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As filed with the Securities and Exchange Commission on April 29, 1996; File
Nos. 33-74534 and 811-8314
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 3 /X/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 4 /X/
SCHWAB ANNUITY PORTFOLIOS
(Exact Name of Registrant as Specified in Charter)
101 Montgomery Street, San Francisco, California 94104
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code:
(415) 627-7000
Timothy F. McCarthy, President
Schwab Annuity Portfolios
101 Montgomery Street, San Francisco, California 94104
(Name and Address of Agent for Service)
Copies of communications to:
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Martin E. Lybecker, Esq. Frances Cole, Esq.
Ropes & Gray Charles Schwab Investment Management, Inc.
1301 K Street, N.W., Suite 800 East 101 Montgomery Street
Washington, D.C. 20005 San Francisco, CA 94104
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It is proposed that this filing will become effective (check appropriate box):
/X/ Immediately upon filing pursuant to paragraph (b)
/ / On (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / On (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / On (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check appropriate box:
/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
DECLARATION PURSUANT TO RULE 24f-2: Pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended, Registrant has registered an
indefinite number or amount of its shares of beneficial interest under the
Securities Act of 1933, as amended. The Rule 24f-2 Notice for Registrant's
fiscal year ended December 31, 1995 was filed February 20, 1996.
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CROSS REFERENCE SHEET
SCHWAB ANNUITY PORTFOLIOS:
Schwab Money Market Portfolio
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Part A Item Prospectus Caption
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Cover Page Cover Page
Synopsis Key Features of the Fund; Summary of Expenses
Condensed Financial Information Financial Highlights
General Description of Registrant Investment Objective and Policies; Investment Techniques
Management of the Fund Organization and Management of the Fund
Management's Discussion of Fund Performance How the Fund Reports Performance
Capital Stock and Other Securities Cover Page; Organization and Management of the Fund;
Distributions and Taxes; Share Price Calculation
Purchase of Securities Being Offered Investing in Shares of the Fund
Redemption or Repurchase Investing in Shares of the Fund
Pending Legal Proceedings Inapplicable
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SCHWAB MONEY MARKET PORTFOLIO
----------------
PROSPECTUS APRIL 29, 1996
THE SCHWAB MONEY MARKET PORTFOLIO(the "Fund")is designed for investors who seek
maximum current income consistent with liquidity and stability of capital. The
Fund is a diversified investment portfolio of Schwab Annuity Portfolios (the
"Trust"), a no-load, open-end, management investment company organized as a
Massachusetts business trust. The Fund is currently the only series of the
Trust.
INVESTING IN THE FUND: The Fund is designed to serve as an investment vehicle
to fund benefits under variable annuity contracts ("Contracts") issued through
separate accounts ("Separate Accounts") of participating life insurance
companies ("Participating Insurance Companies"). Fund shares are currently
offered to Participating Insurance Companies and their Separate Accounts to fund
benefits under Contracts. In the future, Fund shares may be offered to
Participating Insurance Companies and their Separate Accounts to fund benefits
under Contracts and variable life insurance policies ("VLI Policies") and to
retirement and pension plans qualified under the Internal Revenue Code of 1986,
as amended ("Plans").
ABOUT THIS PROSPECTUS: THIS PROSPECTUS CONCISELY PRESENTS IMPORTANT INFORMATION
YOU SHOULD KNOW BEFORE INVESTING IN THE FUND. PLEASE READ IT CAREFULLY AND
RETAIN IT FOR FUTURE REFERENCE. You can find more detailed information about
this Fund in the Statement of Additional Information dated April 29, 1996 (as
amended from time to time). The Statement of Additional Information has been
filed with the Securities and Exchange Commission ("SEC") and is incorporated by
reference into this Prospectus. To receive a free copy of this Prospectus or the
Statement of Additional Information, call the Annuity Service Center at Charles
Schwab & Co., Inc. ("Schwab") at 800-838-0650 or write to P.O. Box 7785, San
Francisco, California 94120-9420; in New York State, call 800-838-0649 or write
the Annuity Service Center at P.O. Box 7806, San Francisco, California
94120-9327.
TABLE OF CONTENTS
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KEY FEATURES OF THE FUND........................................................... 2
SUMMARY OF EXPENSES................................................................ 3
FINANCIAL HIGHLIGHTS............................................................... 4
INVESTMENT OBJECTIVE AND POLICIES.................................................. 5
INVESTMENT TECHNIQUES.............................................................. 6
ORGANIZATION AND MANAGEMENT OF THE FUND............................................ 8
DISTRIBUTIONS AND TAXES............................................................ 10
SHARE PRICE CALCULATION............................................................ 11
HOW THE FUND REPORTS PERFORMANCE................................................... 12
INVESTING IN SHARES OF THE FUND.................................................... 12
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
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KEY FEATURES OF THE FUND
The Fund is a diversified investment portfolio of Schwab Annuity Portfolios. The
Fund is intended as an investment vehicle for Contracts and VLI Policies issued
through the Separate Accounts of Participating Insurance Companies and for
Plans. (See "Investing in Shares of the Fund.")
MAXIMUM CURRENT INCOME AND CREDIT SAFETY. The Fund seeks maximum current income
consistent with liquidity and stability of capital. The Fund invests in
high-quality debt securities that are deemed to mature within 397 days. (See
"Investment Objective and Policies.")
STABILITY OF PRINCIPAL. The Fund seeks to maintain a stable net asset value
("NAV") of $1.00 per share, although there is no assurance that it will be able
to do so. The Fund's shares are neither insured nor guaranteed by the U.S.
Government. (See "Investment Objective and Policies" and "Share Price
Calculation.")
PURCHASE, SALE AND AVAILABILITY OF FUND SHARES. You cannot buy or sell Fund
shares directly, but you may nevertheless allocate account value under your
Contract to and from the Fund in accordance with the terms of your Contract.
Please refer to the appropriate Separate Account Prospectus for further
information on how to make such allocations. (See "Investing in Shares of the
Fund.")
PROFESSIONAL MANAGEMENT. Charles Schwab Investment Management, Inc. (the
"Investment Manager") currently provides investment management services to 23
mutual funds, including the Fund, with over $35 billion in assets as of April
15, 1996. (See "Organization and Management of the Fund.")
SHAREHOLDER COMMUNICATIONS. A representative of the Schwab Annuity Service
Center is available toll-free to assist you at 800-838-0650 (800-838-0649 in New
York State). (See "Investing in Shares of the Fund.")
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SUMMARY OF EXPENSES1
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Shareholder Transaction Expenses....................................... None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET
ASSETS):
Management Fee (after fee reduction)2.................................. 0.44%
12b-1 Fees............................................................. None
Other Expenses (after expense reimbursement)3.......................... 0.06%
-----
TOTAL FUND OPERATING EXPENSES (AFTER FEE REDUCTION AND EXPENSE
REIMBURSEMENT)2,3.................................................... 0.50%
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(1) The table above refers only to expenses of the Fund. For expenses of the
Contracts, see the appropriate Separate Account Prospectuses.
(2) This amount reflects the Investment Manager's guarantee that, through at
least April 30, 1997, the Fund's management fee will not exceed 0.44% of the
Fund's average daily net assets. If there were no such reduction, the maximum
management fee for the Fund would have been 0.46% of the Fund's average daily
net assets for the fiscal year ended December 31, 1995. (See "Organization and
Management of the Fund--Operating Fees and Expenses.")
(3) This amount reflects the Investment Manager's guarantee that, through at
least April 30, 1997, the total fund operating expenses of the Fund will not
exceed 0.50% of the Fund's average daily net assets. Without this guarantee,
which was in effect during the fiscal year ended December 31, 1995, the Fund's
other expenses and total fund operating expenses would have been 0.56% and
1.02%, respectively, of the Fund's average daily net assets.
EXAMPLE. You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each period:
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
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$5 $16 $28 $ 63
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THE PURPOSE OF THE PRECEDING TABLE IS TO ASSIST INVESTORS IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT AN INVESTOR IN THE FUND WILL BEAR DIRECTLY OR
INDIRECTLY. This example reflects the Investment Manager's guarantee that,
through at least April 30, 1997, the total fund operating expenses will not
exceed 0.50% of the Fund's average daily net assets. This example does not
reflect Separate Account or Contract charges. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN. The example assumes a 5% annual rate of return pursuant
to requirements of the SEC. THIS HYPOTHETICAL RATE OF RETURN IS NOT INTENDED TO
BE REPRESENTATIVE OF PAST OR FUTURE PERFORMANCE.
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FINANCIAL HIGHLIGHTS
The following information with respect to the Fund has been audited by Price
Waterhouse LLP, independent accountants, whose unqualified report is included in
the Statement of Additional Information, which contains additional financial
data and related notes. A free copy of this statement may be obtained by calling
the telephone number or writing to the address on the first page of this
Prospectus.
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FOR THE FISCAL PERIOD
MAY 3, 1994
FOR THE FISCAL (COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
DECEMBER 31, DECEMBER 31,
1995 1994
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Net asset value at beginning of period................... $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................................. 0.05 0.03
Net realized and unrealized gain (loss) on
investments......................................... -- --
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Total from investment operations....................... 0.05 0.03
LESS DISTRIBUTIONS
Dividends from net investment income................... (0.05) (0.03)
Distributions from realized gain on investments........ -- --
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Total distributions.................................... (0.05) (0.03)
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Net asset value at end of period......................... $ 1.00 $ 1.00
=========== ==========
Total return1............................................ 5.26% 2.55%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period.............................. $ 16,912,432 $ 7,409,454
Ratio of expenses to average net assets2............... 0.50% 0.50%*
Ratio of net investment income to average net assets2.. 5.17% 4.16%*
</TABLE>
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(1) Total return figures do not reflect Separate Account or Contract charges. If
included, these charges would reduce the total return figures for each fiscal
period shown.
(2) The Investment Manager has reduced a portion of its fee and absorbed certain
expenses in order to limit the Fund's ratio of operating expenses to average net
assets. Had these fees and expenses not been reduced and absorbed, the ratio of
expenses to average net assets for the fiscal periods ended December 31, 1995
and 1994, would have been 1.02% and 2.10%*, respectively, and the ratio of net
investment income to average net assets would have been 4.65% and 2.56%*,
respectively.
* Annualized
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INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is maximum current income consistent with
liquidity and stability of capital. This investment objective is fundamental
and, along with certain investment restrictions adopted by the Fund (see
"Investment Policies and Restrictions" in the Statement of Additional
Information), cannot be changed without approval by holders of a majority of the
Fund's outstanding voting shares, as defined in the Investment Company Act of
1940, as amended (the "1940 Act"). The Fund pursues its objective by investing
in the following types of U.S. dollar-denominated debt instruments, which the
Investment Manager has determined to present minimal credit risk:
- - Certificates of deposit, time deposits, notes and bankers' acceptances of
domestic banks (including their foreign branches), U.S. branches of foreign
banks and foreign branches of foreign banks having capital, surplus and
undivided profits in excess of $100 million.
- - Commercial paper, including asset-backed commercial paper, rated in one of the
two highest rating categories by Moody's Investors Service, Standard & Poor's
Corporation, Duff & Phelps, Inc., Fitch Investors Service, Inc. or any other
nationally recognized statistical rating organization ("NRSRO"), or commercial
paper or notes of issuers with an unsecured debt issue outstanding currently
rated in one of the two highest rating categories by any NRSRO where the
obligation is on the same or a higher level of priority and collateralized to
the same extent as the rated issue. The Fund may also invest in other
corporate obligations such as publicly traded bonds, debentures and notes
rated in one of the two highest rating categories by any NRSRO and other
similar securities which, if unrated by any NRSRO, are determined by the
Investment Manager, using guidelines approved by the Board of Trustees, to be
at least equal in quality to one or more of the above referenced securities.
Notwithstanding the foregoing, the Fund may invest no more than 5% of its
total assets in securities that are given the second highest rating by any
NRSRO.
- - Obligations of, or guaranteed by, the U.S. or Canadian governments, their
agencies or instrumentalities.
- - Repurchase agreements involving obligations that are suitable for investment
under the categories listed above.
GOVERNMENT SECURITIES. The Fund may invest in U.S. Treasury notes, bills and
bonds, which are backed by the full faith and credit of the U.S. Government.
Some securities issued by U.S. Government agencies or instrumentalities are
supported by the credit of the agency or instrumentality, while others have an
additional line of credit with the U.S. Treasury. However, there is no guarantee
that the U.S. Government will provide support to such agencies or
instrumentalities. Accordingly, such securities may involve risk of loss of
principal and interest. Short-term U.S. Government obligations generally are
considered to be among the safest short-term investments. The Government
guarantee of certain securities owned by the Fund, however, does not guarantee
the net asset value of the Fund's shares. The Fund seeks to maintain its net
asset value at $1.00 per share. (See "Share Price Calculation.")
5
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EURODOLLAR CERTIFICATES OF DEPOSIT AND FOREIGN SECURITIES. To the extent the
Fund purchases Eurodollar certificates of deposit and other similar obligations,
consideration will be given to the fact that these issuers may not be subject to
the same regulatory requirements as U.S. issuers, including U.S. banks.
Investments in securities of foreign issuers or securities principally traded
overseas may involve certain special risks due to foreign economic, political
and legal developments. Furthermore, issuers of foreign securities are subject
to different, often less comprehensive, accounting, reporting and disclosure
requirements than domestic issuers. The securities of some foreign companies and
foreign securities markets are less liquid and at times more volatile than
securities of comparable U.S. companies and U.S. securities markets. Foreign
brokerage commissions and other fees are also generally higher than in the
United States. There are also special tax considerations which apply to
securities of foreign issuers and securities principally traded overseas.
PRIVATE PLACEMENTS. The Fund may invest in commercial paper that is exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933 ("Section
4(2) paper"). Federal securities laws restrict the disposition of Section 4(2)
paper. The Fund will not invest more than 10% of its assets in Section 4(2)
paper and other illiquid securities unless the Investment Manager determines, by
continuous reference to the appropriate trading markets and pursuant to
guidelines approved by the Board of Trustees, that any Section 4(2) paper held
by the Fund in excess of this level is liquid.
The Fund's ownership of Section 4(2) paper could have the effect of reducing the
Fund's liquidity to the extent that qualified institutional buyers become for a
time uninterested in purchasing these restricted securities.
ASSET-BACKED COMMERCIAL PAPER. The Fund may invest in asset-backed commercial
paper. Repayment of this type of commercial paper is intended to be obtained
from an identified pool of assets, including automobile receivables, credit-card
receivables and other types of assets. Asset-backed commercial paper is issued
by a special purpose vehicle (usually a corporation) that has been established
for the purpose of issuing the commercial paper and purchasing the underlying
pool of assets. The issuer of commercial paper bears the direct risk of
prepayment on the receivables constituting the underlying pool of assets. Credit
support for asset-backed securities may be based on the underlying assets or
provided by a third party. Credit enhancement techniques include letters of
credit, insurance bonds, limited guarantees and over-collateralization.
MATURITY. The Fund will purchase only securities that are deemed to mature in
397 days or less in accordance with federal securities regulations or securities
that have a variable rate of interest readjusted no less frequently than every
397 days.
INVESTMENT TECHNIQUES
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund may purchase securities
on a "when-issued" or "delayed delivery" basis. When-issued or delayed delivery
securities are securities purchased for future delivery at a stated price and
yield. The Fund generally will not pay for such securities or start earning
interest on them until they are received. Securities purchased on a when-issued
or delayed delivery basis are recorded as an asset. The value of such securities
may change as the general level of interest rates changes.
The Fund will not invest more than 25% of its assets in when-issued or delayed
delivery securities. The Fund will not purchase such securities for speculative
purposes and will expect to actually acquire the
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securities when purchased. However, the Fund reserves the right to sell any such
securities before their settlement dates if the Investment Manager deems such a
sale advisable.
REPURCHASE AGREEMENTS. The Fund may engage in repurchase agreements, which are
instruments under which the Fund acquires ownership of a security from a
broker-dealer or bank that agrees to repurchase the security at a mutually
agreed upon time and price (which price is higher than the purchase price),
thereby determining the yield during the Fund's holding period. Maturity of the
securities subject to repurchase may exceed one year.
If the seller of a repurchase agreement becomes bankrupt or otherwise defaults,
the Fund might incur expenses in enforcing its rights, and could experience
losses, including a decline in the value of the underlying securities and loss
of income. The Fund will enter into repurchase agreements only with banks and
other recognized financial institutions that the Investment Manager deems
creditworthy.
ILLIQUID SECURITIES. Pursuant to a fundamental policy as set forth in the
Statement of Additional Information, the Fund will not purchase illiquid
securities, including time deposits and repurchase agreements maturing in more
than 7 days, if, as a result thereof, more than 10% of the Fund's net assets
valued at the time of the transaction are invested in such securities.
VARIABLE RATE SECURITIES. The Fund may invest in instruments having rates of
interest that are adjusted periodically, or which "float" continuously according
to formulas intended to minimize any fluctuation in the values of the
instruments ("Variable Rate Securities"). The interest rate of Variable Rate
Securities ordinarily is determined by reference to, or is a percentage of, an
objective standard such as a bank's prime rate, the 90-day U.S. Treasury bill
rate or the rate of return on commercial paper or bank certificates of deposit.
As interest rates decrease or increase, Variable Rate Securities experience less
appreciation or depreciation than fixed rate obligations.
Some Variable Rate Securities ("Variable Rate Demand Securities") have a demand
feature entitling the purchaser to resell the securities at an amount
approximately equal to amortized cost, or the principal amount thereof plus
accrued interest. As is the case for other Variable Rate Securities, the
interest rate on Variable Rate Demand Securities varies according to some
objective standard intended to minimize fluctuation in the values of the
instruments. The Fund determines the maturity of Variable Rate Securities in
accordance with SEC rules.
SECURITIES LENDING. To increase its income, the Fund may lend its portfolio
securities to brokers, dealers and other financial institutions that borrow
securities. No more than one-third of the Fund's total assets may be represented
by loaned securities. The Fund's loans of portfolio securities will be fully
collateralized by cash, letters of credit or U.S. Government securities equal at
all times to 100% of the loaned securities' market value plus accrued interest.
As with other extensions of credit, there are risks of delay in recovery or even
losses of rights in the securities loaned should the borrower of the securities
fail financially. However, such loans will be made only to firms the Investment
Manager deems to be of good standing and when, in the judgment of the Investment
Manager, the income which can be earned currently from such loans justifies the
attendant risk.
BORROWING POLICY. Pursuant to a fundamental policy as set forth in the
Statement of Additional Information, the Fund may not borrow money except as a
temporary measure for extraordinary or
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emergency purposes, and then only in an amount up to one-third of the value of
its total assets in order to meet redemption requests. Any borrowings under this
provision will not be collateralized. The Fund will not borrow for leverage
purposes.
ADDITIONAL INFORMATION. Please see the Statement of Additional Information for
further information regarding foreign securities, Section 4(2) paper, the
investment rating categories employed by various NRSROs and other investment
techniques used by the Fund.
ORGANIZATION AND MANAGEMENT OF THE FUND
GENERAL OVERSIGHT. The Board of Trustees and officers of the Trust meet
regularly to review investments, performance, expenses and other business
affairs.
THE INVESTMENT MANAGER. Professional investment management for the Fund is
provided by the Investment Manager, Charles Schwab Investment Management, Inc.,
101 Montgomery Street, San Francisco, California 94104. The Investment Manager
provides a continuous investment program, including general investment and
economic advice regarding the Fund's investment strategies; manages the Fund's
investment portfolios; performs expense management, accounting and record
keeping; and provides other services necessary to the operation of the Fund and
the Trust. The Investment Manager, formed in 1989, is a wholly owned subsidiary
of The Charles Schwab Corporation and is the investment adviser and
administrator of the Schwab mutual fund complex, which as of April 15, 1996 had
aggregate net assets in excess of $35 billion.
TRANSFER AGENT AND SHAREHOLDER SERVICES. Schwab, 101 Montgomery Street, San
Francisco, California 94104, serves as shareholder services agent, transfer
agent and distributor for the Fund. Schwab was established in 1971 and is one of
America's largest discount brokers. The firm provides low-cost securities
brokerage and related financial services to over 3.3 million active customer
accounts and has over 230 branch offices. Schwab also offers convenient access
to financial information services and provides products and services that help
investors make investment decisions. Schwab is a wholly owned subsidiary of The
Charles Schwab Corporation. Charles R. Schwab is the founder, Chairman, Chief
Executive Officer and a Director of The Charles Schwab Corporation. As a result
of his beneficial ownership interests in and other relationships with The
Charles Schwab Corporation and its affiliates, Mr. Schwab may be deemed to be a
controlling person of Schwab and the Investment Manager.
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OPERATING FEES AND EXPENSES
Pursuant to its Investment Advisory and Administration Agreement with the Trust,
the Investment Manager receives from the Fund a graduated annual fee, payable
monthly, of 0.46% of the Fund's average daily net assets not in excess of $2
billion, 0.45% of such assets over $2 billion but not in excess of $3 billion,
and 0.40% of such net assets over $3 billion.
At least through April 30, 1997, the Investment Manager has guaranteed that the
management fee and total fund operating expenses for the Fund will not exceed
0.44% and 0.50%, respectively, of the Fund's average daily net assets. For the
fiscal year ended December 31, 1995, the Fund paid a management fee and total
fund operating expenses equal to 0.01% and 0.50%, respectively, of the Fund's
average daily net assets (after waivers and reimbursements). The following
expenses are not included as "operating expenses" for purposes of this
guarantee: interest expenses, taxes and capital items such as the cost of the
purchase or sale of portfolio securities, including brokerage fees or
commissions. The effect of this voluntary expense limitation is to maintain or
increase the Fund's total return to shareholders.
Schwab receives no compensation for its services as transfer agent, shareholder
services agent and distributor to the Fund. The Fund's Custodian is PNC Bank,
N.A.
OTHER EXPENSES. The Trust pays the expenses of its operations, including: the
fees and expenses for independent accountants, legal counsel and the custodian
of its assets; the cost of maintaining books and records of account;
registration fees; the fees and expenses of qualifying the Trust and its shares
for distribution under federal and state securities laws; and industry
association membership dues. These expenses generally will be allocated among
the Trust's investment portfolios ("Series"), including the Fund, on the basis
of relative net assets at the time the expense is incurred. However, expenses
directly attributable to a particular Series will be charged to that Series. The
organizational expenses of the Fund have been capitalized and are being
amortized over the first five years of the Fund's operations.
OTHER INFORMATION
Schwab Annuity Portfolios was organized as a business trust under the laws of
Massachusetts on January 21, 1994 and may issue an unlimited number of shares of
beneficial interest in one or more Series. Currently, only shares of the Fund
are offered. The Board of Trustees may authorize the issuance of shares of
additional Series if it deems it desirable. Shares within each Series have
equal, noncumulative voting rights and equal rights as to distributions, assets
and liquidation of such Series.
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SHAREHOLDER MEETINGS AND VOTING RIGHTS. The Trust is not required to hold
annual shareholders' meetings. It will, however, hold special meetings as
required or deemed desirable by the Board of Trustees for such purposes as
changing fundamental policies, electing or removing Trustees or approving or
amending an investment advisory agreement. In addition, a Trustee may be removed
by shareholders at a special meeting called upon written request of shareholders
owning in the aggregate at least 10% of the outstanding shares of the Trust. The
Fund acknowledges that the voting rights held by Participating Insurance
Companies and their Separate Accounts will be passed through to Contract owners.
Contract owners will vote by Series and not in the aggregate (for example, when
voting to approve an investment advisory agreement), except when voting in the
aggregate is permitted under the 1940 Act, such as for the election of Trustees.
DISTRIBUTIONS AND TAXES
THE FUND DECLARES DAILY DIVIDENDS WHICH ARE PAID OR REINVESTED MONTHLY.
DIVIDENDS AND OTHER DISTRIBUTIONS. On each day that the Fund's net asset value
per share is determined ("Business Day"), the Fund's net investment income is
declared as of the close of trading on the New York Stock Exchange (the
"Exchange") (generally 4:00 p.m. Eastern time) as a dividend to shareholders
of record at that time. Dividends are normally paid or reinvested, pursuant to
elections by Separate Accounts, on the 25th of each month, if a Business Day,
otherwise on the next Business Day, with the exception of the dividend paid or
reinvested in December, which is scheduled to be paid or reinvested on the last
Business Day in December.
FEDERAL INCOME TAX INFORMATION. The Fund has elected to be treated as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"), qualified as such and intends to continue to so qualify. In order
to so qualify, the Fund will distribute on a current basis substantially all of
its investment company taxable income and its net capital gains (if any) on an
annual basis and will meet certain other requirements. Such qualification
relieves the Fund of liability for federal income taxes to the extent the Fund's
earnings are distributed.
Internal Revenue Service regulations applicable to Separate Accounts generally
require that portfolios that serve as the funding vehicles for Separate Accounts
invest no more than 55% of the value of their total assets in one investment,
70% in two investments, 80% in three investments and 90% in four investments.
Alternatively, a portfolio will be treated as meeting these requirements for any
quarter of its taxable year if, as of the close of such quarter, the portfolio
meets the diversification requirements applicable to regulated investment
companies (see "Federal Income Taxes" in the Statement of Additional
Information) and no more than 55% of the value of its total assets consists of
cash and cash items (including receivables), U.S. Government securities and
securities of other regulated investment companies. The Fund intends to meet
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these requirements. Internal Revenue Service regulations also limit the types of
investors that may invest in such a portfolio. The Fund intends to meet this
limitation by offering its shares only to Participating Insurance Companies and
their Separate Accounts in connection with the purchase of Contracts and VLI
Policies and to Plans.
For more information regarding the federal income tax consequences of investing
in the Fund, see "Federal Income Taxes" in the Statement of Additional
Information. For information concerning the tax consequences of Contract
ownership, Contract owners should consult the appropriate Separate Account
Prospectus.
SHARE PRICE CALCULATION
The price of a share on any given day is its "net asset value" or "NAV." This
figure is computed by taking total Fund assets, subtracting any liabilities and
dividing the resulting amount by the number of Fund shares outstanding. The net
asset value per share of the Fund is determined on each day both the Federal
Reserve Bank of New York and the Exchange are open for business as of the close
of normal business (generally 4:00 p.m. Eastern time). Purchase and redemption
orders from Separate Accounts investing in the Fund that are received and
accepted by a Participating Insurance Company, as the Fund's designee, by 4:00
p.m. Eastern time will generally be computed at the Fund's NAV determined on
that day. While the Fund attempts to maintain its NAV at a constant $1.00 per
share, Fund shares are not insured against a reduction in NAV.
The Fund values its portfolio securities at amortized cost, which means that
these securities are valued at their acquisition cost (as adjusted for
amortization of premium or discount) rather than at current market value.
Calculations are made to compare the value of the Fund's investments, using the
amortized cost method, with market values. Market valuations are obtained by
using: (1) actual quotations provided by third-party pricing services or market
makers; (2) estimates of market value; or (3) values obtained from yield data
relating to comparable classes of money market instruments published by
reputable sources at the mean between the bid and asked prices for the
instruments. If a deviation of 1/2 of 1% or more were to occur between the
Fund's NAV calculated by reference to market values and the Fund's $1.00 per
share amortized cost value, or if there were any other deviation which the Board
of Trustees believed would result in a material dilution to shareholders or
purchasers, the Board of Trustees would promptly consider what action, if any,
should be initiated.
11
<PAGE> 14
HOW THE FUND REPORTS PERFORMANCE
From time to time, the Fund may advertise its yield and effective yield.
Performance figures are based upon historical results and are not intended to
indicate future performance.
Yield refers to the income generated by a hypothetical investment in the Fund
over a specific 7-day period. This income is then annualized, which means that
the income generated during the 7-day period is assumed to be generated each
week over an annual period and is shown as a percentage of the hypothetical
investment.
Effective yield is calculated similarly, but the income earned by the investment
is assumed to be compounded weekly when annualized. Effective yield will be
slightly higher than yield due to this compounding effect. (See "Yield" in the
Statement of Additional Information.)
The performance of the Fund may be compared to that of other mutual funds
tracked by mutual fund rating services, various indices of investment
performance, U.S. Government obligations, bank certificates of deposit, other
investments for which reliable performance data is available and the consumer
price index.
Yields and effective yields quoted for the Fund include the effect of deducting
the Fund's expenses but may not include charges and expenses attributable to a
particular Contract. You cannot purchase shares of the Fund directly, but you
may allocate account value under your Contract to and from the Fund in
accordance with the terms of your Contract. You should carefully review the
appropriate Separate Account Prospectus for information on charges and expenses
relevant to your Contract. Excluding these charges from quotations of the Fund's
performance has the effect of increasing the performance quoted. You should bear
in mind the effect of these charges when comparing the Fund's performance to
those of other mutual funds.
Additional performance information about the Fund is available in its Annual
Report. To request a free copy, call the Annuity Service Center at 800-838-0650
(800-838-0649 in New York State).
INVESTING IN SHARES OF THE FUND
PURCHASING AND SELLING SHARES. Fund shares are currently offered on a
continuous, no-load basis to the Separate Accounts of Participating Insurance
Companies to fund benefits under Contracts issued by the Participating Insurance
Companies. Transamerica Occidental Life Insurance Company, a Participating
Insurance Company, through its Separate Account, may be deemed to beneficially
own more than 25% of the shares of the Fund and, as a result, may be deemed to
be a controlling person of the Fund.
12
<PAGE> 15
Although Fund shares are not available for purchase directly by the general
public, you may nevertheless allocate account value under your Contract to and
from the Fund in accordance with the terms of your Contract. Please refer to the
appropriate Separate Account Prospectus for further information on how to make
an allocation and how to purchase or surrender your Contract.
The Fund reserves the right, in its sole discretion, to withdraw or suspend all
or any part of the offering made by this Prospectus or to reject purchase
orders. All orders to purchase Fund shares are subject to acceptance by the Fund
and are not binding until confirmed or accepted in writing.
The Fund may suspend redemption rights or postpone payments at times when
trading on the Exchange is restricted, the Exchange is closed for any reason
other than its customary weekend or holiday closings, emergency circumstances as
determined by the SEC exist or for such other circumstances as the SEC may
permit.
In the future, Fund shares are expected to be offered on a continuous, no-load
basis to affiliated and unaffiliated Participating Insurance Companies and their
Separate Accounts to fund benefits under Contracts and VLI Policies as well as
to Plans. The relationships of Plans and Plan participants to the Fund would be
subject, in part, to the provisions of the individual Plans and applicable law.
Accordingly, such relationships could be different from those described in this
Prospectus for Separate Accounts and Contract owners in such areas, for example,
as tax matters and voting privileges.
The Fund does not foresee any disadvantage to Contract or VLI Policy owners or
Plan participants arising out of these arrangements. Nevertheless, differences
in treatment under tax and other laws, as well as other considerations, could
cause the interests of various purchasers of Contracts and VLI Policies (and the
interests of any Plan participants) to conflict. Material irreconcilable
conflicts between the interests of Contract owners, VLI Policy owners or Plan
participants possibly may arise. For example, violation of the federal tax laws
by one Separate Account investing in the Fund could cause the Contracts funded
through another Separate Account to lose their tax-deferred status, unless
remedial action were taken. The Fund and the Separate Accounts (and any Plans
investing in the Fund) would be subject to conditions imposed by the SEC, which
are designed to prevent or remedy any such conflicts.
If Fund shares are offered to affiliated and unaffiliated Participating
Insurance Companies and their Separate Accounts to fund benefits under VLI
Policies and other Contracts and to Plans, the Board of Trustees will monitor
events in order to identify the existence of any material irreconcilable
conflict that may possibly arise and to determine what action, if any, should be
taken in response to any such conflict. If a material irreconcilable conflict
arises involving Separate Accounts or Plans, a Separate Account or Plan may be
required to withdraw its participation in the Fund.
OTHER IMPORTANT INFORMATION. To obtain additional information regarding the
Fund, you may call the Schwab Annuity Service Center at 800-838-0650
(800-838-0649 in New York State), where trained representatives are available to
answer questions about the Fund.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT BE
LAWFULLY MADE.
13
<PAGE> 16
THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB ANNUITY SERVICE CENTER REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE> 17
THIS SPACE RESERVED FOR YOUR COMMENTS AND QUESTIONS.
A SCHWAB ANNUITY SERVICE CENTER REPRESENTATIVE WILL BE HAPPY TO ASSIST YOU.
<PAGE> 18
2085-3 (4/96) 1996 CHARLES SCHWAB & CO., INC., DISTRIBUTOR MEMBER NYSE/SIPC
ALL RIGHTS RESERVED
<PAGE> 19
CROSS REFERENCE SHEET
SCHWAB ANNUITY PORTFOLIOS:
Schwab Money Market Portfolio
<TABLE>
<CAPTION>
Statement of Additional
Part B Item Information Caption
- ----------- -----------------------
<S> <C>
Cover Page Cover Page
Table of Contents Table of Contents
General Information and History General Information
Investment Objectives and Policies Investment Techniques; Investment Policies and
Restrictions
Management of the Fund Management of the Trust
Control Persons and Principal Holders of Securities Management of the Trust
Investment Advisory and Other Services Management of the Trust
Brokerage Allocation and Other Practices Portfolio Transactions and Turnover
Capital Stock and Other Securities General Information
Purchase, Redemption and Pricing of Securities Being Share Price Calculation; Purchase and Redemption of
Offered Shares
Tax Status Distributions and Taxes
Underwriters Management of the Trust
Calculation of Performance Data Yield
Financial Statements Financial Statements
</TABLE>
<PAGE> 20
STATEMENT OF ADDITIONAL INFORMATION
SCHWAB ANNUITY PORTFOLIOS
101 Montgomery Street, San Francisco, CA 94104
SCHWAB MONEY MARKET PORTFOLIO
APRIL 29, 1996
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus dated April 29, 1996 (as amended from time to
time) for the Schwab Money Market Portfolio (the "Fund"), a separately managed
investment portfolio of Schwab Annuity Portfolios (the "Trust"). The Fund is
currently the only investment portfolio of the Trust. The Fund is designed to
serve as an investment vehicle for variable annuity contracts ("Contracts")
issued through separate accounts ("Separate Accounts") of participating life
insurance companies ("Participating Insurance Companies").
This Fund is intended for retirement savings or other long-term investment
purposes. In the future, Fund shares may be offered to other Participating
Insurance Companies and their Separate Accounts as an investment vehicle for
variable life insurance policies and to qualified pension and retirement plans.
To obtain a free copy of the Prospectus, please contact the Schwab Annuity
Service Center at Charles Schwab & Co., Inc. ("Schwab") at 800-838-0650 or
P.O. Box 7785, San Francisco, CA 94120-9420; in New York State call
800-838-0649 or write P.O. Box 7806, San Francisco, CA 94120-9327.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INVESTMENT TECHNIQUES........................................................................................... 2
INVESTMENT POLICIES AND RESTRICTIONS............................................................................ 3
MANAGEMENT OF THE TRUST......................................................................................... 7
PORTFOLIO TRANSACTIONS AND TURNOVER............................................................................. 13
DISTRIBUTIONS AND TAXES......................................................................................... 14
SHARE PRICE CALCULATION......................................................................................... 15
YIELD ...........................................................................................................16
GENERAL INFORMATION............................................................................................. 17
PURCHASE AND REDEMPTION OF SHARES............................................................................... 19
OTHER INFORMATION............................................................................................... 19
RATINGS OF INVESTMENT SECURITIES................................................................................ 20
FINANCIAL STATEMENTS........................................................................................... F-1
</TABLE>
<PAGE> 21
INVESTMENT TECHNIQUES
EURODOLLAR CERTIFICATES OF DEPOSIT AND FOREIGN SECURITIES
Before investing in Eurodollar certificates of deposit, the Fund will
consider their marketability, possible restrictions on international currency
transactions, and any regulations imposed by the domicile country of the foreign
issuer. Eurodollar certificates of deposit may not be subject to the same
regulatory requirements as certificates of deposit issued by U.S. banks and
associated income may be subject to the imposition of foreign taxes.
Investments in securities of foreign issuers or securities principally
traded overseas may involve certain special risks due to foreign economic,
political and legal developments, including expropriation of assets or
nationalization, imposition of withholding taxes on dividend or interest
payments, and possible difficulty in obtaining and enforcing judgments against
foreign entities.
SECTION 4(2) PAPER
Commercial paper and other securities are issued in reliance on the
so-called "private placement" exemption from registration afforded by Section
4(2) of the Securities Act of 1933, as amended, and resold to qualified
institutional buyers under Securities Act Rule 144A ("Section 4(2) paper").
Federal securities laws restrict the disposition of Section 4(2) paper. Section
4(2) paper generally is sold to institutional investors such as the Fund who
agree that they are purchasing the paper for investment and not for public
distribution. Any resale by the purchaser must be in an exempt transaction and
may be accomplished in accordance with Rule 144A. Section 4(2) paper normally is
resold to other institutional investors such as the Fund through or with the
assistance of the issuer or investment dealers who make a market in the Section
4(2) paper, thus providing liquidity. Because it is not possible to predict with
assurance exactly how this market for Section 4(2) paper sold and offered under
Rule 144A will continue to develop, Charles Schwab Investment Management, Inc.
(the "Investment Manager"), pursuant to guidelines approved by the Board of
Trustees, will carefully monitor the Fund's investments in these securities,
focusing on such important factors, among others, as valuation, liquidity and
availability of information.
ASSET-BACKED COMMERCIAL PAPER
AND OTHER SECURITIES
The Fund can invest a portion of its assets in asset-backed commercial
paper and other money market fund Eligible Securities (as that term is defined
on pages 5 and 6). The credit quality of most asset-backed commercial paper
depends primarily on the credit quality of the assets underlying such
securities, how well the entity issuing the security is
2
<PAGE> 22
insulated from the credit risk of the originator (or any other affiliated
entities) and the amount and quality of any credit support provided to the
securities.
Asset-backed commercial paper is often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on these underlying assets to make payments, such
securities may contain elements of credit support. Such credit support falls
into two classes: liquidity protection and protection against ultimate default
on the underlying assets. Liquidity protection refers to the provision of
advances, generally by the entity administering the pool of assets, to ensure
that scheduled payments on the underlying pool are made in a timely fashion.
Protection against ultimate default ensures payment on at least a portion of the
assets in the pool. Such protection may be provided through guarantees,
insurance policies or letters of credit obtained from third parties, through
various means of structuring the transaction or through a combination of such
approaches. The degree of credit support provided on each issue is based
generally on historical information respecting the level of credit risk
associated with such payments. Delinquency or loss in excess of that anticipated
could adversely affect the return on an investment in an asset-backed security.
Bank notes are notes used to represent debt obligations issued by banks
in large denominations.
INVESTMENT POLICIES AND RESTRICTIONS
Except as otherwise noted, the restrictions below are fundamental and
cannot be changed without approval of the holders of a majority of the
outstanding voting securities (as defined in the Investment Company Act of 1940,
as amended, hereinafter the "1940 Act") of the Fund.
THE FUND MAY NOT:
(1) Purchase securities or make investments other than in accordance with
its investment objective and policies.
(2) Purchase securities of any issuer (other than obligations of, or
guaranteed by, the U.S. Government, its agencies or instrumentalities)
if, as a result, more than 5% of the value of its assets would be
invested in securities of that issuer.
(3) Purchase more than 10% of any class of securities of any issuer. All
debt securities and all preferred stocks are each considered as one
class.
(4) Concentrate 25% or more of the value of its assets in any one industry;
provided, however, that the Fund reserves the freedom of action to
invest up to 100% of its assets in certificates of deposit or bankers'
acceptances issued by domestic branches of U.S. banks and U.S. branches
of foreign banks (which the Fund has determined to
3
<PAGE> 23
be subject to the same regulation as U.S. banks), or obligations of, or
guaranteed by, the U.S. Government, its agencies or instrumentalities
in accordance with its investment objective and policies.
(5) Invest more than 5% of its total net assets in securities of issuers
(other than obligations of, or guaranteed by, the U.S. Government, its
agencies or instrumentalities) that, with their predecessors, have a
record of less than three years of continuous operation.
(6) Enter into repurchase agreements if, as a result thereof, more than 10%
of its net assets valued at the time of the transaction would be
subject to repurchase agreements maturing in more than seven days and
invested in securities restricted as to disposition under the federal
securities laws (except commercial paper issued under Section 4(2) of
the Securities Act of 1933, as amended, hereinafter the "1933 Act").
The Fund will invest no more than 10% of its net assets in illiquid
securities.
(7) Invest more than 5% of its total assets in securities restricted as to
disposition under the federal securities laws (except commercial paper
issued under Section 4(2) of the 1933 Act).
(8) Purchase or retain securities of an issuer if any of the officers,
trustees or directors of the Trust or its Investment Manager
individually own beneficially more than 1/2 of 1% of the securities of
that issuer and together beneficially own more than 5% of the
securities of such issuer.
(9) Invest in commodities or commodity contracts, including futures
contracts, real estate or real estate limited partnerships, although it
may invest in securities which are secured by real estate and
securities of issuers which invest or deal in real estate.
(10) Invest for the purpose of exercising control or management of another
issuer.
(11) Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of
assets.(1)
(12) Make loans to others, except the Fund may (i) purchase a portion of an
issue of short-term debt securities or similar obligations (including
repurchase agreements) that are publicly distributed or customarily
purchased by institutional investors,
_________________
(1) See the description of the Trustees' deferred compensation plan under
"Management of the Trust" in this Statement of Additional Information
for an exception to this investment restriction.
4
<PAGE> 24
and (ii) lend its portfolio securities (up to one-third of the Fund's
total assets) in accordance with its investment objectives and
policies.
(13) Borrow money except as a temporary measure for extraordinary or
emergency purposes and then only in an amount up to one-third of the
value of its total assets in order to meet redemption requests without
immediately selling any portfolio securities. The Fund will not borrow
for leverage purposes or purchase securities or make investments while
reverse repurchase agreements or borrowings are outstanding. If, for
any reason, the current value of the Fund's total net assets falls
below an amount equal to three times the amount of its indebtedness
from money borrowed, the Fund will, within three business days, reduce
its indebtedness to the extent necessary.
(14) Write, purchase or sell puts, calls or combinations thereof.
(15) Make short sales of securities, or purchase any securities on margin
except to obtain such short-term credits as may be necessary for the
clearance of transactions.
(16) Invest in interests in oil, gas, mineral leases or other mineral
exploration or development programs, although it may invest in the
securities of issuers which invest in or sponsor such programs.
(17) Underwrite securities issued by others except to the extent it may be
deemed to be an underwriter, under the federal securities laws, in
connection with the disposition of securities from its investment
portfolio.
(18) Issue senior securities as defined in the 1940 Act.
Except for restrictions (4) and (13), if a percentage restriction is
adhered to at the time of investment, a later increase in percentage resulting
from a change in values or net assets will not be considered a violation.
The Fund will only purchase securities that present minimal credit
risks and which are First Tier or Second Tier Securities (otherwise referred to
as "Eligible Securities").(1) An Eligible Security is:
(1) a security with a remaining maturity of 397 days or less: (a) that is
rated by the requisite nationally recognized statistical rating
organizations ("NRSROs") (currently Moody's Investors Service, Standard
& Poor's Corporation, Duff and
- ---------------
(1) See the description of the Trustees' deferred compensation plan under
"Management of the Trust" in this Statement of Additional Information
for an exception to this investment restriction.
5
<PAGE> 25
Phelps Credit Rating Co., Fitch Investors Service, Inc., Thomson
Bankwatch, and, with respect to debt issued by banks, bank holding
companies, United Kingdom building societies, broker-dealers and
broker-dealers' parent companies, and bank-supported debt, IBCA Limited
and its affiliate, IBCA, Inc.) designated by the Securities and
Exchange Commission (the "SEC") in one of the two highest rating
categories for short-term debt obligations (the requisite NRSROs being
any two or, if only rated by one, that one NRSRO), or (b) that itself
was unrated by any NRSRO, but was issued by an issuer that has
outstanding a class of short-term debt obligations (or any security
within that class) meeting the requirements of subparagraph 1(a) above
that is of comparable priority and security;
(2) a security that at the time of issuance was a long-term security but
has a remaining maturity of 397 days or less and: (a) whose issuer
received a rating in one of the two highest rating categories from the
requisite NRSROs for short-term debt obligations with respect to a
class of short-term debt obligations (or any security within that
class) that is now comparable in priority and security with the subject
security or (b) that has long-term ratings from the requisite NRSROs
that are in one of the two highest categories; or
(3) a security not rated by an NRSRO but deemed by the Investment Manager,
pursuant to guidelines adopted by the Board of Trustees, to be of
comparable quality to securities described in (1) and (2) and to
represent minimal credit risks.
A First Tier Security is any Eligible Security that carries (or other
relevant securities issued by its issuer carry) top NRSRO ratings from at least
two NRSROs (a single top rating is sufficient if only one NRSRO rates the
security), or that the Investment Manager has determined, pursuant to guidelines
adopted by the Board of Trustees, to be of comparable quality to such a
security. A Second Tier Security is any other Eligible Security.
The Fund will limit its investments in the First Tier Securities of any
one issuer to no more than 5% of its assets. (Repurchase agreements
collateralized by non-Government securities will be taken into account when
making this calculation.) Moreover, the Fund's total holdings of Second Tier
Securities will not exceed 5% of its assets, with investment in the Second Tier
Securities of any one issuer being limited to the greater of 1% of the Fund's
assets or $1 million. In addition, the underlying securities involved in
repurchase agreements collateralized by non-Government securities will be First
Tier Securities at the time the repurchase agreements are executed.
As noted above, the Fund will not purchase securities of any issuer
(other than obligations of, or guaranteed by, the U.S. Government, its agencies
or instrumentalities) if, as a result thereof, more than 5% of the value of its
assets would be invested in securities of that issuer. However, the Fund may
invest more than 5% of the value of its assets in securities of a single issuer
for a period of up to 3 days in certain limited circumstances.
6
<PAGE> 26
Also as noted above, the Fund may not borrow money except as a
temporary measure for extraordinary or emergency purposes. Such borrowing will
magnify declines as well as increases in the net asset value of the Fund's
shares and in the net yield on the Fund's investments. Borrowing also increases
the Fund's exposure to capital risk.
MANAGEMENT OF THE TRUST
OFFICERS AND TRUSTEES. The officers and Trustees of the Trust, their
principal occupations over the past five years and their affiliations, if any,
with The Charles Schwab Corporation, Schwab, and the Investment Manager, are as
follows:
<TABLE>
<CAPTION>
POSITION WITH
NAME/DATE OF BIRTH THE TRUST PRINCIPAL OCCUPATION
------------------ --------- --------------------
<S> <C> <C>
CHARLES R. SCHWAB* Chairman and Trustee Chairman, Chief Executive Officer
July 29, 1937 and Director, The Charles Schwab
Corporation; Chairman and Director,
Charles Schwab & Co., Inc. and
Charles Schwab Investment Management,
Inc.; Chairman and Director, The
Charles Schwab Trust Company;
Chairman and Director (current
board positions) and Chairman
(officer position) until
December 1995, Mayer &
Schweitzer, Inc. (a securities
brokerage subsidiary of The
Charles Schwab Corporation);
Director, The Gap, Inc. (a
clothing retailer),
Transamerica Corporation (a
financial services
organization), and AirTouch
Communications (a
telecommunications company)
and Siebel Systems (a software
company).
TIMOTHY F. McCARTHY** President and Trustee Executive Vice President -
September 19, 1951 Mutual Funds, Charles Schwab &
Co., Inc. and The Charles
Schwab Corporation; Chief
Executive Officer, Charles
Schwab Investment Management,
Inc. From 1994 to 1995, Mr.
McCarthy was Chief Executive
Officer, Jardine Fleming Unit
Trusts Ltd.; Executive
Director, Jardine Fleming
Holdings Ltd.; Chairman,
Jardine Fleming Taiwan
Securities Ltd.; and Director
of JF India and Fleming
Flagship, Europe. Prior to
1994, he was President of
Fidelity Investments Advisor
Group, a division of Fidelity
Investments in Boston.
</TABLE>
- ------------------
*Mr. Schwab is an "interested person" of the Trust.
**Mr. McCarthy is an "interested person" of the Trust.
7
<PAGE> 27
<TABLE>
<CAPTION>
POSITION WITH
NAME/DATE OF BIRTH THE TRUST PRINCIPAL OCCUPATION
------------------ --------- --------------------
<S> <C> <C>
DONALD F. DORWARD Trustee President and Chief Executive Officer, Dorward &
September 23, 1931 Associates (advertising and marketing/consulting).
ROBERT G. HOLMES Trustee Chairman, Chief Executive Officer and Director,
May 15, 1931 Semloh Financial, Inc. (international financial
services); and International Investment Consultant,
Cannon Street, Inc. (private investigative firm).
DONALD R. STEPHENS Trustee Managing Partner, D.R. Stephens & Co. (real estate
June 28, 1938 investment). Prior to 1993, Mr. Stephens was
Chairman and Chief Executive Officer of the Bank of
San Francisco.
MICHAEL W. WILSEY Trustee Chairman, Chief Executive Officer and Director,
August 18, 1943 Wilsey Bennett, Inc. (truck and air transportation,
real estate investment and management, and
investments).
A. JOHN GAMBS Treasurer and Principal Executive Vice President - Finance and Chief
November 16, 1945 Financial Officer Financial Officer, The Charles Schwab Corporation;
Executive Vice President, Chief Financial Officer
and Director, Charles Schwab & Co., Inc.; Chief
Financial Officer and Director, Charles Schwab
Investment Management, Inc.; and Chief Financial
Officer, The Charles Schwab Trust Company.
WILLIAM J. KLIPP* Senior Vice President, Senior Vice President, Charles Schwab & Co., Inc.;
December 9, 1955 Chief Operating Officer President and Chief Operating Officer, Charles
and Trustee Schwab Investment Management, Inc. Prior to 1993,
Mr. Klipp was Treasurer of Charles Schwab & Co.,
Inc. and Mayer & Schweitzer, Inc.
STEPHEN B. WARD Senior Vice President & Senior Vice President and Chief Investment Officer,
April 5, 1955 Chief Investment Charles Schwab Investment Management, Inc.
Officer
</TABLE>
- ----------------
*Mr. Klipp is an "interested person" of the Trust.
8
<PAGE> 28
<TABLE>
<CAPTION>
POSITION WITH
NAME/DATE OF BIRTH THE TRUST PRINCIPAL OCCUPATION
------------------ --------- --------------------
<S> <C> <C>
FRANCES COLE Secretary Vice President, Chief Counsel, Chief Compliance
September 9, 1955 Officer and Assistant Corporate Secretary, Charles
Schwab Investment Management, Inc.
DAVID H. LUI Assistant Secretary Vice President and Senior Counsel - Charles Schwab
October 14, 1960 Investment Management, Inc. From 1991 to 1992, he
was Assistant Secretary and Assistant Corporate
Counsel for the Franklin Group of Mutual Funds.
CHRISTINA M. PERRINO Assistant Secretary Vice President and Senior Counsel - Charles Schwab
June 16, 1961 Investment Management, Inc. Prior to 1994, she was
Counsel and Assistant Secretary for North American
Security Life Insurance Company and Secretary for
North American Funds.
</TABLE>
Each of the above-referenced individuals also serves in the same
capacity as described for the Trust, The Charles Schwab Family of Funds, Schwab
Investments and Schwab Capital Trust. The address of each individual listed
above is 101 Montgomery Street, San Francisco, California 94104.
TRUSTEE DEFERRED COMPENSATION PLAN
Pursuant to exemptive relief received by the Trust from the SEC, the
Trust may enter into deferred fee arrangements (the "Fee Deferral Plan" or the
"Plan") with the Trust's Trustees who are not "interested persons" of any of the
Funds of the Trust (the "Independent Trustees" or the "Trustees").
As of the date of this Statement of Additional Information, none of the
Independent Trustees has elected to participate in the Fee Deferral Plan. In the
event an Independent Trustee does elect to participate in the Plan, the Plan
would operate as described below.
Under the Plan, deferred Trustee's fees will be credited to a book
reserve account established by the Trust (the "Deferred Fee Account"), as of the
date such fees would have been paid to the Trustee. The value of the Deferred
Fee Account as of any date will be equal to the value the Account would have had
as of that date if the amounts credited to the Account had been invested and
reinvested in the securities of the SchwabFund or SchwabFunds(R) selected by the
participating Trustee (the "Selected SchwabFund Securities"). SchwabFunds
include the series or classes of shares of beneficial interest of The Charles
Schwab Family of Funds, Schwab Investments and Schwab Capital Trust.
Pursuant to the exemptive relief granted to the Trust, each Fund will
purchase and maintain the Selected SchwabFund Securities in an amount equal to
the deemed investments in that Fund of the Deferred Fee Accounts of the
9
<PAGE> 29
Independent Trustees. These transactions would otherwise be limited or
prohibited by the investment policies and/or restrictions of the Funds. (See
"Investment Restrictions.")
COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
Pension or
Retirement
Benefits Accrued Estimated Annual
as Part of Fund Benefits Upon Total
Aggregate Expenses from Retirement from Compensation
Name of Person, Compensation the Fund the Fund from the Fund
Position from the Trust Complex(2) Complex(2) Complex(2)
- -------------------- -------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Charles R. Schwab, 0 N/A N/A 0
Chairman and Trustee
Elizabeth G. Sawi(3), 0 N/A N/A 0
President and Trustee
Timothy F. McCarthy(4), 0 N/A N/A 0
President and Trustee
William J. Klipp, 0 N/A N/A 0
Sr. Vice President, Chief
Operating Officer and
Trustee
Donald F. Dorward, $1,300 N/A N/A $73,000
Trustee
Robert G. Holmes, $1,300 N/A N/A $73,000
Trustee
</TABLE>
10
<PAGE> 30
<TABLE>
<CAPTION>
Pension or
Retirement
Benefits Accrued Estimated Annual
as Part of Fund Benefits Upon Total
Aggregate Expenses from Retirement from Compensation
Name of Person, Compensation the Fund the Fund from the Fund
Position from the Trust Complex(2) Complex(2) Complex(2)
- -------------------- -------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Donald R. Stephens, $1,300 N/A N/A $73,000
Trustee
Michael W. Wilsey, $1,300 N/A N/A $73,000
Trustee
</TABLE>
1 Figures are for the Trust's fiscal year ended December 31,
1995.
2 "Fund Complex" comprises all 23 funds of the Trust, The
Charles Schwab Family of Funds, Schwab Investments and Schwab
Capital Trust.
3 Ms. Sawi served as President and Trustee until October 1995.
4 Mr. McCarthy became President and Trustee in October 1995.
----------------------------------------
INVESTMENT MANAGER
Charles Schwab Investment Management, Inc., a wholly-owned subsidiary
of The Charles Schwab Corporation, serves as the Fund's investment adviser and
administrator pursuant to an Investment Advisory and Administration Agreement
dated March 28, 1994 (the "Advisory Agreement") between it and the Trust. The
Investment Manager is registered as an investment adviser under the Investment
Advisers Act of 1940, as amended, and currently provides investment management
services to the Schwab mutual fund complex, a family of 23 mutual funds,
including the Fund, with over $35 billion in assets as of April 15, 1996. The
Investment Manager is an affiliate of Schwab, the Trust's distributor and
shareholder services and transfer agent.
The Advisory Agreement will be in effect for an initial two year term
and thereafter will continue in effect for one year terms, subject to annual
approval by: (1) the Trust's Board of Trustees or (2) a vote of the majority (as
defined in the 1940 Act) of the outstanding voting securities of the Fund. In
either event, the continuance must also be approved by a majority of the Trust's
Board of Trustees who are not parties to the Agreement or interested persons (as
defined in the 1940 Act) of any such party, by vote cast in person at a meeting
called for the purpose of voting on such approval. The Advisory Agreement may be
terminated at any time upon 60 days' notice by either party, or by a majority
11
<PAGE> 31
vote of the outstanding shares of the Fund, and will terminate automatically
upon assignment.
Pursuant to the Advisory Agreement, the Investment Manager is entitled
to receive from the Fund a graduated annual fee, payable monthly, of 0.46% of
the Fund's average daily net assets not in excess of $2 billion, 0.45% of such
net assets over $2 billion but not in excess of $3 billion, and 0.40% of such
net assets over $3 billion. For the fiscal period ended December 31, 1995, the
Fund paid investment advisory and administration fees of $608 (fees were reduced
by $52,949).
EXPENSES
The Trust pays the expenses of its operations, including: the fees and
expenses of independent accountants, legal counsel and custodian; the cost of
reports and notices to shareholders; costs of calculating net asset value;
brokerage commissions or transaction costs; taxes; registration fees; the fees
and expenses of qualifying the Trust and its shares for distribution under
federal and state securities laws; and membership dues in the Investment Company
Institute or any similar organization. The Trust's expenses generally are
allocated among Funds on the basis of relative net assets at the time the
expense is incurred, except that expenses directly attributable to a particular
Fund are charged to that Fund.
DISTRIBUTOR
Pursuant to a Distribution Agreement, Schwab is the principal
underwriter for shares of the Trust and the Trust's agent for the purpose of the
continuous offering of the Fund's shares. Currently, the Fund is designed as an
investment vehicle for Separate Accounts of Participating Insurance Companies
and is intended for retirement savings or other long-term investment purposes.
The Fund pays the cost for the prospectuses and shareholder reports to be
prepared and delivered to existing Participating Insurance Company Contract
owners with investment allocations in the Schwab Money Market Portfolio
sub-account. Schwab pays such costs when the described materials are used in
connection with the offering of shares to prospective investors and for
supplementary sales literature and advertising. Schwab receives no fee under the
Distribution Agreement. Terms of continuation, termination and assignment under
the Distribution Agreement are identical to those described above with respect
to the Advisory Agreement.
CUSTODIAN AND FUND ACCOUNTANT
PNC Bank, National Association, at the Airport Business Center, 200
Stevens Drive, Suite 440, Lester, Pennsylvania 19113, serves as Custodian for
the Trust.
PFPC, Inc., at 400 Bellevue Parkway Wilmington, Delaware 19809, serves
as Fund Accountant for the Trust.
ACCOUNTANTS AND REPORTS
TO SHAREHOLDERS
The Trust's independent accountants, Price Waterhouse LLP, audit and
report on the annual financial
12
<PAGE> 32
statements of each series of the Trust and review certain regulatory reports and
each Fund's federal income tax return. Price Waterhouse LLP also performs other
professional accounting, tax and advisory services when engaged to do so by the
Trust. Shareholders will be sent audited annual and unaudited semi-annual
financial statements. The address of Price Waterhouse LLP is 555 California
Street, San Francisco, California 94104.
LEGAL COUNSEL
Ropes & Gray, One Franklin Square, 1301 K Street, N.W., Suite 800 East,
Washington, D.C. 20005, is counsel to the Trust.
PORTFOLIO TRANSACTIONS AND TURNOVER
PORTFOLIO TRANSACTIONS
Portfolio transactions are undertaken principally to: pursue the
objective of the Fund in relation to movements in the general level of interest
rates; invest money obtained from the sale of Fund shares; reinvest proceeds
from maturing portfolio securities; and meet redemptions of Fund shares.
Portfolio transactions may increase or decrease the yield of the Fund depending
upon management's ability to correctly time and execute them.
The Investment Manager, in effecting purchases and sales of portfolio
securities for the Fund, seeks to obtain best price and execution. Subject to
the supervision of the Board of Trustees, the Investment Manager generally
selects broker-dealers for the Fund primarily on the basis of the quality and
reliability of brokerage services provided, including execution capability and
financial responsibility.
When the execution and price offered by two or more broker-dealers are
comparable, the Investment Manager may, in its discretion, utilize the services
of broker-dealers that provide it with investment information and other research
resources. The Investment Manager also may use such resources when providing
advisory services to other investment advisory clients, including mutual funds.
The Trust expects that purchases and sales of portfolio securities will
usually be principal transactions. Securities will normally be purchased
directly from the issuer or from an underwriter or market maker for the
securities.
The investment decisions for the Fund are reached independently from
those for other accounts the Investment Manager manages. Such other accounts may
also make investments in instruments or securities at the same time as the Fund.
When two or more accounts the Investment Manager manages have funds available
for investment in similar instruments, available instruments are allocated as to
amount in a manner considered equitable to each account. In some cases this
procedure may affect the size or price of the position obtainable for the Fund.
13
<PAGE> 33
However, it is the Board of Trustees' opinion that the benefits conferred by the
Investment Manager outweigh any disadvantages that may arise from exposure to
simultaneous transactions. Purchases from underwriters will include a commission
or concession paid by the issuer to the underwriter, and purchases from dealers
serving as market makers will include the spread between the bid and asked
prices.
PORTFOLIO TURNOVER
Because securities with maturities of less than one year are excluded
from required portfolio turnover rate calculations, the Fund's portfolio
turnover rate for reporting purposes is expected to be zero.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
The Fund calculates its dividends based on its daily net investment
income. For this purpose, the net investment income of the Fund consists of: (1)
accrued interest income plus or minus amortized discount or premium, minus (2)
accrued expenses allocated to the Fund. If the Fund realizes any capital gains,
they will be distributed at least once during the year as determined by the
Board of Trustees. Any realized short-term capital losses to the extent not
offset by realized capital gains will be carried forward. It is not anticipated
that the Fund will realize any long-term capital gains, but if it does so, these
gains will be distributed annually. Trust expenses are accrued each day. Should
the net asset value of the Fund deviate significantly from market value, the
Board of Trustees could decide to value the investments at market value and any
unrealized gains and losses could affect the amount of the Fund's distributions.
FEDERAL INCOME TAXES
For a discussion of the tax status of a particular Contract and the tax
consequences of ownership of such a Contract, refer to the appropriate Separate
Account Prospectus. Shares of the Fund are available only through Separate
Accounts of Participating Insurance Companies and Plans.
It is the policy of the Fund to qualify for taxation as a "regulated
investment company" by meeting the requirements of Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). By following this policy, the
Fund expects to eliminate or reduce to a nominal amount the federal income tax
to which it is subject.
In order to qualify as a regulated investment company, the Fund must,
among other things: (1) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stocks, securities, foreign currencies or other income
14
<PAGE> 34
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in stocks, securities or currencies; (2)
derive less than 30% of its gross income from gains from the sale or other
disposition of certain assets (including stocks and securities) held for less
than 3 months; and (3) diversify its holdings so that at the end of each quarter
of its taxable year, (i) at least 50% of the market value of the Fund's total
assets is represented by cash or cash items, U.S. Government securities,
securities of other regulated investment companies and other securities limited,
in respect of any one issuer, to a value not greater than 5% of the value of the
Fund's total assets and 10% of the outstanding voting securities of such issuer,
and (ii) not more than 25% of the value of its assets is invested in the
securities of any one issuer (other than U.S. Government securities or
securities of any other regulated investment company) or of two or more issuers
that the Fund controls, within the meaning of the Code, and that are engaged in
the same, similar or related trades or businesses. These requirements may
restrict the degree to which the Fund may engage in short-term trading and
certain hedging transactions and may limit the range of the Fund's investments.
If the Fund qualifies as a regulated investment company, it will not be subject
to federal income tax on the part of its net investment income and net realized
capital gains, if any, which it distributes to shareholders, provided the Fund
meets certain minimum distribution requirements. To comply with these
requirements, the Fund must distribute at least (a) 90% of its "investment
company taxable income" (as that term is defined in the Code; and (b) 90% of the
excess of (i) its tax-exempt interest income over (ii) certain deductions
attributable to that income (with certain exceptions), for its taxable year. The
Fund intends to make sufficient distributions to shareholders to meet these
requirements.
The Fund may engage in investment techniques that may alter the timing
and character of the Fund's income. The Fund may be restricted in its use of
these techniques by rules relating to its qualification as a regulated
investment company.
The foregoing discussion relates only to U.S. federal income tax law.
SHARE PRICE CALCULATION
The Fund values its portfolio instruments at amortized cost, which
means they are valued at their acquisition cost, as adjusted for amortization of
premium or discount, rather than at current market value. Calculations are made
to compare the value of the Fund's investments valued at amortized cost with
market values. Market valuations are obtained by using actual quotations
provided by market makers, estimates of market value or values obtained from
yield data relating to classes of money market instruments published by
reputable sources at the mean between the bid and asked prices for the
instruments. The amortized cost method of valuation seeks to maintain a
15
<PAGE> 35
stable $1.00 per share net asset value even where there are fluctuations in
interest rates that affect the value of portfolio instruments. Accordingly, this
method of valuation can in certain circumstances lead to a dilution of a
shareholder's interest. If a deviation of 1/2 of 1% or more were to occur
between the net asset value per share calculated by reference to market values
and the Fund's $1.00 per share net asset value, or if there were any other
deviation that the Board of Trustees of the Trust believed would result in a
material dilution to shareholders or purchasers, the Board of Trustees would
promptly consider what action, if any, should be initiated. If the Fund's net
asset value per share (computed using market values) declined, or were expected
to decline, below $1.00 (computed using amortized cost), the Board of Trustees
might temporarily reduce or suspend dividend payments in an effort to maintain
the net asset value at $1.00 per share. As a result of such reduction or
suspension of dividends or other action by the Board of Trustees, an investor
would receive less income during a given period than if such a reduction or
suspension had not taken place. Such action could result in investors receiving
no dividend for the period during which they hold their shares and receiving,
upon redemption, a price per share lower than that which they paid. On the other
hand, if the Fund's net asset value per share (computed using market values)
were to increase, or were anticipated to increase above $1.00 (computed using
amortized cost), the Board of Trustees might supplement dividends in an effort
to maintain the net asset value at $1.00 per share.
YIELD
The historical performance of the Fund may be shown in the form of
yield or effective yield. These measures of performance are described below.
YIELD
Yield refers to the net investment income generated by a hypothetical
investment in the Fund over a specific 7-day period. This net investment income
is then annualized, which means that the net investment income generated during
the 7-day period is assumed to be generated in each 7-day period over an annual
period, and is shown as a percentage of the investment. For the 7-day period
ended December 31, 1995, the Fund's yield was 5.14%.
EFFECTIVE YIELD
Effective yield is calculated similarly, but the net investment income
earned by the investment is assumed to be compounded weekly when annualized.
Effective yield will be slightly higher than yield due to this compounding
effect. For the 7-day period ended December 31, 1995, the Fund's effective yield
was 5.27%.
Yields quoted for the Fund include the effect of deducting the Fund's
expenses, but may not include charges and expenses attributable to a Separate
Account or a Contract. Since you can only purchase shares of the Fund through
Participating Insurance Companies'
16
<PAGE> 36
Separate Accounts, you should carefully review the appropriate Separate Account
Prospectus for information on relevant charges and expenses. Excluding these
charges from quotations of the Fund's performance has the effect of increasing
the performance quoted. You should bear in mind the effect of these charges when
comparing the Fund's performance to those of other mutual funds.
GENERAL INFORMATION
The Trust generally is not required to hold shareholder meetings.
However, as provided in its Agreement and Declaration of Trust and Bylaws,
shareholder meetings will be held in connection with the following matters: (1)
election or removal of Trustees if a meeting is requested in writing by a
shareholder or shareholders who beneficially own(s) 10% or more of the Trust's
shares; (2) adoption of any contract for which shareholder approval is required
by the 1940 Act; (3) any termination of the Trust to the extent and as provided
in the Declaration of Trust; (4) any amendment of the Declaration of Trust
(other than amendments changing the name of the Trust or any of its investment
portfolios, supplying any omission, curing any ambiguity or curing, correcting
or supplementing any defective or inconsistent provision thereof); (5)
determining whether a court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on behalf of the Trust
or the shareholders, to the same extent as the stockholders of a Massachusetts
business corporation; and (6) such additional matters as may be required by law,
the Declaration of Trust, the Bylaws or any registration of the Trust with the
SEC or any state or as the Board of Trustees may consider desirable. The
shareholders also would vote upon changes to the Fund's fundamental investment
objective, policies or restrictions.
Each Trustee serves until the next meeting of shareholders, if any,
called for the purpose of electing Trustees and until the election and
qualification of his or her successor or until death, resignation, retirement or
removal by a majority vote of the shares entitled to vote (as described below)
or of a majority of the Trustees. In accordance with the 1940 Act: (i) the Trust
will hold a shareholder meeting for the election of Trustees when less than a
majority of the Trustees have been elected by shareholders; and (ii) if, as a
result of a vacancy in the Board of Trustees, less than two-thirds of the
Trustees have been elected by the shareholders, that vacancy will be filled by a
vote of the shareholders.
Upon the written request of 10 or more shareholders who have been such
for at least 6 months and who hold shares constituting at least 1% of the
Trust's outstanding shares stating that they wish to communicate with the other
shareholders for the purpose of obtaining signatures necessary to demand a
meeting to consider removal of one or more Trustees, the Trust has undertaken to
disseminate appropriate materials at the expense of the requesting shareholders.
17
<PAGE> 37
The Bylaws provide that a majority of shares entitled to vote shall be
a quorum for the transaction of business at a shareholders' meeting, except that
where any provision of law, of the Declaration of Trust or of these Bylaws
permits or requires that (i) holders of any series shall vote as a series, then
a majority of the aggregate number of shares of that series entitled to vote
shall be necessary to constitute a quorum for the transaction of business by
that series; or (ii) holders of any class shall vote as a class, then a majority
of the aggregate number of shares of that class entitled to vote shall be
necessary to constitute a quorum for the transaction of business by that class.
Any lesser number shall be sufficient for adjournments. Any adjourned session or
sessions may be held, within a reasonable time after the date set for the
original meeting, without the necessity of further notice. The Declaration of
Trust specifically authorizes the Board of Trustees to terminate the Trust (or
any of its investment portfolios) by notice to the shareholders without
shareholder approval.
Under Massachusetts law, shareholders of a Massachusetts business trust
could, under certain circumstances, be held personally liable for the Trust's
obligations. The Declaration of Trust, however, disclaims shareholder liability
for the Trust's acts or obligations and requires that notice of such disclaimer
be given in each agreement, obligation or instrument entered into or executed by
the Trust or the Trustees. In addition, the Declaration of Trust provides for
indemnification out of the property of an investment portfolio in which a
shareholder owns or owned shares for all losses and expenses of such shareholder
or former shareholder if he or she is held personally liable for the obligations
of the Trust solely by reason of being or having been a shareholder. Moreover,
the Trust will be covered by insurance which the Trustees consider adequate to
cover foreseeable tort claims. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is considered remote, because
it is limited to circumstances in which a disclaimer is inoperative and the
Trust itself is unable to meet its obligations.
For further information, please refer to the registration statement and
exhibits for the Trust on file with the SEC in Washington, D.C. and available
upon payment of a copying fee. The statements in the Prospectus and this
Statement of Additional Information concerning the contents of contracts or
other documents, copies of which are filed as exhibits to the registration
statement, are qualified by reference to such contracts or documents.
PRINCIPAL HOLDERS OF SECURITIES
As of March 31, 1996, Transamerica Occidental, Separate Account VA-5,
Variable Annuity Dept. B-100, 1150 South Olive, Los Angeles, California 90015
legally or beneficially owned 95.62% of the Fund's shares of beneficial
interest. In addition, as of April 15, 1996, the officers and Trustees of the
Trust, as a group, owned less than 1% of the Trust's outstanding voting
securities.
18
<PAGE> 38
PURCHASE AND REDEMPTION OF SHARES
You cannot purchase shares of the Fund directly, but only through
Participating Insurance Companies' Separate Accounts. Please refer to the
appropriate Separate Account Prospectus for information on how to purchase units
of a Contract and how to select specific portfolios as investment options.
Since the Fund is intended as an investment vehicle for Participating
Insurance Companies' Separate Accounts, it is anticipated these Separate
Accounts will be the Fund's only shareholders. On each day that the net asset
value per share of the Fund is determined ("Business Day"), the Fund's net
investment income will be declared as of the close of trading on the New York
Stock Exchange (normally 4:00 p.m. Eastern time) as a daily dividend to
shareholders of record as of the last calculation of net asset value prior to
the declaration. Shareholders will receive dividends in additional shares unless
they elect to receive cash. Dividends normally will be reinvested monthly in
full shares of the Fund at the net asset value on the 25th day of each month if
a Business Day, otherwise on the next Business Day, with the exception of
dividends reinvested in December, which are scheduled on the last Business Day
in December.
The Fund intends to pay in cash all redemptions requested by any
shareholder of record. The Trust has made an election with the SEC to pay in
cash all redemptions requested by any shareholder of record limited in amount
during any 90-day period to the lesser of $250,000 or 1% of its net assets at
the beginning of such period. This election is irrevocable without the SEC's
prior approval. Redemption requests in excess of the stated limits may be paid,
in whole or in part, in investment securities or in cash, as the Trust's Board
of Trustees may deem advisable; however, payment will be made wholly in cash
unless the Board of Trustees believes that economic or market conditions exist
that would make such a practice detrimental to the best interests of the Fund.
OTHER INFORMATION
The Fund's Prospectus and this Statement of Additional Information do
not contain all the information included in the Registration Statement filed
with the SEC under the 1933 Act with respect to the securities offered by the
Prospectus. Certain portions of the Registration Statement have been omitted
from the Prospectus and this Statement of Additional Information pursuant to SEC
rules and regulations. The Registration Statement including the exhibits filed
therewith may be examined at the SEC's office in Washington, D.C.
Statements contained in the Prospectus or in this Statement of
Additional Information as to the contents of any contract or other document
referred to are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement of which the Prospectus and this Statement of Additional
Information form a part, each such statement being qualified in all respects by
such reference.
19
<PAGE> 39
RATINGS OF INVESTMENT SECURITIES
COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE
Prime-1 is the highest commercial paper rating assigned by Moody's
Investors Service ("Moody's"). Issuers (or related supporting institutions) of
commercial paper with this rating are considered to have a superior ability to
repay short-term promissory obligations. Issuers (or related supporting
institutions) of securities rated Prime-2 are viewed as having a strong capacity
to repay short-term promissory obligations. This capacity normally will be
evidenced by many of the characteristics of issuers whose commercial paper is
rated Prime-1 but to a lesser degree.
STANDARD & POOR'S CORPORATION
A Standard & Poor's Corporation ("S&P") A-1 commercial paper rating
indicates either an overwhelming or very strong degree of safety regarding
timely payment of principal and interest. Issues determined to possess
overwhelming safety characteristics are denoted A-1+. Capacity for timely
payment on commercial paper rated A-2 is strong, but the relative degree of
safety is not as high as for issues designated A-1.
DUFF & PHELPS CREDIT RATING CO.
Duff-1 is the highest commercial paper rating assigned by Duff &
Phelps Credit Rating Co. ("Duff"). Three gradations exist within this rating
category: a Duff-1+ rating indicates the highest certainty of timely payment
(issuer short-term liquidity is found to be outstanding and safety is deemed to
be just below that of risk-free short-term U.S. Treasury obligations); a Duff-1
rating signifies a very high certainty of timely payment (issuer liquidity is
determined to be excellent and risk factors are considered minor); and a Duff-1-
rating denotes high certainty of timely payment (issuer liquidity factors are
strong and risk is very small). A Duff-2 rating indicates a good certainty of
timely payment. Liquidity factors and company fundamentals are sound and risk
factors are small.
FITCH INVESTORS SERVICE, INC.
A Fitch Investors Service, Inc.'s ("Fitch") F-1+ is the highest
commercial paper rating, and indicates the strongest degree of assurance for
timely payment. Issues rated F-1 reflect an assurance of timely payment only
slightly less than issues rated F-1+. Issues assigned an F-2 rating have a
satisfactory degree of assurance for timely payment, but the margin of safety is
not as great as for issues in the first two rating categories.
20
<PAGE> 40
SHORT-TERM NOTES AND VARIABLE RATE DEMAND OBLIGATIONS
MOODY'S
Short-term notes/variable rate demand obligations bearing the
designations MIG-1/VMIG-1 are considered to be of the best quality, enjoying
strong protection from established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing. Obligations rated
MIG-2/VMIG-2 are of high quality and enjoy ample margins of protection, although
not as large as those of the top rated securities.
S&P
An S&P SP-1 rating indicates that the subject securities' issuer has a
very strong capacity to pay principal and interest. Issues determined to possess
overwhelming safety characteristics are given a plus (+) designation. S&P's
determination that an issuer has a satisfactory capacity to pay principal and
interest is denoted by an SP-2 rating.
IBCA
Obligations supported by the highest capacity for timely repayment are
rated A1+. An A1 rating indicates that the obligation is supported by a very
strong capacity for timely repayment. Obligations rated A2 are supported by a
strong capacity for timely repayment, although adverse changes in business,
economic or financial conditions may affect this capacity.
BONDS
MOODY'S
Moody's rates the bonds it judges to be of the best quality Aaa. These
bonds carry the smallest degree of investment risk and generally are referred to
as "gilt edge." Interest payments are protected by a large or extraordinarily
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of these issues. Bonds carrying an Aa
designation are deemed to be of high quality by all standards. Together with Aaa
rated bonds, they comprise what generally are known as "high grade bonds." Aa
bonds are rated lower than the best bonds because they may enjoy relatively
lower margins of protections, fluctuations of protective elements may be of
greater amplitude or there may be other factors present which make them appear
to be subject to somewhat greater long-term risks.
21
<PAGE> 41
S&P
AAA is the highest rating assigned by S&P to a bond and indicates the
issuer's extremely strong capacity to pay interest and repay principal. An AA
rating denotes a bond whose issuer has a very strong capacity to pay interest
and repay principal and differs from an AAA rating only in small degree.
DUFF
Duff confers an AAA designation to bonds of issuers with the highest
credit quality. The risk factors associated with these bonds are negligible,
being only slightly more than for risk-free U.S. Treasury debt. AA rated bonds
are of high credit quality and have strong protection factors. The risks
associated with them are modest but may vary slightly from time to time because
of economic conditions.
COMMERCIAL PAPER, SHORT-TERM OBLIGATIONS
AND DEPOSIT OBLIGATIONS ISSUED BY BANKS
THOMSON BANKWATCH (TBW)
TBW-1 is the highest category and indicates the degree of safety
regarding timely repayment of principal and interest is very strong. TBW-2 is
the second highest category, and while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of safety is
not as high as for issues rated TBW-1.
22
<PAGE> 42
________
SCHWABFUNDS(R)
SCHWAB MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
AGENCY OBLIGATIONS - 78.8% PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
DISCOUNT NOTES
Federal Farm Credit Bank
5.67%, 01/08/96 . . . . . . . . . . . . . . . . $ 600,000 $ 599,342
5.66%, 01/12/96 . . . . . . . . . . . . . . . . 1,450,000 1,447,506
5.68%, 01/31/96 . . . . . . . . . . . . . . . . 400,000 398,127
Federal Home Loan Bank
5.68%, 01/25/96 . . . . . . . . . . . . . . . . 1,325,000 1,320,027
5.65%, 01/25/96 . . . . . . . . . . . . . . . . 445,000 443,345
5.62%, 02/02/96 . . . . . . . . . . . . . . . . 565,000 562,223
Federal Home Loan Mortgage Corp.
5.52%, 01/10/96 . . . . . . . . . . . . . . . . 1,270,000 1,268,254
5.68%, 01/16/96 . . . . . . . . . . . . . . . . 1,520,000 1,516,428
5.67%, 01/22/96 . . . . . . . . . . . . . . . . 170,000 169,442
Federal National Mortgage Assoc.
5.68%, 01/18/96 . . . . . . . . . . . . . . . . 245,000 244,346
5.52%, 01/18/96 . . . . . . . . . . . . . . . . 1,625,000 1,620,780
5.60%, 02/12/96 . . . . . . . . . . . . . . . . 810,000 804,765
5.60%, 02/22/96 . . . . . . . . . . . . . . . . 1,350,000 1,339,197
Tennessee Valley Authority
5.65%, 01/12/96 . . . . . . . . . . . . . . . . 1,020,000 1,018,258
5.59%, 02/13/96 . . . . . . . . . . . . . . . . 1,220,000 1,211,927
-----------
TOTAL AGENCY OBLIGATIONS (Cost $13,963,967) . . . . 13,963,967
-----------
U.S. TREASURY OBLIGATIONS--21.2%
- --------------------------------------------------------------------------------
U.S. TREASURY BILLS
5.37%, 01/11/96 . . . . . . . . . . . . . . . . 95,000 94,860
5.50%, 02/08/96 . . . . . . . . . . . . . . . . 230,000 228,683
5.40%, 02/08/96 . . . . . . . . . . . . . . . . 385,000 382,830
5.39%, 02/08/96 . . . . . . . . . . . . . . . . 525,000 522,055
5.43%, 02/15/96 . . . . . . . . . . . . . . . . 1,635,000 1,624,035
5.29%, 02/15/96 . . . . . . . . . . . . . . . . 95,000 94,377
5.39%, 02/22/96 . . . . . . . . . . . . . . . . 105,000 104,193
5.45%, 03/07/96 . . . . . . . . . . . . . . . . 75,000 74,267
5.02%, 03/07/96 . . . . . . . . . . . . . . . . 265,000 262,585
4.88%, 03/14/96 . . . . . . . . . . . . . . . . 160,000 158,435
</TABLE>
<PAGE> 43
<TABLE>
<S> <C> <C>
5.02%, 03/28/96 . . . . . . . . . . . . . . . . . . 220,000 217,360
-----------
TOTAL U.S. TREASURY OBLIGATIONS (COST $3,763,680) . . . $ 3,763,680
-----------
TOTAL INVESTMENTS--100.0% (Cost $17,727,647) . . . . . $17,727,647
===========
</TABLE>
______
NOTES TO SCHEDULE OF INVESTMENTS.
Yields shown are effective yields at the time of purchase and are stated
according to the market convention for the security type. For each security,
cost (for financial reporting and federal income tax purposes) and carrying
value are the same.
See accompanying Notes to Financial Statements.
F-1
<PAGE> 44
________
SCHWABFUNDS(R)
SCHWAB MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
- ----------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments, at value (Cost: $17,727,647) . . . . . . . . . . . . . . . $17,727,647
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,850
Receivable for fund shares sold . . . . . . . . . . . . . . . . . . . 223,817
Deferred organization costs . . . . . . . . . . . . . . . . . . . . . 25,732
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 98
-----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,981,144
-----------
LIABILITIES
Payable for:
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,464
Fund shares redeemed . . . . . . . . . . . . . . . . . . . . . . . . 970,101
Investment advisory fee . . . . . . . . . . . . . . . . . . . . . . . 105
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,042
-----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 1,068,712
-----------
NET ASSETS applicable to outstanding shares . . . . . . . . . . . . . . . . $16,912,432
===========
NET ASSETS CONSIST OF:
Capital paid in . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,912,496
Accumulated net realized loss on investments sold . . . . . . . . . . . (64)
-----------
$16,912,432
===========
THE PRICING OF SHARES
Outstanding shares, $0.00001 par value (unlimited shares authorized) . . 16,912,496
NET ASSET VALUE, offering and redemption price per share . . . . . . . . $1.00
</TABLE>
______
See accompanying Notes to Financial Statements.
F-2
<PAGE> 45
SCHWABFUNDS(R)
SCHWAB MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . $660,502
--------
EXPENSES
Investment advisory and administration fee . . . . . . . . . . . 53,557
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . 12,415
Registration fees . . . . . . . . . . . . . . . . . . . . . . . 92
Professional fees . . . . . . . . . . . . . . . . . . . . . . . 24,643
Shareholder reports . . . . . . . . . . . . . . . . . . . . . . 11,735
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . 5,214
Amortization of deferred organization costs . . . . . . . . . . 7,665
Insurance and other expenses . . . . . . . . . . . . . . . . . . 3,572
--------
118,893
Less expenses reduced and absorbed . . . . . . . . . . . . . . . . (60,678)
--------
Total expenses incurred by Fund . . . . . . . . . . . . . . . . 58,215
--------
Net investment income . . . . . . . . . . . . . . . . . . . . . . . 602,287
Net realized gain on investments sold . . . . . . . . . . . . . . . 33
--------
Net increase in net assets resulting from operations . . . . . . . $602,320
========
</TABLE>
______
See accompanying Notes to Financial Statements.
F-3
<PAGE> 46
SCHWABFUNDS(R)
SCHWAB MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 3, 1994
FOR THE (COMMENCEMENT
YEAR ENDED OF OPERATIONS)
DECEMBER 31, TO DECEMBER 31,
1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net investment income . . . . . . . . . . . . . . . . . . . . . . . $ 602,287 $ 81,012
Net realized gain (loss) on investments sold . . . . . . . . . . . . 33 (97)
------------ -----------
Increase in net assets resulting from operations . . . . . . . . 602,320 80,915
------------ -----------
Dividends to shareholders from net investment income . . . . . . . . . (602,287) (81,012)
------------ -----------
CAPITAL SHARE TRANSACTIONS (dollar amounts and
number of shares are the same)
Proceeds from shares sold . . . . . . . . . . . . . . . . . . . . . 68,313,915 16,565,781
Net asset value of shares issued in reinvestment of dividends . . . 552,602 50,171
Less payments for shares redeemed . . . . . . . . . . . . . . . . . (59,363,572) (9,206,401)
------------ -----------
Increase in net assets from capital share transactions . . . . . 9,502,945 7,409,551
------------ -----------
Total increase in net assets . . . . . . . . . . . . . . . . . . . . . 9,502,978 7,409,454
NET ASSETS
Beginning of period . . . . . . . . . . . . . . . . . . . . . . . . 7,409,454 --
------------ -----------
End of period . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,912,432 $ 7,409,454
============ ===========
</TABLE>
______
See accompanying Notes to Financial Statements.
F-4
<PAGE> 47
SCHWABFUNDS(R)
SCHWAB MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
1. DESCRIPTION OF THE FUND
The Schwab Money Market Portfolio (the "Fund") is a series of Schwab
Annuity Portfolios (the "Trust"), a diversified, no-load, open-end, management
investment company organized as a Massachusetts business trust on January 21,
1994 and registered under the Investment Company Act of 1940, as amended. The
Fund commenced operations on May 3, 1994.
The Fund invests primarily in a portfolio of high quality, debt
securities which mature within 397 days. The Fund is intended exclusively as an
investment vehicle for Schwab Investment Advantage(TM), a variable annuity
program.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are in conformity with
generally accepted accounting principles for investment companies. The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.
SECURITY VALUATION: Investments are stated at amortized cost which
approximates market value.
SECURITY TRANSACTIONS AND INTEREST INCOME: Security transactions are
accounted for on a trade date basis (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis and includes
amortization of premium and accretion of discount on investments. Realized
gains and losses from security transactions are determined on an identified
cost basis.
REPURCHASE AGREEMENTS: Repurchase agreements are fully collateralized
by U.S. Treasury or government agency securities. All collateral is held by
the Fund's custodian and is monitored daily to ensure that its market value at
least equals the repurchase price under the agreement.
DIVIDENDS TO SHAREHOLDERS: The Fund declares a daily dividend, equal
to its net investment income for that day, payable monthly.
DEFERRED ORGANIZATION COSTS: Costs incurred in connection with the
organization of the Fund and its initial registration with the Securities and
Exchange Commission and with various states are amortized on a straight-line
basis over a five-year period from the Fund's commencement of operations.
EXPENSES: Expenses arising in connection with the Fund are charged
directly to the Fund. As the Trust offers additional funds, expenses common to
all series of the Trust will be allocated to each series in proportion to their
relative net assets.
<PAGE> 48
FEDERAL INCOME TAXES: It is the Fund's policy to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all net investment income and realized net capital
gains, if any, to shareholders. Therefore, no federal income tax provision is
required. The Fund intends to qualify under the Code with respect to the
diversification requirements related to the tax-deferred status of insurance
company separate accounts. The Fund is considered a separate entity for tax
purposes.
3. TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENTS: The Trust has an
investment advisory and administration agreement with Charles Schwab Investment
Management, Inc. (the "Investment Manager"). For advisory services and
facilities furnished, the Fund pays an annual fee, payable monthly, of .46% of
the first $2 billion of average daily net assets, .45% of such assets over $2
billion and .40% of such assets in excess of $3 billion. Under this agreement,
the Fund incurred investment advisory and administration fees of $53,557 for
the year ended December 31, 1995, before the Investment Manager reduced its fee
(see Note 4).
OFFICERS AND TRUSTEES: Certain officers and trustees of the Trust are
also officers or directors of the Investment Manager. During the year ended
December 31, 1995, the Trust made no direct payments to its officers or
trustees who are "interested persons" within the meaning of the Investment
Company Act of 1940, as amended. The Fund incurred fees of $5,214 related to
the Trust's unaffiliated trustees.
4. EXPENSES REDUCED AND ABSORBED BY THE INVESTMENT MANAGER
The Investment Manager reduced a portion of its fee and absorbed
certain expenses in order to limit the Fund's ratio of operating expenses to
average net assets. For the year ended December 31, 1995, the total of such
fees and expenses reduced and absorbed by the Investment Manager was $60,678.
F-5
<PAGE> 49
SCHWABFUNDS(R)
SCHWAB MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1995
5. INVESTMENT TRANSACTIONS
Purchases, sales and maturities of investment securities for the year
ended December 31, 1995, aggregated $117,667,482 and $107,376,242,
respectively.
6. FINANCIAL HIGHLIGHTS
Per share income and capital changes for a share outstanding
throughout the period:
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 3, 1994
FOR THE (COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
DECEMBER 31, DECEMBER 31,
1995 1994
---- ----
<S> <C> <C>
Net asset value at beginning of
period . . . . . . . . . . . . . . $1.00 $1.00
Income from investment operations
Net investment income . . . . . . .05 .03
Net realized and unrealized
gain (loss) on investments . . . -- --
----------- ----------
Total from investment
operations . . . . . . . . . .05 .03
Less distributions
Dividends from net investment
income . . . . . . . . . . . . . (.05) (.03)
Distributions from realized
gain on investments . . . . . . -- --
----------- ----------
Total distributions . . . . . . (.05) (.03)
----------- ----------
Net asset value at end of
period . . . . . . . . . . . . . . $1.00 $1.00
=========== ==========
Total return . . . . . . . . . . . . 5.26% 2.55%
Ratios/Supplemental data
Net assets, end of period . . . . $16,912,432 $7,409,454
Ratio of expenses to average
net assets . . . . . . . . . . . .50% .50%*
Ratio of net investment
income to average net assets . . 5.17% 4.16%*
</TABLE>
The Investment Manager has reduced a portion of its fees and absorbed
certain expenses in order to limit the Fund's ratio of operating expenses to
average net assets. Had these fees and expenses not been reduced and absorbed,
the ratio of expenses to average net assets for the periods ended December 31,
1995 and 1994, would have been 1.02% and 2.10%*, respectively, and the ratio of
net investment income to average net assets would have been 4.65% and 2.56%*,
respectively.
______
* Annualized
F-6
<PAGE> 50
SCHWABFUNDS(R)
SCHWAB MONEY MARKET PORTFOLIO
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of the Schwab Money Market Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Schwab Money Market Portfolio
(one of the series constituting Schwab Annuity Portfolios, hereafter referred
to as the "Trust") at December 31, 1995, the results of its operations for the
year then ended, the changes in its net assets and the financial highlights for
the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Trust's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1995 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
San Francisco, California
January 31, 1996
F-7
<PAGE> 51
PART C
OTHER INFORMATION
April 26, 1996
SCHWAB ANNUITY PORTFOLIOS
Item 24. Financial Statements and Exhibits.
(a) Financial Statements:
Included in Part B, Statement of Additional Information:
Incorporated by reference to the Statement of Additional
Information filed herewith:
-- Schwab Money Market Portfolio Schedule of Investments, dated
December 31, 1995 (Audited)
-- Schwab Money Market Portfolio Statement of Assets and
Liabilities, dated December 31, 1995 (Audited)
-- Schwab Money Market Portfolio Statement of Operations for the
year ended December 31, 1995 (Audited)
-- Schwab Money Market Portfolio Statement of Changes in Net Assets
for the fiscal periods ended December 31, 1995 and 1994
(Audited)
-- Schwab Money Market Portfolio Notes to Financial Statements for
the year ended December 31, 1995 (Audited)
-- Report of Independent Accountants for Schwab Money Market
Portfolio dated January 31, 1996
C-1
<PAGE> 52
(b) Exhibits:
(1) Agreement and Declaration of Trust is incorporated by
reference to Exhibit (1) to the Registration Statement on
Form N-1A of Schwab Annuity Portfolios ("Registrant"), filed
on January 27, 1994
(2) Amended and Restated Bylaws are filed herewith
(3) Inapplicable
(4) (a) Article III, Sections 4 and 5; Article IV, Section 1;
Article V; Article VIII, Section 4; and Article IX, Sections
1, 4, and 7 of the Agreement and Declaration of Trust is
incorporated by reference to Exhibit (1) to Registrant's
Registration Statement on Form N-1A, filed on January 27,
1994
(b) Article 9 and Article 11 of the Amended and Restated
Bylaws are incorporated by reference to Exhibit (2) filed
herewith
(5) (a) Investment Advisory and Administration Agreement
between Registrant and Charles Schwab Investment Management,
Inc. (the "Investment Manager") dated June 15, 1994 is
incorporated by reference to Exhibit (5) to Post-Effective
Amendment No. 1 to Registrant's Registration Statement on
Form N-1A, filed on November 1, 1994
(b) Amended Schedule to Investment Advisory and
Administration Agreement between Registrant and the
Investment Manager referred to at Exhibit (5)(a) above is
filed herewith
(6) Distribution Agreement between Registrant and Charles Schwab
& Co., Inc. ("Schwab") dated March 29, 1994 is incorporated
by reference to Exhibit (6) to Post-Effective Amendment No.
1 to Registrant's Registration Statement on Form N-1A, filed
on November 1, 1994
(7) Inapplicable
(8) (a) Custodian Services Agreement between Registrant and
PNC Bank, National Association dated March 29, 1994 is
incorporated by reference to Exhibit (8)(a) to Post-
Effective Amendment No. 1 to Registrant's Registration
Statement on Form N-1A, filed on November 1, 1994
(b) Amendment No. 1 to the Custodian Services
Agreement referred to at Exhibit (8)(a) above is
filed herewith.
C-2
<PAGE> 53
(c) Transfer Agency Agreement between Registrant and
Schwab dated March 29, 1994 is incorporated by reference to
Exhibit (8)(b) to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A, filed on
November 1, 1994
(d) Shareholder Service Agreement between Registrant and
Schwab dated March 29, 1994 is incorporated by reference to
Exhibit (8)(c) to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A, filed on
November 1, 1994
(9) Inapplicable
(10) Opinion and Consent of Ropes & Gray as to legality of
the securities being registered is incorporated by
reference to Registrant's Rule 24f-2 Notice, filed on
February 20, 1996
(11) (a) Consent of Ropes & Gray is filed herewith
(b) Consent of Price Waterhouse LLP, Independent
Accountants, is filed herewith
(12) Inapplicable
(13) Purchase Agreement between Registrant and Schwab relating to
Schwab Money Market Portfolio is incorporated by reference
to Exhibit (13) to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A, filed on
March 25, 1994
(14) Inapplicable
(15) Inapplicable
(16) Performance Calculations for Schwab Money Market Portfolio
are filed herewith
(17) Financial Data Schedule for Schwab Money Market Portfolio is
filed herewith
(18) Inapplicable
C-3
<PAGE> 54
Item 25. Persons Controlled by or under Common Control with Registrant.
The Charles Family of Funds ("Schwab Fund Family"), Schwab Investments
and Schwab Capital Trust each are Massachusetts business trusts registered under
the Investment Company Act of 1940, as amended (the "1940 Act"); are advised by
the Investment Manager; and employ Schwab as its principal underwriter, transfer
agent, and shareholder services agent. As a result, the Schwab Fund Family,
Schwab Investments and Schwab Capital Trust may be deemed to be under common
control with Registrant.
Item 26. Number of Holders of Registrant's Securities.
As of March 31, 1996, the number of record holders of Registrant was
4.
Item 27. Indemnification.
Article VIII of Registrant's Agreement and Declaration of Trust
(Exhibit (1) hereto, which is incorporated herein by reference) provides in
effect that Registrant will indemnify its officers and trustees against all
liabilities and expenses, including but not limited to amounts paid in
satisfaction of judgments, in compromise, or as fines and penalties, and counsel
fees reasonably incurred by any such officer or trustee in connection with the
defense or disposition of any action, suit, or other proceeding. However, in
accordance with Section 17(h) and 17(i) of the 1940 Act and its own terms, said
Agreement and Declaration of Trust does not protect any person against any
liability to Registrant or its shareholders to which he or she would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his or her office.
In any event, Registrant will comply with 1940 Act Releases No. 7221 and 11330
respecting the permissible boundaries of indemnification by an investment
company of its officers and trustees.
Insofar as indemnification for liability arising under the
Securities Act of 1933, as amended (the "1933 Act"), may be permitted to
trustees, officers, and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, Registrant has been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the 1933 Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses incurred or paid
by a trustee, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such trustee, officer
or controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
C-4
<PAGE> 55
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
Item 28. Business and Other Connections of Investment Manager.
(a) Information pertaining to business and other connections of
Registrant's Investment Manager is hereby incorporated by reference to the
section of the Prospectus captioned "Organization and Management of the Fund"
and to the section of the Statement of Additional Information captioned
"Management of the Trust."
Registrant's Investment Manager, Charles Schwab Investment
Management, Inc., a Delaware corporation organized in October 1989 to serve as
investment manager to the Schwab Fund Family, also serves as the investment
manager to Schwab Investments and Schwab Capital Trust, each an open-end,
management investment company. The principal place of business of the
Investment Manager is 101 Montgomery Street, San Francisco, California 94104.
The only business in which the Investment Manager engages is that of
investment manager and administrator to Registrant, the Schwab Fund Family,
Schwab Investments and Schwab Capital Trust, and any other investment
companies that Schwab may sponsor in the future.
(b) The business, profession, vocation or employment of a substantial
nature in which each director and/or executive officer of Schwab and/or the
Investment Manager is or has been engaged during the past two fiscal years for
his or her own account in the capacity of director, officer, employee, partner
or trustee is as follows:
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- ----------------- --------------- --------
<S> <C> <C>
Charles R. Schwab, Charles Schwab & Co., Inc. Chairman and Director
Chairman and Trustee
The Charles Schwab Corporation Chairman, Chief Executive Officer
and Director
Charles Schwab Investment Chairman and Director
Management, Inc.
The Charles Schwab Trust Chairman and Director
Company
</TABLE>
C-5
<PAGE> 56
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- ----------------- --------------- --------
<S> <C> <C>
Mayer & Schweitzer, Inc. Chairman and Director
The Gap, Inc. Director
Transamerica Corporation Director
AirTouch Communications Director
Siebel Systems Director
Lawrence J. Stupski Charles Schwab & Co., Inc. Director until February 1995; Vice
Chairman until August 1994
The Charles Schwab Corporation Vice Chairman and Director; Chief
Operating Officer until March 1994
Mayer & Schweitzer, Inc. Director until February 1995
The Charles Schwab Trust Director
Company
David S. Pottruck Charles Schwab & Co., Inc. President, Chief Executive Officer
and Director
The Charles Schwab Corporation President, Chief Operating Officer
and Director
Charles Schwab Investment Director
Management, Inc.
Mayer & Schweitzer, Inc. Chairman, Chief Executive Officer
and Director
</TABLE>
C-6
<PAGE> 57
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- ----------------- --------------- --------
<S> <C> <C>
Ronald W. Readmond Charles Schwab & Co., Inc. Vice Chairman and Director until
January 1996; Senior Executive Vice
President and Chief Operating
Officer until January 1995
The Charles Schwab Corporation Executive Vice President until
January 1996; Senior Executive Vice
President until January 1995
Mayer & Schweitzer, Inc. Director until January 1996
John P. Coghlan Charles Schwab & Co., Inc. Executive Vice President - Schwab
Institutional
The Charles Schwab Corporation Executive Vice President - Schwab
Institutional
The Charles Schwab Trust Director and Executive Vice President
Company
A. John Gambs, Charles Schwab & Co., Inc. Executive Vice President, Chief
Treasurer and Principal Financial Officer and Director
Financial Officer
The Charles Schwab Corporation Executive Vice President and Chief
Financial Officer
Charles Schwab Investment Chief Financial Officer and Director
Management, Inc.
The Charles Schwab Trust Chief Financial Officer
Company
Mayer & Schweitzer, Inc. Director
</TABLE>
C-7
<PAGE> 58
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- ----------------- --------------- --------
<S> <C> <C>
Dawn G. Lepore Charles Schwab & Co., Inc. Executive Vice President and Chief
Information Officer
The Charles Schwab Corporation Executive Vice President and Chief
Information Officer
Daniel O. Leemon The Charles Schwab Corporation Executive Vice President - Business
Strategy
Charles Schwab & Co., Inc. Executive Vice President - Business
Strategy
Timothy F. McCarthy, Charles Schwab Investment Chief Executive Officer
Trustee and President Management, Inc.
Charles Schwab & Co., Inc. Executive Vice President - Mutual
Funds
The Charles Schwab Corporation Executive Vice President - Mutual
Funds
Jardine Fleming Unit Trusts Ltd. Chief Executive Officer until
October 1995
Fidelity Investment Advisor President until 1994
Group
Elizabeth G. Sawi Charles Schwab & Co., Inc. Executive Vice President -
Electronic Brokerage
The Charles Schwab Corporation Executive Vice President -
Electronic Brokerage
Tom D. Seip Charles Schwab & Co., Inc. Executive Vice President - Retail
Brokerage
</TABLE>
C-8
<PAGE> 59
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- ----------------- --------------- --------
<S> <C> <C>
The Charles Schwab Corporation Executive Vice President - Retail
Brokerage
Charles Schwab Investment President and Chief Operating
Management, Inc. Officer until 1994
John N. Tognino Charles Schwab & Co., Inc. Executive Vice President - Capital
Markets and Trading until February
1996
The Charles Schwab Corporation Executive Vice President - Capital
Markets and Trading until February
1996
Mayer & Schweitzer, Inc. Director and Vice Chairman until
February 1996
Luis E. Valencia Charles Schwab & Co., Inc. Executive Vice President - Human
Resources and Corporate Support
The Charles Schwab Corporation Executive Vice President and Chief
Administrative Officer
Commercial Credit Corporation Managing Director until February 1994
Christopher V. Dodds Charles Schwab & Co., Inc. Treasurer and Senior Vice President
The Charles Schwab Corporation Treasurer and Senior Vice President
Mayer & Schweitzer, Inc. Treasurer
</TABLE>
C-9
<PAGE> 60
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- ----------------- --------------- --------
<S> <C> <C>
William J. Klipp, Charles Schwab & Co., Inc. Senior Vice President - SchwabFunds
Trustee, Senior Vice President
and Chief Operating Officer
Charles Schwab Investment President and Chief Operating Officer
Management, Inc.
Stephen B. Ward, Charles Schwab Investment Senior Vice President and Chief
Senior Vice President and Chief Management, Inc. Investment Officer
Investment Officer
Frances Cole, Charles Schwab Investment Vice President, Chief Counsel, Chief
Secretary Management, Inc. Compliance Officer and Assistant
Corporate Secretary
Cynthia K. Holbrook The Charles Schwab Corporation Assistant Corporate Secretary
Charles Schwab & Co., Inc. Assistant Corporate Secretary
Charles Schwab Investment Corporate Secretary
Management, Inc.
The Charles Schwab Trust Assistant Corporate Secretary
Company
David J. Neuman The Charles Schwab Trust Corporate Secretary
Company
Mary B. Templeton Charles Schwab Investment Assistant Corporate Secretary
Management, Inc.
The Charles Schwab Corporation Senior Vice President, General
Counsel and Corporate Secretary
</TABLE>
C-10
<PAGE> 61
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- ----------------- --------------- --------
<S> <C> <C>
Charles Schwab & Co., Inc. Senior Vice President, General
Counsel and Corporate Secretary
Mayer & Schweitzer Assistant Corporate Secretary
The Charles Schwab Trust Assistant Corporate Secretary until
Company February 1996
David H. Lui Charles Schwab Investment Vice President and Senior Counsel
Assistant Secretary Management, Inc.
Christina M. Perrino Charles Schwab Investment Vice President and Senior Counsel
Assistant Secretary Management, Inc.
</TABLE>
C-11
<PAGE> 62
Item 29. Principal Underwriter.
(a) Schwab acts as principal underwriter and distributor of Registrant's
shares. Schwab currently also acts as a principal underwriter for the Schwab
Fund Family, Schwab Investments, and Schwab Capital Trust, and intends to act as
such for any other investment company which Schwab may sponsor in the future.
(b) See Item 28(b) for information on the officers and directors of Schwab.
The principal business address of Schwab is 101 Montgomery Street, San
Francisco, California 94104.
(c) Not applicable.
Item 30. Location of Accounts and Records.
All accounts, books and other documents required to be maintained
pursuant to Section 31(a) of the 1940 Act and the Rules thereunder are
maintained at the offices of: Registrant (transfer agency and shareholder
records); Registrant's investment manager and administrator, Charles Schwab
Investment Management, Inc., 101 Montgomery Street, San Francisco, California
94104; Registrant's principal underwriter, Charles Schwab & Co., Inc., 101
Montgomery Street, San Francisco, California 94104; Registrant's Custodian, PNC
Bank, National Association, Broad and Market Streets, Philadelphia, Pennsylvania
19104 (ledgers, receipts, and brokerage orders); Registrant's fund accountants,
PFPC, Inc., 400 Bellevue Parkway, Wilmington, Delaware 19809; or Ropes & Gray,
counsel to Registrant, 1301 K Street, N.W., Suite 800 East, Washington, D.C.
20005 (minute books, bylaws, and declaration of trust).
Item 31. Management Services.
Not applicable.
Item 32. Undertakings.
(a) Registrant undertakes to call a meeting of Shareholders, at the request
of at least 10% of registrant's outstanding shares, for the purpose of voting
upon the question of removal of a trustee or trustees and to assist in
communications with other Shareholders as required by Section (16) of the 1940
Act.
C-12
<PAGE> 63
(b) Registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of Registrant's latest Annual Report to Shareholders upon
request and without charge.
C-13
<PAGE> 64
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended (the
"1933 Act"), and the Investment Company Act of 1940, as amended, Registrant
certifies that it meets all of the requirements for effectiveness of this
Post-Effective Amendment to the Registrant's Registration Statement pursuant to
Rule 485 (b) of the 1933 Act and has duly caused this Post-Effective Amendment
No. 3 to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of San Francisco, State of California, on the 26th day of April
1996.
SCHWAB ANNUITY PORTFOLIOS
Registrant
Charles R. Schwab*
----------------------------
Charles R. Schwab, Chairman
Pursuant to the requirements of the 1933 Act, this Post-Effective Amendment No.
3 to Registrant's Registration Statement on Form N-1A has been signed below by
the following persons in the capacities indicated this 26th day of April 1996.
Signature Title
Charles R. Schwab* Chairman and Trustee
- ------------------------------
Charles R. Schwab
Timothy F. McCarthy* President and Trustee
- ------------------------------
Timothy F. McCarthy
William J. Klipp* Senior Vice President, Chief Operating
- ------------------------------ Officer, and Trustee
William J. Klipp
Donald F. Dorward* Trustee
- ------------------------------
Donald F. Dorward
Robert G. Holmes* Trustee
- ------------------------------
Robert G. Holmes
Donald R. Stephens* Trustee
- ------------------------------
Donald R. Stephens
Michael W. Wilsey* Trustee
- ------------------------------
Michael W. Wilsey
A. John Gambs* Treasurer and Principal Financial Officer
- ------------------------------
A. John Gambs
*By: /s/ Alan G. Priest
-------------------------------------------
Alan G. Priest, Attorney-in-Fact pursuant
to Powers of Attorney filed herewith.
<PAGE> 65
POWER OF ATTORNEY
I, the undersigned trustee and officer of The Charles Schwab Family of
Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and
Schwab Advantage Trust (each a "Trust" and collectively the "Trusts"),
Massachusetts business trusts, do hereby constitute and appoint William J.
Klipp, Frances Cole, Martin E. Lybecker and Alan G. Priest, and each of them
singly, my true and lawful attorneys, with full power to them and each of them,
to sign for me and in my name and in the capacity listed below, any and all
amendments to the Registration Statement on Form N-1A of each Trust, and to file
the same with all exhibits thereto, and other documents in connection
thereunder, with the Securities and Exchange Commission, granting unto my said
attorneys, and each of them acting alone, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in the
premises, as fully as to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys or any of
them may lawfully do or cause to be done by virtue thereof.
WITNESS my hand on the date set forth below.
November 8, 1995 /s/ Charles R. Schwab
------------------------------
Charles R. Schwab, Trustee and Officer
<PAGE> 66
POWER OF ATTORNEY
I, the undersigned trustee and officer of The Charles Schwab Family of
Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and
Schwab Advantage Trust (each a "Trust" and collectively the "Trusts"),
Massachusetts business trusts, do hereby constitute and appoint Frances Cole,
Martin E. Lybecker and Alan G. Priest, and each of them singly, my true and
lawful attorneys, with full power to them and each of them, to sign for me and
in my name and in the capacity listed below, any and all amendments to the
Registration Statement on Form N-1A of each Trust, and to file the same with all
exhibits thereto, and other documents in connection thereunder, with the
Securities and Exchange Commission, granting unto my said attorneys, and each of
them acting alone, full power and authority to do and perform each and every act
and thing requisite or necessary to be done in the premises, as fully as to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys or any of them may lawfully do or cause
to be done by virtue thereof.
WITNESS my hand on the date set forth below.
November 8, 1995 /s/ William J. Klipp
------------------------------
William J. Klipp, Trustee and Officer
<PAGE> 67
POWER OF ATTORNEY
I, the undersigned trustee and officer of The Charles Schwab Family of
Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and
Schwab Advantage Trust (each a "Trust" and collectively the "Trusts"),
Massachusetts business trusts, do hereby constitute and appoint William J.
Klipp, Frances Cole, Martin E. Lybecker and Alan G. Priest, and each of them
singly, my true and lawful attorneys, with full power to them and each of them,
to sign for me and in my name and in the capacity listed below, any and all
amendments to the Registration Statement on Form N-1A of each Trust, and to file
the same with all exhibits thereto, and other documents in connection
thereunder, with the Securities and Exchange Commission, granting unto my said
attorneys, and each of them acting alone, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in the
premises, as fully as to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys or any of
them may lawfully do or cause to be done by virtue thereof.
WITNESS my hand on the date set forth below.
November 8, 1995 /s/ Donald F. Dorward
------------------------------
Donald F. Dorward, Trustee
<PAGE> 68
POWER OF ATTORNEY
I, the undersigned trustee and officer of The Charles Schwab Family of
Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and
Schwab Advantage Trust (each a "Trust" and collectively the "Trusts"),
Massachusetts business trusts, do hereby constitute and appoint William J.
Klipp, Frances Cole, Martin E. Lybecker and Alan G. Priest, and each of them
singly, my true and lawful attorneys, with full power to them and each of them,
to sign for me and in my name and in the capacity listed below, any and all
amendments to the Registration Statement on Form N-1A of each Trust, and to file
the same with all exhibits thereto, and other documents in connection
thereunder, with the Securities and Exchange Commission, granting unto my said
attorneys, and each of them acting alone, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in the
premises, as fully as to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys or any of
them may lawfully do or cause to be done by virtue thereof.
WITNESS my hand on the date set forth below.
November 8, 1995 /s/ Robert G. Holmes
------------------------------
Robert G. Holmes, Trustee
<PAGE> 69
POWER OF ATTORNEY
I, the undersigned trustee and officer of The Charles Schwab Family of
Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and
Schwab Advantage Trust (each a "Trust" and collectively the "Trusts"),
Massachusetts business trusts, do hereby constitute and appoint William J.
Klipp, Frances Cole, Martin E. Lybecker and Alan G. Priest, and each of them
singly, my true and lawful attorneys, with full power to them and each of them,
to sign for me and in my name and in the capacity listed below, any and all
amendments to the Registration Statement on Form N-1A of each Trust, and to file
the same with all exhibits thereto, and other documents in connection
thereunder, with the Securities and Exchange Commission, granting unto my said
attorneys, and each of them acting alone, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in the
premises, as fully as to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys or any of
them may lawfully do or cause to be done by virtue thereof.
WITNESS my hand on the date set forth below.
November 8, 1995 /s/ Timothy F. McCarthy
------------------------------
Timothy F. McCarthy, Trustee and Officer
<PAGE> 70
POWER OF ATTORNEY
I, the undersigned trustee and officer of The Charles Schwab Family of
Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and
Schwab Advantage Trust (each a "Trust" and collectively the "Trusts"),
Massachusetts business trusts, do hereby constitute and appoint William J.
Klipp, Frances Cole, Martin E. Lybecker and Alan G. Priest, and each of them
singly, my true and lawful attorneys, with full power to them and each of them,
to sign for me and in my name and in the capacity listed below, any and all
amendments to the Registration Statement on Form N-1A of each Trust, and to file
the same with all exhibits thereto, and other documents in connection
thereunder, with the Securities and Exchange Commission, granting unto my said
attorneys, and each of them acting alone, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in the
premises, as fully as to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys or any of
them may lawfully do or cause to be done by virtue thereof.
WITNESS my hand on the date set forth below.
November 8, 1995 /s/ Donald R. Stephens
---------------------------
Donald R. Stephens, Trustee
<PAGE> 71
POWER OF ATTORNEY
I, the undersigned trustee and officer of The Charles Schwab Family of
Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and
Schwab Advantage Trust (each a "Trust" and collectively the "Trusts"),
Massachusetts business trusts, do hereby constitute and appoint William J.
Klipp, Frances Cole, Martin E. Lybecker and Alan G. Priest, and each of them
singly, my true and lawful attorneys, with full power to them and each of them,
to sign for me and in my name and in the capacity listed below, any and all
amendments to the Registration Statement on Form N-1A of each Trust, and to file
the same with all exhibits thereto, and other documents in connection
thereunder, with the Securities and Exchange Commission, granting unto my said
attorneys, and each of them acting alone, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in the
premises, as fully as to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys or any of
them may lawfully do or cause to be done by virtue thereof.
WITNESS my hand on the date set forth below.
November 8, 1995 /s/ Michael W. Wilsey
---------------------------
Michael W. Wilsey, Trustee
<PAGE> 72
POWER OF ATTORNEY
I, the undersigned trustee and officer of The Charles Schwab Family of
Funds, Schwab Investments, Schwab Capital Trust, Schwab Annuity Portfolios and
Schwab Advantage Trust (each a "Trust" and collectively the "Trusts"),
Massachusetts business trusts, do hereby constitute and appoint William J.
Klipp, Frances Cole, Martin E. Lybecker and Alan G. Priest, and each of them
singly, my true and lawful attorneys, with full power to them and each of them,
to sign for me and in my name and in the capacity listed below, any and all
amendments to the Registration Statement on Form N-1A of each Trust, and to file
the same with all exhibits thereto, and other documents in connection
thereunder, with the Securities and Exchange Commission, granting unto my said
attorneys, and each of them acting alone, full power and authority to do and
perform each and every act and thing requisite or necessary to be done in the
premises, as fully as to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys or any of
them may lawfully do or cause to be done by virtue thereof.
WITNESS my hand on the date set forth below.
November 8, 1995 /s/ A. John Gambs
---------------------------
A. John Gambs
Principal Financial Officer
<PAGE> 73
Exhibit Index
<TABLE>
<S> <C>
2 Amended and Restated Bylaws
5(b) Amended Schedule to Investment Advisory and
Administration Agreement
8(b) Amendment No. 1 to Custodian Services Agreement
11(a) Consent of Ropes & Gray
11(b) Consent of Price Waterhouse LLP
16 Performance Calculations
17 Financial Data Schedule for Schwab Money Market
Portfolio
</TABLE>
<PAGE> 1
EXHIBIT 2
AMENDED AND RESTATED BYLAWS
OF
THE CHARLES SCHWAB FAMILY OF FUNDS,
SCHWAB INVESTMENTS,
SCHWAB CAPITAL TRUST,
AND
SCHWAB ANNUITY PORTFOLIOS
* * * * *
ARTICLE 1
Agreement and Declaration of Trust,
Resident Agent and Principal Office
1.1 Applicability of Bylaws. These Bylaws are the Bylaws
of each of The Charles Schwab Family of Funds, Schwab Investments, Schwab
Capital Trust, and Schwab Annuity Portfolios (each a "Trust"). With respect to
each Trust, the term "Declaration of Trust" as used herein shall mean the
Declaration of Trust establishing such Trust, in effect and as amended from time
to time.
1.2 Agreement and Declaration of Trust. With respect to
each Trust, these Bylaws shall be subject to the Declaration of Trust. Unless
otherwise specified herein, capitalized terms in these Bylaws shall have the
meaning given such terms in The Declaration of Trust.
1.3 Resident Agent of the Trust. Each Trust shall have an
agent for service of process residing in the Commonwealth of Massachusetts.
1.4 Principal Office of the Trust. The initial principal
office of each Trust shall be located in San Francisco, California. Each Trust
may have such other offices as the Trustees may determine or as they may
authorize.
ARTICLE 2
Meetings of Trustees
2.1 Regular Meetings. Regular meetings of the Trustees
may be held without call or notice at such places and at such times as the
Trustees may determine from time to time, provided that notice of the first
regular meeting following any such determination shall be given to absent
Trustees. A regular meeting of the Trustees may be held without call or notice
immediately after and at the same place as an annual meeting of the
Shareholders.
2.2 Special Meetings. Special meetings of the Trustees may
be held at any time and at any place designated in the call of the meeting when
called by the Chairman
<PAGE> 2
of the Board of the Trustees, the President, the Treasurer or by two or more
Trustees, sufficient notice thereof being given to each Trustee by the
Secretary, an Assistant Secretary or the officer or the Trustees calling the
meeting.
2.3 Notice. It shall be sufficient notice to the Trustee
of a special meeting to send notice by special delivery at least forty-eight
hours or by telegram, telex or telecopy or other electronic facsimile
transmission method at least twenty-four hours before the meeting addressed to
the Trustee at his or her usual or last known business or residential address or
to give notice to him or her in person or by telephone at least twenty-four
hours before the meeting. Notice of a meeting need not be given to any Trustee
if a written waiver of notice, executed by him or her before the meeting, is
filed with the records of the meeting, or to any Trustee who attends the meeting
without protesting prior thereto or at its commencement the lack of notice to
him or her. Neither notice of a meeting nor a waiver of a notice need specify
the purposes of the meeting.
2.4 Quorum. At any meeting of the Trustees, a majority of
the Trustees then in office shall constitute a quorum. Any meeting may be
adjourned from time to time by a majority of the votes cast upon the question,
whether or not a quorum is present, and the meeting may be held as adjourned
without further notice.
ARTICLE 3
Officers
3.1 Enumeration: Qualification. The officers of each
Trust shall be a President; a Treasurer; and a Secretary, who shall also be the
Clerk; and such other officers including a Chairman of the Board of the
Trustees, if any, as the Trustees from time to time may in their discretion
elect. Each Trust may also have such agents as the Trustees may appoint at their
discretion from time to time. The Chairman of the Board of the Trustees, if one
is elected, shall be a Trustee and may but need not be a Shareholder; and any
other officer may but not need be a Trustee or a Shareholder. Any two or more
offices may be held by the same person.
3.2 Election. The President, the Treasurer and the
Secretary shall be elected by the Trustees upon the occurrence of a vacancy in
any such office. Other officers, if any, may be elected or appointed by the
Trustees at any time. Vacancies in any office may be filled at any time.
3.3 Tenure. The Chairman of the Board of the Trustees, if
one is elected; the President; the Treasurer and the Secretary shall hold office
until their respective successors are chosen and qualified, or in each case
until he or she sooner dies, resigns, is removed or becomes disqualified. Each
other officer shall hold office and each agent shall retain authority at the
pleasure of the Trustees.
-2-
<PAGE> 3
3.4 Powers. Subject to the other provisions of these
Bylaws, each officer shall have, in addition to the duties and powers herein and
as set forth in the Declaration of Trust, such duties and powers as are commonly
incident to the office occupied by him or her as if the Trust were organized as
a Massachusetts business corporation and such other duties and powers as the
Trustees may designate from time to time.
3.5 Chairman; President. Unless the Trustees otherwise
provide, the Chairman of the Board of the Trustees or, if there is none or in
the absence of the Chairman, the President shall preside at all meetings of the
Shareholders and of the Trustees. The Chairman of the Board of the Trustees, if
there is one, shall be the chief executive officer and, unless the Trustees
otherwise provide, the President shall be the chief operating officer. If there
is no Chairman of the Board of the Trustees, the President shall be the chief
executive officer.
3.6 Treasurer. Unless otherwise provided by the Trustees,
the Treasurer shall be the chief financial and accounting officer of the Trust,
and shall, subject to the provisions of the Declaration of Trust and to any
arrangement made by the Trustees with a custodian; investment adviser or
manager; or transfer, shareholder servicing or similar agent, be in charge of
the valuable papers, books of account and accounting records of the Trust, and
shall have such other duties and powers as may be designated from time to time
by the Trustees or by the President.
3.7 Secretary. The Secretary shall record all proceedings
of the Shareholders and the Trustees in books to be kept therefor, which books
or a copy thereof shall be kept at the principal office of the Trust. In the
absence of the Secretary from any meeting of the Shareholders or Trustees, an
assistant secretary, or if there be none or if he or she is absent, a temporary
secretary chosen at such meeting shall record the proceedings thereof in the
aforesaid books.
3.8 Resignations. Any officer may resign at any time by
written instrument signed by him or her and delivered to the Chairman of the
Board of the Trustees, the President, the Secretary or to a meeting of the
Trustees. Such resignation shall be effective upon receipt unless specified to
be effective at some other time. Except to the extent expressly provided in a
written agreement with a Trust, no officer resigning and no officer removed
shall have any right to any compensation for any period following his or her
resignation or removal, or any right to damages on account of such removal.
-3-
<PAGE> 4
ARTICLE 4
Committees
4.1 Quorum; Voting. A majority of the members of any
Committee of the Trustees shall constitute a quorum for the transaction of
business, and any action of such a Committee may be taken at a meeting by a vote
of a majority of the members present (a quorum being present) or evidenced by
one or more writings signed by such a majority. Members of a Committee may
participate in a meeting of such Committee by means of a conference telephone or
other communications equipment by means of which all persons participating in
the meeting can hear each other at the same time and participation by such means
shall constitute presence in person at a meeting. The Trustees may not use
methods described herein to approve a Trust's Investment Advisory Agreement(s).
ARTICLE 5
Reports
5.1 General. The Trustees and officers shall render
reports at the time and in the manner required by the Declaration of Trust or
any applicable law. Officers and Committees shall render such additional reports
as they may deem desirable or as may from time to time be required by the
Trustees.
ARTICLE 6
Fiscal Year
6.1 General. Except as from time to time otherwise
provided by the Trustees, the initial fiscal year of the Trust shall end on such
date as is determined in advance or in arrears by the Treasurer, and subsequent
fiscal years shall end on such date in subsequent years.
ARTICLE 7
Seal
7.1 General. Absent adoption by Trustees, a Trust will
not have a seal.
ARTICLE 8
Execution of Papers
8.1 General. Except as the Trustees may generally or in
particular cases authorize the execution thereof in some other manner, all
deeds, leases, contracts, notes and other obligations made by the Trustees shall
be signed by the President, any Vice President, the Treasurer or the Secretary
and need not bear the seal of the Trust.
-4-
<PAGE> 5
ARTICLE 9
Issuance of Share Certificates
9.1 Share Certificates. In lieu of issuing certificates
for Shares, the Trustees or the transfer agent may either issue receipts
therefor or may keep accounts upon the books of a Trust for the record holders
of such Shares, who shall in either case be deemed, for all purposes hereunder,
to be the holders of certificates for such Shares as if they had accepted such
certificates and shall be held to have expressly assented and agreed to the
terms hereof.
The Trustees may at any time authorize the issuance of Share
certificates. In that event, each Shareholder shall be entitled to a
certificate stating the number of Shares owned by him or her, in such form as
shall be prescribed from time to time by the Trustees. Such certificates shall
be signed by the Chairman of the Board of the Trustees, the President or any
Vice President and by the Treasurer or Assistant Treasurer. Such signatures may
be facsimile if the certificate is signed by a transfer agent, or by a
registrar, other than a Trustee, officer or employee of a Trust. In case any
officer who has signed or whose facsimile signature has been placed on such
certificate shall cease to be such officer before such certificate is issued, it
may be issued by a Trust with the same effect as if he were such officer at the
time of its issue.
9.2 Loss of Certificates. In case of the alleged loss or
destruction or the mutilation of a Share certificate, a duplicate certificate
may be issued in place thereof, upon such terms as the Trustees shall prescribe.
9.3 Issuance of New Certificates to Pledgee. A pledgee of
Shares transferred as collateral security shall be entitled to a new certificate
if the instrument of transfer substantially describes the debt or duty that is
intended to be secured thereby. Such new certificate shall express on its face
that it is held as collateral security, and the name of the pledgor shall be
stated thereon, who alone shall be liable as a Shareholder and entitled to vote
thereon.
9.4 Discontinuance of Issuance of Certificates. The
Trustees may at any time discontinue the issuance of Share certificates and may,
by written notice to each Shareholder, require the surrender of Share
certificates to a Trust for cancellation. Such surrender and cancellation shall
not affect the ownership of Shares in a Trust.
-5-
<PAGE> 6
ARTICLE 10
Provisions Relating to the Conduct of the Trust's Business
10.1 General. Each Trust shall at all times conduct its
business in accordance with applicable provisions of the Investment Company Act
of 1940 (the "1940 Act").
ARTICLE 11
Shareholders' Voting Powers and Meetings
11.1 Voting Powers. The Shareholders of a Trust shall have
power to vote only (i) for the election of Trustees as provided in the
Declaration of Trust, provided, however, that no meeting of Shareholders is
required to be called for the purpose of electing Trustees unless and until such
time as less than a majority of the Trustees have been elected by the
Shareholders, (ii) with respect to any Manager or Sub-Adviser as provided in the
Declaration of Trust to the extent required by the 1940 Act, (iii) with respect
to any termination of such Trust to the extent and as provided in the
Declaration of Trust, (iv) with respect to any amendment of the Declaration of
Trust to the extent and as provided in the Declaration of Trust, (v) to the same
extent as the stockholders of a Massachusetts business corporation as to whether
or not a court action, proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the Trust or the
Shareholders, and (vi) with respect to such additional matters relating to the
Trust as may be required by law, the Declaration of Trust, these Bylaws or any
registration of the Trust with the U.S. Securites and Exchange Commission (or
any successor agency) or any state, or as the Trustees may consider necessary or
desirable. Each whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote. The Shareholders of any particular class or
series shall not be entitled to vote on any matters as to which such class or
series is not affected. Except with respect to matters as to which the Trustees
have determined that only the interests of one or more particular series or one
or more classes are affected or as required by law, all of the Shares of each
series shall, on matters as to which it is entitled to vote, vote with shares of
other series so entitled in the aggregate. Notwithstanding the foregoing, with
respect to matters which would otherwise be voted on by two or more series in
the aggregate, the Trustees may, in their sole discretion, submit such matters
to the Shareholders of any or all such series separately. There shall be no
cumulative voting in the election of Trustees. Shares may be voted in person or
by proxy. A proxy with respect to Shares held in the name of two or more persons
shall be valid if executed by any one of them unless at or prior to exercise of
the proxy the Trust receives a specific written notice to the contrary from any
one of them. A proxy purporting to be executed by or on behalf of a Shareholder
shall be deemed valid unless challenged at or prior to its exercise and the
burden of proving invalidity shall rest on the challenger. Until Shares are
issued, the
-6-
<PAGE> 7
Trustees may exercise all rights of Shareholders and may take any action
required by law, the Declaration of Trust or these Bylaws to be taken by
Shareholders.
11.2 Voting Power and Meetings. Meetings of the
Shareholders may be called by the Trustees for the purpose of electing Trustees
as provided in the Declaration of Trust and for such other purposes as may be
prescribed by law, by the Declaration of Trust or by these Bylaws. Meetings of
the Shareholders may also be called by the Trustees from time to time for the
purpose of taking action upon any other matter deemed by the Trustees to be
necessary or desirable. A meeting of Shareholders may be held at any place
designated by the Trustees. Written notice of any meeting of Shareholders shall
be given or caused to be given by the Trustees by mailing such notice at least
seven days before such meeting, postage prepaid, stating the time and place of
the meeting, to each Shareholder at the Shareholder's address as it appears on
the records of a Trust. Whenever notice of a meeting is required to be given to
a Shareholder under the Declaration of Trust or these Bylaws, a written waiver
thereof, executed before or after the meeting by such Shareholder or his
attorney thereunto authorized and filed with the records of the meeting, shall
be deemed equivalent to such notice.
11.3 Quorum and Required Vote. A majority of Shares
entitled to vote shall be a quorum for the transaction of business at a
Shareholders' meeting, except that where any provision of law, of the
Declaration of Trust or of these Bylaws permits or requires that (i) holders of
any series shall vote as a series, then a majority of the aggregate number of
Shares of that series entitled to vote shall be necessary to constitute a quorum
for the transaction of business by that series; or (ii) holders of any class
shall vote as a class, then a majority of the aggregate number of Shares of that
class entitled to vote shall be necessary to constitute a quorum for the
transaction of business by that class. Any lesser number shall be sufficient for
adjournments. Any adjourned session or sessions may be held, within a reasonable
time after the date set for the original meeting, without the necessity of
further notice. Except when a larger vote is required by any provision of law or
the Declaration of Trust or these Bylaws, a majority of the Shares voted shall
decide any questions and a plurality shall elect a Trustee, provided that where
any provision of law, of the Declaration of Trust or of these Bylaws permits or
requires that the holders of any series or class shall vote as a series or
class, then a majority of the Shares of that series or class, as the case may
be, voted on the matter (or a plurality with respect to the election of a
Trustee) shall decide that matter insofar as that series or class is concerned.
11.4 Action by Written Consent. Any action taken by
Shareholders may be taken without a meeting if a majority of Shareholders
entitled to vote on the matter (or such larger proportion thereof as shall be
required by any express provision of law, of the Declaration of Trust or of
these Bylaws) consents to the action in writing and such written consents are
filed with the records of the meetings of Shareholders. Such consent shall be
treated for all purposes as a vote taken at a meeting of Shareholders.
11.5 Record Dates. For the purpose of determining the
Shareholders who are entitled to vote or act at any meeting or any adjournment
thereof, or who are entitled to
-7-
<PAGE> 8
receive payment of any dividend or of any other distribution, the Trustees may
fix a date from time to time, which shall be not more than 90 days before the
date of any meeting of Shareholders or the date for the payment of any dividend
or other distribution, as the record date for determining the Shareholders
having the right to notice of and to vote at such meeting and any adjournment
thereof or the right to receive such dividend or distribution, and in such case
only Shareholders of record on such record date shall have such right
notwithstanding any transfer of Shares on the books of a Trust after the record
date; or without fixing such record date the Trustees may for any of such
purposes close the register or transfer books for all or any part of such
period.
ARTICLE 12
Amendments to the Bylaws
12.1 General. These Bylaws may be amended or repealed, in
whole or in part, by a majority of the Trustees then in office at any meeting of
the Trustees, or by one or more writings signed by such a majority.
Adopted as of February 7, 1996.
-8-
<PAGE> 1
Exhibit 5(b)
AMENDED SCHEDULE B
ADVISORY FEE SCHEDULE
THE FEES LISTED BELOW ARE FOR SERVICES PROVIDED UNDER THIS
AGREEMENT AND ARE TO BE ACCRUED DAILY AND PAID MONTHLY IN ARREARS:
<TABLE>
<CAPTION>
Fund Fee
- ---- ---
<S> <C>
Schwab Money Market Forty-six one-hundredths of one percent (0.46%) of the
Portfolios Fund's average daily net assets not in excess of $2
billion, forty-five one-hundredths of one percent
(0.45%) of such net assets over $2 billion and not in
excess of $3 billion and forty one-hundredths of one
percent (0.40%) of such net assets over $3 billion.
</TABLE>
SCHWAB ANNUITY PORTFOLIOS
By: /s/ Timothy F. McCarthy
-------------------------------------------
Name: Timothy F. McCarthy
Title: President and Trustee
CHARLES SCHWAB INVESTMENT MANAGEMENT, INC.
By: /s/ William J. Klipp
-------------------------------------------
Name: William J. Klipp
Title: President and Chief Operating Officer
-10-
<PAGE> 1
Exhibit 8(b)
AMENDMENT NO. 1 TO CUSTODIAN SERVICES AGREEMENT
This Amendment, dated February 5, 1996, is entered into between SCHWAB
ANNUITY PORTFOLIOS, a Massachusetts business trust (the "Fund"), and PNC BANK,
NATIONAL ASSOCIATION (formerly Provident National Bank), a national banking
association ("PNC Bank").
WHEREAS, the Fund and PNC Bank have entered into a Custodian Services
Agreement dated as of March 29, 1994 (the "Agreement") pursuant to which the
Fund appointed PNC Bank to provide custodian services to its investment
portfolios listed on Schedule A to the Agreement; and
WHEREAS, the Fund and PNC Bank desire to amend the Agreement;
NOW THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Paragraph 15 is hereby deleted and replaced with the following:
Duration and Termination. This Agreement shall continue in full force and
effect unless terminated as hereinafter provided or amended at any time by
mutual, written agreement of the parties hereto. This Agreement may be
terminated by either party by an instrument in writing delivered, faxed or
mailed, postage prepaid, to the other party, such termination to take effect on
the date stated therein, which date shall not be sooner than sixty (60) days
after the date of such delivery or mailing. In the event this Agreement is
terminated (pending appointment of a successor to PNC Bank or vote of the
shareholders of any Portfolio of the Fund to
<PAGE> 2
dissolve or to function without a custodian of its cash, securities or other
property), PNC Bank shall not deliver cash, securities or other property of the
applicable Portfolio to the Portfolio or the Fund. It may deliver them to a bank
or trust company of PNC Bank's, having an aggregate capital, surplus and
undivided profits, as shown by its last published report, of not less than
twenty million dollars ($20,000,000), as a custodian for such Portfolio to be
held under terms similar to those of this Agreement. PNC Bank shall not be
required to make any such delivery or payment until full payment shall have been
made to PNC Bank of all of its fees, compensation, costs and expenses. PNC Bank
shall have a security interest in and shall have a right of setoff against
Property in such Portfolio's possession as security for the payment of such
fees, compensation, costs and expenses.
2. Any defined terms not defined herein shall have the same meaning as
given in the Agreement.
3. Miscellaneous. Except to the extent amended and supplemented hereby,
the Agreement shall remain unchanged and in full force and effect and is hereby
ratified and confirmed in all respects as amended and supplemented hereby.
<PAGE> 3
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
date and year first above written.
THE CHARLES SCHWAB FAMILY OF FUNDS
By: /s/ William J. Klipp
-------------------------------
Title: Senior Vice President and
Chief Operating Officer
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Robert J. Perlsweig
--------------------------------
Robert J. Perlsweig
Title: Senior Vice President
<PAGE> 1
Exhibit 11(a)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the reference to our
firm under the caption "Legal Counsel" included in or made a part of Post-
Effective Amendment No. 3 to the Registration Statement of Schwab Annuity
Portfolios on Form N-1A (Nos: 33-74534 and 811-8314) under the Securities Act
of 1933, as amended.
/s/ ROPES & GRAY
ROPES & GRAY
Washington, D.C.
April 23, 1996
<PAGE> 1
Exhibit 11(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 3 to the registration
statement on Form N-1A of Schwab Annuity Portfolios (the "Registration
Statement") of our report dated January 31, 1996, relating to the financial
statements and financial highlights of Schwab Money Market Portfolio, which
appears in such Statement of Additional Information, and to the incorporation
by reference of our report into the Prospectus which constitutes part of this
Registration Statement. We also consent to the references to us under the
heading "Accountants and Reports to Shareholders" in such Statement of
Additional Information and to the references to us under the headings
"Financial Highlights" and "Accountants" in such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
San Francisco, California
April 23, 1996
<PAGE> 1
EXHIBIT 16
SCHWAB MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
ANNUALIZED ITEM
DAILY DAILY 22(a)(i)
DATE RATE RATE CALCULATION
---- ----- ---------- -----------
<S> <C> <C> <C>
1.000000000
25-Dec-95 0.000141322 5.16% 1.000141322
26-Dec-95 0.000141341 5.16% 1.000282683
27-Dec-95 0.000141047 5.15% 1.000423770
28-Dec-95 0.000140846 5.14% 1.000564676
29-Dec-95 0.000140665 5.13% 1.000705420
30-Dec-95 0.000140667 5.13% 1.000846186
31-Dec-95 0.000140667 5.13% 1.000986972
Base Period Return 0.000986972
x 365/7
-----------
22(a)(i) YIELD 5.15%
Base period return + 1 1.000986972
Base period return +1 raised to the power of (365/7)-1 0.052784092
-----------
22(a)(ii) EFFECTIVE YIELD 5.28%
</TABLE>
<PAGE> 1
[ARTICLE] 6
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-START] JAN-01-1995
[PERIOD-END] DEC-31-1995
[INVESTMENTS-AT-COST] 17727647
[INVESTMENTS-AT-VALUE] 17727647
[RECEIVABLES] 223817
[ASSETS-OTHER] 29680
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 17981144
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1068712
[TOTAL-LIABILITIES] 1068712
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 16912496
[SHARES-COMMON-STOCK] 16912496
[SHARES-COMMON-PRIOR] 7409551
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (64)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 16912432
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 660502
[OTHER-INCOME] 0
[EXPENSES-NET] 58215
[NET-INVESTMENT-INCOME] 602287
[REALIZED-GAINS-CURRENT] 33
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 602320
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 602287
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 68313915
[NUMBER-OF-SHARES-REDEEMED] 59363572
[SHARES-REINVESTED] 552602
[NET-CHANGE-IN-ASSETS] 9502978
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] (97)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 53557
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 118893
[AVERAGE-NET-ASSETS] 11643203
[PER-SHARE-NAV-BEGIN] 1.00
[PER-SHARE-NII] .05
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] .05
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] .50
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
