<PAGE>
SCHWAB ANNUITY PORTFOLIOS
Schwab S&P 500 Portfolio
June 30, 2000 Semi-Annual Report
Market Overview
U.S. Economic Growth Remains Strong
April 2000 marked the beginning of the tenth year of the current economic
expansion, making it the longest in U.S. history. Gross Domestic Product (GDP)
grew at a real (inflation adjusted) rate of 4.6% during 1999--the fourth
consecutive year at 4% or more--and 5.0% during the first half of 2000. This
rate is considered by most economists and the Federal Reserve (Fed) to be in
excess of what the economy can absorb without experiencing inflationary
pressures--perhaps 3.5% to 4.0%. High levels of consumer spending fueled by
rising incomes, personal wealth and consumer confidence, as well as strong
business capital investment and a healthy housing sector have been the principal
factors continuing this lengthy expansion.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
REAL GDP GROWTH RATE
Quarterly Percentage Change
(Annualized Rate)
Q1 1990 5.0%
Q2 1990 1.0%
Q3 1990 -0.6%
Q4 1990 -3.0%
Q1 1991 -1.7%
Q2 1991 2.6%
Q3 1991 1.3%
Q4 1991 2.5%
Q1 1992 4.3%
Q2 1992 4.0%
Q3 1992 3.1%
Q4 1992 5.2%
Q1 1993 -0.7%
Q2 1993 2.1%
Q3 1993 1.5%
Q4 1993 6.0%
Q1 1994 3.6%
Q2 1994 5.7%
Q3 1994 2.2%
Q4 1994 5.1%
Q1 1995 1.5%
Q2 1995 0.8%
Q3 1995 3.2%
Q4 1995 3.3%
Q1 1996 2.9%
Q2 1996 6.9%
Q3 1996 2.2%
Q4 1996 4.9%
Q1 1997 4.9%
Q2 1997 5.1%
Q3 1997 4.0%
Q4 1997 3.1%
Q1 1998 6.7%
Q2 1998 2.1%
Q3 1998 3.8%
Q4 1998 5.9%
Q1 1999 3.7%
Q2 1999 1.9%
Q3 1999 5.7%
Q4 1999 7.3%
Q1 2000 4.8%
Q2 2000 5.2%
</TABLE>
Source: Bloomberg L.P.
Looking ahead, the availability of scarce labor resources and the behavior of
domestic consumers in response to continued stock market volatility may be key
determinants of whether the economy continues on its current course or softens
in the second half of 2000. The Federal Reserve (Fed) has raised the federal
funds rate by 1.75% since June 1999. Although there have been preliminary signs
that the vigorous rate of economic growth may be slowing, there still may be the
potential need for additional Fed rate increases either later this year, or
early in 2001 following the presidential election. The consensus of most
economists is that the U.S. economy appears poised for continued strong growth,
albeit at lower rates than experienced in 1999.
Unemployment Continues To Be Very Low
The unemployment rate remained very low and dropped to 3.9% in April 2000, a
three-decade low. Employment growth continues to exceed population growth.
Reflecting a shrinking pool of available workers, labor markets continue to be
extremely tight in many areas of the country and there has been some regional
evidence of labor shortages driving up wages. The labor force participation
rate, which measures the employment population as a percent of the total
population, is at a post-war high, and the Fed has expressed its concern that a
continuation of strong demand and tight labor markets may put pressure on
manufacturers and service providers to raise prices.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
U.S. UNEMPLOYMENT RATE
Jan-90 5.4%
Feb-90 5.3%
Mar-90 5.2%
Apr-90 5.4%
May-90 5.4%
Jun-90 5.2%
Jul-90 5.5%
Aug-90 5.7%
Sep-90 5.9%
Oct-90 5.9%
Nov-90 6.2%
Dec-90 6.3%
Jan-91 6.4%
Feb-91 6.6%
Mar-91 6.8%
Apr-91 6.7%
May-91 6.9%
Jun-91 6.9%
Jul-91 6.8%
Aug-91 6.9%
Sep-91 6.9%
Oct-91 7.0%
Nov-91 7.0%
Dec-91 7.3%
Jan-92 7.3%
Feb-92 7.4%
Mar-92 7.4%
Apr-92 7.4%
May-92 7.6%
Jun-92 7.8%
Jul-92 7.7%
Aug-92 7.6%
Sep-92 7.6%
Oct-92 7.3%
Nov-92 7.4%
Dec-92 7.4%
Jan-93 7.3%
Feb-93 7.1%
Mar-93 7.0%
Apr-93 7.1%
May-93 7.1%
Jun-93 7.0%
Jul-93 6.9%
Aug-93 6.8%
Sep-93 6.7%
Oct-93 6.8%
Nov-93 6.6%
Dec-93 6.5%
Jan-94 6.8%
Feb-94 6.6%
Mar-94 6.5%
Apr-94 6.4%
May-94 6.1%
Jun-94 6.1%
Jul-94 6.3%
Aug-94 6.0%
Sep-94 5.8%
Oct-94 5.8%
Nov-94 5.6%
Dec-94 5.5%
Jan-95 5.6%
Feb-95 5.4%
Mar-95 5.3%
Apr-95 5.8%
May-95 5.8%
Jun-95 5.6%
Jul-95 5.6%
Aug-95 5.7%
Sep-95 5.6%
Oct-95 5.5%
Nov-95 5.7%
Dec-95 5.6%
Jan-96 5.6%
Feb-96 5.5%
Mar-96 5.6%
Apr-96 5.5%
May-96 5.6%
Jun-96 5.3%
Jul-96 5.5%
Aug-96 5.1%
Sep-96 5.2%
Oct-96 5.2%
Nov-96 5.3%
Dec-96 5.4%
Jan-97 5.3%
Feb-97 5.3%
Mar-97 5.1%
Apr-97 5.0%
May-97 4.7%
Jun-97 5.0%
Jul-97 4.7%
Aug-97 4.9%
Sep-97 4.7%
Oct-97 4.7%
Nov-97 4.6%
Dec-97 4.7%
Jan-98 4.5%
Feb-98 4.6%
Mar-98 4.6%
Apr-98 4.3%
May-98 4.3%
Jun-98 4.5%
Jul-98 4.5%
Aug-98 4.5%
Sep-98 4.5%
Oct-98 4.5%
Nov-98 4.4%
Dec-98 4.3%
Jan-99 4.3%
Feb-99 4.4%
Mar-99 4.2%
Apr-99 4.3%
May-99 4.2%
Jun-99 4.3%
Jul-99 4.3%
Aug-99 4.2%
Sep-99 4.2%
Oct-99 4.1%
Nov-99 4.1%
Dec-99 4.1%
Jan-00 4.0%
Feb-00 4.1%
Mar-00 4.1%
Apr-00 3.9%
May-00 4.1%
Jun-00 4.0%
</TABLE>
Source: Bloomberg L.P.
Inflation Remains Contained, But Concerns Emerge
Virtually all measures of price inflation exhibited upward trends during the
reporting period. The Consumer Price Index (CPI) rose 3.7% for the year ended
June 2000. Its core rate (which excludes the more volatile food and energy
components) trended up to 2.4%. The Personal Consumption Expenditures Index, a
measure of inflation closely watched by the Fed, rose 2.6% for the same period.
The GDP price deflator, the broadest measure of inflation, indicated prices
rising at an annual rate of 2.9% during the first half of 2000.
---------------------
1
<PAGE>
SCHWAB ANNUITY PORTFOLIOS
Schwab S&P 500 Portfolio
June 30, 2000 Semi-Annual Report
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
MEASURES OF INFLATION
<TABLE>
<S> <C> <C>
Consumer Price Index Employment Cost Index
12-Month Change (Monthly) 12-month Change (Quarterly)
1/90 5.2% 5.5%
2/90 5.3% 5.5%
3/90 5.2% 5.5%
4/90 4.7% 5.4%
5/90 4.4% 5.4%
6/90 4.7% 5.4%
7/90 4.8% 5.2%
8/90 5.6% 5.2%
9/90 6.2% 5.2%
10/90 6.3% 4.9%
11/90 6.3% 4.9%
12/90 6.1% 4.9%
1/91 5.7% 4.6%
2/91 5.3% 4.6%
3/91 4.9% 4.6%
4/91 4.9% 4.6%
5/91 5.0% 4.6%
6/91 4.7% 4.6%
7/91 4.4% 4.3%
8/91 3.8% 4.3%
9/91 3.4% 4.3%
10/91 2.9% 4.3%
11/91 3.0% 4.3%
12/91 3.1% 4.3%
1/92 2.6% 4.0%
2/92 2.8% 4.0%
3/92 3.2% 4.0%
4/92 3.2% 3.6%
5/92 3.0% 3.6%
6/92 3.1% 3.6%
7/92 3.2% 3.5%
8/92 3.1% 3.5%
9/92 3.0% 3.5%
10/92 3.2% 3.5%
11/92 3.0% 3.5%
12/92 2.9% 3.5%
1/93 3.3% 3.5%
2/93 3.2% 3.5%
3/93 3.1% 3.5%
4/93 3.2% 3.6%
5/93 3.2% 3.6%
6/93 3.0% 3.6%
7/93 2.8% 3.6%
8/93 2.8% 3.6%
9/93 2.7% 3.6%
10/93 2.8% 3.5%
11/93 2.7% 3.5%
12/93 2.7% 3.5%
1/94 2.5% 3.2%
2/94 2.5% 3.2%
3/94 2.5% 3.2%
4/94 2.4% 3.2%
5/94 2.3% 3.2%
6/94 2.5% 3.2%
7/94 2.8% 3.2%
8/94 2.9% 3.2%
9/94 3.0% 3.2%
10/94 2.6% 3.0%
11/94 2.7% 3.0%
12/94 2.7% 3.0%
1/95 2.8% 2.9%
2/95 2.9% 2.9%
3/95 2.9% 2.9%
4/95 3.1% 2.9%
5/95 3.2% 2.9%
6/95 3.0% 2.9%
7/95 2.8% 2.7%
8/95 2.6% 2.7%
9/95 2.5% 2.7%
10/95 2.8% 2.7%
11/95 2.6% 2.7%
12/95 2.5% 2.7%
1/96 2.7% 2.8%
2/96 2.7% 2.8%
3/96 2.8% 2.8%
4/96 2.9% 2.9%
5/96 2.9% 2.9%
6/96 2.8% 2.9%
7/96 3.0% 2.8%
8/96 2.9% 2.8%
9/96 3.0% 2.8%
10/96 3.0% 2.9%
11/96 3.3% 2.9%
12/96 3.3% 2.9%
1/97 3.0% 2.9%
2/97 3.0% 2.9%
3/97 2.8% 2.9%
4/97 2.5% 2.8%
5/97 2.2% 2.8%
6/97 2.3% 2.8%
7/97 2.2% 3.0%
8/97 2.2% 3.0%
9/97 2.2% 3.0%
10/97 2.1% 3.3%
11/97 1.8% 3.3%
12/97 1.7% 3.3%
1/98 1.6% 3.3%
2/98 1.4% 3.3%
3/98 1.4% 3.3%
4/98 1.4% 3.5%
5/98 1.7% 3.5%
6/98 1.7% 3.5%
7/98 1.7% 3.7%
8/98 1.6% 3.7%
9/98 1.5% 3.7%
10/98 1.5% 3.4%
11/98 1.5% 3.4%
12/98 1.6% 3.4%
1/99 1.7% 3.0%
2/99 1.6% 3.0%
3/99 1.7% 3.0%
4/99 2.3% 3.2%
5/99 2.1% 3.2%
6/99 2.0% 3.2%
7/99 2.1% 3.1%
8/99 2.3% 3.1%
9/99 2.6% 3.1%
10/99 2.6% 3.4%
11/99 2.6% 3.4%
12/99 2.7% 3.4%
1/00 2.7% 4.3%
2/00 3.2% 4.3%
3/00 3.7% 4.3%
4/00 3.0% 4.4%
5/00 3.1% 4.4%
6/00 3.7% 4.4%
</TABLE>
Source: Bloomberg L.P.
Wage inflation also exhibited a marked upward trend during the reporting period.
The Employment Cost Index, a measurement of the cost to employ workers,
including both wages and benefits, rose 4.4% for the year ended June 2000.
Although these rates of inflation and employment cost may not be alarmingly high
by historical standards, the Fed has demonstrated its resolve to keep inflation
at bay both in its communications and its actions (six federal funds rate
increases since June 1999). In particular, the Fed has expressed concern that if
labor markets continue to tighten, increases in wages will outpace productivity
growth and place additional upward pressure on prices. In such an environment,
productivity growth becomes particularly critical, as it enables companies to
pay higher wages without raising prices. Non-farm productivity grew 3.0% in 1999
and at a healthy 3.6% rate in the first half of 2000.
Asset Class Performance--Stock Returns Were Volatile During The Reporting Period
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CUMULATIVE TOTAL RETURNS
(% Change)
<TABLE>
<S> <C> <C> <C> <C>
Lehman MSCI-EAFE S&P 500
Aggregate -Registered Trademark- Russell 2000 -Registered Trademark-
Bond Index (ND) Index Small-Cap Index Index
1/00 -0.06% -4.56% -3.23% -1.89%
1/00 -0.52% -2.21% 0.60% -0.28%
1/00 -0.68% -4.39% 5.82% -1.90%
1/00 -0.01% -4.83% 0.05% -7.42%
2/00 0.12% -2.85% 4.21% -2.99%
2/00 -0.17% -2.30% 6.54% -5.53%
2/00 0.37% -3.76% 8.26% -8.32%
2/00 1.02% -3.01% 10.45% -9.19%
3/00 1.20% -0.97% 18.72% -3.92%
3/00 1.00% -0.99% 19.84% -4.88%
3/00 1.69% -2.17% 14.09% -0.15%
3/00 1.57% -0.25% 14.01% 4.14%
3/00 2.20% -0.40% 7.09% 2.27%
4/00 3.02% -1.40% 7.88% 3.48%
4/00 2.95% -4.85% -9.80% -7.42%
4/00 2.85% -5.64% -4.23% -2.10%
4/00 1.90% -5.73% 0.64% -0.81%
5/00 0.47% -6.12% 1.98% -2.16%
5/00 0.34% -7.08% -2.33% -2.95%
5/00 0.54% -10.41% -4.56% -3.91%
5/00 1.64% -9.93% -8.97% -5.89%
6/00 2.83% -3.95% 2.11% 1.04%
6/00 3.15% -4.10% 4.16% -0.35%
6/00 4.02% -4.46% 2.37% 0.17%
6/00 3.05% -5.35% 1.75% -1.40%
6/00 3.99% -4.06% 3.04% -0.42%
</TABLE>
Compiled by Charles Schwab & Co., Inc.
/ / The information is historical and does not represent future results. Indices
are unmanaged and do not reflect advisory fees and other expenses associated
with an investment in the Portfolio. Investors cannot invest in an index
directly.
As shown on the chart above, equity valuations, in particular small-cap,
exhibited extreme volatility during the reporting period. Small-cap stocks as
represented by the Russell 2000 Index achieved a total return of 3.04% for the
six-month reporting period. Large cap stocks, as represented by the S&P 500
Index, experienced a negative return of -0.42% for the same period. Dampened by
relatively weak foreign currencies, International stocks, as represented by the
MSCI EAFE Index, achieved a negative return of -4.0% for the period. Reflecting
a decline in intermediate and long-term interest rates, fixed income returns
were generally positive for the period. Bond returns, as represented by the
Lehman Brothers Aggregate Bond Index, were 3.99% for the six-month period.
U.S. Equity Valuation
The price/earnings ratio for the S&P 500-Registered Trademark- Index remained at
very high levels during the reporting period and ended the period at a lofty
29.3 times earnings, slightly less than twice its long term average. The
price/earnings ratio, also known as a multiple, is the price of a stock divided
by its earnings per share, and generally indicates how much investors are
willing to pay for a company's
----------------
2
<PAGE>
SCHWAB ANNUITY PORTFOLIOS
Schwab S&P 500 Portfolio
June 30, 2000 Semi-Annual Report
earning potential. Based on other traditional market valuation measures such as
the price-to-book value ratio or dividend yield, the U.S. stock market continues
to remain at record or near record high valuation levels. Reflecting the
extraordinary valuations of the technology sector, the price/ earnings ratio
(twelve months trailing) for the NASDAQ 100 Index ended the period at 127.5.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
S&P 500 INDEX PRICE/EARNINGS RATIO
<TABLE>
<S> <C>
1/90 14.37
2/90 14.21
3/90 14.77
4/90 14.82
5/90 15.84
6/90 16.66
7/90 16.65
8/90 15.57
9/90 14.90
10/90 14.36
11/90 14.59
12/90 15.19
1/91 14.95
2/91 16.82
3/91 17.48
4/91 17.85
5/91 17.92
6/91 17.96
7/91 18.07
8/91 19.72
9/91 19.88
10/91 19.92
11/91 21.02
12/91 21.85
1/92 23.35
2/92 23.83
3/92 25.45
4/92 25.51
5/92 25.71
6/92 25.08
7/92 25.61
8/92 25.50
9/92 24.37
10/92 23.94
11/92 24.08
12/92 24.01
1/93 24.20
2/93 24.25
3/93 24.22
4/93 23.20
5/93 23.21
6/93 22.58
7/93 22.52
8/93 23.02
9/93 23.74
10/93 23.97
11/93 22.55
12/93 23.55
1/94 22.98
2/94 21.17
3/94 20.34
4/94 20.10
5/94 20.16
6/94 19.76
7/94 18.64
8/94 18.90
9/94 18.26
10/94 17.55
11/94 16.58
12/94 16.98
1/95 16.23
2/95 16.20
3/95 16.50
4/95 16.02
5/95 16.43
6/95 16.82
7/95 16.55
8/95 16.18
9/95 16.86
10/95 16.18
11/95 17.14
12/95 17.41
1/96 18.11
2/96 18.56
3/96 18.94
4/96 19.16
5/96 19.48
6/96 19.30
7/96 18.31
8/96 18.62
9/96 19.75
10/96 19.60
11/96 21.05
12/96 20.70
1/97 20.55
2/97 20.98
3/97 19.87
4/97 20.24
5/97 21.43
6/97 22.45
7/97 23.92
8/97 22.64
9/97 24.00
10/97 22.84
11/97 24.02
12/97 24.51
1/98 24.99
2/98 26.44
3/98 27.76
4/98 26.51
5/98 26.12
6/98 27.09
7/98 26.78
8/98 22.77
9/98 24.23
10/98 27.58
11/98 30.14
12/98 31.97
1/99 33.29
2/99 32.65
3/99 33.78
4/99 33.90
5/99 32.74
6/99 34.70
7/99 31.62
8/99 31.21
9/99 29.90
10/99 29.92
11/99 30.65
12/99 32.53
1/00 29.78
2/00 28.59
3/00 31.50
4/00 29.58
5/00 28.82
6/00 29.31
30-Year Average 15.8
</TABLE>
Source: Bloomberg L.P.
This market overview has been provided by the portfolio management team.
PORTFOLIO MANAGEMENT TEAM
Geri Hom -- Vice President and Senior Portfolio Manager, has primary
responsibility for the day-to-day management of the Portfolio. Geri joined CSIM
in March 1995 as Portfolio Manager and was promoted to her current position in
December 1996. She currently manages approximately $20 billion in indexed equity
mutual fund assets. Prior to joining CSIM, Geri was a principal for Wells Fargo
Nikko Investment Advisors and Vice President and Manager of the Domestic Equity
Portfolio Management Group for Wells Fargo Nikko.
PORTFOLIO HIGHLIGHTS
Q. How did the Portfolio perform during the reporting period?
A. Although volatile, the small cap asset class (as measured by the Russell 2000
Index) out performed the large-cap asset class (as measured by the S&P 500
Index) during the six month reporting period for the first time in approximately
five years. The S&P 500 Portfolio achieved a total return of -0.56% and 6.92%
for the six-month and 12-month reporting periods ended 6/30/00, respectively.
The since inception (11/1/96) average annual return was 23.08%(1). The Portfolio
continued to closely track the performance of its benchmark, the
S&P 500 Index.
Unlike the Portfolio, the S&P 500 Index does not incur expenses or hold cash
that, in total, reduce the return to the shareholders. The cash portion earns
interest at money market rates, which may be more or less than the returns of
the S&P 500 Index during any given period. Also, the weighting of any particular
security in the Portfolio can be greater or less than in the Index. Lastly,
unlike the S&P 500 Index, the Portfolio incurs trading costs when it buys or
sells securities.
Taken together, these factors caused a 0.14% difference in the return of the
Portfolio compared to the Index for the six month period, a difference referred
to as the Portfolio "tracking differential". Given that the Portfolio's current
annual ratio of net expenses to average net assets is 0.28%, the fund closely
tracked the S&P 500 Index on a pre-expenses basis.
Q. How have the industry sectors in the S&P 500 Index changed over the last five
years?
A. The graph below shows the top historical weightings of the ten industry
sectors of the S&P 500 Index as of 06/30/00. Since 1996, the Index has become
more concentrated, with the top ten sectors currently representing approximately
77% of the total versus approximately 58% in 1996. The sectors with the largest
gains for the last five years were Business Machines (from 5.7% to 16.7%) and
Electronics (from 4.6% to 12.9%). The sectors with
(1)A portion of the Portfolio's expenses was reduced during the reporting
period. Without such reductions, the Portfolio's total return would have been
lower. The Portfolio's returns do not include charges and expenses
attributable to any particular insurance product. Inclusion of these charges
and expenses would reduce returns.
---------------------
3
<PAGE>
SCHWAB ANNUITY PORTFOLIOS
Schwab S&P 500 Portfolio
June 30, 2000 Semi-Annual Report
the largest declines for the last five years were International Oil (from 6.6%
to 3.9%) and Banks (from 7.0% to 4.4%).
S&P 500-Registered Trademark- Index Report
% of Total Index
<TABLE>
<CAPTION>
S&P 500 INDEX 06/96 06/97 06/98 06/99 06/00
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------
Business Machines 5.72 7.18 8.20 13.09 16.76
Electronics 4.57 5.87 5.54 6.43 12.89
Drugs & Medicine 10.44 11.44 11.89 10.93 11.69
Telephone 8.02 6.16 6.77 8.29 6.42
Retail 5.06 4.73 5.70 6.67 5.65
Miscellaneous Finance 3.13 3.77 5.15 5.53 5.39
Producer Goods 5.70 5.78 5.21 4.92 5.28
Business Services 2.15 1.90 2.42 3.88 4.63
Banks 7.03 7.61 8.67 6.89 4.40
International Oil 6.59 6.53 5.34 4.36 3.91
</TABLE>
Source: Wilshire Associates
----------------
4
<PAGE>
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
COMMON STOCK--96.6% OF SHARES (000S)
----------------------------------------------------------------------
<S> <C> <C>
AEROSPACE / DEFENSE--0.9%
B.F. Goodrich Co. ............................ 1,200 $ 41
Boeing Co. ................................... 8,996 376
Crane Co. .................................... 700 17
General Dynamics Corp. ....................... 1,900 99
Lockheed Martin Corp. ........................ 4,000 99
Northrop Grumman Corp. ....................... 600 40
Raytheon Co., Class B ........................ 3,500 67
Rockwell International Corp. ................. 1,900 60
Textron, Inc. ................................ 1,400 76
TRW, Inc. .................................... 1,200 52
United Technologies Corp. .................... 4,700 277
--------
1,204
--------
AIR TRANSPORTATION--0.3%
AMR Corp.+ ................................... 1,500 40
Delta Air Lines, Inc. ........................ 1,200 61
FedEx Corp.+ ................................. 2,820 107
Southwest Airlines Co. ....................... 5,012 95
U.S. Airways Group, Inc.+ .................... 700 27
--------
330
--------
ALCOHOLIC BEVERAGES--0.3%
Adolph Coors Co., Class B .................... 300 18
Anheuser-Busch Cos., Inc. .................... 4,400 329
Brown-Forman Corp., Class B .................. 600 32
--------
379
--------
APPAREL--0.1%
Liz Claiborne, Inc. .......................... 600 21
Nike, Inc., Class B .......................... 2,800 111
Reebok International Ltd.+ ................... 600 10
Russell Corp. ................................ 400 8
Springs Industries, Inc., Class A ............ 100 3
VF Corp. ..................................... 1,200 29
--------
182
--------
AUTOMOTIVE PRODUCTS / MOTOR VEHICLES--1.0%
Cooper Tire & Rubber Co. ..................... 700 8
Cummins Engine Co., Inc. ..................... 100 3
Dana Corp. ................................... 1,578 33
Danaher Corp. ................................ 1,400 69
Delphi Automotive Systems Corp. .............. 5,563 81
Eaton Corp. .................................. 700 47
Ford Motor Co. ............................... 12,100 520
General Motors Corp., Class H ................ 5,400 314
</TABLE>
------------
5
<PAGE>
------------
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
COMMON STOCK--(continued) OF SHARES (000S)
----------------------------------------------------------------------
<S> <C> <C>
AUTOMOTIVE PRODUCTS / MOTOR VEHICLES (CONTINUED)
Genuine Parts Co. ............................ 1,800 $ 36
Goodyear Tire & Rubber Co. ................... 1,600 32
Harley-Davidson, Inc. ........................ 3,000 116
Navistar International Corp.+ ................ 600 19
------
1,278
------
BANKS--4.3%
AmSouth Bancorp .............................. 3,750 59
Bank of America Corp. ........................ 16,412 706
Bank of New York Co., Inc. ................... 7,300 339
Bank One Corp. ............................... 11,306 300
BB&T Corp. ................................... 3,400 81
Chase Manhattan Corp. ........................ 12,150 560
Comerica, Inc. ............................... 1,550 70
Fifth Third Bancorp .......................... 3,150 199
First Union Corp. ............................ 9,744 242
Firstar Corp. ................................ 9,645 203
Fleet Boston Financial Corp. ................. 9,053 308
Huntington Bancshares, Inc. .................. 2,233 35
J.P. Morgan & Co., Inc. ...................... 1,600 176
KeyCorp, Inc. ................................ 4,300 76
Mellon Financial Corp. ....................... 4,900 179
National City Corp. .......................... 6,000 102
Northern Trust Corp. ......................... 2,200 143
Old Kent Financial Corp. ..................... 1,260 34
PNC Financial Services Group ................. 2,900 136
Providian Financial Corp. .................... 1,450 131
Regions Financial Corp. ...................... 2,100 42
SouthTrust Corp. ............................. 1,700 38
State Street Corp. ........................... 1,500 159
Summit Bancorp ............................... 1,700 42
SunTrust Banks, Inc. ......................... 3,200 146
Synovus Financial Corp. ...................... 2,900 51
U.S. Bancorp ................................. 7,331 141
Union Planters Corp. ......................... 1,400 39
Wachovia Corp. ............................... 2,000 109
Wells Fargo & Co. ............................ 16,000 620
------
5,466
------
BUSINESS MACHINES & SOFTWARE--16.2%
3Com Corp.+ .................................. 3,300 190
Adaptec, Inc.+ ............................... 1,100 25
Adobe Systems, Inc. .......................... 1,200 156
</TABLE>
------------
6
<PAGE>
------------
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
COMMON STOCK (CONTINUED) OF SHARES (000S)
---------------------------------------------------------------------------
<S> <C> <C>
BUSINESS MACHINES & SOFTWARE (CONTINUED)
Apple Computer, Inc.+ ........................ 3,200 $ 168
Autodesk, Inc. ............................... 600 21
BMC Software, Inc.+ .......................... 2,300 84
Cabletron Systems, Inc.+ ..................... 1,700 43
Ceridian Corp.+ .............................. 1,400 34
Cisco Systems, Inc.+ ......................... 68,900 4,379
Compaq Computer Corp. ........................ 16,670 426
Compuware Corp.+ ............................. 3,500 36
Comverse Technology, Inc.+ ................... 1,500 140
Dell Computer Corp.+ ......................... 25,700 1,267
EMC Corp.+ ................................... 21,612 1,663
Gateway, Inc.+ ............................... 3,300 187
Hewlett-Packard Co. .......................... 10,100 1,261
IKON Office Solutions, Inc. .................. 1,300 5
International Business Machines Corp. ........ 17,700 1,939
Lexmark International, Inc.+ ................. 1,300 87
Microsoft Corp.+ ............................. 52,400 4,192
MIPS Technologies, Inc.+ ..................... 138 5
NCR Corp.+ ................................... 1,000 39
Network Appliance, Inc.+ ..................... 3,000 242
Novell, Inc.+ ................................ 3,200 30
Novellus Systems, Inc.+ ...................... 900 51
Oracle Corp.+ ................................ 28,150 2,366
Pitney Bowes, Inc. ........................... 2,600 104
Seagate Technology, Inc.+ .................... 2,500 138
Silicon Graphics, Inc.+ ...................... 1,000 4
Sun Microsystems, Inc.+ ...................... 15,900 1,446
Unisys Corp.+ ................................ 3,000 44
Xerox Corp. .................................. 6,500 135
-------
20,907
-------
BUSINESS SERVICES--4.5%
Advo, Inc.+ .................................. 300 13
Allied Waste Industries, Inc.+ ............... 1,900 19
America Online, Inc.+ ........................ 22,800 1,203
Automatic Data Processing, Inc. .............. 6,200 332
Citrix Systems, Inc.+ ........................ 1,800 34
Computer Associates International, Inc. ...... 5,800 297
Computer Sciences Corp.+ ..................... 1,700 127
Convergys Corp.+ ............................. 1,354 70
Deluxe Corp. ................................. 800 19
Dun & Bradstreet Corp. ....................... 1,600 46
Ecolab, Inc. ................................. 1,300 51
</TABLE>
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7
<PAGE>
------------
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
COMMON STOCK (CONTINUED) OF SHARES (000S)
---------------------------------------------------------------------------
<S> <C> <C>
BUSINESS SERVICES (CONTINUED)
Electronic Data Systems Corp. ................ 4,700 $ 194
Equifax, Inc. ................................ 1,400 37
First Data Corp. ............................. 4,200 208
H&R Block, Inc. .............................. 900 29
IMS Health, Inc. ............................. 3,000 54
Interpublic Group of Cos., Inc. .............. 3,100 133
Mercury Interactive Corp.+ ................... 800 77
National Service Industries, Inc. ............ 400 8
Ominicom Group, Inc. ......................... 1,800 160
Parametic Technology Corp.+ .................. 2,700 30
Paychex, Inc. ................................ 3,650 153
PeopleSoft, Inc.+ ............................ 2,500 42
Sapient Corp.+ ............................... 900 96
Shared Medical Systems Corp. ................. 300 22
Siebel Systems, Inc.+ ........................ 1,900 311
Tyco International Ltd. ...................... 16,660 789
VERITAS Software Corp.+ ...................... 3,800 429
Waste Management, Inc. ....................... 5,957 113
Yahoo!, Inc.+ ................................ 5,400 669
Young & Rubicam, Inc. ........................ 700 40
------
5,805
------
CHEMICAL--1.6%
Air Products & Chemicals, Inc. ............... 2,200 68
Chemfirst, Inc. .............................. 200 5
Dow Chemical Co. ............................. 6,300 190
E.I. du Pont de Nemours & Co. ................ 10,454 457
Eastman Chemical Co. ......................... 800 38
Great Lakes Chemical Corp. ................... 500 16
Hercules, Inc. ............................... 1,100 15
Minnesota Mining & Manufacturing Co. ......... 3,900 322
Pharmacia Corp. .............................. 12,507 646
PPG Industries, Inc. ......................... 1,700 75
Praxair, Inc. ................................ 1,600 60
Rohm & Haas Co. .............................. 2,105 73
Sigma-Aldrich Corp. .......................... 1,000 29
Union Carbide Corp. .......................... 1,400 69
W.R. Grace & Co.+ ............................ 700 8
------
2,071
------
CONSTRUCTION--0.2%
Armstrong Holdings, Inc. ..................... 400 6
Centex Corp. ................................. 600 14
Fluor Corp. .................................. 700 22
</TABLE>
------------
8
<PAGE>
------------
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
COMMON STOCK (CONTINUED) OF SHARES (000S)
---------------------------------------------------------------------------
<S> <C> <C>
CONSTRUCTION (CONTINUED)
Kaufman & Broad Home Corp. ................... 500 $ 10
Masco Corp. .................................. 4,600 83
Owens Corning ................................ 500 5
Pulte Corp. .................................. 500 11
Sherwin-Williams Co. ......................... 1,600 34
The Stanley Works ............................ 900 21
Vulcan Materials Co. ......................... 900 38
------
244
------
CONSUMER - DURABLE--0.1%
Black & Decker Corp. ......................... 900 35
Leggett & Platt, Inc. ........................ 2,000 33
Maytag Corp. ................................. 800 30
Whirlpool Corp. .............................. 700 33
------
131
------
CONSUMER - NONDURABLE--0.7%
American Greetings Corp., Class A ............ 700 13
Darden Restaurants, Inc. ..................... 1,300 21
Fortune Brands, Inc. ......................... 1,600 37
Harcourt General, Inc. ....................... 700 38
Hasbro, Inc. ................................. 1,825 28
Mattel, Inc. ................................. 3,900 51
McDonald's Corp. ............................. 13,400 441
Newell Rubbermaid, Inc. ...................... 2,724 70
Starbucks Corp.+ ............................. 1,780 68
Tricon Global Restaurants, Inc.+ ............. 1,500 42
Tupperware Corp. ............................. 700 15
Wendy's International, Inc. .................. 1,100 20
------
844
------
CONTAINERS--0.1%
Ball Corp. ................................... 300 10
Bemis Co., Inc. .............................. 500 17
Crown Cork & Seal Co., Inc. .................. 1,400 21
Owens-Illinois, Inc.+ ........................ 1,400 16
Pactiv Corp.+ ................................ 1,700 13
Sealed Air Corp.+ ............................ 814 43
------
120
------
ELECTRONICS--12.3%
ADC Telecommunications, Inc.+ ................ 3,100 260
Advanced Micro Devices, Inc.+ ................ 1,400 108
Altera Corp.+ ................................ 1,940 198
American Power Conversion Corp.+ ............. 1,725 70
</TABLE>
------------
9
<PAGE>
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SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
COMMON STOCK (CONTINUED) OF SHARES (000S)
---------------------------------------------------------------------------
<S> <C> <C>
ELECTRONICS (CONTINUED)
Analog Devices, Inc.+ ........................ 3,600 $ 274
Andrew Corp.+ ................................ 850 29
Applied Materials, Inc.+ ..................... 8,100 734
Broadcom Corp., Class A+ ..................... 1,610 353
Conexant Systems, Inc.+ ...................... 2,200 107
Intel Corp. .................................. 33,100 4,425
ITT Industries, Inc. ......................... 900 27
KLA-Tencor Corp.+ ............................ 1,800 105
Linear Technology Corp. ...................... 3,000 192
LSI Logic Corp.+ ............................. 3,100 168
Lucent Technologies, Inc. .................... 32,295 1,913
Maxim Integrated Products, Inc.+ ............. 2,700 183
Micron Technology, Inc.+ ..................... 5,400 476
Molex, Inc. .................................. 1,900 91
Motorola, Inc. ............................... 21,405 622
National Semiconductor Corp.+ ................ 1,700 96
Nextel Communications, Inc., Class A+ ........ 7,500 459
Nortel Networks Corp. ........................ 29,420 2,008
PE Corp.-PE Biosystems Group ................. 2,000 132
PerkinElmer, Inc. ............................ 400 26
QUALCOM, Inc.+ ............................... 7,500 450
Sanmina Corp.+ ............................... 1,500 128
Scientific-Atlanta, Inc. ..................... 1,600 119
Solectron Corp.+ ............................. 5,900 247
Tektronix, Inc. .............................. 550 41
Tellabs, Inc.+ ............................... 4,100 281
Teradyne, Inc.+ .............................. 1,700 125
Texas Instruments, Inc. ...................... 16,300 1,120
Thermo Electron Corp.+ ....................... 1,600 34
Thomas & Betts Corp. ......................... 600 11
Xilinx, Inc.+ ................................ 3,100 256
-------
15,868
-------
ENERGY - RAW MATERIALS--0.9%
Anadarko Petroleum Corp. ..................... 1,200 59
Apache Corp. ................................. 1,100 65
Baker Hughes, Inc. ........................... 3,180 102
Burlington Resources, Inc. ................... 2,252 86
Eastern Enterprises .......................... 600 38
Halliburton Co. .............................. 4,400 208
McDermott International, Inc. ................ 1,200 11
Occidental Petroleum Corp. ................... 3,700 78
Rowan Cos., Inc.+ ............................ 800 24
Schlumberger Ltd. ............................ 5,700 425
------
1,096
------
</TABLE>
------------
10
<PAGE>
------------
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
COMMON STOCK (CONTINUED) OF SHARES (000S)
---------------------------------------------------------------------------
<S> <C> <C>
FOOD & AGRICULTURE--3.0%
Archer-Daniels-Midland Co. ................... 5,856 $ 57
Bestfoods, Inc. .............................. 2,800 194
Campbell Soup Co. ............................ 4,100 119
Coca-Cola Co. ................................ 24,500 1,407
Coca-Cola Enterprises, Inc. .................. 4,100 67
ConAgra, Inc. ................................ 4,800 92
General Mills, Inc. .......................... 2,900 111
H.J. Heinz Co. ............................... 3,500 153
Hershey Foods Corp. .......................... 1,300 63
Kellogg Co. .................................. 4,100 122
Nabisco Group Holdings Corp. ................. 3,300 86
PepsiCo, Inc. ................................ 14,300 635
Quaker Oats Co. .............................. 1,300 98
Ralston-Ralston Purina Group ................. 2,900 58
Sara Lee Corp. ............................... 8,800 170
SUPERVALU, Inc. .............................. 1,400 27
SYSCO Corp. .................................. 3,300 139
Unilever NV - Sponsored ADR .................. 5,567 239
Wm. Wrigley Jr. Co. .......................... 1,100 88
------
3,925
------
GOLD--0.1%
Barrick Gold Corp. ........................... 3,800 69
Homestake Mining Co. ......................... 2,600 18
Newmont Mining Corp. ......................... 1,686 36
Placer Dome, Inc. ............................ 3,300 32
------
155
------
HEALTHCARE / DRUGS & MEDICINE--10.8%
Abbott Laboratories .......................... 15,300 682
Aetna, Inc. .................................. 1,400 90
Allergan, Inc. ............................... 1,200 89
ALZA Corp.+ .................................. 900 53
American Home Products Corp. ................. 13,000 764
Amgen, Inc.+ ................................. 10,200 717
Bausch & Lomb, Inc. .......................... 600 46
Baxter International, Inc. ................... 2,800 197
Becton, Dickinson & Co. ...................... 2,400 69
Biogen, Inc.+ ................................ 1,400 90
Biomet, Inc. ................................. 1,100 42
Boston Scientific Corp.+ ..................... 4,100 90
Bristol-Myers Squibb Co. ..................... 19,500 1,136
C.R. Bard, Inc. .............................. 500 24
Cardinal Health, Inc. ........................ 2,750 204
</TABLE>
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11
<PAGE>
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SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
COMMON STOCK (CONTINUED) OF SHARES (000S)
---------------------------------------------------------------------------
<S> <C> <C>
HEALTHCARE / DRUGS & MEDICINE (CONTINUED)
Eli Lilly & Co. .............................. 11,200 $ 1,119
Guidant Corp.+ ............................... 3,000 149
HCA-The Healthcare Co. ....................... 5,400 164
HealthSouth Corp.+ ........................... 3,600 26
Humana, Inc.+ ................................ 1,600 8
Johnson & Johnson ............................ 13,900 1,416
Mallinckrodt, Inc. ........................... 700 30
Manor Care, Inc.+ ............................ 1,100 8
McKesson HBOC, Inc. .......................... 2,806 59
Medimmune, Inc.+ ............................. 2,100 155
Medtronic, Inc. .............................. 12,000 598
Merck & Co., Inc. ............................ 22,900 1,755
Pfizer, Inc. ................................. 62,700 3,010
Quintiles Transnational Corp.+ ............... 1,200 17
Schering-Plough Corp. ........................ 14,500 732
St. Jude Medical, Inc.+ ...................... 800 37
Tenet Healthcare Corp.+ ...................... 3,000 81
UnitedHealth Group, Inc. ..................... 1,600 137
Watson Pharmaceuticals, Inc.+ ................ 900 48
Wellpoint Health Networks, Inc.+ ............. 600 43
-------
13,885
-------
HOUSEHOLD PRODUCTS--1.3%
Alberto-Culver Co., Class B .................. 600 18
Avon Products, Inc. .......................... 2,300 102
Clorox Co. ................................... 2,200 99
Colgate-Palmolive Co. ........................ 5,600 335
Gillette Co. ................................. 10,500 367
International Flavors & Fragrances, Inc. ..... 1,000 30
Procter & Gamble Co. ......................... 13,000 744
-------
1,695
-------
INSURANCE--2.8%
AFLAC, Inc. .................................. 2,800 129
Allstate Corp. ............................... 7,000 156
American General Corp. ....................... 2,610 159
American International Group, Inc. ........... 15,430 1,813
Aon Corp. .................................... 2,450 76
Chubb Corp. .................................. 1,800 111
CIGNA Corp. .................................. 1,600 150
Cincinnati Financial Corp. ................... 1,600 50
Conseco, Inc. ................................ 3,141 31
Hartford Financial Services Group, Inc. ...... 2,200 123
</TABLE>
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12
<PAGE>
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SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
COMMON STOCK (CONTINUED) OF SHARES (000S)
---------------------------------------------------------------------------
<S> <C> <C>
INSURANCE (CONTINUED)
Jefferson-Pilot Corp. ........................ 1,000 $ 56
Lincoln National Corp. ....................... 2,000 72
Loew's Corp. ................................. 1,000 60
Marsh & McLennan Cos., Inc. .................. 2,600 272
MBIA, Inc. ................................... 900 43
MGIC Investment Corp. ........................ 1,000 46
Progressive Corp. ............................ 700 52
SAFECO Corp. ................................. 1,300 26
St. Paul Cos., Inc. .......................... 2,238 76
Torchmark Corp. .............................. 1,300 32
UnumProvident Corp. .......................... 2,276 46
------
3,579
------
MEDIA--3.3%
Clear Channel Communications, Inc.+ .......... 3,300 248
Comcast Corp., Class A+ ...................... 9,200 373
Dow Jones & Co., Inc. ........................ 900 66
Gannett Co., Inc. ............................ 2,800 167
Knight-Ridder, Inc. .......................... 800 43
McGraw-Hill Cos., Inc. ....................... 2,000 108
Meredith Corp. ............................... 500 17
New York Times Co., Class A .................. 1,600 63
R.R. Donnelly & Sons Co. ..................... 1,200 27
Seagram Co. Ltd. ............................. 4,300 249
Time Warner, Inc. ............................ 13,200 1,003
Tribune Co. .................................. 2,800 98
Viacom, Inc., Class B+ ....................... 14,881 1,015
Walt Disney Co. .............................. 20,700 803
------
4,280
------
MISCELLANEOUS--0.3%
Agilent Technologies, Inc.+ .................. 4,437 327
Visteon Corp. ................................ 1,584 19
------
346
------
MISCELLANEOUS FINANCE--5.2%
American Express Co. ......................... 13,300 693
Associates First Capital Corp., Class A ...... 7,158 160
Bear Stearns Cos., Inc. ...................... 1,112 46
Capital One Financial Corp. .................. 1,900 85
Charles Schwab Corp. ......................... 13,242 445
Charter One Financial, Inc. .................. 2,100 48
Citigroup, Inc. .............................. 33,440 2,015
</TABLE>
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13
<PAGE>
------------
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
COMMON STOCK (CONTINUED) OF SHARES (000S)
---------------------------------------------------------------------------
<S> <C> <C>
MISCELLANEOUS FINANCE (CONTINUED)
Countrywide Credit Industries, Inc. .......... 1,100 $ 33
Fannie Mae ................................... 10,100 527
Franklin Resources, Inc. ..................... 2,500 76
Freddie Mac .................................. 6,800 275
Golden West Financial Corp. .................. 1,500 61
Household International, Inc. ................ 4,719 196
Lehman Brothers Holdings, Inc. ............... 1,200 113
MBNA Corp. ................................... 7,862 213
Merrill Lynch & Co., Inc. .................... 3,900 449
Morgan Stanley Dean Witter Discover & Co. .... 11,250 937
Paine Webber Group, Inc. ..................... 1,500 68
Sabre Group Holdings, Inc.+ .................. 1,383 39
SLM Holding Corp. ............................ 1,600 60
T. Rowe Price Associates, Inc. ............... 1,100 47
Washington Mutual, Inc. ...................... 5,716 165
------
6,751
------
NON-FERROUS METALS--0.3%
Alcan Aluminum Ltd. .......................... 2,100 65
Alcoa, Inc. .................................. 8,672 252
Engelhard Corp. .............................. 1,200 20
Freeport-McMoRan Copper & Gold, Inc., Class B+ 1,600 15
Inco Ltd.+ ................................... 1,900 29
Phelps Dodge Corp. ........................... 815 30
------
411
------
OIL - DOMESTIC--0.6%
Amerada Hess Corp. ........................... 800 49
Ashland, Inc. ................................ 700 25
Conoco Inc., Class B ......................... 6,100 150
Kerr-McGee Corp. ............................. 884 52
Phillips Petroleum Co. ....................... 2,500 127
Sunoco, Inc. ................................. 800 24
Tosco Corp. .................................. 1,400 40
Transocean Sedco Forex, Inc. ................. 2,084 111
Union Pacific Resources Group, Inc. .......... 2,500 55
Unocal Corp. ................................. 2,500 83
USX-Marathon Group, Inc. ..................... 3,000 75
------
791
------
OIL - INTERNATIONAL--3.8%
Chevron Corp. ................................ 6,400 543
Exxon Mobil Corp. ............................ 34,525 2,710
Royal Dutch Petroleum Co. - Sponsored ADR .... 21,200 1,305
Texaco, Inc. ................................. 5,515 294
------
4,852
------
</TABLE>
------------
14
<PAGE>
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SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
COMMON STOCK (CONTINUED) OF SHARES (000S)
---------------------------------------------------------------------------
<S> <C> <C>
OPTICAL & PHOTO--0.8%
Corning, Inc. ................................ 3,000 $ 810
Eastman Kodak Co. ............................ 3,200 190
Polaroid Corp. ............................... 400 7
------
1,007
------
PAPER & FOREST PRODUCTS--0.6%
Boise Cascade Corp. .......................... 500 13
Fort James Corp. ............................. 2,100 49
Georgia-Pacific Group ........................ 1,600 42
International Paper Co. ...................... 5,498 164
Kimberly-Clark Corp. ......................... 5,600 321
Louisiana-Pacific Corp. ...................... 700 8
Mead Corp. ................................... 1,000 25
Potlatch Corp. ............................... 200 7
Temple Inland, Inc. .......................... 600 25
Westvaco Corp. ............................... 1,000 25
Weyerhaeuser Co. ............................. 2,400 103
Willamette Industries, Inc. .................. 1,000 27
------
809
------
PRODUCER GOODS & MANUFACTURING--5.1%
Avery Dennison Corp. ......................... 1,100 74
Briggs & Stratton Corp. ...................... 200 7
Caterpillar, Inc. ............................ 3,400 115
Cooper Industries, Inc. ...................... 900 29
Deere & Co. .................................. 2,300 85
Dover Corp. .................................. 2,000 81
Emerson Electric Co. ......................... 4,300 260
FMC Corp.+ ................................... 300 17
General Electric Co. (b) ..................... 98,000 5,194
Honeywell International, Inc. ................ 8,137 274
Illinois Tool Works, Inc. .................... 2,900 165
Ingersoll-Rand Co. ........................... 1,700 68
Johnson Controls, Inc. ....................... 800 41
Millipore Corp. .............................. 400 30
Pall Corp. ................................... 1,200 22
Parker-Hannifin Corp. ........................ 1,050 36
Snap-On, Inc. ................................ 600 16
The Timken Co. ............................... 600 11
W.W. Grainger, Inc. .......................... 900 28
------
6,553
------
</TABLE>
------------
15
<PAGE>
------------
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
COMMON STOCK (CONTINUED) OF SHARES (000S)
---------------------------------------------------------------------------
<S> <C> <C>
RAILROAD & SHIPPING--0.3%
Burlington Northern Santa Fe Corp. ........... 4,700 $ 108
CSX Corp. .................................... 2,200 47
Kansas City Southern Industries, Inc. ........ 1,000 89
Norfolk Southern Corp. ....................... 3,700 55
Union Pacific Corp. .......................... 2,400 89
------
388
------
RETAIL--5.4%
Albertson's, Inc. ............................ 4,275 142
AutoZone, Inc.+ .............................. 1,500 33
Bed, Bath & Beyond, Inc.+ .................... 1,300 47
Best Buy Co., Inc.+ .......................... 2,000 127
Cendant Corp.+ ............................... 7,002 98
Circuit City Stores-Circuit City Group ....... 2,000 66
Consolidated Stores Corp.+ ................... 600 7
Costco Wholesale Corp.+ ...................... 4,400 145
CVS Corp. .................................... 3,800 152
Dillards, Inc., Class A ...................... 500 6
Dollar General Corp. ......................... 3,163 62
Federated Department Stores, Inc.+ ........... 2,000 68
Gap, Inc. .................................... 8,462 264
Great Atlantic & Pacific Tea Co., Inc. ....... 300 5
Home Depot, Inc. ............................. 22,900 1,144
J.C. Penney Co., Inc. ........................ 2,500 46
Kmart Corp.+ ................................. 5,000 34
Kohl's Corp.+ ................................ 3,200 178
Kroger Co.+ .................................. 8,200 181
Limited, Inc. ................................ 4,200 91
Longs Drug Stores, Inc. ...................... 400 9
Lowe's Cos., Inc. ............................ 3,700 152
May Department Stores Co. .................... 3,250 78
Nordstrom, Inc. .............................. 1,300 31
Office Depot, Inc.+ .......................... 3,400 21
RadioShack Corp. ............................. 1,900 90
Rite Aid Corp. ............................... 2,600 17
Safeway, Inc.+ ............................... 5,000 226
Sears, Roebuck & Co. ......................... 3,800 124
Staples, Inc.+ ............................... 4,800 74
Target Corp. ................................. 4,500 261
Tiffany & Co., Inc ........................... 700 47
TJX Cos., Inc. ............................... 3,000 56
Toys `R' Us, Inc.+ ........................... 2,500 36
</TABLE>
------------
16
<PAGE>
------------
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
COMMON STOCK (CONTINUED) OF SHARES (000S)
---------------------------------------------------------------------------
<S> <C> <C>
RETAIL (CONTINUED)
Wal-Mart Stores, Inc. ........................ 44,300 $2,553
Walgreen Co. ................................. 9,900 319
Winn Dixie Stores, Inc. ...................... 1,500 21
------
7,011
------
STEEL--0.1%
Allegheny Technologies, Inc. ................. 1,050 19
Bethlehem Steel Corp.+ ....................... 1,875 7
Nucor Corp. .................................. 800 27
USX-U.S. Steel Group, Inc. ................... 900 17
Worthington Industries, Inc. ................. 900 9
------
79
------
TELEPHONE--6.2%
Alltel Corp. ................................. 3,400 211
AT&T Corp. ................................... 37,222 1,177
Bell Atlantic Corp. .......................... 15,304 778
BellSouth Corp. .............................. 18,800 801
CenturyTel, Inc. ............................. 1,300 37
Global Crossing Ltd.+ ........................ 7,685 202
GTE Corp. .................................... 9,300 579
SBC Communications, Inc. ..................... 33,710 1,458
Sprint Corp. (FON Group) ..................... 8,600 439
Sprint Corp. (PCS Group)+ .................... 9,100 541
US West, Inc. ................................ 5,098 437
Worldcom, Inc.+ .............................. 28,345 1,300
------
7,960
------
TOBACCO--0.5%
Philip Morris Cos., Inc. ..................... 22,600 600
UST, Inc. .................................... 1,600 24
------
624
------
TRAVEL & RECREATION--0.2%
Brunswick Corp. .............................. 800 13
Carnival Corp. ............................... 6,000 117
Harrah's Entertainment, Inc.+ ................ 1,300 27
Hilton Hotels Corp. .......................... 3,900 37
Marriott International, Inc., Class A ........ 2,400 87
------
281
------
TRUCKING & FREIGHT--0.0%
PACCAR, Inc. ................................. 800 32
Ryder Systems, Inc. .......................... 700 13
------
45
------
</TABLE>
------------
17
<PAGE>
------------
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
COMMON STOCK (CONTINUED) OF SHARES (000S)
---------------------------------------------------------------------------
<S> <C> <C>
UTILITIES - ELECTRIC & GAS--2.4%
AES Corp.+ .................................. 4,000 $ 183
Ameren Corp. ................................ 1,400 47
American Electric Power Co., Inc. ........... 3,160 94
Cinergy Corp. ............................... 1,500 38
CMS Energy Corp. ............................ 1,200 27
Coastal Corp. ............................... 2,100 128
Columbia Energy Group ....................... 800 53
Consolidated Edison, Inc. ................... 2,100 62
Constellation Energy Group, Inc. ............ 1,500 49
CP&L Energy, Inc. ........................... 1,500 48
Dominion Resources, Inc. .................... 2,280 98
DTE Energy Co. .............................. 1,400 43
Duke Energy Corp. ........................... 3,517 198
Edison International ........................ 3,400 70
El Paso Energy Corp. ........................ 2,200 112
Enron Corp. ................................. 7,300 471
Entergy Corp. ............................... 2,600 71
First Energy Corp. .......................... 2,200 51
Florida Progress Corp. ...................... 1,100 52
FPL Group, Inc. ............................. 1,900 94
GPU, Inc. ................................... 1,200 32
New Centuries Energies, Inc. ................ 1,100 33
Niagara Mohawk Holdings, Inc.+ .............. 1,900 26
NICOR, Inc. ................................. 400 13
Northern States Power Co. ................... 1,500 30
ONEOK, Inc. ................................. 200 5
PECO Energy Co. ............................. 1,800 73
Peoples Energy Corp. ........................ 300 10
PG&E Corp. .................................. 3,700 91
Pinnacle West Capital Corp. ................. 900 31
PPL Corp. ................................... 1,400 31
Public Service Enterprise Group, Inc. ....... 2,100 73
Reliant Energy, Inc. ........................ 2,850 84
Sempra Energy ............................... 2,041 35
Southern Co. ................................ 6,600 154
TXU Corp. ................................... 2,822 83
Unicom Corp. ................................ 1,600 62
Williams Cos., Inc. ......................... 4,400 183
--------
3,038
--------
TOTAL COMMON STOCK
(Cost $88,495) ........................... 124,390
--------
</TABLE>
------------
18
<PAGE>
------------
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PAR VALUE
U.S. TREASURY OBLIGATIONS--0.1% (000S) (000S)
---------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Bills (a) (b)
5.71%, 09/21/00 ............................ $ 150 $ 148
5.83%, 10/19/00 ............................ 45 44
--------- --------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $192) 192
--------
<CAPTION>
NUMBER
SHORT-TERM INVESTMENT--3.3% OF SHARES
---------------------------------------------------------------------------
<S> <C> <C>
Provident Institutional TempFund, 6.31%* ..... 4,256,986 4,257
--------
TOTAL SHORT-TERM INVESTMENT
(Cost $4,257) ............................. 4,257
--------
TOTAL INVESTMENTS--100.0%
(Cost $92,944) ............................. 128,839
--------
OTHER ASSETS AND LIABILITIES, NET--0.0%
Other assets ............................... 424
Liabilities ................................ (477)
--------
(53)
--------
TOTAL NET ASSETS--100.0% ................... $128,786
========
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS
+ Non-income producing security.
* Interest rate represents the yield on report date.
ADR--American Depositary Receipt.
(a) Yields shown are effective yields at the time of purchase.
(b) These securities, or a portion thereof, are being used to
collaterize open financial futures contracts.
------------
19
<PAGE>
SCHWAB S&P 500 PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost $92,944) .............. $128,839
Receivables:
Investments sold ............................. 220
Fund shares sold ............................. 59
Dividends .................................... 96
Interest ..................................... 23
Variation margin ............................. 25
Prepaid expenses .................................. 1
--------
Total assets ............................... 129,263
--------
Liabilities
Payables:
Investments purchased ........................ 427
Investment advisory and administration fees .. 1
Accrued expenses .................................. 49
--------
Total liabilities .......................... 477
--------
Net assets applicable to outstanding shares ....... $128,786
========
Net Assets consist of:
Paid-in capital ................................... $ 91,982
Undistributed net investment income ............... 1,833
Accumulated net realized loss on investments sold
and futures contracts ........................... (894)
Net unrealized appreciation on investments and
futures contracts ............................... 35,865
--------
$128,786
========
PRICING OF SHARES
Outstanding shares, $0.00001 par value
(unlimited shares authorized) ................... 6,091
NET ASSET VALUE, offering and redemption
price per share $21.14
</TABLE>
------------
See accompanying Notes to Financial Statements.
------------
20
<PAGE>
------------
SCHWAB S&P 500 PORTFOLIO
STATEMENT OF OPERATIONS (IN THOUSANDS)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $4) $ 690
Interest ....................................... 86
-------
Total investment income expenses: 776
-------
EXPENSES:
Investment advisory and administration fees .... 123
Custodian fees ................................. 20
Portfolio accounting fees ...................... 8
Professional fees .............................. 15
Registration fees .............................. 1
Shareholder reports ............................ 8
Trustees' fees ................................. 5
Interest expense ............................... 1
Proxy fees ..................................... 10
Insurance and other expenses ................... 9
-------
200
Less: expenses reduced (17)
-------
Net expenses incurred by fund 183
-------
NET INVESTMENT INCOME 593
-------
NET REALIZED LOSS ON INVESTMENTS AND FUTURES CONTRACTS:
Net realized loss on investments sold ........ (683)
Net realized loss on futures contracts ....... (23)
-------
Net realized loss on investments sold and
futures contracts ....................... (706)
-------
CHANGE IN NET UNREALIZED DEPRECIATION ON INVESTMENTS
AND FUTURES CONTRACTS:
Net unrealized depreciation on investments ... (930)
Net unrealized depreciation on
futures contracts ......................... (126)
-------
Net unrealized depreciation on investments
and futures contracts ................... (1,056)
-------
Net loss on investments ........................... (1,762)
-------
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS .. $(1,169)
=======
</TABLE>
------------
See accompanying Notes to Financial Statements.
------------
21
<PAGE>
-----------------
SCHWAB S&P 500 PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS (IN THOUSANDS)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income .................................................. $ 593 $ 1,241
Net realized gain (loss) on investments and futures contracts .......... (706) 55
Net unrealized appreciation (depreciation) on investments and
futures contracts .................................................... (1,056) 18,950
-------- --------
Increase (decrease) in net assets resulting from operations ............ (1,169) 20,246
-------- --------
dividends and distributions:
Dividends to shareholders from net investment income ................... -- (869)
Distributions to shareholders from net capital gains ................... -- (89)
-------- --------
Total dividends and distributions to shareholders ...................... -- (958)
-------- --------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold .............................................. 20,660 45,590
Net asset value of shares issued in reinvestment of dividends .......... -- 958
Less payments for shares redeemed ...................................... (20,625) (19,785)
-------- --------
Increase in net assets from capital share transactions ................. 35 26,763
-------- --------
Total increase (decrease) in net assets ................................... (1,134) 46,051
Net Assets:
Beginning of period .................................................... 129,920 83,869
-------- --------
End of period (including undistributed net investment income
of $1,833 and $1,240, respectively) .................................. $128,786 $129,920
======== ========
NUMBER OF FUND SHARES:
Sold ................................................................... 992 2,376
Reinvested ............................................................. -- 46
Redeemed ............................................................... (1,012) (1,029)
-------- --------
Net increase (decrease) in shares outstanding .......................... (20) 1,393
SHARESOUTSTANDING:
Beginning of period .................................................... 6,111 4,718
-------- --------
End of period .......................................................... 6,091 6,111
======== ========
</TABLE>
------------
See accompanying Notes to Financial Statements.
------------
22
<PAGE>
SCHWAB S&P 500 PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
AND THE FISCAL PERIODS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996 3
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA ($):
Net asset value at beginning of period 21.26 17.78 13.94 10.53 10.00
------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.10 0.16 0.13 0.09 0.03
Net realized and unrealized gain (loss)
on investments (0.22) 3.47 3.78 3.33 0.50
------- ------- ------- ------- -------
Total income from investment operations (0.12) 3.63 3.91 3.42 0.53
Less distributions:
Dividends from net investment income -- (0.14) (0.06) (0.01) --
Distributions from capital gains -- (0.01) (0.01) -- --
------- ------- ------- ------- -------
Total distributions -- (0.15) (0.07) (0.01) --
------- ------- ------- ------- -------
NET ASSET VALUE AT END OF PERIOD 21.14 21.26 17.78 13.94 10.53
------- ------- ------- ------- -------
Total return (%) (0.56) 1 20.47 28.06 32.46 5.30 1
RATIOS/SUPPLEMENTAL DATA (%)
-----------------------------------------------------
Ratio of net operating expenses to average net assets 0.28 2,4 0.28 0.28 0.29 0.33 2
Expense reductions reflected in above ratio 0.03 2 0.06 0.27 0.64 2.78 2
Ratio of net investment income to average
net assets 0.96 2 1.14 1.52 1.56 2.16 2
Portfolio turnover rate 9 7 7 4 --
Net assets, end of period ($ x 1,000) 128,786 129,920 83,869 37,056 5,923
<FN>
1 Not annualized.
2 Annualized.
3 For the period from November 1, 1996 (commencement of operations) to December
31, 1996.
4 Would have been 0.29% if certain non-routine expenses (proxy fees)
had been included.
</FN>
</TABLE>
-----------------
See accompanying Notes to Financial Statements.
-----------------
23
<PAGE>
SCHWAB S&P 500 PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
(ALL CURRENCY AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE NOTED.)
1. DESCRIPTION OF THE FUND
The Schwab S&P 500 Portfolio (the "fund") is a series of Schwab Annuity
Portfolios (the "trust"), a diversified, no load, open-end investment management
company organized as a Massachusetts business trust on January 21, 1994 and
registered under the Investment Company Act of 1940, as amended (the "1940
Act").
The fund is intended as an investment vehicle for variable annuity contracts and
variable life insurance policies to be offered by separate accounts of
participating life insurance companies and for pension and retirement plans
qualified under the Internal Revenue Code of 1986, as amended.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are in conformity with generally
accepted accounting principles. 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 in securities traded on an exchange or in the
over-the-counter market are valued at the last-quoted sale price for a given
day, or if a sale is not reported for that day, at the mean between the most
recent quoted bid and asked prices. Securities for which no quotations are
readily available are valued at fair value as determined by the fund's
investment adviser pursuant to guidelines adopted in good faith by the Board of
Trustees. Short-term securities with 60 days or less to maturity are stated at
amortized cost, which approximates market value. Futures contracts, which are
traded on exchanges, are valued at their settlement prices as of the close of
such exchanges.
SECURITY TRANSACTIONS, INVESTMENT INCOME AND REALIZED GAINS (LOSSES)--Security
transactions are accounted for on a trade-date basis (date the order to buy or
sell is executed). Dividend income and distributions to shareholders are
recorded on the ex-dividend date. Interest income (including accretion of
discount) is recorded on the accrual basis. Realized gains and losses from
security transactions are determined on an identified cost basis.
FUTURES CONTRACTS--The fund may invest in futures contracts. The fund is
required to deposit with the broker an amount of cash equivalents equal to a
certain percentage of the contract amount. This is known as the "initial
margin." The "variation margin" represents the daily fluctuation in the value of
the contract. When the contract is closed, the fund records a realized gain or
loss equal to the difference between the value of the contract at the time it
was opened and the time it was closed.
The fund will invest in these instruments to participate in the return of an
index. The use of futures contracts involves certain risks, which include (1)
imperfect correlation between the price movement of the contracts and the
underlying securities, or (2) inability to close out positions due to different
trading hours, or the temporary absence of a liquid market, for either the
contract or underlying securities. These risks may involve amounts exceeding the
amount recognized in the fund's statement of operations at any given time.
As of June 30, 2000, the fund had the following open futures contracts:
<TABLE>
<CAPTION>
Type of Number of Contract Unrealized
Contract Contracts Value Expiration Depreciation
------------- --------- -------- ---------- ------------
<S> <C> <C> <C> <C>
S&P 500 Index 10 $3,670 09/15/00 $(30)
</TABLE>
The eligible securities on deposit with brokers available to cover margin
requirements for open futures positions at June 30, 2000 was $192 for the Schwab
S&P 500 Portfolio. The fund has segregated short-term investments and other
securities for the remaining portion of the contract value.
EXPENSES--Expenses arising in connection with the fund are charged directly to
that fund. Expenses common to all series of the trust are generally allocated to
each series in proportion to their relative net assets.
-----------------
24
<PAGE>
SCHWAB S&P 500 PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
(ALL CURRENCY AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE NOTED.)
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 substantially all net investment income and realized net capital
gains, if any, to shareholders. Therefore, no federal income tax provision is
required. The fund is considered a separate entity for tax purposes.
At June 30, 2000 (for financial reporting and federal income tax purposes), net
unrealized appreciation aggregated $35,865 of which $44,930 related to
appreciated securities and $9,065 related to depreciated securities.
RECLASSIFICATIONS--Generally accepted accounting principles require that certain
components of net assets be reclassified between financial and tax reporting.
These reclassifications have no effect on net assets or net asset values per
share. As of June 30, 2000, there were no reclassifications.
3. TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENT--The trust has an investment
advisory and administration agreement with Charles Schwab Investment Management,
Inc. (the "investment adviser"). For advisory services and facilities furnished,
the fund pays an annual fee, payable monthly, of 0.20% on the first $500 million
of average daily net assets, and 0.17% on such net assets over $500 million. The
investment adviser has reduced its fee for the six months ended June 30, 2000
(see Note 4).
Prior to April 30, 1999, the fund paid an annual fee, payable monthly, of 0.36%
on the first $1 billion of average daily net assets, 0.33% on the next $1
billion and 0.31% on such net assets over $2 billion.
OFFICERS AND TRUSTEES--Certain officers and trustees of the trust are also
officers and/or directors of the investment adviser. For the six months ended
June 30, 2000, the fund made no direct payments to its officers or trustees who
are "interested persons" within the meaning of the 1940 Act. The fund incurred
fees of $5 related to the trust's unaffiliated trustees.
As of June 30, 2000, the Schwab S&P 500 Portfolio held common stock of The
Charles Schwab Corp., an affiliated issuer, with a current value of $445.
4. EXPENSES REDUCED AND ABSORBED BY THE INVESTMENT ADVISER AND SCHWAB
The investment adviser guarantees that, through at least April 30, 2001, the
fund's net operating expenses will not exceed 0.28% of the fund's average daily
net assets, after waivers and reimbursements. For purpose of this guarantee,
operating expenses do not include interest, taxes and certain non-routine
expenses. The operating expense ratio for the six months ended June 30, 2000 did
include non-routine expenses.
For the six months ended June 30, 2000, the total of such fees and expenses
reduced by the investment adviser was $17.
5. BORROWING AGREEMENTS
The trust has both committed and uncommitted lines of credit arrangements with
PNC Bank N.A., Bank of America NT&SA and The Bank of New York, whereby the trust
may borrow on behalf of the funds, as a temporary measure to satisfy redemption
requests or for extraordinary or emergency purposes. The trust may borrow in an
aggregate amount of up to $150 million from PNCBank N.A. and $133 million from
Bank of America NT&SA. The Schwab S&P 500 Portfolio and the Schwab MarketTrack
Growth Portfolio IImay borrow in an aggregate amount of up to $33 million and
$183 million from The Bank of New York, respectively. Amounts borrowed under
these arrangements bear interest at periodically negotiated rates. The fund also
pays annual fees for the unused balance of the committed line of credit. During
the reporting period, the fund only borrowed against the uncommitted lines of
credit. As of June 30, 2000, there were no borrowings outstanding.
-----------------
25
<PAGE>
SCHWAB S&P 500 PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
(ALL CURRENCY AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE NOTED.)
6. INVESTMENT TRANSACTIONS
Purchases, sales and maturities of investment securities, other than short-term
obligations and U.S. government securities, aggregated $11,332 and $11,012,
respectively, for the six months ended June 30, 2000.
-----------------
26
<PAGE>
SCHWAB S&P 500 PORTFOLIO
OTHER INFORMATION
SHAREHOLDER VOTE
A special meeting of the shareholders of the Schwab Annuity Portfolios was held
on June 1, 2000. The number of votes necessary to conduct the meeting and
approve each proposal was obtained, and the results of the votes of shareholders
on proposals before them are listed below:
PROPOSAL 1
Election of Trustees.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES VOTED FOR SHARES WITHHELD
------------------ ---------------
<S> <C> <C>
Charles R. Schwab 125,968,273 1,733,505
Mariann Byerwalter 125,568,665 2,133,113
Jeremiah H. Chafkin 125,620,059 2,081,719
Donald F. Dorward 123,479,638 4,222,140
William A. Hasler 123,430,400 4,271,378
Robert G. Holmes 123,479,638 4,222,140
Steven L. Scheid 125,916,879 1,784,899
Gerald B. Smith 123,481,793 4,219,985
Donald R. Stephens 125,619,640 2,082,138
Michael W. Wilsey 125,568,246 2,133,532
</TABLE>
-----------------
27
<PAGE>
SCHWAB ANNUITY PORTFOLIOS
Schwab MarketTrack Growth Portfolio II
June 30, 2000 Semi-Annual Report
Market Overview
U.S. Economic Growth Remains Strong
April 2000 marked the beginning of the tenth year of the current economic
expansion, making it the longest in U.S. history. Gross Domestic Product (GDP)
grew at a real (inflation adjusted) rate of 4.6% during 1999--the fourth
consecutive year at 4% or more--and 5.0% during the first half of 2000. This
rate is considered by most economists and the Federal Reserve (Fed) to be in
excess of what the economy can absorb without experiencing inflationary
pressures--perhaps 3.5% to 4.0%. High levels of consumer spending fueled by
rising incomes, personal wealth and consumer confidence, as well as strong
business capital investment and a healthy housing sector have been the principal
factors continuing this lengthy expansion.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
REAL GDP GROWTH RATE
Quarterly Percentage Change
(Annualized Rate)
</TABLE>
<TABLE>
<S> <C>
Q1/90 5.0%
Q2/90 1.0%
Q3/90 -0.6%
Q4/90 -3.0%
Q1/91 -1.7%
Q2/91 2.6%
Q3/91 1.3%
Q4/91 2.5%
Q1/92 4.3%
Q2/92 4.0%
Q3/92 3.1%
Q4/92 5.2%
Q1/93 -0.7%
Q2/93 2.1%
Q3/93 1.5%
Q4/93 6.0%
Q1/94 3.6%
Q2/94 5.7%
Q3/94 2.2%
Q4/94 5.1%
Q1/95 1.5%
Q2/95 0.8%
Q3/95 3.2%
Q4/95 3.3%
Q1/96 2.9%
Q2/96 6.9%
Q3/96 2.2%
Q4/96 4.9%
Q1/97 4.9%
Q2/97 5.1%
Q3/97 4.0%
Q4/97 3.1%
Q1/98 6.7%
Q2/98 2.1%
Q3/98 3.8%
Q4/98 5.9%
Q1/99 3.7%
Q2/99 1.9%
Q3/99 5.7%
Q4/99 7.3%
Q1/00 4.8%
Q2/00 5.2%
</TABLE>
Source: Bloomberg L.P.
Looking ahead, the availability of scarce labor resources and the behavior of
domestic consumers in response to continued stock market volatility may be key
determinants of whether the economy continues on its current course or softens
in the second half of 2000. The Federal Reserve (Fed) has raised the federal
funds rate by 1.75% since June 1999. Although there have been preliminary signs
that the vigorous rate of economic growth may be slowing, there still may be the
potential need for additional Fed rate increases either later this year, or
early in 2001 following the presidential election. The consensus of most
economists is that the U.S. economy appears poised for continued strong growth,
albeit at lower rates than experienced in 1999.
Unemployment Continues To Be Very Low
The unemployment rate remained very low and dropped to 3.9% in April 2000, a
three-decade low. Employment growth continues to exceed population growth.
Reflecting a shrinking pool of available workers, labor markets continue to be
extremely tight in many areas of the country and there has been some regional
evidence of labor shortages driving up wages. The labor force participation
rate, which measures the employment population as a percent of the total
population, is at a post-war high, and the Fed has expressed its concern that a
continuation of strong demand and tight labor markets may put pressure on
manufacturers and service providers to raise prices.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
U.S. UNEMPLOYMENT RATE
Jan-90 5.4%
Feb-90 5.3%
Mar-90 5.2%
Apr-90 5.4%
May-90 5.4%
Jun-90 5.2%
Jul-90 5.5%
Aug-90 5.7%
Sep-90 5.9%
Oct-90 5.9%
Nov-90 6.2%
Dec-90 6.3%
Jan-91 6.4%
Feb-91 6.6%
Mar-91 6.8%
Apr-91 6.7%
May-91 6.9%
Jun-91 6.9%
Jul-91 6.8%
Aug-91 6.9%
Sep-91 6.9%
Oct-91 7.0%
Nov-91 7.0%
Dec-91 7.3%
Jan-92 7.3%
Feb-92 7.4%
Mar-92 7.4%
Apr-92 7.4%
May-92 7.6%
Jun-92 7.8%
Jul-92 7.7%
Aug-92 7.6%
Sep-92 7.6%
Oct-92 7.3%
Nov-92 7.4%
Dec-92 7.4%
Jan-93 7.3%
Feb-93 7.1%
Mar-93 7.0%
Apr-93 7.1%
May-93 7.1%
Jun-93 7.0%
Jul-93 6.9%
Aug-93 6.8%
Sep-93 6.7%
Oct-93 6.8%
Nov-93 6.6%
Dec-93 6.5%
Jan-94 6.8%
Feb-94 6.6%
Mar-94 6.5%
Apr-94 6.4%
May-94 6.1%
Jun-94 6.1%
Jul-94 6.3%
Aug-94 6.0%
Sep-94 5.8%
Oct-94 5.8%
Nov-94 5.6%
Dec-94 5.5%
Jan-95 5.6%
Feb-95 5.4%
Mar-95 5.3%
Apr-95 5.8%
May-95 5.8%
Jun-95 5.6%
Jul-95 5.6%
Aug-95 5.7%
Sep-95 5.6%
Oct-95 5.5%
Nov-95 5.7%
Dec-95 5.6%
Jan-96 5.6%
Feb-96 5.5%
Mar-96 5.6%
Apr-96 5.5%
May-96 5.6%
Jun-96 5.3%
Jul-96 5.5%
Aug-96 5.1%
Sep-96 5.2%
Oct-96 5.2%
Nov-96 5.3%
Dec-96 5.4%
Jan-97 5.3%
Feb-97 5.3%
Mar-97 5.1%
Apr-97 5.0%
May-97 4.7%
Jun-97 5.0%
Jul-97 4.7%
Aug-97 4.9%
Sep-97 4.7%
Oct-97 4.7%
Nov-97 4.6%
Dec-97 4.7%
Jan-98 4.5%
Feb-98 4.6%
Mar-98 4.6%
Apr-98 4.3%
May-98 4.3%
Jun-98 4.5%
Jul-98 4.5%
Aug-98 4.5%
Sep-98 4.5%
Oct-98 4.5%
Nov-98 4.4%
Dec-98 4.3%
Jan-99 4.3%
Feb-99 4.4%
Mar-99 4.2%
Apr-99 4.3%
May-99 4.2%
Jun-99 4.3%
Jul-99 4.3%
Aug-99 4.2%
Sep-99 4.2%
Oct-99 4.1%
Nov-99 4.1%
Dec-99 4.1%
Jan-00 4.0%
Feb-00 4.1%
Mar-00 4.1%
Apr-00 3.9%
May-00 4.1%
Jun-00 4.0%
</TABLE>
Source: Bloomberg L.P.
Inflation Remains Contained, But Concerns Emerge
Virtually all measures of price inflation exhibited upward trends during the
reporting period. The Consumer Price Index (CPI) rose 3.7% for the year ended
June 2000. Its core rate (which excludes the more volatile food and energy
components) trended up to 2.4%. The Personal Consumption Expenditures Index, a
measure of inflation closely watched by the Fed, rose 2.6% for the same period.
The GDP price deflator, the broadest measure of inflation, indicated prices
rising at an annual rate of 2.9% during the first half of 2000.
---------------------
1
<PAGE>
SCHWAB ANNUITY PORTFOLIOS
Schwab MarketTrack Growth Portfolio II
June 30, 2000 Semi-Annual Report
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
MEASURES OF INFLATION
<TABLE>
<S> <C> <C>
Consumer Price Index Employment Cost Index
12-Month Change (Monthly) 12-month Change (Quarterly)
01/90 5.2% 5.5%
02/90 5.3% 5.5%
03/90 5.2% 5.5%
04/90 4.7% 5.4%
05/90 4.4% 5.4%
06/90 4.7% 5.4%
07/90 4.8% 5.2%
08/90 5.6% 5.2%
09/90 6.2% 5.2%
10/90 6.3% 4.9%
11/90 6.3% 4.9%
12/90 6.1% 4.9%
01/91 5.7% 4.6%
02/91 5.3% 4.6%
03/91 4.9% 4.6%
04/91 4.9% 4.6%
05/91 5.0% 4.6%
06/91 4.7% 4.6%
07/91 4.4% 4.3%
08/91 3.8% 4.3%
09/91 3.4% 4.3%
10/91 2.9% 4.3%
11/91 3.0% 4.3%
12/91 3.1% 4.3%
01/92 2.6% 4.0%
02/92 2.8% 4.0%
03/92 3.2% 4.0%
04/92 3.2% 3.6%
05/92 3.0% 3.6%
06/92 3.1% 3.6%
07/92 3.2% 3.5%
08/92 3.1% 3.5%
09/92 3.0% 3.5%
10/92 3.2% 3.5%
11/92 3.0% 3.5%
12/92 2.9% 3.5%
01/93 3.3% 3.5%
02/93 3.2% 3.5%
03/93 3.1% 3.5%
04/93 3.2% 3.6%
05/93 3.2% 3.6%
06/93 3.0% 3.6%
07/93 2.8% 3.6%
08/93 2.8% 3.6%
09/93 2.7% 3.6%
10/93 2.8% 3.5%
11/93 2.7% 3.5%
12/93 2.7% 3.5%
01/94 2.5% 3.2%
02/94 2.5% 3.2%
03/94 2.5% 3.2%
04/94 2.4% 3.2%
05/94 2.3% 3.2%
06/94 2.5% 3.2%
07/94 2.8% 3.2%
08/94 2.9% 3.2%
09/94 3.0% 3.2%
10/94 2.6% 3.0%
11/94 2.7% 3.0%
12/94 2.7% 3.0%
01/95 2.8% 2.9%
02/95 2.9% 2.9%
03/95 2.9% 2.9%
04/95 3.1% 2.9%
05/95 3.2% 2.9%
06/95 3.0% 2.9%
07/95 2.8% 2.7%
08/95 2.6% 2.7%
09/95 2.5% 2.7%
10/95 2.8% 2.7%
11/95 2.6% 2.7%
12/95 2.5% 2.7%
01/96 2.7% 2.8%
02/96 2.7% 2.8%
03/96 2.8% 2.8%
04/96 2.9% 2.9%
05/96 2.9% 2.9%
06/96 2.8% 2.9%
07/96 3.0% 2.8%
08/96 2.9% 2.8%
09/96 3.0% 2.8%
10/96 3.0% 2.9%
11/96 3.3% 2.9%
12/96 3.3% 2.9%
01/97 3.0% 2.9%
02/97 3.0% 2.9%
03/97 2.8% 2.9%
04/97 2.5% 2.8%
05/97 2.2% 2.8%
06/97 2.3% 2.8%
07/97 2.2% 3.0%
08/97 2.2% 3.0%
09/97 2.2% 3.0%
10/97 2.1% 3.3%
11/97 1.8% 3.3%
12/97 1.7% 3.3%
01/98 1.6% 3.3%
02/98 1.4% 3.3%
03/98 1.4% 3.3%
04/98 1.4% 3.5%
05/98 1.7% 3.5%
06/98 1.7% 3.5%
07/98 1.7% 3.7%
08/98 1.6% 3.7%
09/98 1.5% 3.7%
10/98 1.5% 3.4%
11/98 1.5% 3.4%
12/98 1.6% 3.4%
01/99 1.7% 3.0%
02/99 1.6% 3.0%
03/99 1.7% 3.0%
04/99 2.3% 3.2%
05/99 2.1% 3.2%
06/99 2.0% 3.2%
07/99 2.1% 3.1%
08/99 2.3% 3.1%
09/99 2.6% 3.1%
10/99 2.6% 3.4%
11/99 2.6% 3.4%
12/99 2.7% 3.4%
01/00 2.7% 4.3%
02/00 3.2% 4.3%
03/00 3.7% 4.3%
04/00 3.0% 4.4%
05/00 3.1% 4.4%
06/00 3.7% 4.4%
</TABLE>
Source: Bloomberg L.P.
Wage inflation also exhibited a marked upward trend during the reporting period.
The Employment Cost Index, a measurement of the cost to employ workers,
including both wages and benefits, rose 4.4% for the year ended June 2000.
Although these rates of inflation and employment cost may not be alarmingly high
by historical standards, the Fed has demonstrated its resolve to keep inflation
at bay both in its communications and its actions (six federal funds rate
increases since June 1999). In particular, the Fed has expressed concern that if
labor markets continue to tighten, increases in wages will outpace productivity
growth and place additional upward pressure on prices. In such an environment,
productivity growth becomes particularly critical, as it enables companies to
pay higher wages without raising prices. Non-farm productivity grew 3.0% in 1999
and at a healthy 3.6% rate in the first half of 2000.
Asset Class Performance--Stock Returns Were Volatile During The Reporting Period
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CUMULATIVE TOTAL RETURNS
(% Change)
<TABLE>
<S> <C> <C> <C> <C>
Lehman MSCI-EAFE S&P 500
Aggregate -Registered Trademark- Russell 2000 -Registered Trademark-
Bond Index (ND) Index Small-Cap Index Index
1/00 -0.06% -4.56% -3.23% -1.89%
1/00 -0.52% -2.21% 0.60% -0.28%
1/00 -0.68% -4.39% 5.82% -1.90%
1/00 -0.01% -4.83% 0.05% -7.42%
2/00 0.12% -2.85% 4.21% -2.99%
2/00 -0.17% -2.30% 6.54% -5.53%
2/00 0.37% -3.76% 8.26% -8.32%
2/00 1.02% -3.01% 10.45% -9.19%
3/00 1.20% -0.97% 18.72% -3.92%
3/00 1.00% -0.99% 19.84% -4.88%
3/00 1.69% -2.17% 14.09% -0.15%
3/00 1.57% -0.25% 14.01% 4.14%
3/00 2.20% -0.40% 7.09% 2.27%
4/00 3.02% -1.40% 7.88% 3.48%
4/00 2.95% -4.85% -9.80% -7.42%
4/00 2.85% -5.64% -4.23% -2.10%
4/00 1.90% -5.73% 0.64% -0.81%
5/00 0.47% -6.12% 1.98% -2.16%
5/00 0.34% -7.08% -2.33% -2.95%
5/00 0.54% -10.41% -4.56% -3.91%
5/00 1.64% -9.93% -8.97% -5.89%
6/00 2.83% -3.95% 2.11% 1.04%
6/00 3.15% -4.10% 4.16% -0.35%
6/00 4.02% -4.46% 2.37% 0.17%
6/00 3.05% -5.35% 1.75% -1.40%
6/00 3.99% -4.06% 3.04% -0.42%
</TABLE>
Compiled by Charles Schwab & Co., Inc.
/ / The information is historical and does not represent future results. Indices
are unmanaged and do not reflect advisory fees and other expenses associated
with an investment in the Portfolio. Investors cannot invest in an index
directly.
As shown on the chart above, equity valuations, in particular small-cap,
exhibited extreme volatility during the reporting period. Small-cap stocks as
represented by the Russell 2000 Index achieved a total return of 3.04% for the
six-month reporting period. Large cap stocks, as represented by the S&P 500
Index, experienced a negative return of -0.42% for the same period. Dampened by
relatively weak foreign currencies, International stocks, as represented by the
MSCI EAFE Index, achieved a negative return of -4.0% for the period. Reflecting
a decline in intermediate and long-term interest rates, fixed income returns
were generally positive for the period. Bond returns, as represented by the
Lehman Brothers Aggregate Bond Index, were 3.99% for the six-month period.
U.S. Equity Valuation
The price/earnings ratio for the S&P 500-Registered Trademark- Index remained at
very high levels during the reporting period and ended the period at a lofty
29.3 times earnings, slightly less than twice its long term average. The
price/earnings ratio, also known as a multiple, is the price of a stock divided
by its earnings per share, and generally indicates how
----------------
2
<PAGE>
SCHWAB ANNUITY PORTFOLIOS
Schwab MarketTrack Growth Portfolio II
June 30, 2000 Semi-Annual Report
much investors are willing to pay for a company's earning potential. Based on
other traditional market valuation measures such as the price-to-book value
ratio or dividend yield, the U.S. stock market continues to remain at record or
near record high valuation levels. Reflecting the extraordinary valuations of
the technology sector, the price/ earnings ratio (twelve months trailing) for
the NASDAQ 100 Index ended the period at 127.5.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
S&P 500 INDEX PRICE/EARNINGS RATIO
Jan-90 14.37
Feb-90 14.21
Mar-90 14.77
Apr-90 14.82
May-90 15.84
Jun-90 16.66
Jul-90 16.65
Aug-90 15.57
Sep-90 14.90
Oct-90 14.36
Nov-90 14.59
Dec-90 15.19
Jan-91 14.95
Feb-91 16.82
Mar-91 17.48
Apr-91 17.85
May-91 17.92
Jun-91 17.96
Jul-91 18.07
Aug-91 19.72
Sep-91 19.88
Oct-91 19.92
Nov-91 21.02
Dec-91 21.85
Jan-92 23.35
Feb-92 23.83
Mar-92 25.45
Apr-92 25.51
May-92 25.71
Jun-92 25.08
Jul-92 25.61
Aug-92 25.50
Sep-92 24.37
Oct-92 23.94
Nov-92 24.08
Dec-92 24.01
Jan-93 24.20
Feb-93 24.25
Mar-93 24.22
Apr-93 23.20
May-93 23.21
Jun-93 22.58
Jul-93 22.52
Aug-93 23.02
Sep-93 23.74
Oct-93 23.97
Nov-93 22.55
Dec-93 23.55
Jan-94 22.98
Feb-94 21.17
Mar-94 20.34
Apr-94 20.10
May-94 20.16
Jun-94 19.76
Jul-94 18.64
Aug-94 18.90
Sep-94 18.26
Oct-94 17.55
Nov-94 16.58
Dec-94 16.98
Jan-95 16.23
Feb-95 16.20
Mar-95 16.50
Apr-95 16.02
May-95 16.43
Jun-95 16.82
Jul-95 16.55
Aug-95 16.18
Sep-95 16.86
Oct-95 16.18
Nov-95 17.14
Dec-95 17.41
Jan-96 18.11
Feb-96 18.56
Mar-96 18.94
Apr-96 19.16
May-96 19.48
Jun-96 19.30
Jul-96 18.31
Aug-96 18.62
Sep-96 19.75
Oct-96 19.60
Nov-96 21.05
Dec-96 20.70
Jan-97 20.55
Feb-97 20.98
Mar-97 19.87
Apr-97 20.24
May-97 21.43
Jun-97 22.45
Jul-97 23.92
Aug-97 22.64
Sep-97 24.00
Oct-97 22.84
Nov-97 24.02
Dec-97 24.51
Jan-98 24.99
Feb-98 26.44
Mar-98 27.76
Apr-98 26.51
May-98 26.12
Jun-98 27.09
Jul-98 26.78
Aug-98 22.77
Sep-98 24.23
Oct-98 27.58
Nov-98 30.14
Dec-98 31.97
Jan-99 33.29
Feb-99 32.65
Mar-99 33.78
Apr-99 33.90
May-99 32.74
Jun-99 34.70
Jul-99 31.62
Aug-99 31.21
Sep-99 29.90
Oct-99 29.92
Nov-99 30.65
Dec-99 32.53
Jan-00 29.78
Feb-00 28.59
Mar-00 31.50
Apr-00 29.58
May-00 28.82
Jun-00 29.31
30-Year Average 15.8
</TABLE>
Source: Bloomberg L.P.
This market overview has been provided by the portfolio management team.
PORTFOLIO MANAGEMENT TEAM
Geri Hom -- Vice President and Senior Portfolio Manager, has primary
responsibility for the day-to-day management of the equity securities in the
Portfolio. Geri joined CSIM in March 1995 as Portfolio Manager and was promoted
to her current position in December 1996. She currently manages approximately
$20 billion in indexed equity mutual fund assets. Prior to joining CSIM, Geri
was a principal for Wells Fargo Nikko Investment Advisors and Vice President and
Manager of the Domestic Equity Portfolio Management Group for Wells Fargo Nikko.
Kimon Daifotis -- Vice President and Senior Portfolio Manager, has primary
responsibility for the day-to-day management of the bonds and cash equivalents
in the Portfolio. Kimon joined CSIM in his current capacity in October 1997. He
was previously with Lehman Brothers, most recently as Vice President in fixed
income institutional sales and, prior to that, Senior Portfolio Strategist.
PORTFOLIO HIGHLIGHTS
Q. How did the Portfolio perform during the reporting period?
A. As discussed in the Market Overview section and detailed in the table below,
there was a wide range of returns for the various asset classes during the
reporting period. Bonds (as measured by the Lehman Aggregate Bond Index) emerged
as the strongest major asset class followed closely by the small cap asset class
(as measured by the Russell 2000 Index). The Portfolio's six-month return for
the period ended 6/30/00 was .25%. The 12-month return was 11.84% and the
since-inception (11/1/96) average annual return was 16.68%(1).
<TABLE>
<CAPTION>
SIX-MONTHS
RETURN PORTFOLIO
AS OF NEUTRAL
ASSET CLASS INDEX(2) 06/30/00 TARGET
<S> <C> <C> <C>
--------------------------------------------------------------------------------
Large-Cap Stocks S&P 500 Index -0.42% 40%
Small-Cap Stocks Schwab Small-Cap Index -4.00% 20%
International Stocks Schwab International Index -5.15% 20%
Bonds Lehman Aggregate Bond Index 3.99% 15%
Cash Equivalents Three-Month Treasury Bill 3.00% 5%
</TABLE>
Source: Bloomberg
Because the Portfolio is designed to incorporate a mix of different asset
classes, the return over any given period is expected to lag the return of the
strongest performing asset class. Conversely, the return of the Portfolio is
expected to exceed that of the worst performing asset class for any given
period. By dampening the return volatility of any single asset class, the
Portfolio is designed to provide more
(1)A portion of the Portfolio's expenses was reduced during the reporting
period. Without such reductions, the Portfolio's total return would have been
lower. The Portfolio's returns do not include charges and expenses
attributable to any particular insurance product. Inclusion of these charges
and expenses would reduce returns.
(2)The S&P Index is composed of 500 large-company common stocks representing key
industries, including many from the most recognizable companies on the United
States. The Schwab Small-Cap Index includes the second-largest 1,000 publicly
traded companies in the United States. The Schwab International Index
includes the stocks of 350 of the largest publicly traded non-U.S. companies
from countries with developed securities markets. The Lehman Aggregate Bond
Index includes fixed-rate debt issues rated investment grade or higher.
---------------------
3
<PAGE>
SCHWAB ANNUITY PORTFOLIOS
Schwab MarketTrack Growth Portfolio II
June 30, 2000 Semi-Annual Report
stable returns throughout market cycles which, on a risk-adjusted basis, are
expected to be very favorable over extended periods of time.
Q. Can you provide an example of how asset allocation reduces portfolio
volatility?
A. Adding bonds and cash equivalents to a stock portfolio can help reduce its
overall risk. In 1999, The Schwab Center for Investment Research conducted a
study analyzing this issue and created the following chart. The chart displays
the high, low, and average annual returns from 1970-1999 for five hypothetical
portfolios representing the returns of stocks and bonds as measured by their
respective indices.(3) As the chart demonstrates, adding bonds to a stock-heavy
portfolio would have reduced risk while still producing competitive returns.
A portfolio comprising 40% bonds and 60% stocks, for example, achieved an
average annual return of 11.97%--roughly 1.75% less than the 13.72% return of
the all-stock portfolio--and with significantly less volatility. The lowest
annual return of the portfolio invested 40% in bonds and 60% in stocks, which
was actually a loss of 13.61%, was about half of the 26.47% loss in the
all-stock portfolio. This hypothetical example is for illustrative purposes
only, and, of course, past performance does not guarantee future results.
(1970--1999)
<TABLE>
<CAPTION>
The Effects of Adding Bonds to an All-Stock Portfolio
90% 80% 70% 60%
STOCKS STOCKS STOCKS STOCKS
100% 10% 20% 30% 40%
STOCKS BONDS BONDS BONDS BONDS
<S> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------
Maximum 37.43% 35.37% 33.30% 31.24% 29.18%
Average 13.72% 13.32% 12.89% 12.44% 11.97%
Minimum -26.47% -23.25% -20.04% -16.82% -13.61%
</TABLE>
Compiled by Charles Schwab & Co., Inc.
(3)The returns do not reflect actual investment in any security. The
hypothetical returns are all weighted averages and assume reinvestment of
dividends. The indices represented are the S&P 500-Registered Trademark-
Index and the Ibbotson Intermediate Government Bond Index. Indices are
unmanaged, do not incur costs and expenses, and cannot be invested in
directly.
Q. Why does investing in all the major asset classes make sense?
A. The following chart shows the performance of large-cap, small-cap, and
international stocks over ten non-overlapping three-year periods spanning 1972
through 1999. The chart shows that the performance of the various asset classes
varied considerably. Sometimes large-caps performed better than small-caps and
sometimes the opposite occurred. Some international stocks performed better than
domestic stocks and sometimes vice versa. These shifting results are driven by
the fact that different asset classes tended to take turns leading the market
and these "performance cycles" have varied in length and magnitude. While these
cycles may not be entirely random, predicting them can prove to be very
difficult. By investing in several asset classes, you can participate in the
long-term return performance of the various classes, reduce portfolio volatility
(compared to investing in just one asset class) and avoid the entire issue of
trying to predict which asset class will be the next winner.
Non-Overlapping 3-Year Intervals
1972-1999
Annualized Returns
<TABLE>
<CAPTION>
3-YEAR CRSP MSCI-EAFE INDEX
PERIOD S&P 500 INDEX NY/AM/NM 6-10 INDEX INTERNATIONAL
ENDING LARGE-CAP STOCKS SMALL-CAP STOCKS STOCKS
<S> <C> <C> <C>
----------------------------------------------------------------------------------------------
1972 12.25% 2.95% 17.34%
1975 -4.87% -9.15% -2.88%
1978 6.99% 28.49% 18.50%
1981 14.25% 26.05% 9.35%
1984 16.49% 16.47% 10.04%
1987 18.11% 8.61% 49.29%
1990 14.15% 4.73% 3.05%
1993 15.63% 28.29% 9.65%
1996 19.66% 14.94% 8.64%
1999 27.56% 17.85% 16.06%
</TABLE>
Source: Ibbotson Associates, Inc.
/ / The returns do not reflect an actual investment in any security. Indices are
unmanaged, do not incur costs or expenses and cannot be invested in directly.
Past performance is no guarantee of future results.
----------------
4
<PAGE>
NOTES
<PAGE>
-----------------
SCHWAB MARKETTRACK GROWTH PORTFOLIO IITM
SCHEDULE OF INVESTMENTS
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
COMMON STOCK--39.9% OF SHARES (000S)
---------------------------------------------------------------------------
<S> <C> <C>
AEROSPACE / DEFENSE--0.4%
B.F. Goodrich Co. ............................ 100 $ 3
Boeing Co. ................................... 538 23
Crane Co. .................................... 100 2
General Dynamics Corp. ....................... 100 5
Lockheed Martin Corp. ........................ 200 5
Northrop Grumman Corp. ....................... 61 4
Raytheon Co., Class B ........................ 200 4
Rockwell International Corp. ................. 100 3
Textron, Inc. ................................ 100 5
TRW, Inc. .................................... 100 4
United Technologies Corp. .................... 300 18
--------
76
--------
AIR TRANSPORTATION--0.1%
AMR Corp.+ ................................... 100 3
Delta Air Lines, Inc. ........................ 100 5
FedEx Corp.+ ................................. 200 8
Southwest Airlines Co. ....................... 300 6
--------
22
--------
ALCOHOLIC BEVERAGES--0.1%
Anheuser-Busch Cos., Inc. .................... 300 22
Brown-Forman Corp., Class B .................. 100 5
--------
27
--------
APPAREL--0.0%
Nike, Inc., Class B .......................... 200 8
VF Corp. ..................................... 100 2
--------
10
--------
AUTOMOTIVE PRODUCTS / MOTOR VEHICLES--0.4%
Dana Corp. ................................... 100 2
Danaher Corp. ................................ 100 5
Delphi Automotive Systems Corp. .............. 379 6
Ford Motor Co. ............................... 800 34
General Motors Corp., Class H ................ 400 23
Genuine Parts Co. ............................ 100 2
Goodyear Tire & Rubber Co. ................... 100 2
Harley-Davidson, Inc. ........................ 200 8
--------
82
--------
BANKS--1.8%
AmSouth Bancorp .............................. 250 4
Bank of America Corp. ........................ 1,119 48
Bank of New York Co., Inc. ................... 500 23
</TABLE>
-----------------
5
<PAGE>
-----------------
SCHWAB MARKETTRACK GROWTH PORTFOLIO IITM
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
COMMON STOCK (CONTINUED) OF SHARES (000S)
---------------------------------------------------------------------------
<S> <C> <C>
BANKS (CONTINUED)
Bank One Corp. ............................... 772 $ 21
BB&T Corp. ................................... 226 5
Chase Manhattan Corp. ........................ 750 35
Comerica, Inc. ............................... 50 2
Fifth Third Bancorp .......................... 150 10
First Union Corp. ............................ 624 15
Firstar Corp. ................................ 709 15
Fleet Boston Financial Corp. ................. 536 18
Huntington Bancshares, Inc. .................. 121 2
J.P. Morgan & Co., Inc. ...................... 100 11
KeyCorp, Inc. ................................ 300 5
Mellon Financial Corp. ....................... 300 11
National City Corp. .......................... 424 7
Northern Trust Corp. ......................... 100 7
Old Kent Financial Corp. ..................... 105 3
PNC Financial Services Group ................. 300 14
Providian Financial Corp. .................... 100 9
Regions Financial Corp. ...................... 100 2
SouthTrust Corp. ............................. 100 2
State Street Corp. ........................... 100 11
Summit Bancorp ............................... 100 2
SunTrust Banks, Inc. ......................... 300 14
Synovus Financial Corp. ...................... 150 3
U.S. Bancorp ................................. 425 8
Union Planters Corp. ......................... 100 3
Wachovia Corp. ............................... 100 5
Wells Fargo & Co. ............................ 1,100 43
--------
358
--------
BUSINESS MACHINES & SOFTWARE--6.7%
3Com Corp.+ .................................. 200 12
Adaptec, Inc.+ ............................... 100 2
Adobe Systems, Inc. .......................... 100 13
Apple Computer, Inc.+ ........................ 200 10
BMC Software, Inc.+ .......................... 200 7
Cabletron Systems, Inc.+ ..................... 100 3
Ceridian Corp.+ .............................. 100 2
Cisco Systems, Inc.+ ......................... 4,500 286
Compaq Computer Corp. ........................ 1,100 28
Compuware Corp.+ ............................. 200 2
Comverse Technology, Inc.+ ................... 100 9
Dell Computer Corp.+ ......................... 1,700 84
EMC Corp.+ ................................... 1,400 108
Gateway, Inc.+ ............................... 200 11
Hewlett-Packard Co. .......................... 700 87
</TABLE>
-----------------
6
<PAGE>
-----------------
SCHWAB MARKETTRACK GROWTH PORTFOLIO IITM
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
COMMON STOCK (CONTINUED) OF SHARES (000S)
---------------------------------------------------------------------------
<S> <C> <C>
BUSINESS MACHINES & SOFTWARE (CONTINUED)
International Business Machines Corp. ........ 1,200 $ 132
Lexmark International, Inc.+ ................. 100 7
Microsoft Corp.+ ............................. 3,400 272
NCR Corp.+ ................................... 100 4
Network Appliance, Inc.+ ..................... 200 16
Novell, Inc.+ ................................ 200 2
Novellus Systems, Inc.+ ...................... 75 4
Oracle Corp.+ ................................ 1,850 156
Pitney Bowes, Inc. ........................... 200 8
Seagate Technology, Inc.+ .................... 100 6
Sun Microsystems, Inc.+ ...................... 1,000 91
Unisys Corp.+ ................................ 200 3
Xerox Corp. .................................. 500 10
--------
1,375
--------
BUSINESS SERVICES--2.0%
Allied Waste Industries, Inc.+ ............... 100 1
America Online, Inc.+ ........................ 1,500 79
Automatic Data Processing, Inc. .............. 400 21
Citrix Systems, Inc.+ ........................ 100 2
Computer Associates International, Inc. ...... 400 21
Computer Sciences Corp.+ ..................... 100 7
Convergys Corp.+ ............................. 137 7
Dun & Bradstreet Corp. ....................... 100 3
Ecolab, Inc. ................................. 100 4
Electronic Data Systems Corp. ................ 300 12
Equifax, Inc. ................................ 100 3
First Data Corp. ............................. 300 15
H&R Block, Inc. .............................. 100 3
IMS Health, Inc. ............................. 200 4
Interpublic Group of Cos., Inc. .............. 200 9
Mercury Interactive Corp.+ ................... 100 10
Ominicom Group, Inc. ......................... 100 9
Parametic Technology Corp.+ .................. 200 2
Paychex, Inc. ................................ 225 9
PeopleSoft, Inc.+ ............................ 200 3
Siebel Systems, Inc.+ ........................ 200 33
Tyco International Ltd. ...................... 1,122 53
VERITAS Software Corp.+ ...................... 300 34
Waste Management, Inc. ....................... 345 7
Yahoo!, Inc.+ ................................ 400 50
Young & Rubicam, Inc. ........................ 100 6
--------
407
--------
</TABLE>
-----------------
7
<PAGE>
-----------------
SCHWAB MARKETTRACK GROWTH PORTFOLIO IITM
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
COMMON STOCK (CONTINUED) OF SHARES (000S)
---------------------------------------------------------------------------
<S> <C> <C>
CHEMICAL--0.7%
Air Products & Chemicals, Inc. ............... 100 $ 3
Dow Chemical Co. ............................. 600 18
E.I. du Pont de Nemours & Co. ................ 669 29
Hercules, Inc. ............................... 100 1
Minnesota Mining & Manufacturing Co. ......... 300 25
Pharmacia Corp. .............................. 857 44
PPG Industries, Inc. ......................... 100 4
Praxair, Inc. ................................ 100 4
Rohm & Haas Co. .............................. 100 3
Sigma-Aldrich Corp. .......................... 100 3
Union Carbide Corp. .......................... 100 5
--------
139
--------
CONSTRUCTION--0.1%
Fluor Corp. .................................. 100 3
Masco Corp. .................................. 300 5
Sherwin-Williams Co. ......................... 100 2
The Stanley Works ............................ 100 2
Vulcan Materials Co. ......................... 100 4
--------
16
--------
CONSUMER - DURABLE--0.0%
Black & Decker Corp. ......................... 100 4
Leggett & Platt, Inc. ........................ 100 2
Maytag Corp. ................................. 100 4
--------
10
--------
CONSUMER - NONDURABLE--0.3%
Darden Restaurants, Inc. ..................... 100 2
Fortune Brands, Inc. ......................... 100 2
Hasbro, Inc. ................................. 100 2
Mattel, Inc. ................................. 300 4
McDonald's Corp. ............................. 900 30
Newell Rubbermaid, Inc. ...................... 200 5
Starbucks Corp.+ ............................. 60 2
Tricon Global Restaurants, Inc.+ ............. 60 2
Tupperware Corp. ............................. 100 2
Wendy's International, Inc. .................. 100 2
--------
53
--------
CONTAINERS--0.0%
Crown Cork & Seal Co., Inc. .................. 100 2
Owens-Illinois, Inc.+ ........................ 100 1
Pactiv Corp.+ ................................ 100 1
Sealed Air Corp.+ ............................ 53 3
--------
7
--------
</TABLE>
-----------------
8
<PAGE>
-----------------
SCHWAB MARKETTRACK GROWTH PORTFOLIO IITM
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
COMMON STOCK (CONTINUED) OF SHARES (000S)
---------------------------------------------------------------------------
<S> <C> <C>
ELECTRONICS--5.1%
ADC Telecommunications, Inc.+ ................ 200 $ 17
Advanced Micro Devices, Inc.+ ................ 100 8
Altera Corp.+ ................................ 182 19
American Power Conversion Corp.+ ............. 75 3
Analog Devices, Inc.+ ........................ 200 15
Applied Materials, Inc.+ ..................... 500 45
Broadcom Corp., Class A+ ..................... 70 15
Conexant Systems, Inc.+ ...................... 100 5
Intel Corp. .................................. 2,200 294
ITT Industries, Inc. ......................... 100 3
KLA-Tencor Corp.+ ............................ 100 6
Linear Technology Corp. ...................... 200 13
LSI Logic Corp.+ ............................. 200 11
Lucent Technologies, Inc. .................... 2,065 122
Maxim Integrated Products, Inc.+ ............. 200 14
Micron Technology, Inc.+ ..................... 400 35
Molex, Inc. .................................. 125 6
Motorola, Inc. ............................... 1,371 40
National Semiconductor Corp.+ ................ 100 6
Nextel Communications, Inc., Class A+ ........ 500 31
Nortel Networks Corp. ........................ 1,900 130
PE Corp.-PE Biosystems Group ................. 100 7
QUALCOM, Inc.+ ............................... 500 30
Sanmina Corp.+ ............................... 100 9
Scientific-Atlanta, Inc. ..................... 100 7
Solectron Corp.+ ............................. 400 17
Tektronix, Inc. .............................. 50 4
Tellabs, Inc.+ ............................... 300 21
Teradyne, Inc.+ .............................. 100 7
Texas Instruments, Inc. ...................... 1,100 76
Thermo Electron Corp.+ ....................... 100 2
Xilinx, Inc.+ ................................ 200 17
--------
1,035
--------
ENERGY - RAW MATERIALS--0.3%
Anadarko Petroleum Corp. ..................... 100 5
Apache Corp. ................................. 100 6
Baker Hughes, Inc. ........................... 231 7
Burlington Resources, Inc. ................... 100 4
Halliburton Co. .............................. 300 14
Occidental Petroleum Corp. ................... 200 4
Schlumberger Ltd. ............................ 400 30
--------
70
--------
</TABLE>
-----------------
9
<PAGE>
-----------------
SCHWAB MARKETTRACK GROWTH PORTFOLIO IITM
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
COMMON STOCK (CONTINUED) OF SHARES (000S)
---------------------------------------------------------------------------
<S> <C> <C>
FOOD & AGRICULTURE--1.3%
Archer-Daniels-Midland Co. ................... 331 $ 3
Bestfoods, Inc. .............................. 200 14
Campbell Soup Co. ............................ 300 9
Coca-Cola Co. ................................ 1,600 92
Coca-Cola Enterprises, Inc. .................. 300 5
ConAgra, Inc. ................................ 300 6
General Mills, Inc. .......................... 200 8
H.J. Heinz Co. ............................... 200 9
Hershey Foods Corp. .......................... 100 5
Kellogg Co. .................................. 200 6
Nabisco Group Holdings Corp. ................. 200 5
PepsiCo, Inc. ................................ 900 40
Quaker Oats Co. .............................. 100 8
Ralston-Ralston Purina Group ................. 200 4
Sara Lee Corp. ............................... 600 12
SUPERVALU, Inc. .............................. 100 2
SYSCO Corp. .................................. 200 8
Unilever NV - Sponsored ADR .................. 357 15
Wm. Wrigley Jr. Co. .......................... 100 8
--------
259
--------
GOLD--0.0%
Barrick Gold Corp. ........................... 300 5
Homestake Mining Co. ......................... 200 1
Newmont Mining Corp. ......................... 100 2
Placer Dome, Inc. ............................ 200 2
--------
10
--------
HEALTHCARE / DRUGS & MEDICINE--4.5%
Abbott Laboratories .......................... 1,000 45
Aetna, Inc. .................................. 100 6
Allergan, Inc. ............................... 100 7
ALZA Corp.+ .................................. 100 6
American Home Products Corp. ................. 900 53
Amgen, Inc.+ ................................. 700 49
Baxter International, Inc. ................... 200 14
Becton, Dickinson & Co. ...................... 200 6
Biogen, Inc.+ ................................ 100 6
Biomet, Inc. ................................. 100 4
Boston Scientific Corp.+ ..................... 214 5
Bristol-Myers Squibb Co. ..................... 1,300 76
Cardinal Health, Inc. ........................ 150 11
Eli Lilly & Co. .............................. 700 70
Guidant Corp.+ ............................... 200 10
HCA-The Healthcare Co. ....................... 300 9
</TABLE>
-----------------
10
<PAGE>
-----------------
SCHWAB MARKETTRACK GROWTH PORTFOLIO IITM
SCHEDULEOFINVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
COMMON STOCK (CONTINUED) OF SHARES (000S)
---------------------------------------------------------------------------
<S> <C> <C>
HEALTHCARE / DRUGS & MEDICINE (CONTINUED)
HealthSouth Corp.+ ........................... 268 $ 2
Humana, Inc.+ ................................ 100 1
Johnson & Johnson ............................ 900 92
Manor Care, Inc.+ ............................ 100 1
McKesson HBOC, Inc. .......................... 174 4
Medimmune, Inc.+ ............................. 200 15
Medtronic, Inc. .............................. 800 40
Merck & Co., Inc. ............................ 1,500 115
Pfizer, Inc. ................................. 4,250 204
Quintiles Transnational Corp.+ ............... 100 1
Schering-Plough Corp. ........................ 1,000 51
St. Jude Medical, Inc.+ ...................... 100 5
Tenet Healthcare Corp.+ ...................... 200 5
UnitedHealth Group, Inc. ..................... 100 9
Watson Pharmaceuticals, Inc.+ ................ 100 5
--------
927
--------
HOUSEHOLD PRODUCTS--0.5%
Avon Products, Inc. .......................... 200 9
Clorox Co. ................................... 100 5
Colgate-Palmolive Co. ........................ 400 24
Gillette Co. ................................. 700 24
International Flavors & Fragrances, Inc. ..... 100 3
Procter & Gamble Co. ......................... 800 46
--------
111
--------
INSURANCE--1.1%
AFLAC, Inc. .................................. 200 9
Allstate Corp. ............................... 500 11
American General Corp. ....................... 200 12
American International Group, Inc. ........... 1,010 119
Aon Corp. .................................... 150 5
Chubb Corp. .................................. 100 6
CIGNA Corp. .................................. 100 9
Cincinnati Financial Corp. ................... 100 3
Conseco, Inc. ................................ 232 2
Hartford Financial Services Group, Inc. ...... 100 6
Jefferson-Pilot Corp. ........................ 50 3
Lincoln National Corp. ....................... 100 4
Loew's Corp. ................................. 100 6
Marsh & McLennan Cos., Inc. .................. 150 16
MBIA, Inc. ................................... 100 5
MGIC Investment Corp. ........................ 100 5
SAFECO Corp. ................................. 100 2
St. Paul Cos., Inc. .......................... 100 3
Torchmark Corp. .............................. 100 2
UnumProvident Corp. .......................... 173 3
--------
231
--------
</TABLE>
-----------------
11
<PAGE>
-----------------
SCHWAB MARKETTRACK GROWTH PORTFOLIO IITM
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
COMMON STOCK (CONTINUED) OF SHARES (000S)
---------------------------------------------------------------------------
<S> <C> <C>
MEDIA--1.4%
Clear Channel Communications, Inc.+ .......... 200 $ 15
Comcast Corp., Class A+ ...................... 600 24
Dow Jones & Co., Inc. ........................ 100 7
Gannett Co., Inc. ............................ 200 12
Knight-Ridder, Inc. .......................... 100 5
McGraw-Hill Cos., Inc. ....................... 100 5
New York Times Co., Class A .................. 100 4
R.R. Donnelly & Sons Co. ..................... 100 2
Seagram Co. Ltd. ............................. 300 17
Time Warner, Inc. ............................ 900 68
Tribune Co. .................................. 200 7
Viacom, Inc., Class B+ ....................... 1,042 71
Walt Disney Co. .............................. 1,300 50
--------
287
--------
MISCELLANEOUS--0.1%
Agilent Technologies, Inc.+ .................. 266 20
Visteon Corp. ................................ 104 1
--------
21
--------
MISCELLANEOUS FINANCE--2.2%
American Express Co. ......................... 900 47
Associates First Capital Corp., Class A ...... 462 10
Bear Stearns Cos., Inc. ...................... 110 5
Capital One Financial Corp. .................. 100 4
Charles Schwab Corp. ......................... 825 28
Charter One Financial, Inc. .................. 100 2
Citigroup, Inc. .............................. 2,152 130
Countrywide Credit Industries, Inc. .......... 100 3
Fannie Mae ................................... 700 37
Franklin Resources, Inc. ..................... 200 6
Freddie Mac .................................. 400 16
Golden West Financial Corp. .................. 100 4
Household International, Inc. ................ 306 13
Lehman Brothers Holdings, Inc. ............... 100 9
MBNA Corp. ................................... 525 14
Merrill Lynch & Co., Inc. .................... 300 35
Morgan Stanley Dean Witter Discover & Co. .... 730 61
Paine Webber Group, Inc. ..................... 100 5
Sabre Group Holdings, Inc.+ .................. 72 2
SLM Holding Corp. ............................ 100 4
T. Rowe Price Associates, Inc. ............... 100 4
Washington Mutual, Inc. ...................... 400 12
--------
451
--------
</TABLE>
-----------------
12
<PAGE>
-----------------
SCHWAB MARKETTRACK GROWTH PORTFOLIO IITM
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
COMMON STOCK (CONTINUED) OF SHARES (000S)
---------------------------------------------------------------------------
<S> <C> <C>
NON-FERROUS METALS--0.1%
Alcan Aluminum Ltd. .......................... 100 $ 3
Alcoa, Inc. .................................. 600 17
Engelhard Corp. .............................. 100 2
Freeport-McMoRan Copper & Gold, Inc., Class B+ 100 1
Inco Ltd.+ ................................... 100 2
--------
25
--------
OIL - DOMESTIC--0.3%
Amerada Hess Corp. ........................... 100 6
Conoco Inc., Class B ......................... 400 10
Kerr-McGee Corp. ............................. 100 6
Phillips Petroleum Co. ....................... 200 10
Tosco Corp. .................................. 100 3
Transocean Sedco Forex, Inc. ................. 158 8
Union Pacific Resources Group, Inc. .......... 100 2
Unocal Corp. ................................. 100 3
USX-Marathon Group, Inc. ..................... 200 5
--------
53
--------
OIL - INTERNATIONAL--1.5%
Chevron Corp. ................................ 400 34
Exxon Mobil Corp. ............................ 2,260 177
Royal Dutch Petroleum Co. - Sponsored ADR .... 1,400 86
Texaco, Inc. ................................. 400 21
--------
318
--------
OPTICAL & PHOTO--0.3%
Corning, Inc. ................................ 200 54
Eastman Kodak Co. ............................ 200 12
--------
66
--------
PAPER & FOREST PRODUCTS--0.3%
Fort James Corp. ............................. 100 2
Georgia-Pacific Group ........................ 100 3
International Paper Co. ...................... 370 11
Kimberly-Clark Corp. ......................... 400 23
Louisiana-Pacific Corp. ...................... 100 1
Mead Corp. ................................... 100 3
Westvaco Corp. ............................... 100 3
Weyerhaeuser Co. ............................. 100 4
Willamette Industries, Inc. .................. 100 3
--------
53
--------
</TABLE>
-----------------
13
<PAGE>
-----------------
SCHWAB MARKETTRACK GROWTH PORTFOLIO IITM
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
COMMON STOCK (CONTINUED) OF SHARES (000S)
---------------------------------------------------------------------------
<S> <C> <C>
PRODUCER GOODS & MANUFACTURING--2.1%
Avery Dennison Corp. ......................... 100 $ 7
Caterpillar, Inc. ............................ 200 7
Cooper Industries, Inc. ...................... 100 3
Deere & Co. .................................. 200 7
Dover Corp. .................................. 100 4
Emerson Electric Co. ......................... 300 18
General Electric Co. ......................... 6,400 339
Honeywell International, Inc. ................ 487 16
Illinois Tool Works, Inc. .................... 200 11
Ingersoll-Rand Co. ........................... 100 4
Johnson Controls, Inc. ....................... 100 5
Pall Corp. ................................... 100 2
Parker-Hannifin Corp. ........................ 100 3
W.W. Grainger, Inc. .......................... 100 3
--------
429
--------
RAILROAD & SHIPPING--0.1%
Burlington Northern Santa Fe Corp. ........... 300 7
CSX Corp. .................................... 100 2
Kansas City Southern Industries, Inc. ........ 100 9
Norfolk Southern Corp. ....................... 200 3
Union Pacific Corp. .......................... 200 7
--------
28
--------
RETAIL--2.3%
Albertson's, Inc. ............................ 300 10
AutoZone, Inc.+ .............................. 100 2
Bed, Bath & Beyond, Inc.+ .................... 100 4
Best Buy Co., Inc.+ .......................... 100 6
Cendant Corp.+ ............................... 440 6
Circuit City Stores-Circuit City Group ....... 100 3
Consolidated Stores Corp.+ ................... 88 1
Costco Wholesale Corp.+ ...................... 300 10
CVS Corp. .................................... 290 12
Dillards, Inc., Class A ...................... 100 1
Dollar General Corp. ......................... 195 4
Federated Department Stores, Inc.+ ........... 100 3
Gap, Inc. .................................... 537 17
Home Depot, Inc. ............................. 1,500 75
J.C. Penney Co., Inc. ........................ 200 4
Kmart Corp.+ ................................. 300 2
Kohl's Corp.+ ................................ 200 11
Kroger Co.+ .................................. 500 11
</TABLE>
-----------------
14
<PAGE>
-----------------
SCHWAB MARKETTRACK GROWTH PORTFOLIO II(TM)
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
COMMON STOCK (CONTINUED) OF SHARES (000S)
---------------------------------------------------------------------------
<S> <C> <C>
RETAIL (CONTINUED)
Limited, Inc. ................................ 300 $ 7
Lowe's Cos., Inc. ............................ 300 12
May Department Stores Co. .................... 250 6
Nordstrom, Inc. .............................. 100 2
Office Depot, Inc.+ .......................... 200 1
RadioShack Corp. ............................. 100 5
Rite Aid Corp. ............................... 100 1
Safeway, Inc.+ ............................... 300 14
Sears, Roebuck & Co. ......................... 200 7
Staples, Inc.+ ............................... 300 5
Target Corp. ................................. 300 17
Tiffany & Co., Inc ........................... 75 5
TJX Cos., Inc. ............................... 200 4
Toys `R' Us, Inc.+ ........................... 200 3
Wal-Mart Stores, Inc. ........................ 2,900 167
Walgreen Co. ................................. 700 23
Winn Dixie Stores, Inc. ...................... 100 1
--------
462
--------
STEEL--0.0%
Allegheny Technologies, Inc. ................. 100 2
USX-U.S. Steel Group, Inc. ................... 100 2
--------
4
--------
TELEPHONE--2.5%
Alltel Corp. ................................. 200 12
AT&T Corp. ................................... 2,412 76
Bell Atlantic Corp. .......................... 1,006 51
BellSouth Corp. .............................. 1,200 51
CenturyTel, Inc. ............................. 150 4
Global Crossing Ltd.+ ........................ 605 16
GTE Corp. .................................... 600 37
SBC Communications, Inc. ..................... 2,181 94
Sprint Corp. (FON Group) ..................... 600 31
Sprint Corp. (PCS Group)+ .................... 600 36
US West, Inc. ................................ 305 26
Worldcom, Inc.+ .............................. 1,831 84
--------
518
--------
TOBACCO--0.2%
Philip Morris Cos., Inc. ..................... 1,500 40
UST, Inc. .................................... 100 1
--------
41
--------
</TABLE>
-----------------
15
<PAGE>
-----------------
SCHWAB MARKETTRACK GROWTH PORTFOLIO II(TM)
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
COMMON STOCK (CONTINUED) OF SHARES (000S)
---------------------------------------------------------------------------
<S> <C> <C>
TRAVEL & RECREATION--0.1%
Brunswick Corp. .............................. 100 $ 2
Carnival Corp. ............................... 400 8
Harrah's Entertainment, Inc.+ ................ 100 2
Hilton Hotels Corp. .......................... 200 2
Marriott International, Inc., Class A ........ 100 4
--------
18
--------
TRUCKING & FREIGHT--0.0%
PACCAR, Inc. ................................. 100 4
--------
UTILITIES - ELECTRIC & GAS--1.0%
AES Corp.+ ................................... 300 14
Ameren Corp. ................................. 100 3
American Electric Power Co., Inc. ............ 160 5
Cinergy Corp. ................................ 100 3
CMS Energy Corp. ............................. 100 2
Coastal Corp. ................................ 200 12
Columbia Energy Group ........................ 50 3
Consolidated Edison, Inc. .................... 100 3
Constellation Energy Group, Inc. ............. 100 3
CP&L Energy, Inc. ............................ 100 3
Dominion Resources, Inc. ..................... 146 6
DTE Energy Co. ............................... 100 3
Duke Energy Corp. ............................ 200 11
Edison International ......................... 200 4
El Paso Energy Corp. ......................... 200 10
Enron Corp. .................................. 500 32
Entergy Corp. ................................ 200 5
First Energy Corp. ........................... 100 2
Florida Progress Corp. ....................... 100 5
FPL Group, Inc. .............................. 100 5
GPU, Inc. .................................... 100 3
New Centuries Energies, Inc. ................. 100 3
Niagara Mohawk Holdings, Inc.+ ............... 100 1
Northern States Power Co. .................... 100 2
PECO Energy Co. .............................. 100 4
PG&E Corp. ................................... 200 5
Pinnacle West Capital Corp. .................. 100 3
PPL Corp. .................................... 100 2
Public Service Enterprise Group, Inc. ........ 100 3
Reliant Energy, Inc. ......................... 200 6
Sempra Energy ................................ 85 1
Southern Co. ................................. 400 9
TXU Corp. .................................... 200 6
</TABLE>
-----------------
16
<PAGE>
-----------------
SCHWAB MARKETTRACK GROWTH PORTFOLIO IITM
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER VALUE
COMMON STOCK (CONTINUED) OF SHARES (000S)
---------------------------------------------------------------------------
<S> <C> <C>
UTILITIES - ELECTRIC & GAS (CONTINUED)
Unicom Corp. 100 $ 4
Williams Cos., Inc. 300 13
------
199
------
TOTAL COMMON STOCK
(Cost $5,294) 8,202
-------
INVESTMENT FUNDS--56.0%
---------------------------------------------------------------------------
Schwab International Index Fund, Select Shares 217,792 4,158
Schwab Small-Cap Index Fund, Select Shares 200,100 4,190
Schwab Total Bond Market Index Fund 329,693 3,142
-------
TOTAL INVESTMENT FUNDS
(Cost $10,281) 11,490
-------
SHORT-TERM INVESTMENTS--5.3%
---------------------------------------------------------------------------
Schwab Value Advantage Money Fund, Investor Shares,
6.25%* 800,235 800
Wachovia Bank Time Deposit,
6.00%*, 07/03/00 282,290 282
-------
TOTAL SHORT-TERM INVESTMENTS
(Cost $1,082) 1,082
-------
TOTAL INVESTMENTS--101.2%
(Cost $16,657) 20,774
-------
OTHER ASSETS AND LIABILITIES, NET--(1.2%)
Other assets 29
Liabilities (273)
-------
(244)
-------
TOTAL NET ASSETS--100.0% $20,530
=======
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS
+ Non-income producing security.
* Interest rate represents the yield on report date.
ADR--American Depositary Receipt.
-----------------
17
<PAGE>
-----------------
SCHWAB MARKETTRACK GROWTH PORTFOLIO IITM
STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost $16,657) .............. $20,774
Receivables:
Investments sold ............................. 15
Dividends .................................... 11
Dividend tax reclaim ......................... 1
Prepaid expenses .................................. 2
-------
Total assets ............................... 20,803
-------
LIABILITIES
Payables:
Investments purchased ........................ 25
Fund shares redeemed ......................... 203
Accrued expenses .................................. 45
-------
Total liabilities 273
-------
Net assets applicable to outstanding shares ....... $20,530
=======
NET ASSETS CONSIST OF:
Paid-in capital ................................... $15,902
Undistributed net investment income ............... 316
Accumulated net realized gain on investments sold . 195
Net unrealized appreciation on investments ........ 4,117
-------
$20,530
=======
PRICING OF SHARES
Outstanding shares, $0.00001 par value
(unlimited shares authorized) ................... 1,294
Net Asset Value, offering and redemption
price per share ................................. $15.87
</TABLE>
-----------------
See accompanying Notes to Financial Statements.
-----------------
18
<PAGE>
-----------------
SCHWAB MARKETTRACK GROWTH PORTFOLIO IITM
STATEMENT OF OPERATIONS (IN THOUSANDS)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends ...................................... $ 162
Interest ....................................... 7
-----
Total investment income ...................... 169
-----
EXPENSES:
Investment advisory and administration fees .... 52
Custodian fees ................................. 3
Portfolio accounting fees ...................... 1
Professional fees .............................. 15
Registration fees .............................. 1
Shareholder reports ............................ 7
Trustees' fees ................................. 3
Proxy fees ..................................... 2
Other expenses ................................. 7
-----
91
Less: expenses reduced ............................ (32)
-----
Net expenses incurred by fund ................ 59
-----
NET INVESTMENT INCOME ............................. 110
-----
NET REALIZED GAIN ON INVESTMENTS:
Net realized gain on investments sold ........ 43
-----
CHANGE IN NET UNREALIZED DEPRECIATION ON INVESTMENTS:
Net unrealized depreciation on investments ... (103)
-----
Net loss on investments ........................... (60)
-----
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .. $ 50
=====
</TABLE>
-----------------
See accompanying Notes to Financial Statements.
-----------------
19
<PAGE>
-----------------
SCHWAB MARKETTRACK GROWTH PORTFOLIO IITM
STATEMENT OF CHANGES IN NET ASSETS (IN THOUSANDS)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income .................................................. $ 110 $ 206
Net realized gain on investments sold and foreign currency transactions 43 151
Net unrealized appreciation (depreciation) on investments and foreign
currency translation ................................................. (103) 2,643
------- -------
Increase in net assets resulting from operations ....................... 50 3,000
------- -------
DIVIDENDS AND DISTRIBUTIONS:
Dividends to shareholders from net investment income ................... -- (203)
Distributions to shareholders from net capital gains ................... -- (1,117)
------- -------
Total dividends and distributions to shareholders ...................... -- (1,320)
------- -------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold .............................................. 3,661 3,291
Net asset value of shares issued in reinvestment of dividends .......... -- 1,321
Less payments for shares redeemed ...................................... (2,137) (1,690)
------- -------
Increase in net assets from capital share transactions ................. 1,524 2,922
------- -------
Total increase in net assets .............................................. 1,574 4,602
Net Assets:
Beginning of period .................................................... 18,956 14,354
------- -------
End of period (including undistributed net investment income
of $316 and $206, respectively) ...................................... $20,530 $18,956
======= =======
NUMBER OF FUND SHARES:
Sold ................................................................... 234 217
Reinvested ............................................................. -- 85
Redeemed ............................................................... (137) (113)
------- -------
Net increase in shares outstanding ..................................... 97 189
SHARES OUTSTANDING:
Beginning of period .................................................... 1,197 1,008
------- -------
End of period .......................................................... 1,294 1,197
======= =======
</TABLE>
-----------------
See accompanying Notes to Financial Statements.
-----------------
20
<PAGE>
-----------------
SCHWAB MARKETTRACK GROWTH PORTFOLIO IITM
FINANCIAL HIGHLIGHTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
AND THE FISCAL PERIODS ENDED
DECEMBER 31,
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996 3
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA($):
Net asset value at beginning of period 15.84 14.24 12.95 10.42 10.00
------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.07 0.15 0.17 0.22 4 0.04
Net realized and unrealized gain (loss)
on investments (0.04) 2.63 1.52 2.33 0.38
------- ------- ------- ------- -------
Total income from investment operations 0.03 2.78 1.69 2.55 0.42
Less distributions:
Dividends from net investment income -- (0.18) (0.15) (0.02) --
Distributions from capital gains -- (1.00) (0.25) --5 --
------- ------- ------- ------- -------
Total distributions -- (1.18) (0.40) (0.02) --
------- ------- ------- ------- -------
NET ASSET VALUE AT END OF PERIOD 15.87 15.84 14.24 12.95 10.42
======= ======= ======= ======= =======
Total return (%) 0.25 1 19.63 13.07 24.54 4.20 1
RATIOS/SUPPLEMENTAL DATA (%)
------------------------------------------
Ratio of net operating expenses to average
net assets 0.60 2,6 0.56 0.57 0.75 0.67 2
Expense reductions reflected in above ratio 0.33 2 0.53 0.71 1.24 4.04 2
Ratio of net investment income to average
net assets 1.13 2 1.32 1.64 1.98 2.35 2
Portfolio turnover rate 12 14 67 81 7
Net assets, end of period ($ x 1,000) 20,530 18,956 14,354 10,333 5,384
<FN>
1 Not annualized.
2 Annualized.
3 For the period from November 1, 1996 (commencement of operations) to
December 31, 1996.
4 Per share information presented is based upon the average number of
shares outstanding due to large fluctuations in the number of shares
outstanding during the period.
5 Less than one cent per share.
6 Would have been 0.61% if certain non-routine expenses (proxy fees) had been
included.
</FN>
</TABLE>
-----------------
See accompanying Notes to Financial Statements.
-----------------
21
<PAGE>
-----------------
SCHWAB MARKETTRACK GROWTH PORTFOLIO IITM
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
(ALL CURRENCY AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE NOTED.)
1. DESCRIPTION OF THE FUND
The Schwab MarketTrack Growth Portfolio II (the "fund") is a series of Schwab
Annuity Portfolios (the "trust"), a diversified, no-load, open-end investment
management company organized as a Massachusetts business trust on January 21,
1994 and registered under the Investment Company Act of 1940 (the "1940 Act"),
as amended.
The fund is intended as an investment vehicle for variable annuity contracts and
variable life insurance policies to be offered by separate accounts of
participating life insurance companies and for pension and retirement plans
qualified under the Internal Revenue Code of 1986, as amended.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are in conformity with generally
accepted accounting principles. 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 in securities traded on an exchange or in the
over-the-counter market are valued at the last-quoted sale price for a given
day, or if a sale is not reported for that day, at the mean between the most
recent quoted bid and asked prices. Securities for which no quotations are
readily available are valued at fair value as determined by the fund's
investment adviser pursuant to guidelines adopted in good faith by the Board of
Trustees. Investments in underlying funds are valued at their respective daily
net asset values as determined by those funds, in accordance with the 1940 Act.
Short-term securities with 60 days or less to maturity are stated at amortized
cost, which approximates market value.
SECURITY TRANSACTIONS, INVESTMENT INCOME AND REALIZED GAINS (LOSSES)--Security
transactions are accounted for on a trade-date basis (date the order to buy or
sell is executed). Dividend income and distributions to shareholders are
recorded on the ex-dividend date. Interest income (including accretion of
discount) is recorded on accrual basis. Realized gains and losses from security
transactions are determined on an identified cost basis.
FOREIGN CURRENCY TRANSLATION--The accounting records of the fund are maintained
in U.S. dollars. Investment securities and all other assets and liabilities of
the fund denominated in a foreign currencies are translated into U.S. dollars at
the exchange rates on June 30, 2000. Purchases and sales of securities, income
receipts and expense payments are translated into U.S. dollars at the exchange
rate in effect on the dates of the respective transactions.
The fund separates within its statement of operations the portion of realized
and unrealized gains and losses resulting from changes in foreign currency
exchange rates from the fluctuations in market prices of investments held.
EXPENSES--Expenses arising in connection with the fund are charged directly to
that fund. Expenses common to all series of the trust are generally allocated to
each series in proportion to their relative net assets.
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 substantially all net investment income and realized net capital
gains, if any, to shareholders. Therefore, no federal income tax provision is
required. The fund is considered a separate entity for tax purposes.
At June 30, 2000, (for financial reporting and federal income tax purposes), net
unrealized appreciation aggregated $4,117 of which $4,658 related to appreciated
securities and $541 related to depreciated securities.
RECLASSIFICATIONS--Generally accepted accounting principles require that certain
components of net assets be reclassified between financial and tax reporting.
These reclassifications have no effect on net assets or net asset values per
share. As of June 30, 2000, there were no reclassifications.
-----------------
22
<PAGE>
-----------------
SCHWAB MARKETTRACK GROWTH PORTFOLIO IITM
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
(ALL CURRENCY AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE NOTED.)
3. TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENT--The trust has an investment
advisory and administration agreement with Charles Schwab Investment Management,
Inc. (the "investment adviser"). For advisory services and facilities furnished,
the fund pays an annual fee, payable monthly, of 0.44% of the first $500 million
of average daily net assets, and 0.39% of such net assets over $500 million. The
investment adviser has reduced a portion of its fee for the six months ended
June 30, 2000 (see Note 4).
For the period April 30, 1999 through June 29, 2000, the fund paid an annual
fee, payable monthly, of 0.54% of the first $500 million of average daily net
assets, and 0.49% of such net assets over $500 million. Prior to April 30, 1999,
the fund paid an annual fee, payable monthly, of 0.74% on the first $1 billion
of average daily net assets, 0.69% on the next $1 billion of average daily net
assets and 0.64% on such net assets over $2 billion.
OFFICERS AND TRUSTEES--Certain officers and trustees of the trust are also
officers and/or directors of the investment adviser. For the six months ended
June 30, 2000, the fund made no direct payments to its officers or trustees who
were "interest persons" within the meaning of the 1940 Act. The fund incurred
fees of $3 related to the trust's unaffiliated trustees.
OTHER AFFILIATED PARTIES AND TRANSACTIONS--Pursuant to an Exemptive Order issued
by the SEC, the fund may invest in other SchwabFunds(R). As of June 30, 2000,
the fund owned 0.32% of the outstanding shares of the Schwab International Index
Fund(R); less than one-tenth percent of the outstanding shares of the Schwab
Value Advantage Money Fund(R); 0.52% of the outstanding shares of the Schwab
Total Bond Market Index Fund(TM) and; 0.29% of the outstanding shares of the
Schwab Small-Cap Index Fund.(R)
As of June 30, 2000, The Schwab MarketTrack Growth Portfolio II held common
stock of The Charles Schwab Corp., an affiliated issuer, with a current value of
$28.
4. EXPENSES REDUCED AND ABSORBED BY THE INVESTMENT ADVISER AND SCHWAB
The investment adviser guarantees that, through at least April 30, 2001, the
fund's net operating expenses will not exceed 0.50% of the fund's average daily
net assets, after waivers and reimbursements. For purpose of this guarantee,
operating expenses do not include interest, taxes and certain non-routine
expenses. The operating expense ratio for the six months ended June 30, 2000 did
include non-routine expenses.
For the six months ended June 30, 2000, the total of such fees and expenses
reduced by the investment adviser were $32.
5. BORROWING AGREEMENTS
The trust has both committed and uncommitted lines of credit arrangements with
PNC Bank N.A., Bank of America NT&SA and The Bank of New York, whereby the trust
may borrow on behalf of the funds, as a temporary measure to satisfy redemption
requests or for extraordinary or emergency purposes. The trust may borrow in an
aggregate amount of up to $150 million from PNCBank N.A. and $133 million from
Bank of America NT&SA. The Schwab S&P 500 Portfolio and the Schwab MarketTrack
Growth Portfolio IImay borrow in an aggregate amount of up to $33 million and
$183 million from The Bank of New York, respectively. Amounts borrowed under
these arrangements bear interest at periodically negotiated rates. The fund also
pays annual fees for the unused balance of the committed line of credit. During
the reporting period, the fund only borrowed against the uncommitted lines of
credit. As of June 30, 2000, there were no borrowings outstanding.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, other than short-term obligations
and U.S. government securities, aggregated $3,899 and $2,235, respectively, for
the six months ended June 30, 2000.
-----------------
23
<PAGE>
-----------------
SCHWAB MARKETTRACK GROWTH PORTFOLIO II(TM)
OTHER INFORMATION
SHAREHOLDER VOTE
A special meeting of the shareholders of the Schwab Annuity Portfolios was held
on June 1, 2000. The number of votes necessary to conduct the meeting and
approve each proposal was obtained, and the results of the votes of shareholders
on proposals before them are listed below:
PROPOSAL 1
Election of Trustees.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES VOTED FOR SHARES WITHHELD
---------------- ---------------
<S> <C> <C>
Charles R. Schwab 125,968,273 1,733,505
Mariann Byerwalter 125,568,665 2,133,113
Jeremiah H. Chafkin 125,620,059 2,081,719
Donald F. Dorward 123,479,638 4,222,140
William A. Hasler 123,430,400 4,271,378
Robert G. Holmes 123,479,638 4,222,140
Steven L. Scheid 125,916,879 1,784,899
Gerald B. Smith 123,481,793 4,219,985
Donald R. Stephens 125,619,640 2,082,138
Michael W. Wilsey 125,568,246 2,133,532
</TABLE>
-----------------
24
<PAGE>
SCHWAB ANNUITY PORTFOLIOS
Schwab Money Market Portfolio
June 30, 2000 Semi-Annual Report
Market Overview
PORTFOLIO MANAGEMENT TEAM
Stephen B. Ward -- Senior Vice President and Chief Investment Officer, has
overall responsibility for the management of the Portfolio. Steve joined Charles
Schwab Investment Management (CSIM) as Vice President and Portfolio Manager in
April 1991 and was promoted to his current position in August 1993. Prior to
joining CSIM, Steve was Vice President and Portfolio Manager at Federated
Investors.
Karen Wiggan -- Portfolio Manager, has managed the Schwab Money Market Portfolio
since March 1999. Karen joined Schwab in 1986, CSIM in 1991, and was promoted to
her current status in March 1999.
U.S. Economic Growth Remains Strong
April 2000 marked the beginning of the tenth year of the current economic
expansion, making it the longest in U.S. history. Gross Domestic Product (GDP)
grew at a real (inflation adjusted) rate of 4.6% during 1999--the fourth
consecutive year at 4% or more--and 5.0% during the first half of 2000. This
rate is considered by most economists and the Federal Reserve (Fed) to be in
excess of what the economy can absorb without experiencing inflationary
pressures--perhaps 3.5% to 4.0%. High levels of consumer spending fueled by
rising incomes, personal wealth and consumer confidence, as well as strong
business capital investment and a healthy housing sector have been the principal
factors continuing this lengthy expansion.
Looking ahead, the availability of scarce labor resources and the behavior of
domestic consumers in response to continued stock market volatility may be key
determinants of whether the economy continues on its current course or softens
in the second half of 2000. The Federal Reserve (Fed) has raised the federal
funds rate by 1.75% since June 1999. Although there have been preliminary signs
that the vigorous rate of economic growth may be slowing, there still may be the
potential need for additional Fed rate increases either later this year, or
early in 2001 following the presidential election. The consensus of most
economists is that the U.S. economy appears poised for continued strong growth,
albeit at lower rates than experienced in the first half of 2000.
Unemployment Continues To Be Very Low
The unemployment rate remained very low and dropped to 3.9% in April 2000, a
three-decade low. Employment growth continues to exceed population growth.
Reflecting a shrinking pool of available workers, labor markets continue to be
extremely tight in many areas of the country and there has been some regional
evidence of labor shortages driving up wages. The labor force participation
rate, which measures the employment population as a percent of the total
population, is at a post-war high, and the Fed has expressed its concern that a
continuation of strong demand and tight labor markets may put pressure on
manufacturers and service providers to raise prices.
Inflation Remains Contained, But Concerns Emerge
Virtually all measures of price inflation exhibited upward trends during the
reporting period. The Consumer Price Index (CPI) rose 3.7% for the year ended
June 2000. Its core rate (which excludes the more volatile food and energy
components) trended up to 2.4%. The Personal Consumption Expenditures Index, a
measure of inflation closely watched by the Fed, rose 2.6% for the same period.
The GDP price deflator, the broadest measure of inflation, indicated prices
rising at an annual rate of 2.9% during the first half of 2000.
Wage inflation also exhibited a marked upward trend during the reporting period.
The Employment Cost Index, a measurement of the cost to employ workers,
including both wages and benefits, rose 4.4% for the year ended June 2000.
Although these rates of inflation and employment cost may not be alarmingly high
by historical standards, the Fed has demonstrated its resolve to keep inflation
at bay both in its communications and its actions (six federal funds rate
increases since June 1999). In particular, the Fed has expressed concern that if
labor markets continue to tighten, increases in wages will outpace productivity
growth and place additional upward pressure on prices. In such an environment,
productivity growth becomes
----------------
1
<PAGE>
SCHWAB ANNUITY PORTFOLIOS
Schwab Money Market Portfolio (continued)
June 30, 2000 Semi-Annual Report
particularly critical, as it enables companies to pay higher wages without
raising prices. Non-farm productivity grew 3.0% in 1999 and at a healthy 3.6%
rate in the first half of 2000.
Short-Term Interest Rate Environment
Short-term interest rates increased during the reporting period. The rising rate
environment resulted from a combination of a robust U.S. economy and the Federal
Open Market Committee's (FOMC's) policies to head off potential inflation.
During the reporting period, the U.S. economy continued to experience rapid
growth, despite the Fed's six rate hikes since June 1999. Strong employment and
record high equity values stimulated consumer spending, a key factor fueling the
economy. As a result, gross domestic product for the first half of 2000 advanced
strongly at a 5.0% rate. The Federal Reserve (Fed) believed that the economy's
blistering growth rate could cause inflationary pressures that might derail nine
and a half years of expansion.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
2000 YIELDS ON 90-DAY COMMERCIAL PAPER
AND THREE-MONTH TREASURY BILLS
<TABLE>
<S> <C> <C>
Three-Month 90-Day
Treasury Bill Commercial Paper
1/7/2000 5.38% 5.66%
1/14/2000 5.40% 5.71%
1/21/2000 5.46% 5.77%
1/28/2000 5.62% 5.79%
2/4/2000 5.66% 5.85%
2/11/2000 5.63% 5.86%
2/18/2000 5.75% 5.86%
2/25/2000 5.77% 5.88%
3/3/2000 5.82% 5.89%
3/10/2000 5.89% 5.91%
3/17/2000 5.87% 6.00%
3/24/2000 5.90% 6.05%
3/31/2000 5.87% 6.09%
4/7/2000 5.89% 6.09%
4/14/2000 5.78% 6.08%
4/21/2000 5.80% 6.12%
4/28/2000 5.83% 6.17%
5/5/2000 5.97% 6.41%
5/12/2000 6.13% 6.54%
5/19/2000 5.87% 6.59%
5/26/2000 5.83% 6.61%
6/2/2000 5.87% 6.62%
6/9/2000 5.91% 6.57%
6/16/2000 5.83% 6.57%
6/23/2000 5.84% 6.57%
6/30/2000 5.85% 6.58%
</TABLE>
Source: Bloomberg L.P.
In the first half of the reporting period, the Fed adhered to a gradual approach
to slow down the economy by twice raising the federal funds target rate by 0.25%
in February and March. However, economic data remained strong, with April's
unemployment rate dipping down to 3.9%, the lowest level in 30 years. In an
effort to keep inflation in check and cool off the torrid economy, the Fed
abandoned the more gradual approach and raised the short-term rate by 0.50% in
May, lifting the federal funds rate to 6.5%, the highest level since 1991.
Portfolio Highlights
The reporting period was characterized by a sharply rising interest rate
environment. During this period, we restructured the portfolio and implemented a
"barbell" strategy. A portion of the portfolio was invested in securities with
shorter-dated maturities, allowing the fund's yield to benefit immediately as
short-term market rates rose. A portion of the portfolio was also invested in
higher-yielding securities with longer-dated maturities.
Our long-term strategy for the fund is to maintain a dollar-weighted average
maturity (DWAM) slightly longer than those of other funds with similar
investment objectives. During the reporting period, we deviated from this
strategy somewhat by shortening the fund's DWAM to be neutral to our peers
DWAMs. Shortening the fund's weighted average maturity allowed us to take
advantage of the rising rate environment by investing in securities at higher
yield levels.
This market overview has been provided by the portfolio management team.
<TABLE>
<CAPTION>
Yield Summary as of 6/30/00(1)
------------------------------
<S> <C>
7-Day Yield 5.96%
7-Day Effective Yield 6.14%
</TABLE>
(1)A portion of the Portfolio's expenses was reduced during this reporting
period. Without such reductions, the Portfolio's yields would have been
lower. The Portfolio's yields do not include charges and expenses
attributable to any particular insurance product. Inclusion of these charges
and expenses would reduce yields.
----------------
2
<PAGE>
SCHWAB MONEY MARKET PORTFOLIO
PORTFOLIO SUMMARY (000's)
Asset Growth
<TABLE>
<CAPTION>
Percentage
Total Total Growth Over
Net Assets Net Assets Reporting
as of 6/30/00 as of 12/31/99 Period
<S> <C> <C>
------------------------------------------
$137,486 $119,612 15%
------------------------------------------
</TABLE>
Average Yields for the Periods Ended
June 30, 2000*
<TABLE>
<CAPTION>
Last Last Last
Seven Days Three Months Twelve Months
<S> <C> <C>
---------------------------------------
5.96% 5.71% 5.16%
---------------------------------------
</TABLE>
Maturity Schedule
Percent of Total Investments
<TABLE>
<CAPTION>
Maturity Range 9/30/99 12/31/99 3/31/00 6/30/00
<C> <S> <C> <C> <C> <C>
--------------------------------------------------------------------------------
0-- 15 Days 32.2% 15.0% 26.1% 28.5%
16-- 30 Days 7.6 32.5 23.7 14.2
31-- 60 Days 30.9 36.3 21.9 17.1
61-- 90 Days 4.2 3.0 16.8 26.6
91--120 Days 9.4 7.2 4.5 5.6
Over 120 Days 15.7 6.0 7.0 8.0
Weighted Average 51 Days 43 Days 46 Days 50 Days
--------------------------------------------------------------------------------
</TABLE>
Portfolio Quality
<TABLE>
<CAPTION>
Percent of
SEC Tier Total Investments
Rating 6/30/00
<S> <C>
---------------------------
Tier 1 100.0%
</TABLE>
---------
* A portion of the Portfolio's expenses was reduced during the periods. Had
these expenses not been reduced, yields would have been lower. The Portfolio's
yields do not include charges and expenses attributable to any particular
insurance product. Inclusion of these charges and expenses would reduce
yields.
An investment in the portfolio is not insured or guaranteed by the Federal
Deposit Insurance Corporation (FDIC) or any other government agency and,
although the Portfolio seeks to preserve the value of your investment at $1.00
per share, it is possible to lose money by investing in this portfolio.
----------------
3
<PAGE>
----------------
SCHWAB MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES--87.0% PAR (000s) VALUE (000s)
------------------------------------------------------------------
<S> <C> <C>
DISCOUNT NOTES--87.0%
Federal Farm Credit Bank
6.41%, 07/05/00 ..................... $1,800 $ 1,799
5.98%, 07/14/00 ..................... 1,000 998
6.55%, 08/02/00 ..................... 4,000 3,977
6.46%, 08/03/00 ..................... 2,000 1,988
6.46%, 08/08/00 ..................... 2,000 1,986
6.52%, 08/09/00 ..................... 1,000 993
6.56%, 08/11/00 ..................... 2,238 2,221
6.51%, 08/14/00 ..................... 2,000 1,984
6.51%, 09/01/00 ..................... 2,735 2,705
6.33%, 09/13/00 ..................... 2,000 1,975
6.58%, 09/21/00 ..................... 3,000 2,956
6.84%, 11/17/00 ..................... 3,000 2,923
6.35%, 01/02/01 ..................... 1,500 1,454
Federal Home Loan Bank
6.47%, 07/12/00 ..................... 1,054 1,052
6.18%, 07/26/00 ..................... 2,000 1,992
6.53%, 09/01/00 ..................... 2,000 1,978
6.54%, 09/06/00 ..................... 2,000 1,976
6.56%, 09/08/00 ..................... 2,000 1,975
6.57%, 09/08/00 ..................... 3,000 2,963
6.56%, 09/15/00 ..................... 3,000 2,959
6.58%, 09/15/00 ..................... 3,000 2,959
6.31%, 09/22/00 ..................... 2,000 1,972
6.62%, 09/27/00 ..................... 2,000 1,968
6.85%, 11/22/00 ..................... 3,000 2,921
Federal Home Loan Mortgage Corporation
6.01%, 07/13/00 ..................... 2,000 1,996
6.19%, 07/20/00 ..................... 3,000 2,990
6.19%, 07/27/00 ..................... 2,000 1,991
5.70%, 07/28/00 ..................... 1,000 996
6.14%, 08/17/00 ..................... 1,000 992
6.24%, 08/17/00 ..................... 2,000 1,984
6.26%, 09/14/00 ..................... 1,000 987
6.57%, 09/21/00 ..................... 3,000 2,956
6.60%, 09/21/00 ..................... 2,000 1,970
6.34%, 10/12/00 ..................... 2,000 1,965
6.37%, 10/12/00 ..................... 2,000 1,965
Federal National Mortgage Association
6.15%, 07/06/00 ..................... 2,000 1,998
6.01%, 07/13/00 ..................... 2,000 1,996
6.15%, 07/13/00 ..................... 2,000 1,996
6.39%, 07/20/00 ..................... 2,000 1,993
6.26%, 07/27/00 ..................... 2,000 1,991
6.09%, 08/10/00 ..................... 2,000 1,987
6.51%, 08/16/00 ..................... 2,000 1,984
</TABLE>
----------------
4
<PAGE>
----------------
SCHWAB MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES (CONTINUED) PAR (000s) VALUE (000s)
------------------------------------------------------------------
<S> <C> <C>
6.33%, 09/28/00 ..................... $2,000 $ 1,970
6.38%, 09/28/00 ..................... 2,000 1,969
6.63%, 09/28/00 ..................... 1,000 984
6.36%, 10/05/00 ..................... 2,000 1,967
6.35%, 10/12/00 ..................... 2,000 1,965
6.67%, 11/02/00 ..................... 1,000 978
6.72%, 11/02/00 ..................... 1,000 978
6.72%, 12/14/00 ..................... 2,000 1,940
Tennessee Valley Authority
6.42%, 07/10/00 ..................... 2,000 1,997
6.44%, 07/12/00 ..................... 5,696 5,685
6.39%, 07/17/00 ..................... 2,000 1,994
6.39%, 07/18/00 ..................... 2,000 1,994
6.39%, 07/19/00 ..................... 2,000 1,994
6.46%, 07/28/00 ..................... 2,000 1,990
6.43%, 08/01/00 ..................... 1,850 1,840
6.44%, 08/01/00 ..................... 2,000 1,989
--------
TOTAL U.S. GOVERNMENT SECURITIES
(Cost $119,645) ..................... 119,645
--------
</TABLE>
<TABLE>
<CAPTION>
REPURCHASE AGREEMENTS--14.8% (a) MATURITY VALUE (000s)
------------------------------------------------------------------
<S> <C> <C>
Bank of America Securities L.L.C. Tri-Party
Repurchase Agreement Collateralized by U.S.
Government Securities
6.32% Issue 06/30/00
Due 07/03/00 .............. 20,361 20,350
--------
TOTAL REPURCHASE AGREEMENTS
(Cost $20,350) .................. 20,350
--------
TOTAL INVESTMENTS--101.8%
(Cost $139,995) ................. 139,995
--------
OTHER ASSETS AND LIABILITIES--(1.8%)
Other assets .................... 6
Liabilities ..................... (2,515)
--------
(2,509)
--------
NET ASSETS--100.0% ................. $137,486
========
</TABLE>
--------------
NOTES TO SCHEDULE OF INVESTMENTS
Yields shown are effective yields at the time of purchase.
Yields for each security are stated according to the market
convention for that security type. For each security, cost
(for financial reporting and federal income tax purposes) and
carrying value are the same.
(a)Repurchases agreements due dates are considered the
maturity date. Repurchase agreement with due dates later
than seven days from issue dates may be subject to seven
day putable demand features for liquidity purposes.
See accompanying Notes to Financial Statements.
----------------
5
<PAGE>
----------------
SCHWAB MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
(IN THOUSANDS, EXCEPT FOR NET ASSET VALUE PER SHARE)
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value (Cost: $119,645) ...................... $119,645
Repurchase agreements, at value (Cost: $20,350).............. 20,350
Interest receivable ......................................... 3
Prepaid expenses ............................................ 3
--------
Total assets ............................................. 140,001
--------
LIABILITIES:
Payables:
Dividends ................................................ 93
Fund shares redeemed ..................................... 2,364
Investment advisory and administration fees .............. 3
Accrued expenses ............................................ 55
--------
Total liabilities ........................................ 2,515
--------
Net assets applicable to outstanding shares .................... $137,486
========
NET ASSETS consist of
Paid-in capital ............................................. $137,501
Accumulated net realized loss on investments sold ........... (15)
--------
$137,486
========
PRICING OF SHARES
Outstanding shares, $0.00001 par value
(unlimited shares authorized) ............................ 137,533
NET ASSET VALUE, offering and redemption price per share ....... $ 1.00
</TABLE>
See accompanying Notes to Financial Statements.
----------------
6
<PAGE>
----------------
SCHWAB MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS (IN THOUSANDS)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
<S> <C>
INTEREST INCOME ................................................ $3,999
------
EXPENSES:
Investment advisory and administration fees ................. 252
Custodian and portfolio accounting fees ..................... 43
Professional fees ........................................... 14
Registration fees ........................................... 10
Shareholder reports ......................................... 14
Trustees' fees .............................................. 6
Proxy fees .................................................. 10
Other expenses .............................................. 3
------
352
Less: expenses reduced ......................................... (22)
------
Net expenses incurred by fund ............................ 330
------
NET INVESTMENT INCOME .......................................... 3,669
------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............... $3,669
======
</TABLE>
See accompanying Notes to Financial Statements.
----------------
7
<PAGE>
----------------
SCHWAB MONEY MARKET PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31,
(UNAUDITED) 1999
------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income ....................................... $ 3,669 $ 5,001
Net realized loss on investments sold ....................... -- (3)
--------- ---------
Increase in net assets resulting from operations ............ 3,669 4,998
--------- ---------
DIVIDENDS AND DISTRIBUTIONS
Dividends to shareholders from net investment income ........ (3,669) (5,001)
--------- ---------
CAPITAL SHARE TRANSACTIONS: (at $1.00 per share):
Proceeds from shares sold ................................... 233,893 369,371
Net asset value of shares issued in reinvestment of dividends 3,576 5,378
Payments for shares redeemed ................................ (219,595) (333,400)
--------- ---------
Increase in net assets from capital share transactions ...... 17,874 41,349
--------- ---------
Total increase in net assets ................................... 17,874 41,346
NET ASSETS:
Beginning of period ......................................... 119,612 78,266
--------- ---------
End of period ............................................... $ 137,486 $ 119,612
========= =========
</TABLE>
See accompanying Notes to Financial Statements.
----------------
8
<PAGE>
----------------
SCHWAB MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
2000 1 1999 1998 1997 1996 1995
------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA ($)
Net asset value at beginning
of period 1.00 1.00 1.00 1.00 1.00 1.00
------- ------- ------ ------ ------ ------
Income from investment
operations:
Net investment income 0.03 0.05 0.05 0.05 0.05 0.05
------- ------- ------ ------ ------ ------
Total income from investment
operations 0.03 0.05 0.05 0.05 0.05 0.05
Less distributions:
Dividends from net investment
income (0.03) (0.05) (0.05) (0.05) (0.05) (0.05)
------- ------- ------ ------ ------ ------
Total distributions (0.03) (0.05) (0.05) (0.05) (0.05) (0.05)
------- ------- ------ ------ ------ ------
NET ASSET VALUE AT END
OF PERIOD 1.00 1.00 1.00 1.00 1.00 1.00
======= ======= ====== ====== ====== ======
Total return (%) 2.77 2 4.69 5.07 5.12 4.98 5.26
RATIOS/SUPPLEMENTAL DATA (%)
----------------------------
Ratio of net operating expenses to
average net assets 0.48 3,4 0.50 0.50 0.50 0.50 0.50
Expense reductions reflected in
above ratio 0.03 3 0.10 0.11 0.21 0.45 0.52
Ratio of net investment income
to average net assets 5.53 3 4.62 4.91 5.01 4.87 5.17
Net assets, end of period ($ x 1,000) 137,486 119,612 78,266 47,968 27,431 16,912
1 For the six months ended June 30, 2000 (Unaudited).
2 Not annualized.
3 Annualized.
4 Would have been 0.50% if certain non-routine expenses (proxy fees) had been
included.
</TABLE>
See accompanying Notes to Financial Statements.
----------------
9
<PAGE>
----------------
SCHWAB MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE NOTED)
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, investment
management company organized as a Massachusetts business trust on January 21,
1994 and registered under the Investment Company Act of 1940, as amended, (the
"1940 Act").
The fund is intended as an investment vehicle for variable annuity contracts and
variable life insurance policies to be offered by separate accounts of
participating life insurance companies and for pension and retirement plans
qualified under the Internal Revenue Code of 1986, as amended.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are in conformity with generally
accepted accounting principles. 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.
government securities. All collateral is held by the fund's custodian, except in
the case of a tri-party repurchase agreement, under which the collateral is held
by an agent bank. The collateral is monitored daily to ensure that its market
value at least equals the repurchase price under the agreements.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The fund declares a daily
dividend, equal to its net investment income for that day, payable monthly. Net
realized capital gains, if any, are normally distributed annually.
EXPENSES -- Expenses arising in connection with the fund are charged directly to
the fund. Expenses common to all series of the trust are generally allocated to
each series in proportion to their relative net assets.
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
is considered a separate entity for tax purposes.
As of December 31, 1999, the unused capital loss carryforwards for federal
income tax purposes with expiration dates, were as follows:
<TABLE>
<CAPTION>
EXPIRING IN:
------------------
<S> <C>
12/31/05 $ 1
12/31/06 $ 3
12/31/07 $10
---
Total capital
loss carryforward $14
===
</TABLE>
----------------
10
<PAGE>
----------------
SCHWAB MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENT -- The trust has an investment
advisory and administration agreement with Charles Schwab Investment Management,
Inc. (the "investment adviser"). For advisory services and facilities furnished,
the fund pays an annual fee, payable monthly, of 0.38% on the first $1 billion
of average daily net assets, 0.35% on the next $9 billion, 0.32% on the next $10
billion, and 0.30% on such net assets in excess of $20 billion. Prior to April
30, 1999, the fund paid an annual fee, payable monthly, of 0.46% on the first $1
billion of average daily net assets, 0.45% on the next $2 billion of average
daily net assets, 0.40% on the next $7 billion, 0.37% on the next $10 billion of
average daily net assets, and 0.34% on such net assets in excess of $20 billion.
The investment adviser has reduced a portion of its fee for the six month period
ended June 30, 2000 (see Note 4).
OFFICERS AND TRUSTEES -- Certain officers and trustees of the trust are also
officers or directors of the investment adviser. During the six month period
ended June 30, 2000, the trust made no direct payments to its officers or
trustees who are "interested persons" within the meaning of the 1940 Act. The
fund incurred fees of $6 related to the trusts unaffiliated trustees.
4. EXPENSES REDUCED AND ABSORBED BY THE INVESTMENT ADVISER AND SCHWAB
The investment adviser guarantees that, through at least April 30, 2001, the
fund's net operating expenses will not exceed 0.50% of the fund's average daily
net assets, after waivers and reimbursements. For purpose of this guarantee,
operating expenses do not include interest, taxes, and certain non-routine
expenses. The operating expense ratio for the six months ended June 30, 2000 did
include non-routine expenses. For the six month period ended June 30, 2000, the
total of such fees and expenses reduced by the investment adviser was $22.
----------------
11
<PAGE>
----------------
SCHWAB MONEY MARKET PORTFOLIO
PROXY VOTING RESULTS
A special meeting of the shareholders of the Schwab Annuity Portfolios was held
on June 1, 2000. The number of votes necessary to conduct the meeting and
approve each proposal was obtained, and the results of the votes of shareholders
on proposals before them are listed below:
PROPOSAL 1
Election of Trustees.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES VOTED FOR SHARES WITHHELD
---------------- -----------------
<S> <C> <C>
Charles R. Schwab 125,968,273 1,733,505
Mariann Byerwalter 125,568,665 2,133,113
Jeremiah H. Chafkin 125,620,059 2,081,719
Donald F. Dorward 123,479,638 4,222,140
William A. Hasler 123,430,400 4,271,378
Robert G. Holmes 123,479,638 4,222,140
Steven L. Scheid 125,916,879 1,784,899
Gerald B. Smith 123,481,793 4,219,985
Donald R. Stephens 125,619,640 2,082,138
Michael W. Wilsey 125,568,246 2,133,532
</TABLE>
PROPOSAL 2A1
To approve changes to restrictions regarding borrowing.
<TABLE>
<CAPTION>
# OF SHARES VOTED
-----------------
<S> <C>
For 105,384,434
Against 5,057,125
Abstain (includes broker non-votes) 10,096,974
</TABLE>
PROPOSAL 2A2
To approve changes to restrictions regarding lending.
<TABLE>
<CAPTION>
# OF SHARES VOTED
-----------------
<S> <C>
For 103,249,538
Against 7,203,317
Abstain (includes broker non-votes) 10,096,974
</TABLE>
PROPOSAL 2A3
To approve changes to restrictions regarding the issuance of senior securities
and pledging, mortgaging or hypothecating fund assets.
<TABLE>
<CAPTION>
# OF SHARES VOTED
-----------------
<S> <C>
For 103,294,721
Against 6,130,221
Abstain (includes broker non-votes) 11,113,592
</TABLE>
----------------
12
<PAGE>
----------------
SCHWAB MONEY MARKET PORTFOLIO
PROXY VOTING RESULTS (CONTINUED)
PROPOSAL 2B
To approve changes to restrictions regarding diversification.
<TABLE>
<CAPTION>
# OF SHARES VOTED
-----------------
<S> <C>
For 104,751,872
Against 6,017,264
Abstain (includes broker non-votes) 9,780,694
</TABLE>
PROPOSAL 2C
To approve changes to restrictions regarding investments in "unseasoned
issuers".
<TABLE>
<CAPTION>
# OF SHARES VOTED
-----------------
<S> <C>
For 102,187,738
Against 7,564,781
Abstain (includes broker non-votes) 10,786,015
</TABLE>
PROPOSAL 2D
To approve changes to restrictions regarding investments in restricted or
illiquid securities.
<TABLE>
<CAPTION>
# OF SHARES VOTED
-----------------
<S> <C>
For 101,950,528
Against 7,485,710
Abstain (includes broker non-votes) 11,113,592
</TABLE>
PROPOSAL 2E
To approve changes to restrictions regarding investments in securities of other
investment companies.
<TABLE>
<CAPTION>
# OF SHARES VOTED
-----------------
<S> <C>
For 103,136,581
Against 6,299,657
Abstain (includes broker non-votes) 11,113,592
</TABLE>
PROPOSAL 2F
To approve changes to restrictions regarding the beneficial ownership of
securities by fund officers and trustees.
<TABLE>
<CAPTION>
# OF SHARES VOTED
-----------------
<S> <C>
For 106,129,953
Against 3,622,566
Abstain (includes broker non-votes) 10,786,015
</TABLE>
----------------
13
<PAGE>
----------------
SCHWAB MONEY MARKET PORTFOLIO
PROXY VOTING RESULTS (CONTINUED)
PROPOSAL 2G
To approve changes to restrictions regarding industry concentration.
<TABLE>
<CAPTION>
# OF SHARES VOTED
-----------------
<S> <C>
For 103,644,889
Against 6,118,925
Abstain (includes broker non-votes) 10,786,015
</TABLE>
PROPOSAL 2H
To approve changes to restrictions regarding investments in commodities, futures
contracts and real estate.
<TABLE>
<CAPTION>
# OF SHARES VOTED
-----------------
<S> <C>
For 101,656,732
Against 8,389,370
Abstain (includes broker non-votes) 10,503,192
</TABLE>
PROPOSAL 2I
To approve changes to restrictions regarding the underwriting of securities.
<TABLE>
<CAPTION>
# OF SHARES VOTED
-----------------
<S> <C>
For 104,898,611
Against 4,763,436
Abstain (includes broker non-votes) 10,875,952
</TABLE>
PROPOSAL 2J
To approve changes to restrictions regarding control of an issuer.
<TABLE>
<CAPTION>
# OF SHARES VOTED
-----------------
<S> <C>
For 104,537,253
Against 4,898,985
Abstain (includes broker non-votes) 11,113,592
</TABLE>
PROPOSAL 2K
To approve changes to restrictions regarding purchases of oil, gas, or mineral
interests.
<TABLE>
<CAPTION>
# OF SHARES VOTED
-----------------
<S> <C>
For 104,977,787
Against 5,463,772
Abstain (includes broker non-votes) 10,096,974
</TABLE>
----------------
14
<PAGE>
THIS SPACE RESERVED FOR YOUR COMMENTS AND
QUESTIONS. A SCHWAB REPRESENTATIVE WILL BE HAPPY
TO ASSIST YOU.
<PAGE>
THIS SPACE RESERVED FOR YOUR COMMENTS AND
QUESTIONS. A SCHWAB REPRESENTATIVE WILL BE HAPPY
TO ASSIST YOU.
