<PAGE>
SCHWAB ANNUITY PORTFOLIOS
SCHWAB S&P 500 PORTFOLIO
DECEMBER 31, 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.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
REAL GDP GROWTH RATE
QUARTERLY PERCENTAGE CHANGE
(ANNUALIZED RATE)
<S> <C>
Q1 1990 5.0%
Q2 1990 1.0%
Q3 1990 -0.6%
Q4 1990 -3.0%
Q1 1991 -1.7%
Q2 1991 2.6%
Q3 1991 1.3%
Q4 1991 2.5%
Q1 1992 4.3%
Q2 1992 4.0%
Q3 1992 3.1%
Q4 1992 5.2%
Q1 1993 -0.7%
Q2 1993 2.1%
Q3 1993 1.5%
Q4 1993 6.0%
Q1 1994 3.6%
Q2 1994 5.7%
Q3 1994 2.2%
Q4 1994 5.1%
Q1 1995 1.5%
Q2 1995 0.8%
Q3 1995 3.2%
Q4 1995 3.3%
Q1 1996 2.9%
Q2 1996 6.9%
Q3 1996 2.2%
Q4 1996 4.9%
Q1 1997 4.9%
Q2 1997 5.1%
Q3 1997 4.0%
Q4 1997 3.1%
Q1 1998 6.7%
Q2 1998 2.1%
Q3 1998 3.8%
Q4 1998 5.9%
Q1 1999 3.7%
Q2 1999 1.9%
Q3 1999 5.7%
Q4 1999 5.8%
</TABLE>
Source: Bloomberg L.P.
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.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
U.S. UNEMPLOYMENT RATE
<S> <C>
Jan-90 5.4%
Feb-90 5.3%
Mar-90 5.2%
Apr-90 5.4%
May-90 5.4%
Jun-90 5.2%
Jul-90 5.5%
Aug-90 5.7%
Sep-90 5.9%
Oct-90 5.9%
Nov-90 6.2%
Dec-90 6.3%
Jan-91 6.4%
Feb-91 6.6%
Mar-91 6.8%
Apr-91 6.7%
May-91 6.9%
Jun-91 6.9%
Jul-91 6.8%
Aug-91 6.9%
Sep-91 6.9%
Oct-91 7.0%
Nov-91 7.0%
Dec-91 7.3%
Jan-92 7.3%
Feb-92 7.4%
Mar-92 7.4%
Apr-92 7.4%
May-92 7.6%
Jun-92 7.8%
Jul-92 7.7%
Aug-92 7.6%
Sep-92 7.6%
Oct-92 7.3%
Nov-92 7.4%
Dec-92 7.4%
Jan-93 7.3%
Feb-93 7.1%
Mar-93 7.0%
Apr-93 7.1%
May-93 7.1%
Jun-93 7.0%
Jul-93 6.9%
Aug-93 6.8%
Sep-93 6.7%
Oct-93 6.8%
Nov-93 6.6%
Dec-93 6.5%
Jan-94 6.8%
Feb-94 6.6%
Mar-94 6.5%
Apr-94 6.4%
May-94 6.1%
Jun-94 6.1%
Jul-94 6.3%
Aug-94 6.0%
Sep-94 5.8%
Oct-94 5.8%
Nov-94 5.6%
Dec-94 5.5%
Jan-95 5.6%
Feb-95 5.4%
Mar-95 5.3%
Apr-95 5.8%
May-95 5.8%
Jun-95 5.6%
Jul-95 5.6%
Aug-95 5.7%
Sep-95 5.6%
Oct-95 5.5%
Nov-95 5.7%
Dec-95 5.6%
Jan-96 5.6%
Feb-96 5.5%
Mar-96 5.6%
Apr-96 5.5%
May-96 5.6%
Jun-96 5.3%
Jul-96 5.5%
Aug-96 5.1%
Sep-96 5.2%
Oct-96 5.2%
Nov-96 5.3%
Dec-96 5.4%
Jan-97 5.3%
Feb-97 5.3%
Mar-97 5.1%
Apr-97 5.0%
May-97 4.7%
Jun-97 5.0%
Jul-97 4.7%
Aug-97 4.9%
Sep-97 4.7%
Oct-97 4.7%
Nov-97 4.6%
Dec-97 4.7%
Jan-98 4.5%
Feb-98 4.6%
Mar-98 4.6%
Apr-98 4.3%
May-98 4.3%
Jun-98 4.5%
Jul-98 4.5%
Aug-98 4.5%
Sep-98 4.5%
Oct-98 4.5%
Nov-98 4.4%
Dec-98 4.3%
Jan-99 4.3%
Feb-99 4.4%
Mar-99 4.2%
Apr-99 4.3%
May-99 4.2%
Jun-99 4.3%
Jul-99 4.3%
Aug-99 4.2%
Sep-99 4.2%
Oct-99 4.1%
Nov-99 4.1%
Dec-99 4.1%
</TABLE>
Source: Bloomberg L.P.
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.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MEASURES OF INFLATION MONTHLY CONSUMER PRICE INDEX QUARTERLY EMPLOYMENT COST INDEX
<S> <C> <C>
Jan-90 5.2% 5.5%
Feb-90 5.3% 5.5%
Mar-90 5.2% 5.5%
Apr-90 4.7% 5.4%
May-90 4.4% 5.4%
Jun-90 4.7% 5.4%
Jul-90 4.8% 5.2%
Aug-90 5.6% 5.2%
Sep-90 6.2% 5.2%
Oct-90 6.3% 4.9%
Nov-90 6.3% 4.9%
Dec-90 6.1% 4.9%
Jan-91 5.7% 4.6%
Feb-91 5.3% 4.6%
Mar-91 4.9% 4.6%
Apr-91 4.9% 4.6%
May-91 5.0% 4.6%
Jun-91 4.7% 4.6%
Jul-91 4.4% 4.3%
Aug-91 3.8% 4.3%
Sep-91 3.4% 4.3%
Oct-91 2.9% 4.3%
Nov-91 3.0% 4.3%
Dec-91 3.1% 4.3%
Jan-92 2.6% 4.0%
Feb-92 2.8% 4.0%
Mar-92 3.2% 4.0%
Apr-92 3.2% 3.6%
May-92 3.0% 3.6%
Jun-92 3.1% 3.6%
Jul-92 3.2% 3.5%
Aug-92 3.1% 3.5%
Sep-92 3.0% 3.5%
Oct-92 3.2% 3.5%
Nov-92 3.0% 3.5%
Dec-92 2.9% 3.5%
Jan-93 3.3% 3.5%
Feb-93 3.2% 3.5%
Mar-93 3.1% 3.5%
Apr-93 3.2% 3.6%
May-93 3.2% 3.6%
Jun-93 3.0% 3.6%
Jul-93 2.8% 3.6%
Aug-93 2.8% 3.6%
Sep-93 2.7% 3.6%
Oct-93 2.8% 3.5%
Nov-93 2.7% 3.5%
Dec-93 2.7% 3.5%
Jan-94 2.5% 3.2%
Feb-94 2.5% 3.2%
Mar-94 2.5% 3.2%
Apr-94 2.4% 3.2%
May-94 2.3% 3.2%
Jun-94 2.5% 3.2%
Jul-94 2.8% 3.2%
Aug-94 2.9% 3.2%
Sep-94 3.0% 3.2%
Oct-94 2.6% 3.0%
Nov-94 2.7% 3.0%
Dec-94 2.7% 3.0%
Jan-95 2.8% 2.9%
Feb-95 2.9% 2.9%
Mar-95 2.9% 2.9%
Apr-95 3.1% 2.9%
May-95 3.2% 2.9%
Jun-95 3.0% 2.9%
Jul-95 2.8% 2.7%
Aug-95 2.6% 2.7%
Sep-95 2.5% 2.7%
Oct-95 2.8% 2.7%
Nov-95 2.6% 2.7%
Dec-95 2.5% 2.7%
Jan-96 2.7% 2.8%
Feb-96 2.7% 2.8%
Mar-96 2.8% 2.8%
Apr-96 2.9% 2.9%
May-96 2.9% 2.9%
Jun-96 2.8% 2.9%
Jul-96 3.0% 2.8%
Aug-96 2.9% 2.8%
Sep-96 3.0% 2.8%
Oct-96 3.0% 2.9%
Nov-96 3.3% 2.9%
Dec-96 3.3% 2.9%
Jan-97 3.0% 2.9%
Feb-97 3.0% 2.9%
Mar-97 2.8% 2.9%
Apr-97 2.5% 2.8%
May-97 2.2% 2.8%
Jun-97 2.3% 2.8%
Jul-97 2.2% 3.0%
Aug-97 2.2% 3.0%
Sep-97 2.2% 3.0%
Oct-97 2.1% 3.3%
Nov-97 1.8% 3.3%
Dec-97 1.7% 3.3%
Jan-98 1.6% 3.3%
Feb-98 1.4% 3.3%
Mar-98 1.4% 3.3%
Apr-98 1.4% 3.5%
May-98 1.7% 3.5%
Jun-98 1.7% 3.5%
Jul-98 1.7% 3.7%
Aug-98 1.6% 3.7%
Sep-98 1.5% 3.7%
Oct-98 1.5% 3.4%
Nov-98 1.5% 3.4%
Dec-98 1.6% 3.4%
Jan-99 1.7% 3.0%
Feb-99 1.6% 3.0%
Mar-99 1.7% 3.0%
Apr-99 2.3% 3.2%
May-99 2.1% 3.2%
Jun-99 2.0% 3.2%
Jul-99 2.1% 3.1%
Aug-99 2.3% 3.1%
Sep-99 2.6% 3.1%
Oct-99 2.6% 3.4%
Nov-99 2.6% 3.4%
Dec-99 2.7% 3.4%
</TABLE>
Source: Bloomberg L.P.
---------------------
1
<PAGE>
SCHWAB ANNUITY PORTFOLIOS
SCHWAB S&P 500 PORTFOLIO
DECEMBER 31, 1999
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 at 2.9% during 1999, continuing a healthy trend that began in 1996.
ASSET CLASS PERFORMANCE
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ASSET CLASS TOTAL RETURN PERFORMANCE S&P 500 RUSSELL 2000 MSCI EAFE LEHMAN AGGREGATE
GROWTH OF A $1 INVESTMENT -REGISTERED TRADEMARK- SMALL-CAP INDEX -REGISTERED TRADEMARK- BOND INDEX
INDEX (ND) INDEX
<S> <C> <C> <C> <C>
Dec-98 $1.00 $1.00 $1.00 $1.00
Jan-99 $1.04 $1.01 $1.00 $1.01
Feb-99 $1.01 $0.93 $0.97 $0.99
Mar-99 $1.05 $0.95 $1.01 $0.99
Apr-99 $1.09 $1.03 $1.05 $1.00
May-99 $1.06 $1.05 $1.00 $0.99
Jun-99 $1.12 $1.09 $1.04 $0.99
Jul-99 $1.09 $1.06 $1.07 $0.98
Aug-99 $1.08 $1.02 $1.07 $0.98
Sep-99 $1.05 $1.02 $1.08 $0.99
Oct-99 $1.12 $1.03 $1.12 $1.00
Nov-99 $1.14 $1.09 $1.16 $1.00
Dec-99 $1.21 $1.21 $1.27 $0.99
</TABLE>
Compiled by Charles Schwab & Co., Inc.
Source: Bloomberg L.P.
/ / THE INFORMATION IS HISTORICAL AND DOES NOT REPRESENT FUTURE RESULTS. TOTAL
RETURNS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS. PRINCIPAL VALUE AND INVESTMENT RETURNS WILL FLUCTUATE, SO AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST. INDICES ARE UNMANAGED AND DO NOT REFLECT ADVISORY FEES AND
OTHER EXPENSES ASSOCIATED WITH AN INVESTMENT IN THE PORTFOLIO. INVESTORS
CANNOT INVEST IN AN INDEX DIRECTLY.
For the first time since 1994, international stocks outperformed the
long-dominant domestic large cap stocks. Assisted by the rebound in Asian
markets, international stocks, as represented by the MSCI EAFE Index, achieved a
total return of 26.96% for 1999 versus 21.04% for the S&P
500-Registered Trademark- Index. Within the S&P 500-Registered Trademark- Index,
growth stocks in general, and technology growth stocks in particular, continued
to be the strongest performing style for the reporting period. Small-cap stocks
as represented by the Russell 2000 Index, also experienced a positive return of
21.26% for the year.
Reflecting the rise in intermediate and long-term interest rates, fixed income
returns were generally weak for the reporting period. Bond returns, as
represented by the Lehman Brothers Aggregate Bond Index, were -0.82% for the
year.
U.S. EQUITY VALUATION
The price/earnings ratio for the S&P 500-Registered Trademark- Index reached
record highs during 1999 and ended the year at a lofty 32.59 times earnings,
approximately twice its long-term average. The price/earnings ratio, also known
as a multiple, is the price of a stock divided by its earnings per share, and
generally indicates how much investors are willing to pay for a company's
earning potential. Based on other traditional market valuation measures such as
the price-to-book value ratio or dividend yield, the U.S. stock market continues
to remain at record high valuation levels.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
S&P 500 INDEX PRICE/EARNINGS RATIO
<S> <C>
Jan-90 14.37
Feb-90 14.21
Mar-90 14.77
Apr-90 14.82
May-90 15.84
Jun-90 16.66
Jul-90 16.65
Aug-90 15.57
Sep-90 14.90
Oct-90 14.36
Nov-90 14.59
Dec-90 15.19
Jan-91 14.95
Feb-91 16.82
Mar-91 17.48
Apr-91 17.85
May-91 17.92
Jun-91 17.96
Jul-91 18.07
Aug-91 19.72
Sep-91 19.88
Oct-91 19.92
Nov-91 21.02
Dec-91 21.85
Jan-92 23.35
Feb-92 23.83
Mar-92 25.45
Apr-92 25.51
May-92 25.71
Jun-92 25.08
Jul-92 25.61
Aug-92 25.50
Sep-92 24.37
Oct-92 23.94
Nov-92 24.08
Dec-92 24.01
Jan-93 24.20
Feb-93 24.25
Mar-93 24.22
Apr-93 23.20
May-93 23.21
Jun-93 22.58
Jul-93 22.52
Aug-93 23.02
Sep-93 23.74
Oct-93 23.97
Nov-93 22.55
Dec-93 23.55
Jan-94 22.98
Feb-94 21.17
Mar-94 20.34
Apr-94 20.10
May-94 20.16
Jun-94 19.76
Jul-94 18.64
Aug-94 18.90
Sep-94 18.26
Oct-94 17.55
Nov-94 16.58
Dec-94 16.98
Jan-95 16.23
Feb-95 16.20
Mar-95 16.50
Apr-95 16.02
May-95 16.43
Jun-95 16.82
Jul-95 16.55
Aug-95 16.18
Sep-95 16.86
Oct-95 16.18
Nov-95 17.14
Dec-95 17.41
Jan-96 18.11
Feb-96 18.56
Mar-96 18.94
Apr-96 19.16
May-96 19.48
Jun-96 19.30
Jul-96 18.31
Aug-96 18.62
Sep-96 19.75
Oct-96 19.60
Nov-96 21.05
Dec-96 20.70
Jan-97 20.55
Feb-97 20.98
Mar-97 19.87
Apr-97 20.24
May-97 21.43
Jun-97 22.45
Jul-97 23.92
Aug-97 22.64
Sep-97 24.00
Oct-97 22.84
Nov-97 24.02
Dec-97 24.51
Jan-98 24.99
Feb-98 26.44
Mar-98 27.76
Apr-98 26.51
May-98 26.12
Jun-98 27.09
Jul-98 26.78
Aug-98 22.77
Sep-98 24.23
Oct-98 27.58
Nov-98 30.14
Dec-98 31.97
Jan-99 33.29
Feb-99 32.65
Mar-99 33.78
Apr-99 33.90
May-99 32.74
Jun-99 34.70
Jul-99 31.62
Aug-99 31.21
Sep-99 29.90
Oct-99 29.92
Nov-99 30.65
Dec-99 32.53
30-Year Average 15.5
</TABLE>
Source: Bloomberg L.P.
SCHWAB S&P 500 PORTFOLIO
PORTFOLIO MANAGEMENT TEAM
GERI HOM -- Vice President and Senior Portfolio Manager, has primary
responsibility for the day-to-day management of the Portfolio. Geri joined CSIM
in March 1995 as Portfolio Manager and was promoted to her current position in
December 1996. She currently manages approximately $20 billion in indexed equity
mutual fund assets. Prior to joining CSIM, Geri was a principal for Wells Fargo
Nikko Investment Advisors and Vice President and Manager of the Domestic Equity
Portfolio Management Group for Wells Fargo Nikko.
----------------
2
<PAGE>
SCHWAB ANNUITY PORTFOLIOS
SCHWAB S&P 500 PORTFOLIO
DECEMBER 31, 1999
PORTFOLIO HIGHLIGHTS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SCHWAB S&P 500 PORTFOLIO SCHWAB S&P 500 S&P 500
PORTFOLIO -REGISTERED TRADEMARK-
INDEX
<S> <C> <C>
11/01/96 $10,000 $10,000
11/30/96 $10,750 $10,777
12/31/96 $10,530 $10,564
01/31/97 $11,170 $11,223
02/28/97 $11,250 $11,311
03/31/97 $10,780 $10,848
04/30/97 $11,410 $11,494
05/31/97 $12,090 $12,193
06/30/97 $12,630 $12,739
07/31/97 $13,620 $13,752
08/31/97 $12,860 $12,982
09/30/97 $13,560 $13,692
10/31/97 $13,120 $13,235
11/30/97 $13,720 $13,848
12/31/97 $13,948 $14,086
01/31/98 $14,098 $14,242
02/28/98 $15,108 $15,269
03/31/98 $15,869 $16,051
04/30/98 $16,029 $16,213
05/31/98 $15,739 $15,934
06/30/98 $16,369 $16,581
07/31/98 $16,189 $16,405
08/31/98 $13,848 $14,036
09/30/98 $14,738 $14,936
10/31/98 $15,929 $16,150
11/30/98 $16,879 $17,129
12/31/98 $17,862 $18,116
01/31/99 $18,595 $18,873
02/28/99 $18,012 $18,286
03/31/99 $18,726 $19,017
04/30/99 $19,439 $19,753
05/31/99 $18,967 $19,287
06/30/99 $20,012 $20,357
07/31/99 $19,389 $19,722
08/31/99 $19,288 $19,624
09/30/99 $18,756 $19,086
10/31/99 $19,931 $20,294
11/30/99 $20,323 $20,707
12/31/99 $21,517 $21,926
</TABLE>
/ / The graph above compares the growth of a hypothetical $10,000 investment in
the Schwab S&P 500 Portfolio at its inception, with a similar investment in
the S&P 500 Index.
/ /THE INFORMATION IS HISTORICAL AND DOES NOT REPRESENT FUTURE RESULTS. TOTAL
RETURNS ASSUME REINVESTMENT OF ALL DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS.
PRINCIPAL VALUE AND INVESTMENT RETURNS WILL FLUCTUATE, SO AN INVESTOR'S
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
INDICES ARE UNMANAGED AND DO NOT REFLECT ADVISORY FEES AND OTHER EXPENSES
ASSOCIATED WITH AN INVESTMENT IN THE PORTFOLIO. INVESTORS CANNOT INVEST IN AN
INDEX DIRECTLY.
Q. HOW DID THE PORTFOLIO PERFORM DURING THE REPORTING PERIOD?
A. As discussed in the Market Overview section, large cap domestic stocks (such
as those in the S&P 500 Index) achieved strong returns for the year. The S&P 500
Portfolio achieved a total return of 20.47% for the year ended 12/31/99. The
since-inception (11/1/96) average annual total return was 27.37%(1). The
Portfolio continued to closely track the performance of its benchmark, the S&P
500 Index.
Unlike the Portfolio, the Index does not incur management and other Portfolio
costs that reduce returns to the shareholders. Additionally, the Portfolio,
unlike the Index, holds a small portion in cash to meet shareholder redemptions
and to pay
Portfolio expenses. The cash portion earns interest at money market rates, which
may be more or less than the returns of the Index during a given period. Also,
the weighting of any particular security in the Portfolio can be greater or less
than in the Index. Lastly, unlike the Index, the Portfolio incurs trading costs
when it buys or sells stocks.
Taken together, these factors cause the difference in the returns of the
Portfolio compared to the Index, a difference referred to as the Portfolio's
"tracking differential." The tracking differential for the Portfolio during the
one-year reporting period was 0.57%. Given the Portfolio's current ratio of net
expenses to average net assets (0.28%), and the components of tracking
differential (as discussed above), we are satisfied with this level of tracking
error.
Q. HOW HAVE THE INDUSTRY SECTORS IN THE S&P 500 INDEX CHANGED OVER THE LAST FIVE
YEARS?
A. The graph below shows the top ten industry sectors of the S&P 500 Index as of
10/31/99 as well as the historical weightings of these sectors since 10/31/95.
Since 1995, the Index has become moderately more concentrated, with the top ten
sectors currently representing approximately 73% of the total versus
approximately 62% in 1995. The sectors with the largest gains during 1999 were
Business Machines (from 5.7% to 13.4%) and Electronics (from 5.1% to 8.0%). The
sectors with the largest declines during 1999 were Food and Agriculture (from
6.5% to 3.8%) and International Oil (from 6.6% to 4.2%).
S&P 500-REGISTERED TRADEMARK- INDEX REPORT
% OF TOTAL INDEX
<TABLE>
<CAPTION>
S&P 500 INDEX 10/95 10/96 10/97 10/98 10/99
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------
Business Machines 5.68 6.40 7.59 9.15 13.35
Drugs & Medicine 10.02 10.40 10.98 12.43 10.89
Telephone 8.85 6.29 6.37 7.80 8.28
Electronics 5.10 5.20 5.90 6.17 7.98
Banks 6.24 7.86 8.15 7.09 6.46
Retail 4.58 4.84 4.92 5.88 6.41
Miscellaneous Finance 2.98 3.36 4.15 5.22 5.80
Producer Goods 5.16 5.73 5.26 4.95 5.41
International Oil 6.56 6.65 6.37 5.40 4.24
Food & Agriculture 6.50 6.49 5.88 5.46 3.80
</TABLE>
Source: Wilshire Associates
(1)A portion of the S&P 500 Portfolio's expenses was reduced. Without these
reductions, the Portfolio's 12-month and since- inception average annual
total returns would have been 20.39%, and 26.69%, respectively.
---------------------
3
<PAGE>
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Number Value
COMMON STOCK--96.8% of Shares (000s)
- --------------------------------------------------------------------------------
<S> <C> <C>
AEROSPACE / DEFENSE--1.0%
Boeing Co. ........................... 9,596 $ 399
General Dynamics Corp. ............... 2,100 111
Lockheed Martin Corp. ................ 4,000 88
Northrop Grumman Corp. ............... 800 43
Raytheon Co., Class B ................ 3,500 93
Rockwell International Corp. ......... 1,900 91
Textron, Inc. ........................ 1,600 123
United Technologies Corp. ............ 4,900 318
-------
1,266
-------
AIR TRANSPORTATION--0.3%
AMR Corp.+ ........................... 1,500 100
Delta Air Lines, Inc. ................ 1,200 60
FDX Corp.+ ........................... 3,220 132
Southwest Airlines Co. ............... 5,312 86
U.S. Airways Group, Inc.+ ............ 800 26
-------
404
-------
ALCOHOLIC BEVERAGES--0.5%
Adolph Coors Co., Class B ............ 400 21
Anheuser-Busch Cos., Inc. ............ 4,700 333
Brown-Forman Corp., Class B .......... 700 40
Seagram Co. Ltd. ..................... 4,500 202
-------
596
-------
APPAREL--0.2%
Liz Claiborne, Inc. .................. 600 22
Nike, Inc., Class B .................. 2,900 144
Reebok International Ltd.+ ........... 600 5
Russell Corp. ........................ 400 7
VF Corp. ............................. 1,200 36
-------
214
-------
AUTOMOTIVE PRODUCTS / MOTOR VEHICLES--1.3%
B.F. Goodrich Co. .................... 1,200 33
Cooper Tire & Rubber Co. ............. 700 11
Cummins Engine Co., Inc. ............. 400 19
Dana Corp. ........................... 1,778 53
Danaher Corp. ........................ 1,400 68
Delphi Automotive Systems Corp. ...... 5,963 94
Eaton Corp. .......................... 700 51
Fleetwood Enterprises, Inc. .......... 300 6
Ford Motor Co. ....................... 12,300 657
General Motors Corp. ................. 6,600 480
Genuine Parts Co. .................... 1,800 45
</TABLE>
----------
4
<PAGE>
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (continued)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Number Value
COMMON STOCK (CONTINUED) of Shares (000s)
- --------------------------------------------------------------------------------
<S> <C> <C>
AUTOMOTIVE PRODUCTS / MOTOR VEHICLES (CONTINUED)
Goodyear Tire & Rubber Co. ............ 1,600 $ 45
Navistar International Corp.+ ......... 600 28
TRW, Inc. ............................. 1,200 62
-------
1,652
-------
BANKS--5.0%
AmSouth Bancorp. ...................... 4,050 78
Bank of America Corp. ................. 17,412 874
Bank of New York Co., Inc. ............ 7,600 304
Bank One Corp. ........................ 11,806 379
BB&T Corp. ............................ 3,400 93
Chase Manhattan Corp. ................. 8,400 653
Comerica, Inc. ........................ 1,550 72
Fifth Third Bancorp. .................. 3,150 231
First Union Corp. ..................... 10,044 330
Firstar Corp. ......................... 9,845 208
FleetBoston Financial Corp. ........... 9,453 329
Golden West Financial Corp. ........... 1,500 50
Huntington Bancshares, Inc. ........... 2,433 58
J.P. Morgan & Co., Inc. ............... 1,800 228
KeyCorp, Inc. ......................... 4,600 102
Mellon Financial Corp. ................ 5,100 174
National City Corp. ................... 6,400 152
Northern Trust Corp. .................. 2,400 127
Old Kent Financial Corp. .............. 1,200 42
PNC Bank Corp. ........................ 3,100 138
Regions Financial Corp. ............... 2,400 60
Republic New York Corp. ............... 1,000 72
SouthTrust Corp. ...................... 1,700 64
State Street Corp. .................... 1,700 124
Summit Bancorp. ....................... 1,900 58
SunTrust Banks, Inc. .................. 3,200 220
Synovus Financial Corp. ............... 2,900 58
U.S. Bancorp. ......................... 7,731 184
Union Planters Corp. .................. 1,600 63
Wachovia Corp. ........................ 2,000 136
Washington Mutual, Inc. ............... 5,716 149
Wells Fargo & Co. ..................... 16,700 675
-------
6,485
-------
BUSINESS MACHINES & SOFTWARE--15.5%
3Com Corp.+ ........................... 3,500 165
Adaptec, Inc.+ ........................ 1,100 55
Adobe Systems, Inc. ................... 1,200 81
</TABLE>
----------
5
<PAGE>
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (continued)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Number Value
Common Stock (continued) of Shares (000s)
- --------------------------------------------------------------------------------
<S> <C> <C>
BUSINESS MACHINES & SOFTWARE (CONTINUED)
Apple Computer, Inc.+ ....................... 1,700 $ 175
Autodesk, Inc. .............................. 600 20
BMC Software, Inc.+ ......................... 2,500 200
Cabletron Systems, Inc.+ .................... 1,700 44
Ceridian Corp.+ ............................. 1,400 30
Cisco Systems, Inc.+ ........................ 33,300 3,567
Compaq Computer Corp. ....................... 17,270 467
Computer Associates International, Inc. ..... 5,600 392
Compuware Corp.+ ............................ 3,700 138
Comverse Technology, Inc.+ .................. 700 101
Dell Computer Corp.+ ........................ 25,900 1,321
Gateway, Inc.+ .............................. 3,200 231
Hewlett-Packard Co. ......................... 10,300 1,174
International Business Machines Corp. ....... 18,300 1,976
Lexmark International Group, Inc., Class A+ . 1,300 118
Microsoft Corp.+ ............................ 52,600 6,141
Network Appliance, Inc.+ .................... 1,600 133
Novell, Inc.+ ............................... 3,400 136
Oracle Sytems Corp.+ ........................ 14,425 1,617
Parametic Technology Corp.+ ................. 2,700 73
PeopleSoft, Inc.+ ........................... 2,500 53
Pitney Bowes, Inc. .......................... 2,800 135
Seagate Technology, Inc.+ ................... 2,000 93
Silicon Graphics, Inc.+ ..................... 1,900 19
Sun Microsystems, Inc.+ ..................... 15,900 1,231
Unisys Corp.+ ............................... 3,200 102
Xerox Corp. ................................. 6,900 156
--------
20,144
--------
BUSINESS SERVICES--4.1%
Advo, Inc.+ ................................. 300 7
Allied Waste Industries, Inc.+ .............. 1,900 17
America Online, Inc.+ ....................... 22,800 1,720
Automatic Data Processing, Inc. ............. 6,500 350
Cendant Corp.+ .............................. 7,302 194
Citrix Systems, Inc.+ ....................... 900 111
Computer Sciences Corp.+ .................... 1,700 161
Deluxe Corp. ................................ 800 22
Ecolab, Inc. ................................ 1,300 51
Equifax, Inc. ............................... 1,600 37
First Data Corp. ............................ 4,400 217
H&R Block, Inc. ............................. 1,100 48
Interpublic Group of Companies, Inc. ........ 2,900 167
National Service Industries, Inc. ........... 400 12
</TABLE>
----------
6
<PAGE>
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (continued)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Number Value
COMMON STOCK (CONTINUED) of Shares (000S)
- --------------------------------------------------------------------------------
<S> <C> <C>
BUSINESS SERVICES (CONTINUED)
Omnicom Group, Inc. ................. 1,800 $ 180
Paychex, Inc. ....................... 2,500 100
R.R. Donnelly & Sons Co. ............ 1,400 35
Tyco International Ltd. ............. 17,260 671
Waste Management, Inc. .............. 6,457 111
Yahoo!, Inc.+ ....................... 2,700 1,168
--------
5,379
--------
CHEMICAL--1.5%
Air Products & Chemicals, Inc. ...... 2,500 84
Chemfirst, Inc. ..................... 200 4
Dow Chemical Co. .................... 2,100 281
E.I. du Pont de Nemours & Co. ....... 10,754 708
Eastman Chemical Co. ................ 800 38
Great Lakes Chemical Corp. .......... 700 27
Hercules, Inc. ...................... 1,100 31
Minnesota Mining & Manufacturing Co.. 4,100 401
PPG Industries, Inc. ................ 1,700 106
Praxair, Inc. ....................... 1,600 81
Rohm & Haas Co. ..................... 2,305 94
Sigma-Aldrich Corp. ................. 1,000 30
Union Carbide Corp. ................. 1,400 93
--------
1,978
--------
CONSTRUCTION--0.2%
Armstrong World Industries, Inc. .... 400 13
Centex Corp. ........................ 600 15
Fluor Corp. ......................... 800 37
Kaufman & Broad Home Corp. .......... 500 12
Masco Corp. ......................... 4,600 117
Owens Corning ....................... 500 10
Pulte Corp. ......................... 500 11
Sherwin-Williams Co. ................ 1,800 38
The Stanley Works ................... 900 27
Vulcan Materials Co. ................ 1,100 44
--------
324
--------
CONSUMER - DURABLE--0.2%
Black & Decker Corp. ................ 900 47
Fortune Brands, Inc. ................ 1,700 56
Leggett & Platt, Inc. ............... 2,000 43
Maytag Corp. ........................ 900 43
Newell Rubbermaid, Inc. ............. 2,924 85
Whirlpool Corp. ..................... 700 46
--------
320
--------
</TABLE>
----------
7
<PAGE>
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (continued)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Number Value
COMMON STOCK (CONTINUED) of Shares (000s)
- --------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER - NON-DURABLE--0.6%
American Greetings Corp., Class A. 700 $ 17
Darden Restaurants, Inc. ......... 1,300 24
Hasbro, Inc. ..................... 2,125 41
Mattel, Inc. ..................... 4,300 56
McDonald's Corp. ................. 13,800 556
Tricon Global Restaurants, Inc.+ . 1,600 62
Wendy's International, Inc. ...... 1,300 27
--------
783
--------
CONTAINERS--0.1%
Ball Corp. ....................... 300 12
Bemis Co., Inc. .................. 500 17
Crown Cork & Seal Co., Inc. ...... 1,200 27
Owens-Illinois, Inc.+ ............ 1,700 43
Sealed Air Corp.+ ................ 914 47
--------
146
--------
ELECTRONICS--9.5%
ADC Telecommunications, Inc.+ .... 1,600 116
Advanced Micro Devices, Inc.+ .... 1,400 41
Analog Devices, Inc.+ ............ 1,800 167
Andrew Corp.+ .................... 850 16
Applied Materials, Inc.+ ......... 3,900 494
Electronic Data Systems Corp. .... 4,900 328
EMC Corp.+ ....................... 10,356 1,131
Emerson Electric Co. ............. 4,500 258
General Instrument Corp.+ ........ 1,800 153
Intel Corp. ...................... 34,000 2,799
KLA-Tencor Corp.+ ................ 900 100
LSI Logic Corp.+ ................. 1,600 108
Lucent Technologies, Inc. ........ 31,895 2,386
Micron Technology, Inc.+ ......... 2,700 210
Molex, Inc. ...................... 1,600 91
Motorola, Inc. ................... 6,100 898
National Semiconductor Corp.+ .... 1,700 73
Niagara Mohawk Holdings, Inc.+ ... 1,900 26
PE Corp-PE Biosystems Group ...... 1,000 120
PerkinElmer, Inc. ................ 400 17
QUALCOMM, Inc.+ .................. 6,000 1,057
Scientific-Atlanta, Inc. ......... 800 45
Solectron Corp.+ ................. 3,000 285
Tektronix, Inc. .................. 550 21
Tellabs, Inc.+ ................... 4,100 263
</TABLE>
----------
8
<PAGE>
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (continued)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Number Value
COMMON STOCK (CONTINUED) of Shares (000s)
- --------------------------------------------------------------------------------
<S> <C> <C>
ELECTRONICS (CONTINUED)
Teradyne, Inc.+ ...................... 1,800 $ 119
Texas Instruments, Inc. .............. 8,100 785
Thermo Electron Corp.+ ............... 1,600 24
Thomas & Betts Corp. ................. 600 19
Xilinx, Inc.+ ........................ 3,400 155
-------
12,305
-------
ENERGY - RAW MATERIALS--0.7%
Anadarko Petroleum Corp. ............. 1,400 48
Apache Corp. ......................... 1,100 41
Baker Hughes, Inc. ................... 3,480 73
Burlington Resources, Inc. ........... 2,252 74
Constellation Energy Group ........... 1,500 44
Halliburton Co. ...................... 4,600 185
Occidental Petroleum Corp. ........... 3,700 80
Rowan Companies, Inc.+ ............... 800 17
Schlumberger Ltd. .................... 5,600 315
Sempra Energy 2,401 42
Sunoco, Inc. 1,000 24
Union Pacific Resources Group, Inc. .. 2,500 32
-------
975
-------
FOOD & AGRICULTURE--3.3%
Archer-Daniels Midland Co. ........... 6,456 79
Bestfoods, Inc. ...................... 2,800 147
Campbell Soup Co. .................... 4,500 174
Coca-Cola Co. ........................ 25,200 1,468
Coca-Cola Enterprises, Inc. .......... 4,500 91
ConAgra, Inc. ........................ 5,100 115
General Mills, Inc. .................. 3,200 114
H.J. Heinz Co. ....................... 3,700 147
Hershey Foods Corp. .................. 1,500 71
Kellogg Co. .......................... 4,200 129
Monsanto Co. ......................... 6,600 235
PepsiCo, Inc. ........................ 14,900 525
Quaker Oats Co. ...................... 1,400 92
Ralston-Ralston Purina Group ......... 3,000 84
Sara Lee Corp. ....................... 9,500 210
SYSCO Corp. .......................... 3,300 131
Unilever NV .......................... 5,767 314
Wm. Wrigley Jr. Co. .................. 1,200 100
-------
4,226
-------
</TABLE>
----------
9
<PAGE>
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (continued)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Number Value
COMMON STOCK (CONTINUED) of Shares (000s)
- --------------------------------------------------------------------------------
<S> <C> <C>
GOLD--0.1%
Barrick Gold Corp. ................... 4,100 $ 73
Homestake Mining Co. ................. 2,600 20
Newmont Mining Corp. ................. 1,686 41
Placer Dome, Inc. .................... 3,300 35
-------
169
-------
HEALTHCARE / DRUGS & MEDICINE--8.9%
Abbott Laboratories .................. 15,700 570
Allergan, Inc. ....................... 1,400 70
ALZA Corp.+ .......................... 1,100 38
American Home Products Corp. ......... 13,500 532
Amgen, Inc.+ ......................... 10,500 631
Bausch & Lomb, Inc. .................. 600 41
Baxter International, Inc. ........... 3,000 188
Becton, Dickinson & Co. .............. 2,700 72
Biomet, Inc. ......................... 1,100 44
Boston Scientific Corp.+ ............. 4,400 96
Bristol-Meyers Squibb Co. ............ 20,200 1,297
C.R. Bard, Inc. ...................... 500 27
Cardinal Health, Inc. ................ 2,950 141
Columbia / HCA Healthcare Corp. ...... 6,000 176
Eli Lilly & Co. ...................... 11,100 738
Guidant Corp.+ ....................... 3,200 150
HealthSouth Corp.+ ................... 4,200 23
IMS Health, Inc. ..................... 3,200 87
Johnson & Johnson .................... 14,100 1,313
Mallinckrodt, Inc. ................... 700 22
Manor Care, Inc+ ..................... 1,100 18
McKesson HBOC, Inc. .................. 2,806 63
Medtronic, Inc. ...................... 12,300 448
Merck & Co., Inc. .................... 23,800 1,596
Pfizer, Inc. ......................... 39,500 1,281
Pharmacia & Upjohn, Inc. ............. 5,300 239
Quintiles Transnational Corp.+ ....... 1,200 22
Schering-Plough Corp. ................ 14,900 629
Service Corp. International .......... 2,700 19
Shared Medical Systems Corp. ......... 300 15
St. Jude Medical, Inc.+ .............. 800 25
Tenet Healthcare Corp.+ .............. 3,300 78
United Healthcare Corp. .............. 1,800 96
Warner-Lambert Co. ................... 8,800 721
Watson Pharmaceuticals, Inc.+ ........ 1,100 39
Wellpoint Health Networks, Inc.+ ..... 600 40
-------
11,585
-------
</TABLE>
----------
10
<PAGE>
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (continued)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Number Value
COMMON STOCK (CONTINUED) of Shares (000s)
- --------------------------------------------------------------------------------
<S> <C> <C>
HOUSEHOLD PRODUCTS--2.0%
Alberto-Culver Co., Class B ............. 600 $ 15
Avon Products, Inc. ..................... 2,300 76
Clorox Co. .............................. 2,400 121
Colgate-Palmolive Co. ................... 6,000 390
Gillette Co. ............................ 10,900 449
International Flavors & Fragrances, Inc.. 1,200 45
Procter & Gamble Co. .................... 13,300 1,457
Tupperware Corp. ........................ 700 12
-------
2,565
-------
INSURANCE--2.9%
Aetna, Inc. ............................. 1,500 84
AFLAC, Inc. ............................. 2,700 127
Allstate Corp. .......................... 8,500 204
American General Corp. .................. 2,510 190
American International Group, Inc. ...... 15,730 1,701
Aon Corp. ............................... 2,750 110
Chubb Corp. ............................. 1,800 101
CIGNA Corp. ............................. 1,900 153
Cincinnati Financial Corp. .............. 1,600 50
Conseco, Inc. ........................... 3,441 62
Hartford Financial Services Group, Inc. . 2,400 114
Jefferson-Pilot Corp. ................... 1,000 68
Lincoln National Corp. .................. 2,000 80
Marsh & McLennan Companies, Inc. ........ 2,800 268
MBIA, Inc. .............................. 1,100 58
MGIC Investment Corp. ................... 1,000 60
Progressive Corp. ....................... 700 51
SAFECO Corp. ............................ 1,300 32
St. Paul Companies, Inc. ................ 2,438 82
Torchmark Corp. ......................... 1,300 38
UnumProvident Corp. ..................... 2,576 83
-------
3,716
-------
MEDIA--3.0%
CBS Corp.+ .............................. 7,748 495
Clear Channel Communications, Inc.+ ..... 3,500 312
Comcast Corp., Class A .................. 7,700 389
Dow Jones & Co., Inc. ................... 900 61
Gannett Co., Inc. ....................... 2,800 228
Harcourt General, Inc. .................. 700 28
Knight-Ridder, Inc. ..................... 900 54
</TABLE>
----------
11
<PAGE>
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (continued)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Number Value
COMMON STOCK (CONTINUED) of Shares (000s)
- --------------------------------------------------------------------------------
<S> <C> <C>
MEDIA (CONTINUED)
McGraw-Hill Companies, Inc. ................... 2,000 $ 123
Mediaone Group+ ............................... 6,300 484
Meredith Corp. ................................ 500 21
New York Times Co., Class A ................... 1,600 79
Time Warner, Inc. ............................. 13,100 949
Times Mirror Co., Series A .................... 700 47
Tribune Co. ................................... 2,400 132
Viacom, Inc., Class B+ ........................ 7,200 435
--------
3,837
--------
MISCELLANEOUS--0.0%
Pactiv Corp.+ ................................. 1,700 18
--------
MISCELLANEOUS FINANCE--5.0%
American Express Co. .......................... 4,600 765
Associates First Capital Corp. ................ 7,558 207
Bear Stearns Companies, Inc. .................. 1,312 56
Capital One Financial Corp. ................... 2,100 101
Charles Schwab Corp. .......................... 8,500 326
Citigroup, Inc. ............................... 34,340 1,908
Countrywide Credit Industries, Inc. ........... 1,100 28
Dun & Bradstreet Corp. ........................ 1,800 53
Fannie Mae .................................... 10,500 656
Franklin Resources, Inc. ...................... 2,700 87
Freddie Mac ................................... 7,100 334
Household International, Inc. ................. 4,819 180
Lehman Brothers Holdings, Inc. ................ 1,300 110
MBNA Corp. .................................... 8,262 225
Merrill Lynch & Co., Inc. ..................... 3,700 309
Morgan Stanley Dean Witter Discover & Co. ..... 5,725 817
Paine Webber Group, Inc. ...................... 1,500 58
Providian Financial Corp. ..................... 1,450 132
SLM Holding Corp. ............................. 1,600 68
T. Rowe Price Associates, Inc. ................ 1,300 48
--------
6,468
--------
NON-FERROUS METALS--0.5%
Alcan Aluminum Ltd. ........................... 2,300 95
Alcoa Inc. .................................... 3,800 315
Engelhard Corp. ............................... 1,500 28
Freeport-McMoRan Copper & Gold, Inc., Class B+. 1,600 34
Inco Ltd.+ .................................... 1,900 45
Phelps Dodge Corp. ............................ 815 55
Reynolds Metals Co. ........................... 700 54
--------
626
--------
</TABLE>
----------
12
<PAGE>
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (continued)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Number Value
COMMON STOCK (CONTINUED) of Shares (000s)
- --------------------------------------------------------------------------------
<S> <C> <C>
OIL - DOMESTIC--0.8%
Amerada Hess Corp. ........................ 1,000 $ 57
Ashland, Inc. ............................. 800 26
Atlantic Richfield Co. .................... 3,300 285
Conoco, Inc., Class B ..................... 6,400 159
Kerr-McGee Corp. .......................... 784 49
Phillips Petroleum Co. .................... 2,700 127
Tosco Corp. ............................... 1,600 44
Transocean Sedco Forex, Inc. .............. 2,084 70
Unocal Corp. .............................. 2,600 87
USX-Marathon Group ........................ 3,200 79
-------
983
-------
OIL - INTERNATIONAL--3.9%
Chevron Corp. ............................. 6,700 580
Exxon Mobil Corp. ......................... 35,225 2,838
Royal Dutch Petroleum Co. - Sponsored ADR . 21,800 1,318
Texaco, Inc. .............................. 5,615 305
-------
5,041
-------
OPTICAL & PHOTO--0.2%
Eastman Kodak Co. ......................... 3,200 212
-------
PAPER & FOREST PRODUCTS--0.9%
Boise Cascade Corp. ....................... 700 28
Champion International Corp. .............. 1,000 62
Fort James Corp. .......................... 1,900 52
Georgia-Pacific Group ..................... 1,800 91
International Paper Co. ................... 4,191 237
Kimberly-Clark Corp. ...................... 5,600 365
Louisiana-Pacific Corp. ................... 1,000 14
Mead Corp. ................................ 1,000 43
Potlatch Corp. ............................ 400 18
Temple Inland, Inc. ....................... 600 40
Westvaco Corp. ............................ 1,000 33
Weyerhaeuser Co. .......................... 2,400 172
Willamette Industries, Inc. ............... 1,200 56
-------
1,211
-------
PRODUCER GOODS & MANUFACTURING--5.4%
Avery Dennison Corp. ...................... 1,100 80
Briggs & Stratton Corp. ................... 200 11
Caterpillar, Inc. ......................... 3,700 174
Cooper Industries, Inc. ................... 900 36
Corning, Inc. ............................. 2,500 322
</TABLE>
----------
13
<PAGE>
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (continued)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Number Value
COMMON STOCK (CONTINUED) of Shares (000s)
- --------------------------------------------------------------------------------
<S> <C> <C>
PRODUCER GOODS & MANUFACTURING (CONTINUED)
Deere & Co. .............................. 2,500 $ 108
Dover Corp. .............................. 2,000 91
FMC Corp.+ ............................... 300 17
General Electric Co. (b) ................. 33,400 5,169
Honeywell International, Inc. ............ 8,037 464
Illinois Tool Works, Inc. ................ 3,100 209
Ingersoll-Rand Co. ....................... 1,700 94
ITT Industries, Inc. ..................... 900 30
Johnson Controls, Inc. ................... 800 46
Milacron, Inc. ........................... 400 6
Millipore Corp. .......................... 600 23
NACCO Industries, Inc., Class A .......... 100 6
Pall Corp. ............................... 1,200 26
Parker-Hannifin Corp. .................... 1,150 59
Snap-On, Inc. ............................ 700 19
Springs Industries, Inc. ................. 100 4
W.W. Grainger, Inc. ...................... 1,000 48
------
7,042
------
RAILROAD & SHIPPING--0.4%
Burlington Northern Santa Fe Corp. ....... 4,800 116
CSX Corp. ................................ 2,200 69
Kansas City Southern Industries, Inc. .... 1,200 90
Norfolk Southern Corp. ................... 4,000 82
Union Pacific Corp. ...................... 2,400 105
------
462
------
RETAIL--6.5%
Albertson's, Inc. ........................ 4,475 144
AutoZone, Inc.+ .......................... 1,500 48
Bed, Bath & Beyond, Inc.+ ................ 1,500 52
Best Buy Co., Inc.+ ...................... 2,200 110
Circuit City Stores, Inc. ................ 2,200 99
Consolidated Stores Corp.+ ............... 1,100 18
Costco Wholesale Corp.+ .................. 2,300 210
CVS Corp. ................................ 4,100 164
Dayton Hudson Corp. ...................... 4,500 330
Dillards, Inc., Class A .................. 1,200 24
Dollar General Corp. ..................... 2,731 62
Federated Department Stores, Inc.+ ....... 2,200 111
Gap, Inc. ................................ 8,662 398
Home Depot, Inc. ......................... 23,400 1,604
</TABLE>
----------
14
<PAGE>
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (continued)
December 31, 1999
<TABLE>
<CAPTION>
Number Value
COMMON STOCK (CONTINUED) of Shares (000S)
- --------------------------------------------------------------------------------
<S> <C> <C>
RETAIL (CONTINUED)
J.C. Penny Co., Inc. ................. 2,800 $ 56
Kmart Corp.+ ......................... 5,000 50
Kohl's Corp.+ ........................ 1,600 116
Kroger Co.+ .......................... 8,700 164
Limited, Inc. ........................ 2,300 100
Lowe's Companies, Inc. ............... 3,900 233
May Department Stores Co. ............ 3,550 115
Nordstrom, Inc. ...................... 1,600 42
Office Depot, Inc.+ .................. 3,800 42
Rite Aid Corp. ....................... 2,600 29
Safeway, Inc.+ ....................... 5,400 192
Sears, Roebuck & Co. ................. 4,000 122
Staples, Inc.+ ....................... 4,900 102
SUPERVALU, Inc. ...................... 1,400 28
Tandy Corp. .......................... 1,900 94
TJX Companies, Inc. .................. 3,300 68
Toys `R' Us, Inc.+ ................... 2,500 36
Wal-Mart Stores, Inc. ................ 45,400 3,138
Walgreen Co. ......................... 10,200 298
Winn-Dixie Stores, Inc. .............. 1,500 36
------
8,435
------
STEEL--0.1%
Allegheny Teledyne, Inc. ............. 1,050 23
Nucor Corp. .......................... 1,000 55
USX-U.S. Steel Group, Inc. ........... 900 30
Worthington Industries, Inc. ......... 900 15
------
123
------
TELEPHONE--8.7%
Alltel Corp. ......................... 3,200 265
AT&T Corp. ........................... 32,517 1,650
Bell Atlantic Corp. .................. 15,804 973
BellSouth Corp. ...................... 19,300 903
CenturyTel, Inc. ..................... 1,400 66
Global Crossing Ltd.+ ................ 7,785 389
GTE Corp. ............................ 10,000 706
MCI WorldCom, Inc.+ .................. 28,945 1,536
Nextel Communications, Inc., Class A+. 3,600 371
Nortel Networks Corp. ................ 13,560 1,370
SBC Communications, Inc. ............. 34,810 1,697
</TABLE>
----------
15
<PAGE>
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (continued)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Number Value
COMMON STOCK (CONTINUED) of Shares (000s)
- --------------------------------------------------------------------------------
<S> <C> <C>
TELEPHONE (CONTINUED)
Sprint Corp.(FON Group) .............. 8,800 $ 592
Sprint Corp. (PCS Group)+ ............ 4,450 456
US WEST, Inc. ........................ 5,098 367
-------
11,341
-------
TOBACCO--0.5%
Loew's Corp. ......................... 1,200 73
Phillip Morris Companies, Inc. ....... 24,200 561
Nabisco Group Holdings Corp. ......... 3,300 35
UST, Inc. ............................ 1,800 45
-------
714
-------
TRAVEL & RECREATION--0.9%
Brunswick Corp. ...................... 1,000 22
Carnival Corp. ....................... 6,200 296
Harrah's Entertainment, Inc.+ ........ 1,300 34
Hilton Hotels Corp. .................. 3,800 37
Marriott International, Inc., Class A. 2,700 85
Mirage Resorts, Inc.+ ................ 2,000 31
Walt Disney Co. ...................... 21,000 614
-------
1,119
-------
TRUCKING & FREIGHT--0.0%
PACCAR, Inc. ......................... 800 35
Ryder Systems, Inc. .................. 700 17
-------
52
-------
UTILITIES - ELECTRIC & GAS--2.1%
AES Corp.+ ........................... 2,200 164
Ameren Corp. ......................... 1,400 46
American Electric Power Co., Inc. .... 2,100 67
Carolina Power & Light Co. ........... 1,700 52
Central & South West Corp. ........... 2,100 42
Cinergy Corp. ........................ 1,700 41
CMS Energy Corp. ..................... 1,000 31
Coastal Corp. ........................ 2,300 82
Columbia Energy Group ................ 800 51
Consolidated Edison, Inc. ............ 2,400 83
Consolidated Natural Gas Co. ......... 900 58
Dominion Resources, Inc. ............. 2,000 79
DTE Energy Co. ....................... 1,500 47
Duke Energy Corp. .................... 3,617 181
Eastern Enterprises .................. 200 11
</TABLE>
----------
16
<PAGE>
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (continued)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Number Value
COMMON STOCK (CONTINUED) of Shares (000s)
- --------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES - ELECTRIC & GAS (CONTINUED)
Edison International ................. 3,600 $ 94
El Paso Energy Corp. ................. 2,400 93
Enron Corp. .......................... 7,300 324
Entergy Corp. ........................ 2,500 64
First Energy Corp. ................... 2,400 54
Florida Progress Corp. ............... 1,100 47
FPL Group, Inc. ...................... 1,900 81
GPU, Inc. ............................ 1,300 39
New Century Energies, Inc. ........... 1,300 39
NICOR, Inc. .......................... 400 13
Northern States Power Co. ............ 1,500 29
PECO Energy Co. ...................... 1,700 59
Peoples Energy Corp. ................. 300 10
PG&E Corp. ........................... 4,100 84
Pinnacle West Capital Corp. .......... 900 28
PP&L Resources, Inc. ................. 1,600 37
Public Service Enterprise Group, Inc.. 2,300 80
Reliant Energy, Inc. ................. 3,050 70
Southern Co. ......................... 7,100 167
Texas Utilities Co. .................. 2,922 104
Unicom Corp. ......................... 2,200 74
Williams Cos., Inc. .................. 4,600 141
--------
2,766
--------
TOTAL COMMON STOCK
(Cost $88,857) ...................... $125,682
--------
U.S. TREASURY OBLIGATION--0.2% Par
- --------------------------------------------------------------------------------
U.S. Treasury Bill (a)(b)
5.23%, 3/16/00 ....................$300,000 $ 297
--------
TOTAL U.S. TREASURY OBLIGATION
(Cost $297) ....................... 297
--------
</TABLE>
----------
17
<PAGE>
SCHWAB S&P 500 PORTFOLIO
SCHEDULE OF INVESTMENTS (continued)
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Number Value
SHORT-TERM INVESTMENTS--1.7% of Shares (000s)
- --------------------------------------------------------------------------------
<S> <C> <C>
Provident Institutional TempFund, 4.72%* ... 2,207,062 $ 2,207
--------
TOTAL SHORT-TERM INVESTMENTS
(Cost $2,207) ........................... 2,207
--------
TOTAL INVESTMENTS--98.7%
(Cost $91,361) .......................... 128,186
--------
OTHER ASSETS AND LIABILITIES--1.3%
Other assets ............................ 1,853
Liabilities ............................. (119)
--------
1,734
--------
NET ASSETS--100.0% ......................... $129,920
========
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS
+ Non-Income Producing Security.
* Interest rate represents the yield as of the report date.
ADR--American Depository Receipt.
(a) Yields shown are effective yields at time of purchase.
(b) These securities, or portion thereof, are being used to collateralize
open futures contracts.
- -----------
See accompanying Notes to Financial Statements.
----------
18
<PAGE>
SCHWAB S&P 500 PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (in thousands)
DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost $91,361) ....................... $128,186
Amounts on deposit with broker ............................. 392
Receivables:
Investments sold ...................................... 1,232
Fund shares sold ...................................... 94
Dividends ............................................. 114
Interest .............................................. 10
Variation margin ...................................... 10
Prepaid expenses ........................................... 1
--------
Total assets ........................................ 130,039
--------
LIABILITIES
Payables:
Investments purchased ................................. 33
Fund shares redeemed .................................. 5
Investment advisory and administration fees ........... 18
Accrued expenses ........................................... 63
--------
Total liabilities ................................... 119
--------
Net assets applicable to outstanding shares ................ $129,920
========
NET ASSETS CONSIST OF:
Paid-in capital ............................................ $ 91,947
Undistributed net investment income ........................ 1,240
Accumulated net realized loss on investments sold and futures
contracts ................................................ (188)
Net unrealized appreciation on investments and futures
contracts ................................................ 36,921
--------
$129,920
========
PRICING OF SHARES
Outstanding shares, $0.00001 par value
(unlimited shares authorized) ............................ 6,111
NET ASSET VALUE, offering and redemption price per share ... $21.26
</TABLE>
- ----------
See accompanying Notes to Financial Statements.
----------
19
<PAGE>
SCHWAB S&P 500 PORTFOLIO
STATEMENT OF OPERATIONS (in thousands)
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $13) ....... $ 1,353
Interest ............................................... 194
-------
Total investment income .............................. 1,547
-------
EXPENSES:
Investment advisory and administration fees ............ 270
Custodian fees ......................................... 29
Portfolio accounting fees .............................. 19
Professional fees ...................................... 22
Registration fees ...................................... 27
Shareholder reports .................................... 4
Trustees' fees ......................................... 1
Other expenses ......................................... 5
-------
377
Less: expenses reduced (see Note 4)........................ (71)
-------
Net expenses incurred by fund ........................ 306
-------
NET INVESTMENT INCOME ..................................... 1,241
-------
NET REALIZED GAIN ON INVESTMENTS AND FUTURES CONTRACTS:
Net realized gain on investments sold ................ 10
Net realized gain on futures contracts ............... 45
-------
Net realized gain on investments sold and futures
contracts ........................................ 55
-------
CHANGE IN NET UNREALIZED APPRECIATION ON INVESTMENTS AND
FUTURES CONTRACTS:
Net unrealized appreciation on investments ........... 18,925
Net unrealized appreciation on futures contracts ..... 25
-------
Net unrealized appreciation on investments and
futures contracts ............................... 18,950
-------
Net gain on investments ................................... 19,005
-------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .......... $20,246
=======
</TABLE>
- ----------
See accompanying Notes to Financial Statements.
----------
20
<PAGE>
SCHWAB S&P 500 PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS (in thousands)
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
<S> <C> <C>
Net investment income ..................................................................... $ 1,241 $ 869
Net realized gain (loss) on investments and futures contracts ............................. 55 (133)
Change in net unrealized appreciation on investments and futures contracts ................ 18,950 13,386
-------- -------
Increase in net assets resulting from operations .......................................... 20,246 14,122
-------- -------
DIVIDENDS AND DISTRIBUTIONS:
Dividends to shareholders from net investment income ...................................... (869) (303)
Distributions to shareholders from net capital gains ...................................... (89) (33)
-------- -------
Total dividends and distributions to shareholders ......................................... (958) (336)
-------- -------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold ................................................................. 45,590 46,964
Net asset value of shares issued in reinvestment of dividends ............................. 958 336
Payments for shares redeemed .............................................................. (19,785) (14,273)
-------- -------
Increase in net assets from capital share transactions .................................... 26,763 33,027
-------- -------
Total increase in net assets ................................................................. 46,051 46,813
NET ASSETS:
Beginning of year ......................................................................... 83,869 37,056
-------- -------
End of year (including undistributed net investment income
of $1,240 and $869, respectively) ....................................................... $129,920 $83,869
======== =======
NUMBER OF FUND SHARES:
Sold ...................................................................................... 2,376 2,979
Reinvested ................................................................................ 46 19
Redeemed .................................................................................. (1,029) (938)
-------- -------
Net increase in shares outstanding ........................................................ 1,393 2,060
SHARES OUTSTANDING:
Beginning of year ......................................................................... 4,718 2,658
-------- -------
End of year ............................................................................... 6,111 4,718
======== =======
</TABLE>
- ------------
See accompanying Notes to Financial Statements.
----------
21
<PAGE>
SCHWAB S&P 500 PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998 1997 1996 (1)
-------- ------ ------ ---------
<S> <C> <C> <C> <C>
PER-SHARE DATA ($):
Net asset valueat beginning of period 17.78 13.94 10.53 10.00
-------- ------- ------- ------
Income from investment operations:
Net investment income 0.16 0.13 0.09 0.03
Net realized and unrealized gains
on investments 3.47 3.78 3.33 0.50
-------- ------- ------- ------
Total income from investment operations 3.63 3.91 3.42 0.53
Less distributions:
Dividends from net investment income (0.14) (0.06) (0.01) --
Distributions from realized gains on investments (0.01) (0.01) -- --
-------- ------- ------- ------
Total distributions (0.15) (0.07) (0.01) --
-------- ------- ------- ------
Net asset value at end of period 21.26 17.78 13.94 10.53
======== ======= ======= ======
Total return (%) 20.47 28.06 32.46 5.30(2)
RATIOS/SUPPLEMENTAL DATA (%)
- -----------------------------
Ratio of net operating expenses to average
net assets 0.28 0.28 0.29 0.33(3)
Expense reductions reflected in above ratio 0.06 0.27 0.64 2.78(3)
Ratio of net investment income to average
net assets 1.14 1.52 1.56 2.16(3)
Portfolio turnover rate 7 7 4 --
Net assets, end of period ($ x 1,000) $129,920 $83,869 $37,056 $5,923
</TABLE>
(1) For the period from November 1, 1996 (commencement of operations)
to December 31, 1996.
(2) Not annualized.
(3) Annualized.
- -----------
See accompanying Notes to Financial Statements.
----------
22
<PAGE>
SCHWAB S&P 500 PORTFOLIO
NOTES TO FINANCIAL STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1999
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE NOTED)
1. DESCRIPTION OF THE FUND
The Schwab S&P 500 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 in securities traded on an exchange or in the
over-the-counter market are valued at the last-quoted sale price for a given
day, or if a sale is not reported for that day, at the mean between the most
recent quoted bid and asked prices. Securities for which no quotations are
readily available are valued at fair value as determined by the fund's
investment adviser pursuant to guidelines adopted in good faith by the Board of
Trustees. Short-term securities with 60 days or less to maturity are stated at
amortized cost, which approximates market value. Futures contracts, which are
traded on exchanges, are valued at their settlement prices as of the close of
such exchanges.
SECURITY TRANSACTIONS, INVESTMENT INCOME AND REALIZED GAINS (LOSSES)--Security
transactions are accounted for on a trade-date basis (date the order to buy or
sell is executed). Dividend income and distributions to shareholders are
recorded on the ex-dividend date; interest income (including accretion of
discount) is recorded on the accrual basis. Realized gains and losses from
security transactions are determined on an identified cost basis.
FUTURES CONTRACTS--The Schwab S&P 500 Portfolio may invest in futures contracts.
The fund is required to deposit with the broker an amount of cash equivalents
equal to a certain percentage of the contract amount. This is known as the
"initial margin." The "variation margin" represents the daily fluctuation in the
value of the contract. When the contract is closed, the fund records a realized
gain or loss equal to the difference between the value of the contract at the
time it was opened and the time it was closed.
The fund will invest in these instruments to participate in the return of an
index. The use of futures contracts involves certain risks, which include (1)
imperfect correlation between the price movement of the contracts and the
underlying securities, or (2) inability to close out positions due to different
trading hours, or the temporary absence of a liquid market, for either the
contract or underlying securities. These risks may involve amounts exceeding the
amount recognized in the fund's statement of operations at any given time.
As of December 31, 1999, the Schwab S&P 500 Portfolio had the following open S&P
500 Index futures contracts:
<TABLE>
<CAPTION>
Type of Number of Contract Unrealized
Contract Contracts Value Expiration Appreciation
-------- --------- -------- ---------- ------------
<S> <C> <C> <C> <C>
S&P 500 Index 11 $3,932 03/17/00 $96
</TABLE>
The cash and eligible securities on deposit with brokers available to cover
margin requirements for open futures positions at December 31, 1999 was $392 and
$297, respectively for the Schwab S&P 500 Portfolio. The fund has segregated
short-term investments and other securities for the remaining portion of the
contract value.
EXPENSES--Expenses arising in connection with the fund are charged directly to
that fund. Expenses common to all series of the trust are generally allocated to
each series in proportion to their relative net assets.
----------
23
<PAGE>
SCHWAB S&P 500 PORTFOLIO
NOTES TO FINANCIAL STATEMENT (continued)
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 substantially all net investment income and realized net capital
gains, if any, to shareholders. Therefore, no federal income tax provision is
required. The fund is considered a separate entity for tax purposes.
At December 31, 1999 (for financial reporting and federal income tax purposes),
net unrealized appreciation aggregated $36,921 of which $43,923 related to
appreciated securities and $7,002 related to depreciated securities.
RECLASSIFICATIONS--Generally accepted accounting principles require that certain
components of net assets be reclassified between financial and tax reporting.
Accordingly, permanent book/tax differences of $1 were reclassified from
undistributed net investment income to paid-in capital. These reclassifications
have no effect on net assets or net asset value per share.
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 0.20% on the first $500 million
of average daily net assets, and 0.17% on such net assets over $500 million.
Prior to April 30, 1999, the fund paid an annual fee, payable monthly, of 0.36%
on the first $1 billion of average daily net assets, 0.33% on the next $1
billion and 0.31% on such net assets over $2 billion. The investment adviser has
reduced 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 and/or directors of the investment adviser. For the year ended December
31, 1999, the fund 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 $1 related to the trust's unaffiliated trustees.
As of December 31, 1999, the Schwab S&P 500 Portfolio held common stock of The
Charles Schwab Corp., an affiliated issuer, with a current value of $326.
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 0.28% of the fund's average daily
net assets, after waivers and reimbursements. For purpose of this guarantee,
operating expenses do not include interest expenses, extraordinary expenses,
taxes, foreign taxes and capital items.
For the year ended December 31, 1999 the total of such fees and expenses reduced
by the investment adviser was $71.
5. BORROWING AGREEMENTS
The trust has a line of credit arrangement with PNC Bank N.A. and Bank of
America NT & SA whereby the trust may borrow on behalf of the fund, on a
temporary basis, to fund shareholder redemptions. The trust may borrow in an
aggregate amount of up to $66 million from PNC Bank N.A. and $100 million from
Bank of America NT & SA. Amounts borrowed under these arrangements bear interest
at periodically negotiated rates and may be collateralized by the assets of the
fund. As of December 31, 1999, there were no outstanding borrowings made under
this arrangement.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities, other than short-term obligations
and U.S. government securities, aggregated $32,159 and $7,036, respectively, for
the year ended December 31, 1999.
----------
24
<PAGE>
SCHWAB S&P 500 PORTFOLIO
DECEMBER 31, 1999 ANNUAL REPORT
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of
Schwab S&P 500 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 S&P 500 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 periods
presented, 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 and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
February 4, 2000
----------
25
<PAGE>
SCHWAB S&P 500 PORTFOLIO
DECEMBER 31, 1999 ANNUAL REPORT
TAX DESIGNATIONS (UNAUDITED)
Pursuant to Section 854(b)(2) of the Internal Revenue Code, the Schwab S&P 500
Portfolio hereby designates 97% of the ordinary income dividends as qualifying
for the dividends received deduction for the fiscal year ended December 31,
1999.
-----------
26
