<PAGE> 1
PROSPECT HILL TRUST
215 NORTH MAIN STREET
WEST BEND, WISCONSIN 53095
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF
PROSPECT HILL PRIME MONEY MARKET FUND
To shareholders of the PROSPECT HILL PRIME MONEY MARKET FUND
of PROSPECT HILL TRUST:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Special Meeting") of Prospect Hill Prime Money Market Fund (the "Institutional
Fund"), a series of Prospect Hill Trust ("Prospect Hill"), will be held at West
Bend Community Memorial Library, 230 South 6th Avenue, West Bend, Wisconsin, on
Thursday, December 28, 1995 at 3:00 p.m., Central time. The purpose of the
Special Meeting is to consider and act upon the following proposals:
1. To approve an Agreement and Plan of Reorganization
and Liquidation under which the Cash Reserve
Portfolio, a series of Principal Preservation
Portfolios, Inc., would acquire all of the assets,
subject to all of the liabilities, of the
Institutional Fund, in exchange for shares of Class B
Common Stock, $.001 per share par value, of the Cash
Reserve Portfolio, all as described in the
accompanying Proxy Statement/Prospectus.
2. To transact such other business as properly may come
before the meeting or any adjournment thereof.
The Trustees of Prospect Hill have fixed the close of business on
Wednesday, November 29, 1995, as the record date for the determination of the
shareholders of the Institutional Fund entitled to notice of, and to vote at,
the Special Meeting and any adjournments thereof.
By Order of the Board of Trustees,
S. Charles O'Meara, Secretary
West Bend, Wisconsin
December 8, 1995
YOUR VOTE IS IMPORTANT. IN ORDER TO AVOID THE ADDITIONAL EXPENSE OF A SECOND
SOLICITATION, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT
PROMPTLY IN THE ENCLOSED POST-PAID ENVELOPE.
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PROSPECT HILL TRUST
PROSPECT HILL PRIME MONEY MARKET FUND
PROXY STATEMENT
__________________________
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
CASH RESERVE PORTFOLIO (CLASS Y COMMON STOCK)
PROSPECTUS
This Proxy Statement/Prospectus is being furnished to the shareholders
of Prospect Hill Prime Money Market Fund (the "Institutional Fund"), a series
of Prospect Hill Trust ("Prospect Hill"), in connection with a proposed
transaction (the "Reorganization") whereby the Hub and Spoke(R) structure in
which the Institutional Fund presently operates as one of two spokes would be
collapsed into a single mutual fund with two separate classes of shares, one
class which would have a distribution system and fee structure directed to
institutional investors (the "Institutional Class") similar to the
Institutional Fund, and a second class which would have a distribution system
and fee structure (including a Rule 12b-1 fee) directed to retail investors
identical to the Cash Reserve Portfolio ("Cash Reserve"). Cash Reserve is a
retail money market series of Principal Preservation Portfolios, Inc.
("Principal Preservation") which presently operates as the second spoke of the
Hub and Spoke(R) structure.
In the Reorganization, Cash Reserve would acquire all of the assets
(subject to the liabilities) of the Institutional Fund in exchange for shares
of Cash Reserve's Institutional Class. Shares of the Institutional Class so
received by the Institutional Fund would be distributed pro rata to
shareholders of the Institutional Fund, and the Institutional Fund would be
dissolved. As a result of the Reorganization, each shareholder of the
Institutional Fund would receive, in exchange for the shares of the
Institutional Fund owned by such shareholder, an equal number of shares of Cash
Reserve's Institutional Class valued at $1.00 per share. Following the
proposed Reorganization, the assets of the Institutional Fund acquired by Cash
Reserve would continue to be managed under the Institutional Fund's current
investment objective and pursuant to its current investment programs and
policies, except that, rather than attempting to achieve this investment
objective by investing all of the investable assets in the hub fund, Cash
Reserve would attempt to achieve this objective by retaining an investment
adviser to directly manage those assets, together with Cash Reserve's other
assets. Ziegler Asset Management, Inc. ("ZAMI") would continue to serve as the
investment adviser pursuant to the terms of an investment advisory agreement
substantively identical (including advisory fees provided thereunder) to the
current Investment Advisory Agreement by and between ZAMI and The Prime
Portfolios (on behalf of The Prime Money Market Portfolio), dated August 1,
1994.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
CASH RESERVE'S INSTITUTIONAL CLASS OF SHARES ARE NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. WHILE PRINCIPAL PRESERVATION WILL SEEK TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE OF THE CASH RESERVE'S
INSTITUTIONAL CLASS OF SHARES, THERE CAN BE NO ASSURANCE THAT IT WILL BE ABLE
TO DO SO ON A CONTINUING BASIS.
UPON REQUEST AND AT NO COST TO A REQUESTING SHAREHOLDER, PROSPECT HILL
WILL MAIL, BY FIRST CLASS MAIL, COPIES OF THE ANNUAL REPORT TO SHAREHOLDERS
DATED DECEMBER 31, 1994 AND THE SEMI-ANNUAL REPORT TO SHAREHOLDERS DATED JUNE
30, 1995 OF THE INSTITUTIONAL FUND. REQUESTS SHOULD BE DIRECTED TO THE
ATTENTION OF
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S. CHARLES O'MEARA, SECRETARY, PROSPECT HILL TRUST, 215 NORTH MAIN STREET, WEST
BEND, WISCONSIN 53095, OR BY TELEPHONE: (800) 255-5537.
This Proxy Statement/Prospectus is first being mailed to shareholders on or
about December 11, 1995.
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TABLE OF CONTENTS
<TABLE>
<S><C>
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
INTRODUCTION AND VOTING INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Purpose of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Quorum and Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Adjournment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Interests of Certain Persons in the Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Recommendation of Board of Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PRO FORMA EXPENSE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Proposed Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Comparison of Shares of Institutional Fund to Shares of Cash Reserve's Institutional Class . . . . . . 10
Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
THE PROPOSED REORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Plan of Reorganization and Liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Reasons for the Proposed Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Description of Shares of Cash Reserve's Institutional Class . . . . . . . . . . . . . . . . . . . . . 14
Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
INFORMATION ABOUT CASH RESERVE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Investment Objective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Investment Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Fundamental Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Determination of Net Asset Value Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Dividends, Capital Gains Distributions and Reinvestments . . . . . . . . . . . . . . . . . . . . . . . 26
Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Interests of Experts and Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Costs of Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Shareholder Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
APPENDIX A - AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
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AVAILABLE INFORMATION
Principal Preservation has filed with the Commission a Registration
Statement on Form N-14 (the "Registration Statement") under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the shares of Cash
Reserve's Institutional Class offered hereby. As permitted by the rules and
regulations of the Commission, this Proxy Statement/Prospectus and the
accompanying Statement of Additional Information omit certain information,
exhibits and undertakings contained in the Registration Statement. Such
additional information can be inspected at the principal offices of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and copies of the
Registration Statement can be obtained from the Commission at prescribed rates
by writing to the Commission at such address. For further information,
references made to the Registration Statement and to the exhibits thereto.
Prospect Hill and Principal Preservation are subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
("Exchange Act") and the 1940 Act, and in accordance therewith file reports and
other information with the Commission. Reports, proxy statements and other
information filed by Prospect Hill and/or Principal Preservation with the
Commission can be inspected and copied at the Public Reference Facilities of
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as the
following regional offices: Seven World Trade Center, 13th Floor, New York, New
York 10048; and CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60621. Copies of such material may be obtained at prescribed rates
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
No person has been authorized to give any information or to make any
representations other than those contained in this Proxy Statement/Prospectus
in connection with the offer contained in this Proxy Statement/ Prospectus and,
if given or made, such other information or representations must not be relied
upon as having been authorized by Prospect Hill or Principal Preservation.
This Proxy Statement/Prospectus does not constitute an offer to sell securities
in any state or other jurisdiction to any person to whom it would be unlawful
to make such offer in such state or jurisdiction. Neither the delivery of this
Proxy Statement/Prospectus nor any sale hereunder shall under any circumstances
create any implication that there have been no changes in the affairs of
Prospect Hill or Principal Preservation subsequent to the date of this Proxy
Statement/ Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
A Statement of Additional Information, dated December 8, 1995,
relating to the proposed Reorganization described in this Proxy
Statement/Prospectus (the "Reorganization SAI") has been filed with the
Commission and is incorporated by reference herein. A copy of the
Reorganization SAI accompanies this Proxy Statement/Prospectus. The
Institutional Fund's current Prospectus and Statement of Additional
Information, each dated May 1, 1995, as supplemented to date (the
"Institutional Fund Prospectus" and "Institutional Fund SAI", respectively)
have been filed with the Commission as part of Post-Effective Amendment No. 3
to Prospect Hill's Registration Statement on Form N-1A (1933 Act Reg. No.
33-56810; 1940 Act File No. 811-7424), and are incorporated by reference
herein. A copy of the Institutional Fund Prospectus accompanies this Proxy
Statement/Prospectus. Copies of the Institutional Fund SAI may be obtained
without charge by writing to or calling B.C. Ziegler and Company at the above
address or telephone number.
All information contained in this Proxy Statement/Prospectus relating
to Prospect Hill and/or the Institutional Fund has been supplied by Prospect
Hill, and all information relating to Principal Preservation and/or Cash
Reserve has been supplied by Principal Preservation.
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INTRODUCTION AND VOTING INFORMATION
SOLICITATION
This Proxy Statement/Prospectus is being furnished to the shareholders
of the Institutional Fund in connection with the solicitation of proxies by
Prospect Hill's Board of Trustees to be used at a Special Meeting of
Shareholders (the "Special Meeting") to be held at West Bend Community Memorial
Library, 230 South 6th Avenue, West Bend, Wisconsin, on Thursday, December 28,
1995 at 3:00 p.m., Central time.
PURPOSE OF MEETING
The purpose of the Special Meeting is to consider and vote upon an
Agreement and Plan of Reorganization and Liquidation (the "Plan") pursuant to
which the Institutional Fund would be reorganized into a specially-designated
Institutional Class of common stock of Cash Reserve. A copy of the proposed
Plan is attached as Appendix A to this Proxy Statement/Prospectus.
QUORUM AND VOTING
The presence at the Special Meeting, in person or by proxy, of
shareholders representing a majority of all shares of the Institutional Fund
entitled to vote on a matter constitutes a quorum for the transaction of
business. In tabulating votes on any matter, abstentions and broker non-votes
will be counted as represented for purposes of determining the presence or
absence of a quorum, but will not be counted as votes cast. Broker non-votes
are proxies from brokers or other nominee owners indicating that such persons
have not received instructions from the beneficial owners or other persons
entitled to vote the shares as to a matter with respect to which the brokers or
other nominee owners do not have discretionary power to vote.
Shares represented by properly executed proxies received by Prospect
Hill will be voted at the Special Meeting and any adjournment thereof in
accordance with the terms of such proxies. However, if no instructions are
specified, shares will be voted "FOR" proposal 1, and in the discretion of the
persons named in the proxy on proposal 2. A shareholder may revoke his or her
proxy at any time prior to the voting thereof by filing a written notice of
revocation with the Secretary of Prospect Hill or be delivering a duly executed
proxy bearing a later date.
Shareholders of record at the close of business on November 29, 1995
(the "Record Date") will be entitled to one vote on each matter presented for
each share so held. At that date there were 40,879,744 shares of common stock
of the Institutional Fund outstanding.
To be approved, the Plan and the Reorganization contemplated thereby
will require the affirmative vote of a majority of the outstanding voting
securities of the Institutional Fund, as that term is defined in the Investment
Company Act of 1940 (the "1940 Act"). A majority of the outstanding voting
securities means the lesser of: (1) 67% or more of the Institutional Fund's
shares present at a meeting, if shareholders who are the owners of more than
50% of the Institutional Fund's shares then outstanding are present in person
or by proxy; or (2) more than 50% of the Institutional Fund's outstanding
shares.
ADJOURNMENT
In the event that sufficient votes in favor of a proposal set forth in
the Notice of Special Meeting which accompanies this Proxy Statement/Prospectus
are not received by the time scheduled for the Special Meeting, the persons
named as proxies may propose one or more adjournments of the Special Meeting to
permit further solicitation of proxies with respect to such proposal. The
Special Meeting also may be adjourned in the event certain issues under the
1940 Act relating to the transactions contemplated by the Plan have not been
resolved to the mutual satisfaction of Principal Preservation and Prospect Hill
by the scheduled time of the Special Meeting. See "The Proposed Reorganization
- - Plan of Reorganization and Liquidation." Any such adjournment will require
the affirmative vote of a majority of the votes cast on the question in person
or by proxy at the
5
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session of the Special Meeting to be adjourned. The persons named as proxy
will vote in favor of such adjournment those proxies which they are entitled to
vote in favor of such proposal. They will vote against any such adjournment
those proxies required to be voted against any such proposal.
INTERESTS OF CERTAIN PERSONS IN THE REORGANIZATION
The Institutional Fund presently is part of a two tiered,
master/feeder money market mutual fund complex known as a Hub and Spoke(R)
structure. In this structure, the Institutional Fund (which sometimes is
referred to as a spoke) invests all of its investable assets in The Prime Money
Market Portfolio (the "Hub"), a series of The Prime Portfolios. In theory,
other investment vehicles, such as other investment companies, retirement
plans, trust accounts, and other entities having a need for a money market
facility, could become additional spokes of the Hub and invest assets in the
Hub. At the Hub level, assets so invested would be aggregated with assets
invested by other spokes and would be commonly managed. Presently the only
other spoke in this Hub and Spoke structure is Cash Reserve. Like the
Institutional Fund, Cash Reserve is a money market mutual fund which invests
all of its investable assets in the Hub.
Cash Reserve's capital structure presently consists of a single class
of common stock. However, the Board of Directors of Principal Preservation has
adopted an operating plan and taken other actions necessary to retitle (without
altering the rights and privileges) Cash Reserve's presently authorized class
of common stock as Class X Common Stock (the "Retail Class"), and to designate
a second class of common stock, Class Y Common Stock (the "Institutional
Class") within Cash Reserve. The Reorganization involves the collapsing of the
Hub and Spoke structure into the multi-class structure of Cash Reserve, and
eliminating the Hub, the Institutional Fund and the respective investment
companies of which they are series. Following the Reorganization, all of the
assets of the Institutional Fund and Cash Reserve presently invested in the Hub
would be transferred to Cash Reserve, all of the presently outstanding shares
of the Institutional Fund would be converted into an equal number of shares of
Cash Reserve's Institutional Class, and all of the outstanding shares of Cash
Reserve would be designated as shares of Cash Reserve's Retail Class (but would
not otherwise be affected).
Under the present Hub and Spoke structure, B.C. Ziegler and Company
("B.C. Ziegler"), a wholly-owned subsidiary of The Ziegler Companies, Inc., and
ZAMI, another wholly-owned subsidiary of The Ziegler Companies, Inc., each
provide various services to the Hub, the Institutional Fund and Cash Reserve,
and receive fees for doing so (see the section of the accompanying
Institutional Fund Prospectus captioned "Management of the Trust and Portfolio
Series" for a detailed description of such services and their related
compensation received by B.C. Ziegler and ZAMI). With minor exceptions, it is
anticipated that, following the Reorganization, B.C. Ziegler and ZAMI will
continue to provide comparable services to Cash Reserve with respect to both
the Institutional Class and the Retail Class of Cash Reserve's shares for the
same fees as presently paid by the Hub, the Institutional Fund or Cash Reserve,
as the case may be, all pursuant to new agreements to be executed between
Principal Preservation (on behalf of Cash Reserve) and ZAMI or B.C. Ziegler, as
the case may be, with terms substantively identical to the current service
agreements relating to such services.
While the Reorganization is not expected directly to result in any
increase in such fees payable to B.C. Ziegler and/or ZAMI, it is anticipated
that the Reorganization will result in an overall reduction in the expenses
presently allocated to the shareholders of the Institutional Fund and Cash
Reserve, thereby reducing the expense ratio and making investment in the
Institutional Class and Retail Class more attractive as compared to investment
in shares of the Institutional Fund and Cash Reserve. This potentially could
increase the total assets invested in the complex. Because certain of the
service fees payable to B.C. Ziegler and ZAMI are based on average daily net
assets, the increased asset size could result in greater fees payable to B.C.
Ziegler and/or ZAMI over the long term. Notwithstanding that such reduction in
expense ratios immediately will benefit shareholders, B.C. Ziegler and ZAMI may
be deemed to have an indirect financial interest in the Reorganization by
virtue of the potential increase in assets and related potential increase in
fees payable to either or both of them.
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As a registered broker-dealer, B.C. Ziegler holds, as nominee for its
customers, shares of the Institutional Fund with respect to which B.C. Ziegler
has voting authority. Likewise, as a registered investment adviser, certain of
ZAMI's customer advisory accounts hold shares of the Institutional Fund with
respect to which ZAMI has voting authority. As of the Record Date, B.C.
Ziegler and ZAMI together held such voting authority over 8,405,622 shares of
the Institutional Fund, which represented approximately 20.6% of all shares of
the Institutional Fund entitled to vote at the Special Meeting. To avoid any
conflict of interest with respect to voting of such shares, B.C. Ziegler and
ZAMI have determined that they will solicit voting instruction from the
beneficial owners of all such shares, will vote any shares with respect to
which instructions are received in accordance with such instructions, and will
vote undirected shares in proportion to shares with respect to which voting
direction is received. For example, if 1,000 shares were subject to B.C.
Ziegler's and ZAMI's voting authority, and they received direction to vote 300
shares in favor of the Plan, 200 shares against the Plan, and received no
direction with respect to the remaining 500 shares, then they would vote 600 of
the 1,000 shares in favor of the Plan and the remaining 400 shares against the
Plan.
For a listing of other persons and entities owning beneficially or of
record 5% or more of the shares of the Institutional Fund outstanding and
entitled to vote at the Special Meeting, see the section of this Proxy
Statement/Prospectus captioned "Miscellaneous - Principal Shareholders."
RECOMMENDATION OF BOARD OF TRUSTEES
THE BOARD OF TRUSTEES OF PROSPECT HILL UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS OF THE INSTITUTIONAL FUND VOTE "FOR" APPROVAL OF THE PLAN. In
doing so, the Trustees have acted in what they believe to be the best interests
of the shareholders of the Institutional Fund, and have determined that the
interests of the existing shareholders of the Institutional Fund will not be
diluted as a result of the proposed Reorganization.
PRO FORMA EXPENSE INFORMATION
The following table provides: (1) a summary of expenses relating to
purchases and sales of shares of the Institutional Fund, and the aggregate
annual operating expenses for the Institutional Fund and the Hub, as a
percentage of average net assets of the Institutional Fund; (2) the pro forma
comparison of expenses estimated with respect to purchases and sales of shares
of the Institutional Class of Cash Reserve, and the annual operating expenses
of Cash Reserve allocated to the Institutional Class, as a percentage of
average net assets allocated to the Institutional Class; (3) an example
illustrating the dollar cost of such expenses on a $1,000 investment in the
Institutional Fund; and (4) a pro forma comparison of the example illustrating
the dollar cost of the pro forma estimated expenses of the Institutional Class
of Cash Reserve on a $1,000 investment in shares of the Institutional Class.
Shares of the Institutional Fund are sold, and shares of the Institutional
Class of Cash Reserve will be sold, without a sales charge.
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ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
Cash Reserve
Institutional Fund Institutional Class
------------------ -------------------
<S> <C> <C>
Investment Management Fee . . . . . . . . . . . . 0.20% 0.20%
Distribution (Rule 12b-1) fees . . . . . . . . . None None
Other Expenses:
Administrative service fees . . . . . . . . 0.10% 0.15%(1)
Miscellaneous . . . . . . . . . . . . . . . 0.48%(2) 0.29%(3)
----- -----
Total Other Expenses . . . . . . . . . . . . . . 0.58% 0.44%
----- -----
TOTAL OPERATING EXPENSES . . . . . . . . 0.78% 0.64%
- ------------------------------ ===== =====
</TABLE>
(1) Adjusted to reflect increase in administrative fees payable following
the Reorganization with respect to the Institutional Class of Cash
Reserve as compared to those paid with respect to shares of the
Institutional Fund. See "Summary - Comparison of Shares of
Institutional Fund to Shares of Cash Reserve's Institutional Class."
(2) Miscellaneous other expenses of the Institutional Fund reflect actual
expenses during the year ended December 31, 1994. Expenses incurred
in future years may be higher or lower on a percentage basis than
those shown in the table, depending upon the gross amount of such
expenses and fluctuations in the average net assets of the
Institutional Fund.
(3) The difference between this ratio and the comparable ratio for the
Institutional Fund is attributable to the elimination of certain
duplicative expenses associated with the Hub and Spoke structure that
is expected to result from the Reorganization, such as compensation to
outside trustees, audit fees, registration fees, etc. See "The
Proposed Reorganization - Reasons for the Proposed Reorganization."
Such cost savings are partially offset by the increased administrative
service fees. See footnote (1) above.
EXAMPLE
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
A shareholder would pay the following
expenses on a $1,000 investment, assuming:
(1) 5% annual return; and (2) redemption at
the end of each time period:
In the Institutional Fund $ 8.00 $25.00 $43.00 $97.00
In the Cash Reserve Institutional Class $ 7.00 $21.00 $36.00 $80.00
</TABLE>
EXAMPLES ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RETURNS MAY BE GREATER OR
LESS THAN THOSE SHOWN. The purpose of the table is to assist investors in
understanding the various costs and expenses that shareholders of the
Institutional Fund and persons who invest in shares of Cash Reserve's
Institutional Class will bear directly or indirectly.
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SUMMARY
The following is a summary of certain information contained elsewhere
in this Proxy Statement/ Prospectus and the Institutional Fund Prospectus
incorporated herein and being delivered herewith. This summary is not intended
to be complete and is qualified in all respects by reference to the more
detailed information appearing elsewhere in this Proxy Statement/Prospectus
and the accompanying Reorganization SAI.
INTRODUCTION
Cash Reserve and the Institutional Fund currently constitute the only two
spokes of a Hub and Spoke (R) money market mutual fund complex with respect to
which The Prime Money Market Portfolio functions as the Hub. In this
structure, Cash Reserve and the Institutional Fund each invest all of their
investable assets in the Hub, where they are managed collectively under the
common investment objective of the Institutional Fund and Cash Reserve. This
structure requires the maintenance of three separate registered investment
companies, which results in duplicate costs and expenses to shareholders. The
Board of Trustees of Prospect Hill originally anticipated that additional
Spokes would be added to this Hub and Spoke structure, and that the asset
growth attributable to the addition of such Spokes would spread the fixed costs
of the complex over a broader base of assets and would ultimately result in a
reduced expense ratio to shareholders of the Institutional Fund. However, the
anticipated addition of new Spokes has not materialized, and the Board of
Trustees believes the addition of new Spokes in the future is unlikely. Based
on its assessment that the anticipated benefits are not likely to materialize,
the Board of Trustees no longer can justify the duplicate costs associated with
maintaining the Hub and Spoke structure.
The Board of Trustees believes that certain duplicate expenses could
be eliminated and efficiencies could be gained if this Hub and Spoke structure
were collapsed into a single mutual fund, dual class structure within Cash
Reserve, including an Institutional Class which would have characteristics
substantially similar to shares of the Institutional Fund, and a Retail Class
which would be identical (except in name) to the presently-designated, single
class of shares of Cash Reserve. The proposed Reorganization consists of a
series of steps and procedures which ultimately will result in all of the
investible assets of the Hub being transferred to Cash Reserve (subject to
their liabilities), all of the presently outstanding shares of the
Institutional Fund being converted into an equal number of shares of Cash
Reserve's newly-designated Institutional Class, and all of the presently
outstanding shares of Cash Reserve being redesignated (but otherwise being
unaffected) as shares of Cash Reserve's Retail Class. The Prime Portfolios and
Prospect Hill ultimately would be dissolved. Except for the minor differences
described herein, shareholders of the Institutional Fund would notice little
difference in the investment represented by the shares of Cash Reserve's
Institutional Class as compared to the shares of the Institutional Fund
presently owned by them.
PROPOSED REORGANIZATION
The Plan is a contract between Principal Preservation (on behalf of
Cash Reserve) and Prospect Hill (on behalf of the Institutional Fund) which
describes the essential terms of the proposed Reorganization. Immediately
prior to consummation of the Plan, each of the Institutional Fund and Cash
Reserve would withdraw from the Hub their respective assets, subject to their
liabilities. The Plan provides that Cash Reserve would then acquire all of the
assets, subject to the liabilities, of the Institutional Fund, in exchange for
shares of Cash Reserve's Institutional Class. The number of shares of Cash
Reserve's Institutional Class to be issued in the exchange would be equal to
the number of shares of the Institutional Fund outstanding at the close of
business on the date of consummation of the Reorganization or, if such closing
date is not a business day, then at the close of business on the last business
day preceding such closing date (the "Effective Time"). The shares of Cash
Reserve's Institutional Class so issued immediately would be distributed pro
rata to shareholders of the Institutional Fund. As a result, each shareholder
of the Institutional Fund would receive in exchange for such shareholder's
shares of the Institutional Fund an equal number of shares of Cash Reserve's
Institutional Class. Following the acquisition of the Institutional Fund's
assets by Cash Reserve and the distribution to its shareholders of the shares
of Cash Reserve's Institutional Class, Prospect Hill would be dissolved.
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Following the Reorganization, ZAMI would continue to manage the assets
transferred to Cash Reserve under the same investment objective as that under
which ZAMI presently manages the assets of the Institutional Fund and Cash
Reserve invested in the Hub. Additionally, pursuant to an operating plan
adopted by the Board of Directors of Cash Reserve, income earned on such
investments and operating expenses of Cash Reserve would be allocated between
the Institutional Class and the Retail Class in substantially the same manner
as income and expenses presently are allocated between the Institutional Fund
and Cash Reserve.
COMPARISON OF SHARES OF INSTITUTIONAL FUND TO SHARES OF CASH RESERVE'S
INSTITUTIONAL CLASS
Investment Objective and Program. The investment objectives,
investment program and policies and investment limitations under which the
assets of the Institutional Fund presently are managed would not be affected by
the proposed Reorganization, except that, rather than investing all of its
investable assets in the Hub where to be commingled and commonly managed with
the assets of other spokes, Cash Reserve would attempt to achieve its
investment objective by engaging an investment adviser to directly manage its
assets. For ease of reference, those investment objectives, investment program
and policies and investment limitations are summarized in this Proxy
Statement/Prospectus under the heading "Information About Cash Reserve."
Investment Management. The investable assets of the Institutional
Fund presently are invested in the Hub where they are managed by ZAMI
collectively with the investable assets of Cash Reserve. Following the
Reorganization, ZAMI would continue to serve as investment adviser with respect
to the assets of the Institutional Fund to be transferred to Cash Reserve
pursuant to a new investment advisory agreement to be entered into with ZAMI by
Principal Preservation, on behalf of Cash Reserve. That new investment
advisory agreement would have terms and conditions, including advisory fees
provided thereunder, substantively identical to the terms and conditions of the
current investment advisory agreement between Cash Reserve and The Prime
Portfolios (on behalf of the Hub). Terms of the new investment advisory
agreement and information regarding ZAMI is summarized in this Proxy
Statement/Prospectus under the heading "Information About Cash Reserve."
Administrative Services. B.C. Ziegler, an affiliate of ZAMI,
presently serves as Administrator, Distributor and Transfer and Dividend
Disbursing Agent for the Institutional Fund, and also serves as Administrator,
Depository and Accounting and Pricing Agent for the Hub. With the exception of
the change in administrative services described below, it is anticipated that,
following the Reorganization, B.C. Ziegler would continue to provide these same
services at the same rates of compensation, including serving as Administrator,
Depository and Accounting and Pricing Agent with respect to Cash Reserve's
assets, and serving as Distributor and Transfer and Dividend Disbursing Agent
with respect to shares of Cash Reserve's Institutional Class. Terms of the
relevant service agreements and information about B.C. Ziegler is summarized in
this Proxy Statement/Prospectus under the heading "Information About Cash
Reserve."
Following the Reorganization, administrative services presently
provided by B.C. Ziegler to the Hub will instead be provided to Cash Reserve by
ZAMI under the terms of a new administrative services agreement between ZAMI
and Principal Preservation. This new administrative services agreement is
substantively identical to the present administrative services agreement
between The Prime Portfolios (on behalf of the Hub) and B.C. Ziegler, with the
exception that the fees provided thereunder would be increased from the present
rate of 0.10% of average daily net assets up to $200 million, and 0.05% of such
assets over $200 million, to the rate of 0.15% of average daily net assets up
to $200 million, and 0.10% on average net assets over $200 million. This
increase is the result of restructuring of all administrative service fees
currently provided to the Hub and Spoke structure in order to fairly represent
services provided on behalf of each Class and as necessary to comply with
certain tax rules applicable to multi-class mutual fund structures. Presently,
B.C. Ziegler provides administrative services to Cash Reserve in addition to
those provided to the Hub, and receives a fee directly from Cash Reserve for
doing so. In the new structure the administrative fee presently charged at the
Hub level would be eliminated and the separate administrative fee charged to
Cash Reserve's single class of shares would be consolidated and allocated
between the Institutional and Retail Classes of shares on a pro rata basis.
The net effect of this consolidation would reduce the overall administrative
fees payable to ZAMI as compared to those presently paid in the aggregate by
Cash Reserve and the Hub, but would slightly increase administrative fees
allocated to Cash Reserve's Institutional Class as compared to those presently
allocated to shares of the Institutional Fund.
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However, it is anticipated this slight increase in administrative fees to be
allocated to the Institutional Class would be more than offset by cost savings
resulting from the elimination of other expenses presently allocated to shares
of the Institutional Fund. See "Pro Forma Expense Information."
Purchases and Redemptions. Following the Reorganization, investors
(including current shareholders of the Institutional Fund who receive shares of
Cash Reserve's Institutional Class in the Reorganization) would be able to
purchase and redeem shares in substantially the same manner and subject to the
same conditions as shares of the Institutional Fund presently are purchased and
redeemed. For a summary of the procedures and conditions applicable to
purchases and redemptions of shares of Cash Reserve's Institutional Class, see
the section of this Proxy Statement/Prospectus headed "Information About Cash
Reserve."
Capital Structure. Shares of the Cash Reserve's Institutional Class
will represent a class of a multi-class series of shares separately designated
within the shares of common stock of a Maryland corporation. Shares of the
Institutional Fund, on the other hand, represent shares of a separately
designated series of a Massachusetts business trust. This distinction,
together with the elimination of the two-tiered Hub and Spoke(R) structure,
results in minor differences in voting rights and other rights and privileges
between shares of Cash Reserve's Institutional Class and shares of the
Institutional Fund. These differences are described in more detail in the
section of this Proxy Statement/Prospectus captioned "The Proposed
Reorganization - Description of Shares of Cash Reserve's Institutional Class."
TAX CONSEQUENCES
It is a condition to the consummation of the transactions described in
the Plan that each of Prospect Hill and Principal Preservation must have
obtained an opinion of Quarles & Brady, legal counsel to Prospect Hill and
Principal Preservation, to the effect that the Reorganization will constitute a
tax-free reorganization pursuant to Section 368(a)(1)(C) of the Internal
Revenue Code of 1986, as amended (the "Code"). Accordingly, no gain or loss
will be recognized by the Institutional Fund, Cash Reserve or their respective
shareholders. See "The Proposed Reorganization - Tax Considerations."
RISK FACTORS
Investment in shares of Cash Reserve's Institutional Class involves
certain risks, which are the same as risks associated with shareholders current
investment in shares of the Institutional Fund. In particular, the offering
price for shares of Cash Reserve's Institutional Class is equal to the net
asset value per share, which is expected to be maintained at $1.00. However,
there can be no assurance that Principal Preservation will be able to maintain
a stable net asset value of $1.00 per share of Cash Reserve's Institutional
Class on a continuing basis. Shares of Cash Reserve's Institutional Class are
neither insured nor guaranteed by the United States Government.
Cash Reserve will attempt to increase yields by trading to take
advantage of short-term market variations. This policy should not adversely
affect Cash Reserve's Institutional Class, since Cash Reserve usually does not
pay brokerage commissions when it purchases short-term debt obligations,
although the prices at which such instruments are traded generally reflect a
premium or discount as compared to their face or par values. The value of the
portfolio securities held by Cash Reserve will vary inversely to changes in
prevailing interest rates. Thus, if interest rates have increased from the
time a security was purchased, such security, if sold, might be sold at a price
less than its purchase cost. Similarly, if interest rates have declined from
the time a security was purchased, such security, if sold, might be sold at a
price greater than its purchase cost. In either instance, if the security was
purchased at face value and held to maturity, no gain or loss would be
realized.
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THE PROPOSED REORGANIZATION
PLAN OF REORGANIZATION AND LIQUIDATION
The terms and conditions under which the proposed Reorganization would
be consummated are set forth in the Plan. Significant provisions of the Plan
are summarized below; however, this summary is qualified in its entirety by
reference to the Plan, a copy of which is attached as Appendix A to this Proxy
Statement/ Prospectus.
Immediately prior to consummation of the Plan, each of the
Institutional Fund and Cash Reserve would withdraw their investable assets,
subject to their liabilities, from the Hub. The Plan contemplates that shares
of the presently-designated single class of common stock of Cash Reserve
outstanding immediately prior to the Reorganization automatically would be
redesignated (but otherwise unaffected) as shares of Cash Reserve's Retail
Class as of the Effective Time of the Reorganization.
The Plan further contemplates that the Institutional Fund concurrently
would transfer all of its assets, subject to its liabilities, to Cash Reserve
in exchange solely for shares of Cash Reserve's Institutional Class. The
shares of Cash Reserve's Institutional Class so issued to the Institutional
Fund would be deemed to be distributed immediately on a pro rata basis to the
shareholders of the Institutional Fund. It is presently anticipated that the
Effective Time of the Reorganization will be the close of business on December
29, 1995 (the last business day of 1995), provided all conditions of the Plan
are fulfilled or waived. The date of the Effective Time may be extended to a
later date by the Board of Trustees of Prospect Hill and/or the Board of
Directors of Principal Preservation.
The assets of the Institutional Fund to be acquired by Cash Reserve
will include all cash, cash equivalents, securities, receivables and other
property owned by the Institutional Fund, all of which are eligible investments
for money market funds under the provisions of the 1940 Act and are consistent
with the investment limitations of Cash Reserve. Cash Reserve would assume
from the Institutional Fund all debts, liabilities, obligations and duties of
the Institutional Fund of whatever kind or nature, provided that the
Institutional Fund will utilize its best efforts to discharge all of its known
debts, liabilities, obligations and duties prior to the Effective Time. In
exchange for all of the assets and liabilities of the Institutional Fund, Cash
Reserve would deliver to shareholders of the Institutional Fund shares of its
Institutional Class. The assets and liabilities of the Institutional Fund so
transferred to and assumed by Cash Reserve would be allocated to the shares of
Cash Reserve's Institutional Class issued to shareholders of the Institutional
Fund in exchange for their shares of the Institutional Fund.
The value of the Institutional Fund's assets and liabilities to be
acquired by Cash Reserve would be determined as of the Effective Time in
accordance with the policies and procedures set forth in the Institutional Fund
Prospectus accompanying this Proxy Statement/Prospectus. The number of shares
of Cash Reserve's Institutional Class to be issued in exchange for the net
assets of the Institutional Fund would be equal to the number of shares of the
Institutional Fund outstanding as of the Effective Time, and will be valued at
$1.00 per share. Accordingly, shares of the Institutional Fund held
immediately prior to the Effective Time would be converted into an equal number
of shares of Cash Reserve's Institutional Class at the same $1.00 per share
value.
As soon as practicable after the Closing Date, the Institutional Fund
would liquidate and distribute pro rata to its shareholders of record the
shares of Cash Reserve's Institutional Class received by the Institutional
Fund. Such liquidation and distribution would be accomplished by opening
accounts on the books of Principal Preservation in the names of shareholders of
the Institutional Fund and by transferring the shares of Cash Reserve's
Institutional Class credited to the account of the Institutional Fund on the
books of Principal Preservation. Each account opened would represent the
number of shares of Cash Reserve's Institutional Class equal to the number of
shares of the Institutional Fund held by such shareholder. Fractional shares
of Cash Reserve's Institutional Class would be rounded to the nearest
thousandth of a share.
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Any transfer taxes payable upon issuance of the shares of Cash
Reserve's Institutional Class in a name other than the name of the registered
holder of the shares on the books of the Institutional Fund as of that time
must be paid by the person to whom such shares are to be issued as a condition
of such transfer. Any reporting responsibility of Prospect Hill with respect
to the Institutional Fund would continue to be the responsibility of Prospect
Hill up to and including the Effective Time and such later date on which the
Institutional Fund is liquidated and Prospect Hill is dissolved.
Conditions to the closing of the Reorganization include a condition
that each of Prospect Hill and Principal Preservation must receive an opinion
from Quarles & Brady regarding certain tax aspects of the Reorganization. See
"The Proposed Reorganization - Tax Considerations." Also, Prospect Hill and
Principal Preservation have requested that the Chief Counsel's Office of the
Securities and Exchange Commission informally respond with interpretative
guidance regarding certain technical and legal issues that the Reorganization
potentially raises under the provisions of the 1940 Act and the Rules of the
Securities and Exchange Commission thereunder. If the staff of the SEC has not
responded favorably to that request prior to the scheduled date and time of the
Special Meeting, the Special Meeting will be adjourned and the closing of the
Reorganization will be postponed until such time as Prospect Hill and Principal
Preservation receive a favorable response or the issues are otherwise resolved
to the mutual satisfaction of Principal Preservation and Prospect Hill.
The Plan may be terminated and the Reorganization abandoned at any
time, before or after approval of the shareholders of the Institutional Fund,
prior to the Closing Date. In addition, the Plan may be amended in any
mutually agreeable manner, except that no amendment may be made subsequent to
the Special Meeting which would detrimentally affect the value of the shares of
Cash Reserve's Institutional Class to be distributed.
The costs of the Reorganization, including legal, accounting and other
professional fees and the cost of soliciting proxies for the Special Meeting
(consisting principally of printing and mailing expenses), together with the
cost of any supplementary solicitation, will be borne by B.C. Ziegler and/or
its affiliates. The total estimated costs for the proposed Reorganization are
approximately $90,000, excluding the capital contribution to be made to the
Institutional Fund by B.C. Ziegler immediately prior to the Effective Time.
See "The Proposed Reorganization - Capitalization."
REASONS FOR THE PROPOSED REORGANIZATION
The Board of Trustees of Prospect Hill, including all of the
non-interested Trustees, has unanimously determined that the interests of the
existing shareholders of the Institutional Fund will not be diluted as a result
of the proposed transaction, and that the proposed transaction is in the best
interests of the shareholders of the Institutional Fund.
The Board of Trustees based its decision to recommend the
Reorganization on an extensive inquiry into a number of factors, including the
following:
1. The identity of the objectives, policies and
restrictions of Cash Reserve with those of the
Institutional Fund;
2. The cost savings that potentially may be achieved by
collapsing the Hub and Spoke(R) structure into a
single, multi-class mutual fund structure through
the elimination of duplicate expenses;
3. The reduced expense ratio that potentially may result
from the Reorganization;
4. The greater likelihood of asset growth that
potentially may result from a more competitive
expense ratio, and the greater economies of scale
that can be achieved from such asset growth,
including without limitation reduced advisory fees
that can be reached at certain asset level
breakpoints;
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5. The tax-free nature of the Reorganization; and
6. Alternative options to the Reorganization.
There are certain duplicate costs associated with maintaining the Hub
and Spoke (R) structure, which requires maintaining three separate investment
companies. Among others, these include fees paid to three sets of independent
Trustees/Directors, SEC and state registration fees associated with three
separate companies, franchise and qualification fees associated with three
separate business entities, three separate audit fees, and legal costs
associated with maintaining three separate business entities. In addition to
the immediate benefit to existing shareholders of the anticipated reduced
expense ratio of Cash Reserve's Institutional and Retail Classes as compared to
shares of the Institutional Fund and of the presently designated single class
of shares of Cash Reserve, the Board of Trustees believes this more competitive
expense ratio will make investment in shares of Cash Reserve's Institutional
and Retail Classes more attractive to investors, and will increase the
opportunity for future asset growth. Any such asset growth potentially will
enable the shareholders of Cash Reserve (including those that were formerly
shareholders of the Institutional Fund) to obtain economies of scale by
spreading certain expenses over a larger asset base and by potentially reaching
an asset breakpoint in the rate of the investment advisory fee payable to ZAMI.
There can be no assurance, however, that such asset growth, economies of scale
and lower overall expense ratio will be obtained.
DESCRIPTION OF SHARES OF CASH RESERVE'S INSTITUTIONAL CLASS
For a description of shares of the Institutional Fund, refer to the
Institutional Fund Prospectus accompanying this Proxy Statement/Prospectus.
The authorized common stock of Principal Preservation consists of one
billion shares, par value $0.001 per share. The shares of Principal
Preservation presently are divided into nine series, including Cash Reserve.
Presently Cash Reserve consists of 300 million shares of a single class of
common stock. However, Principal Preservation's Board of Directors has adopted
Articles Supplementary and a related operating plan that, effective at the
Effective Time, will: (a) increase from 300 million to 400 million the number
of shares of common stock allocated to Cash Reserve; (b) redesignate (without
affecting the rights and privileges) 200 million of those shares of Cash
Reserve (including each share outstanding as of the Effective Time) as Class X
Common Stock; and (c) designate the remaining 200 million shares so allocated
to Cash Reserve as shares of Class Y Common Stock. The Board of Directors of
Principal Preservation may authorize the issuance of additional series of
common stock (portfolios), and/or additional classes within any such series,
and may increase or decrease the number of such shares in each series and/or
any such class(es).
Each share of each series of Principal Preservation (including each
share of each Class of Cash Reserve) is entitled to one vote on each matter
presented to shareholders of that series. For matters that affect both Classes
of Cash Reserve's shares similarly (such as election of directors, ratification
of accountants, etc), holders of the separate Classes of shares will vote
together. On matters that affect the rights and privileges appertaining to the
shares of one Class differently from the rights and privileges appertaining to
the other Class, the shareholders of each Class will vote separately and, in
order to be approved with respect to the affected Class, the requisite approval
must be obtained from the holders of shares within that Class. Shares have no
preemptive, subscription or conversion rights and are freely transferable.
Shares can be issued as full shares or fractions of shares. A fraction of a
share has the same kind of rights and privileges within the Class as full
shares in that Class. Shares do not have cumulative voting rights.
Each share of Cash Reserve (including both Classes) is entitled to
participate pro rata in any dividends or other distributions declared by the
Board of Directors of Principal Preservation with respect to Cash Reserve, and
all shares of Cash Reserve have equal rights in the event of a liquidation of
Cash Reserve. Shares of both Classes of Cash Reserve are redeemable at net
asset value, at the option of the shareholder. Income realized and expenses
incurred by Cash Reserve will be allocated equally among Cash Reserve's
outstanding shares of common stock, without regard to Class, except where an
expense item is unique to a particular Class. For
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example, shares of the Retail Class will be assessed distribution fees under
Principal Preservation's Rule 12b-1 Distribution Plan, whereas shares of the
Institutional Class will not.
As a Maryland corporation first incorporated on June 1, 1984,
Principal Preservation is not required to hold annual shareholder meetings
unless required by law or deemed appropriate by the Board of Directors.
However, special meetings may be called for purposes such as electing or
removing Directors, changing fundamental investment policies or approving an
investment advisory contract. On matters affecting an individual series
(including Cash Reserve), such as approval of advisory or sub-advisory
contracts and changes in fundamental investment policies of that series, a
separate vote of the shares of that series is required. Shares of a series are
not entitled to vote on any matter not affecting that series. All shares of
each series vote together in the election of Directors.
TAX CONSIDERATIONS
It is a condition to the consummation of the Reorganization that each
of Prospect Hill and Principal Preservation must receive an opinion from
Quarles & Brady, counsel to Prospect Hill and Principal Preservation, to the
effect that, with respect to the Reorganization as it affects the Institutional
Fund or Cash Reserve, as the case may be: (i) the Reorganization will
constitute a reorganization within the meaning of Section 368(a)(1)(C) of the
Code; (ii) no gain or loss will be recognized by either the Institutional Fund
or Cash Reserve upon the transfer of assets of the Institutional Fund in
exchange for shares of Cash Reserve's Institutional Class; (iii) no gain or
loss will be recognized by shareholders of the Institutional Fund upon
liquidation of the Institutional Fund and the distribution of shares of Cash
Reserve's Institutional Class constructively in exchange for shares of the
Institutional Fund; (iv) the Cash Reserve's basis in the assets of the
Institutional Fund received pursuant to the Reorganization will be the same as
the basis of those assets in the hands of the Institutional Fund immediately
prior to the exchange, and the holding period of those assets in the hands of
Cash Reserve will include the holding period of the Institutional Funds; (v)
the basis of shares of Cash Reserve's Institutional Class received by each
shareholder of the Institutional Fund pursuant to the Reorganization will be
the same as the shareholder's basis in shares of the Institutional Fund held by
such shareholder immediately prior to the exchange; and (vi) the holding period
of shares of Cash Reserve's Institutional Class received by each shareholder of
the Institutional Fund pursuant to the Reorganization will include the
shareholder's holding period of shares of the Institutional Fund held
immediately prior to the exchange, provided that the latter shares were held as
capital assets on the date of the Reorganization.
Nor will the withdrawal by Cash Reserve and the Institutional Fund of
their respective assets from the Hub result in any adverse tax consequences to
the Institutional Fund or its shareholders. When Cash Reserve and the
Institutional Fund withdraw their respective assets from the Hub, the Hub will
effect the withdrawals as redemptions in kind of the Institutional Fund's and
Cash Reserve's ownership interests in the Hub. The Hub's disposition of the
portfolio securities in effectuating such redemptions in kind will result in
the Hub realizing previously unrealized capital gains or losses (if any)
associated with such portfolio securities. Such capital gains and losses will
be allocated to the Institutional Fund and Cash Reserve in proportion to their
ownership interests in the Hub. However, the difference between the amortized
cost value and the fair market value of the Hub's portfolio securities
presently is so small that the tax effect of such capital gains or losses
allocated to the Institutional Fund is expected to be negligible. As a result,
the shares of Cash Reserve's Institutional Class to be received by shareholders
of Prospect Hill in the Reorganization will be valued at $1.00 per share at the
time of issuance.
CAPITALIZATION
The following table shows the capitalization of the Institutional Fund
and Cash Reserve, respectively, as of June 30, 1995, and the pro forma
capitalization of Cash Reserve as of that date, giving effect to the
Reorganization.
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<TABLE>
<CAPTION>
PRO FORMA COMBINED (UNAUDITED)
-------------------------------------
INSTITUTIONAL CASH INSTITUTIONAL RETAIL
FUND RESERVE CLASS CLASS TOTAL
------ --------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net Assets (in thousands) $44,636 $69,277 $44,666(1) $69,277 $113,943
Net Asset Value Per Share $1.00 $1.00 $1.00 $1.00 $1.00
Shares Outstanding (in 44,731 69,378 44,731 69,378 114,109
thousands)
- ------------------------------
</TABLE>
(1) Reflects a capital contribution to be made by B.C. Ziegler to the
Institutional Fund immediately prior to the Effective Time as
necessary to equalize capital losses incurred at the Hub level on
sales of portfolio securities. Those losses were originally allocated
on a proportionate basis to the Institutional Fund and Cash Reserve.
As a result of subsequent disproportionate variances in the relative
net assets of the Institutional Fund and Cash Reserve, those capital
losses have become disproportionate. As of June 30, 1995, the
equalizing capital contribution to be made by B.C. Ziegler would have
been $30,193.
INFORMATION ABOUT CASH RESERVE
INVESTMENT OBJECTIVE
Cash Reserve will seek to provide a high level of current income to
the extent consistent with stability of principal and the maintenance of
liquidity. Cash Reserve will seek to attain its objective by investing in
domestic and foreign U.S. dollar-denominated money market objectives with
maturities of 397 days or less. Cash Reserve will seek to maintain a net asset
value of $1.00 per share. There can be no assurance that the investment
objective of Cash Reserve will be achieved or that it will be able to maintain
a per share net asset value of $1.00. Securities in which Cash Reserve will
invest may not earn as high a level of current income as long-term or lower
quality securities which generally have less liquidity, greater market risk and
more fluctuation in market value.
The investment objective of Cash Reserve may not be changed without
the vote of the holders of a majority of Cash Reserve's outstanding voting
securities, including all classes voting together.
INVESTMENT POLICIES
To achieve its investment objective, Cash Reserve will invest in U.S.
dollar-denominated short-term money market obligations, including securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, certificates of deposit, time deposits, bankers' acceptances
and other short-term obligations issued by domestic banks and domestic branches
and subsidiaries of foreign banks, repurchase agreements and high quality
domestic commercial paper and other short-term corporate obligations, including
those with floating or variable rates of interest. In addition, Cash Reserve
may lend portfolio securities, enter into reverse repurchase agreements and, to
a limited extent, invest in securities issued by foreign banks and corporations
outside the United States. Cash Reserve reserves the right to concentrate 25%
or more of its total assets in obligations of domestic branches of domestic
banks.
Cash Reserve will seek to maintain a net asset value of $1.00 per
share for purchases and redemptions. To permit this, Cash Reserve will use the
amortized cost method of valuing its securities pursuant to Rule 2a-7 under the
Investment Company Act of 1940, as amended (the "1940 Act"). In accordance
with Rule 2a-7, Cash Reserve will maintain a dollar-weighted average portfolio
maturity of 90 days or less, purchase only instruments having remaining
maturities of 397 days or less and invest only in U.S. dollar-denominated
securities determined in accordance with procedures established by Principal
Preservation's Board of Directors to present minimal
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credit risks and which are rated in one of the two highest rating categories
for debt obligations by at least two nationally recognized statistical rating
organizations (an "NRSRO") (or one NRSRO if the instrument is rated by only one
such organization) or, if unrated, are of comparable quality as determined in
accordance with procedures established by the Board of Directors (collectively,
"Eligible Securities").
Eligible Securities include "First Tier Securities" and "Second Tier
Securities." First Tier Securities include those that possess a rating in the
highest category in the case of a single-rated security or at least two ratings
in the highest rating category in the case of multiple-rated securities or, if
the securities do not possess a rating, are determined to be of comparable
quality by ZAMI pursuant to the guidelines adopted by the Board of Directors.
Second Tier Securities are all other Eligible Securities. Cash Reserve will
invest at least 95% of its total assets in First Tier Securities. The
NRSROs currently rating instruments of the type Cash Reserve may purchase are
Moody's Investors Service, Inc., Standard & Poor's Corporation, Duff & Phelps,
Inc., Fitch Investors Service, Inc., IBCA Limited and IBCA Inc. and Thomson
BankWatch, Inc.
In addition, Cash Reserve will not invest more than 5% of its total
assets in the securities (including the securities collateralizing a repurchase
agreement) of, or subject to puts (including letters of credit, guarantees or
other credit support) issued by, a single issuer, except that (i) Cash Reserve
may invest more than 5% of its total assets in a single issuer for a period of
up to three business days in certain limited circumstances, (ii) Cash Reserve
may invest in obligations issued or guaranteed by the U.S. Government
(including those collateralizing repurchase agreements) without any such
limitation, and (iii) the limitation with respect to puts does not apply to
unconditional puts if no more than 10% of Cash Reserve's total assets is
invested in securities issued or guaranteed by the issuer of the unconditional
put. Investments in rated securities not rated in the highest category by at
least two rating organizations (or one rating organization if the instrument
was rated by only one such organization), and unrated securities not determined
by ZAMI, in accordance with guidelines and procedures established by the Board
of Directors, to be comparable to those rated in the highest category, will be
limited to 5% of Cash Reserve's total assets, with the investment in any one
such issuer being limited to no more than the greater of 1% of Cash Reserve's
total assets or $1,000,000. As to each security, these percentages will be
measured at the time Cash Reserve purchases the security.
Bank Obligations. Cash Reserve may invest in U.S. dollar-denominated
certificates of deposit, time deposits, bankers' acceptances and other
short-term obligations issued by domestic banks and domestic branches and
subsidiaries of foreign banks. Certificates of deposit are certificates
evidencing the obligation of a bank to repay funds deposited with it for a
specified period of time. Such instruments include Yankee Certificates of
Deposit ("Yankee CDs"), which are certificates of deposit denominated in U.S.
dollars and issued in the United States by the domestic branch of a foreign
bank. Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time
deposits which may be held by Cash Reserve are not insured by the Federal
Deposit Insurance Corporation or any other agency of the U.S. Government. Cash
Reserve will not invest more than 10% of the value of its net assets in time
deposits maturing in longer than seven days and other instruments which are
illiquid or not readily marketable. Cash Reserve may also invest to a limited
extent in certificates of deposit and time deposits issued by foreign banks
outside the United States. Cash Reserve's investments in such foreign bank
obligations may not exceed 5% of Cash Reserve's assets.
Cash Reserve may also invest in bankers' acceptances and other
short-term obligations. Bankers' acceptances are credit instruments evidencing
the obligation of a bank to pay a draft drawn on it by a customer. These
instruments reflect the obligation both of the bank and of the drawer to pay
the face amount of the instrument upon maturity. The other short-term
obligations may include uninsured, direct obligations which have either fixed,
floating or variable interest rates.
To the extent Cash Reserve's investments are concentrated in the
banking industry, Cash Reserve will have correspondingly greater exposure to
the risk factors which are characteristic of such investments. Sustained
increases in interest rates can adversely affect the availability or liquidity
and cost of capital funds for a bank's lending activities, and a deterioration
in general economic conditions could increase the exposure to credit losses.
In addition, the value of and the investment return on Cash Reserve's shares
could be affected by
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economic or regulatory developments in or related to the banking industry,
which industry also is subject to the effects of the concentration of loan
portfolios in leveraged transactions and in particular businesses, and
competition within the banking industry, as well as with other types of
financial institutions. Cash Reserve, however, will seek to minimize its
exposure to such risks by investing only in debt securities which are
determined by ZAMI to be of high quality.
U.S. Government and Agency Securities. Securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities include
U.S. Treasury securities, which differ only in their interest rates, maturities
and times of issuance. Treasury Bills have initial maturities of one year or
less; Treasury Notes have initial maturities of one to ten years; and Treasury
Bonds generally have initial maturities of greater than ten years. U.S.
Government agency securities in which Cash Reserve commonly will invest include
securities issued by Federal Home Loan Banks, Federal National Market
Association, Federal Farm Credit Bank Agency, Federal Home Loan Mortgage
Corporation, Student Loan Mortgage Association, Farmer's Home Administration,
as well as others. Some obligations issued or guaranteed by U.S. Government
agencies and instrumentalities, for example, Government National Mortgage
Association pass-through certificates, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Federal Home Loan
Banks, by the right of the issuer to borrow from the Treasury; others, such as
those issued by the Federal National Mortgage Association, by discretionary
authority of the U.S. Government to purchase certain obligations of the agency
or instrumentality; and others, such as those issued by the Student Loan
Marketing Association, only by the credit of the agency or instrumentality.
While the U.S. Government provides financial support to such U.S.
Government-sponsored agencies or instrumentalities, no assurance can be given
that it will always do so, since it is not so obligated by law. Cash Reserve
will invest in such securities only when ZAMI is satisfied that the credit risk
with respect to the issuer is minimal.
U.S. Government and agency securities in which Cash Reserve may invest
include variable and floating rate securities with maturities that may extend
beyond 13 months from the date of purchase. However, under Rule 2a-7, Cash
Reserve may purchase such agency securities only if the interest rate adjusts
not less frequently than every 762 days and at each interest rate adjustment
date the security reasonably can be expected to have a market value that
approximates its par value. ZAMI has expressed its intention not to invest
Cash Reserve's assets in certain categories of securities with final maturities
in excess of 397 days from the date of purchase, including but not limited to
structured U.S. Government agency securities such as dual index floaters,
inverse floaters, leveraged floaters, capped floaters, range floaters, floating
rate securities tied to the cost of funds of the 11th District Federal Home
Loan Bank and securities with interest rates tied to 10-year constant maturity
U.S. Treasury securities.
Commercial Paper. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper which Cash Reserve may purchase consists only of U.S. dollar-denominated
direct obligations issued by domestic and, subject to the 5% limit discussed
below (see "Foreign Securities"), foreign entities. The other corporate
obligations in which Cash Reserve may invest consist of high quality, U.S.
dollar-denominated short-term bonds and notes (including variable rate and
amount master demand notes) issued by domestic corporations.
Restricted Securities. Cash Reserve may invest in securities that are
subject to legal or contractual restrictions on resale. These securities may
be illiquid and, thus, Cash Reserve may not purchase them to the extent that
more than 10% of the value of its net assets would be invested in illiquid
securities. However, if a substantial market of qualified institutional buyers
develops pursuant to Rule 144A under the Securities Act of 1933, as amended,
for such securities held by Cash Reserve, Cash Reserve intends to treat such
securities as liquid securities in accordance with procedures approved by
Principal Preservation's Board of Directors. To the extent that for a period
of time, qualified institutional buyers cease purchasing such restricted
securities pursuant to Rule 144A, Cash Reserve's investing in such securities
may have the effect of increasing the level of illiquidity in its investment
portfolio during such period.
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Securities Lending. Cash Reserve may seek to increase its income by
lending securities from its portfolio to banks, brokers or dealers and other
recognized institutional investors needing to borrow securities. Such loans
may not exceed 33 1/3% of the value of Cash Reserve's total assets. In
connection with such loans, Cash Reserve will receive collateral consisting of
cash, U.S. Government and other high quality securities or irrevocable letters
of credit. Such collateral will be maintained at all times in an amount equal
to at least 100% of the current market value of the loaned securities. Cash
Reserve can increase its income through the investment of such collateral.
Cash Reserve would continue to receive payments in amounts equal to the
interest payable on the loaned security, and also would receive interest on the
amount of the loan. Such loans must be terminable at any time upon specified
notice. Cash Reserve might experience risk of loss if the institution with
which it engages in a portfolio loan transaction breaches its agreement with
Cash Reserve.
Repurchase Agreements and Reverse Repurchase Agreements. Repurchase
agreements involve the acquisition by Cash Reserve of an underlying debt
instrument, subject to an obligation of the seller to repurchase, and Cash
Reserve to resell, the instrument at a fixed price, usually not more than one
week after its purchase. Cash Reserve or a sub-custodian will have custody of
securities acquired by Cash Reserve under a repurchase agreement.
Cash Reserve may enter into repurchase agreements with banks or
broker-dealers with respect to government securities or other high quality
securities regardless of their remaining maturities, and will require that
additional securities be deposited with it if the value of the securities
purchased should decrease below the resale price. ZAMI will monitor on an
ongoing basis the value of the collateral in accordance with the terms of the
repurchase agreement. Certain costs may be incurred by Cash Reserve in
connection with the sale of the securities if the seller does not repurchase
them in accordance with the repurchase agreement. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the securities,
realization on the securities by Cash Reserve may be delayed or limited. Cash
Reserve will consider on an ongoing basis the creditworthiness of the
institutions with which it enters into repurchase agreements. Repurchase
agreements are considered collateralized loans under the 1940 Act.
Cash Reserve also may enter into repurchase agreements with entities
that are neither banks nor broker-dealers, provided that, in accordance with
Cash Reserve's policies with respect to repurchase agreements, Principal
Preservation's Board of Directors approves or ratifies the transaction upon the
determination by the Board, or by ZAMI on its behalf, that entering into a
repurchase agreement with such entity presents minimal credit risk, that the
entity presents no serious risk of becoming involved in bankruptcy proceedings
within the time frame contemplated by the repurchase agreement, and that the
repurchase agreement is otherwise an eligible security for purchase by Cash
Reserve. Such entities are not subject to the types and kinds of regulations
or governmental supervision to which banks and broker-dealers are subject, and
there may not be available the same types of financial information about such
entities as is available with respect to banks and broker-dealers.
Cash Reserve may borrow funds for temporary or emergency purposes,
such as meeting larger than anticipated redemption requests, and not for
leverage, in an amount of up to one-third of the value of Cash Reserve's total
assets (including the amount borrowed) less its total liabilities (not
including the amount borrowed). Cash Reserve also may enter in agreements to
sell portfolio securities to financial institutions such as banks and
broker-dealers and to repurchase them at a mutually agreed date and price (a
"reverse repurchase agreement"). At the time Cash Reserve enters into a
reverse repurchase agreement it will place in a segregated custodial account
cash, U.S. Government securities or high-grade debt obligations having a value
equal to the repurchase price, including accrued interest. Reverse repurchase
agreements involve the risk that the market value of the securities sold by
Cash Reserve may decline below the repurchase price of those securities.
Reverse repurchase agreements are considered to be borrowings by Cash Reserve.
Foreign securities. Except for Yankee CDs, Cash Reserve may invest no
more than 5% of its total assets in U.S. dollar-denominated foreign securities
issued outside the United States, such as obligations of foreign branches and
subsidiaries of domestic banks and foreign banks, including Eurodollar
certificates of deposit, Eurodollar time deposits and Canadian time deposits,
commercial paper of Canadian and other foreign issuers,
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and U.S. dollar-denominated obligations issued or guaranteed by one or more
foreign governments or any of their agencies or instrumentalities.
Guaranteed Investment Contracts. Cash Reserve may invest in
guaranteed investment contracts ("GICs") issued by insurance companies.
Pursuant to such contracts, Cash Reserve will make cash contributions to a
deposit fund of the insurance company's general account. The insurance company
will then credit to the fund guaranteed interest. The GICs provide that this
guaranteed interest will not be less than a certain minimum rate. The
insurance company may assess periodic charges against a GIC for expenses and
service costs allocable to it, and the charges will be deducted from the value
of the deposit fund. Because Cash Reserve may not receive the principal amount
of a GIC from the insurance company on seven days' notice or less, the GIC is
considered an illiquid investment and, together with other instruments in Cash
Reserve which are not readily marketable, may not exceed 10% of Cash Reserve's
total assets. The term of a GIC will be thirteen months or less. In
determining average weighted portfolio maturity, a GIC will be deemed to have a
maturity equal to the longer of the period of time remaining until the next
readjustment of the guaranteed interest rate or the period of time remaining
until the principal amount can be recovered from the issuer through demand.
When-issued and Forward Commitment Securities. Cash Reserve may
purchase securities on a "when-issued" basis and may purchase or sell
securities on a "forward commitment" basis in order to hedge against
anticipated changes in interest rates and prices. When such transactions are
negotiated, the price, which is generally expressed in yield terms, is fixed at
the time the commitment is made, but delivery and payment for the securities
take place at a later date. When-issued securities and forward commitments may
be sold prior to the settlement date, but Cash Reserve will enter into
when-issued and forward commitments only with the intention of actually
receiving or delivering the securities, as the case may be. At the time Cash
Reserve enters into a transaction on a when-issued or forward commitment basis,
a segregated account consisting of cash or high grade liquid debt securities
equal to the value of the when-issued or forward commitment securities will be
established and maintained. There is a risk that the securities may not be
delivered and that Cash Reserve may incur a loss.
Zero Coupon Obligations. Cash Reserve may acquire zero coupon
obligations when consistent with its investment objective and policies. Such
obligations have greater price volatility than coupon obligations and will not
result in payment of interest until maturity. Since dividend income is accrued
throughout the term of the zero coupon obligation, but is not actually received
until maturity, Cash Reserve may have to sell other securities to pay the
accrued dividends prior to maturity of the zero coupon obligation.
Investments in Other Investment Companies. Cash Reserve occasionally
may invest in securities of other investment companies, subject to certain
limitations and restrictions imposed under the 1940 Act. Such securities are
purchased by Cash Reserve primarily on an overnight basis with cash received by
Cash Reserve too late in the business day to be invested that same day in
securities in which Cash Reserve invests. However, subject to complying with
the limitations and restrictions referenced above, Cash Reserve has the
authority to make and retain investments in other investment companies for an
indefinite period of time, and may do so in response to presently unforeseen
market or economic conditions or other circumstances. An investment by Cash
Reserve in other investment companies may cause Cash Reserve to incur increased
administration and distribution costs.
Certain Other Obligations. In order to allow for investments in new
instruments that may be created in the future, upon supplementing its
Prospectus, Cash Reserve may invest in obligations other than those listed
previously, provided such investments are consistent with Cash Reserve's
investment objective, policies and restrictions.
FUNDAMENTAL INVESTMENT RESTRICTIONS
Cash Reserve is subject to certain investment restrictions which
constitute fundamental policies. Fundamental policies cannot be changed
without the approval of the holders of a majority of the outstanding voting
securities of Cash Reserve, as defined in the 1940 Act. Certain of those
fundamental policies are set forth below.
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Cash Reserve may: (a) borrow money, but only from banks or through
reverse repurchase agreements for temporary or emergency (not leveraging)
purposes, in an amount of up to 33 1/3% of the value of Cash Reserve's total
assets (including the amount borrowed) less liabilities (not including the
amount borrowed) at the time the borrowing is made (borrowings repaid within 60
days and not renewed or extended are presumed to be for temporary purposes).
While borrowings exceed 5% of the value of Cash Reserve's total assets, Cash
Reserve may not make any additional investments; (b) pledge, hypothecate,
mortgage or otherwise encumber its assets, but only, (i) to secure borrowings
for temporary or emergency purposes, or (ii) in connection with entering into
reverse repurchase agreements; (c) invest up to 5% of its total assets in the
obligations of any single issuer, provided that up to 25% of the value of Cash
Reserve's total assets may be invested (subject to the provisions of Rule 2a-7)
without regard to any such limitation, and provided further that obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
may also be purchased without regard to any such 5% limitation; (d) concentrate
25% or more of its total assets in bank obligations and invest up to 25% of its
total assets in the securities of issuers in any other industry, provided that
there is no limitation on investments and obligations issued or guaranteed by
the U.S. government, its agencies or instrumentalities; (e) invest up to 10% of
its net assets in repurchase agreements providing for settlement in more than
seven days after notice and in securities that are not readily marketable
(which securities could include participation and variable rate demand
obligations as to which it cannot exercise a related demand feature and as to
which there is no secondary trading market).
MANAGEMENT
Directors and Officers. The Board of Directors of Principal
Preservation is responsible for the management of Cash Reserve and provides
broad supervision over its affairs. Principal Preservation's officers are
responsible for Cash Reserve's operations.
Investment Adviser. Since August 31, 1994, Ziegler Asset Management,
Inc. has served as the adviser to the Hub. Following the Reorganization ZAMI
would serve as investment adviser to Cash Reserve and also would serve as its
Administrator. See "Summary - Comparison of Shares of Institutional Fund to
Shares of Cash Reserve's Institutional Class." ZAMI is registered with the
Securities and Exchange Commission as an investment adviser. In addition to
the Hub, ZAMI serves as investment adviser to six other mutual fund series of
Principal Preservation and privately manages numerous customer advisory
accounts. On December 31, 1994, ZAMI had more than $579 million under
discretionary management. The address of ZAMI is 215 North Main Street, West
Bend, Wisconsin 53095.
ZAMI would manage the assets of Cash Reserve pursuant to an investment
advisory agreement dated December 1, 1995 (the "Advisory Agreement"). On
November 29, 1994, prior to the Reorganization, shareholders of the
Institutional Fund approved a substantively identical investment advisory
agreement, dated August 1, 1994, between ZAMI and the Prime Portfolios (on
behalf of the Hub). For services provided under the Advisory Agreement, ZAMI
would receive from Cash Reserve a fee, accrued daily and paid monthly, at an
annual rate equal to 0.20% of Cash Reserve's average daily net assets.
ZAMI is a wholly-owned subsidiary of The Ziegler Companies, Inc. B.C.
Ziegler, another wholly-owned subsidiary of The Ziegler Companies, Inc.
currently serves as Administrator, Distributor, Transfer and Dividend
Disbursement Agent and Shareholder Servicing Agent for Cash Reserve, and,
following the Reorganization, would continue to serve in the same capacities,
except that ZAMI would provide administrative services. B.C. Ziegler is
registered with the Securities and Exchange Commission as an investment adviser
and securities broker/dealer and is a member of the National Association of
Securities Dealers, Inc. B.C. Ziegler has been engaged in the underwriting of
debt securities for more than 75 years. The Ziegler Companies, Inc. is a
publicly-owned financial services holding company.
Administrator. Pursuant to an Administrative Services Agreement,
ZAMI, as administrator of Cash Reserve, would provide Cash Reserve with general
office facilities and provide or supervise the overall administration of Cash
Reserve including, among other responsibilities, the negotiation of contracts
and fees with, and the monitoring of performance and billings of, the
independent contractors and agents of Cash
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Reserve; the preparation and filing of all documents required for compliance by
Cash Reserve with applicable laws and regulations; providing equipment and
clerical personnel necessary for maintaining the organization of Cash Reserve;
preparation of certain documents in connection with meetings of Principal
Preservation's Board of Directors; and the maintenance of books and records of
Cash Reserve. The new Administrative Services Agreement provides that ZAMI
would be entitled to receive an annual fee from Cash Reserve accrued daily and
paid monthly at an annual rate of 0.15% of Cash Reserve's average daily net
assets up to $200 million, and 0.10% of net assets over $200 million. This fee
would be approved each year by the Directors of Principal Preservation,
including a majority of the independent directors.
Distributor. B.C. Ziegler would serve as the distributor of shares of
Cash Reserve's Institutional Class and serves as distributor of shares of other
Principal Preservation portfolios pursuant to its existing Distribution
Agreement with Principal Preservation. This Distribution Agreement continues
from year to year if it is approved annually by Principal Preservation's Board
of Directors, including a majority of independent directors, or by a vote of
the holders of a majority of the outstanding shares. The agreement may be
terminated at any time by either party on 60 days written notice and will
automatically terminate if assigned by B.C. Ziegler. B.C. Ziegler would
receive no compensation for distributing shares of Cash Reserve's Institutional
Class.
Custodian and Depository; Accounting/Pricing Agent. Cash Reserve
would serve as custodian for its assets, including cash and securities. B.C.
Ziegler would provide depository, sub-custodial and accounting services to Cash
Reserve, including daily valuation of shares, pursuant to an existing
Depository Contract and an existing Accounting/Pricing Agreement with
Principal Preservation. Under the Depository Contract, B.C. Ziegler would be
entitled to receive compensation for its depository services on an annualized
basis as follows: 0.055% of Cash Reserve's average daily net assets for the
first $50 million in assets of Cash Reserve; 0.035% of the next $150 million;
0.03% of the next $300 million; and 0.025% of any assets over $500 million;
subject to an annual minimum of $15,000. B.C. Ziegler also would be entitled
to receive compensation from Cash Reserve for accounting and pricing services
on an annualized basis as follows: 0.04 of 1% of Cash Reserve's average daily
net assets for assets between $50 million and $100 million; 0.03 of 1% on
assets between $100 million and $200 million; and 0.01 of 1% of any assets over
$200 million, with an annual compensation minimum of $15,000 and a maximum of
$125,000.
Transfer and Dividend Disbursing Agent. Following the Reorganization
B.C. Ziegler would provide transfer and dividend disbursing agent and other
shareholder account services to all shareholder accounts maintained in Cash
Reserve for shares of the Institutional Class. B.C. Ziegler would provide
these services pursuant to the terms of its existing Transfer Agent and
Dividend Disbursement Agreement with Principal Preservation, and would receive
compensation from Cash Reserve deemed reasonable by the Board of Directors.
The annual rate of compensation initially would be $16.00 per shareholder
account (subject to a monthly minimum fee of $200). B.C. Ziegler also would be
entitled to reimbursement for out-of-pocket expenses including, without
limitation, bank wire fees, statement mailing expenses, supplies such as
checks, envelopes and shareholder statements, telephone expenses, data
processing charges, etc.
EXPENSES
The expenses of Cash Reserve include the compensation of the officers
and Directors of Principal Preservation who are not affiliated with ZAMI or
B.C. Ziegler; governmental fees; interest charges; taxes; fees and expenses if
any, of independent accountants, legal counsel; and insurance premiums.
Expenses of Cash Reserve also would include all fees of Cash Reserve under
Principal Preservation's Administrative Services, Distribution, Transfer and
Dividend Disbursement Agent, and Accounting Pricing Agreements and its
Depository Contract with B.C. Ziegler or ZAMI, as the case may be; expenses of
distributing and redeeming shares and servicing shareholder accounts; expenses
of preparing, printing and mailing prospectuses, reports, notices, proxy
statements and reports to shareholders and to governmental officers and
commissions; its allocated share, together with other portfolios of Principal
Preservation, of expenses associated with annual and special shareholder
meetings and Director's meetings; expenses relating to the issuance,
registration and qualification of shares of Cash Reserve and the preparation,
printing and mailing of prospectuses for such purposes; and membership dues in
the Investment Company Institute allocable to Cash Reserve. Fees common to
more than
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one of the Principal Preservation portfolios are pro rated among them based on
total assets, and fees of Cash Reserve common to both Classes of Cash Reserve's
shares would be pro rated based on the number of shares of each Class
outstanding. However, fees unique to one Class of Cash Reserve's shares (e.g.
- -- state registration fees, costs of holding a meeting of shareholders to vote
on a matter affecting only one of the two Classes, etc.) would be allocated to
the affected Class.
DETERMINATION OF NET ASSET VALUE PER SHARE
Shares of Cash Reserve would be sold at their net asset value per
share, determined in compliance with Rule 2a-7. Cash Reserve will attempt to
maintain a stable net asset value of $1.00 per share. There will be no sales
charge (see "Information About Cash Reserve - Purchase Of Shares"). The net
asset value of the shares of Cash Reserve will be determined and the shares of
Cash Reserve will be priced as of 12:00 noon (New York time) on each Business
Day of Cash Reserve. A "Business Day" is a day on which the New York Stock
Exchange (the "Exchange") is open for trading and any other day (other than a
day on which no shares of Cash Reserve are tendered for redemption and no order
to purchase any shares is received) during which there is sufficient trading in
money market instruments that Cash Reserve's net asset value might be
materially affected. Net asset value per share of Cash Reserve's Institutional
Class will be calculated by dividing the value of Cash Reserve's net assets by
the number of shares of both classes of Cash Reserve outstanding at the time
the determination is made.
PURCHASE OF SHARES
Following the Reorganization shares of the Institutional Class will be
available for purchase by investors at net asset value with no sales charge
through B.C. Ziegler. The minimum initial investment in the Institutional
Class is $50,000. The subsequent minimum investment in the Institutional Class
is $100. Shares of Cash Reserve will be available for purchase in only those
states where they may be lawfully sold. Cash Reserve will not issue shares for
consideration other than cash except in the case of a bona fide reorganization
or statutory merger or in certain other acquisitions of portfolio securities
which meet certain criteria in accordance with state securities laws.
Purchases of shares of the Institutional Class may be made by sending
a check, payable to Principal Preservation Portfolios, Inc., to B.C. Ziegler,
215 North Main Street, West Bend, Wisconsin 53095. Shares also will be
available for purchase by wire provided you advise Principal Preservation in
advance by calling 800-826-4600. Please wire funds to M&I First National Bank,
West Bend, Wisconsin (ABA #075909576), for credit to the account of Principal
Preservation, account number 692-343-7. Wire purchase instructions must
include the name Principal Preservation Cash Reserve Portfolio, and must
identify the Class (Institutional Class) and the investor's account number.
Wire purchases received by B.C. Ziegler prior to 12:00 noon (New York time) on
a Business Day will be effective that day. Wire purchases received after 12:00
noon (New York time) will be invested on the next Business Day.
Orders received by B.C. Ziegler prior to 12:00 noon (New York time)
will be invested at the net asset value computed at 12:00 noon (New York time).
Purchases will therefore be effected on the same day the purchase order is
received provided such order is received prior to 12:00 noon (New York time) on
any Business Day. Shares purchased earn dividends from and including the day
the purchase is effected. It is anticipated that the net asset value of $1.00
per share of Cash Reserve's Institutional Class will remain constant. Although
there can be no assurance that a $1.00 net asset value can be maintained on a
continual basis, specific investment policies and procedures will be employed
to accomplish this result.
REDEMPTIONS
Following the Reorganization any or all of your shares of Cash
Reserve's Institutional Class will be redeemable as described below on any
Business Day at the net asset value next determined (see "Information About
Cash Reserve - Determination Of Net Asset Value Per Share").
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By Telephone. If you complete the Telephone Redemption Authorization
and signature guarantee sections of the account application, you will be
permitted to redeem shares by calling Principal Preservation at 800-826-4600.
This authorization must be on file at least five days prior to the first
telephone redemption. This authorization requires a signature guarantee.
Redemption will be made by wire to the bank account designated on the account
application or a check will be sent to you at the registered address for your
account on the business day following the redemption.
Shares represented by a stock certificate will not be redeemable by
telephone. Additionally, shares paid for by personal, corporate, or government
check cannot normally be redeemed before the 15th day after the purchase date
or until the check clears.
By establishing the telephone redemption service, you will authorize
B.C. Ziegler or Principal Preservation, as the case may be to: (1) act upon the
instruction of any person by telephone to redeem shares from the account for
which such services have been authorized; and (2) honor any written
instructions for a change of address if accompanied by a signature guarantee.
You should bear in mind that, by establishing the telephone redemption service,
you assume some risks for unauthorized transactions. B.C. Ziegler and
Principal Preservation have implemented procedures designed to reasonably
assure that telephone instructions are genuine. These procedures include
recording telephone conversations, requesting verification of various pieces of
personal information and providing written confirmation of such transactions.
If either of them or any of their employees fail to abide by these procedures,
Cash Reserve may be liable to a shareholder for losses he or she suffers from
any resulting unauthorized transaction(s). However, neither B.C. Ziegler nor
Principal Preservation nor any of their employees will be liable for losses
suffered by you which result from following telephone instructions reasonably
believed to be genuine after verification pursuant to these procedures. This
service may be changed, modified or terminated at any time. There is currently
no charge for telephone redemptions, although a charge may be imposed in the
future.
By Mail. To redeem shares by mail, the following information must be
sent to Principal Preservation: (1) a written request for redemption signed by
the registered owner(s) of the shares, exactly as the account is registered,
together with the shareholder's account number; (2) the stock certificates for
the shares being redeemed, if the certificates are held by the shareholder; (3)
any required signature guarantees (see "Signature Guarantees" below); and (4)
any additional documents which might be required for redemptions by
corporations, executors, administrators, trustees, guardians, or other similar
entities.
Cash Reserve will redeem shares when it has received all necessary
documents. You will be notified promptly if your redemption request cannot be
accepted. Cash Reserve cannot accept redemption requests which specify a
particular date for redemption or which specify any special conditions.
Questions concerning redemption procedures should be directed to Principal
Preservation at 800-826-4600.
Signature Guarantees. To protect you and Cash Reserve from fraud,
signature guarantees will be required for certain redemptions. Signature
guarantees enable Cash Reserve to be sure that you are the person who has
authorized a redemption from their account. Signature guarantees will be
required for: (1) any redemptions by mail if the proceeds are to be paid to
someone else or are to be sent to an address other than your address as shown
on Cash Reserve's records; (2) any redemptions by mail which request that the
proceeds be wired to a bank; (3) authorizations to redeem by telephone; and (4)
requests to transfer the registration of shares to another owner. These
requirements may be waived by Principal Preservation in certain instances.
Cash Reserve will accept signature guarantees from all institutions
which are eligible to provide them under federal or state law, provided the
individual giving the signature guarantee is authorized to do so. Institutions
which typically are eligible to provide signature guarantees include commercial
banks, trust companies, brokers, dealers, national securities exchanges,
savings and loan associations and credit unions. A signature guarantee is not
the same as a notarized signature.
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Sending Redemption Proceeds. Cash Reserve will not send redemption
proceeds until all payments for the shares being redeemed have cleared, which
normally takes 15 days from the receipt of payment for the shares.
By Mail. Cash Reserve will mail checks for redemption proceeds
typically within one or two days, but not later than seven days, after it
receives the request and all necessary documents.
By Wire. Cash Reserve will normally wire redemption proceeds to your
bank the next business day after receiving the redemption request and all
necessary documents. The signatures on any written request for a wire
redemption must be guaranteed. Cash Reserve will advise you of any wire
charges it imposes. These charges are subject to change. You will be
responsible for any charges which your bank may make for receiving wires.
Checkwriting. Upon request, investors will be provided with checks to
be drawn on Cash Reserve ("Redemption Checks"). Redemption Checks may be
written for amounts not exceeding $500,000. Investors who write Redemption
Checks for amounts under $250 will be charged a $10.00 service fee per check.
When a Redemption Check is presented for payment, a sufficient number of full
and fractional shares in the investor's account will be redeemed as of the next
determined net asset value to cover any amounts paid. Investors will continue
earning income dividends until Redemption Checks are presented for payment.
Investors wishing to use this method of redemption must complete and return the
Account Information Form, which is available from Principal Preservation or
B.C. Ziegler. Redemption Checks should not be used to close your account.
Cash Reserve reserves the right to modify or terminate this privilege at any
time.
Unless otherwise authorized on the Account Information Form,
Redemption Checks must be signed by all account owners. If Cash Reserve
receives written notice from any owner revoking another owner's authority to
sign individually, the signatures of all account owners will be required for
payment on any Redemption Check. Shares purchased by check may not be redeemed
via Redemption Check until 15 days after receipt of funds for said shares.
Investors may not use checkwriting to redeem shares held in certificated form.
Cash Reserve may refuse to honor Redemption Checks whenever the right
of redemption has been suspended, or if the account is otherwise impaired. A
$10.00 service fee per check will be charged if (a) a Redemption Check for less
than $250 is presented for payment, (b) the amount of a Redemption Check
presented for payment exceeds the value of the investor's account, (c) a
Redemption Check is presented that may not be cleared because it would require
redemption of shares purchased by check within 15 days, or (d) a stop payment
is requested which would require closing your current account and opening a new
one.
Conditions on Redemptions. If your account balance drops below
$25,000 for three months or more, Cash Reserve has the right to redeem your
account, after giving 60 days notice, unless you make additional investments to
bring the account value to $50,000 or more.
Cash Reserve will be permitted to suspend the right to redeem shares
for any period during which (a) the Exchange is closed or the Securities and
Exchange Commission determines that trading on the Exchange is restricted; (b)
there is an emergency as a result of which it is not reasonably practical for
Cash Reserve to sell its securities or to calculate the fair value of its net
assets; or (c) the Securities and Exchange Commission may permit for the
protection of Cash Reserve's shareholders. Principal Preservation's Board of
Directors may determine that it may not be reasonably practical for Cash
Reserve to calculate the fair value of its net assets, and therefore it is
possible that Cash Reserve will suspend the right to redeem shares.
It is possible that conditions may arise in the future which would, in
the opinion of the Board of Directors of Principal Preservation, make it
undesirable for Cash Reserve to pay for all redemptions in cash. In such
cases, the Board may authorize payment to be made in securities or other
property of Cash Reserve.
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DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND REINVESTMENTS
Cash Reserve will determine its net income and realized capital gains,
if any, on each Business Day and allocate all such income and gain pro rata
among its shareholders at the time of such determination. Principal
Preservation will declare dividends from Cash Reserve's income on each Business
Day and will pay cash dividends for the preceding month within the first five
Business Days of each month. Cash Reserve reserves the right to include
realized short-term gains, if any, in any such daily dividends. Since Cash
Reserve will be subject to a 4% nondeductible excise tax on certain
undistributed amounts of ordinary income and capital gains, Principal
Preservation expects to make such other distributions as are necessary to avoid
the application of this tax. Unless a shareholder instructs Principal
Preservation to pay dividends or capital gains distributions in cash, dividends
and distributions will automatically be reinvested at net asset value in
additional shares of Cash Reserve.
TAX STATUS
Principal Preservation intends to qualify Cash Reserve as a regulated
investment company, as defined in the Internal Revenue Code of 1986, as amended
(the "Code"). Provided Cash Reserve meets the requirements imposed by the
Code, Cash Reserve will not pay any federal income or excise taxes. Dividends
paid by Cash Reserve from its taxable net investment income and distributions
by Cash Reserve of its net realized short-term capital gains will be taxable to
shareholders as ordinary income, whether received in cash or reinvested in
additional shares of Cash Reserve. Principal Preservation does not expect that
Cash Reserve will realize long-term capital gains and thus does not contemplate
paying distributions taxable to shareholders as long-term capital gains. Cash
Reserve's dividends and distributions will not qualify for the
dividends-received deduction for corporations.
Statements as to the tax status of each shareholder's dividends and
distributions, if any, will be mailed annually. Each shareholder will also
receive, if appropriate, various written notices after the end of Cash
Reserve's prior taxable year as to the federal income tax status of his or her
dividends and distributions which were received from Cash Reserve during that
year. Shareholders should consult their tax advisers to assess the
consequences of investing in Cash Reserve under state and local laws generally
and to determine whether dividends paid by Cash Reserve that represent interest
derived from U.S. Government securities will be exempt from any applicable
state or local income taxes.
MISCELLANEOUS
PRINCIPAL SHAREHOLDERS
As of the Record Date, the following shareholders owned of record or,
to the knowledge of management, beneficially owned more than 5% of the
outstanding shares of the Institutional Fund: Community Memorial Hospital,
W180 N8085 Town Hall Road, Menomonee Falls, Wisconsin 53051 - 2,373,213 shares,
or 5.81% of all outstanding shares; and, M&I First National Bank, Trustee, P.O.
Box 190, 321 North Main Street, West Bend, Wisconsin 53095 - 23,316,368
shares, or approximately 57.04% of all outstanding shares of the Institutional
Fund. No other person owns of record or beneficially 5% or more of the
outstanding securities of the Institutional Fund. The Trustees and officers of
Prospect Hill as a group own less than 1% of the outstanding securities of the
Institutional Fund.
INTERESTS OF EXPERTS AND COUNSEL
No expert or counsel named herein has a substantial interest in
Prospect Hill, Principal Preservation the Institutional Fund or Cash Reserve,
nor does any such expert or counsel have any substantial interest in the
Reorganization or any other transaction described in this Proxy
Statement/Prospectus.
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COSTS OF SOLICITATION
In addition to this solicitation of proxies by use of the mails,
proxies may be solicited by officers of Prospect Hill and by officers and
employees of ZAMI or B.C. Ziegler, personally or by telephone or telegraph,
without special compensation. Proxies may also be solicited by a professional
proxy solicitation service should management of Prospect Hill determine that
solicitation by such means is advisable. The cost of preparing and mailing
proxy materials, of the Special Meeting, and of soliciting proxies will be
borne by B.C. Ziegler and/or its affiliates as described under the section of
this Proxy Statement/Prospectus captioned "The Proposed Reorganization - Plan
of Reorganization and Liquidation."
SHAREHOLDER MEETINGS
Principal Preservation is organized as a Maryland corporation and as
such is subject to Maryland law. Pursuant to Maryland law and the Articles of
Incorporation and Bylaws of Principal Preservation, Principal Preservation is
not required to hold a shareholder meeting in any year in which the election of
directors, approval of an investment advisory agreement or ratification of the
selection of independent public accountants is not required to be acted upon by
shareholders of Principal Preservation under the 1940 Act. Meetings of the
shareholders of Principal Preservation will be held and as determined necessary
by the Board of Directors of Principal Preservation and in accordance with the
1940 Act. Other than the Special Meeting to which this Proxy
Statement/Prospectus relates, Principal Preservation currently does not
anticipate that it will hold any meeting of shareholders which would involve
shareholders of Cash Reserve or of either of its Classes in 1996.
Shareholders who wish to present a proposal for action at the next
meeting or suggestions as to nominees for the Board of Directors should submit
the proposal or suggestions to the following address: Principal Preservation
Portfolios, Inc., 215 North Main Street, West Bend, Wisconsin 53095, Attention:
S. Charles O'Meara, Secretary.
SHAREHOLDER INQUIRIES
In addition to the Institutional Class, Cash Reserve also will offer
shares of its Retail Class to the public. Shares of the Retail Class will have
a different distribution system and expense structure than shares of the
Institutional Class, and accordingly performance of the Retail Class will vary
from that of the Institutional Class. Holders of shares of Cash Reserve's
Institutional Class who would like to obtain information regarding Cash
Reserve's Retail Class, or who have any other questions or inquiries regarding
their investment, should direct their questions and inquiries to Principal
Preservation at 215 North Main Street, West Bend, Wisconsin, 53095; or by
telephone at (800) 826-4600.
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APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION AND LIQUIDATION
This Agreement and Plan of Reorganization and Liquidation (the "Plan")
is made as of this 8th day of December, 1995, by and between Prospect Hill
Trust ("Prospect Hill"), on behalf of its series known as the Prospect Hill
Prime Money Market Fund (the "Institutional Fund"), and Principal Preservation
Portfolios, Inc. ("Principal Preservation"), on behalf of its series known as
the Cash Reserve Portfolio ("Cash Reserve").
R E C I T A L S
WHEREAS, Prospect Hill: (a) is a Massachusetts business trust duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts; (b) is registered as an open-end series
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and (c) presently has only one designated series which is the
Institutional Fund;
WHEREAS, Principal Preservation: (a) is a Maryland corporation duly
organized, validly existing and in good standing under the laws of the State of
Maryland; (b) is registered as an open-end series management investment company
under the 1940 Act; and (c) presently has designated nine separate series, one
of which is Cash Reserve;
WHEREAS, the capital stock of Cash Reserve presently consists of 300
million shares of a single class of common stock, $.001 par value per share,
having a stable net asset value of $1.00 per share;
WHEREAS, effective as of the "Closing Date" (as defined in Article 4
of this Plan), the shares of common stock of Cash Reserve will be divided into
two separate classes, designated as Class X Common Stock (the "Retail Class")
and Class Y Common Stock (the "Institutional Class"), with 200 million shares
of Principal Preservation's common stock allocated to each such Class;
WHEREAS, this Plan is intended to be, and is adopted as, a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of
the Internal Revenue Code of 1986, as amended (the "Code"). The reorganization
will comprise the transfer of substantially all of the assets of the
Institutional Fund, subject to its liabilities, to Cash Reserve in exchange
solely for shares of Cash Reserve's Institutional Class, and the constructive
distribution after the Closing Date (as hereinafter defined) of such shares of
the Institutional Class to the shareholders of the Institutional Fund in
liquidation of the Institutional Fund, all upon the terms and conditions
hereinafter set forth in this Plan; and
WHEREAS, the execution, delivery and performance of this Plan will
have been duly authorized prior to the Closing Date by all necessary corporate
action on the part of Principal Preservation and Prospect Hill, respectively,
and this Plan constitutes a valid and binding obligation of each of the parties
hereto enforceable in accordance with its terms, subject to the requisite
approval of the shareholders of the Institutional Fund.
A G R E E M E N T
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. REDESIGNATION OF PRESENTLY OUTSTANDING SHARES OF CASH RESERVE AS
SHARES OF CASH RESERVE'S RETAIL CLASS
1.1 REDESIGNATION. Effective as of the "Effective Time" (as
defined in Article 4 of this Plan), each share of Cash Reserve's presently
designated single class of common stock then issued and outstanding
automatically will be redesignated (without otherwise affecting the rights and
privileges appertaining thereto) as a share of Cash Reserve's Retail Class
without any action on the part of the holder thereof, and will represent a pro
rata interest (taken together with outstanding shares of Cash Reserve's
Institutional Class without regard to Class) in the assets and liabilities of
Cash Reserve. Notwithstanding this change in designation, the rights and
privileges of outstanding shares of Cash Reserve's presently-designated single
class of common stock will remain the same.
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1.2 NO ISSUANCE OF CERTIFICATES. Cash Reserve will not issue
certificates representing redesignated shares of its presently authorized,
single class of common stock unless requested to do so by the holder thereof.
After the Effective Time, any outstanding certificates representing shares of
Cash Reserve's presently designated single class of common stock will instead
represent the same number of shares of Cash Reserve's newly-designated Retail
Class. Certificates representing shares of Cash Reserve's presently designated
single class of common stock will, upon presentation to Principal
Preservation's transfer agent, be exchanged for share certificates representing
an equal number of shares of Cash Reserve's newly-designated Retail Class.
1.3 TRANSFER AGENT'S RECORDS. Ownership of shares of Cash
Reserve's Retail Class will be shown on the books of Principal Preservation's
transfer agent. Shares of Cash Reserve's Retail Class will be issued in the
manner described in the then-effective Prospectus and Statement of Additional
Information of Principal Preservation relating to the Retail Class of Cash
Reserve.
1.4 OPERATING PLAN. From and after the Effective Time, the rights
and privileges of the Retail Class shall be determined under the provisions of
Maryland law, Principal Preservation's Articles of Incorporation (including
Articles Supplementary to be filed with the Maryland State Department of
Assessments and Taxation for the purpose of designating the two separate
Classes of Cash Reserve's common stock), Principal Preservation's Bylaws and
the operating plan adopted by Principal Preservation's Board of Directors which
establishes policies and procedures for allocating income and expenses between
Cash Reserve's Institutional Class and its Retail Class, which further defines
the relative voting rights of the two Classes and which otherwise delineates
the relative rights, privileges and liabilities of shares of the two Classes.
2. TRANSFER OF ASSETS AND LIABILITIES OF THE INSTITUTIONAL FUND TO CASH
RESERVE IN EXCHANGE FOR SHARES OF CASH RESERVE'S INSTITUTIONAL CLASS;
LIQUIDATION OF THE INSTITUTIONAL FUND
2.1 TRANSFER AND EXCHANGE OF ASSETS FOR SHARES. Subject to the
terms and conditions set forth herein, Prospect Hill, on behalf of the
Institutional Fund, agrees to transfer the assets of the Institutional Fund as
set forth in Section 2.2 to Cash Reserve, subject to the liabilities of the
Institutional Fund as set forth in Section 2.3, and Principal Preservation, on
behalf of Cash Reserve, agrees to deliver to the Institutional Fund in exchange
therefore the number of shares of Cash Reserve's Institutional Class which is
equal to the number of shares of the Institutional Fund outstanding as of the
Effective Time. Shares of Cash Reserve's Institutional Class so issued will
have a net asset value of $1.00 pursuant to the provisions of Rule 2a-7 under
the 1940 Act. Such transactions shall take place at the closing provided for
in Article 4 of this Plan (the "Closing").
2.2 DESCRIPTION OF ASSETS TO BE EXCHANGED. The assets of the
Institutional Fund to be transferred to Cash Reserve shall include, without
limitation, all cash, cash equivalents, securities, receivables (including
interest or dividends receivable) and other property owned by the Institutional
Fund and any deferred or prepaid expenses shown as an asset on the books of the
Institutional Fund as of the "Effective Time" defined in Section 4.1 of this
Plan.
2.3 LIABILITIES TO BE ASSUMED. Cash Reserve will assume from the
Institutional Fund all debts, liabilities, obligations and duties of the
Institutional Fund of whatever kind or nature, whether absolute, accrued,
contingent or otherwise, whether or not arising in the ordinary course of
business, whether or not determinable as of the Effective Time and whether or
not specifically referred to in this Plan; provided, however, that it is
understood and agreed by the parties hereto that the Institutional Fund will
utilize its best efforts to discharge all of its known debts, liabilities,
obligations and duties prior to the Effective Time. Any such liabilities and
obligations of the Institutional Fund assumed by Cash Reserve shall be
allocated to the shares of Cash Reserve's Institutional Class issued to the
Institutional Fund pursuant to this Plan.
2.4 LIQUIDATION OF INSTITUTIONAL FUND. As provided in Section 4.3
of this Plan, as soon after the "Effective Time" as is conveniently practicable
(the "Liquidation Date"), the Institutional Fund will liquidate and distribute
pro rata to its shareholders of record, determined as of the Effective Time,
the shares of Cash Reserve's Institutional Class received by the Institutional
Fund pursuant to Section 2.1 in exchange for each such shareholder's interest
in the Institutional Fund evidenced by such shareholder's shares of beneficial
interest in the Institutional
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Fund. Such liquidation and distribution will be accomplished by opening
accounts on the books of Cash Reserve in the names of the Institutional Fund
shareholders and transferring the shares credited to the account of the
Institutional Fund on the books of Cash Reserve. Each account opened shall
represent the respective pro rata number of shares of Cash Reserve's
Institutional Class due each Institutional Fund shareholder. Fractional shares
of Cash Reserve's Institutional Class shall be rounded to the nearest
thousandth of one share.
2.5 NO ISSUANCE OF CERTIFICATES. Cash Reserve will not issue
certificates representing the shares of its Institutional Class issued in
connection with such exchange unless requested to do so by an Institutional
Fund shareholder. After the Effective Time, any outstanding certificates
representing shares of the Institutional Fund will instead represent the same
number of shares of Cash Reserve's Institutional Class distributed to
shareholders of record of the Institutional Fund. Share certificates for the
Institutional Fund will, upon presentation to Prospect Hill's transfer agent,
be exchanged for share certificates representing an equal number of shares of
Cash Reserve's Institutional Class.
2.6 TRANSFER AGENT'S RECORDS. Ownership of shares of Cash
Reserve's Institutional Class will be shown on the books of Principal
Preservation's transfer agent. Shares of Cash Reserve's Institutional Class
will be issued in the manner described in the then-effective Prospectus and
Statement of Additional Information of Principal Preservation relating to the
Institutional Class of Cash Reserve.
2.7 TRANSFER TAXES. Any transfer taxes payable upon the issuance
of shares of Cash Reserve's Institutional Class in a name other than the
registered holder of the shares on the books of the Institutional Fund as of
the time of issuance shall be paid by the person to whom such shares are to be
issued as a condition of such transfer.
2.8 REPORTING RESPONSIBILITIES OF INSTITUTIONAL FUND. Any
reporting obligations relating to the Institutional Fund are and shall remain
the responsibility of Prospect Hill up to and including the Effective Time and
such later date on which the Institutional Fund is liquidated and Prospect Hill
is dissolved.
2.9 OPERATING PLAN. From and after the Effective Time, the rights
and privileges of the Retail Class shall be determined under the provisions of
Maryland law, Principal Preservation's Articles of Incorporation (including
Articles Supplementary to be filed with the Maryland State Department of
Assessments and Taxation for the purpose of designating the two separate
Classes of Cash Reserve's common stock), Principal Preservation's Bylaws and
the operating plan adopted by Principal Preservation's Board of Directors which
establishes policies and procedures for allocating income and expenses between
Cash Reserve's Institutional Class and its Retail Class, which further defines
the relative voting rights of the two Classes and which otherwise delineates
the relative rights, privileges and liabilities of shares of the two Classes.
3. VALUATION
3.1 NET ASSET VALUE OF INSTITUTIONAL FUND. The value of the
Institutional Fund's assets and liabilities to be acquired by Cash Reserve
shall be the net asset value of the Institutional Fund computed on the date of
which the Effective Time occurs, and shall be computed at the time and in the
manner set forth in Prospect Hill's then-current Prospectus and Statement of
Additional Information relating to the Institutional Fund (such time and date
being hereinafter called the "Valuation Date").
3.2 VALUATION OF SHARES OF INSTITUTIONAL CLASS. For the purpose
of computing the number of shares of Cash Reserve's Institutional Class to be
issued to the Institutional Fund in exchange for the Institutional Fund's total
net assets, each share of Cash Reserve's Institutional Class shall have a value
of One and 00/100 Dollars ($1.00 per share), calculated pursuant to Rule 12a-7
under the 1940 Act.
3.3 EXCHANGE RATIO. The number of shares of Cash Reserve's
Institutional Class to be issued (including fractional shares, if any) in
exchange for the net assets of the Institutional Fund shall be equal to the
number of shares of the Institutional Fund outstanding as of the Effective
Time.
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3.4 DOCUMENTATION. All computations of value shall be made by
B.C. Ziegler and Company, in accordance with its regular practice as pricing
agent for Prospect Hill and for the Prime Money Market Portfolio, a series of
The Prime Portfolios in which the Institutional Fund presently invests all of
its investable assets. In addition, Prospect Hill shall furnish to Principal
Preservation within 60 days of the "Closing Date" (as defined in Section 4.1 of
this Plan) a statement of the Institutional Fund's assets and liabilities as of
the Effective Time, which statement shall be prepared in accordance with
generally accepted accounting principles consistently applied and shall be
certified by the Treasurer of Prospect Hill. In addition, Prospect Hill shall
supply to Principal Preservation, in such form as is reasonably satisfactory to
Principal Preservation, a statement of earnings and profits of the
Institutional Fund for federal income tax purposes which may be carried over to
the Cash Reserve's Institutional Class of shares as a result of Section 381 of
the Code. This statement shall be provided within 180 days of the Closing
Date.
4. CLOSING AND CLOSING DATE
4.1 ESTABLISHMENT OF CLOSING DATE; DESCRIPTION OF CLOSING. The
"Closing Date" shall be December 31, 1995, or such later date as the parties
may agree in writing. All acts taking place at the Closing shall be deemed to
take place simultaneously as of the close of business on the last business day
immediately preceding the Closing (the "Effective Time"), unless otherwise
provided. The Closing shall be held on the Closing Date at 5:30 p.m., Central
Time, at the principal offices of Principal Preservation at 215 East Main
Street, West Bend, Wisconsin, or such other time and/or place as the parties
may agree.
4.2 DELIVERIES BY TRANSFER AGENT. B.C. Ziegler and Company, as
depository for Prospect Hill and for the Prime Money Market Portfolio of The
Prime Portfolios, shall deliver at the Closing a certificate of an authorized
officer stating that: (a) the Institutional Fund's portfolio securities, cash
and any other assets shall have been delivered in proper form to Principal
Preservation on the Closing Date; and (b) all necessary taxes, including all
applicable federal and state stock transfer stamps, if any, shall have been
paid, or provision for payment shall have been made, in connection with the
delivery of portfolio securities.
4.3 CLOSING OF NEW YORK STOCK EXCHANGE. In the event that on the
Valuation Date: (a) the New York Stock Exchange is closed to trading or
trading thereon is restricted; or (b) trading or the reporting of trading on
said Exchange or elsewhere is disrupted so that accurate appraisal of the value
of the total net assets of the Institutional Fund is impracticable, then the
Closing Date shall be postponed until the first business day after the day when
trading shall have been fully resumed and reporting shall have been restored.
4.4 LIST OF INSTITUTIONAL FUND SHAREHOLDERS. Prospect Hill shall
deliver at the Closing a list of names and addresses of the shareholders of the
Institutional Fund and the number and percentage ownership of outstanding
shares owned by each such shareholder, all as of the Effective Time, certified
by the Secretary or Assistant Secretary of Prospect Hill. Principal
Preservation shall issue and deliver to said Secretary or Assistant Secretary
of Prospect Hill a confirmation evidencing the shares of Cash Reserve's
Institutional Class to be credited to the Institutional Fund on the Liquidation
Date, or provide other evidence satisfactory to Prospect Hill that such shares
of Cash Reserve's Institutional Class have been credited to the account of the
Institutional Fund on the records of Principal Preservation's transfer agent
maintained with respect to the Cash Reserve's Institutional Class. At the
Closing, each party shall deliver to the other such bills of sale, checks,
assignments, share certificates, receipts or other transfer documents as such
other party may reasonably request.
5. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARTIES
The obligations of Prospect Hill hereunder and the obligations of
Principal Preservation hereunder are subject to the conditions that on or
before the Closing Date:
5.1 APPROVAL OF PLAN BY INSTITUTIONAL FUND SHAREHOLDERS. This
Plan and the transactions contemplated hereby shall have been approved by the
requisite vote of the holders of the outstanding shares of the Institutional
Fund in accordance with the provisions of the law of business trusts of the
Commonwealth of Massachusetts, the provisions of the 1940 Act and the
provisions of Prospect Hill's Declaration of Trust and Bylaws;
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5.2 NO ADVERSE ACTIONS. On the Closing Date, no action, suit or
other proceeding shall be pending before any court or governmental agency in
which it is sought to restrain or prohibit or obtain damages or other relief in
connection with this Plan or the transactions contemplated hereby;
5.3 CONSENTS AND APPROVALS. All consents of other parties and all
other consents, orders and permits of federal, state and local regulatory
authorities (including those of the Securities and Exchange Commission and of
state Blue Sky or securities authorities, including "no-action" positions of
such federal or state authorities) deemed necessary by Prospect Hill or
Principal Preservation to permit consummation, in all material respects, of the
transactions contemplated hereby, shall have been obtained, except where
failure to obtain any such consent, order or permit would not involve a risk of
a material adverse effect on the assets or properties of the Institutional Fund
or Cash Reserve, provided that either party hereto may for itself waive any of
such conditions;
5.4 EFFECTIVENESS OF REGISTRATION STATEMENT ON FORM N-14;
NO-ACTION RELIEF. A Registration Statement on Form N-14 relating to the shares
of Cash Reserve's Institutional Class issuable hereunder, including the
combined Proxy Statement of the Institutional Fund and the Prospectus of
Principal Preservation (relating to the shares of Cash Reserve's Institutional
Class issuable pursuant to the terms of this Plan) constituting a part thereof,
shall have become effective under the Securities Act of 1933 and no stop order
suspending the effectiveness thereof shall have been issued and, to the best
knowledge of the parties hereto, no investigation or proceeding for that
purpose shall have been instituted or be pending, threatened or contemplated
under the Securities Act of 1933. Additionally, Principal Preservation and
Prospect Hill shall have received a favorable written response to the no-action
request originally submitted to the SEC's Chief Counsel's Office under Quarles
& Brady's October 26, 1995 letter, as resubmitted under Quarles & Brady's
December 6, 1995 letter (the "No-Action Request"), or the issues raised in the
No-Action Request shall have otherwise been resolved to the mutual satisfaction
of the parties.
5.5 TAX OPINIONS. Each of Prospect Hill and Principal
Preservation shall have obtained an opinion of Quarles & Brady, legal counsel
to Prospect Hill and Principal Preservation, in form and substance reasonably
satisfactory to their respective Boards, to the effect that the transactions
contemplated by this Plan will constitute a tax-free reorganization pursuant to
Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended, and
that, accordingly, no gain or loss will be recognized by the Institutional
Fund, Cash Reserve or their respective shareholders.
6. EXPENSES
The expenses incurred in connection with the entering into and
carrying out the provisions of this Plan will be borne and paid by B.C.
Ziegler and Company, and not by Cash Reserve or the Institutional Fund.
7. TERMINATION
7.1 MUTUAL AGREEMENT. This Plan may be terminated by the mutual
agreement of Prospect Hill and Principal Preservation.
7.2 MATERIAL BREACH. In addition, either Prospect Hill or
Principal Preservation may, at its option, terminate this Plan at or prior to
the Closing Date on account of a material breach by the other of any agreement
contained herein to be performed by such other party at or prior to the Closing
Date.
7.3 FAILURE OF CONDITION PRECEDENT. In addition, either Prospect
Hill or Principal Preservation may, at its option, terminate this Plan at or
prior to the Closing Date on account of a condition herein expressed to be
precedent to the obligation of such party which has not been met and which
appears cannot reasonably, or will not, be met.
7.4 EFFECTS OF TERMINATION. In the event of any such termination,
there shall be no liability for damage on the part of Prospect Hill or
Principal Preservation or their respective Trustees, Directors or officers.
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8. AMENDMENT
This Plan may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the parties hereto; provided,
however, that following the meeting of the shareholders of the Institutional
Fund described in Section 5.1 of this Plan, no such amendment may have the
effect of changing the provisions for determining the number of shares of Cash
Reserve's Institutional Class to be issued to the Institutional Fund
shareholders under this Plan to the detriment of such shareholders without
their further approval.
9. MISCELLANEOUS
9.1 HEADINGS. The section headings contained in this Plan will
have reference purposes only and shall not effect in any way the meaning or
interpretation of this Plan.
9.2 GOVERNING LAW. This Plan shall be governed by and construed
in accordance with the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, each of the parties hereto has caused this Plan to
be executed on its behalf by its duly authorized officer as of the day and year
first written above.
PROSPECT HILL TRUST
(ON BEHALF OF THE PROSPECT HILL PRIME MONEY MARKET FUND)
By: /s/ Robert J. Tuszynski
-------------------------------------
Robert J. Tuszynski, Chairman of
the Board
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
(ON BEHALF OF THE CASH RESERVE PORTFOLIO)
By: /s/ R. D. Ziegler
-------------------------------------
R. D. Ziegler, President
B. C. ZIEGLER AND COMPANY
(SOLELY TO EVIDENCE ITS CONCURRENCE WITH SECTION 6
HEREOF)
By: /s/ Peter D. Ziegler
------------------------------------
Peter D. Ziegler, President
A-6
<PAGE> 35
PROSPECT HILL PRIME MONEY MARKET FUND
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Robert J. Tuszynski, S. Charles O'Meara and Jay
Ferrara, or any of them individually, proxies, with full powers of
substitution, to vote for the undersigned at the Special Meeting of
Shareholders of Prospect Hill Prime Money Market Fund (the "Fund"), a series of
Prospect Hill Trust (the "Trust"), to be held at West Bend Community Memorial
Library, 230 South 6th Avenue, West Bend, Wisconsin, on Thursday, December 28,
1995, at 3:00 p.m., Central Time, Notice of which Meeting and the Proxy
Statement/Prospectus accompanying the same have been received by the
undersigned, or at any adjournment thereof, upon the following matters as
described in the Notice of Special Meeting and accompanying Proxy
Statement/Prospectus:
1. To approve or disapprove an Agreement
and Plan of Reorganization and
Liquidation between Prospect Hill Trust
(on behalf of the Prospect Hill Prime
Money Market Fund) and Principal
Preservation Portfolios, Inc. (on
behalf of the Cash Reserve Portfolio) FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. In their discretion, upon such other
matters as may properly come before the
meeting according to the number of votes
and as fully as the undersigned would be
entitled to vote if personally present,
hereby revoking any prior proxy or proxies.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
(TO BE DATED AND SIGNED ON THE REVERSE SIDE)
Shares represented by this proxy will be voted as directed by the shareholder.
IF NO DIRECTION IS SUPPLIED, THE PROXY WILL BE VOTED "FOR" PROPOSAL 1.
DATED:________________________________________, 1995
____________________________________________________
Please sign exactly as name appears at left
_____________________________________________________
(If stock is owned by more than one person, all owners
should sign. Persons signing as executors, administrators,
trustees or in similar capacities should so indicate.)
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY BALLOT PROMPTLY,
USING THE ENCLOSED ENVELOPE.
<PAGE> 36
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
CASH RESERVE PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION DATED DECEMBER 8, 1995
This Statement of Additional Information is not a prospectus. It
should be read in conjunction with the Proxy Statement/ Prospectus, dated
December 8, 1995, relating to the reorganization of the Institutional Fund into
the Institutional Class of Cash Reserve, as described and defined in said Proxy
Statement/ Prospectus. A copy of the Proxy Statement/Prospectus may be
obtained by writing to Prospect Hill Trust, 215 North Main Street, West Bend,
Wisconsin 53095, Attention: S. Charles O'Meara, Secretary, or by calling
Prospect Hill Trust's offices at (800) 255-5537. Capitalized terms used in
this Statement of Additional Information have the meanings defined in the Proxy
Statement/Prospectus, except as otherwise specifically defined in this
Statement of Additional Information.
TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL INFORMATION AND BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Current Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Structure Following the Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
MANAGEMENT OF PRINCIPAL PRESERVATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Investment Advise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Administrative Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Custodian and Depository Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
MANAGEMENT OF PROSPECT HILL AND THE PRIME PORTFOLIOS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
DETERMINATION OF NET ASSET VALUE; VALUATION OF SECURITIES; REDEMPTION IN KIND . . . . . . . . . . . . . . . . . . . . . . . . 9
TAX STATUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
CALCULATION OF PERFORMANCE DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
HISTORICAL AND PRO FORMA FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Historical Financial Statements of Institutional Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Historical Financial Statements of Cash Reserve Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Unaudited Pro Forma Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
<PAGE> 37
GENERAL INFORMATION AND BACKGROUND
CURRENT STRUCTURE
The Institutional Fund and Cash Reserve presently are part of a
two-tiered, master/feeder money market mutual fund structure known as a Hub and
Spoke(R). Presently, each of the Institutional Fund and Cash Reserve have a
capital structure consisting of a single class of common stock. The
Institutional Fund and Cash Reserve each offer their shares to the public
through a separate Prospectus and Statement of Additional Information. The
Institutional Fund markets its shares primarily to institutional investors
without the assistance of a retail brokerage network. Cash Reserve, on the
other hand, offers its shares primarily to individual investors through retail
brokerage offices. Shares of Cash Reserve pay a Rule 12b-1 distribution fee,
while shares of the Institutional Fund do not. The Institutional Fund and Cash
Reserve each invest the proceeds derived from the sale of their respective
shares in the Hub, where they are collectively managed by ZAMI pursuant to the
common investment objectives, programs and policies of the Institutional Fund
and Cash Reserve.
STRUCTURE FOLLOWING THE REORGANIZATION
Principal Preservation's Board of Directors has approved a plan
whereby Cash Reserve's capital will be restructured to include two classes of
common stock, Class X Common Stock (the "Retail Class") and Class Y Common
Stock (the "Institutional Class"), each with a par value of $0.001 per share.
Each Class will consist of 200 million authorized shares. In the
Reorganization, each outstanding share of Cash Reserve's presently-authorized,
single class of common stock will be redesignated (but otherwise unaffected) as
a share of Cash Reserve's Retail Class, and each outstanding share of the
Institutional Fund will be converted into a share of Cash Reserve's
Institutional Class. The Retail Class will continue to pay a Rule 12b-1
distribution fee, and the Institutional Class will not. All of the assets
presently held in and managed at the Hub level will be transferred to Cash
Reserve, and will be managed within Cash Reserve under the existing common
investment objectives, policies and programs of the Institutional Fund and Cash
Reserve. In short, the existing Hub and Spoke structure will be collapsed into
a single mutual fund with a dual class capital structure.
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The investment objective, policies and restrictions applicable to Cash
Reserve's Institutional Class are the same as those for the Institutional Fund.
See the section of the Institutional Fund SAI captioned "Investment Objective,
Policies and Restrictions" which is incorporated herein by reference.
2
<PAGE> 38
MANAGEMENT OF PRINCIPAL PRESERVATION
The Directors and officers of Principal Preservation and their
principal occupations during the past five years are set forth below. Their
titles may have varied during that period. Asterisks indicate those Directors
of Principal Preservation who are "interested persons" (as defined in the 1940
Act) of Principal Preservation. Unless otherwise indicated, the address of
each Director and officer of Principal Preservation is 215 North Main Street,
West Bend, Wisconsin 53095
<TABLE>
<CAPTION>
Principal
Position with Principal Occupation During
Name and Address Preservation Past Five Years
---------------- ------------ ---------------
<S> <C> <C>
R. D. Ziegler* President and Director Since 1973 Chairman and Director and,
prior to 1990, Chief Executive Officer,
and prior to 1986, President, The
Ziegler Companies, Inc. and B.C. Ziegler
and Company; Chairman and Director,
Ziegler Asset Management, Inc.;
Director, Johnson Controls, Inc.
(manufacturing).
Robert J. Tuszynski* Vice President and Vice President, Director of Mutual
Director Funds, B.C. Ziegler and Company, since
1987; Trustee, Chairman of the Board and
President, Prospect Hill Trust and The
Prime Portfolios (registered investment
companies).
Richard H. Aster, M.D. Director President and Director of Research, The
1701 W. Wisconsin Ave. Blood Center of Southeastern Wisconsin,
Milwaukee, WI 53233 Inc.
</TABLE>
3
<PAGE> 39
<TABLE>
<CAPTION>
Principal
Position with Principal Occupation During
Name and Address Preservation Past Five Years
---------------- ------------ ---------------
<S> <C> <C>
Augustine J. English Director Retired; President, Tupperware North
P.O. Box 2353 America from 1990 to 1994
Orlando, FL 32802 (manufacturing); prior to 1990,
President, The West Bend Company
(manufacturing), a division of Dart
Industries, a subsidiary of Premark
International, Inc., of which Mr.
English was a Group Vice President.
Stephen A. Roell Director Vice President, Chief Financial Officer
c/o Johnson Controls, and Assistant Secretary, Johnson
Inc. Controls, Inc. since 1991; Corporate
5757 North Green Bay Controller and Assistant Secretary,
Road Johnson Controls, Inc. from 1990 to
P.O. Box 591 1991; Treasurer, Johnson Controls, Inc.
Milwaukee, WI 53201 from 1987 to 1991.
John H. Lauderdale Vice President-Director Wholesaler, B.C. Ziegler and Company
of Marketing since 1991; prior thereto Account
Executive, The Patten Company.
Jay Ferrara Treasurer Assistant Vice President, B.C. Ziegler
and Company, since 1994; Controller,
California Investment Trust, from 1993
to 1994; prior thereto, Senior Portfolio
Accountant, Wells Fargo Nikko Investment
Advisors.
S. Charles O'Meara Secretary Senior Vice President and General
Counsel, B.C. Ziegler and Company since
1993; prior thereto, Partner, O'Meara,
Eckert, Pouros & Gonring (law firm).
</TABLE>
4
<PAGE> 40
Principal Preservation pays the compensation of the three Principal
Preservation Directors who are not officers, directors or employees of Ziegler.
They receive an annual fee of $12,000 and an additional $450 for each Board or
Committee meeting attended. The Fund pays a pro rata portion of these fees.
Principal Preservation may also retain consultants, who will be paid a fee, to
provide the Board with advice and research on investment matters.
The table below shows fees paid to Directors of Principal Preservation
for the year ended December 31, 1994. Each series of Principal Preservation,
including Cash Reserve, pays a proportionate share of these expenses based on
the ratio such series' total assets bear to the aggregate of the total assets
of all series of Principal Preservation. Principal Preservation made no
payments to its officers or directors who are affiliated with any investment
advisor to Principal Preservation.
<TABLE>
<CAPTION>
Total
Pension or Compensation
Retirement From Principal
Benefits Accrued Preservation and
Name of Person and Aggregate As Part of Fund Complex of
Position with Compensation Principal Estimated Which Principal
Principal from Principal Preservation's Annual Benefits Preservation
Preservation Preservation Expenses Upon Retirement Is a Part(1)
------------------------- ------------ -------- --------------- ---------
<S> <C> <C> <C> <C>
R. D. Ziegler, -0- -0- -0- -0-
President and Director
Robert J. Tuszynski, -0- -0- -0- -0-
Vice President and
Director
Richard H. Aster, M.D. $13,750 -0- -0- $13,750
Director
Augustine J. English, $13,750 -0- -0- $13,750
Director
Stephen A. Roell, $13,750 -0- -0- $13,750
Director
</TABLE>
_________________________
(1) No director or officer of Principal Preservation received compensation
from any other investment company within the same fund complex as
Principal Preservation.
At November 29, 1995, Principal Preservation's Directors and officers
as a group owned less than 1% of the shares of Cash Reserve. As of that date,
B.C. Ziegler and Company, pursuant to shareholder servicing arrangements, owned
of record 98.46% of Cash Reserve's outstanding shares. No other person was
known to own, of record or beneficially, 5% or more of the outstanding shares
of Cash Reserve as of that date.
5
<PAGE> 41
INVESTMENT ADVISER
ZAMI will manage the assets of Cash Reserve pursuant to an Investment
Advisory Agreement (the "Advisory Agreement") and the investment policies
described herein. Subject to such further policies as Principal Preservation's
Board of Directors may determine, ZAMI makes investment decisions for Cash
Reserve. ZAMI furnishes at its own expense all services, facilities and
personnel necessary in connection with managing Cash Reserve's investments and
effecting securities transactions for Cash Reserve.
The Advisory Agreement provides that ZAMI may render services to
others. The Advisory Agreement is terminable without penalty on not more than
60 days' nor less than 30 days' written notice by Cash Reserve when authorized
either by majority vote of the shareholders of each of Cash Reserve's Classes
(with the vote of each shareholder being in proportion to the amount of their
investment) or by a vote of a majority of Principal Preservation's Board of
Directors, or by ZAMI on not more than 60 days nor less than 30 days written
notice, and will automatically terminate in the event of its assignment. The
Advisory Agreement provides that neither ZAMI nor its personnel shall be liable
for any error of judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in the execution of security transactions
for Cash Reserve, except for willful misfeasance, bad faith, gross negligence
or reckless disregard of its or their obligations and duties under the Advisory
Agreement.
For its services under the Advisory Agreement, ZAMI receives from Cash
Reserve a fee accrued daily and paid monthly at an annual rate equal to 0.20%
of Cash Reserve's average daily net assets.
ADMINISTRATIVE SERVICES
ZAMI will provide certain administrative services to Cash Reserve,
including: (a) providing office space, equipment and clerical personnel
necessary for maintaining the organization of Principal Preservation; (b)
providing personnel to serve as directors, officers and employees of Principal
Preservation to the extent requested by Principal Preservation and as permitted
and appropriate under applicable laws and regulations; (c) supervising the
overall administration of Principal Preservation, including negotiation of
contracts and fees with, and the monitoring of performance and billings of,
Principal Preservation's independent contractors or agents; (d) preparing and,
if applicable, filing all documents required for compliance by Principal
Preservation with applicable laws and regulations; (e) preparing agendas and
supporting documents for and minutes of meetings of the Board of Directors of
Principal Preservation and committees thereof and shareholders of Cash Reserve;
and (f) maintaining other books and records of Principal Preservation.
6
<PAGE> 42
These services presently are provided to the Hub by Ziegler pursuant
to the terms of an administrative services agreement. For providing these
services, Ziegler receives a fee at the annual rate of 0.10% of the Hub's
average daily net assets up to $200 million, and 0.05% on average daily net
assets in excess of $200 million. In connection with the Reorganization, ZAMI
and Principal Preservation (on behalf of the Cash Reserve Portfolio) will enter
into a new Administrative Services Agreement on terms substantively identical
to those of the existing administrative services agreement pursuant to which
Ziegler provides administrative services to the Hub except ZAMI will receive a
slightly higher fee as described below.
Ziegler presently provides certain fund accounting and pricing
services to the Hub pursuant to the terms of an accounting/pricing agreement,
and, following the Reorganization, will continue to provide the same services
to Cash Reserve pursuant to a new Accounting/Pricing Agreement to be entered
into between Ziegler and Principal Preservation (on behalf of the Cash Reserve
Portfolio) on terms substantively identical to the existing accounting/pricing
agreement. The accounting and pricing services provided by Ziegler include:
(a) calculating daily net asset value per share for Cash Reserve; (b) posting
cash receipts and disbursements for Cash Reserve; (c) reconciling bank account
balances monthly for Cash Reserve; (d) recording purchases and sales based upon
Cash Reserve's portfolio manager communications; and (e) preparing monthly and
annual summaries to assist in the preparation of financial statements of, and
regulatory reports for, Cash Reserve.
The Administrative Services and Accounting/Pricing Agreements each
provide that they will continue in effect from year to year, as long as
approved at least annually by Principal Preservation's Board of Directors or by
a vote of the outstanding voting securities (with the separate classes voting
together) of Cash Reserve and in either case by a majority of the Directors who
are not parties to the relevant Agreement or interested persons of any such
party. Each Agreement terminates automatically if assigned and may be
terminated without penalty by either party on 60 days notice. Each Agreement
provides that neither ZAMI nor Ziegler, as the case may be, nor their
respective personnel shall be liable for any error of judgment or mistake of
law or for any loss arising out of any act or omission in the execution and the
discharge of its obligations under the Agreement, except for willful
misfeasance, bad faith or gross negligence in the performance of their duties
or by reason of reckless disregard of their obligations and duties under the
Agreement.
For providing the services contemplated by the new Administrative
Services Agreement, ZAMI will be entitled to receive a fee, computed daily and
paid monthly, at the annual rate of 0.15 of 1% of Cash Reserve's average daily
net assets up to $200 million, and 0.10 of 1% on average daily net assets in
excess of $200 million.
7
<PAGE> 43
Pursuant to the terms of an Accounting/Pricing Agreement Ziegler is
entitled to compensation at a rate approved annually by the Directors of
Principal Preservation, plus reimbursement for reasonable out-of-pocket
expenses. Under the presently approved fee structure, Cash Reserve will pay
Ziegler a monthly fee at an annual rate of 0.04 of 1% on average daily net
assets between $50 million and $100 million, 0.03 of 1% on the next $100
million, and 0.01 of 1% on average daily net assets in excess of $200 million,
subject to a minimum annual fee of $15,000 and a maximum annual fee of
$125,000.
CUSTODIAN AND DEPOSITORY SERVICES
Cash Reserve acts as custodian of its own assets. Pursuant to the
terms of a Depository Contract, Ziegler serves as Depository for the assets of
Cash Reserve. For providing services as Depository to Cash Reserve, Ziegler is
entitled to reasonable compensation and reimbursement for expenses as agreed
upon from time to time between Ziegler and Principal Preservation. Cash
Reserve will pay Ziegler a monthly fee under the Depository Contract at an
annual rate of 0.055 of 1% on the first $50 million of Cash Reserve's average
daily net assets, 0.035 of 1% on the next $150 million, 0.030 of 1% on the next
$300 million, and 0.025 of 1% on average daily net assets in excess of $500
million, subject to a minimum annual fee of $15,000.
Ziegler's responsibilities as Depository for Cash Reserve include
safeguarding and controlling its securities and other assets, handling the
receipt and delivery of securities, determining income and collecting interest
on its investments, and maintaining books of original entry for accounting
purposes and other required books and accounts. Securities held by Cash
Reserve may be deposited into authorized securities depositaries such as the
Federal Reserve-Treasury Department Book Entry System and the Depository Trust
Company, and may be held by a subcustodian bank if such arrangements are
reviewed and approved by the Directors of Principal Preservation.
MANAGEMENT OF PROSPECT HILL AND THE PRIME PORTFOLIOS
For a description of the current management of Prospect Hill and The
Prime Portfolios, please refer to the section of the Institutional Fund SAI
captioned "Management of the Trust and the Portfolio Series" which is
incorporated herein by reference.
PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES
Cash Reserve's practices with respect to portfolio transactions and
brokerage services following the Reorganization will be the same as the current
practices of The Prime Portfolios. For a detailed description of those
practices, see the section of the
8
<PAGE> 44
Institutional Fund SAI captioned "Portfolio Transactions and Brokerage
Practices" which is incorporated herein by reference.
DETERMINATION OF NET ASSET VALUE; VALUATION OF SECURITIES; REDEMPTION IN KIND
The Proxy Statement/Prospectus discusses when the net asset value of
Cash Reserve is determined for purposes of sales and redemptions. The
following is a description of the procedures used by Cash Reserve in valuing
its assets.
The valuation of Cash Reserve's securities is based on their amortized
cost, which does not take into account unrealized capital gains or losses.
Amortized cost valuation involves initially valuing an instrument at its cost
and thereafter assuming a constant amortization to maturity of any discount or
premium, generally without regard to the impact of fluctuating interest rates
on the market value of the instrument. Although this method provides certainty
in valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price Cash Reserve would receive if
it sold the instrument.
Cash Reserve's use of the amortized cost method of valuing their
securities is permitted by a rule adopted by the SEC. Cash Reserve will also
maintain a dollar-weighted average portfolio maturity of 90 days or less,
purchase only instruments having remaining maturities of 13 months or less and
invest only in securities determined by or under the supervision of the Board
of Directors of Principal Preservation to be of high quality with minimal
credit risks.
Pursuant to the rule, the Board of Directors also has established
procedures designed to allow Cash Reserve to stabilize, to the extent
reasonably possible, its price per share as computed for the purpose of sales
and redemptions at $1.00. These procedures include review of Cash Reserve's
holdings by Principal Preservation's Board of Directors, at such intervals as
it deems appropriate, to determine whether the value of Cash Reserve's assets
calculated by using available market quotations or market equivalents deviates
from such valuation based on amortized cost.
The rule also provides that the extent of any deviation between the
value of Cash Reserve's assets based on available market quotations (or an
appropriate substitute which reflects current market conditions) and such
valuation based on amortized cost must be examined by Principal Preservation's
Board of Directors. In the event the Board of Directors determines that a
deviation exists that may result in material dilution or other unfair results
to new or existing investors or existing shareholders, pursuant to the rule,
the Board of Directors must cause Cash Reserve to take such corrective action
as the Board of
9
<PAGE> 45
Directors regards as necessary and appropriate, including: selling portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity; or valuing Cash Reserve's assets by using available
market quotations.
For the purpose of determining the deviation between the value of Cash
Reserve's assets based on available market quotations and such valuation based
on amortized cost, if market quotations are not readily available, or if the
securities are illiquid, the value of such portfolio securities will be
determined in good faith by the Directors based upon calculations and findings
made by the ZAMI, and reviewed by the Directors. The Directors may consider
that certain securities are securities for which market quotations are not
readily available if the validity of the quotations received with respect to
such securities appears to be questionable. Factors which the Directors might
consider as indicating that the validity of market quotes is questionable
include an inordinately large spread between bid and ask prices, or an
inordinately small number of quotations indicating that there is only a thin
market in the securities.
Principal Preservation, on behalf of Cash Reserve, reserves the right,
if conditions exist which make cash payments undesirable, to honor any request
for redemption or repurchase order by making payment in whole or in part in
readily marketable securities chosen by Principal Preservation and valued as
they are for purposes of computing Cash Reserve's net asset value (a redemption
in kind). If payment is made in securities, an investor may incur transaction
expenses in converting these securities into cash.
Cash Reserve has elected, however, to be governed by Rule 18f-1 under
the 1940 Act, as a result of which the Portfolio is obligated to redeem
beneficial interests with respect to any one investor during any 90-day period,
solely in cash up to the lesser of $250,000 or 1% of the net asset value of
Cash Reserve at the beginning of the period.
Each investor in Cash Reserve may add to or reduce its investment in
Cash Reserve on each Business Day. A "Business Day" is any day on which the
New York Stock Exchange is open for trading and any other day (other than a day
on which no shares of Cash Reserve are tendered for redemption and no order to
purchase shares of Cash Reserve is received) during which there is sufficient
trading in money market instruments that Cash Reserve's net asset value might
be materially affected. As of 12:00 noon (New York time) on each such Business
Day, the value of each investor's interest in Cash Reserve will be determined
by multiplying the net asset value of Cash Reserve by the percentage
representing that investor's share of the aggregate outstanding shares of Cash
Reserve. Any additions or reductions which are to be effected on that day will
then be effected. The investor's percentage of the aggregate outstanding
shares of Cash Reserve will then be re-
10
<PAGE> 46
computed as the percentage equal to the fraction (i) the numerator of which is
the value of such investor's investment in Cash Reserve as of 12:00 noon on
such Business Day plus or minus, as the case may be, the amount of net
additions to or reductions in the investor's investment in Cash Reserve
effected on such Business Day, and (ii) the denominator of which is the
aggregate net asset value of Cash Reserve as of 12:00 noon on such Business Day
plus or minus, as the case may be, the amount of the net additions to or
reductions in the aggregate investments in Cash Reserve by all investors in
Cash Reserve. The percentage so determined will then be applied to determine
the value of the investor's interest in Cash Reserve as of 12:00 noon on the
next following Business Day.
TAX STATUS
The following is only a summary of certain tax considerations
generally affecting Cash Reserve and its shareholders, and is not intended as a
substitute for careful tax planning. Shareholders are urged to consult their
tax advisers with specific reference to their own tax situations.
Each series of a series company, such as Principal Preservation, is
treated as a single entity for Federal income tax purposes so that the net
realized capital gains and losses of the various series in one fund are not
combined.
Cash Reserve intends to qualify as a "regulated investment company"
under the Internal Revenue Code of 1986 (the "Code"). In order to qualify as a
regulated investment company, Cash Reserve must satisfy a number of
requirements. Among such requirements is the requirement that at least 90
percent of its gross income must be derived from dividends, interest and gains
from the sale or other disposition of stock or other securities. Another
requirement of current law is that less than 30 percent of Cash Reserve's gross
income be derived from the sale or other disposition of securities held for
less than three months. In determining these gross income requirements, a loss
from the sale or other disposition of securities does not enter into the
computation.
Cash Reserve will distribute substantially all of its net income and
capital gains so as to avoid any federal income tax to it. Although Principal
Preservation expects Cash Reserve to be relieved of all or substantially all
federal income taxes, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located or in which it is otherwise deemed to be
conducting business, that portion of Cash Reserve's income which is treated as
earned in any such state or locality could be subject to state and local tax.
Any such taxes paid by Cash Reserve would reduce the amount of income and gains
available for distribution to its shareholders.
11
<PAGE> 47
While Cash Reserve does not expect to realize net long-term capital
gains, any such gains realized will be distributed annually as described in the
Proxy Statement/Prospectus. Such distributions ("capital gain dividends"), if
any, will be taxable to shareholders as long-term capital gains, regardless of
how long a shareholder has held his or her shares, and will be designated as
capital gain dividends in a written notice mailed by Cash Reserve to
shareholders after the close of Cash Reserve's prior taxable year.
Dividends and other distributions paid to individuals and other
non-exempt payees are subject to a 31% backup federal withholding tax if Cash
Reserve's transfer agent is not provided with the shareholder's correct
taxpayer identification number or certification that the shareholder is not
subject to such backup withholding or if Cash Reserve is notified that the
shareholder has under-reported income in the past. In addition, such backup
withholding tax will apply to the proceeds of redemption or repurchase of
shares from a shareholder account for which the correct taxpayer identification
number has not been furnished. For most individual taxpayers, the taxpayer
identification number is the social security number. An investor may furnish
Cash Reserve's transfer agent with such number and the required certifications
by completing and sending Cash Reserve's transfer agent IRS Form W-9.
Interest on indebtedness incurred (directly or indirectly) by
shareholders to purchase or carry shares will not be deductible for Federal
income tax purposes.
If a shareholder exchanges shares of one Principal Preservation
portfolio for shares of another, the shareholder will recognize gain or loss
for federal income tax purposes. That gain or loss will be measured by the
difference between the shareholder's basis in the shares exchanged and the
value of the shares acquired.
CALCULATION OF PERFORMANCE DATA
Performance data for shares of Cash Reserve's Institutional Class will
be calculated and publicized in the same manner as performance data presently
is calculated and publicized for shares of the Institutional Fund. For a
detailed description of such calculations and their use, see the section of the
Institutional Fund SAI captioned "Yield Information" which is incorporated
herein by this reference.
HISTORICAL AND PRO FORMA FINANCIAL STATEMENTS
HISTORICAL FINANCIAL STATEMENTS OF INSTITUTIONAL FUND
The following financial statements and footnotes thereto of Prospect
Hill Prime Money Market Fund (the "Institutional Fund") and of The Prime Money
Market Portfolio (the "Hub"), together with,
12
<PAGE> 48
in the case of year-end financial statements, the Reports of the Independent
Accountants thereon, are incorporated herein by reference from Prospect Hill
Prime Money Market Fund's 1994 Annual Report to Shareholders and its
Semi-Annual Report to Shareholders dated June 30, 1995.
1. Statements of Assets and Liabilities for each of the
Institutional Fund and the Hub as of December 31,
1994 (audited) and as of June 30, 1995 (unaudited).
2. Statements of Operations for each of the
Institutional Fund and the Hub for the year ended
December 31, 1994 (audited) and for the six-month
period ended June 30, 1995 (unaudited).
3. Statements of Changes in Net Assets for each of the
Institutional Fund and the Hub for the period from
April 5, 1993 (commencement of operations) through
December 31, 1993 (audited), for the year ended
December 31, 1994 (audited), and for the six-month
period ended June 30, 1995 (unaudited).
4. Schedule of Investments of the Hub as of December 31,
1994 (audited) and as of June 30, 1995 (unaudited).
5. Notes to Financial Statements.
Copies of the Institutional Fund's 1994 Annual Report to Shareholders
and its Semi-Annual Report to Shareholders dated June 30, 1995 may be obtained
free of charge from Ziegler upon request.
HISTORICAL FINANCIAL STATEMENTS OF CASH RESERVE PORTFOLIO
The following financial statements and footnotes thereto of the Cash
Reserve Portfolio ("Cash Reserve") and of the Hub, together with, in the case
of year-end financial statements, the Reports of the Independent Accountants
thereon, are incorporated herein by reference from Cash Reserve Portfolio's
1994 Annual Report to Shareholders and its Semi-Annual Report to Shareholders
dated June 30, 1995.
1. Financial Highlights for Cash Reserve for the period from
April 5, 1993 (commencement of operations) through December
31, 1993 (audited), for the year ended December 31, 1994
(audited), and for the six-month period ended June 30, 1995
(unaudited).
13
<PAGE> 49
2. Statements of Assets and Liabilities for each of Cash Reserve
and the Hub as of December 31, 1994 (audited) and as of June
30, 1995 (unaudited).
3. Statements of Operations for each of Cash Reserve and the Hub
for the year ended December 31, 1994 (audited) and for the
six-month period ended June 30, 1995 (unaudited).
4. Statements of Changes in Net Assets for each of Cash Reserve
and the Hub for the period from April 5, 1993 (commencement of
operations) through December 31, 1993 (audited), for the year
ended December 31, 1994 (audited), and for the six-month
period ended June 30, 1995 (unaudited).
5. Schedule of Investments of the Hub as of December 31, 1994
(audited) and as of June 30, 1995 (unaudited).
6. Notes to Financial Statements.
Copies of Cash Reserve's 1994 Annual Report to Shareholders and its
Semi-Annual Report to Shareholders dated June 30, 1995 may be obtained free of
charge from Ziegler upon request.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following pages contain the (i) unaudited Pro Forma Combining
Statement of Assets and Liabilities for the Institutional Fund and Cash
Reserve's Institutional Class as of December 31, 1994, and June 30, 1995,
assuming the Reorganization had been consummated on those respective dates,
(ii) unaudited Pro Forma Combining Schedule of Investments of the Institutional
Fund and of Cash Reserve's Institutional Class as of December 31, 1994, and
June 30, 1995, assuming the Reorganization had been consummated on those dates,
and (iii) unaudited Pro Forma Combining Statement of Operations for the
Institutional Fund and Cash Reserve's Institutional Class for the six-months
ended June 30, 1995 and for the year ended December 31, 1994, giving effect to
the Reorganization as if it had been consummated on January 1, 1994. This pro
forma information should be read in conjunction with, and is qualified in its
entirety by, the financial statements and accompanying notes of the
Institutional Fund included in the Institutional Fund's 1994 Annual Report to
Shareholders and its Semi-Annual Report to Shareholders dated June 30, 1995.
These pro forma combining financial statements are intended for information
purposes and are not necessarily indicative of the future financial position or
future results of Cash Reserve's Institutional Class.
14
<PAGE> 50
PRIME MONEY MARKET PORTFOLIO, PROSPECT HILL PRIME MONEY MARKET PORTFOLIO AND
CASH RESERVE PORTFOLIO
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
PRIME PROSPECT CASH
PORTFOLIO HILL RESERVE COMBINED
--------- -------- ------- --------
<S> <C> <C> <C> <C>
ASSETS:
Investment in Prime Money Market , at value 43,554,132 52,777,463 96,331,595
Investment in securities, at amortized cost:
U.S. Government and agency obligations 63,125,905 63,125,905
Short-term investments 32,278,712 32,278,712
Interest receivable 589,193 589,193
Deferred Organization Expenses 21,099 21,099
Receivable from affiliate 40,045 26,317 66,088 132,450
Miscellaneous receivable 397,831 9,048 406,879
----------- ----------- ----------- ------------
Total Assets 96,431,686 43,580,449 52,873,698 192,885,833
----------- ----------- ----------- ------------
LIABILITIES:
Advisory fee payable 46,868 46,868
Administration fee payable 25,555 38,395 63,950
Depository fee payable 4,580 4,580
Transfer Agent Fee Payable 5,276 1,200 6,476
Fund accounting fee payable 3,052 250 250 3,552
Dividends Payable 193,592 224,583 418,175
Other accrued expenses 20,036 19,788 15,779 55,603
----------- ----------- ----------- ------------
Total Liabilities 100,091 218,906 280,207 599,204
----------- ----------- ----------- ------------
NET ASSETS $96,331,595 $43,361,543 $52,593,491 $192,286,629
=========== =========== =========== ============
REPRESENTED BY:
Paid-in capital $96,331,595 $43,454,597 $52,691,053 192,477,245
Undistributed Net Income 32,043 25,204 57,247
Accumulated Loss from Portfolio (125,097) (122,766) (247,863)
----------- ----------- ----------- ------------
Net Assets 96,331,595 43,361,543 52,593,491 192,286,629
=========== =========== =========== ============
RETAIL SERIES
Net Assets 52,593,491 52,593,491
Shares Authorized ($.0001) 200,000,000 200,000,000
Shares Issued and Oustanding 52,691,053 52,691,053
Net Asset Value and Redemption Price $1.00 $1.00
INSTITUTIONAL SERIES
Net Assets 43,361,543 43,361,543
Shares Authorized ($.0001) 200,000,000 200,000,000
Shares Issued and Oustanding 43,454,597 43,454,597
Net Asset Value and Redemption Price $1.00 $1.00
<CAPTION>
ADJUSTMENTS
(REFERENCES ARE TO PRO FORMA
PRO FORMA FOOTNOTES) EFFECT
-------------------- ------
<S> <C> <C>
ASSETS:
Investment in Prime Money Market , at value (96,331,595)(c) 0
Investment in securities, at amortized cost:
U.S. Government and agency obligations 63,125,905
Short-term investments 32,278,712
Interest receivable 589,193
Deferred Organization Expenses 21,099
Receivable from affiliate (119,856)(f)(g)(h) 12,594
Miscellaneous receivable 406,879
------------- ------------
Total Assets (96,451,451) 96,434,382
------------- ------------
LIABILITIES:
Advisory fee payable (25,907) 20,961
Administration fee payable (50,940)(e) 13,010
Depository fee payable 4,580
Transfer Agent Fee Payable 6,476
Fund accounting fee payable 3,552
Dividends Payable 418,175
Other accrued expenses (55,603)(f)(g)(h) 0
------------- ------------
Total Liabilities (132,450) 466,754
------------- ------------
NET ASSETS ($96,319,001) 95,967,628
============= ============
REPRESENTED BY:
Paid-in capital (96,319,001)(c)(d) 96,158,244
Undistributed Net Income 57,247
Accumulated Loss from Portfolio (247,863)
------------- ------------
Net Assets (96,319,001) 95,967,628
============= ============
RETAIL SERIES
Net Assets 52,593,491
Shares Authorized ($.0001) 200,000,000
Shares Issued and Oustanding 52,691,053
Net Asset Value and Redemption Price $1.00
INSTITUTIONAL SERIES
Net Assets 12,594 (d) 43,374,137
Shares Authorized ($.0001) 200,000,000
Shares Issued and Oustanding 43,454,597
Net Asset Value and Redemption Price $1.00
</TABLE>
See Notes to Combining Pro Forma Financial Statements
<PAGE> 51
PRIME MONEY MARKET PORTFOLIO, PROSPECT HILL PRIME MONEY MARKET PORTFOLIO AND
CASH RESERVE PORTFOLIO
PRO FORMA COMBINING STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
(UNADUITED)
<TABLE>
<CAPTION>
PRIME PROSPECT CASH
PORTFOLIO HILL RESERVE COMBINED
--------- -------- ------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME: 5,291,793 2,733,914 2,557,879 10,583,586
EXPENSES:
Allocated Expense from Hub 230,018 210,200 440,218
Investment advisory fees $227,681 227,681
Amortization of organization expenses 70,392 11,523 7,697 89,612
Administration fees 113,841 0 81,596 195,437
Depository fees 58,942 58,942
Shareholder Service Fees - Retail Series 134,047 134,047
Distribution Fee - Retail Series 83,118 83,118
Transfer Agent Fee 7,180 7,180
Legal fees 58,805 71,353 31,505 161,663
Fund accounting fees 38,311 3,000 3,000 44,311
Compensation of trustees 23,236 9,264 8,236 40,736
Insurance fees 15,364 9,310 3,975 28,649
Audit fees 20,000 10,309 10,309 40,618
Registration Fees 8,285 23,391 31,676
Printing 651 1,981 34,162 36,794
Miscellaneous expenses 409 734 9,334 10,477
0
---------- ---------- ---------- ----------
Total expenses 627,632 362,957 640,570 1,631,159
Less: Waiver of advisory fees (92,012) 0 (92,012)
Reimbursement of expenses (95,402) (10,784) (66,088) (172,274)
---------- ---------- ---------- ----------
Net expenses 440,218 352,173 574,482 1,366,873
---------- ---------- ---------- ----------
NET INVESTMENT INCOME 4,851,575 2,381,741 1,983,397 9,216,713
Net realized loss from Investments (2,173,642) (2,173,642)
Net realized loss from Portfolio (128,084) (124,412) (252,496)
---------- ---------- ---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $2,677,933 $2,253,657 $1,858,985 $7,043,071
========== ========== ========== ==========
<CAPTION>
ADJUSTMENTS
(REFERENCES ARE TO PRO FORMA
PRO FORMA FOOTNOTES) EFFECT
-------------------- ----------
<S> <C> <C>
INTEREST INCOME: (5,291,793)(c) 5,291,793
EXPENSES:
Alocated Expense from Hub (440,218)(c) 0
Investment advisory fees 227,681
Amortization of organization expenses (59,074)(i) 30,538
Administration fees (50,940)(e) 144,497
Depository fees 58,942
Shareholder Service Fees - Retail Series 134,047
Distribution Fee - Retail Series 83,118
Transfer Agent Fee 7,180
Legal fees (100,158)(h) 61,505
Fund accounting fees (6,000)(g) 38,311
Compensation of trustees (24,264)(f) 16,472
Insurance fees (17,699)(f) 10,950
Audit fees (10,000)(h) 30,618
Registration Fees 31,676
Printing 36,794
Miscellaneous expenses 10,477
------------ ----------
Total expenses (708,353) 922,806
Less: Waiver of advisory fees 92,012 0
Reimbursement of expenses 172,274 0
------------ ----------
Net expenses (444,067) 922,806
------------ ----------
NET INVESTMENT INCOME (4,847,726) 4,368,987
Net realized loss from Investments (2,173,642)
Net realized loss from Portfolio 252,496 (j) 0
------------ ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ($4,847,726) 2,195,345
============ ==========
</TABLE>
See Notes to Combining Pro Forma Financial Statements
<PAGE> 52
PRIME MONEY MARKET PORTFOLIO, PROSPECT HILL PRIME MONEY MARKET PORTFOLIO AND
CASH RESERVE PORTFOLIO
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1995
(UNAUDITED)
ASSETS:
<TABLE>
<CAPTION>
PRIME PROSPECT CASH
PORTFOLIO HILL RESERVE COMBINED
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Investment in Prime Money Market , at value 44,901,990 69,561,112 114,463,102
Investment in securities, at amortized cost
U.S. Government and agency obligations 23,123,583 23,123,583
Short-term investments 87,163,460 87,163,460
Interest receivable 492,422 492,422
Deferred Organization Expenses 17,861 17,861
Receivable from affiliate 36,826 1,148 35,005 72,979
Receivable for Investments Sold 3,716,061 3,716,061
Miscellaneous receivable 0 21,410 21,410
------------ ----------- ----------- ------------
Total Assets 114,532,352 44,903,138 69,635,388 229,070,878
------------ ----------- ----------- ------------
LIABILITIES:
Advisory fee payable 15,027 15,027
Administration fee payable 2,616 45,912 48,528
Depository fee payable 5,180 5,180
Transfer Agent Fee Payable 600 600 1,200
Fund accounting fee payable 9,570 1,500 250 11,320
Dividends Payable 220,478 304,856 525,334
Other accrued expenses 36,857 44,513 7,152 88,522
------------ ----------- ----------- ------------
Total Liabilities 69,250 267,091 358,770 695,111
------------ ----------- ----------- ------------
NET ASSETS $114,463,102 $44,636,047 $69,276,618 $228,375,767
============ =========== =========== ============
REPRESENTED BY:
Paid-in capital $114,463,102 $44,731,350 $69,378,837 228,573,289
Undistributed Net Income 39,611 36,610 76,221
Accumulated Loss from Portfolio (134,914) (138,829) (273,743)
------------ ----------- ----------- ------------
Net Assets 114,463,102 44,636,047 69,276,618 228,375,767
============ =========== =========== ============
RETAIL SERIES
Net Assets 69,276,618 69,276,618
Shares Authorized ($.0001) 200,000,000 200,000,000
Shares Issued and Oustanding 69,377,601 69,377,601
Net Asset Value and Redemption Price $1.00 $1.00
INSTITUTIONAL SERIES
Net Assets 44,636,047 44,636,047
Shares Authorized ($.0001) 200,000,000 200,000,000
Shares Issued and Oustanding 44,731,349 44,731,349
Net Asset Value and Redemption Price $1.00 $1.00
<CAPTION>
ASSETS: ADJUSTMENTS
(REFERENCES ARE TO PRO FORMA
PRO FORMA FOOTNOTES) EFFECT
-------------------- ---------
<S> <C> <C>
Investment in Prime Money Market , at value (114,463,102)(c) 0.00
Investment in securities, at amortized cost
U.S. Government and agency obligations 23,123,583
Short-term investments 87,163,460
Interest receivable 492,422
Deferred Organization Expenses 17,861
Receivable from affiliate (15,862)(f)(g)(h) 57,117
Receivable for Investments Sold 3,716,061
Miscellaneous receivable 21,410
-------------- -------------
Total Assets (114,478,964) 114,591,914
-------------- -------------
LIABILITIES:
Advisory fee payable 15,027
Administration fee payable 48,528
Depository fee payable 5,180
Transfer Agent Fee Payable 1,200
Fund accounting fee payable 11,320
Dividends Payable 525,334
Other accrued expenses (46,055)(f)(g)(h) 42,467
-------------- -------------
Total Liabilities (46,055) 649,056
-------------- -------------
NET ASSETS ($114,432,909) 113,942,858
============== =============
REPRESENTED BY:
Paid-in capital (114,432,909)(c)(d) 114,140,380
Undistributed Net Income 76,221
Accumulated Loss from Portfolio (273,743)
-------------- -------------
Net Assets (114,432,909) 113,942,858
============== =============
RETAIL SERIES
Net Assets 69,276,618
Shares Authorized ($.0001) 200,000,000
Shares Issued and Oustanding 69,377,601
Net Asset Value and Redemption Price $1.00
INSTITUTIONAL SERIES
Net Assets 30,193 (d) 44,666,240
Shares Authorized ($.0001) 200,000,000
Shares Issued and Oustanding 44,731,349
Net Asset Value and Redemption Price $1.00
</TABLE>
See Notes to Combining Pro Forma Financial Statements
<PAGE> 53
PRIME MONEY MARKET PORTFOLIO, PROSPECT HILL PRIME MONEY MARKET PORTFOLIO AND
CASH RESERVE PORTFOLIO
PRO FORMA COMBINING STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED JUNE 30, 1995
(UNADUITED)
<TABLE>
<CAPTION>
PRIME PROSPECT CASH
PORTFOLIO HILL RESERVE COMBINED
--------- -------- ------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME: 3,142,460 1,301,136 1,841,324 6,284,920
EXPENSES:
Allocated Expense from Hub 48,597 68,057 116,654
Investment advisory fees $103,278 103,278
Amortization of organization expenses 0 0 4,526 4,526
Administration fees 49,860 0 45,279 95,139
Depository fees 27,065 27,065
Shareholder Service Fees - Retail Series 74,112 74,112
Distribution Fee - Retail Series 45,637 45,637
Transfer Agent Fee 1,600 600 2,200
Legal fees 9,297 10,671 2,244 22,212
Fund accounting fees 18,239 1,500 1,500 21,239
Compensation of trustees 10,011 2,656 1,461 14,128
Insurance fees 3,539 3,839 501 7,879
Audit fees 13,400 3,836 5,000 22,236
Registration Fees 8,340 7,910 16,250
Printing 610 1,600 15,380 17,590
Miscellaneous expenses 0 7,660 2,307 9,967
0
------------ ----------- ---------- ------------
Total expenses 235,299 90,299 274,514 600,112
Less: Waiver of advisory fees (87,419) 0 (87,419)
Reimbursement of expenses (31,226) (1,148) (37,007) (69,381)
------------ ----------- ---------- ------------
Net expenses 116,654 89,151 237,507 443,312
------------ ----------- ---------- ------------
NET INVESTMENT INCOME 3,025,806 1,211,985 1,603,817 5,841,608
Net realized loss from Investments (27,745) (27,745)
Net realized loss from Portfolio (9,815) (14,828) (24,643)
------------ ----------- ---------- ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATION $2,998,061 $1,202,170 $1,588,989 $5,813,863
============ =========== ========== ============
<CAPTION>
ADJUSTMENTS
(REFERENCES ARE TO PRO FORMA
PRO FORMA FOOTNOTES) EFFECT
-------------------- ----------
<S> <C> <C>
INTEREST INCOME: (3,142,460)(c) 3,142,460
EXPENSES:
Alocated Expense from Hub (116,654)(c) 0
Investment advisory fees 103,278
Amortization of organization expenses 4,526
Administration fees (20,349)(e) 74,790
Depository fees 27,065
Shareholder Service Fees - Retail Series 74,112
Distribution Fee - Retail Series 45,637
Transfer Agent Fee 2,200
Legal fees (5,000)(h) 17,212
Fund accounting fees (3,000)(g) 18,239
Compensation of trustees (5,867)(f) 8,261
Insurance fees (3,839)(f) 4,040
Audit fees (8,000)(h) 14,236
Registration Fees 16,250
Printing 17,590
Miscellaneous expenses 9,967
------------- -------------
Total expenses (162,709) 437,403
Less: Waiver of advisory fees 0 (87,419)
Reimbursement of expenses 46,055 (23,326)
------------- -------------
Net expenses (116,654) 326,658
------------- -------------
NET INVESTMENT INCOME (3,025,806) 2,815,802
Net realized loss from Investments (27,745)
Net realized loss from Portfolio 24,643 (c) 0
------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATION ($3,025,806) 2,788,057
============= =============
</TABLE>
See Notes to Combining Pro Forma Financial Statements
<PAGE> 54
PRIME MONEY MARKET PORTFOLIO, PROSPECT HILL PRIME MONEY MARKET FUND AND
PRINCIPAL PRESERVATION CASH RESERVE PORTFOLIO
NOTES TO THE COMBINING PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
The pro forma adjustments to these pro forma combining financial statements
consist of:
a. The Institutional Fund presently operates as part of a Hub and Spoke(R)
money market mutual fund structure. In this structure, the
Institutional Fund (which sometimes is referred to as a spoke) invests
all of its investable assets in the Prime Money Market Portfolio (the
"Hub"), a series of The Prime Portfolios, where the assets are
commingled and commonly invested with assets contributed by other spoke
funds. The Institutional Fund promotes sales of its shares primarily
to institutional investors, and therefore is characterized by a high
($50,000) minimum investment and no Rule 12b-1 Distribution Fee. The
only other spoke presently operating in this structure is the Cash
Reserve Portfolio of Principal Preservation Portfolios, Inc. Cash
Reserve's shares are promoted for sale to the general public by retail
brokers, and Cash Reserve therefore has a much lower minimum investment
amount and carries a Rule 12b-1 Distribution Fee.
The Reorganization involves the collapsing of this Hub and Spoke
structure into a single mutual fund with two separate classes of
shares, one class (Class Y Common Stock or the Institutional Class)
which will have a distribution system and fee structure directed to
institutional investors similar to the Institutional Fund, and a second
class (Class X Common Stock or the Retail Class) which will have a
distribution system and fee structure (including a Rule 12b-1
Distribution Fee) directed to retail investors identical to the Cash
Reserve Portfolio. In the Reorganization, the Institutional Fund and
Cash Reserve each will withdraw their assets (subject to their
liabilities) from the Hub. Cash Reserve will then acquire all of the
assets (subject to the liabilities) of the Institutional Fund in
exchange for shares of Cash Reserve's Institutional Class. Shares of
the Institutional Class so received by the Institutional Fund will be
distributed pro rata to shareholders of the Institutional Fund, and the
Institutional Fund will be dissolved. As a result of the
Reorganization, each shareholder of the Institutional Fund will
receive, in exchange for the shares of the Institutional Fund owned by
such shareholder, an equal number of shares of Cash Reserve's
Institutional Class valued at $1.00 per share. Each share of Cash
Reserve outstanding immediately prior to the consummation of the
Reorganization automatically will be redesignated (without affecting
the rights and privileges appertaining thereto) as a share of Cash
Reserve's Retail Class.
Following the Reorganization, the portfolio securities presently held
in the Hub and managed by Ziegler Asset Management, Inc. will instead
be held in the Cash Reserve Portfolio, will be owned pro rata by
holders of Cash Reserve's Institutional Class and its Retail Class, and
will be managed by Ziegler Asset Management, Inc. pursuant to the same
investment objective, policies and programs currently operative at the
Hub.
All expenses associated with the Reorganization (which are estimated at
$90,000 exclusive of the capital contribution described in note d.
below) will be paid by B.C. Ziegler or one of its affiliates.
b. The foregoing unaudited Pro Forma Financial Statements consist of: (i)
Pro Forma Combining Statements of Assets and Liabilities of the Hub,
the Institutional Fund and Cash Reserve as of December 31, 1994 and as
of June 30, 1995, assuming the Reorganization had been consummated on
those respective dates; (ii) the Pro Forma Combining Statements of
Operations for the Hub, the Institutional Fund and Cash Reserve for the
year ended December 31, 1994 and for the six-month period ended June
30, 1995, giving effect to the
<PAGE> 55
Reorganization as if it had been consummated on January 1, 1994 and
January 1, 1995, respectively; and (iii) Pro Forma Combining
Schedules of Investments of the Hub as of December 31, 1994 and as of
June 30, 1995, assuming the Reorganization had been consummated on those
respective dates.
c. Removal of the intercompany activity including net interest
income, allocated expense from Hub, capital investments and partnership
distributions between the Hub, the Institutional Fund and Cash Reserve.
d. Equalization of capital losses incurred at the Hub level on sales of
portfolio securities. Those losses were originally allocated on a
proportionate basis to the Institutional Fund and Cash Reserve. As a
result of subsequent disproportionate variances in the relative net
assets of the Institutional Fund and Cash Reserve, those capital losses
have become disproportionate. As a result, immediately prior to
consummation of the Reorganization, B.C. Ziegler or an affiliate will
make a capital contribution to the Institutional Fund in an amount
sufficient to equalize, on a proportionate basis, the capital losses
residing at the Institutional Fund and Cash Reserve. As of December
31, 1994, and June 30, 1995, the amount of the capital contributions
necessary to bring about this equalization would have been $12,594 and
30,193, respectively.
e. B.C. Ziegler presently provides administrative services to the Hub
under an Administrative Services Agreement which provides for the
payment of compensation to B.C. Ziegler for such services at the rate
of 0.10% of the Hub's first $200 million in average net assets, and
0.05% of the Hub's average net assets in excess of $200 million. Under
a separate Administrative Services Agreement between B.C. Ziegler and
Principal Preservation (on behalf of the Cash Reserve Portfolio), B.C.
Ziegler provides administrative services to Cash Reserve, and receives
compensation for such services at the rate of 0.15% of Cash Reserve's
average net assets.
Following the Reorganization, these separate administrative service
arrangements will be consolidated and will be provided to Cash Reserve
by Ziegler Asset Management, Inc. pursuant to a single Administrative
Services Agreement. The compensation to be paid to Ziegler Asset
Management, Inc. under the new Administrative Services Agreement will
be 0.15% of the Cash Reserve's average net assets up to $200 million,
and 0.10% of Cash Reserve's average net assets in excess of $200
million. While the restructuring of the administrative services
relationship will result in an overall reduction in administrative
fees, the portion of the new fee to be allocated to the Institutional
Class of shares will be somewhat higher than the fee presently
allocated to shares of the Institutional Fund.
f. Reduction of Trustee fees and insurance premiums associated with
elimination of multiple Boards of Trustees.
g. Reduction of the fund accounting fees associated with the elimination
of separate financial statements and records for the Hub and the
Institutional Fund.
h. Reduction of legal and audit fees associated with elimination of the
Hub and the Institutional Fund.
i. This adjustment reverses the acceleration of deferred organization
expense at the Institutional Fund and the Hub. Cash Reserve's
organization expenses were not accelerated, and therefore the $7,697
amortized amount shown for Cash Reserve for 1994 is included in the pro
forma column reflecting the effects of the Reorganization.
<PAGE> 56
j. This adjustment eliminates the net capital losses reflected in the
historic numbers for the Institutional Fund and Cash Reserve, after
giving effect to a capital contribution made by B.C. Ziegler at the Hub
level during 1994. This capital contribution did not affect the net
asset value.
<PAGE> 57
PRIME MONEY MARKET PORTFOLIO, PROSPECT HILL PRIME MONEY MARKET PORTFOLIO AND
CASH RESERVE PORTFOLIO
COMBINING SCHEDULE OF INVESTMENTS
December 31, 1994 (unaudited)
<TABLE>
<CAPTION>
Prime Portfolio
-------------------------------
Maturity Interest Principal
Date Rate Amount Value
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
U.S. Government and Agency Obligations - 65.53%
Agency for International Development & Treasury Bills
Agency for International Development (Panama)(a)... 08/01/11 7.33% 455,000 461,713
Agency for International Development (Isreal)(b)... 01/01/06 6.81% 2,441,115 2,441,114
----------
Total Agency for International Development 2,902,827
----------
Farmers Home Administration ("FmHA")
FmHA (c)........................................... 01/22/18 9.75% 621,352 673,225
FmHA (c)........................................... 07/26/96 8.75% 121,702 122,098
FmHA (c)........................................... 07/01/00 8.75% 301,708 310,893
FmHA (c)........................................... 07/01/13 8.75% 84,378 86,698
FmHA (c)........................................... 08/17/00 8.75% 288,059 295,734
FmHA (c)........................................... 08/23/00 8.75% 200,765 207,007
FmHA (c)........................................... 08/23/00 8.75% 125,779 129,689
FmHA (c)........................................... 08/30/00 8.75% 167,699 172,185
FmHA (c)........................................... 09/20/00 8.75% 223,429 230,096
FmHA (c)........................................... 10/08/00 8.75% 232,377 239,847
FmHA (c)........................................... 10/08/00 8.75% 155,016 159,921
FmHA (c)........................................... 11/15/07 8.25% 593,111 621,653
FmHA (c)........................................... 01/15/14 8.25% 153,329 162,100
FmHA (c)........................................... 02/09/97 7.75% 25,141 25,249
FmHA (c)........................................... 07/08/99 7.75% 62,345 62,996
FmHA (c)........................................... 03/30/03 7.25% 450,953 457,372
FmHA (c)........................................... 12/12/11 7.25% 169,768 170,413
FmHA (c)........................................... 07/01/22 7.13% 72,702 72,782
FmHA (c)........................................... 10/05/22 7.13% 267,480 268,528
FmHA (c)........................................... 06/15/00 7.00% 74,227 73,828
FmHA (c)........................................... 08/24/00 7.00% 27,000 26,885
FmHA (c)........................................... 11/01/07 6.88% 249,721 254,942
FmHA (c)........................................... 01/01/18 6.88% 147,882 151,389
FmHA (c)........................................... 06/15/23 6.85% 91,608 91,177
FmHA (c)........................................... 08/24/23 6.85% 270,000 268,922
FmHA (c)........................................... 11/01/00 6.50% 82,371 82,371
FmHA (c)........................................... 03/04/14 4.75% 76,512 76,828
----------
Total Farmers Home Administration.................. 5,494,828
----------
Federal Farm Credit Bank
Total Federal Farm Credit Note..................... 02/02/95 6.00% 5,000,000 4,973,333
Total Federal Farm Credit Note..................... 01/18/95 5.93% 5,000,000 4,985,999
----------
Total Federal Farm Credit Bank..................... 9,959,332
----------
</TABLE>
<TABLE>
<CAPTION>
Adjustments Pro Forma Effect
--------------------- -----------------------
Principal Principal
Amount Value Amount Value
---------- --------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Government and Agency Obligations - 65.53%
Agency for International Development & Treasury Bills
Agency for International Development (Panama)(a)... 455,000 461,713
Agency for International Development (Isreal)(b)... 2,441,115 2,441,114
--------- -----------
Total Agency for International Development 0 2,902,827
--------- -----------
Farmers Home Administration ("FmHA")
FmHA (c)........................................... 621,352 673,225
FmHA (c)........................................... 121,702 122,098
FmHA (c)........................................... 301,708 310,893
FmHA (c)........................................... 84,378 86,698
FmHA (c)........................................... 288,059 295,734
FmHA (c)........................................... 200,765 207,007
FmHA (c)........................................... 125,779 129,689
FmHA (c)........................................... 167,699 172,185
FmHA (c)........................................... 223,429 230,096
FmHA (c)........................................... 232,377 239,847
FmHA (c)........................................... 155,016 159,921
FmHA (c)........................................... 593,111 621,653
FmHA (c)........................................... 153,329 162,100
FmHA (c)........................................... 25,141 25,249
FmHA (c)........................................... 62,345 62,996
FmHA (c)........................................... 450,953 457,372
FmHA (c)........................................... 169,768 170,413
FmHA (c)........................................... 72,702 72,782
FmHA (c)........................................... 267,480 268,528
FmHA (c)........................................... 74,227 73,828
FmHA (c)........................................... 27,000 26,885
FmHA (c)........................................... 249,721 254,942
FmHA (c)........................................... 147,882 151,389
FmHA (c)........................................... 91,608 91,177
FmHA (c)........................................... 270,000 268,922
FmHA (c)........................................... 82,371 82,371
FmHA (c)........................................... 76,512 76,828
--------- -----------
Total Farmers Home Administration.................. 0 5,494,828
--------- -----------
Federal Farm Credit Bank
Total Federal Farm Credit Note..................... 5,000,000 4,973,333
Total Federal Farm Credit Note..................... 5,000,000 4,985,999
--------- -----------
Total Federal Farm Credit Bank..................... 0 9,959,332
--------- -----------
</TABLE>
<PAGE> 58
PRIME MONEY MARKET PORTFOLIO, PROSPECT HILL PRIME MONEY MARKET PORTFOLIO AND
CASH RESERVE PORTFOLIO
COMBINING SCHEDULE OF INVESTMENTS (Continued)
December 31, 1994 (unaudited)
<TABLE>
<CAPTION>
Prime Portfolio
-------------------
Maturity Interest Principal
Date Rate Amount Value
-------- -------- --------- -----
<S> <C> <C> <C> <C>
Federal Home Loan Bank ("FHLB")
Federal Home Loan Bank ("FHLB") Floating Rate Note 03/08/96 6.06% 1,000,000 998,798
FHLB, Discount Note................................ 01/19/95 5.94% 5,000,000 4,985,150
FHLB, Discount Note................................ 01/11/95 5.90% 3,000,000 2,995,083
---------
Total Federal Home Loan Bank....................... 8,979,031
----------
Federal National Mortgage Association ("FNMA")
Federal National Mortgage Association ("FNMA"), Discount
Note 01/17/95 0.0595 5,000,000 4,986,778
FNMA Discount Note................................. 01/03/95 5.91% 5,000,000 4,998,358
FNMA Discount Note................................. 01/09/95 5.90% 2,000,000 1,997,378
----------
Total Federal National Mortgage Association........ 11,982,514
----------
Small Business Administration ("SBA")
Guaranteed Variable Rate Pool #501866............. 01/25/00 11.30% 975,975 1,042,062
SBA Pool #502496 (c)............................... 09/25/06 9.73% 1,162,124 1,268,059
SBA Pool #501471 (c)............................... 02/25/11 9.38% 41,818 47,129
SBA Pool #501177 (c)............................... 12/25/12 9.13% 385,377 437,326
SBA Pool #502500 (c)............................... 01/25/03 8.98% 1,795,062 1,902,132
SBA Pool #500489 (c)............................... 03/25/08 8.63% 153,774 165,840
SBA Pool #500467 (c)............................... 01/25/13 8.63% 200,220 220,125
SBA Pool #500659 (c)............................... 06/25/13 8.63% 504,211 553,672
SBA Pool #500279 (c)............................... 02/25/12 7.63% 36,010 38,027
SBA Pool #500726 (c)............................... 01/25/14 7.63% 73,850 78,770
SBA Pool #500340 (c)............................... 08/25/12 7.13% 273,817 288,634
SBA Pool #500263 (c)............................... 04/25/12 7.00% 172,577 178,215
SBA Pool #500725 (c)............................... 05/25/13 7.00% 1,057,934 1,073,243
SBA Pool #501732 (c)............................... 01/25/17 6.63% 1,867,714 1,881,422
SBA Pool #500981 (c)............................... 07/25/05 6.50% 656,789 666,759
SBA Pool #502122 (c)............................... 01/25/18 6.50% 903,674 913,470
SBA Pool #501218 (c)............................... 07/25/15 6.25% 453,556 462,778
SBA Pool #501140 (c)............................... 09/25/06 6.13% 124,298 125,306
SBA Pool #502123 (c)............................... 12/25/17 6.00% 2,638,130 2,693,563
SBA Pool #502172 (c)............................... 12/25/06 5.88% 1,172,894 1,176,818
SBA Pool #501892 (c)............................... 04/25/07 5.88% 438,299 440,388
SBA Pool #501934 (c)............................... 07/25/09 5.88% 848,556 854,442
SBA Pool #501764 (c)............................... 11/25/19 5.75% 2,736,313 2,741,700
SBA Pool #502348 (c)............................... 09/25/13 5.63% 1,898,353 1,898,353
SBA Loan (c)....................................... 01/15/02 8.80% 259,599 270,882
SBA Loan (c)....................................... 01/15/04 7.98% 462,045 477,692
SBA Loan (c)....................................... 10/15/09 7.98% 397,605 418,543
SBA Loan (c)....................................... 06/15/07 7.50% 91,130 93,376
SBA Loan (c)....................................... 12/15/06 7.48% 289,903 298,566
</TABLE>
<TABLE>
<CAPTION>
Adjustments Pro Forma Effect
----------- ----------------
Principal Principal
Amount Value Amount Value
--------- ----- --------- -----
<S> <C> <C> <C> <C>
Federal Home Loan Bank ("FHLB")
Federal Home Loan Bank ("FHLB") Floating Rate Note 1,000,000 998,798
FHLB, Discount Note................................ 5,000,000 4,985,150
FHLB, Discount Note................................ 3,000,000 2,995,083
----- ----------
Total Federal Home Loan Bank....................... 0 8,979,031
----- ----------
Federal National Mortgage Association ("FNMA")
Federal National Mortgage Association ("FNMA"), Discount
Note
FNMA Discount Note.................................
FNMA Discount Note................................. 2,000,000 1,997,378
----- ----------
Total Federal National Mortgage Association........ 0 11,982,514
----- ----------
Small Business Administration ("SBA")
Guaranteed Variable Rate Pool #501866............. 975,975 1,042,062
SBA Pool #502496 (c)............................... 1,162,124 1,268,059
SBA Pool #501471 (c)............................... 41,818 47,129
SBA Pool #501177 (c)............................... 385,377 437,326
SBA Pool #502500 (c)............................... 1,795,062 1,902,132
SBA Pool #500489 (c)............................... 153,774 165,840
SBA Pool #500467 (c)............................... 200,220 220,125
SBA Pool #500659 (c)............................... 504,211 553,672
SBA Pool #500279 (c)............................... 36,010 38,027
SBA Pool #500726 (c)............................... 73,850 78,770
SBA Pool #500340 (c)............................... 273,817 288,634
SBA Pool #500263 (c)............................... 172,577 178,215
SBA Pool #500725 (c)............................... 1,057,934 1,073,243
SBA Pool #501732 (c)............................... 1,867,714 1,881,422
SBA Pool #500981 (c)............................... 656,789 666,759
SBA Pool #502122 (c)............................... 903,674 913,470
SBA Pool #501218 (c)............................... 453,556 462,778
SBA Pool #501140 (c)............................... 124,298 125,306
SBA Pool #502123 (c)............................... 2,638,130 2,693,563
SBA Pool #502172 (c)............................... 1,172,894 1,176,818
SBA Pool #501892 (c)............................... 438,299 440,388
SBA Pool #501934 (c)............................... 848,556 854,442
SBA Pool #501764 (c)............................... 2,736,313 2,741,700
SBA Pool #502348 (c)............................... 1,898,353 1,898,353
SBA Loan (c)....................................... 259,599 270,882
SBA Loan (c)....................................... 462,045 477,692
SBA Loan (c)....................................... 397,605 418,543
SBA Loan (c)....................................... 91,130 93,376
SBA Loan (c)....................................... 289,903 298,566
</TABLE>
<PAGE> 59
PRIME MONEY MARKET PORTFOLIO, PROSPECT HILL PRIME MONEY MARKET PORTFOLIO AND
CASH RESERVE PORTFOLIO
COMBINING SCHEDULE OF INVESTMENTS (Continued)
December 31, 1994 (unaudited)
<TABLE>
<CAPTION>
Prime Portfolio
-------------------------
Maturity Interest Principal
Date Rate Amount Value
---------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
SBA Loans (Continued)
SBA Loan (c)....................................... 07/15/07 7.48% 375,881 385,349
SBA Loan (c)....................................... 01/15/07 7.23% 204,905 213,877
-----------
Total Small Business Administration............... 23,306,518
-----------
Student Loan Marketing Association ("SLMA")........ 02/01/95 8.55% 500,000 500,855
-----------
Total Student Loan Marketing Association ...................... 500,855
-----------
-----------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS................... 63,125,905
-----------
Short Term - 33.51%
Repurchase Agreements
Government Securities Corp of Texas 01/03/95 6.90% 9,982,315 9,982,315
(Agreement dated 12/30/94, collateralized by
$10,658,030 in various Farmers Federal
Credit Loans due at various dates through 06/28/33;
$9,987,977 to be received upon maturity)
Government Securities Corp of Texas 01/03/95 6.40% 6,584,954 6,584,954
(Agreement dated 12/30/94, collateralized by
$7,355,535 in various Small Business Administration
Obligations due at various dates through 02/15/20;
$6,588,4189,987,977 to be received upon maturity)
First Boston Corp. 07/03/95 6.05% 15,711,443 15,711,443
(Agreement dated 12/30/94, collateralized by
$16,249,516 in various Farmers Home Administration
Loans due at various dates through 11/15/96;
$15,718,997 to be received upon maturity
-----------
TOTAL SHORT TERM .............................. 32,278,712
-----------
Total Investments, at Amortized Cost -99.04% 95,404,617
Other Assets, less Liabilities - 0.96% 926,978
-----------
Net Assets - 100% $96,331,595
-----------
</TABLE>
<TABLE>
<CAPTION>
Adjustments Pro Forma Effect
----------------------- -----------------------
Principal Principal
Amount Value Amount Value
------------- -------- ----------- ----------
<S> <C> <C> <C> <C>
SBA Loans (Continued)
SBA Loan (c)....................................... 375,881 385,349
SBA Loan (c)....................................... 204,905 213,877
-------- -----------
Total Small Business Administration............... 0 23,306,518
-------- -----------
Student Loan Marketing Association ("SLMA")........ 500,000 500,855
-------- -----------
Total Student Loan Marketing Association ........... 0 500,855
-------- -----------
-------- -----------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS........ 0 63,125,905
-------- -----------
Short Term - 33.51%
Repurchase Agreements
Government Securities Corp of Texas 9,982,315 9,982,315
(Agreement dated 12/30/94, collateralized by
$ 10,658,030 in various Farmers Federal
Credit Loans due at various dates through 06/28/33;
$9,987,977 to be received upon maturity)
Government Securities Corp of Texas 6,584,954 6,584,954
(Agreement dated 12/30/94, collateralized by
$ 7,355,535 in various Small Business Administration
Obligations due at various dates through 02/15/20;
$6,588,4189,987,977 to be received upon maturity)
First Boston Corp. 15,711,443 15,711,443
(Agreement dated 12/30/94, collateralized by
$16,249,516 in various Farmers Home Administration
Loans due at various dates through 11/15/96;
$ 15,718,997 to be received upon maturity
-------- -----------
TOTAL SHORT TERM ................................... 0 32,278,712
-------- -----------
Total Investments, at Amortized Cost -99.04% 95,404,617
Other Assets, less Liabilities - 0.96% 926,978
-------- -----------
Net Assets - 100% 0 $96,331,595
-------- -----------
</TABLE>
Notes to Combining Schedule of Investments
(a) The security has a floating/variable rate coupon payment tied to the
Treasury Bill lending rate. The coupon payment adjusts weekly or
quarterly thereby reducing the effective maturity to one year or less.
(b) The security has a floating/variable rate coupon payment tied to the 6
month LIBOR lending rate. The coupon payment adjusts weekly thereby
reducing the effective maturity to one year or less.
(c) The security has a floating/variable rate coupon payment tied to the Prime
lending rate. The coupon payment adjusts either daily, monthly,
quarterly, semiannually or annually thereby reducing the effective
maturity to one year or less.
<PAGE> 60
PRIME MONEY MARKET PORTFOLIO, PROSPECT HILL PRIME MONEY MARKET PORTFOLIO AND
CASH RESERVE PORTFOLIO
COMBINING SCHEDULE OF INVESTMENTS
June 30, 1995 (unaudited)
<TABLE>
<CAPTION>
Prime Portfolio
---------------------------
Maturity Interest Principal
Date Rate Amount Value
---------- -------- ----------- ---------------
<S> <C> <C> <C> <C>
U.S. Government and Agency Obligations - 20.2%
Farmers Home Administration ("FmHA")
FmHA (c).................................... 07/26/96 10.00% 119,166 119,167
FmHA (c).................................... 02/09/97 9.00% 21,211 21,254
FmHA (c).................................... 07/08/99 9.00% 59,606 60,070
FmHA (c).................................... 11/01/00 7.75% 82,371 82,371
FmHA (c).................................... 03/04/14 7.75% 74,846 75,129
FmHA (c).................................... 07/01/22 7.63% 52,902 52,958
FmHA (c).................................... 10/05/22 7.63% 267,480 268,434
FmHA (c).................................... 06/15/00 7.50% 74,227 74,227
FmHA (c).................................... 08/24/00 7.50% 27,000 27,000
FmHA (c).................................... 06/15/23 7.35% 91,608 91,608
FmHA (c).................................... 08/24/23 7.35% 270,000 270,000
FmHA (c).................................... 12/12/11 7.25% 169,768 170,379
-----------
Total Farmers Home Administration.................. 1,312,597
-----------
Federal Farm Credit Bank
Total Federal Farm Credit Note.............. 11/01/95 6.10% 1,000,000 1,000,000
-----------
Total Federal Farm Credit Bank..................... 1,000,000
-----------
Federal Home Loan Bank ("FHLB")
FHLB Floating Rate Note (a)................. 03/08/96 6.06% 1,000,000 999,303
-----------
Total Federal Home Loan Bank....................... 999,303
-----------
Federal National Mortgage Association ("FNMA")
FNMA Discount Note.......................... 07/11/95 5.87% 2,000,000 1,996,739
-----------
Total Federal National Mortgage Association........ 1,996,739
-----------
Small Business Administration ("SBA")
SBA Pool #501866 (c)........................ 01/26/00 10.63% 760,509 803,217
SBA Pool #501471 (c)........................ 02/25/11 10.63% 26,255 29,328
SBA Pool #501167 (c)........................ 12/25/12 10.38% 354,966 399,846
SBA Pool #500467 (c)........................ 01/25/13 9.88% 198,039 215,493
SBA Pool #500340 (c)........................ 08/25/12 8.38% 252,014 264,172
SBA Pool #500263 (c)........................ 04/25/12 8.25% 170,150 175,008
SBA Pool #500981 (c)........................ 07/25/05 7.75% 635,560 642,891
SBA Pool #502128 (c)........................ 07/25/15 7.50% 444,632 453,032
SBA Pool #502140 (c)........................ 09/25/06 7.38% 120,768 121,373
SBA Pool #502123 (c)........................ 12/25/17 7.25% 2,060,168 2,102,249
SBA Pool #502172 (c)........................ 12/25/06 7.13% 1,140,080 1,143,736
SBA Pool #502934 (c)........................ 07/25/09 7.13% 769,525 774,427
SBA Pool #502122 (c)........................ 01/25/18 7.00% 861,130 869,873
SBA Pool #502348 (c)........................ 09/25/13 6.88% 1,871,524 1,871,524
</TABLE>
<TABLE>
<CAPTION>
Adjustments Pro Forma Effect
------------------------ ----------------------------
Principal Principal
Amount Value Amount Value
----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
U.S. Government and Agency Obligations - 20.2%
Farmers Home Administration ("FmHA")
FmHA (c).................................... 119,166 119,167
FmHA (c).................................... 21,211 21,254
FmHA (c).................................... 59,606 60,070
FmHA (c).................................... 82,371 82,371
FmHA (c).................................... 74,846 75,129
FmHA (c).................................... 52,902 52,958
FmHA (c).................................... 267,480 268,434
FmHA (c).................................... 74,227 74,227
FmHA (c).................................... 27,000 27,000
FmHA (c).................................... 91,608 91,608
FmHA (c).................................... 270,000 270,000
FmHA (c).................................... 169,768 170,379
----------- ---------------
Total Farmers Home Administration........... 0 1,312,597
----------- ---------------
Federal Farm Credit Bank
Total Federal Farm Credit Note.............. 1,000,000 1,000,000
----------- ---------------
Total Federal Farm Credit Bank.............. 0 1,000,000
----------- ---------------
Federal Home Loan Bank ("FHLB")
FHLB Floating Rate Note (a)................. 1,000,000 999,303
----------- ---------------
Total Federal Home Loan Bank................ 0 999,303
----------- ---------------
Federal National Mortgage Association ("FNMA")
FNMA Discount Note.......................... 2,000,000 1,996,739
----------- ---------------
Total Federal National Mortgage Association. 0 1,996,739
----------- ---------------
Small Business Administration ("SBA")
SBA Pool #501866 (c)........................ 760,509 803,217
SBA Pool #501471 (c)........................ 26,255 29,328
SBA Pool #501167 (c)........................ 354,966 399,846
SBA Pool #500467 (c)........................ 198,039 215,493
SBA Pool #500340 (c)........................ 252,014 264,172
SBA Pool #500263 (c)........................ 170,150 175,008
SBA Pool #500981 (c)........................ 635,560 642,891
SBA Pool #502128 (c)........................ 444,632 453,032
SBA Pool #502140 (c)........................ 120,768 121,373
SBA Pool #502123 (c)........................ 2,060,168 2,102,249
SBA Pool #502172 (c)........................ 1,140,080 1,143,736
SBA Pool #502934 (c)........................ 769,525 774,427
SBA Pool #502122 (c)........................ 861,130 869,873
SBA Pool #502348 (c)........................ 1,871,524 1,871,524
</TABLE>
<PAGE> 61
PRIME MONEY MARKET PORTFOLIO, PROSPECT HILL PRIME MONEY MARKET PORTFOLIO AND
CASH RESERVE PORTFOLIO
COMBINING SCHEDULE OF INVESTMENTS (Continued)
June 30, 1995 (unaudited)
<TABLE>
<CAPTION>
Prime Portfolio
---------------
Maturity Interest Principal
Date Rate Amount Value
-------- -------- --------- -----
<S> <C> <C> <C> <C>
SBA Loans (Continued)
SBA Loan (c)................................ 01/15/04 8.48% 445,863 458,697
SBA Loan (c)................................ 12/15/06 7.98% 284,778 292,193
SBA Loan (c)................................ 06/15/05 7.88% 88,961 90,813
SBA Loan (c)................................ 07/15/05 7.88% 363,633 371,420
----------
Total Small Business Administration............... 11,079,292
----------
Agency for International Development &
Treasury Bills
U.S Treasury Bill........................... 05/30/96 5.85% $2,000,000 $ 1,897,678
Agency for International Development (Panama)(a)... 08/01/11 6.38% 455,000 458,477
Agency for International Development (Isreal)(b)... 01/01/06 5.69% 2,379,497 2,379,497
----------
Total Agency for International Development &
Treasury Bills 4,735,652
----------
Student Loan Marketing Association ("SLMA")
SLMA (a).................................... 12/20/96 5.72% 2,000,000 $ 2,000,000
----------
Total Student Loan Marketing...................... 2,000,000
----------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS.......... 23,123,583
----------
Short Term - 76.1%
Commerical Paper -33.8%
American Express Credit Corporation......... 07/17/95 6.01% 1,000,000 997,329
American Express Credit Corporation......... 09/11/95 5.93% 1,000,000 988,140
American Express Credit Corporation......... 09/22/95 5.80% 1,000,000 986,628
American Express Credit Corporation......... 09/29/95 5.65% 1,000,000 985,875
American Express Credit Corporation......... 11/03/95 5.78% 1,000,000 979,931
American General Corporation................ 07/14/94 5.88% 1,000,000 997,877
American General Corporation................ 07/20/95 5.95% 2,000,000 1,993,720
American General Corporation................ 08/17/95 5.92% 2,000,000 1,984,542
Associates Corporation...................... 08/01/95 5.96% 1,000,000 994,868
Associates Corporation...................... 08/04/95 5.94% 2,000,000 1,988,780
Associates Corporation...................... 08/10/95 5.89% 2,000,000 1,986,911
The CIT Group Holdings, Inc................. 07/24/95 6.00% 1,000,000 996,167
The CIT Group Holdings, Inc................. 08/03/95 5.75% 1,000,000 994,729
The CIT Group Holdings, Inc................. 08/18/95 6.00% 2,000,000 1,984,133
The CIT Group Holdings, Inc................. 09/15/95 6.03% 1,000,000 987,270
Ford Motor Credit Corporation............... 07/27/95 5.95% 4,000,000 3,982,811
Ford Motor Credit Corporation............... 07/11/95 6.04% 1,000,000 998,322
</TABLE>
<TABLE>
<CAPTION>
Adjustments Pro Forma Effect
----------- ----------------
Principal Principal
Amount Value Amount Value
--------- ----- --------- -----
<S> <C> <C> <C> <C>
SBA Loans (Continued)
SBA Loan (c)................................ 445,863 458,697
SBA Loan (c)................................ 284,778 292,193
SBA Loan (c)................................ 88,961 90,813
SBA Loan (c)................................ 363,633 371,420
---- ----------
Total Small Business Administration......... 0 11,079,292
---- ----------
Agency for International Development &
Treasury Bills
U.S Treasury Bill........................... 2,000,000 1,897,678
Agency for International Development (Panama)(a)... 455,000 458,477
Agency for International Development (Isreal)(b)... 2,379,497 2,379,497
---- ----------
Total Agency for International Development &
Treasury Bills 0 4,735,652
---- ----------
Student Loan Marketing Association ("SLMA")
SLMA (a).................................... 2,000,000 2,000,000
---- ----------
Total Student Loan Marketing................ 0 2,000,000
---- ----------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS.... 0 23,123,583
---- ----------
Short Term - 76.1%
Commerical Paper -33.8%
American Express Credit Corporation......... 1,000,000 997,329
American Express Credit Corporation......... 1,000,000 988,140
American Express Credit Corporation......... 1,000,000 986,628
American Express Credit Corporation......... 1,000,000 985,875
American Express Credit Corporation......... 1,000,000 979,931
American General Corporation................ 1,000,000 997,877
American General Corporation................ 2,000,000 1,993,720
American General Corporation................ 2,000,000 1,984,542
Associates Corporation...................... 1,000,000 994,868
Associates Corporation...................... 2,000,000 1,988,780
Associates Corporation...................... 2,000,000 1,986,911
The CIT Group Holdings, Inc................. 1,000,000 996,167
The CIT Group Holdings, Inc................. 1,000,000 994,729
The CIT Group Holdings, Inc................. 2,000,000 1,984,133
The CIT Group Holdings, Inc................. 1,000,000 987,270
Ford Motor Credit Corporation............... 4,000,000 3,982,811
Ford Motor Credit Corporation............... 1,000,000 998,322
</TABLE>
<PAGE> 62
PRIME MONEY MARKET PORTFOLIO, PROSPECT HILL PRIME MONEY MARKET PORTFOLIO AND
CASH RESERVE PORTFOLIO
COMBINING SCHEDULE OF INVESTMENTS (Continued)
June 30, 1995 (unaudited)
<TABLE>
<CAPTION>
Prime Portfolio
--------------------------
Maturity Interest Principal
Date Rate Amount Value
--------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Commerical Paper (Continued)
Ford Motor Credit Corporation............... 07/31/95 5.85% 1,000,000 995,125
Ford Motor Credit Corporation............... 08/16/95 6.03% 1,000,000 992,295
Ford Motor Credit Corporation............... 08/24/95 6.00% 1,000,000 991,000
Ford Motor Credit Corporation............... 08/29/95 6.04% 1,000,000 990,314
General Electric Capital Corporation........ 07/05/95 5.95% 1,000,000 999,339
General Electric Capital Corporation........ 07/21/95 5.95% 1,000,000 996,694
General Electric Capital Corporation........ 08/21/95 6.00% 1,000,000 991,500
General Electric Capital Corporation........ 09/15/95 5.70% 1,000,000 987,967
General Electric Capital Corporation........ 09/26/95 5.77% 1,000,000 986,056
Household Finance Corporation............... 07/19/95 5.85% 1,000,000 997,075
Household Finance Corporation............... 08/11/95 5.88% 2,000,000 1,986,607
Household Finance Corporation............... 08/31/95 6.00% 2,000,000 1,979,666
-------------
Total Commercial Paper....................... 38,721,671
-------------
Repurchase Agreements - 42.3%
Smith Barney................................ 07/03/95 6.08% $25,000,000 $25,000,000
(Agreement dated 06/26/95, collateralized by
$25,378,019 in various U.S. Treasury Notes due
at various dates through 11/15/99, $25,029,083.33
due at maturity.)
First Boston Corp........................... 07/03/95 6.05% 23,441,789 23,441,789
(Agreement dated 12/30/95, collateralized by
$24,056,367 in U.S. Treasury Bills due
02/15/98, $23,453,607.22 due at maturity.)
-------------
Total Repurchase Agreements........................ 48,441,789
-------------
TOTAL SHORT TERM .................................. 87,163,460
-------------
Total Investments, at Amortized Cost .............. 110,287,043
Other Assets, less Liabilities..................... 4,176,059
-------------
Net Assets - 100%.................................. $114,463,102
-------------
</TABLE>
<TABLE>
<CAPTION>
Adjustments Pro Forma Effect
------------------------ -------------------------------
Principal Principal
Amount Value Amount Value
------------ ------------- --------------- -------------
<S> <C> <C> <C> <C>
Commerical Paper (Continued)
Ford Motor Credit Corporation............... 1,000,000 995,125
Ford Motor Credit Corporation............... 1,000,000 992,295
Ford Motor Credit Corporation............... 1,000,000 991,000
Ford Motor Credit Corporation............... 1,000,000 990,314
General Electric Capital Corporation........ 1,000,000 999,339
General Electric Capital Corporation........ 1,000,000 996,694
General Electric Capital Corporation........ 1,000,000 991,500
General Electric Capital Corporation........ 1,000,000 987,967
General Electric Capital Corporation........ 1,000,000 986,056
Household Finance Corporation............... 1,000,000 997,075
Household Finance Corporation.............. 2,000,000 1,986,607
Household Finance Corporation............... 2,000,000 1,979,666
------------- -------------
Total Commercial Paper............................ 0 38,721,671
------------- -------------
Repurchase Agreements - 42.3%
Smith Barney................................ 25,000,000 25,000,000
(Agreement dated 06/26/95, collateralized by
$25,378,019 in various U.S. Treasury Notes due
at various dates through 11/15/99, $25,029,083.33
due at maturity.)
First Boston Corp........................... 23,441,789 23,441,789
(Agreement dated 12/30/95, collateralized by
$24,056,367 in U.S. Treasury Bills due
02/15/98, $23,453,607.22 due at maturity.)
------------- -------------
Total Repurchase Agreements........................ 0 48,441,789
------------- -------------
TOTAL SHORT TERM ................................... 0 87,163,460
------------- -------------
Total Investments, at Amortized Cost ............... 110,287,043
Other Assets, less Liabilities...................... 4,176,059
------------- -------------
Net Assets - 100%................................... 0 $114,463,102
------------- -------------
</TABLE>
Notes to Combining Schedule of Investments
(a) The security has a floating/variable rate coupon payment tied to the
Treasury Bill lending rate. The coupon payment adjusts weekly or quarterly
thereby reducing the effective maturity to one year or less.
(b) The security has a floating/variable rate coupon payment tied to the six
month Libor lending rate. The coupon payment adjusts weekly thereby
reducing the effective maturity to one year or less.
(c) The security has a floating/variable rate coupon payment tied to the Prime
lending rate. The coupon payment adjust daily, monthly, quarterly,
semiannually or annually thereby reducing the effective maturity to one
year or less.
