SWS (SWS) 11-K Annual report of employee stock purchases

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 11-K

FOR ANNUAL REPORTS OF EMPLOYEE STOCK PURCHASE, SAVINGS

AND SIMILAR PLANS PURSUANT TO SECTION 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003

¨ TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             

Commission file number 000-19483

A. Full title of the plan and the address of the plan, if different from that of the issuer named below:

SWS GROUP 401(k) PROFIT SHARING PLAN

B. Name of issuer of these securities held pursuant to the plan and the address of its principal executive office:

SWS GROUP, INC.

1201 Elm Street, Suite 3500

Dallas, Texas 75270

SWS GROUP 401(K) PROFIT SHARING PLAN

Index

Item 4- Audited financial statements and schedules prepared in accordance with the financial reporting requirements of ERISA.
Report of Independent Registered Public Accounting Firm	1
Statements of Net Assets Available for Benefits December 31, 2003 and 2002	2
Statement of Changes in Net Assets Available for Benefits for the year ended December 31, 2003	3
Notes to Financial Statements	4
Supplemental Schedule-Form 5500, Schedule H, Line 4i, Schedule of assets (held at end of year) December 31, 2003	9
SIGNATURE	10

EXHIBITS (filed herewith)
23.1	Consent of Independent Registered Public Accounting Firm
32.1	Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Report of Independent Registered Public Accounting Firm

To the Participants and Administrator of

    SWS Group 401(k) Profit Sharing Plan:

In our opinion, the accompanying statements of net assets available for benefits and the related statement of changes in net assets available for benefits present fairly, in all material respects, the net assets available for benefits of SWS Group 401(k) Profit Sharing Plan (the “Plan”) at December 31, 2003 and 2002, and the changes in net assets available for benefits for the year ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards 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 provide a reasonable basis for our opinion.

Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets (held at end of year) is presented for the purpose of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan’s management. The supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

PricewaterhouseCoopers LLP

Dallas, Texas

June 24, 2004

SWS Group

401(k) Profit Sharing Plan

Statements of Net Assets Available for Benefits

December 31, 2003 and 2002

	December 31, 2003		December 31, 2002
Investments, at fair value (Notes 4 and 5):
Common stock	$	24,669,965	$	16,736,777
Employer stock		3,948,395		3,086,946
Money market funds		12,689,439		14,760,077
Government securities		926,388		587,822
Mutual funds		23,612,425		15,023,124
Corporate bonds and debentures		248,279		193,778
Preferred stock		334,149		207,704
Other assets		782,546		265,404
Loans to participants		2,656,085		2,388,779
Total investments		69,867,671		53,250,411
Receivables:
Employer contributions (Note 2 (a))		12,410		4,395
Participant contributions (Note 2 (b))		15,971		4,511
Other		2,173		3,455
Total receivables		30,554		12,361
Cash		3,834		197,089
Net assets available for benefits	$	69,902,059	$	53,459,861

The accompanying notes are an integral part of these financial statements.

2

SWS Group

401(k) Profit Sharing Plan

Statement of Changes in Net Assets Available for Benefits

For the Year Ended December 31, 2003

	December 31, 2003
Additions to net assets attributed to:
Investment income (Note 4):
Net appreciation in fair value of investments	$	14,076,993
Interest and dividends		534,911
Net investment income		14,611,904
Contributions:
Employer		1,955,736
Participant		3,697,681
Participant rollovers from other plans		347,413
Total contributions		6,000,830
Deductions from net assets attributed to:
Benefits paid to participants		(4,071,038	)
Administrative expenses		(99,498	)
Total deductions		(4,170,536	)
Net increase		16,442,198
Net assets available for benefits, beginning of year		53,459,861
Net assets available for benefits, end of year	$	69,902,059

The accompanying notes are an integral part of these financial statements.

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SWS Group

401(k) Profit Sharing Plan

Notes to Financial Statements

1. Summary of Significant Accounting Policies

(a) General

The SWS Group 401(k) Profit Sharing Plan (the “Plan”) is a defined contribution plan covering all employees of companies affiliated with SWS Group, Inc. (the “Company” or “Employer”) who meet certain minimum hours of service requirements. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”). Participants should refer to the Plan agreement for a more complete description of the Plan’s provisions.

In 2002, the Plan was amended to include the language that complies with certain provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001. The changes modified the top-heavy rules and increased the annual eligible compensation and benefit limits.

(b) Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

Certain prior year amounts have been reclassified to conform to the current year presentation.

(c) Use of Estimates

The preparation of the Plan’s financial statements in conformity with accounting principles generally accepted in the United States of America requires the Plan administrator to make estimates and assumptions that affect the reported amounts of assets and liabilities and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates.

(d) Administration

The Plan is administered by a Trustee Committee appointed by the Company’s Board of Directors. The Trustees of the Plan are Charles Schwab Trust Company and Westwood Trust Company. Certain expenses of the Plan are charged directly to participant accounts and totaled $99,498 for 2003. Recordkeeper, trustee and professional fees of the Plan are paid by the Company and therefore are not reflected in the Plan’s financial statements.

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SWS Group

401(k) Profit Sharing Plan

Notes to Financial Statements

2. Contributions

(a) Employer

The Company contributes 100% of the first 4% of compensation that a participant contributes into the Plan. The Board of Directors of the Company determines the amount of discretionary Employer contribution to the Plan each year. The contribution may not exceed the lesser of 15% of the total annual compensation paid to the participants or the Employer’s net profits before taxes. These contributions are allocated to each participant in the ratio of each participant’s covered compensation to the total covered compensation of all participants. No discretionary contribution is required to be made by the Employer.

The carrying amount of the Employer contributions receivable approximates fair value at December 31, 2003 and 2002, due to the short-term nature of the account.

(b) Participant Contributions

For the years ended December 31, 2003 and 2002, the maximum participant contribution of pretax annual compensation, as defined by the plan, was 15%. Participants may also contribute rollovers of distributions from other qualified defined benefit or defined contribution plans. Participants direct the investment of their contributions into various investment options offered by the Plan. Participant contributions were limited to $12,000 and $11,000 during the 2003 and 2002 Plan years, respectively. Catch up contributions are allowed for participants over 50. In 2003 and 2002, the limit for catch up contributions was $2,000 and $1,000, respectively.

The carrying amount of the Participant contributions receivable approximates fair value at December 31, 2003 and 2002, due to the short-term nature of the account.

(c) Forfeitures

Forfeitures reduce Employer contributions for the year in which the forfeitures occur and are allocated to participants in the same manner as the Employer contribution. At December 31, 2003 and 2002, forfeited nonvested accounts totaled $112,423 and $380,965, respectively. These accounts will be used to reduce future employer contributions. During 2003, employer contributions were reduced by approximately $368,266 from forfeited nonvested accounts.

3. Eligibility and Vesting

(a) Eligibility

Employees of the Company are eligible to participate in the Plan upon hire, as soon as administratively possible.

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SWS Group

401(k) Profit Sharing Plan

Notes to Financial Statements

(b) Vesting

Participant contributions and Employer matching contributions are immediately vested. Employees who work a minimum of 1,000 hours a year and are employed on the last day of the calendar year qualify for a year of service and vest in the discretionary Employer contribution as follows:

Years of service	Percentage vested
Less than 2	0	%
2 years	20	%
3 years	40	%
4 years	60	%
5 years	80	%
6 years	100	%

(c) Plan Benefits

The vested portion of the accrued benefit of a participant upon termination or retirement is his or her plan benefit. Normal retirement age as elected by the Company is 55. Several options for payments are available and all require the agreement of the participant. Benefits are recorded by the Plan when paid.

4. Investments and Investment Income

All investments are held by Charles Schwab Trust Company except for $4,597,642 in investments which are held by Westwood Trust Company. The Company maintains a participant-directed plan with separate, segregated accounts and each participant’s income or loss, including market fluctuations, is applied directly to the participant’s account.

Investments are carried at fair value based on quoted market prices where available. Other assets are valued based on fair value estimates as determined by the trustee. Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded as earned and dividends are recorded on the ex-dividend date. These investments are exposed to various risks, such as interest rate, market, and credit risks. Due to the level of risk associated with these investments, it is at least reasonably possible that changes in the values of such investments will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the statement of net assets available for benefits.

The Plan presents the net change in fair value of investments, which consists of realized gains and losses, unrealized appreciation (depreciation) and any income or capital gain distributions, in the accompanying statement of changes in net assets available for benefits.

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SWS Group

401(k) Profit Sharing Plan

Notes to Financial Statements

Investments greater than 5% of net assets available for benefits at either December 31, 2003 and 2002 are as follows:

	2003		2002
Schwab Value Advantage Fund	$	3,765,894	$	6,410,548
Schwab Money Market Fund		8,923,545		8,141,986

During the year ended December 31, 2003, the Plan’s investments, including those bought, sold and held during the year, appreciated in value as follows:

	2003
Common stock	$	8,682,708
Employer stock		985,010
Money market funds		57,876
Government securities		13,610
Mutual funds		4,005,635
Corporate bonds and debentures		24,840
Preferred stock		111,987
Other assets		195,327
Net appreciation in fair value of investments	$	14,076,993

Included in net appreciation in common stock is appreciation on investments in SWS Group, Inc. of approximately $985,010 for the year ended December 31, 2003.

5. Loans to Participants

As allowed by the Plan, loans have been made to numerous participants. Loans are secured by the participant’s remaining account balance and are limited to a maximum term of five years except when the loan is used to acquire the principal residence of the participant. Loan amounts are limited to 50% of the respective participant’s nonforfeitable accrued benefit at the time of the loan less any outstanding loans up to a maximum total of $50,000. Interest rates ranged from 4.00% to 9.50% at December 31, 2003.

Loans to participants are carried at the original loan balance plus accrued interest, less principal repayments, which approximates fair value.

Repayments are made through payroll deductions and are reinvested in the individual funds according to the current investment allocations of the participant.

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SWS Group

401(k) Profit Sharing Plan

Notes to Financial Statements

6. Parties-in-interest

Certain investments are managed by an affiliate of Charles Schwab Trust Company, which is a trustee as defined by the Plan and, therefore, these transactions qualify as party-in-interest transactions. These investments total $7,298,408 and $8,636,869 at December 31, 2003 and 2002, respectively.

Additionally, the Plan holds investments in the Company’s common stock and loans receivable from participants, both of which constitute party-in-interest transactions.

Certain investments are managed by Westwood Trust Company, which is a trustee as defined by the Plan and, therefore, these transactions qualify as party-in-interest transactions. These investments total $4,593,808 and $1,773,684 at December 31, 2003 and 2002, respectively.

7. Tax Status

The Plan has received a favorable determination letter from the Internal Revenue Service dated December 30, 2003. Therefore, the Plan was qualified and the related trust was tax-exempt as of the financial statement date.

8. Plan Termination

Although it has not expressed any intent to do so, the Company may terminate the Plan at any time subject to the provisions of ERISA. In the event of Plan termination, the rights of each participant to the amount in his or her account on the date of such termination shall be fully vested and nonforfeitable.

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SWS Group

401(k) Profit Sharing Plan

Form 5500, Schedule H, Line 4i – Schedule of Assets (Held at End of Year)

As of December 31, 2003

(a)	(b) / (c) Identity of issue, borrower, lessor or similar party and description of investment including maturity date, rate of interest, collateral, par or maturity value	(e) Current value
*	Schwab Value Advantage Fund	$	3,765,894
*	Southwest Securities 401(k) Stock Fund		1,712,042
	Self-directed brokerage accounts		42,133,174
	Growth Fund of America		2,286,050
	Gabelli Westwood Balanced Fund		1,158,776
	Gabelli Westwood Equity Fund		1,146,360
	Gabelli Westwood Realty Fund		232,840
	Westwood Holdings Group Stock Fund		227,892
	Manager’s Special Equity Fund		2,031,648
	Pimco Total Return FD Class D Fund		949,794
*	Schwab Markettrack Balanced Fund		358,492
*	Schwab Markettrack Conservative Fund		265,942
*	Schwab Markettrack Growth Fund		732,980
*	Schwab S&P 500-Investors SHS Fund		2,175,100
	Scudder International Fund		1,244,360
	Weitz Value Portfolio		2,063,934
*	SEI Government Securities Principal		224,702
*	Westwood Trust Income Fund		2,448,941
*	Westwood Trust Mid Cap Equity-EB Fund		317,057
*	Westwood Trust MultiCap Equity-EB Fund		210,049
*	Westwood Trust Small Cap Equity-EB Fund		300,452
*	Westwood Trust Small Cap Value Equity-EB Fund		287,000
*	Westwood Trust High Yield Bond-EB Fund		442,418
*	Westwood Trust Real Estate Invest Trust-EB Fund		96,646
*	Westwood Trust International Equity-EB Fund		27,138
*	Westwood Trust Large Cap Equity-EB Fund		139,884
*	Westwood Trust Core Investment Grade Bond-EB Fund		99,521
	Cross Timbers Royalty Trust		29
	Enbridge Energy Partners Ltd		9,980
	Gulfterra Energy Partners		3,392
	Kaneb Pipeline Partners LP		16,764
	Kinder Morgan Energy Partners LP		53,286
	Magellan Midstream Partners		2,797
	MTB Small-Cap Growth		4,823
	Northern Border Partners LP		12,763
	Permian Basin Royalty Trust		2,065
	Star Gas Partners LP SBI		3,158
	Teppco Partners LP		12,494
	Valero LP		10,949
*	Loans to Participants,
	Interest Rates 4.0% to 9.5% due through 2025		2,656,085
	Total assets held for investment purposes	$	69,867,671

* Designates a party in-interest.

Note:    Column (d) - Cost information has been omitted as all investments are participant-directed.

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SIGNATURE

The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934, the Administrator has duly caused this annual report to be signed on its behalf by the undersigned thereunto duly authorized.

	THE SWS GROUP
	401(K) PROFIT SHARING PLAN
Date: June 25, 2004	By:	/s/ James R. Zimcosky
		James R. Zimcosky
		Director - Human Resources Plan Administrator

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