<PAGE> 1
As filed with the Securities and Exchange Commission on May 1, 1996.
Registration No. 333-01123
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. ___ [X] Post-Effective Amendment No. 1
(Check appropriate box or boxes)
================================================================================
<TABLE>
<S> <C>
Exact Name of Registrant as Specified in Charter: Area Code and Telephone Number:
PRINCIPAL PRESERVATION PORTFOLIOS, INC. (414) 334-5521
Address of Principal Executive Offices (Number, Street, City, State, Zip Code):
</TABLE>
215 NORTH MAIN STREET
WEST BEND, WISCONSIN 53095
<TABLE>
<CAPTION>
Name and Address of Agent for Service: With a copy to:
<S> <C>
ROBERT J. TUSZYNSKI
VICE PRESIDENT CONRAD G. GOODKIND
PRINCIPAL PRESERVATION PORTFOLIOS, INC. QUARLES & BRADY
215 NORTH MAIN STREET 411 EAST WISCONSIN AVENUE
WEST BEND, WISCONSIN 53095-3348 MILWAUKEE, WISCONSIN 53202
</TABLE>
Approximate Date of Proposed Public Offering: March 22, 1996 (the date on
which this Registration Statement became effective).
It is proposed that this filing will become effective immediately upon filing
pursuant to Rule 485(b).
================================================================================
The Registrant has previously filed a declaration registering an indefinite
number of its shares of Common Stock, par value $.001 per share, pursuant to
Rule 24f-2 under the Investment Company Act of 1940, as amended. Accordingly,
no filing fee is payable herewith. The Registrant's Rule 24f-2 Notice for the
year ended December 31, 1995 was filed on February 27, 1996.
================================================================================
<PAGE> 2
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
CROSS REFERENCE SHEET
(Pursuant to Rule 481(a) showing the location in the Prospectus and the
Statement of Additional Information of the responses to the Items of Parts A
and B of Form N-14.)
<TABLE>
<CAPTION>
Caption or Subheading in Prospectus
Item No. on Form N-14 or Statement of Additional Information
--------------------- --------------------------------------
<S> <C>
PART A - INFORMATION REQUIRED IN THE PROSPECTUS
1. Beginning of Registration Statement and Outside Cover Page
Front Cover Page of Prospectus
2. Beginning and Outside Back Cover Page of Table of Contents
Prospectus
3. Fee Table, Synopsis Information and Risk Factors Synopsis; *
4. Information About the Transaction Synopsis; the Proposed Reorganization; Appendix A
5. Information About the Registrant Synopsis; Miscellaneous;*
6. Information About the Company Being Acquired Synopsis; Miscellaneous;*
7. Voting Information Introduction, Voting Information and Requirements
8. Interest of Certain Persons and Experts Miscellaneous
9. Additional Information Required for Reoffering Not Applicable
by Persons Deemed to be Underwriters
PART B -- INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Not Applicable
12. Additional Information About the Registrant *
13. Additional Information About the Company Being *
Acquired
14. Financial Statements Historical Financial Statements; Unaudited
Proforma Financial Statements
</TABLE>
______________________
*Incorporated by reference.
<PAGE> 3
The purpose of this Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-14 is to file as exhibits thereto an opinion
of counsel as to the legality of the shares being registered (Exhibit 11) and
an opinion of counsel regarding certain tax matters and consequences to
shareholders (Exhibit 12).
PART A - INFORMATION REQUIRED IN A PROSPECTUS
In response to Part A of Form N-14, the Registrant hereby incorporates by
reference Part A of its Registration Statement on Form N-14 (Registration No.
333-01123), as filed with the Securities and Exchange Commission on February
21, 1996, which includes the Proxy Statement/Prospectus filed with the
Securities and Exchange Commission on March 25, 1996 under Rule 497.
PART B - INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
In response to Part B of Form N-14, the Registrant hereby incorporates by
reference Part B of its Registration Statement on Form N-14 (Registration No.
333-01123), as filed with the Securities and Exchange Commission on February
21, 1996, which includes the Statement of Additional Information filed with the
Securities and Exchange Commission on March 25, 1996 under Rule 497.
PART C - OTHER INFORMATION
In partial response to Part C of Form N-14, the Registrant hereby
incorporates by reference Part C of its Registration Statement on Form N-14
(Registration No. 333-01123), as filed with the Securities and Exchange
Commission on February 21, 1996. In further response to Item 16, the
Registrant hereby amends the Exhibit Index to include an opinion of counsel as
to the legality of the shares being registered and an opinion of counsel
regarding certain tax matters and consequences to shareholders filed as
Exhibits 11 and 12, respectively.
<PAGE> 4
SIGNATURES
As required by the Securities Act of 1933, this Amendment to the Registration
Statement has been signed on behalf of the Registrant, in the City of West
Bend, in the State of Wisconsin, on the 30th day of April, 1996.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
By: /s/ R. D. Ziegler
----------------------------------
R. D. Ziegler, President and
Chief Executive Officer
As required by the Securities Act of 1933, this Amendment to the Registration
Statement has been signed on this 30th day of April, 1996 by the following
persons in the capacities indicated.
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<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ R. D. Ziegler Director and President
------------------------------- (Chief Executive Officer)
R. D. Ziegler
/s/ Robert J. Tuszynski Director and Vice President
------------------------------- (Chief Financial Officer)
Robert J. Tuszynski
/s/ Jay Ferrara Treasurer (Chief Accounting Officer)
-------------------------------
Jay Ferrara
Richard H. Aster* Director
-------------------------------
Richard H. Aster
August J. English* Director
-------------------------------
August J. English
Ralph J. Eckert* Director
-------------------------------
Ralph J. Eckert
*By: /s/ Robert J. Tuszynski
---------------------------------------
Robert J. Tuszynski, pursuant to power
of attorney dated February 20, 1996 and
previously filed
</TABLE>
C-1
<PAGE> 5
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
EXHIBIT TO INDEX
TO
REGISTRATION STATEMENT ON FORM N-14
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
------- ----------- -----------
<S> <C>
(1)(a) Restated and Amended Articles of Incorporation*
(1)(b) Form of Articles Supplementary**
(2)(a) By-Laws*
(2)(b) Amendment to Bylaws Adopted by Board of Directors on January 20, 1995*
(3) None
(4) Balanced Portfolio's Plan of Reorganization and Liquidation**
(5)(a) Specimen Certificate representing shares in Balanced Portfolio*
(5)(b) Specimen Certificate representing shares in S&P 100 Plus Portfolio*
(6)(a) Investment Advisory Agreement pertaining to the assets of Insured Tax-
Exempt, Tax-Exempt, S&P 100 Plus, Government, Balanced, Wisconsin Tax-
Exempt and Select Value Portfolios*
(7)(a) Distribution Agreement*
(7)(b) Form of Selected Dealers Agreement*
(8) None
(9) Depository Contract*
(10)(a) Rule 12b-1 Distribution Plan*
(10)(b) Amendment No. 1 to Rule 12b-1 Distribution Plan*
(11) Opinion of Counsel regarding the legality of securities being
registered
(12) Opinion of Counsel regarding certain tax matters and consequences to
shareholders
(13)(a) Transfer and Dividend Disbursing Agent Agreement*
(13)(b) Accounting/Pricing Agreement between Registrant and B.C. Ziegler and
Company*
(14)(a) Consent of Independent Accountants
(14)(b) Consent of Counsel regarding legal and tax opinions in Exhibits 11
and 12, respectively**
</TABLE>
C-2
<PAGE> 6
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
------- ----------- -----------
<S> <C>
(15) None
(16) Powers of Attorney**
(17) Rule 24f-2 Notice**
</TABLE>
_________________
* Previously filed as part of the Registrant's Registration Statement on
Form N-1A (Reg. Nos. 33-12 and 811-4401), or an amendment thereto, and
incorporated herein by reference.
** Previously filed as part of the Registrant's Registration Statement on
Form N-14 (Reg. No. 333-01123), and incorporated herein by reference.
C-3
<PAGE> 1
[QUARLES & BRADY LETTERHEAD]
EXHIBIT 11
May 1, 1996
Principal Preservation Portfolios, Inc.
215 North Main Street
West Bend, Wisconsin 53095
Gentlemen:
In connection with the registration of shares of the S&P 100 Plus
Portfolio, a series of Principal Preservation Portfolios, Inc., a Maryland
corporation (the "Registrant"), you have requested that we furnish you with the
following opinion, which we understand is to be used in connection with and
filed as an exhibit to the Registration Statement on Form N-14 (as may be
amended, the "Registration Statement") initially filed with the Securities and
Exchange Commission on February 21, 1996 (1933 Act Reg. No. 333-01123).
We understand that the shares of Common Stock of the S&P 100 Plus
Portfolio to which the Registration Statement relates will be issued in
exchange for outstanding shares of the Balanced Portfolio, another separate
series of the Registrant, pursuant to the terms of a Plan of Reorganization and
Liquidation (the "Plan of Reorganization"), dated February 20, 1996, all as
described in the Registrant's Registration Statement. For purposes of
rendering this opinion, we have examined originals or copies of such documents
as we consider necessary, including those listed below. In conducting such
examination, we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals and the conformity
to original documents of all documents submitted to us as copies.
The documents we have examined include:
1. The Registration Statement;
2. Articles Supplementary dated April 24, 1996 filed with, and
approved by, the State of Maryland State Department of
Assessments and Taxation on April 30, 1996 to take effect as
of the date of this opinion letter;
3. The Plan of Reorganization;
4. Minutes of a January 19, 1996 meeting of the Registrant's
Board of Directors at which the Board authorized the
transactions described in the Plan of Reorganization;
5. Resolutions approving the Plan of Reorganization duly adopted
by the shareholders of the Balanced Portfolio at a special
meeting held on April 24, 1996;
6. Other documents and certificates exchanged between the parties
at the closing contemplated by and pursuant to the Plan of
Reorganization; and
7. Such certificates of public officials and other public
documents, certificates of officers and representatives of the
parties to the Plan of Reorganization and such matters of law
as we have deemed relevant to the opinions expressed herein.
<PAGE> 2
Principal Preservation Portfolios, Inc.
May 1, 1996
Page 2
Based upon and subject to the foregoing, after having given due regard
to such issues of law as we deemed relevant, and assuming that:
1. The Registration Statement remains effective, and the Proxy
Statement/Prospectus which is a part thereof and your Proxy
Statement/Prospectus delivery procedures with respect thereto
fulfill all the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940 throughout all periods
relevant to this opinion;
2. All offers and issuances of shares of Common Stock of the S&P
100 Plus Portfolio registered under the Registration Statement
are conducted in a manner complying with the terms of the Plan
of Reorganization and the Registration Statement; and
3. All offers and issuances of shares of Common Stock of the S&P
100 Plus Portfolio registered under the Registration Statement
are conducted in compliance with the state securities laws of
the states having jurisdiction thereof;
we are of the opinion that shares of Common Stock of the S&P 100 Plus Portfolio
covered by the Registration Statement will be, when issued, legally and validly
issued, fully paid and non-assessable.
Very truly yours,
QUARLES & BRADY
<PAGE> 1
[QUARLES & BRADY LETTERHEAD}
EXHIBIT 12
May 1, 1996
Board of Directors
Principal Preservation Portfolios, Inc.
215 North Main Street
West Bend WI 53095-3317
RE: TAX OPINION WITH RESPECT TO THE ACQUISITION OF THE ASSETS OF
THE BALANCED PORTFOLIO OF PRINCIPAL PRESERVATION PORTFOLIOS,
INC. BY THE S&P 100 PLUS PORTFOLIO OF PRINCIPAL PRESERVATION
PORTFOLIOS, INC.
Gentlemen:
At your request, we are rendering our opinion with respect to certain
federal income tax questions in connection with the proposed acquisition of the
assets of the Balanced Portfolio ("Balanced"), a series of Principal
Preservation Portfolios, Inc. (the "Fund"), by the S&P 100 Plus Portfolio
("S&P"), a series of the Fund. We do not express any opinion in this letter
with respect to any issues pertaining to state or local taxes.
We have examined Principal Preservation Balanced Portfolio Plan of
Reorganization and Liquidation, dated as of February 20, 1996 (the "Plan"),
which sets forth the terms of the proposed transaction. In addition, the
parties to the transaction have made various representations concerning the
transaction, including their purposes for entering into the transaction.
STATEMENT OF FACTS
A. THE FUND.
The Fund is a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as amended. The Fund is a
Maryland corporation with its principal office at 215 North Main Street, West
Bend, Wisconsin 53095-3317. The authorized capital stock of the Fund consists
of one billion shares of common stock, $.001 par value per share, issuable in
such series as authorized and established from time to time by the Board of
Directors. Shares of nine series, or "portfolios," have been authorized,
including Balanced and S&P.
<PAGE> 2
Board of Directors
Principal Preservation Portfolios, Inc.
May 1, 1996
Page 2
B. BALANCED.
Balanced is a portfolio of the Fund. The Board of Directors of the
Fund has authorized and established a series of common stock ($0.001 par value
per share) known as Balanced. Of the fifty million authorized shares of
Balanced series, approximately 584,480 shares were issued and outstanding as of
December 31, 1995. Balanced's investment objective is to realize a combination
of income and capital appreciation which will result in the highest total
return consistent with the preservation of principal. Balanced has
traditionally invested in a diversified portfolio of common stocks, corporate
debt obligations and the debt obligations of the U.S. government and its
agencies. On December 31, 1995, the investments of Balanced consisted of the
following percentages: corporate stocks (64%), debt obligations of the U.S.
government and its agencies (29%), corporate debt obligations (4%), and money
market investments (3%).
C. S&P.
S&P is a portfolio of the Fund. The Board of Directors of the Fund has
authorized and established a series of common stock ($0.001 par value per
share) known as S&P 100 Plus. Of the fifty million authorized shares of S&P
series, approximately 2,922,304 shares were issued and outstanding as of
December 31, 1995. S&P's investment objective is to obtain a total return that
exceeds the S&P 100 Index. S&P has traditionally invested primarily in a
diversified portfolio of common stocks which approximately parallels the
composition of the S&P 100 Index. On December 31, 1995, the investments of S&P
consisted of the following percentages: corporate stocks (93%), debt
obligations of the U.S. government (2%), and money market investments (5%).
D. PROPOSED TRANSACTION.
On January 19, 1996, the Board of Directors of the Fund approved, and
on April 24, 1996, the shareholders of Balanced will be asked to approve, the
Plan which provides for the acquisition by S&P of all of the assets of Balanced
(except for assets retained by Balanced for the purposes of discharging its
estimated liabilities) in exchange for stock of S&P. It is anticipated that
prior to the acquisition (but following shareholder approval) Balanced will
sell those of its assets that are not eligible for investment by S&P.
Following the acquisition, S&P will reinvest any remaining sale proceeds in
securities eligible for purchase by S&P.
<PAGE> 3
Board of Directors
Principal Preservation Portfolios, Inc.
May 1, 1996
Page 3
In exchange for Balanced's assets S&P will deliver to Balanced that
number of shares of S&P' voting common stock as shall be determined by dividing
the fair market value of Balanced's assets to be so exchanged by the net asset
value per share of S&P' voting common stock, both valued at the close of
business on the New York Stock Exchange on the business day immediately
preceding the consummation of the proposed transaction. Balanced will then
transfer the S&P shares to its shareholders on a pro rata basis according to
the number of Balanced shares held by those shareholders and Balanced will
then, in effect, be completely liquidated, and the designation of that series
will be discontinued.
The stock transfers will be accomplished by book entries. Fractional
shares will be rounded to the nearest thousandth of a share.
E. BUSINESS PURPOSES.
In connection with the proposed transaction, you have stated that the
business purposes therefor include the following:
Small funds, such as Balanced, cannot be operated as efficiently as
larger funds, and therefore are at a distinct disadvantage in attempting to
compete for new investors and additional assets. Certain costs associated with
the operation of a mutual fund are unrelated to its size (e.g., professional
fees, certain administrative expenses, etc.). In addition, brokerage
commission rates tend to decrease as the size of the block of securities being
traded increases, and purchases and sales of securities can therefore generally
be effected at more favorable prices in larger blocks.
Given these factors and the belief of the Board of Directors of the
Fund that there is no strong likelihood of any appreciable growth in the assets
of Balanced as a stand-alone fund in the near future, the Board of Directors
and management of the Fund have considered available alternatives to enhance
the future total return potentially available to Balanced's shareholders. The
Board of Directors concluded that the reorganization is in the best interests
of Balanced's shareholders for a number of reasons, including the following:
(1) it provides Balanced's shareholders with an
opportunity to continue as members of the Fund's
family of funds;
<PAGE> 4
Board of Directors
Principal Preservation Portfolios, Inc.
May 1, 1996
Page 4
(2) the similarities between the structure, operations and
service providers between Balanced and S&P; and
(3) the cost savings that can be achieved by combining the
assets of Balanced with those of S&P through greater
economies of scale.
REPRESENTATIONS
The following representations have been made in connection with the
proposed transaction.
1. The Fund is a diversified, open-end management company and has
been registered as such with the Securities and Exchange Commission under the
1940 Act at all times during the past three years.
2. Each portfolio of the Fund (including S&P and Balanced) is a
segregated portfolio of assets, the beneficial interests in which are owned by
the holders of a class or series of voting stock of the Fund that is preferred
over all other classes or series in respect of such portfolio of assets.
3. The Fund is a regulated investment company within the meaning
of Section 851 of the Internal Revenue Code (the "Code"). With respect to each
of Balanced and S&P, no more than 25 percent of the value of the portfolio's
total assets is invested in the stock and securities of any one issuer and not
more than 50 percent of the value of its total assets is invested in the stock
and securities of 5 or fewer issuers. Furthermore, subsequent to the proposed
transaction, no more than 25 percent of the value of S&P's total assets will be
invested in the stock and securities of any one issuer nor will more than 50
percent of the value of its total assets be invested in the stock and
securities of 5 or fewer issuers. For purposes of this representation, in
determining total assets, there shall be excluded cash and cash items
(including receivables), U.S. Government securities, and assets acquired
(through incurring indebtedness or otherwise) for purposes of meeting the
requirements of Section 368(a)(2)(F)(ii) of the Code. Furthermore, none of the
assets of S&P or Balanced was acquired for purposes of meeting the requirements
of Section 368(a)(2)(F)(ii).
4. S&P and Balanced are investment companies as defined in
Sections 368(a)(2)(F)(i) and (iii) of the Code. S&P and Balanced have, for all
their taxable years, elected to be taxed as regulated investment companies as
defined in Sections 851 through 855 of the Code. After the reorganization, S&P
intends to continue to elect
<PAGE> 5
Board of Directors
Principal Preservation Portfolios, Inc.
May 1, 1996
Page 5
to be taxed as a regulated investment company for all subsequent taxable years.
5. There is no plan or intention by Balanced's shareholders who
own five percent or more of the stock of Balanced, and to the best of the
knowledge of the management of the Fund there is no plan or intention on the
part of shareholders of Balanced to sell, exchange, redeem or otherwise dispose
of a number of shares of S&P stock received in the transaction that would
reduce the ownership by the shareholders of Balanced of the S&P stock to a
number of shares having a value, as of the date of the transaction, of less
than 50 percent of the value of all of the formerly outstanding stock of
Balanced as of the same date. Shares of Balanced stock and shares of S&P stock
held by Balanced shareholders and otherwise sold, redeemed, or disposed of
prior or subsequent to the transaction will be considered in making this
representation.
6. S&P will acquire at least 90 percent of the fair market value
of the net assets and at least 70 percent of the fair market value of the gross
assets held by Balanced immediately prior to the transaction. For purposes of
this representation, amounts used by Balanced to pay its reorganization
expenses, and all redemptions and distributions (except for ordinary course
regulated investment company dividends, including capital gain dividends) made
by Balanced immediately preceding the transfer will be included as assets of
Balanced held immediately prior to the transaction.
7. Balanced will distribute the stock it receives in the
transaction, and its other properties (if any) and liquidate pursuant to the
Plan.
8. S&P has no plan or intention to sell or otherwise dispose of
any of the assets of Balanced acquired in the transaction, except for
dispositions made in the ordinary course of business and to the extent
necessary to maintain its status as a series of an open-end investment company
under the 1940 Act.
9. S&P has no plan or intention to redeem or otherwise reacquire
any of its stock to be issued in the transaction, except that S&P, as an
open-end investment company registered with the Securities and Exchange
Commission, is required by Section 22(e) of the 1940 Act to redeem any of its
shares presented to it for redemption. To the best knowledge of the management
of the Fund, the exchanging Balanced shareholders have no plan or intention to
present their S&P shares for redemption.
10. S&P will assume none of the liabilities of Balanced, nor will
any of the Balanced assets be subject to any liabilities.
<PAGE> 6
Board of Directors
Principal Preservation Portfolios, Inc.
May 1, 1996
Page 6
11. B. C. Ziegler and Company, in its capacity as the distributor
for Balanced, has previously committed to Balanced to pay certain expenses
incurred by Balanced, including the type of expenses incurred in connection
with the transaction, and will pay such expenses. B.C. Ziegler and Company, in
its capacity as the distributor for S&P, has previously committed to S&P to pay
certain expenses of S&P, including the type of expenses incurred in connection
with the transaction, and will pay such expenses. Balanced's shareholders will
pay their own respective expenses, if any, incurred in connection with the
transaction.
12. There is no intercorporate indebtedness existing between S&P
and Balanced that was issued, acquired, or will be settled at a discount.
13. S&P does not own, directly or indirectly, nor has it owned
during the past five years, directly or indirectly, any stock of Balanced.
14. Following the transaction, S&P will continue the historic
business of Balanced (as a series of an open-end investment company) or use a
significant portion of Balanced's assets in a business (as a series of an
open-end investment company).
15. Neither the Fund nor any portfolio thereof (including S&P and
Balanced) is under the jurisdiction of a court in a Title 11 or similar case
within the meaning of Section 368(a)(3)(A) of the Code.
16. The fair market value of the S&P stock received by each
Balanced shareholder will be approximately equal to the fair market value of
the Balanced stock surrendered in the exchange.
17. The fair market value of the Balanced assets transferred will
be approximately equal to the fair market value of the S&P stock exchanged
therefor.
18. None of the compensation received by any shareholder of
Balanced who is also an employee of Balanced, S&P, or the Fund will be separate
consideration for, or allocable to, any of his or her Balanced shares; none of
the shares of S&P received by any such shareholder of Balanced pursuant to the
Plan will be separate consideration for, or allocable to, any employment
agreement; and the compensation paid to any such shareholder of Balanced will
be for services actually rendered and will be commensurate with amounts paid to
third parties bargaining at arms-length for similar services.
<PAGE> 7
Board of Directors
Principal Preservation Portfolios, Inc.
May 1, 1996
Page 7
APPLICABLE LAW
A. THE STATUTORY REQUIREMENTS.
Section 368(a)(1)(C) of the Code provides that the term
"reorganization" includes the acquisition by one corporation, in exchange
solely for a part of its voting stock, of substantially all of the properties
of another corporation. Section 368(a)(2)(F) provides that if, immediately
before a transaction described in Section 368(a)(1), two or more parties to the
transaction were investment companies, then the transaction shall not be
considered to be a reorganization with respect to any such investment company,
unless it was a regulated investment company, a real estate investment trust or
a corporation which meets the requirements of Section 368(a)(2)(F)(ii).
Section 851(a)(1) of the Code defines the term "regulated investment
company" to include any domestic corporation which at all times during the
taxable year is registered under the 1940 Act as a management company, business
development company or unit investment trust. The Fund has been registered
under the 1940 Act as a management company at all times during the past three
years. Section 851(h) of the Code, as amended by the Tax Reform Act of 1986,
provides that in the case of a regulated investment company having more than
one fund, each fund of such regulated investment company shall be treated as a
separate corporation for purposes of the Internal Revenue Code, except with
respect to the definition of regulated investment company described above. For
purposes of the foregoing, a "fund" means a segregated portfolio of assets, the
beneficial interests in which are owned by the holders of a class or series of
stock of the regulated investment company that is preferred over all other
classes or series in respect of such portfolio of assets.
We have considered whether the "substantially all" requirement of
Section 368(a)(1)(C) would be affected by any sales of assets and the
reinvestment of the proceeds by Balanced prior to the proposed transaction. As
stated in Rev. Rul. 88-48, 1988-1 C.B. 117, the position of the I.R.S. is that
the "substantially all" requirement addresses divisive transactions in which
some assets are transferred to an acquiring corporation and others are
retained. The proposed transaction is not divisive because (1) sales proceeds
will be reinvested in assets which will be transferred to S&P, (2) any sales
will be to unrelated purchasers, and (3) the shareholders of Balanced will not
retain any interest in the assets. See Rev. Rul. 88-48, 1988-1 C.B. 117.
<PAGE> 8
Board of Directors
Principal Preservation Portfolios, Inc.
May 1, 1996
Page 8
B. THE NONSTATUTORY REQUIREMENTS.
In addition to the statutory requirements of Section 368, a
reorganization must also satisfy various nonstatutory requirements including
the business purpose, the continuity of ownership, and the continuity of
business enterprise requirements. In our opinion the business purposes
expressed by the parties satisfy the business purpose requirement.
Furthermore, the representations made by the parties clearly demonstrate that
there will be a continuity of ownership.
Treas. Reg. Section 1.368-1(d)(2) provides that, as a general rule,
continuity of business enterprise requires that the acquiring corporation
either use a significant portion of the acquired corporation's assets in a
business or continue the acquired corporation's historic business. If an
acquired corporation has more than one line of business, the continuity of
business enterprise requirement is satisfied if the acquiring corporation
continues a significant line of business. For example, in Example (1) of
Treas. Reg. Section 1.368-1(d)(5) the continuity of business enterprise
requirement was met when the acquiring corporation continued a line of business
with a value of approximately one-third the value of the acquired corporation,
even though the acquired corporation had sold the other two lines of business
for cash and marketable securities.
Balanced and S&P are two portfolios of the Fund, a regulated investment
company. Pursuant to Section 851 of the Code these two portfolios are treated
as if they were separate corporations under the Code. The two portfolios have
each sought to obtain their objective through a combination of income and
capital appreciation. Balanced has invested in common stocks (including stocks
of companies that comprise the S&P 100 Index), corporate debt obligations and
debt obligations of the U.S. government and its agencies. S&P has invested
primarily in common stocks that comprise the S&P 100 Index. In our opinion S&P
will continue the historic business of Balanced after the proposed transaction
even though the particular securities (e.g., common stocks of Corp. A and Corp.
B) which S&P will hold in some cases may differ from the particular securities
(e.g., common stocks of Corp. C and Corp. D) held by Balanced prior to the sale
and reinvestment by Balanced.
In Rev. Rul. 87-76, 1987-2 C.B. 84, the I.R.S. considered a corporation
("Acquired") which was in the investment business and which had traditionally
invested in corporate stocks and bonds. Pursuant to a plan of reorganization,
Acquired sold its entire portfolio of corporate stocks and bonds and reinvested
the proceeds in municipal bonds (the income from which was exempt from federal
<PAGE> 9
Board of Directors
Principal Preservation Portfolios, Inc.
May 1, 1996
Page 9
income tax). An investment company ("Acquiring") whose portfolio consisted
exclusively of municipal bonds then acquired substantially all of Acquired's
assets in exchange for shares of Acquiring voting stock. The I.R.S. ruled that
the reorganization did not qualify under Section 368(a)(1)(C) of the Code
because Acquired's traditional business of investing in corporate stocks and
bonds was not the same line of business as investing in tax-exempt municipal
bonds. In our opinion, Rev. Rul. 87-76 is not applicable to the proposed
transaction because the nature of the investment goals and traditional
portfolios of Balanced and S&P are similar, unlike the taxable corporate
instruments/tax-free municipal bonds dichotomy considered in Rev. Rul. 87-76.
Balanced and S&P each invest significantly in common stocks. S&P invests
primarily in common stocks that make up the S&P 100 Index, and Balanced has
traditionally also invested a significant portion of its assets in such common
stocks. This is unlike Rev. Rul. 87-76 in which one fund invested only in
tax-free municipal bonds and the other fund invested only in securities which
generated taxable income and did not invest in municipal bonds. In our
opinion, the differences in investment philosophies between Balanced and S&P
and the changes resulting from those differences will not constitute a failure
by S&P to continue an historic business of Balanced.
C. ADDITIONAL STATUTORY PROVISIONS.
Sections 361 and 357(a) of the Code provide that generally no gain or
loss will be recognized if a transferor corporation which is a party to a
reorganization exchanges property pursuant to the plan of reorganization.
As provided in Section 362(b) of the Code, if property is acquired by a
corporation in connection with a reorganization, then the basis of the property
is the same as it would be in the hands of the transferor. Similarly, as a
result of Section 1223(2) of the Code, if a corporation acquires property in a
transaction in which there is carry-over basis, the corporation shall include
in its holding period the period for which this property was held by the
transferor.
Section 354(a)(1) of the Code provides that no gain or loss will be
recognized by the holder of stock in a corporation which is a party to a
reorganization if the stock is exchanged solely for stock of another party to
the reorganization, and Section 358(a)(1) of the Code provides that the basis
of property permitted to be received under Section 354 of the Code without the
recognition of gain or loss is the same as the property exchanged, decreased by
the amount of money or the fair market value of any other property received by
the taxpayer and the amount of any loss which the
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Board of Directors
Principal Preservation Portfolios, Inc.
May 1, 1996
Page 10
taxpayer recognized on the exchange, and increased by the amount which was
treated as a dividend and the amount of any gain recognized by the taxpayer on
the exchange (excluding any part of such gain that was treated as a dividend).
Under Section 1223(1) of the Code, a stockholder's holding period for the
property acquired in the exchange shall include the holding period of the
exchanged property, provided the property exchanged was a capital asset on the
date of the exchange.
OPINION
On the basis of the foregoing information and representations, and
assuming that the transaction is consummated in a manner consistent with the
terms of the Plan and that the representations remain accurate and true
immediately prior to the consummation of the transaction, our opinion is as
follows:
1. The acquisition by S&P of substantially all of the assets of
Balanced in exchange solely for S&P voting common stock, followed by the pro
rata distribution by Balanced to its shareholders of the S&P voting common
stock in complete liquidation of Balanced, will constitute a reorganization
within the meaning of Section 368(a)(1)(C) of the Code. For purposes of this
opinion, "substantially all" means at least 90 percent of the fair market value
of the net assets and at least 70 percent of the fair market value of the gross
assets of Balanced. S&P and Balanced will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code.
2. No gain or loss will be recognized by Balanced on the transfer
of substantially all of its assets to S&P solely in exchange for shares of S&P
voting common stock (Section 361(a)). No gain or loss will be recognized by
Balanced on the distribution to the shareholders of Balanced of the shares of
S&P received pursuant to the Plan (Section 361(c)) of the Code.
3. No gain or loss will be recognized by S&P upon the receipt of
the assets of Balanced solely in exchange for S&P voting common stock (Section
1032(a)) of the Code.
4. The basis of the assets of Balanced in the hands of S&P will
be the same as the basis of those assets in the hands of Balanced immediately
prior to the transaction (Section 362(b)) of the Code.
5. The holding period of the assets of Balanced in the hands of
S&P will include the holding period of those assets in the hands
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Board of Directors
Principal Preservation Portfolios, Inc.
May 1, 1996
Page 11
of Balanced immediately prior to the transaction (Section 1223(2)) of the Code.
6. No gain or loss will be recognized by the shareholders of
Balanced upon the receipt solely of S&P voting common stock (including
fractional shares) solely in exchange for Balanced stock (Section 354(a)(1)) of
the Code.
7. The basis of the S&P voting common stock received by the
Balanced shareholders (including fractional shares) will be the same as their
basis in the stock of Balanced surrendered in exchange therefor (Section
358(a)(1)) of the Code.
8. The holding period of the S&P voting common stock received by
the Balanced shareholders (including fractional shares) will include the
holding period of the Balanced stock surrendered in exchange therefor, provided
that such stock was held as a capital asset in the hands of Balanced
shareholders on the date of the exchange (Section 1223(1)) of the Code.
This opinion is based upon our best interpretation of the existing
Code, Treasury Regulations, judicial decisions, the published revenue rulings,
procedures, notices and releases of the Internal Revenue Service, and such
other authorities as we have considered relevant. This opinion states what we
believe a court would likely determine. Legislative, judicial or
administrative changes may occur which could be retroactive and adversely
affect our opinion. Furthermore, if the reorganization becomes the subject of
an administrative or judicial proceeding, no assurance can be given that our
opinion would be followed.
No opinion is expressed regarding the tax treatment of the transaction
under any other provision of the Code or Treasury Regulations. In addition, no
opinion is expressed regarding the tax treatment of any conditions existing at
the time of or effects resulting from the proposed transaction that are not
specifically covered by the above statements.
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Board of Directors
Principal Preservation Portfolios, Inc.
May 1, 1996
Page 12
This opinion has been furnished solely for the benefit of the Fund,
Balanced, S&P, and their shareholders, and it may not be relied upon or used by
any other person or for any other purpose without our express written consent.
Very truly yours,
QUARLES & BRADY
<PAGE> 1
EXHIBIT 14(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in the Proxy Statement/Prospectus and Statement of Additional
Information, which are incorporated by reference in this Post-Effective
Amendment No. 1 (this "Amendment") to the Registration Statement on Form N-14,
of our report dated January 19, 1996 included in Principal Preservation
Portfolio, Inc.'s Annual Report to Shareholders for the year ended December 31,
1995. The Annual Report to Shareholders is incorporated by reference in the
Proxy Statement/Prospectus and the Statement of Additional Information. We
also hereby consent to all references to our firm included in the Proxy
Statement/Prospectus and the Statement of Additional Information incorporated
by reference in this Amendment.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
April 30, 1996
