vice President and Sr. Portfolio Manager, Charles Schwab Investment Management, Inc. | |
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Officers of the Trust continued | ||
with the trust; (Terms of office, and | ||
length of Time Served3) | Principal Occupations During the Past Five Years | |
Randall Fillmore 1960 Chief Compliance Officer and AML Officer (Officer of Schwab Annuity Portfolios since 2002.) | Senior Vice President and Chief Compliance Officer, Charles Schwab Investment Management, Inc.; Senior Vice President, Charles Schwab & Co. Inc.; Chief Compliance Officer, Laudus Trust and Laudus Institutional Trust. Through June 2007, Chief Compliance Officer, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc., and Excelsior Funds Trust. | |
Koji E. Felton 1959 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.; Senior Vice President and Deputy General Counsel, Charles Schwab & Co., Inc. Through June 2007, Chief Legal Officer, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc. and Excelsior Funds Trust. | |
Catherine MacGregor 1964 Vice President (Officer of Schwab Annuity Portfolios since 2005.) | Vice President, Charles Schwab & Co., Inc. and Charles Schwab Investment Management, Inc., Laudus Trust and Laudus Institutional Trust; since 2006, Chief Counsel, Laudus Trust and Laudua Institutional Trust. Until July 2005, Senior Associate, Paul Hastings Janofsky & Walker LLP. | |
Cathy Sabo 1964 Vice President (Officer of Schwab Annuity Portfolios since 2005.) | Vice President-Compliance, Charles Schwab Investment Management, Inc., Laudus Trust and Laudus Institutional Trust. Until 2004, Vice President, Client, Sales & Services Controls, Charles Schwab & Co., Inc. | |
Michael Haydel 1972 Vice President (Officer of Schwab Annuity Portfolios since 2006.) | Vice President, Asset Management Client Services, Charles Schwab & Co., Inc.; Vice President and AML Officer, Laudus Trust and Laudus Institutional Trust. Until March 2004, Director Charles Schwab & Co., Inc. | |
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. 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 | In addition to their employment with the investment advisor and the distributor, Messrs. Schwab and Bettinger also own stock of The Charles Schwab Corporation. Mr. Schwab and Mr. Bettinger are Interested Trustees because they are employees of Schwab and/or the advisor. |
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. |
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Large-Cap Blend | |||
Schwab MarketTrack Growth Portfolio IItm | |||
Balanced Semiannual report for the period ended June 30, 2008 |
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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.schwab.com/schwabfunds, 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.schwab.com/schwabfunds or the SEC’s website at www.sec.gov.
The industry/sector classification of the fund’s portfolio holdings uses the Global Industry Classification Standard (GICS) which was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor’s. GICS is a service mark of MSCI and S&P and has been licensed for use by Charles Schwab & Co., Inc.
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The Investment Environment
The U.S. Economy experienced heightened volatility and uncertainty throughout the period as it continued to factor in the impacts felt in the residential mortgage and credit shock that began last year. Bond markets, in particular, suffered in March as deleveraging, downgrades, and writedowns caused many financial institutions to seek new capital infusions and sell positions, further contributing to an already difficult investment environment. Toward the end of the reporting period, the unabated rise in oil, food, and other commodity prices became the primary concern of many investors. In combination with a relatively weak dollar, the rise in prices has been a boon for some investors, but has raised questions about sustainability and the impact of these high prices on current and long-term inflation.
An analysis of significant economic indicators presented mixed messages with regard to fundamentals. While Gross Domestic Product (GDP) expanded at an annual rate of 0.9% in the first quarter and 1.9% in the second quarter, indicating that the economy continued to grow, other figures were less encouraging. In June, consumer confidence slid to 50.4, according to the index maintained by the Conference Board, ebbing in both the first and second quarters this year. Unemployment was also worrisome as it crept up to 5.5%, marking a 22 year high. Headline inflation rose to 4.4% during the period, as the spread between core inflation and inflation including energy and food widened.
Oil and food prices had a substantial impact on investor sentiment and outlook throughout the period, the impacts of which were partially exacerbated by a weak dollar. According to some economists, speculation has driven the price of oil up faster and further than underlying fundamentals would suggest. Prices reached more than $140 per barrel, driven by speculation and currency differences, suggesting that prices may have decoupled from underlying demand. The dollar continued to be weak against other key currencies, such as the Yen and Euro, which has tended to magnify the total effect of higher prices on consumer spending and inflation, because both domestic goods and imports have become simultaneously more expensive.
Price volatility in all corners of the market spurred risk aversion throughout the period, as investors shed higher yielding and riskier assets in favor of securities that offered capital preservation. As the financial outlook for residential and corporate debt remained troublesome, investors shied away from asset-backed and collateralized debt in favor of Government issues or more transparent and less complex securities, such as Treasury bills and Commercial Paper. U.S. Treasuries in particular experienced a surge in demand because their Government backing protects them against default risk. While the demand for Treasuries sent prices up, it brought yields down to very low levels. As a result, the yield spread between short-term Treasuries and other short-term debt instruments widened.
Tepid economic growth, financial turmoil, and rising prices left the Federal Reserve (the Fed) in a precarious position with regard to interest rates. The supply of money (M2) expanded at a mediocre 1.2% rate during the period, an indication that lending remained tight despite Fed action. While the Fed cut rates from 4.25% to 2.00% in an effort to stimulate the economy, the consensus during the Federal Open Market Committee meeting in June was to leave rates unchanged. Many investors saw a pause in rate cuts as an indication that inflationary concerns have caught up with Fed action and that the next monetary policy move would be to tighten.
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.
-11.91% | S&P 500® Index: measures U.S. large-cap stocks |
-9.37% | Russell 2000® Index: measures U.S. small-cap stocks |
-10.96% | MSCI-EAFE® Index: measures (in U.S. dollars) large-cap stocks in Europe, Australasia and the Far East |
1.13% | Lehman Brothers U.S. Aggregate Bond Index: measures the U.S. bond market |
1.08% | 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
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Portfolio Management
Caroline Lee, a managing director and portfolio manager of the investment adviser, co-manages the portfolio. Prior to joining the firm in November 2005, she worked in asset management for over four years overseeing subadvisor relationships in the pension group of a major corporation. She has also had three years of previous experience in investment management at another financial services firm. | ||
Thomas P. Miller, a portfolio manager of the investment adviser, is responsible for the day-to-day co-management of the portfolio. He joined the firm in 2000. In 2006, he became a member of the investment adviser’s Portfolio Strategy group. He was appointed portfolio manager in 2008. | ||
Larry Mano, a managing director and portfolio manager of the investment adviser, is responsible for the day-to-day co-management of the equity portions of the portfolio. Prior to joining the firm in November 1998, he worked for 20 years in equity management. | ||
Steve Hung, a managing director and portfolio manager of the investment adviser, has day-to-day responsibility for the co-management of the bond portion of the portfolio. He joined the firm in 1998 and has worked in fixed-income asset management since 1999. | ||
Matthew Hastings, CFA, a managing director and portfolio manager of the investment adviser, has day-to-day responsibility for the co-management of the bond portion of the portfolio. He joined the firm in 1999 and has worked in fixed-income and asset management since 1996. |
2 Schwab MarketTrack Growth Portfolio II
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Schwab MarketTrack Growth Portfolio IItm
The Schwab MarketTrack Growth Portfolio II incorporates a mix of different asset classes. Accordingly, returns over a given period will reflect a blend of those asset classes, and will depend on relative weightings within 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 returned -9.12% for the period, underperforming the custom benchmark Growth Composite Index, which returned -8.49%. The U.S. Economy and financial markets experienced heightened volatility and uncertainty throughout the period as they continued to factor in the impacts of the residential mortgage and credit shock that began last year. Financial institutions, particularly banks and their associated debt instruments, were disproportionately affected in this crisis as they incurred credit downgrades and write-downs on assets, further contributing to an already difficult investment environment. Toward the end of the reporting period, the unabated rise in oil, food, and other commodity prices became the primary concern of many investors. In combination with a relatively weak dollar, the rise in prices has been a boon for some investors as Energy outperformed all other industry groups, but has raised questions about sustainability and the impact of these high prices on current and long-term inflation. During the period the Federal Reserve cut the Fed Funds Rate from 4.25% to 2.00% but warned that future rate cuts were unlikely because of inflationary pressures.
As of 06/30/08:
Statistics
Number of Holdings | 510 |
Weighted Average
Market Cap
($ x 1,000,000) | $57,510 |
Price/Earnings Ratio (P/E) | 18.8 |
Price/Book Ratio (P/B) | 2.0 |
Portfolio Turnover Rate1 | 4% |
Asset Class Weightings % of Investments
Large-Cap Stocks | 39.5% |
International Stocks | 19.8% |
Small-Cap Stocks | 19.7% |
Bonds | 15.6% |
Short-Term Investments | 5.4% |
Total | 100.0% |
Top Holdings % Net Assets2
Schwab Institutional Select
S&P 500 Fund | 26.8% |
Schwab International Index
Fund, Select Shares | 19.8% |
Schwab Small-Cap Index Fund,
Select Shares | 19.7% |
Schwab Total Bond Market Fund | 15.6% |
Schwab Value Advantage Money
Fund, Select Shares | 2.9% |
Exxon Mobil Corp. | 0.6% |
General Electric Co. | 0.3% |
Microsoft Corp. | 0.3% |
Chevron Corp. | 0.2% |
AT&T, Inc. | 0.2% |
Total | 86.4% |
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
Table of Contents
Schwab MarketTrack Growth Portfolio IItm
Performance Summary as of 06/30/08
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.
Performance of a Hypothetical
$10,000 Investment1
$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) | -9.12% | -10.16% | 8.48% | 4.16% | ||||||||||||
Benchmark: Growth Composite Index | -8.49% | -8.41% | 9.40% | 4.63% | ||||||||||||
Fund Category: Morningstar Large-Cap Blend | -12.16% | -14.24% | 6.37% | 1.66% |
Portfolio Expense Ratios4: Net 0.79%; Gross 0.99%
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 blend of 60% Dow Jones Wilshire 5000 Index, 20% MSCI EAFE Index, 15% Lehman Aggregate Index, and 5% Lehman 1-3 months Treasury Bills Index. Source CSIM. |
2 | Portfolio expenses may have been partially absorbed by CSIM and Schwab. Without these reductions, the portfolio’s returns would have been lower. Portfolio returns do not reflect the additional fees and expenses imposed by the insurance company under the variable insurance product contract. If these contract fees and expenses were included, the returns would be less than those shown. Please refer to variable insurance product prospectus for a complete listing of these expenses. To obtain current sub-account level performance information, please visit www.schwab.com/annuities. |
3 | Source for category information: Morningstar, Inc. |
4 | As of 2/28/08 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 0.29%. Net Expense: Expenses reduced by a contractual fee waiver in effect through at least 2/27/09. Gross Expense: Does not reflect the effect of contractual fee waivers. |
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 6/30/08, 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
Table of Contents
Portfolio 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, 2008 and held through June 30, 2008.
Actual Return lines in the table below provide information about actual account values and actual expenses. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value ¸ $1,000 = 8.6), then multiply the result by the number given for your fund or share class under the heading entitled “Expenses Paid During Period.”
Hypothetical Return lines in the table below provide information about hypothetical account values and hypothetical expenses based on a fund’s 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 Ratio 1 | Account Value | (Net of Expenses) | During Period 2 | |||||||||||||
(Annualized) | at 1/1/08 | at 6/30/08 | 1/1/08 - 6/30/08 | |||||||||||||
Schwab MarketTrack Growth Portfolio II | ||||||||||||||||
Actual Return | 0.50% | $ | 1,000 | $ | 908.80 | $ | 2.37 | |||||||||
Hypothetical 5% Return | 0.50% | $ | 1,000 | $ | 1,022.38 | $ | 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 expeses of underlying funds in which the portfolio invests. |
2 | Expenses for the fund are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by 182 days of the period, and divided by 366 days of the fiscal year. |
Schwab MarketTrack Growth Portfolio II 5
Table of Contents
Schwab MarketTrack Growth Portfolio IItm
Financial Statements
Financial Highlights
1/1/08– | 1/1/07– | 1/1/06– | 1/1/05– | 1/1/04– | 1/1/03– | |||||||||||||||||||||
6/30/08* | 12/31/07 | 12/31/06 | 12/31/05 | 12/31/04 | 12/31/03 | |||||||||||||||||||||
Per—Share Data ($) | ||||||||||||||||||||||||||
Net asset value at beginning of period | 17.76 | 17.64 | 15.53 | 14.87 | 13.49 | 10.75 | ||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||
Net investment income (loss) | 0.05 | 0.37 | 0.33 | 0.24 | 0.21 | 0.16 | ||||||||||||||||||||
Net realized and unrealized gains (losses) | (1.67 | ) | 0.63 | 2.00 | 0.62 | 1.35 | 2.74 | |||||||||||||||||||
Total income from investment operations | (1.62 | ) | 1.00 | 2.33 | 0.86 | 1.56 | 2.90 | |||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||
Distributions from net investment income | — | (0.45 | ) | (0.22 | ) | (0.20 | ) | (0.18 | ) | (0.16 | ) | |||||||||||||||
Distributions from net realized gains | — | (0.43 | ) | — | — | — | — | |||||||||||||||||||
Total distributions | — | (0.88 | ) | (0.22 | ) | (0.20 | ) | (0.18 | ) | (0.16 | ) | |||||||||||||||
Net asset value at end of period | 16.14 | 17.76 | 17.64 | 15.53 | 14.87 | 13.49 | ||||||||||||||||||||
Total return (%) | (9.12 | )1 | 5.64 | 15.02 | 5.77 | 11.58 | 26.97 | |||||||||||||||||||
Ratios/Supplemental Data (%) | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||
Net operating expenses 2 | 0.50 | 3 | 0.50 | 0.50 | 0.48 | 0.50 | 0.50 | |||||||||||||||||||
Gross operating expenses 2 | 0.71 | 3 | 0.67 | 0.70 | 0.68 | 0.69 | 0.87 | |||||||||||||||||||
Net investment income (loss) | 0.54 | 3 | 2.06 | 2.28 | 1.66 | 1.52 | 1.70 | |||||||||||||||||||
Portfolio turnover rate | 4 | 1 | 6 | 33 | 5 | 8 | 10 | |||||||||||||||||||
Net assets, end of period ($ x 1,000,000) | 43 | 48 | 46 | 37 | 34 | 30 |
* Unaudited.
1 Not annualized.
2 The expense incurred by underlying funds in which the portfolio invests are not included in this ratio.
3 Annualized.
6 See financial notes
Table of Contents
Schwab MarketTrack Growth Portfolio II
Portfolio Holdings as of June 30, 2008 (Unaudited)
This section shows all the securities in the fund’s portfolio and their value 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.schwab.com/schwabfunds.
Cost | Value | |||||||||||
Holdings by Category | ($ x 1,000) | ($ x 1,000) | ||||||||||
12 | .7% | Common Stock | 3,094 | 5,488 | ||||||||
85 | .2% | Other Investment Companies | 34,593 | 36,866 | ||||||||
2 | .5% | Short-Term Investment | 1,080 | 1,080 | ||||||||
100 | .4% | Total Investments | 38,767 | 43,434 | ||||||||
(0 | .4)% | Other Assets and Liabilities | (152 | ) | ||||||||
100 | .0% | Net Assets | 43,282 |
Number | Value | |||||||
Security | of Shares | ($ x 1,000) | ||||||
Common Stock 12.7% of net assets | ||||||||
Automobiles & Components 0.0% | ||||||||
Ford Motor Co. * | 883 | 4 | ||||||
General Motors Corp. | 267 | 3 | ||||||
Harley-Davidson, Inc. | 128 | 5 | ||||||
Johnson Controls, Inc. | 273 | 8 | ||||||
The Goodyear Tire & Rubber Co. * | 84 | 1 | ||||||
21 | ||||||||
Banks 0.3% | ||||||||
BB&T Corp. | 253 | 6 | ||||||
Comerica, Inc. | 78 | 2 | ||||||
Countrywide Financial Corp. | 285 | 1 | ||||||
Fannie Mae | 457 | 9 | ||||||
Fifth Third Bancorp | 262 | 3 | ||||||
First Horizon National Corp. | 60 | — | ||||||
Freddie Mac | 326 | 5 | ||||||
Hudson City Bancorp, Inc. | 200 | 3 | ||||||
Huntington Bancshares, Inc. | 118 | 1 | ||||||
KeyCorp | 191 | 2 | ||||||
M&T Bank Corp. | 37 | 3 | ||||||
Marshall & Ilsley Corp. | 106 | 2 | ||||||
MGIC Investment Corp. | 42 | — | ||||||
National City Corp. | 260 | 1 | ||||||
PNC Financial Services Group, Inc. | 138 | 8 | ||||||
Regions Financial Corp. | 344 | 4 | ||||||
Sovereign Bancorp, Inc. | 176 | 1 | ||||||
SunTrust Banks, Inc. | 175 | 6 | ||||||
U.S. Bancorp | 852 | 24 | ||||||
Wachovia Corp. | 895 | 14 | ||||||
Washington Mutual, Inc. | 469 | 2 | ||||||
Wells Fargo & Co. | 1,584 | 38 | ||||||
Zions Bancorp | 50 | 2 | ||||||
137 | ||||||||
Capital Goods 1.1% | ||||||||
3M Co. | 357 | 25 | ||||||
Caterpillar, Inc. | 317 | 23 | ||||||
Cooper Industries Ltd., Class A | 88 | 3 | ||||||
Cummins, Inc. | 88 | 6 | ||||||
Danaher Corp. | 112 | 9 | ||||||
Deere & Co. | 226 | 16 | ||||||
Dover Corp. | 97 | 5 | ||||||
Eaton Corp. | 71 | 6 | ||||||
Emerson Electric Co. | 388 | 19 | ||||||
Fluor Corp. | 42 | 8 | ||||||
General Dynamics Corp. | 189 | 16 | ||||||
General Electric Co. | 4,932 | 132 | ||||||
Goodrich Corp. | 59 | 3 | ||||||
Honeywell International, Inc. | 394 | 20 | ||||||
Illinois Tool Works, Inc. | 196 | 9 | ||||||
Ingersoll-Rand Co., Ltd., Class A | 173 | 6 | ||||||
ITT Corp. | 88 | 6 | ||||||
Jacobs Engineering Group, Inc. * | 100 | 8 | ||||||
L-3 Communications Holdings, Inc. | 58 | 5 | ||||||
Lockheed Martin Corp. | 169 | 17 | ||||||
Masco Corp. | 196 | 3 | ||||||
Northrop Grumman Corp. | 165 | 11 | ||||||
PACCAR, Inc. | 181 | 7 | ||||||
Pall Corp. | 60 | 2 | ||||||
Parker Hannifin Corp. | 84 | 6 | ||||||
Precision Castparts Corp. | 100 | 10 | ||||||
Raytheon Co. | 212 | 12 | ||||||
Rockwell Automation, Inc. | 83 | 4 | ||||||
Rockwell Collins, Inc. | 82 | 4 | ||||||
Terex Corp. * | 40 | 2 | ||||||
Textron, Inc. | 124 | 6 | ||||||
The Boeing Co. | 378 | 25 | ||||||
The Manitowoc Co., Inc. | 100 | 3 | ||||||
Tyco International Ltd. | 238 | 9 | ||||||
United Technologies Corp. | 480 | 30 | ||||||
W.W. Grainger, Inc. | 37 | 3 | ||||||
479 | ||||||||
Commercial Services & Supplies 0.1% | ||||||||
Allied Waste Industries Inc * | 115 | 1 | ||||||
Avery Dennison Corp. | 53 | 2 | ||||||
Cintas | 66 | 2 | ||||||
Equifax, Inc. | 62 | 2 | ||||||
Monster Worldwide, Inc. * | 60 | 1 | ||||||
Pitney Bowes, Inc. | 108 | 4 | ||||||
R.R. Donnelley & Sons Co. | 103 | 3 | ||||||
Robert Half International, Inc. | 82 | 2 | ||||||
Waste Management, Inc. | 261 | 10 | ||||||
27 | ||||||||
Consumer Durables & Apparel 0.1% | ||||||||
Brunswick Corp. | 45 | 1 | ||||||
Centex Corp. | 59 | 1 | ||||||
Coach, Inc. * | 181 | 5 |
See financial notes 7
Table of Contents
Schwab MarketTrack Growth Portfolio II
Portfolio Holdings (Unaudited) continued
Number | Value | |||||||
Security | of Shares | ($ x 1,000) | ||||||
D.R. Horton, Inc. | 128 | 1 | ||||||
Eastman Kodak Co. | 135 | 2 | ||||||
Fortune Brands, Inc. | 70 | 4 | ||||||
Harman International Industries, Inc. | 32 | 1 | ||||||
Hasbro, Inc. | 85 | 3 | ||||||
Jones Apparel Group, Inc. | 55 | 1 | ||||||
KB HOME | 37 | 1 | ||||||
Leggett & Platt, Inc. | 87 | 1 | ||||||
Lennar Corp., Class A | 64 | 1 | ||||||
Liz Claiborne, Inc. | 50 | 1 | ||||||
Mattel, Inc. | 183 | 3 | ||||||
Newell Rubbermaid, Inc. | 129 | 2 | ||||||
NIKE, Inc., Class B | 178 | 11 | ||||||
Polo Ralph Lauren Corp. | 30 | 2 | ||||||
Pulte Homes, Inc. | 102 | 1 | ||||||
Snap-on, Inc. | 27 | 1 | ||||||
The Black & Decker Corp. | 36 | 2 | ||||||
The Stanley Works | 35 | 2 | ||||||
VF Corp. | 42 | 3 | ||||||
Whirlpool Corp. | 36 | 2 | ||||||
52 | ||||||||
Consumer Services 0.2% | ||||||||
Apollo Group, Inc., Class A * | 67 | 3 | ||||||
Carnival Corp. | 205 | 7 | ||||||
Darden Restaurants, Inc. | 63 | 2 | ||||||
H&R Block, Inc. | 156 | 3 | ||||||
International Game Technology | 159 | 4 | ||||||
Marriott International, Inc., Class A | 152 | 4 | ||||||
McDonald’s Corp. | 594 | 33 | ||||||
Starbucks Corp. * | 361 | 6 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | 103 | 4 | ||||||
Wendy’s International, Inc. | 55 | 1 | ||||||
Wyndham Worldwide Corp. | 95 | 2 | ||||||
YUM! Brands, Inc. | 260 | 9 | ||||||
78 | ||||||||
Diversified Financials 0.8% | ||||||||
American Capital Strategies Ltd. | 100 | 2 | ||||||
American Express Co. | 585 | 22 | ||||||
Ameriprise Financial, Inc. | 118 | 5 | ||||||
Bank of America Corp. | 2,197 | 52 | ||||||
Bank of New York Mellon Corp. | 540 | 20 | ||||||
Capital One Financial Corp. | 142 | 5 | ||||||
CIT Group, Inc. | 95 | 1 | ||||||
Citigroup, Inc. | 2,361 | 39 | ||||||
CME Group, Inc. | 15 | 6 | ||||||
Discover Financial Services | 254 | 3 | ||||||
E *TRADE Financial Corp. * | 197 | 1 | ||||||
Federated Investors, Inc., Class B | 40 | 1 | ||||||
Franklin Resources, Inc. | 72 | 7 | ||||||
IntercontinentalExchange, Inc. * | 35 | 4 | ||||||
Janus Capital Group, Inc. | 102 | 3 | ||||||
JPMorgan Chase & Co. | 1,649 | 57 | ||||||
Legg Mason, Inc. | 59 | 3 | ||||||
Lehman Brothers Holdings, Inc. | 250 | 5 | ||||||
Leucadia National Corp. | 100 | 5 | ||||||
Merrill Lynch & Co., Inc. | 434 | 14 | ||||||
Moody’s Corp. | 116 | 4 | ||||||
Morgan Stanley | 508 | 18 | ||||||
Northern Trust Corp. | 87 | 6 | ||||||
NYSE Euronext | 100 | 5 | ||||||
SLM Corp. * | 197 | 4 | ||||||
State Street Corp. | 157 | 10 | ||||||
T. Rowe Price Group, Inc. | 126 | 7 | ||||||
The Charles Schwab Corp. (a) | 488 | 10 | ||||||
The Goldman Sachs Group, Inc. | 206 | 36 | ||||||
355 | ||||||||
Energy 2.1% | ||||||||
Anadarko Petroleum Corp. | 220 | 16 | ||||||
Apache Corp. | 156 | 22 | ||||||
Baker Hughes, Inc. | 161 | 14 | ||||||
BJ Services Co. | 154 | 5 | ||||||
Cabot Oil & Gas Corp. | 40 | 3 | ||||||
Cameron International Corp. * | 100 | 6 | ||||||
Chesapeake Energy Corp. | 176 | 12 | ||||||
Chevron Corp. | 1,053 | 104 | ||||||
ConocoPhillips | 780 | 74 | ||||||
CONSOL Energy, Inc. | 100 | 11 | ||||||
Devon Energy Corp. | 210 | 25 | ||||||
El Paso Corp. | 311 | 7 | ||||||
ENSCO International, Inc. | 70 | 6 | ||||||
EOG Resources, Inc. | 114 | 15 | ||||||
Exxon Mobil Corp. | 2,719 | 240 | ||||||
Halliburton Co. | 488 | 26 | ||||||
Hess Corp. | 111 | 14 | ||||||
Marathon Oil Corp. | 346 | 18 | ||||||
Massey Energy Co. | 20 | 2 | ||||||
Murphy Oil Corp. | 79 | 8 | ||||||
Nabors Industries Ltd. * | 149 | 7 | ||||||
National-Oilwell Varco, Inc. * | 164 | 15 | ||||||
Noble Corp. | 128 | 8 | ||||||
Noble Energy | 100 | 10 | ||||||
Occidental Petroleum Corp. | 406 | 36 | ||||||
Patriot Coal Corp. * | 10 | 1 | ||||||
Peabody Energy Corp. | 100 | 9 | ||||||
Range Resources Corp. | 100 | 7 | ||||||
Rowan Cos., Inc. | 52 | 2 | ||||||
Schlumberger Ltd. | 559 | 60 | ||||||
Smith International, Inc. | 100 | 8 | ||||||
Southwestern Energy Co. * | 160 | 8 | ||||||
Spectra Energy Corp. | 293 | 8 | ||||||
Sunoco, Inc. | 64 | 3 | ||||||
Tesoro Corp. | 100 | 2 | ||||||
The Williams Cos., Inc. | 282 | 11 | ||||||
Transocean, Inc. * | 141 | 21 | ||||||
Valero Energy Corp. | 294 | 12 | ||||||
Weatherford International Ltd. * | 332 | 16 | ||||||
XTO Energy, Inc. | 213 | 15 | ||||||
887 | ||||||||
Food & Staples Retailing 0.4% | ||||||||
Costco Wholesale Corp. | 223 | 16 | ||||||
CVS Caremark Corp. | 740 | 29 | ||||||
Safeway, Inc. | 212 | 6 | ||||||
Supervalu, Inc. | 96 | 3 | ||||||
Sysco Corp. | 294 | 8 | ||||||
The Kroger Co. | 344 | 10 | ||||||
Wal-Mart Stores, Inc. | 1,182 | 66 |
8 See financial notes
Table of Contents
Schwab MarketTrack Growth Portfolio II
Portfolio Holdings (Unaudited) continued
Number | Value | |||||||
Security | of Shares | ($ x 1,000) | ||||||
Walgreen Co. | 478 | 15 | ||||||
Whole Foods Market, Inc. | 66 | 2 | ||||||
155 | ||||||||
Food, Beverage & Tobacco 0.7% | ||||||||
Altria Group, Inc. | 987 | 20 | ||||||
Anheuser-Busch Cos., Inc. | 367 | 23 | ||||||
Archer-Daniels-Midland Co. | 309 | 10 | ||||||
Brown-Forman Corp., Class B | 40 | 3 | ||||||
Campbell Soup Co. | 88 | 3 | ||||||
Coca-Cola Enterprises, Inc. | 144 | 2 | ||||||
ConAgra Foods, Inc. | 245 | 5 | ||||||
Constellation Brands, Inc., Class A * | 94 | 2 | ||||||
Dean Foods Co. * | 65 | 1 | ||||||
General Mills, Inc. | 168 | 10 | ||||||
H.J. Heinz Co. | 158 | 8 | ||||||
Kellogg Co. | 118 | 6 | ||||||
Kraft Foods, Inc., Class A | 683 | 19 | ||||||
Lorillard, Inc. * | 73 | 5 | ||||||
McCormick & Co., Inc. | 63 | 2 | ||||||
Molson Coors Brewing Co., Class B | 50 | 3 | ||||||
PepsiCo, Inc. | 783 | 50 | ||||||
Philip Morris International, Inc. | 987 | 49 | ||||||
Reynolds American, Inc. | 80 | 4 | ||||||
Sara Lee Corp. | 359 | 4 | ||||||
The Coca-Cola Co. | 974 | 51 | ||||||
The Hershey Co. | 84 | 3 | ||||||
The Pepsi Bottling Group, Inc. | 63 | 2 | ||||||
Tyson Foods, Inc., Class A | 99 | 1 | ||||||
UST, Inc. | 78 | 4 | ||||||
Wm. Wrigley Jr. Co. | 105 | 8 | ||||||
298 | ||||||||
Health Care Equipment & Services 0.5% | ||||||||
Aetna, Inc. | 268 | 11 | ||||||
AmerisourceBergen Corp. | 98 | 4 | ||||||
Baxter International, Inc. | 306 | 20 | ||||||
Becton, Dickinson & Co. | 118 | 10 | ||||||
Boston Scientific Corp. * | 545 | 7 | ||||||
C.R. Bard, Inc. | 50 | 4 | ||||||
Cardinal Health, Inc. | 199 | 10 | ||||||
CIGNA Corp. | 174 | 6 | ||||||
Coventry Health Care, Inc. * | 75 | 2 | ||||||
Covidien Ltd. | 238 | 11 | ||||||
Express Scripts, Inc. * | 140 | 9 | ||||||
Hospira, Inc. * | 77 | 3 | ||||||
Humana, Inc. * | 78 | 3 | ||||||
IMS Health, Inc. | 95 | 2 | ||||||
Intuitive Surgical, Inc. * | 20 | 5 | ||||||
Laboratory Corp. of America Holdings * | 60 | 4 | ||||||
McKesson Corp. | 144 | 8 | ||||||
Medco Health Solutions, Inc. * | 290 | 14 | ||||||
Medtronic, Inc. | 571 | 30 | ||||||
Patterson Cos., Inc. * | 66 | 2 | ||||||
Quest Diagnostics, Inc. | 76 | 4 | ||||||
St. Jude Medical, Inc. * | 173 | 7 | ||||||
Stryker Corp. | 139 | 9 | ||||||
Tenet Healthcare Corp. * | 223 | 1 | ||||||
UnitedHealth Group, Inc. | 641 | 17 | ||||||
Varian Medical Systems, Inc. * | 60 | 3 | ||||||
WellPoint, Inc. * | 312 | 15 | ||||||
Zimmer Holdings, Inc. * | 118 | 8 | ||||||
229 | ||||||||
Household & Personal Products 0.3% | ||||||||
Avon Products, Inc. | 214 | 8 | ||||||
Colgate-Palmolive Co. | 243 | 17 | ||||||
Kimberly-Clark Corp. | 219 | 13 | ||||||
The Clorox Co. | 72 | 4 | ||||||
The Estee Lauder Cos., Inc., Class A | 57 | 3 | ||||||
The Procter & Gamble Co. | 1,556 | 94 | ||||||
139 | ||||||||
Insurance 0.4% | ||||||||
ACE Ltd. | 152 | 8 | ||||||
Aflac, Inc. | 235 | 15 | ||||||
American International Group, Inc. | 1,228 | 33 | ||||||
Aon Corp. | 153 | 7 | ||||||
Assurant, Inc. | 80 | 5 | ||||||
Cincinnati Financial Corp. | 83 | 2 | ||||||
Genworth Financial, Inc., Class A | 179 | 3 | ||||||
Lincoln National Corp. | 134 | 6 | ||||||
Loews Corp. | 90 | 4 | ||||||
Marsh & McLennan Cos., Inc. | 258 | 7 | ||||||
MBIA, Inc. | 64 | — | ||||||
MetLife, Inc. | 358 | 19 | ||||||
Principal Financial Group, Inc. | 132 | 6 | ||||||
Prudential Financial, Inc. | 234 | 14 | ||||||
SAFECO Corp. | 59 | 4 | ||||||
The Allstate Corp. | 305 | 14 | ||||||
The Chubb Corp. | 190 | 9 | ||||||
The Hartford Financial Services Group, Inc. | 144 | 9 | ||||||
The Progressive Corp. | 376 | 7 | ||||||
The Travelers Cos., Inc. | 329 | 14 | ||||||
Torchmark Corp. | 50 | 3 | ||||||
Unum Group | 142 | 3 | ||||||
XL Capital Ltd., Class A | 83 | 2 | ||||||
194 | ||||||||
Materials 0.5% | ||||||||
Air Products & Chemicals, Inc. | 106 | 10 | ||||||
AK Steel Holding Corp. | 50 | 3 | ||||||
Alcoa, Inc. | 412 | 15 | ||||||
Allegheny Technologies, Inc. | 40 | 2 | ||||||
Ashland, Inc. | 34 | 2 | ||||||
Ball Corp. | 50 | 2 | ||||||
Bemis Co., Inc. | 50 | 1 | ||||||
E.I. du Pont de Nemours & Co. | 435 | 19 | ||||||
Eastman Chemical Co. | 39 | 3 | ||||||
Ecolab, Inc. | 87 | 4 | ||||||
Freeport-McMoRan Copper & Gold, Inc. | 152 | 18 | ||||||
Hercules, Inc. | 54 | 1 | ||||||
International Flavors & Fragrances, Inc. | 38 | 2 | ||||||
International Paper Co. | 234 | 5 |
See financial notes 9
Table of Contents
Schwab MarketTrack Growth Portfolio II
Portfolio Holdings (Unaudited) continued
Number | Value | |||||||
Security | of Shares | ($ x 1,000) | ||||||
MeadWestvaco Corp. | 86 | 2 | ||||||
Monsanto Co. | 254 | 32 | ||||||
Newmont Mining Corp. | 211 | 11 | ||||||
Nucor Corp. | 146 | 11 | ||||||
Pactiv Corp. * | 68 | 1 | ||||||
PPG Industries, Inc. | 79 | 5 | ||||||
Praxair, Inc. | 152 | 14 | ||||||
Rohm & Haas Co. | 69 | 3 | ||||||
Sealed Air Corp. | 78 | 1 | ||||||
Sigma-Aldrich Corp. | 78 | 4 | ||||||
The Dow Chemical Co. | 457 | 16 | ||||||
Titanium Metals Corp. | 50 | 1 | ||||||
United States Steel Corp. | 52 | 10 | ||||||
Vulcan Materials Co. | 48 | 3 | ||||||
Weyerhaeuser Co. | 116 | 6 | ||||||
207 | ||||||||
Media 0.4% | ||||||||
CBS Corp., Class B | 396 | 8 | ||||||
Clear Channel Communications, Inc. | 244 | 9 | ||||||
Comcast Corp., Class A | 1,516 | 29 | ||||||
Gannett Co., Inc. | 112 | 2 | ||||||
Meredith Corp. | 20 | 1 | ||||||
News Corp., Class A | 1,135 | 17 | ||||||
Omnicom Group, Inc. | 168 | 7 | ||||||
The DIRECTV Group, Inc. * | 300 | 8 | ||||||
The E.W. Scripps Co., Class A | 41 | 2 | ||||||
The Interpublic Group of Cos., Inc. * | 204 | 2 | ||||||
The McGraw-Hill Cos., Inc. | 173 | 7 | ||||||
The New York Times Co., Class A | 74 | 1 | ||||||
The Walt Disney Co. | 911 | 28 | ||||||
The Washington Post Co., Class B | 2 | 1 | ||||||
Time Warner, Inc. | 1,931 | 28 | ||||||
Viacom, Inc., Class B * | 365 | 11 | ||||||
161 | ||||||||
Pharmaceuticals & Biotechnology 1.0% | ||||||||
Abbott Laboratories | 729 | 39 | ||||||
Allergan, Inc. | 142 | 7 | ||||||
Amgen, Inc. * | 552 | 26 | ||||||
Applied Biosystems Group-Applera Corp. | 87 | 3 | ||||||
Barr Pharmaceuticals, Inc. * | 50 | 2 | ||||||
Biogen Idec, Inc. * | 162 | 9 | ||||||
Bristol-Myers Squibb Co. | 926 | 19 | ||||||
Celgene Corp. * | 100 | 6 | ||||||
Eli Lilly & Co. | 534 | 25 | ||||||
Forest Laboratories, Inc. * | 155 | 5 | ||||||
Genzyme Corp. * | 122 | 9 | ||||||
Gilead Sciences, Inc. * | 436 | 23 | ||||||
Johnson & Johnson | 1,408 | 91 | ||||||
King Pharmaceuticals, Inc. * | 115 | 1 | ||||||
Merck & Co., Inc. | 1,034 | 39 | ||||||
Millipore Corp. * | 25 | 2 | ||||||
Mylan, Inc. * | 104 | 1 | ||||||
PerkinElmer, Inc. | 62 | 2 | ||||||
Pfizer, Inc. | 3,481 | 61 | ||||||
Schering-Plough Corp. | 701 | 14 | ||||||
Thermo Fisher Scientific, Inc. * | 195 | 11 | ||||||
Waters Corp. * | 49 | 3 | ||||||
Watson Pharmaceuticals, Inc. * | 49 | 1 | ||||||
Wyeth | 635 | 30 | ||||||
429 | ||||||||
Real Estate 0.1% | ||||||||
Apartment Investment & Management Co., Class A | 48 | 2 | ||||||
AvalonBay Communities, Inc. | 30 | 3 | ||||||
Boston Properties, Inc. | 43 | 4 | ||||||
CB Richard Ellis Group, Inc., Class A * | 80 | 2 | ||||||
Developers Diversified Realty Corp. | 50 | 2 | ||||||
Equity Residential | 138 | 5 | ||||||
General Growth Properties, Inc. | 100 | 3 | ||||||
HCP, Inc. | 100 | 3 | ||||||
Host Hotels & Resorts, Inc. | 200 | 3 | ||||||
Kimco Realty Corp. | 101 | 3 | ||||||
Plum Creek Timber Co., Inc. | 88 | 4 | ||||||
ProLogis | 116 | 6 | ||||||
Public Storage | 40 | 3 | ||||||
Simon Property Group, Inc. | 86 | 8 | ||||||
Vornado Realty Trust | 57 | 5 | ||||||
56 | ||||||||
Retailing 0.4% | ||||||||
Abercrombie & Fitch Co., Class A | 50 | 3 | ||||||
Amazon.com, Inc. * | 146 | 11 | ||||||
AutoNation, Inc. * | 70 | 1 | ||||||
AutoZone, Inc. * | 27 | 3 | ||||||
Bed, Bath & Beyond, Inc. * | 132 | 4 | ||||||
Best Buy Co., Inc. | 192 | 8 | ||||||
Big Lots, Inc. * | 88 | 3 | ||||||
Dillard’s, Inc., Class A | 30 | — | ||||||
Expedia, Inc. * | 100 | 2 | ||||||
Family Dollar Stores, Inc. | 74 | 1 | ||||||
GameStop Corp., Class A * | 100 | 4 | ||||||
Genuine Parts Co. | 81 | 3 | ||||||
IAC/InterActiveCorp. * | 100 | 2 | ||||||
J.C. Penney Co., Inc. | 109 | 4 | ||||||
Kohl’s Corp. * | 164 | 7 | ||||||
Limited Brands, Inc. | 165 | 3 | ||||||
Lowe’s Cos., Inc. | 738 | 15 | ||||||
Macy’s, Inc. | 256 | 5 | ||||||
Nordstrom, Inc. | 103 | 3 | ||||||
Office Depot, Inc. * | 139 | 2 | ||||||
RadioShack Corp. | 11 | — | ||||||
Sears Holdings Corp. * | 48 | 4 | ||||||
Staples, Inc. | 344 | 8 | ||||||
Target Corp. | 417 | 19 | ||||||
The Gap, Inc. | 271 | 4 | ||||||
The Home Depot, Inc. | 899 | 21 | ||||||
The Sherwin-Williams Co. | 53 | 2 | ||||||
The TJX Cos., Inc. | 217 | 7 | ||||||
Tiffany & Co. | 68 | 3 | ||||||
152 | ||||||||
Semiconductors & Semiconductor Equipment 0.3% | ||||||||
Advanced Micro Devices, Inc. * | 228 | 1 | ||||||
Altera Corp. | 171 | 4 |
10 See financial notes
Table of Contents
Schwab MarketTrack Growth Portfolio II
Portfolio Holdings (Unaudited) continued
Number | Value | |||||||
Security | of Shares | ($ x 1,000) | ||||||
Analog Devices, Inc. | 174 | 6 | ||||||
Applied Materials, Inc. | 750 | 14 | ||||||
Broadcom Corp., Class A * | 208 | 6 | ||||||
Intel Corp. | 2,783 | 60 | ||||||
KLA-Tencor Corp. | 95 | 4 | ||||||
Linear Technology Corp. | 144 | 5 | ||||||
LSI Corp. * | 186 | 1 | ||||||
MEMC Electronic Materials, Inc. * | 100 | 6 | ||||||
Microchip Technology, Inc. | 100 | 3 | ||||||
Micron Technology, Inc. * | 319 | 2 | ||||||
National Semiconductor Corp. | 159 | 3 | ||||||
Novellus Systems, Inc. * | 64 | 1 | ||||||
NVIDIA Corp. * | 241 | 5 | ||||||
Teradyne, Inc. * | 94 | 1 | ||||||
Texas Instruments, Inc. | 757 | 21 | ||||||
Xilinx, Inc. | 164 | 4 | ||||||
147 | ||||||||
Software & Services 0.8% | ||||||||
Adobe Systems, Inc. * | 283 | 11 | ||||||
Affiliated Computer Services, Inc., Class A * | 55 | 3 | ||||||
Akamai Technologies, Inc. * | 100 | 3 | ||||||
Autodesk, Inc. * | 110 | 4 | ||||||
Automatic Data Processing, Inc. | 274 | 11 | ||||||
BMC Software, Inc. * | 101 | 4 | ||||||
CA, Inc. | 215 | 5 | ||||||
Citrix Systems, Inc. * | 85 | 2 | ||||||
Cognizant Technology Solutions Corp., Class A * | 120 | 4 | ||||||
Computer Sciences Corp. * | 89 | 4 | ||||||
Compuware Corp. * | 182 | 2 | ||||||
Convergys Corp. * | 67 | 1 | ||||||
eBay, Inc. * | 545 | 15 | ||||||
Electronic Arts, Inc. * | 143 | 6 | ||||||
Electronic Data Systems Corp. | 243 | 6 | ||||||
Fidelity National Information Services, Inc. | 70 | 3 | ||||||
Fiserv, Inc. * | 88 | 4 | ||||||
Google, Inc., Class A * | 96 | 51 | ||||||
Intuit, Inc. * | 166 | 5 | ||||||
Microsoft Corp. | 4,204 | 116 | ||||||
Novell, Inc. * | 185 | 1 | ||||||
Oracle Corp. * | 1,784 | 37 | ||||||
Paychex, Inc. | 159 | 5 | ||||||
Symantec Corp. * | 493 | 10 | ||||||
Total System Services, Inc. | 100 | 2 | ||||||
Unisys Corp. * | 162 | 1 | ||||||
VeriSign, Inc. * | 116 | 4 | ||||||
Western Union Co. | 362 | 9 | ||||||
Yahoo!, Inc. * | 598 | 12 | ||||||
341 | ||||||||
Technology Hardware & Equipment 1.0% | ||||||||
Agilent Technologies, Inc. * | 202 | 7 | ||||||
Apple, Inc. * | 402 | 67 | ||||||
Ciena Corp. * | 39 | 1 | ||||||
Cisco Systems, Inc. * | 2,910 | 68 | ||||||
Corning, Inc. | 731 | 17 | ||||||
Dell, Inc. * | 1,113 | 24 | ||||||
EMC Corp. * | 1,124 | 16 | ||||||
Hewlett-Packard Co. | 1,338 | 59 | ||||||
International Business Machines Corp. | 741 | 88 | ||||||
Jabil Circuit, Inc. | 83 | 1 | ||||||
JDS Uniphase Corp. * | 99 | 1 | ||||||
Juniper Networks, Inc. * | 200 | 4 | ||||||
Lexmark International, Inc., Class A * | 52 | 2 | ||||||
Molex, Inc. | 68 | 2 | ||||||
Motorola, Inc. | 1,182 | 9 | ||||||
NetApp, Inc. * | 178 | 4 | ||||||
Nortel Networks Corp. * | 16 | — | ||||||
QLogic Corp. * | 76 | 1 | ||||||
QUALCOMM, Inc. | 783 | 35 | ||||||
SanDisk Corp. * | 88 | 2 | ||||||
Sun Microsystems, Inc. * | 409 | 4 | ||||||
Tellabs, Inc. * | 214 | 1 | ||||||
Teradata Corp. * | 87 | 2 | ||||||
Tyco Electronics Ltd. | 238 | 9 | ||||||
Xerox Corp. | 440 | 6 | ||||||
430 | ||||||||
Telecommunication Services 0.4% | ||||||||
American Tower Corp., Class A * | 200 | 9 | ||||||
AT&T, Inc. | 2,961 | 100 | ||||||
CenturyTel, Inc. | 55 | 2 | ||||||
Citizens Communications Co. | 156 | 2 | ||||||
Embarq Corp. | 70 | 3 | ||||||
Qwest Communications International, Inc. | 735 | 3 | ||||||
Sprint Nextel Corp. | 1,405 | 13 | ||||||
Verizon Communications, Inc. | 1,384 | 49 | ||||||
Windstream Corp. | 189 | 2 | ||||||
183 | ||||||||
Transportation 0.3% | ||||||||
Burlington Northern Santa Fe Corp. | 176 | 18 | ||||||
C.H. Robinson Worldwide, Inc. | 100 | 6 | ||||||
CSX Corp. | 206 | 13 | ||||||
Expeditors International of Washington, Inc. | 100 | 4 | ||||||
FedEx Corp. | 143 | 11 | ||||||
Norfolk Southern Corp. | 196 | 12 | ||||||
Ryder System, Inc. | 29 | 2 | ||||||
Southwest Airlines Co. | 336 | 4 | ||||||
Union Pacific Corp. | 250 | 19 | ||||||
United Parcel Service, Inc., Class B | 516 | 32 | ||||||
121 | ||||||||
Utilities 0.5% | ||||||||
Allegheny Energy, Inc. | 78 | 4 | ||||||
Ameren Corp. | 96 | 4 | ||||||
American Electric Power Co., Inc. | 187 | 8 | ||||||
CenterPoint Energy, Inc. | 147 | 2 | ||||||
CMS Energy Corp. | 105 | 2 | ||||||
Consolidated Edison, Inc. | 117 | 5 | ||||||
Constellation Energy Group, Inc. | 85 | 7 | ||||||
Dominion Resources, Inc. | 278 | 13 | ||||||
DTE Energy Co. | 85 | 4 |
See financial notes 11
Table of Contents
Schwab MarketTrack Growth Portfolio II
Portfolio Holdings (Unaudited) continued
Number | Value | |||||||
Security | of Shares | ($ x 1,000) | ||||||
Duke Energy Corp. | 586 | 10 | ||||||
Dynegy, Inc., Class A * | 143 | 1 | ||||||
Edison International | 155 | 8 | ||||||
Entergy Corp. | 98 | 12 | ||||||
Exelon Corp | 315 | 28 | ||||||
FirstEnergy Corp. | 157 | 13 | ||||||
FPL Group, Inc. | 190 | 12 | ||||||
Integrys Energy Group, Inc. | 15 | 1 | ||||||
Nicor, Inc. | 32 | 1 | ||||||
NiSource, Inc. | 130 | 2 | ||||||
Pepco Holdings, Inc. | 100 | 3 | ||||||
PG&E Corp. | 163 | 7 | ||||||
Pinnacle West Capital Corp. | 47 | 1 | ||||||
PPL Corp. | 179 | 9 | ||||||
Progress Energy, Inc. | 120 | 5 | ||||||
Public Service Enterprise Group, Inc. | 236 | 11 | ||||||
Questar Corp. | 80 | 6 | ||||||
Sempra Energy | 123 | 7 | ||||||
Southern Co. | 350 | 12 | ||||||
TECO Energy, Inc. | 99 | 2 | ||||||
The AES Corp. * | 311 | 6 | ||||||
Xcel Energy, Inc. | 192 | 4 | ||||||
210 | ||||||||
Total Common Stock (Cost $3,094) | 5,488 | |||||||
Other Investment Companies 85.2% of net assets | ||||||||
Schwab Institutional Select S&P 500 Fund (a) | 1,141,122 | 11,662 | ||||||
Schwab International Index Fund, Select Shares (a) | 398,091 | 8,599 | ||||||
Schwab Small-Cap Index Fund, Select Shares (a) | 481,600 | 8,563 | ||||||
Schwab Total Bond Market Fund (a) | 732,538 | 6,769 | ||||||
Schwab Value Advantage Money Fund, Select Shares (a) | 1,272,925 | 1,273 | ||||||
Total Other Investment Companies (Cost $34,594) | 36,866 | |||||||
Issuer | Face Amount | Value | ||||||
Rate, Maturity Date | ($ x 1,000) | ($ x 1,000) | ||||||
Short-Term Investment 2.5% of net assets | ||||||||
Commercial Paper & Other Corporate Obligations 2.5% | ||||||||
Wachovia, London Time Deposit | ||||||||
1.82%, 07/01/08 | 1,080 | 1,080 | ||||||
Total Short-Term Investments (Cost $1,080) | 1,080 | |||||||
End of Investments. | ||||||||
(All dollar amounts are x 1,000) | ||||||||
At 06/30/08, the tax basis cost of the fund’s investments was $39,025 and the unrealized appreciation and depreciation were $5,449 and ($1,040), respectively, with a net unrealized appreciation of $4,409. |
* | Non-income producing security. | |
(a) | Issuer is affiliated with the fund’s adviser. |
12 See financial notes
Table of Contents
Schwab MarketTrack Growth Portfolio II
Statement of
Assets and Liabilities
As of June 30, 2008; unaudited. All numbers x 1,000 except NAV.
Assets | ||||||
Investments in affiliated underlying funds and stocks, at value (cost $34,596) | $36,875 | |||||
Investments in unaffiliated issuers, at value (cost $4,171) | + | 6,559 | ||||
Total investments, at value (cost $38,767) | 43,434 | |||||
Receivables: | ||||||
Investments sold | 1 | |||||
Fund shares sold | 3 | |||||
Dividends | + | 32 | ||||
Total assets | 43,470 | |||||
Liabilities | ||||||
Payables: | ||||||
Investments bought | 27 | |||||
Investment adviser and administrator fees | 1 | |||||
Fund shares redeemed | 137 | |||||
Accrued expenses | + | 23 | ||||
Total liabilities | 188 | |||||
Net Assets | ||||||
Total assets | 43,470 | |||||
Total liabilities | − | 188 | ||||
Net assets | $43,282 | |||||
Net Assets by Source | ||||||
Capital received from investors | 36,157 | |||||
Net investment income not yet distributed | 1,140 | |||||
Net realized capital gains | 1,318 | |||||
Net unrealized capital gains | 4,667 |
Net Asset Value (NAV)
Shares | ||||||||||
Net Assets | ¸ | Outstanding | = | NAV | ||||||
$43,282 | 2,682 | $16.14 |
See financial notes 13
Table of Contents
Schwab MarketTrack Growth Portfolio II
Statement of
Operations
For January 1, 2008 to June 30, 2008; unaudited. All numbers x1,000.
Investment Income | ||||||
Dividends received from affiliated underlying funds and stocks | $162 | |||||
Dividends received from unaffiliated issuers | 61 | |||||
Interest | + | 10 | ||||
Total Investment Income | 233 | |||||
Net Realized Gains and Losses | ||||||
Net realized losses on sales of affiliated underlying funds | (158 | ) | ||||
Net realized gains on unaffiliated investments | + | 11 | ||||
Net realized losses | (147 | ) | ||||
Net Unrealized Gains and Losses | ||||||
Net unrealized losses on unaffiliated investments | (799 | ) | ||||
Net unrealized losses on affiliated underlying funds | + | (3,552 | ) | |||
Net unrealized losses | (4,351 | ) | ||||
Expenses | ||||||
Investment adviser and administrator fees | 99 | |||||
Professional fees | 18 | |||||
Shareholder reports | 15 | |||||
Portfolio accounting fees | 14 | |||||
Trustees’ fees | 10 | |||||
Custodian fees | + | 2 | ||||
Total expenses | 158 | |||||
Expense reduction by adviser and Schwab | − | 46 | ||||
Net expenses | 112 | |||||
Increase (Decrease) in Net Assets from Operations | ||||||
Total investment income | 233 | |||||
Net expenses | − | 112 | ||||
Net investment income | 121 | |||||
Net realized losses | (147 | ) | ||||
Net unrealized losses | + | (4,351 | ) | |||
Decrease in net assets from operations | ($4,377 | ) |
14 See financial notes
Table of Contents
Schwab MarketTrack Growth Portfolio II
Statements of
Changes in Net Assets
For the current and prior report periods. All numbers x 1,000.
Figures for current period are unaudited.
Figures for current period are unaudited.
Operations |
1/1/08-6/30/08 | 1/1/07-12/31/07 | |||||||||
Net investment income | $121 | $986 | ||||||||
Net realized gains (losses) | (147 | ) | 1,714 | |||||||
Net unrealized losses | + | (4,351 | ) | (196 | ) | |||||
Increase (Decrease) in net assets from operations | (4,377 | ) | 2,504 | |||||||
Distributions to Shareholders | ||||||||||
Distributions from net investment income | – | 1,166 | ||||||||
Distributions from net realized gains | + | – | 1,112 | |||||||
Total distributions | $– | $2,278 |
Transactions in Fund Shares |
1/1/08-6/30/08 | 1/1/07-12/31/07 | |||||||||||||||||
SHARES | VALUE | SHARES | VALUE | |||||||||||||||
Shares Sold | 136 | $2,288 | 618 | $11,499 | ||||||||||||||
Shares Reinvested | — | — | 128 | 2,278 | ||||||||||||||
Shares Redeemed | + | (164 | ) | (2,749 | ) | (668 | ) | (12,317 | ) | |||||||||
Net transactions in fund shares | (28 | ) | ($461 | ) | 78 | $1,460 | ||||||||||||
Shares Outstanding and Net Assets | ||||||||||||||||||
1/1/08-6/30/08 | 1/1/07-12/31/07 | |||||||||||||||||
SHARES | NET ASSETS | SHARES | NET ASSETS | |||||||||||||||
Beginning of period | 2,710 | $48,120 | 2,632 | $46,434 | ||||||||||||||
Total Increase or decrease | + | (28 | ) | (4,838 | ) | 78 | 1,686 | |||||||||||
End of period | 2,682 | $43,282 | 2,710 | $48,120 | ||||||||||||||
Net investment income not yet distributed | $1,140 | $1,019 |
See financial notes 15
Table of Contents
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 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 MarketTrack Growth Portfolio II offers one share class. Shares are bought and sold at net asset value, or NAV, which is the price for all outstanding shares. 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.
2. | Significant Accounting Policies: |
(All dollar amounts are x 1,000)
The following is a summary of the significant accounting policies the fund used in preparation of financial statements. The accounting policies are in conformity with accounting principles generally accepted in the United States of America.
(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 current exchange rate. 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. |
• | Securities for which no quoted value is available or when a significant event has occurred between the time of the security’s last close and the time the fund calculates net asset value: valued at fair value, as determined in good faith by the fund’s investment adviser using guidelines adopted by the fund’s Board of Trustees and the Pricing Committee. Some of the more common reasons that may necessitate that a security be valued at fair value include: the security’s trading has been halted or suspended; the security has been de-listed from a national exchange; the security’s primary trading market is temporarily closed at a time when under normal conditions it would be open; or the security’s primary pricing source is not able or willing to provide a price, or certain foreign securities’ closing market prices adjusted for changes in value that may occur between the close of a foreign exchange and the time at which a fund’s shares are priced. The Board of Trustees regularly reviews fair value determinations made by the fund pursuant to the procedures. | |
• | Futures Contracts: valued at their settlement prices as of the close of their exchanges. When a fund closes out a futures position, it calculates the difference between the value of the position at the beginning and at the end of the contract, and records a realized gain or loss accordingly. | |
• | Underlying funds: valued at their respective net asset values as determined by those funds, in accordance with the 1940 Act. | |
• | Short-term securities (60 days or less to maturity): valued at amortized cost. |
16
Table of Contents
Schwab MarketTrack Growth Portfolio II
Financial Notes, unaudited (continued)
2. | Significant Accounting Policies (continued): (All dollar amounts are x 1,000) |
(b) Portfolio Investments:
Futures Contract: The fund may invest in futures contracts. Futures contracts involve certain risks because they can be very sensitive to market movements.
One risk is that the price of a futures contract may not move in perfect correlation with the price of the underlying securities. Another risk is that, at certain times, it may be impossible for the fund to close out a position in a futures contract, due to a difference in trading hours or to market conditions that may reduce the liquidity for a futures contract or its underlying securities. The potential for losses associated with futures contracts may exceed amounts recorded in the Statement of Assets and Liabilities.
Because futures carry inherent risks, the fund must give the broker a deposit of cash and/or securities (the “initial margin”) whenever it enters into the futures contract. The amount of the deposit may vary from one contract to another, but it is generally a percentage of the contract amount.
Futures are traded publicly on exchanges, and their market value changes daily. The fund records the change in market value of futures, and also the change in the amount of margin deposit required (“due to/from broker”).
(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.
(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. Any distributions from underlying funds are recorded in accordance with the character of the distributions.
(e) Expenses:
Expenses that are specific to a fund or a class within the trust are charged directly to that fund or class. 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 once a year.
(g) Accounting Estimates:
The accounting policies described in this report conform with 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.
(h) Federal Income Taxes:
The fund intends to meet federal income 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 separate accounts each year. As long as the fund meets the tax requirements, it is not required to pay federal income tax.
17
Table of Contents
Schwab MarketTrack Growth Portfolio II
Financial Notes, unaudited (continued)
2. | Significant Accounting Policies (continued): (All dollar amounts are x 1,000) |
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 also may keep certain assets in segregated accounts, as required by securities law.
(i) Indemnification:
Under the fund’s organizational documents, its 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.
(j) New Accounting Standards:
Financial Accounting Standards Board (“FASB”) Interpretation (FIN) No. 48 — Accounting for Uncertainty in Income Taxes — an Interpretation of SFAS No. 109, was issued in July 2006 and is effective for fiscal years beginning after December 15, 2006. This Interpretation provides new requirements for the recognition, measurement, and disclosure in the financial statements of a tax position taken or expected to be taken in a tax return when there is uncertainty about whether that tax position will ultimately be sustained. As of June 30, 2008, management has reviewed the tax positions for open tax years (December 31, 2004 through December 31, 2007), and determined that no provision for income tax is required in the fund’s financial statements..
The fund adopted FASB Statement of Financial Accounting Standards No. 157 (“FAS 157”), Fair Value Measurements, effective January 1, 2008. FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management has concluded that the adoption of FAS 157 is not expected to have a material impact on the fund’s financial statements.
Various inputs are used in determining the value of the fund’s investments. FAS 157 establishes a three-tier hierarchy of inputs to establish a classification of fair value measurements for disclosure purposes. These inputs are summarized below in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical securities | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments) |
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 net assets as of June 30, 2008:
Investment in | ||||
Valuation Inputs | Securities* | |||
Level 1 — Quoted prices | $42,354 | |||
Level 2 — Other significant observable inputs | 1,080 | |||
Level 3 — Significant unobservable inputs | — | |||
Total | $43,434 |
* | The funds had no Other Financial Instruments. |
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about the fund’s derivative and hedging activities. Management is currently evaluating the impact the adoption of SFAS 161 will have on the fund’s financial statement disclosures.
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Schwab MarketTrack Growth Portfolio II
Financial Notes, unaudited (continued)
3. 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% |
Charles Schwab & Co., Inc. (“Schwab”) is an affiliate of the investment adviser and is the trust’s transfer agent and shareholder services agent.
Schwab does not charge the fund for transfer agent and shareholder services fees.
Although these agreements specify certain fees for these services, CSIM has made additional agreements with the fund to limit the total expenses charged, excluding interest, taxes and certain non-routine expenses to 0.50% through April 29, 2009.
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 its index. Pursuant to an exemptive order issued by the SEC, the fund may invest in other related funds. For the period ended June 30, 2008, the shares owned by the fund as a percentage of the total shares of the underlying funds was:
Schwab Equity Index Funds: | ||||
Institutional Select S&P 500 Fund | 0.4% | |||
International Index Fund | 0.5% | |||
Small-Cap Index Fund | 0.6% | |||
Schwab Bond Funds: | ||||
Total Bond Market Fund | 0.5% | |||
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. For the period ended June 30, 2008, the fund had no 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 within the 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. There was no interfund borrowing or lending activity for the fund during the period.
4. 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 disclosed in the fund’s Statement of Operations.
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Schwab MarketTrack Growth Portfolio II
Financial Notes, unaudited (continued)
5. | Borrowing from Banks: |
The fund may borrow money from banks and custodians. The fund may obtain temporary bank loans through the trust to which it belongs, to use for meeting shareholder redemptions or for extraordinary or emergency purposes. The trust has overdraft facilities with the custodian, a committed line of credit of $150 million with State Street Corp. and an uncommitted line of credit of $100 million with Bank of America, N.A. The fund pays interest on the amounts it borrows at rates that are negotiated periodically. There was no borrowing from the lines of credit for the fund during the period.
6. | Purchases and Sales of Investment Securities: |
(All dollar amounts are x 1,000)
For the period ended June 30, 2008, purchases and sales of securities (excluding short-term obligations) were as follows:
Purchases of | Sales/Maturities | |||||
Securities | of Securities | |||||
$1,764 | $1,904 |
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, 2007, the fund had no capital loss carry forwards.
For tax purposes, realized capital losses, occurring after October 31, may be deferred and treated as occurring on the first day of the following fiscal year. As of December, 31, 2007, the fund had no deferred realized net capital losses, and there were no capital losses being utilized to offset capital gains.
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Investment Advisory Agreement Approval
The Investment Company Act of 1940 (the “1940 Act”) requires that initial approval of, as well as the continuation of, a fund’s investment advisory agreement must be specifically approved (1) by the vote of the trustees or by a vote of the shareholders of the fund, and (2) by the vote of a majority of the trustees who are not parties to the investment advisory agreement or “interested persons” of any party (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 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 CSIM (the “Agreement”) with respect to existing funds in the Trust, including the 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 funds 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 the continuance of the Agreement at meetings held on May 16, 2008 and June 2, 2008, and approved the renewal of the Agreement for an additional one year term at the meeting held on June 2, 2008. The Board’s approval of the Agreement 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 funds under the Agreement, including the resources of CSIM and its affiliates dedicated to the funds;
2. each fund’s investment performance and how it compared to that of certain other comparable mutual funds;
3. each 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 each 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 funds grow and whether fee levels in the Agreement reflect those economies of scale for the benefit of fund investors.
Nature, Extent and Quality of Services. The Board considered the nature, extent and quality of the services provided by CSIM to the funds and the resources of CSIM and its affiliates dedicated to the funds. In this regard, the Trustees evaluated, among other things, CSIM’s personnel, experience, track record and compliance program. The information considered by the Trustees included specific information concerning changes in the nature, extent and quality of services provided by CSIM since the Trustees had last considered approval of the Agreement. The Trustees also considered Schwab’s excellent reputation as a full service brokerage firm and its overall financial condition, and how this affects the success of the funds. Following such evaluation, the Board concluded, within the context of its full deliberations, that the nature, extent and quality of services provided by CSIM to the funds and the resources of CSIM and its affiliates dedicated to the funds supported renewal of the Agreement.
Fund Performance. The Board considered fund performance in determining whether to renew the Agreement. Specifically, the Trustees considered each fund’s performance relative to a peer group of other mutual funds and appropriate indices/benchmarks, in light of total return, yield, when applicable, and market trends. As part of this review, the Trustees considered the composition of the peer group, selection criteria and the reputation of the third party who prepared the peer group analysis. In evaluating the performance of each fund, the Trustees considered both risk and shareholder risk expectations for such fund and the appropriateness of the benchmark used to compare the
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performance of each 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 deliberations, that the performance of the funds supported renewal of the Agreement.
Fund Expenses. With respect to the funds’ expenses, the Trustees considered the rate of compensation called for by the Agreement, and each 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 and offshore funds, 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 funds 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 funds are reasonable and supported renewal of the Agreement.
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 funds, such as whether, by virtue of its management of the funds, CSIM obtains investment information or other research resources that aid it in providing advisory services to other clients. The Trustees considered whether the varied levels of compensation and profitability under the Agreement and other service agreements were reasonable and justified in light of the quality of all services rendered to each 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.
Economies of Scale. The Trustees considered the existence of any economies of scale and whether those are passed along to a 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 funds obtain reasonable benefit from economies of scale.
In the course of their deliberations, the Trustees did not identify any particular information or factor that was all important or controlling. Based on the Trustees’ deliberation and their evaluation of the information described above, the Board, including all of the Independent Trustees, unanimously approved the continuation of the Agreement and concluded that the compensation under the Agreement is fair and reasonable in light of such services and expenses and such other matters as the Trustees have considered to be relevant in the exercise of their reasonable judgment.
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Trustees and Officers
The tables below give information as of June 30, 2008, 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, Laudus Trust and Laudus Institutional Trust. As of June 30, 2008, the Fund Complex included 84 funds.
The address for all trustees and officers is 101 Montgomery Street, San Francisco, CA 94104. 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 | ||||||||
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. | 84 | Board 1–Director, Redwood Trust, Inc. Board 2–Director, PMI Group, Inc. | |||||
John F. Cogan 1947 Trustee (Trustee of Schwab Annuity Portfolios since 2008.) | Senior Fellow: The Hoover Institution at Stanford University; Stanford Institute for Economic Policy Research; Professor of Public Policy, Stanford University | 69 | Board 1–Director, Gilead Sciences, Inc. Board 2–Director, Monaco Coach Corporation Board 3–Director, Venture Lending and Leasing, Inc. | |||||
William A. Hasler 1941 Trustee (Trustee of Schwab Annuity Portfolios since 2000.) | Retired. Dean Emeritus, Haas School of Business, University of California, Berkeley. Until February 2004, Co-Chief Executive Officer, Aphton Corp. (bio-pharmaceuticals). | 84 | Board 1–Director, Mission West Properties Board 2–Director, TOUSA Board 3–Director, Harris-Stratex Networks Board 4–Director, Genitope Corp. Board 5– Director, Ditech Networks Board 6–Director, Rubicon Limited | |||||
Gerald B. Smith 1950 Trustee (Trustee of Schwab Annuity Portfolios since 2000.) | Chairman, Chief Executive Officer and founder of Smith Graham & Co.(investment advisors). | 69 | Board 1–Board of Cooper Industries Board 2–Chairman of the Audit Committee of Oneok Partners LP | |||||
Donald R. Stephens 1938 Trustee (Trustee of Schwab Annuity Portfolios since 1989.) | Managing Partner, D. R. Stephens & Company (investments). | 69 | None. | |||||
Joseph H. Wender 1944 Trustee (Trustee of Schwab Annuity Portfolios since 2008.) | Senior Managing Director, Chairman of the Finance Committee, GSC Group; General Partner, Goldman Sachs & Co., until June 2005. | 69 | Board 1–Board Member and Chairman of the Audit Committee, Isis Pharmaceuticals | |||||
Michael W. Wilsey 1943 Trustee (Trustee of Schwab Annuity Portfolios since 1989.) | Chairman, Chief Executive Officer, Wilsey Bennett, Inc. (real estate investment and management, and other investments). | 69 | None. | |||||
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Interested Trustees | ||||||||
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 1989.) | Chairman, Chief Executive Officer and Director, The Charles Schwab Corporation, Charles Schwab & Co., Inc.; Chairman and Director, Charles 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 and Director, Schwab Holdings, Inc. Through June 2007, Director, U.S. Trust Company, N.A., U.S. Trust Company of New York. | 69 | None. | |||||
Walt W. Bettinger II2 1960 Trustee (Trustee of Schwab Annuity Portfolios since 2008.) | President and Chief Operating Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation; Director, Charles Schwab Bank; Executive Vice President and President – Schwab Investor Services, The Charles Schwab Corporation; Executive Vice President and President – Schwab Investor Services, Charles Schwab & Co., Inc.; Chairman and President, Schwab Retirement Plan Services, Inc.; President and Chief Executive Officer, The Charles Schwab Trust Company, Director, Charles Schwab Bank, N.A., Schwab Retirement Plan Services, and Schwab Retirement Technologies. | 69 | None. | |||||
Officers of the Trust | ||
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 2007.) | Executive Vice President and President, Investment Management Services, Charles Schwab & Co., Inc,; Executive Vice President, Charles Schwab & Co., Inc. (2002-present); President and Chief Executive Officer, Charles Schwab Investment Management, Inc. (2007-present); Director, Charles Schwab Asset Management (Ireland) Limited and Charles Schwab Worldwide Funds PLC. From September 2002 to July 2004, Chief Executive Officer and President, Charles Schwab Investment Management, Inc. and Executive Vice President, Charles Schwab & Co., Inc. | |
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.; Chief Financial Officer, Laudus Trust and Laudus Institutional Trust; Director, Charles Schwab Worldwide Fund, PLC and Charles Schwab Asset Management (Ireland) Limited. Through June 2007, Treasurer, Chief Financial Officer and Chief Accounting Officer, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc. and Excelsior Funds Trust; Chief Financial Officer, Mutual Fund Division, UST Advisors, Inc. From December 1999 to November 2004, Sr. Vice President, Financial Reporting, Charles Schwab & Co. Inc. | |
Jeffrey Mortimer 1963 Senior Vice President and Chief Investment Officer (Officer of Schwab Annuity Portfolios since 2004.) | Senior Vice President and Chief Investment Officer, Charles Schwab Investment Management, Inc.; President, CEO and Chief Investment Officer, Laudus Trust and Laudus Institutional Trust. Prior to March 31, 2008, Vice President and Chief Investment Officer, Laudus Trust and Laudus Institutional Trust. Prior to 2004, Vice President and Sr. Portfolio Manager, Charles Schwab Investment Management, Inc. | |
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Officers of the Trust continued | ||
with the trust; (Terms of office, and | ||
length of Time Served3) | Principal Occupations During the Past Five Years | |
Randall Fillmore 1960 Chief Compliance Officer and AML Officer (Officer of Schwab Annuity Portfolios since 2002.) | Senior Vice President and Chief Compliance Officer, Charles Schwab Investment Management, Inc.; Senior Vice President, Charles Schwab & Co. Inc.; Chief Compliance Officer, Laudus Trust and Laudus Institutional Trust. Through June 2007, Chief Compliance Officer, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc., and Excelsior Funds Trust. | |
Koji E. Felton 1959 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.; Senior Vice President and Deputy General Counsel, Charles Schwab & Co., Inc. Through June 2007, Chief Legal Officer, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc. and Excelsior Funds Trust. | |
Catherine MacGregor 1964 Vice President (Officer of Schwab Annuity Portfolios since 2005.) | Vice President, Charles Schwab & Co., Inc. and Charles Schwab Investment Management, Inc., Laudus Trust and Laudus Institutional Trust; since 2006, Chief Counsel, Laudus Trust and Laudua Institutional Trust. Until July 2005, Senior Associate, Paul Hastings Janofsky & Walker LLP. | |
Cathy Sabo 1964 Vice President (Officer of Schwab Annuity Portfolios since 2005.) | Vice President-Compliance, Charles Schwab Investment Management, Inc., Laudus Trust and Laudus Institutional Trust. Until 2004, Vice President, Client, Sales & Services Controls, Charles Schwab & Co., Inc. | |
Michael Haydel 1972 Vice President (Officer of Schwab Annuity Portfolios since 2006.) | Vice President, Asset Management Client Services, Charles Schwab & Co., Inc.; Vice President and AML Officer, Laudus Trust and Laudus Institutional Trust. Until March 2004, Director Charles Schwab & Co., Inc. | |
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. 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 | In addition to their employment with the investment advisor and the distributor, Messrs. Schwab and Bettinger also own stock of The Charles Schwab Corporation. Mr. Schwab and Mr. Bettinger are Interested Trustees because they are employees of Schwab and/or the advisor. |
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. |
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Large-Cap Blend | |||
Schwab S&P 500 Index Portfolio | |||
Large-Cap Semiannual report for the period ended June 30, 2008 |
Table of Contents
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.schwab.com/schwabfunds, 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.schwab.com/schwabfunds or the SEC’s website at www.sec. gov.
The industry/sector classification of the fund’s portfolio holdings uses the Global Industry Classification Standard (GICS) which was developed by and is the exclusive property of Morgan Stanley Capital International Inc. and Standard & Poor’s. GICS is a service mark of MSCI and S&P and has been licensed for use by Charles Schwab & Co., Inc.
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The Investment Environment
The U.S. Economy experienced heightened volatility and uncertainty throughout the period as it continued to factor in the impacts felt in the residential mortgage and credit shock that began last year. Bond markets, in particular, suffered in March as deleveraging, downgrades, and writedowns caused many financial institutions to seek new capital infusions and sell positions, further contributing to an already difficult investment environment. Toward the end of the reporting period, the unabated rise in oil, food, and other commodity prices became the primary concern of many investors. In combination with a relatively weak dollar, the rise in prices has been a boon for some investors, but has raised questions about sustainability and the impact of these high prices on current and long-term inflation.
An analysis of significant economic indicators presented mixed messages with regard to fundamentals. While Gross Domestic Product (GDP) expanded at an annual rate of 0.9% in the first quarter and 1.9% in the second quarter, indicating that the economy continued to grow, other figures were less encouraging. In June, consumer confidence slid to 50.4, according to the index maintained by the Conference Board, ebbing in both the first and second quarters this year. Unemployment was also worrisome as it crept up to 5.5%, marking a 22 year high. Headline inflation rose to 4.4% during the period, as the spread between core inflation and inflation including energy and food widened.
Oil and food prices had a substantial impact on investor sentiment and outlook throughout the period, the impacts of which were partially exacerbated by a weak dollar. According to some economists, speculation has driven the price of oil up faster and further than underlying fundamentals would suggest. Prices reached more than $140 per barrel, driven by speculation and currency differences, suggesting that prices may have decoupled from underlying demand. The dollar continued to be weak against other key currencies, such as the Yen and Euro, which has tended to magnify the total effect of higher prices on consumer spending and inflation, because both domestic goods and imports have become simultaneously more expensive.
Price volatility in all corners of the market spurred risk aversion throughout the period, as investors shed higher yielding and riskier assets in favor of securities that offered capital preservation. As the financial outlook for residential and corporate debt remained troublesome, investors shied away from asset-backed and collateralized debt in favor of Government issues or more transparent and less complex securities, such as Treasury bills and Commercial Paper. U.S. Treasuries in particular experienced a surge in demand because their Government backing protects them against default risk. While the demand for Treasuries sent prices up, it brought yields down to very low levels. As a result, the yield spread between short-term Treasuries and other short-term debt instruments widened.
Tepid economic growth, financial turmoil, and rising prices left the Federal Reserve (the Fed) in a precarious position with regard to interest rates. The supply of money (M2) expanded at a mediocre 1.2% rate during the period, an indication that lending remained tight despite Fed action. While the Fed cut rates from 4.25% to 2.00% in an effort to stimulate the economy, the consensus during the Federal Open Market Committee meeting in June was to leave rates unchanged. Many investors saw a pause in rate cuts as an indication that inflationary concerns have caught up with Fed action and that the next monetary policy move would be to tighten.
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.
-11.91% | S&P 500® Index: measures U.S. large-cap stocks |
-9.37% | Russell 2000® Index: measures U.S. small-cap stocks |
-10.96% | MSCI-EAFE® Index: measures (in U.S. dollars) large-cap stocks in Europe, Australasia and the Far East |
1.13% | Lehman Brothers U.S. Aggregate Bond Index: measures the U.S. bond market |
1.08% | 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
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Portfolio Management
Jeffrey Mortimer, CFA, Chief Investment Officer, Charles Schwab Investment Management, is responsible for the overall management of the portfolio. Prior to joining the firm in October 1997, he worked for more than eight years in asset 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 and was named to his current position in 2007. |
2 Schwab S&P 500 Index Portfolio
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Schwab S&P 500 Index Portfolio
The Schwab S&P 500 Index Portfolio returned -11.93% for the period, tracking its benchmark the S&P 500 Index, which returned -11.91%. Indices are unmanaged and, and unlike the portfolio, do not include operational and transactional costs. The S&P 500 Index spans a broad range of industries because it includes the 500 leading U.S. companies and is market-cap weighted. Therefore, its returns are most heavily influenced by the largest names in the index. On an absolute return basis, the portfolio was impacted by a number of poorly performing industry groups. Financials, in particular, experienced dramatic price declines as deleveraging, downgrades, and writedowns caused these corporations to seek new capital infusions and sell positions in the wake of the residential mortgage and credit shock that began in August of last year. Returns in the Telecomm Service group, as well as Industrials and Information Technology were among the largest decliners. Even Health Care, which is usually seen as a more defensive industry group in down markets, was impacted by the unprecedented market volatility, as well as uncertainty surrounding the viability the Cholesterol drug Vytorin, a major joint venture between Merck and Schering-Plough. In addition, the unabated rise in oil, food, and other commodity prices over the period put downward pressure on consumer spending and investor sentiment.
As of 6/30/08:
Style Assessment1
Statistics
Number of Holdings | 507 |
Weighted Average
Market Cap
($ x 1,000,000) | $89,866 |
Price/Earnings Ratio (P/E) | 19.9 |
Price/Book Ratio (P/B) | 2.4 |
Portfolio Turnover Rate2 | 0% |
Sector Weightings % of Investments
Information Technology | 16.3% |
Energy | 15.8% |
Financials | 13.5% |
Health Care | 11.7% |
Industrials | 11.1% |
Consumer Staples | 10.5% |
Consumer Discretionary | 8.1% |
Materials | 3.8% |
Utilities | 3.8% |
Telecommunication Services | 3.3% |
Other | 2.1% |
Total | 100.0% |
Top Holdings % of Net Assets3
Exxon Mobil Corp. | 4.2% |
General Electric Co. | 2.4% |
Microsoft Corp. | 2.0% |
Chevron Corp. | 1.8% |
AT&T, Inc. | 1.8% |
The Procter & Gamble Co. | 1.6% |
Johnson & Johnson | 1.6% |
International Business Machines
Corp. | 1.4% |
ConocoPhillips | 1.3% |
Apple, Inc. | 1.3% |
Total | 19.4% |
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 fund. The fund 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 fund.
1 | Source: Morningstar, Inc. This style assessment is the result of evaluating the fund based on a ten-factor model for value and growth characteristics. The fund’s market capitalization placement is determined by the geometric mean of its holdings’ market capitalizations. The assessment reflects the fund’s portfolio as of 6/30/08, 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 3
Table of Contents
Schwab S&P 500 Index Portfolio
Performance Summary as of 6/30/08
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.
Performance of a Hypothetical
$10,000 Investment1
$10,000 Investment1
Average Annual Total Returns1,2,3
Portfolio and Inception Date | 6 Months | 1 Year | 5 Years | 10 Years | ||||||||||||
Portfolio: Schwab S&P 500 Index Portfolio (11/1/96) | -11.93% | -13.17% | 7.38% | 2.60% | ||||||||||||
Benchmark: S&P 500® Index | -11.91% | -13.12% | 7.59% | 2.88% | ||||||||||||
Fund Category: Morningstar Large-Cap Blend | -12.16% | -14.24% | 6.37% | 1.66% |
Portfolio Expense Ratios4: 0.35%
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 | Portfolio expenses may have been partially absorbed by CSIM and Schwab. Without these reductions, the portfolio’s returns would have been lower. Portfolio returns do not reflect the additional fees and expenses imposed by the insurance company under the variable insurance product contract. If these contract fees and expenses were included, the returns would be less than those shown. Please refer to variable insurance product prospectus for a complete listing of these expenses. To obtain current sub-account level performance information, please visit www.schwab.com/annuities. |
2 | 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. |
3 | Source for category information: Morningstar, Inc. |
4 | As of 2/28/08 as stated in the prospectus. |
4 Schwab S&P 500 Index Portfolio
Table of Contents
Portfolio 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, 2008 and held through June 30, 2008.
Actual Return lines in the table below provide information about actual account values and actual expenses. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value ¸ $1,000 = 8.6), then multiply the result by the number given for your fund or share class under the heading entitled “Expenses Paid During Period.”
Hypothetical Return lines in the table below provide information about hypothetical account values and hypothetical expenses based on a fund’s 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 Ratio 1 | Account Value | (Net of Expenses) | During Period 2 | |||||||||||||
(Annualized) | at 1/1/08 | at 6/30/08 | 1/1/08 - 6/30/08 | |||||||||||||
Schwab S&P 500 Index Portfolio | ||||||||||||||||
Actual Return | 0.26% | $ | 1,000 | $ | 880.70 | $ | 1.22 | |||||||||
Hypothetical 5% Return | 0.26% | $ | 1,000 | $ | 1,023.57 | $ | 1.31 |
1 | Based on the most recent six-month expense ratio; may differ from the expense ratio provided in Financial Highlights. |
2 | Expenses for the fund are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by 182 days of the period, and divided by 366 days of the fiscal year. |
Schwab S&P 500 Index Portfolio 5
Table of Contents
Schwab S&P 500 Index Portfolio
Financial Statements
Financial Highlights
1/1/08– | 1/1/07– | 1/1/06– | 1/1/05– | 1/1/04– | 1/1/03– | |||||||||||||||||||||
6/30/08* | 12/31/07 | 12/31/06 | 12/31/05 | 12/31/04 | 12/31/03 | |||||||||||||||||||||
Per—Share Data ($) | ||||||||||||||||||||||||||
Net asset value at beginning of period | 21.37 | 20.60 | 18.09 | 17.56 | 16.06 | 12.66 | ||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||
Net investment income (loss) | 0.18 | 0.39 | 0.34 | 0.31 | 0.29 | 0.17 | ||||||||||||||||||||
Net realized and unrealized gains (losses) | (2.73 | ) | 0.71 | 2.48 | 0.53 | 1.40 | 3.40 | |||||||||||||||||||
Total from investment operations | (2.55 | ) | 1.10 | 2.82 | 0.84 | 1.69 | 3.57 | |||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||
Distributions from net investment income | — | (0.33 | ) | (0.31 | ) | (0.31 | ) | (0.19 | ) | (0.17 | ) | |||||||||||||||
Net asset value at end of period | 18.82 | 21.37 | 20.60 | 18.09 | 17.56 | 16.06 | ||||||||||||||||||||
Total return (%) | (11.93 | )1 | 5.34 | 15.60 | 4.75 | 10.53 | 28.22 | |||||||||||||||||||
Ratios/Supplemental Data (%) | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||
Net operating expenses | 0.26 | 2 | 0.25 | 0.28 | 0.27 | 0.28 | 0.28 | |||||||||||||||||||
Gross operating expenses | 0.26 | 2 | 0.25 | 0.31 | 0.30 | 0.31 | 0.32 | |||||||||||||||||||
Net investment income (loss) | 1.87 | 2 | 1.74 | 1.67 | 1.59 | 1.75 | 1.50 | |||||||||||||||||||
Portfolio turnover rate | 0 | 1,3 | 2 | 3 | 4 | 4 | 2 | |||||||||||||||||||
Net assets, end of period ($ x 1,000,000) | 150 | 169 | 167 | 157 | 162 | 146 |
* Unaudited.
1 Not annualized.
2 Annualized.
3 Less than 1%.
6 See financial notes
Table of Contents
Schwab S&P 500 Index Portfolio
Portfolio Holdings as of June 30, 2008
This section shows all the securities in the fund’s portfolio by industry classification and their value 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.schwab.com/schwabfunds.
Cost | Value | |||||||||||
Holdings by Category | ($ x 1,000) | ($ x 1,000) | ||||||||||
97 | .7% | Common Stock | 109,148 | 146,354 | ||||||||
2 | .1% | Short-Term Investments | 3,211 | 3,211 | ||||||||
99 | .8% | Total Investments | 112,359 | 149,565 | ||||||||
3 | .6% | Collateral Invested for Securities on Loan | 5,347 | 5,347 | ||||||||
(3 | .4)% | Other Assets and Liabilities | (5,107 | ) | ||||||||
100 | .0% | Net Assets | 149,805 |
Number | Value | |||||||
Security | of Shares | ($ x 1,000) | ||||||
Common Stock 97.7% of net assets | ||||||||
Automobiles & Components 0.4% | ||||||||
Ford Motor Co. (c) * | 24,212 | 116 | ||||||
General Motors Corp. (c) | 6,277 | 72 | ||||||
Harley-Davidson, Inc. | 3,256 | 118 | ||||||
Johnson Controls, Inc. | 7,500 | 215 | ||||||
The Goodyear Tire & Rubber Co. * | 2,500 | 45 | ||||||
566 | ||||||||
Banks 2.4% | ||||||||
BB&T Corp. (c) | 6,870 | 156 | ||||||
Comerica, Inc. | 2,330 | 60 | ||||||
Countrywide Financial Corp. (c) | 7,500 | 32 | ||||||
Fannie Mae | 12,540 | 245 | ||||||
Fifth Third Bancorp (c) | 6,905 | 70 | ||||||
First Horizon National Corp. (c) | 1,400 | 10 | ||||||
Freddie Mac | 9,010 | 148 | ||||||
Hudson City Bancorp, Inc. | 3,500 | 58 | ||||||
Huntington Bancshares, Inc. (c) | 3,256 | 19 | ||||||
KeyCorp (c) | 5,400 | 59 | ||||||
M&T Bank Corp. (c) | 1,071 | 76 | ||||||
Marshall & Ilsley Corp. | 2,738 | 42 | ||||||
MGIC Investment Corp. (c) | 733 | 5 | ||||||
National City Corp. (c) | 7,400 | 35 | ||||||
PNC Financial Services Group, Inc. | 3,770 | 215 | ||||||
Regions Financial Corp. (c) | 9,077 | 99 | ||||||
Sovereign Bancorp, Inc. | 3,605 | 27 | ||||||
SunTrust Banks, Inc. (c) | 4,800 | 174 | ||||||
U.S. Bancorp | 22,399 | 625 | ||||||
Wachovia Corp. | 25,557 | 397 | ||||||
Washington Mutual, Inc. (c) | 11,445 | 56 | ||||||
Wells Fargo & Co. | 43,058 | 1,023 | ||||||
Zions Bancorp (c) | 1,408 | 44 | ||||||
3,675 | ||||||||
Capital Goods 8.5% | ||||||||
3M Co. | 9,240 | 643 | ||||||
Caterpillar, Inc. (c) | 8,680 | 641 | ||||||
Cooper Industries Ltd., Class A | 2,600 | 103 | ||||||
Cummins, Inc. | 2,400 | 157 | ||||||
Danaher Corp. (c) | 3,126 | 242 | ||||||
Deere & Co. | 5,800 | 418 | ||||||
Dover Corp. | 2,800 | 135 | ||||||
Eaton Corp. | 1,740 | 148 | ||||||
Emerson Electric Co. | 10,760 | 532 | ||||||
Fluor Corp. | 1,100 | 205 | ||||||
General Dynamics Corp. | 5,230 | 440 | ||||||
General Electric Co. | 132,578 | 3,538 | ||||||
Goodrich Corp. | 1,660 | 79 | ||||||
Honeywell International, Inc. | 9,937 | 500 | ||||||
Illinois Tool Works, Inc. | 5,344 | 254 | ||||||
Ingersoll-Rand Co., Ltd., Class A | 4,952 | 185 | ||||||
ITT Corp. | 2,480 | 157 | ||||||
Jacobs Engineering Group, Inc. * | 1,500 | 121 | ||||||
L-3 Communications Holdings, Inc. | 1,500 | 136 | ||||||
Lockheed Martin Corp. | 4,690 | 463 | ||||||
Masco Corp. | 5,010 | 79 | ||||||
Northrop Grumman Corp. | 4,534 | 303 | ||||||
PACCAR, Inc. | 4,194 | 175 | ||||||
Pall Corp. | 1,400 | 56 | ||||||
Parker Hannifin Corp. | 2,475 | 177 | ||||||
Precision Castparts Corp. | 1,700 | 164 | ||||||
Raytheon Co. | 5,830 | 328 | ||||||
Rockwell Automation, Inc. | 2,350 | 103 | ||||||
Rockwell Collins, Inc. | 2,200 | 106 | ||||||
Terex Corp. * | 1,300 | 67 | ||||||
Textron, Inc. | 3,400 | 163 | ||||||
The Boeing Co. | 10,396 | 683 | ||||||
The Manitowoc Co., Inc. | 1,500 | 49 | ||||||
Tyco International Ltd. | 6,294 | 252 | ||||||
United Technologies Corp. | 13,200 | 814 | ||||||
W.W. Grainger, Inc. | 800 | 65 | ||||||
12,681 | ||||||||
Commercial Services & Supplies 0.5% | ||||||||
Allied Waste Industries, Inc. * | 525 | 7 | ||||||
Avery Dennison Corp. (c) | 1,100 | 48 | ||||||
Cintas | 1,157 | 31 | ||||||
Equifax, Inc. | 2,000 | 67 | ||||||
Monster Worldwide, Inc. * | 1,704 | 35 | ||||||
Pitney Bowes, Inc. (c) | 2,800 | 96 | ||||||
R.R. Donnelley & Sons Co. | 2,960 | 88 | ||||||
Robert Half International, Inc. | 1,550 | 37 | ||||||
Waste Management, Inc. | 7,357 | 277 | ||||||
686 | ||||||||
Consumer Durables & Apparel 0.9% | ||||||||
Brunswick Corp. (c) | 1,200 | 13 | ||||||
Centex Corp. | 1,400 | 19 | ||||||
Coach, Inc. * | 4,600 | 133 |
See financial notes 7
Table of Contents
Schwab S&P 500 Index Portfolio
Portfolio Holdings continued
Number | Value | |||||||
Security | of Shares | ($ x 1,000) | ||||||
D.R. Horton, Inc. (c) | 2,500 | 27 | ||||||
Eastman Kodak Co. (c) | 3,155 | 45 | ||||||
Fortune Brands, Inc. | 1,607 | 100 | ||||||
Harman International Industries, Inc. | 800 | 33 | ||||||
Hasbro, Inc. | 2,525 | 90 | ||||||
Jones Apparel Group, Inc. | 1,500 | 21 | ||||||
KB HOME (c) | 960 | 16 | ||||||
Leggett & Platt, Inc. (c) | 2,300 | 39 | ||||||
Lennar Corp., Class A (c) | 1,600 | 20 | ||||||
Liz Claiborne, Inc. | 997 | 14 | ||||||
Mattel, Inc. | 5,300 | 91 | ||||||
Newell Rubbermaid, Inc. | 3,924 | 66 | ||||||
NIKE, Inc., Class B | 4,920 | 293 | ||||||
Polo Ralph Lauren Corp. | 900 | 56 | ||||||
Pulte Homes, Inc. | 2,000 | 19 | ||||||
Snap-on, Inc. | 800 | 42 | ||||||
The Black & Decker Corp. (c) | 1,010 | 58 | ||||||
The Stanley Works | 391 | 18 | ||||||
VF Corp. | 1,110 | 79 | ||||||
Whirlpool Corp. (c) | 1,033 | 64 | ||||||
1,356 | ||||||||
Consumer Services 1.4% | ||||||||
Apollo Group, Inc., Class A * | 1,327 | 59 | ||||||
Carnival Corp. | 5,222 | 172 | ||||||
Darden Restaurants, Inc. | 1,590 | 51 | ||||||
H&R Block, Inc. | 4,200 | 90 | ||||||
International Game Technology | 4,200 | 105 | ||||||
Marriott International, Inc., Class A | 4,312 | 113 | ||||||
McDonald’s Corp. | 15,500 | 871 | ||||||
Starbucks Corp. * | 9,520 | 150 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | 2,900 | 116 | ||||||
Wendy’s International, Inc. | 1,300 | 35 | ||||||
Wyndham Worldwide Corp. | 2,280 | 41 | ||||||
YUM! Brands, Inc. | 7,400 | 260 | ||||||
2,063 | ||||||||
Diversified Financials 6.4% | ||||||||
American Capital Strategies Ltd. (c) | 1,200 | 29 | ||||||
American Express Co. | 15,870 | 598 | ||||||
Ameriprise Financial, Inc. | 3,278 | 133 | ||||||
Bank of America Corp. | 56,701 | 1,353 | ||||||
Bank of New York Mellon Corp. | 15,317 | 579 | ||||||
Capital One Financial Corp. | 5,180 | 197 | ||||||
CIT Group, Inc. | 2,400 | 16 | ||||||
Citigroup, Inc. | 65,682 | 1,101 | ||||||
CME Group, Inc. | 560 | 215 | ||||||
Discover Financial Services (c) | 6,890 | 91 | ||||||
E *TRADE Financial Corp. (c) * | 5,160 | 16 | ||||||
Federated Investors, Inc., Class B | 1,100 | 38 | ||||||
Franklin Resources, Inc. | 2,100 | 193 | ||||||
IntercontinentalExchange, Inc. * | 900 | 103 | ||||||
Janus Capital Group, Inc. | 1,941 | 51 | ||||||
JPMorgan Chase & Co. | 44,701 | 1,534 | ||||||
Legg Mason, Inc. | 1,500 | 65 | ||||||
Lehman Brothers Holdings, Inc. | 7,000 | 139 | ||||||
Leucadia National Corp. | 2,000 | 94 | ||||||
Merrill Lynch & Co., Inc. | 11,680 | 370 | ||||||
Moody’s Corp. (c) | 2,680 | 92 | ||||||
Morgan Stanley | 13,780 | 497 | ||||||
Northern Trust Corp. | 2,470 | 169 | ||||||
NYSE Euronext | 3,000 | 152 | ||||||
SLM Corp. (c) * | 5,200 | 101 | ||||||
State Street Corp. | 5,100 | 326 | ||||||
T. Rowe Price Group, Inc. | 3,400 | 192 | ||||||
The Charles Schwab Corp. (a) | 13,046 | 268 | ||||||
The Goldman Sachs Group, Inc. | 5,107 | 893 | ||||||
9,605 | ||||||||
Energy 15.8% | ||||||||
Anadarko Petroleum Corp. | 6,094 | 456 | ||||||
Apache Corp. | 4,008 | 557 | ||||||
Baker Hughes, Inc. | 4,100 | 358 | ||||||
BJ Services Co. | 3,800 | 121 | ||||||
Cabot Oil & Gas Corp. | 1,300 | 88 | ||||||
Cameron International Corp. * | 2,800 | 155 | ||||||
Chesapeake Energy Corp. | 6,300 | 416 | ||||||
Chevron Corp. | 27,816 | 2,757 | ||||||
ConocoPhillips | 21,352 | 2,015 | ||||||
CONSOL Energy, Inc. | 2,300 | 258 | ||||||
Devon Energy Corp. | 5,663 | 680 | ||||||
El Paso Corp. | 9,041 | 197 | ||||||
ENSCO International, Inc. | 1,900 | 153 | ||||||
EOG Resources, Inc. | 3,214 | 422 | ||||||
Exxon Mobil Corp. | 70,718 | 6,232 | ||||||
Halliburton Co. | 11,820 | 627 | ||||||
Hess Corp. | 3,410 | 430 | ||||||
Marathon Oil Corp. | 9,264 | 481 | ||||||
Massey Energy Co. | 1,000 | 94 | ||||||
Murphy Oil Corp. | 2,332 | 229 | ||||||
Nabors Industries Ltd. (c) * | 4,000 | 197 | ||||||
National-Oilwell Varco, Inc. * | 3,786 | 336 | ||||||
Noble Corp. | 3,200 | 208 | ||||||
Noble Energy | 2,000 | 201 | ||||||
Occidental Petroleum Corp. | 11,000 | 988 | ||||||
Patriot Coal Corp. * | 330 | 51 | ||||||
Peabody Energy Corp. | 3,300 | 291 | ||||||
Range Resources Corp. | 1,700 | 111 | ||||||
Rowan Cos., Inc. | 1,200 | 56 | ||||||
Schlumberger Ltd. | 15,340 | 1,648 | ||||||
Smith International, Inc. | 2,500 | 208 | ||||||
Southwestern Energy Co. * | 4,400 | 210 | ||||||
Spectra Energy Corp. | 7,781 | 224 | ||||||
Sunoco, Inc. | 1,240 | 50 | ||||||
Tesoro Corp. (c) | 1,800 | 36 | ||||||
The Williams Cos., Inc. | 7,600 | 306 | ||||||
Transocean, Inc. * | 4,180 | 637 | ||||||
Valero Energy Corp. | 6,960 | 287 | ||||||
Weatherford International Ltd. * | 8,560 | 425 | ||||||
XTO Energy, Inc. | 6,686 | 458 | ||||||
23,654 | ||||||||
Food & Staples Retailing 2.7% | ||||||||
Costco Wholesale Corp. | 5,600 | 393 | ||||||
CVS Caremark Corp. | 19,905 | 787 | ||||||
Safeway, Inc. | 6,200 | 177 | ||||||
Supervalu, Inc. | 2,435 | 75 | ||||||
Sysco Corp. | 7,700 | 212 | ||||||
The Kroger Co. | 9,100 | 263 |
8 See financial notes
Table of Contents
Schwab S&P 500 Index Portfolio
Portfolio Holdings continued
Number | Value | |||||||
Security | of Shares | ($ x 1,000) | ||||||
Wal-Mart Stores, Inc. | 31,230 | 1,755 | ||||||
Walgreen Co. | 12,975 | 422 | ||||||
Whole Foods Market, Inc. (c) | 1,800 | 43 | ||||||
4,127 | ||||||||
Food, Beverage & Tobacco 5.4% | ||||||||
Altria Group, Inc. | 26,864 | 552 | ||||||
Anheuser-Busch Cos., Inc. | 9,783 | 608 | ||||||
Archer-Daniels-Midland Co. | 8,400 | 283 | ||||||
Brown-Forman Corp., Class B | 704 | 53 | ||||||
Campbell Soup Co. | 2,300 | 77 | ||||||
Coca-Cola Enterprises, Inc. | 4,000 | 69 | ||||||
ConAgra Foods, Inc. | 6,770 | 130 | ||||||
Constellation Brands, Inc., Class A * | 2,300 | 46 | ||||||
Dean Foods Co. * | 1,700 | 33 | ||||||
General Mills, Inc. | 4,579 | 278 | ||||||
H.J. Heinz Co. | 4,510 | 216 | ||||||
Kellogg Co. | 3,400 | 163 | ||||||
Kraft Foods, Inc., Class A | 18,590 | 529 | ||||||
Lorillard, Inc. * | 2,136 | 148 | ||||||
McCormick & Co., Inc. | 1,700 | 61 | ||||||
Molson Coors Brewing Co., Class B | 1,678 | 91 | ||||||
PepsiCo, Inc. | 21,040 | 1,338 | ||||||
Philip Morris International, Inc. | 26,864 | 1,327 | ||||||
Reynolds American, Inc. | 2,156 | 101 | ||||||
Sara Lee Corp. | 10,600 | 130 | ||||||
The Coca-Cola Co. | 26,362 | 1,370 | ||||||
The Hershey Co. | 2,244 | 74 | ||||||
The Pepsi Bottling Group, Inc. | 1,902 | 53 | ||||||
Tyson Foods, Inc., Class A | 1,186 | 18 | ||||||
UST, Inc. | 2,200 | 120 | ||||||
Wm. Wrigley Jr. Co. | 2,411 | 188 | ||||||
8,056 | ||||||||
Health Care Equipment & Services 4.0% | ||||||||
Aetna, Inc. | 6,840 | 277 | ||||||
AmerisourceBergen Corp. | 2,720 | 109 | ||||||
Baxter International, Inc. | 8,690 | 556 | ||||||
Becton, Dickinson & Co. | 3,300 | 268 | ||||||
Boston Scientific Corp. * | 15,090 | 185 | ||||||
C.R. Bard, Inc. (c) | 1,320 | 116 | ||||||
Cardinal Health, Inc. | 5,374 | 277 | ||||||
CIGNA Corp. | 4,680 | 166 | ||||||
Coventry Health Care, Inc. * | 2,050 | 62 | ||||||
Covidien Ltd. | 6,594 | 316 | ||||||
Express Scripts, Inc. * | 3,544 | 222 | ||||||
Hospira, Inc. (c) * | 2,100 | 84 | ||||||
Humana, Inc. * | 2,100 | 83 | ||||||
IMS Health, Inc. | 2,600 | 61 | ||||||
Intuitive Surgical, Inc. * | 500 | 135 | ||||||
Laboratory Corp. of America Holdings * | 1,504 | 105 | ||||||
McKesson Corp. | 3,956 | 221 | ||||||
Medco Health Solutions, Inc. * | 7,776 | 367 | ||||||
Medtronic, Inc. | 14,709 | 761 | ||||||
Patterson Cos., Inc. * | 980 | 29 | ||||||
Quest Diagnostics, Inc. | 1,960 | 95 | ||||||
St. Jude Medical, Inc. * | 4,204 | 172 | ||||||
Stryker Corp. | 3,900 | 245 | ||||||
Tenet Healthcare Corp. (c) * | 6,500 | 36 | ||||||
UnitedHealth Group, Inc. | 17,630 | 463 | ||||||
Varian Medical Systems, Inc. * | 1,000 | 52 | ||||||
WellPoint, Inc. * | 8,136 | 388 | ||||||
Zimmer Holdings, Inc. * | 2,984 | 203 | ||||||
6,054 | ||||||||
Household & Personal Products 2.4% | ||||||||
Avon Products, Inc. | 5,116 | 184 | ||||||
Colgate-Palmolive Co. | 6,470 | 447 | ||||||
Kimberly-Clark Corp. | 5,706 | 341 | ||||||
The Clorox Co. | 1,900 | 99 | ||||||
The Estee Lauder Cos., Inc., Class A | 1,500 | 70 | ||||||
The Procter & Gamble Co. | 40,217 | 2,446 | ||||||
3,587 | ||||||||
Insurance 3.5% | ||||||||
ACE Ltd. | 3,900 | 215 | ||||||
Aflac, Inc. | 6,610 | 415 | ||||||
American International Group, Inc. | 33,438 | 885 | ||||||
Aon Corp. | 4,550 | 209 | ||||||
Assurant, Inc. | 1,500 | 99 | ||||||
Cincinnati Financial Corp. | 2,335 | 59 | ||||||
Genworth Financial, Inc., Class A | 5,000 | 89 | ||||||
Lincoln National Corp. | 3,662 | 166 | ||||||
Loews Corp. | 3,788 | 178 | ||||||
Marsh & McLennan Cos., Inc. | 7,000 | 186 | ||||||
MBIA, Inc. (c) | 1,750 | 8 | ||||||
MetLife, Inc. (c) | 9,807 | 517 | ||||||
Principal Financial Group, Inc. | 3,563 | 149 | ||||||
Prudential Financial, Inc. | 6,470 | 386 | ||||||
SAFECO Corp. | 1,100 | 74 | ||||||
The Allstate Corp. | 8,440 | 385 | ||||||
The Chubb Corp. | 5,160 | 253 | ||||||
The Hartford Financial Services Group, Inc. | 3,930 | 254 | ||||||
The Progressive Corp. | 9,500 | 178 | ||||||
The Travelers Cos., Inc. | 8,999 | 391 | ||||||
Torchmark Corp. | 1,500 | 88 | ||||||
Unum Group | 4,276 | 87 | ||||||
XL Capital Ltd., Class A (c) | 1,900 | 39 | ||||||
5,310 | ||||||||
Materials 3.8% | ||||||||
Air Products & Chemicals, Inc. | 3,000 | 297 | ||||||
AK Steel Holding Corp. | 750 | 52 | ||||||
Alcoa, Inc. | 11,072 | 394 | ||||||
Allegheny Technologies, Inc. | 1,270 | 75 | ||||||
Ashland, Inc. | 900 | 43 | ||||||
Ball Corp. | 1,200 | 57 | ||||||
Bemis Co., Inc. | 1,400 | 31 | ||||||
E.I. du Pont de Nemours & Co. | 12,114 | 520 | ||||||
Eastman Chemical Co. | 1,000 | 69 | ||||||
Ecolab, Inc. | 2,104 | 90 | ||||||
Freeport-McMoRan Copper & Gold, Inc. | 4,802 | 563 | ||||||
Hercules, Inc. | 700 | 12 | ||||||
International Flavors & Fragrances, Inc. | 1,000 | 39 |
See financial notes 9
Table of Contents
Schwab S&P 500 Index Portfolio
Portfolio Holdings continued
Number | Value | |||||||
Security | of Shares | ($ x 1,000) | ||||||
International Paper Co. (c) | 6,498 | 151 | ||||||
MeadWestvaco Corp. | 2,549 | 61 | ||||||
Monsanto Co. | 7,050 | 891 | ||||||
Newmont Mining Corp. | 5,446 | 284 | ||||||
Nucor Corp. | 4,000 | 299 | ||||||
Pactiv Corp. * | 1,800 | 38 | ||||||
PPG Industries, Inc. | 2,300 | 132 | ||||||
Praxair, Inc. | 4,165 | 393 | ||||||
Rohm & Haas Co. | 2,105 | 98 | ||||||
Sealed Air Corp. | 2,428 | 46 | ||||||
Sigma-Aldrich Corp. | 1,282 | 69 | ||||||
The Dow Chemical Co. | 12,305 | 430 | ||||||
Titanium Metals Corp. (c) | 1,000 | 14 | ||||||
United States Steel Corp. | 1,500 | 277 | ||||||
Vulcan Materials Co. (c) | 1,100 | 66 | ||||||
Weyerhaeuser Co. | 2,800 | 143 | ||||||
5,634 | ||||||||
Media 2.8% | ||||||||
CBS Corp., Class B | 9,880 | 193 | ||||||
Clear Channel Communications, Inc. | 5,956 | 210 | ||||||
Comcast Corp., Class A | 40,173 | 762 | ||||||
Gannett Co., Inc. (c) | 2,960 | 64 | ||||||
Meredith Corp. (c) | 300 | 8 | ||||||
News Corp., Class A | 30,574 | 460 | ||||||
Omnicom Group, Inc. | 4,600 | 206 | ||||||
The DIRECTV Group, Inc. * | 9,900 | 257 | ||||||
The E.W. Scripps Co., Class A | 1,000 | 42 | ||||||
The Interpublic Group of Cos., Inc. * | 4,997 | 43 | ||||||
The McGraw-Hill Cos., Inc. | 4,750 | 191 | ||||||
The New York Times Co., Class A (c) | 1,700 | 26 | ||||||
The Walt Disney Co. | 25,300 | 789 | ||||||
The Washington Post Co., Class B | 30 | 18 | ||||||
Time Warner, Inc. | 49,223 | 728 | ||||||
Viacom, Inc., Class B * | 9,080 | 277 | ||||||
4,274 | ||||||||
Pharmaceuticals & Biotechnology 7.7% | ||||||||
Abbott Laboratories | 19,635 | 1,040 | ||||||
Allergan, Inc. | 3,760 | 196 | ||||||
Amgen, Inc. * | 13,854 | 653 | ||||||
Applied Biosystems, Inc. | 2,800 | 94 | ||||||
Barr Pharmaceuticals, Inc. (c) * | 1,400 | 63 | ||||||
Biogen Idec, Inc. * | 3,600 | 201 | ||||||
Bristol-Myers Squibb Co. | 25,640 | 526 | ||||||
Celgene Corp. * | 4,700 | 300 | ||||||
Eli Lilly & Co. | 12,920 | 596 | ||||||
Forest Laboratories, Inc. * | 3,720 | 129 | ||||||
Genzyme Corp. * | 3,500 | 252 | ||||||
Gilead Sciences, Inc. * | 11,708 | 620 | ||||||
Johnson & Johnson | 37,698 | 2,426 | ||||||
King Pharmaceuticals, Inc. * | 3,466 | 36 | ||||||
Merck & Co., Inc. | 28,300 | 1,067 | ||||||
Millipore Corp. * | 500 | 34 | ||||||
Mylan, Inc. (c) * | 2,691 | 33 | ||||||
PerkinElmer, Inc. | 1,700 | 47 | ||||||
Pfizer, Inc. | 89,769 | 1,568 | ||||||
Schering-Plough Corp. | 19,190 | 378 | ||||||
Thermo Fisher Scientific, Inc. * | 4,590 | 256 | ||||||
Waters Corp. * | 1,400 | 90 | ||||||
Watson Pharmaceuticals, Inc. * | 1,500 | 41 | ||||||
Wyeth | 17,470 | 838 | ||||||
11,484 | ||||||||
Real Estate 1.1% | ||||||||
Apartment Investment & Management Co., Class A | 1,356 | 46 | ||||||
AvalonBay Communities, Inc. (c) | 1,000 | 89 | ||||||
Boston Properties, Inc. | 1,216 | 110 | ||||||
CB Richard Ellis Group, Inc., Class A * | 2,300 | 44 | ||||||
Developers Diversified Realty Corp. (c) | 1,600 | 55 | ||||||
Equity Residential | 3,500 | 134 | ||||||
General Growth Properties, Inc. | 3,000 | 105 | ||||||
HCP, Inc. | 2,800 | 89 | ||||||
Host Hotels & Resorts, Inc. | 6,500 | 89 | ||||||
Kimco Realty Corp. (c) | 2,710 | 94 | ||||||
Plum Creek Timber Co., Inc. | 2,060 | 88 | ||||||
ProLogis | 2,600 | 141 | ||||||
Public Storage | 1,500 | 121 | ||||||
Simon Property Group, Inc. | 2,800 | 252 | ||||||
Vornado Realty Trust | 1,600 | 141 | ||||||
1,598 | ||||||||
Retailing 2.5% | ||||||||
Abercrombie & Fitch Co., Class A | 500 | 31 | ||||||
Amazon.com, Inc. * | 3,900 | 286 | ||||||
AutoNation, Inc. * | 1,900 | 19 | ||||||
AutoZone, Inc. * | 500 | 60 | ||||||
Bed, Bath & Beyond, Inc. (c) * | 3,016 | 85 | ||||||
Best Buy Co., Inc. | 5,075 | 201 | ||||||
Big Lots, Inc. (c) * | 1,400 | 44 | ||||||
Dillard’s, Inc., Class A (c) | 600 | 7 | ||||||
Expedia, Inc. * | 2,600 | 48 | ||||||
Family Dollar Stores, Inc. | 2,000 | 40 | ||||||
GameStop Corp., Class A * | 2,000 | 81 | ||||||
Genuine Parts Co. | 2,500 | 99 | ||||||
IAC/InterActiveCorp. * | 2,800 | 54 | ||||||
J.C. Penney Co., Inc. | 2,900 | 105 | ||||||
Kohl’s Corp. * | 4,410 | 177 | ||||||
Limited Brands, Inc. | 3,908 | 66 | ||||||
Lowe’s Cos., Inc. (c) | 19,760 | 410 | ||||||
Macy’s, Inc. | 5,922 | 115 | ||||||
Nordstrom, Inc. | 2,850 | 86 | ||||||
Office Depot, Inc. * | 3,500 | 38 | ||||||
RadioShack Corp. | 259 | 3 | ||||||
Sears Holdings Corp. (c) * | 1,175 | 87 | ||||||
Staples, Inc. | 9,150 | 217 | ||||||
Target Corp. | 11,170 | 519 | ||||||
The Gap, Inc. (c) | 7,076 | 118 | ||||||
The Home Depot, Inc. | 22,905 | 536 | ||||||
The Sherwin-Williams Co. | 1,133 | 52 | ||||||
The TJX Cos., Inc. | 6,310 | 199 | ||||||
Tiffany & Co. | 1,126 | 46 | ||||||
3,829 | ||||||||
Semiconductors & Semiconductor Equipment 2.5% | ||||||||
Advanced Micro Devices, Inc. (c) * | 5,530 | 32 |
10 See financial notes
Table of Contents
Schwab S&P 500 Index Portfolio
Portfolio Holdings continued
Number | Value | |||||||
Security | of Shares | ($ x 1,000) | ||||||
Altera Corp. | 4,880 | 101 | ||||||
Analog Devices, Inc. | 4,130 | 131 | ||||||
Applied Materials, Inc. | 17,770 | 339 | ||||||
Broadcom Corp., Class A * | 6,165 | 168 | ||||||
Intel Corp. | 74,371 | 1,598 | ||||||
KLA-Tencor Corp. | 2,700 | 110 | ||||||
Linear Technology Corp. | 3,200 | 104 | ||||||
LSI Corp. * | 5,410 | 33 | ||||||
MEMC Electronic Materials, Inc. * | 2,900 | 179 | ||||||
Microchip Technology, Inc. | 2,500 | 76 | ||||||
Micron Technology, Inc. * | 8,800 | 53 | ||||||
National Semiconductor Corp. | 4,400 | 90 | ||||||
Novellus Systems, Inc. (c) * | 1,600 | 34 | ||||||
NVIDIA Corp. * | 7,200 | 135 | ||||||
Teradyne, Inc. * | 2,100 | 23 | ||||||
Texas Instruments, Inc. | 18,340 | 517 | ||||||
Xilinx, Inc. | 3,800 | 96 | ||||||
3,819 | ||||||||
Software & Services 6.2% | ||||||||
Adobe Systems, Inc. * | 7,400 | 291 | ||||||
Affiliated Computer Services, Inc., Class A * | 1,191 | 64 | ||||||
Akamai Technologies, Inc. * | 2,000 | 70 | ||||||
Autodesk, Inc. * | 3,320 | 112 | ||||||
Automatic Data Processing, Inc. | 7,173 | 301 | ||||||
BMC Software, Inc. * | 3,200 | 115 | ||||||
CA, Inc. | 6,044 | 140 | ||||||
Citrix Systems, Inc. * | 2,360 | 69 | ||||||
Cognizant Technology Solutions Corp., Class A * | 3,600 | 117 | ||||||
Computer Sciences Corp. * | 2,400 | 112 | ||||||
Compuware Corp. * | 3,750 | 36 | ||||||
Convergys Corp. * | 1,354 | 20 | ||||||
eBay, Inc. * | 14,588 | 399 | ||||||
Electronic Arts, Inc. * | 4,058 | 180 | ||||||
Electronic Data Systems Corp. | 7,220 | 178 | ||||||
Fidelity National Information Services, Inc. | 2,000 | 74 | ||||||
Fiserv, Inc. * | 2,260 | 102 | ||||||
Google, Inc., Class A * | 2,977 | 1,567 | ||||||
Intuit, Inc. * | 4,396 | 121 | ||||||
Microsoft Corp. | 107,668 | 2,962 | ||||||
Novell, Inc. * | 5,200 | 31 | ||||||
Oracle Corp. * | 51,720 | 1,086 | ||||||
Paychex, Inc. | 4,450 | 139 | ||||||
Symantec Corp. * | 12,141 | 235 | ||||||
Total System Services, Inc. | 2,600 | 58 | ||||||
Unisys Corp. * | 4,700 | 19 | ||||||
VeriSign, Inc. * | 2,025 | 77 | ||||||
Western Union Co. | 9,959 | 246 | ||||||
Yahoo!, Inc. * | 15,500 | 320 | ||||||
9,241 | ||||||||
Technology Hardware & Equipment 7.6% | ||||||||
Agilent Technologies, Inc. * | 5,867 | 208 | ||||||
Apple, Inc. * | 11,500 | 1,926 | ||||||
Ciena Corp. (c) * | 957 | 22 | ||||||
Cisco Systems, Inc. * | 78,538 | 1,827 | ||||||
Corning, Inc. | 19,950 | 460 | ||||||
Dell, Inc. * | 28,872 | 632 | ||||||
EMC Corp. * | 27,122 | 398 | ||||||
Hewlett-Packard Co. | 33,413 | 1,477 | ||||||
International Business Machines Corp. | 17,885 | 2,120 | ||||||
Jabil Circuit, Inc. | 2,127 | 35 | ||||||
JDS Uniphase Corp. (c) * | 2,519 | 29 | ||||||
Juniper Networks, Inc. * | 6,800 | 151 | ||||||
Lexmark International, Inc., Class A (c) * | 1,300 | 43 | ||||||
Molex, Inc. | 1,800 | 44 | ||||||
Motorola, Inc. | 29,835 | 219 | ||||||
NetApp, Inc. * | 4,600 | 100 | ||||||
Nortel Networks Corp. * | 121 | 1 | ||||||
QLogic Corp. * | 1,990 | 29 | ||||||
QUALCOMM, Inc. | 21,490 | 953 | ||||||
SanDisk Corp. (c) * | 2,900 | 54 | ||||||
Sun Microsystems, Inc. * | 11,450 | 125 | ||||||
Tellabs, Inc. * | 5,630 | 26 | ||||||
Teradata Corp. * | 2,400 | 56 | ||||||
Tyco Electronics Ltd. | 6,294 | 225 | ||||||
Xerox Corp. | 12,190 | 165 | ||||||
11,325 | ||||||||
Telecommunication Services 3.3% | ||||||||
American Tower Corp., Class A * | 5,300 | �� | 224 | |||||
AT&T, Inc. | 78,888 | 2,658 | ||||||
CenturyTel, Inc. | 1,490 | 53 | ||||||
Citizens Communications Co. | 4,718 | 54 | ||||||
Embarq Corp. | 1,997 | 94 | ||||||
Qwest Communications International, Inc. (c) | 21,216 | 83 | ||||||
Sprint Nextel Corp. | 38,839 | 369 | ||||||
Verizon Communications, Inc. | 37,604 | 1,331 | ||||||
Windstream Corp. | 5,335 | 66 | ||||||
4,932 | ||||||||
Transportation 2.1% | ||||||||
Burlington Northern Santa Fe Corp. | 4,230 | 422 | ||||||
C.H. Robinson Worldwide, Inc. | 2,200 | 121 | ||||||
CSX Corp. | 6,020 | 378 | ||||||
Expeditors International of Washington, Inc. | 2,500 | 107 | ||||||
FedEx Corp. | 3,920 | 309 | ||||||
Norfolk Southern Corp. | 5,100 | 320 | ||||||
Ryder System, Inc. | 600 | 41 | ||||||
Southwest Airlines Co. | 7,886 | 103 | ||||||
Union Pacific Corp. | 7,140 | 539 | ||||||
United Parcel Service, Inc., Class B | 13,415 | 825 | ||||||
3,165 | ||||||||
Utilities 3.8% | ||||||||
Allegheny Energy, Inc. | 2,241 | 112 | ||||||
Ameren Corp. | 2,500 | 106 | ||||||
American Electric Power Co., Inc. | 5,170 | 208 | ||||||
CenterPoint Energy, Inc. | 3,650 | 59 | ||||||
CMS Energy Corp. (c) | 2,960 | 44 | ||||||
Consolidated Edison, Inc. | 3,100 | 121 | ||||||
Constellation Energy Group, Inc. | 2,500 | 205 | ||||||
Dominion Resources, Inc. | 7,440 | 353 |
See financial notes 11
Table of Contents
Schwab S&P 500 Index Portfolio
Portfolio Holdings continued
Number | Value | |||||||
Security | of Shares | ($ x 1,000) | ||||||
DTE Energy Co. | 2,200 | 93 | ||||||
Duke Energy Corp. | 15,563 | 271 | ||||||
Dynegy, Inc., Class A * | 4,295 | 37 | ||||||
Edison International | 4,200 | 216 | ||||||
Entergy Corp. | 2,377 | 286 | ||||||
Exelon Corp. | 8,690 | 782 | ||||||
FirstEnergy Corp. | 4,288 | 353 | ||||||
FPL Group, Inc. | 5,400 | 354 | ||||||
Integrys Energy Group, Inc. | 247 | 13 | ||||||
Nicor, Inc. (c) | 510 | 22 | ||||||
NiSource, Inc. | 3,246 | 58 | ||||||
Pepco Holdings, Inc. | 2,500 | 64 | ||||||
PG&E Corp. | 4,800 | 191 | ||||||
Pinnacle West Capital Corp. | 1,200 | 37 | ||||||
PPL Corp. | 4,960 | 259 | ||||||
Progress Energy, Inc. | 2,730 | 114 | ||||||
Public Service Enterprise Group, Inc. | 6,600 | 303 | ||||||
Questar Corp. | 2,200 | 156 | ||||||
Sempra Energy | 3,141 | 177 | ||||||
Southern Co. | 9,510 | 332 | ||||||
TECO Energy, Inc. | 2,840 | 61 | ||||||
The AES Corp. * | 8,800 | 169 | ||||||
Xcel Energy, Inc. | 3,809 | 77 | ||||||
5,633 | ||||||||
Total Common Stock (Cost $109,148) | 146,354 | |||||||
Issuer | Face Amount | Value | ||||||
Rate, Maturity Date | ($ x 1,000) | ($ x 1,000) | ||||||
Short-Term Investments 2.1% of net assets | ||||||||
Commercial Paper & Other Obligations 2.0% | ||||||||
Wachovia, London Time Deposit | ||||||||
1.82%, 07/01/08 | 2,992 | 2,992 | ||||||
U.S. Treasury Obligation 0.1% | ||||||||
U.S. Treasury Bill | ||||||||
1.91%, 09/18/08 (b) | 219 | 219 | ||||||
Total Short-Term Investments (Cost $3,211) | 3,211 | |||||||
End of Investments. | ||||||||
Number | Value | |||||||
Security | of Shares | ($ x 1,000) | ||||||
Collateral Invested for Securities on Loan 3.6% of net assets | ||||||||
Securities Lending Investment Fund, a series of the Brown Brothers Investment Trust | 5,346,947 | 5,347 | ||||||
End of collateral invested for securities on loan. | ||||||||
(All dollar amounts are x 1,000.) | ||||||||
At 06/30/08, the tax basis cost of the fund’s investments was $113,115 and the unrealized appreciation and depreciation were $53,254 and ($16,804), respectively, with a net unrealized appreciation of $36,450. |
* | Non-income producing security. | |
(a) | Issuer is affiliated with the fund’s adviser. | |
(b) | All or a portion of this security is held as collateral for open futures contracts. | |
(c) | All or a portion of this security is on loan. |
In addition to the above, the fund held the following at
06/30/08. All numbers x 1,000 except number of contracts.
Number of | Contract | Unrealized | ||||||||||
Contracts | Value | Losses | ||||||||||
Futures Contract | ||||||||||||
S & P Mini 500 Index, Long expires 09/19/08 | 40 | 2,562 | (144 | ) |
12 See financial notes
Table of Contents
Schwab S&P 500 Index Portfolio
Statement of
Assets and Liabilities
As of June 30, 2008; unaudited. All numbers x 1,000 except NAV.
Assets | ||||||
Investments in unaffiliated issuers, at value including securities on loan of $5,645 (cost $112,238 ) | $149,297 | |||||
Investments in affiliated issuer, at value (cost $121) | + | 268 | ||||
Total investments, at value (cost $112,359) | 149,565 | |||||
Collateral invested for securities on loan | 5,347 | |||||
Receivables: | ||||||
Investments sold | 13 | |||||
Fund shares sold | 220 | |||||
Dividends | 194 | |||||
Income from securities on loan | 5 | |||||
Due from brokers for futures | + | 2 | ||||
Total assets | 155,346 | |||||
Liabilities | ||||||
Collateral invested for securities on loan | 5,347 | |||||
Payables: | ||||||
Investments bought | 52 | |||||
Investment adviser and administrator fees | 2 | |||||
Fund shares redeemed | 96 | |||||
Accrued expenses | + | 44 | ||||
Total liabilities | 5,541 | |||||
Net Assets | ||||||
Total assets | 155,346 | |||||
Total liabilities | − | 5,541 | ||||
Net assets | $149,805 | |||||
Net Assets by Source | ||||||
Capital received from investors | 122,423 | |||||
Net investment income not yet distributed | 4,436 | |||||
Net realized capital losses | (14,116 | ) | ||||
Net unrealized capital gains | 37,062 |
Net Asset Value (NAV)
Shares | ||||||||||
Net Assets | ¸ | Outstanding | = | NAV | ||||||
$149,805 | 7,962 | $18.82 |
See financial notes 13
Table of Contents
Schwab S&P 500 Index Portfolio
Statement of
Operations
For January 1, 2008 to June 30, 2008; unaudited. All numbers x1,000.
Investment Income | ||||||
Dividends received from unaffiliated issuers | $1,608 | |||||
Dividends received from affiliated issuer | 1 | |||||
Interest | 26 | |||||
Securities on loan | + | 31 | ||||
Total Investment Income | 1,666 | |||||
Net Realized Gains and Losses | ||||||
Net realized gains on investments | 60 | |||||
Net realized losses on futures contracts | + | (130 | ) | |||
Net realized losses | (70 | ) | ||||
Net Unrealized Gains and Losses | ||||||
Net unrealized losses on unaffiliated investments | (21,294 | ) | ||||
Net unrealized losses on affiliated issuer | (65 | ) | ||||
Net unrealized losses on futures contracts | + | (164 | ) | |||
Net unrealized losses | (21,523 | ) | ||||
Expenses | ||||||
Investment adviser and administrator fees | 117 | |||||
Portfolio accounting fees | 25 | |||||
Shareholder reports | 20 | |||||
Professional fees | 17 | |||||
Trustees’ fees | 16 | |||||
Custodian fees | 3 | |||||
Other expenses | + | 6 | ||||
Total expenses | 204 | |||||
Increase (Decrease) in Net Assets from Operations | ||||||
Total investment income | 1,666 | |||||
Net expenses | − | 204 | ||||
Net investment income | 1,462 | |||||
Net realized losses | (70 | ) | ||||
Net unrealized losses | + | (21,523 | ) | |||
Decrease in net assets from operations | ($20,131 | ) |
14 See financial notes
Table of Contents
Schwab S&P 500 Index Portfolio
Statements of
Changes in Net Assets
For the current and prior report periods. All numbers x 1,000.
Figures for current period are unaudited.
Figures for current period are unaudited.
Operations |
1/1/08-6/30/08 | 1/1/07-12/31/07 | |||||||||
Net investment income | $1,462 | $2,992 | ||||||||
Net realized gains (losses) | (70 | ) | 1,887 | |||||||
Net unrealized gains (losses) | + | (21,523 | ) | 4,063 | ||||||
Increase (Decrease) in net assets from operations | (20,131 | ) | 8,942 | |||||||
Distributions to Shareholders | ||||||||||
Distributions from net investment income | – | 2,586 |
Transactions in Fund Shares |
1/1/08-6/30/08 | 1/1/07-12/31/07 | |||||||||||||||||
SHARES | VALUE | SHARES | VALUE | |||||||||||||||
Shares sold | 791 | $15,579 | 1,237 | $26,778 | ||||||||||||||
Shares reinvested | – | – | 120 | 2,586 | ||||||||||||||
Shares redeemed | + | (722 | ) | (14,351 | ) | (1,552 | ) | (33,604 | ) | |||||||||
Net transactions in fund shares | 69 | $1,228 | (195 | ) | ($4,240 | ) | ||||||||||||
Shares Outstanding and Net Assets | ||||||||||||||||||
1/1/08-6/30/08 | 1/1/07-12/31/07 | |||||||||||||||||
SHARES | NET ASSETS | SHARES | NET ASSETS | |||||||||||||||
Beginning of period | 7,893 | $168,708 | 8,088 | $166,592 | ||||||||||||||
Total Increase or decrease | + | 69 | (18,903 | ) | (195 | ) | 2,116 | |||||||||||
End of period | 7,962 | $149,805 | 7,893 | $168,708 | ||||||||||||||
Net investment income not yet distributed | $4,436 | $2,974 |
See financial notes 15
Table of Contents
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 list below shows all the funds in the trust including the fund 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 net asset value, or NAV, which is the price for all outstanding shares. 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.
2. | Significant Accounting Policies: |
(All dollar amounts are x 1,000)
The following is a summary of the significant accounting policies the fund used in the preparation of financial statements. The accounting policies are in conformity with accounting principles generally accepted in the United States of America.
(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. 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. |
• | Securities for which no quoted value is available or when a significant event has occurred between the time of the security’s last close and the time the fund calculates net asset value: valued at fair value, as determined in good faith by the fund’s investment adviser using guidelines adopted by the fund’s Board of Trustees and the Pricing Committee. Some of the more common reasons that may necessitate that a security be valued at fair value include: the security’s trading has been halted or suspended; the security has been de-listed from a national exchange; the security’s primary trading market is temporarily closed at a time when under normal conditions it would be open; or the security’s primary pricing source is not able or willing to provide a price. | |
• | Futures Contracts: valued at their settlement prices as of the close of their exchanges. When a fund closes out a futures position, it calculates the difference between the value of the position at the beginning and at the end of the contract, and records a realized gain or loss accordingly. | |
• | Short-term securities (60 days or less to maturity): valued at amortized cost. |
(b) Portfolio Investments:
Futures Contract: The fund may invest in futures contracts. Futures contracts involve certain risks because they can be very sensitive to market movements.
One risk is that the price of a futures contract may not move in perfect correlation with the price of the underlying securities. Another risk is that, at certain times, it may be impossible for the fund to close out a position in a futures contract, due to a difference in trading hours or to market conditions that may reduce the liquidity for a futures contract or its underlying
16
Table of Contents
Schwab S&P 500 Index Portfolio
Financial Notes, unaudited (continued)
2. | Significant Accounting Policies (continued): (All dollar amounts are x 1,000) |
securities. The potential for losses associated with futures contracts may exceed amounts recorded in the Statement of Assets and Liabilities.
Because futures contracts carry inherent risks, the fund must give the broker a deposit of cash and/or securities (the “initial margin”) whenever it enters into the futures contract. The amount of the deposit may vary from one contract to another, but it is generally a percentage of the contract amount.
Futures are traded publicly on exchanges, and their market value changes daily. The fund records the change in market value of futures, and also the change in the amount of margin deposit required (“due to/from broker”).
Securities Lending: The fund may loan securities to certain brokers, dealers and other financial institutions that pay the fund negotiated fees. The fund receives cash, letters of credit or U.S. government securities as collateral on these loans. All of the cash collateral received is reinvested in high quality, short-term investments. The value of the collateral must be at least 102% of the market value of the loaned securities as of the first day of the loan, and at least 100% each day thereafter. 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.
(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.
(e) Expenses:
Expenses that are specific to a fund or a class within the trust are charged directly to that fund or class. 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 pays dividends from net investment income and makes distributions from net realized capital gains once a year.
(g) Accounting Estimates:
The accounting policies described in this report conform with accounting principles generally accepted in the United States of America. Not withstanding 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.
(h) Federal Income Taxes:
The fund intends to meet federal income and excise tax requirements for regulated investment companies. Accordingly, the fund distributes substantially all of its net investment income and realized net capital gains (if any) to the participating insurance company’s separate accounts each year. As long as the fund meets the tax requirements, it is not required to pay federal income tax.
The fund maintains its own account for purposes of holding assets and accounting, and is considered a separate entity for tax purposes.
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Schwab S&P 500 Index Portfolio
Financial Notes, unaudited (continued)
2. | Significant Accounting Policies (continued): (All dollar amounts are x 1,000) |
(i) 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 their 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.
(j) New Accounting Standards:
Financial Accounting Standards Board (“FASB”) Interpretation (FIN) No. 48 – Accounting for Uncertainty in Income Taxes – an Interpretation of SFAS No. 109, was issued in July 2006 and is effective for fiscal years beginning after December 15, 2006. This Interpretation provides new requirements for the recognition, measurement, and disclosure in the financial statements of a tax position taken or expected to be taken in a tax return when there is uncertainty about whether that tax position will ultimately be sustained. As of June 30, 2008, management has reviewed the tax positions for open tax years (December 31, 2004 through December 31, 2007), evaluated the implications of FIN 48, and determined that there is no impact to the fund’s financial statements.
The fund adopted FASB Statement of Financial Accounting Standards No. 157 (“FAS 157”), Fair Value Measurements, effective January 1, 2008. FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management has concluded that the adoption of FAS 157 is not expected to have a material impact on the fund’s financial statements.
Various inputs are used in determining the value of the fund’s investments. FAS 157 establishes a three-tier hierarchy of inputs to establish a classification of fair value measurements for disclosure purposes. These inputs are summarized below in the three broad levels listed below:
• | Level 1 — quoted prices in active markets for identical securities | |
• | Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) | |
• | Level 3 — significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments) |
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 net assets as of June 30, 2008:
Investment in | ||||
Valuation Inputs | Securities* | |||
Level 1 — Quoted prices | $146,354 | |||
Level 2 — Other significant observable inputs | 3,211 | |||
Level 3 — Significant unobservable inputs | — | |||
Total | $149,565 |
* | The fund had no Other Financial Instruments. |
In March 2008, the FASB issued Statements of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”). SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 requires enhanced disclosures about Funds’ derivative and hedging activities. Management is currently evaluating the impact of the adoption of SFAS 161 on the funds’ financial statement disclosures.
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Schwab S&P 500 Index Portfolio
Financial Notes, unaudited (continued)
3. | Affiliates and Affiliated Transactions: |
(All dollar amounts are x 1,000)
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 | 0.15% | |||
$500 million to $5 billion | 0.09% | |||
$5 billion to $10 billion | 0.08% | |||
Over $10 billion | 0.07% |
Charles Schwab & Co., Inc. (“Schwab”) is an affiliate of the investment adviser and is the trust’s transfer agent and shareholder services agent.
Schwab does not charge the fund for transfer agent and shareholder services fees.
Although these agreements specify certain fees for these services, CSIM and Schwab have made additional agreements with the fund to limit the total expenses charged, excluding interest, taxes and certain non-routine expenses to 0.28% through April 29, 2009.
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. For the period ended June 30, 2008, 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 within the 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. There was no interfund borrowing or lending activity for the fund during the period.
4. 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 disclosed in the fund’s Statement of Operations.
5. | Borrowing from Banks: |
The fund may borrow money from banks and custodians. The fund may obtain temporary bank loans through the trust to which it belongs, to use for meeting shareholder redemptions or for extraordinary or emergency purposes. The Schwab Funds have custodian overdraft facilities, a committed line of credit of $150 million with State Street Corp. and an uncommitted line of credit of $100 million with Bank of America, N.A. The fund pays interest on the amounts it borrows at rates that are negotiated periodically. There was no borrowing from lines of credit for the fund during the period.
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Schwab S&P 500 Index Portfolio
Financial Notes, unaudited (continued)
6. | Purchases and Sales of Investment Securities: |
(All dollar amounts are x 1,000.)
For the period ended June 30, 2008, purchases and sales of securities (excluding short-term obligations) were as follows:
�� | ||||||
Purchases of | Sales/Maturities | |||||
Securities | of Securities | |||||
$1,657 | $207 |
7. | Federal Income Taxes: |
(All dollar amounts are x 1,000)
Capital loss carry forwards may be used to offset future realized capital gains for federal income tax purposes. As of December 31, 2007, the fund had capital loss carry forwards available to offset net capital gains before the expiration dates:
Expire | ||||
2009 | $821 | |||
2010 | 7,810 | |||
2011 | 38 | |||
2012 | 359 | |||
2013 | 2,129 | |||
2014 | 2,112 | |||
Total | $13,269 | |||
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 fiscal year. As of December 31, 2007, the fund had no deferred realized net capital losses, and capital losses utilized to offset capital gains were $433.
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Investment Advisory Agreement Approval
The Investment Company Act of 1940 (the “1940 Act”) requires that initial approval of, as well as the continuation of, a fund’s investment advisory agreement must be specifically approved (1) by the vote of the trustees or by a vote of the shareholders of the fund, and (2) by the vote of a majority of the trustees who are not parties to the investment advisory agreement or “interested persons” of any party (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 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 CSIM (the “Agreement”) with respect to existing funds in the Trust, including the 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 funds 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 the continuance of the Agreement at meetings held on May 16, 2008 and June 2, 2008, and approved the renewal of the Agreement for an additional one year term at the meeting held on June 2, 2008. The Board’s approval of the Agreement 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 funds under the Agreement, including the resources of CSIM and its affiliates dedicated to the funds; |
2. | each fund’s investment performance and how it compared to that of certain other comparable mutual funds; |
3. | each 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 each 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 funds grow and whether fee levels in the Agreement reflect those economies of scale for the benefit of fund investors. |
Nature, Extent and Quality of Services. The Board considered the nature, extent and quality of the services provided by CSIM to the funds and the resources of CSIM and its affiliates dedicated to the funds. In this regard, the Trustees evaluated, among other things, CSIM’s personnel, experience, track record and compliance program. The information considered by the Trustees included specific information concerning changes in the nature, extent and quality of services provided by CSIM since the Trustees had last considered approval of the Agreement. The Trustees also considered Schwab’s excellent reputation as a full service brokerage firm and its overall financial condition, and how this affects the success of the funds. Following such evaluation, the Board concluded, within the context of its full deliberations, that the nature, extent and quality of services provided by CSIM to the funds and the resources of CSIM and its affiliates dedicated to the funds supported renewal of the Agreement.
Fund Performance. The Board considered fund performance in determining whether to renew the Agreement. Specifically, the Trustees considered each fund’s performance relative to a peer group of other mutual funds and appropriate indices/benchmarks, in light of total return, yield, when applicable, and market trends. As part of this review, the Trustees considered the composition of the peer group, selection criteria and the reputation of the third party who prepared the peer group analysis. In evaluating the performance of each fund, the Trustees considered both risk and shareholder risk expectations for such fund and the appropriateness of the benchmark used to compare the performance of each 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
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context of its full deliberations, that the performance of the funds supported renewal of the Agreement.
Fund Expenses. With respect to the funds’ expenses, the Trustees considered the rate of compensation called for by the Agreement, and each 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 and offshore funds, 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 funds 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 funds are reasonable and supported renewal of the Agreement.
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 funds, such as whether, by virtue of its management of the funds, CSIM obtains investment information or other research resources that aid it in providing advisory services to other clients. The Trustees considered whether the varied levels of compensation and profitability under the Agreement and other service agreements were reasonable and justified in light of the quality of all services rendered to each 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.
Economies of Scale. The Trustees considered the existence of any economies of scale and whether those are passed along to a 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 funds obtain reasonable benefit from economies of scale.
In the course of their deliberations, the Trustees did not identify any particular information or factor that was all important or controlling. Based on the Trustees’ deliberation and their evaluation of the information described above, the Board, including all of the Independent Trustees, unanimously approved the continuation of the Agreement and concluded that the compensation under the Agreement is fair and reasonable in light of such services and expenses and such other matters as the Trustees have considered to be relevant in the exercise of their reasonable judgment.
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Trustees and Officers
The tables below give information as of June 30, 2008, 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, Laudus Trust and Laudus Institutional Trust. As of June 30, 2008, the Fund Complex included 84 funds.
The address for all trustees and officers is 101 Montgomery Street, San Francisco, CA 94104. 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 | ||||||||
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. | 84 | Board 1–Director, Redwood Trust, Inc. Board 2–Director, PMI Group, Inc. | |||||
John F. Cogan 1947 Trustee (Trustee of Schwab Annuity Portfolios since 2008.) | Senior Fellow: The Hoover Institution at Stanford University; Stanford Institute for Economic Policy Research; Professor of Public Policy, Stanford University | 69 | Board 1–Director, Gilead Sciences, Inc. Board 2–Director, Monaco Coach Corporation Board 3–Director, Venture Lending and Leasing, Inc. | |||||
William A. Hasler 1941 Trustee (Trustee of Schwab Annuity Portfolios since 2000.) | Retired. Dean Emeritus, Haas School of Business, University of California, Berkeley. Until February 2004, Co-Chief Executive Officer, Aphton Corp. (bio-pharmaceuticals). | 84 | Board 1–Director, Mission West Properties Board 2–Director, TOUSA Board 3–Director, Harris-Stratex Networks Board 4–Director, Genitope Corp. Board 5– Director, Ditech Networks Board 6–Director, Rubicon Limited | |||||
Gerald B. Smith 1950 Trustee (Trustee of Schwab Annuity Portfolios since 2000.) | Chairman, Chief Executive Officer and founder of Smith Graham & Co.(investment advisors). | 69 | Board 1–Board of Cooper Industries Board 2–Chairman of the Audit Committee of Oneok Partners LP | |||||
Donald R. Stephens 1938 Trustee (Trustee of Schwab Annuity Portfolios since 1989.) | Managing Partner, D. R. Stephens & Company (investments). | 69 | None. | |||||
Joseph H. Wender 1944 Trustee (Trustee of Schwab Annuity Portfolios since 2008.) | Senior Managing Director, Chairman of the Finance Committee, GSC Group; General Partner, Goldman Sachs & Co., until June 2005. | 69 | Board 1–Board Member and Chairman of the Audit Committee, Isis Pharmaceuticals | |||||
Michael W. Wilsey 1943 Trustee (Trustee of Schwab Annuity Portfolios since 1989.) | Chairman, Chief Executive Officer, Wilsey Bennett, Inc. (real estate investment and management, and other investments). | 69 | None. | |||||
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Interested Trustees | ||||||||
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 1989.) | Chairman, Chief Executive Officer and Director, The Charles Schwab Corporation, Charles Schwab & Co., Inc.; Chairman and Director, Charles 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 and Director, Schwab Holdings, Inc. Through June 2007, Director, U.S. Trust Company, N.A., U.S. Trust Company of New York. | 69 | None. | |||||
Walt W. Bettinger II2 1960 Trustee (Trustee of Schwab Annuity Portfolios since 2008.) | President and Chief Operating Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation; Director, Charles Schwab Bank; Executive Vice President and President – Schwab Investor Services, The Charles Schwab Corporation; Executive Vice President and President – Schwab Investor Services, Charles Schwab & Co., Inc.; Chairman and President, Schwab Retirement Plan Services, Inc.; President and Chief Executive Officer, The Charles Schwab Trust Company, Director, Charles Schwab Bank, N.A., Schwab Retirement Plan Services, and Schwab Retirement Technologies. | 69 | None. | |||||
Officers of the Trust | ||
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 2007.) | Executive Vice President and President, Investment Management Services, Charles Schwab & Co., Inc,; Executive Vice President, Charles Schwab & Co., Inc. (2002-present); President and Chief Executive Officer, Charles Schwab Investment Management, Inc. (2007-present); Director, Charles Schwab Asset Management (Ireland) Limited and Charles Schwab Worldwide Funds PLC. From September 2002 to July 2004, Chief Executive Officer and President, Charles Schwab Investment Management, Inc. and Executive Vice President, Charles Schwab & Co., Inc. | |
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.; Chief Financial Officer, Laudus Trust and Laudus Institutional Trust; Director, Charles Schwab Worldwide Fund, PLC and Charles Schwab Asset Management (Ireland) Limited. Through June 2007, Treasurer, Chief Financial Officer and Chief Accounting Officer, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc. and Excelsior Funds Trust; Chief Financial Officer, Mutual Fund Division, UST Advisors, Inc. From December 1999 to November 2004, Sr. Vice President, Financial Reporting, Charles Schwab & Co. Inc. | |
Jeffrey Mortimer 1963 Senior Vice President and Chief Investment Officer (Officer of Schwab Annuity Portfolios since 2004.) | Senior Vice President and Chief Investment Officer, Charles Schwab Investment Management, Inc.; President, CEO and Chief Investment Officer, Laudus Trust and Laudus Institutional Trust. Prior to March 31, 2008, Vice President and Chief Investment Officer, Laudus Trust and Laudus Institutional Trust. Prior to 2004, Vice President and Sr. Portfolio Manager, Charles Schwab Investment Management, Inc. | |
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Officers of the Trust continued | ||
with the trust; (Terms of office, and | ||
length of Time Served3) | Principal Occupations During the Past Five Years | |
Randall Fillmore 1960 Chief Compliance Officer and AML Officer (Officer of Schwab Annuity Portfolios since 2002.) | Senior Vice President and Chief Compliance Officer, Charles Schwab Investment Management, Inc.; Senior Vice President, Charles Schwab & Co. Inc.; Chief Compliance Officer, Laudus Trust and Laudus Institutional Trust. Through June 2007, Chief Compliance Officer, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc., and Excelsior Funds Trust. | |
Koji E. Felton 1959 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.; Senior Vice President and Deputy General Counsel, Charles Schwab & Co., Inc. Through June 2007, Chief Legal Officer, Excelsior Funds Inc., Excelsior Tax-Exempt Funds, Inc. and Excelsior Funds Trust. | |
Catherine MacGregor 1964 Vice President (Officer of Schwab Annuity Portfolios since 2005.) | Vice President, Charles Schwab & Co., Inc. and Charles Schwab Investment Management, Inc., Laudus Trust and Laudus Institutional Trust; since 2006, Chief Counsel, Laudus Trust and Laudua Institutional Trust. Until July 2005, Senior Associate, Paul Hastings Janofsky & Walker LLP. | |
Cathy Sabo 1964 Vice President (Officer of Schwab Annuity Portfolios since 2005.) | Vice President-Compliance, Charles Schwab Investment Management, Inc., Laudus Trust and Laudus Institutional Trust. Until 2004, Vice President, Client, Sales & Services Controls, Charles Schwab & Co., Inc. | |
Michael Haydel 1972 Vice President (Officer of Schwab Annuity Portfolios since 2006.) | Vice President, Asset Management Client Services, Charles Schwab & Co., Inc.; Vice President and AML Officer, Laudus Trust and Laudus Institutional Trust. Until March 2004, Director Charles Schwab & Co., Inc. | |
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. 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 | In addition to their employment with the investment advisor and the distributor, Messrs. Schwab and Bettinger also own stock of The Charles Schwab Corporation. Mr. Schwab and Mr. Bettinger are Interested Trustees because they are employees of Schwab and/or the advisor. |
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. |
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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.
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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. |
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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: 8/14/08
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: 8/14/08
By: | /s/ George Pereira | |||
George Pereira | ||||
Treasurer and Principal Financial Officer | ||||
Date: 8/14/08