<PAGE>
SCHWAB ANNUITY PORTFOLIOS
SCHWAB MONEY MARKET PORTFOLIO
DECEMBER 31, 1999
PORTFOLIO MANAGEMENT TEAM
STEPHEN B. WARD -- Senior Vice President and Chief Investment Officer, has
overall responsibility for the management of the Portfolio. Steve joined Charles
Schwab Investment Management (CSIM) as Vice President and Portfolio Manager in
April 1991 and was promoted to his current position in August 1993. Prior to
joining CSIM, Steve was Vice President and Portfolio Manager at Federated
Investors.
KAREN WIGGAN -- Portfolio Manager, has managed the Schwab Money Market Portfolio
since March 1999. Karen joined Schwab in 1986, CSIM in 1991, and was promoted to
her current position in March 1999.
MARKET OVERVIEW
U.S. ECONOMIC GROWTH
The U.S. economy, as measured by the real (inflation adjusted) growth in gross
domestic product (GDP), continued its lengthy expansion with a strong growth
rate of 4.0% -- the third consecutive year at 4% or more -- a rate considered by
many economists to be in excess of what the economy can absorb without
experiencing inflationary pressures. High levels of consumer spending and
business capital investment, as well as rising real wages and strong gains in
stock prices have been the principal factors continuing this lengthy expansion.
In a major revision of the GDP benchmark data going back four decades, the
Commerce Department reported that, during the 1990s, growth was stronger,
personal savings higher, and inflation lower than previously calculated.
Concerns in 1998 over the impact of international economic problems have been
displaced by concerns over imbalances in the domestic economy, namely the
surging current account (trade) deficit, record high stock valuations, and the
low savings rate.
Looking ahead, the availability of increasingly scarce labor resources and the
behavior of domestic consumers in response to continued stock market volatility
may be key determinants of whether the economy continues on its current course
or softens throughout 2000. The consensus of most economists is that the U.S.
economy appears poised for continued growth, but at a more moderate pace than
the last four years.
UNEMPLOYMENT
December's unemployment rate of 4.1% was a 29-year low. Labor markets continue
to be extremely tight in many areas of the country. Growth in the labor force
has slowed, and there continues to be concern that wage and benefits increases
may begin to put more pressure on labor costs.
INFLATION
Price inflation continued to remain well contained. The CPI rose a modest 2.7%
during 1999. Its core rate (which excludes the more volatile food and energy
components) rose just 1.9%. The GDP price deflator, the broadest measure of
inflation, indicated prices rising at an annual rate of 1.5% for 1999. The
Employment Cost Index, which measures inflation in wages, salaries and benefits
was also well contained, increasing 3.4% for the year.
Although there is little evidence of accelerating core inflation, the Federal
Reserve has expressed concern that should labor markets continue to tighten,
increases in wages may outpace productivity growth. In such an environment,
productivity growth becomes particularly critical, as it enables companies to
pay higher wages without raising prices. Non-farm productivity grew 2.8% in 1998
and 2.9% during 1999, continuing a healthy trend that began in 1996.
SHORT-TERM INTEREST RATE ENVIRONMENT
Short-term interest rates increased approximately 1% during 1999.
----------------
1
<PAGE>
SCHWAB ANNUITY PORTFOLIOS
SCHWAB MONEY MARKET PORTFOLIO (CONTINUED)
DECEMBER 31, 1999
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1999 YIELDS ON 90-DAY COMMERCIAL PAPER THREE-MONTH 90-DAY
AND THREE-MONTH TREASURY BILLS TREASURY BILL COMMERCIAL PAPER
<S> <C> <C>
1/1/99 4.46 4.78
1/8/99 4.48 4.75
1/15/99 4.43 4.76
1/22/99 4.34 4.76
1/29/99 4.45 4.75
2/5/99 4.49 4.76
2/12/99 4.52 4.78
2/19/99 4.56 4.80
2/26/99 4.67 4.81
3/5/99 4.60 4.83
3/12/99 4.59 4.81
3/19/99 4.49 4.81
3/26/99 4.49 4.81
4/2/99 4.39 4.82
4/9/99 4.35 4.80
4/16/99 4.31 4.79
4/23/99 4.41 4.78
4/30/99 4.54 4.77
5/7/99 4.60 4.79
5/14/99 4.65 4.79
5/21/99 4.58 4.83
5/28/99 4.64 4.84
6/4/99 4.54 4.87
6/11/99 4.73 4.90
6/18/99 4.65 5.00
6/25/99 4.79 5.03
7/2/99 4.67 5.13
7/9/99 4.68 5.11
7/16/99 4.66 5.10
7/23/99 4.66 5.11
7/30/99 4.75 5.12
8/6/99 4.80 5.18
8/13/99 4.71 5.24
8/20/99 4.83 5.27
8/27/99 4.99 5.30
9/3/99 4.91 5.31
9/10/99 4.73 5.31
9/17/99 4.65 5.33
9/24/99 4.78 5.33
10/1/99 4.86 5.30
10/8/99 4.79 5.90
10/15/99 5.05 5.87
10/22/99 5.05 5.96
10/29/99 5.09 5.90
11/5/99 5.12 5.88
11/12/99 5.22 5.78
11/19/99 5.22 5.79
11/26/99 5.29 5.78
12/3/99 5.25 5.83
12/10/99 5.28 5.84
12/17/99 5.44 5.89
12/24/99 5.45 6.00
12/31/99 5.33 5.78
</TABLE>
Source: Bloomberg L.P.
Short-term interest rates remained relatively stable during the first half of
the reporting period as the economy demonstrated continued signs of growth.
However, the April CPI report, which was unexpectedly high, renewed inflation
fears and increased the possibility of potential Federal Reserve action.
In May, the Federal Reserve gave its first indication that they were concerned
about building inflationary pressure by adopting a "tightening" bias, causing
short-term rates to edge upward towards the end of the first half of the
reporting period.
The Federal Reserve maintained its vigilant stance as the economy continued to
grow at a robust pace and the labor markets remained very tight. Concerned that
inflationary imbalances could undermine the favorable performance of the economy
the Federal Reserve took steps to slow growth by raising short-term interest
rates by 0.25% on June 30th. This rate increase was followed by two additional
increases, each 0.25%, in August and November, which left the Federal Funds Rate
at 5.50%.
During much of the year there was a great deal of concern about the potential
effect of Y2K on short-term interest rates. These concerns were largely
controlled by the Federal Reserves' willingness to provide liquidity and the
positive reports about Y2K preparations. As a result there was very little
pressure on short-term rates as the reporting period ended.
PORTFOLIO HIGHLIGHTS
During the first quarter of 1999, based on our expectation that short-term rates
would remain relatively stable, we looked for opportunities to buy securities
with longer-dated maturities when they were available at attractive prices. As
the Federal Reserve took a more restrictive stance starting in May and
throughout the rest of the year we deviated from this strategy somewhat by
concentrating the portfolio in shorter-term securities while still buying higher
yielding securities on a selective basis when opportunities arose.
<TABLE>
<CAPTION>
YIELD SUMMARY AS OF 12/31/99(1)
- -------------------------------
<S> <C>
7-Day Yield 5.01%
7-Day Effective Yield 5.14%
</TABLE>
(1)A portion of the Portfolio's expenses were reduced during the reporting
period. Without these reductions, as of December 31, 1999 the 7-day yield and
7-day effective yield would have been 4.88% and 5.00%, respectively.
----------------
2
<PAGE>
----------
SCHWAB MONEY MARKET PORTFOLIO
PORTFOLIO SUMMARY (000's)
ASSET GROWTH
PERCENTAGE
TOTAL TOTAL GROWTH OVER
NET ASSETS NET ASSETS REPORTING
AS OF 12/31/99 AS OF 12/31/98 PERIOD
---------------------------------------------------------------------------
$119,612 $78,266 53%
---------------------------------------------------------------------------
AVERAGE YIELDS FOR THE PERIODS ENDED
DECEMBER 31, 1999*
LAST LAST LAST
SEVEN DAYS THREE MONTHS TWELVE MONTHS
---------------------------------------------------------------------------
5.01% 5.02% 4.60%
---------------------------------------------------------------------------
MATURITY SCHEDULE
PERCENT OF TOTAL INVESTMENTS
MATURITY RANGE 3/31/99 6/30/99 9/30/99 12/31/99
----------------------------------------------------------------------------
0-- 15 Days 28.7% 28.3% 32.2% 15.0%
16-- 30 Days 5.2 16.4 7.6 32.5
31-- 60 Days 43.9 35.0 30.9 36.3
61-- 90 Days 12.4 8.2 4.2 3.0
91--120 Days 6.7 8.4 9.4 7.2
Over 120 Days 3.1 3.7 15.7 6.0
Weighted Average 43 Days 41 Days 51 Days 43 Days
----------------------------------------------------------------------------
PORTFOLIO QUALITY
PERCENT OF
SEC TIER TOTAL INVESTMENTS
RATING 12/31/99
-----------------------------------
Tier 1 100.0%
- ------------
* A portion of the Fund's expenses were reduced during the periods. Had these
expenses not been reduced, yields would have been lower.
----------
3
<PAGE>
----------
SCHWAB MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
U.S. GOVERNMENT SECURITIES--90.9% PAR (000s) VALUE (000s)
-------------------------------------------------------------------------
DISCOUNT NOTES--90.9%
Federal Farm Credit Bank
5.57%, 01/19/00 ....................... $2,000 $ 1,994
5.61%, 01/19/00 ....................... 3,000 2,992
5.63%, 01/26/00 ....................... 1,000 996
5.66%, 01/27/00 ....................... 2,000 1,992
5.58%, 02/07/00 ....................... 3,000 2,983
5.61%, 02/16/00 ....................... 2,000 1,986
5.70%, 03/13/00 ....................... 1,617 1,599
5.66%, 04/05/00 ....................... 2,000 1,971
5.73%, 04/05/00 ....................... 1,000 985
5.72%, 04/17/00 ....................... 2,000 1,967
Federal Home Loan Bank
5.62%, 01/06/00 ....................... 1,000 999
5.67%, 01/20/00 ....................... 1,000 997
5.30%, 01/21/00 ....................... 2,000 1,994
5.61%, 01/31/00 ....................... 2,000 1,991
5.60%, 02/01/00 ....................... 1,292 1,286
5.62%, 02/01/00 ....................... 1,563 1,556
5.53%, 02/02/00 ....................... 3,000 2,986
5.70%, 02/11/00 ....................... 2,800 2,782
5.62%, 02/22/00 ....................... 2,000 1,984
5.65%, 02/23/00 ....................... 1,000 992
5.61%, 02/25/00 ....................... 3,000 2,975
5.77%, 04/28/00 ....................... 2,000 1,963
Federal Home Loan Mortgage Corporation
5.66%, 01/10/00 ....................... 2,500 2,496
5.65%, 01/12/00 ....................... 1,000 998
5.64%, 01/14/00 ....................... 1,000 998
5.31%, 01/19/00 ....................... 2,000 1,995
5.66%, 01/19/00 ....................... 3,000 2,992
5.55%, 01/20/00 ....................... 3,000 2,991
5.56%, 02/03/00 ....................... 3,000 2,985
5.64%, 02/04/00 ....................... 2,000 1,990
5.65%, 02/09/00 ....................... 2,137 2,124
5.73%, 03/23/00 ....................... 1,000 987
5.96%, 06/02/00 ....................... 1,500 1,463
5.92%, 06/27/00 ....................... 1,000 972
5.70%, 07/28/00 ....................... 1,000 969
Federal National Mortgage Association
5.62%, 01/18/00 ....................... 2,000 1,995
5.67%, 01/18/00 ....................... 1,235 1,232
5.69%, 01/20/00 ....................... 2,434 2,427
5.68%, 01/21/00 ....................... 1,000 997
5.63%, 02/02/00 ....................... 3,000 2,985
5.62%, 02/09/00 ....................... 1,598 1,589
5.67%, 02/14/00 ....................... 2,000 1,986
5.66%, 02/25/00 ....................... 2,000 1,983
5.71%, 02/25/00 ....................... 1,000 991
----------
4
<PAGE>
----------
SCHWAB MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1999
U.S. GOVERNMENT SECURITIES (CONTINUED) PAR (000s) VALUE (000s)
-------------------------------------------------------------------------
Federal National Mortgage Association (continued)
5.87%, 03/16/00 ....................... $1,000 $ 988
5.76%, 04/25/00 ....................... 1,881 1,847
5.93%, 05/18/00 ....................... 1,000 978
5.91%, 06/29/00 ....................... 1,000 971
5.92%, 06/29/00 ....................... 2,000 1,942
Tennessee Valley Authority
5.48%, 01/24/00 ....................... 3,000 2,990
5.51%, 01/25/00 ....................... 3,000 2,989
5.48%, 01/26/00 ....................... 2,000 1,992
5.51%, 01/26/00 ....................... 3,000 2,989
5.51%, 01/27/00 ....................... 3,000 2,988
5.48%, 01/31/00 ....................... 2,000 1,991
5.53%, 02/11/00 ....................... 1,000 994
5.58%, 02/11/00 ....................... 1,000 994
5.60%, 02/17/00 ....................... 1,000 993
5.64%, 02/29/00 ....................... 1,000 991
------
TOTAL U.S. GOVERNMENT SECURITIES
(Cost $108,752) 108,752
--------
REPURCHASE AGREEMENTS--10.7% (a) MATURITY VALUE (000s)
-------------------------------------------------------------------------
Morgan Stanley & Co., Inc. Tri Party Repurchase Agreement
Collateralized by U.S. Treasury Securities
2.50% Issue 12/31/99
Due 01/03/00 ........... 12,751 12,748
--------
TOTAL REPURCHASE AGREEMENTS
(Cost $12,748) ........................ 12,748
--------
TOTAL INVESTMENTS--101.6%
(Cost $121,500) ....................... 121,500
--------
OTHER ASSETS AND LIABILITIES--(1.6%)
Other assets .......................... 4
Liabilities ........................... (1,892)
--------
(1,888)
--------
NET ASSETS--100.0% ....................... $119,612
========
-----------
NOTES TO SCHEDULE OF INVESTMENTS
Yields shown are effective yields at the time of purchase. Yields for
each security are stated according to the market convention for that
security type. For each security, cost (for financial reporting and
federal income tax purposes) and carrying value are the same.
(a) Repurchases agreements due dates are considered the maturity date.
Repurchase agreement with due dates later than seven days from issue
dates may be subject to seven day putable demand features for
liquidity purposes.
See accompanying Notes to Financial Statements.
----------
5
<PAGE>
----------
SCHWAB MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (IN THOUSANDS)
DECEMBER 31, 1999
ASSETS:
Investments, at value (Cost: $121,500) ....................... $121,500
Interest receivable .......................................... 1
Prepaid expenses ............................................. 3
--------
Total assets .............................................. 121,504
--------
LIABILITIES:
Payables:
Fund shares redeemed ...................................... 1,829
Investment advisory and administration fees ............... 5
Accrued expenses ............................................. 58
--------
Total liabilities ......................................... 1,892
--------
Net assets applicable to outstanding shares ..................... $119,612
========
NET ASSETS consist of
Paid-in capital .............................................. $119,627
Accumulated net realized loss on investments sold ............ (15)
--------
$119,612
========
PRICING OF SHARES
Outstanding shares, $0.00001 par value
(unlimited shares authorized) .............................. 119,659
NET ASSET VALUE, offering and redemption price per share ........ $1.00
See accompanying Notes to Financial Statements.
----------
6
<PAGE>
----------
SCHWAB MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS (IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31, 1999
- -------------------------------------------------------------------------
- -------
INTEREST INCOME ................................................ $5,542
------
EXPENSES:
Investment advisory and administration fees ................. 435
Custodian fees .............................................. 32
Portfolio accounting fees ................................... 43
Professional fees ........................................... 43
Registration fees ........................................... 31
Shareholder reports ......................................... 46
Trustees' fees .............................................. 10
Other expenses .............................................. 10
------
650
Less: expenses reduced ......................................... (109)
------
Net expenses incurred by fund ............................ 541
------
NET INVESTMENT INCOME .......................................... 5,001
NET REALIZED LOSS ON INVESTMENTS ............................... (3)
------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............... $4,998
======
See accompanying Notes to Financial Statements.
----------
7
<PAGE>
----------
SCHWAB MONEY MARKET PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
OPERATIONS:
Net investment income ....................................... $ 5,001 $ 3,425
Net realized loss on investments sold ....................... (3) (9)
--------- ---------
Increase in net assets resulting from operations ............ 4,998 3,416
--------- ---------
DIVIDENDS AND DISTRIBUTIONS
Dividends to shareholders from net investment income ........ (5,001) (3,447)
--------- ---------
CAPITAL SHARE TRANSACTIONS: (at $1.00 per share):
Proceeds from shares sold ................................... 369,371 219,491
Net asset value of shares issued in reinvestment of dividends 5,378 3,327
Payments for shares redeemed ................................ (333,400) (192,489)
--------- ---------
Increase in net assets from capital share transactions ...... 41,349 30,329
--------- ---------
Total increase in net assets ................................... 41,346 30,298
NET ASSETS:
Beginning of year ........................................... 78,266 47,968
--------- ---------
End of year ................................................. $ 119,612 $ 78,266
========= =========
</TABLE>
See accompanying Notes to Financial Statements.
----------
8
<PAGE>
----------
SCHWAB MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA ($)
Net asset value at beginning
of period 1.00 1.00 1.00 1.00 1.00
------- ------ ------ ------ ------
From investment operations:
Net investment income 0.05 0.05 0.05 0.05 0.05
------- ------ ------ ------ ------
Total income from investment
operations 0.05 0.05 0.05 0.05 0.05
Less distributions:
Dividends from net investment
income (0.05) (0.05) (0.05) (0.05) (0.05)
------- ------ ------ ------ ------
Total distributions (0.05) (0.05) (0.05) (0.05) (0.05)
------- ------ ------ ------ ------
NET ASSET VALUE AT END
OF PERIOD 1.00 1.00 1.00 1.00 1.00
======= ====== ====== ====== ======
Total return (%) 4.69 5.07 5.12 4.98 5.26
RATIOS/SUPPLEMENTAL DATA (%)
- ----------------------------------
Ratio of net operating expenses to
average net assets 0.50 0.50 0.50 0.50 0.50
Expense reductions reflected in
above ratio 0.10 0.11 0.21 0.45 0.52
Ratio of net investment income
to average net assets 4.62 4.91 5.01 4.87 5.17
Net assets, end of period ($x1,000) 119,612 78,266 47,968 27,431 16,912
</TABLE>
See accompanying Notes to Financial Statements.
----------
9
<PAGE>
----------
SCHWAB MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE NOTED)
1. DESCRIPTION OF THE FUND
The Schwab Money Market Portfolio (the "fund") is a series of Schwab Annuity
Portfolios (the "trust"), a diversified, no-load, open-end, investment
management company organized as a Massachusetts business trust on January 21,
1994 and registered under the Investment Company Act of 1940 (the "1940 Act"),
as amended.
The fund is intended as an investment vehicle for variable annuity contracts and
variable life insurance policies to be offered by separate accounts of
participating life insurance companies and for pension and retirement plans
qualified under the Internal Revenue Code of 1986, as amended.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are in conformity with generally
accepted accounting principles. The preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
SECURITY VALUATION -- Investments are stated at amortized cost, which
approximates market value.
SECURITY TRANSACTIONS AND INTEREST INCOME -- Security transactions are accounted
for on a trade date basis (date the order to buy or sell is executed). Interest
income is recorded on the accrual basis and includes amortization of premium and
accretion of discount on investments. Realized gains and losses from security
transactions are determined on an identified cost basis.
REPURCHASE AGREEMENTS -- Repurchase agreements are fully collateralized by U.S.
government securities. All collateral is held by the fund's custodian, except in
the case of a tri-party repurchase agreements, under which the collateral is
held by an agent bank. The collateral is monitored daily to ensure that its
market value at least equals the repurchase price under the agreements.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The fund declares a daily
dividend, equal to its net investment income for that day, payable monthly. Net
realized capital gains, if any, are normally distributed annually.
EXPENSES -- Expenses arising in connection with the fund are charged directly to
the fund. Expenses common to all series of the trust are generally allocated to
each series in proportion to their relative net assets.
FEDERAL INCOME TAXES -- It is the fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all net investment income and realized net capital gains, if any, to
shareholders. Therefore, no federal income tax provision is required. The fund
is considered a separate entity for tax purposes.
As of December 31, 1999, the unused capital loss carryforwards for federal
income tax purposes with expiration dates, were as follows:
EXPIRING IN:
------------
12/31/05 $ 1
12/31/06 $ 3
12/31/07 $10
---
Total capital
loss carryforward $14
===
----------
10
<PAGE>
----------
SCHWAB MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENT -- The trust has an investment
advisory and administration agreement with Charles Schwab Investment Management,
Inc. (the "investment adviser"). For advisory services and facilities furnished,
the fund pays an annual fee, payable monthly, of 0.38% on the first $1 billion
of average daily net assets, 0.35% on the next $9 billion, 0.32% on such net
assets in excess of $10 billion, and 0.30% on such net assets in excess of $20
billion. Prior to April 30, 1999 the fund paid an annual fee, payable monthly,
of 0.46% on the first $1 billion of average daily net assets, 0.45% on the next
$2 billion of average daily net assets, 0.40% on the next $7 billion, 0.37% on
the next $10 billion of average daily net assets, and 0.34% on such net assets
in excess of $20 billion. The investment adviser has reduced a portion of its
fee for the year ended December 31, 1999 (see Note 4).
OFFICERS AND TRUSTEES -- Certain officers and trustees of the trust are also
officers or directors of the investment adviser. During the year ended December
31, 1999, the trust made no direct payments to its officers or trustees who are
"interested persons" within the meaning of the 1940 Act, as amended. The fund
incurred fees of $10 related to the trusts unaffiliated trustees.
4. EXPENSES REDUCED AND ABSORBED BY THE INVESTMENT ADVISER AND SCHWAB
The investment adviser guarantees that, through at least April 30, 2000, the
fund's net operating expenses will not exceed 0.50% of the fund's average daily
net assets, after waivers and reimbursements. For purpose of this guarantee,
operating expenses do not include interest expenses, extraordinary expenses and
taxes. For the year ended December 31, 1999, the total of such fees and expenses
reduced by the investment adviser was $109.
----------
11
<PAGE>
----------
SCHWAB MONEY MARKET PORTFOLIO
DECEMBER 31, 1999 ANNUAL REPORT
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of
Schwab Money Market Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Schwab Money Market Portfolio (one
of the portfolios constituting Schwab Annuity Portfolios, hereafter referred to
as the "Fund") at December 31, 1999, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1999 by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
February 4, 2000
----------
12
