SCHWAB ANNUITY PORTFOLIOS, 485BPOS, 1999-04-22

SCHWAB ANNUITY PORTFOLIOS
485BPOS, 1999-04-22

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<PAGE> 1

As filed with the Securities and Exchange Commission on April 22, 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. 10 [X]

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 11 [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.
Morgan Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103

Martin E. Lybecker, Esq.
Ropes & Gray
1301 K Street, NW, Suite 800 East
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)

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

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

/ / On __________ 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

2
<PAGE> 2

PROSPECTUS

APRIL 30, 1999

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

SCHWAB MARKETTRACK GROWTH PORTFOLIO II

SCHWAB S&P 500 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 PORTFOLIOS

<TABLE>
<C> <S>
3 Schwab MarketTrack Growth Portfolio II
8 Schwab S&P 500 Portfolio
13 Portfolio Management
13 Investing in the Portfolios
14 Transaction Policies
14 Distributions and Taxes
</TABLE>

2
<PAGE> 4

SCHWAB MARKETTRACK GROWTH PORTFOLIO II

TICKER SYMBOL: SWPHX

GOAL

THE PORTFOLIO SEEKS 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 SchwabFunds,(R) particularly index funds,
which seek to track the total returns of various market indices. These
underlying funds 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 fund focuses on a different market segment. Below are the underlying
funds and the indices they seek to track, listed according to their
corresponding category in the portfolio's asset allocation:

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

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

INTERNATIONAL STOCK Schwab International Index Fund.(R) Seeks to
track the 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 Fund. 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 managers monitor 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 managers may permit modest deviations from the target
allocation for certain periods of time.

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
investment strategies: asset allocation and indexing. 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 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.

3
<PAGE> 5

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 FUNDS. The
portfolio's underlying stock index funds 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 funds, 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, 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
funds 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 funds 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 funds incur expenses and must keep a
small portion of their assets in cash. To the extent that an underlying fund
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.

4
<PAGE> 6

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. The figures do not reflect the expenses of any life insurance
company separate account that invests in the portfolio or of any annuity or life
insurance contract issued by such life insurance company. Such expenses, if
included, would lower the figures shown. Keep in mind that future performance
may differ from past performance, and that indices do not include any costs of
investments.

[Average Annual Total Returns Bar Chart]

<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS (%) AS OF 12/31
------------------------------------
<S> <C>
'1997' 24.54
'1998' 13.07
</TABLE>

<TABLE>
<CAPTION>
SINCE
AVERAGE ANNUAL TOTAL RETURNS (%) AS OF 12/31/1998 1 YEAR INCEPTION(1)
- ------------------------------------------------- ------ ------------
<S> <C> <C>
Portfolio............................................... 13.07 19.36

S&P 500(R) Index........................................ 28.58 31.55(2)
Lehman Brothers Aggregate Bond Index.................... 8.67 8.86(2)
</TABLE>

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

(1) Inception: 11/01/1996.

(2) From 11/01/1996

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

5
<PAGE> 7

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. These fees are approximately 0.18% of the portfolio's average net
assets based on current investments and may fluctuate.

FEE TABLE (%)

SHAREHOLDER FEES

None

ANNUAL OPERATING EXPENSES (% OF AVERAGE NET ASSETS)

<TABLE>
<S> <C>
Management fees*............................................ 0.54
Distribution (12b-1) fees................................... None
Other expenses.............................................. 0.55
----
Total annual operating expenses............................. 1.09
EXPENSE REDUCTION........................................... 0.49
----
NET OPERATING EXPENSES**.................................... 0.60
----
</TABLE>

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

* Reflects current fees

** Guaranteed by Schwab and the investment adviser through 04/30/2000.

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.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$61 $281 $537 $1,269
</TABLE>

6
<PAGE> 8

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, PricewaterhouseCoopers LLP,
audited these figures. Their full report is included in the portfolio's annual
report (see back cover).

SCHWAB MARKETTRACK GROWTH PORTFOLIO II(TM)

<TABLE>
<CAPTION>
FISCAL PERIODS ENDED 12/31 1998 1997 1996(1)
- ---------------------------------------------------- ----------- ----------- ----------
<S> <C> <C> <C>
For a share outstanding throughout each period:
Net asset value at beginning of period.............. $ 12.95 $ 10.42 $ 10.00
----------- ----------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................. 0.17 0.22(2) 0.04
Net realized and unrealized gains on
investments.................................... 1.52 2.33 0.38
----------- ----------- ----------
Total income from investment operations........... 1.69 2.55 0.42
LESS DISTRIBUTIONS:
Dividends from net investment income.............. (0.15) (0.02) --
Distributions from realized gain on investments... (0.25) (0.00)(3) --
----------- ----------- ----------
Total distributions............................... (0.40) (0.02) --
----------- ----------- ----------
Net asset value at end of period.................... $ 14.24 $ 12.95 $ 10.42
----------- ----------- ----------
TOTAL RETURN(%)..................................... 13.07 24.54 4.20*
RATIOS/SUPPLEMENTAL DATA(%)
Ratio of actual operating expenses to average net
assets............................................ 0.57 0.75 0.67**
Reductions reflected in above expense ratio......... 0.71 1.24 4.04**
Ratio of net investment income to average net
assets............................................ 1.64 1.98 2.35**
Portfolio turnover rate............................. 67 81 7
Net assets, end of period........................... $14,354,091 $10,333,100 $5,384,091
</TABLE>

- -------------------------
(1) For the period from November 1, 1996 (commencement of operations) to
December 31, 1996.

(2) Per share information presented is based upon the average number of shares
outstanding due to large fluctuations in the number of shares outstanding
during the period.

(3) Less than one cent per share.

* Not annualized.

** Annualized.

7
<PAGE> 9

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 funds, the portfolio may invest in futures contracts and lend
securities to minimize the gap in performance that naturally exists between any
index fund 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 funds
historically have shown low portfolio turnover compared to actively managed
funds.

LARGE-CAP STOCKS

Although the 500 companies in the index constitute only about 7% of all the
publicly traded companies in the United States, they represent approximately 90%
of the total value of the U.S. stock market. (All figures are as of 12/31/1998.)

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.

8
<PAGE> 10

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 will not 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.

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).

9
<PAGE> 11

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. The figures do not reflect the expenses of any life insurance
company separate account that invests in the portfolio or of any annuity or life
insurance contract issued by such life insurance company. Such expenses, if
included, would lower the figures shown. Keep in mind that future performance
may differ from past performance, and that the index does not include any costs
of investments.

[Average Annual Total Returns Bar Chart]

<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS (%) AS OF 12/31
------------------------------------
<S> <C>
'1997' 32.46
'1998' 28.06
</TABLE>

S&P 500(R) Index........................................ 28.58 31.55(2)
</TABLE>

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

(1) Inception: 11/01/1996.

(2) From 11/01/1996

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

10
<PAGE> 12

PORTFOLIO FEES AND EXPENSES

FEE TABLE (%)

SHAREHOLDER FEES

None

ANNUAL OPERATING EXPENSES (% OF AVERAGE NET ASSETS)

<TABLE>
<S> <C>
Management fees*............................................ 0.20
Distribution (12b-1) fees................................... None
Other expenses.............................................. 0.19
----
Total annual operating expenses............................. 0.39
EXPENSE REDUCTION........................................... 0.11
----
NET OPERATING EXPENSES**.................................... 0.28
----
</TABLE>

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

* Reflects current fees

** Guaranteed by Schwab and the investment adviser through 04/30/2000

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$29 $110 $204 $478
</TABLE>

11
<PAGE> 13

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, PricewaterhouseCoopers LLP,
audited these figures. Their full report is included in the portfolio's annual
report (see back cover).

SCHWAB S&P 500 PORTFOLIO

<TABLE>
<CAPTION>
FISCAL PERIODS ENDED 12/31 1998 1997 1996(1)
- ------------------------------------------------- ----------- ----------- ----------
<S> <C> <C> <C>
For a share outstanding throughout each period:
Net asset value at beginning of period........... $ 13.94 $ 10.53 $ 10.00
----------- ----------- ----------
Income from investment operations:
Net investment income.......................... 0.13 0.09 0.03
Net realized and unrealized gains on
investments................................. 3.78 3.33 0.50
----------- ----------- ----------
Total income from investment operations........ 3.91 3.42 0.53

Less distributions:
Dividends from net investment income........... (0.06) (0.01) --
Distributions from realized gain on
investments................................. (0.01) (0.00)(2) --
----------- ----------- ----------
Total distributions............................ (0.07) (0.01) --
----------- ----------- ----------
Net asset value at end of period................. $ 17.78 $ 13.94 $ 10.53
----------- ----------- ----------
TOTAL RETURN (%)................................. 28.06 32.46 5.30*

RATIOS/SUPPLEMENTAL DATA(%)
Ratio of actual operating expenses to average net
assets......................................... 0.28 0.29 0.33**
Reductions reflected in above expense ratio...... 0.27 0.64 2.78**
Ratio of net investment income to average net
assets......................................... 1.52 1.56 2.16**
Portfolio turnover rate.......................... 7 4 0
Net assets, end of period........................ $83,868,823 $37,056,143 $5,923,424
</TABLE>

- -------------------------
(1) For the period from November 1, 1996 (commencement of operations) to
December 31, 1996.

(2) Less than one cent per share.

* Not annualized.

** Annualized.

12
<PAGE> 14

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 $81 billion under management. The firm manages assets for more
than 3 million shareholder accounts. (All figures on this page are as of
12/31/1998.)

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
12/31/1998, these fees were 0.03% for the MarketTrack Growth Portfolio II and
0.10% 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. Prior to joining the firm in 1995, she worked
for nearly 15 years 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. Prior to joining the firm in October 1997, he worked for
more than 17 years 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.

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.

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

13
<PAGE> 15

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.

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

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.

14
<PAGE> 16

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.

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

15
<PAGE> 17

PROSPECTUS

APRIL 30, 1999
------------------------

SCHWAB MONEY MARKET PORTFOLIO

ABOUT THE PORTFOLIO

<TABLE>
<C> <S>
3 Schwab Money Market Portfolio
8 Portfolio Management
8 Investing in the Portfolio
8 Transaction Policies
9 Distributions and Taxes
</TABLE>

2
<PAGE> 19

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, including asset-backed commercial paper

- certificates of deposit

- variable-and floating-rate debt securities

- bank notes

- repurchase agreements

All of these investments must be denominated in U.S. dollars, including those
that are issued 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 rules that are designed
to help 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.

3
<PAGE> 20

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. An investment in the portfolio is not
insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any
other government agency. Although the portfolio seeks to preserve the value of
your investment at $1 per share it is possible to lose money by investing in the
portfolio.

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 is
appropriate for investors interested in high money market returns.

4
<PAGE> 21

PERFORMANCE

Below are a chart and table showing the portfolio's performance. The performance
information shows you how performance has varied from year to year and how it
averages out over time. These figures assume that all distributions were
reinvested. The figures do not reflect the expenses of any life insurance
company separate account that invests in the portfolio or of any annuity or life
insurance contract issued by such life insurance company. Such expenses, if
included, would lower the figures shown. Keep in mind that future performance
may differ from past performance.

<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS (%) AS OF 12/31
------------------------------------
<S> <C>
'1995' 5.26
'1996' 4.98
'1997' 5.12
'1998' 5.07
</TABLE>

<TABLE>
<CAPTION>
SINCE
AVERAGE ANNUAL TOTAL RETURNS (%) AS OF 12/31/1998 1 YEAR INCEPTION(1)
- ------------------------------------------------- ------ ------------
<S> <C> <C>
Money Market Portfolio.................................. 5.07 4.93
</TABLE>

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

(1) Inception: 5/3/1994

The portfolio's current 7-day yield ending 12/31/1998 was 4.64%.

5
<PAGE> 22

PORTFOLIO FEES AND EXPENSES

FEE TABLE (%)

SHAREHOLDER FEES

None

ANNUAL OPERATING EXPENSES (% OF AVERAGE NET ASSETS)

<TABLE>
<S> <C>
Management fees*............................................ 0.38
Distribution (12b-1) fees................................... None
Other expenses.............................................. 0.15
----
Total annual operating expenses............................. 0.53
EXPENSE REDUCTION........................................... 0.03
----
NET OPERATING EXPENSES**.................................... 0.50
----
</TABLE>

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

* Reflects current fees.

** Guaranteed by Schwab and the investment adviser through 04/30/2000.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------- ------- --------
<S> <C> <C> <C>
$51 $166 $292 $661
</TABLE>

6
<PAGE> 23

FINANCIAL HIGHLIGHTS

SCHWAB MONEY MARKET PORTFOLIO

<TABLE>
<CAPTION>
FISCAL PERIODS ENDED 12/31 1998 1997 1996 1995 1994(1)
- ------------------------------------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
FOR A SHARE OUTSTANDING THROUGHOUT EACH
PERIOD:
Net asset value at beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------
FROM INVESTMENT OPERATIONS
Net investment income................... 0.05 0.05 0.05 0.05 0.03
------- ------- ------- ------- ------
Total from investments operations....... 0.05 0.05 0.05 0.05 0.03
LESS DISTRIBUTIONS
Dividends from net investment income.... (0.05) (0.05) (0.05) (0.05) (0.03)
------- ------- ------- ------- ------
Total distributions..................... (0.05) (0.05) (0.05) (0.05) (0.03)
------- ------- ------- ------- ------
Net asset value at end of period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------
Total return (%)................ 5.07 5.12 4.98 5.26 2.55**
RATIOS/SUPPLEMENTAL DATA(%)
Ratio of net operating expenses to average
net assets.............................. 0.50 0.50 0.50 0.50 0.50*
Reductions reflected in above expense
ratio................................... 0.11 0.21 0.45 0.52 1.60*
Ratio of net investment income to average
net assets.............................. 4.91 5.01 4.87 5.17 4.16*
Net assets, end of period (000s).......... $78,266 $47,968 $27,431 $16,912 $7,409
</TABLE>

- -------------------------
(1) For the period May 3, 1994 (commencement of operations) to December 31,
1994.

* Annualized.

** Not annualized.

7
<PAGE> 24

PORTFOLIO MANAGEMENT

THE INVESTMENT ADVISER for the portfolio 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 $81 billion under management. The firm manages assets for more
than 3 million shareholder accounts. (All figures on this page are as of
12/31/1998.)

As the investment adviser, the firm oversees the asset management and
administration of the portfolio. As compensation for these services, the firm
receives a management fee from the portfolio. For the 12 months ended
12/31/1998, these fees were 0.35% for the portfolio. This figure, which is
expressed as a percentage of the portfolio's average daily net assets,
represents 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.

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.

8
<PAGE> 25

TRANSACTION POLICIES

THE PORTFOLIO IS OPEN FOR BUSINESS EACH DAY THAT BOTH THE NEW YORK STOCK
EXCHANGE (NYSE) AND THE FEDERAL RESERVE BANK OF NEW YORK ARE OPEN.

THE PORTFOLIO CALCULATES ITS SHARE PRICE EACH BUSINESS DAY after the close of
the NYSE (generally 4:00 p.m. Eastern time). 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

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.

9
<PAGE> 26

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.

<TABLE>
<S> <C>
SCHWABFUNDS SECURITIES AND EXCHANGE COMMISSION
101 Montgomery Street Washington, D.C. 20549-6009
San Francisco, CA 94104 800-SEC-0330 (Public Reference Section)
800-435-4000 www.sec.gov
WWW.SCHWAB.COM/SCHWABFUNDS SEC FILE NUMBERS
SCHWAB INSURANCE AND ANNUITY SERVICE Schwab Annuity Portfolios 811-8314
CENTER
800-838-0650 (IN NEW YORK 800-838-0649)
</TABLE>

10
<PAGE> 27
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 separate documents supplied with
the SAI free 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

<TABLE>
<CAPTION>
Page
<S> <C>
INVESTMENT OBJECTIVES, STRATEGIES, SECURITIES,
RISKS AND LIMITATIONS..................................................... 2
MANAGEMENT OF THE PORTFOLIOS............................................... 20
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES........................ 23
INVESTMENT ADVISORY AND OTHER SERVICES..................................... 23
BROKERAGE ALLOCATION AND OTHER PRACTICES................................... 25
DESCRIPTION OF THE TRUST................................................... 26
PURCHASE, REDEMPTION AND PRICING OF SHARES................................. 27
TAXATION................................................................... 29
CALCULATION OF PERFORMANCE DATA............................................ 30
</TABLE>

2
<PAGE> 28
INVESTMENT OBJECTIVES, STRATEGIES, SECURITIES, RISKS AND LIMITATIONS

INVESTMENT OBJECTIVES

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 fund.

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 the general 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 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.

3
<PAGE> 29

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

The following investment securities, 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 Portfolio 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 AND RISKS

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 a 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 no
more than 25% of its net assets.

BANKERS' ACCEPTANCES OR NOTES 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.

4
<PAGE> 30

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 income
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 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 no more than 25% of its net assets. The Growth Portfolio will
not concentrate its investments in a particular industry or group of industries,
unless its underlying fund investments are so concentrated. 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 subject to credit risk.

CREDIT AND LIQUIDITY SUPPORTS OR ENHANCEMENTS 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

5
<PAGE> 31
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 a 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 the 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 may have
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 GDSs) 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
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

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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
than 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 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

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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.

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 and/or underlying funds 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

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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 funds
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). As of January 3,
1999, the euro became the official currency of the EMU, the rate of exchange was
set between the euro and the converted currencies of each country, The European
Central Bank, all national central banks and all stock exchanges and
depositories began pricing, trading and settling 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
from/or to European countries, thereby making the European market less liquid or
more expensive. 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.

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(R)
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 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

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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.

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" may be made daily, if
necessary, as the value of the futures contracts fluctuate. This process is
known as "marking-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

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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.

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 funds. 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
funds. Generally, these requirements prohibit a portfolio from purchasing a
security with a remaining maturity of 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

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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-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 certain
mortgage-related securities may be 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 at least 50% 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

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may hold the securities distributed until the investment adviser 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." When 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 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 Rule
144A of the Securities Act of 1933. 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

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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 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. 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 fund. 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 funds comprising the Schwab
Equity Index Funds. A stock fund's other investments and use of investment
techniques also will affect its performance and portfolio value.

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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
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 such as those issued by the
Federal National Mortgage Association (FNMA) 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. These include
obligations issued by the Federal Home Loan Mortgage Corporation (FHLMC or
Freddie Mac), the Student Loan Marketing Association (SLMA or Sallie Mae),
the Federal Farm Credit Banks Funding Corporation (FFCIS) and the Federal
Home Loan Banks (FHLB). 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.

15
<PAGE> 41

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.

Because the S&P 500 Portfolio intends to track an index rather than focus on the
fundamentals of an underlying issuer, the investment adviser generally will not
take into account the extent to which an issuer has prepared or is preparing for
the Year 2000 problem when managing the Portfolio. Because the Growth
Portfolio's underlying funds are index funds, which intend to track indices and
choose their investments accordingly, the investment adviser generally will not
take into account the extent to which an issuer has prepared or is preparing for
the Year 2000 problem when managing the underlying funds' portfolios.

For the Money Market Portfolio, the investment adviser generally attempts to
take into account all material information about issuers, including the extent
to which they have prepared or are preparing for the Year 2000 problem. The
degree to which the investment adviser inquires into an issuer's Year 2000
preparedness falls within the discretion of the particular representatives of
credit/investment research and portfolio management involved and generally
depends on various factors, including the size of the Money Market Portfolio's
holdings in the issuer and the investment adviser's assessment of the
significance of the Year 2000 problem to the issuer's business. Issuers whose
securities represent a significant portion of the Money Market Portfolio's
holdings or for which the Year 2000 problem is seen as posing the most material
risks generally receive the greatest scrutiny, while issuers at the other end of
the continuum receive lesser (if any) scrutiny. The investment adviser obtains
information about issuers' Year 2000 preparedness from issuers, reports filed
with the SEC, rating agencies, securities analysts and various publications. The
investment adviser generally is not in a position to verify and cannot guarantee
the completeness or accuracy of this information. Information regarding issuers'
Year 2000 preparedness may be of limited usefulness in many important respects.
Some issuers may not file reports with the SEC and may not have made meaningful
disclosure about Year 2000 preparedness. Disclosure by issuers who do file
reports with the SEC has varied in level of detail, may be qualified without
providing sufficient information to assess the significance of the
qualifications, and may convey the magnitude of possible problems but not the
probability of their occurrence. Altogether, these constraints limit the
investment adviser's ability to form an accurate, independent judgment of issuer
Year 2000 preparedness and may require the investment adviser to rely on
publicly-available assessments made by issuers and others. These assessments may
prove incorrect. Accordingly, the investment adviser's assessment of any
issuer's Year 2000 preparedness does not assure that the issuer is or will be
Year 2000 compliant or that Year 2000 related problems will not result in a
material adverse effect on the issuer's business and, correspondingly, on the
Money Market Portfolio.

INVESTMENT LIMITATIONS

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

16
<PAGE> 42

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 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.

17
<PAGE> 43
(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 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 unless 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 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 Securities and Exchange Commission presently defines
concentration as

18
<PAGE> 44

investing more than 25% of an investment company's net assets in an industry or
group of industries, with certain exceptions.

Underwriting. As defined by the 1940 Act, underwriting securities involves
a portfolio purchasing securities directly from an issuer for the purpose of
selling (distributing) them or participating in any such activity either
directly or indirectly. Under the 1940 Act, a diversified fund may not make any
commitment as underwriter, if immediately thereafter the amount of its
outstanding underwriting commitments, plus the value of its investments in
securities of issuers (other than investment companies) of which it owns more
than 10% of the outstanding voting securities, exceeds 25% of the value of its
total assets.

Senior Securities. Senior securities may include any obligation or instrument
issued by a portfolio evidencing indebtedness. The 1940 Act generally prohibits
funds from issuing senior securities, although it provides allowances for
certain borrowings and certain other investments, such as short sales, reverse
repurchase agreements, firm commitment agreements and standby commitments, with
appropriate segregation of assets.

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.

19
<PAGE> 45
(7) Purchase or retain securities of an issuer if any of the officers, trustees
or directors of the Trust or the investment adviser 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.

(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:

20
<PAGE> 46

<TABLE>
<CAPTION>
NAME/DATE POSITION(S) WITH PRINCIPAL OCCUPATIONS &
OF BIRTH THE TRUST AFFILIATIONS
- ---------------------------------------------------------------------------------
<S> <C> <C>
CHARLES R. SCHWAB* Chairman and Chairman, Co-Chief Executive
July 29, 1937 Trustee 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 Executive Vice President and
June 28, 1953 Trustee 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).

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).
</TABLE>

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

21
<PAGE> 47

<TABLE>
<CAPTION>
NAME/DATE POSITION(S) WITH PRINCIPAL OCCUPATIONS &
OF BIRTH THE TRUST AFFILIATIONS
- ---------------------------------------------------------------------------------
<S> <C> <C>
TAI-CHIN TUNG Treasurer and Vice President, Treasurer and
March 7, 1951 Principal Controller, Charles Schwab
Financial Officer 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 SchwabFunds(R), Charles Schwab &
Operating Co., Inc.; President and Chief
Officer and Operating Officer, Charles
Trustee Schwab Investment Management,
Inc.

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

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

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 trust.

22
<PAGE> 48

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

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

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

William J. 0 0 0 N/A 0
Klipp

Donald F. $1,953 $ 965 $1,483 N/A $103,700
Dorward

Robert G. $1,953 $ 965 $1,483 N/A $103,700
Holmes

Donald R. $1,953 $ 965 $1,483 N/A $103,700
Stephens

Michael W. $1,724 $ 861 $1,313 N/A $ 95,000
Wilsey
</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 the 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 April 1 1999,Great West Life and Annuity Insurance Company, a Colorado
stock life insurance company, and a subsidiary of GWLA Financial Inc. (an
indirect, wholly-owned subsidiary of Great Life Assurance Company) 8515 E.
Orchard Road, Englewood Colorado 80111 controls the Money Market Portfolio and
Growth Portfolio through ownership of 99.9% or 1,002,751.89of the Money Market
Portfolio's shares of beneficial interest and 99.6% or 5,198,990.553 of the
Growth Portfolio's shares of beneficial interest.

As of April 1, 1999, Charles R. Schwab, PO Box 192861, San Francisco, CA 94119
legally or beneficially owned 15.4% or 5,566,830.17 of the S&P 500 Portfolio's
shares of beneficial interest.

As of, April 1, 1999, the officers and trustees of the trust, as a group owned
of record or beneficially less than 1% of the outstanding voting securities of
the portfolios of the trust.

23
<PAGE> 49
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.

MONEY MARKET PORTFOLIO. For its advisory and administrative services to the
portfolio, the investment adviser is entitled to receive a graduated annual fee
payable monthly based on the portfolio's average daily net assets as described
below:

Less than $1 billion - 0.38%
More than $1 billion but not exceeding $10 billion - 0.35%
More than $10 billion but not exceeding $20 billion - 0.32%
More than $20 billion - 0.30%

Prior to April 30, 1999, for its advisory and administrative services to the
Money Market Portfolio, the investment adviser was 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 $244,224 (fees were reduced
by $76,666), respectively.

GROWTH PORTFOLIO. For its advisory and administrative services to the portfolio,
the investment adviser is entitled to receive a graduated annual fee payable
monthly based on the portfolio's average daily net assets as described below:

Less than $500 million - 0.54%
More than $500 million - 0.49%

Prior to April 30, 1999, for its advisory and administrative services to the
Growth Portfolio, the investment adviser was 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 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 by $55,088) and $3,217 (fees were
reduced by $89,361), respectively.

S&P 500 PORTFOLIO For its advisory and administrative services to the portfolio,
the investment adviser is entitled to receive a graduated annual fee payable
monthly based on

24
<PAGE> 50

the portfolio's average daily net assets as described below:

Less than $500 million - 0.20%
More than $500 million - 0.17%

Prior to April 30, 1999, for its advisory and administrative services to the S&P
500 Portfolio, the investment adviser was 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.

For the fiscal period from November 1, 1996 (commencement of operations) through
December 31, 1996 and for the years ended December 31, 1997 and 1998, the
portfolio paid investment advisory and administration fees of $0 (fees were
reduced by $2,890) and $122 (fees were reduced by $69,358) and $53,790 (fees
were reduced by $152,282), respectively.

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

PFPC Trust Company, 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. Chase Manhattan Bank, New York 1 Pierrepont Plaza,
Brooklyn, New York 11201, serves as custodian for the Growth and S&P 500
Portfolios and SEI Fund Resources, One Freedom Valley Dr. Oaks, Pennsylvania
19456, serves as fund accountant for these portfolios.

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

INDEPENDENT ACCOUNTANTS

The portfolios' independent accountants, PricewaterhouseCoopers LLP, audit and
report on the annual financial statements of each series of the trusts and
review certain regulatory reports and each portfolio's federal income tax
return. They also perform other professional accounting, auditing, tax and
advisory services when the trusts engage them to do so. Their address is 333
Market Street, San Francisco, CA 94105. Each portfolio's audited financial
statements for the 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

PORTFOLIO TURNOVER

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<PAGE> 51
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 funds.

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

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. 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

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<PAGE> 52

For the years ended December 31, 1998 and 1997, and the fiscal period of
November 1, 1996 through December 31, 1996 the Growth Portfolio paid brokerage
commissions of $1,731, $3,042, and $2,985, respectively.

For the years ended December 31, 1998 and 1997 and the fiscal period of November
1, 1996 to December 31, 1996 the S&P 500 Portfolio paid brokerage commissions of
$19,845, $15,241, and $2,647, respectively.

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 fundamental 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 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

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<PAGE> 53
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 may be 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 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

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<PAGE> 54
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.

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 portfolios 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.

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<PAGE> 55
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 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 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

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 4.64%

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

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base period return by adding 1, raising the sum to a power equal to 365 divided
by 7, and subtracting 1 from the result, with the resulting figure, carried to
at least the nearest one hundredth of one percent.

7-DAY EFFECTIVE YIELD

MONEY MARKET PORTFOLIO 4.74%

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 each of Growth Portfolio's and S&P 500 Portfolio's commencement of
operations are stated below.

<TABLE>
<CAPTION>
Portfolio and One Year Life of the Portfolio
Commencement Date
- --------------------------------------------------------------------------------
<S> <C> <C>
Growth Portfolio 13.07% 19.36%
(11/01/1996)
S&P 500 28.06% 30.69%
Portfolio
(11/01/1996)
</TABLE>

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 December 31, 1998 for each of Growth Portfolio
and S&P 500 Portfolio.

<TABLE>
<CAPTION>
Name of Portfolio and Date Portfolio Cumulative Total Return From
Commenced Operations Commencement of Operations
<S> <C>
Growth Portfolio (11/01/1996) 46.73%
S&P 500 Portfolio (11/01/1996) 78.62%
</TABLE>

The performance of the portfolios may be compared with the performance of other
mutual funds by comparing the ratings or mutual fund rating services, various
indices of investment performance, U.S. government obligations, bank
certificates of deposit, the consumer price index and information provided by
proprietary and non-proprietary research services and other investments for
which reliable data is available.

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

The primary index 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.

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APPENDIX - RATINGS OF INVESTMENT SECURITIES

From time to time, each Fund may report the percentage of its assets which fall
into the rating categories set forth below.

BONDS

MOODY'S INVESTORS SERVICE

Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than the Aaa securities.

A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.

Baa Bonds which are rated Baa are considered as medium-grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

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STANDARD & POOR'S CORPORATION

INVESTMENT GRADE

AAA Debt rated 'AAA' has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the highest rated debt only in small degree.

A Debt rated 'A' has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.

BBB Debt rated 'BBB' is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

SPECULATIVE GRADE

Debt rated 'BB' and 'B' is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to adverse
conditions.

BB Debt rated 'BB' has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions that could lead
to inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'BBB-' rating.

B Debt rate 'B' has greater vulnerability to default but presently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions would likely impair capacity or willingness to
pay interest and repay principal. The 'B' rating category also is used for debt
subordinated to senior debt that is assigned an actual or implied 'BB' or
'BB-rating.

DUFF & PHELPS CREDIT RATING CO.

AAA Highest credit quality. The risk factors are negligible, being only slightly
more than for risk-free U.S. Treasury debt.

AA+ High credit quality. Protection factors are strong. Risk is modest but may
vary slightly

AA- from time to time because of economic conditions.

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<PAGE> 59

A+ Protection factors are average but adequate. However, risk factors are more
variable and

A- greater in periods of economic stress.

BBB+ Below average protection factors but still considered sufficient for
prudent investment.

BBB- Considerable variability in risk during economic cycles.

BB+ Below investment grade but deemed likely to meet obligations when due.
Present or

BB prospective financial protection factors fluctuate according to industry
conditions or

BB- fortunes. Overall quality may move up or down frequently within this
category.

B+ Below investment grade and possessing risk that obligations will not be met
when due.

B Financial protection factors will fluctuate widely according to economic
cycles, industry

B- conditions and/or company fortunes. Potential exists for frequent changes in
the rating within this category or into a higher or lower rating grade.

FITCH IBCA, INC.

INVESTMENT GRADE BOND

AAA Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable
events.

AA Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated 'AAA'. Because bonds rated in
the 'AAA' and 'AA' categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated 'F-1+'.

A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.

BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.

SPECULATIVE GRADE BOND

BB Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.

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<PAGE> 60

B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.

DESCRIPTION OF IBCA'S LONG-TERM RATINGS

AAA Obligations for which there is the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial,
such that adverse changes in business, economic or financial conditions
are unlikely to increase investment risk substantially.

AA Obligations for which there is a very low expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial.
Adverse changes in business, economic or financial conditions may increase
investment risk, albeit not very significantly.

A Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may
lead to increased investment risk.

BBB Obligations for which there is currently a low expectation of investment
risk. Capacity for timely repayment of principal and interest is adequate,
although adverse changes in business, economic or financial conditions are
more likely to lead to increased investment risk than for obligations in
other categories.

BB Obligations for which there is a possibility of investment risk
developing. Capacity for timely repayment of principal and interest
exists, but is susceptible over time to adverse changes in business,
economic or financial conditions.

B Obligations for which investment risk exists. Timely repayment of
principal and interest is not sufficiently protected against adverse
changes in business, economic or financial conditions.

DESCRIPTION OF THOMSON BANKWATCH'S LONG-TERM DEBT RATINGS

INVESTMENT GRADE

AAA The highest category; indicates that the ability to repay principal and
interest on a timely basis is very high.

AA The second-highest category; indicates a superior ability to repay
principal and interest on a timely basis, with limited incremental risk
compared to issues rated in the highest category.

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<PAGE> 61

A The third-highest category; indicates the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher
ratings.

BBB The lowest investment-grade category; indicates an acceptable capacity to
repay principal and interest. Issues rated "BBB" are, however, more
vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.

NON-INVESTMENT GRADE

BB While not investment grade, the "BB" rating suggests that the likelihood
of default is considerably less than for lower-rated issues. However,
there are significant uncertainties that could affect the ability to
adequately service debt obligations.

B Issues rated "B" show a higher degree of uncertainty and therefore greater
likelihood of default than higher-rated issues. Adverse developments could
well negatively affect the payment of interest and principal on a timely
basis.

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<PAGE> 62
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-3 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
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 satisfactory capacity to pay principal and
interest is denoted by an SP-2 rating.

FITCH IBCA, INC.

Obligations supported by the highest capacity for timely repayment are
rated F1+. An F1 rating indicates that the obligation is supported by a very
strong capacity for timely repayment. Obligations rated F2 are supported by a
good capacity for timely repayment, although adverse changes in business,
economic, or financial conditions may affect this capacity.

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

A Standard & Poor's Corporation ("S&P") A-1 commercial paper rating
indicates 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.

37
<PAGE> 63

DUFF & PHELPS CREDIT RATING CO.

Duff-1 is the highest commercial paper rating assigned by 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-rating indicates a good certainty of timely payment. Liquidity factors and
company fundamentals are sound and risk factors are small.

FITCH IBCA, INC.

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

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."

38
<PAGE> 64
PART C

OTHER INFORMATION

SCHWAB ANNUITY PORTFOLIOS

Item 23 Exhibits:

Articles of Incorporation (a) 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.

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.

(v) Amended Schedules A and B to Investment
Advisory and Administration Agreement
between Registrant and Charles Schwab
Investment Management (the "Investment
Manager") dated April 30, 1999 is filed
herewith.

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.

(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.

3
<PAGE> 65
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
MarketTrack 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.

(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.

4
<PAGE> 66
(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
MarketTrack 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 incorporated herein
by reference to exhibit (g) (xvi) as
electronically filed on February 9, 1999

(xvii) Amended Accounting Services Agreement
by and between the Registrant and SEI
Fund Resources dated as of April 1, 1998
is filed herewith

Other Material Contracts (h) License Agreement between Registrant and
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 is filed herewith.

Other Opinions (j) Consent of independent accountants,
PricewaterhouseCoopers LLP is filed
herewith

Omitted Financial (k) Inapplicable.
Statements

Initial Capital Agreements (l) (i) Purchase Agreement between Registrant
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.

Financial Data Schedule (n) Financial Data Schedules for the Money
Market Portfolio, S&P 500 Portfolio, and
MarketTrack Growth Portfolio II are
filed herewith as Exhibit 27.

Rule 18f-3 Plan (o) Inapplicable

5
<PAGE> 67

(p) Powers of Attorney for each Trustee, the
Chief Executive Officer and the Chief
Financial Officer are filed herewith

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.

(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

6
<PAGE> 68
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

Schwab Holdings, Inc. Director

Schwab Retirement Plan Services, Inc. Director
</TABLE>

7
<PAGE> 69
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- --------------- --------------- --------
<S> <C> <C>
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

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
</TABLE>

8
<PAGE> 70
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- --------------- --------------- --------
<S> <C> <C>
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

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
</TABLE>

9
<PAGE> 71
<TABLE>
<CAPTION>
Name and Position
with Registrant Name of Company Capacity
- --------------- --------------- --------
<S> <C> <C>
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 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.

10
<PAGE> 72
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

11
<PAGE> 73
SIGNATURE

Pursuant to the requirements of the Securities Act of 1933, as amended
(the "1933 Act"), and the Investment Company Act of 1940, as amended, Registrant
certifies that it meets all of the requirements for the effectiveness of this
Post-Effective Amendment No. 10 to Registrant's Registration Statement on Form
N-1A pursuant to Rule 485(b) under the 1933 Act and has duly caused this Post
Effective Amendment No. 10 to be signed on its behalf by the undersigned, duly
authorized, in the City of Washington, District of Columbia, on this 22nd day of
April, 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. 10 to Registrant's Registration Statement on Form N-1A has been
signed below by the following persons in the capacities indicated this 22nd day
of April, 1999.

<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
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
</TABLE>

*By: /s/ John H. Grady, Jr.
---------------------------------------------
John H. Grady, Jr., Attorney-In-Fact
pursuant to Powers of Attorney filed herewith
<PAGE> 74
EXHIBIT INDEX

EXHIBIT NO. DOCUMENT DESCRIPTION

Investment Advisory (d) (v) Amended Schedules A and B to
Contracts Registrant's Investment Advisory and
Administration Agreement dated April 30,
1999 is filed herewith.

Custodian Agreements (g) (xvii) Amended Accounting Services Agreement by
and between the Registrant and SEI Fund
Resources dated as of April 1, 1998 is
filed herewith

Legal Opinion (i) Opinion of Morgan, Lewis & Bockius LLP
as to legality of the securities being
registered is filed herewith.

Other Opinions (j) Consent of independent accountants,
PricewaterhouseCoopers LLP is filed
herewith

Financial Data Schedule (n) Financial Data Schedules for the Money
Market Portfolio, S&P 500 Portfolio, and
MarketTrack Growth Portfolio II are
filed herewith.

Money Market Portfolio EX.27.1

MarketTrack Growth Portfolio II EX.27.2

S&P 500 Portfolio EX. 27.3

Powers of Attorney (p) Powers of Attorney for each Trustee, the
Chief Executive Officer and the Chief
Financial Officer are filed herewith

<PAGE> 1
EXHIBIT 99(d)(v)

AMENDED SCHEDULE A
TO INVESTMENT ADVISORY AND
ADMINISTRATION AGREEMENT
FOR SCHWAB ANNUITY PORTFOLIOS

Fund Fund Effective Date
- ---- -------------------

Schwab Money Market Portfolio March 29, 1994

Schwab MarketTrack Growth Portfolio II August 4, 1996
(formerly Schwab Asset Director-High Growth
Portfolio)

Schwab S&P 500 Portfolio August 4, 1996

SCHWAB ANNUITY PORTFOLIOS

By: /s/ Steven L. Scheid
---------------------------
Name: Steven L. Scheid
Title: President and Trustee

CHARLES SCHWAB INVESTMENT MANAGEMENT, INC.

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

B-1
<PAGE> 2
SCHEDULE B
TO INVESTMENT ADVISORY AND
ADMINISTRATION AGREEMENT
FOR SCHWAB ANNUITY PORTFOLIOS
AMENDED APRIL 30, 1999

The Fees listed below are for services provided under this Agreement
and are to be accrued daily and paid monthly in arrears:

<TABLE>
<CAPTION>
FUND FEE
- ---- ---
<S> <C>
Schwab Money Market Portfolio Thirty-eight one-hundredths of one
percent (0.38%) of the Fund's
average daily net assets not in
excess of $1 billion, thirty-five
one-hundredths of one percent
(0.35%) of such net assets over $1
billion and not in excess of $10
billion, thirty-two one-hundredths
of one percent (0.32%) of such net
assets over $10 billion but not in
excess of $20 billion, thirty
one-hundredths of one percent
(.30%) of such net assets over $20
billion.

Schwab MarketTrack Growth Portfolio II Fifty-four one-hundredths of one
(formerly Schwab Asset Director-High percent (0.54%) of the Fund's
Growth Portfolio) average daily net assets not in
excess of $500 million, forty-nine
one-hundredths of one percent
(0.49%) of such net assets over
$500 million.

Schwab S&P 500 Portfolio Twenty one-hundredths of one
percent (0.20%) of the Fund's
average daily net assets not in
excess of $500 million, seventeen
one-hundredths of one percent
(0.17%) of such net assets over
$500 million.
</TABLE>

SCHWAB ANNUITY PORTFOLIOS

By: /s/ Steven L. Scheid
---------------------------
Name: Steven L. Scheid
Title: President and Trustee

CHARLES SCHWAB INVESTMENT MANAGEMENT, INC.

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

B-1

<PAGE> 1

Exhibit 99(g)(xvii)

[SEI INVESTMENTS letterhead]

April 1, 1998

William J. Klipp
President and Chief Operating Officer
Schwab Capital Trust
Schwab Annuity Portfolios
101 Montgomery Street
San Francisco, CA 94104

Re: Accounting Services Agreement

Dear Mr. Klipp:

Notwithstanding Schedule C of the Accounting Services Agreement by and among
Schwab Capital Trust and Schwab Annuity Portfolios and SEI Fund Resources, it is
agreed that the minimums as stated on Schedule C (i.e. $65,000, $75,000 and
$15,000, as the case may be) will be waived with respect to the relevant Fund or
class for a period of twelve months from the date of conversion of such Fund or
the inception of a new Fund or class.

SCHWAB CAPITAL TRUST
SCHWAB ANNUITY PORTFOLIOS

By /s/ William J. Klipp
-------------------------------------------
Name: William J. Klipp
Title: President and Chief Operating Office

SEI FUND RESOURCES

By /s/ Todd Cipperman
-------------------------------------------
Name: Todd Cipperman
Title: Vice President and Assistant Secretary

cc: Frances Cole, Esq.
<PAGE> 2
ACCOUNTING SERVICES AGREEMENT

THIS AGREEMENT is made as of this 1st day of April, 1998, by and among
Schwab Capital Trust and Schwab Annuity Portfolios (each a "Trust", or
collectively, the "Trusts"), each of which is a Massachusetts business trust, on
behalf of those Funds (each a "Fund", or collectively, the "Funds"), listed on
Schedule A, as it may be amended from time to time, and SEI Fund Resources
("SEI"), a Delaware business trust.

WHEREAS, each of the Trusts desires SEI to provide, and SEI is willing
to provide, fund accounting services to the Funds and to each class (each a
Class, or collectively, the "Classes") listed on Schedule A upon the terms and
conditions hereinafter set forth:

NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, each Trust and SEI hereby agree as follows:

ARTICLE 1. Retention of SEI. Each Trust hereby retains SEI to act as
fund accounting agent for the Funds and to furnish the Funds with the services
described herein. SEI hereby accepts such employment and agrees to perform the
duties set forth herein. SEI shall, for all purposes herein, be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized,
shall have no authority to act for or represent the Trusts in any way and shall
not be deemed an agent of the Trust.

ARTICLE 2. Delivery of Documents; Authority. Each Trust shall furnish
SEI with copies, properly certified or authenticated, of the governing documents
for each of the Funds and such other documents as may be reasonably necessary to
the performance by SEI of the services set forth in this Agreement. Each Trust
agrees to furnish SEI with any amendments or supplements to such documents.

Each Trust represents and warrants that all appropriate action has been
taken by it and all other necessary persons or entities to authorize the
appointment of SEI to perform the services contemplated by this Agreement with
respect to each of the Funds.

SEI represents and warrants that all appropriate action has been taken
by it and all other necessary persons or entities to authorize the appointment
of SEI to perform the services contemplated by this Agreement with respect to
each of the Funds.

SEI undertakes to comply with all applicable requirements of the
securities and commodities laws, and any laws, rules or regulations of
governmental authorities having jurisdiction with respect to all duties to be
performed by SEI under this Agreement.

ARTICLE 3. Fund Accounting Services. SEI shall perform the services and
compile the records set forth on Schedule B. In providing services under this
Agreement, SEI shall provide the Funds with all necessary office space,
equipment (including back-up facilities in the event of equipment or systems
failure), personnel compensation and facilities for handling the fund accounting
responsibilities for the Funds. SEI shall enter into and maintain in effect with
appropriate parties agreements making adequate provision for emergency use of
electronic data processing equipment. SEI shall take all reasonable steps
necessary to minimize service disruptions. SEI shall have no responsibility for
supervising the performance by any investment adviser or sub-adviser of its
responsibilities.

ARTICLE 4. Computation of Net Asset Value, Public Offering Price;
Valuation of Securities.

1
<PAGE> 3
(a) When computing the net asset value per share of a Fund, SEI will
follow the specific provisions of the Fund's Registration Statement. In general,
such computation will be made by dividing the value of each Fund's securities,
cash and any other assets, less its liabilities, by the number of shares of the
Fund outstanding. Such computation will be made on each day required by each
Fund's Registration Statement.

(b) Securities will be valued in accordance with the specific
provisions of each Fund's Registration Statement, as amended from time to time.
SEI may use one or more external pricing services. SEI shall not be liable for
any loss, cost, damage, claim or other matter incurred by or assessed against
the Fund, regardless of how characterized, based on or resulting from the
inaccuracy or other deficiency in any information or data provided to SEI by any
such pricing service and used by SEI in the performance of these services
hereunder, provided that SEI has used reasonable care in the selection of the
pricing agent. SEI will provide daily to Charles Schwab Investment Management,
Inc. ("CSIM") by 7:00 p.m. Eastern time via fax or other electronic delivery
medium, the securities prices used in calculating the net asset value of each
Fund for its use in preparing exception reports generated for those prices on
which CSIM has a comment. Further, upon receipt of the exception reports
generated by CSIM, SEI will diligently pursue communication regarding exception
reports with the designated pricing agent. SEI shall provide CSIM with notice as
soon as possible upon the occurrence of an event that would cause a reasonable
person to conclude that the pricing agent is acting negligently or with willful
misfeasance.

ARTICLE 5. Duration and Termination of this Agreement. This Agreement
shall become effective on the dates set forth in Schedule A and shall remain in
effect for the initial term of the Agreement (the "Initial Term") and each
renewal term thereof (each, a "Renewal Term"), each as set forth under Schedule
C, unless terminated in accordance with the provisions of this Article 5. This
Agreement may be terminated only: (a) by the mutual written agreement of the
parties; (b) by either party hereto on 60 days' written notice, as of the end of
the Initial Term or at any time during any Renewal Term; (c) except for any
situation under section (g) hereof any party hereto on such date as is specified
in written notice given by the terminating party, in the event of a material
breach of this Agreement by the other party, provided the terminating party has
notified the other party of such breach at least 30 days prior to the specified
date of termination and the breaching party has not remedied such breach by the
specified date; (d) effective upon the filing of a petition for bankruptcy or
seeking protection from creditors of any party; (e) as to any Fund, effective
upon the liquidation of such Fund; (f) effective upon the liquidation of SEI;
and (g) in the event, however, of willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties by SEI at any time during the
term of this Agreement, the Trusts have a right to terminate this Agreement
immediately upon notice to SEI; however, to the extent that the Trusts' rights
under this provision arise solely due to gross negligence then the Trusts may
terminate this Agreement only if SEI fails to eliminate such gross negligence
immediately upon demand from the Trusts. If the Trusts authorize a cure period,
SEI shall take steps promptly following such demand (but in any event within 30
days thereafter) to preclude the recurrence of such gross negligence. If such
gross negligence is not cured within the cure period, this Agreement shall
terminate effective as of the first date following the cure period'. For
purposes of this Article 5, the term "liquidation" shall mean a transaction in
which the assets of a Fund are sold or otherwise disposed of and proceeds
therefrom are distributed in cash to the shareholders in complete liquidation of
the interests of such shareholders in the entity.

2
<PAGE> 4
ARTICLE 6. Compensation of SEI. For the services to be rendered by SEI pursuant
to this Agreement, the Trusts shall pay to SEI compensation at the rate
specified in Schedule C. The Trust's shall also reimburse SEI for its reasonable
out of pocket expenses as are agreed upon in advance by the parties from time to
time. SEI shall maintain detailed information about the compensation and
expenses allocated to the Trusts by Fund and by Class and shall provide this
detail to the Trusts in its monthly billings. Any revised Schedule C agreed to
by the parties shall be dated and signed by a duly authorized officer of the
Trusts and by a duly authorized officer of SEI. SEI shall in no way be
responsible for paying any expenses of the Funds not otherwise allocated herein,
including without limitation, the cost of pricing services. If this Agreement
becomes effective subsequent to the first day of a month or terminates before
the last day of a month, SEI's compensation for that part of the month in which
this Agreement is in effect shall be prorated in a manner consistent with the
calculation of the fees as set forth above. All rights of compensation under
this Agreement for services performed as of the termination date shall survive
the termination of this Agreement.

ARTICLE 7. Limitation of Liability

(a) The duties of SEI shall be confined to those expressly set forth
herein, and no implied duties are assumed by or may be asserted against SEI
hereunder. SEI shall not be liable for any error of judgment or mistake of law
or for any loss (collectively, "Losses") arising out of any act or omission in
carrying out its duties hereunder, except for those Losses resulting from
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of reckless disregard of its obligations and duties or
Losses arising out of or related to a breach by SEI of its warranty and
obligations set forth in Article 10. hereto. (As used in this Article,
references to SEI shall include officers, employees and other agents of SEI and
its affiliates.) SEI may apply to the Funds at any time for instructions and may
consult counsel for the Funds or its own counsel and with accountants and other
experts with respect to any matter arising in connection with its duties, and
SEI shall not be liable to the Funds for any action taken or omitted by it in
good faith in accordance with the opinion of counsel for the Funds, Schwab or
their accountants or other experts.

(b) So long as SEI acts without willful misfeasance, bad faith, gross
negligence, or reckless disregard for its duties, the Trusts shall indemnify SEI
and hold it harmless from and against any and all actions, suits and claims,
whether groundless or otherwise, and from and against any and all losses,
liabilities, damages, costs and charges (including reasonable counsel fees and
disbursements), arising directly or indirectly out of services rendered
hereunder. The indemnity provisions set forth herein shall indefinitely survive
the termination of this Agreement.

ARTICLE 8. Recordkeeping. SEI shall maintain all records specified in
this Agreement pursuant to Rules 31 a-1 and 31 a-2 under the 1940 Act. All such
records shall be prepared and maintained at the expense of SEI, but shall be the
property of the relevant Fund and will be made available to or surrendered
promptly to such Fund or its designee on the request of either the Fund or CSIM.
SEI shall assist CSIM, the Funds' independent auditors, or upon approval of the
relevant Fund, or upon demand, any regulatory body, in any requested review of
such Fund's accounts and records but shall be reimbursed for all expenses and
employee time invested in any such review of accounts and records outside of the
expenses and employee time routinely and normally expended by SEI as part of a
regulatory review and audit. Upon receipt of the necessary information, SEI
shall supply the necessary data for a Fund's completion of any necessary tax
returns, questionnaires, periodic reports to shareholders and such other reports
and information requests as such Fund and SEI shall agree upon from time to
time.

3
<PAGE> 5
ARTICLE 9. Confidentiality. SEI agrees to keep confidential all records
of the Trusts and information relative to each Fund and its shareholders, unless
the release of such information is otherwise consented to in writing by the
Trust. SEI agrees that should the Trusts be required to provide any information
or records to regulatory bodies (who may institute civil or criminal contempt
proceedings for a failure to comply), SEI must notify the Trusts' and obtain
their consent prior to disclosing any information, unless such disclosure is
required by law.

ARTICLE 10. Year 2000 Compliance. SEI warrants that all software code
owned by or under SEI's control, used in the performance of SEI's obligations
under this contract, will be Year 2000 compliant. For purposes of this
paragraph, "Year 2000 Compliant" means that the software will continue to
operate beyond December 31, 1999 and without creating any logical, mathematical
or programming inconsistencies concerning any date after December 31, 1999 and
without decreasing the functionality of the system applicable to dates prior to
January 1, 2000 including, but not limited to, making changes to [a] date and
data century recognition; [b] calculations which accommodate same- and multi-
century formulas and date values; and [c] input/output of date values which
reflect century dates.

ARTICLE 11. Activities of SEI. The services of SEI rendered to the Funds
are not exclusive. SEI is free to render such services to others and to have
other businesses and interests so long as its services hereunder are not
hindered thereby.

ARTICLE 12. Amendment; Assignment. This Agreement may only be amended or
modified by all parties hereto. Neither this Agreement nor any of the rights and
obligations under this Agreement may be assigned by any party without the
written consent of all parties hereto. If a successor fund accountant shall be
appointed by the Trusts, upon termination of this Agreement, SEI shall deliver
all records and property of the Trusts held by SEI to the successor fund
accountant.

ARTICLE 13. Trustees' Liability. A copy of the Declaration of Trust for
the Trusts is on file with the Secretary of State of the Commonwealth of
Massachusetts, and notice is hereby given that this instrument is executed on
behalf of the Trustees of the Trusts as Trustees and not individually and that
the obligations of this instrument are not binding upon any of the Trustees,
officers or shareholders of the Trusts individually, but are binding only upon
the assets and property of the Fund in question. The Names "Schwab Annuity
Portfolios, " "Schwab Capital Trust," "Trustees of Schwab Annuity Portfolios"
and "Trustees of Schwab Capital Trust" refer, respectively, to the Trusts
created and the Trustees, as trustees but not individually or personally, acting
from time to time under the applicable Declarations of Trust which are hereby
referred to and copies of which are on file at the office of the Secretary of
the Commonwealth of Massachusetts and at the principal office of the Trusts. The
obligations of "Schwab Annuity Portfolios" and "Schwab Capital Trust," entered
into in the name or on behalf thereof by any of the Trustees, representatives or
agents are made not individually, but in such capacities, and are not binding
upon any of the Trustees, shareholders, representatives of the Trusts
personally, but bind only the property of the Funds in question, and all persons
dealing with any class of shares of the Funds must look solely to the Funds
property belonging to such class for the enforcement of any claims against the
Funds.

ARTICLE 14. Notice. Any notice required or permitted to be given by
either party to the other shall be deemed sufficient if sent by registered or
certified mail, postage prepaid, addressed by the party giving notice to the
other party at the last address furnished by the other party to the party giving
notice: if to the Trusts, at 101 Montgomery Street, San Francisco, CA 94104,
Attention: Secretary and if to SEI, at One Freedom Valley Drive, Oaks, PA 19456.

4
<PAGE> 6
ARTICLE 15. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of California and the applicable
provisions of the 1940 Act. To the extent that the applicable laws of the State
of California, or any of the provisions herein, conflict with the applicable
provisions of the 1940 Act, the latter shall control.

ARTICLE 16. Multiple Originals. This Agreement may be executed in two
or more counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
instrument.

ARTICLE 17. Binding Agreement. This Agreement, and the rights and
obligations of the parties and the Funds hereunder, shall be binding on, and
inure to the benefit of the parties and the Funds and the respective successors
and assigns of each of them.

IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.

SCHWAB CAPITAL TRUST
SCHWAB ANNUITY PORTFOLIOS

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

SEI FUND RESOURCES

By /s/ Todd Cipperman
-------------------------------------------
Name: Todd Cipperman
Title: Vice President and Assistant Secretary

5
<PAGE> 7
SCHEDULE A

LIST OF FUNDS

<TABLE>
<CAPTION>
Name of Fund Date
------------ ----
<S> <C>
Asset Director-High Growth Fund 4/30/98
Asset Director-Balanced Growth Fund 4/30/98
Asset Director-Conservative Growth Fund 4/30/98
Asset Director-Aggressive Growth Fund 4/15/98
International Index Fund: Investor Shares, Select Shares 4/30/98
Small-Cap Index Fund: Investor Shares, Select Shares 4/30/98
OneSource Funds-International 4/30/98
OneSource Funds-Balanced Allocation 4/30/98
OneSource Funds-Growth Allocation 4/30/98
OneSource Funds-Small-Company Fund 4/30/98
Asset Director-High Growth Portfolio 4/30/98
</TABLE>

SCHWAB CAPITAL TRUST
SCHWAB ANNUITY PORTFOLIOS

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

SEI FUND RESOURCES

By /s/ Todd Cipperman
-------------------------------------------
Name: Todd Cipperman
Title: Vice President and Assistant Secretary

6
<PAGE> 8
SCHEDULE B

Fund Accounting:

1. Maintain general ledger accounts

2. Calculate NAV (with a primary backup at all times) by the NASDAQ
deadline (by 6:30 PST in the case of the OneSource portfolios)

3. Perform securities valuation; notify pricing committee on Fair Valued
Securities

4. Verify daily the underlying funds' NAVS with the underlying funds'
transfer agent or fund accountant

5. Maintain tax lots for portfolio holdings

6. Bifurcate currency vs. security gains/losses

7. Record investment purchases and sells

8. Record and verify daily income accruals

9. Record, verify expense accruals and monitor CSIM reimbursements and
CSIM waivers both by fund and class

10. Monitor daily collateral asset segregation for Repos, securities
lending, futures and etc.

11. Reconcile cash and positions daily with custodians

12. Compute investable cash; monitor O/D and line of credit outstanding

13. Oversee custodian's activities (settlements, tax reclaims, corporate
actions, etc.)

14. Complete the daily information sheet and investment management report

15. Record fund purchases, redemptions and reconcile outstanding shares
daily with transfer agent

16. Provide month end proof

17. Perform tax compliance quarterly, including the short-short calculation
(until states conform to Federal Code) seven business days before
fiscal quarter end

18. Complete weekly 3% portfolio compliance check for OneSource Portfolios
(until the Exempt Order is granted)

19. Calculate total returns and yields including external distribution of
information

20. Prepare statistics for Board meeting and external agents (reporting
services)

21. Prepare and coordinate the calendar quarter financial summaries for the
Board

22. Maintain book/tax differences and conform to SOPs

23. Calculate fund distribution for both excise and income taxes

24. Coordinate annual audit

25. Prepare and file N-SAR, 24F-2 and N30D through EDGAR

26. Monitor financial D&O and E&O coverage quarterly

27. Consult on general legal and tax issues

28. Prepare monthly service report card

29. Attend quarterly in-person service review meetings

30. Prepare and update accounting policies and operational procedures
manual

31. Assist in the SEC examination

32. Comply with Article 10. Year 2000 compliance provisions

7
<PAGE> 9
SCHEDULE C
TO THE ACCOUNTING SERVICES AGREEMENT
BETWEEN
SCHWAB CAPITAL TRUST AND SCHWAB ANNUITY PORTFOLIOS
AND
SEI FUND RESOURCES
APRIL 1, 1998

FEES:

The Trusts shall pay SEI as compensation for the services performed and
the facilities and personnel provided by SEI pursuant to this Agreement, the
following fee:

(a) with respect to each Fund that invests primarily in U.S. securities, the
greater of (i) $65,000 (Sixty-five thousand dollars) or (ii) the product of the
Basis Point Multiplier (as defined below) and the average daily net assets of
such Fund; plus

(b) with respect to each Fund that invests primarily in non-U.S. securities, the
greater of (i) $75,000 (Seventy-five thousand dollars) or (ii) the product of
the Basis Point Multiplier and the average daily net assets of such Fund; plus

(c) with respect to each class of shares other than the first class of shares of
each Fund, $15,000 (Fifteen thousand dollars).

"Basis Point Multiplier" means a fraction, (a) the numerator of which is the sum
of the following:

(i) 0.04% (4 basis points) of the combined value of the average daily
net assets of the Funds (the "Combined Assets") with respect to those
assets that are less than or equal to $1 Billion (One Billion U.S.
Dollars); plus

(ii) 0.03% (3 basis points) of the Combined Assets with respect to
those assets that are greater than $1 Billion (One Billion Dollars) but
less than or equal to $2 Billion (Two Billion Dollars); plus

(iii) 0.02% (2 basis points) of the Combined Assets with respect to
those assets that are greater than $2 Billion (Two Billion Dollars) but
less than or equal to $3 Billion (Three Billion Dollars); plus

(iv) 0.015% (1.5 basis points) of the Combined Assets with respect to
those assets that are greater than $3 Billion (Three Billion Dollars)
but less than or equal to $4 Billion (Four Billion Dollars); plus

(v) 0.0 1 % (One basis point) of the Combined Assets with respect to
those assets that are in excess of $5 Billion (Five Billion Dollars)
but less than or equal to $20 Billion (Twenty Billion Dollars); plus

(vi) 0.0075% (Three quarters of One Basis Point) of the Combined Assets
with respect to those assets that are in excess of $20 Billion (Twenty
Billion Dollars) and

(b) the denominator of which is the Combined Assets.

8
<PAGE> 10
All fees payable to SEI shall accrue from the date indicated for such Fund in
Schedule A to this Agreement and be calculated daily based on the daily net
assets of each Fund. SEI's fee shall be payable monthly in arrears from the last
business day of each month for the Funds.

TERM:

The term of this Agreement shall commence on the first date indicated in
Schedule A hereto (the "Commencement Date") and shall remain in effect for a
period of three years (the "Initial Term"). This agreement shall continue in
effect for successive periods of 1 year (each, a "Renewal Term") after the
Initial Term, unless terminated by either party in accordance with Article 5 of
the Agreement.

<PAGE> 1

Exhibit 99.(i)

LETTERHEAD OF MORGAN,LEWIS & BOCKIUS LLP

April 22, 1999

Schwab Annuity Portfolios
101 Montgomery Street
San Francisco, CA 94104

Re: Opinion of Counsel regarding Post-Effective Amendment No. 10 to the
Registration Statement filed on Form N-1A under the Securities Act of
1933 (File No. 33-74534).

Ladies and Gentlemen:

We have acted as counsel to Schwab Annuity Portfolios, a Massachusetts trust
(the "Trust"), in connection with the above-referenced Registration Statement
(as amended, the "Registration Statement") which relates to the Trust"s units of
beneficial interest, par value $.00001 per share (collectively, the "Shares").
This opinion is being delivered to you in connection with the Trust"s filing of
Post-Effective Amendment No. 10 to the Registration Statement (the "Amendment")
to be filed with the Securities and Exchange Commission pursuant to Rule 485(b)
of the Securities Act of 1933 (the "1933 Act"). With your permission, all
assumptions and statements of reliance herein have been made without any
independent investigation or verification on our part except to the extent
otherwise expressly stated, and we express no opinion with respect to the
subject matter or accuracy of such assumptions or items relied upon.

In connection with this opinion, we have reviewed, among other things, executed
copies of the following documents:

(a) a certificate of the Commonwealth of Massachusetts as to the
existence and good standing of the Trust;

(b) the Agreement and Declaration of Trust for the Trust and all
amendments and supplements thereto (the "Declaration of
Trust");

(c) a certificate executed by Frances Cole, the Secretary of the
Trust, certifying as to, and attaching copies of, the Trust"s
Declaration of Trust and Amended and Restated By-Laws (the
"By-Laws"), and certain resolutions adopted by the Board of
Trustees of the Trust authorizing the issuance of the Shares;
and
<PAGE> 2
Schwab Annuity Portfolios
April 22, 1999
Page 2

(d) a printer"s proof of the Amendment.

In our capacity as counsel to the Trust, we have examined the originals, or
certified, conformed or reproduced copies, of all records, agreements,
instruments and documents as we have deemed relevant or necessary as the basis
for the opinion hereinafter expressed. In all such examinations, we have assumed
the legal capacity of all natural persons executing documents, the genuineness
of all signatures, the authenticity of all original or certified copies, and the
conformity to original or certified copies of all copies submitted to us as
conformed or reproduced copies. As to various questions of fact relevant to such
opinion, we have relied upon, and assume the accuracy of, certificates and oral
or written statements of public officials and officers or representatives of the
Fund. We have assumed that the Amendment, as filed with the Securities and
Exchange Commission, will be in substantially the form of the printer"s proof
referred to in paragraph (d) above.

Based upon, and subject to, the limitations set forth herein, we are of the
opinion that the Shares, when issued and sold in accordance with the Declaration
of Trust and By-Laws, and for the consideration described in the Registration
Statement, will be legally issued, fully paid and nonassessable under the laws
of the Commonwealth of Massachusetts.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not concede that we are in
the category of persons whose consent is required under Section 7 of the 1933
Act.

Very truly yours,

/s/ Morgan, Lewis and Bockius LLP

Morgan, Lewis and Bockius LLP

<PAGE> 1
Exhibit 99(j)

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 10 to the registration statement on Form N-1A of Schwab Annuity
Portfolios (the "Registration Statement") of our reports dated January 29, 1999,
relating to the financial statements and financial highlights appearing in the
December 31, 1998 Annual Reports to Shareholders of Schwab Money Market
Portfolio, Schwab S&P 500 Portfolio and Schwab MarketTrack Growth Portfolio II,
which are also incorporated by reference into the Registration Statement. We
also consent to the references to us under the heading "Financial Highlights" in
the Prospectus and under the heading "Independent Accountant" in the Statement
of Additional Information.

/s/ PricewaterhouseCoopers LLP

San Francisco, CA
April 22, 1999

<PAGE> 1

Exhibit 99(p)

THE CHARLES SCHWAB FAMILY OF FUNDS
SCHWAB INVESTMENTS
SCHWAB CAPITAL TRUST
SCHWAB ANNUITY PORTFOLIOS

POWER OF ATTORNEY

I, the undersigned trustee and/or officer of The Charles Schwab Family
of Funds, Schwab Investments, Schwab Capital Trust and Schwab Annuity Portfolios
(each a "Trust" and collectively the "Trusts"), and each a Massachusetts
business trust, do hereby constitute and appoint Frances Cole, Matthew O'Toole,
Richard W. Grant and John H. Grady, Jr., and each of them singly, my true and
lawful attorneys, with full power to them and each of them, to sign for me and
in my name and the capacity listed below, any and all amendments to the
Registration Statement on Form N1-A of each Trust, and to file the same with all
exhibits thereto, and other documents in connection thereunder, with the
Securities and Exchange Commission, granting unto my said attorneys, and each of
them, acting alone, full power and authority to do and perform each and every
act and thing requisite or necessary to be done in the premises, as fully as to
all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys or any of them may lawfully do
or cause to be done by virtue thereof.