<PAGE>
SCHWAB VARIABLE ANNUITY
Form N-30D
Schwab Annuity Portfolios
File No. 811-08314
Form N-30D
Filed via EDGAR and accepted on __________________________, 1998
Accession No. 0000927356-98-_____________________.
<PAGE>
-------------
SCHWAB ANNUITY PORTFOLIOS
DECEMBER, 31, 1997 ANNUAL REPORT
MARKET OVERVIEW
- --------------------------------------------------------------------------------
Real Gross Domestic Product
Chain Weighted
Percent change from preceeding quarter,
seasonally adjusted at annual rates
Source: Bloomberg
Real GDP . The real Gross Domestic Product
Q1 1990 3.9% (GDP) growth rate was 3.2% for
Q2 1990 1.2% 1996 and 3.8% for 1997--healthy
Q3 1990 -1.9% rates of growth for the economy,
Q4 1990 -4.0% well in excess of the Federal
Q1 1991 -2.1% Reserve's perceived non-
Q2 1991 1.8% inflationary growth rate of
Q3 1991 1.0% 2.2%.
Q4 1991 1.0% . Although there has been a great
Q1 1992 4.7% deal of speculation about the
Q2 1992 2.5% impact of the economic problems
Q3 1992 3.0% of countries in the Pacific Rim,
Q4 1992 4.3% the direct impact on 1998 U.S.
Q1 1993 0.1% GDP growth is anticipated to be
Q2 1993 2.0% relatively minor--with estimates
Q3 1993 2.1% ranging from a reduction of one
Q4 1993 5.3% quarter of one percent (Federal
Q1 1994 3.0% Reserve's Chairman Alan
Q2 1994 4.7% Greenspan) to one percent. At
Q3 1994 1.8% the time of this writing, the
Q4 1994 3.6% economy appears poised for
Q1 1995 0.9% continued growth, further
Q2 1995 0.3% extending the current economic
Q3 1995 3.0% expansion that began in 1991.
Q4 1995 2.2%
Q1 1996 1.8%
Q2 1996 6.0%
Q3 1996 1.0%
Q4 1996 4.3%
Q1 1997 4.9%
Q2 1997 3.3%
Q3 1997 3.1%
Q4 1997 4.3%
US Unemployment Rate
Source: Bloomberg
Unemployment Rate . Job growth has remained robust
Jan-90 5.4% and the unemployment rate
Feb-90 5.3% reached a new low for this
Mar-90 5.2% decade during the reporting
Apr-90 5.4% period. In fact, the fourth
May-90 5.4% quarter rates (4.6% and 4.7%)
Jun-90 5.2% represent the lowest rates in
Jul-90 5.5% 24 years.
Aug-90 5.7% . Although inflation has been
Sep-90 5.9% well contained, a combination
Oct-90 5.9% of a tight labor market, as
Nov-90 6.2% evidenced by low unemployment
Dec-90 6.3% rates, and strong economic
Jan-91 6.4% growth typically leads to
Feb-91 6.6% inflationary pressures on
Mar-91 6.8% wages and, ultimately, prices.
Apr-91 6.7%
May-91 6.9%
Jun-91 6.9%
Jul-91 6.8%
Aug-91 6.9%
Sep-91 6.9%
Oct-91 7.0%
Nov-91 7.0%
Dec-91 7.3%
Jan-92 7.3%
Feb-92 7.4%
Mar-92 7.4%
Apr-92 7.4%
May-92 7.6%
Jun-92 7.8%
Jul-92 7.7%
Aug-92 7.6%
Sep-92 7.6%
Oct-92 7.3%
Nov-92 7.4%
Dec-92 7.4%
Jan-93 7.3%
Feb-93 7.1%
Mar-93 7.0%
Apr-93 7.1%
May-93 7.1%
Jun-93 7.0%
Jul-93 6.9%
Aug-93 6.8%
Sep-93 6.7%
Oct-93 6.8%
Nov-93 6.6%
Dec-93 6.5%
Jan-94 6.7%
Feb-94 6.6%
Mar-94 6.5%
Apr-94 6.4%
May-94 6.0%
Jun-94 6.1%
Jul-94 6.1%
Aug-94 6.1%
Sep-94 5.9%
Oct-94 5.8%
Nov-94 5.6%
Dec-94 5.4%
Jan-95 5.6%
Feb-95 5.5%
Mar-95 5.4%
Apr-95 5.7%
May-95 5.6%
Jun-95 5.6%
Jul-95 5.7%
Aug-95 5.7%
Sep-95 5.7%
Oct-95 5.5%
Nov-95 5.6%
Dec-95 5.6%
Jan-96 5.7%
Feb-96 5.5%
Mar-96 5.5%
Apr-96 5.5%
May-96 5.5%
Jun-96 5.3%
Jul-96 5.4%
Aug-96 5.2%
Sep-96 5.2%
Oct-96 5.2%
Nov-96 5.3%
Dec-96 5.3%
Jan-97 5.4%
Feb-97 5.3%
Mar-97 5.2%
Apr-97 4.9%
May-97 4.8%
Jun-97 5.0%
Jul-97 4.8%
Aug-97 4.9%
Sep-97 4.9%
Oct-97 4.7%
Nov-97 4.6%
Dec-97 4.7%
Consumer Price Index - All Items YOY % Change
Employment Cost Index SA (includes both wages
and salaries and benefits
components) - YOY % Change
Source: Bloomberg L.P.
RED = DATA INPUTS
Data for Graph . Both the Employment Cost Index
------------------------------- and Consumer Price Index (CPI)
Monthly Quarterly remained in check throughout
Consumer Employment 1997, reflecting continued low
Price Index Cost Index levels of inflation.
YOY % YOY % . The CPI rose 1.7% during 1997--
Change Change the lowest rate since 1986. Its
------------------------------- core rate (which excludes the
Jan-90 5.2% 5.3% more volatile food and energy
Feb-90 5.3% 5.3% components) rose 2.2%, the
Mar-90 5.2% 5.3% lowest rate since 1965.
Apr-90 4.7% 5.4% . Even though current levels of
May-90 4.4% 5.4% inflation are very low, the
Jun-90 4.7% 5.4% Federal Reserve indicated
Jul-90 4.8% 5.1% throughout most of the
Aug-90 5.6% 5.1% reporting period that the
Sep-90 6.2% 5.1% economy remains in the zone
Oct-90 6.3% 4.8% where inflation risks are on
Nov-90 6.3% 4.8% the upside and that it is
Dec-90 6.1% 4.8% poised to act preemptively
Jan-91 5.7% 4.6% by raising interest rates if
Feb-91 5.3% 4.6% necessary. At the end of the
Mar-91 4.9% 4.6% reporting period, sentiment was
Apr-91 4.9% 4.5% mixed regarding the direction
May-91 5.0% 4.5% and timing of the Federal
Jun-91 4.7% 4.5% Reserve's next action.
Jul-91 4.4% 4.3%
Aug-91 3.8% 4.3%
Sep-91 3.4% 4.3%
Oct-91 2.9% 4.2%
Nov-91 3.0% 4.2%
Dec-91 3.1% 4.2%
Jan-92 2.6% 4.1%
Feb-92 2.8% 4.1%
Mar-92 3.2% 4.1%
Apr-92 3.2% 3.5%
May-92 3.0% 3.5%
Jun-92 3.1% 3.5%
Jul-92 3.2% 3.4%
Aug-92 3.1% 3.4%
Sep-92 3.0% 3.4%
Oct-92 3.2% 3.5%
Nov-92 3.0% 3.5%
Dec-92 2.9% 3.5%
Jan-93 3.3% 3.4%
Feb-93 3.2% 3.4%
Mar-93 3.1% 3.4%
Apr-93 3.2% 3.6%
May-93 3.2% 3.6%
Jun-93 3.0% 3.6%
Jul-93 2.8% 3.6%
Aug-93 2.8% 3.6%
Sep-93 2.7% 3.6%
Oct-93 2.8% 3.4%
Nov-93 2.7% 3.4%
Dec-93 2.7% 3.4%
Jan-94 2.5% 3.2%
Feb-94 2.5% 3.2%
Mar-94 2.5% 3.2%
Apr-94 2.4% 3.1%
May-94 2.3% 3.1%
Jun-94 2.5% 3.1%
Jul-94 2.8% 3.1%
Aug-94 2.9% 3.1%
Sep-94 3.0% 3.1%
Oct-94 2.6% 3.0%
Nov-94 2.7% 3.0%
Dec-94 2.7% 3.0%
Jan-95 2.8% 3.0%
Feb-95 2.9% 3.0%
Mar-95 2.9% 3.0%
Apr-95 3.1% 3.0%
May-95 3.2% 3.0%
Jun-95 3.0% 3.0%
Jul-95 2.8% 2.8%
Aug-95 2.6% 2.8%
Sep-95 2.5% 2.8%
Oct-95 2.8% 2.8%
Nov-95 2.6% 2.8%
Dec-95 2.5% 2.8%
Jan-96 2.7% 2.9%
Feb-96 2.7% 2.9%
Mar-96 2.8% 2.9%
Apr-96 2.9% 2.9%
May-96 2.9% 2.9%
Jun-96 2.8% 2.9%
Jul-96 3.0% 2.9%
Aug-96 2.9% 2.9%
Sep-96 3.0% 2.9%
Oct-96 3.0% 3.0%
Nov-96 3.3% 3.0%
Dec-96 3.3% 3.0%
Jan-97 3.0% 2.8%
Feb-97 3.0% 2.8%
Mar-97 2.8% 2.8%
Apr-97 2.5% 2.8%
May-97 2.2% 2.8%
Jun-97 2.3% 2.8%
Jul-97 2.2% 3.0%
Aug-97 2.2% 3.0%
Sep-97 2.2% 3.0%
Oct-97 2.1% 3.2%
Nov-97 1.8% 3.2%
Dec-97 1.7% 3.2%
Source: Bloomberg L.P.
---------------
O-1
<PAGE>
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SCHWAB ANNUITY PORTFOLIOS
DECEMBER, 31, 1997 ANNUAL REPORT (CONTINUED)
MARKET OVERVIEW
- --------------------------------------------------------------------------------
<TABLE>
Annual Report Plot Points
Growth of a $ Investment
-----------------------------------------------------------
<C> <C> <C> <C> <C> <S>
Schwab Lehman MF
Schwab Inter- General US . Despite corrections in March,
Small Cap national Govt. August, and October, domestic
S&P 500 Index Index Index equity investments continued to be
----------------------------------------------------------- the strongest performing asset
Dec-96 $ 1.000 $ 1.000 $ 1.000 $ 1.000 class, achieving very strong
Jan-97 $ 1.062 $ 1.024 $ 0.967 $ 1.001 returns during the one-year
Feb-97 $ 1.071 $ 0.999 $ 0.983 $ 1.003 reporting period. Large cap
Mar-97 $ 1.027 $ 0.950 $ 0.990 $ 0.992 domestic stocks, as represented by
Apr-97 $ 1.088 $ 0.953 $ 1.000 $ 1.006 the S&P 500, achieved a total
May-97 $ 1.154 $ 1.069 $ 1.074 $ 1.015 return of 33.3%, and small-cap
Jun-97 $ 1.206 $ 1.125 $ 1.136 $ 1.026 stocks, as represented by the
Jul-97 $ 1.302 $ 1.189 $ 1.167 $ 1.055 Schwab Small-Cap Index achieved a
Aug-97 $ 1.229 $ 1.216 $ 1.083 $ 1.045 total return of 26.8%.
Sep-97 $ 1.296 $ 1.311 $ 1.151 $ 1.061 . International stocks, as
Oct-97 $ 1.253 $ 1.254 $ 1.058 $ 1.079 represented by the Schwab
Nov-97 $ 1.311 $ 1.242 $ 1.054 $ 1.084 International Index, achieved a
Dec-97 $ 1.333 $ 1.268 $ 1.068 $ 1.096 return of 6.8% for the reporting
period, following an Asian-lead
correction of 8.1% during October.
. U.S. Government bonds, as
represented by the Lehman Mutual
Fund General U.S. Government Index,
achieved a lower, albeit less
volatile, return of 9.6% for the
one year reporting period.
</TABLE>
S&P 500 P/E Ratio
Source Bloomberg
<TABLE>
<CAPTION>
<S> <C>
S&P 500 Price Earnings Ratio . The price earnings ratio for the
Jan-90 14.37 S&P 500 was 24.5 at the close of
Feb-90 14.21 the reporting period, well above
Mar-90 14.77 its 30-year average of 14.7.
Apr-90 14.82 . Based on other traditional measures
May-90 15.84 such as the price-to-book value
Jun-90 16.66 ratio or dividend yield, the U.S.
Jul-90 16.65 stock market valuation, as measured
Aug-90 15.57 by the S&P 500, reached historical
Sep-90 14.90 highs during the reporting period.
Oct-90 14.36 . Although low inflation and interest
Nov-90 14.59 rates and strong flows into mutual
Dec-90 15.19 funds have helped the U.S. equity
Jan-91 14.95 markets reach these levels, Federal
Feb-91 16.82 Reserve's Chairman Alan Greenspan
Mar-91 17.48 has warned that current stock
Apr-91 17.85 market values make sense only if
May-91 17.92 the outlook for corporate earnings
Jun-91 17.96 growth remains positive, an
Jul-91 18.07 assumption which, as always, will
Aug-91 19.72 be widely debated by market
Sep-91 19.88 participants.
Oct-91 19.92
Nov-91 21.02
Dec-91 21.85
Jan-92 23.35
Feb-92 23.83
Mar-92 25.45
Apr-92 25.51
May-92 25.71
Jun-92 25.08
Jul-92 25.61
Aug-92 25.50
Sep-92 24.37
Oct-92 23.94
Nov-92 24.08
Dec-92 24.01
Jan-93 24.20
Feb-93 24.25
Mar-93 24.22
Apr-93 23.20
May-93 23.21
Jun-93 22.58
Jul-93 22.52
Aug-93 23.02
Sep-93 23.74
Oct-93 23.97
Nov-93 22.55
Dec-93 23.55
Jan-94 22.98
Feb-94 21.17
Mar-94 20.34
Apr-94 20.10
May-94 20.16
Jun-94 19.76
Jul-94 18.64
Aug-94 18.90
Sep-94 18.26
Oct-94 17.55
Nov-94 16.58
Dec-94 16.98
Jan-95 16.23
Feb-95 16.20
Mar-95 16.50
Apr-95 16.02
May-95 16.43
Jun-95 16.82
Jul-95 16.55
Aug-95 16.18
Sep-95 16.86
Oct-95 16.18
Nov-95 17.14
Dec-95 17.41
Jan-96 18.11
Feb-96 18.56
Mar-96 18.94
Apr-96 19.16
May-96 19.48
Jun-96 19.30
Jul-96 18.31
Aug-96 18.62
Sep-96 19.75
Oct-96 19.60
Nov-96 21.05
Dec-96 20.70
Jan-97 20.55
Feb-97 20.98
Mar-97 19.87
Apr-97 20.24
May-97 21.43
Jun-97 22.45
Jul-97 23.92
Aug-97 22.64
Sep-97 24.00
Oct-97 22.84
Nov-97 24.02
Dec-97 24.51
</TABLE>
Interest Rate Graph Data
Source: Bloomberg L.P.
<TABLE>
<CAPTION>
90 day non-financial CP
3 Month 90 Day
Treasury Commercial
Bill Paper
-----------------------------
<C> <C> <C> <S>
1/2/97 5.18% 5.30% . Short-term commercial paper rates
1/3/97 5.16% 5.29% experienced a moderate increase in
1/6/97 5.17% 5.32% the second quarter (following the
1/7/97 5.15% 5.32% March Federal Funds Rate hike) and
1/8/97 5.15% 5.29% again in the fourth quarter, but
1/9/97 5.12% 5.30% otherwise remained relatively
1/10/97 5.16% 5.30% stable during the reporting period.
1/13/97 5.17% 5.34% . More notably, the spread between
1/14/97 5.16% 5.29% commercial paper and U.S. Treasury
1/15/97 5.14% 5.31% bill yields widened significantly
1/16/97 5.16% 5.29% during the second quarter and
1/17/97 5.15% 5.30% continued to exhibit volatility
1/20/97 5.15% 5.30% during the remainder of the period.
1/21/97 5.15% 5.29% This widening was initially a
1/22/97 5.16% 5.30% result of the reduced U.S. Treasury
1/23/97 5.16% 5.27% bill supply, caused by unexpectedly
1/24/97 5.16% 5.32% large April federal tax receipts,
1/27/97 5.19% 5.32% which led to lower government
1/28/97 5.19% 5.32% financing needs. During September,
1/29/97 5.17% 5.31% the spread again widened, however
1/30/97 5.17% 5.28% this time it was more a result of
1/31/97 5.15% 5.30% what is typically referred to as a
2/3/97 5.11% 5.30% "flight to quality"--investors,
2/4/97 5.13% 5.28% concerned about the volatility in
2/5/97 5.12% 5.28% the foreign equity markets, sought
2/6/97 5.13% 5.30% refuge in high quality U.S.
2/7/97 5.12% 5.27% Treasury securities, thereby
2/10/97 5.13% 5.26% driving down their yields relative
2/11/97 5.14% 5.29% to commercial paper.
2/12/97 5.14% 5.29%
2/13/97 5.12% 5.27%
2/14/97 5.08% 5.26%
2/17/97 5.09% 5.26%
2/18/97 5.09% 5.25%
2/19/97 5.10% 5.25%
2/20/97 5.08% 5.26%
2/21/97 5.09% 5.20%
2/24/97 5.11% 5.22%
2/25/97 5.15% 5.24%
2/26/97 5.18% 5.23%
2/27/97 5.20% 5.38%
2/28/97 5.22% 5.35%
3/3/97 5.23% 5.37%
3/4/97 5.23% 5.29%
3/5/97 5.19% 5.30%
3/6/97 5.21% 5.29%
3/7/97 5.21% 5.29%
3/10/97 5.19% 5.29%
3/11/97 5.17% 5.30%
3/12/97 5.19% 5.30%
3/13/97 5.23% 5.30%
3/14/97 5.23% 5.32%
3/17/97 5.25% 5.34%
3/18/97 5.29% 5.37%
3/19/97 5.29% 5.38%
3/20/97 5.34% 5.39%
3/21/97 5.40% 5.50%
3/24/97 5.38% 5.50%
3/25/97 5.39% 5.52%
3/26/97 5.34% 5.53%
3/27/97 5.37% 5.54%
3/28/97 5.37% 5.54%
3/31/97 5.32% 5.55%
4/1/97 5.30% 5.53%
4/2/97 5.29% 5.58%
4/3/97 5.25% 5.55%
4/4/97 5.27% 5.54%
4/7/97 5.27% 5.61%
4/8/97 5.23% 5.59%
4/9/97 5.22% 5.58%
4/10/97 5.29% 5.53%
4/11/97 5.28% 5.52%
4/14/97 5.29% 5.58%
4/15/97 5.29% 5.56%
4/16/97 5.29% 5.58%
4/17/97 5.29% 5.58%
4/18/97 5.28% 5.57%
4/21/97 5.26% 5.60%
4/22/97 5.32% 5.60%
4/23/97 5.34% 5.62%
4/24/97 5.30% 5.57%
4/25/97 5.31% 5.54%
4/28/97 5.30% 5.61%
4/29/97 5.26% 5.56%
4/30/97 5.23% 5.57%
5/1/97 5.21% 5.60%
5/2/97 5.22% 5.57%
5/5/97 5.11% 5.60%
5/6/97 5.17% 5.56%
5/7/97 5.22% 5.59%
5/8/97 5.21% 5.63%
5/9/97 5.16% 5.55%
5/12/97 5.15% 5.59%
5/13/97 5.20% 5.57%
5/14/97 5.16% 5.57%
5/15/97 5.11% 5.58%
5/16/97 5.18% 5.58%
5/19/97 5.30% 5.56%
5/20/97 5.20% 5.59%
5/21/97 5.12% 5.59%
5/22/97 5.17% 5.59%
5/23/97 5.16% 5.54%
5/26/97 5.16% 5.54%
5/27/97 5.11% 5.56%
5/28/97 5.13% 5.53%
5/29/97 5.01% 5.57%
5/30/97 4.94% 5.54%
6/2/97 4.84% 5.59%
6/3/97 5.07% 5.57%
6/4/97 5.07% 5.56%
6/5/97 5.11% 5.52%
6/6/97 5.04% 5.54%
6/9/97 5.03% 5.54%
6/10/97 5.03% 5.53%
6/11/97 4.96% 5.55%
6/12/97 4.95% 5.52%
6/13/97 4.96% 5.53%
6/16/97 4.97% 5.54%
6/17/97 5.04% 5.54%
6/18/97 5.07% 5.54%
6/19/97 5.07% 5.52%
6/20/97 5.06% 5.53%
6/23/97 5.15% 5.54%
6/24/97 5.18% 5.54%
6/25/97 5.10% 5.52%
6/26/97 5.12% 5.51%
6/27/97 5.14% 5.53%
6/30/97 5.17% 5.56%
7/1/97 5.23% 5.52%
7/2/97 5.22% 5.56%
7/3/97 5.14% 5.52%
7/4/97 5.13% 5.52%
7/7/97 5.07% 5.52%
7/8/97 5.11% 5.51%
7/9/97 5.10% 5.49%
7/10/97 5.15% 5.47%
7/11/97 5.13% 5.49%
7/14/97 5.14% 5.50%
7/15/97 5.19% 5.50%
7/16/97 5.18% 5.50%
7/17/97 5.21% 5.48%
7/18/97 5.24% 5.47%
7/21/97 5.27% 5.48%
7/22/97 5.23% 5.50%
7/23/97 5.19% 5.44%
7/24/97 5.21% 5.45%
7/25/97 5.22% 5.47%
7/28/97 5.23% 5.48%
7/29/97 5.24% 5.45%
7/30/97 5.23% 5.47%
7/31/97 5.23% 5.45%
8/1/97 5.27% 5.48%
8/4/97 5.26% 5.48%
8/5/97 5.29% 5.47%
8/6/97 5.29% 5.48%
8/7/97 5.30% 5.46%
8/8/97 5.28% 5.49%
8/11/97 5.29% 5.48%
8/12/97 5.32% 5.51%
8/13/97 5.31% 5.49%
8/14/97 5.33% 5.49%
8/15/97 5.24% 5.49%
8/18/97 5.27% 5.50%
8/19/97 5.22% 5.48%
8/20/97 5.23% 5.49%
8/21/97 5.24% 5.49%
8/22/97 5.23% 5.45%
8/25/97 5.28% 5.46%
8/26/97 5.27% 5.50%
8/27/97 5.28% 5.49%
8/28/97 5.21% 5.46%
8/29/97 5.22% 5.48%
9/1/97 5.22% 5.48%
9/2/97 5.19% 5.52%
9/3/97 5.13% 5.48%
9/4/97 5.14% 5.51%
9/5/97 5.15% 5.50%
9/8/97 5.14% 5.49%
9/9/97 5.12% 5.50%
9/10/97 5.09% 5.48%
9/11/97 5.13% 5.47%
9/12/97 5.09% 5.48%
9/15/97 5.13% 5.49%
9/16/97 5.08% 5.49%
9/17/97 5.09% 5.48%
9/18/97 5.08% 5.48%
9/19/97 5.04% 5.45%
9/22/97 5.02% 5.48%
9/23/97 4.98% 5.49%
9/24/97 4.92% 5.45%
9/25/97 4.91% 5.46%
9/26/97 4.98% 5.48%
9/29/97 4.99% 5.50%
9/30/97 5.10% 5.48%
10/1/97 5.10% 5.46%
10/2/97 5.06% 5.49%
10/3/97 5.01% 5.47%
10/6/97 4.97% 5.47%
10/7/97 5.05% 5.46%
10/8/97 5.09% 5.47%
10/9/97 5.11% 5.48%
10/10/97 5.12% 5.50%
10/13/97 5.12% 5.50%
10/14/97 5.07% 5.49%
10/15/97 5.04% 5.51%
10/16/97 5.06% 5.48%
10/17/97 5.04% 5.54%
10/20/97 5.03% 5.54%
10/21/97 5.10% 5.54%
10/22/97 5.15% 5.52%
10/23/97 5.12% 5.54%
10/24/97 5.13% 5.54%
10/27/97 5.03% 5.55%
10/28/97 5.26% 5.49%
10/29/97 5.14% 5.54%
10/30/97 5.14% 5.53%
10/31/97 5.20% 5.56%
11/3/97 5.23% 5.54%
11/4/97 5.25% 5.53%
11/5/97 5.24% 5.54%
11/6/97 5.31% 5.53%
11/7/97 5.29% 5.55%
11/10/97 5.33% 5.54%
11/11/97 5.31% 5.54%
11/12/97 5.26% 5.62%
11/13/97 5.26% 5.59%
11/14/97 5.25% 5.67%
11/17/97 5.30% 5.63%
11/18/97 5.29% 5.62%
11/19/97 5.27% 5.61%
11/20/97 5.27% 5.64%
11/21/97 5.24% 5.61%
11/24/97 5.27% 5.63%
11/25/97 5.29% 5.65%
11/26/97 5.21% 5.63%
11/27/97 5.22% 5.63%
11/28/97 5.20% 5.63%
12/1/97 5.23% 5.64%
12/2/97 5.25% 5.67%
12/3/97 5.23% 5.67%
12/4/97 5.25% 5.67%
12/5/97 5.31% 5.69%
12/8/97 5.32% 5.67%
12/9/97 5.23% 5.72%
12/10/97 5.18% 5.69%
12/11/97 5.17% 5.68%
12/12/97 5.17% 5.68%
12/15/97 5.22% 5.70%
12/16/97 5.20% 5.69%
12/17/97 5.24% 5.66%
12/18/97 5.23% 5.64%
12/19/97 5.38% 5.62%
12/22/97 5.43% 5.67%
12/23/97 5.47% 5.64%
12/24/97 5.37% 5.69%
12/25/97 5.37% 5.69%
12/26/97 5.33% 5.67%
12/29/97 5.39% 5.65%
12/30/97 5.38% 5.65%
12/31/97 5.37% 5.57%
</TABLE>
Source: Bloomberg L.P.
-------------
O-2
<PAGE>
-------------
SCHWAB ANNUITY PORTFOLIOS
DECEMBER 31, 1997 ANNUAL REPORT
ECONOMIC HIGHLIGHTS
- -------------------------------------------------------------------------------
SCHWAB MONEY MARKET PORTFOLIO
Portfolio Management Team
STEPHEN B. WARD--Senior Vice President and Chief Investment Officer, has
overall responsibility for the management of the Portfolio. Steve joined
Charles Schwab Investment Management, Inc. (CSIM) as Vice President and Port-
folio Manager in April 1991 and was promoted to his current position in August
1993. Prior to joining CSIM, Steve was Vice President and Portfolio Manager at
Federated Investors.
AMY TREANOR--Portfolio Manager, has managed the Portfolio since May 1997. Amy
joined CSIM in 1992 as Associate Portfolio Trader and was promoted to her cur-
rent position in May 1997. Prior to joining CSIM, Amy was Portfolio Manager
and Assistant Vice President with Capitalcorp Asset Management.
Portfolio Highlights
During the reporting period, the portfolio managers adjusted the Dollar-
Weighted Average Maturities (DWAM) of the Portfolio as needed in order to cap-
italize on opportunities to buy higher yielding money market instruments re-
sulting from market fluctuations. Most economists had accurately predicted the
0.25% increase in the Federal Funds rate prior to the Federal Open Market Com-
mittee meeting held on March 25, 1997 and there was speculation that further
increases in the Federal Funds Rate were possible. We believed without a clear
indication of inflationary pressures that a further increase in the Federal
Funds rate was unlikely, and seized the opportunity to add securities with
longer maturities (and higher yields) to the Portfolio as they became avail-
able.
SCHWAB S&P 500 PORTFOLIO
Portfolio Management Team
STEPHEN B. WARD--Senior Vice President and Chief Investment Officer, has
overall responsibility for the management of the Portfolio. Steve joined
Charles Schwab Investment Management, Inc. (CSIM) as Vice President and Port-
folio Manager in April 1991 and was promoted to his current position in August
1993. Prior to joining CSIM, Steve was Vice President and Portfolio Manager at
Federated Investors.
GERI HOM--Vice President and Senior Portfolio Manager, has primary responsi-
bility for the day-to-day management of the Portfolio investments. Geri joined
CSIM in March 1995 as Portfolio Manager and was promoted to her current posi-
tion in December 1996. She currently manages approximately $6.1 billion in as-
sets. Prior to joining CSIM, Geri was a principal for Wells Fargo Nikko In-
vestment Advisors and Vice President and Manager of the Domestic Equity Port-
folio Management Group for Wells Fargo Nikko.
Portfolio Highlights
During the reporting period, most major domestic equity market indices, in-
cluding the S&P 500 Index, reached new highs. Using most traditional measures,
such as price-to-book value and dividend yield, many major market indices re-
main valued near their historic highs. Although there are many contributing
factors, most market observers attribute the market's strong performance to
four key developments: the third straight year of impressive corporate earn-
ings growth; a continuation of relatively moderate short- and long-term inter-
est rates; low levels of inflation, and continued high levels of cash flowing
into equity mutual funds.
-------------
O-3
<PAGE>
-------------
SCHWAB ANNUITY PORTFOLIOS
DECEMBER 31, 1997 ANNUAL REPORT (CONTINUED)
ECONOMIC HIGHLIGHTS
- -------------------------------------------------------------------------------
SCHWAB S&P 500 PORTFOLIO
HYPOTHETICAL GROWTH CHART
AS OF 12/31/97 . The graphs on the page compares the
S&P 500 S&P 500 growth of a hypothetical $10,000
PORTFOLIO INDEX investment in the Schwab S&P
---------- -------- Portfolio at the inception, with a
11/01/96 $10,000 $10,000 similar investment in the S&P
11/30/96 $10,750 $10,777 500(R) Index.
12/31/96 $10,530 $10,564
1/31/97 $11,170 $11,223 . THE INFORMATION IS HISTORICAL AND
2/28/97 $11,250 $11,311 DOES NOT REPRESENT ALL DIVIDEND AND
3/31/97 $10,780 $10,848 CAPITAL GAIN DISTRIBUTIONS.
4/30/97 $11,410 $11,494 PRINCIPAL VALUE AND INVESTMENT
5/31/97 $12,090 $12,193 RETURNS WILL FLUCTUATE SO THAT AN
6/30/97 $12,630 $12,739 INVESTOR'S SHARES, WHEN REDEEMED,
7/31/97 $13,620 $13,752 MAY BE WORTH MORE OR LESS THAN
8/31/97 $12,860 $12,982 THEIR ORIGINAL COST. Indices are
9/30/97 $13,560 $13,692 unmanaged and do not reflect
10/31/97 $13,120 $13,235 advisory fees and other expenses
11/30/97 $13,720 $13,848 associated with an investment in
12/31/97 $13,948 $14,086 the Fund. Investors cannot invest
in an index directly.
As discussed in the Market Overview section, large cap domestic stocks (such
as those in the S&P 500 Index) were clearly a strong performing asset class
for the reporting period. As shown in the graph above, the S&P 500 Portfolio
achieved a very strong total return of 32.46%/1/ for the twelve-month report-
ing period ended 12/31/97. The Portfolio continued to closely track the per-
formance of its benchmark, the S&P 500 Index.
Unlike the Portfolio, the Index does not incur management and other Portfolio
costs that reduce returns to the shareholders. Additionally, the Portfolio,
unlike the Index, holds a small portion in cash to meet shareholder redemp-
tions and to pay Portfolio expenses. The cash portion earns interest at money
market rates, which may be more or less than the returns of the Index during a
given period. Also, the weighting of any particular security in the Portfolio
can be greater or less than in the Index. Lastly, unlike the Index, the Port-
folio incurs trading costs when it buys or sells stocks. Taken together, these
factors cause the difference in the returns of the Portfolio compared to the
Index, a difference referred to as the Portfolio's "tracking differential."
The tracking differential for the Portfolio during the reporting period was
0.88%, and its average annual tracking error since 11/1/96, the Portfolio's
inception, has been 0.90%.
SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH PORTFOLIO
Portfolio Management Team
STEPHEN B. WARD--Senior Vice President and Chief Investment Officer, has
overall responsibility for the management of the Portfolios. Steve joined
Charles Schwab Investment Management, Inc. (CSIM) as Vice President and Port-
folio Manager in April 1991 and was promoted to his current position in August
1993. Prior to joining CSIM, Steve was the Vice President and Portfolio Man-
ager at Federated Investors.
GERI HOM--Senior Portfolio Manager and Vice President has managed the Equity
components of the Schwab Asset Director--High Growth Portfolio since its in-
ception in November 1996. Geri joined CSIM in March 1995 as Portfolio Manager
and currently manages over $6 billion in assets. Prior to joining CSIM, Geri
was a Principal for Wells Fargo Nikko Investment Advisors and Vice President
and Manager of the Domestic Equity Portfolio Management Group for Wells Fargo
Nikko.
KIMON DAIFOTIS--Vice President and Senior Portfolio Manager, has managed the
Bond and Cash components of the Schwab Asset Director(R)--High Growth Portfo-
lio since October 1997. Kimon joined CSIM in his current capacity in October
1997. For five years prior to joining Schwab he was employed by Lehman Broth-
ers, most recently as Vice President in fixed income institutional sales and,
prior to that, Senior Portfolio Strategist.
- -------
(/1/A)portion of the Portfolio's expenses were waived or reimbursed by CSIM.
Without the waivers or reimbursements, the Portfolio's total return for
the period ended would have been 32.00%.
-------------
O-4
<PAGE>
-------------
SCHWAB ANNUITY PORTFOLIOS
DECEMBER 31, 1997 ANNUAL REPORT (CONTINUED)
ECONOMIC HIGHLIGHTS
- -------------------------------------------------------------------------------
The Portfolio's Investment Strategy
SCHWAB ASSET DIRECTOR - HIGH GROWTH PORTFOLIO
HYPOTHETICAL GROWTH CHART
AS OF 12/31/97
SCHWAB LEHMAN
ASSET GEN.
DIRECTOR: GOV'T
HIGH GROWTH S&P BOND
PORTFOLIO 500 INDEX
----------- ------- ------- . The graphs on the page compares the
11/01/96 $10,000 $10,000 $10,000 growth of a hypothetical $10,000
11/30/96 $10,490 $10,777 $10,183 investment in the Schwab Asset
12/31/96 $10,420 $10,564 $10,079 Director(R)--High Growth Portfolio
1/31/97 $10,670 $11,223 $10,090 at the inception, with a similar
2/28/97 $10,710 $11,311 $10,104 investment in the S&P 500(R) Index
3/31/97 $10,460 $10,848 $9,997 and the Lehman Brothers General
4/30/97 $10,780 $11,494 $10,141 U.S. Government Index (Lehman
5/31/97 $11,420 $12,193 $10,228 Government Bond Index.)
6/30/97 $11,940 $12,739 $10,343
7/31/97 $12,650 $13,752 $10,637 . THE INFORMATION IS HISTORICAL AND
8/31/97 $12,200 $12,982 $10,531 DOES NOT REPRESENT ALL DIVIDEND AND
9/30/97 $12,880 $13,692 $10,689 CAPITAL GAIN DISTRIBUTIONS.
10/31/97 $12,520 $13,235 $10,874 PRINCIPAL VALUE AND INVESTMENT
11/30/97 $12,730 $13,848 $10,930 RETURNS WILL FLUCTUATE SO THAT AN
12/31/97 $12,977 $14,086 $11,045 INVESTOR'S SHARES, WHEN REDEEMED,
MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST. Indices are
unmanaged and do not reflect
advisory fees and other expenses
associated with an investment in
the Fund. Investors cannot invest
in an index directly.
THE ASSET DIRECTOR--High Growth Portfolio (as shown in the graph above), par-
ticipated in the strong performance of the domestic and, to a lesser extent,
foreign equities markets as evidenced by its 24.54%/1/ total return for the
twelve month reporting period. The chart below shows the target and actual as-
set mixes for the Portfolio at the beginning, mid-point, and end of the
twelve-month reporting period. Throughout most of the year, the Portfolio
maintained a conservative mix relative to their benchmarks due to declining
expected returns for stocks and bonds.
<TABLE>
<CAPTION>
PORTFOLIO POSITION PORTFOLIO POSITION PORTFOLIO POSITION
NEUTRAL TARGET AT 12/31/96 AT 6/30/97 AT 12/31/97
-------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Large Cap Stocks........ 40.0% 40.3% 33.5% 40.3%
Small Cap Stocks........ 20.0% 19.3% 19.6% 19.5%
International Stocks.... 20.0% 18.4% 20.5% 19.5%
Bonds................... 15.0% 11.4% 20.5% 0.0%
Cash Equivalents........ 5.0% 10.6% 5.9% 20.7%
------ ------ ------ ------
100.0% 100.0% 100.0% 100.0%
</TABLE>
Throughout the year, as equity valuations continued to rise, our expectations
for corporate earnings remained somewhat constant--indicating a decrease in
the expected return for stocks. Although the Portfolio was slightly under-
weighted in stocks going into the October correction, the impact of the under-
weighting for the entire period was nonetheless slightly negative. The Portfo-
lio also made several moderate shifts between cash equivalents and bonds, par-
ticularly during the last half of the period. The yield curve generally flat-
tened throughout the year, narrowing the spread between bond and cash yields.
This narrowing spread, which made cash equivalents more attractive relative to
bonds on a risk/reward basis, contributed to the moderate over-weighting in
cash equivalents toward the end of the period. Finally, at the close of the
period, following the late October correction in the stock market, the Portfo-
lio adopted a slight over-weighted position in stocks, under-weighting in
bonds, and over-weighting in cash equivalents.
- -------
(/1/A)portion of the Portfolio's expenses were waived or reimbursed during the
period. Without these waivers or reimbursements, the Portfolio's total re-
turn for the period ended would have been 22.90%.
-------------
O-5
<PAGE>
-------------
SCHWAB ANNUITY PORTFOLIOS
DECEMBER 31, 1997 ANNUAL REPORT (CONTINUED)
ECONOMIC HIGHLIGHTS
- -------------------------------------------------------------------------------
The Asset Director--High Growth Portfolio's Indexing Strategy
One of the primary principals of asset allocation and the Asset Director--
High Growth Portfolio is that the allocation of assets among different types
of asset classes (such as stocks, bonds, and cash) is a much more important
determinant of long term investment performance than individual security se-
lection. Perhaps the most effective way to ensure that a particular portfolio
has the desired performance and risk characteristics which match those of its
component asset classes, is to use an indexing strategy specifically designed
to track the performance and risk characteristics of a particular asset class.
The Asset Director--High Growth Portfolio uses an indexing strategy to achieve
this objective in the Portfolio's stock and bond asset categories. The Asset
classes included in the Portfolio and the indices they seek to track are as
follows:
Large Company Stock S&P 500 Index
Small Company Stock Schwab Small-Cap Index
International Stock Schwab International Index
Bonds Lehman Brothers Aggregate Bond Index and
Lehman Brothers 20+ Treasury Index
-------------
O-6
<PAGE>
-------------
SCHWAB MONEY MARKET PORTFOLIO
PORTFOLIO SUMMARY
ASSET GROWTH
<TABLE>
<CAPTION>
PERCENTAGE
TOTAL TOTAL GROWTH OVER
NET ASSETS NET ASSETS REPORTING
AS OF 12/31/97 AS OF 12/31/96 PERIOD
--------------------------------------------------------------------------------------
<S> <C> <C>
$47,967,612 $27,430,633 75%
--------------------------------------------------------------------------------------
</TABLE>
AVERAGE YIELDS FOR THE PERIODS ENDED
DECEMBER 31, 1997*
<TABLE>
<CAPTION>
LAST LAST LAST
SEVEN DAYS THREE MONTHS TWELVE MONTHS
----------------------------------------------------------------------------------------
<S> <C> <C>
5.13% 5.07% 5.00%
----------------------------------------------------------------------------------------
</TABLE>
MATURITY SCHEDULE
PERCENT OF TOTAL INVESTMENTS
<TABLE>
<CAPTION>
MATURITY RANGE 3/31/97 6/30/97 9/30/97 12/31/97
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
0-- 15 Days 27.1% 28.2% 16.2% 22.7%
16-- 30 Days 26.0 29.3 50.0 14.3
31-- 60 Days 31.7 13.7 14.5 37.4
61-- 90 Days 6.3 11.3 8.5 14.2
91--120 Days 3.9 5.6 0.9 11.4
Over 120 Days 5.0 11.9 9.9 0.0
Weighted Average 39 Days 52 Days 39 Days 46 Days
--------------------------------------------------------------------------------------
</TABLE>
PORTFOLIO QUALITY
<TABLE>
<CAPTION>
PERCENT OF
SEC TIER NET ASSETS
RATING 12/31/97
-----------------------------------
<S> <C>
Tier 1 100.0%
Tier 2 0.0%
-----------------------------------
</TABLE>
- -------
* A portion of the Fund's expenses were reduced during the periods. Had these
expenses not been reduced, yields would have been lower.
-------------
O-7
<PAGE>
-------------
SCHWAB MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (IN THOUSANDS)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
AGENCY OBLIGATIONS--83.7% PAR VALUE
<S> <C> <C>
- --------------------------------------------------------------------------------
DISCOUNT NOTES--83.7%
Federal Farm Credit Bank
5.51%, 01/07/98................................................. $ 395 $ 395
5.51%, 01/09/98................................................. 970 969
5.54%, 02/05/98................................................. 1,425 1,417
5.60%, 02/18/98................................................. 1,500 1,489
5.60%, 03/26/98................................................. 2,000 1,975
Federal Home Loan Bank
5.55%, 01/09/98................................................. 2,035 2,033
5.52%, 01/09/98................................................. 1,175 1,174
5.57%, 01/13/98................................................. 425 424
5.56%, 01/14/98................................................. 1,155 1,153
5.54%, 02/04/98................................................. 3,405 3,387
5.67%, 02/13/98................................................. 1,710 1,699
Federal Home Loan Mortgage Corp.
5.72%, 01/09/98................................................. 920 919
5.65%, 01/14/98................................................. 550 549
5.76%, 01/20/98................................................. 875 872
5.72%, 01/30/98................................................. 600 597
5.69%, 02/06/98................................................. 855 850
5.57%, 02/12/98................................................. 595 591
5.72%, 02/20/98................................................. 340 337
5.71%, 02/20/98................................................. 955 948
5.61%, 02/20/98................................................. 1,790 1,776
5.69%, 03/06/98................................................. 735 728
5.63%, 03/06/98................................................. 285 282
5.60%, 03/11/98................................................. 1,340 1,326
Federal National Mortgage Assoc.
5.72%, 01/09/98................................................. 365 365
5.59%, 01/12/98................................................. 605 604
5.50%, 01/12/98................................................. 570 569
5.59%, 01/13/98................................................. 1,255 1,253
5.64%, 01/16/98................................................. 375 374
5.55%, 02/05/98................................................. 1,000 995
5.55%, 02/06/98................................................. 1,405 1,397
5.61%, 02/25/98................................................. 880 873
5.63%, 03/02/98................................................. 2,495 2,472
Tennessee Valley Authority
5.52%, 01/12/98................................................. 480 479
5.55%, 01/22/98................................................. 4,875 4,857
-------
TOTAL AGENCY OBLIGATIONS (Cost $40,128).......................... 40,128
-------
</TABLE>
-------------
O-8
<PAGE>
-------------
SCHWAB MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (IN THOUSANDS) (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
U.S. TREASURY OBLIGATIONS--16.3% PAR VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
U.S. Treasury Bills
5.30%, 01/22/98................................................ $ 75 $ 75
5.13%, 01/22/98................................................ 85 85
U.S. Treasury Notes
5.13%, 02/28/98................................................ 2,200 2,198
5.88%, 04/30/98................................................ 3,000 3,004
5.13%, 04/30/98................................................ 2,480 2,477
-------
TOTAL U.S. TREASURY OBLIGATIONS (Cost $7,839)................... 7,839
-------
TOTAL INVESTMENTS--100% (Cost $47,967).......................... $47,967
=======
</TABLE>
- -------
Notes to Schedule of Investments
Yields shown are effective yields at the time of purchase except for U.S.
Treasury coupons which reflect the coupon rate of the security. Yields for
each security are stated according to the market convention for that security
type. For each security, cost (for financial reporting and federal income tax
purposes) and carrying value are the same.
See accompanying Notes to Financial Statements.
-------------
O-9
<PAGE>
-------------
SCHWAB MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost: $47,967,459)........................ $47,967,459
Cash............................................................. 3,434
Receivables:
Interest........................................................ 90,265
Fund shares sold................................................ 170,118
Deferred organization costs...................................... 10,381
Prepaid expenses................................................. 1,484
-----------
Total assets.................................................... 48,243,141
-----------
LIABILITIES
Payables:
Dividends........................................................ 256,753
Fund shares redeemed............................................. 2,260
Investment advisory fees and administration...................... 3,956
Other liabilities................................................. 12,560
-----------
Total liabilities............................................... 275,529
-----------
Net assets applicable to outstanding shares....................... $47,967,612
===========
NET ASSETS consist of:
Paid-in-capital.................................................. $47,970,441
Accumulated net realized loss on investments sold................ (2,829)
-----------
$47,967,612
===========
PRICING OF SHARES
Outstanding shares, $0.00001 par value (unlimited shares
authorized)..................................................... 47,970,441
NET ASSET VALUE, offering and redemption price per share......... $ 1.00
</TABLE>
- -------
See accompanying Notes to Financial Statements.
-------------
O-10
<PAGE>
-------------
SCHWAB MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INTEREST INCOME..................................................... $2,134,248
----------
EXPENSES:
Investment advisory and administration fees........................ 178,126
Custodian fees..................................................... 31,285
Professional fees.................................................. 9,168
Shareholder reports................................................ 28,506
Trustees' fees..................................................... 8,211
Amortization of deferred organization costs........................ 7,665
Insurance and other expenses....................................... 10,949
----------
273,910
Less: expenses reduced and absorbed (see Note 4).................... (80,295)
----------
Total expenses incurred by Fund................................... 193,615
----------
NET INVESTMENT INCOME............................................... 1,940,633
Net realized loss on investments sold............................... (2,110)
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................... $1,938,523
==========
</TABLE>
- -------
See accompanying Notes to Financial Statements.
-------------
O-11
<PAGE>
-------------
SCHWAB MONEY MARKET PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income............................. $ 1,940,633 $ 1,094,918
Net realized loss on investments sold............. (2,110) (655)
------------ ------------
Increase in net assets resulting from operations.. 1,938,523 1,094,263
------------ ------------
Dividends to shareholders from net investment
income........................................... (1,940,633) (1,094,918)
------------ ------------
CAPITAL SHARE TRANSACTIONS: (at $1.00 per share):
Proceeds from shares sold......................... 112,673,512 71,617,183
Net asset value of shares issued in reinvestment
of dividends..................................... 1,805,912 1,053,350
Less payments for shares redeemed................. (93,940,335) (62,151,677)
------------ ------------
Increase in net assets from capital share
transactions..................................... 20,539,089 10,518,856
------------ ------------
Total increase in net assets...................... 20,536,979 10,518,201
NET ASSETS:
Beginning of period............................... 27,430,633 16,912,432
------------ ------------
End of period..................................... $ 47,967,612 $ 27,430,633
============ ============
</TABLE>
- -------
See accompanying Notes to Financial Statements.
-------------
O-12
<PAGE>
-------------
SCHWAB MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, PERIOD ENDED
------------------------------------- DECEMBER 31,
1997 1996 1995 1994(/1/)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at
beginning of period...... $1.00 $1.00 $1.00 $1.00
----------- ----------- ----------- ----------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income.... 0.05 0.05 0.05 0.03
Net realized and
unrealized gain on
investments............. -- -- -- --
----------- ----------- ----------- ----------
Total from investment
operations.............. 0.05 0.05 0.05 0.03
----------- ----------- ----------- ----------
LESS DISTRIBUTIONS
Dividends from net
investment income....... (0.05) (0.05) (0.05) (0.03)
----------- ----------- ----------- ----------
Total distributions...... (0.05) (0.05) (0.05) (0.03)
----------- ----------- ----------- ----------
Net asset value at end of
period................... $1.00 $1.00 $1.00 $1.00
=========== =========== =========== ==========
TOTAL RETURN (not
annualized).............. 5.12% 4.98% 5.26% 2.55%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period.................. $47,967,612 $27,430,633 $16,912,432 $7,409,454
Ratio of expenses to
average net assets+..... 0.50% 0.50% 0.50% 0.50%*
Ratio of net investment
income to average net
assets+................. 5.01% 4.87% 5.17% 4.16%*
- -------
+ 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:
Ratio of expenses to
average net assets..... 0.71% 0.95% 1.02% 2.10%*
Ratio of net investment
income to average net
assets................. 4.80% 4.42% 4.65% 2.56%*
</TABLE>
(/1/For)the period May 3, 1994 (commencement of operations) to December 31,
1994.
*Annualized
- -------
See accompanying Notes to Financial Statements.
-------------
O-13
<PAGE>
-------------
SCHWAB MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
1. DESCRIPTION OF THE FUND
The Schwab Money Market Portfolio (the "Fund") is a series of Schwab Annuity
Portfolios (the "Trust"), a diversified, no-load, open-end, management invest-
ment company organized as a Massachusetts business trust on January 21, 1994
and registered under the Investment Company Act of 1940, as amended.
The Fund is intended as an investment vehicle for variable annuity contracts
and variable life insurance policies to be offered by separate accounts of
participating life insurance companies and for pension and retirement plans
qualified under the Internal Revenue Code of 1986, as amended.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are in conformity with gener-
ally accepted accounting principles for investment companies. The preparation
of financial statements in accordance with generally accepted accounting prin-
ciples requires management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results
could differ from those estimates.
Security valuation--Investments are stated at amortized cost which approxi-
mates market value.
Security transactions and interest income--Security transactions are ac-
counted for on a trade date basis (date the order to buy or sell is executed).
Interest income is recorded on the accrual basis and includes amortization of
premium and accretion of discount on investments. Realized gains and losses
from security transactions are determined on an identified cost basis.
Repurchase agreements--Repurchase agreements are fully collateralized by U.S.
Treasury or government agency securities. All collateral is held by the Fund's
custodian and is monitored daily to ensure that its market value at least
equals the repurchase price under the agreement.
Dividends to shareholders--The Fund declares a daily dividend, equal to its
net investment income for that day, payable monthly.
Deferred organization costs--Costs incurred in connection with the organiza-
tion of the Fund and its initial registration with the Securities and Exchange
Commission are amortized on a straight-line basis over a five-year period from
the Fund's commencement of operations.
Expenses--Expenses arising in connection with the Fund are charged directly
to the Fund. Expenses common to all series of the Trust are generally allo-
cated to each series in proportion to their relative net assets.
Federal income taxes--It is the Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to dis-
tribute all net investment income and realized net capital gains, if any, to
shareholders. Therefore, no federal income tax provision is required. The Fund
is considered a separate entity for tax purposes.
3. TRANSACTIONS WITH AFFILIATES
Investment advisory and administration agreement--The Trust has investment
advisory and administration agreements with Charles Schwab Investment Manage-
ment, Inc. (the "Investment Manager"). For advisory services and facilities
furnished, the Fund pays an annual fee, payable monthly, of 0.46% of the first
$1 billion of average daily net assets, 0.45% the next $2 billion, 0.40% of
the next $7 billion, 0.37% of the next $10 billion, and 0.34% of such assets
in excess of $20 billion. The Investment Manager has reduced a portion if its
fee for the year ended December 31, 1997 (see Note 4).
Officers and trustees--Certain officers and trustees of the Trust are also
officers or directors of the Investment Manager. During the year ended Decem-
ber 31, 1997, the Trust made no direct payments to its officers or trustees
who are "interested persons" within the meaning of the Investment Company Act
of 1940, as amended. The Fund incurred fees of $8,211 related to the Trust's
unaffiliated trustees.
4. EXPENSES REDUCED AND ABSORBED BY THE INVESTMENT MANAGER
The Investment Manager reduced a portion of its fee and absorbed certain ex-
penses in order to limit the Fund's ratio of operating expenses to average net
assets. For the year ended December 31, 1997, the total of such fees and ex-
penses reduced and absorbed by the Investment Manager was $80,295 (see Finan-
cial Highlights).
-------------
O-14
<PAGE>
To the Trustees and Shareholders of
Schwab Money Market Portfolio
In our opinion, the accompanying statement of assets and liabilities, includ-
ing the schedule of investments, and the related statements of operations and
of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Schwab Money Market Portfolio
(one series constituting part of Schwab Annuity Portfolios, hereafter referred
to as the "Trust") at December 31, 1997, the results of its operations for the
year ended, the changes in its net assets for each of the two years in the pe-
riod then ended and the financial highlights for each of the periods present-
ed, in conformity with generally accepted accounting principles. These finan-
cial statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Trust's management; our responsi-
bility is to express an opinion on these financial statements based on our au-
dits. We conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial state-
ments are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presenta-
tion. We believe that our audits, which included confirmation of securities at
December 31, 1997 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Francisco, California
January 30, 1998
<PAGE>
-------------
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK--99.0% OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
AEROSPACE/DEFENSE--1.5%
BF Goodrich Co. ......................................... 200 $ 8,288
Boeing Co. .............................................. 4,696 229,810
General Dynamics Corp. .................................. 400 34,575
Lockheed Martin Corp. ................................... 1,000 98,500
Northrop Grumman Corp. .................................. 300 34,500
Textron, Inc. ........................................... 900 56,250
United Technologies Corp. ............................... 1,100 80,094
-----------
542,017
-----------
AIR TRANSPORTATION--0.5%
AMR Corp.+............................................... 600 77,100
Delta Airlines, Inc. .................................... 400 47,600
Southwest Airlines Co. .................................. 1,050 25,856
US Airways Group, Inc.+.................................. 500 31,250
-----------
181,806
-----------
ALCOHOLIC BEVERAGES--0.5%
Adolph Coors Co. Class B................................. 100 3,325
Anheuser-Busch Companies, Inc. .......................... 2,400 105,600
Brown-Forman Corp. Class B............................... 300 16,575
Seagram Co., Ltd. ....................................... 1,700 54,931
-----------
180,431
-----------
APPAREL--0.3%
Fruit of the Loom, Inc. Class A+......................... 300 7,688
Liz Claiborne, Inc. ..................................... 300 12,544
Nike, Inc. Class B....................................... 1,300 51,024
Reebok International Ltd.+............................... 300 8,644
Russell Corp. ........................................... 100 2,656
Springs Industries, Inc. ................................ 100 5,200
V.F. Corp. .............................................. 500 22,969
-----------
110,725
-----------
AUTOMOTIVE PRODUCTS--0.1%
Cooper Tire & Rubber Co. ................................ 400 9,750
Goodyear Tire & Rubber Co. .............................. 700 44,538
-----------
54,288
-----------
BANKS--8.5%
Banc One Corp. .......................................... 2,700 146,644
Bank of New York Co., Inc. .............................. 1,900 109,844
BankAmerica Corp. ....................................... 3,400 248,199
BankBoston Corp. ........................................ 700 65,756
Bankers Trust New York Corp. ............................ 500 56,219
Barnett Banks, Inc. ..................................... 1,000 71,875
</TABLE>
-------------
O-15
<PAGE>
-------------
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
BANKS (CONTINUED)
BB & T Corp. ............................................ 600 $ 38,438
Chase Manhattan Corp. ................................... 2,000 218,999
Citicorp................................................. 2,200 278,162
Comerica, Inc. .......................................... 600 54,150
CoreStates Financial Corp. .............................. 1,000 80,063
Fifth Third Bancorp...................................... 800 65,400
First Chicago NBD Corp. ................................. 1,400 116,900
First Union Corp. ....................................... 3,100 158,875
Fleet Financial Group, Inc. ............................. 1,300 97,419
Huntington Bancshares, Inc. ............................. 1,000 36,000
J.P. Morgan & Co., Inc. ................................. 900 101,588
KeyCorp, Inc. ........................................... 1,000 70,813
MBNA Corp. .............................................. 2,475 67,598
Mellon Bank Corp. ....................................... 1,200 72,750
National City Corp. ..................................... 1,000 65,750
NationsBank Corp. ....................................... 3,360 204,330
Norwest Corp. ........................................... 3,600 139,050
PNC Bank Corp. .......................................... 1,400 79,888
Republic New York Corp. ................................. 300 34,256
State Street Corp. ...................................... 700 40,731
SunTrust Banks, Inc. .................................... 1,000 71,375
Synovus Financial Corp. ................................. 800 26,200
U. S. Bancorp. .......................................... 1,177 131,750
Wachovia Corp. .......................................... 1,100 89,238
Wells Fargo & Co. ....................................... 400 135,775
-----------
3,174,035
-----------
BUSINESS MACHINES & SOFTWARE--8.2%
3COM Corp.+.............................................. 1,600 55,900
Adobe Systems, Inc. ..................................... 400 16,500
Apple Computer, Inc.+.................................... 700 9,188
Autodesk, Inc. .......................................... 400 14,800
Bay Networks, Inc.+...................................... 1,000 25,563
Cabletron Systems, Inc.+................................. 700 10,500
Ceridian Corp.+.......................................... 300 13,744
Cisco Systems, Inc.+..................................... 4,800 267,599
Compaq Computer Corp.+................................... 3,560 200,917
Computer Associates International, Inc. ................. 2,700 142,763
Computer Sciences Corp.+................................. 400 33,400
Data General Corp.+...................................... 100 1,744
Dell Computer Corp.+..................................... 1,600 134,400
Digital Equipment Corp.+................................. 700 25,900
EMC Corp.+............................................... 2,200 60,363
Hewlett-Packard Co. ..................................... 4,900 306,249
Honeywell, Inc. ......................................... 600 41,100
</TABLE>
-------------
O-16
<PAGE>
-------------
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
BUSINESS MACHINES & SOFTWARE (CONTINUED)
International Business Machines Corp. ................... 4,700 $ 491,443
Microsoft Corp.+......................................... 5,800 749,649
Novell, Inc.+............................................ 1,400 10,500
Oracle Systems Corp.+.................................... 4,450 99,291
Parametric Technology Corp.+............................. 600 28,425
Pitney Bowes, Inc. ...................................... 800 71,950
Seagate Technology, Inc.+................................ 1,000 19,250
Silicon Graphics, Inc.+.................................. 700 8,706
Sun Microsystems, Inc.+.................................. 1,700 67,788
Unisys Corp.+............................................ 700 9,713
Xerox Corp. ............................................. 1,500 110,719
-----------
3,028,064
-----------
BUSINESS SERVICES--2.1%
Automatic Data Processing, Inc. ......................... 1,400 85,925
Browning-Ferris Industries, Inc. ........................ 900 33,300
Cendant Corp.+........................................... 3,722 127,959
Cognizant Corp. ......................................... 700 31,194
Deluxe Corp. ............................................ 300 10,350
Dun & Bradstreet Corp. .................................. 700 21,656
Ecolab, Inc. ............................................ 300 16,631
Equifax, Inc. ........................................... 800 28,350
First Data Corp. ........................................ 1,900 55,575
H & R Block, Inc. ....................................... 500 22,406
HBO & Co. ............................................... 1,000 48,000
IKON Office Solutions.................................... 700 19,688
Interpublic Group of Companies, Inc. .................... 700 34,869
John H. Harland Co. ..................................... 100 2,100
Laidlaw, Inc. ........................................... 1,300 17,713
Moore Corp. Ltd. ........................................ 200 3,025
National Service Industries, Inc. ....................... 300 14,869
Omnicom Group, Inc. ..................................... 800 33,900
R.R. Donnelley & Sons Co. ............................... 700 26,075
Safety-Kleen Corp. ...................................... 400 10,975
Service Corp. International.............................. 1,200 44,325
Shared Medical Systems Corp. ............................ 100 6,600
SUPERVALU, Inc. ......................................... 300 12,563
Waste Management, Inc. .................................. 2,200 60,500
-----------
768,548
-----------
CHEMICAL--2.9%
Air Products & Chemicals, Inc. .......................... 600 49,350
Dow Chemical Co. ........................................ 1,100 111,650
E.I. du Pont de Nemours & Co. ........................... 5,600 336,349
Eastman Chemical Co. .................................... 400 23,825
</TABLE>
-------------
O-17
<PAGE>
-------------
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
CHEMICAL (CONTINUED)
Great Lakes Chemical Corp. .............................. 400 $ 17,950
Hercules, Inc. .......................................... 400 20,025
Minnesota Mining & Manufacturing Co. .................... 2,000 164,124
Monsanto Co. ............................................ 2,800 117,600
Morton International, Inc. .............................. 700 24,063
Nalco Chemical Co. ...................................... 300 11,869
PPG Industries, Inc. .................................... 900 51,413
Praxair, Inc. ........................................... 700 31,500
Rohm & Haas Co. ......................................... 400 38,300
Sigma-Aldrich Corp. ..................................... 500 19,875
Union Carbide Corp. ..................................... 600 25,763
W.R. Grace & Co. ........................................ 400 32,175
-----------
1,075,831
-----------
CONSTRUCTION--0.3%
Armstrong World Industries, Inc. ........................ 300 22,425
Centex Corp. ............................................ 100 6,294
Crane Co. ............................................... 300 13,013
Fluor Corp. ............................................. 400 14,950
Kaufman & Broad Home Corp. .............................. 100 2,244
Owens Corning............................................ 300 10,238
Pulte Corp. ............................................. 100 4,181
Sherwin-Williams Co. .................................... 900 24,974
The Stanley Works........................................ 400 18,875
-----------
117,194
-----------
CONSUMER--DURABLE--0.4%
Black & Decker Corp. .................................... 400 15,625
Masco Corp. ............................................. 900 45,787
Maytag Corp. ............................................ 500 18,656
Newell Co. .............................................. 800 34,000
Snap-on, Inc. ........................................... 300 13,088
Whirlpool Corp. ......................................... 400 22,000
-----------
149,156
-----------
CONSUMER--NONDURABLE--1.1%
American Greetings Corp. Class A......................... 400 15,650
Corning, Inc. ........................................... 1,100 40,838
Darden Restaurants, Inc. ................................ 700 8,750
Fort James Corp. ........................................ 1,100 42,075
Fortune Brands, Inc. .................................... 800 29,650
Hasbro, Inc. ............................................ 650 20,475
Jostens, Inc. ........................................... 100 2,306
Mattel, Inc. ............................................ 1,400 52,150
McDonald's Corp. ........................................ 3,300 157,574
</TABLE>
-------------
O-18
<PAGE>
-------------
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
CONSUMER--NONDURABLE (CONTINUED)
Rubbermaid, Inc. ........................................ 700 $ 17,500
Tricon Global Restaurants, Inc.+......................... 600 17,438
Wendy's International, Inc. ............................. 600 14,438
-----------
418,844
-----------
CONTAINERS--0.2%
Ball Corp. .............................................. 100 3,531
Bemis Co., Inc. ......................................... 300 13,219
Crown Cork & Seal Co., Inc. ............................. 600 30,075
Owens-Illinois, Inc.+.................................... 700 26,556
Stone Container Corp.+................................... 500 5,219
-----------
78,600
-----------
ELECTRONICS--4.1%
Advanced Micro Devices, Inc.+............................ 500 8,969
AMP, Inc. ............................................... 1,100 46,200
Applied Materials, Inc.+................................. 1,900 57,238
EG&G, Inc. .............................................. 100 2,081
General Signal Corp. .................................... 300 12,656
Harris Corp. ............................................ 300 13,763
Intel Corp. ............................................. 7,900 554,974
KLA-Tencor Corp.+........................................ 500 19,313
LSI Logic Corp.+......................................... 700 13,825
Lucent Technologies, Inc. ............................... 3,200 255,600
Micron Technology, Inc.+................................. 1,100 28,600
Motorola, Inc. .......................................... 2,900 165,481
National Semiconductor Corp.+............................ 800 20,750
Perkin Elmer Corp. ...................................... 300 21,319
Raytheon Co. Class A+.................................... 1 71
Raytheon Co. Class B..................................... 1,600 80,800
Rockwell International Corp. ............................ 1,000 52,250
Scientific-Atlanta, Inc. ................................ 400 6,700
Tektronix, Inc. ......................................... 150 5,953
Texas Instruments, Inc. ................................. 1,900 85,500
Thermo Electron Corp.+................................... 700 31,150
Thomas & Betts Corp. .................................... 300 14,175
-----------
1,497,368
-----------
ENERGY--DEVELOPMENT--1.4%
Anadarko Petroleum Corp. ................................ 400 24,275
Apache Corp. ............................................ 500 17,531
Baker Hughes, Inc. ...................................... 900 39,263
Burlington Resources, Inc. .............................. 752 33,699
Dresser Industries, Inc. ................................ 900 37,744
Halliburton Co. ......................................... 1,300 67,519
</TABLE>
-------------
O-19
<PAGE>
-------------
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
ENERGY--DEVELOPMENT (CONTINUED)
Helmerich & Payne, Inc. ................................. 100 $ 6,788
Occidental Petroleum Corp. .............................. 1,600 46,900
Rowan Companies, Inc.+................................... 400 12,200
Schlumberger Ltd. ....................................... 2,400 193,199
Union Pacific Resources Group............................ 1,300 31,525
Western Atlas, Inc.+..................................... 300 22,200
-----------
532,843
-----------
FOOD--AGRICULTURE--6.0%
Archer-Daniels Midland Co. .............................. 2,490 54,002
Campbell Soup Co. ....................................... 2,200 127,875
Coca-Cola Co. ........................................... 11,900 792,837
ConAgra, Inc. ........................................... 2,200 72,188
CPC International, Inc. ................................. 800 86,200
General Mills, Inc. ..................................... 700 50,138
H.J. Heinz Co. .......................................... 1,700 86,381
Hershey Foods Corp. ..................................... 800 49,550
Kellogg Co. ............................................. 2,000 99,250
PepsiCo, Inc. ........................................... 7,200 262,349
Pioneer Hi-Bred International, Inc. ..................... 400 42,900
Quaker Oats Co. ......................................... 600 31,650
Ralston Purina Co. ...................................... 500 46,469
Sara Lee Corp. .......................................... 2,300 129,519
SYSCO Corp. ............................................. 800 36,450
Unilever NV.............................................. 3,100 193,556
Whitman Corp. ........................................... 500 13,031
Wm. Wrigley Jr. Co. ..................................... 600 47,738
-----------
2,222,083
-----------
GOLD--0.2%
Barrick Gold Corp. ...................................... 1,600 29,800
Battle Mountain Gold Co. ................................ 1,000 5,875
Echo Bay Mines Ltd.+..................................... 100 244
Homestake Mining Co. .................................... 600 5,325
Newmont Mining Corp. .................................... 686 20,151
Placer Dome, Inc. ....................................... 1,000 12,688
-----------
74,083
-----------
HEALTHCARE--11.0%
Abbott Laboratories...................................... 3,700 242,581
Allergan, Inc. .......................................... 400 13,425
ALZA Corp.+.............................................. 400 12,725
American Home Products Corp. ............................ 3,300 252,450
Amgen, Inc. ............................................. 1,200 64,950
Bausch & Lomb, Inc. ..................................... 300 11,888
</TABLE>
-------------
O-20
<PAGE>
-------------
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
HEALTHCARE (CONTINUED)
Baxter International, Inc. .............................. 1,300 $ 65,569
Becton, Dickinson & Co. ................................. 600 30,000
Biomet, Inc. ............................................ 500 12,813
Boston Scientific Corp.+................................. 900 41,288
Bristol-Myers Squibb Co. ................................ 4,800 454,199
C.R. Bard, Inc. ......................................... 500 15,656
Cardinal Health, Inc. ................................... 600 45,075
Columbia/HCA Healthcare Corp. ........................... 3,100 91,838
Eli Lilly & Co. ......................................... 5,400 375,974
Guidant Corp. ........................................... 800 49,800
HealthSouth Corp.+....................................... 1,800 49,950
Humana, Inc.+............................................ 600 12,450
Johnson & Johnson........................................ 6,400 421,599
Mallinckrodt, Inc. ...................................... 300 11,400
Manor Care, Inc. ........................................ 400 14,000
Medtronic, Inc. ......................................... 2,200 115,088
Merck & Co., Inc. ....................................... 5,800 616,249
Pfizer, Inc. ............................................ 6,300 469,743
Pharmacia & Upjohn, Inc. ................................ 2,300 84,238
Schering-Plough Corp. ................................... 3,500 217,438
St. Jude Medical, Inc.+.................................. 300 9,150
Tenet Healthcare Corp.+.................................. 1,400 46,375
United Healthcare Co. ................................... 900 44,719
US Surgical Corp. ....................................... 400 11,725
Warner Lambert Co. ...................................... 1,300 161,200
-----------
4,065,555
-----------
HOUSEHOLD PRODUCTS--2.8%
Alberto-Culver Co. Class B............................... 200 6,413
Avon Products, Inc. ..................................... 600 36,825
Clorox Co. .............................................. 600 47,438
Colgate-Palmolive Co. ................................... 1,400 102,900
Gillette Co. ............................................ 2,800 281,225
International Flavors & Fragrances, Inc. ................ 600 30,900
Procter & Gamble Co. .................................... 6,400 510,799
Tupperware Corp. ........................................ 200 5,575
-----------
1,022,075
-----------
IMAGING & PHOTO--0.3%
Eastman Kodak Co. ....................................... 1,500 91,219
Polaroid Corp. .......................................... 300 14,606
-----------
105,825
-----------
INSURANCE--4.3%
Aetna, Inc. ............................................. 800 56,450
Allstate Corp. .......................................... 2,000 181,749
</TABLE>
-------------
O-21
<PAGE>
-------------
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
INSURANCE (CONTINUED)
American General Corp. .................................. 1,210 $ 65,416
American International Group, Inc. ...................... 3,350 364,312
Aon Corp. ............................................... 900 52,763
Chubb Corp. ............................................. 900 68,062
CIGNA Corp. ............................................. 400 69,224
Cincinnati Financial Corp. .............................. 300 42,225
Conseco, Inc. ........................................... 1,000 45,438
General Re Corp. ........................................ 400 84,799
Hartford Financial Services Group........................ 700 65,494
Jefferson-Pilot Corp. ................................... 300 23,363
Lincoln National Corp. .................................. 600 46,875
Marsh & McLennan Companies, Inc. ........................ 900 67,106
MBIA, Inc. .............................................. 400 26,725
MGIC Investment Corp. ................................... 600 39,900
Progressive Corp. ....................................... 300 35,963
Providian Financial Corp. ............................... 600 27,113
SAFECO Corp. ............................................ 600 29,250
St. Paul Companies, Inc. ................................ 400 32,825
SunAmerica, Inc. ........................................ 1,000 42,750
Torchmark Corp. ......................................... 600 25,238
Transamerica Corp. ...................................... 300 31,950
UNUM Corp. .............................................. 600 32,625
USF & G Corp. ........................................... 600 13,238
-----------
1,570,853
-----------
MEDIA--3.0%
CBS Corp.+............................................... 3,400 100,088
Clear Channel Communications, Inc.+...................... 500 39,719
Comcast Corp. Class A.................................... 1,600 50,500
Dow Jones & Co., Inc. ................................... 400 21,475
Gannett Co., Inc. ....................................... 1,400 86,538
King World Productions, Inc. ............................ 300 17,325
Knight-Ridder, Inc. ..................................... 500 26,000
McGraw Hill Companies, Inc. ............................. 600 44,400
Meredith Corp. .......................................... 200 7,138
New York Times Co. Class A............................... 400 26,450
SBC Communications, Inc. ................................ 4,438 325,083
Telecommunications, Inc. Series A (TCI Group)+........... 2,400 67,050
Time Warner, Inc. ....................................... 2,800 173,599
Times Mirror Co. Series A................................ 400 24,600
Tribune Co. ............................................. 600 37,350
Viacom, Inc. Class B+.................................... 1,600 66,300
-----------
1,113,615
-----------
</TABLE>
-------------
O-22
<PAGE>
-------------
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
MISCELLANEOUS FINANCE--4.2%
American Express Co. .................................... 2,200 $ 196,350
Beneficial Corp. ........................................ 300 24,938
Charles Schwab Corp. .................................... 1,200 50,325
Countrywide Credit Industries, Inc. ..................... 500 21,438
Fannie Mae............................................... 5,200 296,724
Freddie Mac.............................................. 3,400 142,588
Golden West Financial Corp. ............................. 300 29,344
Green Tree Financial Corp. .............................. 700 18,331
H.F. Ahmanson & Co. ..................................... 400 26,775
Household International, Inc. ........................... 500 63,781
Merrill Lynch & Co., Inc. ............................... 1,600 116,700
Morgan Stanley, Dean Witter, Discover & Co. ............. 2,925 172,941
Travelers Group, Inc. ................................... 5,527 297,766
Washington Mutual, Inc. ................................. 1,260 80,404
-----------
1,538,405
-----------
MOTOR VEHICLE--2.1%
Chrysler Corp. .......................................... 3,200 112,600
Cummins Engine Co., Inc. ................................ 300 17,719
Dana Corp. .............................................. 600 28,500
Eaton Corp. ............................................. 400 35,700
Echlin, Inc. ............................................ 200 7,238
Fleetwood Enterprises, Inc. ............................. 100 4,244
Ford Motor Co. .......................................... 5,700 277,518
General Motors Corp. .................................... 3,500 212,187
Genuine Parts Co. ....................................... 800 27,150
Navistar International Corp.+............................ 400 9,925
Paccar, Inc. ............................................ 400 21,000
TRW, Inc. ............................................... 600 32,025
-----------
785,806
-----------
NON-FERROUS--0.5%
Alcan Aluminum, Ltd. .................................... 1,000 27,624
Aluminum Company of America.............................. 900 63,337
Asarco, Inc. ............................................ 100 2,244
Cyprus Amax Minerals Co. ................................ 500 7,688
Engelhard Corp. ......................................... 700 12,163
Freeport-McMoRan Copper & Gold, Inc. Class B............. 800 12,600
Inco Ltd. ............................................... 900 15,300
Phelps Dodge Corp. ...................................... 300 18,675
Reynolds Metals Co. ..................................... 400 24,000
-----------
183,631
-----------
OIL--DOMESTIC--1.0%
Amerada Hess Corp. ...................................... 400 21,950
Ashland, Inc. ........................................... 300 16,106
</TABLE>
-------------
O-23
<PAGE>
-------------
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
OIL--DOMESTIC (CONTINUED)
Atlantic Richfield Co. .................................. 1,500 $ 120,187
Kerr-McGee Corp. ........................................ 300 18,994
ONEOK, Inc. ............................................. 100 4,038
Oryx Energy Co.+......................................... 500 12,750
Pennzoil Co. ............................................ 300 20,044
Phillips Petroleum Co. .................................. 1,200 58,350
Sun, Inc. ............................................... 300 12,619
Unocal Corp. ............................................ 1,200 46,575
USX-Marathon Group....................................... 1,300 43,875
-----------
375,488
-----------
OIL--INTERNATIONAL--5.8%
Amoco Corp. ............................................. 2,400 204,300
Chevron Corp. ........................................... 3,200 246,400
Exxon Corp. ............................................. 11,800 722,012
Mobil Corp. ............................................. 3,700 267,094
Royal Dutch Petroleum Co.--Sponsored ADR**............... 10,400 563,550
Texaco, Inc. ............................................ 2,515 136,753
-----------
2,140,109
-----------
PAPER--1.1%
Boise Cascade Corp. ..................................... 300 9,075
Champion International Corp. ............................ 400 18,125
Georgia-Pacific Corp. ................................... 400 24,300
International Paper Co. ................................. 1,500 64,687
Kimberly-Clark Corp. .................................... 2,600 128,212
Louisiana-Pacific Corp. ................................. 500 9,500
Mead Corp. .............................................. 600 16,800
Potlatch Corp. .......................................... 100 4,300
Temple Inland, Inc. ..................................... 300 15,694
Union Camp Corp. ........................................ 400 21,475
Westvaco Corp. .......................................... 600 18,863
Weyerhaeuser Co. ........................................ 900 44,156
Willamette Industries, Inc. ............................. 600 19,313
-----------
394,500
-----------
PRODUCER GOODS & MANUFACTURING--5.7%
Aeroquip-Vickers, Inc. .................................. 100 4,906
Allied Signal, Inc. ..................................... 2,600 101,237
Avery Dennison Corp. .................................... 400 17,900
Briggs & Stratton Corp. ................................. 100 4,856
Case Corp. .............................................. 300 18,131
Caterpillar, Inc. ....................................... 1,800 87,413
Cincinnati Milacron, Inc. ............................... 100 2,594
Cooper Industries, Inc. ................................. 600 29,400
</TABLE>
-------------
O-24
<PAGE>
-------------
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
PRODUCER GOODS & MANUFACTURING (CONTINUED)
Deere & Co. ............................................. 1,400 $ 81,638
Dover Corp. ............................................. 1,200 43,350
Emerson Electric Co. .................................... 2,200 124,162
FMC Corp.+............................................... 300 20,194
Foster Wheeler Corp. .................................... 100 2,706
General Electric Co. .................................... 15,700 1,151,987
Harnischfeger Industries, Inc. .......................... 300 10,594
Illinois Tool Works, Inc. ............................... 1,200 72,150
Ingersoll-Rand Co. ...................................... 800 32,400
ITT Industries, Inc. .................................... 500 15,688
Johnson Controls, Inc. .................................. 400 19,100
McDermott International, Inc. ........................... 300 10,988
Millipore Corp. ......................................... 100 3,394
NACCO Industries, Inc. Class A........................... 100 10,719
Pall Corp. .............................................. 700 14,481
Parker-Hannifin Corp. ................................... 450 20,644
Raychem Corp. ........................................... 400 17,225
Tenneco, Inc. ........................................... 900 35,550
Timken Co. .............................................. 200 6,875
Tyco International Ltd. ................................. 2,600 117,162
W.W. Grainger, Inc. ..................................... 300 29,156
-----------
2,106,600
-----------
RAILROAD--0.6%
Burlington Northern Santa Fe Corp. ...................... 700 65,056
CSX Corp. ............................................... 1,000 54,000
Norfolk Southern Corp. .................................. 1,800 55,463
Union Pacific Corp. ..................................... 1,200 74,925
-----------
249,444
-----------
RETAIL--4.8%
Albertson's, Inc. ....................................... 1,200 56,850
American Stores Co. ..................................... 1,400 28,788
AutoZone, Inc.+.......................................... 800 23,200
Charming Shoppes, Inc.+.................................. 100 469
Circuit City Stores, Inc. ............................... 600 21,338
Costco Companies, Inc.+.................................. 900 40,163
CVS Corp. ............................................... 800 51,250
Dayton Hudson Corp. ..................................... 1,100 74,249
Dillards Inc. Class A.................................... 600 21,150
Federated Department Stores, Inc.+....................... 1,000 43,063
Gap, Inc. ............................................... 1,950 69,103
Giant Food, Inc. Class A................................. 400 13,475
Great Atlantic & Pacific Tea Co., Inc. .................. 100 2,969
Harcourt General, Inc. .................................. 400 21,900
</TABLE>
-------------
O-25
<PAGE>
-------------
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
RETAIL (CONTINUED)
Home Depot, Inc. ........................................ 3,500 $ 206,062
J.C. Penney Co., Inc. ................................... 1,200 72,374
Kmart Corp.+............................................. 2,100 24,281
Kroger Co.+.............................................. 1,200 44,325
Limited, Inc. ........................................... 1,300 33,150
Longs Drug Stores, Inc. ................................. 100 3,213
Lowe's Companies, Inc. .................................. 900 42,919
May Department Stores Co. ............................... 1,000 52,688
Mercantile Stores Co., Inc. ............................. 300 18,263
Nordstrom, Inc. ......................................... 500 30,188
Pep Boys-Manny Moe & Jack................................ 200 4,775
Rite Aid Corp. .......................................... 700 41,081
Sears Roebuck & Co. ..................................... 1,900 85,974
Tandy Corp. ............................................. 600 23,138
TJX Companies, Inc. ..................................... 800 27,500
Toys 'R' Us, Inc.+....................................... 1,300 40,869
Wal Mart Stores, Inc. ................................... 11,100 437,755
Walgreen Co. ............................................ 2,200 69,025
Winn Dixie Stores, Inc. ................................. 700 30,581
Woolworth Corp.+......................................... 500 10,188
-----------
1,766,316
-----------
STEEL--0.2%
Allegheny Teledyne, Inc. ................................ 1,000 25,874
Armco, Inc.+............................................. 100 494
Bethlehem Steel Corp.+................................... 600 5,175
Inland Steel Industries, Inc. ........................... 100 1,713
Nucor Corp. ............................................. 400 19,325
USX--U.S. Steel Group.................................... 300 9,375
Worthington Industries, Inc. ............................ 500 8,250
-----------
70,206
-----------
TELEPHONE--6.7%
AirTouch Communications, Inc.+........................... 2,400 99,750
Alltel Corp. ............................................ 800 32,850
Ameritech Corp. ......................................... 2,700 217,350
Andrew Corp.+............................................ 350 8,400
AT&T Corp. .............................................. 7,900 483,874
Bell Atlantic Corp. ..................................... 3,752 341,432
BellSouth Corp. ......................................... 4,700 264,669
DSC Communications Corp.+................................ 500 12,000
Frontier Corp. .......................................... 800 19,250
GTE Corp. ............................................... 4,500 235,125
MCI Communications Corp. ................................ 3,300 141,281
Nextlevel Systems, Inc.+................................. 800 14,300
</TABLE>
-------------
O-26
<PAGE>
-------------
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
TELEPHONE (CONTINUED)
Northern Telecom Ltd. ................................... 1,300 $ 115,700
Sprint Corp. ............................................ 2,100 123,113
Tellabs, Inc.+........................................... 900 47,588
U.S. West, Inc. (Communications Group)................... 2,400 108,300
U.S. West, Inc. (Media Group)+........................... 2,900 83,738
WorldCom, Inc. .......................................... 4,300 130,075
-----------
2,478,795
-----------
TOBACCO--1.7%
Loew's Corp. ............................................ 700 74,288
Philip Morris Companies., Inc. .......................... 11,600 525,625
UST, Inc. ............................................... 800 29,550
-----------
629,463
-----------
TRANSPORTATION--MISCELLANEOUS--0.2%
Caliber Systems, Inc. ................................... 300 14,606
Federal Express Corp.+................................... 600 36,638
Ryder Systems, Inc. ..................................... 400 13,100
-----------
64,344
-----------
TRAVEL & RECREATION--1.4%
Brunswick Corp. ......................................... 600 18,188
Harrah's Entertainment, Inc.+............................ 300 5,663
Hilton Hotels Corp. ..................................... 1,200 35,700
ITT Corp.+............................................... 600 49,725
Marriott International, Inc. ............................ 600 41,550
Mirage Resorts, Inc.+.................................... 1,000 22,750
Walt Disney Co. ......................................... 3,300 326,905
-----------
500,481
-----------
UTILITIES--3.3%
American Electric Power Co., Inc. ....................... 900 46,463
Baltimore Gas & Electric Co. ............................ 600 20,438
Carolina Power & Light Co. .............................. 900 38,194
Central & South West Services Corp. ..................... 900 24,356
Cinergy Corp. ........................................... 700 26,819
Coastal Corp. ........................................... 600 37,163
Columbia Gas System, Inc. ............................... 300 23,569
Consolidated Edison Co. of New York, Inc. ............... 1,000 41,000
Consolidated Natural Gas Co. ............................ 400 24,200
Dominion Resources, Inc. ................................ 900 38,306
DTE Energy Co. .......................................... 700 24,281
Duke Power Co. .......................................... 1,817 100,615
Eastern Enterprises...................................... 100 4,500
Edison International..................................... 2,000 54,375
</TABLE>
-------------
O-27
<PAGE>
-------------
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
UTILITIES (CONTINUED)
Enron Corp. ............................................. 1,500 $ 62,344
Entergy Corp. ........................................... 1,300 38,919
First Energy Corp.+...................................... 1,000 29,000
FPL Group, Inc. ......................................... 900 53,269
GPU, Inc. ............................................... 600 25,275
Houston Industries, Inc. ................................ 1,350 36,028
Niagara Mohawk Power Corp.+.............................. 700 7,350
NICOR, Inc. ............................................. 300 12,656
Northern States Power Co. ............................... 300 17,475
Pacific Enterprises, Inc. ............................... 300 11,288
Pacific Gas & Electric Corp. ............................ 2,100 63,918
PacifiCorp. ............................................. 1,500 40,969
PECO Energy Co. ......................................... 1,100 26,675
Peoples Energy Corp. .................................... 100 3,938
PP&L Resources, Inc. .................................... 700 16,756
Public Service Enterprise Group, Inc. ................... 1,100 34,856
Sonat, Inc. ............................................. 400 18,300
Southern Co. ............................................ 3,300 85,387
Texas Utilities Co. ..................................... 1,122 46,633
Unicom Corp. ............................................ 1,100 33,825
Union Electric Co. ...................................... 400 17,300
Williams Companies, Inc. ................................ 1,400 39,725
-----------
1,226,165
-----------
TOTAL COMMON STOCK
(Cost $32,008,611)...................................... 36,593,592
-----------
<CAPTION>
PAR
---------
<S> <C> <C>
CASH EQUIVALENTS--1.0%
Temporary Investment Fund, Inc.--TempCash Portfolio
5.40%*, 01/07/98........................................ $357,065 $ 357,065
-----------
TOTAL CASH EQUIVALENTS
(Cost $357,065)......................................... 357,065
-----------
TOTAL INVESTMENTS--100%
(Cost $32,365,676)...................................... $36,950,657
===========
</TABLE>
- -------
+ Non-Income Producing Security.
* Interest rate represents the yield as of the report date.
** ADR--American Depository Receipt.
See accompanying Notes to Financial Statements.
-------------
O-28
<PAGE>
-------------
SCHWAB S&P 500 PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $32,365,676).......................... $36,950,657
Receivables:
Dividend......................................................... 53,312
Fund shares sold................................................. 262,132
From advisor..................................................... 778
Deferred organization costs....................................... 3,463
-----------
Total Assets.................................................... 37,270,342
-----------
LIABILITIES
Payables:
Investments purchased............................................. 160,465
Fund shares redeemed.............................................. 666
Accrued expenses................................................... 53,068
-----------
Total Liabilities............................................... 214,199
-----------
Net assets applicable to 2,658,157 outstanding shares............. $37,056,143
===========
NET ASSETS consist of:
Paid-in-capital................................................... $32,156,673
Undistributed net investment income............................... 302,415
Accumulated net realized gain on investments sold................. 12,074
Net unrealized appreciation on investments........................ 4,584,981
-----------
$37,056,143
===========
NET ASSET VALUE, offering and redemption price per share
($37,056,143 divided by 2,658,157 outstanding shares)............. $ 13.94
===========
</TABLE>
- -------
See accompanying Notes to Financial Statements.
-------------
O-29
<PAGE>
-------------
SCHWAB S&P 500 PORTFOLIO
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends.......................................................... $ 358,442
----------
EXPENSES:
Investment advisory and administration fee......................... 69,480
Custodian fees..................................................... 29,107
Professional fees.................................................. 29,607
Shareholder reports................................................ 21,405
Trustees' fees..................................................... 8,775
Amortization of deferred organization costs........................ 852
Insurance and other expenses....................................... 20,587
----------
179,813
Less: expenses reduced and absorbed (see Note 4).................... (123,818)
----------
Total expenses incurred by Fund.................................... 55,995
----------
NET INVESTMENT INCOME............................................... 302,447
----------
Net realized gain on investments sold............................... 12,062
Net unrealized appreciation on investments.......................... 4,346,897
----------
Net gain on investments............................................ 4,358,959
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................... $4,661,406
==========
</TABLE>
- -------
See accompanying Notes to Financial Statements.
-------------
O-30
<PAGE>
-------------
SCHWAB S&P 500 PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1997 1996*
- --------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income............................... $ 302,447 $ 19,042
Net realized gain on investments sold............... 12,062 12
Net unrealized appreciation on investments.......... 4,346,897 238,084
----------- ----------
Increase in net assets resulting from operations.... 4,661,406 257,138
----------- ----------
Dividends to shareholders from net investment
income............................................. (19,075) --
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold........................... 28,905,606 5,666,286
Net asset value of shares issued in reinvestment of
dividends.......................................... 19,075 --
Less payments for shares redeemed................... (2,434,293) --
----------- ----------
Increase in net assets from capital share
transactions....................................... 26,490,388 5,666,286
----------- ----------
Total increase in net assets........................ 31,132,719 5,923,424
NET ASSETS:
Beginning of period................................. 5,923,424 --
----------- ----------
End of period (including undistributed net
investment income of $302,415 and $19,042,
respectively)...................................... $37,056,143 $5,923,424
=========== ==========
NUMBER OF FUND SHARES:
Sold................................................ 2,282,017 562,647
Reinvested.......................................... 1,418 --
Redeemed............................................ (187,925) --
----------- ----------
Net increase in shares outstanding.................. 2,095,510 562,647
</TABLE>
- -------
* For the period from November 1, 1996 (commencement of operations) to December
31, 1996.
See accompanying Notes to Financial Statements.
-------------
O-31
<PAGE>
-------------
SCHWAB S&P 500 PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1997 1996**
- --------------------------------------------------------------------------------
<S> <C> <C>
Net asset value at beginning of period............. $10.53 $10.00
----------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income............................. 0.09 0.03
Net realized and unrealized gain on investments... 3.33 0.50
----------- ----------
Total from investment operations.................. 3.42 0.53
LESS DISTRIBUTIONS
Dividends from net investment income.............. (0.01) --
----------- ----------
Total distributions............................... (0.01) --
----------- ----------
Net asset value at end of period................... $13.94 $10.53
=========== ==========
TOTAL RETURN (not annualized)...................... 32.46% 5.30%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period......................... $37,056,143 $5,923,424
Ratio of expenses to average net assets+.......... 0.29% 0.33%*
Ratio of net investment income to average net as-
sets+............................................ 1.56% 2.16%*
Portfolio turnover rate........................... 4% 0%
Average commission rate........................... $ 0.0297 $ 0.0256
- -------
+ 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 re-
duced and absorbed, the Fund's expense and net investment income ratios
would have been:
Ratio of expenses to average net assets.......... 0.93% 3.11%*
Ratio of net investment income to average net as-
sets............................................ 0.92% (0.62%)*
</TABLE>
* Annualized
** For the period from November 1, 1996 (commencement of operations) to De-
cember 31, 1996.
See accompanying Notes to Financial Statements.
-------------
O-32
<PAGE>
-------------
SCHWAB S&P 500 PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
1. DESCRIPTION OF THE FUND
The Schwab S&P 500 Portfolio (the "Fund") is a series of Schwab Annuity Port-
folios (the "Trust"), a diversified, no load, open-end, management investment
company organized as a Massachusetts business trust on January 21, 1994 and
registered under the Investment Company Act of 1940, as amended.
The Fund is intended as an investment vehicle for variable annuity contracts
and variable life insurance policies to be offered by separate accounts of
participating life insurance companies and for pension and retirement plans
qualified under the Internal Revenue Code of 1986, as amended.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are in conformity with gener-
ally accepted accounting principles for investment companies. The preparation
of financial statements in accordance with generally accepted accounting prin-
ciples requires management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results
could differ from those estimates.
Security valuation--Investments in securities traded on an exchange are val-
ued at the last 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. Un-
listed securities for which market quotations are readily available are valued
at the mean between the most recent bid and asked prices. Securities for which
no quotations are readily available are valued at fair value as determined by
the Funds investment manager pursuant to guidelines adopted in good faith by
the Board of Trustees. Short-term securities with 60 days or less to maturity
are stated at amortized cost, which approximates market value.
Securities transactions and investment income--Security transactions are ac-
counted for on a trade date basis (date the order to buy or sell is executed).
Realized gains and losses from security transactions are determined on an
identified cost basis. Dividend income and distributions to shareholders are
recorded on the ex-dividend date; interest income is accrued on a daily basis.
Deferred organization costs--Costs incurred in connection with the organiza-
tion of the Fund and its initial registration with the Securities and Exchange
Commission are amortized on a straight-line basis over a five-year period from
the Fund's commencement of operations.
Expenses--Expenses arising in connection with the Fund are charged directly
to the Fund. Expenses common to all series of the Trust are generally allo-
cated to each series in proportion to their relative net assets.
Federal income taxes--It is the Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to dis-
tribute all net investment income and realized net capital gains, if any, to
shareholders. Therefore, no federal income tax provision is required. The Fund
is considered a separate entity for tax purposes.
At December 31, 1997, (for financial reporting and federal income tax purpos-
es), net unrealized appreciation aggregated $4,584,981, of which $5,171,425
related to appreciated securities and $586,444 related to depreciated securi-
ties.
3. TRANSACTIONS WITH AFFILIATES
Investment advisory and administration agreement--The Trust has an investment
advisory and administration agreement with Charles Schwab Investment Manage-
ment, Inc. (the "Investment Manager"). For advisory services and facilities
furnished, the Fund pays an annual fee, payable monthly, of), 0.36% of the
first $1 billion of average daily net assets, 0.33% of the next $1 billion and
0.31% of such assets in excess of $2 billion. The Investment Manager voluntar-
ily reduced its fee for the year ended December 31, 1997 (see Note 4).
4. EXPENSES REDUCED AND ABSORBED BY THE INVESTMENT MANAGER
The Investment Manager and Schwab guarantee that, through at least April 30,
1998, the Fund's total operating expenses will not exceed 0.28% of the Fund's
average daily net assets, after waivers and reimbursements. For purpose of
this guarantee, operating expenses do not include interest expenses, extraor-
dinary expenses and taxes.
-------------
O-33
<PAGE>
-------------
SCHWAB S & P 500 PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
For the year ended December 31, 1997, the total of such fees and expenses re-
duced and absorbed by the Investment Manager was $123,818. (see Financial
Highlights)
5. BORROWING AGREEMENT
The Trust has an arrangement with PNC Bank, N.A., the Fund's custodian,
whereby the Fund may borrow up to $10,000,000, on a temporary basis, to fund
redemption's. Amounts borrowed under this arrangement bear interest at period-
ically negotiated rates and may be collateralized by the assets of the Fund.
During the year ended December 31, 1997, no borrowings were made under this
arrangement.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, other than short-term obliga-
tions, aggregated $27,293,625 and $812,506, respectively, for the year ended
December 31, 1997.
-------------
O-34
<PAGE>
To the Trustees and Shareholders of
Schwab S&P 500 Portfolio
In our opinion, the accompanying statement of assets and liabilities, includ-
ing the schedule of investments, and the related statements of operations and
of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Schwab S&P 500 Portfolio (one se-
ries constituting part of Schwab Annuity Portfolios, hereafter referred to as
the "Trust") at December 31, 1997, the results of its operations for the year
ended, and the changes in its net assets and the financial highlights for each
of the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter re-
ferred to as "financial statements") are the responsibility of the Trust's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which re-
quire that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and dis-
closures in the financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall fi-
nancial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1997 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmation from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
San Francisco, California
January 30, 1998
<PAGE>
-------------
SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK--79.2% OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
AEROSPACE/DEFENSE--0.9%
Alliant Techsystems, Inc.+.............................. 100 $ 5,575
Boeing Co. ............................................. 438 21,434
General Dynamics Corp. ................................. 100 8,644
Lockheed Martin Corp. .................................. 200 19,700
Northrop Grumman Corp. ................................. 61 7,015
OEA, Inc. .............................................. 100 2,894
Textron, Inc. .......................................... 100 6,250
Thiokol Corp. .......................................... 100 8,125
United Technologies Corp. .............................. 200 14,563
-----------
94,200
-----------
AIR TRANSPORTATION--0.3%
America West Holding Corp. Class B+..................... 200 3,725
AMR Corp.+.............................................. 100 12,850
Delta Airlines, Inc. ................................... 100 11,900
-----------
28,475
-----------
ALCOHOLIC BEVERAGES--0.2%
Adolph Coors Co. Class B................................ 200 6,650
Anheuser-Busch Companies, Inc. ......................... 200 8,800
Seagram Co., Ltd. ...................................... 200 6,463
-----------
21,913
-----------
APPAREL--0.4%
Burlington Industries, Inc.+............................ 200 2,763
NIKE, Inc. Class B...................................... 100 3,925
Springs Industries, Inc. ............................... 300 15,599
St. John Knits, Inc. ................................... 100 4,000
Timberland Co. Class A+................................. 100 5,806
V.F. Corp. ............................................. 200 9,188
Wolverine World Wide, Inc. ............................. 100 2,263
-----------
43,544
-----------
AUTOMOTIVE PRODUCTS--0.2%
Carlisle Companies, Inc. ............................... 200 8,550
Goodyear Tire & Rubber Co. ............................. 100 6,363
O'Reilly Automotive, Inc. .............................. 200 5,250
-----------
20,163
-----------
BANKS--6.8%
ALBANK Financial Corp. ................................. 100 5,144
Associated Banc-Corp ................................... 120 6,615
Banc One Corp. ......................................... 317 17,216
Bank of New York Co., Inc. ............................. 200 11,563
BankAmerica Corp. ...................................... 400 29,199
BankBoston Corp. ....................................... 100 9,394
</TABLE>
-------------
O-35
<PAGE>
-------------
SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
BANKS (CONTINUED)
Bankers Trust New York Corp. ........................... 100 $ 11,244
Banknorth Group, Inc. Delaware.......................... 100 6,425
Barnett Banks, Inc. .................................... 200 14,375
BB & T Corp. ........................................... 213 13,645
Chase Manhattan Corp. .................................. 300 32,849
Chemical Financial Corp. ............................... 110 4,923
Citicorp................................................ 300 37,930
City National Corp. .................................... 200 7,388
CNB Bancshares, Inc. ................................... 105 5,060
Colonial BancGroup, Inc. ............................... 200 6,888
Comerica, Inc. ......................................... 100 9,025
Community First Bankshares, Inc. ....................... 100 5,325
CoreStates Financial Corp. ............................. 200 16,012
Corus Bankshares, Inc. ................................. 100 3,956
Cullen/Frost Bankers, Inc. ............................. 100 6,069
Fifth Third Bancorp..................................... 100 8,175
First Chicago NBD Corp. ................................ 200 16,699
First Citizens BancShares, Inc. Class A................. 100 10,403
First Financial Bancorp................................. 110 5,308
First Union Corp. ...................................... 200 10,250
Firstbank of Illinois Co. .............................. 150 5,522
Fleet Financial Group, Inc. ............................ 200 14,987
Fort Wayne National Corp. .............................. 150 6,900
Fulton Financial Corp. ................................. 200 6,500
Hancock Holding Co. .................................... 115 6,958
Huntington Bancshares, Inc. ............................ 100 3,600
Imperial Bancorp........................................ 200 9,863
J.P. Morgan & Co., Inc. ................................ 100 11,288
KeyCorp, Inc. .......................................... 200 14,163
Keystone Financial, Inc. ............................... 165 6,641
Long Island Bancorp, Inc. .............................. 100 4,963
MAF Bancorp, Inc. ...................................... 150 5,306
Magna Group, Inc. ...................................... 100 4,575
MBNA Corp. ............................................. 150 4,097
Mellon Bank Corp. ...................................... 100 6,063
National Bancorp of Alaska, Inc. ....................... 100 12,650
National City Corp. .................................... 100 6,575
National Commerce Bancorp............................... 200 7,050
NationsBank Corp. ...................................... 330 20,067
New York Bancorp, Inc. ................................. 200 7,938
North Fork Bancorporation, Inc. ........................ 200 6,713
Norwest Corp. .......................................... 400 15,449
ONBANCorp., Inc. ....................................... 100 7,050
One Valley Bancorp of West Virginia, Inc. .............. 125 4,844
Park National Corp. .................................... 100 8,813
</TABLE>
-------------
O-36
<PAGE>
-------------
SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
BANKS (CONTINUED)
PNC Bank Corp. ......................................... 200 $ 11,413
Provident Bankshares Corp. ............................. 105 6,707
Queens County Bancorp, Inc. ............................ 225 9,113
Republic New York Corp. ................................ 100 11,419
S & T Bancorp, Inc. .................................... 100 4,325
State Street Corp. ..................................... 100 5,819
SunTrust Banks, Inc. ................................... 200 14,275
Synovus Financial Corp. ................................ 100 3,275
T R Financial Corp. .................................... 200 6,650
U S Trust Corp. ........................................ 200 12,525
U. S. Bancorp. ......................................... 175 19,588
UMB Financial Corp. .................................... 110 5,995
Valley National Bancorp................................. 100 3,931
Wachovia Corp. ......................................... 100 8,113
Wells Fargo & Co. ...................................... 100 33,943
Westamerica Bancorp..................................... 100 10,225
Whitney Holding Corp. .................................. 100 5,700
-----------
692,671
-----------
BUSINESS MACHINES & SOFTWARE--4.2%
3COM Corp.+............................................. 100 3,494
Adobe Systems, Inc. .................................... 100 4,125
Analogic Corp. ......................................... 100 3,800
Applied Magnetics Corp.+................................ 100 1,113
Cisco Systems, Inc. .................................... 600 33,449
Compaq Computer Corp. .................................. 450 25,396
Computer Associates International, Inc. ................ 300 15,863
Computer Horizons Corp. ................................ 150 6,825
Computer Sciences Corp.+................................ 100 8,350
Comverse Technology, Inc.+.............................. 100 3,900
Dell Computer Corp. .................................... 200 16,800
EMC Corp. .............................................. 200 5,488
Hewlett-Packard Co. .................................... 600 37,499
Honeywell, Inc. ........................................ 100 6,850
INSO Corp.+............................................. 100 1,156
International Business Machines Corp. .................. 600 62,737
Legato Systems, Inc. ................................... 100 4,400
Microsoft Corp. ........................................ 700 90,474
Novell, Inc.+........................................... 100 750
Novellus Systems, Inc. ................................. 200 6,463
Oracle Systems Corp. ................................... 450 10,041
Parametric Technology Corp.+............................ 100 4,738
Pitney Bowes, Inc. ..................................... 100 8,994
Platinum Technology, Inc.+.............................. 200 5,650
Policy Management Systems Corp.+........................ 100 6,956
</TABLE>
-------------
O-37
<PAGE>
-------------
SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
BUSINESS MACHINES & SOFTWARE (CONTINUED)
Safeguard Scientifics, Inc. ............................ 200 $ 6,275
Seagate Technology, Inc. ............................... 100 1,925
Sun Microsystems, Inc. ................................. 200 7,975
Transaction Systems Architects, Inc. ................... 100 3,800
Veritas Software Co. ................................... 150 7,650
Videoserver, Inc.+...................................... 100 1,588
Visio Corp. ............................................ 200 7,675
Wind River Systems, Inc. ............................... 150 5,953
Xerox Corp. ............................................ 200 14,763
-----------
432,915
-----------
BUSINESS SERVICES--2.5%
Allied Waste Industries, Inc.+.......................... 200 4,663
Apria Healthcare Group, Inc.+........................... 200 2,688
Aspen Technology, Inc. ................................. 200 6,850
Automatic Data Processing, Inc. ........................ 100 6,138
BISYS Group, Inc.+...................................... 100 3,325
BRC Holdings, Inc.+..................................... 100 3,825
CDI Corp.+.............................................. 100 4,575
Cendant Corp.+.......................................... 440 15,124
Checkfree Corp.+........................................ 200 5,400
Clintrials Research, Inc. .............................. 150 1,181
Cognizant Corp. ........................................ 100 4,456
Computer Task Group, Inc. .............................. 200 7,113
Concentra Managed Care, Inc.+........................... 178 6,008
Culligan Water Technologies, Inc.+...................... 100 5,025
DeVRY, Inc. ............................................ 200 6,375
Dionex Corp.+........................................... 100 5,025
Dun & Bradstreet Corp. ................................. 100 3,094
Dynatech Corp.+......................................... 100 4,688
Envoy Corp.+............................................ 100 2,913
Equifax, Inc. .......................................... 100 3,544
Express Scripts, Inc. Class A+.......................... 100 6,000
Fair, Issac & Co., Inc. ................................ 100 3,331
First Data Corp. ....................................... 200 5,850
HA-LO Industries, Inc. ................................. 125 3,250
HBO & Co. .............................................. 100 4,800
Henry Jack & Associates, Inc. .......................... 150 4,088
Integrated Health Services, Inc. ....................... 200 6,238
Interim Services, Inc. ................................. 200 5,175
ITT Educational Services, Inc. ......................... 150 3,347
John H. Harland Co. .................................... 100 2,100
Laidlaw, Inc. .......................................... 100 1,363
Medaphis Corp.+......................................... 200 1,300
Metromedia International Group, Inc.+................... 200 1,900
</TABLE>
-------------
O-38
<PAGE>
-------------
SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
BUSINESS SERVICES (CONTINUED)
Ogden Corp. ............................................ 200 $ 5,638
Omnicom Group, Inc. .................................... 200 8,474
Orthodontic Centers of America, Inc. ................... 200 3,325
Safety-Kleen Corp. ..................................... 400 10,974
Seacor Holdings, Inc.+.................................. 100 6,025
Service Corp. International............................. 100 3,694
Sitel Corp. ............................................ 200 1,825
Sun Healthcare Group, Inc.+............................. 200 3,875
Sylvan Learning Systems, Inc. .......................... 200 7,799
Symantec Corp.+......................................... 200 4,388
Synetic, Inc.+.......................................... 100 3,650
Technology Solutions Co. ............................... 150 3,956
Total Renal Care Holdings, Inc. ........................ 200 5,500
Universal Health Services, Inc. Class B+................ 200 10,074
Valassis Communications, Inc.+.......................... 100 3,700
Viasoft, Inc. .......................................... 100 4,225
Volt Information Sciences, Inc. ........................ 150 8,080
Waste Management, Inc. ................................. 200 5,500
Zebra Technologies Corp. Class A+....................... 100 2,975
-----------
254,429
-----------
CHEMICAL--1.7%
Air Products & Chemicals, Inc. ......................... 100 8,225
Cambrex Corp. .......................................... 100 4,600
Chemed Corp. ........................................... 100 4,144
Dow Chemical Co. ....................................... 200 20,300
E.I. du Pont de Nemours & Co. .......................... 500 30,030
Eastman Chemical Co. ................................... 100 5,956
Georgia Gulf Corp. ..................................... 200 6,125
H.B. Fuller Co. ........................................ 100 4,950
Minnesota Mining & Manufacturing Co. ................... 300 24,619
Monsanto Co. ........................................... 300 12,600
NCH Corp. .............................................. 100 6,550
OM Group, Inc. ......................................... 150 5,494
PPG Industries, Inc. ................................... 100 5,713
Rohm & Haas Co. ........................................ 100 9,575
Sequa Corp. Class A+.................................... 100 6,506
Tredegar Industries, Inc. .............................. 100 6,588
W.R. Grace & Co. ....................................... 100 8,044
WD-40 Co. .............................................. 200 5,800
-----------
175,819
-----------
CONSTRUCTION--0.6%
Apogee Enterprises, Inc. ............................... 200 2,375
Armstrong World Industries, Inc. ....................... 100 7,475
</TABLE>
-------------
O-39
<PAGE>
-------------
SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
CONSTRUCTION (CONTINUED)
Blount International, Inc. Class A...................... 200 $ 5,338
Global Industries, Inc. ................................ 400 6,800
Lone Star Industries, Inc. ............................. 100 5,313
Mastec, Inc. ........................................... 150 3,431
McDermott International+................................ 200 8,599
Medusa Corp. ........................................... 100 4,181
Pulte Corp. ............................................ 100 4,181
Southdown, Inc. ........................................ 100 5,900
Stone & Webster, Inc. .................................. 100 4,688
-----------
58,281
-----------
CONSUMER--DURABLE--0.2%
Champion Enterprises, Inc.+............................. 200 4,113
Ethan Allen Interiors, Inc. ............................ 200 7,712
Furniture Brands International, Inc.+................... 200 4,100
Kimball International, Inc. Class B..................... 200 3,688
La-Z-Boy Chair Co. ..................................... 100 4,312
Zenith Electronics Corp.+............................... 200 1,088
-----------
25,013
-----------
CONSUMER--NONDURABLE--0.6%
CKE Restaurants, Inc. .................................. 200 8,425
Corning, Inc. .......................................... 100 3,713
Fort James Corp. ....................................... 100 3,825
Fortune Brands, Inc. ................................... 100 3,706
Mattel, Inc. ........................................... 100 3,725
McDonald's Corp. ....................................... 300 14,324
Mohawk Industries, Inc. ................................ 200 4,388
Oakley, Inc. ........................................... 200 1,813
Rexall Sundown, Inc. ................................... 400 12,074
Samsonite Corp.+........................................ 100 3,163
Tricon Global Restaurants, Inc.+........................ 60 1,744
-----------
60,900
-----------
CONTAINERS--0.1%
Ball Corp. ............................................. 200 7,062
Owens-Illinois, Inc.+................................... 100 3,794
-----------
10,856
-----------
ELECTRONICS--2.7%
AMP, Inc. .............................................. 100 4,200
Anixter International, Inc.+............................ 200 3,300
Applied Materials, Inc. ................................ 200 6,025
Dallas Semiconductor Corp. ............................. 200 8,150
EG&G, Inc. ............................................. 400 8,325
Fluke Corp. ............................................ 200 5,213
</TABLE>
-------------
O-40
<PAGE>
-------------
SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
ELECTRONICS (CONTINUED)
Hadco Corp.+............................................ 100 $ 4,525
Innovex, Inc. .......................................... 100 2,294
Input/Output, Inc.+..................................... 200 5,938
Intel Corp. ............................................ 900 63,224
International Rectifier Corp.+.......................... 200 2,363
Jabil Circuit, Inc. .................................... 200 7,950
KLA-Tencor Corp.+....................................... 200 7,725
Lam Research Corp.+..................................... 100 2,925
Littlefuse, Inc. ....................................... 200 4,975
Lucent Technologies, Inc. .............................. 400 31,949
MEMC Electronic Materials, Inc.+........................ 200 3,050
Micron Technology, Inc.+................................ 100 2,600
Motorola, Inc. ......................................... 400 22,825
Perkin Elmer Corp. ..................................... 100 7,106
Raytheon Co. Class B.................................... 200 10,100
Rockwell International Corp. ........................... 100 5,225
S3, Inc.+............................................... 200 1,000
Sanmina Corp.+.......................................... 100 6,775
Technitrol, Inc. ....................................... 200 6,000
Tektronix, Inc. ........................................ 150 5,953
Texas Instruments, Inc. ................................ 400 18,000
Thermo Electron Corp.+.................................. 100 4,450
Uniphase Corp. ......................................... 200 8,275
Unitrode Corp. ......................................... 200 4,300
Vicor Corp.+............................................ 300 8,138
-----------
282,878
-----------
ENERGY--DEVELOPMENT--1.3%
Anadarko Petroleum Corp. ............................... 100 6,069
Apache Corp. ........................................... 100 3,506
Arch Coal, Inc. ........................................ 100 2,738
Atwood Oceanics, Inc. .................................. 200 9,474
Baker Hughes, Inc. ..................................... 161 7,024
Cliffs Drilling Co. .................................... 200 9,974
Grey Wolf, Inc.+........................................ 900 4,838
Halliburton Co. ........................................ 100 5,194
Helmerich & Payne, Inc. ................................ 100 6,788
Marine Drilling Company, Inc.+.......................... 200 4,150
MAXXAM, Inc.+........................................... 100 4,363
Newfield Exploration Co. ............................... 200 4,663
Newpark Resources, Inc. ................................ 400 7,000
Nuevo Energy Co.+....................................... 100 4,075
Occidental Petroleum Corp. ............................. 100 2,931
Parker Drilling Co.+.................................... 200 2,438
Pride International, Inc.+.............................. 200 5,050
</TABLE>
-------------
O-41
<PAGE>
-------------
SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
ENERGY--DEVELOPMENT (CONTINUED)
Schlumberger Ltd. ...................................... 300 $ 24,149
Tuboscope Vetco International Corp.+.................... 200 4,813
Varco International, Inc. .............................. 400 8,574
Vintage Petroleum, Inc. ................................ 200 3,800
Western Atlas, Inc. .................................... 100 7,400
-----------
139,011
-----------
FOOD--AGRICULTURE--2.8%
Archer-Daniels Midland Co. ............................. 210 4,554
Campbell Soup Co. ...................................... 200 11,624
Chiquita Brands International, Inc. .................... 200 3,263
Coca-Cola Bottling Co. ................................. 100 6,900
Coca-Cola Co. .......................................... 1,100 73,287
ConAgra, Inc. .......................................... 200 6,563
CPC International, Inc. ................................ 100 10,775
Dekalb Genetics Corp. Class B........................... 200 7,850
Delta & Pine Land Co. .................................. 177 5,399
Dimon, Inc. ............................................ 200 5,250
Earthgrains Co. ........................................ 200 9,400
General Mills, Inc. .................................... 100 7,163
H.J. Heinz Co. ......................................... 200 10,163
Hershey Foods Corp. .................................... 100 6,194
Kellogg Co. ............................................ 200 9,925
PepsiCo, Inc. .......................................... 600 21,862
Pioneer Hi-Bred International, Inc. .................... 100 10,725
Ralston Purina Co. ..................................... 100 9,294
Sara Lee Corp. ......................................... 200 11,263
Smithfield Foods, Inc. ................................. 200 6,600
Tootsie Roll Industries, Inc. .......................... 103 6,438
Unilever NV............................................. 400 24,974
Universal Foods Corp. .................................. 200 8,450
Wm. Wrigley Jr. Co. .................................... 100 7,956
-----------
285,872
-----------
GOLD--0.0%
Barrick Gold Corp. ..................................... 100 1,863
Battle Mountain Gold Co. ............................... 100 588
Getchell Gold Corp.+.................................... 100 2,399
-----------
4,850
-----------
HEALTHCARE--5.8%
Abbott Laboratories..................................... 500 32,780
Agouron Pharmaceuticals, Inc. .......................... 200 5,875
American Home Products Corp. ........................... 400 30,599
Amgen, Inc. ............................................ 100 5,413
Barr Laboratories, Inc. ................................ 150 5,119
</TABLE>
-------------
O-42
<PAGE>
-------------
SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
HEALTHCARE (CONTINUED)
Baxter International, Inc. ............................. 100 $ 5,044
Bio-Technology General Corp.+........................... 200 2,150
Block Drug Co., Inc. Class A............................ 106 4,585
Boston Scientific Corp.+................................ 107 4,909
Bristol-Myers Squibb Co. ............................... 600 56,774
Cardinal Health, Inc. .................................. 100 7,513
Carter-Wallace, Inc. ................................... 200 3,375
Cognex Corp.+........................................... 200 5,450
Columbia/HCA Healthcare Corp. .......................... 300 8,888
Eli Lilly & Co. ........................................ 700 48,737
Gilead Sciences, Inc.+.................................. 200 7,650
Guidant Corp. .......................................... 200 12,450
HealthSouth Corp. ...................................... 268 7,437
Human Genome Sciences, Inc.+............................ 100 3,975
ICN Pharmaceuticals, Inc. .............................. 200 9,763
Immunex Corp.+.......................................... 200 10,800
Incyte Pharmacuticals, Inc. ............................ 200 9,000
Johnson & Johnson....................................... 600 39,524
Medical Assurance, Inc. ................................ 212 5,963
Medicis Pharmaceutical Corp. ........................... 150 7,669
Medtronic, Inc. ........................................ 200 10,463
Merck & Co., Inc. ...................................... 700 74,374
Mid Atlantic Medical Services, Inc.+.................... 200 2,550
NovaCare, Inc.+......................................... 200 2,613
Perrigo Co.+............................................ 200 2,675
Pfizer, Inc. ........................................... 800 59,649
Pharmacia & Upjohn, Inc. ............................... 200 7,325
Protein Design Labs, Inc.+.............................. 100 4,000
Renal Treatment Centers, Inc.+.......................... 100 3,613
Schering-Plough Corp. .................................. 400 24,850
Sepracor, Inc.+......................................... 200 8,013
Sofamor/Danek Group, Inc.+.............................. 100 6,506
Sola International, Inc.+ 100 3,250
United Healthcare Co. .................................. 100 4,969
Vertex Pharmaceuticals, Inc.+........................... 100 3,300
Warner Lambert Co. ..................................... 200 24,800
-----------
584,392
-----------
HOUSEHOLD PRODUCTS--1.3%
Avon Products, Inc. .................................... 100 6,138
Clorox Co. ............................................. 100 7,906
Colgate-Palmolive Co. .................................. 200 14,700
Gillette Co. ........................................... 400 40,175
Procter & Gamble Co. ................................... 800 63,850
-----------
132,769
-----------
</TABLE>
-------------
O-43
<PAGE>
-------------
SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
IMAGING & PHOTO--0.2%
ATL Ultrasound+......................................... 100 $ 4,600
BMC Industries, Inc. ................................... 100 1,613
Eastman Kodak Co. ...................................... 200 12,162
Photronic, Inc. ........................................ 200 4,850
-----------
23,225
-----------
INSURANCE--4.1%
20th Century Industries................................. 200 5,200
Aetna, Inc. ............................................ 100 7,056
Allied Group, Inc. ..................................... 225 6,441
Allstate Corp. ......................................... 300 27,262
American Annuity Group, Inc. ........................... 200 4,400
American General Corp. ................................. 100 5,406
American International Group, Inc. ..................... 400 43,499
Aon Corp. .............................................. 100 5,863
Arthur J. Gallagher & Co. .............................. 100 3,444
Berkley (W.R.) Corp. ................................... 150 6,581
Capital Re Corp. ....................................... 100 6,206
Chubb Corp. ............................................ 100 7,563
CIGNA Corp. ............................................ 100 17,305
Cincinnati Financial Corp. ............................. 100 14,074
Citizens Corp. ......................................... 200 5,750
CMAC Investment Corp. .................................. 200 12,075
Commerce Group, Inc. ................................... 200 6,525
Conseco, Inc. .......................................... 32 1,454
Crawford & Co. Class B.................................. 200 4,088
Delphi Financial Group, Inc. Class A.................... 102 4,590
Enhance Financial Services Group, Inc. ................. 100 5,950
Executive Risk, Inc. ................................... 100 6,981
Financial Security Assured Holdings, Ltd. .............. 100 4,825
Foremost Corp. of America............................... 100 6,975
Fremont General Corp. .................................. 100 5,475
Frontier Insurance Group, Inc. ......................... 200 4,575
General Re Corp. ....................................... 100 21,199
Hartford Financial Services Group....................... 100 9,356
Horace Mann Educators Corp. ............................ 200 5,688
HSB Group, Inc. ........................................ 100 5,519
Jefferson-Pilot Corp. .................................. 100 7,788
Kansas City Life Insurance Co. ......................... 100 9,900
Liberty Corp. .......................................... 100 4,675
Life Re Corp. .......................................... 100 6,519
Lincoln National Corp. ................................. 100 7,813
Marsh & McLennan Companies, Inc. ....................... 100 7,456
MBIA Corp. ............................................. 200 13,363
MGIC Investment Corp. .................................. 200 13,300
</TABLE>
-------------
O-44
<PAGE>
-------------
SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
INSURANCE (CONTINUED)
MMI Companies, Inc. .................................... 100 $ 2,513
NAC Re Corp. ........................................... 100 4,881
Orion Capital Corp. .................................... 200 9,288
Progressive Corp. ...................................... 100 11,988
Reinsurance Group of America, Inc. ..................... 150 6,384
Selective Insurance Group, Inc. ........................ 200 5,400
Sierra Health Services, Inc.+........................... 100 3,363
St. Paul Companies, Inc. ............................... 100 8,206
SunAmerica, Inc. ....................................... 150 6,413
Transamerica Corp. ..................................... 100 10,650
Trenwick Group, Inc. ................................... 150 5,644
Vesta Insurance Group, Inc. ............................ 100 5,938
-----------
422,807
-----------
INTERNATIONAL--19.1%
AUSTRALIA--0.3%
Australia & New Zealand Banking Group................... 437 2,888
Broken Hill Proprietary Co., Ltd. ...................... 572 5,312
Coca-Cola Amatil, Ltd. ................................. 154 1,151
Commonwealth Bank....................................... 270 3,097
National Australia Bank................................. 425 5,936
News Corporation, Ltd. ................................. 567 3,130
Western Mining Corp. ................................... 319 1,112
Westpac Banking Corp. .................................. 510 3,263
-----------
25,889
-----------
BELGIUM--0.1%
Electrabel.............................................. 15 3,469
Fortis AG............................................... 11 2,295
Generale de Banque...................................... 5 2,176
Petrofina SA............................................ 7 2,584
Societe Generale de Belgique............................ 20 1,830
Tractebel Investor International Capital................ 20 1,744
-----------
14,098
-----------
CANADA--0.5%
Alcan Aluminum, Ltd. ................................... 64 1,765
Bank of Montreal, Quebec................................ 73 3,236
Bank of Nova Scotia, Halifax............................ 67 3,158
Barrick Gold Corp. ..................................... 105 1,958
BCE, Inc. .............................................. 178 5,935
Canadian Imperial Bank of Commerce...................... 116 3,620
Canadian Pacific, Ltd. ................................. 98 2,640
Imperial Oil, Ltd. ..................................... 45 2,897
</TABLE>
-------------
O-45
<PAGE>
-------------
SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
CANADA (CONTINUED)
INCO, Ltd. ............................................. 47 $ 799
Northern Telecom, Ltd. ................................. 73 6,496
Royal Bank of Canada, Montreal, Quebec.................. 89 4,708
Seagram Co., Ltd. ...................................... 105 3,398
Thomson Corp. .......................................... 168 4,626
Toronto Dominion Bank Ontario........................... 82 3,087
-----------
48,323
-----------
DENMARK--1.1%
D/S 1912 Series B....................................... 1 46,119
D/S Svendborg Series B.................................. 1 65,674
Novo Nordisk A/S Series B............................... 22 3,147
Tele Danmark A/S Series B............................... 37 2,295
-----------
117,235
-----------
FRANCE--1.0%
Alcatel Alsthom SA...................................... 46 5,847
AXA Groupe SA........................................... 92 7,119
Banque Nationale de Paris............................... 59 3,136
Carrefour............................................... 11 5,739
Christian Dior.......................................... 12 1,230
Cie Financiere de Paribas (Bearer)...................... 35 3,041
Cie Generale de Eaux.................................... 35 4,885
Compagnie de Saint-Gobain SA............................ 24 3,409
Danone Groupe........................................... 20 3,572
L'Air Liquide........................................... 21 3,287
L'Oreal SA.............................................. 19 7,435
Lafarge Coppee SA....................................... 27 1,772
LVMH (Moet Hennessy Louis Vuitton)...................... 25 4,150
Lyonnaise des Eaux-Dumez................................ 38 4,205
Michelin (CDGE) Class B (Reg.).......................... 33 1,661
Pinault Printemps Redoute SA............................ 6 3,201
Promodes................................................ 6 2,489
Rhone-Poulenc SA, Class A............................... 93 4,166
Sanofi.................................................. 30 3,340
Schneider SA............................................ 38 2,063
SGS-Thomson Microelectronics N.V.+...................... 39 2,414
Societe Generale........................................ 26 3,542
Societe Nationale Elf Aquitaine......................... 77 8,957
Synthelabo.............................................. 14 1,749
Total SA Class B........................................ 68 7,401
-----------
99,810
-----------
GERMANY--1.2%
BASF AG................................................. 172 6,095
Bayer AG................................................ 199 7,434
</TABLE>
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<PAGE>
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SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
GERMANY (CONTINUED)
Bayerische Hypotheken & Wechsel Bank AG................. 73 $ 3,563
Bayerische Motoren Werke AG............................. 6 4,486
Bayerische Vereinsbank AG............................... 75 4,907
Commerzbank AG.......................................... 109 4,290
Daimler Benz AG......................................... 145 10,172
Deutsche Bank AG........................................ 141 9,954
Dresdner Bank AG........................................ 126 5,813
Hoechst AG.............................................. 164 5,743
Linde AG................................................ 2 1,221
Lufthansa AG (Reg.)+.................................... 308 5,907
Mannesmann AG........................................... 10 5,053
Metro AG................................................ 62 2,223
Munchener Ruckvers (Reg.)............................... 20 7,538
RWE AG.................................................. 95 5,096
SAP AG.................................................. 17 5,164
Schering AG............................................. 20 1,929
Siemens AG.............................................. 158 9,354
Thyssen AG.............................................. 9 1,926
Veba AG................................................. 138 9,397
Vereinigte Elektrizitat Westfalen Series B.............. 6 1,884
VIAG AG................................................. 7 3,771
Volkswagen AG........................................... 8 4,500
-----------
127,420
-----------
HONG KONG--0.4%
Hang Seng Bank, Ltd. ................................... 1,000 9,646
Hong Kong Telecommunications, Ltd. ..................... 3,200 6,587
HSBC Holdings........................................... 503 12,409
Hutchison Whampoa, Ltd. ................................ 1,000 6,272
Sun Hung Kai Properties................................. 1,000 6,969
-----------
41,883
-----------
ITALY--0.5%
Assicurazioni Generali.................................. 249 6,116
ENI SPA (Reg.).......................................... 2,273 12,888
Fiat Finance SPA (Convertible).......................... 1,019 2,964
INA..................................................... 1,129 2,288
Telecom Italia.......................................... 1,874 8,650
Telecom Italia SPA di Risp+............................. 500 2,205
Telecom Italia SPA+..................................... 2,123 13,560
-----------
48,671
-----------
JAPAN--5.3%
Bank of Tokyo--Mitsubishi, Ltd. ........................ 2,000 27,571
Canon, Inc. ............................................ 1,000 23,283
Dai-Ichi Kangyo Bank, Ltd. ............................. 1,000 5,897
</TABLE>
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O-47
<PAGE>
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SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
JAPAN (CONTINUED)
DDI Corp. .............................................. 1 $ 2,642
East Japan Railway Co. ................................. 2 9,022
Fuji Bank, Ltd. ........................................ 1,000 4,044
Fujitsu, Ltd. .......................................... 1,000 10,722
Hitachi, Ltd. .......................................... 1,000 7,123
Honda Motor Co., Ltd. .................................. 1,000 36,685
Industrial Bank of Japan, Ltd. ......................... 1,000 7,123
Japan Telecom Co. ...................................... 1 8,808
Japan Tobacco, Inc. .................................... 1 7,092
Kawasaki Steel Co. ..................................... 1,000 1,363
Kobe Steel.............................................. 1,000 804
Kyocera Corp. .......................................... 1,000 45,340
Matsushita Electric Industrial Co., Ltd. ............... 1,000 14,628
Mitsubishi Heavy Industries............................. 1,000 4,166
Nippon Steel Corp. ..................................... 1,000 1,478
Nippon Telegraph & Telephone Corp. ..................... 5 42,889
Nippondenso Co. ........................................ 1,000 17,998
Nissan Motor Co., Ltd. ................................. 1,000 4,136
NKK Corp. .............................................. 1,000 797
Nomura Securities Co., Ltd. ............................ 1,000 13,326
NTT Data Corp. ......................................... 1 53,840
Osaka Gas Co. .......................................... 1,000 2,282
Sakura Bank............................................. 1,000 2,857
Sanwa Bank.............................................. 1,000 10,110
Sony Corp. ............................................. 1,000 88,840
Sumitomo Bank........................................... 1,000 11,412
Sumitomo Metal Industries............................... 1,000 1,279
Takeda Chemical Industries.............................. 1,000 28,490
Tokyo Electric Power Co., Inc. ......................... 1,000 18,228
Tokyo Gas Co. .......................................... 1,000 2,267
Toshiba Corp. .......................................... 1,000 4,159
Toyota Motor Corp. ..................................... 1,000 28,644
-----------
549,345
-----------
NETHERLANDS--1.0%
ABN AMRO Holdings NV.................................... 364 7,091
Aegon NV................................................ 74 6,587
Ahold (Kon) NV.......................................... 141 3,679
Akzo Nobel NV........................................... 20 3,448
Dordtsche Petroleum..................................... 40 2,146
Elsevier NV............................................. 187 3,025
Fortis Amev NV.......................................... 51 2,223
Heineken NV............................................. 14 2,437
ING Groep NV............................................ 216 9,097
Koninklijke PTT Nederland............................... 131 5,466
</TABLE>
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O-48
<PAGE>
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SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
NETHERLANDS (CONTINUED)
Philips Electronics NV.................................. 98 $ 5,877
PolyGram NV............................................. 51 2,440
Royal Dutch Petroleum Co. .............................. 604 33,155
Unilever NV............................................. 180 11,097
Wolters Kluwer NV....................................... 19 2,454
-----------
100,222
-----------
SINGAPORE--0.1%
Hong Kong Land Holdings................................. 1,014 1,947
Singapore Telecommunications............................ 2,000 3,726
-----------
5,673
-----------
SPAIN--0.4%
Argentaria Corp. ....................................... 35 2,130
BCO Bilbao Vizcaya...................................... 189 6,115
BCO Popular............................................. 36 2,517
BCO Santander (Reg.).................................... 135 4,510
Endesa SA............................................... 292 5,185
Gas Natural SDG......................................... 44 2,282
Iberdrola SA............................................ 259 3,409
Repsol SA............................................... 85 3,627
Telefonica Internacional de Espana SA................... 265 7,565
-----------
37,340
-----------
SWEDEN--0.2%
ABB AB Series A......................................... 190 2,249
Astra AB Series A....................................... 378 6,546
Astra AB Series B....................................... 85 1,429
L.M. Ericsson Telephone Series B........................ 270 10,152
Sandvik AB Series A..................................... 59 1,679
Volvo AB Series B....................................... 87 2,334
-----------
24,389
-----------
SWITZERLAND--3.3%
ABB AG (Bearer)+........................................ 2 2,512
ABB AG (Reg.)+.......................................... 2 505
Adecco SA............................................... 5 1,449
Alusuisse Lonza HD (Reg.)............................... 2 1,920
Ciba Specialty (Reg.)+.................................. 21 2,501
Cie Financiere Richemont Series A (Bearer).............. 2 2,176
CS Holding (Reg.)....................................... 68 10,517
Holderbank Financiere Glaris (Bearer)................... 2 1,632
Holderbank Financiere Glaris (Reg.)..................... 3 489
Nestle SA (Reg.)........................................ 11 16,479
Novartis AG (Bearer).................................... 101 164,162
</TABLE>
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O-49
<PAGE>
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SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
SWITZERLAND (CONTINUED)
Novartis AG (Reg.)...................................... 23 $ 37,305
Roche Group Holding AG.................................. 4 39,707
Roche Group Holding AG (Bearer)......................... 2 30,797
Schweizerische Bankgesellschaft (Bearer)................ 6 8,672
Schweizerische Bankgesellschaft (Reg.).................. 7 2,017
Schweizerische Bankverein (Reg.)........................ 21 6,525
Zurich Versicherung (Reg.).............................. 13 6,192
-----------
335,557
-----------
UNITED KINGDOM--3.7%
Abbey National.......................................... 396 7,129
Allied-Lyons PLC........................................ 301 2,601
Asda Group.............................................. 820 2,412
Associated British Foods................................ 254 2,211
BAA PLC................................................. 297 2,429
Bank of Scotland PLC.................................... 600 5,450
Barclays PLC............................................ 432 11,500
Bass PLC................................................ 248 3,858
BAT Industries PLC...................................... 889 8,107
BG...................................................... 1,092 4,914
BOC Group............................................... 138 2,269
Boots Co. .............................................. 255 3,671
British Aerospace....................................... 121 3,448
British Airways......................................... 274 2,520
British Petroleum Co. .................................. 1,601 21,179
British Sky Broadcast................................... 484 3,625
British Telecommunications.............................. 1,775 13,986
BTR PLC................................................. 1,129 3,412
Cable & Wireless........................................ 631 5,545
Cadbury Schweppes....................................... 280 2,826
Commercial Union Assurance Co. ......................... 190 2,650
Diageo PLC.............................................. 1,148 10,503
Emi Group PLC........................................... 219 1,827
Enterprise Oil PLC...................................... 500 4,763
General Accident PLC.................................... 400 7,194
General Electric Company PLC............................ 779 5,048
GKN PLC................................................. 99 2,028
Glaxo Wellcome PLC...................................... 989 23,577
Granada Group........................................... 241 3,681
Great Universal Stores.................................. 284 3,578
HSBC Holdings PLC....................................... 243 6,306
Imperial Chemical Industries............................ 205 3,202
J. Sainsbury PLC........................................ 522 4,398
Kingfisher.............................................. 189 2,639
Legal & General Group................................... 748 6,536
</TABLE>
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O-50
<PAGE>
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SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
UNITED KINGDOM (CONTINUED)
Lloyds TSB Group PLC.................................... 1,626 $ 21,154
Marks & Spencer PLC..................................... 796 7,872
National Grid Group PLC................................. 500 2,373
National Power Development.............................. 321 3,163
National Westminster Bancorp............................ 492 8,178
Pearson, Inc. .......................................... 157 2,040
Peninsular & Oriental Steam Navigation.................. 174 1,979
Powergen................................................ 198 2,576
Prudential Corp. ....................................... 540 6,576
Rank Group.............................................. 535 2,979
Reckitt & Colman PLC.................................... 500 7,843
Reed International...................................... 320 3,048
Rentokil Initial........................................ 704 3,115
Reuters Holdings PLC.................................... 473 5,166
Rolls Royce PLC......................................... 1,000 3,860
Royal Bank of Scotland.................................. 232 2,958
Royal Sun Alliance PLC.................................. 600 6,041
RTZ Corp. PLC (Reg.).................................... 304 3,747
Safeway PLC............................................. 309 1,741
Schroders............................................... 56 1,760
Scot & Newcastle........................................ 173 2,118
Scottish Power.......................................... 326 2,881
Shell Transport & Trading Co. (Reg.).................... 2,805 19,673
Siebe PLC............................................... 130 2,552
Smithkline Beecham...................................... 1,558 16,058
Standard Chartered PLC.................................. 275 2,936
Tesco PLC............................................... 621 5,121
Unilever PLC............................................ 920 7,914
United News & Media PLC................................. 133 1,514
United Utilities PLC.................................... 500 6,406
Vodafone Group PLC...................................... 871 6,295
Whitbread............................................... 137 2,012
Zeneca Group............................................ 267 9,458
-----------
384,129
-----------
1,959,984
-----------
MEDIA--1.7%
American Radio Systems Corp.+........................... 200 10,662
Cablevision Systems Corp. Class A+...................... 100 9,575
CBS Corp.+.............................................. 200 5,888
Clear Channel Communications, Inc. ..................... 100 7,944
Gannett Co., Inc. ...................................... 200 12,362
Heftel Broadcasting Corp................................ 200 9,350
Hollinger International, Inc. .......................... 200 2,800
Houghton Mifflin Co. ................................... 200 7,675
</TABLE>
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O-51
<PAGE>
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SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------------
MEDIA (CONTINUED)
McGraw Hill Companies, Inc. ............................... 100 $ 7,400
Media General, Inc. Class A................................ 200 8,363
SBC Communications, Inc. .................................. 546 39,994
TCA Cable TV, Inc. ........................................ 200 9,200
Telecommunications, Inc. Series A (TCI Group)................. 200 5,588
Time Warner, Inc. ......................................... 200 12,399
United Television, Inc. ................................... 100 10,388
Viacom, Inc. Class B+...................................... 200 8,288
Westwood One, Inc.+........................................ 200 7,425
-----------
175,301
-----------
MISCELLANEOUS FINANCE--3.0%
Aames Financial Corp. ..................................... 150 1,941
American Express Co. ...................................... 300 26,774
Astoria Financial Corp. ................................... 100 5,575
Beneficial Corp. .......................................... 100 8,313
BOK Financial Corp. ....................................... 103 3,998
Charles Schwab Corp. ...................................... 150 6,291
Coast Savings Financial, Inc.+............................. 100 6,856
Commercial Federal Corp. .................................. 225 8,002
Countrywide Credit Industries, Inc. ....................... 100 4,288
Eaton Vance Corp. ......................................... 200 7,550
Fannie Mae................................................. 400 22,824
First American Financial Corp. ............................ 100 7,388
Freddie Mac................................................ 200 8,388
GATX Corp. ................................................ 100 7,256
Golden West Financial Corp. ............................... 100 9,781
Household International, Inc. ............................. 100 12,756
Interra Financial, Inc. ................................... 100 6,900
Jefferies Group, Inc. ..................................... 200 8,188
John Nuveen Co. Class A.................................... 200 7,000
JSB Financial, Inc. ....................................... 100 5,006
Legg Mason, Inc. .......................................... 133 7,440
McDonald & Company Investments, Inc. ...................... 200 5,675
Merrill Lynch & Co., Inc. ................................. 200 14,587
Morgan Stanley, Dean Witter, Discover & Co. ............... 365 21,580
Peoples Heritage Financial Group, Inc. .................... 200 9,200
Quick & Reilly Group, Inc. ................................ 150 6,450
Raymond James Financial, Inc. ............................. 200 7,938
Sovereign Bancorp, Inc. ................................... 200 4,150
Travelers Group, Inc. ..................................... 718 38,681
Value Line, Inc. .......................................... 100 3,950
Washington Mutual, Inc. ................................... 200 12,763
-----------
307,489
-----------
</TABLE>
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O-52
<PAGE>
-------------
SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
MOTOR VEHICLE--1.2%
Borg Warner Automotive, Inc. ........................... 100 $ 5,200
Chrysler Corp. ......................................... 300 10,556
Cummins Engine Co., Inc. ............................... 100 5,906
Eaton Corp. ............................................ 100 8,925
Federal-Mogul Corp. .................................... 200 8,100
Ford Motor Co. ......................................... 500 24,344
General Motors Corp. ................................... 400 24,250
Mascotech, Inc. ........................................ 200 3,675
Navistar International Corp.+........................... 900 22,331
TRW, Inc. .............................................. 100 5,338
-----------
118,625
-----------
NON-FERROUS--0.4%
Aluminum Company of America............................. 100 7,037
Commercial Metals Co. .................................. 100 3,156
Kaiser Aluminum Corp.+.................................. 200 1,763
Minerals Technologies, Inc. ............................ 100 4,544
Mueller Industries, Inc.+............................... 100 5,900
Phelps Dodge Corp. ..................................... 100 6,225
Reliance Steel & Aluminum Co. .......................... 150 4,463
Reynolds Metals Co. .................................... 100 6,000
Wolverine Tube, Inc.+................................... 100 3,100
-----------
42,188
-----------
OIL--DOMESTIC--0.5%
Amerada Hess Corp. ..................................... 100 5,488
Atlantic Richfield Co. ................................. 200 16,025
KCS Energy, Inc. ....................................... 200 4,150
Kerr-McGee Corp. ....................................... 100 6,331
Pennzoil Co. ........................................... 100 6,681
Phillips Petroleum Co. ................................. 100 4,863
Unocal Corp. ........................................... 100 3,881
USX-Marathon Group...................................... 100 3,375
-----------
50,794
-----------
OIL--INTERNATIONAL--2.2%
Amoco Corp. ............................................ 300 25,538
Chevron Corp. .......................................... 400 30,800
Exxon Corp. ............................................ 1,200 73,424
Mobil Corp. ............................................ 500 36,094
Royal Dutch Petroleum Co.--Sponsored ADR**.............. 1,000 54,188
Texaco, Inc. ........................................... 200 10,875
-----------
230,919
-----------
</TABLE>
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O-53
<PAGE>
-------------
SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
PAPER--0.4%
Georgia-Pacific Corp. .................................. 100 $ 6,075
International Paper Co. ................................ 200 8,625
Kimberly-Clark Corp. ................................... 200 9,862
Longview Fibre Co. ..................................... 200 3,038
Mead Corp. ............................................. 200 5,600
Temple Inland, Inc. .................................... 100 5,231
Thermo Fibertek, Inc. .................................. 200 2,438
Weyerhaeuser Co. ....................................... 100 4,906
-----------
45,775
-----------
PRODUCER GOODS & MANUFACTURING--4.6%
Allied Signal, Inc. .................................... 200 7,788
Applied Power, Inc. Class A............................. 100 6,900
AptarGroup, Inc. ....................................... 100 5,550
Barnes Group, Inc. ..................................... 300 6,825
Butler Manufacturing Co. ............................... 100 3,225
Case Corp. ............................................. 100 6,044
Caterpillar, Inc. ...................................... 200 9,713
Cincinnati Milacron, Inc. .............................. 200 5,188
Deere & Co. ............................................ 100 5,831
Donaldson Co., Inc. .................................... 100 4,506
Dover Corp. ............................................ 200 7,225
Emerson Electric Co. ................................... 200 11,288
Fisher Scientific International, Inc. .................. 100 4,775
Flowserve Corp. ........................................ 200 5,588
FMC Corp.+.............................................. 100 6,731
General Electric Co. ................................... 1,800 132,074
Hon Industries, Inc. ................................... 100 5,900
Hughes Supply, Inc. .................................... 150 5,241
IDEX Corp. ............................................. 150 5,231
Illinois Tool Works, Inc. .............................. 200 12,024
Insilco Corp.+.......................................... 100 3,300
Ionics, Inc.+........................................... 100 3,913
JLG Industries, Inc. ................................... 200 2,825
Kaydon Corp. ........................................... 200 6,525
Lincoln Electric Co. ................................... 100 3,900
Manitowoc Co., Inc. .................................... 150 4,875
McDermott International, Inc. .......................... 1,200 43,949
NACCO Industries, Inc. Class A.......................... 200 21,437
PRI Automation, Inc. ................................... 200 5,775
Raychem Corp. .......................................... 200 8,613
Roper Industries, Inc. ................................. 200 5,650
Safeskin Corp. ......................................... 200 11,349
SPS Technologies, Inc. ................................. 200 8,725
SPX Corp. .............................................. 100 6,900
</TABLE>
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O-54
<PAGE>
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SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
PRODUCER GOODS & MANUFACTURING (CONTINUED)
Standex International Corp. ............................ 100 $ 3,525
Teleflex, Inc. ......................................... 200 7,550
Texas Industries, Inc. ................................. 200 9,000
TriMas Corp. ........................................... 300 10,313
Tyco International Ltd. ................................ 296 13,338
Valhi, Inc. ............................................ 300 2,831
Valmont Industries, Inc. ............................... 200 3,900
W.W. Grainger, Inc. .................................... 100 9,719
Waters Corp.+........................................... 200 7,525
Westpoint Stevens, Inc. Class A+........................ 200 9,450
-----------
472,534
-----------
RAILROAD--0.4%
Burlington Northern Santa Fe Corp. ..................... 100 9,294
CSX Corp. .............................................. 100 5,400
Florida East Coast Industry, Inc. ...................... 100 9,613
Norfolk Southern Corp. ................................. 300 9,244
Union Pacific Corp. .................................... 200 12,487
-----------
46,038
-----------
REAL PROPERTY--0.1%
Catellus Development Corp.+............................. 200 4,000
Forest City Enterprises, Inc. Class A................... 150 8,719
Lennar Corp. ........................................... 100 2,156
-----------
14,875
-----------
RETAIL--2.3%
Albertson's, Inc. ...................................... 100 4,738
Arbor Drugs, Inc. ...................................... 300 5,550
AutoZone, Inc.+......................................... 100 2,900
Barnes & Noble, Inc. ................................... 400 13,349
Best Buy Co., Inc.+..................................... 200 7,375
Chancellor Media Corp. ................................. 200 14,924
Claire's Stores, Inc. .................................. 200 3,888
CVS Corp. .............................................. 100 6,406
Dayton Hudson Corp. .................................... 100 6,750
Dollar Tree Stores, Inc. ............................... 150 6,206
Federated Department Stores, Inc.+...................... 100 4,306
Fingerhut Companies, Inc. .............................. 200 4,275
Gap, Inc. .............................................. 150 5,316
Heilig-Meyers Co. ...................................... 200 2,400
Home Depot, Inc. ....................................... 300 17,662
Homebase, Inc. ......................................... 100 788
J.C. Penney Co., Inc. .................................. 100 6,031
Kmart Corp.+............................................ 100 1,156
</TABLE>
-------------
O-55
<PAGE>
-------------
SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------
RETAIL (CONTINUED)
Lands' End, Inc.+....................................... 200 $ 7,013
Longs Drug Stores, Inc. ................................ 400 12,850
Mac Frugals Bargains Close-Outs, Inc.+ ................. 200 8,225
May Department Stores Co. .............................. 100 5,269
Neiman Marcus Group, Inc.+.............................. 200 6,050
Pier 1 Imports, Inc. ................................... 300 6,788
Proffitt's, Inc. ....................................... 200 5,688
Quality Food Centers, Inc.+............................. 100 6,700
Ruddick Corp. .......................................... 200 3,488
Sears Roebuck & Co. .................................... 200 9,050
Toys "R' Us, Inc.+...................................... 100 3,144
Wal Mart Stores, Inc. .................................. 900 35,493
Walgreen Co. ........................................... 200 6,275
Whole Foods Market, Inc.+............................... 200 10,225
-----------
240,278
-----------
STEEL--0.3%
Bethlehem Steel Corp.+.................................. 1,000 8,625
Carpenter Technology Corp. ............................. 100 4,806
Cleveland-Cliffs, Inc. ................................. 100 4,581
Inland Steel Industries, Inc. .......................... 800 13,701
-----------
31,713
-----------
TELEPHONE--2.9%
ACC Corp. .............................................. 100 5,050
AirTouch Communications, Inc.+.......................... 200 8,313
Aliant Communications, Inc. ............................ 200 6,275
Ameritech Corp. ........................................ 400 32,200
Associated Group, Inc. Class A.......................... 200 5,925
AT&T Corp. ............................................. 700 42,874
Bell Atlantic Corp. .................................... 453 41,223
BellSouth Corp. ........................................ 400 22,525
Cellular Communications International, Inc.+............ 100 4,675
Coherent, Inc.+......................................... 100 3,513
Frontier Corp. ......................................... 100 2,406
GTE Corp. .............................................. 400 20,900
Intermedia Communications, Inc.+........................ 100 6,075
Jacor Communications, Inc. Class A+..................... 200 10,625
MCI Communications Corp. ............................... 300 12,844
Mobile Telecommunications Technologies Corp.+........... 200 4,400
Northern Telecom Ltd. .................................. 200 17,800
Plantronics, Inc. ...................................... 200 8,000
Sprint Corp. ........................................... 200 11,725
Tel Save Holdings, Inc. ................................ 200 3,975
Tellabs, Inc. .......................................... 100 5,288
</TABLE>
-------------
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<PAGE>
-------------
SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- -----------------------------------------------------------------------------
TELEPHONE (CONTINUED)
U.S. West, Inc. (Communications Group)................ 200 $ 9,025
U.S. West, Inc. (Media Group)+........................ 200 5,775
WorldCom, Inc. ....................................... 300 9,075
-----------
300,486
-----------
TOBACCO--0.6%
Loew's Corp. ......................................... 100 10,613
Philip Morris Companies., Inc. ....................... 1,100 49,843
-----------
60,456
-----------
TRANSPORTATION--MISCELLANEOUS--0.6%
Airborne Freight Corp. ............................... 100 6,213
Caliber Systems, Inc. ................................ 500 24,343
CNF Transportation, Inc. ............................. 200 7,675
Expeditores International of Washington, Inc. ........ 200 7,700
Federal Express Corp. ................................ 100 6,106
XTRA Corp. ........................................... 100 5,863
-----------
57,900
-----------
TRAVEL & RECREATION--0.7%
Anchor Gaming+........................................ 100 5,575
Bristol Hotel Co. .................................... 150 4,359
Central Parking Corp. ................................ 150 6,797
Coleman Co., Inc. .................................... 200 3,213
ITT Corp. ............................................ 100 8,288
Marriott International, Inc. ......................... 100 6,925
Mirage Resorts, Inc. ................................. 100 2,275
Walt Disney Co. ...................................... 400 39,624
-----------
77,056
-----------
UTILITIES--1.3%
American Electric Power Co., Inc. .................... 100 5,163
Atlantic Energy, Inc. ................................ 200 4,238
CILCORP, Inc. ........................................ 100 4,888
Coastal Corp. ........................................ 100 6,194
Columbia Gas System, Inc. ............................ 100 7,855
Duke Power Co. ....................................... 100 5,538
Eastern Enterprises................................... 200 8,999
Edison International.................................. 100 2,719
Enron Corp............................................ 100 4,156
First Energy Corp.+................................... 100 2,900
FPL Group, Inc........................................ 100 5,919
IES Industries, Inc................................... 100 3,681
Minnesota Power & Light Co............................ 200 8,712
Nevada Power Co....................................... 200 5,313
</TABLE>
-------------
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<PAGE>
-------------
SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER
COMMON STOCK (CONTINUED) OF SHARES VALUE
<S> <C> <C>
- ---------------------------------------------------------------------
UTILITIES (CONTINUED)
Orange & Rockland Utilities, Inc.............. 100 $ 4,656
Otter Tail Power Co........................... 100 3,788
Pacific Gas & Electric Corp................... 100 3,044
PacifiCorp.................................... 100 2,731
Rochester Gas & Electric Corp................. 200 6,800
Sierra Pacific Resources...................... 200 7,500
SIGCORP, Inc.................................. 150 4,406
Southern Co................................... 200 5,175
Tejas Gas Corp.+.............................. 100 6,125
Texas Utilities Co............................ 100 4,156
Washington Gas Light Co....................... 200 6,188
WICOR, Inc.................................... 100 4,644
-----------
135,488
-----------
TOTAL COMMON STOCK
(Cost $6,761,002)............................ 8,162,882
-----------
PREFERRED STOCK--0.1%
- ---------------------------------------------------------------------
AUSTRALIA--0.0%
News Corporation, Ltd. (Limited Voting
Shares)...................................... 326 1,614
-----------
GERMANY--0.1%
RWE AG (Non-Voting).............................. 56 2,366
Sap AG (Non-Voting)........................... 11 3,598
Volkswagen AG (Non-Voting).................... 3 1,287
-----------
7,251
-----------
TOTAL PREFERRED STOCK
(Cost $6,390)................................ 8,865
-----------
WARRANTS--0.0%
- ---------------------------------------------------------------------
BELGIUM--0.0%
Generale de Banque (expire 11/15/99)+......... 4 10
-----------
FRANCE--0.0%
AXA UAP CVG (expire 01/07/99)+................ 38 37
Cie Generale de Eaux (expire 05/02/01)+....... 35 24
-----------
61
-----------
TOTAL WARRANTS
(Cost $95)................................... 71
-----------
</TABLE>
-------------
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<PAGE>
-------------
SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
AGENCY NOTES--19.3%(A) PAR VALUE
- -------------------------------------------------------------------------------
Federal Home Loan Bank Discount Notes
5.620%, 03/10/98....................................... $ 600,000 $ 593,880
Federal National Mortgage Association Discount Notes
5.480%, 01/30/98....................................... 400,000 398,224
5.460%, 01/15/98....................................... 1,000,000 997,940
-----------
TOTAL AGENCY NOTES
(Cost $1,989,742)...................................... 1,990,044
-----------
CASH EQUIVALENTS--1.4%
- -------------------------------------------------------------------------------
MSTC Cash Reserve Liquid Asset Fund*
5.490%, 01/07/98....................................... 143,768 143,768
-----------
TOTAL CASH EQUIVALENTS
(Cost $143,768)........................................ 143,768
-----------
TOTAL INVESTMENTS--100%
(Cost $8,900,996)...................................... $10,305,630
===========
</TABLE>
- -------
+--Non-Income Producing Security.
NOTES TO SCHEDULE OF INVESTMENTS
* Interest rate represents the yield as of the report date.
(a)Interest rate represents stated coupon rate of security.
See accompanying Notes to Financial Statements.
-------------
O-59
<PAGE>
-------------
SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH ANNUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Investments at value (Cost $8,900,997)............................ $10,305,617
Foreign currencies, at value (cost $48,984)....................... 46,893
Receivables:
Fund shares sold................................................. 3,354
From advisor..................................................... 773
Dividends receivable.............................................. 12,160
Interest receivable............................................... 1,474
Deferred organization costs....................................... 1,750
Foreign dividend tax refund receivable............................ 1,293
-----------
Total Assets..................................................... 10,375,314
-----------
LIABILITIES
Custodian fees.................................................... 19,615
Accrued expenses.................................................. 20,599
-----------
Total Liabilities................................................ 40,214
-----------
Net Assets applicable to outstanding shares....................... $10,333,100
===========
NET ASSETS consist of:
Paid-in-capital................................................... $ 8,543,553
Undistributed net investment income............................... 149,729
Accumulated net realized gain on investments sold and foreign
currency transactions............................................ 237,289
Net unrealized appreciation on investments and translating assets
and liabilities into reporting currency.......................... 1,402,529
-----------
$10,333,100
===========
PRICING OF SHARES:
Outstanding shares, $0.00001 par value (unlimited shares
authorized)...................................................... 797,712
NET ASSET VALUE, offering and redemption price per share.......... $ 12.95
</TABLE>
- -------
See accompanying Notes to Financial Statements.
-------------
O-60
<PAGE>
-------------
SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH ANNUITY PORTFOLIO
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
- ------------------------------------------------------------------------------
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign tax withheld of $4,450)................ $ 90,302
Interest......................................................... 114,700
----------
Total investment income......................................... 205,002
----------
EXPENSES:
Investment advisory and administration fee....................... 55,299
Custodian fees................................................... 41,650
Professional fees................................................ 19,736
Portfolio accounting fees........................................ 9,962
Shareholder reports.............................................. 13,472
Trustees' fees................................................... 5,354
Amortization of deferred organization costs...................... 730
Insurance and other expenses..................................... 2,965
----------
149,168
Less: expenses reduced and absorbed (see Note 4).................. (93,012)
----------
Net expenses incurred by Fund................................... 56,156
----------
NET INVESTMENT INCOME............................................. 148,846
----------
NET REALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gain on investments sold........................... 240,960
Net realized loss on foreign currency transactions.............. (2,647)
----------
Net realized gain on investments sold and foreign currency
transactions................................................... 238,313
----------
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON
INVESTMENTS AND FOREIGN CURRENCY TRANSLATION:
Net unrealized appreciation on investments...................... 1,212,513
Net unrealized depreciation on foreign currency................. (2,030)
----------
Net unrealized appreciation on investments and foreign curren-
cy............................................................. 1,210,483
Net gain on investments......................................... 1,448,796
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. $1,597,642
==========
</TABLE>
- -------
See accompanying Notes to Financial Statements.
-------------
O-61
<PAGE>
-------------
SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH ANNUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1997 1996*
- --------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income............................... $ 148,846 $ 20,060
Net realized gain on investments sold and foreign
currency transactions.............................. 238,313 647
Net unrealized appreciation on investments and
foreign currency................................... 1,210,483 192,046
----------- ----------
Increase in net assets resulting from operations.... 1,597,642 212,753
----------- ----------
Dividends to shareholders from net investment
income............................................. (19,177) --
Distributions to shareholders from net capital
gains.............................................. (1,671) --
----------- ----------
Total distributions................................. (20,848) --
----------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold........................... 3,901,562 5,171,338
Net asset value of shares issued in reinvestment of
dividends.......................................... 20,848 --
Less payments for shares redeemed................... (550,195) --
----------- ----------
Increase in net assets from capital share
transactions....................................... 3,372,215 5,171,338
----------- ----------
Total increase in net assets........................ 4,949,009 5,384,091
NET ASSETS:
Beginning of period................................. 5,384,091 --
----------- ----------
End of period (including undistributed net
investment income of $150 and $20,060,
respectively)...................................... $10,333,100 $5,384,091
=========== ==========
NUMBER OF FUND SHARES:
Sold................................................ 329,511 516,513
Reinvested.......................................... 1,653 --
Redeemed............................................ (49,965) --
----------- ----------
Net increase in shares outstanding.................. 281,199 516,513
=========== ==========
</TABLE>
- -------
* Period from November 1, 1996 (commencement of operations) to December 31,
1996.
See accompanying Notes to Financial Statements.
-------------
O-62
<PAGE>
-------------
SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH ANNUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each period:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1997 1996 **
- --------------------------------------------------------------------------------
<S> <C> <C>
Net asset value at beginning of period............ $10.42 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income............................ 0.22(/1/) 0.04
Net realized and unrealized gain on investments
and foreign currency transactions............... 2.33 0.38
------- -------
Total from investment operations................. 2.55 0.42
LESS DISTRIBUTIONS
Dividends from net investment income............. (0.02) --
Distributions from realized gain on investments.. (0.00)(/2/) --
------- -------
Total distributions.............................. (0.02) --
------- -------
Net asset value at end of period.................. $12.95 $10.42
======= =======
TOTAL RETURN (not annualized)..................... 24.54% 4.20%
RATIO/SUPPLEMENTAL DATA
Net assets, end of period (000's)................ $10,333 $ 5,384
Ratio of expenses to average net assets+......... 0.75% 0.67%*
Ratio of net investment income to average net as-
sets+........................................... 1.98% 2.35%*
Portfolio turnover rate.......................... 81% 7%
Average commission rate.......................... $0.0328 $0.0217
- -------
+ The information contained in the above table is based on actual expenses
for the period, after giving effect to the portion of fees and expenses re-
duced and expenses absorbed by the Investment Manager and Schwab. Had these
fees and expenses not been reduced and absorbed, the Funds' expense and net
investment income ratios would have been:
Ratio of expenses to average net assets......... 1.99% 4.71%*
Ratio of net investment income to average net
assets......................................... 0.74% (1.69%)*
</TABLE>
* Annualized
** For the period from November 1, 1996 (commencement of operations) to Decem-
ber 31, 1996.
(/1/Per)share information presented is based upon the average number of shares
outstanding due to large fluctuations in the number of shares outstanding
during the period.
(/2/Less)than one cent per share.
-------------
O-63
<PAGE>
-------------
SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. DESCRIPTION OF THE FUND
The Schwab Asset Director(R)--High Growth Portfolio (the "Fund") is a series
of Schwab Annuity Portfolios (the "Trust"), a diversified, no-load, open-end
investment management company organized as a Massachusetts business trust on
January 21, 1994 and registered under the Investment Company Act of 1940, as
amended.
The Fund is intended as an investment vehicle for variable annuity contracts
and variable life insurance policies to be offered by separate accounts of
participating life insurance companies and for pension and retirement plans
qualified under the Internal Revenue Code of 1986, as amended.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are in conformity with gener-
ally accepted accounting principles for investment companies. The preparation
of financial statements in accordance with generally accepted accounting prin-
ciples requires management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results
could differ from those estimates.
Security valuation--Investments in securities traded on an exchange and un-
listed securities are valued at the last quoted sale price for a given day, or
if a sale is not reported for that day, at the mean between the most recent
quoted bid and asked prices. Securities for which no quotations are readily
available are valued at fair value as determined by the Funds' investment man-
ager pursuant to guidelines adopted in good faith by the Board of Trustees.
Bonds and notes are generally valued at prices obtained from an independent
bond-pricing service. These securities are valued at the mean between the rep-
resentative quoted bid and asked prices or if such prices are not available,
at prices for securities of comparable maturity, quality and type. Short-term
securities with 60 days or less to maturity are stated at amortized cost,
which approximates market value.
Security transactions and investment income--Security transactions are ac-
counted for on a trade date basis (date the order to buy or sell is executed).
Realized gains and losses from security transactions are determined on an
identified cost basis. Dividend income and distributions to shareholders are
recorded on the ex-dividend date. Interest income is recorded on the accrual
basis and includes amortization of premium and accretion of discount on in-
vestments. For callable bonds purchased at a premium, the excess of the pur-
chase price over the call value is amortized against interest income through
the call date. If the call provision is not exercised, any remaining premium
is amortized through the final maturity date.
Foreign currency translation--The accounting records of the Fund are main-
tained in U.S. dollars. Investment securities and all other assets and liabil-
ities of the Funds denominated in a foreign currency are translated into U.S.
dollars at the exchange rates on December 31, 1997. Purchases and sales of
foreign securities, foreign income receipts and foreign expense payments are
translated into U.S. dollars at the exchange rate in effect on the dates of
the respective transactions.
The Fund separates within its statement of operations the portion of realized
and unrealized gains and losses resulting from changes in foreign exchange
rates from that arising from changes in securities' market values.
Deferred organization costs--Costs incurred in connection with the organiza-
tion of the Fund and its initial registration with the Securities and Exchange
Commission are amortized on a straight-line basis over a five-year period from
each Fund's commencement of operations.
Expenses--Expenses arising in connection with a Fund are charged directly to
that Fund. Expenses common to all series of the Trust are generally allocated
to each series in proportion to their relative net assets.
Federal income taxes--It is the Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to dis-
tribute all net investment income and realized net capital gains, if any, to
shareholders. Therefore, no federal income tax provision is required. The Fund
is considered a separate entity for tax purposes.
At December 31, 1997, (for financial reporting and federal income tax purpos-
es), net unrealized appreciation aggregated $1,402,529 of which $1,696,045 re-
lated to appreciated securities and $293,516 related to depreciated securi-
ties.
-------------
O-64
<PAGE>
-------------
SCHWAB ASSET DIRECTOR(R)--HIGH GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
3. TRANSACTIONS WITH AFFILIATES
Investment advisory and administration agreement--The Trust has an investment
advisory and administration agreement with Charles Schwab Investment Manage-
ment, Inc. (the "Investment Manager"). For advisory services and facilities
furnished, each Fund pays an annual fee, payable monthly, of 0.74% of the
first $1 billion of average daily net assets, 0.69% of the next $1 billion and
0.64% of such assets over $2 billion. The investment Manager has reduced a
portion of its fee for the year ended December 31, 1997. (see Note 4).
Officers and trustees--Certain officers and trustees of the Trust are also
officers and/or directors of the Investment Manager. During the year ended De-
cember 31, 1997, the Trust made no direct payments to its officers or trustees
who were "interested persons" within the meaning of the Investment Company Act
of 1940, as amended. The Fund incurred fees of $5,354 related to the Trust's
unaffiliated trustees.
4. EXPENSES REDUCED AND ABSORBED BY THE INVESTMENT MANAGER AND SCHWAB
The Investment Manager guarantee that, through April 30, 1998, the Fund's to-
tal operating expenses will not exceed 0.75% of the Fund's average daily net
assets, after waivers and reimbursements. For purpose of this guarantee, oper-
ating expenses do not include interest expenses, extraordinary expenses, taxes
and foreign taxes.
For the year ended December 31, 1997, the total of such fees and expenses re-
duced and absorbed by the Investment Manager were $93,012. (see Financial
Highlights)
5. BORROWING AGREEMENT
The Trust has an arrangement with Bank of New York Trust Company whereby the
Fund may borrow, in aggregate, up to $100,000,000, on a temporary basis, to
fund redemptions. Amounts borrowed under this arrangement bear interest at pe-
riodically negotiated rates and may be collateralized by the assets of the
Fund. During the year ended December 31, 1997, no borrowings were made under
this arrangement.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, other than short-term obliga-
tions, aggregated $9,728,590 and $5,807,318, respectively, for the year ended
December 31, 1997.
-------------
O-65
<PAGE>
To the Trustees and Shareholders of
Schwab Asset Director(R)--High Growth Portfolio
In our opinion, the accompanying statement of assets and liabilities, includ-
ing the schedule of investments, and the related statements of operations and
of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Schwab Asset Director--High
Growth Portfolio (one series constituting part of Schwab Annuity Portfolios,
hereafter referred to as the "Trust") at December 31, 1997, the results of its
operations for the year ended, and the changes in its net assets and the fi-
nancial highlights for each of the periods presented, in conformity with gen-
erally accepted accounting principles. These financial statements and finan-
cial highlights (hereafter referred to as "financial statements") are the re-
sponsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted au-
diting standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1997 by cor-
respondence with the custodian and brokers and the application of alternative
auditing procedures where confirmation from brokers were not received, provide
a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Francisco, California
January 30, 1998
