UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT
OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-8314
Schwab Annuity Portfolios
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(Exact name of registrant as specified in charter)
101 Montgomery Street, San Francisco, California 94104
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(Address of principal executive offices) (Zip code)
Randall W. Merk
Schwab Annuity Portfolios
101 Montgomery Street, San Francisco, California 94104
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(Name and address of agent for service)
Registrant's telephone number, including area code: (415) 627-7000
Date of fiscal year end: December 31
Date of reporting period: January 1, 2004 - June 30, 2004
ITEM 1: REPORT(S) TO SHAREHOLDERS.
(CHARLES SCHWAB LOG0)
LARGE BLEND
SCHWAB S&P 500
PORTFOLIO
LARGE-CAP
FOR THE PERIOD ENDED JUNE 30, 2004
Inception Date: November 1, 1996
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 AND PROCEDURES
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 web site at www.schwab.com/schwabfunds, the SEC's
web site at http://www.sec.gov, or by calling 1-800-435-4000.
MANAGEMENT'S DISCUSSION for the six months ended June 30, 2004
[PHOTO OF GERI HOM]
GERI HOM, a vice president and senior portfolio manager of the investment
adviser, has overall responsibility for the management of the portfolio. Prior
to joining the firm in 1995, she worked for nearly 15 years in equity
management.
Effective July 19, 2004, Geri Hom retired. Jeff Mortimer, senior vice president
and Chief Investment Officer, Equities of Charles Schwab Investment Management,
Inc., is responsible for the overall management of the portfolio.
THE ENCOURAGING ECONOMIC CLIMATE THAT WAS REPORTED IN LATE 2003 CONTINUED TO
IMPROVE INTO 2004. Businesses added to their inventories, factory orders rose
amid the pick-up in capital spending and production gained some strength. Retail
sales continued to rise, despite a pause in the upward trend in consumer
confidence. Mortgage refinancing activity, while still significant, waned as
mortgage rates inched slightly upward. The only big piece missing was job
growth, which remained sluggish through the beginning of first quarter.
Amid this benign inflationary environment, the Federal Reserve (the Fed) elected
to hold the Fed funds rate at a 45-year low in March to provide liquidity
necessary to maintain economic growth. Job growth picked up strongly in March
and continued into the second quarter. With the economic recovery now
broad-based, investors, who only a year ago feared deflation, now started to
worry about inflation.
Inflationary concerns were based on surging oil prices, which hit a 13-year high
amid tight supplies. And while commodity prices moderated somewhat during the
report period, previous increases started to show up in broad measures of
inflation. Labor costs also were beginning to rise.
Most market watchers expected the Fed to raise interest rates, and it did at the
end of June. At that time the Federal Open Market Committee increased the Fed
funds target 0.25% to 1.25%, the first rate hike since May 2000, when the Fed
funds target was raised to 6.50%.
THE SCHWAB S&P 500 FUND was up 3.30% for the period, closely tracking its
benchmark, the S&P 500(R) Index, which was up 3.44%. The best performing sector
was energy, which was up 13.13%. The worst performing sector was information
technology, which was up 3.10%.
Past performance does not indicate future results.
All portfolio and index 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. The portfolio's share price and principal values change and when
you sell your shares they may be worth more or less than what you paid for them.
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.
Portfolio returns do not reflect the additional fees and expenses imposed by the
insurance company under the variable insurance product contract.
Portfolio expenses have been partially absorbed by CSIM and Schwab. Without
these reductions, the portfolio's returns would have been lower.
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.
0.45% THREE-MONTH U.S. TREASURY BILLS (T-BILLS): measures short-term U.S.
Treasury obligations
0.15% LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX: measures the U.S. bond market
3.44% S&P 500(R) INDEX: measures U.S. large-cap stocks
6.76% RUSSELL 2000(R) INDEX: measures U.S. small-cap stocks
4.56% MSCI-EAFE(R) INDEX: measures (in U.S. dollars) large-cap stocks in
Europe, Australasia and the Far East
[LINE GRAPH]
THREE-MONTH LEHMAN
U.S. TREASURY BROTHERS S&P RUSSELL MSCI-
BILLS U.S. AGGREGATE 500(R) 2000(R) EAFE(R)
(T-Bills) BOND INDEX INDEX INDEX INDEX
31-Dec-03 0.00 0.00 0.00 0.00 0.00
02-Jan-04 0.00 -0.45 -0.30 0.71 0.70
09-Jan-04 0.02 0.89 0.94 3.30 3.31
16-Jan-04 0.04 1.19 2.56 6.05 1.91
23-Jan-04 0.06 1.05 2.73 7.08 4.44
30-Jan-04 0.08 0.80 1.84 4.34 1.41
06-Feb-04 0.09 1.07 2.91 4.96 2.84
13-Feb-04 0.11 1.52 3.26 5.18 4.72
20-Feb-04 0.12 1.36 3.13 4.24 4.47
27-Feb-04 0.14 1.90 3.25 5.28 3.76
05-Mar-04 0.15 2.56 4.36 7.81 5.41
12-Mar-04 0.17 2.82 1.14 4.84 0.78
19-Mar-04 0.19 2.77 0.18 2.68 2.62
26-Mar-04 0.21 2.59 0.03 3.09 2.10
02-Apr-04 0.23 1.44 3.11 8.64 5.61
09-Apr-04 0.25 1.34 2.92 7.65 5.65
16-Apr-04 0.27 0.76 2.51 5.05 4.39
23-Apr-04 0.28 0.25 3.06 6.38 4.00
30-Apr-04 0.30 -0.01 0.10 0.84 1.98
07-May-04 0.32 -1.44 -0.66 -1.16 0.61
14-May-04 0.34 -1.22 -0.85 -2.00 -2.92
21-May-04 0.36 -1.04 -1.01 -1.62 -0.56
28-May-04 0.38 -0.41 1.47 2.45 2.19
04-Jun-04 0.38 -0.89 1.67 2.37 2.41
11-Jun-04 0.39 -0.93 2.96 2.63 2.91
18-Jun-04 0.42 -0.47 2.86 2.92 4.03
25-Jun-04 0.43 -0.08 2.83 6.02 4.76
30-Jun-04 0.45 0.15 3.44 6.76 4.56
These figures 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. Remember that
past performance is not an indication of future results.
Data source: Charles Schwab & Co., Inc.
Schwab S&P 500 Portfolio 1
SCHWAB S&P 500 PORTFOLIO
PERFORMANCE as of 6/30/04
AVERAGE ANNUAL TOTAL RETURNS 1, 2, 3
This bar chart compares performance of the portfolio with its benchmark and
Morningstar category.
[BAR CHART]
Benchmark: Fund Category:
S&P 5OO(R) MORNINGSTAR
PORTFOLIO INDEX LARGE-CAP BLEND
6 MONTHS 3.30% 3.44% 2.49%
1 YEAR 18.75% 19.11% 16.78%
5 YEARS -2.53% -2.20% -3.26%
SINCE INCEPTION: 11/1/96 7.65% 8.13% n/a
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN MORE CURRENT PERFORMANCE INFORMATION, PLEASE VISIT
WWW.SCHWAB.COM/ANNUITY.
PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 1, 2
This graph shows performance since inception of a hypothetical $10,000
investment in the portfolio, compared with a similar investment in its
benchmark.
$17,605 PORTFOLIO
$18,215 S&P 500(R) INDEX
[LINE GRAPH]
S&P 500(R)
Portfolio Index
01-Nov-96 $10,000 $10,000
30-Nov-96 $10,750 $10,777
31-Dec-96 $10,530 $10,564
31-Jan-97 $11,170 $11,223
28-Feb-97 $11,250 $11,311
31-Mar-97 $10,780 $10,848
30-Apr-97 $11,410 $11,494
31-May-97 $12,090 $12,193
30-Jun-97 $12,630 $12,739
31-Jul-97 $13,620 $13,752
31-Aug-97 $12,860 $12,982
30-Sep-97 $13,560 $13,692
31-Oct-97 $13,120 $13,235
30-Nov-97 $13,720 $13,848
31-Dec-97 $13,948 $14,086
31-Jan-98 $14,098 $14,242
28-Feb-98 $15,108 $15,269
31-Mar-98 $15,869 $16,051
30-Apr-98 $16,029 $16,213
31-May-98 $15,739 $15,934
30-Jun-98 $16,369 $16,581
31-Jul-98 $16,189 $16,405
31-Aug-98 $13,848 $14,036
30-Sep-98 $14,738 $14,936
31-Oct-98 $15,929 $16,150
30-Nov-98 $16,879 $17,129
31-Dec-98 $17,862 $18,116
31-Jan-99 $18,595 $18,873
28-Feb-99 $18,012 $18,286
31-Mar-99 $18,726 $19,017
30-Apr-99 $19,439 $19,753
31-May-99 $18,967 $19,287
30-Jun-99 $20,012 $20,357
31-Jul-99 $19,389 $19,722
31-Aug-99 $19,288 $19,624
30-Sep-99 $18,756 $19,086
31-Oct-99 $19,931 $20,294
30-Nov-99 $20,323 $20,707
31-Dec-99 $21,517 $21,926
31-Jan-00 $20,434 $20,825
29-Feb-00 $20,040 $20,431
31-Mar-00 $22,003 $22,429
30-Apr-00 $21,335 $21,754
31-May-00 $20,890 $21,308
30-Jun-00 $21,396 $21,835
31-Jul-00 $21,072 $21,494
31-Aug-00 $22,367 $22,829
30-Sep-00 $21,183 $21,624
31-Oct-00 $21,082 $21,533
30-Nov-00 $19,412 $19,836
31-Dec-00 $19,506 $19,933
31-Jan-01 $20,183 $20,641
28-Feb-01 $18,337 $18,758
31-Mar-01 $17,178 $17,569
30-Apr-01 $18,501 $18,934
31-May-01 $18,614 $19,061
30-Jun-01 $18,163 $18,598
31-Jul-01 $17,978 $18,416
31-Aug-01 $16,850 $17,263
30-Sep-01 $15,486 $15,868
31-Oct-01 $15,784 $16,171
30-Nov-01 $16,984 $17,411
31-Dec-01 $17,135 $17,565
31-Jan-02 $16,876 $17,308
28-Feb-02 $16,544 $16,974
31-Mar-02 $17,155 $17,612
30-Apr-02 $16,119 $16,545
31-May-02 $15,995 $16,423
30-Jun-02 $14,855 $15,253
31-Jul-02 $13,695 $14,065
31-Aug-02 $13,768 $14,157
30-Sep-02 $12,266 $12,618
31-Oct-02 $13,343 $13,728
30-Nov-02 $14,120 $14,537
31-Dec-02 $13,292 $13,683
31-Jan-03 $12,935 $13,325
28-Feb-03 $12,735 $13,125
31-Mar-03 $12,861 $13,252
30-Apr-03 $13,911 $14,344
31-May-03 $14,635 $15,100
30-Jun-03 $14,824 $15,294
31-Jul-03 $15,076 $15,563
31-Aug-03 $15,370 $15,866
30-Sep-03 $15,202 $15,698
31-Oct-03 $16,063 $16,587
30-Nov-03 $16,200 $16,732
31-Dec-03 $17,042 $17,609
31-Jan-04 $17,339 $17,933
29-Feb-04 $17,583 $18,183
31-Mar-04 $17,318 $17,908
30-Apr-04 $17,042 $17,627
31-May-04 $17,276 $17,868
30-Jun-04 $17,605 $18,215
All portfolio and index figures on this page assume dividends and
distributions were reinvested. Index figures do not include trading and
management costs, which would lower performance. Indices are unmanaged, and
you cannot invest in them directly. Results for the report period are not
annualized.
1 Portfolio expenses have been partially absorbed by CSIM and Schwab. Without
these reductions, the portfolio's returns would have been lower. Portfolio
returns do not reflect the additional fees and expenses imposed by the
insurance company under the variable insurance product contract. If those
contract fees and expenses were included, the returns would be less than those
shown. Please refer to the variable insurance product prospectus for a
complete listing of these expenses.
2 Standard & Poor's(R), S&P(R), S&P 500(R), Standard & Poor's 500(R) and 500(R)
are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for
use by the portfolio. The portfolio is not sponsored, endorsed, sold or
promoted by Standard & Poor's, and Standard & Poor's makes no representation
regarding the advisability of investing in the portfolio.
3 Source for category information: Morningstar, Inc.
2 Schwab S&P 500 Portfolio
SCHWAB S&P 500 PORTFOLIO
PORTFOLIO FACTS as of 6/30/04
STYLE ASSESSMENT 1
[GRAPHIC]
INVESTMENT STYLE
Value Blend Growth
MARKET CAP
Large / / /X/ / /
Medium / / / / / /
Small / / / / / /
STATISTICS
NUMBER OF HOLDINGS 505
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $91,328
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PRICE/EARNINGS RATIO (P/E) 3.1
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PRICE/BOOK RATIO (P/B) 20.5
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PORTFOLIO TURNOVER RATE 2 3%
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TOP HOLDINGS 3
% OF
SECURITY NET ASSETS
- --------------------------------------------------------------------------------
(1) GENERAL ELECTRIC CO. 3.0
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(2) MICROSOFT CORP. 2.8
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(3) EXXON MOBIL CORP. 2.6
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(4) PFIZER, INC. 2.3
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(5) CITIGROUP, INC. 2.1
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(6) WAL-MART STORES, INC. 2.0
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(7) AMERICAN INTERNATIONAL GROUP, INC. 1.7
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(8) INTEL CORP. 1.6
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(9) BANK OF AMERICA CORP. 1.5
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(10) JOHNSON & JOHNSON 1.5
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TOTAL 21.1
SECTOR WEIGHTINGS % of Portfolio
This chart shows the portfolio's sector composition as of the report date. A
sector is a portion of the overall stock market that is made up of industries
whose business components share similar characteristics.
[PIE CHART]
29.9% CONSUER NON-DURABLES
19.7% FINANCE
18.8% TECHNOLOGY
6.9% MATERIALS & SERVICES
6.2% ENERGY
5.6% UTILITIES
4.6% CAPITAL GOODS
1.6% CONSUMER DURABLES
1.6% TRANSPORTATION
5.1% OTHER
Portfolio holdings may have changed since the report date.
1 Source: Morningstar, Inc. This style assessment is the result of evaluating
the portfolio based on a ten-factor model for value and growth
characteristics. The portfolio's market capitalization placement is determined
by the geometric mean of its holdings' market capitalizations. The assessment
reflects the portfolio as of 6/30/04, 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 Portfolio 3
SCHWAB S&P 500 PORTFOLIO
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
1/1/04- 1/1/03- 1/1/02- 1/1/01- 1/1/00- 1/1/99-
6/30/04* 12/31/03 12/31/02 12/31/01 12/31/00 12/31/99
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PER-SHARE DATA ($)
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Net asset value at beginning of period 16.06 12.66 16.54 19.02 21.26 17.78
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Income or loss from investment operations:
Net investment income 0.10 0.17 0.19 0.15 0.18 0.16
Net realized and unrealized gains or losses 0.43 3.40 (3.90) (2.46) (2.17) 3.47
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Total income or loss from investment operations 0.53 3.57 (3.71) (2.31) (1.99) 3.63
Less distributions:
Dividends from net investment income -- (0.17) (0.17) (0.17) (0.19) (0.14)
Distributions from net realized gains -- -- -- -- (0.06) (0.01)
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Total distributions -- (0.17) (0.17) (0.17) (0.25) (0.15)
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Net asset value at end of period 16.59 16.06 12.66 16.54 19.02 21.26
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Total return (%) 3.30 1 28.22 (22.43) (12.16) (9.34) 20.47
RATIOS/SUPPLEMENTAL DATA (%)
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 0.28 2 0.28 0.28 0.28 0.29 3 0.28
Gross operating expenses 0.30 2 0.32 0.35 0.33 0.31 0.34
Net investment income 1.34 2 1.50 1.33 1.09 0.99 1.14
Portfolio turnover rate 3 1 2 11 5 10 7
Net assets, end of period ($ x 1,000,000) 158 146 98 128 126 130
* Unaudited.
1 Not annualized.
2 Annualized.
3 The ratio of net operating expenses would have been 0.28% if certain
non-routine expenses (proxy fees) had not been included.
4 See financial notes.
SCHWAB S&P 500 PORTFOLIO
PORTFOLIO HOLDINGS as of June 30, 2004, unaudited
This section shows all the securities in the fund's portfolio by industry
classification and their market value, as of the report date.
We use the symbols below to designate certain characteristics. With the top ten
holdings, the number in the circle is the security's rank among the top ten.
(1) Top ten holding
o Non-income producing security
= Collateral for open futures contracts
/ Issuer is related to the fund's adviser
COST VALUE
HOLDINGS BY CATEGORY ($ x 1,000) ($ x 1,000)
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94.9% COMMON STOCK 134,259 150,315
4.7% SHORT-TERM
INVESTMENTS 7,477 7,477
0.4% U.S. TREASURY
OBLIGATIONS 593 593
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100.0% TOTAL INVESTMENTS 142,329 158,385
10.3% COLLATERAL INVESTED FOR
SECURITIES ON LOAN 16,272 16,272
(10.3)% OTHER ASSETS AND
LIABILITIES, NET (16,246)
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100.0% TOTAL NET ASSETS 158,411
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
COMMON STOCK 94.9% of net assets
AEROSPACE / DEFENSE 1.8%
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The Boeing Co. 11,996 613
Crane Co. 700 22
General Dynamics Corp. 2,800 278
Goodrich Corp. 1,700 55
Lockheed Martin Corp. 6,500 339
Northrop Grumman Corp. 5,314 285
Raytheon Co. 5,800 207
Rockwell Automation, Inc. 2,700 101
Rockwell Collins, Inc. 2,500 83
Textron, Inc. 1,900 113
United Technologies Corp. 7,300 669
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2,765
AIR TRANSPORTATION 1.1%
--------------------------------------------------------------------------
Delta Air Lines, Inc. 1,400 10
FedEx Corp. 4,220 345
Sabre Holdings Corp. 1,883 52
Southwest Airlines Co. 11,218 188
United Parcel Service, Inc.,
Class B 15,945 1,199
-----------
1,794
ALCOHOLIC BEVERAGES 0.5%
--------------------------------------------------------------------------
Adolph Coors Co., Class B 600 44
Anheuser-Busch Cos., Inc. 11,600 626
Brown-Forman Corp., Class B 1,804 87
-----------
757
APPAREL 0.3%
--------------------------------------------------------------------------
Jones Apparel Group, Inc. 1,800 71
Liz Claiborne, Inc. 1,600 57
Nike, Inc., Class B 3,800 288
Reebok International Ltd. 800 29
VF Corp. 1,600 78
-----------
523
AUTOMOTIVE PRODUCTS / MOTOR VEHICLES 1.1%
--------------------------------------------------------------------------
Cooper Tire & Rubber Co. 1,000 23
Cummins, Inc. 700 44
Dana Corp. 2,178 43
Danaher Corp. 4,400 228
Delphi Corp. 7,563 81
Eaton Corp. 2,200 142
Ford Motor Co. 25,852 405
General Motors Corp. 8,000 373
Genuine Parts Co. 2,500 99
o Goodyear Tire & Rubber Co. 2,500 23
Harley-Davidson, Inc. 4,400 272
o Navistar International Corp. 1,000 39
Visteon Corp. 1,584 18
-----------
1,790
BANKS 7.1%
--------------------------------------------------------------------------
AmSouth Bancorp. 5,050 129
(9) Bank of America Corp. 28,792 2,436
The Bank of New York Co., Inc. 10,900 321
Bank One Corp. 15,906 811
BB&T Corp. 7,800 288
Comerica, Inc. 2,550 140
Fifth Third Bancorp 7,905 425
First Horizon National Corp. 1,700 77
Huntington Bancshares, Inc. 3,256 75
See financial notes. 5
SCHWAB S&P 500 PORTFOLIO
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
J.P. Morgan Chase & Co. 29,010 1,125
KeyCorp, Inc. 5,900 176
M&T Bank Corp. 1,700 149
Marshall & Ilsley Corp. 3,278 128
Mellon Financial Corp. 6,000 176
National City Corp. 8,600 301
North Fork Bancorp., Inc. 2,200 84
Northern Trust Corp. 3,100 131
PNC Financial Services Group, Inc. 4,000 212
Regions Financial Corp. 3,100 113
SouthTrust Corp. 4,700 182
State Street Corp. 4,800 235
SunTrust Banks, Inc. 4,000 260
Synovus Financial Corp. 4,300 109
U.S. Bancorp 27,130 748
Union Planters Corp. 2,600 78
Wachovia Corp. 18,544 825
Wells Fargo & Co. 23,899 1,368
Zions Bancorp. 1,200 74
-----------
11,176
BUSINESS MACHINES & SOFTWARE 8.7%
--------------------------------------------------------------------------
Adobe Systems, Inc. 3,400 158
o Apple Computer, Inc. 5,200 169
Autodesk, Inc. 1,500 64
o BMC Software, Inc. 3,200 59
o Cisco Systems, Inc. 96,100 2,278
o Compuware Corp. 5,100 34
o Comverse Technology, Inc. 2,700 54
o Dell, Inc. 35,800 1,282
o EMC Corp. 34,012 388
o Gateway, Inc. 4,600 21
Hewlett-Packard Co. 43,437 917
International Business Machines
Corp. 23,900 2,107
o Lexmark International, Inc.,
Class A 1,800 174
=(2) Microsoft Corp. 152,600 4,358
o NCR Corp. 1,400 69
o Network Appliance, Inc. 4,800 103
o Novell, Inc. 5,200 44
o Oracle Corp. 74,300 886
Pitney Bowes, Inc. 3,400 150
o Siebel Systems, Inc. 7,000 75
o Sun Microsystems, Inc. 45,800 199
o Unisys Corp. 4,700 65
o Xerox Corp. 11,000 159
-----------
13,813
BUSINESS SERVICES 4.3%
--------------------------------------------------------------------------
o Affiliated Computer Services, Inc.,
Class A 1,981 105
o Allied Waste Industries, Inc. 4,300 57
o Apollo Group, Inc., Class A 2,400 212
Automatic Data Processing, Inc. 8,400 352
Cendant Corp. 14,502 355
Cintas Corp. 2,492 119
o Citrix Systems, Inc. 2,400 49
Computer Associates
International, Inc. 8,200 230
o Computer Sciences Corp. 2,700 125
o Convergys Corp. 2,054 32
Deluxe Corp. 800 35
o eBay, Inc. 9,194 845
Electronic Data Systems Corp. 6,900 132
Equifax, Inc. 2,000 49
First Data Corp. 12,599 561
o Fiserv, Inc. 2,700 105
H&R Block, Inc. 2,600 124
IMS Health, Inc. 3,300 77
o Interpublic Group of Cos., Inc. 5,700 78
o Intuit, Inc. 2,820 109
o Mercury Interactive Corp. 1,200 60
o Monster Worldwide, Inc. 1,644 42
o Omnicom Group, Inc. 2,600 197
o Parametric Technology Corp. 3,800 19
Paychex, Inc. 5,250 178
o PeopleSoft, Inc. 5,400 100
o Robert Half International, Inc. 2,400 71
o Sungard Data Systems, Inc. 4,031 105
o Symantec Corp. 4,398 193
Tyco International Ltd. 28,419 942
o Veritas Software Corp. 6,000 166
Waste Management, Inc. 8,157 250
o Yahoo!, Inc. 18,800 683
-----------
6,757
CHEMICALS 1.4%
--------------------------------------------------------------------------
Air Products & Chemicals, Inc. 3,300 173
Dow Chemical Co. 13,155 535
E.I. du Pont de Nemours & Co. 14,254 633
Eastman Chemical Co. 1,000 46
Ecolab, Inc. 3,700 117
Great Lakes Chemical Corp. 700 19
o Hercules, Inc. 1,500 18
6 See financial notes.
SCHWAB S&P 500 PORTFOLIO
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
Monsanto Co. 3,725 144
PPG Industries, Inc. 2,500 156
Praxair, Inc. 4,600 184
Rohm & Haas Co. 3,205 133
Sigma-Aldrich Corp. 1,000 60
-----------
2,218
CONSTRUCTION 0.4%
--------------------------------------------------------------------------
Centex Corp. 1,800 82
Fluor Corp. 1,100 53
KB Home 700 48
Masco Corp. 6,600 206
Pulte Homes, Inc. 1,800 94
The Sherwin-Williams Co. 2,000 83
The Stanley Works 1,100 50
Vulcan Materials Co. 1,500 71
-----------
687
CONSUMER DURABLES 0.2%
--------------------------------------------------------------------------
Black & Decker Corp. 1,100 68
Leggett & Platt, Inc. 2,800 75
Maytag Corp. 1,000 25
Newell Rubbermaid, Inc. 3,924 92
Whirlpool Corp. 900 62
-----------
322
CONTAINERS 0.1%
--------------------------------------------------------------------------
Ball Corp. 800 58
Bemis Co. 1,400 39
o Pactiv Corp. 2,300 57
o Sealed Air Corp. 1,214 65
-----------
219
ELECTRONICS 5.3%
--------------------------------------------------------------------------
o ADC Telecommunications, Inc. 10,300 29
o Advanced Micro Devices, Inc. 4,900 78
o Agilent Technologies, Inc. 6,737 197
o Altera Corp. 5,480 122
American Power Conversion Corp. 2,825 56
Analog Devices, Inc. 5,200 245
o Andrew Corp. 1,950 39
o Applied Materials, Inc. 23,600 463
o Applied Micro Circuits Corp. 4,082 22
o Broadcom Corp., Class A 4,400 206
o CIENA Corp. 6,700 25
(8) Intel Corp. 91,600 2,528
ITT Industries, Inc. 1,300 108
o Jabil Circuit, Inc. 2,727 69
o JDS Uniphase Corp. 20,155 76
o KLA-Tencor Corp. 2,700 133
Linear Technology Corp. 4,400 174
o LSI Logic Corp. 5,300 40
o Lucent Technologies, Inc. 58,795 222
Maxim Integrated Products, Inc. 4,700 246
o Micron Technology, Inc. 8,800 135
Molex, Inc. 2,700 87
Motorola, Inc. 33,205 606
o National Semiconductor Corp. 5,000 110
o Novellus Systems, Inc. 2,200 69
o Nvidia Corp. 2,400 49
PerkinElmer, Inc. 1,700 34
o PMC -- Sierra, Inc. 2,500 36
o Power-One, Inc. 1,200 13
o QLogic Corp. 1,295 35
Qualcomm, Inc. 11,400 832
o Sanmina-SCI Corp. 7,400 67
Scientific-Atlanta, Inc. 2,200 76
o Solectron Corp. 11,500 74
Symbol Technologies, Inc. 3,052 45
Tektronix, Inc. 1,100 37
o Tellabs, Inc. 5,900 52
o Teradyne, Inc. 2,700 61
Texas Instruments, Inc. 24,700 597
o Thermo Electron Corp. 2,200 68
o Thomas & Betts Corp. 900 25
o Waters Corp. 1,700 81
o Xilinx, Inc. 4,800 160
-----------
8,427
ENERGY: RAW MATERIALS 1.5%
--------------------------------------------------------------------------
Anadarko Petroleum Corp. 3,537 207
Apache Corp. 4,684 204
Baker Hughes, Inc. 4,780 180
o BJ Services Co. 2,300 106
Burlington Resources, Inc. 5,704 206
Devon Energy Corp. 3,400 224
EOG Resources, Inc. 1,607 96
Halliburton Co. 6,200 188
o Noble Corp. 1,800 68
Occidental Petroleum Corp. 5,400 262
o Rowan Cos., Inc. 1,400 34
Schlumberger Ltd. 8,300 527
Valero Energy Corp. 1,800 133
-----------
2,435
See financial notes. 7
SCHWAB S&P 500 PORTFOLIO
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
FOOD & AGRICULTURE 3.6%
--------------------------------------------------------------------------
Archer-Daniels-Midland Co. 9,200 154
Campbell Soup Co. 5,700 153
The Coca-Cola Co. 34,500 1,742
Coca-Cola Enterprises, Inc. 6,500 188
ConAgra Foods, Inc. 7,600 206
General Mills, Inc. 5,300 252
H.J. Heinz Co. 5,000 196
Hershey Foods Corp. 3,800 176
Kellogg Co. 5,900 247
McCormick & Co., Inc. 2,000 68
The Pepsi Bottling Group, Inc. 3,602 110
PepsiCo, Inc. 24,080 1,297
Sara Lee Corp. 11,100 255
Supervalu, Inc. 1,900 58
Sysco Corp. 9,300 334
Wm. Wrigley Jr. Co. 3,100 196
-----------
5,632
GOLD 0.2%
--------------------------------------------------------------------------
Newmont Mining Corp. 6,086 236
HEALTHCARE / DRUGS & MEDICINE 12.4%
--------------------------------------------------------------------------
Abbott Laboratories 22,100 901
Allergan, Inc. 1,800 161
AmerisourceBergen Corp. 1,600 96
o Amgen, Inc. 18,204 993
o Anthem, Inc. 1,901 170
Applied Biosystems Group --
Applera Corp. 2,800 61
Bausch & Lomb, Inc. 800 52
Baxter International, Inc. 8,600 297
Becton Dickinson & Co. 3,600 186
o Biogen Idec, Inc. 4,600 291
Biomet, Inc. 3,725 166
o Boston Scientific Corp. 11,600 496
Bristol-Myers Squibb Co. 27,600 676
C.R. Bard, Inc. 1,400 79
Cardinal Health, Inc. 6,175 433
o Caremark Rx, Inc. 6,413 211
o Chiron Corp. 2,700 121
Eli Lilly & Co. 15,800 1,105
o Express Scripts, Inc. 1,100 87
o Forest Laboratories, Inc. 5,200 294
o Genzyme Corp. 3,200 151
o Gilead Sciences, Inc. 2,600 174
Guidant Corp. 4,500 251
HCA, Inc. 7,000 291
Health Management Associates, Inc.,
Class A 3,300 74
o Hospira, Inc. 2,210 61
o Humana, Inc. 2,100 36
(10) Johnson & Johnson 41,948 2,337
o King Pharmaceuticals, Inc. 3,466 40
Manor Care, Inc. 1,300 43
McKesson Corp. 4,106 141
o Medco Health Solutions, Inc. 3,888 146
o Medimmune, Inc. 3,400 80
Medtronic, Inc. 17,200 838
Merck & Co., Inc. 31,400 1,492
Mylan Laboratories, Inc. 3,800 77
=(4) Pfizer, Inc. 107,789 3,695
Quest Diagnostics 1,380 117
Schering-Plough Corp. 20,800 384
o St. Jude Medical, Inc. 2,500 189
Stryker Corp. 5,670 312
o Tenet Healthcare Corp. 6,500 87
UnitedHealth Group, Inc. 8,900 554
o Watson Pharmaceuticals, Inc. 1,500 40
o WellPoint Health Networks, Inc. 2,100 235
Wyeth 19,000 687
o Zimmer Holdings, Inc. 3,500 309
-----------
19,717
HOUSEHOLD PRODUCTS 2.3%
--------------------------------------------------------------------------
Alberto-Culver Co., Class B 1,200 60
Avon Products, Inc. 6,600 305
Clorox Co. 3,000 161
Colgate-Palmolive Co. 7,600 444
The Gillette Co. 14,200 602
International Flavors & Fragrances,
Inc. 1,400 52
= Procter & Gamble Co. 36,400 1,982
-----------
3,606
INSURANCE 4.8%
--------------------------------------------------------------------------
ACE Ltd. 3,900 165
Aetna, Inc. 2,100 178
AFLAC, Inc. 7,200 294
The Allstate Corp. 10,000 466
AMBAC Financial Group, Inc. 1,592 117
8 See financial notes.
SCHWAB S&P 500 PORTFOLIO
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
(7) American International Group,
Inc. 36,848 2,627
AON Corp. 4,550 130
Chubb Corp. 2,600 177
CIGNA Corp. 2,000 138
Cincinnati Financial Corp. 2,415 105
Hartford Financial Services Group,
Inc. 4,200 289
Jefferson-Pilot Corp. 2,050 104
Lincoln National Corp. 2,600 123
Loews Corp. 2,700 162
Marsh & McLennan Cos., Inc. 7,500 340
MBIA, Inc. 2,150 123
Metlife, Inc. 10,767 386
MGIC Investment Corp. 1,400 106
o Principal Financial Group, Inc. 4,574 159
The Progressive Corp. 3,100 264
Prudential Financial, Inc. 7,600 353
Safeco Corp. 1,900 84
St. Paul Cos., Inc. 9,459 383
Torchmark Corp. 1,700 91
UnumProvident Corp. 4,276 68
XL Capital Ltd., Class A 1,900 143
-----------
7,575
MEDIA 3.3%
--------------------------------------------------------------------------
Clear Channel Communications,
Inc. 8,676 321
o Comcast Corp., Class A 31,759 890
Dow Jones & Co., Inc. 1,100 50
Gannett Co., Inc. 3,900 331
Knight-Ridder, Inc. 1,200 86
The McGraw-Hill Cos., Inc. 2,700 207
Meredith Corp. 700 38
New York Times Co., Class A 2,200 98
R.R. Donnelley & Sons Co. 3,000 99
o Time Warner, Inc. 64,350 1,131
Tribune Co. 4,700 214
o Univision Communications, Inc.,
Class A 4,595 147
Viacom, Inc., Class B 24,681 882
The Walt Disney Co. 29,000 739
-----------
5,233
MISCELLANEOUS 0.6%
--------------------------------------------------------------------------
3M Co. 11,000 990
MISCELLANEOUS FINANCE 7.3%
--------------------------------------------------------------------------
American Express Co. 18,100 930
The Bear Stearns Cos., Inc. 1,512 127
Capital One Financial Corp. 3,300 226
/ The Charles Schwab Corp. 19,042 183
Charter One Financial, Inc. 3,145 139
=(5) Citigroup, Inc. 72,736 3,382
Countrywide Financial Corp. 3,850 270
o E*TRADE Group, Inc. 5,200 58
Fannie Mae 13,700 978
Federated Investors, Inc., Class B 1,500 46
Franklin Resources, Inc. 3,600 180
Freddie Mac 9,700 614
Golden West Financial Corp. 2,100 223
Goldman Sachs Group, Inc. 6,897 649
Janus Capital Group, Inc. 3,300 54
Lehman Brothers Holdings, Inc. 3,900 293
MBNA Corp. 18,243 471
Merrill Lynch & Co., Inc. 13,700 740
Moody's Corp. 2,100 136
Morgan Stanley 15,550 821
o Providian Financial Corp. 3,800 56
SLM Corp. 6,500 263
Sovereign Bancorp., Inc. 3,800 84
T. Rowe Price Group, Inc. 1,700 86
Washington Mutual, Inc. 12,424 480
-----------
11,489
NON-DURABLES & ENTERTAINMENT 1.1%
--------------------------------------------------------------------------
Darden Restaurants, Inc. 2,450 50
o Electronic Arts, Inc. 4,258 232
Fortune Brands, Inc. 2,000 151
Hasbro, Inc. 2,525 48
International Game Technology 5,000 193
Mattel, Inc. 5,900 108
McDonald's Corp. 17,800 463
o Starbucks Corp. 5,460 237
Wendy's International, Inc. 1,700 59
o Yum! Brands, Inc. 4,100 153
-----------
1,694
See financial notes. 9
SCHWAB S&P 500 PORTFOLIO
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
NON-FERROUS METALS 0.4%
--------------------------------------------------------------------------
Alcoa, Inc. 12,272 405
Engelhard Corp. 1,800 58
Freeport-McMoran Copper & Gold,
Inc., Class B 2,400 80
o Phelps Dodge Corp. 1,315 102
-----------
645
OIL: DOMESTIC 1.0%
--------------------------------------------------------------------------
Amerada Hess Corp. 1,200 95
Ashland, Inc. 900 48
ConocoPhillips 9,754 744
Kerr-McGee Corp. 1,884 101
Marathon Oil Corp. 4,900 185
o Nabors Industries Ltd. 2,000 90
Sunoco, Inc. 1,200 76
o Transocean, Inc. 4,584 133
Unocal Corp. 3,700 141
-----------
1,613
OIL: INTERNATIONAL 3.5%
--------------------------------------------------------------------------
ChevronTexaco Corp. 15,185 1,429
=(3) Exxon Mobil Corp. 92,650 4,115
-----------
5,544
OPTICAL & PHOTO 0.2%
--------------------------------------------------------------------------
o Corning, Inc. 18,800 245
Eastman Kodak Co. 4,100 111
-----------
356
PAPER & FOREST PRODUCTS 0.8%
--------------------------------------------------------------------------
Boise Cascade Corp. 1,200 45
Georgia-Pacific Corp. 3,655 135
International Paper Co. 6,798 304
Kimberly-Clark Corp. 7,000 461
Louisiana-Pacific Corp. 1,400 33
MeadWestvaco Corp. 2,764 81
Temple-Inland, Inc. 800 56
Weyerhaeuser Co. 3,200 202
-----------
1,317
PRODUCER GOODS & MANUFACTURING 4.9%
--------------------------------------------------------------------------
o American Standard Cos., Inc. 2,700 109
Avery Dennison Corp. 1,500 96
Caterpillar, Inc. 4,800 381
Cooper Industries Ltd., Class A 1,300 77
Deere & Co. 3,500 245
Dover Corp. 2,800 118
Emerson Electric Co. 5,900 375
=(1) General Electric Co. 148,800 4,821
Honeywell International, Inc. 12,237 448
Illinois Tool Works, Inc. 4,400 422
Ingersoll-Rand Co., Class A 2,400 164
Johnson Controls, Inc. 2,600 139
o Millipore Corp. 800 45
Pall Corp. 1,700 45
Parker Hannifin Corp. 1,650 98
Snap-On, Inc. 800 27
W.W. Grainger, Inc. 1,300 75
-----------
7,685
RAILROAD & SHIPPING 0.4%
--------------------------------------------------------------------------
Burlington Northern Santa Fe Corp. 5,200 182
CSX Corp. 2,900 95
Norfolk Southern Corp. 5,600 149
Union Pacific Corp. 3,700 220
-----------
646
REAL PROPERTY 0.4%
--------------------------------------------------------------------------
Apartment Investment & Management Co.,
Class A 1,300 41
Equity Office Properties Trust 5,600 152
Equity Residential 3,800 113
Plum Creek Timber Co., Inc. 2,500 81
ProLogis 2,600 86
Simon Property Group, Inc. 2,800 144
-----------
617
RETAIL 6.1%
--------------------------------------------------------------------------
Albertson's, Inc. 5,275 140
o Autonation, Inc. 3,700 63
o AutoZone, Inc. 1,200 96
o Bed, Bath & Beyond, Inc. 4,200 161
Best Buy Co., Inc. 4,650 236
o Big Lots, Inc. 1,400 20
Circuit City Stores, Inc. 2,900 38
Costco Wholesale Corp. 6,500 267
CVS Corp. 5,700 239
Dillards, Inc., Class A 1,100 25
Dollar General Corp. 4,763 93
Family Dollar Stores, Inc. 2,400 73
Federated Department Stores, Inc. 2,500 123
The Gap, Inc. 12,562 305
The Home Depot, Inc. 31,600 1,112
10 See financial notes.
SCHWAB S&P 500 PORTFOLIO
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
J.C. Penney Co., Inc. Holding Co. 3,900 147
o Kohl's Corp. 4,800 203
o Kroger Co. 10,600 193
Limitedbrands 6,500 122
Lowe's Cos., Inc. 11,100 583
The May Department Stores Co. 4,050 111
Nordstrom, Inc. 2,000 85
o Office Depot, Inc. 4,500 81
RadioShack Corp. 2,400 69
o Safeway, Inc. 6,200 157
Sears, Roebuck & Co. 3,100 117
Staples, Inc. 7,000 205
Target Corp. 13,000 552
Tiffany & Co. 2,000 74
TJX Cos., Inc. 7,200 174
o Toys `R' Us, Inc. 3,000 48
=(6) Wal-Mart Stores, Inc. 60,800 3,208
Walgreen Co. 14,600 529
Winn-Dixie Stores, Inc. 2,100 15
-----------
9,664
STEEL 0.1%
--------------------------------------------------------------------------
Allegheny Technologies, Inc. 1,050 19
Nucor Corp. 1,200 92
United States Steel Corp. 1,500 53
Worthington Industries, Inc. 1,200 24
-----------
188
TELEPHONE 3.3%
--------------------------------------------------------------------------
Alltel Corp. 4,400 223
AT&T Corp. 11,216 164
o AT&T Wireless Services, Inc. 38,595 553
o Avaya, Inc. 5,832 92
BellSouth Corp. 25,800 676
CenturyTel, Inc. 1,900 57
o Citizens Communications Co. 3,918 47
o Nextel Communications, Inc.,
Class A 15,700 418
o Qwest Communications
International, Inc. 24,216 87
SBC Communications, Inc. 46,710 1,133
Sprint Corp. (FON Group) 20,050 353
Verizon Communications, Inc. 38,950 1,410
-----------
5,213
TOBACCO 1.0%
--------------------------------------------------------------------------
Altria Group, Inc. 28,900 1,447
R.J. Reynolds Tobacco Holdings,
Inc. 1,300 88
UST, Inc. 2,400 86
-----------
1,621
TRAVEL & RECREATION 0.6%
--------------------------------------------------------------------------
Brunswick Corp. 1,200 49
Carnival Corp. 9,000 423
Harrah's Entertainment, Inc. 1,500 81
Hilton Hotels Corp. 5,400 101
Marriott International, Inc.,
Class A 3,300 164
Starwood Hotels & Resorts
Worldwide, Inc. 2,900 130
-----------
948
TRUCKING & FREIGHT 0.1%
--------------------------------------------------------------------------
Paccar, Inc. 2,550 148
Ryder Systems, Inc. 900 36
-----------
184
UTILITIES: ELECTRIC & GAS 2.7%
--------------------------------------------------------------------------
o The AES Corp. 8,800 87
o Allegheny Energy, Inc. 1,551 24
Ameren Corp. 2,600 112
American Electric Power Co., Inc. 5,560 178
o Calpine Corp. 5,600 24
Centerpoint Energy, Inc. 4,150 48
Cinergy Corp. 2,600 99
o CMS Energy Corp. 2,400 22
Consolidated Edison, Inc. 3,200 127
Constellation Energy Group, Inc. 2,300 87
Dominion Resources, Inc. 4,580 289
DTE Energy Co. 2,400 97
Duke Energy Corp. 12,834 261
o Dynegy, Inc., Class A 5,200 22
Edison International 4,700 120
El Paso Corp. 8,129 64
Entergy Corp. 3,300 185
Exelon Corp. 9,150 305
FirstEnergy Corp. 4,628 173
FPL Group, Inc. 2,700 173
KeySpan Corp. 2,300 85
See financial notes. 11
SCHWAB S&P 500 PORTFOLIO
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
Kinder Morgan, Inc. 1,690 100
Nicor, Inc. 600 20
NiSource, Inc. 3,546 73
Peoples Energy Corp. 500 21
o PG&E Corp. 5,900 165
Pinnacle West Capital Corp. 1,200 49
PPL Corp. 2,600 119
Progress Energy, Inc. 3,502 154
Public Service Enterprise Group, Inc. 3,300 132
Sempra Energy 3,141 108
The Southern Co. 10,300 300
TECO Energy, Inc. 2,700 32
TXU Corp. 4,522 183
Williams Cos., Inc. 7,300 87
Xcel Energy, Inc. 5,605 94
-----------
4,219
SHORT-TERM INVESTMENTS
4.7% of net assets
BlackRock Liquidity Fund
Temp Cash Institutional
Shares #21 1,183,355 1,183
Provident Institutional
TempFund 6,293,633 6,294
-----------
7,477
SECURITY FACE AMOUNT
RATE, MATURITY DATE ($ x 1,000)
U.S. TREASURY OBLIGATIONS
0.4% of net assets
= U.S. Treasury Bills,
1.23%-1.28%, 09/16/04 595 593
END OF INVESTMENTS.
SECURITY FACE AMOUNT VALUE
RATE, MATURITY DATE ($ x 1,000) ($ x 1,000)
COLLATERAL INVESTED FOR SECURITIES ON LOAN
10.3% of net assets
COMMERCIAL PAPER & OTHER CORPORATE
OBLIGATIONS 5.3%
--------------------------------------------------------------------------
Amsterdam Funding Corp.
1.11%, 07/12/04 5 5
Bank of America
1.30%, 09/20/04 296 296
BNP Paribas
1.08%, 07/13/04 15 15
Canadian Imperial Bank Corp.
1.27%, 01/31/05 193 193
Concord Minutemen Capital
Corp.
1.12%, 07/08/04 1,080 1,079
Credit Lyonnais
1.08%, 09/30/04 240 240
Fairway Finance Corp.
1.22%, 07/16/04 380 380
Foreningssparbanken AB
1.34%, 01/18/05 1,525 1,491
Fortis Bank
2.06%, 06/08/05 732 732
1.78%, 06/06/05 413 413
Grampian Funding
1.12%, 07/13/04 38 37
Societe Generale
1.31%, 12/08/04 1,044 1,044
1.31%, 06/14/05 287 287
Svenska Handelsbanken
1.39%, 10/27/04 507 507
Westdeutsche Landesbank AG
1.50%, 01/10/05 712 711
1.30%, 10/12/04 310 310
1.28%, 09/29/04 127 127
1.23%, 09/23/04 530 530
-----------
8,397
SHORT-TERM INVESTMENT 0.5%
--------------------------------------------------------------------------
Chase Manhattan Bank,
Time Deposit
1.25%, 07/01/04 723 723
SECURITY AND NUMBER OF SHARES
OTHER INVESTMENT COMPANIES 4.5%
--------------------------------------------------------------------------
Institutional Money Market
Trust 7,151,595 7,152
END OF COLLATERAL INVESTED FOR SECURITIES ON LOAN.
12 See financial notes.
SCHWAB S&P 500 PORTFOLIO
Statement of
ASSETS AND LIABILITIES
As of June 30, 2004; unaudited. All numbers x 1,000 except NAV.
ASSETS
- --------------------------------------------------------------------------------
Investments, at value
(including $15,822 of securities on loan) $158,385 a
Collateral invested for securities on loan 16,272
Receivables:
Fund shares sold 234
Interest 4
Dividends 169
Due from brokers for futures 32
Income from securities on loan + 1
------------
TOTAL ASSETS 175,097
LIABILITIES
- --------------------------------------------------------------------------------
Collateral invested for securities on loan 16,272
Payables:
Fund shares redeemed 31
Investments bought 335
Investment adviser and administrator fees 1
Accrued expenses + 47
------------
TOTAL LIABILITIES 16,686
NET ASSETS
- --------------------------------------------------------------------------------
TOTAL ASSETS 175,097
TOTAL LIABILITIES - 16,686
------------
NET ASSETS $158,411
NET ASSETS BY SOURCE
Capital received from investors 150,733
Net investment income not yet distributed 2,732
Net realized capital losses (11,165)
Net unrealized capital gains 16,111 b
NET ASSET VALUE (NAV)
SHARES
NET ASSETS / OUTSTANDING = NAV
$158,411 9,549 $16.59
Unless stated, all numbers are x 1,000.
a The fund paid $142,329 for these securities.
Not counting short-term obligations and government securities, the fund's
security transactions during the period were:
Purchases $10,462
Sales/maturities $4,114
b These derive from investments and futures. As of the report date, the fund had
twenty-eight open S&P 500 futures contracts due to expire on September 17,
2004, with an aggregate contract value of $7,983 and net unrealized gains of
$55.
FEDERAL TAX DATA
- -------------------------------------------------
PORTFOLIO COST $142,999
NET UNREALIZED GAINS AND LOSSES:
Gains $34,479
Losses + (19,093)
-----------
$15,386
AS OF DECEMBER 31, 2003:
UNDISTRIBUTED EARNINGS:
Ordinary income $1,719
Long-term capital gains $--
UNUSED CAPITAL LOSSES:
Expires 12/31 of: Loss amount
2008 $665
2009 1,821
2010 7,810
2011 + 38
-----------
$10,334
See financial notes. 13
SCHWAB S&P 500 PORTFOLIO
Statement of
OPERATIONS
For January 1, 2004 through June 30, 2004; unaudited. All numbers x 1,000.
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends $1,197
Interest 18
Securities on loan + 9
----------
TOTAL INVESTMENT INCOME 1,224
NET REALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net realized losses on investments sold (133)
Net realized gains on futures contracts + 279
----------
NET REALIZED GAINS 146
NET UNREALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net unrealized gains on investments 3,823
Net unrealized losses on futures contracts + (134)
----------
NET UNREALIZED GAINS 3,689
EXPENSES
- --------------------------------------------------------------------------------
Investment adviser and administrator fees 151 a
Trustees' fees 9 b
Custodian fees 16
Portfolio accounting fees 10
Professional fees 17
Shareholder reports 16
Other expenses + 10
----------
Total expenses 229
Expense reduction - 18 c
----------
NET EXPENSES 211
INCREASE IN NET ASSETS FROM OPERATIONS
- --------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 1,224
NET EXPENSES - 211
----------
NET INVESTMENT INCOME 1,013
NET REALIZED GAINS 146 d
NET UNREALIZED GAINS + 3,689 d
----------
INCREASE IN NET ASSETS FROM OPERATIONS $4,848
Unless stated, all numbers are x 1,000.
a Calculated as a percentage of average daily net assets: 0.20% of the first
$500 million and 0.17% of the assets beyond that.
b For the fund's independent trustees only.
c This reduction was made by the investment adviser (CSIM). It reflects a
guarantee by CSIM to limit the operating expenses of this fund through April
30, 2005, to 0.28% of average daily net assets. This limit doesn't include
interest, taxes and certain non-routine expenses.
d These add up to a net gain on investments of $3,835.
14 See financial notes.
SCHWAB S&P 500 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.
OPERATIONS
- --------------------------------------------------------------------------------
1/1/04-6/30/04 1/1/03-12/31/03
Net investment income $1,013 $1,719
Net realized gains or losses 146 (188)
Net unrealized gains + 3,689 27,789
----------------------------------
INCREASE IN NET ASSETS
FROM OPERATIONS 4,848 29,320
DISTRIBUTIONS PAID
- --------------------------------------------------------------------------------
Dividends from net investment income $-- $1,477 a
TRANSACTIONS IN FUND SHARES
- --------------------------------------------------------------------------------
1/1/04-6/30/04 1/1/03-12/31/03
SHARES VALUE SHARES VALUE
Shares sold 1,597 $26,164 2,724 $38,442
Shares reinvested -- -- 95 1,477
Shares redeemed + (1,145) (18,671) (1,487) (19,991)
-----------------------------------------------------
NET TRANSACTIONS IN
FUND SHARES 452 $7,493 1,332 $19,928
SHARES OUTSTANDING AND NET ASSETS
- --------------------------------------------------------------------------------
1/1/04-6/30/04 1/1/03-12/31/03
SHARES NET ASSETS SHARES NET ASSETS
Beginning of period 9,097 $146,070 7,765 $98,299
Total increase + 452 12,341 1,332 47,771 b
-----------------------------------------------------
END OF PERIOD 9,549 $158,411 9,097 $146,070 c
Unless stated, all numbers are x 1,000.
a The tax-basis components of distributions paid for the period ended 12/31/03
are:
Ordinary income $1,477
Long-term capital gains $--
b Figures for shares represent shares sold plus shares reinvested, minus shares
redeemed. Figures for net assets represent the changes in net assets from
operations plus the changes in value of transactions in fund shares, minus
distributions paid.
c Includes distributable net investment income in the amount of $2,732 and
$1,719 for the current period and the prior period, respectively.
See financial notes. 15
SCHWAB S&P 500 PORTFOLIO
FINANCIAL NOTES unaudited
BUSINESS STRUCTURE OF THE FUND
THE FUND DISCUSSED IN THIS REPORT IS A SERIES OF SCHWAB ANNUITY PORTFOLIOS, A
NO-LOAD, OPEN-END MANAGEMENT INVESTMENT COMPANY. The company is organized as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended. The sidebar shows the fund in this report and its trust.
THE FUND OFFERS ONE SHARE CLASS. Shares are bought and sold at net asset value
(NAV), which is the price for all outstanding shares. Each share has a par value
of 1/1,000 of a cent, and the trust may issue 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.
FUND OPERATIONS
Most of the fund's investments are described earlier in this report. However,
there are certain other investments and policies that may affect the fund's
financials, as described below. Other policies concerning the fund's business
operations also are described here.
THE FUND PAYS DIVIDENDS from net investment income and makes distributions from
net capital gains once a year.
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.
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 a 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 ("variation margin").
THE FUND MAY ENTER INTO REPURCHASE AGREEMENTS. In a repurchase agreement, the
fund buys a security from another party (usually a financial institution) with
the agreement that it be sold back in the future. The date, price and other
conditions are all specified when the agreement is created.
THE TRUST AND ITS FUNDS
This list shows all of the funds included in Schwab Annuity Portfolios. The fund
discussed in this report is highlighted.
SCHWAB ANNUITY PORTFOLIOS organized January 21, 1994
Schwab Money Market Portfolio
Schwab MarketTrack Growth Portfolio II
SCHWAB S&P 500 PORTFOLIO
16
SCHWAB S&P 500 PORTFOLIO
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 its market
value is at least equal to the repurchase price under the agreement.
THE FUND MAY LOAN SECURITIES TO CERTAIN BROKERS, DEALERS AND OTHER FINANCIAL
INSTITUTIONS WHO 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.
THE FUND PAYS FEES TO AFFILIATES OF THE INVESTMENT ADVISER FOR VARIOUS SERVICES.
Through its trust, the fund has agreements with Charles Schwab Investment
Management, Inc. (CSIM) to provide investment advisory and administrative
services and with Charles Schwab & Co., Inc. (Schwab) to provide transfer agent,
shareholder services and transaction services.
Although these agreements specify certain fees for these services, CSIM has made
additional agreements with the fund that may limit the total expenses charged.
The rates and limitations for these fees are described in the fund's Statement
of Operations.
Pursuant to an exemptive order issued by the SEC, the fund may enter into
interfund borrowing and lending transactions within the SchwabFunds(R). 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 SchwabFunds(R).
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.
The fund may make direct transactions with certain other SchwabFunds(R) 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.
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.
THE FUND MAY BORROW MONEY FROM BANKS AND CUSTODIANS. The fund may obtain
temporary bank loans through its trust to use for meeting shareholder
redemptions or for extraordinary or emergency purposes. The trust has custodian
overdraft facilities and line of credit arrangements of $150 million and $100
million with PNC Bank, N.A. and Bank of America, N.A., respectively. The fund
pays interest on the amounts it borrows at rates that are negotiated
periodically.
AMOUNT WEIGHTED
OUTSTANDING AVERAGE AVERAGE
AT 6/30/04 BORROWING* INTEREST
($ x 1,000) ($ x 1,000) RATE* (%)
- ------------------------------------------------
-- 171 1.37
17
SCHWAB S&P 500 PORTFOLIO
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 net realized capital gains (if any) to its
shareholders each year. As long as the fund meets the tax requirements, it is
not required to pay federal income tax. The net investment income and net
realized capital gains and losses may differ for financial statement and tax
purposes primarily due to differing treatments of losses on wash sales.
UNDER THE FUND'S ORGANIZATIONAL DOCUMENTS, ITS OFFICERS AND TRUSTEES ARE
INDEMNIFIED AGAINST CERTAIN LIABILITY 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.
ACCOUNTING POLICIES
The following are the main policies the fund uses in preparing its financial
statements.
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 FOR WHICH NO MARKET QUOTATIONS ARE READILY AVAILABLE: 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.
- - FUTURES: open contracts are valued at their settlement prices as of the close
of their exchanges. When the fund closes out a futures position, it calculates
the difference between the value of the position at the beginning and at the
end, and records a realized gain or loss accordingly.
- - SHORT-TERM SECURITIES (60 DAYS OR LESS TO MATURITY): valued at amortized
cost.
SECURITY TRANSACTIONS are recorded as of the date the order to buy or sell the
security is executed.
DIVIDENDS AND DISTRIBUTIONS FROM PORTFOLIO SECURITIES are recorded on the date
they are effective (the ex-dividend date), although the fund records certain
foreign security dividends on the day it learns of the ex-dividend date.
INCOME FROM INTEREST AND THE ACCRETION OF DISCOUNTS is recorded as it accrues.
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.
EXPENSES that are specific to the fund are charged directly to the fund.
Expenses that are common to all funds within a trust generally are allocated
among the funds in proportion to their average daily net assets.
18
SCHWAB S&P 500 PORTFOLIO
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 keeps certain assets in segregated accounts, as may be
required by securities law.
THE ACCOUNTING POLICIES DESCRIBED ABOVE 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.
19
SCHWAB S&P 500 PORTFOLIO
FUND TRUSTEES unaudited
A fund's Board of Trustees is responsible for protecting the interests of
that fund's shareholders. The tables below give information about the
people who serve as trustees and officers for the SchwabFunds(R),
including the funds covered in this report. Trustees remain in office
until they resign, retire or are removed by shareholder vote. 1
Under the Investment Company Act of 1940, any officer, director, or
employee of Schwab or CSIM is considered an "interested person," meaning
that he or she is considered to have a business interest in Schwab or
CSIM. These individuals are listed as "interested trustees." The
"independent trustees" are individuals who, under the 1940 Act, are not
considered to have a business interest in Schwab or CSIM.
Each of the SchwabFunds(R) (of which there were 49 as of 6/30/04) belongs
to one of these trusts: The Charles Schwab Family of Funds, Schwab
Investments, Schwab Capital Trust or Schwab Annuity Portfolios. Currently
all these trusts have the same trustees and officers. 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.
INDIVIDUALS WHO ARE INTERESTED TRUSTEES AND OFFICERS OF THE TRUST
TRUST POSITION(S);
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
CHARLES R. SCHWAB 2 Chair, Trustee: Chair, Director, The Charles Schwab Corp., Charles Schwab & Co., Inc.
7/29/37 Family of Funds, 1989; Charles Schwab Investment Management, Inc., Charles Schwab
Investments, 1991; Holdings (UK); CEO, Director, Charles Schwab Holdings, Inc.; Chair,
Capital Trust, 1993; CEO Schwab (SIS) Holdings, Inc. I, Schwab International Holdings, Inc.;
Annuity Portfolios, 1994. Director, U.S. Trust Corp., United States Trust Co. of New York,
Siebel Systems (software), Xsign, Inc. (electronic payment systems);
Trustee, Stanford University. Until 5/04: Director, The Gap, Inc.
(clothing retailer). Until 2003: Co-CEO, The Charles Schwab Corp.
Until 2002: Director, Audiobase, Inc. (Internet audio solutions).
Until 5/02: Director, Vodaphone AirTouch PLC (telecommunications).
Until 7/01: Director, The Charles Schwab Trust Co.; TrustMark, Inc.
1 The SchwabFunds retirement policy requires that independent trustees elected
after January 1, 2000 retire at age 72 or after twenty years of service as a
trustee, whichever comes first. Independent trustees elected prior to January
1, 2000 will retire on the following schedule: Messrs. Holmes and Dorward will
retire on December 31, 2007, and Messrs. Stephens and Wilsey will retire on
December 31, 2010.
2 In addition to their positions with the investment adviser and the
distributor, Ms. Lepore and Mr. Schwab also own stock of The Charles Schwab
Corporation.
20
SCHWAB S&P 500 PORTFOLIO
INDIVIDUALS WHO ARE INTERESTED TRUSTEES BUT NOT OFFICERS OF THE TRUST
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
DAWN G. LEPORE 1 2003 (all trusts). Vice Chair, The Charles Schwab Corp.; Until 10/01: CIO, The
3/21/54 Charles Schwab Corporation. Until 1999: EVP, The Charles Schwab
Corporation. Director, Wal-Mart Stores, eBay, Inc.
INDIVIDUALS WHO ARE OFFICERS OF THE TRUST BUT NOT TRUSTEES
NAME AND BIRTHDATE TRUST OFFICE(S) HELD MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
RANDALL W. MERK President, CEO President, CEO, Charles Schwab Investment Management, Inc;
7/25/54 (all trusts). EVP, Charles Schwab & Co., Inc.; Director, Charles Schwab Worldwide
Funds PLC, Charles Schwab Asset Management (Ireland) Ltd. Until
9/02: President, CIO, American Century Investment Management;
Director, American Century Cos., Inc. Until 6/01: CIO, Fixed Income,
American Century Cos., Inc. Until 1997: SVP, Director, Fixed Income
and Quantitative Equity Portfolio Management, Twentieth Century
Investors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
TAI-CHIN TUNG Treasurer, Principal SVP, CFO, Charles Schwab Investment Management, Inc.; SVP,
3/7/51 Financial Officer The Charles Schwab Trust Co.; Director, Charles Schwab Asset
(all trusts). Management (Ireland) Ltd., Charles Schwab Worldwide Funds PLC.
- ------------------------------------------------------------------------------------------------------------------------------------
STEPHEN B. WARD SVP, Chief Investment SVP, Chief Investment Officer, Director, Charles Schwab Investment
4/5/55 Officer (all trusts). Management, Inc.; CIO, The Charles Schwab Trust Co.
- ------------------------------------------------------------------------------------------------------------------------------------
KOJI E. FELTON Secretary (all trusts). SVP, Chief Counsel, Assistant Corporate Secretary, Charles Schwab
3/13/61 Investment Management, Inc. Until 6/98: Branch Chief in Enforcement,
U.S. Securities and Exchange Commission, San Francisco.
1 In addition to their positions with the investment adviser and the
distributor, Ms. Lepore and Mr. Schwab also own stock of The Charles Schwab
Corporation.
21
SCHWAB S&P 500 PORTFOLIO
INDIVIDUALS WHO ARE INDEPENDENT TRUSTEES
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
MARIANN BYERWALTER 2000 (all trusts). Chair, JDN Corp. Advisory LLC; Trustee, Stanford University, America
8/13/60 First Cos., (venture capital/fund management), Redwood Trust, Inc.
(mortgage finance), Stanford Hospitals and Clinics, SRI International
(research), PMI Group, Inc. (mortgage insurance), Lucile Packard
Children's Hospital, Laudus Trust, Laudus Variable Insurance Trust.
2001: Special Advisor to the President, Stanford University. Until 2002:
Director, LookSmart, Ltd. (Internet infrastructure). Until 2001: VP,
Business Affairs, CFO, Stanford University.
- ------------------------------------------------------------------------------------------------------------------------------------
DONALD F. DORWARD Family of Funds, 1989; CEO, Dorward & Associates (corporate management, marketing and
9/23/31 Investments, 1991; communications consulting). Until 1999: EVP, Managing Director,
Capital Trust, 1993; Grey Advertising.
Annuity Portfolios,1994.
- ------------------------------------------------------------------------------------------------------------------------------------
WILLIAM A. HASLER 2000 (all trusts). Co-CEO, Aphton Corp. (bio-pharmaceuticals). Trustee, Solectron Corp.
11/22/41 (manufacturing), Airlease Ltd. (aircraft leasing), Mission West
Properties (commercial real estate), Stratex Corp. (network equipment);
Public Governor, Laudus Trust, Laudus Variable Insurance Trust;
Member, executive committee, Pacific Stock & Options Exchange.
Until 2003: Trustee, Tenera, Inc. (services and software). Until 1998:
Dean, Haas School of Business, University of California, Berkeley.
- ------------------------------------------------------------------------------------------------------------------------------------
ROBERT G. HOLMES Family of Funds, 1989; Chair, CEO, Director, Semloh Financial, Inc. (international financial
5/15/31 Investments, 1991; services and investment advice).
Capital Trust, 1993;
Annuity Portfolios,1994.
- ------------------------------------------------------------------------------------------------------------------------------------
GERALD B. SMITH 2000 (all trusts). Chair, CEO, Founder, Smith Graham & Co. (investment advisors);
9/28/50 Trustee, Rorento N.V. (investments -- Netherlands), Cooper Industries
(electrical products, tools and hardware); Member, audit committee,
Northern Border Partners, L.P. (energy). Until 2002: Director, Pennzoil-
Quaker State Co. (oil and gas).
- ------------------------------------------------------------------------------------------------------------------------------------
DONALD R. STEPHENS Family of Funds, 1989; Managing Partner, D.R. Stephens & Co. (investments). Until 1996:
6/28/38 Investments, 1991; Chair, CEO, North American Trust (real estate investment trust).
Capital Trust, 1993;
Annuity Portfolios, 1994.
- ------------------------------------------------------------------------------------------------------------------------------------
MICHAEL W. WILSEY Family of Funds, 1989; Chair, CEO, Wilsey Bennett, Inc. (transportation, real estate
8/18/43 Investments, 1991; and investments).
Capital Trust, 1993;
Annuity Portfolios, 1994.
22
[CHARLES SCHWAB LOGO]
LARGE-CAP BLEND
SCHWAB MARKETTRACK
GROWTH PORTFOLIO II
BALANCED
FOR THE PERIOD ENDED JUNE 30, 2004
Inception Date: November 1, 1996
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 AND PROCEDURES
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 web site at www.schwab.com/schwabfunds, the SEC's
web site at http://www.sec.gov, or by calling 1-800-435-4000.
MANAGEMENT'S DISCUSSION for the six months ended June 30, 2004
[PHOTO OF GERI HOM AND KIMON DAIFOTIS]
GERI HOM, a vice president and senior portfolio manager of the investment
adviser, is responsible for the day-to-day management of the equity portions of
the portfolio. Prior to joining the firm in 1995, she worked for nearly 15 years
in equity management.
KIMON DAIFOTIS, CFA, senior vice president and Head of Fixed Income Portfolio
Management for the investment adviser, oversees the day-to-day management of the
bond and cash portions of the portfolio. Prior to joining the firm in 1997, he
worked for more than 18 years in research and asset management.
Effective July 19, 2004, Geri Hom retired. Jeff Mortimer, senior vice president
and Chief Investment Officer, Equities of Charles Schwab Investment Management,
Inc., is responsible for the overall management of the portfolio.
THE ENCOURAGING ECONOMIC CLIMATE THAT WAS REPORTED IN LATE 2003 CONTINUED TO
IMPROVE INTO 2004. Businesses added to their inventories, factory orders rose
amid the pick-up in capital spending and production gained some strength. Retail
sales continued to rise, despite a pause in the upward trend in consumer
confidence. Mortgage refinancing activity, while still significant, waned as
mortgage rates inched slightly upward. The only big piece missing was job
growth, which remained sluggish through the beginning of first quarter.
Amid this benign inflationary environment, the Federal Reserve (the Fed) elected
to hold the Fed funds rate at a 45-year low in March to provide liquidity
necessary to maintain economic growth. Job growth picked up strongly in March
and continued into the second quarter. With the economic recovery now
broad-based, investors, who only a year ago feared deflation, now started to
worry about inflation.
Inflationary concerns were based on surging oil prices, which hit a 13-year high
amid tight supplies. And while commodity prices moderated somewhat during the
report period, previous increases started to show up in broad measures of
inflation. Labor costs also were beginning to rise.
Most market watchers expected the Fed to raise interest rates, and it did at the
end of June. At that time the Federal Open Market Committee increased the Fed
funds target 0.25% to 1.25%, the first rate hike since May 2000, when the Fed
funds target was raised to 6.50%.
THE SCHWAB MARKETTRACK GROWTH PORTFOLIO II was up 2.89% for the period, closely
tracking its benchmark, which returned 3.05% for the six-month period. Returns
were hampered because the large-cap portion of the portfolio is tilted to growth
and the style in favor was value. The small-cap portion of the portfolio was the
strongest category for the period, followed by the international portion.
Past performance does not indicate future results.
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. All portfolio and index 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. The portfolio's share price
and principal values change and when you sell your shares they may be worth more
or less than what you paid for them.
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.
Portfolio returns do not reflect the additional fees and expenses imposed by the
insurance company under the variable insurance product contract.
Portfolio expenses have been partially absorbed by CSIM and Schwab. Without
these reductions, the portfolio's returns would have been lower.
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.
0.45% THREE-MONTH U.S. TREASURY BILLS (T-BILLS): measures short-term U.S.
Treasury obligations
0.15% LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX: measures the U.S. bond market
3.44% S&P 500(R) INDEX: measures U.S. large-cap stocks
6.76% RUSSELL 2000(R) INDEX: measures U.S. small-cap stocks
4.56% MSCI-EAFE(R) INDEX: measures (in U.S. dollars) large-cap stocks in
Europe, Australasia and the Far East
[LINE GRAPH]
Three-Month Lehman
U.S. Brothers S&P Russell MSCI-
Treasury Bills U.S. Aggregate 500(R) 2000(R) EAFE(R)
(T-Bills) Bond Index Index Index Index
31-Dec-03 0.00 0.00 0.00 0.00 0.00
02-Jan-04 0.00 -0.45 -0.30 0.71 0.70
09-Jan-04 0.02 0.89 0.94 3.30 3.31
16-Jan-04 0.04 1.19 2.56 6.05 1.91
23-Jan-04 0.06 1.05 2.73 7.08 4.44
30-Jan-04 0.08 0.80 1.84 4.34 1.41
06-Feb-04 0.09 1.07 2.91 4.96 2.84
13-Feb-04 0.11 1.52 3.26 5.18 4.72
20-Feb-04 0.12 1.36 3.13 4.24 4.47
27-Feb-04 0.14 1.90 3.25 5.28 3.76
05-Mar-04 0.15 2.56 4.36 7.81 5.41
12-Mar-04 0.17 2.82 1.14 4.84 0.78
19-Mar-04 0.19 2.77 0.18 2.68 2.62
26-Mar-04 0.21 2.59 0.03 3.09 2.10
02-Apr-04 0.23 1.44 3.11 8.64 5.61
09-Apr-04 0.25 1.34 2.92 7.65 5.65
16-Apr-04 0.27 0.76 2.51 5.05 4.39
23-Apr-04 0.28 0.25 3.06 6.38 4.00
30-Apr-04 0.30 -0.01 0.10 0.84 1.98
07-May-04 0.32 -1.44 -0.66 -1.16 0.61
14-May-04 0.34 -1.22 -0.85 -2.00 -2.92
21-May-04 0.36 -1.04 -1.01 -1.62 -0.56
28-May-04 0.38 -0.41 1.47 2.45 2.19
04-Jun-04 0.38 -0.89 1.67 2.37 2.41
11-Jun-04 0.39 -0.93 2.96 2.63 2.91
18-Jun-04 0.42 -0.47 2.86 2.92 4.03
25-Jun-04 0.43 -0.08 2.83 6.02 4.76
30-Jun-04 0.45 0.15 3.44 6.76 4.56
These figures 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. Remember that
past performance is not an indication of future results.
Data source: Charles Schwab & Co., Inc.
Schwab MarketTrack Growth Portfolio II 1
SCHWAB MARKETTRACK GROWTH PORTFOLIO II
PERFORMANCE as of 6/30/04
AVERAGE ANNUAL TOTAL RETURNS 1, 2
This chart compares performance of the portfolio with a benchmark and the
portfolio's Morningstar category.
[BAR CHART]
Benchmark: Fund Category:
GROWTH MORNINGSTAR
COMPOSITE LARGE-CAP
PORTFOLIO INDEX BLEND
6 MONTHS 2.89% 3.05% 2.49%
1 YEAR 18.61% 18.81% 16.78%
5 YEARS 1.44% 2.71% -3.26%
SINCE INCEPTION: 11/1/96 7.09% 7.35% n/a
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT AN INVESTOR'S SHARES MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN PERFORMANCE DATA
QUOTED. TO OBTAIN MORE CURRENT PERFORMANCE INFORMATION, PLEASE VISIT
WWW.SCHWAB.COM/ANNUITY.
PERFORMANCE OF A HYPOTHETICAL $10,000 INVESTMENT 1, 2
This graph shows performance since inception of a hypothetical $10,000
investment in the portfolio, compared with a similar investment in a benchmark
and two additional indices.
$16,906 PORTFOLIO
$17,218 GROWTH COMPOSITE INDEX
$18,215 S&P 500(R) INDEX
$16,586 LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX
[LINE GRAPH]
Lehman
Brothers
Growth S&P U.S.
Composite 500(R) Aggregate
Portfolio Index Index Bond Index
01-Nov-96 $10,000 $10,000 $10,000 $10,000
30-Nov-96 $10,490 $10,450 $10,777 $10,178
31-Dec-96 $10,420 $10,424 $10,564 $10,083
31-Jan-97 $10,670 $10,693 $11,223 $10,115
28-Feb-97 $10,710 $10,677 $11,311 $10,140
31-Mar-97 $10,460 $10,403 $10,848 $10,027
30-Apr-97 $10,780 $10,603 $11,494 $10,178
31-May-97 $11,420 $11,247 $12,193 $10,274
30-Jun-97 $11,940 $11,676 $12,739 $10,397
31-Jul-97 $12,650 $12,309 $13,752 $10,677
31-Aug-97 $12,200 $11,982 $12,982 $10,587
30-Sep-97 $12,880 $12,580 $13,692 $10,743
31-Oct-97 $12,520 $12,146 $13,235 $10,899
30-Nov-97 $12,730 $12,239 $13,848 $10,949
31-Dec-97 $12,977 $12,374 $14,086 $11,060
31-Jan-98 $13,037 $12,458 $14,242 $11,201
28-Feb-98 $13,779 $13,155 $15,269 $11,192
31-Mar-98 $14,199 $13,655 $16,051 $11,230
30-Apr-98 $14,320 $13,781 $16,213 $11,289
31-May-98 $14,019 $13,549 $15,934 $11,396
30-Jun-98 $14,240 $13,707 $16,581 $11,493
31-Jul-98 $13,959 $13,457 $16,405 $11,517
31-Aug-98 $12,285 $11,787 $14,036 $11,705
30-Sep-98 $12,696 $12,139 $14,936 $11,979
31-Oct-98 $13,478 $12,763 $16,150 $11,915
30-Nov-98 $14,079 $13,351 $17,129 $11,983
31-Dec-98 $14,673 $13,946 $18,116 $12,019
31-Jan-99 $14,921 $14,160 $18,873 $12,104
28-Feb-99 $14,395 $13,657 $18,286 $11,893
31-Mar-99 $14,807 $14,018 $19,017 $11,958
30-Apr-99 $15,405 $14,619 $19,753 $11,996
31-May-99 $15,127 $14,445 $19,287 $11,891
30-Jun-99 $15,735 $15,061 $20,357 $11,853
31-Jul-99 $15,621 $14,951 $19,722 $11,803
31-Aug-99 $15,518 $14,808 $19,624 $11,797
30-Sep-99 $15,467 $14,687 $19,086 $11,934
31-Oct-99 $16,095 $15,139 $20,294 $11,978
30-Nov-99 $16,569 $15,708 $20,707 $11,977
31-Dec-99 $17,553 $16,796 $21,926 $11,919
31-Jan-00 $16,777 $16,254 $20,825 $11,880
29-Feb-00 $17,176 $16,868 $20,431 $12,024
31-Mar-00 $17,975 $17,514 $22,429 $12,182
30-Apr-00 $17,376 $16,927 $21,754 $12,147
31-May-00 $16,965 $16,563 $21,308 $12,141
30-Jun-00 $17,598 $17,158 $21,835 $12,394
31-Jul-00 $17,232 $16,926 $21,494 $12,506
31-Aug-00 $18,108 $17,779 $22,829 $12,688
30-Sep-00 $17,442 $17,272 $21,624 $12,768
31-Oct-00 $17,254 $17,011 $21,533 $12,852
30-Nov-00 $16,245 $16,078 $19,836 $13,063
31-Dec-00 $16,707 $16,700 $19,933 $13,306
31-Jan-01 $17,045 $17,059 $20,641 $13,523
28-Feb-01 $15,872 $16,072 $18,758 $13,640
31-Mar-01 $15,150 $15,279 $17,569 $13,708
30-Apr-01 $16,064 $16,197 $18,934 $13,651
31-May-01 $16,097 $16,267 $19,061 $13,733
30-Jun-01 $15,951 $16,076 $18,598 $13,785
31-Jul-01 $15,754 $15,852 $18,416 $14,094
31-Aug-01 $15,172 $15,332 $17,263 $14,256
30-Sep-01 $14,022 $14,097 $15,868 $14,421
31-Oct-01 $14,360 $14,493 $16,171 $14,722
30-Nov-01 $15,060 $15,210 $17,411 $14,519
31-Dec-01 $15,303 $15,499 $17,565 $14,426
31-Jan-02 $14,962 $15,248 $17,308 $14,543
28-Feb-02 $14,773 $15,088 $16,974 $14,684
31-Mar-02 $15,350 $15,689 $17,612 $14,441
30-Apr-02 $14,997 $15,439 $16,545 $14,721
31-May-02 $14,867 $15,315 $16,423 $14,846
30-Jun-02 $14,184 $14,588 $15,253 $14,975
31-Jul-02 $13,112 $13,459 $14,065 $15,156
31-Aug-02 $13,206 $13,516 $14,157 $15,412
30-Sep-02 $12,193 $12,516 $12,618 $15,662
31-Oct-02 $12,829 $13,066 $13,728 $15,590
30-Nov-02 $13,418 $13,663 $14,537 $15,585
31-Dec-02 $12,940 $13,180 $13,683 $15,908
31-Jan-03 $12,567 $12,874 $13,325 $15,922
28-Feb-03 $12,387 $12,666 $13,125 $16,142
31-Mar-03 $12,411 $12,677 $13,252 $16,129
30-Apr-03 $13,314 $13,541 $14,344 $16,263
31-May-03 $14,072 $14,302 $15,100 $16,565
30-Jun-03 $14,252 $14,492 $15,294 $16,532
31-Jul-03 $14,481 $14,747 $15,563 $15,977
31-Aug-03 $14,794 $15,100 $15,866 $16,082
30-Sep-03 $14,818 $15,090 $15,698 $16,508
31-Oct-03 $15,528 $15,837 $16,587 $16,355
30-Nov-03 $15,769 $16,089 $16,732 $16,394
31-Dec-03 $16,431 $16,708 $17,609 $16,561
31-Jan-04 $16,686 $17,013 $17,933 $16,694
29-Feb-04 $16,881 $17,245 $18,183 $16,874
31-Mar-04 $16,808 $17,215 $17,908 $17,001
30-Apr-04 $16,406 $16,766 $17,627 $16,559
31-May-04 $16,552 $16,873 $17,868 $16,492
30-Jun-04 $16,906 $17,218 $18,215 $16,586
All portfolio and index figures on this page assume dividends and
distributions were reinvested. Index figures do not include trading and
management costs, which would lower performance. Indices are unmanaged, and
you cannot invest in them directly. The portfolio's share price and principal
values change, and when you sell your shares, they may be worth more or less
than what you paid for them. Past performance does not indicate future
results. Results for the report period are not annualized.
1 Portfolio expenses have been partially absorbed by CSIM and Schwab. Without
these reductions, the portfolio's returns would have been lower. Portfolio
returns do not reflect the additional fees and expenses imposed by the
insurance company under the variable insurance product contract. If those
contract fees and expenses were included, the returns would be less than those
shown. Please refer to the variable insurance product prospectus for a
complete listing of these expenses.
2 The Growth Composite Index is composed of Morningstar category averages and
cash equivalents as represented by the 90-day T-bill and is calculated using
the following portfolio allocations: 40% large-cap stocks, 20% small-cap
stocks, 20% foreign stocks, 15% bonds and 5% cash. Source: Morningstar, Inc.
2 Schwab MarketTrack Growth Portfolio II
SCHWAB MARKETTRACK GROWTH PORTFOLIO II
PORTFOLIO FACTS as of 6/30/04
STYLE ASSESSMENT 1
[GRAPHIC]
INVESTMENT STYLE
Value Blend Growth
MARKET CAP
Large / / /X/ / /
Medium / / / / / /
Small / / / / / /
STATISTICS
NUMBER OF HOLDINGS 507
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE MARKET CAP ($ x 1,000,000) $59,071
- --------------------------------------------------------------------------------
PRICE/EARNINGS RATIO (P/E) 26.4
- --------------------------------------------------------------------------------
PRICE/BOOK RATIO (P/B) 2.6
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 2 3%
- --------------------------------------------------------------------------------
TOP HOLDINGS 3
% OF
SECURITY NET ASSETS
- --------------------------------------------------------------------------------
(1) SCHWAB SMALL-CAP INDEX FUND, Select Shares 20.3
- --------------------------------------------------------------------------------
(2) SCHWAB INTERNATIONAL INDEX FUND, Select Shares 20.2
- --------------------------------------------------------------------------------
(3) SCHWAB TOTAL BOND MARKET FUND 14.7
- --------------------------------------------------------------------------------
(4) GENERAL ELECTRIC CO. 1.3
- --------------------------------------------------------------------------------
(5) MICROSOFT CORP. 1.2
- --------------------------------------------------------------------------------
(6) EXXON MOBIL CORP. 1.1
- --------------------------------------------------------------------------------
(7) PFIZER, INC. 1.0
- --------------------------------------------------------------------------------
(8) CITIGROUP, INC. 0.9
- --------------------------------------------------------------------------------
(9) WAL-MART STORES, INC. 0.9
- --------------------------------------------------------------------------------
(10) AMERICAN INTERNATIONAL GROUP, INC. 0.7
- --------------------------------------------------------------------------------
TOTAL 62.3
ASSET CLASS WEIGHTINGS % of Portfolio
This chart shows the portfolio's asset class composition as of the report date.
[PIE CHART]
40.5% LARGE-CAP STOCKS
20.3% SMALL-CAP STOCKS
20.2% INTERNATIONAL STOCKS
14.7% BONDS
4.3% SHORT-TERM INVESTMENTS
Portfolio holdings may have changed since the report date.
1 Source: Morningstar, Inc. This style assessment is the result of evaluating
the stock portion of the portfolio based on a ten-factor model for value and
growth characteristics. The portfolio's market capitalization placement is
determined by the geometric mean of its holdings' market capitalizations. The
assessment reflects the portfolio as of 6/30/04, 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 MarketTrack Growth Portfolio II 3
SCHWAB MARKETTRACK GROWTH PORTFOLIO II
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
1/1/04- 1/1/03- 1/1/02- 1/1/01- 1/1/00- 1/1/99-
6/30/04* 12/31/03 12/31/02 12/31/01 12/31/00 12/31/99
- -------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 13.49 10.75 12.99 14.81 15.84 14.24
------------------------------------------------------------------------
Income or loss from investment operations:
Net investment income 0.05 0.16 0.17 0.18 0.35 0.15
Net realized and unrealized gains or losses 0.34 2.74 (2.17) (1.43) (1.13) 2.63
------------------------------------------------------------------------
Total income or loss from investment operations 0.39 2.90 (2.00) (1.25) (0.78) 2.78
Less distributions:
Dividends from net investment income -- (0.16) (0.20) (0.35) (0.14) (0.18)
Distributions from net realized gains -- -- (0.04) (0.22) (0.11) (1.00)
------------------------------------------------------------------------
Total distributions -- (0.16) (0.24) (0.57) (0.25) (1.18)
------------------------------------------------------------------------
Net asset value at end of period 13.88 13.49 10.75 12.99 14.81 15.84
------------------------------------------------------------------------
Total return (%) 2.89 1 26.97 (15.44) (8.40) (4.82) 19.63
RATIOS/SUPPLEMENTAL DATA (%)
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 2 0.50 3 0.50 0.50 0.50 0.56 4 0.56
Gross operating expenses 2 0.70 3 0.87 1.00 0.82 0.84 1.09
Net investment income 0.66 3 1.70 1.59 1.67 2.80 1.32
Portfolio turnover rate 3 1 10 30 13 19 14
Net assets, end of period ($ x 1,000,000) 30 30 20 22 22 19
* Unaudited.
1 Not annualized.
2 The expense incurred by underlying funds in which the portfolio invests are
not included in this ratio. The income received by the portfolio from
underlying funds is reduced by those expenses.
3 Annualized.
4 The ratio of net operating expenses would have been 0.55% if certain
non-routine expenses (proxy fees) had not been included.
4 See financial notes.
SCHWAB MARKETTRACK GROWTH PORTFOLIO II
PORTFOLIO HOLDINGS as of June 30, 2004, unaudited
This section shows all the securities in the fund's portfolio by industry
classification and their market value, as of the report date.
We use the symbols below to designate certain characteristics. With the top ten
holdings, the number in the circle is the security's rank among the top ten.
(1) Top ten holding
o Non-income producing security
/ Issuer is affiliated with the fund's adviser
COST VALUE
HOLDINGS BY CATEGORY ($ x 1,000) ($ x 1,000)
- --------------------------------------------------------------------------------
55.2% OTHER INVESTMENT
COMPANIES 15,628 16,795
40.3% COMMON STOCK 10,273 12,280
4.3% SHORT-TERM
INVESTMENTS 1,317 1,317
- --------------------------------------------------------------------------------
99.8% TOTAL INVESTMENTS 27,218 30,392
0.2% OTHER ASSETS AND
LIABILITIES, NET 65
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS 30,457
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
COMMON STOCK 40.3% of net assets
AEROSPACE / DEFENSE 0.7%
--------------------------------------------------------------------------
The Boeing Co. 938 48
Crane Co. 100 3
General Dynamics Corp. 150 15
Goodrich Corp. 100 3
Lockheed Martin Corp. 540 28
Northrop Grumman Corp. 428 23
Raytheon Co. 500 18
Rockwell Automation, Inc. 200 8
Rockwell Collins, Inc. 200 7
Textron, Inc. 150 9
United Technologies Corp. 530 49
-----------
211
AIR TRANSPORTATION 0.5%
--------------------------------------------------------------------------
Delta Air Lines, Inc. 100 1
FedEx Corp. 350 28
Sabre Holdings Corp. 172 5
Southwest Airlines Co. 900 15
United Parcel Service, Inc.,
Class B 1,247 94
-----------
143
ALCOHOLIC BEVERAGES 0.2%
--------------------------------------------------------------------------
Adolph Coors Co., Class B 25 2
Anheuser-Busch Cos., Inc. 975 53
Brown-Forman Corp., Class B 150 7
-----------
62
APPAREL 0.1%
--------------------------------------------------------------------------
Jones Apparel Group, Inc. 150 6
Liz Claiborne, Inc. 100 3
Nike, Inc., Class B 300 23
Reebok International Ltd. 100 4
VF Corp. 100 5
-----------
41
AUTOMOTIVE PRODUCTS / MOTOR VEHICLES 0.5%
--------------------------------------------------------------------------
Cooper Tire & Rubber Co. 100 2
Cummins, Inc. 50 3
Dana Corp. 180 4
Danaher Corp. 350 18
Delphi Corp. 579 6
Eaton Corp. 200 13
Ford Motor Co. 2,098 33
General Motors Corp. 650 30
Genuine Parts Co. 200 8
o Goodyear Tire & Rubber Co. 100 1
Harley-Davidson, Inc. 350 22
o Navistar International Corp. 100 4
Visteon Corp. 104 1
-----------
145
BANKS 3.0%
--------------------------------------------------------------------------
AmSouth Bancorp. 430 11
Bank of America Corp. 2,320 196
The Bank of New York Co., Inc. 900 26
Bank One Corp. 1,247 64
BB&T Corp. 626 23
Comerica, Inc. 200 11
Fifth Third Bancorp 667 36
First Horizon National Corp. 150 7
Huntington Bancshares, Inc. 333 8
J.P. Morgan Chase & Co. 2,340 91
KeyCorp, Inc. 500 15
M&T Bank Corp. 140 12
Marshall & Ilsley Corp. 300 12
Mellon Financial Corp. 525 15
National City Corp. 724 25
North Fork Bancorp., Inc. 200 8
Northern Trust Corp. 250 10
See financial notes. 5
SCHWAB MARKETTRACK GROWTH PORTFOLIO II
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
PNC Financial Services Group, Inc. 340 18
Regions Financial Corp. 300 11
SouthTrust Corp. 375 14
State Street Corp. 400 20
SunTrust Banks, Inc. 320 21
Synovus Financial Corp. 325 8
U.S. Bancorp 2,274 63
Union Planters Corp. 225 7
Wachovia Corp. 1,549 69
Wells Fargo & Co. 1,900 109
Zions Bancorp. 100 6
-----------
916
BUSINESS MACHINES & SOFTWARE 3.7%
--------------------------------------------------------------------------
Adobe Systems, Inc. 250 12
o Apple Computer, Inc. 400 13
Autodesk, Inc. 100 4
o BMC Software, Inc. 200 4
o Cisco Systems, Inc. 7,925 188
o Compuware Corp. 400 3
o Comverse Technology, Inc. 200 4
o Dell, Inc. 2,925 105
o EMC Corp. 2,850 32
o Gateway, Inc. 200 1
Hewlett-Packard Co. 3,462 73
International Business Machines
Corp. 1,920 169
o Lexmark International, Inc.,
Class A 150 14
(5) Microsoft Corp. 12,515 357
o NCR Corp. 100 5
o Network Appliance, Inc. 400 9
o Novell, Inc. 400 3
o Oracle Corp. 6,000 72
Pitney Bowes, Inc. 250 11
o Siebel Systems, Inc. 600 6
o Sun Microsystems, Inc. 3,675 16
o Unisys Corp. 350 5
o Xerox Corp. 900 13
-----------
1,119
BUSINESS SERVICES 1.8%
--------------------------------------------------------------------------
o Affiliated Computer Services, Inc.,
Class A 103 6
o Allied Waste Industries, Inc. 400 5
o Apollo Group, Inc., Class A 200 18
Automatic Data Processing, Inc. 700 29
Cendant Corp. 1,190 29
Cintas Corp. 182 9
o Citrix Systems, Inc. 175 4
Computer Associates International, Inc. 700 20
o Computer Sciences Corp. 200 9
o Convergys Corp. 137 2
Deluxe Corp. 100 4
o eBay, Inc. 759 70
Electronic Data Systems Corp. 550 11
Equifax, Inc. 175 4
First Data Corp. 1,032 46
o Fiserv, Inc. 225 9
H&R Block, Inc. 200 10
IMS Health, Inc. 300 7
o Interpublic Group of Cos., Inc. 500 7
o Intuit, Inc. 244 9
o Mercury Interactive Corp. 100 5
o Monster Worldwide, Inc. 95 3
o Omnicom Group, Inc. 220 17
o Parametric Technology Corp. 200 1
Paychex, Inc. 425 14
o PeopleSoft, Inc. 400 7
o Robert Half International, Inc. 200 6
o Sungard Data Systems, Inc. 361 9
o Symantec Corp. 300 13
Tyco International Ltd. 2,360 78
o Veritas Software Corp. 500 14
Waste Management, Inc. 720 22
o Yahoo!, Inc. 1,580 57
-----------
554
6 See financial notes.
SCHWAB MARKETTRACK GROWTH PORTFOLIO II
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
CHEMICALS 0.6%
--------------------------------------------------------------------------
Air Products & Chemicals, Inc. 250 13
Dow Chemical Co. 1,121 46
E.I. du Pont de Nemours & Co. 1,169 52
Eastman Chemical Co. 100 5
Ecolab, Inc. 275 9
Great Lakes Chemical Corp. 100 3
o Hercules, Inc. 100 1
Monsanto Co. 314 12
PPG Industries, Inc. 200 12
Praxair, Inc. 400 16
Rohm & Haas Co. 300 12
Sigma-Aldrich Corp. 100 6
-----------
187
CONSTRUCTION 0.2%
--------------------------------------------------------------------------
Centex Corp. 150 7
Fluor Corp. 100 5
KB Home 50 3
Masco Corp. 500 16
Pulte Homes, Inc. 150 8
The Sherwin-Williams Co. 175 7
The Stanley Works 100 4
Vulcan Materials Co. 100 5
-----------
55
CONSUMER DURABLES 0.1%
--------------------------------------------------------------------------
Black & Decker Corp. 100 6
Leggett & Platt, Inc. 200 5
Maytag Corp. 100 3
Newell Rubbermaid, Inc. 300 7
Whirlpool Corp. 100 7
-----------
28
CONTAINERS 0.1%
--------------------------------------------------------------------------
Ball Corp. 100 7
Bemis Co. 100 3
o Pactiv Corp. 200 5
o Sealed Air Corp. 103 5
-----------
20
ELECTRONICS 2.3%
--------------------------------------------------------------------------
o ADC Telecommunications, Inc. 700 2
o Advanced Micro Devices, Inc. 400 6
o Agilent Technologies, Inc. 566 17
o Altera Corp. 464 10
American Power Conversion Corp. 275 5
Analog Devices, Inc. 450 21
o Andrew Corp. 200 4
o Applied Materials, Inc. 2,000 39
o Applied Micro Circuits Corp. 221 1
o Broadcom Corp., Class A 355 17
o CIENA Corp. 300 1
Intel Corp. 7,475 206
ITT Industries, Inc. 100 8
o Jabil Circuit, Inc. 208 5
o JDS Uniphase Corp. 1,654 6
o KLA-Tencor Corp. 240 12
Linear Technology Corp. 400 16
o LSI Logic Corp. 400 3
o Lucent Technologies, Inc. 5,055 19
Maxim Integrated Products, Inc. 400 21
o Micron Technology, Inc. 650 10
Molex, Inc. 225 7
Motorola, Inc. 2,721 50
o National Semiconductor Corp. 400 9
o Novellus Systems, Inc. 175 6
o Nvidia Corp. 200 4
PerkinElmer, Inc. 118 2
o PMC -- Sierra, Inc. 200 3
o Power-One, Inc. 226 3
o QLogic Corp. 113 3
Qualcomm, Inc. 900 66
o Sanmina-SCI Corp. 500 5
Scientific-Atlanta, Inc. 175 6
o Solectron Corp. 1,000 7
Symbol Technologies, Inc. 289 4
Tektronix, Inc. 100 3
o Tellabs, Inc. 500 4
o Teradyne, Inc. 200 5
Texas Instruments, Inc. 2,050 50
o Thermo Electron Corp. 175 5
o Thomas & Betts Corp. 80 2
o Waters Corp. 150 7
o Xilinx, Inc. 375 13
-----------
693
ENERGY: RAW MATERIALS 0.6%
--------------------------------------------------------------------------
Anadarko Petroleum Corp. 295 17
Apache Corp. 386 17
Baker Hughes, Inc. 431 16
See financial notes. 7
SCHWAB MARKETTRACK GROWTH PORTFOLIO II
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
o BJ Services Co. 200 9
Burlington Resources, Inc. 400 15
Devon Energy Corp. 290 19
EOG Resources, Inc. 132 8
Halliburton Co. 500 15
o Noble Corp. 200 8
Occidental Petroleum Corp. 465 23
o Rowan Cos., Inc. 100 2
Schlumberger Ltd. 700 44
Valero Energy Corp. 100 7
-----------
200
FOOD & AGRICULTURE 1.5%
--------------------------------------------------------------------------
Archer-Daniels-Midland Co. 774 13
Campbell Soup Co. 500 13
The Coca-Cola Co. 2,825 143
Coca-Cola Enterprises, Inc. 550 16
ConAgra Foods, Inc. 650 18
General Mills, Inc. 450 21
H.J. Heinz Co. 400 16
Hershey Foods Corp. 300 14
Kellogg Co. 500 21
McCormick & Co., Inc. 200 7
The Pepsi Bottling Group, Inc. 312 9
PepsiCo, Inc. 1,955 105
Sara Lee Corp. 900 21
Supervalu, Inc. 175 5
Sysco Corp. 700 25
Wm. Wrigley Jr. Co. 250 16
-----------
463
GOLD 0.1%
--------------------------------------------------------------------------
Newmont Mining Corp. 500 19
HEALTHCARE / DRUGS & MEDICINE 5.3%
--------------------------------------------------------------------------
Abbott Laboratories 1,760 72
Allergan, Inc. 150 13
AmerisourceBergen Corp. 150 9
o Amgen, Inc. 1,470 80
o Anthem, Inc. 175 16
Applied Biosystems Group -- Applera
Corp. 200 4
Bausch & Lomb, Inc. 100 7
Baxter International, Inc. 725 25
Becton Dickinson & Co. 300 16
o Biogen Idec, Inc. 380 24
Biomet, Inc. 325 14
o Boston Scientific Corp. 988 42
Bristol-Myers Squibb Co. 2,300 56
C.R. Bard, Inc. 100 6
Cardinal Health, Inc. 525 37
o Caremark Rx, Inc. 535 18
o Chiron Corp. 200 9
Eli Lilly & Co. 1,320 92
o Express Scripts, Inc. 100 8
o Forest Laboratories, Inc. 450 26
o Genzyme Corp. 250 12
o Gilead Sciences, Inc. 150 10
Guidant Corp. 350 20
HCA, Inc. 600 25
Health Management Associates, Inc.,
Class A 300 7
o Hospira, Inc. 186 5
o Humana, Inc. 200 3
Johnson & Johnson 3,436 191
o King Pharmaceuticals, Inc. 233 3
Manor Care, Inc. 100 3
McKesson Corp. 374 13
o Medco Health Solutions, Inc. 337 13
o Medimmune, Inc. 300 7
Medtronic, Inc. 1,340 65
Merck & Co., Inc. 2,550 121
Mylan Laboratories, Inc. 300 6
(7) Pfizer, Inc. 8,759 300
Quest Diagnostics 139 12
Schering-Plough Corp. 1,700 31
o St. Jude Medical, Inc. 200 15
Stryker Corp. 464 26
o Tenet Healthcare Corp. 450 6
UnitedHealth Group, Inc. 730 45
o Watson Pharmaceuticals, Inc. 100 3
o WellPoint Health Networks, Inc. 175 20
Wyeth 1,500 54
o Zimmer Holdings, Inc. 275 24
-----------
1,614
HOUSEHOLD PRODUCTS 0.9%
--------------------------------------------------------------------------
Alberto-Culver Co., Class B 50 2
Avon Products, Inc. 540 25
Clorox Co. 250 13
Colgate-Palmolive Co. 550 32
8 See financial notes.
SCHWAB MARKETTRACK GROWTH PORTFOLIO II
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
The Gillette Co. 1,200 51
International Flavors &
Fragrances, Inc. 100 4
Procter & Gamble Co. 2,840 155
-----------
282
INSURANCE 2.0%
--------------------------------------------------------------------------
ACE Ltd. 340 14
Aetna, Inc. 100 9
AFLAC, Inc. 600 25
The Allstate Corp. 840 39
AMBAC Financial Group, Inc. 123 9
(10) American International Group, Inc. 3,006 214
AON Corp. 325 9
Chubb Corp. 240 16
CIGNA Corp. 175 12
Cincinnati Financial Corp. 210 9
Hartford Financial Services
Group, Inc. 340 23
Jefferson-Pilot Corp. 175 9
Lincoln National Corp. 200 9
Loews Corp. 200 12
Marsh & McLennan Cos., Inc. 625 28
MBIA, Inc. 150 9
Metlife, Inc. 915 33
MGIC Investment Corp. 100 8
o Principal Financial Group, Inc. 381 13
The Progressive Corp. 265 23
Prudential Financial, Inc. 650 30
Safeco Corp. 150 7
St. Paul Cos., Inc. 797 32
Torchmark Corp. 150 8
UnumProvident Corp. 323 5
XL Capital Ltd., Class A 155 12
-----------
617
MEDIA 1.4%
--------------------------------------------------------------------------
Clear Channel Communications, Inc. 729 27
o Comcast Corp., Class A 2,576 72
Dow Jones & Co., Inc. 100 5
Gannett Co., Inc. 325 28
Knight-Ridder, Inc. 100 7
The McGraw-Hill Cos., Inc. 225 17
Meredith Corp. 50 3
New York Times Co., Class A 200 9
R.R. Donnelley & Sons Co. 300 10
o Time Warner, Inc. 5,200 91
Tribune Co. 400 18
o Univision Communications, Inc.,
Class A 354 11
Viacom, Inc., Class B 1,992 71
The Walt Disney Co. 2,430 62
-----------
431
MISCELLANEOUS 0.3%
--------------------------------------------------------------------------
3M Co. 925 83
MISCELLANEOUS FINANCE 3.1%
--------------------------------------------------------------------------
American Express Co. 1,450 75
The Bear Stearns Cos., Inc. 110 9
Capital One Financial Corp. 290 20
/ The Charles Schwab Corp. 1,575 15
Charter One Financial, Inc. 280 12
(8) Citigroup, Inc. 5,922 275
Countrywide Financial Corp. 330 23
o E*TRADE Group, Inc. 400 4
Fannie Mae 1,145 82
Federated Investors, Inc., Class B 100 3
Franklin Resources, Inc. 300 15
Freddie Mac 800 51
Golden West Financial Corp. 175 19
Goldman Sachs Group, Inc. 562 53
Janus Capital Group, Inc. 300 5
Lehman Brothers Holdings, Inc. 250 19
MBNA Corp. 1,487 38
Merrill Lynch & Co., Inc. 1,150 62
Moody's Corp. 175 11
Morgan Stanley 1,230 65
o Providian Financial Corp. 350 5
SLM Corp. 550 22
Sovereign Bancorp., Inc. 300 7
T. Rowe Price Group, Inc. 150 8
Washington Mutual, Inc. 1,050 41
-----------
939
NON-DURABLES & ENTERTAINMENT 0.4%
--------------------------------------------------------------------------
Darden Restaurants, Inc. 150 3
o Electronic Arts, Inc. 354 19
Fortune Brands, Inc. 175 13
Hasbro, Inc. 200 4
International Game Technology 413 16
Mattel, Inc. 500 9
McDonald's Corp. 1,450 38
o Starbucks Corp. 470 20
Wendy's International, Inc. 140 5
o Yum! Brands, Inc. 320 12
-----------
139
See financial notes. 9
SCHWAB MARKETTRACK GROWTH PORTFOLIO II
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
NON-FERROUS METALS 0.2%
--------------------------------------------------------------------------
Alcoa, Inc. 1,000 33
Engelhard Corp. 160 5
Freeport-McMoran Copper & Gold, Inc.,
Class B 200 7
o Phelps Dodge Corp. 100 8
-----------
53
OIL: DOMESTIC 0.4%
--------------------------------------------------------------------------
Amerada Hess Corp. 100 8
Ashland, Inc. 100 5
ConocoPhillips 805 62
Kerr-McGee Corp. 150 8
Marathon Oil Corp. 400 15
o Nabors Industries Ltd. 175 8
Sunoco, Inc. 100 6
o Transocean, Inc. 358 10
Unocal Corp. 300 12
-----------
134
OIL: INTERNATIONAL 1.5%
--------------------------------------------------------------------------
ChevronTexaco Corp. 1,170 110
(6) Exxon Mobil Corp. 7,580 337
-----------
447
OPTICAL & PHOTO 0.1%
--------------------------------------------------------------------------
o Corning, Inc. 1,500 20
Eastman Kodak Co. 300 8
-----------
28
PAPER & FOREST PRODUCTS 0.3%
--------------------------------------------------------------------------
Boise Cascade Corp. 75 3
Georgia-Pacific Corp. 326 12
International Paper Co. 570 25
Kimberly-Clark Corp. 600 40
Louisiana-Pacific Corp. 100 2
MeadWestvaco Corp. 197 6
Temple-Inland, Inc. 50 3
Weyerhaeuser Co. 250 16
-----------
107
PRODUCER GOODS & MANUFACTURING 2.1%
--------------------------------------------------------------------------
o American Standard Cos., Inc. 300 12
Avery Dennison Corp. 150 10
Caterpillar, Inc. 400 32
Cooper Industries Ltd., Class A 100 6
Deere & Co. 250 17
Dover Corp. 260 11
Emerson Electric Co. 500 32
(4) General Electric Co. 12,100 392
Honeywell International, Inc. 987 36
Illinois Tool Works, Inc. 350 33
Ingersoll-Rand Co., Class A 200 14
Johnson Controls, Inc. 240 13
o Millipore Corp. 75 4
Pall Corp. 100 3
Parker Hannifin Corp. 150 9
Snap-On, Inc. 75 2
W.W. Grainger, Inc. 100 6
-----------
632
RAILROAD & SHIPPING 0.2%
--------------------------------------------------------------------------
Burlington Northern Santa Fe Corp. 400 14
CSX Corp. 225 7
Norfolk Southern Corp. 480 13
Union Pacific Corp. 295 18
-----------
52
REAL PROPERTY 0.2%
--------------------------------------------------------------------------
Apartment Investment & Management Co.,
Class A 100 3
Equity Office Properties Trust 500 14
Equity Residential 300 9
Plum Creek Timber Co., Inc. 200 6
ProLogis 200 7
Simon Property Group, Inc. 240 12
-----------
51
RETAIL 2.6%
--------------------------------------------------------------------------
Albertson's, Inc. 400 11
o Autonation, Inc. 300 5
o AutoZone, Inc. 100 8
o Bed, Bath & Beyond, Inc. 350 13
Best Buy Co., Inc. 390 20
o Big Lots, Inc. 88 1
Circuit City Stores, Inc. 200 3
Costco Wholesale Corp. 560 23
CVS Corp. 490 21
Dillards, Inc., Class A 100 2
Dollar General Corp. 395 8
Family Dollar Stores, Inc. 200 6
Federated Department Stores, Inc. 200 10
The Gap, Inc. 1,037 25
The Home Depot, Inc. 2,600 91
J.C. Penney Co., Inc. Holding Co. 300 11
o Kohl's Corp. 400 17
10 See financial notes.
SCHWAB MARKETTRACK GROWTH PORTFOLIO II
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
o Kroger Co. 900 16
Limitedbrands 600 11
Lowe's Cos., Inc. 940 49
The May Department Stores Co. 350 10
Nordstrom, Inc. 200 8
o Office Depot, Inc. 325 6
RadioShack Corp. 200 6
o Safeway, Inc. 500 13
Sears, Roebuck & Co. 300 11
Staples, Inc. 600 18
Target Corp. 1,090 46
Tiffany & Co. 150 6
TJX Cos., Inc. 600 14
o Toys 'R' Us, Inc. 200 3
(9) Wal-Mart Stores, Inc. 4,950 261
Walgreen Co. 1,175 43
Winn-Dixie Stores, Inc. 100 1
-----------
797
STEEL 0.0%
--------------------------------------------------------------------------
Allegheny Technologies, Inc. 100 2
Nucor Corp. 100 8
United States Steel Corp. 100 3
Worthington Industries, Inc. 100 2
-----------
15
TELEPHONE 1.4%
--------------------------------------------------------------------------
Alltel Corp. 300 15
AT&T Corp. 935 14
o AT&T Wireless Services, Inc. 3,205 46
o Avaya, Inc. 513 8
BellSouth Corp. 2,180 57
CenturyTel, Inc. 150 5
o Citizens Communications Co. 358 5
o Nextel Communications, Inc.,
Class A 1,275 34
o Qwest Communications
International, Inc. 2,027 7
SBC Communications, Inc. 3,756 91
Sprint Corp. (FON Group) 1,662 29
Verizon Communications, Inc. 3,213 116
-----------
427
TOBACCO 0.4%
--------------------------------------------------------------------------
Altria Group, Inc. 2,340 117
R.J. Reynolds Tobacco Holdings,
Inc. 100 7
UST, Inc. 200 7
---
131
TRAVEL & RECREATION 0.3%
--------------------------------------------------------------------------
Brunswick Corp. 100 4
Carnival Corp. 725 34
Harrah's Entertainment, Inc. 150 8
Hilton Hotels Corp. 400 7
Marriott International, Inc., Class A 250 13
Starwood Hotels & Resorts
Worldwide, Inc. 260 12
-----------
78
TRUCKING & FREIGHT 0.0%
--------------------------------------------------------------------------
Paccar, Inc. 187 11
Ryder Systems, Inc. 75 3
-----------
14
UTILITIES: ELECTRIC & GAS 1.2%
--------------------------------------------------------------------------
o The AES Corp. 650 6
o Allegheny Energy, Inc. 78 1
Ameren Corp. 200 9
American Electric Power Co., Inc. 460 15
o Calpine Corp. 500 2
Centerpoint Energy, Inc. 400 5
Cinergy Corp. 200 8
o CMS Energy Corp. 300 3
Consolidated Edison, Inc. 300 12
Constellation Energy Group, Inc. 200 8
Dominion Resources, Inc. 396 25
DTE Energy Co. 200 8
Duke Energy Corp. 1,050 21
o Dynegy, Inc., Class A 300 1
Edison International 400 10
El Paso Corp. 696 5
Entergy Corp. 250 14
Exelon Corp. 774 26
FirstEnergy Corp. 391 15
FPL Group, Inc. 200 13
See financial notes. 11
SCHWAB MARKETTRACK GROWTH PORTFOLIO II
PORTFOLIO HOLDINGS continued
VALUE
SECURITY AND NUMBER OF SHARES ($ x 1,000)
KeySpan Corp. 200 7
Kinder Morgan, Inc. 156 9
Nicor, Inc. 50 2
NiSource, Inc. 357 7
Peoples Energy Corp. 50 2
o PG&E Corp. 500 14
Pinnacle West Capital Corp. 100 4
PPL Corp. 200 9
Progress Energy, Inc. 277 12
Public Service Enterprise Group, Inc. 300 12
Sempra Energy 285 10
The Southern Co. 875 26
TECO Energy, Inc. 250 3
TXU Corp. 350 14
Williams Cos., Inc. 600 7
Xcel Energy, Inc. 505 8
-----------
353
OTHER INVESTMENT COMPANIES
55.2% of net assets
/(2) Schwab International Index Fund,
Select Shares 429,797 6,142
/(1) Schwab Small-Cap Index Fund,
Select Shares 307,343 6,171
/(3) Schwab Total Bond
Market Fund 451,847 4,482
-----------
16,795
SHORT-TERM INVESTMENTS
4.3% of net assets
/ Schwab Value Advantage
Money Fund, Investor Shares 826,697 827
SECURITY FACE AMOUNT
RATE, MATURITY DATE ($ x 1,000)
Wachovia Bank, Grand Cayman
Time Deposit
0.76%, 07/01/04 490 490
-----------
1,317
END OF INVESTMENTS.
12 See financial notes.
SCHWAB MARKETTRACK GROWTH PORTFOLIO II
Statement of
ASSETS AND LIABILITIES
As of June 30, 2004; unaudited. All numbers x 1,000 except NAV.
ASSETS
- --------------------------------------------------------------------------------
Investments, at value $30,392 a
Receivables:
Dividends 14
Investments sold + 120
-----------
TOTAL ASSETS 30,526
LIABILITIES
- --------------------------------------------------------------------------------
Payables:
Fund shares redeemed 1
Investments bought 29
Accrued expenses + 39
-----------
TOTAL LIABILITIES 69
NET ASSETS
- --------------------------------------------------------------------------------
TOTAL ASSETS 30,526
TOTAL LIABILITIES - 69
-----------
NET ASSETS $30,457
NET ASSETS BY SOURCE
Capital received from investors 27,996
Net investment income not yet distributed 493
Net realized capital losses (1,206)
Net unrealized capital gains 3,174
NET ASSET VALUE (NAV)
SHARES
NET ASSETS / OUTSTANDING = NAV
$30,457 2,195 $13.88
Unless stated, all numbers x 1,000.
a The fund paid $27,218 for these securities.
Not counting short-term obligations and government securities, the fund's
security transactions during the period were:
Purchases $ 952
Sales/maturities $1,252
Percent of fund shares of other Schwab funds owned as of the end of the report
period:
SCHWAB EQUITY INDEX FUNDS
Small-Cap Index Fund 0.4%
International Index Fund 0.5%
SCHWAB BOND FUNDS
Total Bond Market Fund 0.4%
SCHWAB MONEY FUNDS
Value Advantage
Money Fund Less than 0.1%
FEDERAL TAX DATA
- ------------------------------------------------
PORTFOLIO COST $27,777
NET UNREALIZED GAINS AND LOSSES:
Gains $4,488
Losses + (1,873)
------------
$2,615
AS OF DECEMBER 31, 2003:
UNDISTRIBUTED EARNINGS:
Ordinary income $394
Long-term capital gains $--
UNUSED CAPITAL LOSSES:
Expires 12/31 of: Loss amount
2010 $347
2011 + 200
------------
$547
See financial notes. 13
SCHWAB MARKETTRACK GROWTH PORTFOLIO II
Statement of
OPERATIONS
For January 1, 2004 through June 30, 2004; unaudited. All numbers x 1,000.
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends $175
Interest + 1
--------
TOTAL INVESTMENT INCOME 176
NET REALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net realized losses on investments sold (97)
NET UNREALIZED GAINS AND LOSSES
- --------------------------------------------------------------------------------
Net unrealized gains on investments 836
EXPENSES
- --------------------------------------------------------------------------------
Investment adviser and administrator fees 67 a
Trustees' fees 5 b
Custodian fees 13
Portfolio accounting fees 2
Professional fees 15
Shareholder reports 3
Other expenses + 2
--------
Total expenses 107
Expense reduction - 31 c
--------
NET EXPENSES 76
INCREASE IN NET ASSETS FROM OPERATIONS
- --------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 176
NET EXPENSES - 76
--------
NET INVESTMENT INCOME 100
NET REALIZED LOSSES (97) d
NET UNREALIZED GAINS + 836 d
--------
INCREASE IN NET ASSETS FROM OPERATIONS $839
Unless stated, all numbers x 1,000.
a Calculated as a percentage of average daily net assets: 0.44% of the first
$500 million and 0.39% of assets beyond that.
b For the fund's independent trustees only.
c This reduction was made by the investment adviser (CSIM). It reflects a
guarantee by CSIM to limit the operating expenses of this fund through April
30, 2005, to 0.50% of average daily net assets. This limit doesn't include
interest, taxes and certain non-routine expenses.
d These add up to a net gain on investments of $739.
14 See financial notes.
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.
OPERATIONS
- --------------------------------------------------------------------------------
1/1/04-6/30/04 1/1/03-12/31/03
Net investment income $100 $394
Net realized losses (97) (162)
Net unrealized gains + 836 5,540
-------------------------------------
INCREASE IN NET ASSETS
FROM OPERATIONS 839 5,772
DISTRIBUTIONS PAID
- --------------------------------------------------------------------------------
Dividends from net investment income $-- $334 a
TRANSACTIONS IN FUND SHARES
- --------------------------------------------------------------------------------
1/1/04-6/30/04 1/1/03-12/31/03
SHARES VALUE SHARES VALUE
Shares sold 152 $2,091 697 $8,463
Shares reinvested -- -- 25 334
Shares redeemed + (175) (2,400) (398) (4,659)
-------------------------------------------------
NET TRANSACTIONS IN
FUND SHARES (23) ($309) 324 $4,138
SHARES OUTSTANDING AND NET ASSETS
- --------------------------------------------------------------------------------
1/1/04-6/30/04 1/1/03-12/31/03
SHARES NET ASSETS SHARES NET ASSETS
Beginning of period 2,218 $29,927 1,894 $20,351
Total increase or
decrease + (23) 530 324 9,576 b
-------------------------------------------------
END OF PERIOD 2,195 $30,457 2,218 $29,927 c
Unless stated, all numbers x 1,000.
a The tax-basis components of distributions for the period ended 12/31/03 are:
Ordinary income $334
Long-term capital gains $--
b Figures for shares represent shares sold plus shares reinvested, minus shares
redeemed. Figures for net assets represent the changes in net assets from
operations plus the changes in value of transactions in fund shares, minus
distributions paid.
c Includes distributable net investment income in the amount of $493 and $393 at
the end of the current period and the prior period, respectively.
See financial notes. 15
SCHWAB MARKETTRACK GROWTH PORTFOLIO II
FINANCIAL NOTES unaudited
BUSINESS STRUCTURE OF THE FUND
THE FUND DISCUSSED IN THIS REPORT IS A SERIES OF SCHWAB ANNUITY PORTFOLIOS, A
NO-LOAD, OPEN-END MANAGEMENT INVESTMENT COMPANY. The company is organized as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended. The sidebar shows the fund in this report and its trust.
THE FUND OFFERS ONE SHARE CLASS. Shares are bought and sold at net asset value
(NAV) which is the price for all outstanding shares. Each share has a par value
of 1/1,000 of a cent, and the trust may issue 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.
FUND OPERATIONS
Most of the fund's investments are described earlier in this report. However,
there are certain other investments and policies that may affect the fund's
financials, as described below. Other policies concerning the fund's business
operations also are described here.
THE FUND PAYS DIVIDENDS from net investment income and makes distributions from
net capital gains once a year.
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.
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 a 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 ("variation margin").
THE FUND MAY ENTER INTO REPURCHASE AGREEMENTS. In a repurchase agreement, the
fund buys a security from another party (usually a financial institution) with
the agreement that it be sold back in the future. The date, price and other
conditions are all specified when the agreement is created.
The 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 its market
value is at least equal to the repurchase price under the agreement.
THE TRUST AND ITS FUNDS
This list shows all of the funds included in Schwab Annuity Portfolios. The fund
discussed in this report is highlighted.
SCHWAB ANNUITY PORTFOLIOS
organized January 21, 1994
Schwab Money Market Portfolio
SCHWAB MARKETTRACK GROWTH PORTFOLIO II
Schwab S&P 500 Portfolio
16
SCHWAB MARKETTRACK GROWTH PORTFOLIO II
THE FUND PAYS FEES TO AFFILIATES OF THE INVESTMENT ADVISER FOR VARIOUS SERVICES.
Through its trust, the fund has agreements with Charles Schwab Investment
Management, Inc. (CSIM) to provide investment advisory and administrative
services and with Charles Schwab & Co., Inc. (Schwab) to provide transfer agent,
shareholder services and transaction services.
Although these agreements specify certain fees for these services, CSIM has made
additional agreements with the fund that may limit the total expenses charged.
The rates and limitations for these fees are described in the fund's Statement
of Operations.
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. The percentages of fund shares of other related funds owned are
shown in the fund's Statement of Assets and Liabilities.
The fund may make direct transactions with certain other SchwabFunds(R) 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.
Pursuant to an exemptive order issued by the SEC, the fund may enter into
interfund borrowing and lending transactions within the SchwabFunds(R). 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 SchwabFunds(R).
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.
THE FUND MAY BORROW MONEY FROM BANKS AND CUSTODIANS. The fund may obtain
temporary bank loans through its trust to use for meeting shareholder
redemptions or for extraordinary or emergency purposes. The trust has custodian
overdraft facilities and line of credit arrangements of $150 million and $100
million with PNC Bank, N.A. and Bank of America, N.A., respectively. The fund
pays interest on the amounts it borrows at rates that are negotiated
periodically.
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 net realized capital gains (if any) to its
shareholders each year. As long as the fund meets the tax requirements, it is
not required to pay federal income tax. The net investment income and net
realized capital gains and losses may differ for financial statement and tax
purposes primarily due to differing treatments of losses on wash sales.
UNDER THE FUND'S ORGANIZATIONAL DOCUMENTS, ITS OFFICERS AND TRUSTEES ARE
INDEMNIFIED AGAINST CERTAIN LIABILITY 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.
17
SCHWAB MARKETTRACK GROWTH PORTFOLIO II
ACCOUNTING POLICIES
The following are the main policies the fund uses in preparing its financial
statements.
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 FOR WHICH NO MARKET QUOTATIONS ARE READILY AVAILABLE: 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.
- - FUTURES: open contracts are valued at their settlement prices as of the close
of their exchanges. When the fund closes out a futures position, it calculates
the difference between the value of the position at the beginning and at the
end, 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 for a given day.
- - SHORT-TERM SECURITIES (60 DAYS OR LESS TO MATURITY): valued at amortized cost.
SECURITY TRANSACTIONS are recorded as of the date the order to buy or sell the
security is executed.
DIVIDENDS AND DISTRIBUTIONS FROM PORTFOLIO SECURITIES are recorded on the date
they are effective (the ex-dividend date), although the fund records certain
foreign security dividends on the day it learns of the ex-dividend date.
INCOME FROM INTEREST AND THE ACCRETION OF DISCOUNTS is recorded as it accrues.
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.
EXPENSES that are specific to the fund are charged directly to the fund.
Expenses that are common to all funds within a trust generally are allocated
among the funds in proportion to their average daily net assets.
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 keeps certain assets in segregated accounts, as may be
required by securities law.
THE ACCOUNTING POLICIES DESCRIBED ABOVE 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.
18
SCHWAB MARKETTRACK GROWTH PORTFOLIO II
FUND TRUSTEES unaudited
A fund's Board of Trustees is responsible for protecting the interests of
that fund's shareholders. The tables below give information about the
people who serve as trustees and officers for the SchwabFunds(R),
including the funds covered in this report. Trustees remain in office
until they resign, retire or are removed by shareholder vote. 1
Under the Investment Company Act of 1940, any officer, director, or
employee of Schwab or CSIM is considered an "interested person," meaning
that he or she is considered to have a business interest in Schwab or
CSIM. These individuals are listed as "interested trustees." The
"independent trustees" are individuals who, under the 1940 Act, are not
considered to have a business interest in Schwab or CSIM.
Each of the SchwabFunds(R) (of which there were 49 as of 6/30/04) belongs
to one of these trusts: The Charles Schwab Family of Funds, Schwab
Investments, Schwab Capital Trust or Schwab Annuity Portfolios. Currently
all these trusts have the same trustees and officers. 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.
INDIVIDUALS WHO ARE INTERESTED TRUSTEES AND OFFICERS OF THE TRUST
TRUST POSITION(S);
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
CHARLES R. SCHWAB 2 Chair, Trustee: Chair, Director, The Charles Schwab Corp., Charles Schwab & Co., Inc.
7/29/37 Family of Funds, 1989; Charles Schwab Investment Management, Inc., Charles Schwab
Investments, 1991; Holdings (UK); CEO, Director, Charles Schwab Holdings, Inc.; Chair,
Capital Trust, 1993; CEO Schwab (SIS) Holdings, Inc. I, Schwab International Holdings, Inc.;
Annuity Portfolios, 1994. Director, U.S. Trust Corp., United States Trust Co. of New York,
Siebel Systems (software), Xsign, Inc. (electronic payment systems);
Trustee, Stanford University. Until 5/04: Director, The Gap, Inc.
(clothing retailer). Until 2003: Co-CEO, The Charles Schwab Corp.
Until 2002: Director, Audiobase, Inc. (Internet audio solutions). Until
5/02: Director, Vodaphone AirTouch PLC (telecommunications).
Until 7/01: Director, The Charles Schwab Trust Co.; TrustMark, Inc.
1 The SchwabFunds retirement policy requires that independent trustees elected
after January 1, 2000 retire at age 72 or after twenty years of service as a
trustee, whichever comes first. Independent trustees elected prior to January
1, 2000 will retire on the following schedule: Messrs. Holmes and Dorward will
retire on December 31, 2007, and Messrs. Stephens and Wilsey will retire on
December 31, 2010.
2 In addition to their positions with the investment adviser and the
distributor, Ms. Lepore and Mr. Schwab also own stock of The Charles Schwab
Corporation.
19
SCHWAB MARKETTRACK GROWTH PORTFOLIO II
INDIVIDUALS WHO ARE INTERESTED TRUSTEES BUT NOT OFFICERS OF THE TRUST
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
DAWN G. LEPORE 1 2003 (all trusts). Vice Chair, The Charles Schwab Corp.; Until 10/01: CIO, The
3/21/54 Charles Schwab Corporation. Until 1999: EVP, The Charles Schwab
Corporation. Director, Wal-Mart Stores, eBay, Inc.
INDIVIDUALS WHO ARE OFFICERS OF THE TRUST BUT NOT TRUSTEES
NAME AND BIRTHDATE TRUST OFFICE(S) HELD MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
RANDALL W. MERK President, CEO President, CEO, Charles Schwab Investment Management, Inc;
7/25/54 (all trusts). EVP, Charles Schwab & Co., Inc.; Director, Charles Schwab Worldwide
Funds PLC, Charles Schwab Asset Management (Ireland) Ltd. Until
9/02: President, CIO, American Century Investment Management;
Director, American Century Cos., Inc. Until 6/01: CIO, Fixed Income,
American Century Cos., Inc. Until 1997: SVP, Director, Fixed Income
and Quantitative Equity Portfolio Management, Twentieth Century
Investors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
TAI-CHIN TUNG Treasurer, Principal SVP, CFO, Charles Schwab Investment Management, Inc.; SVP,
3/7/51 Financial Officer The Charles Schwab Trust Co.; Director, Charles Schwab Asset
(all trusts). Management (Ireland) Ltd., Charles Schwab Worldwide Funds PLC.
- ------------------------------------------------------------------------------------------------------------------------------------
STEPHEN B. WARD SVP, Chief Investment SVP, Chief Investment Officer, Director, Charles Schwab Investment
4/5/55 Officer (all trusts). Management, Inc.; CIO, The Charles Schwab Trust Co.
- ------------------------------------------------------------------------------------------------------------------------------------
KOJI E. FELTON Secretary (all trusts). SVP, Chief Counsel, Assistant Corporate Secretary, Charles Schwab
3/13/61 Investment Management, Inc. Until 6/98: Branch Chief in Enforcement,
U.S. Securities and Exchange Commission, San Francisco.
1 In addition to their positions with the investment adviser and the
distributor, Ms. Lepore and Mr. Schwab also own stock of The Charles Schwab
Corporation.
20
SCHWAB MARKETTRACK GROWTH PORTFOLIO II
INDIVIDUALS WHO ARE INDEPENDENT TRUSTEES
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
MARIANN BYERWALTER 2000 (all trusts). Chair, JDN Corp. Advisory LLC; Trustee, Stanford University, America
8/13/60 First Cos., (venture capital/fund management), Redwood Trust, Inc.
(mortgage finance), Stanford Hospitals and Clinics, SRI International
(research), PMI Group, Inc. (mortgage insurance), Lucile Packard
Children's Hospital, Laudus Trust, Laudus Variable Insurance Trust.
2001: Special Advisor to the President, Stanford University. Until 2002:
Director, LookSmart, Ltd. (Internet infrastructure). Until 2001: VP,
Business Affairs, CFO, Stanford University.
- ------------------------------------------------------------------------------------------------------------------------------------
DONALD F. DORWARD Family of Funds, 1989; CEO, Dorward & Associates (corporate management, marketing and
9/23/31 Investments, 1991; communications consulting). Until 1999: EVP, Managing Director,
Capital Trust, 1993; Grey Advertising.
Annuity Portfolios,1994.
- ------------------------------------------------------------------------------------------------------------------------------------
WILLIAM A. HASLER 2000 (all trusts). Co-CEO, Aphton Corp. (bio-pharmaceuticals). Trustee, Solectron Corp.
11/22/41 (manufacturing), Airlease Ltd. (aircraft leasing), Mission West
Properties (commercial real estate), Stratex Corp. (network equipment);
Public Governor, Laudus Trust, Laudus Variable Insurance Trust;
Member, executive committee, Pacific Stock & Options Exchange.
Until 2003: Trustee, Tenera, Inc. (services and software). Until 1998:
Dean, Haas School of Business, University of California, Berkeley.
- ------------------------------------------------------------------------------------------------------------------------------------
ROBERT G. HOLMES Family of Funds, 1989; Chair, CEO, Director, Semloh Financial, Inc. (international financial
5/15/31 Investments, 1991; services and investment advice).
Capital Trust, 1993;
Annuity Portfolios,1994.
- ------------------------------------------------------------------------------------------------------------------------------------
GERALD B. SMITH 2000 (all trusts). Chair, CEO, Founder, Smith Graham & Co. (investment advisors);
9/28/50 Trustee, Rorento N.V. (investments -- Netherlands), Cooper Industries
(electrical products, tools and hardware); Member, audit committee,
Northern Border Partners, L.P. (energy). Until 2002: Director, Pennzoil-
Quaker State Co. (oil and gas).
- ------------------------------------------------------------------------------------------------------------------------------------
DONALD R. STEPHENS Family of Funds, 1989; Managing Partner, D.R. Stephens & Co. (investments). Until 1996:
6/28/38 Investments, 1991; Chair, CEO, North American Trust (real estate investment trust).
Capital Trust, 1993;
Annuity Portfolios, 1994.
- ------------------------------------------------------------------------------------------------------------------------------------
MICHAEL W. WILSEY Family of Funds, 1989; Chair, CEO, Wilsey Bennett, Inc. (transportation, real estate
8/18/43 Investments, 1991; and investments).
Capital Trust, 1993;
Annuity Portfolios, 1994.
21
[CHARLES SCHWAB LOGO]
MONEY MARKET
SCHWAB MONEY
MARKET PORTFOLIO
MONEY MARKET
FOR THE PERIOD ENDED JUNE 30, 2004
Inception Date: May 3, 1994
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 AND PROCEDURES
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 web site at www.schwab.com/schwabfunds, the SEC's
web site at http://www.sec.gov, or by calling 1-800-435-4000.
MANAGEMENT'S DISCUSSION for the six months ended June 30, 2004
[PHOTO OF KAREN WIGGAN]
KAREN WIGGAN, a vice president of the investment adviser and senior portfolio
manager, has been responsible for day-to-day management of the portfolio since
1999. She joined the firm in 1987 and has worked in fixed-income portfolio
management since 1991.
THE INVESTMENT ENVIRONMENT AND THE PORTFOLIO
THE ENCOURAGING ECONOMIC CLIMATE THAT WAS REPORTED IN LATE 2003 CONTINUED TO
IMPROVE INTO 2004. Businesses added to their inventories, factory orders rose
amid the pick-up in capital spending and production gained some strength. Retail
sales continued to rise, despite a pause in the upward trend in consumer
confidence. Mortgage refinancing activity, while still significant, waned as
mortgage rates inched slightly upward. The only big piece missing was job
growth, which remained sluggish through the beginning of first quarter.
Amid this benign inflationary environment, the Federal Reserve (the Fed) elected
to hold the Fed funds rate at a 45-year low in March to provide liquidity
necessary to maintain economic growth. Job growth picked up strongly in March
and continued into the second quarter. With the economic recovery now
broad-based, investors, who only a year ago feared deflation, now started to
worry about inflation.
Inflationary concerns were based on surging oil prices, which hit a 13-year high
amid tight supplies. And while commodity prices moderated somewhat during the
report period, previous increases started to show up in broad measures of
inflation. Labor costs also were beginning to rise.
DURING THE SECOND QUARTER, IN ANTICIPATION OF THE FED TIGHTENING (RAISING
RATES), WE BEGAN SHORTENING THE WEIGHTED AVERAGE MATURITIES OF OUR MONEY FUNDS.
During that time, most market watchers expected the Fed to raise interest rates,
and it did at the end of June. At that time the Federal Open Market Committee
increased the Fed funds target 0.25% to 1.25%, the first rate hike since May
2000, when the Fed funds target was raised to 6.50%.
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 Money Market Portfolio 1
MANAGEMENT'S DISCUSSION continued
PERFORMANCE AND PORTFOLIO FACTS as of 6/30/04
SEVEN-DAY YIELDS 1
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 0.66%
- --------------------------------------------------------------------------------
SEVEN-DAY EFFECTIVE YIELD 0.66%
- --------------------------------------------------------------------------------
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN
PERFORMANCE DATA QUOTED. TO OBTAIN MORE CURRENT PERFORMANCE INFORMATION, PLEASE
VISIT WWW.SCHWAB.COM/ANNUITY.
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 30 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 $1 PER SHARE, IT
IS POSSIBLE TO LOSE MONEY BY INVESTING IN A MONEY FUND.
Portfolio holdings may have changed since the report date.
1 Portfolio yields do not reflect the additional fees and expenses imposed by
the insurance company under the variable insurance product contract. If those
contract fees and expenses were included, the yields would be less than those
shown. Please refer to the variable insurance product prospectus for a
complete listing of these expenses.
2 Schwab Money Market Portfolio
SCHWAB MONEY MARKET PORTFOLIO
FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
1/1/04- 1/1/03- 1/1/02- 1/1/01- 1/1/00- 1/1/99-
6/30/04* 12/31/03 12/31/02 12/31/01 12/31/00 12/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA ($)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period 1.00 1.00 1.00 1.00 1.00 1.00
---------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.00 1 0.01 0.01 0.04 0.06 0.05
---------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.00) 1 (0.01) (0.01) (0.04) (0.06) (0.05)
---------------------------------------------------------------------------
Net asset value at end of period 1.00 1.00 1.00 1.00 1.00 1.00
---------------------------------------------------------------------------
Total return (%) 0.30 2 0.74 1.31 3.72 5.95 4.69
RATIOS/SUPPLEMENTAL DATA (%)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net operating expenses 0.45 3 0.44 0.48 0.49 0.49 4 0.50
Gross operating expenses 0.45 3 0.44 0.48 0.50 0.51 0.60
Net investment income 0.61 3 0.75 1.31 3.55 5.81 4.62
Net assets, end of period ($ x 1,000,000) 133 141 215 204 160 120
* Unaudited.
1 Per-share amount was less than $0.01.
2 Not annualized.
3 Annualized.
4 The ratio of net operating expenses would have been 0.48% if certain
non-routine expenses (proxy fees) had not been included.
See financial notes. 3
SCHWAB MONEY MARKET PORTFOLIO
PORTFOLIO HOLDINGS as of June 30, 2004; unaudited
This section shows all the securities in the fund's portfolio and their value,
as of the report date.
For fixed-rate obligations, the rate shown is the effective yield at the time of
purchase, except for U.S. government agency coupon notes and U.S. Treasury
notes, for which the rate shown is the interest rate (the rate established when
obligation was issued). For variable-rate obligations, the rate shown is the
rate as of the report date. For variable-rate obligations with scheduled
maturities greater than 397 days, the maturity shown is the later of the next
interest rate change date or demand date. For variable-rate obligations with
scheduled maturities less than 397 days, the maturity shown is the earlier of
the next interest rate change date or demand date. For variable-rate obligations
without demand features, the maturity shown is the next interest rate change
date.
COST VALUE
HOLDINGS BY CATEGORY ($x1,000) ($x1,000)
- --------------------------------------------------------------------------------
80.2% U.S. GOVERNMENT
SECURITIES 106,356 106,356
20.3% OTHER INVESTMENTS 26,889 26,889
- --------------------------------------------------------------------------------
100.5% TOTAL INVESTMENTS 133,245 133,245
(0.5)% OTHER ASSETS AND
LIABILITIES -- (700)
- --------------------------------------------------------------------------------
100.0% TOTAL NET ASSETS -- 132,545
ISSUER FACE AMOUNT VALUE
RATE, MATURITY DATE ($ x 1,000) ($ x 1,000)
U.S. GOVERNMENT SECURITIES 80.2% of net assets
DISCOUNT NOTES 70.5%
---------------------------------------------------------------------------
FANNIE MAE
1.02%, 07/07/04 4,000 3,999
1.16%, 07/07/04 1,000 1,000
1.04%, 07/20/04 2,000 1,999
1.06%, 07/21/04 4,000 3,998
1.20%, 07/21/04 3,000 2,998
1.04%, 07/23/04 3,000 2,998
1.28%, 08/11/04 4,000 3,994
1.08%, 08/18/04 2,000 1,997
1.28%, 08/25/04 2,865 2,859
1.10%, 10/12/04 1,000 997
1.16%, 10/12/04 2,000 1,993
FEDERAL FARM CREDIT BANK
1.00%, 07/12/04 4,000 3,999
1.21%, 07/13/04 9,000 8,996
1.30%, 07/13/04 1,050 1,050
1.04%, 08/12/04 2,000 1,998
1.26%, 02/15/05 1,000 992
FEDERAL HOME LOAN BANK
1.03%, 07/07/04 3,950 3,949
1.05%, 07/07/04 1,500 1,500
1.02%, 07/12/04 3,000 2,999
1.15%, 07/12/04 2,506 2,505
1.20%, 07/20/04 1,000 999
1.05%, 07/21/04 2,000 1,999
1.19%, 07/21/04 3,000 2,998
1.04%, 07/23/04 2,000 1,999
1.05%, 07/23/04 1,000 999
1.09%, 08/27/04 2,000 1,997
1.35%, 08/27/04 1,214 1,211
1.08%, 09/14/04 1,500 1,497
FREDDIE MAC
1.04%, 07/06/04 1,000 1,000
1.11%, 07/06/04 3,000 2,999
1.04%, 07/13/04 1,762 1,761
1.04%, 07/15/04 3,248 3,247
1.05%, 07/15/04 1,000 1,000
1.05%, 07/20/04 1,100 1,099
1.03%, 07/21/04 1,000 999
1.27%, 08/17/04 2,100 2,096
1.07%, 08/24/04 2,000 1,997
1.12%, 09/09/04 1,000 998
1.25%, 09/09/04 1,800 1,796
1.21%, 10/19/04 2,000 1,993
1.22%, 10/19/04 2,000 1,993
-------
93,497
COUPON NOTES 9.7%
---------------------------------------------------------------------------
FANNIE MAE
6.50%, 08/15/04 1,550 1,560
FEDERAL HOME LOAN BANK
3.63%, 10/15/04 2,500 2,516
4.13%, 05/13/05 1,000 1,022
FREDDIE MAC
3.00%, 07/15/04 3,750 3,753
1.40%, 08/11/04 2,000 2,000
4.50%, 08/15/04 2,000 2,008
-------
12,859
4 See financial notes.
SCHWAB MONEY MARKET PORTFOLIO
MATURITY AMOUNT VALUE
SECURITY ($ x 1,000) ($ x 1,000)
OTHER INVESTMENTS 20.3% of net assets
REPURCHASE AGREEMENTS 20.3%
--------------------------------------------------------------------------
CREDIT SUISSE FIRST BOSTON L.L.C.
Tri-Party Repurchase Agreement
Collateralized by U.S. Treasury
Securities with a value of $28,238
1.25%, issued 06/30/04 due
07/01/04 26,890 26,889
END OF INVESTMENTS.
See financial notes. 5
SCHWAB MONEY MARKET PORTFOLIO
Statement of
ASSETS AND LIABILITIES
As of June 30, 2004; unaudited. All numbers x 1,000 except NAV.
ASSETS
- --------------------------------------------------------------------------------
Investments, at value $106,356 a
Repurchase agreements, at value 26,889 a
Receivables:
Interest 160
Fund shares sold 106
Prepaid expenses + 1
------------
TOTAL ASSETS 133,512
LIABILITIES
- --------------------------------------------------------------------------------
Payables:
Dividends to Shareholders 35
Fund shares redeemed 892
Investment advisory and administration fees 1
Accrued expenses + 39
------------
TOTAL LIABILITIES 967
NET ASSETS
- --------------------------------------------------------------------------------
TOTAL ASSETS 133,512
TOTAL LIABILITIES - 967
------------
NET ASSETS $132,545
NET ASSETS BY SOURCE
Capital received from investors 132,560
Net realized capital losses (15)
NET ASSET VALUE (NAV)
SHARES
NET ASSETS / OUTSTANDING = NAV
$132,545 132,592 $1.00
Unless stated, all numbers x 1,000.
a The amortized cost for the fund's securities was $133,245.
FEDERAL TAX DATA
- -----------------------------------------------
COST BASIS OF PORTFOLIO $133,245
AS OF DECEMBER 31, 2003:
UNUSED CAPITAL LOSSES:
Expires 12/31 of: Loss amount:
2005 $1
2006 3
2007 9
2008 + 2
-------------
$15
6 See financial notes.
SCHWAB MONEY MARKET PORTFOLIO
Statement of
OPERATIONS
For January 1, 2004 through June 30, 2004; unaudited. All numbers x 1,000.
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Interest $705
EXPENSES
- --------------------------------------------------------------------------------
Investment adviser and administrator fees 253 a
Trustees' fees 13 b
Custodian and portfolio accounting fees 10
Professional fees 16
Shareholder reports 4
Other expenses + 4
--------
TOTAL EXPENSES 300 c
INCREASE IN NET ASSETS FROM OPERATIONS
- --------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 705
TOTAL EXPENSES - 300
--------
NET INVESTMENT INCOME 405
--------
INCREASE IN NET ASSETS FROM OPERATIONS $405
Unless stated, all numbers x 1,000.
a Calculated on a graduated basis as a percentage of average daily net assets:
0.38% of the first $1 billion, 0.35% over $1 billion, 0.32% over $10 billion,
0.30% over $20 billion and 0.27% over $40 billion.
b For the fund's independent trustees only.
c The investment adviser (CSIM) guarantees to limit the operating expenses of
this fund through April 30, 2005 to 0.50% of average daily net assets. This
limit doesn't include interest, taxes and certain non-routine expenses.
See financial notes. 7
SCHWAB MONEY MARKET PORTFOLIO
Statements of
CHANGES IN NET ASSETS
For the current and prior report periods. All numbers x 1,000.
Figures for the current period are unaudited.
OPERATIONS
- --------------------------------------------------------------------------------
1/1/04-6/30/04 1/1/03-12/31/03
Net investment income $405 $1,354
------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS 405 1,354
DISTRIBUTIONS PAID
- --------------------------------------------------------------------------------
Dividends from net investment income 405 1,354 a
TRANSACTIONS IN FUND SHARES b
- --------------------------------------------------------------------------------
Shares sold 72,233 260,198
Shares reinvested 370 1,354
Shares redeemed + (80,969) (335,840)
------------------------------------
NET TRANSACTIONS IN FUND SHARES (8,366) (74,288)
NET ASSETS
- --------------------------------------------------------------------------------
Beginning of period 140,911 215,199
Total decrease + (8,366) (74,288) c
------------------------------------
END OF PERIOD $132,545 $140,911
Unless stated, all numbers x 1,000.
a The tax-basis components of distributions for the period ended 12/31/03 are:
Ordinary income $1,354
Long-term capital gains $--
b Because all transactions in this section took place at $1.00 per share,
figures for share quantities are the same as for dollars.
c Represents the changes in net assets from operations plus the changes in value
of transactions in fund shares, minus distributions paid.
8 See financial notes.
SCHWAB MONEY MARKET PORTFOLIO
FINANCIAL NOTES unaudited
BUSINESS STRUCTURE OF THE FUND
THE FUND DISCUSSED IN THIS REPORT IS A SERIES OF SCHWAB ANNUITY PORTFOLIOS, A
NO-LOAD, OPEN-END MANAGEMENT INVESTMENT COMPANY. The company is organized as a
Massachusetts business trust and is registered under the Investment Company Act
of 1940, as amended. The sidebar shows the fund in this report and its trust.
THE FUND 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 trust may issue 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.
FUND OPERATIONS
Most of the fund's investments are described in sections earlier in this report.
However, there are certain other investments and policies that may affect the
fund's financials. The most significant of these are described below. Other
policies concerning the fund's business operations also are described here.
THE FUND DECLARES DIVIDENDS EVERY DAY IT IS OPEN FOR BUSINESS. These dividends,
which are equal to the fund's net investment income for that day, are paid out
to shareholders once a month. The fund may make distributions from any net
realized capital gains once a year.
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.
THE FUND MAY ENTER INTO REPURCHASE AGREEMENTS. In a repurchase agreement, the
fund buys a security from another party (usually a financial institution) with
the agreement that it be sold back in the future. The
THE TRUST AND ITS FUNDS
This list shows all of the funds included in Schwab Annuity Portfolios. The fund
discussed in this report is highlighted.
SCHWAB ANNUITY PORTFOLIOS
Organized January 21, 1994
Schwab Money Market Portfolio
Schwab MarketTrack Growth Portfolio II
Schwab S&P 500 Portfolio
9
SCHWAB MONEY MARKET PORTFOLIO
date, price and other conditions are all specified when the agreement is
created. Any repurchase agreement 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 its market
value is at least equal to the repurchase price under the agreement.
THE FUND PAYS FEES TO AFFILIATES OF THE INVESTMENT ADVISER FOR VARIOUS SERVICES.
Through its trust, the fund has agreements with Charles Schwab Investment
Management, Inc. (CSIM) to provide investment advisory and administrative
services and with Charles Schwab & Co., Inc. (Schwab) to provide transfer agent,
shareholder services and transaction services.
Although these agreements specify certain fees for these services, CSIM and
Schwab have made additional agreements with the fund that may limit the total
expenses charged. The rates and limitations for these fees are described in the
fund's Statement of Operations.
THE FUND MAY ENGAGE IN CERTAIN TRANSACTIONS INVOLVING AFFILIATES. The fund may
make direct transactions with certain other SchwabFunds 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.
Pursuant to an exemptive order issued by the SEC, the funds may enter into
interfund borrowing and lending transactions within the SchwabFunds. 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 SchwabFunds.
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.
THE FUND MAY BORROW MONEY FROM BANKS AND CUSTODIANS. The fund may obtain
temporary bank loans through the trust to use for meeting shareholder
redemptions or for extraordinary or emergency purposes. The trust has custodian
overdraft facilities and line of credit arrangements of $150 million and $100
million with PNC Bank, N.A. and Bank of America, N.A., respectively. The fund
pays interest on the amounts it borrows at rates that are negotiated
periodically.
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 net realized capital gains (if any) to its respective
shareholders each year. As long as the fund meets the tax requirements, it is
not required to pay federal income tax.
UNDER THE FUND'S ORGANIZATIONAL DOCUMENTS, ITS OFFICERS AND TRUSTEES ARE
INDEMNIFIED AGAINST CERTAIN LIABILITY 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.
10
SCHWAB MONEY MARKET PORTFOLIO
ACCOUNTING POLICIES
The following are the main policies the fund uses in preparing its financial
statements.
THE FUND VALUES ITS SECURITIES AT AMORTIZED COST, which approximates market
value.
SECURITY TRANSACTIONS are recorded as of the date the order to buy or sell the
security is executed.
INTEREST INCOME is recorded as it accrues. If the fund bought a debt instrument
at a discount (that is, for less than its face value) or a premium (more than
face value), it amortizes the discount or premium from the current date up 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.
REALIZED GAINS AND LOSSES from security transactions are based on the identified
costs of the securities involved.
EXPENSES that are specific to the fund are charged directly to the fund.
Expenses that are common to all funds within the trust generally are allocated
among the funds in proportion to their average daily net assets.
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 keeps certain assets in segregated accounts, as may be
required by securities law.
THE ACCOUNTING POLICIES DESCRIBED ABOVE 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.
11
SCHWAB MONEY MARKET PORTFOLIO
FUND TRUSTEES unaudited
A fund's Board of Trustees is responsible for protecting the interests of
that fund's shareholders. The tables below give information about the
people who serve as trustees and officers for the SchwabFunds(R),
including the funds covered in this report. Trustees remain in office
until they resign, retire or are removed by shareholder vote. 1
Under the Investment Company Act of 1940, any officer, director, or
employee of Schwab or CSIM is considered an "interested person," meaning
that he or she is considered to have a business interest in Schwab or
CSIM. These individuals are listed as "interested trustees." The
"independent trustees" are individuals who, under the 1940 Act, are not
considered to have a business interest in Schwab or CSIM.
Each of the SchwabFunds(R) (of which there were 49 as of 6/30/04) belongs
to one of these trusts: The Charles Schwab Family of Funds, Schwab
Investments, Schwab Capital Trust or Schwab Annuity Portfolios. Currently
all these trusts have the same trustees and officers. 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.
INDIVIDUALS WHO ARE INTERESTED TRUSTEES AND OFFICERS OF THE TRUST
TRUST POSITION(S);
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
CHARLES R. SCHWAB 2 Chair, Trustee: Chair, Director, The Charles Schwab Corp., Charles Schwab & Co., Inc.
7/29/37 Family of Funds, 1989; Charles Schwab Investment Management, Inc., Charles Schwab
Investments, 1991; Holdings (UK); CEO, Director, Charles Schwab Holdings, Inc.; Chair,
Capital Trust, 1993; CEO Schwab (SIS) Holdings, Inc. I, Schwab International Holdings, Inc.;
Annuity Portfolios, 1994. Director, U.S. Trust Corp., United States Trust Co. of New York,
Siebel Systems (software), Xsign, Inc. (electronic payment systems);
Trustee, Stanford University. Until 5/04: Director, The Gap, Inc.
(clothing retailer). Until 2003: Co-CEO, The Charles Schwab Corp.
Until 2002: Director, Audiobase, Inc. (Internet audio solutions). Until
5/02: Director, Vodaphone AirTouch PLC (telecommunications).
Until 7/01: Director, The Charles Schwab Trust Co.; TrustMark, Inc.
1 The SchwabFunds retirement policy requires that independent trustees elected
after January 1, 2000 retire at age 72 or after twenty years of service as a
trustee, whichever comes first. Independent trustees elected prior to January
1, 2000 will retire on the following schedule: Messrs. Holmes and Dorward will
retire on December 31, 2007, and Messrs. Stephens and Wilsey will retire on
December 31, 2010.
2 In addition to their positions with the investment adviser and the
distributor, Ms. Lepore and Mr. Schwab also own stock of The Charles Schwab
Corporation.
12
SCHWAB MONEY MARKET PORTFOLIO
INDIVIDUALS WHO ARE INTERESTED TRUSTEES BUT NOT OFFICERS OF THE TRUST
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
DAWN G. LEPORE 1 2003 (all trusts). Vice Chair, The Charles Schwab Corp.; Until 10/01: CIO, The
3/21/54 Charles Schwab Corporation. Until 1999: EVP, The Charles Schwab
Corporation. Director, Wal-Mart Stores, eBay, Inc.
INDIVIDUALS WHO ARE OFFICERS OF THE TRUST BUT NOT TRUSTEES
NAME AND BIRTHDATE TRUST OFFICE(S) HELD MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
RANDALL W. MERK President, CEO President, CEO, Charles Schwab Investment Management, Inc;
7/25/54 (all trusts). EVP, Charles Schwab & Co., Inc.; Director, Charles Schwab Worldwide
Funds PLC, Charles Schwab Asset Management (Ireland) Ltd. Until
9/02: President, CIO, American Century Investment Management;
Director, American Century Cos., Inc. Until 6/01: CIO, Fixed Income,
American Century Cos., Inc. Until 1997: SVP, Director, Fixed Income
and Quantitative Equity Portfolio Management, Twentieth Century
Investors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
TAI-CHIN TUNG Treasurer, Principal SVP, CFO, Charles Schwab Investment Management, Inc.; SVP,
3/7/51 Financial Officer The Charles Schwab Trust Co.; Director, Charles Schwab Asset
(all trusts). Management (Ireland) Ltd., Charles Schwab Worldwide Funds PLC.
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STEPHEN B. WARD SVP, Chief Investment SVP, Chief Investment Officer, Director, Charles Schwab Investment
4/5/55 Officer (all trusts). Management, Inc.; CIO, The Charles Schwab Trust Co.
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KOJI E. FELTON Secretary (all trusts). SVP, Chief Counsel, Assistant Corporate Secretary, Charles Schwab
3/13/61 Investment Management, Inc. Until 6/98: Branch Chief in Enforcement,
U.S. Securities and Exchange Commission, San Francisco.
1 In addition to their positions with the investment adviser and the
distributor, Ms. Lepore and Mr. Schwab also own stock of The Charles Schwab
Corporation.
13
SCHWAB MONEY MARKET PORTFOLIO
INDIVIDUALS WHO ARE INDEPENDENT TRUSTEES
NAME AND BIRTHDATE TRUSTEE SINCE MAIN OCCUPATIONS AND OTHER DIRECTORSHIPS AND AFFILIATIONS
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MARIANN BYERWALTER 2000 (all trusts). Chair, JDN Corp. Advisory LLC; Trustee, Stanford University, America
8/13/60 First Cos., (venture capital/fund management), Redwood Trust, Inc.
(mortgage finance), Stanford Hospitals and Clinics, SRI International
(research), PMI Group, Inc. (mortgage insurance), Lucile Packard
Children's Hospital, Laudus Trust, Laudus Variable Insurance Trust.
2001: Special Advisor to the President, Stanford University. Until 2002:
Director, LookSmart, Ltd. (Internet infrastructure). Until 2001: VP,
Business Affairs, CFO, Stanford University.
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DONALD F. DORWARD Family of Funds, 1989; CEO, Dorward & Associates (corporate management, marketing and
9/23/31 Investments, 1991; communications consulting). Until 1999: EVP, Managing Director,
Capital Trust, 1993; Grey Advertising.
Annuity Portfolios,1994.
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WILLIAM A. HASLER 2000 (all trusts). Co-CEO, Aphton Corp. (bio-pharmaceuticals). Trustee, Solectron Corp.
11/22/41 (manufacturing), Airlease Ltd. (aircraft leasing), Mission West
Properties (commercial real estate), Stratex Corp. (network equipment);
Public Governor, Laudus Trust, Laudus Variable Insurance Trust;
Member, executive committee, Pacific Stock & Options Exchange.
Until 2003: Trustee, Tenera, Inc. (services and software). Until 1998:
Dean, Haas School of Business, University of California, Berkeley.
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ROBERT G. HOLMES Family of Funds, 1989; Chair, CEO, Director, Semloh Financial, Inc. (international financial
5/15/31 Investments, 1991; services and investment advice).
Capital Trust, 1993;
Annuity Portfolios,1994.
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GERALD B. SMITH 2000 (all trusts). Chair, CEO, Founder, Smith Graham & Co. (investment advisors);
9/28/50 Trustee, Rorento N.V. (investments--Netherlands), Cooper Industries
(electrical products, tools and hardware); Member, audit committee,
Northern Border Partners, L.P. (energy). Until 2002: Director, Pennzoil-
Quaker State Co. (oil and gas).
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DONALD R. STEPHENS Family of Funds, 1989; Managing Partner, D.R. Stephens & Co. (investments). Until 1996:
6/28/38 Investments, 1991; Chair, CEO, North American Trust (real estate investment trust).
Capital Trust, 1993;
Annuity Portfolios, 1994.
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MICHAEL W. WILSEY Family of Funds, 1989; Chair, CEO, Wilsey Bennett, Inc. (transportation, real estate
8/18/43 Investments, 1991; and investments).
Capital Trust, 1993;
Annuity Portfolios, 1994.
14
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.
Not applicable for period ending prior to July 9, 2004.
ITEM 7: DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8: PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 9: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 10: 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, Tai-Chin Tung, 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 Registrant's last fiscal half-year, there have been no changes in
Registrant's internal control over financial reporting that the above
officers believe to have materially affected, or to be reasonably likely to
materially affect, Registrant's internal control over financial reporting.
ITEM 11: 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
Chief Executive Officer
Date: August 12, 2004
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
Chief Executive Officer
Date: August 12, 2004
By: /s/ Tai-Chin Tung
----------------------------------
Tai-Chin Tung
Principal Financial Officer
Date: August 12, 2004