SCHWAB ANNUITY PORTFOLIOS, 485APOS, 1999-02-09

SCHWAB ANNUITY PORTFOLIOS
485APOS, 1999-02-09

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As filed with the Securities and Exchange Commission on February 9, 1999
File Nos. 33-74534 and 811-8314

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

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 9 [X]

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 10 [X]
--------------

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

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

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

William J. Klipp
Schwab Annuity Portfolios
101 Montgomery Street, San Francisco, California 94104
(Name and Address of Agent for Service)

Copies of communications to:

John H. Grady, Jr., Esq. Martin E. Lybecker, Esq.
Morgan Lewis & Bockius LLP Ropes & Gray
1701 Market Street 1301 K Street, NW, Suite 800 East
Philadelphia, PA 19103 Washington, D.C. 20005

Frances Cole, Esq.
Charles Schwab Investment Management, Inc.
101 Montgomery Street
San Francisco, CA 94104

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

/ / Immediately upon filing pursuant to paragraph (b)

/ / On _______ pursuant to paragraph (b)

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

/x/ On April 30, 1999 pursuant to paragraph (a)(1)

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

/ / On (date) pursuant to paragraph (a)(2) of Rule 485

if appropriate, check the following box:

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

<PAGE> 2
PROSPECTUS
April 30, 1999

SCHWAB MONEY MARKET PORTFOLIO

As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved these securities or passed on whether the information in this
prospectus is adequate and accurate. Anyone who indicates otherwise is
committing a federal crime.
<PAGE> 3
ABOUT THE PORTFOLIO

3 Schwab Money Market Portfolio

8 Portfolio Management

10 Investing in the Portfolio

11 Transaction Policies

12 Distributions and Taxes

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SCHWAB MONEY MARKET PORTFOLIO

TICKER SYMBOL: SWPXX

GOAL

THE PORTFOLIO SEEKS THE HIGHEST CURRENT INCOME CONSISTENT WITH STABILITY OF
CAPITAL AND LIQUIDITY.

Strategy

To pursue its goal, the portfolio invests in high-quality short-term money
market investments issued by U.S. and foreign issuers, such as:

- commercial paper

- certificates of deposit

- banker's acceptances

- U.S. Treasury bills, notes and bonds

- other obligations that are issued or guaranteed by the U.S.
government, its agencies or instrumentalities

- repurchase agreements

All of these investments must be denominated in U.S. dollars, including those
that are issues by foreign issuers.

In choosing securities, the portfolio's manager seeks to maximize current income
within the limits of the portfolio's credit and maturity policies. Some of these
policies may be stricter than the federal regulations that apply to all money
funds.

The investment adviser's credit research department analyzes and monitors the
securities that the portfolio owns or is considering buying. The manager may
adjust the portfolio's holdings or its average maturity based on actual or
anticipated changes in interest rates or credit quality. To preserve its
investors' capital, the portfolio seeks to maintain a stable $1 share price.

MONEY FUND REGULATIONS

Money market funds in the United States are subject to special rules that are
designed to help

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them maintain a stable share price:

- Credit quality: money funds must invest exclusively in high-quality
securities (generally those that are in the top two tiers of credit quality).

- Diversification: requirements for diversification limit the portfolio's
exposure to any given issuer.

- Maturity: money funds must maintain an average portfolio maturity of no
more than 90 days, and cannot invest in any security whose effective maturity is
longer than 397 days (approximately 13 months).

As with all mutual funds, the performance of this portfolio will fluctuate over
time, and future performance may differ from past performance.

MAIN RISKS

INTEREST RATES RISE AND FALL OVER TIME. As with any investment whose yield
reflects current interest rates, the portfolio's yield will change over time.
During periods when interest rates are low, the portfolio's yield (and total
return) also will be low.

YOUR INVESTMENT IS NOT A BANK DEPOSIT. It is not insured by the Federal Deposit
Insurance Corporation (FDIC) or any other government entity. While the portfolio
historically has maintained its stable $1 share price, there is no guarantee
that it always will be able to do so. If its share price were to change, you
could lose money.

THE PORTFOLIO COULD LOSE MONEY OR UNDERPERFORM AS A RESULT OF DEFAULT. Although
the risk of default generally is considered unlikely (even among foreign
investments, which carry additional risks), any default on the part of a
portfolio investment could cause the portfolio's share price or yield to fall.
The additional risks of foreign investments are due to reasons ranging from a
lack of reliable issuer information to the risk of political uncertainties.

The manager's maturity decisions also will affect the portfolio's yield, and in
unusual circumstances could potentially affect its share price. To the extent
that the manager fails to anticipate interest rate trends imprecisely, the
portfolio's yields could at times lag those of other money market funds. The
portfolio's emphasis on quality and stability also could cause it to
underperform other money funds, particularly those that take greater maturity
and credit risks.

THE PORTFOLIO IS NOT DESIGNED TO OFFER CAPITAL APPRECIATION. In exchange for
their emphasis on stability and liquidity, money market investments may offer
lower long-term performance than stock or bond investments. This portfolio may
appeal to investors interested in high money market returns.

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PERFORMANCE

Below are a chart and a table showing the portfolio's performance. These figures
assume that all distributions were reinvested. Keep in mind that future
performance may differ from past performance.

Annual Total Returns (%) as of 12/31 95 96 97 98

Best quarter: 00.00% QX 19xx
Worst quarter: 00.00% QX 19xx
Since
Average Annual Total Returns (%) as of 12/31/98 1 Year inception(1)
Money Market Portfolio 000 000

(1) Portfolio inception: 5/3/94

PORTFOLIO FEES AND EXPENSES

The following table describes what you could expect to pay as a portfolio
investor. "Shareholder fees" are one-time expenses charged to you directly by
the portfolio. "Annual operating expenses" are paid out of portfolio assets, so
their effect is included in total return. Fees of the underlying portfolios are
reflected in those portfolios' performance, and thus indirectly in portfolio
performance.

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FEE TABLE (%)

SHAREHOLDER FEES

None

ANNUAL OPERATING EXPENSES (% of average net assets)

Management fees 0.00
Distribution (12b-1) fees None
Other expenses 0.00
Total annual operating expenses 0.00

Expense reduction
Net operating expenses* 0.00

*Guaranteed by Schwab and the investment adviser through __/__/00.

Designed to help you compare expenses, this example uses the same assumptions as
all mutual fund prospectuses: a $10,000 investment, a 5% return each year and no
changes in operating expenses. One-year figures are based on net operating
expenses. The expenses would be the same whether you stayed in the portfolio or
sold your shares at the end of each period. Your actual costs may be higher or
lower.

1 Year 3 Years 5 Years 10 Years
$00 $000 $000 $000

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FINANCIAL HIGHLIGHTS

This section provides further details about the portfolio's recent financial
history. "Total return" shows the percentage that an investor in the portfolio
would have earned or lost during a given period, assuming all distributions were
reinvested. The portfolio's independent accountants, _______________, audited
these figures. Their full report is included in the portfolio's annual report
(see back cover).

<<Table Here>>

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PORTFOLIO MANAGEMENT

THE INVESTMENT ADVISER for the portfolios is Charles Schwab Investment
Management, Inc., 101 Montgomery Street, San Francisco, CA 94104. Founded in
1989, the firm today serves as investment adviser for all of the SchwabFunds(R)
and has more than $__ billion under management. The firm manages assets for more
than __ million shareholder accounts. (All figures on this page are as of
12/31/98.)

As the investment adviser, the firm oversees the asset management and
administration of the portfolios. As compensation for these services, the firm
receives a management fee from each portfolio. For the 12 months ended 12/31/98,
these fees were ____% for the portfolio. These figures, which are expressed as
a percentage of the portfolio's average daily net assets, represent the actual
amounts paid, including the effects of reductions.

YEAR 2000 ISSUES

One issue with the potential to disrupt portfolio operations and affect
performance is the inability of some computers to recognize the year 2000.

The investment adviser is taking steps to enable its systems to handle this
issue. The investment adviser also is seeking assurances that its service
providers and business partners are taking similar steps as well. However, it is
impossible to know in advance exactly how this issue will affect portfolio
administration, portfolio performance or securities markets in general.

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INVESTING IN THE PORTFOLIO

Shares of the portfolio are sold on a continuous no load basis and are currently
available exclusively for variable annuity and variable life insurance separate
accounts, and in the future may be offered to tax-qualified retirement plans
(tax qualified plans). Variable life and variable annuity account investors also
should review the separate account prospectus prepared by their insurance
company.

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

Shares of the portfolio are expected to be offered to affiliated and
unaffiliated participating insurance companies and their separate accounts to
fund benefits under variable contracts and variable life insurance policies as
well as to tax qualified plans. The relationships of tax qualified plans and
plan participants to the portfolio would be subject, in part, to the provisions
of the individual tax qualified plans and applicable law. Accordingly, such
relationships could be different from those described in this prospectus for
separate accounts and variable contract owners in such areas, for example, as
tax matters and voting privileges.

The portfolio does not foresee any disadvantage to variable contract or variable
life insurance policy owners or plan participants arising out of these
arrangements. Nevertheless, differences in treatment under tax and other laws,
as well as other considerations, could cause the interests of various purchasers
of variable contracts and variable life insurance policies (and the interests of
any plan participants) to conflict. For example, violation of the federal tax
laws by one separate account investing in the portfolio could cause the variable
contracts funded through another separate account to lose their tax-deferred
status, unless remedial action were taken. At the same time, if these
arrangements are implemented, the portfolio, the participating insurance
companies, and any tax qualified plans investing in the portfolio would be
subject to conditions imposed by the SEC that are designated to prevent or
remedy any such conflicts. These conditions would require the Board of Trustees
to monitor events in order to identify the existence of any material,
irreconcilable conflict that may possibly arise and to determine what action, if
any, should be taken in response to any such conflict. If a material,
irreconcilable conflict arises involving separate accounts or tax qualified
plans, a separate account or tax qualified plan may be required to withdraw its
participation in the portfolio.

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TRANSACTION POLICIES

THE PORTFOLIO IS OPEN FOR BUSINESS EACH DAY THAT THE NEW YORK STOCK EXCHANGE
(NYSE) IS OPEN.

THE PORTFOLIO CALCULATES ITS SHARE PRICES EACH BUSINESS DAY after the close of
the NYSE. The portfolio's share price is its net asset value per share, or NAV,
which is the portfolio's net assets divided by the number of its shares
outstanding. The portfolio seeks to maintain a stable NAV of $1. Purchase and
redemption orders from separate accounts investing in the portfolio that are
received and accepted by a participating insurance company, as the portfolio's
designee, prior to the close of the portfolio (generally 4:00 p.m. Eastern
time) will be executed at the portfolio's NAV determined that day. The portfolio
may take up to seven days to pay sales proceeds to a participating insurance
company.

All orders to purchase shares of the portfolio are subject to acceptance by the
portfolio and are not binding until confirmed or accepted in writing.

The portfolio values its investment holdings on the basis of amortized cost
(cost plus discount, or minus any premium, accrued since purchase). Most money
market funds use this method to calculate NAV.

The portfolio reserves certain rights, including the following:

- - To refuse any purchase order, including those that appear to be associated
with short-term trading activities

- - To suspend the right to sell shares back to the portfolio, and delay
sending proceeds, during times when trading on the NYSE is restricted or
halted, or otherwise as permitted by the SEC

- - To withdraw or suspend any part of the offering made by this prospectus

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DISTRIBUTIONS AND TAXES

The portfolio will distribute substantially all of its net investment income and
capital gains, if any, to the participating insurance company separate accounts
each year in December. Distributions are normally reinvested pursuant to
elections by separate accounts.

The portfolio has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the Code). The
Code relieves a regulated investment company from certain Federal income tax and
excise tax, if the company distributes substantially all of its net investment
income and net realized capital gains.

The portfolio must meet asset diversification requirements under Section 817(h)
of the Code and the related regulations issued by the Internal Revenue Service.
The portfolio intends to comply with these diversification requirements.

For more information regarding the federal income tax consequences of investing
in the portfolio, see "Federal Income Taxes" in the SAI. For information
concerning the tax consequences of variable contract ownership, variable
contract owners should consult the appropriate separate account prospectus.

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TO LEARN MORE

This prospectus contains important information on the portfolio and should be
read and kept for reference. You also can obtain more information from the
following sources.

SHAREHOLDER REPORTS, which are mailed to current portfolio investors, discuss
recent performance and portfolio holdings.

The STATEMENT OF ADDITIONAL INFORMATION (SAI) includes a more detailed
discussion of investment policies and the risks associated with various
investments. The SAI is incorporated by reference into the prospectus, making it
legally part of the prospectus.

You can obtain copies of these documents by contacting SchwabFunds,(R) a
participating insurance company or the SEC. All materials from SchwabFunds are
free; the SEC charges a duplicating fee. You can also review these materials in
person at the Securities and Exchange Commission's Public Reference Room.

SCHWABFUNDS
101 Montgomery Street
San Francisco, CA 94104
800-435-4000
www.schwab.com/schwabfunds

SCHWAB INSURANCE AND ANNUITY SERVICE CENTER

800-838-0650 (IN NEW YORK 800-838-0649)

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-6009
800-SEC-0330 (Public Reference Section)
www.sec.gov

SEC FILE NUMBERS
Schwab Annuity Portfolios 811-8314

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PROSPECTUS

April 30, 1999

SCHWAB MARKETTRACK GROWTH PORTFOLIO II

SCHWAB S&P 500 PORTFOLIO

3 Schwab MarketTrack Growth Portfolio II

9 Schwab S&P 500 Portfolio

14 Portfolio Management

15 Investing in the Portfolios

17 Transaction Policies

18 Distributions and Taxes

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SCHWAB MARKETTRACK GROWTH PORTFOLIO II

TICKER SYMBOL: SWPHX

GOAL

THE PORTFOLIO'S GOAL IS TO SEEK HIGH CAPITAL GROWTH WITH LESS VOLATILITY THAN AN
ALL-STOCK PORTFOLIO.

STRATEGY

TO PURSUE ITS GOAL, THE PORTFOLIO MAINTAINS A DEFINED ASSET ALLOCATION. THE
PORTFOLIO'S TARGET ALLOCATION INCLUDES STOCK, BOND AND CASH INVESTMENTS.

The portfolio invests mainly in other SchwabPortfolios,(R) particularly index
portfolios, which seek to track the total returns of various market indices.
These underlying portfolios typically invest in the securities included in the
index they are tracking, and give each security the same weight as the index
does. Each underlying portfolio focuses on a different market segment. Below are
the underlying portfolios and the indices they seek to track, listed according
to their corresponding category in the portfolio's asset allocation:

LARGE-CAP Schwab S&P 500 Portfolio. Seeks to track the S&P 500 Index,(R)
STOCK a widely recognized index maintained by Standard & Poor's that
includes 500 large-cap stocks.

SMALL-CAP Schwab Small-Cap Index Portfolio.(R) Seeks to track the Schwab
STOCK Small-Cap Index, which includes the second-largest 1,000 U.S.
stocks as measured by market capitalization.

INTERNATIONAL Schwab International Index Portfolio.(R) Seeks to track the
STOCK Schwab International Index, which includes the largest 350
stocks (as measured by market capitalization) that are
publicly traded in developed securities markets outside the
United States.

BOND Schwab Total Bond Market Index Portfolio. Seeks to track the
Lehman Brothers Aggregate Bond Index, which includes a
broad-based mix of U.S. investment-grade bonds with maturities
greater than one year.

The portfolio also may use individual securities in its allocations. The
portfolio manager monitors the portfolio's holdings and cash flow and manage
them as needed in order to maintain the target allocation. In seeking to enhance
after-tax performance, the portfolio manager may permit modest deviations from
the target allocation for certain periods of time.

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Asset allocation is a strategy of investing specific percentages of a portfolio
in various asset classes. The portfolio's allocation focuses on stock
investments, while including some bonds and cash investments to reduce
volatility. The portfolio typically does not change its asset allocations for
purposes of investment strategy, and seeks to remain close to the target
allocations of 80% stocks, 15% bonds and 5% cash. The stock allocation is
further divided into three segments: 40% of assets for large-cap, 20% for
small-cap and 20% for international.

This approach is intended to offer the investor key features of two types of
well-known investment strategies: asset allocation and indexing. Because of its
asset allocation, the portfolio's performance is a blend of the performance of
different asset classes or different segments within an asset class.

Indexing, a strategy of tracking the performance of a given market over time,
involves looking to an index to determine what securities to own. By investing
in a combination of index mutual funds, the portfolio can offer a high level of
diversification in a single investment.

The portfolio is designed for long-term investors. Its performance will
fluctuate over time and, as with all investments, future performance may differ
from past performance.

MAIN RISKS

STOCK AND BOND MARKETS RISE AND FALL DAILY. As with any investment whose
performance is tied to these markets, the value of your investment in the
portfolio will fluctuate, which means that you could lose money.

THE PORTFOLIO'S ASSET ALLOCATIONS CAN HAVE AN EFFECT ON RETURNS. The risks and
returns of different classes of assets and different segments of the stock
market can vary over the long term and the short term. Because of this, the
portfolio's performance could suffer during times when the types of stocks
favored by its target allocation are out of favor, or when stocks in general are
out of favor.

MANY OF THE RISKS OF THIS PORTFOLIO ARE ASSOCIATED WITH STOCK INDEX PORTFOLIOS.
The portfolio's underlying stock index portfolios seek to track the performance
of various segments of the stock market, as measured by their respective
indices. Neither the portfolio, because of its asset allocation strategy, nor
the underlying portfolios, because of their indexing strategy, can take steps to
reduce market exposure or to lessen the effects of a declining market.

MANY FACTORS CAN AFFECT STOCK MARKET PERFORMANCE. Political and economic news
can influence market-wide trends; the outcome may be positive or negative, short
term or long term. Any type of stock can temporarily fall out of favor with the
market.

THE VALUES OF CERTAIN TYPES OF STOCKS, SUCH AS SMALL-CAP STOCKS AND
INTERNATIONAL STOCKS,

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MAY FLUCTUATE MORE WIDELY THAN OTHERS. With small-cap stocks, one reason is that
their prices may be based in part on future expectations rather than current
achievements. International stock investments can be affected by changes in
currency exchange rates, which can erode market gains or widen market losses.
Other reasons for the volatility of international markets range from a lack of
reliable company information to the risk of political upheaval.

OTHER RISK FACTORS

For the portion of the portfolio's assets that are invested in the bond market,
a major risk is that bond prices generally fall when interest rates rise.
Portfolio performance also could be affected if bonds held by its underlying
portfolios go into default. Another risk is that certain bonds may be paid off,
or "called," substantially earlier or later than expected. While the portfolio's
underlying portfolios seek to track the returns of various indices, in each case
their performance normally is below that of the index. This gap occurs mainly
because, unlike an index, the underlying portfolios incur expenses and must keep
a small portion of their assets in cash. To the extent that an underlying
portfolio lends securities or makes short-term or other investments to reduce
its performance gap, it may increase the risk that its performance will be
reduced.

The portfolio itself keeps a small portion of its assets in cash, which may
contribute modestly to lower performance.

By emphasizing stocks while including other investments to temper market risk,
this portfolio could be appropriate for investors seeking attractive long-term
growth with potentially lower volatility.

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PERFORMANCE

Below are a chart and a table showing the portfolio's performance, as well as
data on unmanaged market indices. These figures assume that all distributions
were reinvested. Keep in mind that future performance may differ from past
performance, and that indices do not include any costs of investments.

Annual Total Returns (%) as of 12/31 97 98

Best quarter: 00.00% QX 19xx
Worst quarter: 00.00% QX 19xx

Since
Average Annual Total Returns (%) as of 12/31/98 1 Year inception(1)

Portfolio 000 000
S&P 500(R) Index 000 000
Lehman Brothers Aggregate Bond Index 000 000

(1) Portfolio inception: 11/01/96.

The performance information above shows you how performance has varied from year
to year and how it averages out over time.

PORTFOLIO FEES AND EXPENSES

The following table describes what you could expect to pay as a portfolio
investor. "Shareholder fees" are one-time expenses charged to you directly by
the portfolio. "Annual operating expenses" are paid out of portfolio assets, so
their effect is included in total return. Fees of the underlying funds are
reflected in those funds' performance, and thus indirectly in portfolio
performance.

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FEE TABLE (%)

SHAREHOLDER FEES
None

ANNUAL OPERATING EXPENSES (% of average net assets)
Management fees 0.00
Distribution (12b-1) fees None
Other expenses 0.00
Total annual operating expenses 0.00

Expense reduction
Net operating expenses* 0.00*
Guaranteed by Schwab and the investment adviser through __/__/00.

1 Year 3 Years 5 Years 10 Years

$00 $000 $000 $000

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FINANCIAL HIGHLIGHTS

<<Table Here>>

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SCHWAB S&P 500 PORTFOLIO

TICKER SYMBOL: SWPSX

GOAL

THE PORTFOLIO'S GOAL IS TO TRACK THE TOTAL RETURN OF THE S&P 500(R) INDEX.

INDEX

THE S&P 500 INDEX INCLUDES THE COMMON STOCKS OF 500 LEADING U.S. COMPANIES FROM
A BROAD RANGE OF INDUSTRIES. Standard & Poor's, the company that maintains the
index, uses a variety of measures to determine which stocks are listed in the
index. Each stock is represented in proportion to its total market value.

STRATEGY

TO PURSUE ITS GOAL, THE PORTFOLIO INVESTS IN STOCKS THAT ARE INCLUDED IN THE
INDEX. It is the portfolio's policy that under normal circumstances it will
invest at least 80% of total assets in these stocks; typically, the actual
percentage is considerably higher. The portfolio generally gives the same weight
to a given stock as the index does. In seeking to enhance after-tax performance,
the portfolio may choose to realize certain capital losses and use them to
offset capital gains. This strategy may help the portfolio reduce its taxable
distributions. All other factors being equal, this can lower realized capital
gains and lower operating expenses.

Like many index portfolios, the portfolio may invest in futures contracts and
lend securities to minimize the gap in performance that naturally exists between
any index portfolio and its index. This gap occurs mainly because, unlike the
index, the portfolio incurs expenses and must keep a small portion of its assets
in cash for business operations. By using futures, the portfolio potentially can
offset the portion of the gap attributable to its cash holdings. Any income
realized through securities lending may help reduce the portion of the gap
attributable to expenses. Because some of the effect of expenses remains,
however, the portfolio's performance normally is below that of the index. Also,
because the composition of the index tends to be comparatively stable, index
portfolios historically have shown low portfolio turnover compared to actively
managed portfolios.

LARGE-CAP STOCKS

Although the 500 companies in the index constitute only about x% of all the
publicly traded companies in the United States, they represent approximately xx%
of the total value of the U.S. stock market. (All figures are as of 12/31/98.)

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Companies of this size are generally considered large-cap stocks. Their
performance is widely followed, and the index itself is popularly seen as a
measure of overall U.S. stock market performance. Because the index weights a
stock according to its market capitalization (total market value of all shares
outstanding), larger stocks have more influence on the performance of the index
than do the index's smaller stocks.

The portfolio is designed for long-term investors. Its performance will
fluctuate over time and, as with all investments, future performance may differ
from past performance.

MAIN RISKS

STOCK MARKETS RISE AND FALL DAILY. As with any investment whose performance is
tied to these markets, the value of your investment in the portfolio will
fluctuate, which means that you could lose money.

YOUR INVESTMENT FOLLOWS THE LARGE-CAP PORTION OF THE U.S. STOCK MARKET, as
measured by the index. It follows these stocks during upturns as well as
downturns. Because of its indexing strategy, the portfolio cannot take steps to
reduce market exposure or to lessen the effects of a declining market.

MANY FACTORS CAN AFFECT STOCK MARKET PERFORMANCE. Political and economic news
can influence marketwide trends; the outcome may be positive or negative, short
term or long term. Other factors may be ignored by the market as a whole but may
cause movements in the price of one company's stock or the stocks of one or more
industries (for example, rising oil prices may lead to a decline in airline
stocks).

Although the S&P 500(R) Index encompasses stocks from many different sectors of
the economy, its performance primarily reflects that of large-cap stocks. As a
result, whenever these stocks perform less well than mid- or small-cap stocks,
the portfolio may underperform portfolios that have exposure to those segments
of the U.S. stock market. Likewise, whenever large-cap U.S. stocks fall behind
other types of investments -- bonds, for instance -- the portfolio's performance
also will lag those investments.

OTHER RISK FACTORS

Although the portfolio's main risks are those associated with its stock
investments, its other investment strategies also may involve risks. These risks
could affect how well the portfolio tracks the performance of the index. For
example, futures contracts, which the portfolio uses to gain exposure to the
index for its cash balances, could cause the portfolio to track the index less
closely if they don't perform as expected.

The portfolio also may lend a portion of its securities to certain financial
institutions in order to earn income. These loans are fully collateralized.
However, if the institution defaults, the portfolio's performance could be
reduced.

Long-term investors who want to focus on large-cap U.S. stocks or who are
looking for performance that is linked to a popular index may want to consider
this portfolio.

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INDEX OWNERSHIP

Standard & Poor's,(R) S&P,(R) S&P 500,(R) Standard & Poor's 500(R) and 500(R)
are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use
by the portfolio. The portfolio is not sponsored, endorsed, sold or promoted by
Standard & Poor's, and Standard & Poor's makes no representation regarding the
advisability of investing in the portfolio. More complete information may be
found in the Statement of Additional Information (see back cover).

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PERFORMANCE

Below are a chart and a table showing the portfolio's performance, as well as
data on an unmanaged market index. These figures assume that all distributions
were reinvested. Keep in mind that future performance may differ from past
performance, and that the index does not include any costs of investments.

Annual Total Returns (%) as of 12/31 97 98
Best quarter: 00.00% QX 19xx
Worst quarter: 00.00% QX 19xx

Average Annual Total Returns (%) as of 12/31/98 Since
1 Year inception (1)

Portfolio 000 000
S&P 500(R) Index 000 000

(1) Portfolio inception: 11/01/96.

The performance information above shows you how performance has varied from year
to year and how it averages out over time.

PORTFOLIO FEES AND EXPENSES

FEE TABLE (%)

SHAREHOLDER FEES
None

ANNUAL OPERATING EXPENSES (% of average net assets)
Management fees 0.00
Distribution (12b-1) fees None
Other expenses 0.00
Total annual operating expenses 0.00
- -------------------------------------------
Expense reduction
Net operating expenses* 0.00*
Guaranteed by Schwab and the investment adviser through __/__/00

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Designed to help you compare expenses, this example uses the same assumptions as
all mutual portfolio prospectuses: a $10,000 investment, a 5% return each year
and no changes in operating expenses. One-Year figures are based on net
operating expenses. The expenses would be the same whether you stayed in the
portfolio or sold your shares at the end of each period. Your actual costs may
be higher or lower.

1 Year 3 Years 5 Years 10 Years

$00 $000 $000 $000

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FINANCIAL HIGHLIGHTS

This section provides further details about the portfolio's financial history.
"Total return" shows the percentage that an investor in the portfolio would have
earned or lost during a given period, assuming all distributions were
reinvested. The portfolio's independent accountants, _______________, audited
these figures. Their full report is included in the portfolio's annual report
(see back cover).

<<TABLE HERE>>

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PORTFOLIO MANAGEMENT

As the investment adviser, the firm oversees the asset management and
administration of the portfolios. As compensation for these services, the firm
receives a management fee from each portfolio. For the 12 months ended 12/31/98,
these fees were ____% for the MarketTrack Growth Portfolio II and ____% for the
S&P 500 Portfolio. These figures, which are expressed as a percentage of each
portfolio's average daily net assets, represent the actual amounts paid,
including the effects of reductions.

GERI HOM, a vice president of the investment adviser, is responsible for the
day-to-day management of the S&P 500 Portfolio and the equity portion of the
MarketTrack Growth Portfolio II. She joined the firm in 1995 and has nearly 20
years of experience in equity index management.

KIMON DAIFOTIS, CFA, a vice president of the investment adviser, is responsible
for the day-to-day management of the bond and cash portions of the MarketTrack
Growth Portfolio II. He joined the firm in October 1997, bringing more than 17
years of prior experience in research and asset management.

YEAR 2000 ISSUES

One issue with the potential to disrupt portfolio operations and affect
performance is the inability of some computers to recognize the year 2000.

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INVESTING IN THE PORTFOLIOS

Shares of the portfolios are sold on a continuous no load basis and are
currently available exclusively for variable annuity and variable life insurance
separate accounts, and in the future may be offered to tax-qualified retirement
plans (tax qualified plans). Variable life and variable annuity account
investors also should review the separate account prospectus prepared by their
insurance company.

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

Shares of the portfolios are expected to be offered to affiliated and
unaffiliated participating insurance companies and their separate accounts to
fund benefits under variable contracts and variable life insurance policies as
well as to tax qualified plans. The relationships of tax qualified plans and
plan participants to the portfolios would be subject, in part, to the provisions
of the individual tax qualified plans and applicable law. Accordingly, such
relationships could be different from those described in this prospectus for
separate accounts and variable contract owners in such areas, for example, as
tax matters and voting privileges.

The portfolios do not foresee any disadvantage to variable contract or variable
life insurance policy owners or plan participants arising out of these
arrangements. Nevertheless, differences in treatment under tax and other laws,
as well as other considerations, could cause the interests of various purchasers
of variable contracts and variable life insurance policies (and the interests of
any plan participants) to conflict. For example, violation of the federal tax
laws by one separate account investing in the portfolios could cause the
variable contracts funded through another separate account to lose their
tax-deferred status, unless remedial action were taken. At the same time, if
these arrangements are implemented, the portfolios, the participating insurance
companies, and any tax qualified plans investing in the portfolios would be
subject to conditions imposed by the SEC that are designated to prevent or
remedy any such conflicts. These conditions would require the Board of Trustees
to monitor events in order to identify the existence of any material,
irreconcilable conflict that may possibly arise and to determine what action, if
any, should be taken in response to any such conflict. If a material,
irreconcilable conflict arises involving separate accounts or tax qualified
plans, a separate account or tax qualified plan may be required to withdraw its
participation in either portfolio.

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TRANSACTION POLICIES

THE PORTFOLIOS ARE OPEN FOR BUSINESS EACH DAY THAT THE NEW YORK STOCK EXCHANGE
(NYSE) IS OPEN.

THE PORTFOLIOS CALCULATE THEIR SHARE PRICES EACH BUSINESS DAY after the close of
the NYSE. A portfolio's share price is its net asset value per share, or NAV,
which is the portfolio's net assets divided by the number of its shares
outstanding. Purchase and redemption orders from separate accounts investing in
a portfolio that are received and accepted by a participating insurance company,
as the portfolio's designee, prior to the close of the portfolio (generally 4:00
p.m. Eastern time) will be executed at the portfolio's NAV determined that day.
A portfolio may take up to seven days to pay sales proceeds to a participating
insurance company.

All orders to purchase shares of the portfolios are subject to acceptance by the
portfolios and are not binding until confirmed or accepted in writing.

In valuing their securities, the portfolios use market quotes if they are
readily available. In cases where quotes are not readily available, a portfolio
may value securities based on fair values developed using methods approved by
the portfolio's Board of Trustees.

Shareholders of the MarketTrack Growth Portfolio II should be aware that because
foreign markets are often open on weekends and other days when the portfolio is
closed, the value of some of the portfolio's securities may change on days when
it is not possible to buy or sell shares of the portfolio.

The portfolios reserve certain rights, including the following:

- - To refuse any purchase order, including those that appear to be associated
with short-term trading activities

- - To suspend the right to sell shares back to the portfolio, and delay
sending proceeds, during times when trading on the NYSE is restricted or
halted, or otherwise as permitted by the SEC

- - To withdraw or suspend any part of the offering made by this prospectus

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DISTRIBUTIONS AND TAXES

Each portfolio will distribute substantially all of its net investment income
and capital gains, if any, to the participating insurance company separate
accounts each year in December. Distributions are normally reinvested pursuant
to elections by separate accounts.

Each portfolio has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the Code). The
Code relieves a regulated investment company from certain Federal income tax and
excise tax, if the company distributes substantially all of its net investment
income and net realized capital gains.

Each portfolio must meet asset diversification requirements under Section 817(h)
of the Code and the related regulations issued by the Internal Revenue Service.
Each portfolio intends to comply with these diversification requirements.

For more information regarding the federal income tax consequences of investing
in the portfolios, see "Federal Income Taxes" in the SAI. For information
concerning the tax consequences of variable contract ownership, variable
contract owners should consult the appropriate separate account prospectus.

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TO LEARN MORE

This prospectus contains important information on the portfolios and should be
read and kept for reference. You also can obtain more information from the
following sources.

SHAREHOLDER REPORTS, which are mailed to current portfolio investors, discuss
recent performance and portfolio holdings.

SCHWABFUNDS
101 Montgomery Street
San Francisco, CA 94104
800-435-4000
WWW.SCHWAB.COM/SCHWABFUNDS

SCHWAB INSURANCE AND ANNUITY SERVICE CENTER

800-838-0650 (IN NEW YORK 800-838-0649)

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-6009
800-SEC-0330 (Public Reference Section)
www.sec.gov

SEC FILE NUMBERS
Schwab Annuity Portfolios 811-8314

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<PAGE> 33
STATEMENT OF ADDITIONAL INFORMATION

SCHWAB ANNUITY PORTFOLIOS
SCHWAB MONEY MARKET PORTFOLIO (MONEY MARKET PORTFOLIO)
SCHWAB MARKETTRACK GROWTH PORTFOLIO II (GROWTH PORTFOLIO)
SCHWAB S&P 500 PORTFOLIO (S&P 500 PORTFOLIO)

APRIL 30, 1999

The Statement of Additional Information (SAI) is not a prospectus. It should be
read in conjunction with the portfolios' prospectuses dated April 30, 1999 (as
amended from time to time).

To obtain a copy of the prospectus, please contact the Schwab Insurance and
Annuity Service Center at Charles Schwab & Co., Inc. at 800-838-0650, in New
York call 800-838-0648.

The portfolios' most recent annual reports are a separate document supplied with
the SAI and include the portfolios' audited financial statements, which are
incorporated by reference into this SAI.

The portfolios are a series of Schwab Annuity Portfolios (the trust)

TABLE OF CONTENTS

Page

INVESTMENT OBJECTIVES, STRATEGIES, SECURITIES,
RISKS AND LIMITATIONS.........................................................2
MANAGEMENT OF THE PORTFOLIOS..................................................18
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES...........................21
INVESTMENT ADVISORY AND OTHER SERVICES........................................22
BROKERAGE ALLOCATION AND OTHER PRACTICES......................................23
DESCRIPTION OF THE TRUST......................................................25
PURCHASE, REDEMPTION AND PRICING OF SHARES....................................26
TAXATION......................................................................27
CALCULATION OF PERFORMANCE DATA...............................................28
<PAGE> 34
INVESTMENT OBJECTIVES, STRATEGIES, SECURITIES, RISKS AND LIMITATIONS

INVESTMENT OBJECTIVES

Each portfolio's investment objective may be changed only by vote of a majority
of its shareholders.

The MONEY MARKET PORTFOLIO seeks maximum current income consistent with
stability of capital.

The GROWTH PORTFOLIO seeks high capital growth with less volatility than an all
stock portfolio.

The S&P 500 PORTFOLIO'S investment objective is to seek to track the price and
dividend performance (total return) of common stocks of U. S. companies, as
represented by Standard & Poor's 500 Composite Stock Price Index (the S&P
500(R)). The S&P 500 is representative of the performance of the U.S. stock
market. The index consists of 500 stocks chosen for market size, liquidity and
industry group representation. It is a market value weighted index (stock price
times number of shares outstanding), with each stock's weight in the index
proportionate to its market value. The S&P 500 does not contain the 500 largest
stocks, as measured by market capitalization. Although many of the stocks in the
index are among the largest, it also includes some relatively small companies.
Those companies, however, generally are established companies within their
industry group. Standard & Poor's (S&P) identifies important industry groups
within the U.S. economy and then allocates a representative sample of stocks
with each group to the S&P 500. There are four major industry sectors within the
index: industrials, utilities, financial and transportation. The portfolio may
purchase securities of companies with which it is affiliated to the extent these
companies are represented in its index.

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

S&P does not guarantee the accuracy and /or the completeness of the S&P 500
Index or any data included therein, and S&P shall have no liability for any
errors, omissions or interruptions therein. S&P makes no warranty, express or
implied, as to results to be obtained by the Schwab S&P 500 Portfolio, its
shareholders or any other person or entity from the use of the S&P 500(R) Index
or any data therein. S&P makes no express or implied warranties and expressly
disclaims all warranties or merchantability or fitness for a particular purpose
or use with respect to the S&P 500 Index or any data included therein. Without
limiting any of the foregoing, in no event

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shall S&P have any liability for any special, punitive, indirect or
consequential damages (including lost profits), even if notified of the
possibility of such damages.

The following investment strategies, risks and limitations supplement those set
forth in the prospectuses and may be changed without shareholder approval unless
otherwise noted. Also, policies and limitations that state a maximum percentage
of assets that may be invested in a security or other asset, or that set forth a
quality standard, shall be measured immediately after and as a result of a
portfolio's acquisition of such security or asset unless otherwise noted. Any
subsequent change in values, net assets or other circumstances will not be
considered when determining whether the investment complies with the portfolio's
investment policies and limitations. Additionally, for purposes of calculating
any restriction for the Money Market Portfolio an issuer shall be the entity
deemed to be ultimately responsible for payments of interest and principal on
the security pursuant to Rule 2a-7, unless otherwise noted. Not all investment
securities or techniques discussed below are eligible investments for each
portfolio, and not all investments that may be made by underlying funds of the
Growth Fund are currently known. A portfolio or underlying fund of the Growth
Portfolio will invest in securities or engage in techniques that are intended to
help achieve its investment objective.

INVESTMENT SECURITIES, STRATEGIES, RISKS AND LIMITATIONS

ASSET-BACKED SECURITIES are securities that are backed by the loans or accounts
receivables of an entity, such as a bank or credit card company. These
securities are obligations which the issuer intends to repay using the assets
backing them (once collected). Therefore, repayment depends largely on the cash
flows generated by the assets backing the securities. The rate of principal
payments on asset-backed securities generally depends on the rate of principal
payments received on the underlying assets, which in turn may be affected by a
variety of economic and other factors. As a result, the yield on any
asset-backed security is difficult to predict with precision, and actual yield
to maturity may be more or less than the anticipated yield to maturity.

Sometimes the credit support for these securities is limited to the underlying
assets, but, in other cases additional credit support may also be provided by a
third party via a letter of credit or insurance guarantee. Such credit support
falls into two classes: liquidity protection and protection against ultimate
default on the underlying assets. Liquidity protection refers to the provision
of advances, generally by the entity administering the pool of assets, to ensure
that scheduled payments on the underlying pool are made in a timely fashion.
Protection against ultimate default ensures payment on at least a portion of the
assets in the pool. Such protection may be provided through guarantees,
insurance policies or letters of credit obtained from third parties, through
various means of structuring the transaction or through a combination of such
approaches. The degree of credit support provided on each issue is based
generally on historical information respecting the level of credit risk
associated with such payments. Delinquency or loss in excess of that anticipated
could adversely affect the return on an investment in an asset-backed security.

Based on the primary characteristics of the various types of asset-backed
securities, for purposes of the portfolio's concentration policy, the following
asset-backed securities industries have been selected: credit card receivables,
automobile receivables, trade receivables and diversified financial assets. The
Money Market Portfolio will limit its investments in each such industry to less
than 25% of its total assets.

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BANKERS' ACCEPTANCES are credit instruments evidencing a bank's obligation to
pay a draft drawn on it by a customer. These instruments reflect the obligation
both of the bank and of the drawer to pay the full amount of the instrument upon
maturity. The Money Market Portfolio will invest only in bankers' acceptances of
banks that have capital, surplus and undivided profits in excess of $100
million.

BOND FUNDS seek high current income by investing primarily in debt securities,
including U.S. government securities, corporate bonds, stripped securities and
mortgage- and asset-backed securities. Other investments may include some
illiquid and restricted securities. Bond funds typically may enter into
delayed-delivery or when-issued securities transactions, repurchase agreements,
swap agreements and futures contracts. Bond funds are subject to interest rate
and income risks as well as credit and prepayment risks. When interest rates
fall, the prices of debt securities generally rise, which may affect the values
of bond funds and their yields. For example, when interest rates fall, issuers
tend to pre-pay their outstanding debts and issue new ones paying lower interest
rates. A bond fund holding these securities would be forced to invest the
principal received from the issuer in lower yielding debt securities.
Conversely, in a rising interest rate environment, prepayment on outstanding
debt securities generally will not occur. This risk is known as extension risk
and may affect the value of a bond fund if the value of its securities are
depreciated as a result of the higher market interest rates. Bond funds also are
subject to the risk that the issuers of the securities in their portfolios will
not make timely interest and/or principal payments or fail to make them at all.
The SchwabFunds(R) bond fund that the Growth Portfolio may currently invest in
is the Schwab Total Bond Market Index Fund.

BORROWING may subject a portfolio to interest costs, which may exceed the
interest received on the securities purchased with the borrowed portfolios. A
portfolio normally may borrow at times to meet redemption requests rather than
sell portfolio securities to raise the necessary cash. Borrowing can involve
leveraging when securities are purchased with the borrowed money. To avoid this,
the Money Market Portfolio will not purchase securities while borrowings are
outstanding, and each the Growth Portfolio and S&P 500 Portfolio will not
purchase securities while borrowings represent more than 5% of its borrowings.

CERTIFICATES OF DEPOSIT are issued against funds deposited in a banking
institution for a specified period of time at a specified interest rate. The
Money Market Portfolio will invest only in certificates of deposit of banks that
have capital, surplus and undivided profits in excess of $100 million.

CONCENTRATION means that substantial amounts of assets are invested in a
particular industry or group of industries. Concentration increases investment
exposure to industry risk. For example, the automobile industry may have a
greater exposure to a single factor, such as an increase in the price of oil,
which may adversely affect the sale of automobiles and, as a result, the value
of the industry's securities. Based on the primary characteristics of non-U.S.
(foreign) banks, the portfolios have identified each foreign country as a
separate bank industry for purposes of the portfolio's concentration policy.
Each portfolio will limit its investments in securities issued by foreign banks
in each country to less than 25% of its total assets. The S&P 500 Portfolio will
not concentrate its investments unless the S&P 500 Index is so concentrated.

COMMERCIAL PAPER consists of short-term, promissory notes issued by banks,
corporations and other institutions to finance short-term credit needs. These
securities generally are discounted but sometimes may be interest bearing.
Commercial paper, which also may be unsecured, is

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subject to credit risk.

CREDIT AND LIQUIDITY SUPPORTS may be employed by issuers to reduce the credit
risk of their securities. Credit supports include letters of credit, insurance
and guarantees provided by foreign and domestic entities. Liquidity supports
include puts, demand features, and lines of credit. Most of these arrangements
move the credit risk of an investment from the issuer of the security to the
support provider. Changes in the credit quality of a support provider could
cause losses to the portfolio.

DEBT SECURITIES are obligations issued by domestic and foreign entities,
including governments and corporations, in order to raise money. They are
basically "IOUs," but are commonly referred to as bonds or money market
securities. These securities normally require the issuer to pay a fixed,
variable or floating rate of interest on the amount of money borrowed (the
"principal") until it is paid back upon maturity.

Debt securities experience price changes when interest rates change. Typically,
longer-maturity securities react to interest rate changes more severely than
shorter-term securities (all things being equal) but generally offer greater
rate of interest. Corporate bonds are debt securities issued by corporations.
Although a higher return is expected from corporate bonds, these securities,
while subject to the same general risks as U.S. government securities, are
subject to greater credit risk than U.S. government securities. Their prices may
be affected by their perceived credit quality of the issuer.

The Growth Portfolio and its underlying funds may invest in investment grade
securities which are medium- and high- quality, although some still invest
varying degrees of speculative characteristics and risks. Debt securities rated
below investment grade are riskier, but may offer higher yields. These
securities are sometimes referred to as "junk bonds." The market for these
securities has historically been less liquid than for investment grade
securities.

Should a security's rating change after purchase by a portfolio the investment
adviser would take such action, including no action, as determined to be in the
best interest of the portfolio by the board of trustees. For more information
about the ratings assigned by some NRSROs, refer to the appendix section of the
SAI.

DELAYED-DELIVERY TRANSACTIONS include purchasing and selling securities on a
delayed-delivery or when-issued basis. These transactions involve a commitment
to buy or sell specific securities at a predetermined price or yield, with
payment and delivery taking place after the customary settlement period for that
type of security. When purchasing securities on a delayed-delivery basis, a
portfolio assumes the rights and risks of ownership, including the risk of price
and yield fluctuations. Typically, no interest will accrue to a portfolio until
the security is delivered. A portfolio will segregate appropriate liquid assets
to cover its delayed-delivery purchase obligations. When a portfolio sells a
security on a delayed-delivery basis, the portfolio does not participate in
further gains or losses with respect to that security. If the other party to a
delayed-delivery transaction fails to deliver or pay for the securities, a
portfolio could suffer losses.

DEPOSITARY RECEIPTS include American or European Depositary Receipts (ADRs or
EDRs), Global Depositary Receipts or Shares (GDRs or GSSs) or other similar
global instruments that are receipts representing ownership of shares of a
foreign-based issuer held in trust by a bank or similar financial institution.
These securities are designed for U.S. and European securities markets as

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alternatives to purchasing underlying securities in their corresponding national
markets and currencies. Depositary receipts can be sponsored or unsponsored.
Sponsored depositary receipts are certificates in which a bank or financial
institution participates with a custodian. Issuers of unsponsored depositary
receipts are not contractually obligated to disclose material information in the
United States. Therefore, there may not be a correlation between such
information and the market value of an unsponsored depositary receipt.

DIVERSIFICATION involves investing in a wide range of securities and thereby
spreading and reducing the risks of investment. Each portfolio is a series of an
open-end investment management company. Each portfolio is a diversified mutual
fund. The Money Market Portfolio follows the regulations set forth by the SEC
that dictate the diversification requirements for money market mutual funds.
Generally theses requirements prohibit a money market fund from purchasing a
security if more that 5% of its total assets would be invested in the securities
of a single issuer. Although a money market fund may invest up to 25% of its
total assets in the first tier securities of a single issuer for up to three
business days. U.S. government and certain other securities are not subject to
this particular regulation.

EMERGING OR DEVELOPING MARKETS exist in countries that are considered to be in
the initial stages of industrialization. The risks of investing in these markets
are similar to the risks of international investing in general, although the
risks are greater in emerging and developing markets. Countries with emerging or
developing securities markets tend to have economic structures that are less
stable than countries with developed securities markets. This is because their
economies may be based on only a few industries and their securities markets may
trade a small number of securities. Prices on these exchanges tend to be
volatile, and securities in these countries historically have offered greater
potential for gain (as well as loss) than securities of companies located in
developed countries.

EQUITY SECURITIES represent ownership interests in a corporation, and are
commonly called "stocks." Equity securities historically have outperformed most
other securities, although their prices can fluctuate based on changes in a
company's financial condition, market conditions and political, economic or even
company-specific news. When a stock's price declines, its market value is
lowered even though the intrinsic value of the company may not have changed.
Sometimes factors, such as economic conditions or political events, affect the
value of stocks of companies of the same or similar industry or group of
industries, and may affect the entire stock market.

Types of equity securities include common stocks, preferred stocks, convertible
securities and warrants. Common stocks, which are probably the most recognized
type of equity security, usually entitle the owner to voting rights in the
election of the corporation's directors and any other matters submitted to the
corporation's shareholders for voting. Preferred stocks do not ordinarily carry
voting rights or may carry limited voting rights, but normally have preference
over the corporation's assets and earnings. For example, preferred stocks have
preference over common stock in the payment of dividends. Preferred stocks also
may pay specified dividends.

Convertible securities are typically preferred stock or bonds that are
exchangeable for a specific number of another form of security (usually the
issuer's common stock) at a specified price or ratio. A corporation may issue a
convertible security that is subject to redemption after a specified date and
usually under certain circumstances. A holder of a convertible security that is
called for redemption would be required to tender it for redemption to the
issuer, convert it to the

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underlying common stock or sell it to a third party. Convertible bonds typically
pay a lower interest rate than nonconvertible bonds of the same quality and
maturity, because of the convertible feature. This structure allows the holder
of the convertible bond to participate in share price movements in the company's
common stock. The actual return on a convertible bond may exceed its stated
yield if the company's common stock appreciates in value and the option to
convert to common shares becomes more valuable.

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

Convertible securities typically trade at prices above their conversion value,
which is the current market value of the common stock received upon conversion,
because of their higher yield potential than the underlying common stock. The
difference between the conversion value and the price of a convertible security
will vary depending on the value of the underlying common stock and interest
rates. When the underlying value of the common stocks decline, the price of the
issuer's convertible securities will tend not to fall as much because the
convertible security's income potential will act as a price support. While the
value of a convertible security also tends to rise when the underlying common
stock value rises, it will not rise as much because their conversion value is
more narrow. The value of convertible securities also is affected by changes in
interest rates. For example, when interest rates fall, the value of convertible
securities may rise because of their fixed income component.

Warrants are a type of security usually issued with bonds and preferred stock
that entitles the holder to a proportionate amount of common stock at specified
price for a specific period of time. The prices of warrants do not necessarily
move parallel to the prices of the underlying common stock. Warrants have no
voting rights, receive no dividends and have no rights with respect to the
assets of the issuer. If a warrant is not exercised within the specified time
period, it will become worthless and a portfolio will lose the purchase price it
paid for the warrant and the right to purchase the underlying security.

FOREIGN SECURITIES involve additional risks, including foreign currency exchange
rate risks, because they are issued by foreign entities, including foreign
governments, banks, corporations or because they are traded principally
overseas. Foreign entities are not subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. corporations. In addition, there may be less publicly
available information about foreign entities. Foreign economic, political and
legal developments, as well as fluctuating foreign currency exchange rates and
withholding taxes, could have more dramatic effects on the value of foreign
securities. For example, conditions within and around foreign countries, such as
the possibility of expropriation or confiscatory taxation, political or social
instability, diplomatic developments, change of government or war could affect
the value of foreign investments. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position.

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Foreign securities typically have less volume and are generally less liquid and
more volatile than securities of U.S. companies. Fixed commissions on foreign
securities exchanges are generally higher than negotiated commissions on U.S.
exchanges, although the portfolios endeavor to achieve the most favorable
overall results on portfolio transactions. There is generally less government
supervision and regulation of foreign securities exchanges, brokers, dealers and
listed companies than in the United States, thus increasing the risk of delayed
settlements of portfolio transactions or loss of certificates for portfolio
securities. There may be difficulties in obtaining or enforcing judgments
against foreign issuers as well. These factors and others may increase the risks
with respect to the liquidity of a portfolio containing foreign investments, and
its ability to meet a large number of shareholder redemption requests.

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

Investments in the securities of foreign issuers are usually made and held in
foreign currencies. In addition, the Growth Portfolio or its underlying fund may
hold cash in foreign currencies. These investments may be affected favorably or
unfavorably by changes in currency rates and in exchange control regulations,
and may cause the portfolio or underlying fund to incur costs in connection with
conversions between various currencies. The rate of exchange between the U.S.
dollar and other currencies is determined by the forces of supply and demand in
the foreign exchange market as well as by political and economic factors.
Changes in the foreign currency exchange rates also may affect the value of
dividends and interest earned, gains and losses realized on the sale of
securities, and net investment income and gains, if any, to be distributed to
shareholders by the portfolio or underlying fund.

In addition to the risks discussed above, it is unforeseeable what risk, if any,
may exist to investments as a result of the conversion of the 11 of the 15
Economic Union Member States from their respective local currency to the
official currency of the Economic and Monetary Union (EMU). After January 3,
1999, the euro will be the official currency of the EMU, the rate of exchange
will have been set between the euro and the currency of each converting country
and the European Central Bank, all national central banks and all stock
exchanges and depositories will price, trade and settle in euro even if the
securities traded are not denominated in euro. Each securities transaction that
requires converting to euro may involve rounding that could affect the value of
the security converted. In addition, issuers of securities that require
converting may experience increased costs as a result of the conversion, which
may affect the value of their securities. It is possible that uncertainties
related to the conversion will affect investor expectations and cause
investments to shift away from European countries, thereby making the European
market less liquid. All of these factors could affect the value of foreign
investments and/or increase a fund's expenses. While the investment adviser is
taking steps to minimize the impact of the conversion on the portfolios, it is
not possible to know precisely what impact the conversion will have on the
portfolios, if any, nor is it possible to eliminate the risks completely.

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For these reasons and others, foreign securities tend to be more volatile than
other types of investments. International funds, therefore, tend to be more
volatile than funds that invest primarily in securities of domestic issuers and
are normally recommended for long-term investors. The SchwabFunds international
stock fund that the Growth Portfolio may currently invest in is the Schwab
International Index Fund(R)

Securities that are acquired by a portfolio outside the United States and that
are publicly traded in the United States on a foreign securities exchange or in
a foreign securities market, are not considered illiquid provided that: (i) the
portfolio acquires and holds the securities with the intention of reselling the
securities in the foreign trading market, (ii) the portfolio reasonably believes
it can readily dispose of the securities readily in the foreign trading market
or for cash in the United States, or (iii) foreign market and current market
quotations are readily available. Investments in foreign securities where
delivery takes place outside the United States will have to be made in
compliance with any applicable U.S. and foreign currency restrictions and tax
laws (including laws imposing withholding taxes on any dividend or interest
income) and laws limiting the amount and types of foreign investments.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS involve the purchase or sale of
foreign currency at an established exchange rate, but with payment and delivery
at a specified future time. Many foreign securities markets do not settle trades
within a time frame that would be considered customary in the U.S. stock market.
Therefore, the Growth Portfolio or its underlying funds may engage in currency
exchange contracts in order to secure exchange rates for portfolio securities
purchased or sold, but waiting settlement. These transactions do not seek to
eliminate any fluctuations in the underlying prices of the securities involved.
Instead, the transactions simply establish a rate of exchange that can be
expected when the portfolio settles its securities transactions in the future.

FUTURES CONTRACTS are securities that represent an agreement between two parties
that obligates one party to buy and the other party to sell specific securities
at an agreed-upon price on a stipulated future date. In the case of futures
contracts relating to an index or otherwise not calling for physical delivery at
the close of the transaction, the parties usually agree to deliver the final
cash settlement price of the contract. A portfolio may purchase and sell futures
contracts based on securities, securities indices and foreign currencies or any
other futures contracts traded on U.S. exchanges or boards of trade that the
Commodities Futures Trading Commission (CFTC) licenses and regulates on foreign
exchanges.

In order to reduce the effect that uninvested cash would have on its ability to
track the performance of its index as closely as possible, a portfolio may
purchase futures contracts. Such transactions allow the portfolio's cash balance
to produce a return similar to that of the underlying security or index on which
the futures contract is based. Also the Growth Portfolio or its underlying funds
may purchase or sell futures contracts on a specified foreign currency to "fix"
the price in U.S. dollars of the foreign security it has acquired or sold or
expects to acquire or sell.

When buying or selling futures contracts, a portfolio must place a deposit with
its broker equal to a fraction of the contract amount. This amount is known as
"initial margin" and must be in the form of liquid debt instruments, including
cash, cash-equivalents and U.S. government securities. Subsequent payments to
and from the broker, known as "variation margin" are made at least daily as the
value of the futures contracts fluctuate. This process is known as "marking-

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<PAGE> 42
to-market". The margin amount will be returned to the portfolio upon termination
of the futures contracts assuming all contractual obligations are satisfied. A
portfolio's aggregate initial and variation margin payments required to
establish its futures positions may not exceed 5% of its net assets.

While a portfolio intends to purchase and sell futures contracts in order to
simulate full investment in the securities comprising its index, there are risks
associated with these transactions. Adverse market movements could cause a
portfolio to experience substantial losses when buying and selling futures
contracts. Of course, barring significant market distortions, similar results
would have been expected if the portfolio had instead transacted in the
underlying securities directly. There also is the risk of losing any margin
payments held by a broker in the event of its bankruptcy. Additionally, a
portfolio incurs transaction costs (i.e. brokerage fees) when engaging in
futures trading.

Futures contracts normally require actual delivery or acquisition of an
underlying security or cash value of an index on the expiration date of the
contract. In most cases, however, the contractual obligation is fulfilled before
the date of the contract by buying or selling, as the case may be, identical
futures contracts. Such offsetting transactions terminate the original contracts
and cancel the obligation to take or make delivery of the underlying securities
or cash. There may not always be a liquid secondary market at the time a
portfolio seeks to close out a futures position. If a portfolio is unable to
close out its position and prices move adversely, the portfolio would have to
continue to make daily cash payments to maintain its margin requirements. If a
portfolio had insufficient cash to meet these requirements it may have to sell
portfolio securities at a disadvantageous time or incur extra costs by borrowing
the cash. Also, the portfolio may be required to make or take delivery and incur
extra transaction costs buying or selling the underlying securities. A portfolio
will seek to reduce the risks associated with futures transactions by buying and
selling futures contracts that are traded on national exchanges or for which
there appears to be a liquid secondary market.

ILLIQUID SECURITIES generally are any securities that cannot be disposed of
promptly and in the ordinary course of business at approximately the amount at
which the portfolio has valued the instruments. The liquidity of the portfolio's
investments is monitored under the supervision and direction of the board of
trustees. Investments currently not considered liquid include repurchase
agreements not maturing within seven days and certain restricted securities.

INDEXING STRATEGIES involve tracking the investments and, therefore, performance
of an index. The S&P 500 Portfolio normally will invest at least 80% of its
total assets in the securities of its index. Each Schwab Equity Index Fund
normally will invest at least 80% of its total assets in the securities of its
index. The Schwab Total Bond Market Index Fund normally will invest at least 65%
of its total assets in the securities of its index. Moreover, each of these
index funds will invest so that its portfolio performs similarly to that of its
index. Each index fund tries to generally match its holdings in a particular
security to its weight in the index. Each index fund will seek a correlation
between its performance and that of its index of 0.90 or better. A perfect
correlation of 1.0 is unlikely as index funds incur operating and trading
expenses unlike their indices. An index fund may rebalance its holdings in order
to track its index more closely. In the event its intended correlation is not
achieved, the board of trustees will consider alternative arrangements for the
portfolio or index fund.

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LENDING of portfolio securities is a common practice in the securities industry.
A portfolio will engage in security lending arrangements with the primary
objective of increasing its income. For example, a portfolio may receive cash
collateral and it may invest it in short-term, interest-bearing obligations, but
will do so only to the extent that it will not lose the tax treatment available
to mutual portfolios. Lending portfolio securities involve risks that the
borrower may fail to return the securities or provide additional collateral.
Also, voting rights with respect to the loaned securities may pass with the
lending of the securities and efforts to call such securities promptly may be
unsuccessful, especially for foreign securities. A portfolio may loan portfolio
securities to qualified broker-dealers or other institutional investors
provided: (1) the loan is secured continuously by collateral consisting of U.S.
government securities, letters of credit, cash or cash equivalents maintained on
a daily marked-to-market basis in an amount at least equal to the current market
value of the securities loaned; (2) the portfolio may at any time call the loan
and obtain the return of the securities loaned; (3) the portfolio will receive
any interest or dividends paid on the loaned securities; and (4) the aggregate
market value of securities loaned will not at any time exceed one-third of the
total assets of the portfolio.

MATURITY OF INVESTMENTS. The Money Market Portfolio follows the regulations set
forth by the SEC that dictate the maturity requirements for money market mutual
portfolios. Generally, these requirements prohibit a portfolio from purchasing a
security with a remaining maturity or more than 397 days or maintaining a
dollar-weighted average portfolio maturity that exceeds 90 days.

MONEY MARKET SECURITIES are high-quality, short-term debt securities that may be
issued by entities such as the U.S. government, corporations and financial
institutions (like banks). Money market securities include commercial paper,
certificates of deposit, banker's acceptances, notes and time deposits.

Money market securities pay fixed, variable or floating rates of interest and
are generally subject to credit and interest rate risks. The maturity date or
price of and financial assets collateralizing a security may be structured in
order to make it qualify as or act like a money market security. These
securities may be subject to greater credit and interest rate risks than other
money market securities because of their structure. Money market securities may
be issued with puts or sold separately, sometimes called demand features or
guarantees, which are agreements that allow the buyer to sell a security at a
specified price and time to the seller or "put provider." The SchwabFunds(R)
money market fund that the Growth Portfolio may currently invest in is the
Schwab Value Advantage Money Fund(R).

MORTGAGE-BACKED SECURITIES represent an interest in an underlying pool of
mortgages. Issuers of these securities include agencies and instrumentalities of
the U.S. government, such as the Federal Home Loan Mortgage Corporation and the
Federal National Mortgage Association, and private entities, such as banks. The
income paid on mortgage-backed securities depends upon the income received from
the underlying pool of mortgages. Mortgage-backed securities include
collateralized mortgage obligations, mortgage-backed bonds and stripped
mortgage-backed securities. These securities are subject to interest rate risk,
like other debt securities, in addition to prepayment and extension risk.
Prepayments occur when the holder of an individual mortgage prepays the
remaining principal before the mortgage's scheduled maturity date. As a result
of the pass-through of prepayments of principal on the underlying securities,
mortgage-backed securities are often subject to more rapid prepayment of
principal than their stated maturity indicates. Because the prepayment
characteristics of the underlying mortgages vary, it is not possible to predict
accurately the realized yield or average life of a particular issue of
mortgage-

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backed securities. Prepayment rates are important because of their effect on the
yield and price of the securities. Accelerated prepayments adversely impact
yields for mortgage-backed securities purchased at a premium (i.e., a price in
excess of principal amount) and may involve additional risk of loss of principal
because the premium may not be fully amortized at the time the obligation is
repaid. The opposite is true for mortgage-backed securities purchased at a
discount. The Growth Portfolio and its underlying funds may purchase
mortgage-related securities at a premium or at a discount. When interest rates
rise, extension risk increases and may affect the value of the portfolio or its
underlying fund. Principal and interest payments on the mortgage-related
securities are guaranteed by the government to the extent described below. Such
guarantees do not extend to the value or yield of the mortgage-related
securities themselves or of a portfolio's shares.

MUTUAL FUNDS are registered investment companies, which may issue and redeem
their shares on a continuous basis (open-end mutual funds) or may offer a fixed
number of shares usually listed on an exchange (closed-end mutual funds). Mutual
funds generally offer investors the advantages of diversification and
professional investment management, by combining shareholders' money and
investing it in various types of securities, such as stocks, bonds and money
market securities. Mutual funds also make various investments and use certain
techniques in order to enhance their performance. These may include entering
into delayed-delivery and when-issued securities transactions or swap
agreements; buying and selling futures contracts, illiquid and restricted
securities and repurchase agreements and borrowing or lending money and/or
portfolio securities. The risks of investing in mutual funds generally reflect
the risks of the securities in which the mutual funds invest and the investment
techniques they may employ. Also, mutual funds charge fees and incur operating
expenses. The Growth Portfolio will normally invest mainly in other
SchwabFunds(R), which are registered open-end investment companies.

OTHER SECURITIES. Under certain circumstances, an underlying fund of the Growth
Portfolio may make payment of a redemption by the portfolio wholly, or in part,
by a distribution in-kind of securities from its portfolio rather than payment
in cash. In such a case, the Growth Portfolio may hold the securities
distributed until the investment advisor determined that it was appropriate to
sell them.

PROMISSORY NOTES are written agreements committing the maker or issuer to pay
the payee a specified amount either on demand or at a fixed date in the future,
with or without interest. These are sometimes called negotiable notes or
instruments and are subject to credit risk. Bank notes are notes used to
represent obligations issued by banks in large denominations.

PUTS are sometimes called demand features or guarantees, and are agreements that
follow the buyer to sell a security at a specified price and time to the seller
or "put provider." Then a portfolio buys a put, losses could occur as a result
of the costs of the put or if it exercises its rights under the put and the put
provider does not perform as agreed. Standby commitments are types of puts.

QUALITY OF INVESTMENTS. The Money Market Portfolio follows regulations set forth
by the SEC that dictate the quality requirements for money market mutual funds.
Generally these require the Money Market Portfolio to invest exclusively in
high-quality securities. Generally, high-quality securities are securities that
present minimal credit risks and are rated in one of the two highest rating
categories by two nationally recognized statistical rating organizations
(NRSROs), or by one if only one NRSRO has rated the securities, or, if unrated,
determined to be of comparable

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quality by the investment adviser pursuant to guidelines adopted by the board of
trustees. High-quality securities may be "first tier" or "second tier"
securities. First tier securities may be rated within the highest category or
determined to be of comparable quality by the investment adviser. Money market
fund shares and U.S. government securities are first tier securities. Second
tier securities generally are rated within the second-highest category. The
Money Market Portfolio's holdings of second tier securities will not exceed 5%
of its assets, and investments in the second tier securities on any one issuer
will be limited to the greater of 1% of the portfolio's assets or $1 million.

Should a security's high-quality rating change after purchase by the portfolio,
the adviser would take such action, including no action, as determined to be in
the best interest of the portfolio by the board of trustees. For more
information about the ratings assigned by some NRSROs, refer to the Appendix
section of the SAI.

REPURCHASE AGREEMENTS. Repurchase agreements involve a portfolio buying
securities (usually U.S. government securities) from a seller and simultaneously
agreeing to sell them back at an agreed-upon price (usually higher) and time.
There are risks that losses will result if the seller does not perform as
agreed. Repurchase agreements will be collateralized by first tier securities.
In addition, repurchase agreements collateralized entirely by U.S. government
securities may be deemed to be collateralized fully pursuant to Rule 2a-7.

RESTRICTED SECURITIES are securities that are subject to legal restrictions on
their sale. For example, commercial paper and other promissory notes may be
issued under Section 4(2) of the Securities Act of 1933. These securities may be
sold only to qualified institutional buyers such as the portfolios under
securities Act Rule 144A. Because of this requirement, these securities are
normally resold to other qualified buyers through or with the assistance of the
issuer or an investment dealer who makes a market in these securities, thereby
providing liquidity to the market. It is not possible to predict with assurance
exactly how the market for Section 4(2) paper sold and offered under Rule 144A
will continue to develop. Therefore, investment adviser, pursuant to guidelines
approved by the board of trustees, will carefully monitor a portfolio's
investments in these securities, focusing on such important factors, among
others, as valuation, liquidity and availability of information. Restricted
securities may be considered to be liquid if an institutional or other market
exists for these securities. In making this determination, the portfolio, under
the direction and supervision of the board of trustees, will take into account
the following factors: (i) the frequency of trades and quotes for the security;
(ii) the number of dealers willing to purchase or sell the security and the
number of potential purchasers; (iii) dealer undertakings to make a market in
the security; and (iv) the nature of the security and marketplace trades (e.g.,
the time needed to dispose of the security, the method of soliciting offers and
the mechanics of transfer). To the extent a portfolio invests in restricted
securities that are deemed liquid, the general level of illiquidity in the
portfolios may be increased if qualified institutional buyers become
uninterested in purchasing these securities.

SMALL-CAP STOCKS are common stocks issued by U.S. operating companies with
market capitalizations that place them within the second-largest 1,000 such
companies, as measured by the Schwab Small-Cap Index(R). Historically, small-cap
stocks have been riskier than stocks issued by large- or mid-cap companies for a
variety of reasons. Small-cap companies may have less certain growth prospects
and are typically less diversified and less able to withstand changing economic
conditions than larger capitalized companies. Small-cap companies also may have
more limited product lines, markets or financial resources than companies with
larger capitalizations, and may be

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more dependent on a relatively small management group. In addition, small-cap
companies may not be well known to the investing public, may not have
institutional ownership and may have only cyclical, static or moderate growth
prospects. Most small-cap company stocks pay low or no dividends.

These factors and others may cause sharp changes in the value of a small-cap
company's stock, and even cause some small-cap companies to fail. Additionally,
small-cap stocks may not be as broadly traded as large- or mid cap stocks.
Accordingly, it may be difficult for a portfolio to dispose of securities of
these small-cap companies at prevailing market prices in order to meet
redemptions. This lower degree of liquidity can adversely affect the value of
these securities. For these reasons and others, the value of a portfolio's
investments in small-cap stocks is expected to be more volatile than other types
of investments, including other types of stock investments. While small-cap
stocks are generally considered to offer greater growth opportunities for
investors, they involve greater risks and the share price of a portfolio or an
underlying fund (like the Schwab Small-Cap Index Fund(R)) that invests in
small-cap stocks may change sharply during the short term and long term.

STOCK FUNDS typically seek growth of capital and invest primarily in equity
securities. Other investments generally include debt securities, such as U.S.
government securities, and some illiquid and restricted securities. Stock funds
typically may enter into delayed-delivery or when-issued securities
transactions, repurchase agreements, swap agreements and futures and options
contracts. Although some stock funds invest exclusively in equity securities and
may focus in a specialized segment of the stock market, like stocks of small
companies or foreign issuers, or may focus in a specific industry or group of
industries. The greater a fund's investment in stock, the greater exposure it
will have to stock risk and stock market risk. Stock risk is the risk that a
stock may decline in price over the short or long term. When a stock's price
declines, its market value is lowered even though the intrinsic value of the
company may not have changed. Some stocks, like small company and international
stocks, are more sensitive to stock risk than others. Diversifying investments
across companies can help to lower the stock risk of a portfolio. Market risk is
typically the result of a negative economic condition that affects the value of
an entire class of securities, such as stocks or bonds. Diversification among
various asset classes, such as stocks, bonds and cash, can help to lower the
market risk of a portfolio. The SchwabFunds(R) stock funds that the Growth
Portfolio may currently invest in are the Schwab S&P 500 Fund, Schwab Small-Cap
Index Fund(R) and Schwab International Index Fund(R) or Schwab Equity Index
Funds. A stock fund's other investments and use of investment techniques also
will affect its performance and portfolio value.

STOCK SUBSTITUTION STRATEGY is a strategy, whereby a portfolio (or underlying
fund) may, in extraordinary circumstances, substitute a similar stock for a
security in its index.

STRIPPED SECURITIES are securities whose income and principal components are
detached and sold separately. While the risks associated with stripped
securities are similar to other money market securities, stripped securities are
typically subject to greater changes in value. U.S. Treasury securities that
have been stripped by a Federal Reserve Bank are obligations of the U.S.
Treasury.

SWAP AGREEMENTS are an exchange of one security for another. A swap may be
entered into in order to help a portfolio or underlying fund track an index, or
to change its maturity, to protect its value from changes in interest rates or
to expose it to a different security or market. These agreements are subject to
the risk that the counterparty will not fulfill its obligations. The risk of

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loss in a swap agreement can be substantial due to the degree of leverage that
can be involved. In order to help minimize this risk, a portfolio or underlying
fund will segregate appropriate assets as necessary.

U.S. GOVERNMENT SECURITIES are issued by the U.S. Treasury or issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities.
U.S. Treasury securities, include bills, notes and bonds, and are backed by the
full faith and credit of the United States. Not all U.S. government securities
are backed by the full faith and credit of the United States. Some U.S.
government securities are supported by a line of credit the issuing entity has
with the U.S. Treasury. Others are supported solely by the credit of the issuing
agency or instrumentality. There can be no assurance that the U.S. government
will provide financial support to U.S. government securities of its agencies and
instrumentalities if it is not obligated to do so under law. Of course U.S.
government securities, including U.S. Treasury securities, are among the safest
securities, however, not unlike other fixed-income securities, they are still
sensitive to interest rate changes, which will cause their yields to fluctuate.

U.S. TREASURY SECURITIES are obligations of the U.S. Treasury and include bills,
notes and bonds. U.S. Treasury securities are backed by the full faith and
credit of the United States Government.

VARIABLE AND FLOATING RATE DEBT SECURITIES pay an interest rate, which is
adjusted either periodically or at specific intervals or which floats
continuously according to a formula or benchmark. Although these structures
generally are intended to minimize the fluctuations in value that occur when
interest rates rise and fall, some structures may be linked to a benchmark in
such a way as to cause greater volatility to the security's value.

Some variable rate securities may be combined with a put or demand feature
(variable rate demand securities) that entitles the holder to the right to
demand repayment in full or to resell at a specific price and/or time. While the
demand feature is intended to reduce credit risks, it is not always
unconditional, and may make the securities more difficult to sell quickly
without losses. There are risks involved with these securities because there may
be no active secondary market for a particular variable rate demand security
purchased by a portfolio. In addition, the portfolio may exercise only its
demand rights at certain times. The portfolio could suffer losses in the event
that the issuer defaults on its obligation.

INVESTMENT LIMITATIONS

The following investment limitations may be changed only by a vote of a majority
of a portfolio's shareholders

THE MONEY MARKET PORTFOLIO MAY NOT:

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

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

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

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preferred stocks are each considered as one class.

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

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

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

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

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

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

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

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

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

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

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indebtedness to the extent necessary.

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

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

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

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

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

EACH OF THE GROWTH PORTFOLIO AND S&P 500 PORTFOLIO MAY NOT:

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

(2) Concentrate investments in a particular industry or group of industries as
concentration is defined under the 1940 Act, or the rules or regulations
thereunder; except that the S&P 500 Portfolio may concentrate investments only
to the extent that the S&P 500 Index(R) is also so concentrated.

(3) Purchase or sell commodities, commodities contracts or real estate; lend or
borrow money; issue senior securities; underwrite securities; or pledge,
mortgage or hypothecate any of its assets, except as permitted by the 1940 Act
or the rules or regulations thereunder.

THE FOLLOWING DESCRIPTIONS OF THE 1940 ACT MAY ASSIST INVESTORS IN UNDERSTANDING
THE ABOVE FUNDAMENTAL POLICIES AND RESTRICTIONS.

Diversification. Under the 1940 Act, a diversified investment management
company, with respect to 75% of its total assets, may not purchase securities
(other than U.S. government securities or securities of other investment
companies) if, as a result, more than 5% of its total assets would be invested
in the securities of such issuer or it would own more than 10% of such issuer's
outstanding voting securities.

Borrowing. The 1940 Act presently restricts an investment management company
from borrowing (including pledging, mortgaging or hypothecating assets) in
excess of 33 1/3% of its total assets (not including temporary borrowings not in
excess of 5% of its total assets).

Lending. Under the 1940 Act, an investment management company may make loans
only if expressly permitted by its investment policies.

Concentration. The 1940 Act presently defines concentration as investing 25% or
more of an investment company's total assets in an industry or group of
industries, with certain exceptions.

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OTHER INVESTMENT POLICIES

THE FOLLOWING ARE NON-FUNDAMENTAL INVESTMENT POLICIES AND RESTRICTIONS FOR EACH
OF THE GROWTH PORTFOLIO AND S&P 500 PORTFOLIO. ANY CHANGES IN EITHER THE GROWTH
PORTFOLIO'S OR THE S&P 500 PORTFOLIO'S NON-FUNDAMENTAL INVESTMENT POLICIES WILL
BE COMMUNICATED TO THE PORTFOLIO'S SHAREHOLDERS PRIOR TO THE EFFECTIVENESS OF
THE CHANGES.

EACH OF THE GROWTH PORTFOLIO AND S&P 500 PORTFOLIO MAY NOT:

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

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

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

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

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

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

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

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

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

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<PAGE> 51
(10) Purchase more than 10% of any class of securities of any issuer if, as a
result of such purchase, it would own more than 10% of such issuer's outstanding
voting securities.

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

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

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

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

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

Except with respect to each portfolio's concentration and borrowing limitations
and investments in illiquid securities, later changes in values do not require a
portfolio to sell the investment even if the portfolio could not then make the
same investment.

MANAGEMENT OF THE PORTFOLIOS

The officers and trustees, their principal occupations during the past five
years and their affiliations, if any, with The Charles Schwab Corporation,
Charles Schwab & Co., Inc. (Schwab) and Charles Schwab Investment Management,
Inc. (CSIM or the investment adviser), are as follows:

NAME/DATE POSITION(S) WITH PRINCIPAL OCCUPATIONS &
OF BIRTH THE TRUSTS AFFILIATIONS
- --------------------------------------------------------------------------------

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<PAGE> 52
NAME/DATE POSITION(S) WITH PRINCIPAL OCCUPATIONS &
OF BIRTH THE TRUSTS AFFILIATIONS
- --------------------------------------------------------------------------------

CHARLES R. SCHWAB* Chairman and Trustee Chairman, Co-Chief Executive
July 29, 1937 Officer and Director, The
Charles Schwab Corporation;
Chairman, Chief Executive
Officer and Director, Charles
Schwab Holdings, Inc.; Chairman
and Director, Charles Schwab &
Co., Inc., Charles Schwab
Investment Management, Inc.,
The Charles Schwab Trust
Company and Schwab Retirement
Plan Services, Inc.; Chairman
and Director (current board
positions), and Chairman
(officer position) until
December 1995, Mayer &
Schweitzer, Inc. (a securities
brokerage subsidiary of The
Charles Schwab Corporation);
Director, The Gap, Inc. (a
clothing retailer),
Transamerica Corporation (a
financial services
organization), AirTouch
Communications (a
telecommunications company) and
Siebel Systems (a software
company).

STEVEN L. SCHEID*+ President and Trustee Executive Vice President and
June 28, 1953 Chief Financial Officer, The
Charles Schwab Corporation;
Enterprise President -
Financial Products and Services
and Chief Financial Officer,
Charles Schwab & Co., Inc.;
Chief Executive Officer, Chief
Financial Officer and Director,
Charles Schwab Investment
Management, Inc. From 1994 to
1996, Mr. Scheid was Executive
Vice President of Finance for
First Interstate Bancorp and
Principal Financial Officer
from 1995 to 1996. Prior to
1994, Mr. Scheid was Chief
Financial Officer, First
Interstate Bank of Texas.

DONALD F. DORWARD Trustee Executive Vice President and
September 23, 1931 Managing Director, Grey
Advertising. From 1990 to 1996,
Mr. Dorward was President and
Chief Executive Officer,
Dorward & Associates
(advertising and
marketing/consulting firm).

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

- ----------
* This trustee is an "interested person" of the trusts.
+ Effective August 18, 1998, Mr. Scheid was elected as President and trustee.

20
<PAGE> 53
NAME/DATE POSITION(S) WITH PRINCIPAL OCCUPATIONS &
OF BIRTH THE TRUSTS AFFILIATIONS
- --------------------------------------------------------------------------------

DONALD R. STEPHENS Trustee Managing Partner, D.R. Stephens
June 28, 1938 & Company (investments) and
Chairman and Chief Executive
Officer of North American Trust
(real estate investment trust).

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

TAI-CHIN TUNG Treasurer and Principal Vice President, Treasurer and
March 7, 1951 Financial Officer Controller, Charles Schwab
Investment Management, Inc.
From 1994 to 1996, Ms. Tung was
Controller for Robertson
Stephens Investment Management,
Inc. From 1993 to 1994, she was
Vice President of Portfolio
Accounting, Capital Research
and Management Co.

WILLIAM J. KLIPP* Executive Vice Executive Vice President,
December 9, 1955 President, Chief SchwabPortfolios(R), Charles
Operating Officer and Schwab & Co., Inc.; President
Trustee and Chief Operating Officer,
Charles Schwab Investment
Management, Inc.

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

FRANCES COLE Secretary Senior Vice President, Chief
September 9, 1955 Counsel and Assistant Corporate
Secretary, Charles Schwab
Investment Management, Inc.

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

Each portfolio is overseen by a board of trustees. The board of trustees meets
regularly to review each portfolio's activities, contractual arrangements and
performance. The board of trustees is responsible for protecting the interests
of the portfolio's shareholders. The following table provides information as of
December 31, 1998 concerning compensation of the trustees.

- ----------
* This trustee is an "interested person" of the trusts.

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<PAGE> 54
<TABLE>
<CAPTION>
Pension or ($)
($) Retirement Total
Name of Trustee Aggregate Compensation Benefits Accrued Compensation
From the Trust as Part of from Portfolio
Portfolio Complex 1
Expenses
---------------------------------
Money Growth S&P 500
Market Portfolio Portfolio
Portfolio
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Charles R. Schwab 0 0 0 N/A 0

Tom D. Seip 2 0 0 0 N/A 0

Steven L. Scheid 3 0 0 0 N/A 0

William J. Klipp 0 0 0 N/A 0

Donald F. Dorward N/A

Robert G. Holmes N/A

Donald R. Stephens N/A

Michael W. Wilsey N/A
</TABLE>

1 Unless otherwise stated, information is for the portfolio complex, which
included 38 funds as of December 31, 1998.

2 Mr. Seip served as President and trustee until May 15, 1998.

3 Mr. Scheid became President and trustee on August 18, 1998.

DEFERRED COMPENSATION PLAN

Trustees who are not "interested persons" of a trust ("independent trustees")
may enter into a fee deferral plan. Under this plan, deferred fees will be
credited to an account established by the trust as of the date that such fees
would have been paid to the trustee. The value of this account will equal the
value that the account would be if the fees credited to the account had been
invested in the shares of SchwabFunds(R) selected by the trustee. Currently,
none of the independent trustees have elected to participate in this plan.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

As of, [__________], the officers and trustees of the trusts, as a group owned
of record or beneficially less than 1% of the outstanding voting securities of
the classes and series of each trust.

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<PAGE> 55
As of [____________], the following represents persons or entities that owned,
directly or beneficially owned, more than 5% of the shares of

INVESTMENT ADVISORY AND OTHER SERVICES

INVESTMENT ADVISER

Charles Schwab Investment Management, Inc. (CSIM or the investment adviser), a
wholly owned subsidiary of The Charles Schwab Corporation, 101 Montgomery
Street, San Francisco CA 94104, serves as the portfolios' investment adviser and
administrator pursuant to Investment Advisory and Administration Agreements
(Advisory Agreements) between it and the trust. Charles Schwab & Co., Inc.
(Schwab) is an affiliate of the investment adviser and is the trust's
distributor, shareholder services agent and transfer agent. Charles R. Schwab is
the founder, Chairman, Co-Chief Executive Officer and Director of The Charles
Schwab Corporation. As a result of his ownership of and interests in The Charles
Schwab Corporation, Mr. Schwab may be deemed to be a controlling person of the
investment adviser and Schwab.

YEAR 2000 presents uncertainties and possible risks to the smooth operations of
the portfolios and the provision of services to shareholders. Many computer
programs use only two digits to identify a specific year and therefore may not
accurately recognize the upcoming change in the next century. If not corrected,
many computer applications could fail or create erroneous results by or at year
2000. Due to the portfolios' and their service providers' dependence on computer
technology to operate, the nature and impact of year 2000 processing failures on
the portfolios could be material. The portfolios' investment adviser is taking
steps to minimize the risks of year 2000 for the portfolios, including seeking
assurances from the portfolios' service providers that they are analyzing their
systems, testing them for potential problems and remediating them to the extent
possible. There can be no assurance that these steps will be sufficient to avoid
any adverse impact on the portfolios, however, minimizing year 2000 risk for the
portfolios is a priority of the investment adviser.

MONEY MARKET PORTFOLIO. For its advisory and administrative services to the
Money Market Portfolio, the investment adviser is entitled to receive a
graduated annual fee, payable monthly, of 0.46% of the Portfolio's average daily
net assets not in excess of $1 billion; 0.45% of such net assets over $1 billion
but not in excess of $3 billion; 0.40% of such net assets over $3 billion but
not in excess of $10 billion, 0.37% of such net assets over $10 billion but not
in excess of $20 billion; and 0.34% of such net assets over $20 billion.

For the fiscal years ended December 31, 1996, 1997 and 1998, the portfolio paid
investment advisory and administration fees) of $22,322 (fees were reduced by
$81,006), $97,831 (fees were reduced by $80,295) and $608 (fees were reduced
by $52,949), and [___________] respectively.

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

For the fiscal period from November 1, 1996 (commencement of operations) through
December 31, 1996 and for the fiscal years ended December 31, 1997 and 1998, the
portfolio paid investment advisory and administration fees of $0 (fees were
reduced by $5,433) and $211 (fees were reduced

23
<PAGE> 56
by $55,088) and [_________________], respectively.

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

DISTRIBUTOR

Pursuant to a Distribution Agreement, Schwab is the principal underwriter for
shares of the portfolios and is the trusts' agent for the purpose of the
continuous offering of the portfolios' shares. Each portfolio pays the cost of
the prospectuses and shareholder reports to be prepared and delivered to
existing shareholders. Schwab pays such costs when the described materials are
used in connection with the offering of shares to prospective investors and for
supplementary sales literature and advertising. Schwab receives no fee under the
Distribution Agreement.

CUSTODIAN AND PORTFOLIO ACCOUNTANT

Chase Manhattan Bank New York (formerly called Morgan Stanley Trust Company),
1 Pierrepont Plaza, Brooklyn, New York 11201, serves as custodian for the Growth
and S&P Portfolios and SEI Fund Resources, One Freedom Valley Dr. Oaks,
Pennsylvania 19456, serves as portfolio accountant for these portfolios. PNC
Bank, National Association, Airport Business Center, 200 Stevens Drive, Suite
440, Lester, Pennsylvania 19113 serves as custodian for the Money Market
Portfolio and PFPC, Inc., 103 Bellevue Parkway, Wilmington, Delaware 19809
serves as fund accountant to this portfolio.

The custodian is responsible for the daily safekeeping of securities and cash
held or sold by the portfolios. The fund accountant maintains all books and
records related to each portfolio's transactions.

INDEPENDENT ACCOUNTANT

The portfolios' independent accountant, _________________, audits and reports on
the annual financial statements of each series of the trusts and review certain
regulatory reports and each portfolio's federal income tax return. It also
performs other professional accounting, auditing, tax and advisory services when
the trusts engage it to do so. Their address is ____________________. Each
portfolio's audited financial statements for the fiscal year ended December 31,
1998, are included in the portfolio's annual report, which is a separate report
supplied with the SAI.

BROKERAGE ALLOCATION AND OTHER PRACTICES

24
<PAGE> 57
PORTFOLIO TURNOVER

For reporting purposes, each of the Growth Portfolio and S&P 500 Portfolio's
turnover rate is calculated by dividing the value of purchases or sales of
portfolio securities for the fiscal year, whichever is less, by the monthly
average value of portfolio securities the portfolio owned during the fiscal
year. When making the calculation, all securities whose maturities at the time
of acquisition were one year or less ("short-term securities") are excluded.

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

A 100% portfolio turnover rate would occur, for example, if all portfolio
securities (aside from short-term securities) were sold and either repurchased
or replaced once during the fiscal year. The portfolios do not expect that their
respective portfolio turnover rates will exceed 100% in any given year, a
turnover rate lower than that of most non-index mutual portfolios.

The portfolio turnover rates are in the financial highlight tables in the
prospectus.

PORTFOLIO TRANSACTIONS

In effecting securities transactions for the portfolios, the investment adviser
seeks to obtain best price and execution. Subject to the supervision of the
board of trustees, the investment adviser will generally select brokers and
dealers for the portfolios primarily on the basis of the quality and reliability
of brokerage services, including execution capability and financial
responsibility.

In assessing these criteria, the investment adviser will, among other things,
monitor the performance of brokers effecting transactions for the portfolio to
determine the effect, if any, that the portfolios' transactions through those
brokers have on the market prices of the stocks involved. This may be of
particular importance for the portfolios' investments in relatively smaller
companies whose stocks are not as actively traded as those of their larger
counterparts. The portfolios will seek to buy and sell securities in a manner
that causes the least possible fluctuation in the prices of those stocks in view
of the size of the transactions.

When the execution capability and price offered by two or more broker-dealers
are comparable, the investment adviser may, in its discretion, in agency
transactions (and not principal transactions) utilize the services of
broker-dealers that provide it with investment information and other research
resources. Such resources also may be used by the investment adviser when
providing advisory services to its clients.

In determining when and to what extent to use Schwab or any other affiliated
broker-dealer as its broker for executing orders for the portfolios on
securities exchanges, the investment adviser follows procedures, adopted by the
board of trustees, that are designed to ensure that affiliated brokerage
commissions (if relevant) are reasonable and fair in comparison to unaffiliated
brokerage commissions for comparable transactions. The Board reviews the
procedures annually and approves and reviews transactions involving affiliated
brokers quarterly.

In an attempt to obtain best execution for the portfolios, the investment
adviser may place orders directly with market makers or with third market
brokers, Instinet or brokers on an agency basis.

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<PAGE> 58
Placing orders with third market brokers or through Instinet may enable the
portfolios to trade directly with other institutional holders on a net basis. At
times, this may allow the portfolios to trade larger blocks than would be
possible trading through a single market maker.

BROKERAGE COMMISSIONS

For the fiscal years ended December 31, 1997 and 1998, and the fiscal period of
November 1, 1996 through December 31, 1996 the Growth Portfolio paid brokerage
commissions of $_______, $_______, and $_____, respectively.

For the fiscal years ended December 31, 1997 and 1998 and the fiscal period of
November 1, 1996 to December 31, 1996 the S&P 500 Portfolio paid brokerage
commissions of $________, $_______ and $________, respectively.

Of brokerage commissions paid by the __________Portfolio(s) in 1998, $________
(_____% of the total) was paid to Schwab, an affiliated person of the Portfolio.

DESCRIPTION OF THE TRUST

Each portfolio is a series of Schwab Annuity Portfolios, an open-end investment
management company organized as a Massachusetts business trust on January 21,
1994. The Declaration of Trust provides that shares may be automatically
redeemed if held by a shareholder in an amount less than the minimum required by
each portfolio.

The portfolios may hold special meetings. These meetings may be called for
purposes such as electing trustees, changing portfolioamental policies and
amending management contracts. Shareholders are entitled to one vote for each
share owned and may vote by proxy or in person. Proxy materials will be mailed
to shareholders prior to any meetings, and will include a voting card and
information explaining the matters to be voted upon.

The bylaws of the trust provide that a majority of shares entitled to vote shall
be a quorum for the transaction of business at a shareholders' meeting, except
that where any provision of law, or of the Declaration of Trust or of the bylaws
permits or requires that (1) holders of any series shall vote as a series, then
a majority of the aggregate number of shares of that series entitled to vote
shall be necessary to constitute a quorum for the transaction of business by
that series, or (2) holders of any class shall vote as a class, then a majority
of the aggregate number of shares of that class entitled to vote shall be
necessary to constitute a quorum for the transaction of business by that class.
Any lesser number shall be sufficient for adjournments. Any adjourned session or
sessions may be held, within a reasonable time after the date set for the
original meeting, without the necessity of further notice. The Declaration of
Trust specifically authorizes the board of trustees to terminate the trust (or
any of its investment portfolios) by notice to the shareholders without
shareholder approval.

Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for the trust's
obligations. The Declaration of Trust, however, disclaims shareholder liability
for the trust's acts or obligations and requires that notice of such disclaimer
be given in each agreement, obligation or instrument entered into or executed by
the trust or the trustees. In addition, the Declaration of Trust provides for
indemnification out of the property of an investment portfolio in which a
shareholder owns or owned shares for all losses and expenses of such shareholder
or former shareholder if he or she is held personally liable for the

26
<PAGE> 59
obligations of the trust solely by reason of being or having been a shareholder.
Moreover, the trust will be covered by insurance which the trustees consider
adequate to cover foreseeable tort claims. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is considered
remote, because it is limited to circumstances in which a disclaimer is
inoperative and the trust itself is unable to meet its obligations. There is a
remote possibility that a portfolio could become liable for a misstatement in
the prospectus or SAI about another portfolio.

As more fully described in the Declaration of Trust, the trustees may each year,
or more frequently, distribute to the shareholders of each series accrued income
less accrued expenses and any net realized capital gains less accrued expenses.
Distributions of each year's income of each series shall be distributed pro rata
to shareholders in proportion to the number of shares of each series held by
each of them. Distributions will be paid in cash pursuant to elections made by
the participating insurance companies. Distributions paid in shares will be paid
at the net asset value as determined in accordance with the bylaws.

PURCHASE, REDEMPTION AND PRICING OF SHARES

Purchase and Redemption of Shares

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

The portfolios have made an election with the SEC to pay in cash all redemptions
requested by any shareholder of record limited in amount during any 90-day
period to the lesser of $250,000 or 1% of its net assets at the beginning of
such period. This election is irrevocable without the SEC's prior approval.
Redemption requests in excess of these limits may be paid, in whole or in part,
in investment securities or in cash, as the board of trustees may deem
advisable. Payment will be made wholly in cash unless the board of trustees
believes that economic or market conditions exist that would make such payment a
detriment to the best interests of a portfolio. If redemption proceeds are paid
in investment securities, such securities will be valued as set forth in
"Pricing of Shares". A redeeming shareholder would normally incur brokerage
expenses if he or she were to convert the securities to cash. Please note that
this ability to make in-kind redemptions maybe effected by agreements made with
participating insurance companies.

PRICING OF SHARES

The Money Market Portfolio values its portfolio instruments at amortized cost,
which means they are valued at their acquisition cost, as adjusted for
amortization of premium or discount, rather than at current market value.
Calculations are made to compare the value of the Money Market Portfolio's
investments valued at amortized cost with market values. Market valuations are
obtained by using actual quotations provided by market makers, estimates of
market value or values obtained from yield data relating to classes of money
market instruments published by reputable sources at the mean between the bid
and asked prices for the instruments. The amortized cost method of valuation
seeks to maintain a stable $1.00 per share net asset value even when there are
fluctuations in interest rates that affect the value of portfolio instruments.
Accordingly, this method of valuation can, in certain circumstances, lead to a
dilution of a shareholder's interest. If a deviation of 1/2 of

27
<PAGE> 60
1% or more were to occur between the net asset value per share calculated by
reference to market values and the Money Market Portfolio's $1.00 per share net
asset value, or if there were any other deviation that the board of trustees of
the Trust believed would result in a material dilution to shareholders or
purchasers, the board of trustees would promptly consider what action, if any,
should be initiated. If the Money Market Portfolio's net asset value per share
(computed using market values) declined, or were expected to decline, below
$1.00 (computed using amortized cost), the board of trustees might temporarily
reduce or suspend dividend payments in an effort to maintain the net asset value
at $1.00 per share. As a result of this reduction or suspension of dividends or
other action by the board of trustees, an investor would receive less income
during a given period than if the reduction or suspension had not taken place.
Such action could result in investors not receiving a dividend for the period
during which they hold their shares and receiving, upon redemption, a price per
share lower than that which they paid. On the other hand, if the Money Market
Portfolio's net asset value per share (computed using market values) were to
increase, or were anticipated to increase above $1.00 (computed using amortized
cost), the board of trustees might supplement dividends in an effort to maintain
the net asset value at $1.00 per share.

Securities traded on stock exchanges are valued at the last-quoted sales price
on the exchange on which such securities are primarily traded, or, lacking any
sales, at the mean between the bid and ask prices. Securities traded in the
over-the-counter market are valued at the last sales price that day, or if no
sales that day, at the mean between the bid and ask prices. In addition,
securities that are primarily traded on foreign exchanges are generally valued
at the preceding closing values of such securities on their respective exchanges
with these values then translated into U.S. dollars at the current exchange
rate. Securities of underlying mutual funds are valued at their respective net
asset values as determined by those funds.

Securities for which market quotations or closing values are not readily
available (including restricted securities that are subject to limitations on
their sale and illiquid securities) are valued at fair value as determined in
good faith pursuant to guidelines and procedures adopted by the board of
trustees. These procedures require that securities be valued on the basis of
prices provided by approved pricing services, except when a price appears
manifestly incorrect or events occurring between the time a price is furnished
by a service and the time a portfolio calculates its share price materially
affect the furnished price. The board of trustees regularly reviews fair values
assigned to portfolio securities under these circumstances and also when no
prices from approved pricing services are available.

TAXATION

FEDERAL INCOME TAXES

For a discussion of the tax status of a particular Contract and the tax
consequences of ownership of such a contract, refer to the appropriate Separate
Account Prospectus. Shares of the portfolios are available only through separate
accounts of participating insurance companies and plans.

It is each portfolio's policy to qualify for taxation as a "regulated investment
company" (RIC) by meeting the requirements of Subchapter M of the Internal
Revenue Code of 1986, as amended (the Code). By qualifying as a RIC, each
portfolio expects to eliminate or reduce to a nominal amount the federal income
tax to which it is subject. If a portfolio does not qualify as a RIC under the
Code, it will be subject to federal income tax on its net investment income and
any net realized capital gains.

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<PAGE> 61
Internal Revenue Service regulations applicable to separate accounts generally
require that portfolios that serve as the funding vehicles for separate accounts
invest no more than 55% of the value of their total assets in one investment,
70% in two investments, 80% in three investments and 90% in four investments.

Alternatively, a portfolio will be treated as meeting these requirements for any
quarter of its taxable year if, as of the close of such quarter, the portfolio
meets the diversification requirements applicable to regulated investment
companies and no more than 55% of the value of its total assets consists of cash
and cash items (including receivables), U.S. Government securities and
securities of other regulated investment companies. The funds intend to meet
these requirements. Internal Revenue Service regulations also limit the types of
investors that may invest in such a portfolio. The portfolios intend to meet
this limitation by offering shares only to participating insurance companies and
their separate accounts in connection with the purchase of contracts and
variable life insurance policies and to plans.

A portfolio's transactions in futures contracts and forward foreign currency
exchange transactions may be restricted by the Code and are subject to special
tax rules. In a given case, these rules may accelerate income to a portfolio,
defer its losses, cause adjustments in the holding periods of the portfolio's
assets, convert short-term capital losses into long-term capital losses or
otherwise affect the character of the portfolio's income. These rules could
therefore affect the amount, timing and character of distributions to
shareholders. The portfolios will endeavor to make any available elections
pertaining to these transactions in a manner believed to be in the best interest
of the portfolios and their shareholders.

The Growth Portfolio may invest in a non-U.S. corporation that could be treated
as a passive foreign investment company (PFIC) or become a PFIC under the Code.
This could result in adverse tax consequences upon the disposition of, or the
receipt of "excess distributions" with respect to, such equity investments. To
the extent the portfolio does invest in PFICs, it may elect to treat the PFIC as
a "qualified electing fund" or mark-to-market its investments in PFICs annually.
In either case, the portfolio may be required to distribute amounts in excess of
realized income and gains. To the extent that the portfolio does invest in
foreign securities that are determined to be PFIC securities and are required to
pay a tax on such investments, a credit for this tax would not be allowed to be
passed through to the portfolio's shareholders. Therefore, the payment of this
tax would reduce the portfolio's economic return from their its shares, and
excess distributions received with respect to such shares are treated as
ordinary income rather than capital gains.

An underlying fund of the Growth Portfolio may invest in non-U.S. corporations
which would be treated as PFICs or become a PFIC. This could result in adverse
tax consequences upon the disposition of, or the receipt of "excess
distributions" with respect to, such equity investments. To the extent an
underlying fund does invest in PFICs, it may elect to treat the PFIC as a
"qualified electing fund" or mark-to-market its investments in PFICs annually.
In either case, the underlying l fund may be required to distribute amounts in
excess of its realized income and gains. To the extent that the underlying fund
itself is required to pay a tax on income or gain from investment in PFICs, the
payment of this tax would reduce the portfolios' economic return.

CALCULATION OF PERFORMANCE DATA

29
<PAGE> 62
The Money Market Portfolio's current 7-day yield based on the seven days ended
December 31, 1998 is stated below and was calculated by determining the net
change, exclusive of capital changes and incomes other than investment income,
in the value of a hypothetical pre-existing account having a balance of one
share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from shareholder account, and dividing the difference by
the value of the account at the beginning of the base period to obtain the base
period return, and the multiplying the base period return by (365/7) with the
resulting yield figure carried to at least the nearest hundredth of one percent.

7-Day Current Yield

Money Market Portfolio

The Money Market Portfolio's effective yield based on the seven days ended
December 31, 1998 is stated below and was calculated by determining the net
change, exclusive of capital changes, in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from shareholder
account, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return by adding 1, raising the sum to a power equal
to 365 divided by 7, and subtracting 1 from the result, according to the
following formula: EFFECTIVE YIELD = [BASE PERIOD RETURN + 1)365/7] - 1, carried
to at least the nearest one hundredth of one percent.

7-Day Effective Yield

Money Market Portfolio

A fund also may advertise its average annual total return and cumulative total
return.

Average annual total return for a period is determined by calculating the actual
dollar amount of investment return on a $1,000 investment in a portfolio made at
the beginning of the period, then calculating the average annual compounded rate
of return that would produce the same investment return on the $1,000 over the
same period. In computing average annual total return, a portfolio assumes the
reinvestment of all distributions at net asset value on applicable reinvestment
dates. Average annual total returns for one year ended December 31, 1998 and
since a portfolio's commencement of operations are stated below.

Portfolio and One Year Life of the Portfolio
Commencement Date
- --------------------------------------------------------------------------------
Growth Portfolio % %
(11/01/96)

30
<PAGE> 63
Portfolio and One Year Life of the Portfolio
Commencement Date
- --------------------------------------------------------------------------------
S&P 500 Portfolio % %
(11/01/96)

A portfolio also may advertise its cumulative total return since inception. This
number is calculated using the same formula that is used for average annual
total return except that, rather than calculating the total return based on a
one-year period, cumulative total return is calculated from commencement of
operations to the fiscal year end October 31, 1998.

Name of Portfolio and Date Portfolio Cumulative Total Return From
Commenced Operations* Commencement of Operations
- --------------------- --------------------------

Growth Portfolio (11/01/96) %
Growth (11/01/96) %

The portfolios also may compare their historical performance figures to the
performance of indices similar to their asset categories and sub-categories, and
to the performance of "blended indices" similar to the portfolios' strategies.

The indices and asset categories for large company stocks is the S&P 500 Index;
for small company stocks, the Ibbottson, the BARRA Small-Cap Index and the
Russell 2000(R) Index; for foreign stocks, the MSCI-EAFE Index; and for bonds
the Ibbottson and Lehman Brothers Aggregate Bond indices.

31
<PAGE> 64
APPENDIX - RATINGS OF INVESTMENT SECURITIES

COMMERCIAL PAPER

MOODY'S INVESTORS SERVICE

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

STANDARD & POOR'S CORPORATION

An S&P A-1 commercial paper rating indicated a strong degree of safety regarding
timely payment of principal and interest. Issues determined to possess
overwhelming safety characteristics are denoted A-1+. Capacity for timely
payment on commercial paper rated A-2 is satisfactory, but the relative degree
of safety is not as high as for issues designated A-1.

DUFF & PHELPS CREDIT RATING CO.

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

IBCA

F1+ is the highest category, and indicates the strongest degree of assurance for
timely payment. Issues rated F1 reflect an assurance of timely payment only
slightly less than issues rated F1+. Issues assigned an F2 rating have a
satisfactory degree of assurance for timely payment, but the margin of safety is
not as great as for issues in the first two rating categories.

SHORT-TERM NOTES AND VARIABLE RATE DEMAND OBLIGATIONS

MOODY'S INVESTORS SERVICE

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

STANDARD & POOR'S CORPORATION

An S&P SP-1 rating indicates that the subject securities' issuer has a very
strong capacity to pay principal and interest. Issues determined to possess very
strong safety characteristics are given a plus (+) designation. S&P's
determination that an issuer has a strong capacity to pay principal and interest
is denoted by an SP-2 rating.

32
<PAGE> 65
COMMERCIAL PAPER, SHORT-TERM OBLIGATIONS AND DEPOSIT
OBLIGATIONS ISSUED BY BANKS

THOMSON BANKWATCH (TBW)

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

33
<PAGE> 66
PART C
OTHER INFORMATION
SCHWAB ANNUITY PORTFOLIOS
Item 23 Exhibits:

Articles of (a) Agreement and Declaration of Trust is
Incorporation incorporated by reference to Exhibit 1 to
Post Effective Amendment No. 7 to
Registrant's Registration Statement on Form
N-1A, electronically filed on February 27,
1998.

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

Instruments Defining (c) (i) Article III, Sections 4 and 5; Article
Rights of Securities IV, Section 1; Article V; Article VIII,
Holders Section 4; and Article IX, Sections 1, 4,
and 7 of the Agreement and Declaration of
Trust is incorporated by reference to
Exhibit 1 to Post Effective Amendment No. 7
to Registrant's Registration Statement on
Form N-1A, electronically filed on February
27, 1998.

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

Investment Advisory (d) (i) Investment Advisory and Administration
Contracts Agreement between Registrant and Charles
Schwab Investment Management, Inc. (the
"Investment Manager") dated June 15,1994 is
incorporated by reference to Exhibit 5(a) to
Post Effective Amendment No. 6,
electronically filed on April 30, 1997.

(ii) Amended Schedule A to Investment Advisory
and Administration Agreement between
Registrant and Charles Schwab Investment
Management, Inc. (the "Investment Manager")
dated June 15, 1994 is incorporated by
reference to Exhibit 5(b) to Post Effective
Amendment No. 5 to Registrant's Registration
Statement on form N-1A, electronically filed
on September 9, 1996.

(iii) Amended Schedule B to Investment Advisory
and Administration Agreement between
Registrant and Charles Schwab Investment
Management, Inc. (the "Investment Manager")
is incorporated by reference to Exhibit 5(c)
to Post Effective Amendment No. 7 to
Registrants Registration Statement on form
N-1A, electronically filed on February 27,
1998.

(iv) Schedule A and B, to the Amended and
Restated Investment Sub-Advisory and
Administration Agreement between the
Investment Manager and Symphony is
incorporated by reference to Exhibit 5(d) to
Post-Effective Amendment No. 5 to
Registrant's Registration Statement on form
N-1A, electronically filed on September 9,
1996.

Underwriting Contracts (e) (i) Distribution Agreement between
Registrant and Charles Schwab & Co., Inc.
("Schwab") dated March 29, 1994 is
incorporated by reference to Exhibit 6(a) to
Post Effective Amendment No. 7 to
Registrant's Registration Statement on form
N-1A, electronically filed on February 27,
1998.

2
<PAGE> 67

(ii) Amended Schedule A to Distribution Agreement
between Registrant and Schwab dated March
29, 1994 is incorporated by reference to
Exhibit 6(b) to Post-Effective Amendment No.
5 to Registrant's Registration Statement on
form N-1A, electronically filed on September
9, 1996.

Bonus or Profit Sharing (f) Inapplicable.
Plans

Custodian Agreements (g) (i) Custodian Services Agreement between
Registrant and PNC Bank, National
Association, dated March 29, 1994, is
incorporated by reference to Exhibit 8(a) to
Post Effective Amendment No. 7 to
Registrant's Registration Statement on form
N-1A, electronically filed on February 27,
1998.

(ii) Amendment No. 1 to the Custodian Services
Agreement between Registrant and PNC Bank,
National Association, dated March 29, 1994
incorporated by reference to Exhibit 8(b) to
Post-Effective Amendment No. 3 to
Registrant's Registration Statement on Form
N-1A, electronically filed on April 29,
1996.

(iii) Schedule A to the Custodian Services
Agreement between Registrant and PNC Bank,
National Association on behalf of Schwab
Money Market Portfolio and Schwab S&P 500
Portfolio, is incorporated by reference to
Exhibit 8(c) to Post-Effective Amendment No.
5 to Registrant's Registration Statement on
form N-1A, electronically filed on September
9, 1996.

(iv) Custodian Agreement dated April 4, 1997, and
Amendment to the Custodian Agreement and
Schedule 1, dated April 4, 1997, between
Registrant, on behalf of Market Track Growth
Portfolio II and Morgan Stanley Trust
Company is incorporated herein by reference
electronically filed as Exhibit 8(d) on
April 30, 1998.

(v) Appendix 1, 2 and 3 to the Custodian
Agreement on behalf of Schwab MarketTrack
Growth Portfolio II, formerly Schwab Asset
Director - High Growth Portfolio, is
incorporated by reference to Exhibit 8(d) to
Post Effective Amendment No. 6 to
registrant's Registration Statement on Form
N-1A, electronically filed on April 30,
1997.

(vi) Transfer Agency Agreement between Registrant
and Schwab dated March 29, 1994 is
incorporated by reference to Exhibit 8(f) to
Post Effective Amendment No. 7 to
Registrant's Registration Statement on form
N-1A, electronically filed on February 27,
1998.

(viii) Schedule B and D to the Transfer Agency
Agreement between Registrant and Schwab
dated March 29, 1994 is incorporated by
reference to Exhibit 8(g) to Post Effective
Amendment No. 7 to Registrant's Registration
Statement on form N-1A, electronically filed
on February 27, 1998.

(ix) Amended Schedules A and C to the Transfer
Agency Agreement between Registrant and
Schwab dated March 29, 1994 are incorporated
by reference to Exhibit 8(f) to
Post-Effective Amendment No. 5 to
Registrant's Registration Statement on form
N-1A, electronically filed on April 30,
1997.

(x) Shareholder Service Agreement between
Registrant and Schwab dated March 29, 1994
is incorporated by reference to Exhibit 8(i)
to Post Effective Amendment No. 7 to
Registrant's Registration Statement on form
N-1A, electronically filed on February 27,
1998.

3
<PAGE> 68

(xi) Amended Schedules A and C to the Shareholder
Service Agreement between Registrant and
Schwab dated March 29, 1994 is incorporated
by reference to Exhibit 8(h) to
Post-Effective Amendment No. 5 to
Registrant's Registration Statement on form
N-1A, electronically filed on April 30,
1997.

(xii) Schedule B to the Shareholder Service
Agreement between Registrant and Schwab
dated March 29, 1994 is incorporated by
reference to Exhibit 8(k) to Post Effective
Amendment No. 7 to Registrant's Registration
Statement on form N-1A, electronically filed
on February 27, 1998.

(xiii) Accounting Services Agreement and schedule
A, B and C between Registrant and SEI Fund
Resources, on behalf of Market Track Growth
Portfolio II, is incorporated herein by
reference electronically filed as Exhibit
8(l) on April 30, 1998.

(xiv) Accounting Services Agreement dated March
24, 1994 between Registrant and PNC Bank,
Inc., is incorporated by reference to
Exhibit 8(m) to Post Effective Amendment No.
7 to Registrant's Registration Statement on
form N-1A, electronically filed on February
27, 1998.

(xv) Schedule A to the Accounting Services
Agreement, and Amendment 1 dated February 5,
1996 between Registrant and PNC Bank, Inc.,
to be filed by subsequent Amendment.

(xvi) FORM OF AMENDED CUSTODIAN SERVICES FEE
AGREEMENT DATED NOVEMBER 1, 1998, BY AND
BETWEEN THE REGISTRANT AND PNC NATIONAL BANK
ASSOCIATION IS FILED HEREWITH

Other Material (h) License Agreement between Registrant and
Contracts Standard & Poor's Corporation is
incorporated by reference to Exhibit 9 to
Post-Effective Amendment No. 5 to
Registrant's Registration Statement on form
N-1A, electronically filed on September 9,
1996.

Legal Opinion (i) Opinion of Morgan, Lewis & Bockius LLP as to
legality of the securities being registered
to be filed by later amendment.

Other Opinions (j) Consent of independent accountants to be
filed by later amendment.

Omitted Financial (k) Inapplicable.
Statements

Initial Capital (l) (i) Purchase Agreement between Registrant
Agreements and Schwab relating to Schwab Money Market
Portfolio is incorporated by reference to
Exhibit 13(a) to Post Effective Amendment
No. 7 to Registrant's Registration Statement
on form N-1A, electronically filed on
February 27, 1998.

(ii) Purchase Agreement between Registrant and
Schwab relating to Schwab Asset
Director(R)-High Growth Portfolio and Schwab
S&P 500 Portfolio is incorporated herein by
reference to Exhibit 13(b) to Post-Effective
Amendment No. 5 to Registrant's Registration
Statement on form N-1A, electronically filed
on September 9, 1996.

Rule 12b-1 Plan (m) Inapplicable.

4
<PAGE> 69

Financial Data (n) Financial Data Schedules to be filed by
Schedule later amendment.

Rule 18f-3 Plan (o) Inapplicable

Item 24. Persons Controlled by or under Common Control with the Fund.

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

Item 25. Indemnification.

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

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

Item 26. Business and Other Connections of Investment Adviser.

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

5
<PAGE> 70
(1) The business, profession, vocation or employment of a substantial
nature in which each director and/or executive officer of Schwab and/or
the Investment Manager is or has been engaged during the past two
fiscal years for his or her own account in the capacity of director,
officer, employee, partner or trustee is as follows:

<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- ---------------- --------------- --------
<S> <C> <C>
Charles R. Schwab, Charles Schwab & Co., Inc. Chairman and Director
Chairman and Trustee
The Charles Schwab Corporation Chairman, Co-Chief Executive
Officer and Director

Schwab Holdings, Inc. Chairman, Chief Executive
Officer and Director

Charles Schwab Investment Management, Inc. Chairman and Director

The Charles Schwab Trust Company Chairman and Director

Mayer & Schweitzer, Inc. Chairman and Director

Schwab Retirement Plan Services, Inc. Chairman and Director

Charles Schwab Limited Chairman, Chief Executive
Officer and Director

Performance Technologies, Inc. Chairman and Director

TrustMark, Inc. Chairman and Director

Schwab (SIS) Holdings, Inc. I Chairman, Chief Executive
Officer and Director

Schwab International Holdings, Inc. Chairman, Chief Executive
Officer and Director

The Gap, Inc. Director

Transamerica Corporation Director

AirTouch Communications Director

Siebel Systems Director

David S. Pottruck Charles Schwab & Co., Inc. Chief Executive Officer,
President, Chief Operating
Officer and Director

The Charles Schwab Corporation President, Co-Chief Executive
Officer, Chief Operating
Officer and Director
</TABLE>

6
<PAGE> 71
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- ---------------- --------------- --------
<S> <C> <C>
Schwab Holdings, Inc. Director

Schwab Retirement Plan Services, Inc. Director

Charles Schwab Limited Director

Charles Schwab Investment Management, Inc. Director

Mayer & Schweitzer, Inc. Director

Performance Technologies, Inc. Director

Schwab (SIS) Holdings, Inc. I President, Chief Operating
Officer and Director

Schwab International Holdings, Inc. President, Chief Operating
Officer and Director

TrustMark, Inc. Director
Steven L. Scheid Charles Schwab & Co., Inc. Executive Vice President, Chief
Financial Officer and Director

The Charles Schwab Corporation Executive Vice President and
Chief Financial Officer

Schwab Holdings, Inc. Executive Vice President, Chief
Financial Officer and Director

Charles Schwab Investment Management, Inc. Chief Financial Officer and
Director

The Charles Schwab Trust Company Chief Financial Officer and
Director

Charles Schwab Limited Finance Officer and Director

Schwab Retirement Plan Services, Inc. Director

Performance Technologies, Inc. Director

Mayer & Schweitzer, Inc. Director

Schwab (SIS) Holdings, Inc. I Chief Financial Officer and
Director

Schwab International Holdings, Inc. Chief Financial Officer and
Director

Karen W. Chang Charles Schwab & Co., Inc. Enterprise President
</TABLE>

7
<PAGE> 72
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- ---------------- --------------- --------
<S> <C> <C>
John P. Coghlan Charles Schwab & Co., Inc. Enterprise President

The Charles Schwab Corporation Executive Vice President

The Charles Schwab Trust Company President, Chief Executive
Officer and Director

Schwab Retirement Plan Services, Inc. Director

Frances Cole, Charles Schwab Investment Management, Inc. Senior Vice President, Chief
Secretary Counsel, Chief Compliance Officer
and Assistant Corporate Secretary

Linnet F. Deily Charles Schwab & Co., Inc. Enterprise President
Christopher V. Dodds Charles Schwab & Co., Inc. Controller and Senior Vice
President

The Charles Schwab Corporation Controller and Senior Vice
President

Carrie Dwyer Charles Schwab & Co., Inc. Executive Vice President, General
Corporate Secretary Counsel

Wayne W. Fieldsa Charles Schwab & Co., Inc. Executive Vice President

Lon Gorman Charles Schwab & Co., Inc. Enterprise President

James M. Hackley Charles Schwab & Co., Inc. Executive Vice President

Cynthia K. Holbrook The Charles Schwab Corporation Assistant Corporate Secretary

Charles Schwab & Co., Inc. Assistant Corporate Secretary

Charles Schwab Investment Management, Inc. Corporate Secretary

The Charles Schwab Trust Company Assistant Corporate Secretary

Mayer & Schweitzer Secretary

Colleen M. Hummer Charles Schwab & Co., Inc. Senior Vice President

William J. Klipp, Charles Schwab & Co., Inc. Executive Vice President
Trustee, Executive Vice
President and Chief
Operating Officer

Charles Schwab Investment Management, Inc. President and Chief Operating
Officer
</TABLE>

8
<PAGE> 73

<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- ---------------- --------------- --------
<S> <C> <C>
Daniel O. Leemon The Charles Schwab Corporation Executive Vice President and
Chief Strategy Officer

Charles Schwab & Co., Inc. Executive Vice President and
Chief Strategy Officer

Dawn G. Lepore Charles Schwab & Co., Inc. Executive Vice President and
Chief Information Officer

The Charles Schwab Corporation Executive Vice President and
Chief Information Officer

Susanne D. Lyons Charles Schwab & Co., Inc. Enterprise President

Peter J. McIntosh Charles Schwab & Co., Inc. Executive Vice President

Gideon Sasson Charles Schwab & Co., Inc. Enterprise President

Leonard Short Charles Schwab & Co., Inc. Executive Vice President

Lawrence J. Stupski Charles Schwab & Co., Inc. Director until February 1995;
Vice Chairman until August 1994

The Charles Schwab Corporation Vice Chairman and Director; Chief
Operating Officer until March 1994

Mayer & Schweitzer, Inc. Director until February 1995

The Charles Schwab Trust Company Director until December 1996

Charles Schwab Investment Management, Inc. Controller

Robertson Stephens Investment Management, Inc. Controller until 1996

Luis E. Valencia Charles Schwab & Co., Inc. Executive Vice President and
Chief Administrative Officer

The Charles Schwab Corporation Executive Vice President and
Chief Administrative Officer

Commercial Credit Corporation Managing Director until February
1994

Stephen B. Ward, Charles Schwab Investment Management, Inc. Senior Vice President and Chief
Senior Vice President and Investment Officer
Chief Investment Officer
</TABLE>

Item 27. Principal Underwriter.

(a) Schwab acts as principal underwriter and distributor of Registrant's
shares. Schwab currently also acts as a principal underwriter for the
Schwab Fund Family, Schwab Investments, and Schwab

9
<PAGE> 74

Capital Trust, and intends to act as such for any other investment
company which Schwab may sponsor in the future.

(b) See Item 26 for information on the officers and directors of Schwab.
The principal business address of Schwab is 101 Montgomery Street, San
Francisco, California 94104.

Item 28. Location of Accounts and Records.

All accounts, books and other documents required to be maintained
pursuant to Section 31(a) of the 1940 Act and the Rules thereunder are
maintained at the offices of: Registrant (transfer agency and
shareholder records); Registrant's investment manager and
administrator, Charles Schwab Investment Management, Inc., 101
Montgomery Street, San Francisco, California 94104; Registrant's
custodian and fund accountants, Morgan Stanley Trust Company, 1
Pierrepont Plaza, Brooklyn, New York 11201, Federated Services Company,
1001 Liberty Avenue, Pittsburgh, Pennsylvania 15222 and SEI Fund
Resources, One Freedom Valley Drive, Oaks Pennsylvania 19456;
Registrant's principal underwriter, Charles Schwab & Co., Inc., 101
Montgomery Street, San Francisco, California 94104; Registrant's
custodian and fund accountant, PNC Bank, National Association/PFPC
Inc., 400 Bellevue Parkway, Wilmington, Delaware 19809 (ledgers,
receipts, and brokerage orders); or Ropes & Gray, 1301 K Street, N.W.,
Suite 800 East, Washington, District of Columbia 20005 (minute books,
bylaws, and declaration of trust).

Item 29 Management Services.

Not applicable.

Item 30. Undertakings.
Not Applicable
<PAGE> 75
SIGNATURE

Pursuant to the requirements of the Securities Act of 1933, as amended
(the "1933 Act"), and the Investment Company Act of 1940, as amended, Registrant
has duly caused this Post Effective Amendment No. 9 to be signed on its behalf
by the undersigned, duly authorized, in the City of Washington, District of
Columbia, on this 8th day of February, 1999.

SCHWAB ANNUITY PORTFOLIOS
Registrant

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

Pursuant to the requirements of the 1933 Act, this Post-Effective
Amendment No. 9 to Registrant's Registration Statement on Form N-1A has been
signed below by the following persons in the capacities indicated this 8th day
of February, 1999.

Signature Title
- --------- -----

Charles R. Schwab* Chairman and Trustee
- ---------------------------
Charles R. Schwab

Steven L. Scheid* President and Trustee
- ---------------------------
Steven L. Scheid

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

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

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

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

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

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

*By: /s/ Martin E. Lybecker
----------------------
Martin E. Lybecker, Attorney-In-Fact
pursuant to Powers of Attorney filed previously
<PAGE> 76
EXHIBIT INDEX

EXHIBIT NO. DOCUMENT DESCRIPTION
- ----------- --------------------

g(xv) AMENDED CUSTODIAN SERVICES FEE AGREEMENT DATED NOVEMBER 1,
1998, BY AND BETWEEN THE REGISTRANT AND PNC NATIONAL BANK
ASSOCIATION IS FILED HEREWITH

<PAGE> 1
EXHIBIT G(xv)

November 1, 1998

SCHWAB ANNUITY PORTFOLIOS

RE: Custodian Services Fees

Ladies and Gentlemen:

This letter constitutes our agreement with respect to compensation to be paid to
PNC Bank, National Association ("PNC") under the terms of a Custodian Services
Agreement (the "Agreement") dated March 29, 1994 between Schwab Annuity
Portfolios ("you" or the "Trust"), on behalf of the Fund listed on the attached
Schedule I, as amended from time to time (the "Funds"), and PNC. Pursuant to the
terms of the Agreement, the Trust, on behalf of the Fund, will pay PNC, for the
services that PNC will provide to the Fund as follows:

1. The Fund shall pay an asset based fee of .009% on the first $200
million of average daily gross assets; .008% on the next $200 million
of average daily gross assets; .007% on the next $200 million of
average daily gross assets; .003% on the next $200 million of average
daily gross assets; .0025% on the next $200 million of average daily
gross assets and .002% on average daily gross assets in excess of $1
billion; exclusive of out-of-pocket expenses and transaction charges.
The fee shall be calculated daily and paid monthly. The fee for the
period from the date hereof until the end of that year shall be
pro-rated according to the proportion which such period bears to the
full annual period.

2. The Fund shall pay transaction charges of $16.50 for each physical
delivery; $8.25 for each fed book entry transaction; $6.50 for each
depository eligible transaction; $10.00 for each GNMA depository
transaction, $7.50 for each repo with PNC (per round-trip piece of
collateral); $30.00 for each options contract and $50.00 for each
futures contract.

A transaction includes Buys, Sells, Maturities, Free Deliveries, Free Receipts,
Exercised or Expired Options.

Out-of-pocket expenses include but are not limited to, postage, overnight
express charges, report transmission charges, microfiche/microfilm, Federal
Reserve wire fees, wire fees for receipt and disbursement, record
retention/storage, custody transfer/registration fees ($10.00 per item); and
cost of independent pricing services.
<PAGE> 2
PNC accepts the payment to it hereunder as full payment with respect to
services provided to the Funds under the terms of the Agreement. This Agreement
supersedes all previous Agreements concerning compensation for services to be
provided to the Trust on behalf of the Fund with respect to the Agreement.

Very truly yours,

PNC BANK, NATIONAL ASSOCIATION

By: __________________________________

Name: __________________________________

Title: __________________________________

Accepted:

SCHWAB ANNUITY PORTFOLIOS
on behalf of the Fund listed on
the attached Schedule I, as amended
from time to time.

By: /s/ Tung Tai-chin

Name: ___________________________________

Title: ___________________________________
<PAGE> 3
SCHEDULE A

Custodian and Accounting Services Fees

Portfolio

Schwab Money Market Portfolio

SCHWAB ANNUITY PORTFOLIO
On behalf of each of the Funds listed above.

By /s/ Tung Tai-Chin

Name: ____________________________________

Title: ___________________________________

PNC BANK, NATIONAL ASSOCIATION

By: ______________________________________

Name: ____________________________________

Title: ___________________________________

PFPC INC.

By: ______________________________________

Name: ____________________________________

Title: ___________________________________

November 1, 1998
<PAGE> 4
SCHEDULE I

Custodian Services Fees

Fund

Schwab S & P 500 Portfolio

PNC BANK, NATIONAL ASSOCIATION

By: ______________________________________

Name: ____________________________________

Title: ___________________________________

SCHWAB ANNUITY PORTFOLIOS

By: /s/ Tung Tai-Chin

Name: ____________________________________

Title: ___________________________________

November 1, 1998
<PAGE> 5
SCHEDULE A

Accounting Services Agreement

Date

Schwab Money Market Portfolio March 29, 1994

SCHWAB ANNUITY PORTFOLIOS

By: ______________________________________

Name: ____________________________________

Title: ___________________________________

PFPC, INC.

By: ______________________________________

Name: ____________________________________

Title: ___________________________________

November 1, 1998