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Schwab S&P 500 Index Portfolio

Many major U.S. stock indices reached record highs during the six-month reporting period ended June 30, 2014, with the S&P 500 Index returning 7.1%. Low interest rates and hopes for faster economic growth down the road helped to make these results possible, although heightened geopolitical tensions drove up market volatility.

With the U.S. economy not yet fully recovered, the Federal Reserve (the Fed) kept short-term interest rates low. This approach played a supportive role in propping up the performance of stocks, even as geopolitical tensions rose and the Fed began removing some of its monetary policy accommodations aimed at holding down long-term interest rates. In spite of this policy shift, the S&P 500 Index reached record highs during the reporting period, benefitting from the Fed’s reassurances that short-term interest rates needed to remain low for the time being. Stocks also overcame a brief slowdown in economic growth early in the year due partly to harsh winter weather.

Within the S&P 500 Index, the Utilities, Energy, and Health Care sectors were some of the better performers, while the Consumer Discretionary, Telecommunication Services, and Industrials sectors underperformed by comparison.

Asset Class Performance Comparison % returns during the 6 months ended 6/30/2014

This graph compares the performance of various asset classes during the report period. Final performance figures for the period are in the key below.



		7.14%		S&P 500^® Index: measures U.S. large-cap stocks

		3.19%		Russell 2000^® Index: measures U.S. small-cap stocks

		4.78%		MSCI EAFE^® Index (Net): measures (in U.S. dollars) large-cap stocks in Europe, Australasia and the Far East

		3.93%		Barclays U.S. Aggregate Bond Index: measures the U.S. bond market

		0.02%		Barclays U.S. Treasury Bills 1-3 Months Index: measures short-term U.S. Treasury obligations

Nothing in this report represents a recommendation of a security by the investment adviser.

Management views and portfolio holdings may have changed since the report date.

Index figures assume dividends and distributions were reinvested, and do not include trading and management costs, which would lower performance. Indices are unmanaged, do not incur management fees, costs and expenses, and you cannot invest in them directly. Remember that past performance is not a guarantee of future results.

Schwab S&P 500 Index Portfolio 1

Portfolio Management



		Agnes Hong, CFA, Managing Director and Head of Passive Equity Strategies, leads the portfolio management teams of Schwab’s index mutual funds and equity ETFs. She also has overall responsibility for all aspects of the management of the portfolio. Prior to joining CSIM in 2009, Ms. Hong spent five years as a portfolio manager at Barclays Global Investors (subsequently acquired by BlackRock), where she managed institutional index funds and quantitative active funds. Prior to that, Ms. Hong worked in management consulting and product management, servicing global financial services clients.

		Ferian Juwono, CFA, Managing Director and Senior Portfolio Manager, is responsible for the day-to-day co-management of the portfolio. Prior to joining CSIM in 2010, Mr. Juwono worked at BlackRock (formerly Barclays Global Investors), where he spent over three years as a portfolio manager, managing equity index funds for institutional clients, and nearly two years as a senior business analyst. Prior to that, Mr. Juwono worked for over four years as a senior financial analyst with Union Bank of California.

		Ron Toll, Portfolio Manager, is responsible for the day-to-day co-management of the portfolio. Mr. Toll has been a portfolio manager with CSIM since 2007, and has held a number of positions at the firm since beginning his tenure in 1998. His previous roles include serving as a manager in Portfolio Operations, and as a manager in Portfolio Operations and Analytics.

2 Schwab S&P 500 Index Portfolio

Performance and Fund Facts as of 06/30/14

The performance data quoted represents past performance. Past performance does not guarantee future results. Investment returns and principal value will fluctuate so that an investor’s shares may be worth more or less than their original cost. Current performance may be lower or higher than performance data quoted. To obtain performance information current to the most recent month end, please visit www.schwabfunds.com/prospectus.

Average Annual Total Returns^1,2


Portfolio and inception Date	6 Months			1 Year			5 Years			10 Years


Portfolio: Schwab S&P 500 Index Portfolio (11/01/96)		6.99	%		24.33	%		18.51	%		7.64	%
S&P 500^® Index		7.14	%		24.61	%		18.83	%		7.78	%
Fund Category: Morningstar Large-Cap Blend		6.39	%		23.65	%		17.47	%		7.32	%

Portfolio Expense Ratio³: 0.24%

Statistics


Number of Holdings			504
Weighted Average Market Cap ($ x 1,000,000)			$125,080
Price/Earnings Ratio (P/E)			19.0
Price/Book Ratio (P/B)			2.7
Portfolio Turnover Rate⁴			1%

Sector Weightings % of Investments


Information Technology			18.5%
Financials			15.8%
Health Care			13.1%
Consumer Discretionary			11.7%
Energy			10.7%
Industrials			10.3%
Consumer Staples			9.4%
Materials			3.5%
Utilities			3.1%
Telecommunication Services			2.4%
Other			1.5%
Total			100.0%

Top Equity Holdings % of Net Assets⁵


Apple, Inc.			3.2%
Exxon Mobil Corp.			2.4%
Microsoft Corp.			1.8%
Johnson & Johnson			1.7%
General Electric Co.			1.5%
Wells Fargo & Co.			1.4%
Chevron Corp.			1.4%
Berkshire Hathaway, Inc., Class B			1.3%
JPMorgan Chase & Co.			1.2%
The Procter & Gamble Co.			1.2%
Total			17.1%

All total return figures on this page assume dividends and distributions were reinvested. Index figures do not include trading and management costs, which would lower performance. Indices are unmanaged, and you cannot invest in them directly. Performance results less than one year are not annualized.

Portfolio holdings may have changed since the report date.

Source of Sector Classification: S&P and MSCI.

Standard & Poor’s^® S&P^®, S&P 500^®, Standard & Poor’s 500^® and 500^® are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by the portfolio. The portfolio is not sponsored, endorsed, sold or promoted by Standard & Poor’s, and Standard & Poor’s makes no representation regarding the advisability of investing in the portfolio.


¹		Source for category information: Morningstar, Inc. The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
²		Portfolio expenses have been partially absorbed by CSIM and its affiliates. Without these reductions, the portfolio’s returns would have been lower. Portfolio performance does not reflect the additional fees and expenses imposed by the insurance company under the variable insurance product contract. If those contract fees and expenses were included, the performance would be less than that shown. Please refer to the variable insurance product prospectus for a complete listing of these expenses.
³		As stated in the prospectus. Reflects the total annual operating expenses without contractual fee waivers. For actual ratios during the period, refer to the financial highlights section of the financial statements.
⁴		Not annualized.
⁵		This list is not a recommendation of any security by the investment adviser.

Schwab S&P 500 Index Portfolio 3

Fund Expenses (Unaudited)

Examples for a $1,000 Investment

The portfolio incurs ongoing costs, such as management fees, transfer agent and shareholder services fees, and other fund expenses.

The expense examples below are intended to help you understand your ongoing cost (in dollars) of investing in a fund and to compare this cost with the ongoing cost of investing in other mutual funds. These examples are based on an investment of $1,000 invested for six months beginning January 1, 2014 and held through June 30, 2014.

The Actual Return line in the table below provides information about actual account values and actual expenses. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value ¸ $1,000 = 8.6), then multiply the result by the number given for the portfolio under the heading entitled “Expenses Paid During Period.”

The Hypothetical Return line in the table below provides information about hypothetical account values and hypothetical expenses based on a fund’s actual expense ratio and an assumed return of 5% per year before expenses. Because the return used is not an actual return, it may not be used to estimate the actual ending account value or expenses you paid for the period.

You may use this information to compare the ongoing costs of investing in the portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs.


					Ending
			Beginning		Account Value		Expenses Paid
	Expense Ratio¹		Account Value		(Net of Expenses)		During Period²
	(Annualized)		at 1/1/14		at 6/30/14		1/1/14–6/30/14

Schwab S&P 500 Index Portfolio
Actual Return		0.22%	$	1,000.00	$	1,069.90	$	1.13
Hypothetical 5% Return		0.22%	$	1,000.00	$	1,023.70	$	1.10


¹		Based on the most recent six-month expense ratio; may differ from the expense ratio provided in the Financial Highlights.
²		Expenses for the portfolio are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by 181 days of the period, and divided by 365 days of the fiscal year.

4 Schwab S&P 500 Index Portfolio

Schwab S&P 500 Index Portfolio

Financial Statements

Financial Highlights


	1/1/14–			1/1/13–			1/1/12–			1/1/11–			1/1/10–			1/1/09–
	6/30/14*			12/31/13			12/31/12			12/31/11			12/31/10			12/31/09


Per-Share Data ($)

Net asset value at beginning of period		27.03			20.82			18.30			18.27			16.24			13.18

Income (loss) from investment operations:
Net investment income (loss)		0.24			0.42			0.41			0.34			0.38			0.31
Net realized and unrealized gains (losses)		1.65			6.19			2.45			0.02	¹		2.00			3.14

Total from investment operations		1.89			6.61			2.86			0.36			2.38			3.45
Less distributions:
Distributions from net investment income		(0.42	)		(0.40	)		(0.34	)		(0.33	)		(0.35	)		(0.39	)

Net asset value at end of period		28.50			27.03			20.82			18.30			18.27			16.24

Total return (%)		6.99	²		32.06			15.74			1.89			14.68			26.18

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.22	³		0.24			0.28			0.27			0.28			0.28
Gross operating expenses		0.23	³		0.26			0.29			0.28			0.30			0.30
Net investment income (loss)		1.80	³		1.84			2.03			1.82			1.79			2.10
Portfolio turnover rate		1	²		2			4			4			3			4
Net assets, end of period ($ x 1,000,000)		209			193			139			122			123			127

* Unaudited.

¹ The per share amount does not accord with the change in aggregate gains and losses in securities during the period because of the timing of fund transactions in relation to fluctuating market values.

² Not annualized.

³ Annualized.

See financial notes 5

Schwab S&P 500 Index Portfolio

Portfolio Holdings as of June 30, 2014 (Unaudited)

This section shows all the securities in the fund’s portfolio and their values as of the report date.

The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the SEC’s website at http://www.sec.gov and may be viewed and copied at the SEC’s Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The schedule of portfolio holdings filed on a fund’s most recent Form N-Q is also available by visiting the fund’s website at www.schwabfunds.com/prospectus.


				Cost		Value
Holdings by Category				($)		($)

	98	.6%	Common Stock		97,357,443		205,835,743
	1	.4%	Short-Term Investments		2,931,126		2,931,126


	100	.0%	Total Investments		100,288,569		208,766,869
	0	.2%	Collateral Invested for Securities on Loan		319,182		319,182
	(0	.2%)	Other Assets and Liabilities, Net				(411,432	)


	100	.0%	Net Assets				208,674,619


	Number		Value
Security	of Shares		($)

Common Stock 98.6% of net assets

Automobiles & Components 1.2%
BorgWarner, Inc.		2,800		182,532
Delphi Automotive plc		3,400		233,716
Ford Motor Co.		46,736		805,729
General Motors Co.		15,543		564,211
Harley-Davidson, Inc.		2,602		181,750
Johnson Controls, Inc.		7,700		384,461
The Goodyear Tire & Rubber Co.		3,262		90,618

				2,443,017

Banks 5.9%
Bank of America Corp.		124,287		1,910,291
BB&T Corp.		8,492		334,840
Citigroup, Inc.		35,904		1,691,078
Comerica, Inc.		2,130		106,841
Fifth Third Bancorp		9,805		209,337
Hudson City Bancorp, Inc.		5,100		50,133
Huntington Bancshares, Inc.		9,356		89,256
JPMorgan Chase & Co.		44,732		2,577,458
KeyCorp		10,300		147,599
M&T Bank Corp.		1,571		194,882
People’s United Financial, Inc.		3,700		56,129
Regions Financial Corp.		16,027		170,207
SunTrust Banks, Inc.		6,300		252,378
The PNC Financial Services Group, Inc.		6,326		563,330
U.S. Bancorp		21,454		929,387
Wells Fargo & Co.		56,650		2,977,524
Zions Bancorp		2,008		59,176

				12,319,846

Capital Goods 7.7%
3M Co.		7,330		1,049,949
Allegion plc		1,033		58,550
AMETEK, Inc.		2,800		146,384
Caterpillar, Inc.		7,380		801,985
Cummins, Inc.		2,000		308,580
Danaher Corp.		7,110		559,770
Deere & Co.		4,440		402,042
Dover Corp.		2,000		181,900
Eaton Corp. plc		5,634		434,832
Emerson Electric Co.		8,311		551,518
Fastenal Co.		3,152		155,992
Flowserve Corp.		1,700		126,395
Fluor Corp.		1,900		146,110
General Dynamics Corp.		3,810		444,056
General Electric Co.		118,520		3,114,706
Honeywell International, Inc.		9,256		860,345
Illinois Tool Works, Inc.		4,644		406,629
Ingersoll-Rand plc		3,100		193,781
Jacobs Engineering Group, Inc. *		1,583		84,342
Joy Global, Inc.		1,100		67,738
L-3 Communications Holdings, Inc.		1,100		132,825
Lockheed Martin Corp.		3,130		503,085
Masco Corp.		3,910		86,802
Northrop Grumman Corp.		2,554		305,535
PACCAR, Inc.		4,094		257,226
Pall Corp.		1,200		102,468
Parker Hannifin Corp.		1,735		218,142
Pentair plc		2,399		173,016
Precision Castparts Corp.		1,700		429,080
Quanta Services, Inc. *		2,597		89,804
Raytheon Co.		3,713		342,524
Rockwell Automation, Inc.		1,590		199,004
Rockwell Collins, Inc.		1,600		125,024
Roper Industries, Inc.		1,179		172,146
Snap-on, Inc.		688		81,542
Stanley Black & Decker, Inc.		1,823		160,096
Textron, Inc.		3,300		126,357
The Boeing Co.		7,896		1,004,608
United Technologies Corp.		9,968		1,150,806
W.W. Grainger, Inc.		700		177,989
Xylem, Inc.		2,000		78,160

				16,011,843

Commercial & Professional Supplies 0.7%
Cintas Corp.		1,157		73,516
Equifax, Inc.		1,442		104,603
Iron Mountain, Inc.		2,133		75,615
Nielsen N.V.		3,583		173,453
Pitney Bowes, Inc.		2,300		63,526
Republic Services, Inc.		3,236		122,871
Robert Half International, Inc.		1,550		73,997
Stericycle, Inc. *		1,000		118,420
The ADT Corp.		2,300		80,362
The Dun & Bradstreet Corp.		500		55,100
Tyco International Ltd.		5,452		248,611
Waste Management, Inc.		5,155		230,583

				1,420,657

6 See financial notes

Schwab S&P 500 Index Portfolio

Portfolio Holdings (Unaudited) continued


	Number		Value
Security	of Shares		($)

Consumer Durables & Apparel 1.3%
Coach, Inc.		3,100		105,989
D.R. Horton, Inc.		3,422		84,113
Fossil Group, Inc. *		600		62,712
Garmin Ltd.		1,500		91,350
Harman International Industries, Inc.		800		85,944
Hasbro, Inc.		1,275		67,639
Leggett & Platt, Inc.		1,600		54,848
Lennar Corp., Class A		2,000		83,960
Mattel, Inc.		3,900		151,983
Michael Kors Holdings Ltd. *		2,200		195,030
Mohawk Industries, Inc. *		700		96,838
Newell Rubbermaid, Inc.		3,124		96,813
NIKE, Inc., Class B		8,640		670,032
PulteGroup, Inc.		3,665		73,886
PVH Corp.		986		114,967
Ralph Lauren Corp.		700		112,483
Under Armour, Inc. Class A *		1,900		113,031
VF Corp.		4,040		254,520
Whirlpool Corp.		933		129,892

				2,646,030

Consumer Services 1.7%
Carnival Corp.		5,022		189,078
Chipotle Mexican Grill, Inc. *		360		213,303
Darden Restaurants, Inc.		1,591		73,615
Graham Holdings Co., Class B		52		37,342
H&R Block, Inc.		3,000		100,560
Marriott International, Inc., Class A		2,657		170,314
McDonald’s Corp.		11,682		1,176,845
Starbucks Corp.		8,820		682,491
Starwood Hotels & Resorts Worldwide, Inc.		2,340		189,119
Wyndham Worldwide Corp.		1,580		119,638
Wynn Resorts Ltd.		957		198,635
Yum! Brands, Inc.		5,200		422,240

				3,573,180

Diversified Financials 5.0%
Affiliated Managers Group, Inc. *		600		123,240
American Express Co.		10,852		1,029,529
Ameriprise Financial, Inc.		2,278		273,360
Berkshire Hathaway, Inc., Class B *		21,280		2,693,197
BlackRock, Inc.		1,483		473,967
Capital One Financial Corp.		6,680		551,768
CME Group, Inc.		3,700		262,515
Discover Financial Services		5,490		340,270
ETRADE Financial Corp.		3,812		81,043
Franklin Resources, Inc.		4,700		271,848
Intercontinental Exchange, Inc.		1,359		256,715
Invesco Ltd.		5,339		201,547
Legg Mason, Inc.		1,400		71,834
Leucadia National Corp.		3,500		91,770
McGraw Hill Financial, Inc.		3,230		268,187
Moody’s Corp.		2,223		194,868
Morgan Stanley		16,596		536,549
Navient Corp.		5,000		88,550
Northern Trust Corp.		2,631		168,937
State Street Corp.		5,100		343,026
T. Rowe Price Group, Inc.		3,123		263,612
The Bank of New York Mellon Corp.		13,478		505,155
The Charles Schwab Corp. (a)		13,893		374,139
The Goldman Sachs Group, Inc.		4,965		831,340
The NASDAQ OMX Group, Inc.		1,400		54,068

				10,351,034

Energy 10.7%
Anadarko Petroleum Corp.		5,987		655,397
Apache Corp.		4,608		463,657
Baker Hughes, Inc.		5,163		384,385
Cabot Oil & Gas Corp.		4,800		163,872
Cameron International Corp. *		2,413		163,384
Chesapeake Energy Corp.		5,900		183,372
Chevron Corp.		22,500		2,937,375
Cimarex Energy Co.		1,029		147,620
ConocoPhillips		14,510		1,243,942
CONSOL Energy, Inc.		2,719		125,264
Denbury Resources, Inc.		4,300		79,378
Devon Energy Corp.		4,532		359,841
Diamond Offshore Drilling, Inc. (b)		800		39,704
Ensco plc, Class A		2,700		150,039
EOG Resources, Inc.		6,428		751,176
EQT Corp.		1,800		192,420
Exxon Mobil Corp.		50,756		5,110,114
FMC Technologies, Inc. *		2,780		169,775
Halliburton Co.		9,982		708,822
Helmerich & Payne, Inc.		1,300		150,943
Hess Corp.		3,210		317,437
Kinder Morgan, Inc.		7,897		286,345
Marathon Oil Corp.		7,864		313,931
Marathon Petroleum Corp.		3,432		267,936
Murphy Oil Corp.		2,032		135,087
Nabors Industries Ltd.		3,200		93,984
National Oilwell Varco, Inc.		4,986		410,597
Newfield Exploration Co. *		1,641		72,532
Noble Corp., plc		2,900		97,324
Noble Energy, Inc.		4,200		325,332
Occidental Petroleum Corp.		9,297		954,151
ONEOK, Inc.		2,400		163,392
Peabody Energy Corp.		2,800		45,780
Phillips 66		6,688		537,916
Pioneer Natural Resources Co.		1,700		390,677
QEP Resources, Inc.		2,404		82,938
Range Resources Corp.		2,014		175,117
Rowan Cos. plc, Class A		1,300		41,509
Schlumberger Ltd.		15,391		1,815,369
Southwestern Energy Co. *		4,173		189,830
Spectra Energy Corp.		7,781		330,537
Tesoro Corp.		1,500		88,005
The Williams Cos., Inc.		8,702		506,544
Transocean Ltd.		4,024		181,201
Valero Energy Corp.		6,465		323,897

				22,327,848

Food & Staples Retailing 2.2%
Costco Wholesale Corp.		5,187		597,335
CVS Caremark Corp.		13,819		1,041,538

See financial notes 7

Schwab S&P 500 Index Portfolio

Portfolio Holdings (Unaudited) continued


	Number		Value
Security	of Shares		($)
Safeway, Inc.		2,740		94,092
Sysco Corp.		7,100		265,895
The Kroger Co.		6,040		298,557
Wal-Mart Stores, Inc.		19,050		1,430,083
Walgreen Co.		10,377		769,247
Whole Foods Market, Inc.		4,200		162,246

				4,658,993

Food, Beverage & Tobacco 5.1%
Altria Group, Inc.		23,478		984,667
Archer-Daniels-Midland Co.		7,735		341,191
Brown-Forman Corp., Class B		1,927		181,466
Campbell Soup Co.		2,000		91,620
Coca-Cola Enterprises, Inc.		2,700		129,006
ConAgra Foods, Inc.		4,978		147,747
Constellation Brands, Inc., Class A *		1,900		167,447
Dr Pepper Snapple Group, Inc.		2,300		134,734
General Mills, Inc.		7,258		381,335
Hormel Foods Corp.		1,500		74,025
Kellogg Co.		3,000		197,100
Keurig Green Mountain, Inc.		1,500		186,915
Kraft Foods Group, Inc.		7,036		421,808
Lorillard, Inc.		4,308		262,659
McCormick & Co., Inc. - Non Voting Shares		1,500		107,385
Mead Johnson Nutrition Co.		2,400		223,608
Molson Coors Brewing Co., Class B		1,978		146,689
Mondelez International, Inc., Class A		19,990		751,824
Monster Beverage Corp. *		1,700		120,751
PepsiCo, Inc.		17,919		1,600,884
Philip Morris International, Inc.		18,590		1,567,323
Reynolds American, Inc.		3,678		221,967
The Coca-Cola Co.		44,675		1,892,433
The Hershey Co.		1,744		169,813
The JM Smucker Co.		1,246		132,786
Tyson Foods, Inc., Class A		3,186		119,602

				10,756,785

Health Care Equipment & Services 4.2%
Abbott Laboratories		17,855		730,269
Aetna, Inc.		4,282		347,185
AmerisourceBergen Corp.		2,660		193,276
Baxter International, Inc.		6,413		463,660
Becton, Dickinson & Co.		2,285		270,316
Boston Scientific Corp. *		15,290		195,253
C.R. Bard, Inc.		920		131,569
Cardinal Health, Inc.		3,934		269,715
CareFusion Corp. *		2,417		107,194
Cerner Corp. *		3,400		175,372
Cigna Corp.		3,191		293,476
Covidien plc		5,329		480,569
DaVita HealthCare Partners, Inc. *		2,230		161,274
DENTSPLY International, Inc.		1,600		75,760
Edwards Lifesciences Corp. *		1,200		103,008
Express Scripts Holding Co. *		9,137		633,468
Humana, Inc.		1,800		229,896
Intuitive Surgical, Inc. *		454		186,957
Laboratory Corp. of America Holdings *		1,004		102,810
McKesson Corp.		2,716		505,746
Medtronic, Inc.		11,816		753,388
Patterson Cos., Inc.		980		38,720
Quest Diagnostics, Inc.		1,760		103,294
St. Jude Medical, Inc.		3,304		228,802
Stryker Corp.		3,495		294,698
Tenet Healthcare Corp. *		1,125		52,808
UnitedHealth Group, Inc.		11,581		946,747
Varian Medical Systems, Inc. *		1,200		99,768
WellPoint, Inc.		3,436		369,748
Zimmer Holdings, Inc.		1,983		205,954

				8,750,700

Household & Personal Products 2.0%
Avon Products, Inc.		4,916		71,823
Colgate-Palmolive Co.		10,278		700,754
Kimberly-Clark Corp.		4,453		495,263
The Clorox Co.		1,600		146,240
The Estee Lauder Cos., Inc., Class A		3,000		222,780
The Procter & Gamble Co.		31,982		2,513,465

				4,150,325

Insurance 2.8%
ACE Ltd.		3,997		414,489
Aflac, Inc.		5,512		343,122
American International Group, Inc.		16,971		926,277
Aon plc		3,510		316,216
Assurant, Inc.		800		52,440
Cincinnati Financial Corp.		1,735		83,350
Genworth Financial, Inc., Class A *		5,600		97,440
Lincoln National Corp.		3,062		157,509
Loews Corp.		3,620		159,316
Marsh & McLennan Cos., Inc.		6,498		336,726
MetLife, Inc.		13,303		739,115
Principal Financial Group, Inc.		3,163		159,668
Prudential Financial, Inc.		5,460		484,684
The Allstate Corp.		5,340		313,565
The Chubb Corp.		2,880		265,450
The Hartford Financial Services Group, Inc.		5,315		190,330
The Progressive Corp.		6,473		164,155
The Travelers Cos., Inc.		4,239		398,763
Torchmark Corp.		1,000		81,920
Unum Group		2,976		103,446
XL Group plc		3,300		108,009

				5,895,990

Materials 3.5%
Air Products & Chemicals, Inc.		2,509		322,708
Airgas, Inc.		795		86,583
Alcoa, Inc.		13,855		206,301
Allegheny Technologies, Inc.		1,315		59,307
Avery Dennison Corp.		1,100		56,375
Ball Corp.		1,800		112,824
Bemis Co., Inc.		1,200		48,792
CF Industries Holdings, Inc.		615		147,926

8 See financial notes

Schwab S&P 500 Index Portfolio

Portfolio Holdings (Unaudited) continued


	Number		Value
Security	of Shares		($)
E.I. du Pont de Nemours & Co.		10,854		710,286
Eastman Chemical Co.		1,800		157,230
Ecolab, Inc.		3,197		355,954
FMC Corp.		1,500		106,785
Freeport-McMoRan Copper & Gold, Inc.		12,277		448,110
International Flavors & Fragrances, Inc.		900		93,852
International Paper Co.		5,098		257,296
LyondellBasell Industries N.V., Class A		4,923		480,731
MeadWestvaco Corp.		1,949		86,263
Monsanto Co.		6,195		772,764
Newmont Mining Corp.		5,846		148,722
Nucor Corp.		3,799		187,101
Owens-Illinois, Inc. *		2,000		69,280
PPG Industries, Inc.		1,600		336,240
Praxair, Inc.		3,462		459,892
Sealed Air Corp.		2,528		86,382
Sigma-Aldrich Corp.		1,482		150,393
The Dow Chemical Co.		14,105		725,843
The Mosaic Co.		3,900		192,855
The Sherwin-Williams Co.		1,033		213,738
United States Steel Corp.		1,500		39,060
Vulcan Materials Co.		1,555		99,131

				7,218,724

Media 3.5%
Cablevision Systems Corp., Class A		2,500		44,125
CBS Corp., Class B - Non Voting Shares		6,480		402,667
Comcast Corp., Class A		30,728		1,649,479
DIRECTV *		5,580		474,356
Discovery Communications, Inc., Class A *		2,600		193,128
Gannett Co., Inc.		2,560		80,154
News Corp., Class A *		5,493		98,544
Omnicom Group, Inc.		3,040		216,509
Scripps Networks Interactive, Inc., Class A		1,200		97,368
The Interpublic Group of Cos., Inc.		4,997		97,491
The Walt Disney Co.		19,036		1,632,147
Time Warner Cable, Inc.		3,293		485,059
Time Warner, Inc.		10,374		728,774
Twenty-First Century Fox, Inc., Class A		22,474		789,961
Viacom, Inc., Class B		4,680		405,896

				7,395,658

Pharmaceuticals, Biotechnology & Life Sciences 8.9%
AbbVie, Inc.		18,793		1,060,677
Actavis plc *		2,162		482,234
Agilent Technologies, Inc.		3,967		227,865
Alexion Pharmaceuticals, Inc. *		2,300		359,375
Allergan, Inc.		3,510		593,962
Amgen, Inc.		8,947		1,059,056
Biogen Idec, Inc. *		2,804		884,129
Bristol-Myers Squibb Co.		19,586		950,117
Celgene Corp. *		9,500		815,860
Eli Lilly & Co.		11,643		723,845
Forest Laboratories, Inc. *		2,835		280,665
Gilead Sciences, Inc. *		18,151		1,504,899
Hospira, Inc. *		1,997		102,586
Johnson & Johnson		33,438		3,498,284
Merck & Co., Inc.		34,540		1,998,139
Mylan, Inc. *		4,391		226,400
PerkinElmer, Inc.		1,200		56,208
Perrigo Co., plc		1,600		233,216
Pfizer, Inc.		75,391		2,237,605
Regeneron Pharmaceuticals, Inc. *		942		266,087
Thermo Fisher Scientific, Inc.		4,715		556,370
Vertex Pharmaceuticals, Inc. *		2,800		265,104
Waters Corp. *		1,000		104,440
Zoetis, Inc.		5,922		191,103

				18,678,226

Real Estate 2.2%
American Tower Corp.		4,670		420,206
Apartment Investment & Management Co., Class A		1,577		50,890
AvalonBay Communities, Inc.		1,434		203,900
Boston Properties, Inc.		1,809		213,788
CBRE Group, Inc., Class A *		3,600		115,344
Crown Castle International Corp.		3,900		289,614
Equity Residential		3,900		245,700
Essex Property Trust, Inc.		700		129,437
General Growth Properties, Inc.		6,000		141,360
HCP, Inc.		5,416		224,114
Health Care REIT, Inc.		3,610		226,239
Host Hotels & Resorts, Inc.		9,060		199,411
Kimco Realty Corp.		4,853		111,522
Plum Creek Timber Co., Inc.		2,060		92,906
Prologis, Inc.		5,832		239,637
Public Storage		1,700		291,295
Simon Property Group, Inc.		3,637		604,760
The Macerich Co.		1,663		111,005
Ventas, Inc.		3,400		217,940
Vornado Realty Trust REIT		2,060		219,864
Weyerhaeuser Co. (b)		6,966		230,505

				4,579,437

Retailing 4.0%
Amazon.com, Inc. *		4,405		1,430,656
AutoNation, Inc. *		700		41,776
AutoZone, Inc. *		400		214,496
Bed Bath & Beyond, Inc. *		2,516		144,368
Best Buy Co., Inc.		3,125		96,906
CarMax, Inc. *		2,500		130,025
Dollar General Corp. *		3,585		205,636
Dollar Tree, Inc. *		2,600		141,596
Expedia, Inc.		1,200		94,512
Family Dollar Stores, Inc.		1,148		75,929
GameStop Corp., Class A		1,200		48,564
Genuine Parts Co.		1,900		166,820
Kohl’s Corp.		2,310		121,691
L Brands, Inc.		2,808		164,717
Lowe’s Cos., Inc.		12,140		582,599
Macy’s, Inc.		4,322		250,762
Netflix, Inc. *		700		308,420

See financial notes 9

Schwab S&P 500 Index Portfolio

Portfolio Holdings (Unaudited) continued


	Number		Value
Security	of Shares		($)
Nordstrom, Inc.		1,750		118,878
O’Reilly Automotive, Inc. *		1,309		197,135
PetSmart, Inc.		1,100		65,780
Ross Stores, Inc.		2,400		158,712
Staples, Inc.		7,350		79,674
Target Corp.		7,487		433,872
The Gap, Inc.		3,176		132,026
The Home Depot, Inc.		16,265		1,316,814
The Priceline Group, Inc. *		620		745,860
The TJX Cos., Inc.		8,220		436,893
Tiffany & Co.		1,326		132,931
Tractor Supply Co.		1,600		96,640
TripAdvisor, Inc. *		1,300		141,258
Urban Outfitters, Inc. *		1,200		40,632

				8,316,578

Semiconductors & Semiconductor Equipment 2.3%
Altera Corp.		3,951		137,337
Analog Devices, Inc.		3,630		196,274
Applied Materials, Inc.		14,070		317,279
Avago Technologies Ltd.		2,975		214,408
Broadcom Corp., Class A		6,614		245,512
First Solar, Inc. *		900		63,954
Intel Corp.		58,836		1,818,032
KLA-Tencor Corp.		2,000		145,280
Lam Research Corp.		1,912		129,213
Linear Technology Corp.		2,730		128,501
Microchip Technology, Inc.		2,400		117,144
Micron Technology, Inc. *		12,651		416,850
NVIDIA Corp.		6,700		124,218
Texas Instruments, Inc.		12,768		610,183
Xilinx, Inc.		3,213		152,007

				4,816,192

Software & Services 9.8%
Accenture plc, Class A		7,400		598,216
Adobe Systems, Inc. *		5,471		395,882
Akamai Technologies, Inc. *		2,000		122,120
Alliance Data Systems Corp. *		641		180,281
Autodesk, Inc. *		2,620		147,716
Automatic Data Processing, Inc.		5,613		444,999
CA, Inc.		3,644		104,729
Citrix Systems, Inc. *		2,060		128,853
Cognizant Technology Solutions Corp., Class A *		7,210		352,641
Computer Sciences Corp.		1,700		107,440
eBay, Inc. *		13,488		675,209
Electronic Arts, Inc. *		3,558		127,625
Facebook, Inc., Class A *		20,323		1,367,535
Fidelity National Information Services, Inc.		3,300		180,642
Fiserv, Inc. *		3,120		188,198
Google, Inc., Class A *		3,348		1,957,475
Google, Inc., Class C *		3,348		1,926,037
International Business Machines Corp.		11,245		2,038,381
Intuit, Inc.		3,396		273,480
MasterCard, Inc., Class A		11,820		868,415
Microsoft Corp.		88,845		3,704,837
Oracle Corp.		40,618		1,646,248
Paychex, Inc.		4,046		168,152
Red Hat, Inc. *		2,100		116,067
salesforce.com, Inc. *		6,689		388,497
Symantec Corp.		7,841		179,559
Teradata Corp. *		1,800		72,360
The Western Union Co.		6,559		113,733
Total System Services, Inc.		1,800		56,538
VeriSign, Inc. *		1,425		69,554
Visa, Inc., Class A		5,948		1,253,303
Xerox Corp.		13,167		163,797
Yahoo! Inc. *		11,010		386,781

				20,505,300

Technology Hardware & Equipment 6.4%
Amphenol Corp., Class A		1,900		183,046
Apple, Inc.		71,266		6,622,750
Cisco Systems, Inc.		60,546		1,504,568
Corning, Inc.		15,465		339,457
EMC Corp.		24,197		637,349
F5 Networks, Inc. *		895		99,739
FLIR Systems, Inc.		1,500		52,095
Harris Corp.		1,200		90,900
Hewlett-Packard Co.		22,118		744,934
Jabil Circuit, Inc.		2,127		44,454
Juniper Networks, Inc. *		5,700		139,878
Motorola Solutions, Inc.		2,676		178,141
NetApp, Inc.		3,900		142,428
QUALCOMM, Inc.		19,949		1,579,961
SanDisk Corp.		2,759		288,122
Seagate Technology plc		3,879		220,405
TE Connectivity Ltd.		4,964		306,974
Western Digital Corp.		2,500		230,750

				13,405,951

Telecommunication Services 2.4%
AT&T, Inc.		61,342		2,169,053
CenturyLink, Inc.		6,785		245,617
Frontier Communications Corp.		11,096		64,801
Verizon Communications, Inc.		48,945		2,394,879
Windstream Holdings, Inc. (b)		7,243		72,140

				4,946,490

Transportation 2.0%
C.H. Robinson Worldwide, Inc.		1,900		121,201
CSX Corp.		11,891		366,362
Delta Air Lines, Inc.		10,022		388,052
Expeditors International of Washington, Inc.		2,300		101,568
FedEx Corp.		3,320		502,582
Kansas City Southern		1,300		139,763
Norfolk Southern Corp.		3,700		381,211
Ryder System, Inc.		600		52,854
Southwest Airlines Co.		7,986		214,504
Union Pacific Corp.		10,706		1,067,923
United Parcel Service, Inc., Class B		8,331		855,260

				4,191,280

Utilities 3.1%
AES Corp.		7,450		115,848

10 See financial notes

Schwab S&P 500 Index Portfolio

Portfolio Holdings (Unaudited) continued


	Number		Value
Security	of Shares		($)
AGL Resources, Inc.		1,643		90,414
Ameren Corp.		3,100		126,728
American Electric Power Co., Inc.		5,769		321,737
CenterPoint Energy, Inc.		4,850		123,869
CMS Energy Corp.		3,196		99,555
Consolidated Edison, Inc.		3,350		193,429
Dominion Resources, Inc.		6,874		491,628
DTE Energy Co.		2,000		155,740
Duke Energy Corp.		8,263		613,032
Edison International		3,880		225,467
Entergy Corp.		2,227		182,814
Exelon Corp.		10,149		370,236
FirstEnergy Corp.		4,769		165,580
Integrys Energy Group, Inc.		897		63,804
NextEra Energy, Inc.		5,155		528,284
NiSource, Inc.		3,546		139,500
Northeast Utilities		3,600		170,172
NRG Energy, Inc.		3,986		148,279
Pepco Holdings, Inc.		3,150		86,562
PG&E Corp.		5,514		264,782
Pinnacle West Capital Corp.		1,550		89,652
PPL Corp.		7,467		265,303
Public Service Enterprise Group, Inc.		6,014		245,311
SCANA Corp.		1,600		86,096
Sempra Energy		2,731		285,963
TECO Energy, Inc.		2,140		39,547
The Southern Co.		10,529		477,806
Wisconsin Energy Corp.		2,500		117,300
Xcel Energy, Inc.		5,933		191,221

				6,475,659

Total Common Stock
(Cost $97,357,443)				205,835,743



Issuer	Face Amount		Value
Rate, Maturity Date	($)		($)

Short-Term Investments 1.4% of net assets

Time Deposits 1.3%
DNB
0.03%, 07/01/14		579,078		579,078
Skandinaviska Enskilda Banken
0.03%,07/01/14		2,092,057		2,092,057

				2,671,135

U.S. Treasury Bill 0.1%
U.S. Treasury Bill
0.02%, 09/18/14 (c)(d)		260,000		259,991

Total Short-Term Investments
(Cost $2,931,126)				2,931,126



End of Investments.


	Number		Value
Security	of Shares		($)

Collateral Invested for Securities on Loan 0.2% of net assets


Wells Fargo Advantage Government Money Market Fund 0.01% (e)		319,182		319,182

Total Collateral Invested for Securities on Loan
(Cost $319,182)				319,182



End of Collateral Invested for Securities on Loan.

At 06/30/14, the tax basis cost of the fund’s investments was $103,429,979 and the unrealized appreciation and depreciation were $107,977,325 and ($2,640,435), respectively, with a net unrealized appreciation of $105,336,890.


*		Non-income producing security.
(a)		Issuer is affiliated with the fund’s adviser.
(b)		All or a portion of this security is on loan. Securities on loan were valued at $315,668.
(c)		All or a portion of this security is held as collateral for open futures contracts.
(d)		The rate shown is the purchase yield.
(e)		The rate shown is the 7-day yield.


REIT —		Real Estate Investment Trust

In addition to the above, the fund held the following at 06/30/14.

Contract

Unrealized

Number of

Value

Appreciation

Contracts

($)

Futures Contracts

S&P 500 Index, e-mini, Long, expires 09/19/14

2,733,360

33,750

See financial notes 11

Schwab S&P 500 Index Portfolio

Portfolio Holdings (Unaudited) continued

The following is a summary of the inputs used to value the fund’s investments as of June 30, 2014 (see financial note 2(a) for additional information):


	Quoted Prices in				Significant
	Active Markets for		Other Significant		Unobservable
	Identical Assets		Observable Inputs		Inputs
Description	(Level 1)		(Level 2)		(Level 3)		Total

Common Stock¹		$205,835,743		$—		$—		$205,835,743
Short-Term Investments¹		—		2,931,126		—		2,931,126

Total		$205,835,743		$2,931,126		$—		$208,766,869

Other Financial Instruments
Collateral Invested for Securities on Loan		$319,182		$—		$—		$319,182
Futures Contracts²		33,750		—		—		33,750


¹		As categorized in Portfolio Holdings.
²		Futures contracts are not included in Investments in the schedule of portfolio holdings and are valued at unrealized appreciation or depreciation.

The fund’s policy is to recognize transfers between Level 1, Level 2 and Level 3 as of the beginning of the fiscal year. There were no transfers between Level 1, Level 2 and Level 3 for the period ended June 30, 2014.

12 See financial notes

Schwab S&P 500 Index Portfolio

Statement of

Assets and Liabilities

As of June 30, 2014; unaudited



Assets

Investments in affiliated issuers, at value (cost $158,789)		$374,139
Investments in unaffiliated issuers, at value (cost $100,129,780) including securities on loan of $315,668	+	208,392,730

Total investments, at value (cost $100,288,569)		208,766,869
Collateral invested for securities on loan		319,182
Receivables:
Dividends		215,718
Variation margin on futures contracts		560
Income from securities on loan		241
Fund shares sold		25
Interest		2
Prepaid expenses	+	593

Total assets		209,303,190

Liabilities

Collateral held for securities on loan		319,182
Payables:
Investments bought		180,673
Investment adviser and administrator fees		2,597
Fund shares redeemed		78,677
Accrued expenses	+	47,442

Total liabilities		628,571

Net Assets

Total assets		209,303,190
Total liabilities	−	628,571

Net assets		$208,674,619

Net Assets by Source
Capital received from investors		107,637,959
Net investment income not yet distributed		1,779,660
Net realized capital losses		(9,255,051	)
Net unrealized capital appreciation		108,512,051

Net Asset Value (NAV)

Shares

Net Assets

Outstanding

NAV

$208,674,619

7,321,872

$28.50

See financial notes 13

Schwab S&P 500 Index Portfolio

Statement of

Operations

For the period January 1, 2014 through June 30, 2014; unaudited



Investment Income

Dividends received from affiliated issuer		$1,597
Dividends received from unaffiliated issuers (net of foreign withholding taxes of $204)		1,971,296
Interest		717
Securities on loan	+	1,592

Total investment income		1,975,202

Expenses

Investment adviser and administrator fees		146,468
Professional fees		23,100
Shareholder reports		12,010
Transfer agent fees		10,983
Index fee		10,718
Independent trustees’ fees		10,333
Portfolio accounting fees		6,576
Custodian fees		4,636
Other expenses	+	1,513

Total expenses		226,337
Expense reduction by CSIM	−	10,983

Net expenses	−	215,354

Net investment income		1,759,848

Realized and Unrealized Gains (Losses)

Net realized gains on investments		394,832
Net realized gains on futures contracts	+	345,719

Net realized gains		740,551
Net change in unrealized appreciation (depreciation) on affiliated issuer		11,349
Net change in unrealized appreciation (depreciation) on investments		11,122,632
Net change in unrealized appreciation (depreciation) on futures contracts	+	(91,103	)

Net change in unrealized appreciation (depreciation)	+	11,042,878

Net realized and unrealized gains		11,783,429

Increase in net assets resulting from operations		$13,543,277

14 See financial notes

Schwab S&P 500 Index Portfolio

Statement of

Changes in Net Assets

For the current and prior report periods
Figures for the current period are unaudited



Operations


1/1/14-6/30/14				1/1/13-12/31/13
Net investment income		$1,759,848			$3,048,534
Net realized gains (losses)		740,551			(769,458	)
Net change in unrealized appreciation (depreciation)	+	11,042,878			43,340,343

Increase in net assets from operations		13,543,277			45,619,419

Distributions to Shareholders

Distributions from net investment income		($3,029,534	)		($2,746,605	)

Transactions in Fund Shares


		1/1/14-6/30/14					1/1/13-12/31/13
			SHARES		VALUE			SHARES		VALUE
Shares sold			601,330		$16,441,445			1,314,487		$31,642,871
Shares reinvested			106,300		3,029,534			118,083		2,746,605
Shares redeemed	+		(545,374	)	(14,809,098	)		(970,143	)	(23,175,830	)

Net transactions in fund shares			162,256		$4,661,881			462,427		$11,213,646

Shares Outstanding and Net Assets

		1/1/14-6/30/14					1/1/13-12/31/13
			SHARES		NET ASSETS			SHARES		NET ASSETS
Beginning of period			7,159,616		$193,498,995			6,697,189		$139,412,535
Total increase	+		162,256		15,175,624			462,427		54,086,460

End of period			7,321,872		$208,674,619			7,159,616		$193,498,995


Net investment income not yet distributed					$1,779,660					$3,049,346

See financial notes 15

Schwab S&P 500 Index Portfolio

Financial Notes, unaudited

1. Business Structure of the Fund:

Schwab S&P 500 Index Portfolio (the “fund”) is a series of Schwab Annuity Portfolios (the “trust”), a no-load, open-end management investment company. The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”). The list below shows all the funds in the trust as of the end of the period, including the fund discussed in this report, which is highlighted:



Schwab Annuity Portfolios (organized January 21, 1994)
Schwab Money Market Portfolio
Schwab MarketTrack Growth Portfolio II
Schwab S&P 500 Index Portfolio
Schwab VIT Balanced Portfolio
Schwab VIT Balanced with Growth Portfolio
Schwab VIT Growth Portfolio

The fund offers one share class. Shares are bought and sold at closing net asset value per share (“NAV”), which is the price for all outstanding shares of a fund. Each share has a par value of 1/1,000 of a cent, and the fund’s Board of Trustees (the “Board”) may authorize the issuance of as many shares as necessary.

The fund is intended as an investment vehicle for variable annuity contracts and variable life insurance policies to be offered by separate accounts of participating life insurance companies and for pension and retirement plans qualified under the Internal Revenue Code of 1986, as amended. At June 30, 2014, 100% of the fund’s shares were held through one insurance company. Subscriptions and redemptions of these insurance separate accounts could have a material impact on the fund.

The fund maintains its own account for purposes of holding assets and accounting, and is considered a separate entity for tax purposes. Within its account, the fund may also keep certain assets in segregated accounts, as required by securities law.

2. Significant Accounting Policies:

The following is a summary of the significant accounting policies the fund uses in its preparation of financial statements. The fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standard Codification Topic 946 Financial Services - Investment Companies. The accounting policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

For more information about the underlying funds’ operations and policies, please refer to those funds’ semiannual and annual reports, which are filed with the U.S. Securities and Exchange Commission (“SEC”).

(a) Security Valuation:

Under procedures approved by the Board, the investment adviser has formed a Pricing Committee to administer the pricing and valuation of portfolio securities and other assets and to ensure that prices used for internal purposes or provided by third parties reasonably reflect fair market value. Among other things, these procedures allow the fund to utilize independent pricing services, quotations from securities and financial instrument dealers and other market sources to determine fair value.

The fund values the securities in its portfolio every business day. The fund uses the following policies to value various types of securities:


	•	Securities traded on an exchange or over-the-counter: Traded securities are valued at the closing value for the day, or, on days when no closing value has been reported, at halfway between the most recent bid and ask quotes. Securities that are primarily traded on foreign exchanges are valued at the official closing price or the last sales price on the exchange where the securities are principally traded with these values then translated into U.S. dollars at the current exchange rate, unless these securities are fair valued as discussed below.

	•	Securities for which no quoted value is available: The Board has adopted procedures to fair value the fund’s securities when market prices are not “readily available” or are unreliable. For example, a fund may fair value a security when it is de-listed or its trading is halted or suspended; when a security’s primary pricing source is unable or unwilling to provide a price; or when a security’s primary trading market is closed during regular market hours. The fund makes fair value determinations in good faith in accordance with the fund’s valuation procedures. The Pricing Committee considers a number of factors, including unobservable market inputs when arriving at fair value. The Pricing Committee may employ

Schwab S&P 500 Index Portfolio

Financial Notes, unaudited (continued)

2. Significant Accounting Policies (continued):


		techniques such as the review of related or comparable assets or liabilities, related market activities, recent transactions, market multiples, book values, transactional back-testing, disposition analysis and other relevant information. The Pricing Committee regularly reviews these inputs and assumptions to calibrate the valuations. Due to the subjective and variable nature of fair value pricing, there can be no assurance that a fund could obtain the fair value assigned to the security upon the sale of such security. The Board convenes on a regular basis to review fair value determinations made by the fund pursuant to the valuation procedures.


	•	Futures Contracts (“futures”): Futures are valued at their settlement prices as of the close of their exchanges.

	•	Short-term securities (60 days or less to maturity): Short-term securities are valued at amortized cost, which approximates market value.

In accordance with the authoritative guidance on fair value measurements and disclosures under GAAP, the fund discloses the fair value of its investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure the fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). If inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the valuation. If the fund determines that either the volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and management judgment will be required to estimate fair value.

The three levels of the fair value hierarchy are as follows:


	•	Level 1 — quoted prices in active markets for identical securities — Investments whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 prices, include active listed equities and futures contracts. Investments in mutual funds are valued daily at their NAVs, which are classified as Level 1 prices.

	•	Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) — Investments that trade in markets that are not considered to be active, but whose values are based on quoted market prices, dealer quotations or valuations provided by alternative pricing sources supported by observable inputs are classified as Level 2 prices. These generally include U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage products, less liquid listed equities, and state, municipal and provincial obligations. As investments whose values are classified as Level 2 prices include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.

	•	Level 3 — significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments) — Investments whose values are classified as Level 3 prices have significant unobservable inputs, as they may trade infrequently or not at all. When observable prices are not available for these securities, the fund uses one or more valuation techniques for which sufficient and reliable data is available. The inputs used by the fund in estimating the value of Level 3 prices may include the original transaction price, quoted prices for similar securities or assets in active markets, completed or pending third-party transactions in the underlying investment or comparable issuers, and changes in financial ratios or cash flows. Level 3 prices may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the fund in the absence of market information. Assumptions used by the fund due to the lack of observable inputs may significantly impact the resulting fair value and therefore the fund’s results of operations.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The levels associated with valuing the fund’s investments as of June 30, 2014 are disclosed in the Portfolio Holdings.

(b) Accounting Policies for certain Portfolio Investments (if held):

Futures Contracts: Futures contracts are instruments that represent an agreement between two parties that obligates one party to buy, and the other party to sell, specific instruments at an agreed upon price on a stipulated future date. A fund must give the

Schwab S&P 500 Index Portfolio

Financial Notes, unaudited (continued)

2. Significant Accounting Policies (continued):

broker a deposit of cash and/or securities (initial margin) whenever it enters into a futures contract. The amount of the deposit may vary from one contract to another. Subsequent payments (variation margin) are made or received by a fund depending on the daily fluctuations in the value of the futures contract and are accounted for as unrealized appreciation or depreciation until the contract is closed, at which time the gains or losses are realized. Futures are traded publicly on exchanges, and their market value changes daily.

Securities Lending: Under the trust’s Securities Lending Program, a fund (lender) may make short-term loans of its securities to another party (borrower) to generate additional revenue for the fund. The borrower pledges collateral in the form of cash, securities issued or fully guaranteed by the U.S. government or foreign governments, or letters of credit issued by a bank. Collateral at the individual loan level is required to be maintained on a daily marked-to-market basis in an amount at least equal to the current value of the securities loaned. The lending agent provides the fund with indemnification against borrower default (the borrower fails to return the security on loan) reducing the risk of loss as a result of default. The cash collateral of securities loaned is currently invested in money market portfolios operating under Rule 2a-7 of the 1940 Act. The fund bears the risk of loss with respect to the investment of cash collateral. The terms of the securities lending agreement allow the fund to terminate any loans at any given time. Securities lending income, as disclosed in the fund’s Statement of Operations, if applicable, represents the income earned from the investment of the cash collateral plus any fees paid by borrowers, less the fees paid to the lending agent and broker rebates which are subject to adjustments pursuant to the securities lending agreement. On loans not collateralized by cash, a fee is received from the borrower, and is allocated between the fund and the lending agent. The fund retains the right to recall a security on loan. The aggregate market value of securities loaned will not at any time exceed one-third of the total assets of the fund, including collateral received from the loan (at market value computed at the time of the loan). Costs and expenses, including agent fees, associated with securities lending activities under the trust’s Securities Lending Program paid to the unaffiliated lending agent are approximately 15% of the gross lending revenues.

The values of the securities on loan and the related cash collateral as of June 30, 2014 is disclosed in the fund’s Portfolio Holdings and Statement of Assets and Liabilities.

(c) Security Transactions:

Security transactions are recorded as of the date the order to buy or sell the security is executed. Realized gains and losses from security transactions are based on the identified costs of the securities involved.

Assets and liabilities denominated in foreign currencies are reported in U.S. dollars. For assets and liabilities held on a given date, the dollar value is based on market exchange rates in effect on that date. Transactions involving foreign currencies, including purchases, sales, income receipts and expense payments, are calculated using exchange rates in effect on the transaction date. The fund does not isolate the portion of the fluctuations on investments resulting from changes in foreign currency exchange rates from the fluctuations in market prices of investments held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.

When a fund closes out a futures position, it calculates the difference between the value of the position at the beginning and at the end of the contract, and records a realized gain or loss accordingly.

(d) Investment Income:

(e) Expenses:

Expenses that are specific to a fund are charged directly to the fund. Expenses that are common to all funds within the trust generally are allocated among the funds in proportion to their average daily net assets.

(f) Distributions to Shareholders:

The fund makes distributions from net investment income and net realized capital gains, if any, once a year.

Schwab S&P 500 Index Portfolio

Financial Notes, unaudited (continued)

2. Significant Accounting Policies (continued):

(g) Accounting Estimates:

The accounting policies described in this report conform to GAAP. Notwithstanding this, shareholders should understand that in order to follow these principles, fund management has to make estimates and assumptions that affect the information reported in the financial statements. It’s possible that once the results are known, they may turn out to be different from these estimates and these differences may be material.

(h) Federal Income Taxes:

The fund intends to meet federal income and excise tax requirements for regulated investment companies. Accordingly, the fund distributes substantially all of its net investment income and realized net capital gains, if any, to the participating insurance company’s (shareholders) separate accounts each year. As long as a fund meets the tax requirements, it is not required to pay federal income tax.

(i) Indemnification:

Under the fund’s organizational documents, the officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the fund. In addition, in the normal course of business the fund enters into contracts with its vendors and others that provide general indemnifications. The fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the fund. However, based on experience, the fund expects the risk of loss attributable to these arrangements to be remote.

3. Risk Factors:

Investment Risk. Investing in the fund may involve certain risks, as discussed in the fund’s prospectus, including, but not limited to, those described below. Any of these risks could cause an investor to lose money.

Market Risk. Equity markets rise and fall daily. As with any investment whose performance is tied to these markets, the value of an investment in the fund will fluctuate, which means that an investor could lose money.

Equity Risk. The prices of equity securities rise and fall daily. These price movements may result from factors affecting individual companies, industries or the securities market as a whole. In addition, equity markets tend to move in cycles, which may cause stock prices to fall over short or extended periods of time.

Investment Style Risk. The fund primarily follows the large-cap portion of the U.S. stock market, as measured by the index. It follows these stocks during upturns as well as downturns. Because of its indexing strategy, the fund does not take steps to reduce market exposure or to lessen the effects of a declining market. In addition, because of the fund’s expenses, the fund’s performance is normally below that of the index.

A significant percentage of the index may be composed of securities in a single industry or sector of the economy. If the fund is focused in an industry or sector, it may present more risks than if it were broadly diversified over numerous industries and sectors of the economy.

Tracking Error Risk. As an index fund, the fund seeks to track the performance of its comparative index, although it may not be successful in doing so. The divergence between the performance of a fund and its index, positive or negative, is called “tracking error.” Tracking error can be caused by many factors and it may be significant. For example, a fund may not invest in certain securities in the index, or match the securities’ weightings to the index, due to regulatory, operational, custodial or liquidity constraints; corporate transactions; asset valuations; transaction costs and timing; tax considerations; and index rebalancing, which may result in tracking error.

Large Cap Risk. Although the S&P 500 Index encompasses stocks from many different sectors of the economy, its performance primarily reflects that of large-cap stocks, which tend to go in and out of favor based on market and economic conditions. As a result, during a period when these stocks fall behind other types of investment — bonds or mid- or small-cap stocks, for instance — the fund’s performance also will lag those investments.

Concentration Risk. To the extent that the fund’s or the index’s portfolio is concentrated in the securities of issuers in a particular market, industry, group of industries, sector, or asset class, the fund may be adversely affected by the performance of

Schwab S&P 500 Index Portfolio

Financial Notes, unaudited (continued)

3. Risk Factors (continued):

those securities, may be subject to increased price volatility and may be more susceptible to adverse economic, market, political or regulatory occurrences affecting that market, industry, group of industries, sector, or asset class.

Derivatives Risk. The fund’s use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments and could cause the fund to lose more than the principal amount invested. In addition, investments in derivatives may involve leverage, which means a small percentage of assets invested in derivatives can have a disproportionately large impact on the fund.

Liquidity Risk. A particular investment may be difficult to purchase or sell. The fund may be unable to sell illiquid securities at an advantageous time or price.

Security Lending Risk. Securities lending risk involves the risk of loss of rights in the collateral or delay in recovery of the collateral if the borrower fails to return the security loaned or becomes insolvent.

Lack of Governmental Insurance or Guarantee. An investment in the fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency.

Please refer to the fund’s prospectus for a more complete description of the principal risks of investing in the fund.

4. Affiliates and Affiliated Transactions:

Charles Schwab Investment Management, Inc. (“CSIM” or the “investment adviser”), a wholly owned subsidiary of The Charles Schwab Corporation, serves as the fund’s investment adviser and administrator pursuant to an Investment Advisory and Administration Agreement (“Advisory Agreement”) between CSIM and the trust.

For its advisory and administrative services to the fund, CSIM is entitled to receive an annual fee, payable monthly, based on a percentage of the fund’s average daily net assets as follows:


Average Daily Net Assets

First $500 million			0.15%
More than $500 million but not exceeding $5 billion			0.09%
More than $5 billion but not exceeding $10 billion			0.08%
Over $10 billion			0.07%

CSIM and its affiliates have made an additional agreement with the fund, for so long as CSIM serves as the investment adviser to the fund, which may only be amended or terminated with the approval of the Board, to limit the total annual fund operating expenses charged, excluding interest, taxes and certain non-routine expenses to 0.28% through April 29, 2016.

The fund may engage in certain transactions involving affiliates. For instance, the fund may own shares of The Charles Schwab Corporation if that company is included in its index. Below is the summary of investment activities involving The Charles Schwab Corporation shares owned by the fund during the report period:

Realized

Dividends

Balance of

Market

Gains (Losses)

Received

Shares Held

Gross

Shares Held

Value at

01/01/14 to

at 12/31/13

Purchases

Sales

at 06/30/14

06/30/14

13,106

787

—

13,893

$374,139

$—

$1,597

Pursuant to an exemptive order issued by the SEC, the fund may enter into interfund borrowing and lending transactions with other Schwab Funds. All loans are for temporary or emergency purposes only. The interest rate to be charged on a loan is the average of the overnight repurchase agreement rate and the short-term bank loan rate. The interfund lending facility is subject to the oversight and periodic review by the Board. The fund had no interfund borrowing or lending activity during the period.

5. Board of Trustees:

Schwab S&P 500 Index Portfolio

Financial Notes, unaudited (continued)

5. Board of Trustees (continued):

non-interested persons (independent trustees), as noted on the fund’s Statement of Operations. For information regarding the trustees, please refer to Trustees and Officers table at the end of this report.

6. Borrowing from Banks:

The fund has access to custodian overdraft facilities, a committed line of credit of $150 million with State Street Bank and Trust Company (“State Street”), an uncommitted line of credit of $100 million with Bank of America, N.A. and an uncommitted line of credit of $50 million with Brown Brothers Harriman & Co. The fund pays interest on the amounts it borrows at rates that are negotiated periodically. The fund also pays an annual fee to State Street for the committed line of credit.

There were no borrowings from the lines of credit by the fund during the period. However, the fund may have utilized its overdraft facility and incurred interest expense, which is disclosed on the fund’s Statement of Operations, if any. The interest expense is determined based on a negotiated rate above the current Federal Funds Rate.

7. Purchases and Sales/Maturities of Investment Securities:

For the period ended June 30, 2014, purchases and sales/maturities of securities (excluding short-term obligations) were as follows:

8. Derivatives:

The fund entered into equity index futures contracts during the report period. The fund invested in futures to equitize available cash. The fair value and variation margin for futures contracts held at June 30, 2014 are presented on the Portfolio Holdings and Statement of Assets and Liabilities, respectively. The net realized/unrealized gains (losses) on futures contracts are presented on the Statement of Operations. Refer to financial note 2(b) for the fund’s accounting policies with respect to futures contracts and financial note 3 for disclosures concerning the risks of investing in futures contracts. During the period, the month-end average contract values of futures contracts held by the fund was $4,040,754 and the month-end average number of contracts held was 43.

9. Federal Income Taxes:

Capital loss carryforwards may be used to offset future realized capital gains, for federal income tax purposes. As of December 31, 2013, the fund had capital loss carryforwards available to offset future net capital gains before the expiration date as follows:


Expiration Date

December 31, 2014			$880,924
December 31, 2015			—
December 31, 2016			2,899,868
December 31, 2017			1,365,160
December 31, 2018			257,470

Total			$5,403,422

For tax purposes, realized net capital losses and late-year ordinary losses incurred after October 31 may be deferred and treated as occurring on the first day of the following year. For the year ended December 31, 2013, the fund had capital losses deferred of $1,325,971, capital losses utilized of $662,198, and capital losses expired of $1,404,034.

As of December 31, 2013, management has reviewed the tax positions for open periods (for federal purposes, three years from the date of filing and for state purposes, four years from the date of filing) as applicable to the fund, and has determined that no provision for income tax is required in the fund’s financial statements. The fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. During the period ended December 31, 2013, the fund did not incur any interest or penalties.

The Investment Company Act of 1940 (the “1940 Act”) requires that initial approval of, as well as the continuation of, a fund’s investment advisory agreement must be specifically approved (1) by the vote of the trustees or by a vote of the shareholders of the fund, and (2) by the vote of a majority of the trustees who are not parties to the investment advisory agreement or “interested persons” of any party (the “Independent Trustees”), cast in person at a meeting called for the purpose of voting on such approval. In connection with such approvals, the fund’s trustees must request and evaluate, and the investment adviser is required to furnish, such information as may be reasonably necessary to evaluate the terms of the investment advisory agreement.

The Board of Trustees (the “Board” or the “Trustees”, as appropriate) calls and holds one or more meetings each year that are dedicated, in whole or in part, to considering whether to renew the investment advisory agreement between Schwab Annuity Portfolios (the “Trust”) and Charles Schwab Investment Management, Inc. (“CSIM”) (the “Agreement”) with respect to the existing funds in the Trust, including Schwab S&P 500 Index Portfolio (the “Fund”), and to review certain other agreements pursuant to which CSIM provides investment advisory services to certain other registered investment companies. In preparation for the meeting(s), the Board requests and reviews a wide variety of materials provided by CSIM, including information about CSIM’s affiliates, personnel and operations. The Board also receives extensive data provided by third parties. This information is in addition to the detailed information about the Fund that the Board reviews during the course of each year, including information that relates to Fund operations and Fund performance. The Independent Trustees receive advice from independent counsel to the Independent Trustees, including a memorandum regarding the responsibilities of trustees for the approval of investment advisory agreements. In addition, the Independent Trustees meet in executive session outside the presence of Fund management and participate in question and answer sessions with representatives of CSIM.

The Board, including a majority of the Independent Trustees, considered information specifically relating to its consideration of the continuance of the Agreement with respect to the Fund at meetings held on April 30, 2014, and June 3, 2014, and approved the renewal of the Agreement with respect to the Fund for an additional one year term at the meeting held on June 3, 2014. The Board’s approval of the Agreement with respect to the Fund was based on consideration and evaluation of a variety of specific factors discussed at these meetings and at prior meetings, including:


1.	the nature, extent and quality of the services provided to the Fund under the Agreement, including the resources of CSIM and its affiliates dedicated to the Fund;

2.	the Fund’s investment performance and how it compared to that of certain other comparable mutual funds;

3.	the Fund’s expenses and how those expenses compared to those of certain other comparable mutual funds;

4.	the profitability of CSIM and its affiliates, including Charles Schwab & Co., Inc. (“Schwab”), with respect to the Fund, including both direct and indirect benefits accruing to CSIM and its affiliates; and

5.	the extent to which economies of scale would be realized as the Fund grows and whether fee levels in the Agreement reflect those economies of scale for the benefit of Fund investors.

Nature, Extent and Quality of Services. The Board considered the nature, extent and quality of the services provided by CSIM to the Fund and the resources of CSIM and its affiliates dedicated to the Fund. In this regard, the Trustees evaluated, among other things, CSIM’s personnel, experience, track record and compliance program. The Trustees also considered Schwab’s wide range of products, services, and channel alternatives such as free advice, investment research tools and Internet access and an array of account features that benefit the Fund and its shareholders. Following such evaluation, the Board concluded, within the context of its full deliberations, that the nature, extent and quality of services provided by CSIM to the Fund and the resources of CSIM and its affiliates dedicated to the Fund supported renewal of the Agreement with respect to the Fund.

Fund Performance. The Board considered the Fund’s performance in determining whether to renew the Agreement with respect to the Fund. Specifically, the Trustees considered the Fund’s performance relative to a peer category of other mutual funds and appropriate indices/benchmarks, in light of total return and market trends. As part of this review, the Trustees considered the composition of the peer category, selection criteria and the reputation of the third party who prepared the peer category analysis. In evaluating the performance of the Fund, the Trustees considered both risk and shareholder risk expectations for the Fund and the appropriateness of the benchmark used to compare the performance of the Fund. The Trustees further considered the level of Fund performance in the context of its review of Fund expenses and adviser profitability discussed below. Following such evaluation the Board concluded, within the context of its full deliberations, that the performance of the Fund supported renewal of the Agreement with respect to the Fund.

Fund Expenses. With respect to the Fund’s expenses, the Trustees considered the rate of compensation called for by the Agreement, and the Fund’s net operating expense ratio, in each case, in comparison to those of other comparable mutual funds, such peer groups and comparisons having been selected and calculated by an independent third party. The Trustees considered the effects of CSIM’s and Schwab’s historical practice of waiving management and other fees to prevent total fund expenses from exceeding a specified cap. The Trustees also considered fees charged by CSIM to other mutual funds and to other types of accounts, such as wrap accounts, but, with respect to such other types of accounts, accorded less weight to such comparisons due to the different legal, regulatory, compliance and operating features of mutual

funds as compared to these other types of accounts, and the unique insurance dedicated distribution arrangements of the Fund as compared to other funds managed by CSIM. Following such evaluation, the Board concluded, within the context of its full deliberations, that the expenses of the Fund are reasonable and supported renewal of the Agreement with respect to the Fund.

Profitability. With regard to profitability, the Trustees considered the compensation flowing to CSIM and its affiliates, directly or indirectly. In this connection, the Trustees reviewed management’s profitability analyses, together with certain commentary thereon from an independent accounting firm. The Trustees also considered any other benefits derived by CSIM from its relationship with the Fund, such as whether, by virtue of its management of the Fund, CSIM obtains investment information or other research resources that aid it in providing advisory services to other clients. The Trustees considered whether the compensation and profitability with respect to the Fund under the Agreement and other service agreements were reasonable and justified in light of the quality of all services rendered to the Fund by CSIM and its affiliates. Based on this evaluation, the Board concluded, within the context of its full deliberations, that the profitability of CSIM is reasonable and supported renewal of the Agreement with respect to the Fund.

Economies of Scale. The Trustees considered the existence of any economies of scale and whether those are passed along to the Fund’s shareholders through a graduated investment advisory fee schedule or other means, including any fee waivers by CSIM and its affiliates. In this regard, and consistent with their consideration of Fund expenses, the Trustees considered that CSIM and Schwab have previously committed resources to minimize the effects on shareholders of diseconomies of scale during periods when Fund assets were relatively small through their contractual expense waivers. For example, such diseconomies of scale may particularly affect newer funds or funds with investment strategies that are from time to time out of favor, but shareholders may benefit from the continued availability of such funds at subsidized expense levels. Based on this evaluation, the Board concluded, within the context of its full deliberations, that the Fund obtains reasonable benefit from economies of scale.

In the course of their deliberations, the Trustees did not identify any particular information or factor that was all important or controlling. Based on the Trustees’ deliberation and their evaluation of the information described above, the Board, including all of the Independent Trustees, approved the continuation of the Agreement with respect to the Fund and concluded that the compensation under the Agreement with respect to the Fund is fair and reasonable in light of such services and expenses and such other matters as the Trustees have considered to be relevant in the exercise of their reasonable judgment.

The tables below give information about the trustees and officers of Schwab Annuity Portfolios, which includes the funds covered in this report. The “Fund Complex” includes The Charles Schwab Family of Funds, Schwab Capital Trust, Schwab Investments, Schwab Annuity Portfolios, Schwab Strategic Trust, Laudus Trust and Laudus Institutional Trust. The Fund Complex includes 97 funds.

The address for all trustees and officers is 211 Main Street, San Francisco, CA 94105. You can find more information about the trustees and officers in the funds’ Statement of Additional Information, which is available free by calling 1-800-435-4000.

Independent Trustees


Name, Year of Birth,		Number of
and Position(s) with		Portfolios in
the trust; (Terms of		Fund Complex
office, and length of	Principal Occupations	Overseen by
Time Served¹)	During the Past Five Years	the Trustee	Other Directorships

Mariann Byerwalter 1960 Trustee (Trustee of Schwab Annuity Portfolios since 2000.)	Chairman of JDN Corporate Advisory LLC (advisory services firm) (Oct. 2001 – present).	76	Director, WageWorks, Inc. (2010 – present) Director, Redwood Trust, Inc. (1998 – present) Director, PMI Group Inc. (2001 – 2009)


John F. Cogan 1947 Trustee (Trustee of Schwab Annuity Portfolios since 2008.)	Senior Fellow, The Hoover Institution at Stanford University (Oct. 1979 – present); Senior Fellow, Stanford Institute for Economic Policy Research; Professor of Public Policy, Stanford University (Sept. 2000 – present).	76	Director, Gilead Sciences, Inc. (2005 – present) Director, Monaco Coach Corporation (2005 – 2009)


David L. Mahoney 1954 Trustee (Trustee of Schwab Annuity Portfolios since 2011.)	Private Investor.	76	Director, Symantec Corporation (2003 – present) Director, Corcept Therapeutics Incorporated (2004 – present)


Kiran M. Patel 1948 Trustee (Trustee of Schwab Annuity Portfolios since 2011.)	Retired. Executive Vice President and General Manager of Small Business Group, Intuit, Inc. (financial software and services for consumers and small businesses) (Dec. 2008 – Sept. 2013).	76	Director, KLA-Tencor Corporation (2008 – present)


Gerald B. Smith 1950 Trustee (Trustee of Schwab Annuity Portfolios since 2000.)	Chairman, Chief Executive Officer and Founder of Smith Graham & Co. (investment advisors) (1990 – present).	76	Director, Eaton (2012 – present) Director and Chairman of the Audit Committee, Oneok Partners LP (2003 – 2013) Director, Oneok, Inc. (2009 – 2013) Lead Independent Director, Board of Cooper Industries (2002 – 2012)


Joseph H. Wender 1944 Trustee (Trustee of Schwab Annuity Portfolios since 2008.)	Senior Consultant, Goldman Sachs & Co., Inc. (investment banking and securities firm) (Jan. 2008 – present); Partner, Colgin Partners, LLC (vineyards) (February 1998 – present).	76	Board Member and Chairman of the Audit Committee, Isis Pharmaceuticals (1994 – present)

Interested Trustees


Name, Year of Birth,		Number of
and Position(s) with		Portfolios in
the trust; (Terms of		Fund Complex
office, and length of	Principal Occupations	Overseen by
Time Served)	During the Past Five Years	the Trustee	Other Directorships

Charles R. Schwab²1937 Chairman and Trustee (Chairman and Trustee of Schwab Annuity Portfolios since 1994.)	Chairman and Director, The Charles Schwab Corporation, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc., Charles Schwab Bank, N. A.; Chairman and Chief Executive Officer, Schwab (SIS) Holdings Inc. I, Schwab International Holdings, Inc.; Chief Executive Officer, Schwab Holdings, Inc.; Through June 2007, Director, U.S. Trust Company, N. A., U.S. Trust Corporation, United States Trust Company of New York. Until October 2008, Chief Executive Officer, The Charles Schwab Corporation, Charles Schwab & Co., Inc.	76	None


Walter W. Bettinger II²1960 Trustee (Trustee of Schwab Annuity Portfolios since 2008.)	As of October 2008, President and Chief Executive Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation. Since October 2008, Director, The Charles Schwab Corporation. Since May 2008, Director, Charles Schwab & Co., Inc. and Schwab Holdings, Inc. Since 2006, Director, Charles Schwab Bank. Until October 2008, President and Chief Operating Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation. From 2004 through 2007, Executive Vice President and President, Schwab Investor Services. From 2004 through 2005, Executive Vice President and Chief Operating Officer, Individual Investor Enterprise, and from 2002 through 2004, Executive Vice President, Corporate Services.	97	None

Officers of the Trust


Name, Year of Birth, and Position(s)
with the trust; (Terms of office, and
length of Time Served³)		Principal Occupations During the Past Five Years

Marie Chandoha 1961 President and Chief Executive Officer (Officer of Schwab Annuity Portfolios since 2010.)		Executive Vice President, Charles Schwab & Co., Inc. (Sept. 2010 – present); Director, President and Chief Executive Officer (Dec. 2010 – present), Chief Investment Officer (Sept. 2010 – Oct. 2011), Charles Schwab Investment Management, Inc.; President, Chief Executive Officer (Dec. 2010 – present), and Chief Investment Officer (Sept. 2010 – Oct. 2011), Schwab Funds, Laudus Funds and Schwab ETFs; Global Head of Fixed Income Business Division, BlackRock, Inc. (formerly Barclays Global Investors) (March 2007 – August 2010).


George Pereira 1964 Treasurer and Principal Financial Officer (Officer of Schwab Annuity Portfolios since 2004.)		Senior Vice President and Chief Financial Officer (Nov. 2004 – present), Chief Operating Officer (Jan. 2011 – present), Charles Schwab Investment Management, Inc.; Treasurer and Chief Financial Officer, Laudus Funds (2006 – present); Treasurer and Principal Financial Officer, Schwab Funds (Nov. 2004 – present) and Schwab ETFs (Oct. 2009 – present); Director, Charles Schwab Worldwide Fund, PLC and Charles Schwab Asset Management (Ireland) Limited (April 2005 – present).


Omar Aguilar 1970 Senior Vice President and Chief Investment Officer – Equities (Officer of Schwab Annuity Portfolios since 2011.)		Senior Vice President and Chief Investment Officer — Equities, Charles Schwab Investment Management, Inc. (April 2011 – present); Senior Vice President and Chief Investment Officer – Equities, Schwab Funds and Laudus Funds (June 2011 – present); Head of the Portfolio Management Group and Vice President of Portfolio Management, Financial Engines, Inc. (May 2009 – April 2011); Head of Quantitative Equity, ING Investment Management (July 2004 – Jan. 2009).

Officers of the Trust (continued)


Name, Year of Birth, and Position(s)
with the trust; (Terms of office, and
length of Time Served³)		Principal Occupations During the Past Five Years

Brett Wander 1961 Senior Vice President and Chief Investment Officer – Fixed Income (Officer of Schwab Annuity Portfolios since 2011.)		Senior Vice President and Chief Investment Officer – Fixed Income, Charles Schwab Investment Management, Inc. (April 2011 – present); Senior Vice President and Chief Investment Officer – Fixed Income, Schwab Funds and Laudus Funds (June 2011 – present); Senior Managing Director, Global Head of Active Fixed-Income Strategies, State Street Global Advisors (Jan. 2008 – Oct. 2010); Director of Alpha Strategies, Loomis, Sayles & Company (April 2006 – Jan. 2008).


David Lekich 1964 Chief Legal Officer and Secretary (Officer of Schwab Annuity Portfolios since 2011.)		Senior Vice President (Sept. 2011 – present), Vice President (March 2004 – Sept. 2011), Charles Schwab & Co., Inc.; Senior Vice President and Chief Counsel (Sept. 2011 – present), Vice President (Jan. 2011 – Sept. 2011), Charles Schwab Investment Management, Inc.; Secretary (April 2011 – present) and Chief Legal Officer (Dec. 2011 – present), Schwab Funds; Vice President and Assistant Clerk, Laudus Funds (April 2011 – present); Secretary (May 2011 – present) and Chief Legal Officer (Nov. 2011 – present), Schwab ETFs.


Catherine MacGregor 1964 Vice President and Assistant Secretary (Officer of Schwab Annuity Portfolios since 2005.)		Vice President, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. (July 2005 – present); Vice President (Dec. 2005 – present), Chief Legal Officer and Clerk (March 2007 – present), Laudus Funds; Vice President (Nov. 2005 – present) and Assistant Secretary (June 2007 – present), Schwab Funds; Vice President and Assistant Secretary, Schwab ETFs (Oct. 2009 – present).


¹		Trustees remain in office until they resign, retire or are removed by shareholder vote. The Schwab Funds retirement policy requires that independent trustees retire at age 72 or after twenty years as a trustee, whichever comes first. In addition, the retirement policy requires any independent trustee of Schwab Funds who also serves as an independent trustee of the Laudus Funds to retire from the Boards of the Schwab Funds upon their required retirement date from either the Boards of Trustees of the Schwab Funds or the Laudus Funds, whichever comes first.
²		Mr. Schwab and Mr. Bettinger are Interested Trustees because they own stock of The Charles Schwab Corporation, the parent company of the investment adviser.
³		The President, Treasurer and Secretary hold office until their respective successors are chosen and qualified or until he or she sooner dies, resigns, is removed or becomes disqualified. Each of the other officers serves at the pleasure of the Board.

Schwab Money Market Portfolio™

For the six-month reporting period ended June 30, 2014, yields on money market securities remained historically low. With moderate improvements in the U.S. economy, the Federal Reserve began reducing some of its stimulative policies aimed at holding down long-term interest rates, while providing reassurances that low short-term interest rates remained necessary for the time being. Internationally, the European Central Bank further reduced interest rates to support economic growth in the euro zone, with some pockets of economic improvement emerging. Meanwhile, persistent demand and newly implemented regulations that translated into a shrinking supply of taxable money market securities helped to keep yields at extremely low levels.

In related industry matters, the Securities and Exchange Commission adopted amendments to the rules that govern money market funds on July 23, 2014. We believe that these amendments strike the right balance of preserving an important cash management tool for investors, while reducing the likelihood of runs on money market funds, and represent a great outcome for retail investors. The majority of our clients seem unlikely to be significantly impacted by these changes, but we will continue to monitor developments as we work toward meeting the SEC’s lengthy implementation timeline, which is two years for the most significant changes in the rules.

Nothing in this report represents a recommendation of a security by the investment adviser.

Management views and portfolio holdings may have changed since the report date.

Schwab Money Market Portfolio^tm 1

The Schwab Money Market Portfolio (the portfolio) seeks the highest current income consistent with stability of capital and liquidity. To pursue its goal, the portfolio invests in high-quality, short-term money market investments issued by U.S. and foreign issuers. Examples of these securities include commercial paper, certificates of deposit, repurchase agreements, variable-rate debt securities, and obligations issued by the U.S. government or its agencies and instrumentalities. For more information concerning the portfolio’s investment objective, strategy, and risks, please see the portfolio’s prospectus.

Since December 2008, when the Federal Reserve (the Fed) first cut short-term interest rates to present-day levels, yields on money market securities have remained historically low—a trend that continued throughout the period. As a result, and to help the portfolio maintain a positive net yield, the portfolio’s investment adviser and its affiliates voluntarily waived certain fees or expenses during the reporting period.* For more information about the portfolio’s yield and other important characteristics, please review the charts and footnotes that follow this discussion.

Market Highlights. Conditions in the euro zone and broadly across Europe remained stable for the six-month reporting period ended June 30, 2014, while in the U.S., the Fed kept short-term interest rates near zero percent. However, with moderate improvements in the economy, the Fed began to take measured steps to reduce its efforts to hold down long-term interest rates. The Fed also performed daily test operations of its Reverse Repurchase Facility. The facility sells and repurchases securities and has essentially helped establish a floor for short-term interest rates. This program has become an important additional source of taxable money market supply and serves as another tool to help the Fed manage its policies.

Meanwhile, higher selling costs and better economic times contributed to a reduced supply of taxable money market securities. Regulatory requirements have increased the costs of selling short-term securities for many issuers. These costs, and persistently low rates, have encouraged the issuance of longer-term securities instead. In addition, the overall improvements in the U.S. economy translated into stronger cash inflows from taxes, decreasing the government’s need to issue U.S. Treasury bills and reducing the availability of these securities.

These combined factors led to a smaller overall supply of money market securities in which the fund typically invests and resulted in historically low yields.

Positioning and Strategies. The portfolio’s investment adviser remained focused on ensuring liquidity and stability of capital as market conditions evolved, while closely monitoring developments regarding money market reform. With short-term Treasury yields remaining low, the investment adviser strategically maintained some of the portfolio’s holdings of Treasury securities with longer maturities that seemed to provide attractive yields.

As of 6/30/14:

Portfolio Composition By Maturity¹


	% of investments

1-7 Days		17.1%
8-30 Days		37.0%
31-60 Days		16.7%
61-90 Days		14.0%
91-180 Days		13.8%
More than 180 Days		1.4%
Total		100.0%

Statistics


Weighted Average Maturity²		43 Days
Credit Quality Of Holdings³% of portfolio		100% Tier 1

Portfolio Composition by Security Type


	% of investments

Government Agency Debt		76.1%
Repurchase Agreement
Treasury		14.7%
Treasury Debt		9.2%
Total		100.0%

An investment in a money fund is neither insured nor guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Although money funds seek to preserve the value of your investment at $1 per share, it is possible to lose money by investing in a money fund.

Management views and portfolio holdings may have changed since the report date.


*		The investment adviser and its affiliates may recapture expenses or fees they waived under a voluntary yield waiver until the third anniversary of the end of the fiscal year in which such waiver occurs, subject to certain limitations. For more information on the potential impact of such recapture on future yields, see financial note 4.
¹		As shown in the Portfolio Holdings section of the shareholder report.
²		Money funds must maintain a dollar-weighted average maturity of no longer than 60 days and cannot invest in any security whose effective maturity is longer than 397 days (approximately 13 months).
³		Tier 1 securities are rated in one of the two highest rating categories by two nationally recognized statistical rating organizations (“NRSROs”), or by one if only one NRSRO has rated the securities, or, if unrated, determined to be of comparable quality by CSIM pursuant to guidelines adopted by the Board of Trustees. Money market fund shares and U.S. government securities are also Tier 1 securities. The fund uses NRSRO credit ratings from Standard & Poor’s Corp., Moody’s Investors Service, Fitch Ratings, and/or DBRS. The fund may use different ratings provided by other rating agencies for purposes of determining compliance with the fund’s investment policies. The fund itself has not been rated by an independent credit rating agency.

Schwab Money Market Portfolio^tm 3

Schwab Money Market Portfolio^tm

Performance and Fund Facts as of 6/30/14

The performance data quoted represents past performance. Past performance does not guarantee future results. Current performance may be lower or higher than performance data quoted. To obtain more current performance information, please visit www.schwabfunds.com/prospectus.

Seven-Day Average Yield Trend for previous 12 months

Seven-Day Yields^1,2

The seven-day yield is the income generated by the portfolio’s holdings minus the portfolio’s operating expenses. The seven-day yields are calculated using standard SEC formulas. The effective yield includes the effect of reinvesting daily dividends. Please remember that money market fund yields fluctuate.


	Schwab Money Market Portfolio^tm

Seven-Day Yield		0.01	%


Seven-Day Effective Yield		0.01	%

Portfolio holdings may have changed since the report date.


¹		Portfolio yields do not reflect the additional fees and expenses imposed by the insurance company under the variable insurance product contract. If those contract fees and expenses were included, the yields would be less than those shown. Please refer to the variable insurance product prospectus for a complete listing of these expenses.
²		The investment adviser and its affiliates have voluntarily waived expenses to maintain a positive net yield for the portfolio (voluntary yield waiver). Without the voluntary yield waiver, the portfolio’s yield would have been lower. The voluntary yield waiver added 0.42% to the seven-day yield. Please see financial note 4 for additional details.

4 Schwab Money Market Portfolio^tm

Fund Expenses (Unaudited)

Examples for a $1,000 Investment

The portfolio incurs ongoing costs, such as management fees, transfer agent and shareholder services fees, and other fund expenses.

Please note that the expenses shown in the table are meant to highlight your ongoing costs.


					Ending
			Beginning		Account Value		Expenses Paid
	Expense Ratio¹		Account Value		(Net of Expenses)		During Period²
	(Annualized)		at 1/1/14		at 6/30/14		1/1/14–6/30/14

Schwab Money Market Portfolio^tm
Actual Return		0.07%	$	1,000.00	$	1,000.10	$	0.35
Hypothetical 5% Return		0.07%	$	1,000.00	$	1,024.45	$	0.35


¹		Based on the most recent six-month expense ratio; may differ from the expense ratio provided in the Financial Highlights.
²		Expenses for the portfolio are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by 181 days of the period, and divided by 365 days of the fiscal year.

Schwab Money Market Portfolio^tm 5

Schwab Money Market Portfolio™

Financial Statements

Financial Highlights


	1/1/14–			1/1/13–			1/1/12–			1/1/11–			1/1/10–			1/1/09–
	6/30/14*			12/31/13			12/31/12			12/31/11			12/31/10			12/31/09


Per-Share Data ($)

Net asset value at beginning of period		1.00			1.00			1.00			1.00			1.00			1.00

Income (loss) from investment operations:
Net investment income (loss)		0.00	¹		0.00	¹		0.00	¹		0.00	¹		0.00	¹		0.00	¹
Net realized and unrealized gains (losses)		0.00	¹		0.00	^1,2		0.00	¹		(0.00	)¹		(0.00	)¹		0.00	¹

Total from investment operations		0.00	¹		0.00	¹		0.00	¹		0.00	¹		0.00	¹		0.00	¹
Less distributions:
Distributions from net investment income		(0.00	)¹		(0.00	)¹		(0.00	)¹		(0.00	)¹		(0.00	)¹		(0.00	)¹
Distributions from net realized gains		—			—			—			—			(0.00	)¹		—

Total distributions		(0.00	)¹		(0.00	)¹		(0.00	)¹		(0.00	)¹		(0.00	)¹		(0.00	)¹

Net asset value at end of period		1.00			1.00			1.00			1.00			1.00			1.00

Total return (%)		0.01	³		0.01			0.01			0.01			0.05			0.10

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses		0.07	^4,5		0.08	⁵		0.12	⁵		0.10	⁵		0.18	⁵		0.34	^5,6
Gross operating expenses		0.51	⁴		0.52			0.49			0.45			0.46			0.47
Net investment income (loss)		0.01	⁴		0.01			0.01			0.01			0.01			0.12
Net assets, end of period ($ x 1,000,000)		109			106			116			144			149			163

* Unaudited.

¹ Per-share amount was less than $0.01.

² Net realized and unrealized gains (losses) ratio includes payment from affiliate of $45,600. (See financial note 4)

³ Not annualized.

⁴ Annualized.

⁵ Reflects the effect of a voluntary yield waiver in excess of the contractual expense limitation. (See financial note 4)

⁶ The ratio of net operating expenses would have been 0.31%, if certain non-routine expenses (participation fees for the Treasury’s Temporary Guarantee Program for Money Market Funds) had not been incurred.

6 See financial notes

Schwab Money Market Portfolio

Portfolio Holdings as of June 30, 2014 (Unaudited)

This section shows all the securities in the fund’s portfolio and their values as of the report date.

The fund files its complete schedule of portfolio holdings with the SEC for the first and third quarter of each fiscal year on Form N-Q. The fund’s Form N-Q is available on the SEC’s website at http://www.sec.gov and may be viewed and copied at the SEC’s Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for information on the operation of the Public Reference Room. The fund also files a complete schedule of portfolio holdings with the SEC monthly on Form N-MFP which is available 60 days after the end of the month to which the information pertains. A monthly schedule of portfolio holdings is also available by visiting the fund’s website at www.schwabfunds.com/prospectus along with a link to the fund’s Form N-MFP filings on the SEC’s website.

For fixed rate obligations, the rate shown is the coupon rate (the rate established when the obligation was issued) and if the coupon rate is not available, the effective yield at the time of purchase is shown. For variable-rate obligations, the rate shown is the interest rate as of the report date. If the security’s structure includes one of a number of maturity-shortening provisions set forth in Rule 2a-7, such as an interest rate reset, demand feature or put feature, the effective maturity date is disclosed. In addition, the second maturity date shown is either the date on which the principal amount must be paid or the date payment must be made pursuant to a demand feature. If the effective maturity and maturity date are the same, the date will appear in the maturity date column.


				Cost		Value
Holdings by Category				($)		($)

	73	.2%	Fixed-Rate Obligations		80,078,667		80,078,667
	11	.5%	Variable-Rate Obligations		12,502,214		12,502,214
	0	.0%	Other Investment Company		45,600		45,600
	14	.6%	Repurchase Agreements		15,984,159		15,984,159


	99	.3%	Total Investments		108,610,640		108,610,640
	0	.7%	Other Assets and Liabilities, Net				787,713


	100	.0%	Net Assets				109,398,353


						Face
			Effective	Maturity		Amount		Value
Issuer	Footnotes	Rate	Maturity	Date		($)		($)

Fixed-Rate Obligations 73.2% of net assets

Government Agency Debt 64.1%
Fannie Mae		1.50%			09/08/14		5,000,000		5,013,022
		0.13%			09/15/14		1,400,000		1,399,610
		0.11%			09/22/14		1,158,000		1,157,720
		0.08%			10/07/14		1,500,000		1,499,673

Federal Home Loan Bank		0.07%			07/16/14		4,950,000		4,949,856
		0.11%			07/16/14		2,000,000		1,999,908
		0.07%			07/22/14		20,000,000		19,999,184
		0.08%			08/01/14		3,160,000		3,159,782
		0.10%			08/27/14		4,000,000		3,999,398
		0.07%			10/03/14		5,000,000		4,999,086
		0.07%			10/08/14		3,500,000		3,499,326
		0.09%			12/03/14		5,000,000		4,998,106
		0.11%			03/03/15		1,500,000		1,498,877

Freddie Mac		5.00%			07/15/14		3,200,000		3,205,975
		0.10%			08/26/14		1,000,000		999,852
		0.14%			09/03/14		2,000,000		1,999,502
		0.07%			09/05/14		2,000,000		1,999,762
		0.09%			09/08/14		2,000,000		1,999,647
		0.08%			09/24/14		1,700,000		1,699,679

									70,077,965

Treasury Debt 9.1%
United States Treasury Department		0.13%			07/31/14		10,000,000		10,000,702

Total Fixed-Rate Obligations
(Cost $80,078,667)									80,078,667

See financial notes 7

Schwab Money Market Portfolio

Portfolio Holdings (Unaudited) continued

Face

Effective

Maturity

Amount

Value

Issuer

Footnotes

Rate

Maturity

Date

($)

Variable-Rate Obligations 11.5% of net assets

Government Agency Debt 11.5%

Farm Credit System

0.24%

07/01/14

03/04/15

2,500,000

2,501,537

Federal Home Loan Bank

0.11%

07/09/14

12/09/14

10,000,000

10,000,677

Total Variable-Rate Obligations

(Cost $12,502,214)

12,502,214

Other Investment Company 0.0% of net assets

Money Market Fund 0.0%

State Street Institutional US Government Money Market Fund, Premier Class

(a)

0.00%

n/a

45,600

Total Other Investment Company

(Cost $45,600)

45,600

Maturity

Effective

Maturity

Amount

Value

Issuer

Footnotes

Rate

Maturity

Date

($)

Repurchase Agreements 14.6% of net assets

Treasury Repurchase Agreements 14.6%

Barclays Capital, Inc

Issued 06/30/14, repurchase date 07/01/14
(Collateralized by U.S. Treasury Securities valued at
$6,103,877, 2.25%, due 07/31/18)

0.07%

07/01/14

5,984,171

5,984,159

BNP Paribas Securities Corp

Issued 06/30/14, repurchase date 07/01/14
(Collateralized by U.S. Treasury Securities valued at
$10,200,039, 0.75% - 4.00%, due 02/15/18 - 08/15/18)

0.09%

07/01/14

10,000,025

10,000,000

Total Repurchase Agreements

(Cost $15,984,159)

15,984,159

End of Investments.

At 06/30/14, the tax basis cost of the fund’s investments was $108,610,640.


(a)		The rate shown is the 7-day yield.

At June 30, 2014, all of the fund’s investment securities were classified as Level 2. The fund’s policy is to recognize transfers between Level 1, Level 2 and Level 3 as of the beginning of the fiscal year. There were no transfers between Level 1, Level 2 and Level 3 for the period ended June 30, 2014. The breakdown of the fund’s investments into major categories is disclosed on the Portfolio Holdings. (See financial note 2(a) for additional information)

8 See financial notes

Schwab Money Market Portfolio

Financial Notes, unaudited

1. Business Structure of the Fund:

Schwab Money Market Portfolio (the “fund”) is a series of Schwab Annuity Portfolios (the “trust”), a no-load, open-end management investment company. The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”). The list below shows all the funds in the trust as of the end of the period, including the fund discussed in this report, which is highlighted:



Schwab Annuity Portfolios (organized January 21, 1994)
Schwab Money Market Portfolio
Schwab MarketTrack Growth Portfolio II
Schwab S&P 500 Index Portfolio
Schwab VIT Balanced Portfolio
Schwab VIT Balanced with Growth Portfolio
Schwab VIT Growth Portfolio

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. At June 30, 2014, 99% of the fund’s shares were held through two insurance companies. Subscriptions and redemptions of these insurance separate accounts could have a material impact on the fund.

2. Significant Accounting Policies:

(a) Security Valuation:

Securities in the fund are valued at amortized cost (which approximates market value) as permitted in accordance with Rule 2a-7 of the 1940 Act. In the event that security valuations do not approximate market value, securities may be fair valued as determined in accordance with procedures adopted by the Board. The Pricing Committee considers a number of factors, including unobservable market inputs when arriving at fair value. The Pricing Committee may employ techniques such as the review of related or comparable assets or liabilities, related market activities, recent transactions, market multiples, book values, transactional back-testing, disposition analysis and other relevant information. The Pricing Committee regularly reviews these inputs and assumptions to calibrate the valuations. Due to the subjective and variable nature of fair value pricing, there can be no assurance that a fund could obtain the fair value assigned to the security upon the sale of such security. The Board convenes on a regular basis to review fair value determinations made by the fund pursuant to the valuation procedures.

Schwab Money Market Portfolio

Financial Notes, unaudited (continued)

2. Significant Accounting Policies (continued):

the valuation (Level 3 measurements). If inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the valuation. If the fund determines that either the volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and management judgment will be required to estimate fair value.

The three levels of the fair value hierarchy are as follows:


	•	Level 1 — quoted prices in active markets for identical securities — Investments whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 prices, include active listed equities. Investments in mutual funds are valued daily at their NAVs, which are classified as Level 1 prices.

	•	Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) — Investments that trade in markets that are not considered to be active, but whose values are based on quoted market prices, dealer quotations or valuations provided by alternative pricing sources supported by observable inputs are classified as Level 2 prices. These generally include U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage products, less liquid listed equities, and state, municipal and provincial obligations. As investments whose values are classified as Level 2 prices include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information. Securities held by money funds operating under Rule 2a-7 of the 1940 Act are valued at amortized cost which approximates current market value and are considered to be valued using Level 2 inputs.

	•	Level 3 — significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments) — Investments whose values are classified as Level 3 prices have significant unobservable inputs, as they may trade infrequently or not at all. When observable prices are not available for these securities, the fund uses one or more valuation techniques for which sufficient and reliable data is available. The inputs used by the fund in estimating the value of Level 3 prices may include the original transaction price, quoted prices for similar securities or assets in active markets, completed or pending third-party transactions in the underlying investment or comparable issuers, and changes in financial ratios or cash flows. Level 3 prices may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the fund in the absence of market information. Assumptions used by the fund due to the lack of observable inputs may significantly impact the resulting fair value and therefore the fund’s results of operations.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The levels associated with valuing the fund’s investments as of June 30, 2014 are disclosed in the Portfolio Holdings.

(b) Accounting Policies for certain Portfolio Investments (if held):

Repurchase Agreements: In a repurchase agreement, a fund buys a security from another party (the “counter-party”), usually a financial institution, with the agreement that it be sold back in the future. Repurchase agreements subject a fund to counter-party risk, meaning that the fund could lose money if the other party fails to perform under the terms of the agreement. The fund mitigates this risk by ensuring that a fund’s repurchase agreements are collateralized by cash, U.S. government securities, fixed income securities, equity securities or other types of securities. These risks are magnified to the extent that a repurchase agreement is secured by collateral other than cash and government securities, such as debt securities, equity securities and high yield securities that are rated below investment grade. All collateral is held by the fund’s custodian (or, with multi-party agreements, the agent’s bank) and is monitored daily to ensure that its market value is at least equal to the repurchase price under the agreement. In the event of a default by the counter-party, realization of the collateral proceeds could be delayed or limited and the value of the collateral may decline. Investments in repurchase agreements are also based on a review of the credit quality of the repurchase agreement counter-party.

As of June 30, 2014, the fund had investments in repurchase agreements with a gross value of $15,984,159 as disclosed in the Portfolio Holdings and the Statement of Assets and Liabilities. The value of the related collateral disclosed in the Portfolio Holdings exceeded the value of the repurchase agreements at period end.

Schwab Money Market Portfolio

Financial Notes, unaudited (continued)

2. Significant Accounting Policies (continued):

Delayed-Delivery Transactions: The fund may buy securities at a predetermined price or yield, with payment and delivery taking place after the customary settlement period for that type of security. The fund will assume the rights and risks of ownership at the time of purchase, including the risk of price and yield fluctuations. Typically, no interest will accrue to a fund until the security is delivered. The fund will earmark or segregate appropriate liquid assets to cover its delayed-delivery purchase obligations.

(c) Security Transactions:

(d) Investment Income:

Interest income is recorded as it accrues. If a fund buys a debt security at a discount (less than face value) or a premium (more than face value), it amortizes premiums and accretes discounts from the current date up to maturity. The fund then increases (in the case of discounts) or reduces (in the case of premiums) the income it records from the security. If the security is callable (meaning that the issuer has the option to pay it off before its maturity date), then the fund amortizes the premium to the security’s call date and price, rather than the maturity date and price.

(e) Expenses:

(f) Distributions to Shareholders:

The fund declares distributions from net investment income, if any, every day it is open for business. These distributions are paid out to the insurance company separate accounts once a month. The fund makes distributions from net realized capital gains, if any, once a year.

(g) Custody Credit:

The fund has an arrangement with its custodian bank, State Street Bank and Trust Company (“State Street”), under which the fund may receive a credit for its uninvested cash balance to offset its custody fees and accounting fees. The credit amounts, if any, are disclosed in the Statement of Operations as a reduction to the fund’s operating expenses.

(h) Accounting Estimates:

(i) Federal Income Taxes:

(j) Indemnification:

Schwab Money Market Portfolio

Financial Notes, unaudited (continued)

3. Risk Factors:

Investment Risk. An investment in the fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of a shareholder’s investment at $1 per share, it is possible to lose money by investing in the fund.

Interest Rate Risk. Interest rates rise and fall over time. As with any investment whose yield reflects current interest rates, the fund’s yield will change over time. During periods when interest rates are low, the fund’s yield (and total return) also will be low. Because interest rates in the United States are at, or near, historically low levels, a change in a central bank’s monetary policy (e.g., tapering of the Federal Reserve Board’s quantitative easing program) or improving economic conditions may result in an increase in interest rates. A sudden or unpredictable rise in interest rates may cause volatility in the market and may decrease liquidity in the money market securities markets, making it more difficult for the fund to sell its money market investments at a time when the investment adviser might wish to sell such investments. Decreased market liquidity also may make it more difficult to value some or all of the fund’s money market securities holdings. In addition, to the extent the fund makes any reimbursement payments to the investment adviser and/or its affiliates, the fund’s yield would be lower.

Repurchase Agreements Risk. When the fund enters into a repurchase agreement, the fund is exposed to the risk that the counter-party will not fulfill its contractual obligation. In a repurchase agreement, there exists the risk that, when the fund buys a security from a counter-party that agrees to repurchase the security at an agreed upon price (usually higher) and time, the counter-party will not repurchase the security. These risks are magnified to the extent that a repurchase agreement is secured by collateral other than cash and government securities, such as debt securities, equity securities and high yield securities that are rated below investment grade (“Alternative Collateral”). High yield securities that are used as Alternative Collateral are subject to greater levels of credit and liquidity risk, and are considered primarily speculative with respect to the issuer’s continuing ability to make principal and interest payments. Alternative Collateral may be subject to greater price volatility and may be more volatile or less liquid than other types of collateral, increasing the risk that the fund will be unable to recover fully in the event of a counter-party’s default.

Credit Risk. The fund is subject to the risk that a decline in the credit quality of a fund investment could cause the fund to lose money or underperform. The fund could lose money if the issuer of a fund investment fails to make timely principal or interest payments or if a guarantor, liquidity provider or counter-party of a fund investment fails to honor its obligations. Even though the fund’s investments in repurchase agreements are collateralized at all times, there is some risk to the fund if the other party should default on its obligations and the fund is delayed or prevented from recovering or disposing of the collateral. Negative perceptions of the ability of an issuer, guarantor, liquidity provider or counter-party to make payments or otherwise honor its obligations, as applicable, could also cause the price of that investment to decline. The credit quality of the fund’s portfolio holdings can change rapidly in certain market environments and any downgrade or default on the part of a single fund investment could cause the fund’s share price or yield to fall.

Many of the U.S. government securities that the fund invests in are not backed by the full faith and credit of the United States government, which means they are neither issued nor guaranteed by the U.S. Treasury. Although maintained in conservatorship by the Federal Housing Finance Agency since September 2008, Fannie Mae (FNMA) and Freddie Mac (FHLMC) maintain only lines of credit with the U.S. Treasury. The Federal Home Loan Banks (FHLB) maintain limited access to credit lines from the U.S. Treasury. Other securities, such as obligations issued by the Federal Farm Credit Banks Funding Corporation (FFCB), are supported solely by the credit of the issuer. There can be no assurance that the U.S. government will provide financial support to securities of its agencies and instrumentalities if it is not obligated to do so under law. Also, any government guarantees on securities a fund owns do not extend to shares of the fund itself.

Credit Enhancement and Liquidity Support Risk. The fund may invest in securities with credit and/or liquidity supports provided by a bank, bond insurance provider, or other financial institution. Adverse developments affecting a particular credit or liquidity support provider, or more generally, banks and financial institutions, could therefore have a negative effect on the value of the fund’s holdings. To the extent that a portion of the fund’s underlying investments are supported by the same bank or financial institution, these risks may be increased.

Foreign Investment Risk. The fund’s investments in securities of foreign issuers or securities with credit or liquidity enhancements provided by foreign entities may involve certain risks that are greater than those associated with investments in securities of U.S. issuers or securities with credit or liquidity enhancements provided by U.S. entities. These include risks of adverse changes in foreign economic, political, regulatory and other conditions; differing accounting, auditing, financial

Schwab Money Market Portfolio

Financial Notes, unaudited (continued)

3. Risk Factors (continued):

reporting and legal standards and practices; differing securities market structures; and higher transaction costs. In addition, sovereign risk, or the risk that a government may become unwilling or unable to meet its loan obligations or guarantees, could increase the credit risk of financial institutions connected to that particular country.

Management Risk. Any actively managed mutual fund is subject to the risk that its investment adviser will make poor security selections. The fund’s investment adviser applies its own investment techniques and risk analyses in making investment decisions for the fund, but there can be no guarantee that they will produce the desired results. The investment adviser’s maturity decisions will also affect the fund’s yield, and in unusual circumstances potentially could affect its share price. To the extent that the investment adviser anticipates interest rate trends imprecisely, the fund’s yield at times could lag those of other money market funds.

Liquidity Risk. Liquidity risk exists when particular investments are difficult to purchase or sell. The market for certain investments may become illiquid due to specific adverse changes in the conditions of a particular issuer or under adverse market or economic conditions independent of the issuer, including, for example, during periods of rising interest rates. In addition, dealer inventories of certain securities — and indication of the ability of dealers to engage in “market making” — are at, or near, historic lows in relation to market size, which could potentially lead to decreased liquidity. The fund’s investments in illiquid securities may reduce the returns of the fund because it may be unable to sell the illiquid securities at an advantageous time or price. Further, transactions in illiquid securities may entail transaction costs that are higher than those for transactions in liquid securities.

Redemption Risk. The fund may experience periods of heavy redemptions that could cause the fund to liquidate its assets at inopportune times or at a loss or depressed value, particularly during periods of declining or illiquid markets. Redemptions by a few large investors in the fund may have a significant adverse effect on the fund’s ability to maintain a stable $1.00 share price. In the event any money market fund fails to maintain a stable net asset value, other money market funds, including the fund, could face a market-wide risk of increased redemption pressures, potentially jeopardizing the stability of their $1.00 share prices.

Money Market Risk. Although a money market fund seeks to maintain a stable $1 NAV, it is possible to lose money by investing in a money market fund. In addition, a money market fund is not designed to offer capital appreciation.

Please refer to the fund’s prospectus for a more complete description of the principal risks of investing in the fund.

4. Affiliates and Affiliated Transactions:

For its advisory and administrative services to the fund, CSIM is entitled to receive an annual fee, payable monthly, based on a percentage of the fund’s average daily net assets as follows:


Average Daily Net Assets

First $1 billion			0.35%
More than $1 billion but not exceeding $10 billion			0.32%
More than $10 billion but not exceeding $20 billion			0.30%
More than $20 billion but not exceeding $40 billion			0.27%
Over $40 billion			0.25%

Contractual Expense Limitation

CSIM and its affiliates have made an additional agreement with the fund, for so long as CSIM serves as the investment adviser to the fund, which may only be amended or terminated with the approval of the Board, to limit the total annual fund operating expenses charged, excluding interest, taxes, and certain non-routine expenses (“expense limitation”) to 0.50% through April 29, 2016.

During the period ended June 30, 2014, the fund waived $238,136 in expenses of which $11,238 was waived in accordance with the contractual expense limitations noted above and the remainder to maintain a positive net yield as noted below.

Schwab Money Market Portfolio

Financial Notes, unaudited (continued)

4. Affiliates and Affiliated Transactions (continued):

Voluntary Yield Waiver/Reimbursement

In addition to the contractual expense limitation agreements noted above, CSIM and its affiliates also may waive and/or reimburse expenses to the extent necessary to maintain a positive net yield for the fund. CSIM and its affiliates may recapture from the fund any of these expenses or fees they have waived and/or reimbursed until the third anniversary of the end of the fiscal year in which such waiver and/or reimbursement occurs, subject to certain limitations. These reimbursement payments by the fund to CSIM and its affiliates are considered “non-routine expenses” and are not subject to any net operating expense limitations in effect at the time of such payment. This recapture could negatively affect the fund’s future yield. There were no prior year amounts recaptured. As of June 30, 2014, the balance of recoupable waivers is as follows:


Expiration Date
December 31, 2014		December 31, 2015		December 31, 2016		December 31, 2017		Total

	$495,734		$464,329		$472,070		$226,898		$1,659,031

As of December 31, 2013, the fund had recoupable waivers expire in the amount of $426,637.

On February 22, 2013, The Charles Schwab Corporation made a payment of $45,600 to Schwab Money Market Portfolio to cover the net remaining losses incurred on certain investments. This payment represented 0.04% of the fund’s net assets on that date.

5. Board of Trustees:

The Board may include people who are officers and/or directors of CSIM or its affiliates. Federal securities law limits the percentage of such “interested persons” who may serve on a trust’s board, and the trust was in compliance with these limitations throughout the report period. The trust did not pay any of these interested persons for their services as trustees, but it did pay non-interested persons (independent trustees), as noted on the fund’s Statement of Operations. For information regarding the trustees, please refer to Trustees and Officers table at the end of this report.

6. Borrowing from Banks:

The fund has access to custodian overdraft facilities, a committed line of credit of $150 million with State Street, an uncommitted line of credit of $100 million with Bank of America, N.A. and an uncommitted line of credit of $50 million with Brown Brothers Harriman & Co. The fund pays interest on the amount it borrows at rates that are negotiated periodically. The fund also pays an annual fee to State Street for the committed line of credit.

7. Federal Income Taxes:

Capital loss carryforwards may be used to offset future realized capital gains for federal income tax purposes. As of December 31, 2013, the fund had no capital loss carryforwards.

For tax purposes, realized net capital losses and late-year ordinary losses incurred after October 31 may be deferred and treated as occurring on the first day of the following year. For the year ended December 31, 2013, the fund had no capital losses deferred and had $1,080 capital losses utilized.

The Board of Trustees (the “Board” or the “Trustees”, as appropriate) calls and holds one or more meetings each year that are dedicated, in whole or in part, to considering whether to renew the investment advisory agreement between Schwab Annuity Portfolios (the “Trust”) and Charles Schwab Investment Management, Inc. (“CSIM”) (the “Agreement”) with respect to the existing funds in the Trust, including Schwab Money Market Portfolio (the “Fund”), and to review certain other agreements pursuant to which CSIM provides investment advisory services to certain other registered investment companies. In preparation for the meeting(s), the Board requests and reviews a wide variety of materials provided by CSIM, including information about CSIM’s affiliates, personnel and operations. The Board also receives extensive data provided by third parties. This information is in addition to the detailed information about the Fund that the Board reviews during the course of each year, including information that relates to Fund operations and Fund performance. The Independent Trustees receive advice from independent counsel to the Independent Trustees, including a memorandum regarding the responsibilities of trustees for the approval of investment advisory agreements. In addition, the Independent Trustees meet in executive session outside the presence of Fund management and participate in question and answer sessions with representatives of CSIM.


1.	the nature, extent and quality of the services provided to the Fund under the Agreement, including the resources of CSIM and its affiliates dedicated to the Fund;

2.	the Fund’s investment performance and how it compared to that of certain other comparable mutual funds;

3.	the Fund’s expenses and how those expenses compared to those of certain other comparable mutual funds;

4.	the profitability of CSIM and its affiliates, including Charles Schwab & Co., Inc. (“Schwab”), with respect to the Fund, including both direct and indirect benefits accruing to CSIM and its affiliates; and

5.	the extent to which economies of scale would be realized as the Fund grows and whether fee levels in the Agreement reflect those economies of scale for the benefit of Fund investors.

Independent Trustees


Name, Year of Birth,		Number of
and Position(s) with		Portfolios in
the trust; (Terms of		Fund Complex
office, and length of	Principal Occupations	Overseen by
Time Served¹)	During the Past Five Years	the Trustee	Other Directorships

Mariann Byerwalter 1960 Trustee (Trustee of Schwab Annuity Portfolios since 2000.)	Chairman of JDN Corporate Advisory LLC (advisory services firm) (Oct. 2001 – present).	76	Director, WageWorks, Inc. (2010 – present) Director, Redwood Trust, Inc. (1998 – present) Director, PMI Group Inc. (2001 – 2009)


John F. Cogan 1947 Trustee (Trustee of Schwab Annuity Portfolios since 2008.)	Senior Fellow, The Hoover Institution at Stanford University (Oct. 1979 – present); Senior Fellow, Stanford Institute for Economic Policy Research; Professor of Public Policy, Stanford University (Sept. 2000 – present).	76	Director, Gilead Sciences, Inc. (2005 – present) Director, Monaco Coach Corporation (2005 – 2009)


David L. Mahoney 1954 Trustee (Trustee of Schwab Annuity Portfolios since 2011.)	Private Investor.	76	Director, Symantec Corporation (2003 – present) Director, Corcept Therapeutics Incorporated (2004 – present)


Kiran M. Patel 1948 Trustee (Trustee of Schwab Annuity Portfolios since 2011.)	Retired. Executive Vice President and General Manager of Small Business Group, Intuit, Inc. (financial software and services for consumers and small businesses) (Dec. 2008 – Sept. 2013).	76	Director, KLA-Tencor Corporation (2008 – present)


Gerald B. Smith 1950 Trustee (Trustee of Schwab Annuity Portfolios since 2000.)	Chairman, Chief Executive Officer and Founder of Smith Graham & Co. (investment advisors) (1990 – present).	76	Director, Eaton (2012 – present) Director and Chairman of the Audit Committee, Oneok Partners LP (2003 – 2013) Director, Oneok, Inc. (2009 – 2013) Lead Independent Director, Board of Cooper Industries (2002 – 2012)


Joseph H. Wender 1944 Trustee (Trustee of Schwab Annuity Portfolios since 2008.)	Senior Consultant, Goldman Sachs & Co., Inc. (investment banking and securities firm) (Jan. 2008 – present); Partner, Colgin Partners, LLC (vineyards) (February 1998 – present).	76	Board Member and Chairman of the Audit Committee, Isis Pharmaceuticals (1994 – present)

Interested Trustees


Name, Year of Birth,		Number of
and Position(s) with		Portfolios in
the trust; (Terms of		Fund Complex
office, and length of	Principal Occupations	Overseen by
Time Served)	During the Past Five Years	the Trustee	Other Directorships

Charles R. Schwab²1937 Chairman and Trustee (Chairman and Trustee of Schwab Annuity Portfolios since 1994.)	Chairman and Director, The Charles Schwab Corporation, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc., Charles Schwab Bank, N. A.; Chairman and Chief Executive Officer, Schwab (SIS) Holdings Inc. I, Schwab International Holdings, Inc.; Chief Executive Officer, Schwab Holdings, Inc.; Through June 2007, Director, U.S. Trust Company, N. A., U.S. Trust Corporation, United States Trust Company of New York. Until October 2008, Chief Executive Officer, The Charles Schwab Corporation, Charles Schwab & Co., Inc.	76	None


Walter W. Bettinger II²1960 Trustee (Trustee of Schwab Annuity Portfolios since 2008.)	As of October 2008, President and Chief Executive Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation. Since October 2008, Director, The Charles Schwab Corporation. Since May 2008, Director, Charles Schwab & Co., Inc. and Schwab Holdings, Inc. Since 2006, Director, Charles Schwab Bank. Until October 2008, President and Chief Operating Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation. From 2004 through 2007, Executive Vice President and President, Schwab Investor Services. From 2004 through 2005, Executive Vice President and Chief Operating Officer, Individual Investor Enterprise, and from 2002 through 2004, Executive Vice President, Corporate Services.	97	None

Officers of the Trust


Name, Year of Birth, and Position(s)
with the trust; (Terms of office, and
length of Time Served³)		Principal Occupations During the Past Five Years

Marie Chandoha 1961 President and Chief Executive Officer (Officer of Schwab Annuity Portfolios since 2010.)		Executive Vice President, Charles Schwab & Co., Inc. (Sept. 2010 – present); Director, President and Chief Executive Officer (Dec. 2010 – present), Chief Investment Officer (Sept. 2010 – Oct. 2011), Charles Schwab Investment Management, Inc.; President, Chief Executive Officer (Dec. 2010 – present), and Chief Investment Officer (Sept. 2010 – Oct. 2011), Schwab Funds, Laudus Funds and Schwab ETFs; Global Head of Fixed Income Business Division, BlackRock, Inc. (formerly Barclays Global Investors) (March 2007 – August 2010).


George Pereira 1964 Treasurer and Principal Financial Officer (Officer of Schwab Annuity Portfolios since 2004.)		Senior Vice President and Chief Financial Officer (Nov. 2004 – present), Chief Operating Officer (Jan. 2011 – present), Charles Schwab Investment Management, Inc.; Treasurer and Chief Financial Officer, Laudus Funds (2006 – present); Treasurer and Principal Financial Officer, Schwab Funds (Nov. 2004 – present) and Schwab ETFs (Oct. 2009 – present); Director, Charles Schwab Worldwide Fund, PLC and Charles Schwab Asset Management (Ireland) Limited (April 2005 – present).


Omar Aguilar 1970 Senior Vice President and Chief Investment Officer – Equities (Officer of Schwab Annuity Portfolios since 2011.)		Senior Vice President and Chief Investment Officer — Equities, Charles Schwab Investment Management, Inc. (April 2011 – present); Senior Vice President and Chief Investment Officer – Equities, Schwab Funds and Laudus Funds (June 2011 – present); Head of the Portfolio Management Group and Vice President of Portfolio Management, Financial Engines, Inc. (May 2009 – April 2011); Head of Quantitative Equity, ING Investment Management (July 2004 – Jan. 2009).

Officers of the Trust (continued)


Name, Year of Birth, and Position(s)
with the trust; (Terms of office, and
length of Time Served³)		Principal Occupations During the Past Five Years

Brett Wander 1961 Senior Vice President and Chief Investment Officer – Fixed Income (Officer of Schwab Annuity Portfolios since 2011.)		Senior Vice President and Chief Investment Officer – Fixed Income, Charles Schwab Investment Management, Inc. (April 2011 – present); Senior Vice President and Chief Investment Officer – Fixed Income, Schwab Funds and Laudus Funds (June 2011 – present); Senior Managing Director, Global Head of Active Fixed-Income Strategies, State Street Global Advisors (Jan. 2008 – Oct. 2010); Director of Alpha Strategies, Loomis, Sayles & Company (April 2006 – Jan. 2008).


David Lekich 1964 Chief Legal Officer and Secretary (Officer of Schwab Annuity Portfolios since 2011.)		Senior Vice President (Sept. 2011 – present), Vice President (March 2004 – Sept. 2011), Charles Schwab & Co., Inc.; Senior Vice President and Chief Counsel (Sept. 2011 – present), Vice President (Jan. 2011 – Sept. 2011), Charles Schwab Investment Management, Inc.; Secretary (April 2011 – present) and Chief Legal Officer (Dec. 2011 – present), Schwab Funds; Vice President and Assistant Clerk, Laudus Funds (April 2011 – present); Secretary (May 2011 – present) and Chief Legal Officer (Nov. 2011 – present), Schwab ETFs.


Catherine MacGregor 1964 Vice President and Assistant Secretary (Officer of Schwab Annuity Portfolios since 2005.)		Vice President, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. (July 2005 – present); Vice President (Dec. 2005 – present), Chief Legal Officer and Clerk (March 2007 – present), Laudus Funds; Vice President (Nov. 2005 – present) and Assistant Secretary (June 2007 – present), Schwab Funds; Vice President and Assistant Secretary, Schwab ETFs (Oct. 2009 – present).


¹		Trustees remain in office until they resign, retire or are removed by shareholder vote. The Schwab Funds retirement policy requires that independent trustees retire at age 72 or after twenty years as a trustee, whichever comes first. In addition, the retirement policy requires any independent trustee of Schwab Funds who also serves as an independent trustee of the Laudus Funds to retire from the Boards of the Schwab Funds upon their required retirement date from either the Boards of Trustees of the Schwab Funds or the Laudus Funds, whichever comes first.
²		Mr. Schwab and Mr. Bettinger are Interested Trustees because they own stock of The Charles Schwab Corporation, the parent company of the investment adviser.
³		The President, Treasurer and Secretary hold office until their respective successors are chosen and qualified or until he or she sooner dies, resigns, is removed or becomes disqualified. Each of the other officers serves at the pleasure of the Board.

Schwab MarketTrack Growth Portfolio II

For the six-month reporting period ended June 30, 2014, U.S. and international stocks performed well. Efforts by many central banks to stimulate economic growth by keeping interest rates low continued to provide support for stocks. Moderate overall improvement in the U.S. also helped, in spite of harsh winter weather that briefly affected economic growth. Some pockets of improvement emerged in Europe as well. In addition, although emerging markets faced geopolitical tensions and increased volatility, concerns had eased somewhat by May and June, and several markets rallied in response. Reflecting this environment, the Dow Jones U.S. Total Stock Market Index returned 7.0%, the MSCI EAFE Index (Net) returned 4.8%, and the MSCI Emerging Markets Index (Net) returned 6.1%.

U.S. bonds generated moderately positive returns during the period, while international bonds performed even better. The Federal Reserve began reducing some of its stimulative policies in January as the economy demonstrated modest improvement, but provided reassurances that short-term interest rates needed to remain low for the time being. In response, yields on longer-term U.S. bonds generally declined. In Europe, many markets also performed well as regional conditions remained relatively stable. As a result, the Citigroup Non-U.S. Dollar World Government Bond Index returned 6.0%, and the Barclays U.S. Aggregate Bond index returned 3.9%.

Asset Class Performance Comparison % returns during the 6 months ended 6/30/2014

This graph compares the performance of various asset classes during the report period. Final performance figures for the period are in the key below.



		7.14%		S&P 500^® Index: measures U.S. large-cap stocks

		3.19%		Russell 2000^® Index: measures U.S. small-cap stocks

		4.78%		MSCI EAFE^® Index (Net): measures (in U.S. dollars) large-cap stocks in Europe, Australasia and the Far East

		3.93%		Barclays U.S. Aggregate Bond Index: measures the U.S. bond market

		0.02%		Barclays U.S. Treasury Bills 1-3 Months Index: measures short-term U.S. Treasury obligations

Nothing in this report represents a recommendation of a security by the investment adviser.

Management views and portfolio holdings may have changed since the report date.

Schwab MarketTrack Growth Portfolio II 1

Performance and Fund Facts as of 06/30/14

Average Annual Total Returns^1,2


Portfolio and inception Date	6 Months			1 Year			5 Years			10 Years


Portfolio: Schwab MarketTrack Growth Portfolio II^tm (11/01/96)		4.75	%		19.13	%		14.49	%		6.96	%
Growth Composite Index		5.24	%		19.62	%		14.72	%		7.46	%
S&P 500^® Index		7.14	%		24.61	%		18.83	%		7.78	%
Barclays U.S. Aggregate Bond Index		3.93	%		4.37	%		4.85	%		4.93	%
Fund Category: Morningstar Aggressive Allocation		5.78	%		19.28	%		14.25	%		6.74	%

Portfolio Expense Ratios³: Net 0.68%; Gross 0.98%

Statistics


Number of Holdings			10
Portfolio Turnover Rate⁴			5%

Asset Class Weightings % of Investments⁵


Equity Funds – Large-Cap			40.2%
Equity Funds – International			20.0%
Equity Funds – Small-Cap			20.0%
Fixed – Income Funds – Intermediate – Term Bond			14.7%
Short-Term Investments			3.4%
Money Market Fund			1.7%
Total			100.0%

Top Holdings % of Net Assets^6,7


Schwab S&P 500 Index Fund			30.3%
Schwab Small-Cap Index Fund			20.1%
Schwab International Index Fund			20.0%
Schwab Total Bond Market Fund			14.8%
Schwab 1000 Index Fund			10.0%
Schwab Value Advantage Money Fund, Institutional Prime Shares			1.6%
Total			96.8%

The components that make up the composite index may vary over time. For index definitions, please see the Glossary.

Portfolio holdings may have changed since the report date.

Small-company stocks are subject to greater volatility than other asset classes.

Foreign securities can involve risks such as political and economic instability and currency risk.


¹		Source for category information: Morningstar, Inc. The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
²		Portfolio expenses have been partially absorbed by CSIM and its affiliates. Without these reductions, the portfolio’s returns would have been lower. Portfolio performance does not reflect the additional fees and expenses imposed by the insurance company under the variable insurance product contract. If those contract fees and expenses were included, the performance would be less than that shown. Please refer to the variable insurance product prospectus for a complete listing of these expenses.
³		As stated in the prospectus. Includes expenses of the underlying funds in which the portfolio invests. The annualized weighted average expense ratio of the underlying funds was 0.18%. Net Expense: Expenses reduced by a contractual fee waiver in effect through at least 4/29/16. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual ratios during the period, refer to the financial highlights section of the financial statements.
⁴		Not annualized.
⁵		The portfolio invests mainly in other Schwab Funds and/or Laudus Funds.
⁶		This list is not a recommendation of any security by the investment adviser.
⁷		The holdings listed exclude any temporary liquidity investments.

Schwab MarketTrack Growth Portfolio II 3

Fund Expenses (Unaudited)

Examples for a $1,000 Investment

The portfolio incurs ongoing costs, such as management fees, transfer agent and shareholder services fees, and other fund expenses.

Please note that the expenses shown in the table are meant to highlight your ongoing costs.


					Ending
			Beginning		Account Value		Expenses Paid
	Expense Ratio¹		Account Value		(Net of Expenses)		During Period²
	(Annualized)		at 1/1/14		at 6/30/14		1/1/14–6/30/14

Schwab MarketTrack Growth Portfolio II^tm
Actual Return		0.50%	$	1,000.00	$	1,047.50	$	2.54
Hypothetical 5% Return		0.50%	$	1,000.00	$	1,022.32	$	2.51


¹		Based on the most recent six-month expense ratio; may differ from the expense ratio provided in the Financial Highlights. The expenses incurred by the underlying funds in which the portfolio invests are not included in this ratio.
²		Expenses for the portfolio are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by 181 days of the period, and divided by 365 days of the fiscal year.

4 Schwab MarketTrack Growth Portfolio II

Schwab MarketTrack Growth Portfolio II™

Financial Statements

Financial Highlights


	1/1/14–			1/1/13–			1/1/12–			1/1/11–			1/1/10–			1/1/09–
	6/30/14*			12/31/13			12/31/12			12/31/11			12/31/10			12/31/09


Per-Share Data ($)

Net asset value at beginning of period		19.30			16.04			14.50			14.89			13.40			11.09

Income (loss) from investment operations:
Net investment income (loss)		(0.02	)¹		0.23	¹		0.29	¹		0.27	¹		0.20	¹		0.25
Net realized and unrealized gains (losses)		0.94			3.48			1.64			(0.40	)		1.62			2.41

Total from investment operations		0.92			3.71			1.93			(0.13	)		1.82			2.66
Less distributions:
Distributions from net investment income		(0.26	)		(0.30	)		(0.39	)		(0.26	)		(0.33	)		(0.35	)
Distributions from net realized gains		(0.66	)		(0.15	)		—			—			—			—

Total distributions		(0.92	)		(0.45	)		(0.39	)		(0.26	)		(0.33	)		(0.35	)

Net asset value at end of period		19.30			19.30			16.04			14.50			14.89			13.40

Total return (%)		4.75	²		23.56			13.46			(1.01	)		13.62			24.02

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses³		0.50	⁴		0.50			0.50			0.50			0.50			0.50
Gross operating expenses³		0.74	⁴		0.80			0.83			0.80			0.77			0.77
Net investment income (loss)		(0.16	)⁴		1.28			1.85			1.78			1.41			2.03
Portfolio turnover rate		5	²		13			8			20			22			12
Net assets, end of period ($ x 1,000,000)		33			32			28			28			29			36

* Unaudited.

¹ Calculated based on the average shares outstanding during the period.

² Not annualized.

³ The expenses incurred by underlying funds in which the fund invests are not included in this ratio.

⁴ Annualized.

See financial notes 5

Schwab MarketTrack Growth Portfolio II

Portfolio Holdings as of June 30, 2014 (Unaudited)

This section shows all the securities in the fund’s portfolio and their values as of the report date.

Cost

Value

Holdings by Category

($)

.8%

Other Investment Companies

20,095,935

31,496,462

.4%

Short-Term Investments

1,099,695

100

.2%

Total Investments

21,195,630

32,596,157

.2%)

Other Assets and Liabilities, Net

(56,648

)

100

.0%

Net Assets

32,539,509


	Number		Value
Security	of Shares		($)

Other Investment Companies 96.8% of net assets

Equity Funds 80.4%


International 20.0%
Schwab International Index Fund (a)		313,388		6,521,611


Large-Cap 40.3%
Schwab 1000 Index Fund (a)		62,465		3,252,548
Schwab S&P 500 Index Fund (a)		319,155		9,858,704

				13,111,252


Small-Cap 20.1%
Schwab Small-Cap Index Fund (a)		229,322		6,528,804

				26,161,667

Fixed-Income Fund 14.8%


Intermediate-Term Bond 14.8%
Schwab Total Bond Market Fund (a)		504,622		4,798,956

Money Market Fund 1.6%
Schwab Value Advantage Money Fund, Institutional Prime Shares 0.01% (a)(b)		535,839		535,839

Total Other Investment Companies
(Cost $20,095,935)				31,496,462



Issuer	Face Amount		Value
Rate, Maturity Date	($)		($)

Short-Term Investments 3.4% of net assets

Time Deposits 3.4%
Australia & New Zealand Banking Group Ltd.
0.03%, 07/01/14		325,639		325,639
DNB
0.03%, 07/01/14		325,639		325,639
Skandinaviska Enskilda Banken
0.03%, 07/01/14		325,639		325,639
Sumitomo Mitsui Banking Corp.
0.03%, 07/01/14		122,778		122,778

Total Short-Term Investments
(Cost $1,099,695)				1,099,695



End of Investments.

At 06/30/14, the tax basis cost of the fund’s investments was $21,929,203 and the unrealized appreciation and depreciation were $10,666,954 and ($0) respectively, with a net unrealized appreciation of $10,666,954.


(a)		Issuer is affiliated with the fund’s adviser.
(b)		The rate shown is the 7-day yield.

The following is a summary of the inputs used to value the fund’s investments as of June 30, 2014 (see financial note 2(a) for additional information):

Quoted Prices in

Significant

Active Markets for

Other Significant

Unobservable

Identical Assets

Observable Inputs

Inputs

Description

(Level 1)

(Level 2)

(Level 3)

Total

Other Investment Companies¹

$31,496,462

$—

$31,496,462

Short-Term Investments¹

—

1,099,695

—

1,099,695

Total

$31,496,462

$1,099,695

$—

$32,596,157


¹		As categorized in Portfolio Holdings.

6 See financial notes

Schwab MarketTrack Growth Portfolio II

Statement of

Changes in Net Assets

For the current and prior report periods
Figures for the current period are unaudited



Operations


1/1/14-6/30/14				1/1/13-12/31/13
Net investment income (loss)		($24,526	)		$383,696
Net realized gains		150,661			1,094,335
Net change in unrealized appreciation (depreciation)	+	1,355,428			4,801,914

Increase in net assets from operations		1,481,563			6,279,945

Distributions to Shareholders

Distributions from net investment income		(416,505	)		(515,494	)
Distributions from net realized gains	+	(1,060,180	)		(261,488	)

Total distributions		($1,476,685	)		($776,982	)

Transactions in Fund Shares


		1/1/14-6/30/14					1/1/13-12/31/13
			SHARES		VALUE			SHARES		VALUE
Shares sold			80,723		$1,571,220			160,572		$2,826,615
Shares reinvested			76,512		1,476,685			45,786		776,982
Shares redeemed	+		(106,064	)	(2,055,805	)		(295,004	)	(5,202,701	)

Net transactions in fund shares			51,171		$992,100			(88,646	)	($1,599,104	)

Shares Outstanding and Net Assets

		1/1/14-6/30/14					1/1/13-12/31/13
			SHARES		NET ASSETS			SHARES		NET ASSETS
Beginning of period			1,634,510		$31,542,531			1,723,156		$27,638,672
Total increase or decrease	+		51,171		996,978			(88,646	)	3,903,859

End of period			1,685,681		$32,539,509			1,634,510		$31,542,531


Distributions in excess of net investment income/Net investment income not yet distributed					($24,569	)				$416,462

See financial notes 9

Schwab MarketTrack Growth Portfolio II

Financial Notes, unaudited

1. Business Structure of the Fund:

Schwab MarketTrack Growth Portfolio II (the “fund”) is a series of Schwab Annuity Portfolios (the “trust”), a no-load, open-end management investment company. The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”). The list below shows all the funds in the trust as of the end of the period, including the fund discussed in this report, which is highlighted:



Schwab Annuity Portfolios (organized January 21, 1994)
Schwab Money Market Portfolio
Schwab MarketTrack Growth Portfolio II
Schwab S&P 500 Index Portfolio
Schwab VIT Balanced Portfolio
Schwab VIT Balanced with Growth Portfolio
Schwab VIT Growth Portfolio

The fund is primarily a “fund of funds” as it invests a major portion of its assets in a combination of other Schwab Funds (underlying funds) to achieve its investment objectives and maintain its asset allocation. The fund may also invest directly in equity or fixed income securities and cash equivalents to achieve its investment objectives. The fund bears its share of the allocable expenses of the underlying funds in which it invests. Such expenses are reflected in the net asset values of the underlying funds.

The fund offers one share class. Shares are bought and sold at closing net asset value per share (“NAV”) which is the price for all outstanding shares of a fund. Each share has a par value of 1/1,000 of a cent, and the fund’s Board of Trustees (the “Board”) may authorize the issuance of as many shares as necessary.

2. Significant Accounting Policies:

The following is a summary of the significant accounting policies the fund uses in its preparation of financial statements. The fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standard Codification Topic 946 Financial Services - Investment Companies. The accounting policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

(a) Security Valuation:

The fund values the securities in its portfolio every business day. The fund uses the following policies to value various types of securities:


	•	Underlying funds: Mutual funds are valued at their respective NAVs.

	•	Securities for which no quoted value is available: The Board has adopted procedures to fair value the fund’s securities when market prices are not “readily available” or are unreliable. For example, a fund may fair value a security when it is de-listed or its trading is halted or suspended; when a security’s primary pricing source is unable or unwilling to provide a price; or when a security’s primary trading market is closed during regular market hours. The fund makes fair value

Schwab MarketTrack Growth Portfolio II

Financial Notes, unaudited (continued)

2. Significant Accounting Policies (continued):


		determinations in good faith in accordance with the fund’s valuation procedures. The Pricing Committee considers a number of factors, including unobservable market inputs when arriving at fair value. The Pricing Committee may employ techniques such as the review of related or comparable assets or liabilities, related market activities, recent transactions, market multiples, book values, transactional back-testing, disposition analysis and other relevant information. The Pricing Committee regularly reviews these inputs and assumptions to calibrate the valuations. Due to the subjective and variable nature of fair value pricing, there can be no assurance that a fund could obtain the fair value assigned to the security upon the sale of such security. The Board convenes on a regular basis to review fair value determinations made by the fund pursuant to the valuation procedures.


	•	Short-term securities (60 days or less to maturity): Short-term securities are valued at amortized cost, which approximates market value.

The three levels of the fair value hierarchy are as follows:


	•	Level 1 — quoted prices in active markets for identical securities — Investments whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 prices, include active listed equities. Investments in mutual funds are valued daily at their NAVs, which are classified as Level 1 prices.

	•	Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) — Investments that trade in markets that are not considered to be active, but whose values are based on quoted market prices, dealer quotations or valuations provided by alternative pricing sources supported by observable inputs are classified as Level 2 prices. These generally include U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage products, less liquid listed equities, and state, municipal and provincial obligations. As investments whose values are classified as Level 2 prices include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.

	•	Level 3 — significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments) — Investments whose values are classified as Level 3 prices have significant unobservable inputs, as they may trade infrequently or not at all. When observable prices are not available for these securities, the fund uses one or more valuation techniques for which sufficient and reliable data is available. The inputs used by the fund in estimating the value of Level 3 prices may include the original transaction price, quoted prices for similar securities or assets in active markets, completed or pending third-party transactions in the underlying investment or comparable issuers, and changes in financial ratios or cash flows. Level 3 prices may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the fund in the absence of market information. Assumptions used by the fund due to the lack of observable inputs may significantly impact the resulting fair value and therefore the fund’s results of operations.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The levels associated with valuing the fund’s investments as of June 30, 2014 are disclosed in the Portfolio Holdings.

Schwab MarketTrack Growth Portfolio II

Financial Notes, unaudited (continued)

2. Significant Accounting Policies (continued):

(b) Security Transactions:

(c) Investment Income:

Interest income is recorded as it accrues. Dividends and distributions from portfolio securities and underlying funds are recorded on the date they are effective (the ex-dividend date), although the fund records certain foreign security dividends on the day it learns of the ex-dividend date. Any distributions from underlying funds are recorded in accordance with the character of the distributions as designated by the underlying funds.

(d) Expenses:

(e) Distributions to Shareholders:

The fund makes distributions from net investment income and net realized capital gains, if any, once a year.

(f) Accounting Estimates:

(g) Federal Income Taxes:

(h) Indemnification:

3. Risk Factors:

Investing in the fund may involve certain risks, as discussed in the fund’s prospectus, including, but not limited to, those described below. Any of these risks could cause an investor to lose money.

Asset Allocation Risk. The fund is subject to asset allocation risk, which is the risk that the selection of the underlying funds and the allocation of the fund’s assets among the various asset classes and market segments will cause the fund to underperform other funds with a similar investment objective.

Affiliated Fund Risk. The investment adviser’s authority to select and substitute underlying funds from a variety of affiliated and unaffiliated mutual funds may create a conflict of interest because the fees paid to it by some underlying funds are higher than the fees paid by other underlying funds. However, the portfolio manager is a fiduciary to the fund and is legally obligated to act in the fund’s best interests when selecting underlying funds, without taking fees into consideration.

Schwab MarketTrack Growth Portfolio II

Financial Notes, unaudited (continued)

3. Risk Factors (continued):

Market Risk. Stock and bond markets rise and fall daily. As with any investment whose performance is tied to these markets, the value of an investment in the fund will fluctuate, which means that an investor could lose money.

Underlying Fund Investment Risk. The value of an investment in the fund is based primarily on the prices of the underlying funds that the fund purchases. In turn, the price of each underlying fund is based on the value of its securities. Before investing in the fund, investors should assess the risks associated with the underlying funds in which the fund may invest and the types of investments made by those underlying funds. These risks include any combination of the risks described below, although the fund’s exposure to a particular risk will be proportionate to the fund’s overall asset allocation and underlying fund allocation.


	•	Concentration Risk. To the extent that an underlying fund’s or an index’s portfolio is concentrated in the securities of issuers in a particular market, industry, group of industries, sector or asset class, the underlying fund may be adversely affected by the performance of those securities, may be subject to increased price volatility and may be more susceptible to adverse economic, market, political, or regulatory occurrences affecting that market, industry, group of industries, sector or asset class.

	•	Investment Risk. An investment in an underlying fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The fund may experience losses with respect to its investment in an underlying fund. Further, there is no guarantee that an underlying fund will be able to achieve its objective.

	•	Investment Style Risk. The underlying funds seek to track the performance of various segments of the stock market, as measured by their respective indices. Each underlying fund follows these stocks during upturns as well as downturns. Because of their indexing strategy, the underlying funds do not take steps to reduce market exposure or to lessen the effects of a declining market. In addition, because of an underlying fund’s expenses, the underlying fund’s performance is normally below that of the index.

	•	Equity Risk. The prices of equity securities rise and fall daily. These price movements may result from factors affecting individual companies, industries or the securities market as a whole. In addition, equity markets tend to move in cycles, which may cause stock prices to fall over short or extended periods of time.

	•	Tracking Error Risk. Each underlying index fund seeks to track the performance of its benchmark index, although it may not be successful in doing so. The divergence between the performance of a fund and its benchmark index, positive or negative, is called “tracking error.” Tracking error can be caused by many factors and it may be significant.

	•	Large-Cap Risk. Many of the risks of the underlying funds are associated with their investment in the large-cap segments of the stock market. Large-cap stocks tend to go in and out of favor based on market and economic conditions. During a period when large-cap stocks fall behind other types of investments — bonds or mid- or small- cap stocks, for instance — an underlying fund’s performance also will lag those investments.

	•	Small-Cap Risk. Historically, small-cap stocks have been riskier than large- and mid-cap stocks, and their prices may move sharply, especially during market upturns and downturns. Small-cap companies may be more vulnerable to adverse business or economic events than larger, more established companies. During a period when small-cap stocks fall behind other types of investments — large-cap and mid-cap stocks, for instance — an underlying fund’s performance also will lag those investments.

	•	Foreign Investment Risk. An underlying fund’s investments in securities of foreign issuers may involve certain risks that are greater than those associated with investments in securities of U.S. issuers. These include risks of adverse changes in foreign economic, political, regulatory and other conditions; changes in currency exchange rates or exchange control regulations (including limitations on currency movements and exchanges); the imposition of economic sanctions or other government restrictions; differing accounting, auditing, financial reporting and legal standards and practices; differing securities market structures; and higher transaction costs. To the extent an underlying fund’s investment in a single country or a limited number of countries represents a large percentage of the underlying fund’s assets, the underlying fund’s performance may be adversely affected by the economic, political and social conditions in those countries and it may be subject to increased price volatility.

Schwab MarketTrack Growth Portfolio II

Financial Notes, unaudited (continued)

3. Risk Factors (continued):


	•	Currency Risk. As a result of an underlying fund’s investments in securities denominated in, and/or receiving revenues in foreign currencies, the fund will be subject to currency risk. This is the risk that those currencies will decline in value relative to the U.S. dollar, or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency hedged. In either event, the dollar value of an investment in a fund would be adversely affected.

	•	Derivatives Risk. An underlying fund’s use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments and could cause the fund to lose more than the principal amount invested. In addition, investments in derivatives may involve leverage, which means a small percentage of assets invested in derivatives can have a disproportionately large impact on an underlying fund.

	•	Exchange-Traded Funds (“ETF”) Risk. When a fund invests in an ETF, it will bear a proportionate share of the ETF’s expenses. In addition, lack of liquidity in an ETF can result in its value being more volatile than the underlying portfolio of securities.

	•	Debt Securities Risk. Bond prices generally fall when interest rates rise. Bonds with longer maturities tend to be more sensitive to this risk. Underlying fund performance also could be affected if an issuer or guarantor of a bond held by the fund fails to make timely principal or interest payments or otherwise honor its obligations. Lower-quality bonds are considered speculative with respect to their issuer’s ability to make timely payments or otherwise honor their obligations. In addition, prices of lower-quality bonds tend to be more volatile than those of investment-grade bonds, and may fall based on bad news about the issuer, an industry or the overall economy.

	•	Interest Rate Risk. An underlying fund’s investments in fixed income securities are subject to the risk that interest rates rise and fall over time. As with any investment whose yield reflects current interest rates, an underlying fund’s yield will change over time. During periods when interest rates are low, an underlying fund’s yield (and total return) also may be low. Changes in interest rates also may affect an underlying fund’s share price: a sharp rise in interest rates could cause the underlying fund’s share price to fall. The longer the underlying fund’s duration, the more sensitive to interest rate movements its share price is likely to be. Because interest rates in the United States are at, or near, historically low levels, a change in a central bank’s monetary policy (e.g., tapering of the Federal Reserve Board’s quantitative easing program) or improving economic conditions may result in an increase in interest rates.

	•	Liquidity Risk. A particular investment may be difficult to purchase or sell. An underlying fund may be unable to sell illiquid securities at an advantageous time or price.

	•	Securities Lending Risk. An underlying fund may lend its portfolio securities to brokers, dealers, and other financial institutions. Securities lending involves the risk of loss of rights in the collateral or delay in recovery of the collateral if the borrower fails to return the security loaned or becomes insolvent.

Direct Investment Risk. The fund may invest directly in individual securities as well as other mutual funds, ETFs and cash equivalents, including money market securities to maintain its allocations. The fund’s direct investment in these securities is subject to the same or similar risks as an underlying fund’s investment in the same securities.

Please refer to the fund’s prospectus for a more complete description of the principal risks of investing in the fund.

4. Affiliates and Affiliated Transactions:

For its advisory and administrative services to the fund, CSIM is entitled to receive an annual fee, payable monthly, based on a percentage of the fund’s average daily net assets as follows:


Average Daily Net Assets

First $500 million			0.44%
Over $500 million			0.39%

Schwab MarketTrack Growth Portfolio II

Financial Notes, unaudited (continued)

4. Affiliates and Affiliated Transactions (continued):

The agreement to limit the fund’s total expenses charged is limited to the fund’s direct operating expenses and, therefore, does not apply to underlying fund fees and expenses, which are indirect expenses incurred by a fund through its investments in the underlying funds.

The fund may engage in certain transactions involving related parties. Pursuant to an exemptive order issued by the SEC, the fund may invest in other related funds. As of June 30, 2014, the Schwab MarketTrack Growth Portfolio II’s ownership percentages of other related funds’ shares are:


Schwab International Index Fund	0.2%
Schwab 1000 Index Fund	0.1%
Schwab S&P 500 Index Fund	0.1%
Schwab Small-Cap Index Fund	0.2%
Schwab Total Bond Market Fund	0.5%
Schwab Value Advantage Money Fund, Institutional Prime Shares	0.0%	*


*		Less than 0.1%

Below is a summary of the fund’s transactions with its affiliated underlying funds during the period ended June 30, 2014.


												Realized			Distributions
	Balance of							Balance of		Market		Gains (Losses)			Received*
	Shares Held		Gross		Gross			Shares Held		Value at		01/01/14 to			01/01/14 to
Underlying Funds	at 12/31/13		Purchases		Sales			at 06/30/14		06/30/14		06/30/14			06/30/14

Schwab International Index Fund		321,256		14,484		(22,352	)		313,388		$6,521,611		$24,102			$—
Schwab 1000 Index Fund		65,712		1,318		(4,565	)		62,465		3,252,548		22,249			—
Schwab S&P 500 Index Fund		331,594		9,651		(22,090	)		319,155		9,858,704		91,288			—
Schwab Small-Cap Index Fund		229,403		18,068		(18,149	)		229,322		6,528,804		15,013			—
Schwab Total Bond Market Fund		497,488		38,092		(30,958	)		504,622		4,798,956		(2,049	)		52,974
Schwab Value Advantage Money Fund, Institutional Prime Shares		535,806		33		—			535,839		535,839		—			35

Total											$31,496,462		$150,603			$53,009


*		Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds.

5. Board of Trustees:

Schwab MarketTrack Growth Portfolio II

Financial Notes, unaudited (continued)

6. Borrowing from Banks:

7. Purchases and Sales/Maturities of Investment Securities:

For the period ended June 30, 2014, purchases and sales/maturities of securities (excluding short-term obligations) were as follows:

8. Federal Income Taxes:

Capital loss carryforwards may be used to offset future realized capital gains for federal income tax purposes. As of December 31, 2013, the fund had no capital loss carryforwards.

For tax purposes, realized net capital losses and late-year ordinary losses incurred after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. For the year ended December 31, 2013, the fund had no capital losses deferred and no capital losses utilized.

9. Subsequent Events:

Management has determined there are no subsequent events or transactions through the date the financial statements were issued that would have materially impacted the financial statements as presented.

The Board of Trustees (the “Board” or the “Trustees”, as appropriate) calls and holds one or more meetings each year that are dedicated, in whole or in part, to considering whether to renew the investment advisory agreement between Schwab Annuity Portfolios (the “Trust”) and Charles Schwab Investment Management, Inc. (“CSIM”) (the “Agreement”) with respect to the existing funds in the Trust, including Schwab MarketTrack Growth Portfolio II (the “Fund”), and to review certain other agreements pursuant to which CSIM provides investment advisory services to certain other registered investment companies. In preparation for the meeting(s), the Board requests and reviews a wide variety of materials provided by CSIM, including information about CSIM’s affiliates, personnel and operations. The Board also receives extensive data provided by third parties. This information is in addition to the detailed information about the Fund that the Board reviews during the course of each year, including information that relates to Fund operations and Fund performance. The Independent Trustees receive advice from independent counsel to the Independent Trustees, including a memorandum regarding the responsibilities of trustees for the approval of investment advisory agreements. In addition, the Independent Trustees meet in executive session outside the presence of Fund management and participate in question and answer sessions with representatives of CSIM.


1.	the nature, extent and quality of the services provided to the Fund under the Agreement, including the resources of CSIM and its affiliates dedicated to the Fund;

2.	the Fund’s investment performance and how it compared to that of certain other comparable mutual funds;

3.	the Fund’s expenses and how those expenses compared to those of certain other comparable mutual funds;

4.	the profitability of CSIM and its affiliates, including Charles Schwab & Co., Inc. (“Schwab”), with respect to the Fund, including both direct and indirect benefits accruing to CSIM and its affiliates; and

5.	the extent to which economies of scale would be realized as the Fund grows and whether fee levels in the Agreement reflect those economies of scale for the benefit of Fund investors.

Fund Expenses. With respect to the Fund’s expenses, the Trustees considered the rate of compensation called for by the Agreement, and the Fund’s net operating expense ratio, in each case, in comparison to those of other comparable mutual funds, such peer groups and comparisons having been selected and calculated by an independent third party. The Trustees considered the effects of CSIM’s and Schwab’s practice of waiving management and other fees to prevent total fund expenses from exceeding a specified cap. The Trustees also considered fees charged by CSIM to other mutual funds and to other types of accounts, such as wrap accounts, but, with respect to such other types of accounts, accorded less weight to such comparisons due to the different legal, regulatory, compliance and operating features of mutual funds as

compared to these other types of accounts, and the unique insurance dedicated distribution arrangements of the Fund as compared to other funds managed by CSIM. Following such evaluation, the Board concluded, within the context of its full deliberations, that the expenses of the Fund are reasonable and supported renewal of the Agreement with respect to the Fund.

Economies of Scale. The Trustees considered the existence of any economies of scale and whether those are passed along to the Fund’s shareholders through a graduated investment advisory fee schedule or other means, including any fee waivers by CSIM and its affiliates. In this regard, and consistent with their consideration of Fund expenses, the Trustees considered that CSIM and Schwab have previously committed resources to minimize the effects on shareholders of diseconomies of scale during periods when Fund assets were relatively small through their contractual expense waivers. Based on this evaluation, the Board concluded, within the context of its full deliberations, that the Fund obtains reasonable benefit from economies of scale.

Independent Trustees


Name, Year of Birth,		Number of
and Position(s) with		Portfolios in
the trust; (Terms of		Fund Complex
office, and length of	Principal Occupations	Overseen by
Time Served¹)	During the Past Five Years	the Trustee	Other Directorships

Mariann Byerwalter 1960 Trustee (Trustee of Schwab Annuity Portfolios since 2000.)	Chairman of JDN Corporate Advisory LLC (advisory services firm) (Oct. 2001 – present).	76	Director, WageWorks, Inc. (2010 – present) Director, Redwood Trust, Inc. (1998 – present) Director, PMI Group Inc. (2001 – 2009)


John F. Cogan 1947 Trustee (Trustee of Schwab Annuity Portfolios since 2008.)	Senior Fellow, The Hoover Institution at Stanford University (Oct. 1979 – present); Senior Fellow, Stanford Institute for Economic Policy Research; Professor of Public Policy, Stanford University (Sept. 2000 – present).	76	Director, Gilead Sciences, Inc. (2005 – present) Director, Monaco Coach Corporation (2005 – 2009)


David L. Mahoney 1954 Trustee (Trustee of Schwab Annuity Portfolios since 2011.)	Private Investor.	76	Director, Symantec Corporation (2003 – present) Director, Corcept Therapeutics Incorporated (2004 – present)


Kiran M. Patel 1948 Trustee (Trustee of Schwab Annuity Portfolios since 2011.)	Retired. Executive Vice President and General Manager of Small Business Group, Intuit, Inc. (financial software and services for consumers and small businesses) (Dec. 2008 – Sept. 2013).	76	Director, KLA-Tencor Corporation (2008 – present)


Gerald B. Smith 1950 Trustee (Trustee of Schwab Annuity Portfolios since 2000.)	Chairman, Chief Executive Officer and Founder of Smith Graham & Co. (investment advisors) (1990 – present).	76	Director, Eaton (2012 – present) Director and Chairman of the Audit Committee, Oneok Partners LP (2003 – 2013) Director, Oneok, Inc. (2009 – 2013) Lead Independent Director, Board of Cooper Industries (2002 – 2012)


Joseph H. Wender 1944 Trustee (Trustee of Schwab Annuity Portfolios since 2008.)	Senior Consultant, Goldman Sachs & Co., Inc. (investment banking and securities firm) (Jan. 2008 – present); Partner, Colgin Partners, LLC (vineyards) (February 1998 – present).	76	Board Member and Chairman of the Audit Committee, Isis Pharmaceuticals (1994 – present)

Interested Trustees


Name, Year of Birth,		Number of
and Position(s) with		Portfolios in
the trust; (Terms of		Fund Complex
office, and length of	Principal Occupations	Overseen by
Time Served)	During the Past Five Years	the Trustee	Other Directorships

Charles R. Schwab²1937 Chairman and Trustee (Chairman and Trustee of Schwab Annuity Portfolios since 1994.)	Chairman and Director, The Charles Schwab Corporation, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc., Charles Schwab Bank, N. A.; Chairman and Chief Executive Officer, Schwab (SIS) Holdings Inc. I, Schwab International Holdings, Inc.; Chief Executive Officer, Schwab Holdings, Inc.; Through June 2007, Director, U.S. Trust Company, N. A., U.S. Trust Corporation, United States Trust Company of New York. Until October 2008, Chief Executive Officer, The Charles Schwab Corporation, Charles Schwab & Co., Inc.	76	None


Walter W. Bettinger II²1960 Trustee (Trustee of Schwab Annuity Portfolios since 2008.)	As of October 2008, President and Chief Executive Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation. Since October 2008, Director, The Charles Schwab Corporation. Since May 2008, Director, Charles Schwab & Co., Inc. and Schwab Holdings, Inc. Since 2006, Director, Charles Schwab Bank. Until October 2008, President and Chief Operating Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation. From 2004 through 2007, Executive Vice President and President, Schwab Investor Services. From 2004 through 2005, Executive Vice President and Chief Operating Officer, Individual Investor Enterprise, and from 2002 through 2004, Executive Vice President, Corporate Services.	97	None

Officers of the Trust


Name, Year of Birth, and Position(s)
with the trust; (Terms of office, and
length of Time Served³)		Principal Occupations During the Past Five Years

Marie Chandoha 1961 President and Chief Executive Officer (Officer of Schwab Annuity Portfolios since 2010.)		Executive Vice President, Charles Schwab & Co., Inc. (Sept. 2010 – present); Director, President and Chief Executive Officer (Dec. 2010 – present), Chief Investment Officer (Sept. 2010 – Oct. 2011), Charles Schwab Investment Management, Inc.; President, Chief Executive Officer (Dec. 2010 – present), and Chief Investment Officer (Sept. 2010 – Oct. 2011), Schwab Funds, Laudus Funds and Schwab ETFs; Global Head of Fixed Income Business Division, BlackRock, Inc. (formerly Barclays Global Investors) (March 2007 – August 2010).


George Pereira 1964 Treasurer and Principal Financial Officer (Officer of Schwab Annuity Portfolios since 2004.)		Senior Vice President and Chief Financial Officer (Nov. 2004 – present), Chief Operating Officer (Jan. 2011 – present), Charles Schwab Investment Management, Inc.; Treasurer and Chief Financial Officer, Laudus Funds (2006 – present); Treasurer and Principal Financial Officer, Schwab Funds (Nov. 2004 – present) and Schwab ETFs (Oct. 2009 – present); Director, Charles Schwab Worldwide Fund, PLC and Charles Schwab Asset Management (Ireland) Limited (April 2005 – present).


Omar Aguilar 1970 Senior Vice President and Chief Investment Officer – Equities (Officer of Schwab Annuity Portfolios since 2011.)		Senior Vice President and Chief Investment Officer — Equities, Charles Schwab Investment Management, Inc. (April 2011 – present); Senior Vice President and Chief Investment Officer – Equities, Schwab Funds and Laudus Funds (June 2011 – present); Head of the Portfolio Management Group and Vice President of Portfolio Management, Financial Engines, Inc. (May 2009 – April 2011); Head of Quantitative Equity, ING Investment Management (July 2004 – Jan. 2009).

Officers of the Trust (continued)


Name, Year of Birth, and Position(s)
with the trust; (Terms of office, and
length of Time Served³)		Principal Occupations During the Past Five Years

Brett Wander 1961 Senior Vice President and Chief Investment Officer – Fixed Income (Officer of Schwab Annuity Portfolios since 2011.)		Senior Vice President and Chief Investment Officer – Fixed Income, Charles Schwab Investment Management, Inc. (April 2011 – present); Senior Vice President and Chief Investment Officer – Fixed Income, Schwab Funds and Laudus Funds (June 2011 – present); Senior Managing Director, Global Head of Active Fixed-Income Strategies, State Street Global Advisors (Jan. 2008 – Oct. 2010); Director of Alpha Strategies, Loomis, Sayles & Company (April 2006 – Jan. 2008).


David Lekich 1964 Chief Legal Officer and Secretary (Officer of Schwab Annuity Portfolios since 2011.)		Senior Vice President (Sept. 2011 – present), Vice President (March 2004 – Sept. 2011), Charles Schwab & Co., Inc.; Senior Vice President and Chief Counsel (Sept. 2011 – present), Vice President (Jan. 2011 – Sept. 2011), Charles Schwab Investment Management, Inc.; Secretary (April 2011 – present) and Chief Legal Officer (Dec. 2011 – present), Schwab Funds; Vice President and Assistant Clerk, Laudus Funds (April 2011 – present); Secretary (May 2011 – present) and Chief Legal Officer (Nov. 2011 – present), Schwab ETFs.


Catherine MacGregor 1964 Vice President and Assistant Secretary (Officer of Schwab Annuity Portfolios since 2005.)		Vice President, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. (July 2005 – present); Vice President (Dec. 2005 – present), Chief Legal Officer and Clerk (March 2007 – present), Laudus Funds; Vice President (Nov. 2005 – present) and Assistant Secretary (June 2007 – present), Schwab Funds; Vice President and Assistant Secretary, Schwab ETFs (Oct. 2009 – present).


¹		Trustees remain in office until they resign, retire or are removed by shareholder vote. The Schwab Funds retirement policy requires that independent trustees retire at age 72 or after twenty years as a trustee, whichever comes first. In addition, the retirement policy requires any independent trustee of Schwab Funds who also serves as an independent trustee of the Laudus Funds to retire from the Boards of the Schwab Funds upon their required retirement date from either the Boards of Trustees of the Schwab Funds or the Laudus Funds, whichever comes first.
²		Mr. Schwab and Mr. Bettinger are Interested Trustees because they own stock of The Charles Schwab Corporation, the parent company of the investment adviser.
³		The President, Treasurer and Secretary hold office until their respective successors are chosen and qualified or until he or she sooner dies, resigns, is removed or becomes disqualified. Each of the other officers serves at the pleasure of the Board.

Barclays U.S. Aggregate Bond Index A broad-based benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, mortgage-back securities (agency fixed-rate and hybrid ARM passthroughs), asset-backed securities, and commercial mortgage-backed securities.

Barclays U.S. Treasury Bills: 1 − 3 Months Index An index that includes all publicly issued zero-coupon U.S. Treasury Bills that have a remaining maturity of less than 3 months and more than 1 month, are rated investment grade, and have $250 million or more of outstanding face value.

Citigroup Non-U.S. Dollar World Government Bond Index An index that measures the total rate of return performance for the government bonds of 23 countries, excluding the U.S., with a remaining maturity of at least one year.

Dow Jones U.S. Total Stock Market Index An index that measures all U.S. equity securities with readily available prices.

Growth Composite Index A custom blended index developed by CSIM based on a comparable portfolio asset allocation and calculated using the following portion allocations: 60% Dow Jones U.S. Total Stock Market Index, 20% MSCI EAFE Index, 15% Barclays U.S. Aggregate Bond Index, and 5% Barclays U.S. Treasury Bills: 1 − 3 Months Index. The index is maintained by CSIM. The components that make up the composite index may vary over time.

MSCI EAFE Index A free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada. The Net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes; returns are calculated applying dividend withholding rates applicable to non-resident persons who do not benefit from double taxation treaties.

MSCI Emerging Markets Index A free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. The Net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes; returns are calculated applying dividend withholding rates applicable to non-resident persons who do not benefit from double taxation treaties.

Russell 2000 Index An index that measures the performance of the small-cap segment of the U.S. equity universe.

S&P 500 Index A market capitalization index that is designed to measure the performance of 500 leading publicly held companies in leading industries of the U.S. economy.

Schwab VIT Balanced Portfolio

Asset Class Performance Comparison % returns during the 6 months ended 6/30/2014

This graph compares the performance of various asset classes. Final performance figures for the period are in the key below.



		7.14%		S&P 500^® Index: measures U.S. large-cap stocks

		3.19%		Russell 2000^® Index: measures U.S. small-cap stocks

		4.78%		MSCI EAFE^® Index (Net): measures (in U.S. dollars) large-cap stocks in Europe, Australasia and the Far East

		3.93%		Barclays U.S. Aggregate Bond Index: measures the U.S. bond market

		0.02%		Barclays U.S. Treasury Bills 1-3 Months Index: measures short-term U.S. Treasury obligations

Nothing in this report represents a recommendation of a security by the investment adviser.

Management views and portfolio holdings may have changed since the report date.

Schwab VIT Balanced Portfolio 1

Performance and Fund Facts as of 06/30/14

Average Annual Total Returns^1,2


Portfolio and inception Date	6 Months			1 Year			Since Inception


Portfolio: Schwab VIT Balanced Portfolio (07/25/12)		4.78	%		11.02	%		8.74	%
VIT Balanced Composite Index		5.25	%		11.51	%		9.50	%
S&P 500^® Index		7.14	%		24.61	%		24.49	%
Barclays U.S. Aggregate Bond Index		3.93	%		4.37	%		1.10	%
Fund Category: Morningstar Conservative Allocation		4.90	%		10.80	%		9.64	%

Portfolio Expense Ratios³: Net 0.79%; Gross 1.28%

Statistics


Number of Holdings			20
Portfolio Turnover Rate⁴			9%

Asset Class Weightings % of Investments⁵


Fixed Income			36.9%
Stocks – U.S.			20.7%
Stocks – International			18.3%
Money Market Fund			11.5%
Real Assets			9.0%
Short-Term Investments			3.6%
Total			100.0%

Top Holdings % of Net Assets^6,7


Schwab U.S. Large-Cap ETF			15.8%
iShares MBS ETF			12.4%
Schwab Value Advantage Money Fund, Institutional Prime Shares			11.5%
Schwab International Equity ETF			11.3%
Schwab Intermediate-Term U.S. Treasury ETF			11.0%
iShares Core U.S. Credit Bond ETF			6.5%
Schwab U.S. REIT ETF			6.0%
Schwab Emerging Markets Equity ETF			5.0%
Schwab U.S. Small-Cap ETF			3.8%
Credit Suisse Commodity Return Strategy Fund, Class I			3.0%
Total			86.3%

The components that make up the composite index may vary over time. For index definitions, please see the Glossary.

Portfolio holdings may have changed since the report date.


¹		Source for category information: Morningstar, Inc. The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
²		Portfolio expenses have been partially absorbed by CSIM and its affiliates. Without these reductions, the portfolio’s returns would have been lower. Portfolio performance does not reflect the additional fees and expenses imposed by the insurance company under the variable insurance product contract. If those contract fees and expenses were included, the performance would be less than that shown. Please refer to the variable insurance product prospectus for a complete listing of these expenses.
³		As stated in the prospectus. Includes expenses of the underlying funds in which the portfolio invests. The annualized weighted average expense ratio of the underlying funds was 0.21%. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual ratios during the period, refer to the financial highlights section of the financial statements.
⁴		Not annualized.
⁵		The portfolio intends to primarily invest in affiliated Schwab exchange traded funds (ETFs) and unaffiliated third-party ETFs. The portfolio may also invest in affiliated Schwab and Laudus Funds and unaffiliated third party mutual funds (all such ETFs and mutual funds referred to as “underlying funds”). The portfolio may also invest directly in equity or fixed income securities, and money market investments to achieve its investment objectives.
⁶		This list is not a recommendation of any security by the investment adviser.
⁷		The holdings listed exclude any temporary liquidity investments.

Schwab VIT Balanced Portfolio 3

Fund Expenses (Unaudited)

Examples for a $1,000 Investment

The portfolio incurs ongoing costs, such as management fees, transfer agent and shareholder services fees, and other fund expenses.

Please note that the expenses shown in the table are meant to highlight your ongoing costs.


					Ending
			Beginning		Account Value		Expenses Paid
	Expense Ratio¹		Account Value		(Net of Expenses)		During Period²
	(Annualized)		at 1/1/14		at 6/30/14		1/1/14–6/30/14

Schwab VIT Balanced Portfolio
Actual Return		0.56%	$	1,000.00	$	1,047.80	$	2.84
Hypothetical 5% Return		0.56%	$	1,000.00	$	1,022.02	$	2.81


¹		Based on the most recent six-month expense ratio; may differ from the expense ratio provided in the Financial Highlights. The expenses incurred by the underlying funds in which the portfolio invests are not included in this ratio.
²		Expenses for the portfolio are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by 181 days of the period, and divided by 365 days of the fiscal year.

4 Schwab VIT Balanced Portfolio

Schwab VIT Balanced Portfolio

Financial Statements

Financial Highlights


	1/1/14–			1/1/13–			7/25/12¹–
	6/30/14*			12/31/13			12/31/12


Per-Share Data ($)

Net asset value at beginning of period		11.21			10.50			10.00

Income (loss) from investment operations:
Net investment income (loss)		0.03	²		0.17	²		0.08
Net realized and unrealized gains (losses)		0.50			0.55			0.42

Total from investment operations		0.53			0.72			0.50
Less distributions:
Distributions from net investment income		(0.06	)		(0.01	)		—
Distributions from net realized gains		(0.00	)³		—			—

Total distributions		(0.06	)		(0.01	)		—

Net asset value at end of period		11.68			11.21			10.50

Total return (%)		4.78	⁴		6.89			5.00	⁴

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses⁵		0.56	⁶		0.58			0.58	⁶
Gross operating expenses⁵		0.71	⁶		1.07			10.58	⁶
Net investment income (loss)		0.57	⁶		1.55			3.94	⁶
Portfolio turnover rate		9	⁴		18			1	⁴
Net assets, end of period ($ x 1,000,000)		41			28			2

* Unaudited.

¹ Commencement of operations.

² Calculated based on the average shares outstanding during the period.

³ Per-share amount was less than $0.01.

⁴ Not annualized.

⁵ The expenses incurred by underlying funds in which the fund invests are not included in this ratio.

⁶ Annualized.

See financial notes 5

Schwab VIT Balanced Portfolio

Portfolio Holdings as of June 30, 2014 (Unaudited)

This section shows all the securities in the fund’s portfolio and their values as of the report date.

Cost

Value

Holdings by Category

($)

.3%

Other Investment Companies

36,722,788

39,141,979

.6%

Short-Term Investments

1,482,128

.9%

Total Investments

38,204,916

40,624,107

.1%

Other Assets and Liabilities, Net

40,947

100

.0%

Net Assets

40,665,054


	Number		Value
Security	of Shares		($)

Other Investment Companies 96.3% of net assets

U.S. Stocks 20.6%


Large-Cap 15.8%
Schwab U.S. Large-Cap ETF (a)		137,482		6,438,282


Micro-Cap 1.0%
iShares Micro-Cap ETF		5,477		416,909


Small-Cap 3.8%
Schwab U.S. Small-Cap ETF (a)		28,014		1,535,447

				8,390,638

International Stocks 18.3%


Developed-Market Large-Cap 11.3%
Schwab International Equity ETF (a)		138,854		4,579,405


Developed-Market Small-Cap 2.0%
Schwab International Small-Cap Equity ETF (a)		23,922		819,807


Emerging-Market 5.0%
Schwab Emerging Markets Equity ETF (a)		77,691		2,022,297

				7,421,509

Real Assets 9.0%


Commodity 3.0%
Credit Suisse Commodity Return Strategy Fund, Class I *		157,207		1,210,493


Real Estate 6.0%
Schwab U.S. REIT ETF (a)		69,150		2,445,836

				3,656,329

Fixed Income 36.9%


Agency Bond 2.0%
iShares Agency Bond ETF		7,189		809,985


Corporate Bond 6.5%
iShares Core U.S. Credit Bond ETF		23,658		2,636,448


High Yield Bond 1.3%
SPDR Barclays High Yield Bond ETF		12,585		525,172


Inflation-Protected Bond 1.7%
Schwab U.S. TIPS ETF (a)		12,197		679,373


International Developed-Market Bond 2.0%
SPDR Barclays International Treasury Bond ETF		13,333		810,513


Mortgage-Backed Bond 12.4%
iShares MBS ETF		46,838		5,068,808


Treasury Bond 11.0%
Schwab Intermediate-Term U.S. Treasury ETF (a)		83,948		4,460,997

				14,991,296

Money Market Fund 11.5%
Schwab Value Advantage Money Fund, Institutional Prime Shares 0.01% (a)(b)		4,682,207		4,682,207

Total Other Investment Companies
(Cost $36,722,788)				39,141,979



Issuer	Face Amount		Value
Rate, Maturity Date	($)		($)

Short-Term Investments 3.6% of net assets

Time Deposits 3.6%
DBS Bank Ltd.
0.03%, 07/01/14		265,508		265,508
DNB
0.03%, 07/01/14		405,540		405,540
Skandinaviska Enskilda Banken
0.03%, 07/01/14		405,540		405,540
Sumitomo Mitsui Banking Corp.
0.03%, 07/01/14		405,540		405,540

Total Short-Term Investments
(Cost $1,482,128)				1,482,128



End of Investments.

At 06/30/14, the tax basis cost of the fund’s investments was $38,335,203 and the unrealized appreciation and depreciation were $2,288,904 and ($0) respectively, with a net unrealized appreciation of $2,288,904.


*		Non-income producing security.
(a)		Issuer is affiliated with the fund’s adviser.
(b)		The rate shown is the 7-day yield.

6 See financial notes

Schwab VIT Balanced Portfolio

Statement of

Operations

For the period January 1, 2014 through June 30, 2014; unaudited



Investment Income

Dividends received from affiliated underlying funds		$110,585
Dividends received from unaffiliated underlying funds		75,230
Interest	+	154

Total investment income		185,969

Expenses

Investment adviser and administrator fees		73,711
Professional fees		17,185
Transfer agent fees		10,681
Custodian fees		4,818
Independent trustees’ fees		4,227
Portfolio accounting fees		3,013
Shareholder reports		2,882
Other expenses	+	326

Total expenses		116,843
Expense reduction by CSIM	−	24,707

Net expenses	−	92,136

Net investment income		93,833

Realized and Unrealized Gains (Losses)

Net realized losses on sales of affiliated underlying funds		(57,641	)
Net realized losses on sales of unaffiliated underlying funds	+	(23,036	)

Net realized losses		(80,677	)
Net change in unrealized appreciation (depreciation) on affiliated underlying funds		1,244,814
Net change in unrealized appreciation (depreciation) on unaffiliated underlying funds	+	370,864

Net change in unrealized appreciation (depreciation)	+	1,615,678

Net realized and unrealized gains		1,535,001

Increase in net assets resulting from operations		$1,628,834

See financial notes 9

Schwab VIT Balanced Portfolio

Statement of

Changes in Net Assets

For the current and prior report periods
Figures for the current period are unaudited



Operations


1/1/14-6/30/14				1/1/13-12/31/13
Net investment income		$93,833			$222,651
Net realized losses		(80,677	)		(40,228	)
Net change in unrealized appreciation (depreciation)	+	1,615,678			784,145

Increase in net assets from operations		1,628,834			966,568

Distributions to Shareholders

Distributions from net investment income		(222,767	)		(18,631	)
Distributions from net realized gains	+	(3,103	)		—

Total distributions		($225,870	)		($18,631	)

Transactions in Fund Shares


		1/1/14-6/30/14					1/1/13-12/31/13
			SHARES		VALUE			SHARES		VALUE
Shares sold			1,169,839		$13,369,540			2,473,872		$26,880,610
Shares reinvested			19,338		225,870			1,730		18,306
Shares redeemed	+		(230,470	)	(2,596,594	)		(184,414	)	(2,004,307	)

Net transactions in fund shares			958,707		$10,998,816			2,291,188		$24,894,609

Shares Outstanding and Net Assets

		1/1/14-6/30/14					1/1/13-12/31/13
			SHARES		NET ASSETS			SHARES		NET ASSETS
Beginning of period			2,521,777		$28,263,274			230,589		$2,420,728
Total increase	+		958,707		12,401,780			2,291,188		25,842,546

End of period			3,480,484		$40,665,054			2,521,777		$28,263,274


Net investment income not yet distributed					$93,633					$222,567

10 See financial notes

Schwab VIT Balanced Portfolio

Financial Notes, unaudited

1. Business Structure of the Fund:

Schwab VIT Balanced Portfolio (the “fund”) is a series of Schwab Annuity Portfolios (the “trust”), a no-load, open-end management investment company. The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”). The list below shows all the funds in the trust as of the end of the period, including the fund discussed in this report, which is highlighted:



Schwab Annuity Portfolios (organized January 21, 1994)
Schwab Money Market Portfolio
Schwab MarketTrack Growth Portfolio II
Schwab S&P 500 Index Portfolio
Schwab VIT Balanced Portfolio
Schwab VIT Balanced with Growth Portfolio
Schwab VIT Growth Portfolio

The fund is a “fund of funds” which primarily invests in affiliated Schwab exchange traded funds (“ETFs”) and unaffiliated third-party ETFs. The fund may also invest in affiliated Schwab and Laudus Funds and unaffiliated third-party mutual funds (all such ETFs and mutual funds referred to as “underlying funds”). The fund may also invest directly in equity or fixed income securities and money market investments to achieve its investment objectives. The fund bears its share of the allocable expenses of the underlying funds in which it invests.

2. Significant Accounting Policies:

The following is a summary of the significant accounting policies the fund uses in its preparation of financial statements. The fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standard Codification Topic 946 Financial Services - Investment Companies. The accounting policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

(a) Security Valuation:

The fund values the securities in its portfolio every business day. The fund uses the following policies to value various types of securities:


	•	Underlying funds: Mutual funds are valued at their respective NAVs. ETFs traded on a recognized securities exchange are valued at the last reported sale price that day or the official closing price, if applicable.

	•	Securities for which no quoted value is available: The Board has adopted procedures to fair value the fund’s securities when market prices are not “readily available” or are unreliable. For example, a fund may fair value a security when it is de-listed or its trading is halted or suspended; when a security’s primary pricing source is unable or unwilling to provide a

Schwab VIT Balanced Portfolio

Financial Notes, unaudited (continued)

2. Significant Accounting Policies (continued):


		price; or when a security’s primary trading market is closed during regular market hours. The fund makes fair value determinations in good faith in accordance with the fund’s valuation procedures. The Pricing Committee considers a number of factors, including unobservable market inputs when arriving at fair value. The Pricing Committee may employ techniques such as the review of related or comparable assets or liabilities, related market activities, recent transactions, market multiples, book values, transactional back-testing, disposition analysis and other relevant information. The Pricing Committee regularly reviews these inputs and assumptions to calibrate the valuations. Due to the subjective and variable nature of fair value pricing, there can be no assurance that a fund could obtain the fair value assigned to the security upon the sale of such security. The Board convenes on a regular basis to review fair value determinations made by the fund pursuant to the valuation procedures.


	•	Short-term securities (60 days or less to maturity): Short-term securities are valued at amortized cost, which approximates market value.

The three levels of the fair value hierarchy are as follows:


	•	Level 1 — quoted prices in active markets for identical securities — Investments whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 prices, include active listed equities and ETFs. Investments in mutual funds are valued daily at their NAVs, and investments in ETFs are valued daily at the last reported sale price or the official closing price, which are classified as Level 1 prices.

	•	Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) — Investments that trade in markets that are not considered to be active, but whose values are based on quoted market prices, dealer quotations or valuations provided by alternative pricing sources supported by observable inputs are classified as Level 2 prices. These generally include U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage products, less liquid listed equities, and state, municipal and provincial obligations. As investments whose values are classified as Level 2 prices include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.

	•	Level 3 — significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments) — Investments whose values are classified as Level 3 prices have significant unobservable inputs, as they may trade infrequently or not at all. When observable prices are not available for these securities, the fund uses one or more valuation techniques for which sufficient and reliable data is available. The inputs used by the fund in estimating the value of Level 3 prices may include the original transaction price, quoted prices for similar securities or assets in active markets, completed or pending third-party transactions in the underlying investment or comparable issuers, and changes in financial ratios or cash flows. Level 3 prices may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the fund in the absence of market information. Assumptions used by the fund due to the lack of observable inputs may significantly impact the resulting fair value and therefore the fund’s results of operations.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The levels associated with valuing the fund’s investments as of June 30, 2014 are disclosed in the Portfolio Holdings.

Schwab VIT Balanced Portfolio

Financial Notes, unaudited (continued)

2. Significant Accounting Policies (continued):

(b) Security Transactions:

(c) Investment Income:

(d) Expenses:

(e) Distributions to Shareholders:

The fund makes distributions from net investment income and net realized capital gains, if any, once a year.

(f) Accounting Estimates:

(g) Federal Income Taxes:

(h) Indemnification:

3. Risk Factors:

Affiliated Fund Risk. The investment adviser’s authority to select and substitute underlying funds from a variety of affiliated and unaffiliated ETFs and mutual funds may create a conflict of interest because the fees paid to it by some underlying funds are higher than the fees paid by other underlying funds. However, the portfolio manager is a fiduciary to the fund and is legally obligated to act in the fund’s best interests when selecting underlying funds, without taking fees into consideration.

Schwab VIT Balanced Portfolio

Financial Notes, unaudited (continued)

3. Risk Factors (continued):

ETFs Risk. When a fund invests in an ETF, it will bear a proportionate share of the ETF’s expenses. In addition, lack of liquidity in an ETF can result in its value being more volatile than the underlying portfolio of securities.

Underlying Fund Investment Risk. The value of an investment in the fund is based primarily on the prices of the underlying funds that the fund purchases. In turn, the price of each underlying fund is based on the value of its securities. Before investing in the fund, investors should assess the risks associated with the underlying funds in which the fund may invest and the types of investments made by those underlying funds. The risks below summarize certain principal investment risks of the underlying funds that are also principal investment risks to which the fund is subject because of the fund’s investment allocation in the underlying funds and the underlying funds’ asset allocation.


	•	Equity Risk. The prices of equity securities rise and fall daily. These price movements may result from factors affecting individual companies, industries or the securities market as a whole. In addition, equity markets tend to move in cycles, which may cause stock prices to fall over short or extended periods of time.

	•	Large-Cap Risk. Large-cap stocks tend to go in and out of favor based on market and economic conditions. During a period when large-cap stocks fall behind other types of investments — bonds or mid- or small- cap stocks, for instance — an underlying fund’s performance also will lag those investments.

	•	Small-Cap Risk. Historically, small-cap stocks have been riskier than large- and mid-cap stocks, and their prices may move sharply, especially during market upturns and downturns. Small-cap companies may be more vulnerable to adverse business or economic events than larger, more established companies. During a period when small-cap stocks fall behind other types of investments — bonds or large-cap stocks, for instance — an underlying fund’s performance also will lag those investments.

	•	Foreign Investment Risk. An underlying fund’s investments in securities of foreign issuers may involve certain risks that are greater than those associated with investments in securities of U.S. issuers. These include risks of adverse changes in foreign economic, political, regulatory and other conditions; changes in currency exchange rates or exchange control regulations (including limitations on currency movements and exchanges); the imposition of economic sanctions or other government restrictions; differing accounting, auditing, financial reporting and legal standards and practices; differing securities market structures; and higher transaction costs. These risks may negatively impact the value or liquidity of the underlying fund’s investments, and could impair the underlying fund’s ability to meet its investment objective or invest in accordance with its investment strategy. These risks may be heightened in connection with investments in emerging markets. To the extent an underlying fund’s investment in a single country or a limited number of countries represents a large percentage of the underlying fund’s assets, the underlying fund’s performance may be adversely affected by the economic, political and social conditions in those countries and it may be subject to increased price volatility.

	•	Emerging Market Risk. An underlying fund’s investments in securities of emerging market countries may involve certain risks that are greater than those associated with investments in securities of developed countries. Emerging market countries may be more likely to experience political turmoil or rapid changes in market or economic conditions than more developed countries. Such countries often have less uniformity in accounting and reporting requirements and greater risk associated with the custody of securities. In addition, the financial stability of issuers (including governments) in emerging market countries may be more precarious than in other countries. As a result, there will tend to be an increased risk of price volatility associated with an underlying fund’s investments in emerging market countries and, at times, it may be difficult to value such investments.

	•	Currency Risk. As a result of an underlying fund’s investments in securities denominated in, and/or receiving revenues in foreign currencies, the fund will be subject to currency risk. This is the risk that those currencies will decline in value relative to the U.S. dollar, or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency hedged. In either event, the dollar value of an investment in an underlying fund would be adversely affected.

	•	Growth Investing Risk. Certain of the underlying funds pursue a “growth style” of investing. Growth investing focuses on a company’s prospects for growth of revenue and earnings. If a company’s earnings or revenues fall short of expectations, its stock price may fall dramatically. Growth stocks also can perform differently from the market as a whole and other

Schwab VIT Balanced Portfolio

Financial Notes, unaudited (continued)

3. Risk Factors (continued):


		types of stocks and can be more volatile than other types of stocks. Since growth companies usually invest a high portion of earnings in their business, they may lack the dividends of value stocks that can cushion stock prices in a falling market. Growth stocks may also be more expensive relative to their earnings or assets compared to value or other stocks.


	•	Value Investing Risk. Certain of the underlying funds may pursue a “value style” of investing. Value investing focuses on companies whose stocks appear undervalued in light of factors such as the company’s earnings, book value, revenues or cash flow. If an underlying fund’s investment adviser’s (or sub-adviser’s) assessment of a company’s value or prospects for exceeding earnings expectations or market conditions is wrong, the underlying fund could suffer losses or produce poor performance relative to other funds. In addition, “value stocks” can continue to be undervalued by the market for long periods of time.

	•	Debt Securities Risk. Bond prices generally fall when interest rates rise. Bonds with longer maturities tend to be more sensitive to this risk. Underlying fund performance also could be affected if an issuer or guarantor of a bond held by the fund fails to make timely principal or interest payments or otherwise honor its obligations. Lower-quality bonds are considered speculative with respect to their issuer’s ability to make timely payments or otherwise honor their obligations. In addition, prices of lower-quality bonds tend to be more volatile than those of investment-grade bonds, and may fall based on bad news about the issuer, an industry or the overall economy.

	•	Interest Rate Risk. An underlying fund’s investments in fixed income securities are subject to the risk that interest rates rise and fall over time. As with any investment whose yield reflects current interest rates, an underlying fund’s yield will change over time. During periods when interest rates are low, an underlying fund’s yield (and total return) also may be low. Changes in interest rates also may affect an underlying fund’s share price: a sharp rise in interest rates could cause the underlying fund’s share price to fall. The longer the underlying fund’s duration, the more sensitive to interest rate movements its share price is likely to be. Because interest rates in the United States are at, or near, historically low levels, a change in a central bank’s monetary policy (e.g., tapering of the Federal Reserve Board’s quantitative easing program) or improving economic conditions may result in an increase in interest rates.

	•	Credit Risk. Certain of the underlying funds are subject to the risk that a decline in the credit quality of a portfolio investment could cause the underlying fund’s share price to fall. An underlying fund could lose money if the issuer or guarantor of a portfolio investment fails to make timely principal or interest payments or otherwise honor its obligations. Securities rated below investment grade (junk bonds) involve greater risk of price declines than investment grade securities due to actual or perceived changes in the issuer’s creditworthiness.

	•	Prepayment and Extension Risk. An underlying fund’s investments in fixed income securities are subject to the risk that the securities may be paid off earlier or later than expected. Either situation could cause the underlying fund to hold securities paying lower-than-market rates of interest, which could hurt the underlying fund’s yield or share price.

	•	U.S. Government Securities Risk. Some of the U.S. government securities that the underlying funds invest in are not backed by the full faith and credit of the U.S. government, which means they are neither issued nor guaranteed by the U.S. Treasury. Certain securities such as those issued by the Federal Home Loan Banks are supported by limited lines of credit maintained by their issuers with the U.S. Treasury. Securities issued by other issuers, such as the Federal Farm Credit Banks Funding Corporation, are supported solely by the credit of the issuer. There can be no assurance that the U.S. government will provide financial support to securities of its agencies and instrumentalities if it is not obligated to do so under law. Also, any government guarantees on securities the underlying funds own do not extend to shares of the underlying funds themselves.

	•	Real Estate Investment Risk. An underlying fund in which the portfolio may invest may have a policy of concentrating its investments in real estate companies and companies related to the real estate industry. Such an underlying fund is subject to risks associated with the direct ownership of real estate securities and a portfolio’s investment in such an underlying fund is subject to risks associated with the direct ownership of real estate securities and an investment in the underlying fund will be closely linked to the performance of the real estate markets. These risks include, among others, declines in the value of real estate; risks related to general and local economic conditions; possible lack of availability of mortgage funds or other limits to accessing the credit or capital markets; defaults by borrowers or tenants, particularly during an economic downturn; and changes in interest rates.

Schwab VIT Balanced Portfolio

Financial Notes, unaudited (continued)

3. Risk Factors (continued):


	•	Real Estate Investment Trust (REIT) Risk. An underlying fund may invest in REITs. An underlying fund’s investments in REITs will be subject to the risks associated with the direct ownership of real estate, including fluctuations in the value of underlying properties, defaults by borrowers or tenants, changes in interest rates and risks related to general or local economic conditions. REITs are also subject to certain additional risks. For example, equity REITs may be affected by changes in the value of the underlying properties owned by the trusts, and mortgage REITs may be affected by the quality of any credit extended. Further, REITs are dependent upon specialized management skills and may have their investments in relatively few properties, a small geographic area or a single property type. Failure of a company to qualify as a REIT under federal tax law may have adverse consequences for the underlying fund. In addition, REITs have their own expenses, and the underlying fund will bear a proportionate share of those expenses.

	•	Mortgage-Backed and Mortgage Pass-Through Securities Risk. Certain of the mortgage-backed securities in which an underlying fund may invest are not backed by the full faith and credit of the U.S. government and there can be no assurance that the U.S. government would provide financial support to its agencies or instrumentalities where it was not obligated to do so. Mortgage-backed securities tend to increase in value less than other debt securities when interest rates decline, but are subject to similar risk of decline in market value during periods of rising interest rates. Because of prepayment and extension risk, mortgage-backed securities react differently to changes in interest rates than other bonds. Small movements in interest rates — both increases and decreases — may quickly and significantly affect the value of certain mortgage-backed securities. Transactions in mortgage pass-through securities primarily occur through to be announced (TBA) transactions. Default by or bankruptcy of a counterparty to a TBA transaction would expose an underlying fund to possible losses because of an adverse market action, expenses, or delays in connection with the purchase or sale of the pools of mortgage pass-through securities specified in the TBA transaction.

	•	Portfolio Turnover Risk. Certain of the underlying funds may buy and sell portfolio securities actively. If they do, their portfolio turnover rate and transaction costs will rise, which may lower the underlying fund’s performance and may increase the likelihood of capital gain distributions.

	•	Commodity Risk. To the extent that an underlying fund invests in commodity-linked derivative instruments, it may subject the underlying fund to greater volatility than investments in traditional securities. Also, commodity-linked investments may be more volatile and less liquid than the underlying commodity. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and other regulatory and market developments. The use of leveraged commodity-linked derivatives creates an opportunity for increased return, but also creates the possibility for a greater loss.

	•	Liquidity Risk. A particular investment may be difficult to purchase or sell. An underlying fund may be unable to sell illiquid securities at an advantageous time or price.

	•	Derivatives Risk. An underlying fund’s use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments and could cause the fund to lose more than the principal amount invested.

	•	Management Risk. An underlying fund may be an actively managed mutual fund. Any actively managed mutual fund is subject to the risk that its investment adviser (or sub-adviser(s)) will select investments or allocate assets in a manner that could cause the fund to underperform or otherwise not meet its objective. An underlying fund’s adviser applies its own investment techniques and risk analyses in making investment decisions for the fund, but there can be no guarantee that they will produce the desired results.

	•	Investment Style Risk. Certain underlying funds seek to track the performance of various segments of the stock market, as measured by their respective indices. Such underlying funds follow these stocks during upturns as well as downturns. Because of their indexing strategy, these underlying funds do not take steps to reduce market exposure or to lessen the effects of a declining market. In addition, because of an underlying fund’s expenses, the underlying fund’s performance is normally below that of the index.

Schwab VIT Balanced Portfolio

Financial Notes, unaudited (continued)

3. Risk Factors (continued):


	•	Tracking Error Risk. An underlying fund may seek to track the performance of its benchmark index, although it may not be successful in doing so. The divergence between the performance of a fund and its benchmark index, positive or negative, is called “tracking error.” Tracking error can be caused by many factors and it may be significant.

	•	Concentration Risk. To the extent that an underlying fund’s portfolio is concentrated in the securities of issuers in a particular market, industry, group of industries, sector or asset class, the underlying fund may be adversely affected by the performance of those securities, may be subject to increased price volatility and may be more susceptible to adverse economic, market, political, or regulatory occurrences affecting that market, industry, group of industries, sector or asset class.

	•	Money Market Risk. Although an underlying money market fund seeks to maintain a stable $1 net asset value, it is possible to lose money by investing in a money market fund. In addition, a money market fund is not designed to offer capital appreciation.

Direct Investment Risk. The fund may invest directly in individual securities to maintain its allocations. The fund’s direct investment in these securities is subject to the same or similar risks as an underlying fund’s investment in the same securities and instruments.

Please refer to the fund’s prospectus for a more complete description of the principal risks of investing in the fund.

4. Affiliates and Affiliated Transactions:

For its advisory and administrative services to the fund, CSIM is entitled to receive an annual fee, payable monthly, equal to 0.45% of the fund’s average daily net assets.

CSIM and its affiliates have made an additional agreement with the fund, for so long as CSIM serves as the investment adviser to the fund, which may only be amended or terminated with approval of the fund’s Board, to limit the total annual fund operating expenses charged, excluding interest, taxes and certain non-routine expenses of the fund to 0.58%.

The fund may engage in certain transactions involving related parties. Pursuant to an exemptive order issued by the SEC, the fund may invest in other related ETFs and mutual funds. As of June 30, 2014, the Schwab VIT Balanced Portfolio’s ownership percentages of other related funds’ shares are:


Schwab U.S. Large-Cap ETF	0.2%
Schwab U.S. Small-Cap ETF	0.1%
Schwab International Equity ETF	0.2%
Schwab International Small-Cap Equity ETF	0.2%
Schwab Emerging Markets Equity ETF	0.2%
Schwab U.S. REIT ETF	0.2%
Schwab U.S. TIPS ETF	0.1%
Schwab Intermediate-Term U.S. Treasury ETF	2.2%
Schwab Value Advantage Money Fund, Institutional Prime Shares	0.0%	*


*		Less than 0.1%

Below is a summary of the fund’s transactions with its affiliated underlying funds during the period ended June 30, 2014.

Schwab VIT Balanced Portfolio

Financial Notes, unaudited (continued)

4. Affiliates and Affiliated Transactions (continued):


												Realized			Distributions
	Balance of							Balance of		Market		Gains (Losses)			Received*
	Shares Held		Gross		Gross			Shares Held		Value at		01/01/14 to			01/01/14 to
Underlying Funds	at 12/31/13		Purchases		Sales			at 06/30/14		06/30/14		06/30/14			06/30/14

Schwab U.S. Large-Cap ETF		99,462		49,241		(11,221	)		137,482		$6,438,282		($4,677	)		$51,846
Schwab U.S. Small-Cap ETF		21,495		10,960		(4,441	)		28,014		1,535,447		(773	)		11,241
Schwab International Equity ETF		100,719		51,062		(12,927	)		138,854		4,579,405		(4,958	)		—
Schwab International Small-Cap Equity ETF		18,399		9,486		(3,963	)		23,922		819,807		(180	)		—
Schwab Emerging Markets Equity ETF		60,028		28,560		(10,897	)		77,691		2,022,297		(18,708	)		—
Schwab U.S. REIT ETF		55,879		22,312		(9,041	)		69,150		2,445,836		(15,369	)		23,141
Schwab U.S. TIPS ETF		9,060		4,167		(1,030	)		12,197		679,373		(3,728	)		2,924
Schwab Intermediate-Term U.S. Treasury ETF		59,772		30,243		(6,067	)		83,948		4,460,997		(9,248	)		21,175
Schwab Value Advantage Money Fund, Institutional Prime Shares		3,482,000		1,200,207		—			4,682,207		4,682,207		—			258

Total											$27,663,651		($57,641	)		$110,585


*		Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds.

5. Board of Trustees:

6. Borrowing from Banks:

The fund has access to custodian overdraft facilities, a committed line of credit of $150 million with State Street Bank and Trust Company (“State Street”), an uncommitted line of credit of $100 million with Bank of America, N.A. and an uncommitted line of credit of $50 million with Brown Brothers Harriman & Co. The fund pays interest on the amount it borrows at rates that are negotiated periodically. The fund also pays an annual fee to State Street for the committed line of credit.

7. Purchases and Sales/Maturities of Investment Securities:

For the period ended June 30, 2014, purchases and sales/maturities of securities (excluding short-term obligations) were as follows:

Schwab VIT Balanced Portfolio

Financial Notes, unaudited (continued)

8. Federal Income Taxes:

Capital loss carryforwards may be used to offset future realized capital gains for federal income tax purposes. As of December 31, 2013, the fund had no capital loss carryforwards.

9. Subsequent Events:

The Board of Trustees (the “Board” or the “Trustees”, as appropriate) calls and holds one or more meetings each year that are dedicated, in whole or in part, to considering whether to renew the investment advisory agreement between Schwab Annuity Portfolios (the “Trust”) and Charles Schwab Investment Management, Inc. (“CSIM”) (the “Agreement”) with respect to Schwab VIT Balanced Portfolio (the “Fund”), and to review certain other agreements pursuant to which CSIM provides investment advisory services to certain other registered investment companies. In preparation for the meeting(s), the Board requests and reviews a wide variety of materials provided by CSIM, including information about CSIM’s affiliates, personnel and operations. The Board also receives extensive data provided by third parties. This information is in addition to the detailed information about the Fund that the Board reviews during the course of each year, including information that relates to Fund operations and Fund performance. The Independent Trustees receive advice from independent counsel to the Independent Trustees, including a memorandum regarding the responsibilities of trustees for the approval of investment advisory agreements. In addition, the Independent Trustees meet in executive session outside the presence of Fund management and participate in question and answer sessions with representatives of CSIM.


1.	the nature, extent and quality of the services provided to the Fund under the Agreement, including the resources of CSIM and its affiliates dedicated to the Fund;

2.	the Fund’s investment performance and how it compared to that of certain other comparable mutual funds;

3.	the Fund’s expenses and how those expenses compared to those of certain other comparable mutual funds;

4.	the profitability of CSIM and its affiliates, including Charles Schwab & Co., Inc. (“Schwab”), with respect to the Fund, including both direct and indirect benefits accruing to CSIM and its affiliates; and

5.	the extent to which economies of scale would be realized as the Fund grows and whether fee levels in the Agreement reflect those economies of scale for the benefit of Fund investors.

mutual funds, such peer groups and comparisons having been selected and calculated by an independent third party. The Trustees considered the effects of CSIM’s and Schwab’s historical practice of waiving management and other fees to prevent total fund expenses from exceeding a specified cap. The Trustees also considered fees charged by CSIM to other mutual funds and to other types of accounts, such as wrap accounts, but, with respect to such other types of accounts, accorded less weight to such comparisons due to the different legal, regulatory, compliance and operating features of mutual funds as compared to these other types of accounts, and the unique insurance dedicated distribution arrangements of the Fund as compared to other funds managed by CSIM. Following such evaluation, the Board concluded, within the context of its full deliberations, that the expenses of the Fund are reasonable and supported renewal of the Agreement with respect to the Fund.

Independent Trustees


Name, Year of Birth,		Number of
and Position(s) with		Portfolios in
the trust; (Terms of		Fund Complex
office, and length of	Principal Occupations	Overseen by
Time Served¹)	During the Past Five Years	the Trustee	Other Directorships

Mariann Byerwalter 1960 Trustee (Trustee of Schwab Annuity Portfolios since 2000.)	Chairman of JDN Corporate Advisory LLC (advisory services firm) (Oct. 2001 – present).	76	Director, WageWorks, Inc. (2010 – present) Director, Redwood Trust, Inc. (1998 – present) Director, PMI Group Inc. (2001 – 2009)


John F. Cogan 1947 Trustee (Trustee of Schwab Annuity Portfolios since 2008.)	Senior Fellow, The Hoover Institution at Stanford University (Oct. 1979 – present); Senior Fellow, Stanford Institute for Economic Policy Research; Professor of Public Policy, Stanford University (Sept. 2000 – present).	76	Director, Gilead Sciences, Inc. (2005 – present) Director, Monaco Coach Corporation (2005 – 2009)


David L. Mahoney 1954 Trustee (Trustee of Schwab Annuity Portfolios since 2011.)	Private Investor.	76	Director, Symantec Corporation (2003 – present) Director, Corcept Therapeutics Incorporated (2004 – present)


Kiran M. Patel 1948 Trustee (Trustee of Schwab Annuity Portfolios since 2011.)	Retired. Executive Vice President and General Manager of Small Business Group, Intuit, Inc. (financial software and services for consumers and small businesses) (Dec. 2008 – Sept. 2013).	76	Director, KLA-Tencor Corporation (2008 – present)


Gerald B. Smith 1950 Trustee (Trustee of Schwab Annuity Portfolios since 2000.)	Chairman, Chief Executive Officer and Founder of Smith Graham & Co. (investment advisors) (1990 – present).	76	Director, Eaton (2012 – present) Director and Chairman of the Audit Committee, Oneok Partners LP (2003 – 2013) Director, Oneok, Inc. (2009 – 2013) Lead Independent Director, Board of Cooper Industries (2002 – 2012)


Joseph H. Wender 1944 Trustee (Trustee of Schwab Annuity Portfolios since 2008.)	Senior Consultant, Goldman Sachs & Co., Inc. (investment banking and securities firm) (Jan. 2008 – present); Partner, Colgin Partners, LLC (vineyards) (February 1998 – present).	76	Board Member and Chairman of the Audit Committee, Isis Pharmaceuticals (1994 – present)

Interested Trustees


Name, Year of Birth,		Number of
and Position(s) with		Portfolios in
the trust; (Terms of		Fund Complex
office, and length of	Principal Occupations	Overseen by
Time Served)	During the Past Five Years	the Trustee	Other Directorships

Charles R. Schwab²1937 Chairman and Trustee (Chairman and Trustee of Schwab Annuity Portfolios since 1994.)	Chairman and Director, The Charles Schwab Corporation, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc., Charles Schwab Bank, N. A.; Chairman and Chief Executive Officer, Schwab (SIS) Holdings Inc. I, Schwab International Holdings, Inc.; Chief Executive Officer, Schwab Holdings, Inc.; Through June 2007, Director, U.S. Trust Company, N. A., U.S. Trust Corporation, United States Trust Company of New York. Until October 2008, Chief Executive Officer, The Charles Schwab Corporation, Charles Schwab & Co., Inc.	76	None


Walter W. Bettinger II²1960 Trustee (Trustee of Schwab Annuity Portfolios since 2008.)	As of October 2008, President and Chief Executive Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation. Since October 2008, Director, The Charles Schwab Corporation. Since May 2008, Director, Charles Schwab & Co., Inc. and Schwab Holdings, Inc. Since 2006, Director, Charles Schwab Bank. Until October 2008, President and Chief Operating Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation. From 2004 through 2007, Executive Vice President and President, Schwab Investor Services. From 2004 through 2005, Executive Vice President and Chief Operating Officer, Individual Investor Enterprise, and from 2002 through 2004, Executive Vice President, Corporate Services.	97	None

Officers of the Trust


Name, Year of Birth, and Position(s)
with the trust; (Terms of office, and
length of Time Served³)		Principal Occupations During the Past Five Years

Marie Chandoha 1961 President and Chief Executive Officer (Officer of Schwab Annuity Portfolios since 2010.)		Executive Vice President, Charles Schwab & Co., Inc. (Sept. 2010 – present); Director, President and Chief Executive Officer (Dec. 2010 – present), Chief Investment Officer (Sept. 2010 – Oct. 2011), Charles Schwab Investment Management, Inc.; President, Chief Executive Officer (Dec. 2010 – present), and Chief Investment Officer (Sept. 2010 – Oct. 2011), Schwab Funds, Laudus Funds and Schwab ETFs; Global Head of Fixed Income Business Division, BlackRock, Inc. (formerly Barclays Global Investors) (March 2007 – August 2010).


George Pereira 1964 Treasurer and Principal Financial Officer (Officer of Schwab Annuity Portfolios since 2004.)		Senior Vice President and Chief Financial Officer (Nov. 2004 – present), Chief Operating Officer (Jan. 2011 – present), Charles Schwab Investment Management, Inc.; Treasurer and Chief Financial Officer, Laudus Funds (2006 – present); Treasurer and Principal Financial Officer, Schwab Funds (Nov. 2004 – present) and Schwab ETFs (Oct. 2009 – present); Director, Charles Schwab Worldwide Fund, PLC and Charles Schwab Asset Management (Ireland) Limited (April 2005 – present).


Omar Aguilar 1970 Senior Vice President and Chief Investment Officer – Equities (Officer of Schwab Annuity Portfolios since 2011.)		Senior Vice President and Chief Investment Officer — Equities, Charles Schwab Investment Management, Inc. (April 2011 – present); Senior Vice President and Chief Investment Officer – Equities, Schwab Funds and Laudus Funds (June 2011 – present); Head of the Portfolio Management Group and Vice President of Portfolio Management, Financial Engines, Inc. (May 2009 – April 2011); Head of Quantitative Equity, ING Investment Management (July 2004 – Jan. 2009).

Officers of the Trust (continued)


Name, Year of Birth, and Position(s)
with the trust; (Terms of office, and
length of Time Served³)		Principal Occupations During the Past Five Years

Brett Wander 1961 Senior Vice President and Chief Investment Officer – Fixed Income (Officer of Schwab Annuity Portfolios since 2011.)		Senior Vice President and Chief Investment Officer – Fixed Income, Charles Schwab Investment Management, Inc. (April 2011 – present); Senior Vice President and Chief Investment Officer – Fixed Income, Schwab Funds and Laudus Funds (June 2011 – present); Senior Managing Director, Global Head of Active Fixed-Income Strategies, State Street Global Advisors (Jan. 2008 – Oct. 2010); Director of Alpha Strategies, Loomis, Sayles & Company (April 2006 – Jan. 2008).


David Lekich 1964 Chief Legal Officer and Secretary (Officer of Schwab Annuity Portfolios since 2011.)		Senior Vice President (Sept. 2011 – present), Vice President (March 2004 – Sept. 2011), Charles Schwab & Co., Inc.; Senior Vice President and Chief Counsel (Sept. 2011 – present), Vice President (Jan. 2011 – Sept. 2011), Charles Schwab Investment Management, Inc.; Secretary (April 2011 – present) and Chief Legal Officer (Dec. 2011 – present), Schwab Funds; Vice President and Assistant Clerk, Laudus Funds (April 2011 – present); Secretary (May 2011 – present) and Chief Legal Officer (Nov. 2011 – present), Schwab ETFs.


Catherine MacGregor 1964 Vice President and Assistant Secretary (Officer of Schwab Annuity Portfolios since 2005.)		Vice President, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. (July 2005 – present); Vice President (Dec. 2005 – present), Chief Legal Officer and Clerk (March 2007 – present), Laudus Funds; Vice President (Nov. 2005 – present) and Assistant Secretary (June 2007 – present), Schwab Funds; Vice President and Assistant Secretary, Schwab ETFs (Oct. 2009 – present).


¹		Trustees remain in office until they resign, retire or are removed by shareholder vote. The Schwab Funds retirement policy requires that independent trustees retire at age 72 or after twenty years as a trustee, whichever comes first. In addition, the retirement policy requires any independent trustee of Schwab Funds who also serves as an independent trustee of the Laudus Funds to retire from the Boards of the Schwab Funds upon their required retirement date from either the Boards of Trustees of the Schwab Funds or the Laudus Funds, whichever comes first.
²		Mr. Schwab and Mr. Bettinger are Interested Trustees because they own stock of The Charles Schwab Corporation, the parent company of the investment adviser.
³		The President, Treasurer and Secretary hold office until their respective successors are chosen and qualified or until he or she sooner dies, resigns, is removed or becomes disqualified. Each of the other officers serves at the pleasure of the Board.

Barclays Global Treasury ex-U.S. Index An index that tracks fixed-rate local currency non-U.S. government debt of investment grade countries with a remaining maturity of at least one year. The Capped version of the index uses custom weights.

Barclays High Yield Very Liquid Index An index that includes publicly issued U.S. dollar denominated, non-investment grade, fixed-rate, taxable corporate bonds that have a remaining maturity of at least one year, are rated high-yield (Ba1/BB+/BB+ or below) using the middle rating of Moody’s, S&P, and Fitch, respectively, and have $600 million or more of outstanding face value.

Barclays U.S. Aggregate: Agencies Index An index that measures fixed rate securities issued by U.S. government agencies with at least one year to final maturity and $250 million par amount outstanding. The index is a sub-set of the Barclays US Aggregate: Government-Related Index.

Barclays U.S. Credit Index An index that comprises the Barclays U.S. Corporate Index and a non-corporate component that includes foreign agencies, sovereigns, supranationals and local authorities.

Barclays U.S. Mortgage-Backed Securities (MBS): Agency Fixed Rate MBS Index An index that measures agency mortgage-backed pass-through fixed-rate securities issued by Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC).

Barclays U.S. TIPS Index (Series-L) A rules-based, market value-weighted index that tracks inflation-protected securities issued by the U.S. Treasury that have at least one year remaining to maturity, are rated investment grade and have $250 million or more of outstanding face value.

Barclays 3 − 10 Year U.S. Treasury Bond Index An index that measures the performance of U.S. Treasury securities that have a remaining maturity of greater than or equal to three years and less than 10 years.

Dow Jones-UBS Commodity Index A broadly diversified index composed of futures contracts on physical commodities. The total return index reflects the return on fully collateralized positions in the underlying commodity futures.

Dow Jones U.S. Large-Cap Total Stock Market Index An index that is a subset of the Dow Jones U.S. Total Stock Market Index, which measures all U.S. equity securities with readily available prices. The index represents the largest 750 stocks and is float-adjusted market cap weighted.

Dow Jones U.S. Select REIT Index A float-adjusted market capitalization weighted index comprised of real estate investment trusts (REITs).

Dow Jones U.S. Small-Cap Total Stock Market Index An index that is a subset of the Dow Jones U.S. Total Stock Market Index, which measures all U.S. equity securities with readily available prices. The index represents the stocks ranked 751-2500 by full market capitalization and is float-adjusted market cap weighted.

Dow Jones U.S. Total Stock Market Index An index that measures all U.S. equity securities with readily available prices.

FTSE Developed ex US Index An index that comprises large and mid cap stocks providing coverage of developed markets (23 countries) excluding the US. The index is derived from the FTSE Global Equity Index Series (GEIS), which covers 98% of the world’s investable market capitalization.

FTSE Developed Small Cap ex-US Liquid Index An index that comprises small-cap companies in developed countries excluding the United States, as defined by the index provider. The index defines the small-cap universe as approximately the bottom 10% of the eligible universe with a minimum free float capitalization of $150 million.

FTSE Emerging Index An index comprised of large- and mid-cap companies in emerging countries, as defined by the index provider. The index defines the large and mid-cap universe as approximately the top 90% of the eligible universe. The Net version of the index reflects reinvested dividends net of withholding taxes, but reflects no deductions for expenses or other taxes.

Russell 2000 Index An index that measures the performance of the small-cap segment of the U.S. equity universe.

Russell Microcap Index An index that measures the performance of the microcap segment of the U.S. equity market. Microcap stocks make up less than 3% of the U.S. equity market (by market cap) and consist of the smallest 1,000 securities in the small-cap Russell 2000^® Index, plus the next smallest eligible securities by market cap.

Schwab VIT Balanced with Growth Portfolio

Asset Class Performance Comparison % returns during the 6 months ended 6/30/2014

This graph compares the performance of various asset classes. Final performance figures for the period are in the key below.



		7.14%		S&P 500^® Index: measures U.S. large-cap stocks

		3.19%		Russell 2000^® Index: measures U.S. small-cap stocks

		4.78%		MSCI EAFE^® Index (Net): measures (in U.S. dollars) large-cap stocks in Europe, Australasia and the Far East

		3.93%		Barclays U.S. Aggregate Bond Index: measures the U.S. bond market

		0.02%		Barclays U.S. Treasury Bills 1-3 Months Index: measures short-term U.S. Treasury obligations

Nothing in this report represents a recommendation of a security by the investment adviser.

Management views and portfolio holdings may have changed since the report date.

Schwab VIT Balanced with Growth Portfolio 1

Performance and Fund Facts as of 06/30/14

Average Annual Total Returns^1,2


Portfolio and inception Date	6 Months			1 Year			Since Inception


Portfolio: Schwab VIT Balanced with Growth Portfolio (07/25/12)		5.59	%		14.79	%		12.36	%
VIT Balanced with Growth Composite Index		6.08	%		15.33	%		13.41	%
S&P 500^® Index		7.14	%		24.61	%		24.49	%
Barclays U.S. Aggregate Bond Index		3.93	%		4.37	%		1.10	%
Fund Category: Morningstar Moderate Allocation		5.41	%		16.03	%		15.60	%

Portfolio Expense Ratios³: Net 0.79%; Gross 0.96%

Statistics


Number of Holdings			20
Portfolio Turnover Rate⁴			4%

Asset Class Weightings % of Investments⁵


Stocks – U.S.			29.6%
Fixed Income			28.8%
Stocks – International			26.2%
Real Assets			9.9%
Short-Term Investments			3.4%
Money Market Fund			2.1%
Total			100.0%

Top Holdings % of Net Assets^6,7


Schwab U.S. Large-Cap ETF			22.9%
Schwab International Equity ETF			17.3%
iShares MBS ETF			10.5%
Schwab Intermediate-Term U.S. Treasury ETF			8.0%
Schwab U.S. REIT ETF			6.0%
Schwab Emerging Markets Equity ETF			6.0%
Schwab U.S. Small-Cap ETF			5.8%
iShares Core U.S. Credit Bond ETF			4.5%
Credit Suisse Commodity Return Strategy Fund, Class I			4.0%
Schwab International Small-Cap Equity ETF			3.0%
Total			88.0%

The components that make up the composite index may vary over time. For index definitions, please see the Glossary.

Portfolio holdings may have changed since the report date.


¹		Source for category information: Morningstar, Inc. The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
²		Portfolio expenses have been partially absorbed by CSIM and its affiliates. Without these reductions, the portfolio’s returns would have been lower. Portfolio performance does not reflect the additional fees and expenses imposed by the insurance company under the variable insurance product contract. If those contract fees and expenses were included, the performance would be less than that shown. Please refer to the variable insurance product prospectus for a complete listing of these expenses.
³		As stated in the prospectus. Includes expenses of the underlying funds in which the portfolio invests. The annualized weighted average expense ratio of the underlying funds was 0.21%. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual ratios during the period, refer to the financial highlights section of the financial statements.
⁴		Not annualized.
⁵		The portfolio intends to primarily invest in affiliated Schwab exchange traded funds (ETFs) and unaffiliated third-party ETFs. The portfolio may also invest in affiliated Schwab and Laudus Funds and unaffiliated third party mutual funds (all such ETFs and mutual funds referred to as “underlying funds”). The portfolio may also invest directly in equity or fixed income securities, and money market investments to achieve its investment objectives.
⁶		This list is not a recommendation of any security by the investment adviser.
⁷		The holdings listed exclude any temporary liquidity investments.

Schwab VIT Balanced with Growth Portfolio 3

Fund Expenses (Unaudited)

Examples for a $1,000 Investment

The portfolio incurs ongoing costs, such as management fees, transfer agent and shareholder services fees, and other fund expenses.

Please note that the expenses shown in the table are meant to highlight your ongoing costs.


					Ending
			Beginning		Account Value		Expenses Paid
	Expense Ratio¹		Account Value		(Net of Expenses)		During Period²
	(Annualized)		at 1/1/14		at 6/30/14		1/1/14–6/30/14

Schwab VIT Balanced with Growth Portfolio
Actual Return		0.55%	$	1,000.00	$	1,055.90	$	2.80
Hypothetical 5% Return		0.55%	$	1,000.00	$	1,022.07	$	2.76


¹		Based on the most recent six-month expense ratio; may differ from the expense ratio provided in the Financial Highlights. The expenses incurred by the underlying funds in which the portfolio invests are not included in this ratio.
²		Expenses for the portfolio are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by 181 days of the period, and divided by 365 days of the fiscal year.

4 Schwab VIT Balanced with Growth Portfolio

Schwab VIT Balanced with Growth Portfolio

Financial Statements

Financial Highlights


	1/1/14–			1/1/13–			7/25/12¹–
	6/30/14*			12/31/13			12/31/12


Per-Share Data ($)

Net asset value at beginning of period		11.86			10.71			10.00

Income (loss) from investment operations:
Net investment income (loss)		0.04	²		0.23	²		0.09
Net realized and unrealized gains (losses)		0.62			0.93			0.62

Total from investment operations		0.66			1.16			0.71
Less distributions:
Distributions from net investment income		(0.09	)		(0.01	)		—
Distributions from net realized gains		(0.00	)³		—			—

Total distributions		(0.09	)		(0.01	)		—

Net asset value at end of period		12.43			11.86			10.71

Total return (%)		5.59	⁴		10.79			7.10	⁴

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses⁵		0.55	⁶		0.58			0.58	⁶
Gross operating expenses⁵		0.57	⁶		0.75			16.10	⁶
Net investment income (loss)		0.63	⁶		2.07			4.80	⁶
Portfolio turnover rate		4	⁴		14			1	⁴
Net assets, end of period ($ x 1,000,000)		92			70			2

* Unaudited.

¹ Commencement of operations.

² Calculated based on the average shares outstanding during the period.

³ Per-share amount was less than $0.01.

⁴ Not annualized.

⁵ The expenses incurred by underlying funds in which the fund invests are not included in this ratio.

⁶ Annualized.

See financial notes 5

Schwab VIT Balanced with Growth Portfolio

Portfolio Holdings as of June 30, 2014 (Unaudited)

This section shows all the securities in the fund’s portfolio and their values as of the report date.

Cost

Value

Holdings by Category

($)

.0%

Other Investment Companies

81,763,739

89,158,246

.4%

Short-Term Investments

3,113,960

100

.4%

Total Investments

84,877,699

92,272,206

.4%)

Other Assets and Liabilities, Net

(403,285

)

100

.0%

Net Assets

91,868,921


	Number		Value
Security	of Shares		($)

Other Investment Companies 97.0% of net assets

U.S. Stocks 29.7%


Large-Cap 22.9%
Schwab U.S. Large-Cap ETF (a)		448,648		21,010,186


Micro-Cap 1.0%
iShares Micro-Cap ETF		12,339		939,244


Small-Cap 5.8%
Schwab U.S. Small-Cap ETF (a)		97,248		5,330,163

				27,279,593

International Stocks 26.3%


Developed-Market Large-Cap 17.3%
Schwab International Equity ETF (a)		481,524		15,880,662


Developed-Market Small-Cap 3.0%
Schwab International Small-Cap Equity ETF (a)		80,749		2,767,268


Emerging-Market 6.0%
Schwab Emerging Markets Equity ETF (a)		211,298		5,500,087

				24,148,017

Real Assets 10.0%


Commodity 4.0%
Credit Suisse Commodity Return Strategy Fund, Class I *		472,022		3,634,569


Real Estate 6.0%
Schwab U.S. REIT ETF (a)		156,314		5,528,826

				9,163,395

Fixed Income 28.9%


Agency Bond 2.0%
iShares Agency Bond ETF		16,329		1,839,788


Corporate Bond 4.5%
iShares Core U.S. Credit Bond ETF		37,115		4,136,095


High Yield Bond 1.3%
SPDR Barclays High Yield Bond ETF		28,904		1,206,164


Inflation-Protected Bond 1.7%
Schwab U.S. TIPS ETF (a)		27,621		1,538,490


International Developed-Market Bond 0.9%
SPDR Barclays International Treasury Bond ETF		14,711		894,282


Mortgage-Backed Bond 10.5%
iShares MBS ETF		89,013		9,632,987


Treasury Bond 8.0%
Schwab Intermediate-Term U.S. Treasury ETF (a)		138,226		7,345,330

				26,593,136

Money Market Fund 2.1%
Schwab Value Advantage Money Fund, Institutional Prime Shares 0.01% (a)(b)		1,974,105		1,974,105

Total Other Investment Companies
(Cost $81,763,739)				89,158,246



Issuer	Face Amount		Value
Rate, Maturity Date	($)		($)

Short-Term Investments 3.4% of net assets

Time Deposits 3.4%
Australia & New Zealand Banking Group Ltd.
0.03%, 07/01/14		922,669		922,669
DNB
0.03%, 07/01/14		345,953		345,953
Skandinaviska Enskilda Banken
0.03%, 07/01/14		922,669		922,669
Wells Fargo
0.03%, 07/01/14		922,669		922,669

Total Short-Term Investments
(Cost $3,113,960)				3,113,960



End of Investments.

At 06/30/14, the tax basis cost of the fund’s investments was $85,080,196 and the unrealized appreciation and depreciation were $7,192,010 and ($0) respectively, with a net unrealized appreciation of $7,192,010.


*		Non-income producing security.
(a)		Issuer is affiliated with the fund’s adviser.
(b)		The rate shown is the 7-day yield.

6 See financial notes

Schwab VIT Balanced with Growth Portfolio

Statement of

Operations

For the period January 1, 2014 through June 30, 2014; unaudited



Investment Income

Dividends received from affiliated underlying funds		$319,182
Dividends received from unaffiliated underlying funds		147,358
Interest	+	360

Total investment income		466,900

Expenses

Investment adviser and administrator fees		178,937
Professional fees		19,023
Transfer agent fees		10,702
Custodian fees		6,839
Independent trustees’ fees		5,780
Portfolio accounting fees		3,429
Shareholder reports		2,965
Other expenses	+	545

Total expenses		228,220
Expense reduction by CSIM	−	10,702

Net expenses	−	217,518

Net investment income		249,382

Realized and Unrealized Gains (Losses)

Net realized losses on sales of affiliated underlying funds		(71,108	)
Net realized losses on sales of unaffiliated underlying funds	+	(20,978	)

Net realized losses		(92,086	)
Net change in unrealized appreciation (depreciation) on affiliated underlying funds		3,663,248
Net change in unrealized appreciation (depreciation) on unaffiliated underlying funds	+	753,555

Net change in unrealized appreciation (depreciation)	+	4,416,803

Net realized and unrealized gains		4,324,717

Increase in net assets resulting from operations		$4,574,099

See financial notes 9

Schwab VIT Balanced with Growth Portfolio

Statement of

Changes in Net Assets

For the current and prior report periods
Figures for the current period are unaudited



Operations


1/1/14-6/30/14				1/1/13-12/31/13
Net investment income		$249,382			$672,303
Net realized losses		(92,086	)		(92,134	)
Net change in unrealized appreciation (depreciation)	+	4,416,803			2,953,194

Increase in net assets from operations		4,574,099			3,533,363

Distributions to Shareholders

Distributions from net investment income		(672,772	)		(14,602	)
Distributions from net realized gains	+	(12,459	)		—

Total distributions		($685,231	)		($14,602	)

Transactions in Fund Shares


		1/1/14-6/30/14					1/1/13-12/31/13
			SHARES		VALUE			SHARES		VALUE
Shares sold			1,580,976		$19,055,233			6,037,874		$68,100,595
Shares reinvested			55,127		685,231			1,327		14,477
Shares redeemed	+		(121,538	)	(1,454,026	)		(316,241	)	(3,590,732	)

Net transactions in fund shares			1,514,565		$18,286,438			5,722,960		$64,524,340

Shares Outstanding and Net Assets

		1/1/14-6/30/14					1/1/13-12/31/13
			SHARES		NET ASSETS			SHARES		NET ASSETS
Beginning of period			5,877,012		$69,693,615			154,052		$1,650,514
Total increase	+		1,514,565		22,175,306			5,722,960		68,043,101

End of period			7,391,577		$91,868,921			5,877,012		$69,693,615


Net investment income not yet distributed					$248,897					$672,287

10 See financial notes

Schwab VIT Balanced with Growth Portfolio

Financial Notes, unaudited

1. Business Structure of the Fund:

Schwab VIT Balanced with Growth Portfolio (the “fund”) is a series of Schwab Annuity Portfolios (the “trust”), a no-load, open-end management investment company. The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”). The list below shows all the funds in the trust as of the end of the period, including the fund discussed in this report, which is highlighted:



Schwab Annuity Portfolios (organized January 21, 1994)
Schwab Money Market Portfolio
Schwab MarketTrack Growth Portfolio II
Schwab S&P 500 Index Portfolio
Schwab VIT Balanced Portfolio
Schwab VIT Balanced with Growth Portfolio
Schwab VIT Growth Portfolio

2. Significant Accounting Policies:

The following is a summary of the significant accounting policies the fund uses in its preparation of financial statements. The fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standard Codification Topic 946 Financial Services - Investment Companies. The accounting policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

(a) Security Valuation:

The fund values the securities in its portfolio every business day. The fund uses the following policies to value various types of securities:


	•	Underlying funds: Mutual funds are valued at their respective NAVs. ETFs traded on a recognized securities exchange are valued at the last reported sale price that day or the official closing price, if applicable.

	•	Securities for which no quoted value is available: The Board has adopted procedures to fair value the fund’s securities when market prices are not “readily available” or are unreliable. For example, a fund may fair value a security when it is de-listed or its trading is halted or suspended; when a security’s primary pricing source is unable or unwilling to provide a

Schwab VIT Balanced with Growth Portfolio

Financial Notes, unaudited (continued)

2. Significant Accounting Policies (continued):


		price; or when a security’s primary trading market is closed during regular market hours. The fund makes fair value determinations in good faith in accordance with the fund’s valuation procedures. The Pricing Committee considers a number of factors, including unobservable market inputs when arriving at fair value. The Pricing Committee may employ techniques such as the review of related or comparable assets or liabilities, related market activities, recent transactions, market multiples, book values, transactional back-testing, disposition analysis and other relevant information. The Pricing Committee regularly reviews these inputs and assumptions to calibrate the valuations. Due to the subjective and variable nature of fair value pricing, there can be no assurance that a fund could obtain the fair value assigned to the security upon the sale of such security. The Board convenes on a regular basis to review fair value determinations made by the fund pursuant to the valuation procedures.


	•	Short-term securities (60 days or less to maturity): Short-term securities are valued at amortized cost, which approximates market value.

The three levels of the fair value hierarchy are as follows:


	•	Level 1 — quoted prices in active markets for identical securities — Investments whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 prices, include active listed equities and ETFs. Investments in mutual funds are valued daily at their NAVs, and investments in ETFs are valued daily at the last reported sale price or the official closing price, which are classified as Level 1 prices.

	•	Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) — Investments that trade in markets that are not considered to be active, but whose values are based on quoted market prices, dealer quotations or valuations provided by alternative pricing sources supported by observable inputs are classified as Level 2 prices. These generally include U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage products, less liquid listed equities, and state, municipal and provincial obligations. As investments whose values are classified as Level 2 prices include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.

	•	Level 3 — significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments) — Investments whose values are classified as Level 3 prices have significant unobservable inputs, as they may trade infrequently or not at all. When observable prices are not available for these securities, the fund uses one or more valuation techniques for which sufficient and reliable data is available. The inputs used by the fund in estimating the value of Level 3 prices may include the original transaction price, quoted prices for similar securities or assets in active markets, completed or pending third-party transactions in the underlying investment or comparable issuers, and changes in financial ratios or cash flows. Level 3 prices may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the fund in the absence of market information. Assumptions used by the fund due to the lack of observable inputs may significantly impact the resulting fair value and therefore the fund’s results of operations.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The levels associated with valuing the fund’s investments as of June 30, 2014 are disclosed in the Portfolio Holdings.

Schwab VIT Balanced with Growth Portfolio

Financial Notes, unaudited (continued)

2. Significant Accounting Policies (continued):

(b) Security Transactions:

(c) Investment Income:

(d) Expenses:

(e) Distributions to Shareholders:

The fund makes distributions from net investment income and net realized capital gains, if any, once a year.

(f) Accounting Estimates:

(g) Federal Income Taxes:

(h) Indemnification:

3. Risk Factors:

Schwab VIT Balanced with Growth Portfolio

Financial Notes, unaudited (continued)

3. Risk Factors (continued):

Underlying Fund Investment Risk. The value of an investment in the fund is based primarily on the prices of the underlying funds that the fund purchases. In turn, the price of each underlying fund is based on the value of its securities. Before investing in the fund, investors should assess the risks associated with the underlying funds in which the fund may invest and the types of investments made by those underlying funds. The risks below summarize certain principal investment risks of the underlying funds that are also principal investment risks to which the fund is subject because of the fund’s investment allocation in the underlying funds and the underlying funds’ asset allocation.


	•	Equity Risk. The prices of equity securities rise and fall daily. These price movements may result from factors affecting individual companies, industries or the securities market as a whole. In addition, equity markets tend to move in cycles, which may cause stock prices to fall over short or extended periods of time.

	•	Large-Cap Risk. Large-cap stocks tend to go in and out of favor based on market and economic conditions. During a period when large-cap stocks fall behind other types of investments — bonds or mid- or small- cap stocks, for instance — an underlying fund’s performance also will lag those investments.

	•	Small-Cap Risk. Historically, small-cap stocks have been riskier than large- and mid-cap stocks, and their prices may move sharply, especially during market upturns and downturns. Small-cap companies may be more vulnerable to adverse business or economic events than larger, more established companies. During a period when small-cap stocks fall behind other types of investments — bonds or large-cap stocks, for instance — an underlying fund’s performance also will lag those investments.

	•	Foreign Investment Risk. An underlying fund’s investments in securities of foreign issuers may involve certain risks that are greater than those associated with investments in securities of U.S. issuers. These include risks of adverse changes in foreign economic, political, regulatory and other conditions; changes in currency exchange rates or exchange control regulations (including limitations on currency movements and exchanges); the imposition of economic sanctions or other government restrictions; differing accounting, auditing, financial reporting and legal standards and practices; differing securities market structures; and higher transaction costs. These risks may negatively impact the value or liquidity of the underlying fund’s investments, and could impair the underlying fund’s ability to meet its investment objective or invest in accordance with its investment strategy. These risks may be heightened in connection with investments in emerging markets. To the extent an underlying fund’s investment in a single country or a limited number of countries represents a large percentage of the underlying fund’s assets, the underlying fund’s performance may be adversely affected by the economic, political and social conditions in those countries and it may be subject to increased price volatility.

	•	Emerging Market Risk. An underlying fund’s investments in securities of emerging market countries may involve certain risks that are greater than those associated with investments in securities of developed countries. Emerging market countries may be more likely to experience political turmoil or rapid changes in market or economic conditions than more developed countries. Such countries often have less uniformity in accounting and reporting requirements and greater risk associated with the custody of securities. In addition, the financial stability of issuers (including governments) in emerging market countries may be more precarious than in other countries. As a result, there will tend to be an increased risk of price volatility associated with an underlying fund’s investments in emerging market countries and, at times, it may be difficult to value such investments.

	•	Currency Risk. As a result of an underlying fund’s investments in securities denominated in, and/or receiving revenues in foreign currencies, the fund will be subject to currency risk. This is the risk that those currencies will decline in value relative to the U.S. dollar, or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency hedged. In either event, the dollar value of an investment in an underlying fund would be adversely affected.

	•	Growth Investing Risk. Certain of the underlying funds pursue a “growth style” of investing. Growth investing focuses on a company’s prospects for growth of revenue and earnings. If a company’s earnings or revenues fall short of expectations, its stock price may fall dramatically. Growth stocks also can perform differently from the market as a whole and other

Schwab VIT Balanced with Growth Portfolio

Financial Notes, unaudited (continued)

3. Risk Factors (continued):


		types of stocks and can be more volatile than other types of stocks. Since growth companies usually invest a high portion of earnings in their business, they may lack the dividends of value stocks that can cushion stock prices in a falling market. Growth stocks may also be more expensive relative to their earnings or assets compared to value or other stocks.


	•	Value Investing Risk. Certain of the underlying funds may pursue a “value style” of investing. Value investing focuses on companies whose stocks appear undervalued in light of factors such as the company’s earnings, book value, revenues or cash flow. If an underlying fund’s investment adviser’s (or sub-adviser’s) assessment of a company’s value or prospects for exceeding earnings expectations or market conditions is wrong, the underlying fund could suffer losses or produce poor performance relative to other funds. In addition, “value stocks” can continue to be undervalued by the market for long periods of time.

	•	Debt Securities Risk. Bond prices generally fall when interest rates rise. Bonds with longer maturities tend to be more sensitive to this risk. Underlying fund performance also could be affected if an issuer or guarantor of a bond held by the fund fails to make timely principal or interest payments or otherwise honor its obligations. Lower-quality bonds are considered speculative with respect to their issuer’s ability to make timely payments or otherwise honor their obligations. In addition, prices of lower-quality bonds tend to be more volatile than those of investment-grade bonds, and may fall based on bad news about the issuer, an industry or the overall economy.

	•	Interest Rate Risk. An underlying fund’s investments in fixed income securities are subject to the risk that interest rates rise and fall over time. As with any investment whose yield reflects current interest rates, an underlying fund’s yield will change over time. During periods when interest rates are low, an underlying fund’s yield (and total return) also may be low. Changes in interest rates also may affect an underlying fund’s share price: a sharp rise in interest rates could cause the underlying fund’s share price to fall. The longer the underlying fund’s duration, the more sensitive to interest rate movements its share price is likely to be. Because interest rates in the United States are at, or near, historically low levels, a change in a central bank’s monetary policy (e.g., tapering of the Federal Reserve Board’s quantitative easing program) or improving economic conditions may result in an increase in interest rates.

	•	Credit Risk. Certain of the underlying funds are subject to the risk that a decline in the credit quality of a portfolio investment could cause the underlying fund’s share price to fall. An underlying fund could lose money if the issuer or guarantor of a portfolio investment fails to make timely principal or interest payments or otherwise honor its obligations. Securities rated below investment grade (junk bonds) involve greater risk of price declines than investment grade securities due to actual or perceived changes in the issuer’s creditworthiness.

	•	Prepayment and Extension Risk. An underlying fund’s investments in fixed income securities are subject to the risk that the securities may be paid off earlier or later than expected. Either situation could cause the underlying fund to hold securities paying lower-than-market rates of interest, which could hurt the underlying fund’s yield or share price.

	•	U.S. Government Securities Risk. Some of the U.S. government securities that the underlying funds invest in are not backed by the full faith and credit of the U.S. government, which means they are neither issued nor guaranteed by the U.S. Treasury. Certain securities such as those issued by the Federal Home Loan Banks are supported by limited lines of credit maintained by their issuers with the U.S. Treasury. Securities issued by other issuers, such as the Federal Farm Credit Banks Funding Corporation, are supported solely by the credit of the issuer. There can be no assurance that the U.S. government will provide financial support to securities of its agencies and instrumentalities if it is not obligated to do so under law. Also, any government guarantees on securities the underlying funds own do not extend to shares of the underlying funds themselves.

	•	Real Estate Investment Risk. An underlying fund in which the portfolio may invest may have a policy of concentrating its investments in real estate companies and companies related to the real estate industry. Such an underlying fund is subject to risks associated with the direct ownership of real estate securities and a portfolio’s investment in such an underlying fund is subject to risks associated with the direct ownership of real estate securities and an investment in the underlying fund will be closely linked to the performance of the real estate markets. These risks include, among others, declines in the value of real estate; risks related to general and local economic conditions; possible lack of availability of mortgage funds or other limits to accessing the credit or capital markets; defaults by borrowers or tenants, particularly during an economic downturn; and changes in interest rates.

Schwab VIT Balanced with Growth Portfolio

Financial Notes, unaudited (continued)

3. Risk Factors (continued):


	•	Real Estate Investment Trust (REIT) Risk. An underlying fund may invest in REITs. An underlying fund’s investments in REITs will be subject to the risks associated with the direct ownership of real estate, including fluctuations in the value of underlying properties, defaults by borrowers or tenants, changes in interest rates and risks related to general or local economic conditions. REITs are also subject to certain additional risks. For example, equity REITs may be affected by changes in the value of the underlying properties owned by the trusts, and mortgage REITs may be affected by the quality of any credit extended. Further, REITs are dependent upon specialized management skills and may have their investments in relatively few properties, a small geographic area or a single property type. Failure of a company to qualify as a REIT under federal tax law may have adverse consequences for the underlying fund. In addition, REITs have their own expenses, and the underlying fund will bear a proportionate share of those expenses.

	•	Mortgage-Backed and Mortgage Pass-Through Securities Risk. Certain of the mortgage-backed securities in which an underlying fund may invest are not backed by the full faith and credit of the U.S. government and there can be no assurance that the U.S. government would provide financial support to its agencies or instrumentalities where it was not obligated to do so. Mortgage-backed securities tend to increase in value less than other debt securities when interest rates decline, but are subject to similar risk of decline in market value during periods of rising interest rates. Because of prepayment and extension risk, mortgage-backed securities react differently to changes in interest rates than other bonds. Small movements in interest rates — both increases and decreases — may quickly and significantly affect the value of certain mortgage-backed securities. Transactions in mortgage pass-through securities primarily occur through to be announced (TBA) transactions. Default by or bankruptcy of a counterparty to a TBA transaction would expose an underlying fund to possible losses because of an adverse market action, expenses, or delays in connection with the purchase or sale of the pools of mortgage pass-through securities specified in the TBA transaction.

	•	Portfolio Turnover Risk. Certain of the underlying funds may buy and sell portfolio securities actively. If they do, their portfolio turnover rate and transaction costs will rise, which may lower the underlying fund’s performance and may increase the likelihood of capital gain distributions.

	•	Commodity Risk. To the extent that an underlying fund invests in commodity-linked derivative instruments, it may subject the underlying fund to greater volatility than investments in traditional securities. Also, commodity-linked investments may be more volatile and less liquid than the underlying commodity. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and other regulatory and market developments. The use of leveraged commodity-linked derivatives creates an opportunity for increased return, but also creates the possibility for a greater loss.

	•	Liquidity Risk. A particular investment may be difficult to purchase or sell. An underlying fund may be unable to sell illiquid securities at an advantageous time or price.

	•	Derivatives Risk. An underlying fund’s use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments and could cause the fund to lose more than the principal amount invested.

	•	Management Risk. An underlying fund may be an actively managed mutual fund. Any actively managed mutual fund is subject to the risk that its investment adviser (or sub-adviser(s)) will select investments or allocate assets in a manner that could cause the fund to underperform or otherwise not meet its objective. An underlying fund’s adviser applies its own investment techniques and risk analyses in making investment decisions for the fund, but there can be no guarantee that they will produce the desired results.

	•	Investment Style Risk. Certain underlying funds seek to track the performance of various segments of the stock market, as measured by their respective indices. Such underlying funds follow these stocks during upturns as well as downturns. Because of their indexing strategy, these underlying funds do not take steps to reduce market exposure or to lessen the effects of a declining market. In addition, because of an underlying fund’s expenses, the underlying fund’s performance is normally below that of the index.

Schwab VIT Balanced with Growth Portfolio

Financial Notes, unaudited (continued)

3. Risk Factors (continued):


	•	Tracking Error Risk. An underlying fund may seek to track the performance of its benchmark index, although it may not be successful in doing so. The divergence between the performance of a fund and its benchmark index, positive or negative, is called “tracking error.” Tracking error can be caused by many factors and it may be significant.

	•	Concentration Risk. To the extent that an underlying fund’s portfolio is concentrated in the securities of issuers in a particular market, industry, group of industries, sector or asset class, the underlying fund may be adversely affected by the performance of those securities, may be subject to increased price volatility and may be more susceptible to adverse economic, market, political, or regulatory occurrences affecting that market, industry, group of industries, sector or asset class.

	•	Money Market Risk. Although an underlying money market fund seeks to maintain a stable $1 net asset value, it is possible to lose money by investing in a money market fund. In addition, a money market fund is not designed to offer capital appreciation.

Please refer to the fund’s prospectus for a more complete description of the principal risks of investing in the fund.

4. Affiliates and Affiliated Transactions:

For its advisory and administrative services to the fund, CSIM is entitled to receive an annual fee, payable monthly, equal to 0.45% of the fund’s average daily net assets.

CSIM and its affiliates have made an additional agreement with the fund, for so long as CSIM serves as the investment adviser to the fund, which may only be amended or terminated with approval of the fund’s Board, to limit the total annual fund operating expenses charged, excluding interest, taxes and certain non-routine expenses of the fund to 0.58%.

The fund may engage in certain transactions involving related parties. Pursuant to an exemptive order issued by the SEC, the fund may invest in other related ETFs and mutual funds. As of June 30, 2014, the Schwab VIT Balanced with Growth Portfolio’s ownership percentages of other related funds’ shares are:


Schwab U.S. Large-Cap ETF	0.7%
Schwab U.S. Small-Cap ETF	0.3%
Schwab International Equity ETF	0.6%
Schwab International Small-Cap Equity ETF	0.7%
Schwab Emerging Markets Equity ETF	0.5%
Schwab U.S. REIT ETF	0.5%
Schwab U.S. TIPS ETF	0.3%
Schwab Intermediate-Term U.S. Treasury ETF	3.5%
Schwab Value Advantage Money Fund, Institutional Prime Shares	0.0%	*


*		Less than 0.1%

Below is a summary of the fund’s transactions with its affiliated underlying funds during the period ended June 30, 2014.

Schwab VIT Balanced with Growth Portfolio

Financial Notes, unaudited (continued)

4. Affiliates and Affiliated Transactions (continued):


												Realized			Distributions
	Balance of							Balance of		Market		Gains (Losses)			Received*
	Shares Held		Gross		Gross			Shares Held		Value at		01/01/14 to			01/01/14 to
Underlying Funds	at 12/31/13		Purchases		Sales			at 06/30/14		06/30/14		06/30/14			06/30/14

Schwab U.S. Large-Cap ETF		355,558		100,516		(7,426	)		448,648		$21,010,186		($1,532	)		$178,415
Schwab U.S. Small-Cap ETF		79,506		25,941		(8,199	)		97,248		5,330,163		(2,390	)		40,333
Schwab International Equity ETF		381,064		123,482		(23,022	)		481,524		15,880,662		(2,780	)		—
Schwab International Small-Cap Equity ETF		67,676		20,233		(7,160	)		80,749		2,767,268		1,008			—
Schwab Emerging Markets Equity ETF		175,928		50,059		(14,689	)		211,298		5,500,087		(22,056	)		—
Schwab U.S. REIT ETF		137,375		31,315		(12,376	)		156,314		5,528,826		(31,596	)		55,694
Schwab U.S. TIPS ETF		22,342		6,247		(968	)		27,621		1,538,490		(4,457	)		6,861
Schwab Intermediate-Term U.S. Treasury ETF		106,773		35,754		(4,301	)		138,226		7,345,330		(7,305	)		37,750
Schwab Value Advantage Money Fund, Institutional Prime Shares		1,974,000		105		—			1,974,105		1,974,105		—			129

Total											$66,875,117		($71,108	)		$319,182


*		Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds.

5. Board of Trustees:

6. Borrowing from Banks:

The fund has access to custodian overdraft facilities, a committed line of credit of $150 million with State Street Bank and Trust Company (“State Street”), an uncommitted line of credit of $100 million with Bank of America, N.A. and an uncommitted line of credit of $50 million with Brown Brothers Harriman & Co. The fund pays interest on the amount it borrows at rates that are negotiated periodically. The fund also pays an annual fee to State Street for the committed line of credit.

7. Purchases and Sales/Maturities of Investment Securities:

For the period ended June 30, 2014, purchases and sales/maturities of securities (excluding short-term obligations) were as follows:

Schwab VIT Balanced with Growth Portfolio

Financial Notes, unaudited (continued)

8. Federal Income Taxes:

Capital loss carryforwards may be used to offset future realized capital gains for federal income tax purposes. As of December 31, 2013, the fund had no capital loss carryforwards.

9. Subsequent Events:

The Board of Trustees (the “Board” or the “Trustees”, as appropriate) calls and holds one or more meetings each year that are dedicated, in whole or in part, to considering whether to renew the investment advisory agreement between Schwab Annuity Portfolios (the “Trust”) and Charles Schwab Investment Management, Inc. (“CSIM”) (the “Agreement”) with respect to Schwab VIT Balanced with Growth Portfolio (the “Fund”), and to review certain other agreements pursuant to which CSIM provides investment advisory services to certain other registered investment companies. In preparation for the meeting(s), the Board requests and reviews a wide variety of materials provided by CSIM, including information about CSIM’s affiliates, personnel and operations. The Board also receives extensive data provided by third parties. This information is in addition to the detailed information about the Fund that the Board reviews during the course of each year, including information that relates to Fund operations and Fund performance. The Independent Trustees receive advice from independent counsel to the Independent Trustees, including a memorandum regarding the responsibilities of trustees for the approval of investment advisory agreements. In addition, the Independent Trustees meet in executive session outside the presence of Fund management and participate in question and answer sessions with representatives of CSIM.


1.	the nature, extent and quality of the services provided to the Fund under the Agreement, including the resources of CSIM and its affiliates dedicated to the Fund;

2.	the Fund’s investment performance and how it compared to that of certain other comparable mutual funds;

3.	the Fund’s expenses and how those expenses compared to those of certain other comparable mutual funds;

4.	the profitability of CSIM and its affiliates, including Charles Schwab & Co., Inc. (“Schwab”), with respect to the Fund, including both direct and indirect benefits accruing to CSIM and its affiliates; and

5.	the extent to which economies of scale would be realized as the Fund grows and whether fee levels in the Agreement reflect those economies of scale for the benefit of Fund investors.

Independent Trustees


Name, Year of Birth,		Number of
and Position(s) with		Portfolios in
the trust; (Terms of		Fund Complex
office, and length of	Principal Occupations	Overseen by
Time Served¹)	During the Past Five Years	the Trustee	Other Directorships

Mariann Byerwalter 1960 Trustee (Trustee of Schwab Annuity Portfolios since 2000.)	Chairman of JDN Corporate Advisory LLC (advisory services firm) (Oct. 2001 – present).	76	Director, WageWorks, Inc. (2010 – present) Director, Redwood Trust, Inc. (1998 – present) Director, PMI Group Inc. (2001 – 2009)


John F. Cogan 1947 Trustee (Trustee of Schwab Annuity Portfolios since 2008.)	Senior Fellow, The Hoover Institution at Stanford University (Oct. 1979 – present); Senior Fellow, Stanford Institute for Economic Policy Research; Professor of Public Policy, Stanford University (Sept. 2000 – present).	76	Director, Gilead Sciences, Inc. (2005 – present) Director, Monaco Coach Corporation (2005 – 2009)


David L. Mahoney 1954 Trustee (Trustee of Schwab Annuity Portfolios since 2011.)	Private Investor.	76	Director, Symantec Corporation (2003 – present) Director, Corcept Therapeutics Incorporated (2004 – present)


Kiran M. Patel 1948 Trustee (Trustee of Schwab Annuity Portfolios since 2011.)	Retired. Executive Vice President and General Manager of Small Business Group, Intuit, Inc. (financial software and services for consumers and small businesses) (Dec. 2008 – Sept. 2013).	76	Director, KLA-Tencor Corporation (2008 – present)


Gerald B. Smith 1950 Trustee (Trustee of Schwab Annuity Portfolios since 2000.)	Chairman, Chief Executive Officer and Founder of Smith Graham & Co. (investment advisors) (1990 – present).	76	Director, Eaton (2012 – present) Director and Chairman of the Audit Committee, Oneok Partners LP (2003 – 2013) Director, Oneok, Inc. (2009 – 2013) Lead Independent Director, Board of Cooper Industries (2002 – 2012)


Joseph H. Wender 1944 Trustee (Trustee of Schwab Annuity Portfolios since 2008.)	Senior Consultant, Goldman Sachs & Co., Inc. (investment banking and securities firm) (Jan. 2008 – present); Partner, Colgin Partners, LLC (vineyards) (February 1998 – present).	76	Board Member and Chairman of the Audit Committee, Isis Pharmaceuticals (1994 – present)

Interested Trustees


Name, Year of Birth,		Number of
and Position(s) with		Portfolios in
the trust; (Terms of		Fund Complex
office, and length of	Principal Occupations	Overseen by
Time Served)	During the Past Five Years	the Trustee	Other Directorships

Charles R. Schwab²1937 Chairman and Trustee (Chairman and Trustee of Schwab Annuity Portfolios since 1994.)	Chairman and Director, The Charles Schwab Corporation, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc., Charles Schwab Bank, N. A.; Chairman and Chief Executive Officer, Schwab (SIS) Holdings Inc. I, Schwab International Holdings, Inc.; Chief Executive Officer, Schwab Holdings, Inc.; Through June 2007, Director, U.S. Trust Company, N. A., U.S. Trust Corporation, United States Trust Company of New York. Until October 2008, Chief Executive Officer, The Charles Schwab Corporation, Charles Schwab & Co., Inc.	76	None


Walter W. Bettinger II²1960 Trustee (Trustee of Schwab Annuity Portfolios since 2008.)	As of October 2008, President and Chief Executive Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation. Since October 2008, Director, The Charles Schwab Corporation. Since May 2008, Director, Charles Schwab & Co., Inc. and Schwab Holdings, Inc. Since 2006, Director, Charles Schwab Bank. Until October 2008, President and Chief Operating Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation. From 2004 through 2007, Executive Vice President and President, Schwab Investor Services. From 2004 through 2005, Executive Vice President and Chief Operating Officer, Individual Investor Enterprise, and from 2002 through 2004, Executive Vice President, Corporate Services.	97	None

Officers of the Trust


Name, Year of Birth, and Position(s)
with the trust; (Terms of office, and
length of Time Served³)		Principal Occupations During the Past Five Years

Marie Chandoha 1961 President and Chief Executive Officer (Officer of Schwab Annuity Portfolios since 2010.)		Executive Vice President, Charles Schwab & Co., Inc. (Sept. 2010 – present); Director, President and Chief Executive Officer (Dec. 2010 – present), Chief Investment Officer (Sept. 2010 – Oct. 2011), Charles Schwab Investment Management, Inc.; President, Chief Executive Officer (Dec. 2010 – present), and Chief Investment Officer (Sept. 2010 – Oct. 2011), Schwab Funds, Laudus Funds and Schwab ETFs; Global Head of Fixed Income Business Division, BlackRock, Inc. (formerly Barclays Global Investors) (March 2007 – August 2010).


George Pereira 1964 Treasurer and Principal Financial Officer (Officer of Schwab Annuity Portfolios since 2004.)		Senior Vice President and Chief Financial Officer (Nov. 2004 – present), Chief Operating Officer (Jan. 2011 – present), Charles Schwab Investment Management, Inc.; Treasurer and Chief Financial Officer, Laudus Funds (2006 – present); Treasurer and Principal Financial Officer, Schwab Funds (Nov. 2004 – present) and Schwab ETFs (Oct. 2009 – present); Director, Charles Schwab Worldwide Fund, PLC and Charles Schwab Asset Management (Ireland) Limited (April 2005 – present).


Omar Aguilar 1970 Senior Vice President and Chief Investment Officer – Equities (Officer of Schwab Annuity Portfolios since 2011.)		Senior Vice President and Chief Investment Officer — Equities, Charles Schwab Investment Management, Inc. (April 2011 – present); Senior Vice President and Chief Investment Officer – Equities, Schwab Funds and Laudus Funds (June 2011 – present); Head of the Portfolio Management Group and Vice President of Portfolio Management, Financial Engines, Inc. (May 2009 – April 2011); Head of Quantitative Equity, ING Investment Management (July 2004 – Jan. 2009).

Officers of the Trust (continued)


Name, Year of Birth, and Position(s)
with the trust; (Terms of office, and
length of Time Served³)		Principal Occupations During the Past Five Years

Brett Wander 1961 Senior Vice President and Chief Investment Officer – Fixed Income (Officer of Schwab Annuity Portfolios since 2011.)		Senior Vice President and Chief Investment Officer – Fixed Income, Charles Schwab Investment Management, Inc. (April 2011 – present); Senior Vice President and Chief Investment Officer – Fixed Income, Schwab Funds and Laudus Funds (June 2011 – present); Senior Managing Director, Global Head of Active Fixed-Income Strategies, State Street Global Advisors (Jan. 2008 – Oct. 2010); Director of Alpha Strategies, Loomis, Sayles & Company (April 2006 – Jan. 2008).


David Lekich 1964 Chief Legal Officer and Secretary (Officer of Schwab Annuity Portfolios since 2011.)		Senior Vice President (Sept. 2011 – present), Vice President (March 2004 – Sept. 2011), Charles Schwab & Co., Inc.; Senior Vice President and Chief Counsel (Sept. 2011 – present), Vice President (Jan. 2011 – Sept. 2011), Charles Schwab Investment Management, Inc.; Secretary (April 2011 – present) and Chief Legal Officer (Dec. 2011 – present), Schwab Funds; Vice President and Assistant Clerk, Laudus Funds (April 2011 – present); Secretary (May 2011 – present) and Chief Legal Officer (Nov. 2011 – present), Schwab ETFs.


Catherine MacGregor 1964 Vice President and Assistant Secretary (Officer of Schwab Annuity Portfolios since 2005.)		Vice President, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. (July 2005 – present); Vice President (Dec. 2005 – present), Chief Legal Officer and Clerk (March 2007 – present), Laudus Funds; Vice President (Nov. 2005 – present) and Assistant Secretary (June 2007 – present), Schwab Funds; Vice President and Assistant Secretary, Schwab ETFs (Oct. 2009 – present).


¹		Trustees remain in office until they resign, retire or are removed by shareholder vote. The Schwab Funds retirement policy requires that independent trustees retire at age 72 or after twenty years as a trustee, whichever comes first. In addition, the retirement policy requires any independent trustee of Schwab Funds who also serves as an independent trustee of the Laudus Funds to retire from the Boards of the Schwab Funds upon their required retirement date from either the Boards of Trustees of the Schwab Funds or the Laudus Funds, whichever comes first.
²		Mr. Schwab and Mr. Bettinger are Interested Trustees because they own stock of The Charles Schwab Corporation, the parent company of the investment adviser.
³		The President, Treasurer and Secretary hold office until their respective successors are chosen and qualified or until he or she sooner dies, resigns, is removed or becomes disqualified. Each of the other officers serves at the pleasure of the Board.

Dow Jones U.S. Select REIT Index A float-adjusted market capitalization weighted index comprised of real estate investment trusts (REITs).

Dow Jones U.S. Total Stock Market Index An index that measures all U.S. equity securities with readily available prices.

Russell 2000 Index An index that measures the performance of the small-cap segment of the U.S. equity universe.

Schwab VIT Growth Portfolio

Asset Class Performance Comparison % returns during the 6 months ended 6/30/2014

This graph compares the performance of various asset classes. Final performance figures for the period are in the key below.



		7.14%		S&P 500^® Index: measures U.S. large-cap stocks

		3.19%		Russell 2000^® Index: measures U.S. small-cap stocks

		4.78%		MSCI EAFE^® Index (Net): measures (in U.S. dollars) large-cap stocks in Europe, Australasia and the Far East

		3.93%		Barclays U.S. Aggregate Bond Index: measures the U.S. bond market

		0.02%		Barclays U.S. Treasury Bills 1-3 Months Index: measures short-term U.S. Treasury obligations

Nothing in this report represents a recommendation of a security by the investment adviser.

Management views and portfolio holdings may have changed since the report date.

Schwab VIT Growth Portfolio 1

Performance and Fund Facts as of 06/30/14

Average Annual Total Returns^1,2


Portfolio and inception Date	6 Months			1 Year			Since Inception


Portfolio: Schwab VIT Growth Portfolio (07/25/12)		5.96	%		18.10	%		16.37	%
VIT Growth Composite Index		6.48	%		18.61	%		17.17	%
S&P 500^® Index		7.14	%		24.61	%		24.49	%
Barclays U.S. Aggregate Bond Index		3.93	%		4.37	%		1.10	%
Fund Category: Morningstar Aggressive Allocation		5.78	%		19.28	%		18.94	%

Portfolio Expense Ratios³: Net 0.78%; Gross 0.97%

Statistics


Number of Holdings			17
Portfolio Turnover Rate⁴			3%

Asset Class Weightings % of Investments⁵


Stocks – U.S.			38.7%
Stocks – International			34.3%
Fixed Income			12.0%
Real Assets			9.9%
Short-Term Investments			3.0%
Money Market Fund			2.1%
Total			100.0%

Top Holdings % of Net Assets^6,7


Schwab U.S. Large-Cap ETF			29.9%
Schwab International Equity ETF			21.3%
Schwab Emerging Markets Equity ETF			8.0%
Schwab U.S. Small-Cap ETF			6.8%
Schwab U.S. REIT ETF			6.0%
Schwab International Small-Cap Equity ETF			5.0%
iShares MBS ETF			4.5%
Schwab Intermediate-Term U.S. Treasury ETF			4.2%
Credit Suisse Commodity Return Strategy Fund, Class I			3.9%
iShares Core U.S. Credit Bond ETF			2.6%
Total			92.2%

The components that make up the composite index may vary over time. For index definitions, please see the Glossary.

Portfolio holdings may have changed since the report date.


¹		Source for category information: Morningstar, Inc. The Morningstar Category return represents all active and index mutual funds within the category as of the report date.
²		Portfolio expenses have been partially absorbed by CSIM and its affiliates. Without these reductions, the portfolio’s returns would have been lower. Portfolio performance does not reflect the additional fees and expenses imposed by the insurance company under the variable insurance product contract. If those contract fees and expenses were included, the performance would be less than that shown. Please refer to the variable insurance product prospectus for a complete listing of these expenses.
³		As stated in the prospectus. Includes expenses of the underlying funds in which the portfolio invests. The annualized weighted average expense ratio of the underlying funds was 0.20%. Net Expense: Expenses reduced by a contractual fee waiver in effect for so long as CSIM serves as adviser to the fund. Gross Expense: Does not reflect the effect of contractual fee waivers. For actual ratios during the period, refer to the financial highlights section of the financial statements.
⁴		Not annualized.
⁵		The portfolio intends to primarily invest in affiliated Schwab exchange traded funds (ETFs) and unaffiliated third-party ETFs. The portfolio may also invest in affiliated Schwab and Laudus Funds and unaffiliated third party mutual funds (all such ETFs and mutual funds referred to as “underlying funds”). The portfolio may also invest directly in equity or fixed income securities, and money market investments to achieve its investment objectives.
⁶		This list is not a recommendation of any security by the investment adviser.
⁷		The holdings listed exclude any temporary liquidity investments.

Schwab VIT Growth Portfolio 3

Fund Expenses (Unaudited)

Examples for a $1,000 Investment

The portfolio incurs ongoing costs, such as management fees, transfer agent and shareholder services fees, and other fund expenses.

Please note that the expenses shown in the table are meant to highlight your ongoing costs.


					Ending
			Beginning		Account Value		Expenses Paid
	Expense Ratio¹		Account Value		(Net of Expenses)		During Period²
	(Annualized)		at 1/1/14		at 6/30/14		1/1/14–6/30/14

Schwab VIT Growth Portfolio
Actual Return		0.54%	$	1,000.00	$	1,059.60	$	2.76
Hypothetical 5% Return		0.54%	$	1,000.00	$	1,022.12	$	2.71


¹		Based on the most recent six-month expense ratio; may differ from the expense ratio provided in the Financial Highlights. The expenses incurred by the underlying funds in which the portfolio invests are not included in this ratio.
²		Expenses for the portfolio are equal to its annualized expense ratio, multiplied by the average account value over the period, multiplied by 181 days of the period, and divided by 365 days of the fiscal year.

4 Schwab VIT Growth Portfolio

Schwab VIT Growth Portfolio

Financial Statements

Financial Highlights


	1/1/14–			1/1/13–			7/25/12¹–
	6/30/14*			12/31/13			12/31/12


Per-Share Data ($)

Net asset value at beginning of period		12.65			10.95			10.00

Income (loss) from investment operations:
Net investment income (loss)		0.03	²		0.33	²		0.13
Net realized and unrealized gains (losses)		0.72			1.37			0.82

Total from investment operations		0.75			1.70			0.95
Less distributions:
Distributions from net investment income		(0.10	)		(0.00	)³		—
Distributions from net realized gains		(0.00	)³		—			—

Total distributions		(0.10	)		(0.00	)³		—

Net asset value at end of period		13.30			12.65			10.95

Total return (%)		5.96	⁴		15.56			9.50	⁴

Ratios/Supplemental Data (%)

Ratios to average net assets:
Net operating expenses⁵		0.54	⁶		0.58			0.59	^6,7
Gross operating expenses⁵		0.56	⁶		0.77			26.08	⁶
Net investment income (loss)		0.51	⁶		2.72			3.96	⁶
Portfolio turnover rate		3	⁴		9			29	⁴
Net assets, end of period ($ x 1,000,000)		102			77			1

* Unaudited.

¹ Commencement of operations.

² Calculated based on the average shares outstanding during the period.

³ Per-share amount was less than $0.01.

⁴ Not annualized.

⁵ The expenses incurred by underlying funds in which the fund invests are not included in this ratio.

⁶ Annualized.

⁷ The ratio of net operating expenses would have been 0.58%, if interest expense had not been incurred.

See financial notes 5

Schwab VIT Growth Portfolio

Portfolio Holdings as of June 30, 2014 (Unaudited)

This section shows all the securities in the fund’s portfolio and their values as of the report date.

Cost

Value

Holdings by Category

($)

.1%

Other Investment Companies

89,253,359

98,520,563

.0%

Short-Term Investments

3,079,855

100

.1%

Total Investments

92,333,214

101,600,418

.1%)

Other Assets and Liabilities, Net

(86,471

)

100

.0%

Net Assets

101,513,947


	Number		Value
Security	of Shares		($)

Other Investment Companies 97.1% of net assets

U.S. Stocks 38.7%


Large-Cap 29.9%
Schwab U.S. Large-Cap ETF (a)		647,156		30,306,315


Micro-Cap 2.0%
iShares Micro-Cap ETF		27,138		2,065,745


Small-Cap 6.8%
Schwab U.S. Small-Cap ETF (a)		126,078		6,910,335

				39,282,395

International Stocks 34.3%


Developed-Market Large-Cap 21.3%
Schwab International Equity ETF (a)		655,291		21,611,497


Developed-Market Small-Cap 5.0%
Schwab International Small-Cap Equity ETF (a)		148,163		5,077,546


Emerging-Market 8.0%
Schwab Emerging Markets Equity ETF (a)		311,576		8,110,323

				34,799,366

Real Assets 9.9%


Commodity 3.9%
Credit Suisse Commodity Return Strategy Fund, Class I *		519,672		4,001,471


Real Estate 6.0%
Schwab U.S. REIT ETF (a)		172,246		6,092,341

				10,093,812

Fixed Income 12.0%


Corporate Bond 2.6%
iShares Core U.S. Credit Bond ETF		23,695		2,640,571


Inflation-Protected Bond 0.7%
Schwab U.S. TIPS ETF (a)		12,642		704,160


Mortgage-Backed Bond 4.5%
iShares MBS ETF		42,128		4,559,092


Treasury Bond 4.2%
Schwab Intermediate-Term U.S. Treasury ETF (a)		80,223		4,263,050

				12,166,873

Money Market Fund 2.2%
Schwab Value Advantage Money Fund, Institutional Prime Shares 0.01% (a)(b)		2,178,117		2,178,117

Total Other Investment Companies
(Cost $89,253,359)				98,520,563



Issuer	Face Amount		Value
Rate, Maturity Date	($)		($)

Short-Term Investments 3.0% of net assets

Time Deposits 3.0%
Australia & New Zealand Banking Group Ltd.
0.03%, 07/01/14		1,016,483		1,016,483
DNB
0.03%, 07/01/14		30,406		30,406
Skandinaviska Enskilda Banken
0.03%, 07/01/14		1,016,483		1,016,483
Wellls Fargo
0.03%, 07/01/14		1,016,483		1,016,483

Total Short-Term Investments
(Cost $3,079,855)				3,079,855



End of Investments.

At 06/30/14, the tax basis cost of the fund’s investments was $92,479,158 and the unrealized appreciation and depreciation were $9,121,260 and ($0), respectively, with a net unrealized appreciation of $9,121,260.


*		Non-income producing security.
(a)		Issuer is affiliated with the fund’s adviser.
(b)		The rate shown is the 7-day yield.


ETF —		Exchange traded fund
MBS —		Mortgage-Backed Security
REIT —		Real Estate Investment Trust
TIPS —		Treasury Inflation Protected Securities

6 See financial notes

Schwab VIT Growth Portfolio

Statement of

Operations

For the period January 1, 2014 through June 30, 2014; unaudited



Investment Income

Dividends received from affiliated underlying funds		$403,092
Dividends received from unaffiliated underlying funds		63,285
Interest	+	416

Total investment income		466,793

Expenses

Investment adviser and administrator fees		200,017
Professional fees		18,738
Transfer agent fees		10,699
Custodian fees		6,581
Independent trustees’ fees		5,982
Portfolio accounting fees		3,489
Shareholder reports		2,788
Other expenses	+	525

Total expenses		248,819
Expense reduction by CSIM	−	10,699

Net expenses	−	238,120

Net investment income		228,673

Realized and Unrealized Gains (Losses)

Net realized losses on sales of affiliated underlying funds		(50,322	)
Net realized losses on sales of unaffiliated underlying funds	+	(10,167	)

Net realized losses		(60,489	)
Net change in unrealized appreciation (depreciation) on affiliated underlying funds		4,871,556
Net change in unrealized appreciation (depreciation) on unaffiliated underlying funds	+	479,694

Net change in unrealized appreciation (depreciation)	+	5,351,250

Net realized and unrealized gains		5,290,761

Increase in net assets resulting from operations		$5,519,434

See financial notes 9

Schwab VIT Growth Portfolio

Statement of

Changes in Net Assets

For the current and prior report periods
Figures for the current period are unaudited



Operations


1/1/14-6/30/14				1/1/13-12/31/13
Net investment income		$228,673			$780,381
Net realized losses		(60,489	)		(70,842	)
Net change in unrealized appreciation (depreciation)	+	5,351,250			3,890,812

Increase in net assets from operations		5,519,434			4,600,351

Distributions to Shareholders

Distributions from net investment income		(780,922	)		(7,298	)
Distributions from net realized gains	+	(5,297	)		—

Total distributions		($786,219	)		($7,298	)

Transactions in Fund Shares


		1/1/14-6/30/14					1/1/13-12/31/13
			SHARES		VALUE			SHARES		VALUE
Shares sold			1,624,874		$20,735,118			6,160,749		$73,353,144
Shares reinvested			59,114		786,219			634		7,200
Shares redeemed	+		(96,979	)	(1,248,510	)		(167,721	)	(2,042,197	)

Net transactions in fund shares			1,587,009		$20,272,827			5,993,662		$71,318,147

Shares Outstanding and Net Assets

		1/1/14-6/30/14					1/1/13-12/31/13
			SHARES		NET ASSETS			SHARES		NET ASSETS
Beginning of period			6,048,146		$76,507,905			54,484		$596,705
Total increase	+		1,587,009		25,006,042			5,993,662		75,911,200

End of period			7,635,155		$101,513,947			6,048,146		$76,507,905


Net investment income not yet distributed					$228,026					$780,275

10 See financial notes

Schwab VIT Growth Portfolio

Financial Notes, unaudited

1. Business Structure of the Fund:

Schwab VIT Growth Portfolio (the “fund”) is a series of Schwab Annuity Portfolios (the “trust”), a no-load, open-end management investment company. The trust is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”). The list below shows all the funds in the trust as of the end of the period, including the fund discussed in this report, which is highlighted:



Schwab Annuity Portfolios (organized January 21, 1994)
Schwab Money Market Portfolio
Schwab MarketTrack Growth Portfolio II
Schwab S&P 500 Index Portfolio
Schwab VIT Balanced Portfolio
Schwab VIT Balanced with Growth Portfolio
Schwab VIT Growth Portfolio

2. Significant Accounting Policies:

(a) Security Valuation:

The fund values the securities in its portfolio every business day. The fund uses the following policies to value various types of securities:


	•	Underlying funds: Mutual funds are valued at their respective NAVs. ETFs traded on a recognized securities exchange are valued at the last reported sale price that day or the official closing price, if applicable.

	•	Securities for which no quoted value is available: The Board has adopted procedures to fair value the fund’s securities when market prices are not “readily available” or are unreliable. For example, a fund may fair value a security when it is de-listed or its trading is halted or suspended; when a security’s primary pricing source is unable or unwilling to provide a

Schwab VIT Growth Portfolio

Financial Notes, unaudited (continued)

2. Significant Accounting Policies (continued):


		price; or when a security’s primary trading market is closed during regular market hours. The fund makes fair value determinations in good faith in accordance with the fund’s valuation procedures. The Pricing Committee considers a number of factors, including unobservable market inputs when arriving at fair value. The Pricing Committee may employ techniques such as the review of related or comparable assets or liabilities, related market activities, recent transactions, market multiples, book values, transactional back-testing, disposition analysis and other relevant information. The Pricing Committee regularly reviews these inputs and assumptions to calibrate the valuations. Due to the subjective and variable nature of fair value pricing, there can be no assurance that a fund could obtain the fair value assigned to the security upon the sale of such security. The Board convenes on a regular basis to review fair value determinations made by the fund pursuant to the valuation procedures.


	•	Short-term securities (60 days or less to maturity): Short-term securities are valued at amortized cost, which approximates market value.

The three levels of the fair value hierarchy are as follows:


	•	Level 1 — quoted prices in active markets for identical securities — Investments whose values are based on quoted market prices in active markets, and whose values are therefore classified as Level 1 prices, include active listed equities and ETFs. Investments in mutual funds are valued daily at their NAVs, and investments in ETFs are valued daily at the last reported sale price or the official closing price, which are classified as Level 1 prices.

	•	Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) — Investments that trade in markets that are not considered to be active, but whose values are based on quoted market prices, dealer quotations or valuations provided by alternative pricing sources supported by observable inputs are classified as Level 2 prices. These generally include U.S. government and sovereign obligations, most government agency securities, investment-grade corporate bonds, certain mortgage products, less liquid listed equities, and state, municipal and provincial obligations. As investments whose values are classified as Level 2 prices include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information.

	•	Level 3 — significant unobservable inputs (including the fund’s own assumptions in determining the fair value of investments) — Investments whose values are classified as Level 3 prices have significant unobservable inputs, as they may trade infrequently or not at all. When observable prices are not available for these securities, the fund uses one or more valuation techniques for which sufficient and reliable data is available. The inputs used by the fund in estimating the value of Level 3 prices may include the original transaction price, quoted prices for similar securities or assets in active markets, completed or pending third-party transactions in the underlying investment or comparable issuers, and changes in financial ratios or cash flows. Level 3 prices may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the fund in the absence of market information. Assumptions used by the fund due to the lack of observable inputs may significantly impact the resulting fair value and therefore the fund’s results of operations.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The levels associated with valuing the fund’s investments as of June 30, 2014 are disclosed in the Portfolio Holdings.

Schwab VIT Growth Portfolio

Financial Notes, unaudited (continued)

2. Significant Accounting Policies (continued):

(b) Security Transactions:

(c) Investment Income:

(d) Expenses:

(e) Distributions to Shareholders:

The fund makes distributions from net investment income and net realized capital gains, if any, once a year.

(f) Accounting Estimates:

(g) Federal Income Taxes:

(h) Indemnification:

3. Risk Factors:

Schwab VIT Growth Portfolio

Financial Notes, unaudited (continued)

3. Risk Factors (continued):

Underlying Fund Investment Risk. The value of an investment in the fund is based primarily on the prices of the underlying funds that the fund purchases. In turn, the price of each underlying fund is based on the value of its securities. Before investing in the fund, investors should assess the risks associated with the underlying funds in which the fund may invest and the types of investments made by those underlying funds. The risks below summarize certain principal investment risks of the underlying funds that are also principal investment risks to which the fund is subject because of the fund’s investment allocation in the underlying funds and the underlying funds’ asset allocation.


	•	Equity Risk. The prices of equity securities rise and fall daily. These price movements may result from factors affecting individual companies, industries or the securities market as a whole. In addition, equity markets tend to move in cycles, which may cause stock prices to fall over short or extended periods of time.

	•	Large-Cap Risk. Large-cap stocks tend to go in and out of favor based on market and economic conditions. During a period when large-cap stocks fall behind other types of investments — bonds or mid- or small- cap stocks, for instance — an underlying fund’s performance also will lag those investments.

	•	Small-Cap Risk. Historically, small-cap stocks have been riskier than large- and mid-cap stocks, and their prices may move sharply, especially during market upturns and downturns. Small-cap companies may be more vulnerable to adverse business or economic events than larger, more established companies. During a period when small-cap stocks fall behind other types of investments — bonds or large-cap stocks, for instance — an underlying fund’s performance also will lag those investments.

	•	Foreign Investment Risk. An underlying fund’s investments in securities of foreign issuers may involve certain risks that are greater than those associated with investments in securities of U.S. issuers. These include risks of adverse changes in foreign economic, political, regulatory and other conditions; changes in currency exchange rates or exchange control regulations (including limitations on currency movements and exchanges); the imposition of economic sanctions or other government restrictions; differing accounting, auditing, financial reporting and legal standards and practices; differing securities market structures; and higher transaction costs. These risks may negatively impact the value or liquidity of the underlying fund’s investments, and could impair the underlying fund’s ability to meet its investment objective or invest in accordance with its investment strategy. These risks may be heightened in connection with investments in emerging markets. To the extent an underlying fund’s investment in a single country or a limited number of countries represents a large percentage of the underlying fund’s assets, the underlying fund’s performance may be adversely affected by the economic, political and social conditions in those countries and it may be subject to increased price volatility.

	•	Emerging Market Risk. An underlying fund’s investments in securities of emerging market countries may involve certain risks that are greater than those associated with investments in securities of developed countries. Emerging market countries may be more likely to experience political turmoil or rapid changes in market or economic conditions than more developed countries. Such countries often have less uniformity in accounting and reporting requirements and greater risk associated with the custody of securities. In addition, the financial stability of issuers (including governments) in emerging market countries may be more precarious than in other countries. As a result, there will tend to be an increased risk of price volatility associated with an underlying fund’s investments in emerging market countries and, at times, it may be difficult to value such investments.

	•	Currency Risk. As a result of an underlying fund’s investments in securities denominated in, and/or receiving revenues in foreign currencies, the fund will be subject to currency risk. This is the risk that those currencies will decline in value relative to the U.S. dollar, or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency hedged. In either event, the dollar value of an investment in an underlying fund would be adversely affected.

	•	Growth Investing Risk. Certain of the underlying funds pursue a “growth style” of investing. Growth investing focuses on a company’s prospects for growth of revenue and earnings. If a company’s earnings or revenues fall short of expectations, its stock price may fall dramatically. Growth stocks also can perform differently from the market as a whole and other

Schwab VIT Growth Portfolio

Financial Notes, unaudited (continued)

3. Risk Factors (continued):


		types of stocks and can be more volatile than other types of stocks. Since growth companies usually invest a high portion of earnings in their business, they may lack the dividends of value stocks that can cushion stock prices in a falling market. Growth stocks may also be more expensive relative to their earnings or assets compared to value or other stocks.


	•	Value Investing Risk. Certain of the underlying funds may pursue a “value style” of investing. Value investing focuses on companies whose stocks appear undervalued in light of factors such as the company’s earnings, book value, revenues or cash flow. If an underlying fund’s investment adviser’s (or sub-adviser’s) assessment of a company’s value or prospects for exceeding earnings expectations or market conditions is wrong, the underlying fund could suffer losses or produce poor performance relative to other funds. In addition, “value stocks” can continue to be undervalued by the market for long periods of time.

	•	Debt Securities Risk. Bond prices generally fall when interest rates rise. Bonds with longer maturities tend to be more sensitive to this risk. Underlying fund performance also could be affected if an issuer or guarantor of a bond held by the fund fails to make timely principal or interest payments or otherwise honor its obligations. Lower-quality bonds are considered speculative with respect to their issuer’s ability to make timely payments or otherwise honor their obligations. In addition, prices of lower-quality bonds tend to be more volatile than those of investment-grade bonds, and may fall based on bad news about the issuer, an industry or the overall economy.

	•	Interest Rate Risk. An underlying fund’s investments in fixed income securities are subject to the risk that interest rates rise and fall over time. As with any investment whose yield reflects current interest rates, an underlying fund’s yield will change over time. During periods when interest rates are low, an underlying fund’s yield (and total return) also may be low. Changes in interest rates also may affect an underlying fund’s share price: a sharp rise in interest rates could cause the underlying fund’s share price to fall. The longer the underlying fund’s duration, the more sensitive to interest rate movements its share price is likely to be. Because interest rates in the United States are at, or near, historically low levels, a change in a central bank’s monetary policy (e.g., tapering of the Federal Reserve Board’s quantitative easing program) or improving economic conditions may result in an increase in interest rates.

	•	Credit Risk. Certain of the underlying funds are subject to the risk that a decline in the credit quality of a portfolio investment could cause the underlying fund’s share price to fall. An underlying fund could lose money if the issuer or guarantor of a portfolio investment fails to make timely principal or interest payments or otherwise honor its obligations. Securities rated below investment grade (junk bonds) involve greater risk of price declines than investment grade securities due to actual or perceived changes in the issuer’s creditworthiness.

	•	Prepayment and Extension Risk. An underlying fund’s investments in fixed income securities are subject to the risk that the securities may be paid off earlier or later than expected. Either situation could cause the underlying fund to hold securities paying lower-than-market rates of interest, which could hurt the underlying fund’s yield or share price.

	•	U.S. Government Securities Risk. Some of the U.S. government securities that the underlying funds invest in are not backed by the full faith and credit of the U.S. government, which means they are neither issued nor guaranteed by the U.S. Treasury. Certain securities such as those issued by the Federal Home Loan Banks are supported by limited lines of credit maintained by their issuers with the U.S. Treasury. Securities issued by other issuers, such as the Federal Farm Credit Banks Funding Corporation, are supported solely by the credit of the issuer. There can be no assurance that the U.S. government will provide financial support to securities of its agencies and instrumentalities if it is not obligated to do so under law. Also, any government guarantees on securities the underlying funds own do not extend to shares of the underlying funds themselves.

	•	Real Estate Investment Risk. An underlying fund in which the portfolio may invest may have a policy of concentrating its investments in real estate companies and companies related to the real estate industry. Such an underlying fund is subject to risks associated with the direct ownership of real estate securities and a portfolio’s investment in such an underlying fund is subject to risks associated with the direct ownership of real estate securities and an investment in the underlying fund will be closely linked to the performance of the real estate markets. These risks include, among others, declines in the value of real estate; risks related to general and local economic conditions; possible lack of availability of mortgage funds or other limits to accessing the credit or capital markets; defaults by borrowers or tenants, particularly during an economic downturn; and changes in interest rates.

Schwab VIT Growth Portfolio

Financial Notes, unaudited (continued)

3. Risk Factors (continued):


	•	Real Estate Investment Trust (REIT) Risk. An underlying fund may invest in REITs. An underlying fund’s investments in REITs will be subject to the risks associated with the direct ownership of real estate, including fluctuations in the value of underlying properties, defaults by borrowers or tenants, changes in interest rates and risks related to general or local economic conditions. REITs are also subject to certain additional risks. For example, equity REITs may be affected by changes in the value of the underlying properties owned by the trusts, and mortgage REITs may be affected by the quality of any credit extended. Further, REITs are dependent upon specialized management skills and may have their investments in relatively few properties, a small geographic area or a single property type. Failure of a company to qualify as a REIT under federal tax law may have adverse consequences for the underlying fund. In addition, REITs have their own expenses, and the underlying fund will bear a proportionate share of those expenses.

	•	Mortgage-Backed and Mortgage Pass-Through Securities Risk. Certain of the mortgage-backed securities in which an underlying fund may invest are not backed by the full faith and credit of the U.S. government and there can be no assurance that the U.S. government would provide financial support to its agencies or instrumentalities where it was not obligated to do so. Mortgage-backed securities tend to increase in value less than other debt securities when interest rates decline, but are subject to similar risk of decline in market value during periods of rising interest rates. Because of prepayment and extension risk, mortgage-backed securities react differently to changes in interest rates than other bonds. Small movements in interest rates — both increases and decreases — may quickly and significantly affect the value of certain mortgage-backed securities. Transactions in mortgage pass-through securities primarily occur through to be announced (TBA) transactions. Default by or bankruptcy of a counterparty to a TBA transaction would expose an underlying fund to possible losses because of an adverse market action, expenses, or delays in connection with the purchase or sale of the pools of mortgage pass-through securities specified in the TBA transaction.

	•	Portfolio Turnover Risk. Certain of the underlying funds may buy and sell portfolio securities actively. If they do, their portfolio turnover rate and transaction costs will rise, which may lower the underlying fund’s performance and may increase the likelihood of capital gain distributions.

	•	Commodity Risk. To the extent that an underlying fund invests in commodity-linked derivative instruments, it may subject the underlying fund to greater volatility than investments in traditional securities. Also, commodity-linked investments may be more volatile and less liquid than the underlying commodity. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and other regulatory and market developments. The use of leveraged commodity-linked derivatives creates an opportunity for increased return, but also creates the possibility for a greater loss.

	•	Liquidity Risk. A particular investment may be difficult to purchase or sell. An underlying fund may be unable to sell illiquid securities at an advantageous time or price.

	•	Derivatives Risk. An underlying fund’s use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments and could cause the fund to lose more than the principal amount invested.

	•	Management Risk. An underlying fund may be an actively managed mutual fund. Any actively managed mutual fund is subject to the risk that its investment adviser (or sub-adviser(s)) will select investments or allocate assets in a manner that could cause the fund to underperform or otherwise not meet its objective. An underlying fund’s adviser applies its own investment techniques and risk analyses in making investment decisions for the fund, but there can be no guarantee that they will produce the desired results.

	•	Investment Style Risk. Certain underlying funds seek to track the performance of various segments of the stock market, as measured by their respective indices. Such underlying funds follow these stocks during upturns as well as downturns. Because of their indexing strategy, these underlying funds do not take steps to reduce market exposure or to lessen the effects of a declining market. In addition, because of an underlying fund’s expenses, the underlying fund’s performance is normally below that of the index.

Schwab VIT Growth Portfolio

Financial Notes, unaudited (continued)

3. Risk Factors (continued):


	•	Tracking Error Risk. An underlying fund may seek to track the performance of its benchmark index, although it may not be successful in doing so. The divergence between the performance of a fund and its benchmark index, positive or negative, is called “tracking error.” Tracking error can be caused by many factors and it may be significant.

	•	Concentration Risk. To the extent that an underlying fund’s portfolio is concentrated in the securities of issuers in a particular market, industry, group of industries, sector or asset class, the underlying fund may be adversely affected by the performance of those securities, may be subject to increased price volatility and may be more susceptible to adverse economic, market, political, or regulatory occurrences affecting that market, industry, group of industries, sector or asset class.

	•	Money Market Risk. Although an underlying money market fund seeks to maintain a stable $1 net asset value, it is possible to lose money by investing in a money market fund. In addition, a money market fund is not designed to offer capital appreciation.

Please refer to the fund’s prospectus for a more complete description of the principal risks of investing in the fund.

4. Affiliates and Affiliated Transactions:

For its advisory and administrative services to the fund, CSIM is entitled to receive an annual fee, payable monthly, equal to 0.45% of the fund’s average daily net assets.

CSIM and its affiliates have made an additional agreement with the fund, for so long as CSIM serves as the investment adviser to the fund, which may only be amended or terminated with approval of the fund’s Board, to limit the total annual fund operating expenses charged, excluding interest, taxes and certain non-routine expenses of the fund to 0.58%.

The fund may engage in certain transactions involving related parties. Pursuant to an exemptive order issued by the SEC, the fund may invest in other related ETFs and mutual funds. As of June 30, 2014, the Schwab VIT Growth Portfolio’s ownership percentages of other related funds’ shares are:


Schwab U.S. Large-Cap ETF	1.0%
Schwab U.S. Small-Cap ETF	0.3%
Schwab International Equity ETF	0.9%
Schwab International Small-Cap Equity ETF	1.3%
Schwab Emerging Markets Equity ETF	0.7%
Schwab U.S. REIT ETF	0.6%
Schwab U.S. TIPS ETF	0.2%
Schwab Intermediate-Term U.S. Treasury ETF	2.1%
Schwab Value Advantage Money Fund, Institutional Prime Shares	0.0%	*


*		Less than 0.1%

Below is a summary of the fund’s transactions with its affiliated underlying funds during the period ended June 30, 2014.

Schwab VIT Growth Portfolio

Financial Notes, unaudited (continued)

4. Affiliates and Affiliated Transactions (continued):


												Realized			Distributions
	Balance of							Balance of		Market		Gains (Losses)			Received*
	Shares Held		Gross		Gross			Shares Held		Value at		01/01/14 to			01/01/14 to
Underlying Funds	at 12/31/13		Purchases		Sales			at 06/30/14		06/30/14		06/30/14			06/30/14

Schwab U.S. Large-Cap ETF		512,021		135,583		(448	)		647,156		$30,306,315		($265	)		$262,030
Schwab U.S. Small-Cap ETF		101,699		31,857		(7,478	)		126,078		6,910,335		(831	)		53,066
Schwab International Equity ETF		515,008		155,717		(15,434	)		655,291		21,611,497		920			—
Schwab International Small-Cap Equity ETF		122,392		32,575		(6,804	)		148,163		5,077,546		1,024			—
Schwab Emerging Markets Equity ETF		256,221		73,056		(17,701	)		311,576		8,110,323		(21,678	)		—
Schwab U.S. REIT ETF		150,302		35,065		(13,121	)		172,246		6,092,341		(23,853	)		62,543
Schwab U.S. TIPS ETF		10,065		2,947		(370	)		12,642		704,160		(1,677	)		3,162
Schwab Intermediate-Term U.S. Treasury ETF		61,338		21,343		(2,458	)		80,223		4,263,050		(3,962	)		22,148
Schwab Value Advantage Money Fund, Institutional Prime Shares		2,178,000		117		—			2,178,117		2,178,117		—			143

Total											$85,253,684		($50,322	)		$403,092


*		Distributions received include distributions from net investment income and capital gains, if any, from the underlying funds.

5. Board of Trustees:

6. Borrowing from Banks:

The fund has access to custodian overdraft facilities, a committed line of credit of $150 million with State Street Bank and Trust Company (“State Street”), an uncommitted line of credit of $100 million with Bank of America, N.A. and an uncommitted line of credit of $50 million with Brown Brothers Harriman & Co. The fund pays interest on the amount it borrows at rates that are negotiated periodically. The fund also pays an annual fee to State Street for the committed line of credit.

7. Purchases and Sales/Maturities of Investment Securities:

For the period ended June 30, 2014, purchases and sales/maturities of securities (excluding short-term obligations) were as follows:

Schwab VIT Growth Portfolio

Financial Notes, unaudited (continued)

8. Federal Income Taxes:

Capital loss carryforwards may be used to offset future realized capital gains for federal income tax purposes. As of December 31, 2013, the fund had no capital loss carryforwards.

9. Subsequent Events:

The Board of Trustees (the “Board” or the “Trustees”, as appropriate) calls and holds one or more meetings each year that are dedicated, in whole or in part, to considering whether to renew the investment advisory agreement between Schwab Annuity Portfolios (the “Trust”) and Charles Schwab Investment Management, Inc. (“CSIM”) (the “Agreement”) with respect to Schwab VIT Growth Portfolio (the “Fund”), and to review certain other agreements pursuant to which CSIM provides investment advisory services to certain other registered investment companies. In preparation for the meeting(s), the Board requests and reviews a wide variety of materials provided by CSIM, including information about CSIM’s affiliates, personnel and operations. The Board also receives extensive data provided by third parties. This information is in addition to the detailed information about the Fund that the Board reviews during the course of each year, including information that relates to Fund operations and Fund performance. The Independent Trustees receive advice from independent counsel to the Independent Trustees, including a memorandum regarding the responsibilities of trustees for the approval of investment advisory agreements. In addition, the Independent Trustees meet in executive session outside the presence of Fund management and participate in question and answer sessions with representatives of CSIM.


1.	the nature, extent and quality of the services provided to the Fund under the Agreement, including the resources of CSIM and its affiliates dedicated to the Fund;

2.	the Fund’s investment performance and how it compared to that of certain other comparable mutual funds;

3.	the Fund’s expenses and how those expenses compared to those of certain other comparable mutual funds;

4.	the profitability of CSIM and its affiliates, including Charles Schwab & Co., Inc. (“Schwab”), with respect to the Fund, including both direct and indirect benefits accruing to CSIM and its affiliates; and

5.	the extent to which economies of scale would be realized as the Fund grows and whether fee levels in the Agreement reflect those economies of scale for the benefit of Fund investors.

Independent Trustees


Name, Year of Birth,		Number of
and Position(s) with		Portfolios in
the trust; (Terms of		Fund Complex
office, and length of	Principal Occupations	Overseen by
Time Served¹)	During the Past Five Years	the Trustee	Other Directorships

Mariann Byerwalter 1960 Trustee (Trustee of Schwab Annuity Portfolios since 2000.)	Chairman of JDN Corporate Advisory LLC (advisory services firm) (Oct. 2001 – present).	76	Director, WageWorks, Inc. (2010 – present) Director, Redwood Trust, Inc. (1998 – present) Director, PMI Group Inc. (2001 – 2009)


John F. Cogan 1947 Trustee (Trustee of Schwab Annuity Portfolios since 2008.)	Senior Fellow, The Hoover Institution at Stanford University (Oct. 1979 – present); Senior Fellow, Stanford Institute for Economic Policy Research; Professor of Public Policy, Stanford University (Sept. 2000 – present).	76	Director, Gilead Sciences, Inc. (2005 – present) Director, Monaco Coach Corporation (2005 – 2009)


David L. Mahoney 1954 Trustee (Trustee of Schwab Annuity Portfolios since 2011.)	Private Investor.	76	Director, Symantec Corporation (2003 – present) Director, Corcept Therapeutics Incorporated (2004 – present)


Kiran M. Patel 1948 Trustee (Trustee of Schwab Annuity Portfolios since 2011.)	Retired. Executive Vice President and General Manager of Small Business Group, Intuit, Inc. (financial software and services for consumers and small businesses) (Dec. 2008 – Sept. 2013).	76	Director, KLA-Tencor Corporation (2008 – present)


Gerald B. Smith 1950 Trustee (Trustee of Schwab Annuity Portfolios since 2000.)	Chairman, Chief Executive Officer and Founder of Smith Graham & Co. (investment advisors) (1990 – present).	76	Director, Eaton (2012 – present) Director and Chairman of the Audit Committee, Oneok Partners LP (2003 – 2013) Director, Oneok, Inc. (2009 – 2013) Lead Independent Director, Board of Cooper Industries (2002 – 2012)


Joseph H. Wender 1944 Trustee (Trustee of Schwab Annuity Portfolios since 2008.)	Senior Consultant, Goldman Sachs & Co., Inc. (investment banking and securities firm) (Jan. 2008 – present); Partner, Colgin Partners, LLC (vineyards) (February 1998 – present).	76	Board Member and Chairman of the Audit Committee, Isis Pharmaceuticals (1994 – present)

Interested Trustees


Name, Year of Birth,		Number of
and Position(s) with		Portfolios in
the trust; (Terms of		Fund Complex
office, and length of	Principal Occupations	Overseen by
Time Served)	During the Past Five Years	the Trustee	Other Directorships

Charles R. Schwab²1937 Chairman and Trustee (Chairman and Trustee of Schwab Annuity Portfolios since 1994.)	Chairman and Director, The Charles Schwab Corporation, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc., Charles Schwab Bank, N. A.; Chairman and Chief Executive Officer, Schwab (SIS) Holdings Inc. I, Schwab International Holdings, Inc.; Chief Executive Officer, Schwab Holdings, Inc.; Through June 2007, Director, U.S. Trust Company, N. A., U.S. Trust Corporation, United States Trust Company of New York. Until October 2008, Chief Executive Officer, The Charles Schwab Corporation, Charles Schwab & Co., Inc.	76	None


Walter W. Bettinger II²1960 Trustee (Trustee of Schwab Annuity Portfolios since 2008.)	As of October 2008, President and Chief Executive Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation. Since October 2008, Director, The Charles Schwab Corporation. Since May 2008, Director, Charles Schwab & Co., Inc. and Schwab Holdings, Inc. Since 2006, Director, Charles Schwab Bank. Until October 2008, President and Chief Operating Officer, Charles Schwab & Co., Inc. and The Charles Schwab Corporation. From 2004 through 2007, Executive Vice President and President, Schwab Investor Services. From 2004 through 2005, Executive Vice President and Chief Operating Officer, Individual Investor Enterprise, and from 2002 through 2004, Executive Vice President, Corporate Services.	97	None

Officers of the Trust


Name, Year of Birth, and Position(s)
with the trust; (Terms of office, and
length of Time Served³)		Principal Occupations During the Past Five Years

Marie Chandoha 1961 President and Chief Executive Officer (Officer of Schwab Annuity Portfolios since 2010.)		Executive Vice President, Charles Schwab & Co., Inc. (Sept. 2010 – present); Director, President and Chief Executive Officer (Dec. 2010 – present), Chief Investment Officer (Sept. 2010 – Oct. 2011), Charles Schwab Investment Management, Inc.; President, Chief Executive Officer (Dec. 2010 – present), and Chief Investment Officer (Sept. 2010 – Oct. 2011), Schwab Funds, Laudus Funds and Schwab ETFs; Global Head of Fixed Income Business Division, BlackRock, Inc. (formerly Barclays Global Investors) (March 2007 – August 2010).


George Pereira 1964 Treasurer and Principal Financial Officer (Officer of Schwab Annuity Portfolios since 2004.)		Senior Vice President and Chief Financial Officer (Nov. 2004 – present), Chief Operating Officer (Jan. 2011 – present), Charles Schwab Investment Management, Inc.; Treasurer and Chief Financial Officer, Laudus Funds (2006 – present); Treasurer and Principal Financial Officer, Schwab Funds (Nov. 2004 – present) and Schwab ETFs (Oct. 2009 – present); Director, Charles Schwab Worldwide Fund, PLC and Charles Schwab Asset Management (Ireland) Limited (April 2005 – present).


Omar Aguilar 1970 Senior Vice President and Chief Investment Officer – Equities (Officer of Schwab Annuity Portfolios since 2011.)		Senior Vice President and Chief Investment Officer — Equities, Charles Schwab Investment Management, Inc. (April 2011 – present); Senior Vice President and Chief Investment Officer – Equities, Schwab Funds and Laudus Funds (June 2011 – present); Head of the Portfolio Management Group and Vice President of Portfolio Management, Financial Engines, Inc. (May 2009 – April 2011); Head of Quantitative Equity, ING Investment Management (July 2004 – Jan. 2009).

Officers of the Trust (continued)


Name, Year of Birth, and Position(s)
with the trust; (Terms of office, and
length of Time Served³)		Principal Occupations During the Past Five Years

Brett Wander 1961 Senior Vice President and Chief Investment Officer – Fixed Income (Officer of Schwab Annuity Portfolios since 2011.)		Senior Vice President and Chief Investment Officer – Fixed Income, Charles Schwab Investment Management, Inc. (April 2011 – present); Senior Vice President and Chief Investment Officer – Fixed Income, Schwab Funds and Laudus Funds (June 2011 – present); Senior Managing Director, Global Head of Active Fixed-Income Strategies, State Street Global Advisors (Jan. 2008 – Oct. 2010); Director of Alpha Strategies, Loomis, Sayles & Company (April 2006 – Jan. 2008).


David Lekich 1964 Chief Legal Officer and Secretary (Officer of Schwab Annuity Portfolios since 2011.)		Senior Vice President (Sept. 2011 – present), Vice President (March 2004 – Sept. 2011), Charles Schwab & Co., Inc.; Senior Vice President and Chief Counsel (Sept. 2011 – present), Vice President (Jan. 2011 – Sept. 2011), Charles Schwab Investment Management, Inc.; Secretary (April 2011 – present) and Chief Legal Officer (Dec. 2011 – present), Schwab Funds; Vice President and Assistant Clerk, Laudus Funds (April 2011 – present); Secretary (May 2011 – present) and Chief Legal Officer (Nov. 2011 – present), Schwab ETFs.


Catherine MacGregor 1964 Vice President and Assistant Secretary (Officer of Schwab Annuity Portfolios since 2005.)		Vice President, Charles Schwab & Co., Inc., Charles Schwab Investment Management, Inc. (July 2005 – present); Vice President (Dec. 2005 – present), Chief Legal Officer and Clerk (March 2007 – present), Laudus Funds; Vice President (Nov. 2005 – present) and Assistant Secretary (June 2007 – present), Schwab Funds; Vice President and Assistant Secretary, Schwab ETFs (Oct. 2009 – present).


¹		Trustees remain in office until they resign, retire or are removed by shareholder vote. The Schwab Funds retirement policy requires that independent trustees retire at age 72 or after twenty years as a trustee, whichever comes first. In addition, the retirement policy requires any independent trustee of Schwab Funds who also serves as an independent trustee of the Laudus Funds to retire from the Boards of the Schwab Funds upon their required retirement date from either the Boards of Trustees of the Schwab Funds or the Laudus Funds, whichever comes first.
²		Mr. Schwab and Mr. Bettinger are Interested Trustees because they own stock of The Charles Schwab Corporation, the parent company of the investment adviser.
³		The President, Treasurer and Secretary hold office until their respective successors are chosen and qualified or until he or she sooner dies, resigns, is removed or becomes disqualified. Each of the other officers serves at the pleasure of the Board.