SCHWAB ANNUITY PORTFOLIOS, 485BPOS, 1997-04-30

SCHWAB ANNUITY PORTFOLIOS
485BPOS, 1997-04-30

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<PAGE> 1
As filed with the Securities and Exchange Commission on April 30, 1997
File Nos. 33-74534 and 811-8314

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 6 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 5 [X]
--------------

SCHWAB ANNUITY PORTFOLIOS
(Exact Name of Registrant as Specified in Charter)

101 Montgomery Street, San Francisco, California 94104
(Address of Principal Executive Offices)

Registrant's Telephone Number, including Area Code:
(415) 627-7000

Timothy F. McCarthy, President
Schwab Annuity Portfolios
101 Montgomery Street, San Francisco, California 94104
(Name and Address of Agent for Service)

Copies of communications to:
<TABLE>
<S> <C>
Martin E. Lybecker, Esq. Frances Cole, Esq.
Ropes & Gray Charles Schwab Investment Management , Inc.
1301 K Street, NW, Suite 800 East 101 Montgomery Street
Washington, D.C. 20005 San Francisco, CA 94104
</TABLE>

It is proposed that this filing will become effective (check appropriate box):

/ / Immediately upon filing pursuant to paragraph (b)

/X/ On April 30, 1997 pursuant to paragraph (b)

/ / 60 days after filing pursuant to paragraph (a)(1)

/ / On (date) pursuant to paragraph (a)(1)

/ / 75 days after filing pursuant to paragraph (a)(2)

/ / On (date) pursuant to paragraph (a)(2) of Rule 485 if
appropriate, check the following box:

/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment

DECLARATION PURSUANT TO RULE 24f-2: Pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended, Registrant has registered an
indefinite number or amount of its shares of beneficial interest under the
Securities Act of 1933, as amended. The Rule 24f-2 Notice for Registrant's
fiscal year ended December 31, 1996 was filed on February 19, 1997.
<PAGE> 2
CROSS REFERENCE SHEET
PROSPECTUS
Schwab Money Market Portfolio

<TABLE>
<CAPTION>
PART A ITEM PROSPECTUS CAPTION
<S> <C>
1. Cover Page Cover Page
2. Synopsis Key Features of the Fund; Expenses
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Cover Page; Investment Objective and Policies;
Investment Techniques; Organization and
Management of the Fund; General Information
5. Management of the Fund Organization and Management of the Fund
5A. Management's Discussion of Fund Performance How the Fund Reports Performance
6. Capital Stock and Other Securities Cover Page; Investment Objective and Policies;
Investment Techniques; Important Information
About the Fund; General Information
7. Purchase of Securities Being Offered Important Information About the Fund; Investing in
the Fund; Share Price Calculation
8. Redemption or Repurchase Investing in the Fund
9. Pending Legal Proceedings Inapplicable
</TABLE>
<PAGE> 3

SCHWAB MONEY MARKET PORTFOLIO
----------------

PROSPECTUS APRIL 30, 1997

THE SCHWAB MONEY MARKET PORTFOLIO (the "Fund") is intended as an investment
vehicle for variable annuity contracts ("Contracts") and variable life insurance
policies ("VLI Policies") to be offered by separate accounts ("Separate
Accounts") of participating life insurance companies ("Participating Insurance
Companies") and for pension and retirement plans qualified under the Internal
Revenue Code of 1986, as amended (the "Plans"). The Fund's investment objective
is to provide maximum current income consistent with liquidity and stability of
capital.

AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE IS NO GUARANTEE THAT THE FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE PER SHARE ("NAV") OF $1.00.

<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
KEY FEATURES OF THE FUND.............................................................. 2
EXPENSES.............................................................................. 3
FINANCIAL HIGHLIGHTS.................................................................. 4
INVESTMENT OBJECTIVE AND POLICIES..................................................... 5
INVESTMENT TECHNIQUES................................................................. 6
INVESTING IN THE FUND................................................................. 7
IMPORTANT INFORMATION ABOUT THE FUND.................................................. 8
DIVIDENDS AND OTHER DISTRIBUTIONS................................................... 8
FEDERAL INCOME TAX INFORMATION...................................................... 8
SHARE PRICE CALCULATION............................................................... 9
HOW THE FUND REPORTS PERFORMANCE...................................................... 10
ORGANIZATION AND MANAGEMENT OF THE FUND............................................... 11
OPERATING FEES AND EXPENSES......................................................... 11
GENERAL INFORMATION................................................................... 12
</TABLE>

THIS PROSPECTUS PRESENTS IMPORTANT INFORMATION THAT YOU SHOULD KNOW BEFORE
INVESTING. PLEASE READ IT AND KEEP IT FOR FUTURE REFERENCE. More detailed
information about the Fund is in the Statement of Additional Information ("SAI")
dated April 30, 1997 (as amended from time to time). The SAI has been filed with
the Securities and Exchange Commission ("SEC") and is incorporated into this
Prospectus by reference (which means that it is legally considered part of this
Prospectus even though it is not printed here). To receive a free copy of this
Prospectus or SAI, call the Annuity Service Center at Charles Schwab & Co., Inc.
("Schwab") at 800-838-0650, or in New York State, call 800-838-0649.

----------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<PAGE> 4

KEY FEATURES OF THE FUND

The Fund seeks maximum current income consistent with liquidity and stability of
capital by investing in money market securities. The Fund seeks to maintain a
stable NAV of $1.00, although there is no assurance that it will be able to do
so. (see "Investment Objective and Policies.")

MANAGEMENT. Charles Schwab Investment Management, Inc. (the "Investment
Manager") currently provides investment management services to 29 mutual funds,
including the Fund, with over $47 billion in assets as of April 1, 1997. (See
"Organization and Management of the Fund.")

PURCHASE, SALE AND AVAILABILITY OF SHARES OF THE FUND. You cannot buy or sell
Fund shares directly, but you may allocate account value under your Contract to
and from the Fund in accordance with the terms of your Contract. Please refer to
the appropriate Separate Account Prospectus for further information on how to
make such allocations. (See "Investing in Shares of the Fund.")

SHAREHOLDER COMMUNICATIONS. A representative of the Schwab Annuity Service
Center is available toll-free to assist you at 800-838-0650 (800-838-0649 in New
York State). (See "Investing in Shares of the Fund.")

2
<PAGE> 5

EXPENSES

SHAREHOLDER TRANSACTION EXPENSES are fees and charges you may pay for buying or
selling shares of a fund.

ANNUAL FUND OPERATING EXPENSES are fees and expenses paid directly by a Fund
from its annual operating income and are factored into the dividends paid by the
Fund. You do not pay any of these fees directly. These expenses cover services
such as investment research, management of the Fund and the issuance of
shareholder statements.

<TABLE>
<S> <C>
Shareholder Transaction Expenses....................................... None
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET
ASSETS):
Management Fee (after fee reduction)(1)................................ 0.44%
12b-1 Fee.............................................................. None
Other Expenses (after expense reimbursement)........................... 0.06%
------
TOTAL FUND OPERATING EXPENSES(2)....................................... 0.50%
</TABLE>

- -------------------------

(1) This amount reflects a reduction guaranteed by the Investment Manager
through at least April 30, 1998. If there were no such reduction, the maximum
management fee would be 0.46% of average daily net assets.

(2) This amount reflects a guarantee by the Investment Manager and Schwab that,
through at least April 30, 1998, total fund operating expenses (excluding
interest, taxes, brokerage commissions and extraordinary expenses) will not
exceed 0.50% of average daily net assets of the Fund. Without this guarantee,
other expenses and total fund operating expenses would have been 0.49% and 0.95%
of average daily net assets of the Fund, respectively. The effect of this
voluntary expense limitation is to maintain or increase the Fund's total return
to shareholders.

EXAMPLES. Based on the expenses in the table above, you would pay the following
expenses on a $1,000 investment in the Fund, assuming (1) a 5% annual return and
(2) redemption at the end of each period.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$5 $16 $28 $ 63
</TABLE>

THESE ARE EXAMPLES ONLY AND DO NOT REPRESENT PAST OR FUTURE EXPENSES. ACTUAL
EXPENSES ARE MAY BE GREATER OR LESS THAN THE EXPENSES SHOWN IN THE EXAMPLE.

3
<PAGE> 6

FINANCIAL HIGHLIGHTS

The following information has been audited by Price Waterhouse LLP, independent
accountants, whose unqualified report is included in the Fund's Annual Report.
The Fund's financial highlights, financial statements and report of the auditor
are incorporated by reference into the SAI. Free copies of the Fund's SAI and
Annual Report may be obtained by calling the telephone number on the cover page
of this Prospectus.

<TABLE>
<CAPTION>
Period ended
Year ended December 31, December 31,
1996 1995 1994++
----------- ----------- ------------
<S> <C> <C> <C>
Net asset value at beginning of period $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.05 0.05 0.03
Net realized and unrealized gain on investments -- -- --
----------- ----------- ------------
Total from investment operations 0.05 0.05 0.03
LESS DISTRIBUTIONS
Dividends from net investment income (0.05) (0.05) (0.03)
Distributions from realized gain on investments -- -- --
----------- ----------- ------------
Total distributions (0.05) (0.05) (0.03)
----------- ----------- ------------
Net asset value at end of period $1.00 $1.00 $1.00
========== ========== ============
Total return (not annualized) 4.98% 5.26% 2.55%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period $27,430,633 $16,912,432 $7,409,454
Ratio of expenses to average net assets+ 0.50% 0.50% 0.50%*
Ratio of net investment income to average net 4.87% 5.17% 4.16%*
assets+
</TABLE>

- ---------------

+ The information contained in the above table is based on actual expenses for
the periods, after giving effect to the portion of expenses reduced and
absorbed by the Investment Manager. Had these expenses not been reduced and
absorbed, the Fund's expense and net investment income ratios would have been:

<TABLE>
<S> <C> <C> <C>
Ratio of expenses to average net asset 0.95% 1.02% 2.10% *
Ratio of net investment income to average net 4.42% 4.65% 2.52% *
assets
</TABLE>

++ Period from May 3, 1994 (commencement of operations) to December 31, 1994.

* Annualized

4
<PAGE> 7

INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is to provide maximum current income consistent
with liquidity and stability of capital. The investment objective is fundamental
and cannot be changed without shareholder approval. The Fund's investment
policies and techniques discussed below are non-fundamental, unless otherwise
noted. The SAI contains a complete listing of the Fund's fundamental policies
and limitations. Except as noted, policies and limitations apply at the time of
initial investment and later changes do not generally require a Fund to sell an
investment. For more information regarding the Fund's investment policies and
techniques, read the "Investment Techniques" section of the Prospectus and the
Fund's SAI.

The Fund pursues its objective by investing in high-quality, short-term U.S.
dollar-denominated money market securities, including U.S. Government
securities, securities of the Canadian governments, its agencies and
instrumentalities, and repurchase agreements for these securities. Securities
are high-quality if 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 security, or, if unrated, determined to be of
comparable quality by the Investment Manager.

MONEY MARKET SECURITIES. Money market securities are short-term debt securities
issued by banks (foreign and domestic), corporations, and other institutions and
include certificates of deposit, time deposits, notes, bankers' acceptances, and
commercial paper, including asset-backed commercial paper. Asset-backed
commercial paper is issued by a special purpose vehicle (usually a corporation)
that has been established for the purpose of issuing the commercial paper and
purchasing the underlying pool of assets. The issuer of commercial paper bears
the direct risk of prepayment on the receivables constituting the underlying
pool of assets. Credit support for asset-backed securities may be based on the
underlying assets or provided by a third party. Credit enhancement techniques
include letters of credit, insurance bonds, limited guarantees and
over-collateralization.

GOVERNMENT SECURITIES. U.S. Government securities are obligations issued or
guaranteed by the U.S. Government, its agencies and instrumentalities. Some U.S.
Government securities, like U.S. Treasury securities which are issued by the
U.S. Treasury, are backed by the full faith and credit of the U.S. Government.
Some U.S. Government securities are supported by a line of credit that the
agency or instrumentality has with the U.S. Treasury, although there is no
guarantee that the support will be provided to the agency or instrumentality.
Other U.S. Government securities are supported only by the credit of the agency
or instrumentality issuing the security. Short-term U.S. Government securities
are generally considered to be among the safest investments, but there is no
guarantee against loss of principal or interest for an investor.

FOREIGN SECURITIES. Investments in securities of foreign issuers or securities
traded principally overseas may involve certain special risks due to foreign
economic, political and legal developments. Furthermore, issuers of foreign
securities are subject to different, often less comprehensive, accounting,
reporting and disclosure requirements than domestic issuers. The securities of
some foreign companies and foreign securities markets are less liquid and at
times more volatile than securities of comparable U.S. companies and U.S.
securities markets. To the extent, the Fund purchases Eurodollar certificates of
deposit and other similar obligations, consideration will be given to the fact
that these issuers may not be subject to the same regulatory requirements as
U.S. issuers, including U.S. banks. In addition, the Fund may invest in
obligations of U.S. branches of foreign banks and foreign branches of foreign
banks having capital, surplus and undivided profits in excess of $100 million.

5
<PAGE> 8

RESTRICTED SECURITIES. The Fund may invest in commercial paper that is exempt
from registration, pursuant to federal securities regulations. The disposition
of these securities is subject to restrictions and such an investment could
effect the Fund's liquidity. Pursuant to a fundamental policy set forth in the
SAI, the Fund will not invest more than 10% of net assets in illiquid
securities, including restricted securities and other illiquid securities, such
as time deposits and repurchase agreements maturing in more than 7 days.

MATURITY. Short-term securities are deemed to mature in 397 days or less in
accordance with federal securities regulations or securities that have a
variable rate of interest readjusted no less frequently than every 397 days.

INVESTMENT TECHNIQUES

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a "when-issued" or "delayed delivery" basis. When-issued or delayed delivery
securities are securities purchased for future delivery at a stated price and
yield. The Fund generally will not pay for such securities or start earning
interest on them until they are received. Securities purchased on a when-issued
or delayed delivery basis are recorded as an asset. The value of such securities
may change as the general level of interest rates changes. The Fund will not
invest more than 25% of its total assets in when-issued or delayed delivery
securities. The Fund will not purchase such securities for speculative purposes
and will expect to actually acquire the securities when purchased. However, the
Fund reserves the right to sell any such securities before their settlement
dates.

REPURCHASE AGREEMENTS. In a repurchase agreement, the Fund acquires ownership
of a security from a broker-dealer or bank that agrees to repurchase the
security at a mutually agreed upon time and price (which price is higher than
the purchase price), thereby determining the yield during the Fund's holding
period. Maturity of the securities subject to repurchase may exceed one year. If
the seller of a repurchase agreement becomes bankrupt or otherwise defaults, the
Fund might incur expenses in enforcing its rights, and could experience losses,
including a decline in the value of the underlying securities and loss of
income. The Fund will enter into repurchase agreements only with banks and
institutions deemed creditworthy by the Investment Manager.

VARIABLE RATE SECURITIES. The Fund may invest in instruments having rates of
interest that are adjusted periodically, or which "float" continuously according
to formulas intended to minimize any fluctuation in the values of the
instruments ("Variable Rate Securities"). The interest rate of Variable Rate
Securities ordinarily is determined by reference to, or is a percentage of, an
objective standard such as a bank's prime rate, the 90-day U.S. Treasury bill
rate or the rate of return on commercial paper or bank certificates of deposit.
As interest rates decrease or increase, Variable Rate Securities experience less
appreciation or depreciation than fixed rate obligations. Some Variable Rate
Securities ("Variable Rate Demand Securities") have a demand feature, entitling
the purchaser to resell the securities at an amount approximately equal to
amortized cost, or the principal amount thereof plus accrued interest.

SECURITIES LENDING. To increase its income, the Fund may lend its portfolio
securities to brokers, dealers and other financial institutions that borrow
securities. Pursuant to a fundamental policy set forth in the SAI, no more than
one-third of the Fund's total assets may be represented by loaned securities.
These loans will be fully collateralized by cash, letters of credit or U.S.
Government securities equal at all times to 100% of the loaned securities'
market value plus accrued interest. As with other extensions of credit, there
are

6
<PAGE> 9

risks of delay in recovery or even losses of rights in the securities loaned
should the borrower of the securities fail financially.

BORROWING POLICY. Pursuant to a fundamental policy set forth in the SAI, the
Fund may not borrow money except as a temporary measure for extraordinary or
emergency purposes, and then only in an amount up to one-third of the value of
its total assets in order to meet redemption requests. Any borrowings under this
provision will not be collateralized. The Fund will not borrow for leverage
purposes.

INVESTING IN THE FUND

Fund shares are currently offered on a continuous, no-load basis to the Separate
Accounts of Participating Insurance Companies to fund benefits under Contracts
issued by the Participating Insurance Companies. Transamerica Occidental Life
Insurance Company and Great-West Life & Annuity Insurance Company, Participating
Insurance Companies, through their respective Separate Accounts, may be deemed
to beneficially own more than 25% of the shares of the Fund and, as a result,
each may be deemed to be a controlling person of the Fund. Shares of the Fund
will not be available to fund benefits under Contracts issued on or after May 1,
1997 by Transamerica Occidental Life Insurance Company and First Transamerica
Life Insurance Company. However, shares of the Fund will continue to be made
available for additional purchases or transfers under Contracts in effect on
that date.

Although Fund shares are not available for purchase directly by the general
public, you may nevertheless allocate account value under your Contract to and
from the Fund in accordance with the terms of your Contract. Please refer to the
appropriate Separate Account Prospectus for further information on how to make
an allocation and how to purchase or surrender your Contract.

The Fund reserves the right, in its sole discretion and without prior notice to
shareholders, to withdraw or suspend all or any part of the offering made by
this Prospectus or to reject purchase orders. All orders to purchase Fund shares
are subject to acceptance by the Fund and are not binding until confirmed or
accepted in writing.

The Fund may suspend redemption rights or postpone payments at times when
trading on the Exchange is restricted, the Exchange is closed for any reason
other than its customary weekend or holiday closings, emergency circumstances as
determined by the SEC exist or for such other circumstances as the SEC may
permit.

In the future, Fund shares are expected to be offered on a continuous, no-load
basis to affiliated and unaffiliated Participating Insurance Companies and their
Separate Accounts to fund benefits under Contracts and VLI Policies as well as
to Plans. The relationships of Plans and Plan participants to the Fund would be
subject, in part, to the provisions of the individual Plans and applicable law.
Accordingly, such relationships could be different from those described in this
Prospectus for Separate Accounts and Contract owners in such areas, for example,
as tax matters and voting privileges.

The Fund does not foresee any disadvantage to Contract or VLI Policy owners or
Plan participants arising out of these arrangements. Nevertheless, differences
in treatment under tax and other laws, as well as other considerations, could
cause the interests of various purchasers of Contracts and VLI Policies (and the
interests of any Plan participants) to conflict. For example, violation of the
federal tax laws by one Separate

7
<PAGE> 10

Account investing in the Fund could cause the Contracts funded through another
Separate Account to lose their tax-deferred status, unless remedial action were
taken. At the same time, if these arrangements are implemented, the Fund, the
Participating Insurance Companies, and any Plan investing in the Fund would be
subject to conditions imposed by the SEC that are designated to prevent or
remedy any such conflicts. These conditions would require the Board of Trustees
to monitor events in order to identify the existence of any material
irreconcilable conflict that may possibly arise and to determine what action, if
any, should be taken in response to any such conflict. If a material
irreconcilable conflict arises involving Separate Accounts or Plans, a Separate
Account or Plan may be required to withdraw its participation in the Fund.

Shares of the Fund are sold at net asset value per share ("NAV") next determined
after receipt by the Fund or its designee of purchase requests in proper form.

Shares will be redeemed at NAV next determined after receipt by the Funds of
proper redemption instructions, as set forth below. Redemption proceeds will
normally be wired to a Participating Insurance Company on the next Business Day
after receipt of the redemption instructions by the Funds but in no event later
than 7-days following receipt of instructions.

Please refer to the appropriate Separate Account Prospectus for information on
how to allocate Contract values to or withdraw Contract values from the Fund.

IMPORTANT INFORMATION ABOUT THE FUND

DIVIDENDS AND OTHER DISTRIBUTIONS

The Fund declares dividends daily to the Participating Insurance Company
Separate Accounts. Distributions are normally paid or reinvested, pursuant to
elections by Separate Accounts, on the 25th of each month, if a Business Day,
otherwise on the next Business Day, with the exception of the dividend paid or
reinvested in December, which is scheduled to be paid or reinvested on the last
Business Day in December.

FEDERAL INCOME TAX INFORMATION

The Fund has elected to be treated as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"), qualified as such and
intends to continue to so qualify. In order to so qualify, the Fund will
distribute on a current basis substantially all of its investment company
taxable income and net capital gains (if any) on an annual basis and will meet
certain other requirements. Such qualification relieves the Fund of liability
for federal income taxes to the extent the Fund's earnings are distributed.

8
<PAGE> 11

Internal Revenue Service regulations applicable to Separate Accounts generally
require that portfolios that serve as the funding vehicles for Separate Accounts
invest no more than 55% of the value of their total assets in one investment,
70% in two investments, 80% in three investments and 90% in four investments.
Alternatively, a portfolio will be treated as meeting these requirements for any
quarter of its taxable year if, as of the close of such quarter, the portfolio
meets the diversification requirements applicable to regulated investment
companies (see "Federal Income Taxes" in the SAI) and no more than 55% of the
value of its total assets consists of cash and cash items (including
receivables), U.S. Government securities and securities of other regulated
investment companies. The Fund intends to meet these requirements. Internal
Revenue Service regulations also limit the types of investors that may invest in
such a portfolio. The Fund intends to meet this limitation by offering shares
only to Participating Insurance Companies and their Separate Accounts in
connection with the purchase of Contracts and VLI Policies and to Plans.

For more information regarding the federal income tax consequences of investing
in the Fund, see "Federal Income Taxes" in the SAI. For information concerning
the tax consequences of Contract ownership, Contract owners should consult the
appropriate Separate Account Prospectus.

SHARE PRICE CALCULATION

The price of a share on any given day is its NAV. This figure is computed by
taking the Fund's total assets, subtracting any liabilities and dividing the
resulting amount by the number of the Fund's outstanding shares. NAV is
determined on each day that both the Federal Reserve Bank of New York and the
New York Stock Exchange (the "Exchange") are open for business at the close of
normal business (generally 4:00 p.m. Eastern time). Purchase and redemption
orders from Separate Accounts investing in the Fund that are received and
accepted by a Participating Insurance Company, as the Fund's designee, by 4:00
p.m. Eastern time, will generally be computed at the Fund's NAV determined on
that day. While the Fund attempts to maintain a stable NAV of $1.00, your shares
are not insured against loss.

The Fund values its portfolio securities at amortized cost, which means that the
securities are valued at their acquisition cost (as adjusted for amortization of
premium or discount) rather than at current market value. Calculations are made
to compare the value of the Fund's investments, using the amortized cost method,
with market values. If a deviation of 1/2 of 1% or more were to occur between
the Fund's NAV as calculated using market values and the Fund's NAV as
calculated using the amortized cost method, or there were any other material
deviation, the Board of Trustees would promptly consider what action, if any,
should be initiated.

9
<PAGE> 12

HOW THE FUND REPORTS PERFORMANCE

From time to time, the Fund may advertise its yield, effective yield and total
return. Performance figures are based upon historical results and are not
intended to indicate future performance.

YIELD refers to the income generated by a hypothetical investment in the Fund
over a specific 7-day period. This income is then annualized, which means that
the income generated during the 7-day period is assumed to be generated each
week over an annual period and is shown as a percentage of the hypothetical
investment.

EFFECTIVE YIELD is calculated similarly, but the income earned by the investment
is assumed to be compounded weekly when annualized. Effective yield will be
slightly higher than yield due to this compounding effect.

TOTAL RETURN is the change in value of an investment in a fund over a given
period, assuming reinvestment of any dividends and capital gains. A cumulative
total return reflects actual performance over a stated period of time. An
average annual total return is a hypothetical rate of return that, if achieved
annually, would have produced the same cumulative total return if performance
had been constant over the entire period. Average annual total returns smooth
out variations in performance; they are not the same as actual year-by year
results.

The performance of the Fund may be compared to that of other mutual funds
tracked by mutual fund rating services, various indices of investment
performance, U.S. Government obligations, bank certificates of deposit, other
investments for which reliable performance data is available and the consumer
price index.

Yields and effective yields quoted for the Fund include the effect of deducting
the Fund's expenses but may not include charges and expenses attributable to a
particular Contract. You cannot purchase shares of the Fund directly, but you
may allocate account value under your Contract to and from the Fund in
accordance with the terms of your Contract. You should carefully review the
appropriate Separate Account Prospectus for information on charges and expenses
relevant to your Contract. Excluding these charges from quotations of the Fund's
performance has the effect of increasing the performance quoted. You should bear
in mind the effect of these charges when comparing the Fund's performance to
those of other mutual funds.

Additional performance information about the Fund is available in the SAI and
the Annual Report. To request a free copy, call the Annuity Service Center at
800-838-0650 (800-838-0649 in New York State).

10
<PAGE> 13

ORGANIZATION AND MANAGEMENT OF THE FUND

GENERAL OVERSIGHT OF THE FUNDS. The Board of Trustees and officers meet
regularly to review each Fund's investments, performance, expenses and other
business affairs.

THE INVESTMENT MANAGER. The Investment Manager manages each Fund's business
affairs. Its actions are subject to the authority of the Board of Trustees and
officers of the Trust. The Investment Manager also manages each Fund's
investments. It places all orders for each Fund's securities transactions. The
Investment Manager, founded in 1989, is a wholly owned subsidiary of The Charles
Schwab Corporation and is the investment adviser and administrator of the Schwab
mutual fund complex, which as of April 1, 1997 had aggregate net assets in
excess of $47 billion.

TRANSFER AGENT AND SHAREHOLDER SERVICES. Schwab, 101 Montgomery Street, San
Francisco, California 94104, serves as shareholder services agent, transfer
agent and distributor for the Funds. Schwab was established in 1971 and is one
of America's largest discount brokers. The firm provides low-cost securities
brokerage and related financial services to over 4.1 million active customer
accounts and has over 241 branch offices. Schwab also offers convenient access
to financial information services and provides products and services that help
investors make investment decisions. Schwab is a wholly owned subsidiary of The
Charles Schwab Corporation. Charles R. Schwab is the founder, Chairman, Chief
Executive Officer and a Director of The Charles Schwab Corporation. As a result
of his beneficial ownership interests in and other relationships with The
Charles Schwab Corporation and its affiliates, Mr. Schwab may be deemed to be a
controlling person of Schwab and the Investment Manager.

OPERATING FEES AND EXPENSES

Pursuant to its Investment Advisory and Administration Agreement with the Trust,
the Investment Manager is entitled to receive from the Fund a graduated annual
fee, payable monthly, of 0.46% of the Fund's average daily net assets not in
excess of $1 billion, 0.45% of such assets over $1 billion but not in excess of
$3 billion, 0.40% of such assets over $3 billion but not in excess of $10
billion, 0.37% of such assets over $10 billion but not in excess of $20 billion
and 0.34% of such assets over $20 billion.

For the fiscal year ended December 31, 1996, the Fund paid a management fee and
total fund operating expenses equal to 0.10% and 0.50%, respectively, of the
Fund's average daily net assets (after fee reductions and reimbursements).

Schwab receives no compensation for its services as transfer agent, shareholder
services agent and distributor to the Fund.

OTHER EXPENSES. The Trust pays the expenses of its operations, including: the
fees and expenses for independent accountants, legal counsel and the custodian
of its assets; the cost of maintaining books and records of account;
registration fees; the fees and expenses of qualifying the Trust and its shares
for distribution under federal and state securities laws; and industry
association membership dues. These expenses generally will be allocated among
the Trust's investment portfolios ("Series"), including the

11
<PAGE> 14

Fund, on the basis of relative net assets at the time the expense is incurred.
However, expenses directly attributable to a particular Series will be charged
to that Series. The organizational expenses of the Fund have been capitalized
and are being amortized over the first five years of the Fund's operations.

GENERAL INFORMATION

Schwab Annuity Portfolios (the "Trust) is an open-end investment management
company organized as a business trust under the laws of Massachusetts on January
21, 1994 and may issue an unlimited number of shares of beneficial interest in
one or more Series. Currently, three Series are offered: the Schwab Asset
Director--High Growth Portfolio, the Schwab S&P 500 Portfolio and the Schwab
Money Market Portfolio. The Board of Trustees may authorize the issuance of
shares of additional Series if it deems it desirable. Shares within each Series
have equal, noncumulative voting rights and equal rights as to distributions,
assets and liquidation of such Series.

SHAREHOLDER MEETINGS AND VOTING RIGHTS. The Trust is not required to hold
annual shareholders' meetings. It will, however, hold special meetings as the
Board of Trustees requires or deems desirable for purposes such as changing a
Fund's fundamental policies, electing or removing Trustees, or approving or
amending an investment advisory agreement. In addition, a Trustee may be removed
by shareholders at a special meeting called by the written request of
shareholders owning in the aggregate at least 10% of the outstanding shares of
the Trust. The Funds acknowledge that the voting rights held by Participating
Insurance Companies and their Separate Accounts will be passed through to
Contract owners.

Contract owners will vote by Series and not in the aggregate (for example, when
voting to approve the investment advisory agreement), except when voting in the
aggregate is permitted under the 1940 Act, such as for the election of Trustees.

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT BE
LAWFULLY MADE.

12
<PAGE> 15
CROSS REFERENCE SHEET
PROSPECTUS
Schwab S&P 500 Portfolio
Schwab Asset Director -- High Growth Portfolio

<TABLE>
<CAPTION>
PART A ITEM PROSPECTUS CAPTION
<S> <C>
1. Cover Page Cover Page
2. Synopsis Key Features of the Funds; Expenses
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Cover Page; Investment Objectives and Policies;
Investment Techniques; Other Investment
Techniques; Organization and Management of the Funds;
General Information
5. Management of the Fund Organization and Management of the Funds
5A. Management's Discussion of Fund Performance How the Funds Report Performance
6. Capital Stock and Other Securities Cover Page; Investment Objectives and Policies;
Investment Techniques; Other Investment
Techniques; Important Information About the Funds;
General Information
7. Purchase of Securities Being Offered Important Information About the Funds; Investing in
the Funds; Share Price Calculation
8. Redemption or Repurchase Investing in the Funds
9. Pending Legal Proceedings Inapplicable
</TABLE>
<PAGE> 16

SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH PORTFOLIO

SCHWAB S&P 500 PORTFOLIO
----------------

PROSPECTUS APRIL 30, 1997

THE SCHWAB ASSET DIRECTOR--HIGH GROWTH PORTFOLIO (the "High Growth Fund") and
the SCHWAB S&P 500 PORTFOLIO (the "S&P 500 Fund) (together, the "Funds") are
intended as investment vehicles for variable annuity contracts ("Contracts") and
variable life insurance policies ("VLI Policies") to be offered by separate
accounts ("Separate Accounts") of participating life insurance companies
("Participating Insurance Companies") and for pension and retirement plans
qualified under the Internal Revenue Code of 1986, as amended (the "Plans"). The
High Growth Fund's investment objective is to provide high capital growth with
less volatility than an all stock portfolio. The S&P 500 Fund's investment
objective is to seek to track the price and dividend performance (total return)
of common stocks of U.S. companies, as represented by the Index.

THIS PROSPECTUS PRESENTS IMPORTANT INFORMATION you should know before investing
in either Fund. Please read it carefully and keep it for future reference. More
detailed information about the Funds is in the Statement of Additional
Information ("SAI") dated April 30, 1997 (as amended from time to time). The SAI
has been filed with the Securities and Exchange Commission ("SEC") and is
incorporated into this Prospectus by reference (which means that it is legally
considered part of this Prospectus even though it is not printed here). To
receive a free copy of this Prospectus or SAI, call the Annuity Service Center
at Charles Schwab & Co., Inc. ("Schwab") at 800-838-0650, or in New York State,
call 800-838-0649.

TABLE OF CONTENTS

<TABLE>
<S> <C>
KEY FEATURES OF THE FUNDS............................................................. 2
EXPENSES.............................................................................. 4
FINANCIAL HIGHLIGHTS.................................................................. 5
INVESTMENT OBJECTIVES AND POLICIES.................................................... 6
INVESTMENT TECHNIQUES................................................................. 7
OTHER INVESTMENT TECHNIQUES........................................................... 9
INVESTING IN THE FUNDS................................................................ 10
IMPORTANT INFORMATION ABOUT THE FUNDS................................................. 12
DIVIDENDS AND OTHER DISTRIBUTIONS................................................... 12
FEDERAL INCOME TAX INFORMATION...................................................... 12
SHARE PRICE CALCULATION............................................................... 13
HOW THE FUNDS REPORT PERFORMANCE...................................................... 13
ORGANIZATION AND MANAGEMENT OF THE FUNDS.............................................. 14
OPERATING FEES AND EXPENSES......................................................... 15
GENERAL INFORMATION................................................................... 15
</TABLE>

----------------

<PAGE> 17

KEY FEATURES OF THE FUNDS

Both Funds are designed to provide investors with exposure to the growth
potential of the stock market and may be appropriate for investors who have a
long-term investment horizon and want the growth potential of stock investments
or asset allocation. In the past, common stocks have outperformed most other
types of securities over time, but common stock prices can be volatile in the
short-term. Market conditions or other company, political and economic news
often can cause large changes in a stock's price. You should be comfortable with
the volatility of investment in stocks and the risks of the stock market.

Both Funds are designed for long-term investors. Investors should not use the
Funds to speculate on short-term market movements. Doing so can disrupt the
investment strategy and operations. It also raises costs for other Fund
investors. For more details on each Fund's investments and the risks associated
with them, see "Investment Objectives and Policies" and "Investments and
Techniques Used by the Funds."

The HIGH GROWTH FUND invests in a diversified mix of stocks, bonds and
cash-equivalents. It targets a mix of investments designed to provide exposure
to the growth potential of the stock market with less volatility than an all
stock portfolio. This target mix among the major asset categories (stocks, bonds
and cash-equivalents) will vary within defined ranges based on the determination
of the relative attractiveness of securities in the financial markets.

Target Mix pie chart

Bonds 15% Cash 5% Stocks 80%
(Defined range 65% - 95%)

Research shows that the greatest impact on investment returns is due to the
asset allocation decision (the mix of stocks, bonds and cash-equivalents) rather
than market timing or individual stock and bond selections. A study of the
performance of pension portfolios indicated that over 90% of the performance was
determined by asset mix.*

* Financial Analysts Journal; Brinson, Singer, Beebower; May-June 1991.

The S&P 500 FUND seeks to track the price and dividend performance (total
return) of common stocks of U.S. companies as represented by the Standard &
Poor's Composite Index of 500 Stocks (the "Index") by investing primarily in the
common stocks of companies composing the Index. The Index is a widely
recognized, unmanaged index of the prices of 500 large company common stocks
selected by Standard & Poor's ("Index Stocks"). These stocks represent
approximately 70% of the market value of all common stocks publicly traded in
the United States.*

2
<PAGE> 18

MARKET PERFORMANCE. For the 20 years ended 1996, the major asset categories and
sub-categories used by the Fund Index provided the following average annual
returns:

<TABLE>
<S> <C>
STOCKS (the Index).................................................... 14.49%**
Large company stocks (the Index).................................... 14.49%***
Small company stocks (Ibbotson and BARRA small cap index)........... 16.60%***
International stocks (MSCI EAFE).................................... 14.62%***
BONDS (Ibbotson and Lehman long-term government bond index)........... 9.52%***
CASH-EQUIVALENTS (commercial paper A1P1).............................. 8.39%***
</TABLE>

Total return figures assume reinvestment of all dividends paid by the securities
in an index, but do not include any fees, such as those charged by a Fund, or
any expenses, such as Separate Account or Contract charges. Total return figures
also do not include taxes, brokerage fees or other expenses that you would pay
if you were to directly invest in the securities of an index. Past performance
is no guarantee of future results.

- -------------------------

* Source: Standard & Poor's, January 1997.

** Source: Morningstar, Inc.

*** Source: BARRA, Inc.

MANAGEMENT. Charles Schwab Investment Management, Inc. (the "Investment
Manager") currently provides investment management services to 29 mutual funds,
in excess of $47 billion in assets as of April 1, 1997. (See "Organization and
Management of the Funds.")

PURCHASE, SALE AND AVAILABILITY OF SHARES OF THE FUNDS. You cannot buy or sell
shares of the Funds directly, but you may nevertheless allocate account value
under your Contract to and from the Funds in accordance with the terms of your
Contract. Please refer to the appropriate Separate Account Prospectus for
further information on how to make such allocations. (See "Investing in the
Funds.")

SHAREHOLDER COMMUNICATIONS. A representative of the Schwab Annuity Service
Center is available toll-free to assist you at 800-838-0650 or in New York State
at 800-838-0649. (See "Investing in the Funds.")

3
<PAGE> 19

EXPENSES

SHAREHOLDER TRANSACTION EXPENSES are fees and charges you may pay for buying or
selling shares of a fund.

ANNUAL FUND OPERATING EXPENSES are fees and expenses paid directly by each Fund
from its annual operating income and are factored into the dividends paid by the
Funds. You do not pay any of these fees directly. These expenses cover services
such as investment research, management of the Funds and the issuance of
shareholder statements.

<TABLE>
<CAPTION>
HIGH GROWTH S&P 500
FUND FUND
----------- --------
<S> <C> <C>
Shareholder Transaction Expenses...................... None None
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE
DAILY NET ASSETS):
Management Fee (after fee reduction)(1)............... 0.60% 0.13%
12b-1 Fee............................................. None None
Other Expenses (after expense reimbursement)(2)....... 0.15% 0.15%
----------- --------
TOTAL FUND OPERATING EXPENSES(2)...................... 0.75% 0.28%
</TABLE>

- -------------------------

(1) These amounts reflect a reduction (and for the S&P 500 Fund are restated to
reflect the current reduction) by the Investment Manager guaranteed through at
least April 30, 1998. If there were no such reduction, the maximum management
fee would be 0.74% and 0.36% of average daily net assets of the High Growth Fund
and the S&P 500 Fund, respectively.

(2) "Other Expenses" are based on estimated amounts for the current fiscal year
for each Fund after expense reimbursement. These amounts reflect a guarantee
(and for the S&P 500 Fund are restated to reflect the current guarantee) by the
Investment Manager and Schwab that, through at least April 30, 1998, total
operating expenses (excluding interest, taxes, brokerage commissions and
extraordinary expenses) will not exceed 0.75% and 0.28% of average daily net
assets of the High Growth Fund and S&P 500 Fund, respectively. The effect of
this voluntary expense limitation is to maintain or increase total return to
shareholders. Without this guarantee, estimated other expenses and total fund
operating expenses for the High Growth Fund and S&P 500 Fund would be 3.18% and
3.92% and 2.32% and 2.68% of average daily net assets, respectively.

EXAMPLES. Based on the expenses in the table above, you would pay the following
expenses on a $1,000 investment in each Fund, assuming (1) a 5% annual return
and (2) redemption at the end of each period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
High Growth Fund...................................... $8 $24
S&P 500 Fund.......................................... $3 $9
</TABLE>

THESE ARE EXAMPLES ONLY AND DO NOT REPRESENT PAST OR FUTURE EXPENSES. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THE EXPENSES SHOWN IN THE EXAMPLE.

4
<PAGE> 20

FINANCIAL HIGHLIGHTS

The following information for the period ended December 31, 1996 has been
audited by Price Waterhouse LLP, independent accountants, whose unqualified
reports are included in each Fund's Annual Report. The Funds' financial
highlights, financial statements and reports of the auditor are incorporated by
reference into the SAI. Free copies of the Funds' SAI and Annual Reports may be
obtained by calling the telephone number on the cover page of this Prospectus.

<TABLE>
<CAPTION>
S&P 500 FUND HIGH GROWTH FUND
PERIOD ENDED PERIOD ENDED
1/31/97++ 12/31/96++++ 1/31/97++ 12/31/96++++
--------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net asset value at beginning of period............. $ 10.53 $ 10.00 $ 10.42 $ 10.00
---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income............................ 0.01...... 0.03 0.02 0.04
Net realized and unrealized gain on
investments.................................... 0.63 0.50 0.23 0.38
---------- ---------- ---------- ----------
Total from investment operations................. 0.64 0.53 0.25 0.42
LESS DISTRIBUTIONS
Dividends from net investment income............. -- -- -- --
Distributions from realized gain on
investments.................................... -- -- -- --
---------- ---------- ---------- ----------
Total distributions.............................. -- -- -- --
---------- ---------- ---------- ----------
Net asset value at end of period................... $ 11.17 $ 10.53 $ 10.67 $ 10.42
========== ========== ========== ==========
Total return (not annualized)...................... 6.08% 5.30% 2.50% 4.20%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period........................ $6,887,413 $5,923,424 $5,588,808 $5,384,091
Ratio of expenses to average net assets+......... 0.34%* 0.33%* 0.73%* 0.67%*
Ratio of net investment income to average net
assets+........................................ 1.08%* 2.16%* 1.76%* 2.35%*
Portfolio turnover rate.......................... 0% 0% 3% 7%
Average commission rate.......................... $ 0.03 $ 0.03 $ 0.03 $ 0.02
</TABLE>

- -------------------------

++ Period from January 1, 1997 through January 31, 1997.

++++ Period from November 1, 1996 (commencement of operations) through December
31, 1996.

+ The information contained in the above table is based on actual expenses for
each period, after giving effect to the portion of expenses reduced by the
Investment Manager and Schwab. Had these expenses not been reduced and
absorbed, each Fund's expense and net investment income ratios for each
period would have been:

<TABLE>
<S> <C> <C> <C> <C>
Ratio of expenses to average net assets.......... 2.68%* 3.11%* 3.92%* 4.71%*
Ratio of net investment income to average net
assets......................................... (1.26%)* (0.62%)* (1.43%)* (1.69%)*
</TABLE>

* Annualized

5
<PAGE> 21

INVESTMENT OBJECTIVES AND POLICIES

Each Fund's investment objective is fundamental and cannot be changed without
shareholder approval. Each Fund's investment policies and techniques discussed
below are non-fundamental, unless otherwise noted. The SAI contains a complete
listing of each Fund's fundamental policies and limitations. Except as noted,
policies and limitations apply at the time of initial investment and later
changes generally do not require a Fund to sell an investment. For more
information regarding the Funds' investment policies and techniques read the
"Investment Techniques" and "Other Investment Techniques" sections of the
Prospectus and the Funds' SAI.

THE HIGH GROWTH FUND

The High Growth Fund's investment objective is to provide high capital growth
with less volatility than an all stock portfolio. The High Growth Fund seeks to
meet its investment objective by investing in a diverse mix of stocks, bonds and
cash-equivalents. It is designed to provide significant exposure to the growth
potential of the stock market, including large and small domestic stocks and
international stocks, with less risk than an all stock investment.

A target mix of the Fund's assets that may be invested in stocks, bonds and
cash-equivalents and the maximum and minimum ranges in which the Fund may invest
in these major asset categories (the "defined range") have been established for
the High Growth Fund. The Fund will allocate its assets among stocks, bonds and
cash-equivalents, emphasizing investment in the most attractive asset category.
The Fund also uses a Tactical Asset Allocation model to measure the relative
value of each major asset category and adjust allocations within the defined
ranges. The High Growth Fund's target mix as well as the defined ranges for the
major asset categories are as follows:

<TABLE>
<CAPTION>
TARGET DEFINED
MIX RANGES
------ --------
<S> <C> <C>
STOCKS............................................. 80% 65%-95%
BONDS.............................................. 15% 0%-30%
CASH-EQUIVALENTS................................... 5% 0%-35%
</TABLE>

THE S&P 500 FUND

The S&P 500 Fund's investment objective is to seek to track the price and
dividend performance (total return) of common stocks of U.S. companies, as
represented by the Index. The S&P 500 Fund seeks investment results that track,
rather than beat, the total return of the Index. Thus, it does not "actively"
choose investments in the same way as an actively managed stock fund. Actively
managed funds choose investments based on economic, financial and market factors
and investment judgment. In contrast, the S&P 500 Fund uses a "passive" or
"indexing" strategy. It buys and sells stocks primarily to match the Index and
for cash management purposes with respect to redemptions and purchases of Fund
shares. Thus, the merits of any particular stock are not normally judged.

6
<PAGE> 22

Under normal market conditions, the S&P 500 Fund invests at least 80% of its
total assets in Index Stocks. The S&P 500 Fund generally tries to match its
Index Stock holdings to those Stocks' weightings in the Index. In extraordinary
circumstances, the S&P 500 Fund may exclude an Index Stock from its holdings or
include a similar stock in its place if it believes that doing so will help
achieve its investment objective. The S&P 500 Fund may purchase securities of
companies with which it may be affiliated to the extent that these companies are
represented in the Index.

Although the S&P 500 Fund focuses on Index Stocks, it may buy and sell other
equity securities and other types of instruments. It also buys and sells
short-term debt securities for cash management purposes. In addition, it may use
options and futures contracts to adjust its correlation to the Index.

The S&P 500 Fund typically will not track the performance of the Index
perfectly. Fund costs, fees and expenses impair its correlation, as do the
amounts and timing of cash inflows and outflows. Changes in the securities
markets can also inhibit perfect tracking. Over the long term, the S&P 500 Fund
will attempt to achieve a correlation of 0.9 or better between its performance
and that of the Index. A figure of 1.0 would indicate perfect correlation. The
Fund monitors its performance and the performance of the Index on a regular
basis. In the unlikely event that the S&P 500 Fund cannot achieve a long-term
correlation of 0.9 or better, the Board of Trustees will consider alternative
arrangements.

INVESTMENT TECHNIQUES

THE HIGH GROWTH FUND

The Fund will invest in stocks, bonds and cash-equivalents in varying
proportions, according to the Fund's target mixes and defined ranges. The Fund
seeks to reduce overall risk by diversifying investments among major asset
categories and sub-categories. However, shareholders will be exposed to the
risks associated with each particular asset and diversification among asset
categories will not necessarily protect the Fund against losses.

STOCK ALLOCATION. The Fund will diversify its investments among the various
sub-categories (large company, small company, and international stocks). Common
stocks represent an ownership, or equity interest in a company. Although common
stocks have a history of long-term growth in value, their prices tend to
fluctuate in the short-term. Stock risk includes the possibility that stock
prices will decline over the short-term or even over extended periods.

- - LARGE COMPANY STOCKS. The High Growth Fund's large company stock allocation
will be invested in all or a representative sample of the stocks which
comprise the Index (or other similar index).

- - SMALL COMPANY STOCKS. The High Growth Fund's small company stock allocation
will be invested in all or a representative sample of stocks selected from a
universe consisting of the second 1,000 largest U.S. operating corporations,
as measured by market capitalization. Small company stocks have historically
been characterized by greater total returns, greater volatility of returns and
lower dividend yields than large company stocks.

- - INTERNATIONAL STOCKS. The High Growth Fund's international stock allocation
will be invested in all or a representative sample of stocks selected from a
universe consisting of 350 of the largest non-U.S.

7
<PAGE> 23

operating corporations, as measured by market capitalization. These
international stocks are issued by large, publicly traded companies from
countries around the world with major developed securities markets, excluding
the United States. The High Growth Fund may also invest up to 5% of its net
assets in the stocks and bonds of issuers in developing countries.

International investments pose special risk considerations. For example,
international stocks are typically denominated in a foreign currency and their
values will be affected by changes in currency exchange rates in addition to
normal market fluctuations. In addition, foreign issuers are not subject to
the same reporting requirements as domestic issuers, and certain information
about a foreign issuer may not be available. Numerous economic factors and
political instability could adversely affect investments in foreign countries.

BOND ALLOCATION. Bond investments for the High Growth Fund will consist
primarily of U.S. Government securities, highly rated corporate debt obligations
with fixed or floating rates of interest, highly rated asset-backed securities,
including mortgage-related securities, and repurchase agreements for these
securities. The market values of bonds fluctuate due to changes in interest
rates or in the ability of an issuer to meet its obligations. Generally, when
interest rates fall, the values or prices of bonds rise; conversely, when
interest rates rise, the values or prices of bonds fall. While securities with
longer maturities tend to produce higher yields, the prices of longer maturity
securities are also subject to greater market fluctuations as a result of
changes in interest rates. Except under condition of default, changes in the
value of a bond will not affect the income derived from it by the Fund, but will
affect the value of the Fund.

U.S. Government securities are obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities, including bills, notes, bonds
and stripped government securities. Not all obligations issued or guaranteed by
U.S. Government agencies are backed by the full faith and credit of the United
States. Asset-backed securities are secured by company receivables, home equity
loans, truck and auto loans, leases and credit card receivables. The collateral
backing asset-backed securities cannot be foreclosed upon. Mortgage-backed
securities are securities collateralized by pools of mortgage loans and are
assembled by various governmental agencies and organizations, such as Government
National Mortgage Association ("GNMA"), Federal National Mortgage Association
("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC"). When interest
rates decline, there is an increased likelihood that the mortgages underlying a
mortgage-backed security will be pre-paid, resulting in the loss of any
unamortized premium paid for the securities and the probability of having to
reinvest the proceeds at lower rates.

Highly-rated obligations and securities are rated in one of the four highest
categories ("BBB" or better) by a nationally recognized statistical rating
organization ("NRSRO") or considered to be investment-grade quality.

CASH-EQUIVALENT ALLOCATION. The High Growth Fund may invest in U.S.
dollar-denominated short-term money market instruments determined to present
moderate credit risk, including:

1. Bank certificates of deposit, time deposits or bankers' acceptances of
domestic banks (including their foreign branches), U.S. branches of foreign
banks and foreign branches of foreign banks, that have capital, surplus and
undivided profits in excess of $100 million.

2. Commercial paper rated in one of the two highest rating categories by an
NRSRO, or commercial paper or notes of issuers with an unsecured debt issue
outstanding currently rated in one of the two highest rating categories by any
NRSRO where the obligation is on the same or a higher level of priority and
collateralized to the same extent as the rated issue.

3. Obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.

8
<PAGE> 24

4. Repurchase agreements involving obligations that are suitable for investment
under the categories set forth above.

OTHER INVESTMENTS. The High Growth Fund also may invest in securities not
included in the above categories, but which are consistent with the Fund's
investment objective. These may include investments in warrants, convertible
securities, preferred stocks, real-estate related investments, precious metal
related investments, American and European Depository Receipts, and stocks and
bonds of issuers in developing countries. Each of these investments is limited
to 5% of the High Growth Fund's net assets.

THE S&P 500 FUND

The Fund invests primarily in the common stocks of companies composing the
Index. Common stocks represent an ownership, or equity interest, in a company.
Although common stocks have a history of long-term growth in value, their prices
tend to fluctuate in the short-term. Stock risk includes the possibility that
stock prices will decline over the short-term or even over extended periods.
Market conditions or other company, political and economic news often can cause
large changes in a stock's price for the short term or long term. The securities
of small companies are especially sensitive to these factors. The Fund seeks to
reduce overall risk by diversifying investments among its stock holdings,
including a wide range of industries. However, diversification will not
necessarily protect the Fund against losses.

While the S&P 500 Fund tries to remain invested in Index Stocks as fully as
possible, it must manage cash flows resulting from the purchase and sale of Fund
shares. Thus, the S&P 500 Fund also may invest in U.S. dollar-denominated
short-term bonds and money market instruments, including U.S. Government
securities, certificates of deposit, time deposits, bankers' acceptances and
repurchase agreements for these securities. The Fund may buy commercial paper
rated in one of the top two rating categories by an NRSRO or, if unrated,
determined to be of comparable quality by the Investment Manager. The Fund also
may buy and sell shares of other mutual funds to manage its cash flows.

OTHER INVESTMENT TECHNIQUES

ADJUSTING INVESTMENT EXPOSURE. Each of the Funds may use a variety of
techniques in order to remain effectively fully invested or to increase or
decrease exposure to changing security prices, interest rates, currency exchange
rates, or commodity prices, including entering into futures and options
contacts, spot foreign currency exchange contracts, forward foreign currency
exchange contracts and swap agreements, and selling securities short.
Specifically, each Fund may enter into futures contracts and options provided
that the aggregate deposits required on these contracts do not exceed 5% of each
Fund's total assets. In addition, the Funds may not use futures contracts or
options to leverage their portfolios. When the Funds invest in futures
contracts, they will segregate cash or cash-equivalents in the amount of the
underlying obligation. Other government regulations also limit the Funds' use of
futures contracts and options. Each of the other techniques will be limited to
5% of each Fund's net assets. The Funds may sell securities short if, at the
time of the short sale, the Fund owns or has the right to own securities
equivalent in kind and amount to the securities sold short at no additional
cost.

9
<PAGE> 25

These techniques pose certain risks. The primary risks include imperfect
correlations between the change in market value of the securities held by a Fund
and the price of a contract or agreement and possible lack of a liquid secondary
market for a contract or agreement. If the Fund judges market conditions
incorrectly or employs a strategy that does not correlate well with its
investments, these techniques could result in a loss, regardless of whether the
intent was to reduce risk or increase return. In addition, these techniques
could result in a loss if the counterparty to the transaction does not perform
as agreed on a national exchange with an active and liquid secondary market. The
risk of loss in some strategies can be substantial, due to the low margin
deposits required or small investment of cash and the relative magnitude of risk
assumed. As a result, a relatively small price movement in a futures contract or
agreement may result in an immediate and substantial loss (or gain) to the
investor.

ILLIQUID SECURITIES. Each Fund may invest up to 10% of its net assets in
illiquid securities. Generally, an "illiquid security" is any security that
cannot be disposed of promptly and in the ordinary course of business at
approximately the amount at which a Fund has valued the instrument. The absence
of a trading market can make it difficult to ascertain the market value of
illiquid securities.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each of the Funds may purchase
securities on a "when-issued" or "delayed delivery" basis. When-issued or
delayed delivery securities are securities purchased for future delivery at a
stated price and yield. Generally, the Funds will not pay for such securities or
start earning interest on them until the Fund receives them. Securities
purchased on a when-issued or delayed delivery basis are recorded as assets.
During the period between the agreement date and the settlement date, the value
of such securities may change as the prices of securities in the stock market
increase or decrease, or as interest rates change. Default by the other party to
the agreement may result in a loss to a Fund.

REPURCHASE AGREEMENTS. The Funds may engage in repurchase agreements. In a
repurchase agreement, a Fund buys a security at one price and simultaneously
agrees to sell it back at a higher price. In the event of a bankruptcy or other
default of a repurchase agreement counterparty, the Fund may incur expenses in
enforcing its rights, and could experience losses, including a decline in the
value of the underlying securities and loss of income.

BORROWING POLICY. The Funds may not borrow money except for temporary purposes
to meet redemption requests that could not otherwise be met without immediately
selling portfolio securities. The Funds may borrow an amount up to one-third of
the value of the Fund's total assets and may pledge up to 33 1/3% of the Fund's
net assets to secure such borrowings. The Funds may not borrow for leverage
purposes. The Funds' borrowing and pledging policies, as set forth in the SAI,
are fundamental. Borrowing money may cause greater fluctuations in a Fund's
share price.

SECURITIES LENDING. Pursuant to fundamental policies set forth in the SAI, the
Funds may lend up to 33 1/3% of their portfolio securities to broker-dealers as
a means of increasing income. These loans must be fully collateralized at all
times. As with any collateralized loan, there are risks of delay in recovery or
even losses of rights in the assets loaned should the borrower fail financially.

INVESTING IN THE FUNDS

Shares of the Funds are currently sold on a continuous, no-load basis to the
Separate Accounts of Participating Insurance Companies to fund benefits under
Contracts issued by the Participating Insurance

10
<PAGE> 26

Companies. Great-West Life & Annuity Insurance Company, a Participating
Insurance Company, through its Separate Account may be deemed to beneficially
own more than 25% of the shares of each Fund, and, as a result, may be deemed to
be a controlling person of each Fund.

Although shares of the Funds are not available for purchase directly by the
general public, you may nevertheless allocate account value under your Contract
to and from the Funds in accordance with the terms of your Contract. Please
refer to the appropriate Separate Account Prospectus for further information on
how to make an allocation and how to purchase or surrender your Contract.

The Funds reserve the right, in their sole discretion and without prior notice
to shareholders, to withdraw or suspend all or any part of the offering made by
this Prospectus or to reject purchase orders. All orders to purchase shares of
the Funds are subject to acceptance by the Funds and are not binding until
confirmed or accepted in writing.

The Funds may suspend redemption rights or postpone payments any time when
trading on the New York Stock Exchange (the "Exchange") is restricted, or the
Exchange is closed for any reason other than its customary weekend or holiday
closings, emergency circumstances as determined by the SEC exist or for such
other circumstances as the SEC may permit.

Shares of the Funds are expected to be offered on a continuous, no-load basis to
affiliated and unaffiliated Participating Insurance Companies and their Separate
Accounts to fund benefits under Contracts and VLI Policies as well as to Plans.
The relationships of Plans and Plan participants to the Funds would be subject,
in part, to the provisions of the individual Plans and applicable law.
Accordingly, such relationships could be different from those described in this
Prospectus for Separate Accounts and Contract owners in such areas, for example,
as tax matters and voting privileges.

The Funds do not foresee any disadvantage to Contract or VLI Policy owners or
Plan participants arising out of these arrangements. Nevertheless, differences
in treatment under tax and other laws, as well as other considerations, could
cause the interests of various purchasers of Contracts and VLI Policies (and the
interests of any Plan participants) to conflict. For example, violation of the
federal tax laws by one Separate Account investing in the Funds could cause the
Contracts funded through another Separate Account to lose their tax-deferred
status, unless remedial action were taken. At the same time, if these
arrangements are implemented, the Funds, the Participating Insurance Companies,
and any Plans investing in the Funds would be subject to conditions imposed by
the SEC that are designated to prevent or remedy any such conflicts. These
conditions would require the Board of Trustees to monitor events in order to
identify the existence of any material, irreconcilable conflict that may
possibly arise and to determine what action, if any, should be taken in response
to any such conflict. If a material, irreconcilable conflict arises involving
Separate Accounts or Plans, a Separate Account or Plan may be required to
withdraw its participation in either Fund.

Shares of the Funds are sold at net asset value per share ("NAV") next
determined after receipt by the Funds or its designee of purchase requests in
proper form.

11
<PAGE> 27

Please refer to the appropriate Separate Account Prospectus for information on
how to allocate Contract values to or withdraw Contract values from a Fund.

IMPORTANT INFORMATION ABOUT THE FUNDS

DIVIDENDS AND OTHER DISTRIBUTIONS

Each of the Funds will distribute substantially all of its net investment income
and capital gains, if any, to the Participating Insurance Company Separate
Accounts each year in December. Distributions are normally paid or reinvested
pursuant to elections by Separate Accounts.

FEDERAL INCOME TAX INFORMATION

Each Fund has elected to be treated as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"), qualified as such and
intends to continue to so qualify. In order to so qualify, the Funds will
distribute on a current basis substantially all of their investment company
taxable income and their net capital gains (if any) on an annual basis and will
meet certain other requirements. Such qualification relieves each Fund of
liability for federal income taxes to the extent each Fund's earnings are
distributed. Income received by either Fund from sources within certain foreign
countries, however, may be subject to foreign taxes withheld at the source.

Internal Revenue Service regulations applicable to Separate Accounts generally
require that portfolios that serve as the funding vehicles for Separate Accounts
invest no more than 55% of the value of their total assets in one investment,
70% in two investments, 80% in three investments and 90% in four investments.
Alternatively, a portfolio will be treated as meeting these requirements for any
quarter of its taxable year if, as of the close of such quarter, the portfolio
meets the diversification requirements applicable to regulated investment
companies (see "Federal Income Taxes" in the SAI) and no more than 55% of the
value of its total assets consists of cash and cash items (including
receivables), U.S. Government securities and securities of other regulated
investment companies. The Funds intend to meet these requirements. Internal
Revenue Service regulations also limit the types of investors that may invest in
such a portfolio. The Funds intend to meet this limitation by offering shares
only to Participating Insurance Companies and their Separate Accounts in
connection with the purchase of Contracts and VLI Policies and to Plans.

For more information regarding the federal income tax consequences of investing
in the Funds, see "Federal Income Taxes" in the SAI. For information concerning
the tax consequences of Contract ownership, Contract owners should consult the
appropriate Separate Account Prospectus.

12
<PAGE> 28

SHARE PRICE CALCULATION

The price of a share on any given day is its NAV. This figure is computed by
taking each Fund's total assets, subtracting any liabilities and dividing the
resulting amount by the number of that Fund's outstanding shares. NAV of each
Fund is determined on each day the Exchange is open for business as of the close
of normal business (generally 4:00 p.m. Eastern time). Purchase and redemption
orders from Separate Accounts investing in a Fund that are received and accepted
by a Participating Insurance Company, as the Fund's designee, by 4:00 p.m.
Eastern time will generally be computed at each Fund's NAV determined on that
day.

The Funds value their portfolio securities based on market quotes if they are
readily available. If they are not readily available, the Investment Manager
assigns fair values to each Fund's assets in good faith under Board of Trustees
guidelines. The Board of Trustees regularly reviews these values.

HOW THE FUNDS REPORT PERFORMANCE

From time to time the Funds may advertise their total return and yield. These
figures reflect past results and are not intended to predict future performance.
A Fund may compare its performance to the performance of the Index, other
indices or a combination of indices.

YIELD refers to the income generated by an investment in a Fund over a given
period. It is expressed as an annualized percentage rate. Each Fund calculates
yields according to an SEC standard for all stock and bond portfolios. Because
this differs from other accounting methods, the Funds may quote a yield not
equal to the income actually paid out by the Funds.

Performance information quoted for each Fund includes the effect of deducting
the Fund's expenses but may not include charges and expenses attributable to a
particular Contract. You cannot purchase shares of the Funds directly, but you
may allocate account value under your Contract to and from the Fund in
accordance with the terms of your Contract. You should carefully review the
appropriate Separate Account Prospectus for information on charges and expenses
relevant to your Contract. Excluding these charges from quotations of a Fund's
performance has the effect of increasing the performance quoted. You should bear
in mind the effect of these charges when comparing the Funds' performance to
those of other mutual funds.

13
<PAGE> 29

Additional performance information about the Fund is available in its Annual
Report. To request a free copy, call the Annuity Service Center at 800-838-0650
(800-838-0649 in New York State).

ORGANIZATION AND MANAGEMENT OF THE FUNDS

GENERAL OVERSIGHT OF THE FUNDS. The Board of Trustees and officers meet
regularly to review each Fund's investments, performance, expenses and other
business affairs.

Geri Hom is Vice President of the Investment Manager and a Senior Portfolio
Manager. She manages the S&P 500 Fund and the equity portion of the High Growth
Fund. She joined Schwab in March 1995 as Portfolio Manager--Equities and
currently manages the 5 Schwab index funds and the equity portions of the 3
Schwab Asset Director(R) funds with approximately $3.4 billion in assets. For
four years before joining Schwab, she was a Principal for Wells Fargo Nikko
Investment Advisors. For the seven years prior, she was Vice President and
Manager of the Domestic Equity Fund Management Group for Wells Fargo Nikko. She
holds a B.A. in business education from San Francisco State University.

Andrea Regan is Vice President of the Investment Manager and a Senior Portfolio
Manager. She manages the bond portion of the High Growth Fund. She joined Schwab
in January 1991 and is currently Portfolio Manager--Fixed Income. She currently
manages three money market funds and two bond funds with combined assets of over
$3.5 billion. Prior to joining Schwab, she was Vice President and Manager of
Trading for Merus Capital Management, the investment management division of the
Bank of California. She holds a B.S. in accounting from San Jose State
University.

Stephen B. Ward, Senior Vice President and Chief Investment Officer, has overall
responsibility for the day-to-day operations of the Funds. He joined Schwab as
Vice President and Portfolio Manager in April 1991 and was promoted to his
current position in August 1993. Prior to joining Schwab, he was Vice President
and Portfolio Manager at Federated Investors. He holds an M.B.A. form the
Wharton School and a B.A. in economics from Virginia Tech. He has been a
chartered financial analyst since 1985.

14
<PAGE> 30

other relationships with The Charles Schwab Corporation and its affiliates, Mr.
Schwab may be deemed to be a controlling person of Schwab and the Investment
Manager.

OPERATING FEES AND EXPENSES

The Investment Manager provides investment management services under the terms
of its Investment Advisory and Administration Agreement with the Trust. For
these services, it is entitled to a graduated annual fee payable monthly from
each Fund. For the High Growth Fund the rate is 0.74% of the first $1 billion of
its average daily net assets; 0.69% of the next $1 billion; and 0.64% of net
assets over $2 billion. For the S&P 500 Fund, the rate is 0.36% of the first $1
billion of its average daily net assets; 0.33% of the next $1 billion; and 0.31%
of net assets over $2 billion.

For the period ended December 31, 1996, the High Growth Fund and S&P 500 Fund
paid management fees and total operating expenses of 0% and 0.67% and 0% and
0.33% of average daily net assets, respectively (after fee reductions and
reimbursements).

Schwab serves as the distributor for the Funds but receives no compensation for
this service.

OTHER EXPENSES. The Trust pays the expenses of each Fund's operations. These
expenses include the fees and expenses for independent accountants, legal
counsel and custodians; the costs of maintaining books and records of account;
the fees and expenses of qualifying the Trust and its shares for distribution
under federal and state securities laws; and industry association membership
dues. The Funds seek to keep transaction costs and other expenses low. These
expenses will generally be allocated among the Trust's portfolios on the basis
of relative net assets at the time the expense is incurred. However, such
expenses directly attributable to a particular Fund will be charged to that
Fund.

FUND BROKERAGE. When placing orders for each Fund's securities transactions,
the Investment Manager exercises its judgment to obtain the best price and
execution. It considers the full range and quality of brokerage services
available in making these determinations. For securities transactions in which
Schwab is not a principal, the Investment Manager may use Schwab or other
qualified affiliated brokers or dealers to execute each Fund's transactions. To
do so, it must reasonably believe that commissions or prices paid to and
transaction quality received from Schwab or other qualified affiliated brokers
or dealers will be at least comparable to those available from qualified
non-affiliated brokers or dealers.

GENERAL INFORMATION

Schwab Annuity Portfolios (the "Trust") is an open-end management investment
company organized as a business trust under the laws of Massachusetts on January
21, 1994 and may issue an unlimited number of shares of beneficial interest in
one or more investment portfolios or series ("Series"). Currently, three Series
are offered: the Schwab Asset Director--High Growth Portfolio, the Schwab S&P
500 Portfolio and

15
<PAGE> 31

the Schwab Money Market Portfolio. The Board of Trustees may authorize the
issuance of shares of additional Series, if it deems it desirable. Shares within
each Series have equal, noncumulative voting rights and equal rights as to
distributions, assets and liquidation.

S&P 500 LICENSE. The S&P 500 Fund is not sponsored, endorsed, sold or promoted
by Standard & Poor's ("S&P"). S&P makes no representation or warranty, express
or implied, to the shareholders of the S&P 500 Fund or any member of the public
regarding the advisability of investing in securities generally or in the S&P
500 Fund particularly or the ability of the Index to track general stock market
performance. S&P's only relationship to the S&P 500 Fund is the licensing of
certain trademarks and trade names of S&P and of the Index, which is determined,
composed and calculated by S&P without regard to the S&P 500 Fund. S&P has no
obligation to take the needs of the S&P 500 Fund or its shareholders into
consideration in determining, composing or calculating the Index. S&P is not
responsible for and has not participated in the determination of the prices and
amount of S&P 500 Fund shares, the timing of the issuance or sale of S&P 500
shares or in the determination or calculation of the equation by which the S&P
500 Fund's share are to be converted into cash. S&P has no obligation or
liability in connection with the administration, marketing or trading of the S&P
500 Fund's shares.

S&P does not guarantee the accuracy and/or the completeness of the Index or any
data included therein, and S&P shall have no liability for any errors, omissions
or interruptions therein. S&P makes no warranty, express or implied, as to
results to be obtained by the S&P 500 Fund, its shareholders or any other person
or equity from the use of the Index or any data included therein. S&P makes no
express or implied warranties and expressly disclaims all warranties of
merchantability or fitness for a particular purpose or use with respect to the
Index or any data included therein. Without limiting any of the foregoing, in no
event shall S&P have any liability for any special, punitive, indirect or
consequential damages (including lost profits), even if notified of the
possibility of such damages.

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS OR
THEIR DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUNDS
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT BE
LAWFULLY MADE.

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<PAGE> 32
CROSS REFERENCE SHEET
STATEMENT OF ADDITIONAL INFORMATION
Schwab Money Market Portfolio
Schwab S&P 500 Portfolio
Schwab Asset Director -- High Growth Portfolio

<TABLE>
<CAPTION>
PART B STATEMENT OF ADDITIONAL INFORMATION
ITEM CAPTION
- ---- -------
<S> <C>
10. Cover Page Cover Page

11. Table of Contents Table of Contents

12. General Information and History General Information

13. Investment Objectives and Policies Investment Restrictions

14. Management of the Fund Management of the Trust

15. Control Persons and Principal
Holders of Securities Management of the Trust

16. Investment Advisory and Other
Services Management of the Trust

17. Brokerage Allocation and Other
Practices Portfolio Transactions and Turnover

18. Capital Stock and Other Securities General Information

19. Purchase, Redemption and
Pricing of Securities Being Offered Share Price Calculation; Purchase and
Redemption of Shares

20. Tax Status Distributions and Taxes

21. Underwriters Management of the Trust

22. Calculation of Performance Data Yield

23. Financial Statements Financial Statements
</TABLE>
<PAGE> 33
STATEMENT OF ADDITIONAL INFORMATION

SCHWAB ANNUITY PORTFOLIOS
101 Montgomery Street, San Francisco, CA 94104

SCHWAB MONEY MARKET PORTFOLIO
SCHWAB ASSET DIRECTOR(R) - HIGH GROWTH PORTFOLIO
SCHWAB S&P 500 PORTFOLIO

April 30, 1997

This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Prospectuses dated April 30, 1997 (as amended
from time to time) for the Schwab Money Market Portfolio (the "Money Market
Fund"), and the joint Prospectus dated April 30, 1997 (as amended from time to
time) for the Schwab Asset Director-High Growth Portfolio (the "High Growth
Fund") and the Schwab S&P 500 Portfolio (the "S&P 500 Fund"), three separately
managed investment portfolios (collectively the "Funds") of Schwab Annuity
Portfolios (the "Trust"). The Funds are designed to serve as investment vehicles
for variable annuity contracts ("Contracts") issued through separate accounts
("Separate Accounts") of participating life insurance companies ("Participating
Insurance Companies"). These Funds are intended for retirement savings or other
long-term investment purposes. In the future, shares of the Funds may be offered
to other Participating Insurance Companies and their Separate Accounts as an
investment vehicle for variable life insurance policies and to qualified pension
and retirement plans ("Plans"). To obtain a copy of any of these Prospectuses,
please contact the Schwab Annuity Service Center at Charles Schwab & Co., Inc.
("Schwab") at 800-838-0650

TABLE OF CONTENTS

Page

<TABLE>
<CAPTION>
<S> <C>
INVESTMENT OBJECTIVES.......................................................2
MANAGEMENT OF THE TRUST....................................................25
PORTFOLIO TRANSACTIONS AND TURNOVER........................................31
DISTRIBUTIONS AND TAXES....................................................32
SHARE PRICE CALCULATION....................................................34
HOW THE FUNDS REFLECT PERFORMANCE..........................................35
YIELD......................................................................36
THE BENEFITS OF INTERNATIONAL INVESTING....................................37
INDEXING AND ASSET ALLOCATION..............................................37
GENERAL INFORMATION........................................................39
PURCHASE AND REDEMPTION OF SHARES..........................................41
OTHER INFORMATION..........................................................41
APPENDIX - RATINGS OF INVESTMENT SECURITIES................................43
FINANCIAL STATEMENTS.......................................................44
</TABLE>

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<PAGE> 34
INVESTMENT OBJECTIVES

SCHWAB MONEY MARKET PORTFOLIO

The Money Market Fund's investment objective is maximum current income
consistent with liquidity and stability of capital.

SCHWAB ASSET DIRECTOR(R)-
HIGH GROWTH PORTFOLIO

The investment objective of the High Growth Fund is to provide high
capital growth with less volatility than an all-stock portfolio. The Fund
provides significant exposure to various stock categories, including domestic
large and small company stocks and international stocks.

SCHWAB S&P 500 PORTFOLIO

The S&P 500 Fund's investment objective is to track the price and
dividend performance (total return) of common stocks of U.S. companies, as
represented by Standard & Poor's 500 Composite Stock Price Index(R) (the "S&P
500").

The investment objectives stated above for each of the Funds, along
with certain investment restrictions adopted by the Funds, are fundamental and
cannot be changed without approval by holders of a majority of the Funds'
outstanding voting shares, as defined in the Investment Company Act of 1940, as
amended (the "1940 Act").

INVESTMENT TECHNIQUES

USED BY THE MONEY MARKET FUND

EURODOLLAR CERTIFICATES OF DEPOSIT AND FOREIGN SECURITIES

Before investing in Eurodollar certificates of deposit, the Money
Market Fund will consider their marketability, possible restrictions on
international currency transactions and any regulations imposed by the domicile
country of the foreign issuer. Eurodollar certificates of deposit may not be
subject to the same regulatory requirements as certificates of deposit issued by
U.S. banks, and associated income may be subject to the imposition of foreign
taxes.

Investments in securities of foreign issuers or securities principally
traded overseas may involve certain special risks due to foreign economic,
political and legal developments, including expropriation of assets or
nationalization, imposition of withholding taxes on dividend or interest
payments, and possible difficulty in obtaining and enforcing judgments against
foreign entities.

SECTION 4(2) PAPER

Commercial paper and other securities are issued in reliance on the
so-called "private placement" exemption from registration afforded by Section
4(2) of the Securities Act of 1933, as amended ("Section 4(2) paper"). Federal
securities laws restrict the disposition of Section 4(2) paper. Section 4(2)
paper generally is sold to institutional investors, such as the Money Market
Fund, who agree that they are purchasing the paper for investment and not for
public distribution. Any resale by the purchaser must be in an exempt
transaction and may be accomplished in accordance with Rule 144A. Section 4(2)
paper is normally resold to other institutional investors such as the Money
Market Fund through or with the assistance of the issuer

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<PAGE> 35
or investment dealers who make a market in the Section 4(2) paper, thus
providing liquidity. Because it is not possible to predict with assurance
exactly how this market for Section 4(2) paper sold and offered under Rule 144A
will continue to develop, Charles Schwab Investment Management, Inc. (the
"Investment Manager"), pursuant to guidelines approved by the Board of Trustees,
will carefully monitor the Money Market Fund's investments in these securities,
focusing on such important factors, among others, as valuation, liquidity and
availability of information.

ASSET-BACKED COMMERCIAL PAPER
AND OTHER SECURITIES

The Money Market Fund can invest a portion of its assets in
asset-backed commercial paper and other money market fund Eligible Securities.
(See "Money Market Fund Investment Policies and Restrictions.") Repayment of
these securities is intended to be obtained from an identified pool of assets,
typically receivables related to a particular industry, such as asset-backed
securities related to credit card receivables, automobile receivables, trade
receivables or diversified financial assets. Each of the Funds has identified
asset-backed securities related to the industries mentioned above and each Fund
intends to limit its investments in each such industry to 25% of its total
assets. The credit quality of most asset-backed commercial paper depends
primarily on the credit quality of the assets underlying such securities, how
well the entity issuing the security is insulated from the credit risk of the
originator (or any other affiliated entities) and the amount and quality of any
credit support provided to the securities.

Asset-backed commercial paper is often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on these underlying assets to make payments, such
securities may contain elements of credit support. This credit support falls
into two classes: liquidity protection and protection against ultimate default
on the underlying assets. Liquidity protection refers to the provision of
advances, generally by the entity administering the pool of assets, to ensure
that scheduled payments on the underlying pool are made in a timely fashion.
Protection against ultimate default ensures payment on at least a portion of the
assets in the pool. This protection may be provided through guarantees,
insurance policies or letters of credit obtained from third parties, through
various means of structuring the transaction or through a combination of such
approaches. The degree of credit support provided on each issue is based
generally on historical information respecting the level of credit risk
associated with such payments. Delinquency or loss in excess of that anticipated
could adversely affect the return on an investment in an asset-backed security.

Bank notes are notes used to represent debt obligations issued by banks
in large denominations.

MONEY MARKET FUND INVESTMENT
POLICIES AND RESTRICTIONS

Except as otherwise noted, the restrictions below are fundamental and
cannot be changed without approval of the holders of a majority of the
outstanding voting securities (as defined in the 1940 Act) of the Money Market
Fund.

THE MONEY MARKET FUND MAY NOT:

(1) Purchase securities or make investments other than in accordance with its
investment objective and policies.

(2) Purchase securities of any issuer (other than obligations of, or guaranteed
by, the U.S. Government, its agencies or instrumentalities) if, as a result,
more than 5% of the value of its assets would be invested in securities of that
issuer.

(3) Purchase more than 10% of any class of securities of any issuer. All debt
securities and

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<PAGE> 36
all preferred stocks are each considered as one class.

(4) Concentrate 25% or more of the value of its assets in any one industry;
provided, however, that the Money Market Fund reserves the freedom of action to
invest up to 100% of its assets in certificates of deposit or bankers'
acceptances issued by domestic branches of U.S. banks and U.S. branches of
foreign banks (which the Money Market Fund has determined to be subject to the
same regulation as U.S. banks), or obligations of, or guaranteed by, the U.S.
Government, its agencies or instrumentalities in accordance with its investment
objective and policies.

(5) Invest more than 5% of its total net assets in securities of issuers (other
than obligations of, or guaranteed by, the U.S. Government, its agencies or
instrumentalities) that, with their predecessors, have a record of less than
three years of continuous operation.

(6) Enter into repurchase agreements if, as a result thereof, more than 10% of
its net assets valued at the time of the transaction would be subject to
repurchase agreements maturing in more than seven days and invested in
securities restricted as to disposition under the federal securities laws
(except commercial paper issued under Section 4(2) of the Securities Act of
1933, as amended, hereinafter the "1933 Act"). The Money Market Fund will invest
no more than 10% of its net assets in illiquid securities.

(7) Invest more than 5% of its total assets in securities restricted as to
disposition under the federal securities laws (except commercial paper issued
under Section 4(2) of the 1933 Act).

(8) Purchase or retain securities of an issuer if any of the officers, trustees
or directors of the Trust or its Investment Manager individually own
beneficially more than 1/2 of 1% of the securities of that issuer and together
beneficially own more than 5% of the securities of such issuer.

(9) Invest in commodities or commodity contracts, including futures contracts,
real estate or real estate limited partnerships, although it may invest in
securities which are secured by real estate and securities of issuers which
invest or deal in real estate.

(10) Invest for the purpose of exercising control or management of another
issuer.

(11) Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets.(1)

(12) Make loans to others, except the Money Market Fund may (i) purchase a
portion of an issue of short-term debt securities or similar obligations
(including repurchase agreements) that are publicly distributed or customarily
purchased by institutional investors, and (ii) lend its portfolio securities (up
to one-third of the Money Market Fund's total assets) in accordance with its
investment objectives and policies.

(13) Borrow money except as a temporary measure for extraordinary or emergency
purposes and then only in an amount up to one-third of the value of its total
assets in order to meet redemption requests without immediately selling any
portfolio securities. The Money Market Fund will not borrow for leverage
purposes or purchase securities or make investments while reverse repurchase
agreements or borrowings are outstanding. If, for any reason, the current value
of the Money Market Fund's total net assets falls below an amount equal to three
times the amount of its indebtedness from money borrowed, the Money Market Fund
will, within three business days, reduce its indebtedness to the extent
necessary.

(14) Write, purchase or sell puts, calls or combinations thereof.

- -------------------

(1) See the description of the Trustees' deferred compensation plan under
"Management of the Trust" on page 25 for an exception to this investment
restriction.

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<PAGE> 37
(15) Make short sales of securities, or purchase any securities on margin except
to obtain such short-term credits as may be necessary for the clearance of
transactions.

(16) Invest in interests in oil, gas, mineral leases or other mineral
exploration or development programs, although it may invest in the securities of
issuers which invest in or sponsor such programs.

(17) Underwrite securities issued by others except to the extent it may be
deemed to be an underwriter, under the federal securities laws, in connection
with the disposition of securities from its investment portfolio.

(18) Issue senior securities as defined in the 1940 Act.

Except for restrictions (4) and (13), if a percentage restriction is
adhered to at the time of investment, a later increase in percentage resulting
from a change in values or net assets will not be considered a violation.

The Money Market Fund will purchase only securities that present
minimal credit risks and which are First Tier or Second Tier Securities
(otherwise referred to as "Eligible Securities").(1) An Eligible Security is:

(1) a security with a remaining maturity of 397 days or less: (a) that is rated
by the requisite nationally recognized statistical rating organizations
("NRSROs") (currently Moody's Investors Service ("Moody's"), Standard & Poor's
Corporation ("S&P"), Duff and Phelps Credit Rating Co. ("Duff"), Fitch Investors
Service, Inc. ("Fitch"), Thomson Bankwatch, and, with respect to debt issued by
banks, bank holding companies, United Kingdom building societies, broker-dealers
and broker-dealers' parent companies, and bank-supported debt, IBCA Limited and
its affiliate, IBCA, Inc.) designated by the Securities and Exchange Commission
(the "SEC") in one of the two highest rating categories for short-term debt
obligations (the requisite NRSROs being any two or, if only rated by one, that
one NRSRO), or (b) that itself was unrated by any NRSRO, but was issued by an
issuer that has outstanding a class of short-term debt obligations (or any
security within that class) meeting the requirements of subparagraph 1(a) above
that is of comparable priority and security;

(2) a security that at the time of issuance was a long-term security but has a
remaining maturity of 397 days or less and: (a) whose issuer received a rating
in one of the two highest rating categories from the requisite NRSROs for
short-term debt obligations with respect to a class of short-term debt
obligations (or any security within that class) that is now comparable in
priority and security with the subject security or (b) that has long-term
ratings from the requisite NRSROs that are in one of the two highest categories;
or

(3) a security not rated by an NRSRO but deemed by the Investment Manager,
pursuant to guidelines adopted by the Board of Trustees, to be of comparable
quality to securities described in (1) and (2) and to represent minimal credit
risks.

A First Tier Security is any Eligible Security that carries (or other
relevant securities issued by its issuer carry) top NRSRO ratings from at least
two NRSROs (a single top rating is sufficient if only one NRSRO rates the
security), or that the Investment Manager has determined, pursuant to guidelines
adopted by the Board of Trustees, to be of comparable quality to such a
security. A Second Tier Security is any other Eligible Security.

The Money Market Fund will limit its investments in the First Tier
Securities of any one issuer to no more than 5% of its assets. (Repurchase
agreements collateralized by non-government securities will be taken into
account when making this calculation.) Moreover, the Money Market Fund's total
holdings of Second

- -----------------------

(1) See the description of the Trustees' deferred compensation plan under
"Management of the Trust" on page 25 for an exception to this investment
restriction.

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<PAGE> 38
Tier Securities will not exceed 5% of its assets, with investment in the Second
Tier Securities of any one issuer being limited to the greater of 1% of the
Money Market Fund's assets or $1 million. In addition, the underlying securities
involved in repurchase agreements collateralized by non-government securities
will be First Tier Securities at the time the repurchase agreements are
executed.

As noted above, the Money Market Fund will not purchase securities of
any issuer (other than obligations of, or guaranteed by, the U.S. Government,
its agencies or instrumentalities) if, as a result thereof, more than 5% of the
value of its assets would be invested in securities of that issuer. However,
pursuant to an exception under the 1940 Act, the Money Market Fund may invest up
to 25% of the value of its total assets in First Tier securities of a single
issuer for a period of up to 3 Business Days after the purchase thereof.

Also as noted above, the Money Market Fund may not borrow money except
as a temporary measure for extraordinary or emergency purposes. Such borrowing
will magnify declines as well as increases in the net asset value of the Money
Market Fund's shares and in the net yield on the Money Market Fund's
investments. Borrowing also increases the Money Market Fund's exposure to
capital risk.

INVESTMENT TECHNIQUES USED
BY THE HIGH GROWTH FUND
AND THE S&P 500 FUND

FOREIGN INVESTMENTS

The High Growth Fund expects to invest in stocks of foreign issuers.
Investing in foreign issuers involves certain special considerations, including
those set forth below, which typically are not associated with investing in U.S.
issuers. Since investments in the securities of foreign issuers are usually made
and held in foreign currencies, and since the High Growth Fund may hold cash in
foreign currencies, they may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations and may incur costs in
connection with conversions between various currencies. The rate of exchange
between the U.S. dollar and other currencies is determined by the forces of
supply and demand in the foreign exchange market as well as by political and
economic factors.

Since foreign companies are not subject to uniform accounting, auditing
and financial reporting standards, practices and requirements comparable to
those applicable to U.S. companies, there may be less publicly available
information about a foreign company than about a U.S. company. Securities of
foreign companies have less volume, are less liquid and are more volatile than
securities of U.S. companies. Fixed commissions on foreign securities exchanges
are generally higher than negotiated commissions on U.S. exchanges, although the
High Growth Fund endeavors to achieve the most favorable net results on its
portfolio transactions. There is generally less government supervision and
regulation of foreign securities exchanges, brokers, dealers and listed
companies than in the United States, which increases the risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio
securities.

Foreign markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Such delays in settlement could result
in temporary periods when a portion of the assets of the High Growth Fund is
uninvested and no return is earned thereon. The inability to make intended
security purchases due to settlement problems could cause the High Growth Fund
to miss attractive investment opportunities. Losses to the High Growth Fund that
arise out of the inability to fulfill a contract to sell such securities could
result in potential liability to the High Growth Fund.

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<PAGE> 39
In addition, with respect to those countries in which the High Growth
Fund may invest or other countries which may have a significant impact on the
companies in which the High Growth Fund may invest, there is the possibility of
expropriation or confiscatory taxation, political or social instability,
diplomatic developments, change of government or war, which could affect the
High Growth Fund's investments. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position.

The High Growth Fund may invest up to 5% of its net assets in companies
located in developing countries. Compared to the United States and other
developed countries, developing countries may have relatively unstable
governments, economies based on only a few industries and securities markets
that trade a small number of securities. Prices on these exchanges tend to be
volatile, and securities in these countries have historically offered greater
potential for gain (as well as loss) than securities of companies located in
developed countries.

Hong Kong. In addition to the risks discussed above, it is impossible
to currently foresee what risk, if any, may exist to the High Growth Fund's
investments as a result of the planned 1997 incorporation of the British Crown
Colony of Hong Kong into the People's Republic of China. Shareholders should
note that the risks discussed above may increase depending on political and
economic developments as the scheduled time for the change in government in Hong
Kong draws nearer.

DEPOSITARY RECEIPTS

The High Growth Fund may invest up to 5% of its total net assets in
American Depositary Receipts, European Depositary Receipts, Global Depositary
Receipts, Global Depositary Shares ("ADRs," "EDRs," "GDRs" and "GDSs,"
respectively) or other similar global instruments, which are receipts
representing ownership of shares of a foreign-based issuer held in trust by a
bank or similar financial institution. These are designed for U.S. and European
securities markets as alternatives to purchasing underlying securities in their
corresponding national markets and currencies. ADRs, EDRs, GDRs and GDSs can be
sponsored or unsponsored. Sponsored ADRs, EDRs, GDRs and GDSs are certificates
in which a bank or financial institution participates with a custodian. Issuers
of unsponsored ADRs, EDRs, GDRs and GDSs are not contractually obligated to
disclose material information in the United States. Therefore, there may not be
a correlation between such information and the market value of the unsponsored
ADRs, EDRs, GDRs or GDSs.

OPTIONS ON SECURITIES

Writing Covered Options. Both the High Growth Fund and the S&P 500 Fund
may write (sell) covered call and put options on any securities in which they
may invest. The High Growth Fund and S&P 500 Fund may purchase and write such
options on securities that are listed on domestic or foreign securities
exchanges or traded in the over-the-counter market. All call options written by
the High Growth Fund and S&P 500 Fund are covered, which means that the High
Growth Fund and S&P 500 Fund will own the securities subject to the option so
long as the option is outstanding. The purpose of writing covered call options
is to realize greater income than would be realized on portfolio securities
transactions alone. However, in writing covered call options for additional
income, the High Growth Fund and S&P 500 Fund may forego the opportunity to
profit from an increase in the market price of the underlying security.

All put options the High Growth Fund and S&P 500 Fund write will be
covered, which means that each of the High Growth Fund and S&P 500 Fund will
have deposited with its custodian cash, U.S. Government securities or other
high-grade debt securities (i.e., securities rated in one of the top three
categories by Moody's or S&P or, if unrated, determined by the

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<PAGE> 40
High Growth Fund's and S&P 500 Fund's Investment Manager to be of comparable
credit quality) with a value at least equal to the exercise price of the put
option. The purpose of writing such options is to generate additional income for
the High Growth Fund and S&P 500 Fund. However, in return for the option
premium, the High Growth Fund and S&P 500 Fund accept the risk that they may be
required to purchase the underlying securities at a price in excess of the
securities market value at the time of purchase.

The High Growth Fund and S&P 500 Fund may terminate their obligations
under a written call or put option by purchasing an option identical to the one
it has written. These purchases are referred to as "closing purchase
transactions."

Purchasing Options. The High Growth Fund and S&P 500 Fund may purchase
put and call options on any securities in which they may invest or options on
any securities index based on securities in which they may invest. The High
Growth Fund and S&P 500 Fund may also enter into closing sale transactions in
order to realize gains or minimize losses on options they have purchased.

The writer of an option may have no control over when the underlying
securities must be sold, in the case of a call option, or purchased, in the case
of a put option, since, with regard to certain options, the writer may be
assigned an exercise notice at any time prior to the termination of the
obligation. Whether or not an option expires unexercised, the writer retains the
amount of the premium. This amount may, in the case of a covered call option, be
offset by a decline in the market value of the underlying security during the
option period. If a call option is exercised, the writer experiences a profit or
loss from the sale of the underlying security. If a put option is exercised, the
writer must fulfill its obligation to purchase the underlying security at the
exercise price, which will usually exceed the then market value of the
underlying security.

The purchase of a call option would entitle the High Growth Fund and
S&P 500 Fund, in return for the premium paid, to purchase specified securities
at a specified price during the option period. The High Growth Fund and S&P 500
Fund would ordinarily realize a gain if, during the option period, the value of
such securities exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise the High Growth Fund and S&P 500 Fund would realize
either no gain or a loss on the purchase of the call option.

Risks Associated With Options Transactions. There is no assurance that
a liquid secondary market on a domestic or foreign options exchange will exist
for any particular exchange-traded option or at any particular time. If the High
Growth Fund and S&P 500 Fund are unable to effect a closing purchase transaction
with respect to covered options they have written, the High Growth Fund and S&P
500 Fund will not be able to sell the underlying securities or dispose of assets
held in a segregated account until the options expire or are exercised.
Similarly, if the High Growth Fund and S&P 500 Fund are unable to effect a
closing sale transaction with respect to options they have purchased, they would
have to exercise the options in order to realize any profit and will incur
transaction costs upon the purchase or sale of underlying securities.

Reasons for the absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading interest in certain
options; (ii) an exchange may impose restrictions on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation (the "OCC") may not at all times be adequate to handle
current trading volume; or (vi) one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the

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<PAGE> 41
trading of options (or a particular class or series of options), although
outstanding options on that exchange that had been issued by the OCC as a result
of trades on that exchange would continue to be exercisable in accordance with
their terms.

The High Growth Fund and S&P 500 Fund may purchase and sell both
options that are traded on U.S. and foreign exchanges and options traded
over-the-counter with broker-dealers who make markets in these options. The
ability to terminate over-the-counter options is more limited than with
exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. Until
such time as the staff of the SEC changes its position, the High Growth Fund and
S&P 500 Fund will treat purchased over-the-counter options and all assets used
to cover written over-the-counter options as illiquid securities, except that
with respect to options written with primary dealers in U.S. Government
securities pursuant to an agreement requiring a closing purchase transaction at
a formula price, the amount of illiquid securities may be calculated with
reference to a formula the staff of the SEC approves. The High Growth Fund and
S&P 500 Fund will write or purchase an option only when the market value of that
option, when aggregated with the market value of all other options transactions
made on behalf of the Funds, does not exceed 5% of each of the High Growth
Fund's and S&P 500 Fund's net assets, respectively

FOREIGN CURRENCY TRANSACTIONS

Forward Foreign Currency Exchange Contracts. The High Growth Fund may
enter into forward foreign currency exchange contracts in several circumstances.
The High Growth Fund may engage in foreign currency exchange transactions to
protect against uncertainty in the level of future exchange rates. The High
Growth Fund expects to engage in foreign currency exchange transactions in
connection with the purchase and sale of portfolio securities (so-called
"transaction hedging") and to protect the value of specific portfolio positions
("position hedging").

For transaction hedging purposes, the High Growth Fund enters into
foreign currency transactions with respect to specific receivables or payables
of the funds arising in connection with the purchase or sale of portfolio
securities. By transaction hedging, the High Growth Fund will attempt to protect
against a possible loss resulting from an adverse change in the relationship
between (i) the U.S. dollar and the applicable foreign currency during the
period between the date on which the security is purchased or sold and (ii) the
transaction's settlement date. When engaging in position hedging, the High
Growth Fund enters into foreign currency exchange transactions to protect
against a decline in the values of the foreign currencies in which portfolio
securities are denominated (or against an increase in the value of currency for
securities which the High Growth Fund expects to purchase).

When engaging in position and/or transaction hedging, the High Growth
Fund may purchase or sell foreign currencies on a spot (or cash) basis at the
prevailing spot rate and also may enter into contracts to purchase or sell
foreign currencies at a future date ("forward contracts") and purchase and sell
foreign currency futures contracts ("futures contracts"). The High Growth Fund
also may purchase exchange-listed and over-the-counter call and put options on
futures contracts and on foreign currencies. A put option on a futures contract
gives the High Growth Fund the right to assume a short position in the futures
contract until the expiration of the option. A put option on currency gives the
High Growth Fund the right to sell a currency at an exercise price until the
expiration of the option. A call option on a futures contract gives the High
Growth Fund the right to assume a long position in the futures contract until
the expiration of the option. A call option on currency gives the High Growth
Fund the right to purchase a currency at the exercise price until the expiration
of the option.

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<PAGE> 42
Hedging transactions involve costs and may result in losses, and the
ability of the High Growth Fund to engage in hedging transactions may be limited
by tax considerations. Transaction and position hedging do not eliminate
fluctuations in the underlying prices of the securities that the High Growth
Fund owns or expects to purchase or sell. They simply establish a rate of
exchange that may be achieved at some future point in time. Additionally,
although these techniques tend to minimize the risk of loss due to a possible
decline in the value of the hedged currency, they tend to limit any potential
gain that might result from an increase in the value of such currency.

Although the contracts are not presently regulated by the Commodity
Futures Trading Commission (the "CFTC"), the CFTC may in the future assert
authority to regulate these contracts. In such event, the ability of the High
Growth Fund to use forward foreign currency exchange contracts may be
restricted.

The High Growth Fund will enter into a forward foreign currency
exchange contract only when the market value of such contract, when aggregated
with the market value of all other such contracts held by the High Growth Fund,
does not exceed 5% of the High Growth Fund's net assets.

The High Growth Fund generally will not enter into a forward contract
with a term of greater than one year.

While the High Growth Fund will enter into forward contracts to reduce
currency exchange rate risks, transactions in such contracts involve certain
other risks. Thus, while the High Growth Fund may benefit from such
transactions, unanticipated changes in currency prices may result in a poorer
overall performance for the High Growth Fund than if it had not engaged in any
such transactions. Moreover, there may be imperfect correlation between the High
Growth Fund's portfolio holdings of securities denominated in a particular
currency and forward contracts into which the High Growth Fund enters. Such
imperfect correlation may cause the High Growth Fund to sustain losses, which
will prevent the High Growth Fund from achieving a complete hedge or expose the
High Growth Fund to risk of foreign exchange loss.

Writing and Purchasing Currency Call and Put Options. The High Growth
Fund may write covered put and call options and purchase put and call options on
foreign currencies for the purpose of protecting against declines in the dollar
value of portfolio securities and against increases in the dollar cost of
securities to be acquired. A call option written by the High Growth Fund would
obligate the High Growth Fund to sell specified currency to the holder of the
option at a specified price at any time before the expiration date. A put option
written by the High Growth Fund would obligate the High Growth Fund to purchase
specified currency from the option holder at a specified time before the
expiration date. The writing of currency options involves a risk that the High
Growth Fund will, upon exercise of the option, be required to sell currency
subject to a call at a price that is less than the currency's market value or be
required to purchase currency subject to a put at a price that exceeds the
currency's market value.

The High Growth Fund may terminate its obligations under a call or put
option by purchasing an option identical to the one it has written. These
purchases are referred to as "closing purchase transactions." The High Growth
Fund would also be able to enter into closing sale transactions in order to
realize gains or minimize losses on options purchased by the High Growth Fund.

The purchase of a call option would entitle the High Growth Fund to
purchase specified currency at a specified price during the option period in
return for the premium paid. The High Growth Fund would ordinarily realize a
gain or a loss on the purchase of the call option.

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<PAGE> 43
The purchase of a put option would entitle the High Growth Fund to sell
specific currency at a specified price during the option period in exchange for
the premium paid. The purchase of protective puts is designed merely to offset
or hedge against a decline in the dollar value of the High Growth Fund's
portfolio securities due to currency exchange rate fluctuations. The High Growth
Fund would ordinarily realize a gain, if, during the option period, the value of
the underlying currency were to decrease below the exercise price sufficiently
to more than cover the premium and transaction costs; otherwise the High Growth
Fund would realize either no gain or a loss on the purchase of the put option.
Gains and losses on the purchase of protective put options would tend to be
offset by countervailing changes in the value of the underlying currency.

Special Risks Associated With Options on Foreign Currency. An exchange
traded option position may be closed out only on an options exchange that
provides a secondary market for an option of the same series. Although the High
Growth Fund will generally purchase or write only those options for which there
appears to be an active secondary market, there is no assurance that a liquid
secondary market on an exchange will exist for any particular option or at any
particular time. For some options, no secondary market on an exchange may exist.
In such event, it might not be possible to effect closing transactions in
particular options, with the result that the High Growth Fund would have to
exercise its options in order to realize any profit and would incur transaction
costs upon the sale of underlying securities pursuant to the exercise of put
options. If the High Growth Fund, as a covered call option writer, is unable to
effect a closing purchase transaction in a secondary market, it will not be able
to sell the underlying currency (or security denominated in that currency) until
the option expires or it delivers the underlying currency upon exercise.

There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain of the facilities of
the OCC inadequate. This could result in an exchange instituting special
procedures that may interfere with the timely execution of customers' orders.

The High Growth Fund will purchase and write over-the-counter options
only to the extent consistent with its limitations on investments in illiquid
securities, as described in its Prospectus. Trading in over-the-counter options
is subject to the risk that the other party will be unable or unwilling to
close-out purchasing and writing activities.

FUTURES CONTRACTS
AND OPTIONS ON FUTURES CONTRACTS

The High Growth Fund and S&P 500 Fund may purchase and sell various
kinds of futures contracts and options on futures contracts. The futures
contracts may be based on various securities (such as U.S. Government
securities), securities indices, foreign currencies and other financial
instruments and indices. All futures contracts entered into by the High Growth
Fund and S&P 500 Fund are traded on U.S. exchanges or boards of trade that the
CFTC licenses and regulates or on foreign exchanges. The High Growth Fund and
S&P 500 Fund are not permitted to engage in speculative futures trading.

Futures Contracts. A futures contract generally may be described as an
agreement between two parties to buy and sell particular financial instruments
for an agreed upon price during a designated month (or to deliver the final cash
settlement price, in the case of a contract relating to an index or otherwise
not calling for physical delivery at the end of trading in the contract).

When interest rates are rising or securities prices are falling, the
High Growth Fund and S&P 500 Fund can seek, through the sale of futures
contracts, to offset a decline in the value of their current portfolio
securities. When rates are falling or prices are rising, the High

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<PAGE> 44
Growth Fund and S&P 500 Fund, through the purchase of futures contracts, may
attempt to secure better rates or prices than might later be available in the
market when they effect anticipated purchases. Similarly, the High Growth Fund
can sell futures contracts on a specified currency to protect against a decline
in the value of that currency and their portfolio securities that are
denominated in that currency. The High Growth Fund can purchase futures
contracts on a foreign currency to fix the price in U.S. dollars of a security
denominated in that currency that the High Growth Fund has acquired or expects
to acquire.

Although futures contracts, by their terms, generally call for the
actual delivery or acquisition of underlying securities or the cash value of the
index, in most cases the contractual obligation is fulfilled before the date of
the contract without having to make or take such delivery. The contractual
obligation is offset by buying (or selling, as the case may be) on a commodities
exchange an identical futures contract calling for delivery in the same month.
Such a transaction, which is effected through a member of an exchange, cancels
the obligation to make or take delivery of the securities or the cash value of
the index underlying the contractual obligations. The High Growth Fund and S&P
500 Fund may incur brokerage fees when they purchase or sell futures contracts.

Positions taken in the futures markets are not normally held to
maturity but are instead liquidated through offsetting transactions, which may
result in a profit or a loss. While the High Growth Fund's and S&P 500 Fund's
futures contracts on securities or currency will usually be liquidated in this
manner, the High Growth Fund and S&P 500 Fund may instead make or take delivery
of the underlying securities or currency whenever it appears economically
advantageous for them to do so. A clearing corporation associated with the
exchange on which futures on securities or currencies are traded guarantees
that, if still open, the sale or purchase will be performed on the settlement
date.

Options on Futures Contracts. The acquisition of put and call options
on futures contracts will give the High Growth Fund and S&P 500 Fund the right
(but not the obligation), for a specified price, to sell or to purchase,
respectively, the underlying futures contract at any time during the option
period. As the purchaser of an option on a futures contract, the High Growth
Fund and S&P 500 Fund obtain the benefit of the futures position if prices move
in a favorable direction but limit their risk of loss in the event of an
unfavorable price movement to the loss of the premium and transaction costs.

The writing of a call option on a futures contract generates a premium
that may partially offset a decline in the value of the High Growth Fund's and
S&P 500 Fund's assets. By writing a call option, the High Growth Fund and S&P
500 Fund become obligated, in exchange for the premium, to sell a futures
contract that may have a value lower than the exercise price. Thus, the loss
incurred by the High Growth Fund and S&P 500 Fund in writing options on futures
is potentially unlimited and may exceed the amount of the premium received. The
High Growth Fund and S&P 500 Fund will incur transaction costs in connection
with the writing of options on futures.

The holder or writer of an option on a futures contract may terminate
its position by selling or purchasing an offsetting option on the same series.
There is no guarantee that these closing transactions can be effected. The High
Growth Fund's and S&P 500 Fund's ability to establish and close out positions on
such options will be subject to the development and maintenance of a liquid
market.

Hedging Strategies With Futures. Hedging by use of futures contracts
seeks to establish more certainty than would otherwise be possible with respect
to the effective price, rate of return or currency exchange rate on portfolio
securities or securities that the High Growth Fund and S&P 500 Fund own or
propose to acquire.

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<PAGE> 45
Such futures contracts may include contracts for the future delivery of
securities held by the High Growth Fund and S&P 500 Fund or securities with
characteristics similar to those of the High Growth Fund's and S&P 500 Fund's
portfolio securities. Similarly, the High Growth Fund may sell futures contracts
on currency in which its portfolio securities are denominated or in one currency
to hedge against fluctuations in the value of securities denominated in a
different currency if there is an established historical pattern of correlation
between the two currencies. If, in the opinion of the Investment Manager, there
is a sufficient degree of correlation between price trends for the High Growth
Fund's and S&P 500 Fund's portfolio securities and futures contracts based on
other financial instruments, securities indices or other indices, the High
Growth Fund and S&P 500 Fund may also enter into such futures contracts as part
of their hedging strategy. Although, under some circumstances, prices of
securities in the High Growth Fund's and S&P 500 Fund's portfolio may be more or
less volatile than prices of such futures contracts, the Investment Manager will
attempt to estimate the extent of this difference in volatility based on
historical patterns. The Investment Manager will attempt to compensate for this
volatility by having the High Growth Fund and S&P 500 Fund enter into a greater
or lesser number of futures contracts or by attempting to achieve only a
particular hedge against price changes affecting the High Growth Fund's and S&P
500 Fund's portfolio securities. When hedging of this character is successful,
any depreciation in the value of the portfolio securities will be offset
substantially by appreciation in the value of the futures position. On the other
hand, any unanticipated appreciation in the value of the High Growth Fund's and
S&P 500 Fund's portfolio securities will be offset substantially by a decline in
the value of the futures position.

On other occasions, the High Growth Fund and S&P 500 Fund may take
"long" positions by purchasing such futures contracts. This would be done, for
example, when the High Growth Fund and S&P 500 Fund anticipate the subsequent
purchase of particular securities when they have the necessary cash but expect
the prices or currency exchange rates available on the intended date of purchase
in the applicable market to be less favorable than prices that are currently
available.

When buying or selling futures contracts, a Fund must deposit an amount
of cash, cash equivalents, or liquid, high-quality debt instruments with its
broker equal to a fraction of the contract amount. This amount is known as
"initial margin" and is in the nature of a performance bond or good faith
deposit on the contract, which will be returned to the Fund upon termination of
the futures contract, assuming all contractual obligations have been satisfied.
Subsequent payments to and from the broker, known as "variation margin," will be
made at least daily as the price of the futures contract fluctuates and the
Fund's position in the contract becomes more or less valuable. This process is
known as "marking-to-market."

Regulations of the CFTC applicable to the High Growth Fund and S&P 500
Fund generally require that all of their futures transactions constitute "bona
fide" hedging transactions. As a result, a Fund will normally sell futures
contracts to protect against a decrease in the price of securities it owns but
intends to sell or purchase futures contracts to protect against an increase in
the price of securities it intends to purchase. In addition, the High Growth
Fund and S&P 500 Fund may purchase and sell futures contracts and options as a
substitute for a comparable market position in the underlying securities.
Futures transactions need not constitute "bona fide" hedging under CFTC
regulations if the aggregate initial margin and premiums required to establish
such positions do not exceed 5% of each Fund's net assets.

Risks Involved in Futures and Options Transactions. Futures and options
transactions involve risks which, in some strategies, can be substantial, due to
the low margin deposits required and the extremely high degree of

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<PAGE> 46
leverage involved in futures and options trading. However, to the extent the
High Growth Fund's and S&P 500 Fund's futures and options practices are limited
to hedging purposes, the Investment Manager does not believe that the High
Growth Fund and S&P 500 Fund are subject to the degree of risk frequently
associated with futures and options transactions. To the extent the High Growth
Fund and S&P 500 Fund engage in the use of futures and options on futures other
than for hedging purposes, the High Growth Fund and S&P 500 Fund may be subject
to additional risk.

Three principal areas of risk are present when futures and options
contracts are used even in a hedging context. First, there may not always be a
liquid secondary market for a futures or option contract at the time when the
High Growth Fund or S&P 500 Fund seek to "close out" its position. If the High
Growth Fund or S&P 500 Fund is unable to "close out" a futures or option
position and prices move adversely, the Fund will have to continue to make daily
cash payments to maintain its required margin, and if the Fund has insufficient
cash to meet this requirement, it may have to sell portfolio securities at a
disadvantageous time. In addition, the Fund might be required to deliver the
securities underlying futures or options contracts it holds. The High Growth
Fund and S&P 500 Fund will seek to reduce the risk that they will be unable to
"close out" contracts by entering only futures or options contracts that are
traded on national exchanges and for which there appear to be a liquid secondary
market.

It is also possible that changes in the prices of futures or options
contracts might correlate imperfectly, or not at all, with changes in the market
values of the securities being hedged. This situation could result from price
distortions in the futures or options markets due to, among other things, active
trading by speculators and use of offsetting "closing" transactions by other
investors seeking to avoid meeting additional margin deposit requirements. In
the event of significant market distortions, it is possible that the High Growth
Fund and S&P 500 Fund could lose money on futures or options contracts and
experience appreciation in the value of their portfolio securities, or vice
versa.

Finally, adverse market movements could cause the High Growth Fund and
S&P 500 Fund to lose up to their full investment in an options contract and/or
to experience substantial losses on an investment in a futures contract.
However, barring such significant market distortions, a similar result could be
expected were the High Growth Fund and S&P 500 Fund to invest directly in the
securities being hedged. There is also the risk of loss by either Fund of margin
deposits in the event of bankruptcy of a broker with whom either Fund has an
open position in a futures contract or option.

The extent to which the High Growth Fund and S&P 500 Fund may purchase
and sell futures, options, equity index participations and index participation
contracts may be limited by each Fund's intention to meet Internal Revenue Code
of 1986, as amended (the "Code"), requirements for qualification as a regulated
investment company. See "Distributions and Taxes - Federal Income Tax."

SWAPS

The High Growth Fund may enter into swaps on various securities (such
as U.S. Government securities), securities indices, interest rates, prepayment
rates, foreign currencies or other financial instruments or indices in order to
protect the value of the High Growth Fund from interest rate fluctuations and to
hedge against fluctuations in the floating rate market in which the High Growth
Fund's investments are traded, for both hedging and non-hedging purposes. While
swaps are different from futures contracts (and options on futures contracts) in
that swap contracts are individually negotiated with specific counterparties,
the High Growth Fund will use swap contracts for purposes similar to the
purposes for which they use options, futures and options on futures. Those uses
of swap contracts (i.e., risk management and hedging) present the Fund with

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risks and opportunities similar to those associated with options contracts,
futures contracts and options on futures. See "Futures Contracts and Options on
Futures Contracts."

The High Growth Fund may enter into these transactions to manage its
exposure to changing interest rates and other market factors. Some transactions
may reduce the High Growth Fund's exposure to market fluctuations, while others
may tend to increase market exposure.

The use of swaps involves investment techniques and risks different
from and potentially greater than those associated with ordinary fund securities
transactions. If the Investment Manager is incorrect in its expectations of
market values, interest rates or currency exchange rates, the investment
performance of the High Growth Fund would be less favorable than it would have
been if this investment technique were not used. The High Growth Fund will
invest up to 5% of its net assets in swaps.

PREFERRED STOCK

The High Growth Fund may invest in preferred stock. Preferred stock has
priority over common stock as to income and generally as to assets of an issuer;
however, income is usually limited to a definitive percentage regardless of the
issuer's earnings. Preferred stock usually has limited voting rights. The High
Growth Fund will invest up to 5% of its net assets in preferred stock.

CONVERTIBLE SECURITIES

The High Growth Fund may invest up to 5% of its net assets in
securities that are convertible into common stock, including convertible bonds
that are investment grade, convertible preferred stocks and warrants. The S&P
500 Fund will not purchase convertible securities directly. It may, however,
hold convertible securities to the extent that such holdings are incident to its
ownership of common stocks.

Convertible bonds are issued with lower coupons than nonconvertible
bonds of the same quality and maturity, but they give holders the option to
exchange their bonds for a specific number of shares of the company's common
stock at a predetermined price. This structure allows the convertible bond
holder to participate in share price movements in the company's common stock.
The actual return on a convertible bond may exceed its stated yield if the
company's common stock appreciates in value and the option to convert to common
shares becomes more valuable.

Convertible preferred stocks are nonvoting equity securities that pay a
fixed dividend. These securities have a convertible feature similar to
convertible bonds; however, they do not have a maturity date. Due to their
fixed-income features, convertible issues are typically more sensitive to
interest rate changes than the underlying common stock. In the event of
liquidation, bondholders would have claims on company assets senior to those of
stockholders; preferred stockholders would have claims senior to those of common
stockholders.

Warrants. The High Growth Fund and S&P 500 Fund may invest in warrants,
which are options to purchase equity securities at specific prices for a
specific period of time. The prices do not necessarily move parallel to the
prices of the underlying securities. Warrants have no voting rights, receive no
dividends and have no rights with respect to the assets of the issuer. If a
warrant is not exercised within the specified time period, it will become
worthless and the Fund will lose the purchase price and the right to purchase
the underlying security.

REAL ESTATE-RELATED INVESTMENTS

The High Growth Fund may invest no more than 5% of its net assets in
real estate-related investments. Real estate-related instruments include real
estate investment trusts, commercial and residential mortgage-backed securities
and real estate financings. Real estate-related instruments are sensitive to
factors such

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as changes in real estate values and property taxes, interest rates, cash flow
of underlying real estate assets, overbuilding, and the management skill and
creditworthiness of the issuer. Real estate-related instruments may also be
affected by tax and regulatory requirements, such as those relating to the
environment.

PRECIOUS METAL-RELATED INVESTMENTS

The High Growth Fund may invest no more than 5% of its net assets in
precious metal-related investments. The High Growth Fund and the S&P 500 Fund
may invest in common stocks of domestic companies principally engaged in
precious metal-related activities which include companies principally engaged in
the extraction, processing, distribution or marketing of precious metals if at
the time of investment the Investment Manager considers that at least 50% of the
company's assets, revenues or profits are derived from the precious metal
industry. The High Growth Fund may also invest in securities of foreign
companies principally engaged in the precious metals industry. For further
disclosure on foreign securities, see "Foreign Investments."

The High Growth Fund and the S&P 500 Fund also may invest in futures on
precious metals, such as gold futures, and options thereon. Such investments are
subject to the investment limitations on investments in futures and options for
the High Growth Fund and the S&P 500 Fund as set forth in "Futures Contracts and
Options on Futures Contracts."

Prices of precious metals can be expected to respond to changes in
rates of inflation and to perceptions of economic and political instability.
Historically, the prices of precious metals and of securities of companies
engaged in the precious metal-related activities have been subject to extreme
fluctuations, reflecting wider economic or political instability or other
reasons.

U.S. GOVERNMENT SECURITIES

The High Growth Fund and S&P 500 Fund may purchase U.S. Government
securities. Direct obligations of the U.S. Government are supported by the full
faith and credit of the U.S. Treasury. While obligations of certain U.S.
Government agencies and instrumentalities are similarly backed, those of others,
such as the Federal National Mortgage Association and the Student Loan Marketing
Association, are only supported by the right of the issuer to borrow from the
U.S. Treasury, the discretionary authority of the U.S. Government to purchase
the agency's obligations or the credit of the issuing agency or instrumentality.
There can be no assurance that the U.S. Government would provide financial
support to U.S. Government sponsored agencies or instrumentalities if it were
not obligated to do so by law. The High Growth Fund and S&P 500 Fund will invest
in U.S. Government securities not backed by the full faith and credit of the
U.S. Treasury only when the Investment Manager is satisfied that the credit risk
with respect to their issuer is minimal.

GOVERNMENT
"MORTGAGE BACKED" SECURITIES

Government "mortgage-backed" (or government guaranteed
mortgage-related) securities are among the U.S. Government securities in which
the High Growth Fund and S&P 500 Fund may invest. Mortgages backing the
securities purchased by the High Growth Fund and S&P 500 Fund include, among
others, conventional 30-year fixed rate mortgages, graduated payment mortgages,
15-year mortgages and adjustable rate mortgages. All of these mortgages can be
used to create pass-through securities. A pass-through security is formed when
mortgages are pooled together and undivided interests in the pool or pools are
sold. The cash flow from the mortgages is passed through to the holders of the
securities in the form of periodic payments of interest, principal and
prepayments (net of a service fee). Prepayments occur when the holder of an
individual mortgage prepays the remaining

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principal before the mortgage's scheduled maturity date. As a result of the
pass-through of prepayments of principal on the underlying securities,
mortgage-backed securities are often subject to more rapid prepayment of
principal than their stated maturity indicates. Because the prepayment
characteristics of the underlying mortgages vary, it is not possible to predict
accurately the realized yield or average life of a particular issue of
pass-through certificates. Prepayment rates are important because of their
effect on the yield and price of the securities. Accelerated prepayments
adversely impact yields for pass-throughs purchased at a premium (i.e., a price
in excess of principal amount) and may involve additional risk of loss of
principal because the premium may not be fully amortized at the time the
obligation is repaid. The opposite is true for pass-throughs purchased at a
discount. The High Growth Fund and S&P 500 Fund may purchase mortgage-related
securities at a premium or at a discount. Principal and interest payments on the
mortgage-related securities are guaranteed by the government to the extent
described below. Such guarantees do not extend to the value or yield of the
mortgage-related securities themselves or of a Fund's shares.

GNMA Certificates. Certificates of the Government National Mortgage
Association ("GNMA") are mortgage securities which evidence an undivided
interest in a pool or pools of mortgages. GNMA Certificates that the High Growth
Fund and S&P 500 Fund may purchase are the "modified pass-through" type, which
entitle the holder to receive timely payment of all interest and principal
payments due on the mortgage pool, net of fees paid to the "issuer" and GNMA,
regardless of whether or not the mortgagor actually makes the payment.

The National Housing Act authorized GNMA to guarantee the timely
payment of principal and interest on securities backed by a pool of mortgages
insured by the Federal Housing Administration ("FHA") or guaranteed by the
Veterans Administration ("VA"). The GNMA guarantee is backed by the full faith
and credit of the U.S. Government. GNMA is also empowered to borrow without
limitation from the U.S. Treasury if necessary to make any payments required
under its guarantee.

The average life of a GNMA Certificate is likely to be substantially
shorter than the original maturity of the mortgages underlying the securities.
Prepayments of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of principal investment long before the
maturity of the mortgages in the pool. Foreclosures impose no risk to principal
investment because of the GNMA guarantee, except to the extent that a Fund has
purchased the certificates above par in the secondary market.

FHLMC Securities. The Federal Home Loan Mortgage Corporation ("FHLMC")
was created in 1970 to promote development of a nationwide secondary market in
conventional residential mortgages. The FHLMC issues two types of mortgage
pass-through securities ("FHLMC Certificates"): mortgage participation
certificates ("PCs") and guaranteed mortgage certificates ("GMCs"). PCs resemble
GNMA Certificates in that each PC represents a pro rata share of all interest
and principal payments made and owed on the underlying pool. The FHLMC
guarantees timely monthly payment of interest on PCs and the ultimate payment of
principal.

GMCs also represent a pro rata interest in a pool of mortgages.
However, these instruments pay interest semi-annually and return principal once
a year in guaranteed minimum payments. The expected average life of these
securities is approximately 10 years. The FHLMC guarantee is not backed by the
full faith and credit of the U.S. Government.

FNMA Securities. The Federal National Mortgage Association ("FNMA") was
established in 1938 to create a secondary market in mortgages the FHA insures.
FNMA issues guaranteed mortgage pass-through certificates ("FNMA Certificates").
FNMA Certificates resemble GNMA Certificates in that each FNMA Certificate
represents a pro rata share of all

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interest and principal payments made and owed on the underlying pool. FNMA
guarantees timely payment of interest and principal on FNMA Certificates. The
FNMA guarantee is not backed by the full faith and credit of the U.S.
Government.

OTHER ASSET-BACKED SECURITIES

The High Growth Fund may invest a portion of its assets in debt
obligations known as "Asset-Backed Securities" that are rated in one of the
three highest rating categories by a nationally recognized statistical rating
organization (e.g., S&P or Moody's) or, if not so rated, deemed to be of
equivalent quality by the Investment Manager pursuant to guidelines adopted by
the Board of Trustees. The credit quality of most Asset-Backed Securities
depends primarily on the credit quality of the assets underlying such
securities, how well the entity issuing the security is insulated from the
credit risk of the originator (or any other affiliated entities), and the amount
and quality of any credit support provided to the securities. The rate of
principal payments on Asset-Backed Securities generally depends on the rate of
principal payments received on the underlying assets, which in turn may be
affected by a variety of economic and other factors. As a result, the yield on
any Asset-Backed Security is difficult to predict with precision, and actual
yield to maturity may be more or less than the anticipated yield to maturity.
Asset-Backed Securities may be classified as "Pass-Through Certificates" or
"Collateralized Obligations."

"Pass-Through Certificates" are asset-backed securities that represent
undivided fractional ownership interests in the underlying pool of assets.
Pass-Through Certificates usually provide for payments of principal and interest
received to be passed through to their holders, usually after a deduction for
certain costs and expenses incurred in administering the pool. Because
Pass-Through Certificates represent ownership interests in the underlying
assets, the holders thereof bear directly the risk of any defaults by the
obligors on the underlying assets not covered by any credit support.

Asset-Backed Securities issued in the form of debt instruments, also
known as Collateralized Obligations, are generally issued as the debt of a
special purpose entity organized solely for the purpose of owning such assets
and issuing such debt. The assets collateralizing such Asset-Backed Securities
are pledged to a trustee or custodian for the benefit of the holders thereof.
Such issuers generally hold no assets other than those underlying the
Asset-Backed Securities and any credit support provided. As a result, although
payments on such Asset-Backed Securities are obligations of the issuers, in the
event of default on the underlying assets not covered by any credit support, the
issuing entities are unlikely to have sufficient assets to satisfy their
obligations on the related Asset-Backed Securities.

METHODS OF ALLOCATING
CASH FLOWS

While many Asset-Backed Securities are issued with only one class of
security, many others are issued in more than one class, each with different
payment terms. Multiple class Asset-Backed Securities are issued for two main
reasons. First, multiple classes may be used as a method of providing credit
support. This is typically accomplished by creating one or more classes with a
right to payments on the Asset-Backed Security subordinate to that of the
remaining class or classes. Second, multiple classes may permit the issuance of
securities with payment terms, interest rates or other characteristics that
differ both from those of each other and from those of the underlying assets.
Examples include so-called "multi-tranche CMOs" (collateralized mortgage
obligations) with serial maturities such that all principal payments received on
the mortgages underlying the securities are first paid to the class with the
earliest stated maturity, and then sequentially to the class with the next
stated maturity), "Strips" (Asset-Backed Securities that entitle the holder to
disproportionate interests with respect to the allocation of interest and
principal of the assets backing the security) and securities with a class or
classes having characteristics that mimic the

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characteristics of non-Asset-Backed Securities, such as floating interest rates
(i.e., interest rates that adjust as a specified benchmark changes) or scheduled
amortization of principal.

TYPES OF CREDIT SUPPORT

Asset-Backed Securities are often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on these underlying assets to make payments, such
securities may contain elements of credit support. Such credit support falls
into two classes: liquidity protection and protection against ultimate default
on the underlying assets. Liquidity protection refers to the provision of
advances, generally by the entity administering the pool of assets, to ensure
that scheduled payments on the underlying pool are made timely. Protection
against ultimate default ensures payment on at least a portion of the assets in
the pool. Such protection may be provided through guarantees, insurance policies
or letters of credit obtained from third parties, through various means of
structuring the transaction, or through a combination of such approaches.
Examples of Asset-Backed Securities with credit support that arise out of the
structure of the transaction include "senior-subordinated securities" (multiple
class Asset-Backed Securities with certain classes subordinate to other classes
as to the payment of principal thereon, so that defaults on the underlying
assets are borne first by the holders of the subordinated class) and
Asset-Backed Securities that have "reserve funds" (cash or investments,
sometimes funded from a portion of the initial payments on the underlying
assets, are held in reserve against future losses) or that have been
"overcollateralized" (the scheduled payments on, or the principal amount of, the
underlying assets substantially exceed that required to make payment on the
Asset-Backed Securities and pay any servicing or other fees). The degree of
credit support provided on each issue is generally based on historical
information respecting the level of credit risk associated with such payments.
Delinquency or loss in excess of that anticipated could adversely affect the
return on an investment in an Asset-Backed Security.

CREDIT CARD RECEIVABLE SECURITIES

The High Growth Fund may invest in Asset-Backed Securities backed by
receivables from revolving credit card agreements ("Credit Card Receivable
Securities"). Most of the Credit Card Receivable Securities issued publicly to
date have been Pass-Through Certificates. In order to lengthen the maturity of
Credit Card Receivable Securities, most of them provide for a fixed period
during which only interest payments on the underlying accounts are passed
through to the security holder and principal payments received on such accounts
are used to fund the transfer of additional credit card charges made on an
account to the pool of assets supporting the related Credit Card Receivable
Securities. The initial fixed period may usually be shortened upon the
occurrence of specified events that signal a potential deterioration in the
quality of the assets backing the security, such as the imposition of a cap on
interest rates. The ability of the issuer to extend the life of an issue of
Credit Card Receivable Securities thus depends upon the continued generation of
additional principal amounts in the underlying accounts during the initial
period and the non-occurrence of specified events. Competitive and general
economic factors could adversely affect the rate at which new receivables are
created in an account and conveyed to an issuer, shortening the expected
weighted average life of the related Credit Card Receivable Security, and
reducing its yield. An acceleration in cardholders' payment rates or any other
event that shortens the period during which additional credit card charges on an
account may be transferred to the pool of assets supporting the related Credit
Card Receivable Security could have a similar effect on the weighted average
life and yield.

Credit card holders are entitled to the protection of certain state and
federal consumer credit laws, many of which give card holders the right to set
off certain amounts against balances owed on the credit card, thereby reducing

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amounts paid on accounts. In addition, unlike most other Asset-Backed
Securities, accounts are unsecured obligations of the cardholder.

CERTIFICATES OF DEPOSIT
AND BANKERS' ACCEPTANCES

The High Growth Fund and S&P 500 Fund may invest in certificates of
deposit, which are certificates issued against funds deposited in a banking
institution for a specified period of time at a specified interest rate.
Bankers' acceptances are credit instruments evidencing a bank's obligation to
pay a draft drawn on it by a customer. These instruments reflect the obligation
both of the bank and the drawer to pay the full amount of the instrument upon
maturity. Each Fund will invest only in certificates of deposit and bankers'
acceptances of banks that have capital, surplus and undivided profits in excess
of $100 million.

COMMERCIAL PAPER

The High Growth Fund and S&P 500 Fund may invest in Commercial Paper,
which consists of short-term, unsecured promissory notes issued to finance
short-term credit needs. The High Growth Fund and S&P 500 Fund will invest only
in commercial paper that at the time of purchase is rated Prime-1 or Prime-2 by
Moody's, A-1 or A-2 by S&P, "Duff 2" or higher by Duff, or "F2" or higher by
Fitch, or if unrated by Moody's, S&P, Duff or Fitch, is determined by the
Investment Manager, using guidelines approved by the Board of Trustees, to be at
least equal in quality to one or more of the above ratings.

OTHER INVESTMENT POLICIES

Securities that are acquired by the High Growth Fund outside the United
States and that are publicly traded in the United States, on a foreign
securities exchange or in a foreign securities market are not considered by the
High Growth Fund to be illiquid assets provided that: (i) the High Growth Fund
acquires and holds the securities with the intention of reselling the securities
in the foreign trading market, (ii) the High Growth Fund reasonably believes it
can dispose of the securities readily in the foreign trading market or for cash
in the United States, or (iii) foreign market and current market quotations are
available readily. Investments may be in securities of foreign issuers, whether
located in developed or undeveloped countries. Investments in foreign securities
where delivery takes place outside the United States will have to be made in
compliance with any applicable U.S. and foreign currency restrictions and tax
laws (including laws imposing withholding taxes on any dividend or interest
income) and laws limiting the amount and types of foreign investments. Changes
of government administrations or of economic or monetary policies in the United
States or abroad, or changed circumstances regarding convertibility or exchange
rates, could result in investment losses for the High Growth Fund. Investments
in foreign securities may also subject the High Growth Fund to losses due to
nationalization, expropriation or foreign accounting practices and treatments
that differ from those in the United States. Moreover, investors should
recognize that foreign securities are often traded with less frequency and
volume, and therefore may have greater price volatility, than many U.S.
securities. Notwithstanding that the High Growth Fund generally intends to
acquire the securities of foreign issuers where there are public trading
markets, the High Growth Fund's investments in the securities of foreign issuers
may tend to increase the risks with respect to the liquidity of the High Growth
Fund's portfolio and its ability to meet a large number of shareholder
redemption requests should there be economic or political turmoil in a country
in which the High Growth Fund has a substantial portion of its assets invested
or should relations between the United States and foreign countries deteriorate
markedly. Furthermore, the reporting and disclosure requirements applicable to
foreign issuers may differ from those applicable to domestic issuers, and there
may be difficulties in obtaining or enforcing judgments against foreign issuers.

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Loans of Portfolio Securities. The High Growth Fund and S&P 500 Fund
may loan securities to qualified broker-dealers or other institutional investors
provided that: (i) the loan is secured continuously by collateral consisting of
U.S. Government securities or cash or cash equivalents maintained on a daily
marked-to-market basis in an amount at least equal to the current market value
of the securities loaned; (ii) the High Growth Fund or S&P 500 Fund may at any
time call the loan and obtain the return of the securities loaned; (iii) the
High Growth Fund or S&P 500 Fund will receive any interest or dividends paid on
the loaned securities; and (iv) the aggregate market value of securities loaned
will not at any time exceed one-third of the total assets of the High Growth
Fund or S&P 500 Fund.

The lending of securities is a common practice in the securities
industry. The High Growth Fund and S&P 500 Fund will engage in security lending
arrangements with the primary objective of increasing the High Growth Fund's and
S&P 500 Fund's income by investing the cash collateral in short-term,
interest-bearing obligations, but will do so only to the extent the High Growth
Fund and S&P 500 Fund will not lose the tax treatment available to regulated
investment companies. The High Growth Fund and S&P 500 Fund will be entitled to
all dividends or interest on any loaned securities. Loans of securities involve
a risk that the borrower may fail to return the securities or provide additional
collateral.

Repurchase Transactions. Repurchase agreements are instruments under
which a buyer acquires ownership of a security from a seller that agrees to
repurchase the security at a mutually agreed upon time and price (which price is
higher than the purchase price), thereby determining the yield during the
buyer's holding period. Under the 1940 Act, a repurchase agreement is deemed to
be the High Growth Fund's and S&P 500 Fund's loan of money to the seller,
collateralized by the underlying security. The interest rate is effective for
the period of time in which the High Growth Fund and S&P 500 Fund are invested
in the agreement and is not related to the coupon rate on the underlying
security. Any repurchase agreements into which either Fund enters will involve
the Fund as the buyer and banks or broker-dealers as the sellers (repurchase
agreements with broker-dealers will be limited to obligations of the U.S.
Government, its agencies or instrumentalities). The period of these repurchase
agreements will usually be short -- from overnight to one week -- and at no time
will the High Growth Fund and S&P 500 Fund invest in repurchase agreements for
more than one year. However, securities subject to repurchase agreements may
have maturity dates in excess of one year from the effective date of the
repurchase agreements. The transaction requires the initial collateralization of
the seller's obligation with securities having a market value, including accrued
interest, equal to at least 102% of the dollar amount invested by the High
Growth Fund and S&P 500 Fund, with the value marked-to-market daily to maintain
100% coverage. A default by the seller might cause the High Growth Fund and S&P
500 Fund to experience a loss or delay in the liquidation of the collateral
securing the repurchase agreement. The High Growth Fund and S&P 500 Fund might
also incur disposition costs in liquidating the collateral. The High Growth Fund
and S&P 500 Fund will make payment for such securities only upon physical
delivery or evidence of book entry transfer to the account of their custodian
bank. The High Growth Fund and S&P 500 Fund may not enter into a repurchase
agreement of more than seven days duration if, as a result, the market value of
the High Growth Fund's and S&P 500 Fund's net assets, together with investments
in other securities deemed to be not readily marketable, would be invested in
excess of the High Growth Fund's and S&P 500 Fund's limits on investments in
illiquid securities.

In the event of a bankruptcy or other default of a repurchase
agreement's seller, the High Growth Fund and S&P 500 Fund might incur expenses
in enforcing its rights, and could experience losses, including a decline in the
value of the underlying securities and loss of income. Each Fund will not invest
more than 10% of its

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net assets at the time of purchase in repurchase agreements maturing in more
than seven days and other illiquid securities.

Illiquid Securities. The High Growth Fund and S&P 500 Fund reserve the
right to invest up to 10% of each of their net assets in illiquid securities.
Generally, an "illiquid security" is any security that cannot be disposed of
promptly and in the ordinary course of business at approximately the amount at
which the High Growth Fund and S&P 500 Fund have valued the instrument. Subject
to this limitation, the High Growth Fund and S&P 500 Fund may invest in
restricted securities when such investment is consistent with the High Growth
Fund's and S&P 500 Fund's investment objectives, and such securities may be
considered to be liquid to the extent the High Growth Fund's and S&P 500 Fund's
Investment Manager determines that there is a liquid institutional or other
market for such securities. In determining whether a restricted security is
properly considered to be a liquid security, the High Growth Fund's and S&P 500
Fund's Investment Manager, under the direction of the Board of Trustees, will
take into account the following factors: (i) the frequency of trades and quotes
for the security; (ii) the number of dealers willing to purchase or sell the
security and the number of potential purchasers; (iii) dealer undertakings to
make a market in the security; and (iv) the nature of the security and
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of transfer). To the extent the High
Growth Fund and S&P 500 Fund invest in restricted securities that are deemed
liquid, the general level of illiquidity in the High Growth Fund's and S&P 500
Fund's portfolios may be increased if qualified institutional buyers become
uninterested in purchasing these securities contracts. The High Growth Fund and
S&P 500 Fund will limit their investments in liquid restricted securities to 5%
of their net assets.

When-Issued and Delayed Delivery Securities. The High Growth Fund and
S&P 500 Fund may hold securities on a "when-issued" or "delayed delivery" basis.
When-issued or delayed delivery securities are securities purchased for future
delivery at a stated price an yield. Generally, a Fund will not pay for
securities until the Fund receives them. Securities purchased on a when-issued
or delayed delivery basis are recorded as assets. During the period between the
agreement date and the settlement date, the value of such securities may change
as the prices of securities in the stock market increase or decrease, or as
interest rates change. Default by the other party to the agreement may result in
a loss to a Fund.

INVESTMENT RESTRICTIONS & POLICIES
FOR THE HIGH GROWTH FUND AND THE
S&P 500 FUND

FUNDAMENTAL INVESTMENT RESTRICTIONS

The restrictions numbered (1), (2) and (3) immediately below are
fundamental and cannot be changed without approval of the holders of a majority
of the outstanding voting securities (as defined in the 1940 Act). For more
detailed information, see "1940 Act Restrictions" and "Other Investment
Policies." The High Growth Fund and S&P 500 Fund:

(1) May purchase securities of any issuer only when consistent with the
maintenance of its status as a diversified company under the 1940 Act.

(2) May not concentrate investments in a particular industry or group of
industries as concentration is defined under the 1940 Act, or the rules or
regulations thereunder; except that the S&P 500 Fund may concentrate investments
only to the extent that the S&P 500 Index(R) is also so concentrated.

(3) May (i) purchase or sell commodities, commodities contracts or real estate;
(ii) lend or borrow money; (iii) issue senior securities; (iv) underwrite
securities; or (v) pledge, mortgage or hypothecate any of its assets, only if
permitted by the 1940 Act or the rules or regulations thereunder.

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<PAGE> 55
The High Growth Fund and S&P 500 Fund have also adopted non-fundamental
investment policies, set forth below, which are generally more restrictive than
the fundamental investment policies of these Funds. The High Growth Fund's or
the S&P 500 Fund's non-fundamental investment policies may be changed by a vote
of the Board of Trustees. Any changes in either the High Growth Fund's or the
S&P 500 Fund's non-fundamental investment policies will be communicated to the
Fund's shareholders prior to the effectiveness of the changes.

1940 ACT RESTRICTIONS

Under the 1940 Act and the rules, regulations and interpretations
thereunder, a "diversified company," as to 75% of its total assets, may not
purchase securities of any issuer (other than obligations of, or guaranteed by,
the U.S. Government, its agencies or its instrumentalities) if, as a result,
more than 5% of the value of its total assets would be invested in the
securities of such issuer or more than 10% of the issuer's voting securities
would be held by the fund. "Concentration" is generally interpreted under the
1940 Act as the investment of more than 25% of net assets in an industry or
group of industries. The 1940 Act limits the ability of investment companies to
borrow and lend money and to underwrite securities. The 1940 Act currently
prohibits an open-end fund from issuing senior securities, as defined in the
1940 Act, except under very limited circumstances.

OTHER INVESTMENT POLICIES

The following investment policies and restrictions are non-fundamental
and may be changed by the Trust's Board of Trustees. The High Growth Fund and
S&P 500 Fund may not:

(1) Purchase or sell commodities, commodities contracts or real estate,
including interests in real estate limited partnerships, provided that each Fund
may (i) purchase securities of companies that deal in real estate or interests
therein, (ii) purchase or sell futures contracts, options contracts, equity
index participations and index participation contracts, and (iii) purchase
securities of companies that deal in precious metals or interests therein.

(2) Lend money to any person, except that each Fund may (i) purchase a portion
of an issue of short-term debt securities or similar obligations (including
repurchase agreements) that are publicly distributed or customarily purchased by
institutional investors, and (ii) lend its portfolio securities.

(3) Borrow money or issue senior securities except that each Fund may borrow
from banks as a temporary measure to satisfy redemption requests or for
extraordinary or emergency purposes and then only in an amount not to exceed
one-third of the value of its total assets (including the amount borrowed),
provided that each Fund will not purchase securities while borrowings represent
more than 5% of its total assets.

(4) Pledge, mortgage or hypothecate any of its assets except that, to secure
allowable borrowings, each Fund may do so with respect to no more than one-third
of the value of its total assets.

(5) Underwrite securities issued by others except to the extent it may be deemed
to be an underwriter, under the federal securities laws, in connection with the
disposition of securities from its investment portfolio.

(6) Invest more than 10% of its net assets in illiquid securities, including
repurchase agreements with maturities in excess of seven days.

(7) Purchase or retain securities of an issuer if any of the officers, trustees
or directors of the Trust or the Investment Manager individually own
beneficially more than 1/2 of 1% of the securities of such issuer and together
beneficially own more than 5% of the securities of such issuer.

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<PAGE> 56
(8) Invest for the purpose of exercising control or management of another
issuer.

(9) Purchase securities of other investment companies, except as permitted by
the 1940 Act, including any exemptive relief granted by the SEC.

(10) Purchase more than 10% of any class of securities of any issuer if, as a
result of such purchase, it would own more than 10% of such issuer's outstanding
voting securities.

(11) Invest more than 5% of its net assets in warrants, valued at the lower of
cost or market, and no more than 40% of this 5% may be invested in warrants that
are not listed on the New York Stock Exchange or the American Stock Exchange,
provided, however, that for purposes of this restriction, warrants acquired by a
Fund in units or attached to other securities are deemed to be without value.

(12) Purchase puts, calls, straddles, spreads or any combination thereof if by
reason of such purchase the value of its aggregate investment in such
securities would exceed 5% of the Fund's total assets.

(13) Make short sales, except for short sales against the box.

(14) Purchase or sell interests in oil, gas or other mineral development
programs or leases, although it may invest in companies that own or invest in
such interests or leases.

(15) Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of purchases and sales of securities.

Except for fundamental restrictions (2) and non-fundamental restriction
(3), if a percentage restriction is adhered to at the time of investment, a
later increase in percentage resulting from a change in values or net assets
will not be considered a violation.

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<PAGE> 57
MANAGEMENT OF THE TRUST

OFFICERS AND TRUSTEES. The officers and Trustees of the Trust, their
principal occupations over the past five years and their affiliations, if any,
with The Charles Schwab Corporation, Schwab and the Investment Manager, are as
follows:

<TABLE>
<CAPTION>
POSITION WITH
NAME/DATE OF BIRTH THE TRUST PRINCIPAL OCCUPATION
- ------------------ --------- --------------------
<S> <C> <C>
CHARLES R. SCHWAB* Chairman and Trustee Chairman, Chief Executive Officer and Director, The Charles
July 29, 1937 Schwab Corporation; Chairman and Director, Charles Schwab &
Co., Inc. and Charles Schwab Investment Management, Inc.;
Chairman and Director, The Charles Schwab Trust Company;
Chairman and Director (current board positions), and
Chairman (officer position) until December 1995, Mayer &
Schweitzer, Inc. (a securities brokerage subsidiary of The
Charles Schwab Corporation); Director, The Gap, Inc. (a
clothing retailer), Transamerica Corporation (a financial
services organization), AirTouch Communications (a
telecommunications company) and Siebel Systems (a software
company).

TIMOTHY F. McCARTHY* President and Trustee Executive Vice President and President, Financial Products
September 19, 1951 and International Group, Charles Schwab & Co., Inc.;
Executive Vice President and President, Financial Products
and International Group, The Charles Schwab Corporation;
Chief Executive Officer, Charles Schwab Investment
Management, Inc.; Vice Chairman and Chief Operating
Officer, Charles Schwab Limited; Director, Mayer &
Schweitzer. From 1994 to 1995, Mr. McCarthy was Chief
Executive Officer, Jardine Fleming Unit Trusts Ltd.;
Executive Director, Jardine Fleming Holdings Ltd.;
Chairman, Jardine Fleming Taiwan Securities Ltd.; and
Director of JF India and Fleming Flagship, Europe. Prior to
1994, he was President of Fidelity Investments Advisor
Group, a division of Fidelity Investments in Boston.
</TABLE>

- --------------------------

* Mr. Schwab is an "interested person" of the Trust.

* Mr. McCarthy is an "interested person" of the Trust.

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<PAGE> 58

<TABLE>
<CAPTION>
POSITION WITH
NAME/DATE OF BIRTH THE TRUST PRINCIPAL OCCUPATION
- ------------------ --------- --------------------
<S> <C> <C>
DONALD F. DORWARD Trustee President and Chief Executive Officer, Dorward & Associates
September 23, 1931 (advertising and marketing/consulting).

ROBERT G. HOLMES Trustee Chairman, Chief Executive Officer and Director, Semloh
May 15, 1931 Financial, Inc. Semloh Financial is an international
financial services and investment advisory firm.

DONALD R. STEPHENS Trustee Managing Partner, D.R. Stephens & Co. (investment banking).
June 28, 1938 Prior to 1995, Mr. Stephens has been Chairman and Chief
Executive Officer of North American Trust (a real estate
investment trust). Prior to 1992, Mr. Stephens was Chairman
and Chief Executive Officer of the Bank of San Francisco.

MICHAEL W. WILSEY Trustee Chairman, Chief Executive Officer and Director, Wilsey
August 18, 1943 Bennett, Inc. (truck and air transportation, real estate
investment and management, and investments).

TAI-CHIN TUNG Treasurer and Principal Vice President - Finance, Charles Schwab & Co., Inc.;
March 7, 1951 Financial Officer Controller, Charles Schwab Investment Management, Inc. From
1994 to 1996, Ms. Tung was Controller for Robertson
Stephens Investment Management, Inc. From 1993 to 1994, she
was Vice President of Fund Accounting, Capital Research and
Management Co. Prior to 1993, Ms. Tung was Senior Vice
President of the Sierra Funds and Chief Operating Officer
of Great Western Financial Securities.

WILLIAM J. KLIPP* Executive Vice Executive Vice President-SchwabFunds, Charles Schwab & Co.,
December 9, 1955 President, Chief Inc.; President and Chief Operating Officer, Charles Schwab
Operating Officer and Investment Management, Inc. Prior to 1993, Mr. Klipp was
Trustee Treasurer of Charles Schwab & Co., Inc. and Mayer &
Schweitzer, Inc.

STEPHEN B. WARD Senior Vice President Senior Vice President and Chief Investment Officer, Charles
April 5, 1955 and Chief Investment Schwab Investment Management, Inc.
Officer

FRANCES COLE Secretary Vice President, Chief Counsel, Chief Compliance Officer and
September 9, 1955 Assistant Corporate Secretary, Charles Schwab Investment
Management, Inc.
</TABLE>

- ---------------------------

* Mr. Klipp is an "interested person" of the Trust.

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<PAGE> 59

<TABLE>
<CAPTION>
POSITION WITH
NAME/DATE OF BIRTH THE TRUST PRINCIPAL OCCUPATION
- ------------------ --------- --------------------
<S> <C> <C>
DAVID H. LUI Assistant Secretary Vice President and Senior Counsel - Charles Schwab
October 14, 1960 Investment Management, Inc. Prior to 1992, he was Assistant
Secretary and Assistant Corporate Counsel for the Franklin
Group of Mutual Funds.

CHRISTINA M. PERRINO Assistant Secretary Vice President and Senior Counsel - Charles Schwab
June 16, 1961 Investment Management, Inc. Prior to 1994, she was Counsel
and Assistant Secretary for North American Security Life
Insurance Company and Secretary for North American Funds.

KAREN L. SEAMAN Assistant Secretary Corporate Counsel - Charles Schwab Investment Management,
February 27, 1968 Inc. From October 1994 to July 1996, Ms. Seaman was
Attorney for Franklin Resources, Inc. Prior to 1994, Ms.
Seaman was an attorney for The Benham Group.
</TABLE>

Each of the above-referenced individuals also serves in the same
capacity as described for the Trust, The Charles Schwab Family of Funds, Schwab
Investments, and Schwab Capital Trust. The address of each individual listed
above is 101 Montgomery Street, San Francisco, California 94104.

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<PAGE> 60
TRUSTEE DEFERRED COMPENSATION PLAN

Pursuant to exemptive relief received by the Trust from the SEC, the
Trust may enter into deferred fee arrangements (the "Fee Deferral Plan" or the
"Plan") with the Trust's Trustees who are not "interested persons" of any of the
Funds of the Trust (the "Independent Trustees" or the "Trustees").

As of the date of this Statement of Additional Information, none of the
Independent Trustees has elected to participate in the Fee Deferral Plan. In the
event an Independent Trustee does elect to participate in the Plan, the Plan
would operate as described below.

Under the Plan, deferred Trustee's fees will be credited to a book
reserve account established by the Trust (the "Deferred Fee Account"), as of the
date such fees would have been paid to the Trustee. The value of the Deferred
Fee Account as of any date will be equal to the value the Account would have had
as of that date if the amounts credited to the Account had been invested and
reinvested in the securities of the SchwabFund or SchwabFunds(R) selected by the
participating Trustee (the "Selected SchwabFund Securities"). SchwabFunds
include the series or classes of shares of beneficial interest of The Charles
Schwab Family of Funds, Schwab Investments and Schwab Capital Trust.

Pursuant to the exemptive relief granted to the Trust, each Fund will
purchase and maintain the Selected SchwabFund Securities in an amount equal to
the deemed investments in that Fund of the Deferred Fee Accounts of the
Independent Trustees. These transactions would otherwise be limited or
prohibited by the investment policies and/or restrictions of the Funds. (See
"Investment Policies and Restrictions.")

COMPENSATION TABLE(1)

<TABLE>
<CAPTION>
Pension or
Retirement Estimated Annual
Benefits Accrued Benefits Upon Total
Aggregate as Part of Fund Retirement from Compensation
Name of Person, Compensation Expenses from the Fund from the Fund
Position from the Trust the Fund Complex Complex Complex
- --------------- -------------- ---------------- ----------------- -------------
<S> <C> <C> <C> <C>
Charles R. Schwab, 0 N/A N/A 0
Chairman and Trustee

Timothy F. McCarthy, 0 N/A N/A 0
President and Trustee

William J. Klipp, 0 N/A N/A 0
Executive Vice President, Chief
Operating Officer and Trustee

Donald F. Dorward, Trustee $3,150 N/A N/A $83,950

Robert G. Holmes, Trustee $3,150 N/A N/A $83,950

Donald R. Stephens, Trustee $3,150 N/A N/A $83,950

Michael W. Wilsey, Trustee $3,150 N/A N/A $83,950
</TABLE>

(1) Figures are for the Trust's fiscal year ended December 31, 1996.

(2) "Fund Complex" comprises all 29 funds of the Trust, Schwab Investments,
Schwab Capital Trust and The Charles Schwab Family of Funds.

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<PAGE> 61
INVESTMENT MANAGER

The Investment Manager, a wholly-owned subsidiary of The Charles Schwab
Corporation, serves as the investment adviser for all the Funds and
administrator pursuant to an Investment Advisory and Administration Agreement
dated March 28, 1994 (the "Advisory Agreement") between it and the Trust. The
Investment Manager is registered as an investment adviser under the Investment
Advisers Act of 1940, as amended, and currently provides investment management
services to the Schwab mutual fund complex, a family of 29 mutual funds with
over $47 billion in assets as of April 1, 1997. The Investment Manager is an
affiliate of Schwab and is the Trust's distributor and shareholder services and
transfer agent.

The Advisory Agreement will be in effect for an initial two year term
and thereafter will continue in effect for one year terms, subject to annual
approval by: (1) the Trust's Board of Trustees or (2) a vote of a majority (as
defined in the 1940 Act) of the outstanding voting securities of a Fund. In
either event, the continuance must also be approved by a majority of the Trust's
Board of Trustees who are not parties to the Agreement or interested persons (as
defined in the 1940 Act) of any such party by vote cast in person at a meeting
called for the purpose of voting on such approval. The Advisory Agreement may be
terminated at any time upon 60 days' notice by either party, or by a majority
vote of the outstanding shares of a Fund, and will terminate automatically upon
assignment.

Money Market Fund. For its advisory and administrative services to the
Money Market Fund, the Investment Manager is entitled to receive a graduated
annual fee, payable monthly, of 0.46% of the Fund's average daily net assets not
in excess of $1 billion; 0.45% of such net assets over $ billion but not in
excess of $3 billion; 0.40% of such net assets over $3 billion but not in excess
of $10 billion, 0.37% of such net assets over $10 billion but not in excess of
$20 billion; and 0.34% of such net asserts over $20 billion. For the fiscal
period from May 3, 1994 (commencement of operations) to December 31, 1994, and
for the fiscal years ended December 31, 1995 and 1996, the Fund paid investment
advisory and administration fees of $0 (fees were reduced by $8,950), $608 (fees
were reduced by $52,949), and $22,322 (fees were reduced by $81,006),
respectively.

High Growth Fund. For its advisory and administrative services to the
High Growth Fund, the Investment Manager is entitled to receive a graduated
annual fee, payable monthly, of 0.74% of the Fund's average daily net assets not
in excess of $1 billion; 0.69% of the next $1 billion; and 0.64% of such net
assets over $2 billion.

For the fiscal period from November 1, 1996 (commencement of
operations) through December 31, 1996, the Fund paid investment advisory and
administration fees of $0 (fees were reduced by $5,433).

S&P 500 Fund. For its advisory and administrative services to the S&P
500 Fund, the Investment Manager is entitled to receive a graduated annual fee,
payable monthly, of 0.36% of the Fund's average daily net assets not in excess
of $1 billion; 0.33% of the next $1 billion; and 0.31% of such net assets over
$2 billion.

For the fiscal period from November 1, 1996 (commencement of
operations) through December 31, 1996, the Fund paid investment advisory and
administration fees of $0 (fees were reduced by $2,890).

Additional Information. The Advisory Agreement provides that the fees
to be paid to the Investment Manager will be less than the amount that would
cause the aggregate operating expenses of a Fund (excluding interest, taxes, net
brokerage commissions and extraordinary expenses) in any year to exceed the most
stringent limits prescribed by any state in which shares of a Fund are offered
for sale. The most stringent current limit for such expenses is 2.5% of a fund's
first $30 million of average net assets, 2.0% of a fund's next $70 million of
average net

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<PAGE> 62
assets and 1.5% of a fund's average net assets in excess of $100 million.

From time to time, each Fund may compare its total operating expense
ratio to the total operating expense ratio of other mutual funds or mutual fund
averages with similar investment objectives as reported by Lipper Analytical
Service, Inc., Morningstar, Inc. or other independent sources of such
information ("independent sources").

SUB-ADVISER

As of February 28, 1997, Symphony no longer serves as sub-adviser to
any of the Funds. Instead, the Investment Manager became responsible for
providing all investment advisory services to the Funds.

The Investment Manager paid the Sub-Adviser an annual investment
sub-advisory fee, payable monthly, of 0.08% of the first $100 million of the
aggregate average daily net assets of the High Growth Fund and the following
funds of Schwab Capital Trust; Schwab Asset Director(R)-High Growth Fund, Schwab
Asset Director(R)-Balanced Growth Fund and Schwab Asset Director(R)-Conservative
Growth Fund; 0.06% of the next $150 million; 0.04% of the next $600 million; and
0.02% of such assets over $850 million.

For the fiscal period ended December 31, 1996, the Sub-Adviser was paid
investment sub-advisory fees of $26,746 from the Investment Manager.

DISTRIBUTOR

Pursuant to a Distribution Agreement, Schwab is the principal
underwriter for shares of the Trust and the Trust's agent for the purpose of the
continuous offering of the Funds' shares. Currently, the Funds are designed as
an investment vehicle for Separate Accounts of Participating Insurance Companies
and are intended for retirement savings or other long-term investment purposes.
The Funds pay the cost for the prospectuses and shareholder reports to be
prepared and delivered to existing Participating Insurance Company Contract
owners with investment allocations in either of the three sub-accounts. Schwab
pays such costs when the described materials are used in connection with the
offering of shares to prospective investors and for supplementary sales
literature and advertising. Schwab receives no fee under the Distribution
Agreement. Terms of continuation, termination and assignment under the
Distribution Agreement are identical to those described above with respect to
the Advisory Agreement.

CONSULTANT

The Investment Adviser has hired and pays Symphony as a consultant for
the High Growth Fund. Symphony provides the Tactical Asset Allocation Model
described below under "Indexing and Asset Allocation."

CUSTODIAN AND FUND ACCOUNTANT

PNC Bank, National Association, at the Airport Business Center, 200
Stevens Drive, Suite 440, Lester, Pennsylvania 19113, serves as Custodian for
the Money Market Fund and S&P 500 Fund.

PFPC, Inc., at 400 Bellevue Parkway Wilmington, Delaware 19809, serves
as Fund Accountant for the Money Market Fund and S&P 500 Fund.

State Street Bank and Trust Company, at 1 Heritage Drive, North Quincy,
Massachusetts 02171-2197, serves as Custodian and as Fund Accountant for the
High Growth Fund.

ACCOUNTANTS AND REPORTS
TO SHAREHOLDERS

The Trust's independent accountants, Price Waterhouse LLP, audit and
report on the annual financial statements of each series of the Trust and review
certain regulatory reports and each Fund's federal income tax return. Price
Waterhouse LLP also performs other

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<PAGE> 63
professional accounting, auditing, tax and advisory services when the Trust
engages it to do so. Shareholders will be sent audited annual and unaudited
semi-annual financial statements. The address of Price Waterhouse LLP is 555
California Street, San Francisco, California 94104.

LEGAL COUNSEL

Ropes & Gray, One Franklin Square, 1301 K Street, N.W., Suite 800 East,
Washington, D.C. 20005, is counsel to the Trust.

PORTFOLIO TRANSACTIONS AND TURNOVER

PORTFOLIO TRANSACTIONS

Portfolio transactions are undertaken principally to: pursue the Funds'
objective in relation to movements in the general level of interest rates;
invest money obtained from the sale of the Funds' shares; reinvest proceeds from
maturing portfolio securities; and meet redemptions of Fund shares. Portfolio
transactions may increase or decrease the yield of the Funds depending upon
management's ability to correctly time and execute them.

In effecting securities transactions for the Funds, the Investment
Manager seeks to obtain best price and execution. Subject to the supervision of
the Board of Trustees, the Investment Manager generally selects broker-dealers
for the Funds primarily on the basis of the quality and reliability of brokerage
services, including execution capability and financial responsibility. In
assessing these criteria, the Investment Manager will, among other things,
monitor the performance of brokers effecting transactions for the Funds to
determine the effect, if any, the Funds' transactions through those brokers have
on the market prices of the stocks involved. This may be of particular
importance for the Funds' investments in relatively smaller companies the stocks
of which are not as actively traded as those of their larger counterparts. The
Funds will seek to buy and sell securities in a manner that causes the least
possible fluctuation in the prices of those stocks in view of the size of the
transactions.

In an attempt to obtain best execution for the Funds, the Investment
Manager may also place orders directly with market makers or with third market
brokers, Instinet or brokers on an agency basis. Placing orders with third
market brokers or through Instinet may enable the Funds to trade directly with
other institutional holders on a net basis. At times, this may allow the Funds
to trade larger blocks than would be possible if they were to trade through a
single market maker.

When the execution and price offered by two or more broker-dealers are
comparable, the Investment Manager may, in its discretion, utilize the services
of broker-dealers that provide it with investment information and other research
resources. The Investment Manager may also use such resources when it provides
advisory services to other investment advisory clients, including mutual funds.

The Trust expects that purchases and sales of portfolio securities
usually will be principal transactions. Securities normally will be purchased
directly from the issuer or from an underwriter or market maker for the
securities.

In determining when and to what extent to use Schwab or any other
affiliated broker-dealer as its broker for executing orders for the Funds on
securities exchanges, the Investment Manager will consider (if relevant) whether
the compensation to be paid Schwab or any other affiliated broker-dealer will be
(i) fair and reasonable, (ii) at least as favorable to the Funds as commissions
that would be charged by other qualified brokers having comparable execution
capabilities and (iii) at least as favorable as commissions contemporaneously
charged by Schwab or any other affiliated broker-dealer on comparable
transactions for its most favored unaffiliated customers. The Funds do not
consider it practicable or in the best interests of their shareholders to
solicit competitive bids for

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<PAGE> 64
commission rates on each transaction. However, the Board of Trustees, including
a majority of the Trustees who are not "interested persons" of Schwab or any
other affiliated broker-dealer within the meaning of the 1940 Act, (i) has
prescribed procedures designed to provide that the Funds do not pay commissions
that do not meet the standards described above, (ii) reviews those procedures
annually to determine whether they remain adequate and (iii) considers quarterly
whether or not the commissions charged by Schwab or any other affiliated
broker-dealer have met the standards.

Brokerage services Schwab provides to the Funds are also subject to
Rule 11a2-2(T) under the Securities Exchange Act of 1934, as amended. Rule
11a2-2(T) permits the Funds to use Schwab as a broker provided certain
conditions are met. Among these requirements are that members of the exchange
not associated with Schwab perform the floor brokerage element of portfolio
transactions (that is, execution on the exchange floor or through use of
exchange facilities) that the orders to such members be transmitted from off the
exchange floor and that neither Schwab nor an associated person of Schwab
participates in the execution of the transaction after the order has been so
transmitted. In connection with transactions in which Schwab acts as broker for
the Funds, Schwab, while not permitted to perform floor brokerage (which is
undertaken by members Schwab selects who are not associated with that firm),
still continues to bear principal responsibility for determining important
elements of overall execution such as timing and order size, and also clears and
settles such transactions. Schwab pays the fees charged by those persons
performing the described floor brokerage elements. Schwab will not trade
directly with the Funds in any transactions in which Schwab or an affiliate acts
as principal.

PORTFOLIO TURNOVER

For reporting purposes, each Fund's turnover rate is calculated by
dividing the value of purchases or sales of portfolio securities for the fiscal
year, whichever is less, by the monthly average value of portfolio securities
each Fund owned during the fiscal year. When making the calculation, all
securities whose maturities at the time of acquisition were one year or less
("short-term securities") are excluded.

Because securities with maturities of less than one year are excluded
from required portfolio turnover rate calculations, the Money Market Fund's
portfolio turnover rate for reporting purposes is expected to be zero.

A 100% portfolio turnover rate would occur, for example, if all
portfolio securities (aside from short-term securities) were sold and either
repurchased or replaced once during the fiscal year. The High Growth Fund and
S&P 500 Fund expect that their portfolio turnover rate will not exceed 100% in
any given year. A high portfolio turnover rate may increase a Fund's transaction
costs. The High Growth Fund's and S&P 500 Fund's portfolio turnover rates for
the period November 1, 1996 (commencement of operations) to December 31, 1996
were 7% and 0%, respectively.

From time to time, each Fund may compare its portfolio turnover rate
with that of other mutual funds as reported by independent sources.

DISTRIBUTIONS AND TAXES

DISTRIBUTIONS

The Money Market Fund calculates its dividends based on its daily net
investment income. For this purpose, the net investment income of the Fund
consists of: (1) accrued interest income plus or minus amortized discount or
premium, minus (2) accrued expenses allocated to the Fund. If the Money Market
Fund realizes any capital gains, they will be distributed

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<PAGE> 65
at least once during the year as determined by the Board of Trustees. Any
realized capital losses to the extent not offset by realized capital gains will
be carried forward. It is not anticipated that the Fund will realize any
long-term capital gains, but if it does so, these gains will be distributed
annually. Trust expenses are accrued each day. Should the net asset value of the
Money Market Fund deviate significantly from market value, the Board of Trustees
could decide to value the investments at market value and any unrealized gains
and losses could affect the amount of the Fund's distributions.

Since the Funds are intended as an investment vehicle for Plans and
Participating Insurance Companies' Separate Accounts, it is anticipated these
Plans and Separate Accounts will be the Funds' only shareholders. On each day
that the net asset value per share of the Money Market Fund is determined
("Business Day"), the Money Market Fund's net investment income will be declared
as of the close of trading on the New York Stock Exchange (normally 4:00 p.m.
(Eastern time)) as a daily dividend to shareholders of record as of the last
calculation of net asset value prior to the declaration. Shareholders will
receive dividends in additional shares unless they elect to receive cash.
Dividends will normally be reinvested monthly in full shares of the Money Market
Fund at the net asset value on the 25th day of each month if a Business Day,
otherwise on the next Business Day, with the exception of dividends reinvested
in December, which are scheduled on the last Business Day in December.

The High Growth Fund and S&P 500 Fund will distribute substantially all
of their net investment income each year, as determined by the Board of
Trustees. The High Growth Fund and S&P 500 Fund will distribute net investment
income and capital gains, if any, to the Plans and Participating Insurance
Company Separate Accounts annually in December. The Participating Insurance
Company Separate Accounts will automatically reinvest all distributions in
additional shares at the net asset value next determined after their record
date.

FEDERAL INCOME TAXES

For a discussion of the tax status of a particular Contract and the tax
consequences of ownership of such a Contract, refer to the appropriate Separate
Account Prospectus. Shares of the Funds are available only through Separate
Accounts of Participating Insurance Companies and Plans.

It is each Fund's policy to qualify for taxation as a "regulated
investment company" by meeting the requirements of Subchapter M of the Code. By
following this policy, each Fund expects to eliminate or reduce to a nominal
amount the federal income tax to which it is subject.

In order to qualify as a regulated investment company, each Fund must,
among other things, (1) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stocks, securities, foreign currencies or other income
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in stocks, securities or currencies; (2)
derive less than 30% of its gross income from gains from the sale or other
disposition of certain assets (including stocks and securities) held for less
than three months; and (3) diversify its holdings so that at the end of each
quarter of its taxable year, (i) at least 50% of the market value of the Fund's
total assets is represented by cash or cash items, U.S. Government securities,
securities of other regulated investment companies and other securities limited,
in respect of any one issuer, to a value not greater than 5% of the value of the
Fund's total assets and 10% of the outstanding voting securities of such issuer,
and (ii) not more than 25% of the value of its assets is invested in the
securities of any one issuer (other than U.S. Government securities or
securities of any other regulated investment company) or of two or more issuers
that the Fund controls, within the meaning of the Code, and that are engaged in
the same, similar or related trades or businesses. These requirements may
restrict the degree to which a

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Fund may engage in short-term trading and certain hedging transactions and may
limit the range of a Fund's investments. If a Fund qualifies as a regulated
investment company, it will not be subject to federal income tax on the part of
its net investment income and net realized capital gains, if any, which it
distributes to shareholders, provided that the Fund meets certain minimum
distribution requirements. To comply with these requirements, a Fund must
distribute at least (a) 90% of its "investment company taxable income" (as that
term is defined in the Code) and (b) 90% of the excess of its (i) tax-exempt
interest income over (ii) certain deductions attributable to that income (with
certain exceptions), for its taxable year. Each Fund intends to make sufficient
distributions to shareholders to meet these requirements.

The Funds may engage in investment techniques that may alter the timing
and character of the Funds' income. Each Fund may be restricted in its use of
these techniques by rules relating to its qualification as a regulated
investment company.

Although the High Growth Fund will attempt not to invest in any
non-U.S. corporation which could be treated as a passive foreign investment
company ("PFIC"), or become a PFIC, under the Code, it might inadvertently do
so. This could result in adverse tax consequences upon the disposition of, or
the receipt of "excess distributions" with respect to, such equity investments.
To the extent the High Growth Fund does invest in PFICs, it may adopt certain
tax strategies to reduce or eliminate the adverse effects of certain federal tax
provisions governing PFIC investments. Many non-U.S. banks and insurance
companies may not be treated as PFICs if they satisfy certain technical
requirements under the Code. To the extent the High Growth Fund does invest in
foreign securities that are determined to be PFIC securities and is required to
pay a tax on these investments, a credit for this tax would not be allowed to be
passed through to the High Growth Fund's shareholders. Therefore, the payment of
this tax would reduce the High Growth Fund's economic return from its PFIC
shares.

The foregoing discussion relates only to U.S. federal income tax law.

SHARE PRICE CALCULATION

The Money Market Fund values its portfolio instruments at amortized
cost, which means they are valued at their acquisition cost, as adjusted for
amortization of premium or discount, rather than at current market value.
Calculations are made to compare the value of the Money Market Fund's
investments valued at amortized cost with market values. Market valuations are
obtained by using actual quotations provided by market makers, estimates of
market value or values obtained from yield data relating to classes of money
market instruments published by reputable sources at the mean between the bid
and asked prices for the instruments. The amortized cost method of valuation
seeks to maintain a stable $1.00 per share net asset value even when there are
fluctuations in interest rates that affect the value of portfolio instruments.
Accordingly, this method of valuation can, in certain circumstances, lead to a
dilution of a shareholder's interest. If a deviation of 1/2 of 1% or more were
to occur between the net asset value per share calculated by reference to market
values and the Money Market Fund's $1.00 per share net asset value, or if there
were any other deviation that the Board of Trustees of the Trust believed would
result in a material dilution to shareholders or purchasers, the Board of
Trustees would promptly consider what action, if any, should be initiated. If
the Money Market Fund's net asset value per share (computed using market values)
declined, or were expected to decline, below $1.00 (computed using amortized
cost), the Board of Trustees might temporarily reduce or suspend dividend
payments in an effort

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to maintain the net asset value at $1.00 per share. As a result of this
reduction or suspension of dividends or other action by the Board of Trustees,
an investor would receive less income during a given period than if the
reduction or suspension had not taken place. Such action could result in
investors not receiving a dividend for the period during which they hold their
shares and receiving, upon redemption, a price per share lower than that which
they paid. On the other hand, if the Money Market Fund's net asset value per
share (computed using market values) were to increase, or were anticipated to
increase above $1.00 (computed using amortized cost), the Board of Trustees
might supplement dividends in an effort to maintain the net asset value at $1.00
per share.

The High Growth Fund's and S&P 500 Fund's net asset value per share is
determined each Business Day at the close of trading on the New York Stock
Exchange, generally as of 4:00 p.m. (Eastern time). Currently, the New York
Stock Exchange is closed on the following holidays: New Year's Day (observed),
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. The High Growth Fund and S&P 500 Fund value
their portfolio securities daily based on their fair value. Each security the
High Growth Fund and S&P 500 Fund hold that is listed on a securities exchange
and for which market quotations are available is valued at the last quoted sale
price for a given day, or if a sale is not reported for that day, at the mean
between the most recent quoted bid and asked prices. Price information on each
listed security is taken from the exchange where the security is primarily
traded. Unlisted securities for which market quotations are readily available
are valued at the mean between the most recent bid and asked prices. The value
of other assets for which no quotations are readily available (including any
restricted securities) are valued at fair value as determined in good faith by
the Investment Manager pursuant to Board of Trustees guidelines. Securities may
be valued on the basis of prices provided by pricing services when such prices
are believed to reflect fair market value.

HOW THE FUNDS REFLECT PERFORMANCE

STANDARDIZED TOTAL RETURN

Each Fund may advertise its average annual return. Average annual total
return for a period is determined by calculating the actual dollar amount of
investment return on a $1,000 investment in a Fund made at the beginning of the
period, then calculating the average annual compounded rate of return that would
produce the same investment return on the $1,000 over the same period. In
computing average annual total return, a Fund assumes the reinvestment of all
distributions at net asset value on applicable reinvestment dates.

NONSTANDARDIZED TOTAL RETURN

Nonstandardized total return for a Fund differs from standardized total
return in that it relates to periods other than the period for standardized
total return, and/or that it represents aggregate (rather than average) total
return.

In addition, an after-tax total return for each Fund may be calculated
by taking that Fund's standardized or non-standardized total return and
subtracting applicable federal taxes from the portions of each Fund's total
return attributable to capital gains distributions and ordinary income. This
after-tax total return may be compared to that of other mutual funds with
similar investment objectives as reported by independent sources.

Each Fund also may report the percentage of that Fund's standardized or
non-standardized total return which would be paid to taxes annually (at the
applicable federal personal income and capital gains tax rates) before
redemption of Fund shares. This proportion may

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be compared to that of other mutual funds with similar investment objectives as
reported by independent sources.

A Fund may also advertise its cumulative total return since inception.
This number is calculated using the same formula that is used for average annual
total return except that, rather than calculating the total return based on a
one-year period, cumulative total return is calculated from inception to the
date specified. The Money Market Fund's average annual and cumulative total
return since inception (May 3, 1994) for the period ended December 31, 1996 was
4.98%. The High Growth Fund's and S&P 500 Fund's cumulative total returns
since inception (November 1, 1996) were 4.20% and 5.30%, respectively.

YIELD

The historical performance of the Funds may be shown in the form of
yield or effective yield. These measures of performance are described below.

YIELD

Yield refers to the net investment income generated by a hypothetical
investment in the Money Market Fund over a specific 7-day period and the High
Growth Fund and S&P 500 Fund over a specific 30-day period. This net investment
income is then annualized, which means that the net investment income generated
during the 7-day period and 30-day period is assumed to be generated in each
7-day period and 30-day period, respectively, over an annual period, and is
shown as a percentage of the investment. For the 7-day period ended December 31,
1996, the Money Market Fund's yield was 4.91%.

EFFECTIVE YIELD

A Funds' effective yield is calculated similarly, but the net
investment income earned by the investment is assumed to be compounded weekly
when annualized for the Money Market Fund and monthly when annualized for the
High Growth Fund and S&P 500 Fund. The effective yield will be slightly higher
than the yield due to this compounding effect. For the 7-day period ended
December 31, 1996, the Money Market Fund's effective yield was 5.27%.

Yields quoted for the Money Market Fund include the effect of deducting
the MoneyMarket Fund's expenses, but may not include charges and expenses
attributable to a Separate Account or a Contract. Since you can only purchase
shares of the Money Market Fund through Participating Insurance Companies'
Separate Accounts, you should carefully review the appropriate Separate Account
Prospectus for information on relevant charges and expenses. Excluding these
charges from quotations of the Money Market Fund's performance has the effect of
increasing the performance quoted. You should bear in mind the effect of these
charges when comparing the Money Market Fund's performance to those of other
mutual funds.

COMPARING THE PERFORMANCE OF THE FUNDS WITH OTHER FUNDS AND INDICES

The performance of the Funds may be compared with the performance of
other mutual funds by comparing the ratings and rankings of mutual fund rating
services, various indices of investment performance, U.S. Government
obligations, bank certificates of deposit, the consumer price index and other
investments for which reliable data is available.

The High Growth Fund also may compare its historical performance
figures to the performance of indices similar to its asset categories and
sub-categories, and to the performance of "blended indices" similar to the High
Growth Fund's portfolio strategies, such as those indices named in the High
Growth Fund's Prospectus under "Market Performance."

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From Commencement of Operations to December 31, 1996

<TABLE>
<CAPTION>
Commencement Average Annual Cumulative One Year Total Return as
Date Total Return Total Return of December 31, 1996
---- ------------ ------------ --------------------
<S> <C> <C> <C> <C>
Money Market Fund May 3, 1994 4.80% 13.3% 4.98%
High Growth Fund November 1, 1996 N/A 4.20% N/A
S&P 500 Fund November 1, 1996 N/A 5.30% N/A
</TABLE>

THE BENEFITS OF INTERNATIONAL INVESTING

INCREASED DIVERSIFICATION
CAN LOWER RISK

To some extent, all U.S.-based investments -- stocks, bonds, mutual
funds and certificates of deposit -- are affected by the same economic forces.
Tax cuts, interest rate changes and the performance of the U.S. stock market can
all influence U.S. investments. Adding international (or overseas) investments
to a U.S.-based portfolio has historically reduced the portfolio's overall
volatility. Although U.S. and international markets may be interrelated, they do
not move in tandem -- so losses in one market can be offset by gains in another.

POTENTIALLY HIGHER
OVERALL PERFORMANCE

During the 20 years ended December 31, 1996, the international equity
markets outperformed the U.S. equity market and most other U.S. securities
investments -- corporate bonds, CDs and U.S. Treasuries. The returns
international markets produced also have kept investors well ahead of inflation.
This historical performance means that investors diversified overseas earned a
higher level of return.

BROADER GROWTH OPPORTUNITIES

Investors who limit their portfolios to U.S. securities are missing
these investment opportunities. According to Morgan Stanley, as of December 31,
1979, the United States made up more than half of the world's stock market, a
value of over $11 trillion. As of December 31, 1996, it represented forty-five
percent.

INDEXING AND ASSET ALLOCATION

Because the unmanaged performance of a broad-based equity index has
often proven superior to that of many individually selected stock portfolios, a
growing percentage of assets invested in the equity markets are being placed in
"index" portfolios. Institutional investors often devote a substantial
percentage of their assets to indexed strategies.

An index typically tracks the performance of a group of securities
selected to represent a particular market, and is most often used to gauge that
market's performance. The Dow Jones Industrial Average and S&P 500 are two
indices designed to measure the performance of U.S. stocks. When investment
managers invest indexed separate accounts or index fund assets, they attempt to
replicate the performance of the applicable target index by holding all or a
representative sample of the securities included in the index.

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An index's performance data assumes the reinvestment of dividends but
does not reflect deductions for administrative and management expenses. The S&P
500 Fund will be subject to these costs and expenses, while an index does not
have these expenses. In addition, various factors, such as holding a cash
balance, may cause the S&P 500 Fund's performance to be higher or lower than
that of an index.

The S&P 500 Fund is intended to make indexed investing easily available
to Schwab customers with the highest level of convenience and economy, thereby
facilitating their ability to participate in the long-term performance of the
U.S. stock market.

THE S&P 500 INDEX

The S&P 500 is representative of the performance of the U.S. stock
market. The S&P 500 consists of 500 stocks chosen for market size, liquidity and
industry group representation. It is a market-value weighted index (stock price
times number of shares outstanding), with each stock's weight in the S&P 500
proportionate to its market value. The S&P 500 does not contain the 500 largest
stocks, as measured by market capitalization. Although many of the stocks in the
S&P 500 are among the largest, there are also some relatively small companies in
the S&P 500. Those companies, however, are generally established companies
within their industry group. The S&P 500 identifies important industry groups
within the U.S. economy and then allocates a representative sample of stocks
with each group to the S&P 500. There are four major industry sectors within the
S&P 500: Industrials, Utilities, Financial and Transportation.

ASSET ALLOCATION STRATEGIES
USING THE HIGH GROWTH FUND

Shareholders may choose to invest in the High Growth Fund, which offers
the benefits of asset allocation in a single fund. The High Growth Fund invests
a portion of its assets in all or a representative sample of the common stocks
in the following stock sub-categories: large company; small company and
international. Under normal market conditions, the Investment Manager currently
intends to utilize an indexing approach to investing within each stock
sub-category. The Investment Manager generally intends to track the performance
of the S&P 500 for the large company stock sub-category, the Schwab Small-Cap
Index(R) for the small company stock sub-category and the Schwab International
Index(R) for the international stock sub-category, by investing in all or a
representative sample of the common stocks comprising the relevant index. The
stock sub-categories of the High Growth Fund will not track the relevant stock
indices perfectly because of factors such as Fund expenses. Over the long term,
the performance of the Fund's stock sub-categories is expected to correlate with
that of the relevant stock index. The Investment Manager retains the right to
adopt a different portfolio management style without prior notice to
shareholders. The Fund's indexing approach for each stock sub-category provides
shareholders with the potential benefits to be realized from both an asset
allocation strategy and an indexing approach with one investment.

THE SCHWAB INTERNATIONAL INDEX(R)

The Schwab International Index is a broad-based stock market index
which contains the common stocks of the 350 largest operating companies (i.e.,
non-investment companies) incorporated outside the United States. To reduce
undue risk, the Index represents equities only from countries that are
considered to have developed markets and economies. By tracking the largest
companies in developed markets, the Index represents the performance of the
"blue chips" of international markets. The Index is also designed to provide a
broad representation of the international market, by limiting each country to no
more than 35% of the total market capitalization of the Index. As such, the
Index provides a reliable measure of market performance. The Index was first
made available to the public on July 29, 1993.

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<PAGE> 71

THE SCHWAB SMALL-CAP INDEX(R)

To be included in the Schwab Small-Cap Index, a company must satisfy
all of the following criteria: (1) it must be an "operating company" (i.e., not
an investment company) incorporated in the United States or its territories or
possessions; (2) a liquid market for its common shares must exist on the New
York Stock Exchange, American Stock Exchange or the NASDAQ/NMS; and (3) its
market value must place it among the second 1,000 such companies as measured by
market capitalization (i.e., from the company with a rank of 1,001 through the
company with a rank of 2,000). Shareholders generally avoid exposure to the
smallest companies, the shares of which are often thinly traded and very
volatile, because these stocks are not included in the Index.

A particular stock's weighting in the Schwab Small-Cap Index is based
on its relative total market value (i.e., its market price per share multiplied
by the number of shares outstanding), divided by the total market capitalization
of the Schwab Small-Cap Index. The returns produced by the U. S. stock market
during the 25 years ending December 31, 1995 have been exceeded by very few
types of securities investments. Because the unmanaged performance of the U.S.
stock market has often proven superior to that of many individually selected
stock portfolios, a growing percentage of assets invested in the equity markets
are being placed in "index" portfolios. Indexed institutional holdings have
grown from less than $9 billion in 1980 to over $280 billion, a figure equal to
approximately one-quarter of all institutional assets. (Source: Callan
Associates Survey, reported in Fall 1990 edition of The Journal of Portfolio
Management.)

Historically, returns in a long-term investment in a group of common
stocks representative of the stock market as a whole, as well as a group of
common stocks representative of small-cap stocks, have significantly exceeded
the returns of U.S. Treasury Bills, certificates of deposit, corporate bonds and
inflation.

OTHER INFORMATION

Each Fund has adopted a number of policies that should cause its
portfolio turnover rate to be below the portfolio turnover rate of many other
mutual funds. A lower portfolio turnover rate acts to minimize associated
transaction costs.

Each Fund may, from time to time, refer to recent studies that analyze
certain techniques and strategies which the Funds may use. In addition, each
Fund may, from time to time, promote the advantages of investing in a series
that is part of a large, diverse mutual fund complex.

GENERAL INFORMATION

The Trust is generally not required to hold shareholder meetings.
However, as provided in its Agreement and Declaration of Trust and Bylaws,
shareholder meetings will be held in connection with the following matters: (1)
election or removal of Trustees if a meeting is requested in writing by a
shareholder or shareholders who beneficially own(s) 10% or more of the Trust's
shares; (2) adoption of any contract for which shareholder approval is required
by the 1940 Act; (3) any termination of the Trust to the extent and as provided
in the Declaration of Trust; (4) any amendment of the Declaration of Trust
(other than amendments changing the name of the Trust or any of its investment
portfolios, supplying any omission, curing any ambiguity or curing, correcting
or supplementing any defective or inconsistent provision thereof); (5)
determining whether a court action, proceeding or claim should or

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should not be brought or maintained derivatively or as a class action on behalf
of the Trust or the shareholders, to the same extent as the stockholders of a
Massachusetts business corporation; and (6) such additional matters as may be
required by law, the Declaration of Trust, the Bylaws or any registration of the
Trust with the SEC or any state or as the Board of Trustees may consider
desirable. The shareholders also would vote upon changes to a Fund's fundamental
investment objective, policies or restrictions.

Each Trustee serves until the next meeting of shareholders, if any,
called for the purpose of electing Trustees and until the election and
qualification of his or her successor or until death, resignation, retirement or
removal by a majority vote of the shares entitled to vote (as described below)
or of a majority of the Trustees. In accordance with the 1940 Act, (i) the Trust
will hold a shareholder meeting for the election of Trustees when less than a
majority of the Trustees have been elected by shareholders and (ii) if, as a
result of a vacancy in the Board of Trustees, less than two-thirds of the
Trustees have been elected by the shareholders, that vacancy will be filled by a
vote of the shareholders.

Upon the written request of 10 or more shareholders who have been such
for at least 6 months and who hold shares constituting at least 1% of the
Trust's outstanding shares stating that they wish to communicate with the other
shareholders for the purpose of obtaining signatures necessary to demand a
meeting to consider removal of one or more Trustees, the Trust has undertaken to
disseminate appropriate materials at the expense of the requesting shareholders.

The Bylaws provide that a majority of shares entitled to vote shall be
a quorum for the transaction of business at a shareholders' meeting, except that
where any provision of law, of the Declaration of Trust or of these Bylaws
permits or requires that (i) holders of any series shall vote as a series, then
a majority of the aggregate number of shares of that series entitled to vote
shall be necessary to constitute a quorum for the transaction of business by
that series, or (ii) holders of any class shall vote as a class, then a majority
of the aggregate number of shares of that class entitled to vote shall be
necessary to constitute a quorum for the transaction of business by that class.
Any lesser number shall be sufficient for adjournments. Any adjourned session or
sessions may be held, within a reasonable time after the date set for the
original meeting, without the necessity of further notice. The Declaration of
Trust specifically authorizes the Board of Trustees to terminate the Trust (or
any of its investment portfolios) by notice to the shareholders without
shareholder approval.

Under Massachusetts law, shareholders of a Massachusetts business trust
could, under certain circumstances, be held personally liable for the Trust's
obligations. The Declaration of Trust, however, disclaims shareholder liability
for the Trust's acts or obligations and requires that notice of such disclaimer
be given in each agreement, obligation or instrument entered into or executed by
the Trust or the Trustees. In addition, the Declaration of Trust provides for
indemnification out of the property of an investment portfolio in which a
shareholder owns or owned shares for all losses and expenses of such shareholder
or former shareholder if he or she is held personally liable for the obligations
of the Trust solely by reason of being or having been a shareholder. Moreover,
the Trust will be covered by insurance that the Trustees consider adequate to
cover foreseeable tort claims. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is considered remote, because
it is limited to circumstances in which a disclaimer is inoperative and the
Trust itself is unable to meet its obligations.

For further information, please refer to the registration statement and
exhibits for the Trust on file with the SEC in Washington, D.C. and available
upon payment of a copying fee. The statements in the Prospectuses and this
Statement of Additional Information concerning the contents of contracts or
other documents,

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copies of which are filed as exhibits to the registration statement, are
qualified by reference to such contracts or documents.

PRINCIPAL HOLDERS OF SECURITIES

As of April 14, 1997, Great West Life & Annuity Insurance Co., 8515 E.
Orchard Road, Englewood, Colorado 80111 and Transamerica Occidental, 1150 South
Olive, Los Angeles, California 90015 legally or beneficially owned 52% and
44.09%, respectively, of the Money Market Fund's shares of beneficial interest.

As of April 14, 1997, Great West Life & Annuity Insurance Co., 8515 E.
Orchard Road, Englewood, Colorado 80111 legally or beneficially owned 99.9%,
respectively, of the High Growth Fund's.

As of April 14, 1997, Great West Life & Annuity Insurance Co., 8515 E.
Orchard Road, Englewood, Colorado 80111 and Great West Life & Annuity Insurance
Co., P.O. Box 1700, Sec. Administration 272, Denver, Colorado 80201 legally or
beneficially owned 44.39% and 55.59%, respectively, of the S&P 500 Fund's shares
of beneficial interest.

In addition, as of April 14, 1997, the officers and Trustees of the
Trust, as a group, owned less than 1% of the Trust's outstanding voting
securities.

PURCHASE AND REDEMPTION OF SHARES

You cannot purchase shares of the Funds directly, but you may allocate
account value under your Contract to and from the Funds in accordance with the
terms of your Contract. Please refer to the appropriate Separate Account
Prospectus for information on how to purchase units of a Contract and how to
select specific portfolios as investment options.

The Funds have made an election with the SEC to pay in cash all
redemptions requested by any shareholder of record limited in amount during any
90-day period to the lesser of $250,000 or 1% of its net assets at the beginning
of such period. This election is irrevocable without the SEC's prior approval.
Redemption requests in excess of the stated limits may be paid, in whole or in
part, in investment securities or in cash, as the Trust's Board of Trustees may
deem advisable; however, payment will be made wholly in cash unless the Board of
Trustees believes that economic or market conditions exist that would make such
a practice detrimental to the best interests of the Funds. If redemption
proceeds are paid in investment securities, such securities will be valued as
set forth in the Prospectus of the Fund affected under "Share Price Calculation"
and a redeeming shareholder would normally incur brokerage expenses if he or she
were to convert the securities to cash.

OTHER INFORMATION

The Funds' Prospectuses and this Statement of Additional Information do
not contain all the information included in the Registration Statement filed
with the SEC under the 1933 Act with respect to the securities offered by the
Prospectuses. Certain portions of the Registration Statement have been omitted
from the Prospectuses and this Statement of Additional Information pursuant to
the rules and regulations of the SEC. The Registration Statement, including the
exhibits filed therewith, may be examined at the SEC's office in Washington,
D.C.

STATEMENTS CONTAINED IN THE PROSPECTUSES OR IN THIS STATEMENT OF
ADDITIONAL INFORMATION AS TO THE CONTENTS OF ANY CONTRACT OR OTHER DOCUMENT
REFERRED TO ARE NOT NECESSARILY COMPLETE, AND, IN EACH INSTANCE, REFERENCE IS
MADE TO THE COPY OF SUCH

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CONTRACT OR OTHER DOCUMENT FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT OF
WHICH THE PROSPECTUSES AND THIS STATEMENT OF ADDITIONAL INFORMATION FORM A PART,
EACH SUCH STATEMENT BEING QUALIFIED IN ALL RESPECTS BY SUCH REFERENCE.

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APPENDIX - RATINGS OF INVESTMENT SECURITIES

COMMERCIAL PAPER

MOODY'S INVESTORS SERVICE

Prime-1 is the highest commercial paper rating assigned by Moody's
Investors Service ("Moody's"). Issuers (or related supporting institutions) of
commercial paper with this rating are considered to have a superior ability to
repay short-term promissory obligations. Issuers (or related supporting
institutions) of securities rated Prime-2 are viewed as having a strong capacity
to repay short-term promissory obligations. This capacity will normally be
evidenced by many of the characteristics of issuers whose commercial paper is
rated Prime-1 but to a lesser degree.

STANDARD & POOR'S CORPORATION

A Standard & Poor's Corporation ("S&P") A-1 commercial paper rating
indicates either an overwhelming or very strong degree of safety regarding
timely payment of principal and interest. Issues determined to possess
overwhelming safety characteristics are denoted A-1+. Capacity for timely
payment on commercial paper rated A-2 is strong, but the relative degree of
safety is not as high as for issues designated A-1.

DUFF & PHELPS CREDIT RATING CO.

Duff-1 is the highest commercial paper rating assigned by Duff & Phelps
Credit Rating Co. ("Duff"). Three gradations exist within this rating category:
a Duff-1+ rating indicates the highest certainty of timely payment (issuer
short-term liquidity is found to be outstanding and safety is deemed to be just
below that of risk-free short-term United States Treasury obligations), a Duff-1
rating signifies a very high certainty of timely payment (issuer liquidity is
determined to be excellent and risk factors are considered minor) and a Duff-1
rating denotes high certainty of timely payment (issuer liquidity factors are
strong and risk is very small). A Duff-2 rating indicates a good certainty of
timely payment; liquidity factors and company fundamentals are sound and risk
factors are small.

FITCH INVESTORS SERVICE, INC.

Fitch Investors Service, Inc.'s ("Fitch") F-1+ is the highest category,
and indicates the strongest degree of assurance for timely payment. Issues rated
F-1 reflect an assurance of timely payment only slightly less than issues rated
F-1+. Issues assigned an F-2 rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as for issues in the
first two rating categories.

SHORT-TERM NOTES AND VARIABLE RATE DEMAND OBLIGATIONS

MOODY'S INVESTORS SERVICE

Short-term notes/variable rate demand obligations bearing the
designations MIG-1/VMIG-1 are considered to be of the best quality, enjoying
strong protection from established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing. Obligations rated
MIG-2/VMIG-2 are of high quality and enjoy ample margins of protection although
not as large as those of the top rated securities.

STANDARD & POOR'S CORPORATION

An S&P SP-1 rating indicates that the subject securities' issuer has a
very strong capacity to pay principal and interest. Issues determined to possess
overwhelming safety characteristics are given a plus (+) designation. S&P's
determination

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that an issuer has a satisfactory capacity to pay principal and interest is
denoted by an SP-2 rating.

IBCA

Obligations supported by the highest capacity for timely repayment are
rated A1+. An A1 rating indicates that the obligation is supported by a very
strong capacity for timely repayment. Obligations rated A2 are supported by a
strong capacity for timely repayment, although adverse changes in business,
economic, or financial conditions may affect this capacity.

BONDS

MOODY'S INVESTORS SERVICE

Moody's rates the bonds it judges to be of the best quality Aaa. These
bonds carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or extraordinarily
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of these issues. Bonds carrying an Aa
designation are deemed to be of high quality by all standards. Together with Aaa
rated bonds, they comprise what are generally known as high grade bonds. Aa
bonds are rated lower than the best bonds because they may enjoy relatively
lower margins of protections, fluctuations of protective elements may be of
greater amplitude or there may be other factors present which make them appear
to be subject to somewhat greater long-term risks.

STANDARD & POOR'S CORPORATION

AAA is the highest rating assigned by S&P to a bond and indicates the
issuer's extremely strong capacity to pay interest and repay principal. An AA
rating denotes a bond whose issuer has a very strong capacity to pay interest
and repay principal and differs from an AAA rating only in small degree.

DUFF & PHELPS CREDIT RATING CO.

Duff confers an AAA designation to bonds of issuers with the highest
credit quality. The risk factors associated with these bonds are negligible,
being only slightly more than for risk-free United States Treasury debt. AA
rated bonds are of high credit quality and have strong protection factors. The
risks associated with them are modest but may vary slightly from time to time
because of economic conditions.

COMMERCIAL PAPER, SHORT-TERM OBLIGATIONS AND DEPOSIT OBLIGATIONS ISSUED
BY BANKS

THOMSON BANKWATCH (TBW)

TBW-1 is the highest category and indicates the degree of safety
regarding timely repayment of principal and interest is very strong. TBW-2 is
the second highest category and while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of safety is
not as high as for issues rated TBW-1.

FINANCIAL STATEMENTS

The Funds' financial statements and financial highlights for the fiscal year
ended December 31, 1996, are included in the Funds' Annual Reports, which are
separate reports supplied with this Statement of Additional Information. The
Fund's financial statements and financial highlights are incorporated herein by
reference.

-44-
<PAGE> 77
Filed April 30, 1997

PART C
OTHER INFORMATION
SCHWAB ANNUITY PORTFOLIOS

Item 24. Financial Statements and Exhibits.

(a) Financial Statements:

(1) Financial Statements and financial highlights included in the
Annual Report for Money Market Portfolio, Schwab S&P 500 Portfolio and Schwab
Asset Director -- High Growth Portfolio for the fiscal year ended December 31,
1996, are incorporated by reference into the Statement of Additional
Information, were filed on March 7, 1997, pursuant to Rule 30d-1 under the
Investment Company Act of 1940, and are incorporated herein by reference.

(b) Exhibits:

(1) Agreement and Declaration of Trust is incorporated by reference to
Exhibit (1) to the Registration Statement on Form N-1A of Schwab
Annuity Portfolios ("Registrant"), filed on January 27, 1994.

(2) Amended and Restated Bylaws are incorporated by reference to
Exhibit (2) to Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form N-1A, filed on April 29, 1996.

(3) Inapplicable.

(4) (a) Article III, Sections 4 and 5; Article IV, Section 1; Article
V; Article VIII, Section 4; and Article IX, Sections 1, 4, and 7
of the Agreement and Declaration of Trust is incorporated by
reference to Exhibit (1) to Registrant's Registration Statement on
Form N-1A, filed on January 27, 1994.

(b) Article 9 and Article 11 of the Amended and Restated Bylaws
are incorporated by reference to Exhibit (2) to Post-Effective
Amendment No. 3 to Registrant's Registration Statement on Form
N-1A, filed on April 29, 1996.

(5) (a) Investment Advisory and Administration Agreement between
Registrant and Charles Schwab Investment Management, Inc. (the
"Investment Manager") dated June 15,1994 is electronically filed
herein as Exhibit 5(a).

(b) Amended Schedule A to Investment Advisory and Administration
Agreement between Registrant and Charles Schwab Investment
Management, Inc. (the "Investment Manager") dated June 15, 1994
was electronically filed and is incorporated herein by reference
to Exhibit (5)(b) of Post-Effective Amendment No. 5.

(c) Investment Sub-Advisory Agreement between Investment Manager
and Symphony Asset Management, Inc. ("Symphony") was
electronically filed and is incorporated herein by reference to
Exhibit (5)(c) of Post-Effective Amendment No. 5.

(d) Schedule B, amended May 1, 1997, to Investment Advisory and
Administration Agreement between Registrant and Charles Schwab
Investment Management, Inc. (the "Investment Manager") dated June
15, 1994 is electronically filed herein as Exhibit (5)(d).

(6) (a) Distribution Agreement between Registrant and Charles Schwab &
Co., Inc. ("Schwab") dated March 29, 1994 is incorporated by
reference to Exhibit (6) to Post-Effective
<PAGE> 78
Amendment No. 1 to Registrant's Registration Statement on Form
N-1A, filed on November 1, 1994.

(b) Amended Schedule to Distribution Agreement referred to at
Exhibit (6)(a) above was electronically filed and is incorporated
herein by reference to Exhibit 6(b) of Post-Effective Amendment
No. 5.

(7) Inapplicable.

(8) (a) Custodian Services Agreement between Registrant and PNC Bank,
National Association, dated March 29, 1994, is incorporated by
reference to Exhibit (8)(a) to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A, filed on
November 1, 1994.

(b) Amendment No. 1 to the Custodian Services Agreement referred
to at Exhibit (8)(a) above is incorporated by reference to Exhibit
(8)(b) to Post-Effective Amendment No.3 to Registrant's
Registration Statement on Form N-1A, filed on April 29, 1996.

(c) Amended Schedule to the Custodian Services Agreement referred
to at Exhibit (8)(a) above was electronically filed and is
incorporated herein by reference to Exhibit 8(C) of Post-
Effective Amendment No. 5.

(d) Custodian Agreement, dated April 1, 1997, and Amendment to the
Custodian Agreement, dated April 1, 1997, between Registrant, on
behalf of Asset Director - High Growth Portfolio, and Morgan
Stanley Trust Company is electronically filed herein as Exhibit
8(d).

(e) Transfer Agency Agreement between Registrant and Schwab dated
March 29, 1994 is incorporated by reference to Exhibit (8)(b) to
Post-Effective Amendment No. 1 to Registrant's Registration
Statement on Form N-1A, filed on November 1, 1994.

(f) Amended Schedules to the Transfer Agency Agreement referred to
at Exhibit (8)(e) above was electronically filed and is
incorporated herein by reference to Exhibit 8(f) of Post-
Effective Amendment No. 5.

(g) Shareholder Service Agreement between Registrant and Schwab
dated March 29, 1994 is incorporated by reference to Exhibit
(8)(c) to Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A, filed on November 1, 1994.

(h) Amended Schedules to the Shareholder Service Agreement
referred to at Exhibit (8)(g) above was electronically filed and
is incorporated herein by reference to Exhibit 8(h) of Post-
Effective Amendment No. 5.

(i) Accounting Services Agreement between Registrant, on behalf of
Schwab Asset Director - High Growth Portfolio, was electronically
filed and is incorporated herein by reference to Exhibit 8(b) of
Schwab Capital Trust's Post-Effective Amendment No. 18 (File No.
33- 62470).

(9) License Agreement between Registrant and Standard & Poor's
Corporation was electronically filed and is incorporated herein by
reference to Exhibit 9 of Post-Effective Amendment No. 5.

(10) Opinion and Consent of Ropes & Gray as to legality of the
securities being registered is incorporated by reference to
Registrant's Rule 24f-2 Notice, filed on February 20, 1996.
<PAGE> 79
(11) (a) Consent of Ropes & Gray is filed herewith.

(b) Consent of Price Waterhouse LLP, Independent Accountants, is
filed herewith.

(12) Inapplicable.

(13) (a) Purchase Agreement between Registrant and Schwab relating to
Schwab Money Market Portfolio is incorporated by reference to
Exhibit (13) to Pre-Effective Amendment No.1 to Registrant's
Registration Statement on Form N-1A, filed on March 25, 1994.

(b) Purchase Agreement between Registrant and Schwab relating to
Schwab Asset Director(R) -- High Growth Portfolio and Schwab S&P
500 Portfolio was electronically filed and is incorporated herein
by reference to Exhibit 13(b) of Post-Effective Amendment No. 5.

(14) Inapplicable.

(15) Inapplicable.

(16) (a) Performance Calculations for Schwab Money Market Portfolio is
incorporated by reference to Exhibit (8)(b) to Post-Effective
Amendment No. 3 to Registrant's Registration Statement on Form
N-1A, filed on April 29, 1996.

(b) Performance Calculations for Schwab Asset Director -- High
Growth Portfolio are filed herewith.

(17) (a) Financial Data Schedule for Schwab Money Market Portfolio is
filed herewith.

(b) Financial Data Schedule for Schwab S&P 500 Portfolio is filed
herewith.

(18) Inapplicable

Item 25. Persons Controlled by or under Common Control with Registrant.

The Charles Schwab Family of Funds ("Schwab Fund Family"), Schwab Investments
and Schwab Capital Trust each are Massachusetts business trusts registered under
the Investment Company Act of 1940, as amended (the "1940 Act"); are advised by
the Investment Manager; and employ Schwab as its principal underwriter, transfer
agent, and shareholder services agent. As a result, the Schwab Fund Family,
Schwab Investments and Schwab Capital Trust may be deemed to be under common
control with Registrant.

Item 26. Number of Holders of Registrant's Securities.

As of April 14, 1997, the number of record holders of Registrant was:

<TABLE>
<S> <C>
Money Market Portfolios 4
S&P 500 Portfolio 3
Asset Director -- High Growth Portfolio 3
</TABLE>

Item 27. Indemnification.

Article VIII of Registrant's Agreement and Declaration of Trust (Exhibit (1)
hereto, which is incorporated herein by reference) provides in effect that
Registrant will indemnify its officers and trustees against all liabilities and
expenses, including but not limited to amounts paid in satisfaction of
judgments, in compromise, or as fines and penalties, and counsel fees reasonably
incurred by any such officer or trustee
<PAGE> 80
in connection with the defense or disposition of any action, suit, or other
proceeding. However, in accordance with Section 17(h) and 17(i) of the 1940 Act
and its own terms, said Agreement and Declaration of Trust does not protect any
person against any liability to Registrant or its shareholders to which he or
she would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his or her office. In any event, Registrant will comply with 1940 Act Releases
No. 7221 and 11330 respecting the permissible boundaries of indemnification by
an investment company of its officers and trustees.

Insofar as indemnification for liability arising under the Securities Act of
1933, as amended (the "1933 Act"), may be permitted to trustees, officers, and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, Registrant has been advised that, in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.

Item 28. Business and Other Connections of Investment Manager.

(a) Information pertaining to business and other connections of Registrant's
Investment Manager is hereby incorporated by reference to the section of the
Prospectuses captioned "Organization and Management of the Fund" and to the
section of the Statements of Additional Information captioned "Management of the
Trust." For Schwab Asset Director(R) -- High Growth Portfolio, information
pertaining to business and other connections of this Fund's sub-adviser is
hereby incorporated by reference to the section of its Prospectus captioned
"Organization and Management of the Fund" and to the section of the Statement of
Additional Information captioned "Management of the Trust."

Registrant's Investment Manager, Charles Schwab Investment Management, Inc., a
Delaware corporation organized in October 1989 to serve as investment manager to
the Schwab Fund Family, also serves as the investment manager to Schwab
Investments and Schwab Capital Trust, each an open-end, management investment
company. The principal place of business of the Investment Manager is 101
Montgomery Street, San Francisco, California 94104. The only business in which
the Investment Manager engages is that of investment manager and administrator
to Registrant, the Schwab Fund Family, Schwab Investments, Schwab Capital Trust
and any other investment companies that Schwab may sponsor in the future.

Registrant's sub-investment adviser for Schwab Asset Director(R) -- High Growth
Portfolio is Symphony.

(b) The business, profession, vocation or employment of a substantial nature in
which each director and/or executive officer of Schwab and/or the Investment
Manager is or has been engaged during the past two fiscal years for his or her
own account in the capacity of director, officer, employee, partner or trustee
is as follows:

<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity

<S> <C> <C>
Charles R. Schwab, Charles Schwab & Co., Inc, Chairman and Director
Chairman and Trustee
</TABLE>
<PAGE> 81
<TABLE>
<S> <C> <C>
The Charles Schwab Corporation Chairman,Chief
Executive Officer and
Director
Charles Schwab Investment Management, Chairman and Director
Inc.
The Charles Schwab Trust Chairman and Director
Company
Mayer & Schweitzer, Inc. Chairman and Director
The Gap, Inc. Director
Transamerica Corporation Director
AirTouch Communications Director
Siebel Systems Director
Lawrence J. Stupski Charles Schwab & Co., Inc. Director until February
1995; Vice Chairman
until August 1994
The Charles Schwab Corporation Vice Chairman and
Director; Chief Operating
Officer until March 1994
Mayer & Schweitzer, Inc. Director until February
1995
The Charles Schwab Trust Director
Company
David S. Pottruck Charles Schwab & Co., Inc. President, Chief Executive
Officer and Director
The Charles Schwab Corporation President, Chief
Operating Officer and
Director
Charles Schwab Investment Management, Director
Inc.
Mayer & Schweitzer, Inc. Chairman, Chief
Executive Officer and
Director
Ronald W. Readmond Charles Schwab & Co., Inc. Vice Chairman and
Director until January
1996; Senior Executive
Vice President and Chief
Operating Officer until
January 1995
The Charles Schwab Corporation Executive Vice President
until January 1996; Senior
Executive Vice President
until January 1995
Mayer & Schweitzer, Inc. Director until January
1996
John P. Coghlan Charles Schwab & Co., Inc. Executive Vice President -
Schwab Institutional
The Charles Schwab Corporation Executive Vice President -
Schwab Institutional
The Charles Schwab Trust Company Director and Executive
Vice President
Dawn G. Lepore Charles Schwab & Co., Inc. Executive Vice President
and Chief Information
Officer
</TABLE>
<PAGE> 82
<TABLE>
<S> <C> <C>
The Charles Schwab Corporation Executive Vice President
and Chief Information
Officer
Daniel O. Leemon The Charles Schwab Corporation Executive Vice President -
Business Strategy
Charles Schwab & Co., Inc. Executive Vice President -
Business Strategy
Timothy F. McCarthy, Charles Schwab Investment Management, Chief Executive Officer
Trustee and President Inc.
Charles Schwab & Co., Inc. Executive Vice President -
Mutual Funds
The Charles Schwab Corporation Executive Vice President -
Mutual Funds
Jardine Fleming Unit Trusts Ltd. Chief Executive Officer
until October 1995
Fidelity Investment Advisor Group President until 1994
Elizabeth G. Sawi Charles Schwab & Co., Inc. Executive Vice President -
Electronic Brokerage
The Charles Schwab Corporation Executive Vice President -
Electronic Brokerage
Steven L. Scheid The Charles Schwab Corporation Executive Vice President -
Chief Financial Officer
Charles Schwab & Co., Inc. Director and Chief
Financial Officer
Charles Schwab Investment Management, Director and Chief
Financial Officer Inc.
The Charles Schwab Trust Company Chief Financial Officer
Schwab Retirement Plan Services, Inc. Director
TrustMark, Inc. Director
ShareLink Investment Services, PLC Director
Performance Technologies, Inc. Director
Tom D. Seip Charles Schwab & Co., Inc. Executive Vice President -
Retail Brokerage
The Charles Schwab Corporation Executive Vice President -
Retail Brokerage
Charles Schwab Investment Management, President and Chief
Inc. Operating Officer until
1994
John N. Tognino Charles Schwab & Co., Inc. Executive Vice President -
Capital Markets and
Trading until February
1996
The Charles Schwab Corporation Executive Vice President -
Capital Markets and
Trading until February
1996
Mayer & Schweitzer, Inc. Director and Vice
Chairman until February
1996
Luis E. Valencia Charles Schwab & Co., Inc. Executive Vice President -
Human Resources and
Corporate Support
</TABLE>
<PAGE> 83
<TABLE>
<S> <C> <C>
The Charles Schwab Corporation Executive Vice President
and Chief Administrative
Officer
Commercial Credit Corporation Managing Director until
February 1994

Christopher V. Dodds Charles Schwab & Co., Inc. Treasurer and Senior Vice
President
The Charles Schwab Corporation Treasurer and Senior Vice
President
Mayer & Schweitzer, Inc. Treasurer
William J. Klipp, Charles Schwab & Co., Inc. Senior Vice President -
SchwabFunds Trustee,
Senior Vice President
and Chief Operating
Officer
Charles Schwab Investment Management, President and Chief
Inc. Operating Officer
Stephen B. Ward, Charles Schwab Investment Management, Senior Vice President and
Inc. Chief Investment Officer
Senior Vice President and
Chief Investment Officer
Frances Cole, Charles Schwab Investment Management, Vice President, Chief
Inc. Counsel, Chief
Compliance Officer and
Assistant Corporate
Secretary
Tai-Chin Tung Charles Schwab & Co., Inc. Vice President-Finance
Treasurer and Principal
Financial Officer
Charles Schwab Investment Management, Controller
Inc.
Robertson Stephens Investment Controller
Management, Inc.
Cynthia K. Holbrook The Charles Schwab Corporation Assistant Corporate
Secretary
Charles Schwab & Co., Inc. Assistant Corporate
Secretary
Charles Schwab Investment Management, Corporate Secretary
Inc.
The Charles Schwab Trust Assistant Corporate
Company Secretary

David J. Neuman The Charles Schwab Trust Corporate Secretary
Company
Mary B. Templeton Charles Schwab Investment Management, Assistant Corporate
Inc. Secretary
The Charles Schwab Corporation Senior Vice President,
General Counsel and
Corporate Secretary
Charles Schwab & Co., Inc. Senior Vice President,
General Counsel and
Corporate Secretary
</TABLE>
<PAGE> 84
<TABLE>
<S> <C> <C>
Mayer & Schweitzer Assistant Corporate
Secretary
The Charles Schwab Trust Assistant Corporate
Company Secretary until February
1996
David H. Lui Charles Schwab Investment Management, Vice President and Senior
Inc. Counsel
Assistant Secretary
Christina M. Perrino Charles Schwab Investment Management, Vice President and Senior
Inc. Counsel Assistant
Secretary
</TABLE>

(b) The following information, which is believed to be accurate, is based upon
information provided by Symphony. The business, profession, vocation or
employment of a substantial nature in which each director and/or officer of
Symphony is or has been engaged during the past two fiscal years for his or her
own account in the capacity of director, officer, employee, partner or trustee
is as follows:

<TABLE>
<CAPTION>
Name Name of Company Capacity

<S> <C> <C>
Andrew T. Rudd Symphony Asset Management, Inc. Director and Chairman
BARRA, Inc. Director, Chief Executive
Officer and Chairman
Jeffrey L. Skelton Symphony Asset Management, Inc.Director, Chief Executive Officer
and President
BARRA, Inc. President, BARRA
Ventures Div. until 1994
Neil L. Rudolph Symphony Asset Management, Inc. Chief Operating
Officer/Chief Compliance
Officer
Wells Fargo Nikko Investment Advisors Managing Director, Chief
Operating Officer --
Mutual Fund Group until
1994
Praveen K. Gottipalli Symphony Asset Management, Inc. Director of Investments
BARRA, Inc. Director of Active
Strategies, 1994
Michael J. Henman Symphony Asset Management, Inc. Director of Business
Development
Wells Fargo Nikko Investment Advisors Managing Director until
1994
</TABLE>

Item 29. Principal Underwriter.

(a) Schwab acts as principal underwriter and distributor of Registrant's shares.
Schwab currently also acts as a principal underwriter for the Schwab Fund
Family, Schwab Investments, and Schwab Capital Trust, and intends to act as such
for any other investment company which Schwab may sponsor in the future.

(b) See Item 28(b) for information on the officers and directors of Schwab. The
principal business address of Schwab is 101 Montgomery Street, San Francisco,
California 94104.

Item 30. Location of Accounts and Records.
<PAGE> 85
All accounts, books and other documents required to be maintained pursuant to
Section 31(a) of the 1940 Act and the Rules thereunder are maintained at the
offices of: Registrant (transfer agency and shareholder records); Registrant's
investment manager and administrator, Charles Schwab Investment Management,
Inc., 101 Montgomery Street, San Francisco, California 94104; Registrant's
sub-investment adviser for the Schwab Asset Director(R) -- High Growth
Portfolio, Symphony Asset Management, Inc., 555 California Street, Suite 2975,
San Francisco, California 94104; Registrant's principal underwriter, Charles
Schwab & Co., Inc., 101 Montgomery Street, San Francisco, California 94104;
Registrant's custodians and fund accountants, State Street Bank and Trust
Company, 225 Franklin Street, Boston, Massachusetts 02180 and PNC Bank, National
Association/PFPC Inc., 400 Bellevue Parkway, Wilmington, Delaware 19809
(ledgers, receipts, and brokerage orders); or Ropes & Gray, counsel to
Registrant, 1301 K Street, N.W., Suite 800 East, Washington, District of
Columbia 20005 (minute books, bylaws, and declaration of trust).

Item 31. Management Services.

Not applicable.

Item 32. Undertakings.

(a) Registrant undertakes to call a meeting of Shareholders, at the request of
at least 10% of registrant's outstanding shares, for the purpose of voting upon
the question of removal of a trustee or trustees and to assist in communications
with other Shareholders as required by Section (16) of the 1940 Act.

(b) Registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of Registrant's latest Annual Report to Shareholders upon
request and without charge.
<PAGE> 86
SIGNATURE

Pursuant to the requirements of the Securities Act of 1933, as amended
(the "1933 Act"), and the Investment Company Act of 1940, as amended, Registrant
certifies that it meets all of the requirements for effectiveness of this
Post-Effective Amendment No. 6 to Registrant's Registration Statement on Form
N-1A pursuant to Rule 485(b) under the 1933 Act and has duly caused this
Post-Effective Amendment No. 6 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Washington, District of Columbia, on
this 28th day of April, 1997.

SCHWAB ANNUITY PORTFOLIOS
Registrant

Charles R. Schwab*
----------------------------------
Charles R. Schwab, Chairman

Pursuant to the requirements of the 1933 Act, this Post-Effective
Amendment No. 6 to Registrant's Registration Statement on Form N-1A has been
signed below by the following persons in the capacities indicated this 28th day
of April, 1997.

<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
Charles R. Schwab* Chairman and Trustee
- ------------------------------
Charles R. Schwab

Timothy F. McCarthy* President and Trustee
- ------------------------------
Timothy F. McCarthy

William J. Klipp* Executive Vice President,
- ------------------------------
William J. Klipp Chief Operating Officer and Trustee

Donald F. Dorward* Trustee
- ------------------------------
Donald F. Dorward

Robert G. Holmes* Trustee
- ------------------------------
Robert G. Holmes

Donald R. Stephens* Trustee
- ------------------------------
Donald R. Stephens

Michael W. Wilsey* Trustee
- ------------------------------
Michael W. Wilsey

Tai-Chin Tung* Treasurer and Principal Financial Officer
- ------------------------------
Tai-Chin Tung

*By /s/ Alan G. Priest
-----------------------------------------
Alan G. Priest, Attorney-In-Fact pursuant
to Powers of Attorney filed previously
</TABLE>

-1-
<PAGE> 87
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT TITLE

<S> <C>
5(a) Investment Advisory and Administration Agreement
5(d) Schedule D to the Investment Advisory and Administration
Agreement
8(d) Custodian Agreement
11(a) Consent of Ropes & Gray
11(b) Consent of Price Waterhouse LLP
16(b) Performance Calculations for Schwab Asset -- High Growth Portfolio
16(c) Performance Calculations for Schwab S&P 500 Portfolio
17(b) Financial data Schedule for Schwab S&P 500 Portfolio
17(c) Financial data Schedule for Schwab Asset Director -- High Growth
Portfolio
</TABLE>

<PAGE> 1

Exhibit 5(a)

INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENT

AGREEMENT made as of June 15, 1994 between SCHWAB ANNUITY PORTFOLIOS, a
Massachusetts business trust (herein called the "Trust"), and CHARLES SCHWAB
INVESTMENT MANAGEMENT, INC., a Delaware corporation (the "Investment Adviser").

WHEREAS, the Trust is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended ("1940 Act"); and

WHEREAS, the Trust desires to retain the Investment Adviser to furnish
investment advisory and administrative services to the investment portfolios of
the Trust listed on Schedule A hereto (each a "Fund" and collectively, the
"Funds"),

NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:

1. Appointment. The Trust hereby appoints the Investment Adviser to act as
investment adviser and administrator to the Funds for the period and on the
terms set forth in this Agreement. The Investment Adviser accepts such
appointment and agrees to furnish the services herein set forth for the
compensation herein provided.

2. Delivery of Documents. The Trust has furnished the Investment Adviser
with copies properly certified or authenticated of each of the following:

(a) the Trust's Agreement and Declaration of Trust, as filed with
the Secretary of State of The Commonwealth of Massachusetts on January 21,
1994 and all amendments thereto or restatements thereof (such Agreement
and Declaration, as presently in effect and as it shall from time to time
be amended or restated, is herein called the "Declaration of Trust");

(b) the Trust's By-Laws and amendments thereto;

(c) resolutions of the Trust's Board of Trustees authorizing the
appointment of the Investment Adviser and approving this Agreement;

(d) the Trust's Notification of Registration on Form N-8A under
the 1940 Act, as filed with the Securities and

-1-
<PAGE> 2
Exhibit 5(a)

Exchange Commission ("SEC") on January 27, 1994 and all amendments
thereto;

(e) the Trust's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended ("1933 Act"), (File No. 33-74534) and
under the 1940 Act (File No. 811-08314) as filed with the SEC and all
amendments thereto; and

(f) the Trust's most recent prospectus and Statement of
Additional Information for the Funds (such prospectuses and Statement of
Additional Information, as presently in effect, and all amendments and
supplements thereto are herein collectively called the "Prospectus").

The Trust will furnish the Investment Adviser from time to time with copies of
all amendments of or supplements to the foregoing.

3. Management. Subject to the direction and control of the Board of
Trustees of the Trust, the Investment Adviser will supervise or perform for the
Funds all aspects of the operations of the Funds except for those performed by
the custodian, shareholder service agent and transfer agent for the Funds,
provide general economic and financial analysis and advice to the Funds, and
provide a continuous investment program for the Funds, including investment
research and management as to all securities and investments and cash
equivalents in the Funds. More particularly, the Investment Adviser will:
determine from time to time what securities and other investments will be
purchased, retained, or sold by the Funds; maintain office facilities (which may
be in the offices of the Investment Adviser or a corporate affiliate but shall
be in such location as the Trust reasonably determines); furnish statistical and
research data, clerical services and stationery and office supplies; compile
data for, prepare for execution by the Funds and file all the Funds' federal and
state tax returns and required tax filings other than those required to be made
by the Funds' custodian, shareholder service agent and transfer agent; prepare
the Trust's Annual and Semi-Annual Reports to Shareholders and amendments to its
Registration Statements on Form N-1A (or any replacement therefor); compile data
for, prepare and file timely Notices to the SEC required pursuant to Rule 24f-2
under the 1940 Act; and generally assist in all aspects of the operations of the
Funds.

Subject to the provisions of the Agreement and Declaration of
Trust and the 1940 Act, the Investment Adviser, at its expense, may select and
contract with investment advisers

-2-
<PAGE> 3
Exhibit 5(a)

(the "Sub-Advisers") for one or more of the Funds. So long as any Sub-Adviser
serves as Sub-Adviser to a Fund, it must be a party to a sub-investment advisory
agreement and will be obligated to: (i) furnish continuously an investment
program as to those assets of the Trust and the Funds involved allocated by the
Investment Adviser, (ii) in connection therewith, adhere to such guidelines as
may be established by the Investment Adviser from time to time to insure
compliance with applicable investment objectives, policies and restrictions of
the Trust and the Funds, and (iii) place all orders for the purchase and sale of
investments. The Investment Adviser may also delegate or subcontract some or all
of the Investment Adviser's other duties enumerated in this Agreement. The
Investment Adviser will be responsible for payment of all compensation to all
Sub-Advisers and other persons and entities to which Investment Adviser
delegates any duties hereunder.

The Investment Adviser further agrees that it:

(a) will use the same skill and care in providing such services as
it would use in providing services to fiduciary accounts if it had
investment responsibilities for such accounts;

(b) will conform with all applicable Rules and Regulations of the
SEC and will in addition conduct its activities under this Agreement in
accordance with any applicable regulations of any governmental authority
pertaining to the investment advisory activities of the Investment
Adviser;

(c) will not make loans to any person to purchase or carry units
of beneficial interest in the Trust or make loans to the Trust;

-3-
<PAGE> 4
Exhibit 5(a)

(d) will place orders pursuant to its investment determinations
for the Funds either directly with the issuer or with an underwriter,
market maker, or broker or dealer. In placing orders with brokers and
dealers the Investment Adviser will attempt to obtain prompt execution of
orders in an effective manner at the most favorable price. Consistent with
this obligation, when the execution and price offered by two or more
brokers or dealers are comparable, the Investment Adviser may, in its
discretion, purchase or sell portfolio securities to and from brokers and
dealers who provide the Investment Adviser with research advice and other
services. In no instance will portfolio securities be purchased from or
sold to the Investment Adviser or any Sub-Adviser, or any affiliated
person of either the Trust, the Investment Adviser, or any Sub-Adviser,
except as may be permitted under the 1940 Act;

(e) will treat confidentially and as proprietary information of
the Trust all records and other information relative to the Trust, and
will not use such records and information for any purpose other than
performance of its responsibilities and duties hereunder, except after
prior notification to and approval in writing by the Trust, which approval
shall not be unreasonably withheld and may not be withheld where the
Investment Adviser may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested by the
Trust; and

(f) will direct its personnel when making investment
recommendations for the Trust, not to inquire or take into consideration
whether the issuers of securities proposed for purchase or sale for the
Trust's accounts are customers of the Investment Adviser or of its parent
or its subsidiaries or affiliates. In dealing with such customers, the
Investment Adviser and its parent, subsidiaries, and affiliates will not
inquire or take into consideration whether securities of those customers
are held by the Trust.

4. Services to Others. The Trust understands that the Investment Adviser
may in the future act as an investment adviser to fiduciary and other managed
accounts, and as investment adviser, sub-investment adviser, and/or
administrator to other investment companies. The Trust has no objection to the
Investment Adviser's acts in such capacities, provided that whenever one of the
Funds and one or more other investment

-4-
<PAGE> 5
Exhibit 5(a)

companies advised by the Investment Adviser have available funds for investment,
investments suitable and appropriate for each will be allocated in accordance
with a formula believed by the Investment Adviser to be equitable to each
company. The Trust recognizes that in some cases this procedure may adversely
affect the size of the position that a Fund may obtain in a particular security.
In addition, the Trust understands that the persons employed by the Investment
Adviser to assist in the Investment Adviser's duties under this Agreement will
not devote their full time to such service and nothing contained in this
Agreement will be deemed to limit or restrict the right of the Investment
Adviser or any of its affiliates to engage in and devote time and attention to
other businesses or to render services of whatever kind or nature.

5. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Investment Adviser hereby agrees that all records it
maintains for the Trust are the property of the Trust and further agrees to
surrender promptly to the Trust any of such records upon the Trust's request and
will require the same type of agreement from each Sub-Adviser. The Investment
Adviser further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act the records required to be maintained by Rule 31a-1 under the
1940 Act.

6. Expenses. During the term of this Agreement, the Investment Adviser
will pay all expenses incurred by it in providing general economic and financial
analysis and advice to the Funds and providing a continuous investment program
for the Funds pursuant to Section 3 above and in providing its activities under
this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the Trust. The Investment Adviser will also
pay all compensation of any person or person employed by or associated with the
Investment Adviser to assist in the performance of the Investment Adviser's
obligations under this Agreement, whether or not such person is also a officer
or employee of the Trust, and the Investment Adviser will not cause any
obligation to be incurred on behalf of the Trust in respect of any such
compensation. Other expenses to be incurred in the operation of the Funds --
including without limitation taxes, interest, brokerage fees and commissions, if
any, fees of Trustees who are not officers, directors, shareholders, or
employees of the Investment Adviser or any Sub-Adviser, SEC fees and state "blue
sky" qualification fees, costs of performing the pricing of portfolio
securities, transfer and dividend disbursing agents' fees, certain insurance
premiums, outside auditing and legal expenses, costs of maintaining the Trust's
existence as a Massachusetts business trust, typesetting

-5-
<PAGE> 6
Exhibit 5(a)

and printing prospectuses for regulatory purposes and for distribution to
current shareholders of the Funds, costs of shareholders' and Trustees' reports
and meetings and any extraordinary expenses -- will be borne by the Funds;
provided, however, that the Funds will not bear, directly or indirectly, the
cost of any activity that is primarily intended to result in the distribution of
shares of the Funds.

7. Compensation. For the services provided and the expenses assumed
pursuant to this Agreement, the Trust will pay the Investment Adviser and the
Investment Adviser will accept as full compensation therefor, an advisory fee,
accrued daily and payable monthly, in accordance with Schedule B hereto.

If in any fiscal year the aggregate expenses (as defined under
the securities regulations of any state having jurisdiction over the Trust) of a
Fund exceed the expense limitations of any such state, the Investment Adviser
will reimburse such Fund for a portion of such excess expenses equal to such
excess times the ratio of the fees otherwise payable by such Fund to the
Investment Adviser hereunder to the aggregate fees otherwise payable by such
Fund to the Investment Adviser hereunder, and to Charles Schwab & Co., Inc.
under the Transfer Agency and Shareholder Service Agreements between it and the
Trust. The obligation of the Investment Adviser to reimburse a Fund hereunder is
limited in any fiscal year to the amount of its fee hereunder from such Fund for
such fiscal year, provided, however, that notwithstanding the foregoing, the
Investment Adviser will reimburse each Fund for such proportion of such excess
expenses regardless of the amount of fees paid to it during such fiscal year to
the extent that the securities regulations of any state having jurisdiction over
the Trust so require. Such expense reimbursement, if any, will be estimated
daily and reconciled and paid on a monthly basis.

8. Limitation of Liability. The Investment Adviser will not be liable for
any error of judgment or mistake of law or for any loss suffered by the Trust in
connection with the performance of this Agreement, except a loss resulting from
a breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Investment Adviser in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement.

9. Duration and Termination. This Agreement will become effective as to
each Fund as of the date set forth opposite each Fund's name on Schedule A,
provided that it has been approved by

-6-
<PAGE> 7
Exhibit 5(a)

a vote of a majority of the outstanding voting securities of such Fund in
accordance with the requirements under the 1940 Act.

Thereafter, if not terminated as to a Fund, this Agreement will
continue in effect as to such Fund for successive periods each ending on May 30
of each year, provided such continuance is specifically approved at least
annually (a) by the vote of a majority of those members of the Trust's Board of
Trustees who are not parties to this Agreement or interested persons of the
Trust, the Investment Adviser, or any Sub-Adviser, cast in person at a meeting
called for the purpose of voting on such approval, and (b) by the Trust's Board
of Trustees or by vote of a majority of the outstanding voting securities of
such Fund. Notwithstanding the foregoing, this Agreement may be terminated as to
a Fund at any time, without the payment of any penalty, on sixty days' written
notice by the Trust (by vote of the Trust's Board of Trustees or by vote of a
majority of the outstanding voting securities of such Fund) or by the Investment
Adviser. This Agreement will immediately terminate in the event of its
assignment. (As used in this Agreement, the terms "majority of the outstanding
voting securities," "interested persons" and "assignment" shall have the same
meaning of such terms in the 1940 Act.)

10. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.

11. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by the laws of the State of California.

The names "Schwab Annuity Portfolios" and "Trustees of Schwab
Annuity Portfolios" refer respectively to the Trust created and the Trustees, as
trustees but not individually or personally, acting from time to time under the
Declaration of Trust, to which reference is hereby made and a copy of which is
on file at the office of the Secretary of The Commonwealth of Massachusetts and
elsewhere as required by law, and to any and all amendments thereto so filed or
hereafter filed. The

-7-
<PAGE> 8
Exhibit 5(a)

obligations of the "Schwab Annuity Portfolios" entered into in the name or on
behalf thereof by any of the Trustees, representatives or agents are made not
individually, but in such capacities, and are not binding upon any of the
Trustees, interest holders or representatives of the Trust personally, but bind
only the assets of the Trust, and all persons dealing with any series of units
of interest of the Trust must look solely to the assets of the Trust belonging
to such series for the enforcement of any claims against the Trust.

-8-
<PAGE> 9
Exhibit 5(a)

IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.

SCHWAB ANNUITY PORTFOLIOS

By: /s/ Elizabeth G. Sawi
-------------------------------
Name: Elizabeth G. Sawi
Title: President

CHARLES SCHWAB INVESTMENT
MANAGEMENT, INC.

By: /s/ William J. Klipp
-------------------------------
Name: William J. Klipp
Title: Senior Vice President and
Chief Operating Officer

-9-

<PAGE> 1
Exhibit 5(d)

FORM OF
SCHEDULE B
TO INVESTMENT ADVISORY AND
ADMINISTRATION AGREEMENT
FOR SCHWAB ANNUITY PORTFOLIOS
AMENDED MAY 1, 1997

THE FEES LISTED BELOW ARE FOR SERVICES PROVIDED UNDER THIS
AGREEMENT AND ARE TO BE ACCRUED DAILY AND PAID MONTHLY IN
ARREARS:

<TABLE>
<CAPTION>
FUND FEE
- ---- ---

<S> <C>
Schwab Money Market Portfolio Forty-six one-hundredths of one percent (0.46%) of the Fund's
average daily net assets not in excess of $1 billion,
forty-five one-hundredths of one percent (0.45%) of such net
assets over $1 billion and not in excess of $3 billion, forty
one-hundredths of one percent (0.40%) of such net assets over
$3 billion but not in excess of $10 billion, thirty-seven
one-hundredths of one percent (.37%) of such net assets over
$10 billion but not in excess of $20 billion and thirty-four
one-hundredths of one percent (.34%) of such net assets over
$20 billion.

Schwab Asset Director -- High Growth Portfolio Seventy-four one-hundredths of one percent (0.74%) of the
Fund's average daily net assets not in excess of $1 billion,
sixty-nine one-hundredths of one percent (0.69%) of such net
assets over $1 billion and not in excess of $2 billion and
sixty-four one-hundredths of one percent (0.64%) of such net
assets over $2 billion.
</TABLE>

B-1
<PAGE> 2
Exhibit 5(d)

<TABLE>
<CAPTION>
Fund Fee
- ---- ---

<S> <C>
Schwab S&P 500 Portfolio Thirty-six one-hundredths of one percent (0.36%) of the Fund's
average daily net assets not in excess of $1 billion,
thirty-three one-hundredths of one percent (0.33%) of such net
assets over $1 billion and not in excess of $2 billion and
thirty-one one-hundredths of one percent (0.31%) of such net
assets over $2 billion.
</TABLE>

SCHWAB ANNUITY PORTFOLIOS

By:
-------------------------------
Name: Timothy F. McCarthy
Title: President and Trustee

CHARLES SCHWAB INVESTMENT MANAGEMENT, INC.

By:
-------------------------------
Name: William J. Klipp
Title: President and Chief Investment Officer

B-2

<PAGE> 1

APPENDIX 1

Account Documentation

REQUIRED DOCUMENTATION FOR CORE CUSTODIAL SERVICES (INCLUDING TAX
RECLAIMS):

CUSTODY AGREEMENT

CLIENT SERVICES GUIDE (INCLUDING APPENDICES)

FEE SCHEDULE / BILLING GUIDE

GENERAL ACCOUNT INFORMATION

US TAX AUTHORITY DOCUMENTATION

LOCAL TAX OFFICE LETTER / APPLICATION LETTER
(NON-UNITED STATES-RESIDENT BENEFICIAL OWNERS, ONLY)

FORM 6166 / REQUEST FOR FOREIGN CERTIFICATION FORM
(UNITED STATES-RESIDENT BENEFICIAL OWNERS, ONLY)

CERTIFICATION OF BENEFICIAL OWNERSHIP, LEGAL NAME, LEGAL RESIDENCY,
TAX STATUS AND TAX IDS

TAX RECLAIM POWER OF ATTORNEY

PREVIOUS TAX RECLAIM FILING INFORMATION
(PREVIOUS FILERS, ONLY)

UK TAX AUTHORITY DOCUMENTATION

SOPHISTICATED INVESTOR (ACCREDITED INVESTOR) LETTER
(UNITED STATES-RESIDENT BENEFICIAL OWNERS, ONLY)

<PAGE> 2
DOCUMENTATION THAT IS REQUIRED FROM AN ENTITY CLASSIFIED AS TAX-EXEMPT
BY ITS LOCAL TAX AUTHORITY:

UK FORM 4338
(EXEMPT NON-UNITED KINGDOM-RESIDENT BENEFICIAL OWNERS, ONLY)

UK FORM 309A
(EXEMPT UNITED STATES-RESIDENT BENEFICIAL OWNERS, ONLY)

FOREIGN EXEMPTION LETTERS / APPLICATION FOR AUSTRALIAN EXEMPTION LETTER
(EXEMPT BENEFICIAL OWNERS, ONLY)

DOCUMENTATION THAT IS REQUIRED ONLY IF YOU WILL USE THE PROXY VOTING
SERVICE:

VOTING POWER OF ATTORNEY

DOCUMENTATION THAT IS REQUIRED ONLY IF YOU WILL DEAL IN CERTAIN
SECURITIES:

JGB INDEMNIFICATION LETTER

KOREAN SECURITIES POWER OF ATTORNEY

NEW ZEALAND 'APPROVED ISSUER LEVY' LETTER

SPANISH POWER OF ATTORNEY WITH APOSTILE
<PAGE> 3
APPENDIX 2

CLIENT ACCOUNTS

<TABLE>
<CAPTION>
Account Name Account Number Account Mnemonic
- ------------ -------------- ----------------
<S> <C> <C> <C>
1. Schwab Asset Director- High Growth 000-42991 SHGP
Portfolio
</TABLE>
<PAGE> 4

EXHIBIT A
SUBCUSTODIANS

Australia Westpac Banking Corporation
Austria Creditanstalt-Bankverein
Belgium Banque Brussels Lambert S.A.
Canada Toronto Dominion Bank
Royal Bank of Canada *
Denmark Den Danske Bank
Finland Merita Bank
France Banque Indosuez
Germany Dresdner Bank AG
Hong Kong Hongkong and Shanghai Banking Corporation
Indonesia Hongkong and Shanghai Banking Corporation
Italy Citibank N.A., Milan Branch
Japan The Bank of Tokyo-Mitsubishi Limited
Malaysia OCBC Bank (Malaysia) Berhad
Netherlands ABN AMRO Bank N.V.
New Zealand ANZ Banking Group (New Zealand) Limited
Norway Den Norske Bank
Philippines Hongkong and Shanghai Banking Corporation
Singapore Overseas-Chinese Banking Corporation Limited
Spain Banco Santander
Sweden Svenska Handelsbanken
Switzerland Bank Leu Limited
Thailand Standard Chartered Bank
United Kingdom Barclays Bank PLC
<PAGE> 5

EXHIBIT B
DEPOSITORIES

Australia Clearing House Electronic Subregister System
Austria Osterreiche Kontrollbank
Euroclear ***
Belgium Caisse Interprofessionelle de Depots et de Virements
de Titres
Euroclear ***
Canada The Canadian Depository for Securities
Denmark Vaerdipapircentralen
Euroclear ***
Finland Euroclear ***
France Societe Interprofessionelle pour la Compensation des
Valeurs Mobilieres
Germany Deutscher Kassenverein AG
Hong Kong Central Clearing and Settlement System
Indonesia Kustodian Depositari Efek Indonesia
Italy Monte Titoli S.P.A.
Banco d'Italia
Japan Japan Securities Depository Center
Malaysia Malaysian Central Depository
Netherlands Netherlands Central Institute for Giral
Effectenclearing
New Zealand New Zealand Central Securities Depository
Norway Verdipapirsentralen
Euroclear ***
Philippines Philippine Central Depository
Singapore Central Depository Pte Ltd.
Spain Servicio de Compensacion y Liquidacion de Valores
Sweden Vardipapperscentralen
Euroclear ***
Switzerland Schweizerische EffektenGiro AG
Thailand Thailand Securities Depository Co. Ltd.
United Kingdom Central Gilts Office
CREST

*** Euroclear - for Eurobonds, Euro-warrants, Global Depository Shares, Country
funds
<PAGE> 6

APPENDIX 3

Part I - Authorized Signatures

The Custodian is directed to accept and act upon Authorized Instructions
received from any of the following individuals in accordance with resolutions
approved by the Board of Trustees of Schwab Annuity Portfolios. This list of
individuals may be amended from time to time by written notice to the
Custodian.

Officers of Schwab Annuity Portfolios

Charles R. Schwab
Timothy F. McCarthy
William J. Klipp
Stephen B. Ward
Frances Cole
Tai-Chin Tung
David H. Lui
Christina M. Perrino
Karen L. Seaman

Employees of Charles Schwab & Co., Inc., and Charles Schwab Investment
Management, Inc.

Vicky Aguila Monya Manning
Walter Beveridge Frederick Potts
Bing Chan Andrea Regan
Patrick Conway Mary Richards
Jack Gazzola Ruby Robinson
Durwin Hom Rodan St. James
Geri Hom Amy Treanor
Joanne Larkin Jeffrey Tumolo
Derek Lockrem Karen Wiggan-Norton
Linda Klingman Judy Wolfe
Joseph H. Kupferschmidt Sonia Yiu
Cynthia Liu

Authorized by: /s/ Frances Cole
-------------------------
Frances Cole
Secretary
Schwab Annuity Portfolios
<PAGE> 7
Part II - System User ID Numbers

PROFILE I: FEDERATED STAFF PROFILE
(4) USERS: ESW1870: Julie Quigley
ESW1885: Greg Podgorski
ESW1886: Dave Marsh
ESW1887: Elaine Dawes

ACCOUNTS ACCESS:

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Reports: SIIF SCIF ADHG ADBG ADCG SHGP SOPI SOPG SOPB

Trades: SIIF SCIF ADHG ADBG ADCG SHGP SOPI SOPG SOPB
</TABLE>

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TE FX CA ME TD SL MA MC MF INQ
-- -- -- -- -- -- -- -- -- ---

N N N N N N N N N Y
</TABLE>

PROFILE 2: INVESTMENT MANAGEMENT STAFF PROFILE
(6) USERS: ESW1892: Sonia Yiu
ESW1893: Geri Hom
ESW1894: Jeff Tumolo
ESW1895: Patrick Conway
ESW1896: Andrea Regan
ESW1897: Joe Kupferschmidt

ACCOUNTS ACCESS:

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Reports: SIIF SCIF ADHG ADBG ADCG SHGP SOPI SOPG SOPB

Trades: SIIF SCIF ADHG ADBG ADCG SHGP SOPI SOPG SOPB
</TABLE>

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TE FX CA ME TD SL MA MC MF INQ
-- -- -- -- -- -- -- -- -- ---

N N Y Y N N N N N Y
</TABLE>

[MORGAN STANLEY GLOBAL SECURITIES LETTERHEAD]
<PAGE> 8
PROFILE 3: INVESTMENT MANAGEMENT STAFF PROFILE
(6) USERS: ESW1892: Judy Wolfe
ESW1893: Nelly Sit
ESW1894: Durwin Hom
ESW1895: Bing Chan
ESW1896: Vicky Aguila
ESW1897: Rodan St. James

ACCOUNTS ACCESS:

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Reports: SIIF SCIF ADHG ADBG ADCG SHGP SOPI SOPG SOPB

Trades: SIIF SCIF ADHG ADBG ADCG SHGP SOPI SOPG SOPB
</TABLE>

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TE FX CA ME TD SL MA MC MF INQ
-- -- -- -- -- -- -- -- -- ---

N N Y Y N N N N N Y
</TABLE>

LEGEND:

TE: Trades
FX: Foreign Exchange Entry
CA: Cash Movements
ME: Multiple Cash Entry
TD: Time Deposit and Repos
SL: Securities Lending
MA: Mass Client Trade Authorization
MC: Mass Client Cash Authorization
MF: Mass Client Foreign Exchange Authorization
INQ: Inquiry Functions *

* Please note Inquiry Functions includes the following:
Trade Inquiry
Trade Settlement Status
Trade Entry Status
FX/Cash Movement/Time Deposit Status
Pricing Inquiry
Products Inquiry
Stock Record Inquiry
Journal Inquiry
Income Inquiry

TRADES PROFILE REPORTS PROFILE
MTSW1TPF MTSW1RPF
MTSW2TPF MTSW2RPF
MTSW3TPF MTSW3RPF

[MORGAN STANLEY GLOBAL SECURITIES LETTERHEAD]

<PAGE> 1

Exhibit 11(a)

CONSENT OF COUNSEL

We hereby consent to the use of our name and to the reference to our
firm under the caption "Legal Counsel" included in or made a part of
Post-Effective Amendment No. 6 to the Registration Statement of Schwab Annuity
Portfolios on Form N-1A (Nos. 33-74534 and 811-8314) under the Securities Act of
1933, as amended.

ROPES & GRAY

Washington, D.C.
April 28, 1997

-1-

<PAGE> 1

Exhibit 11(b)

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 6 to the registration statement on Form N-1A (the "Registration
Statement") of Schwab Annuity Portfolios of our reports dated January 31, 1997,
relating to the financial statements and financial highlights appearing in the
December 31, 1996 Annual Reports to Shareholders of Schwab Money Market
Portfolio, Schwab Asset Director(R) - High Growth Portfolio and Schwab S&P 500
Portfolio, which are also incorporated by reference into the Registration
Statement. We also consent to the references to us under the headings
"Financial Highlights" in the Prospectuses and under the heading "Accountants
and Reports to Shareholders" in the Statement of Additional Information.

/s/ Price Waterhouse LLP

Price Waterhouse LLP
San Francisco, California
April 29, 1997

<PAGE> 1
EXHIBIT 16(b)

SCHWAB ASSET DIRECTOR -- HIGH GROWTH PORTFOLIO

TOTAL RETURN FOR THE PERIOD FROM: INCEPTION (11/1/96) THROUGH 12/31/96

<TABLE>
<CAPTION>
Distribution Dividends Dividends Total
Period factor NAV ($) (shares) Shares
------ ------ --- --- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Beginning NAV and shares: 11/1/96 $10.00 0 0 1,000.000
12/96 10.42 1,000.000

Ending NAV and shares:

Ending Redeemable value: $10,420.00

Total Return: 4.20%
</TABLE>

Page 1

<PAGE> 1
EXHIBIT 16(c)

SCHWAB S&P 500 PORTFOLIO

TOTAL RETURN FOR THE PERIOD FROM: INCEPTION (11/1/96) THROUGH 12/31/96

Ending NAV and shares:

Ending Redeemable value: $10,530.00

Total Return: 5.30%
</TABLE>

Page 1

<PAGE> 1
[ARTICLE] 6
[CIK] 0000918266
[NAME] SCHWAB ANNUITY PORTFOLIO
[SERIES]
[NUMBER] 1
[NAME] SCHWAB MONEY MARKET PORTFOLIO
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-START] JAN-01-1996
[PERIOD-END] DEC-31-1996
[INVESTMENTS-AT-COST] 27011
[INVESTMENTS-AT-VALUE] 27011
[RECEIVABLES] 562
[ASSETS-OTHER] 20
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 27593
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 163
[TOTAL-LIABILITIES] 163
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 27431
[SHARES-COMMON-STOCK] 27431
[SHARES-COMMON-PRIOR] 16912
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (1)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 27430
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 1207
[OTHER-INCOME] 0
[EXPENSES-NET] 112
[NET-INVESTMENT-INCOME] 1095
[REALIZED-GAINS-CURRENT] (1)
[APPREC-INCREASE-CURRENT] 0
[NET-CHANGE-FROM-OPS] 1094
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 1095
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 71617
[NUMBER-OF-SHARES-REDEEMED] 62152
[SHARES-REINVESTED] 1053
[NET-CHANGE-IN-ASSETS] 10518
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 103
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 215
[AVERAGE-NET-ASSETS] 22463
[PER-SHARE-NAV-BEGIN] 1.00
[PER-SHARE-NII] 0.05
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0.05
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] 0.50
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>

<PAGE> 1
[ARTICLE] 6
[CIK] 0000918266
[NAME] SCHWAB ANNUITY PORTFOLIOS
[SERIES]
[NUMBER] 3
[NAME] SCHWAB S&P 500 PORTFOLIO
[MULTIPLIER] 1,000
[CURRENCY] U.S. DOLLARS
<TABLE>
<S> <C>
[PERIOD-TYPE] 1-MO
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-START] JAN-01-1997
[PERIOD-END] JAN-31-1997
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 6,314
[INVESTMENTS-AT-VALUE] 6,926
[RECEIVABLES] 30
[ASSETS-OTHER] 5
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 6,961
[PAYABLE-FOR-SECURITIES] 47
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 27
[TOTAL-LIABILITIES] 74
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 6,251
[SHARES-COMMON-STOCK] 617
[SHARES-COMMON-PRIOR] 563
[ACCUMULATED-NII-CURRENT] 25
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 611
[NET-ASSETS] 6,887
[DIVIDEND-INCOME] 8
[INTEREST-INCOME] 0
[OTHER-INCOME] 0
[EXPENSES-NET] 2
[NET-INVESTMENT-INCOME] 6
[REALIZED-GAINS-CURRENT] 0
[APPREC-INCREASE-CURRENT] 373
[NET-CHANGE-FROM-OPS] 379
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 54
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 964
[ACCUMULATED-NII-PRIOR] 19
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 2
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 15
[AVERAGE-NET-ASSETS] 6,389
[PER-SHARE-NAV-BEGIN] 10.53
[PER-SHARE-NII] 0.01
[PER-SHARE-GAIN-APPREC] 0.63
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 11.17
[EXPENSE-RATIO] 0.34
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>

<PAGE> 1
[ARTICLE] 6
[CIK] 0000918266
[NAME] SCHWAB ANNUITY PORTFOLIOS
[SERIES]
[NUMBER] 2
[NAME] SCHWAB ASSET DIRECTOR-HIGH GROWTH PORTFOLIO
[MULTIPLIER] 1,000
[CURRENCY] U.S. DOLLARS
<TABLE>
<S> <C>
[PERIOD-TYPE] 1-MO
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-START] JAN-01-1997
[PERIOD-END] JAN-31-1997
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 5,208
[INVESTMENTS-AT-VALUE] 5,523
[RECEIVABLES] 48
[ASSETS-OTHER] 60
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 5,631
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 42
[TOTAL-LIABILITIES] 42
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 5,247
[SHARES-COMMON-STOCK] 524
[SHARES-COMMON-PRIOR] 516
[ACCUMULATED-NII-CURRENT] 28
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (1)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 314
[NET-ASSETS] 5,588
[DIVIDEND-INCOME] 5
[INTEREST-INCOME] 6
[OTHER-INCOME] 0
[EXPENSES-NET] 3
[NET-INVESTMENT-INCOME] 8
[REALIZED-GAINS-CURRENT] (1)
[APPREC-INCREASE-CURRENT] 122
[NET-CHANGE-FROM-OPS] 129
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 9
[NUMBER-OF-SHARES-REDEEMED] 2
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 205
[ACCUMULATED-NII-PRIOR] 20
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 3
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 18
[AVERAGE-NET-ASSETS] 5,469
[PER-SHARE-NAV-BEGIN] 10.42
[PER-SHARE-NII] 0.02
[PER-SHARE-GAIN-APPREC] 0.23
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.67
[EXPENSE-RATIO] 0.73
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>