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Rule 497(b)
1933 Act Reg. No. 333-01123
1940 Act File No. 811-4401
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
BALANCED PORTFOLIO
215 North Main Street
West Bend, Wisconsin 53095-3348
(414) 334-5521
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
ON APRIL 24, 1996
To the Shareholders of THE BALANCED PORTFOLIO
OF PRINCIPAL PRESERVATION PORTFOLIOS, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Meeting") of the Balanced Portfolio (the "Balanced Portfolio"), a series of
Principal Preservation Portfolios, Inc. ("Principal Preservation"), will be
held on Wednesday, April 24, 1996 at 3:00 p.m., Central Time, at The Bacchus
Restaurant (located in the West Bend Inn building), 2520 West Washington Street,
West Bend, Wisconsin. The purpose of the Meeting is to consider and to act
upon the following proposals:
1. To approve a Plan of Reorganization and Liquidation (the
"Plan") under which the net assets of the Balanced Portfolio would
be transferred to the S&P 100 Plus Portfolio ("S&P 100 Plus
Portfolio"), an existing series of Principal Preservation. Pursuant
to the Plan, the S&P 100 Plus Portfolio would issue to the Balanced
Portfolio, in exchange for such assets, shares of Common Stock of
the S&P 100 Plus Portfolio with an aggregate net asset value equal
to the value of the Balanced Portfolio's assets so transferred. The
Balanced Portfolio would make a pro rata distribution to its
shareholders of such shares of the S&P 100 Plus Portfolio, and the
Balanced Portfolio shareholders thereby would become shareholders of
the S&P 100 Plus Portfolio. It is expected that the value of each
Balanced Portfolio shareholder's account in the S&P 100 Plus
Portfolio after the exchange would be the same as the value of such
shareholder's account in the Balanced Portfolio immediately prior to
the exchange.
2. To transact such other business as may properly come before
the Meeting or any adjournments thereof.
The Board of Directors of Principal Preservation has fixed the close of
business on March 15, 1996, as the record date for the determination of
shareholders of the Balanced Portfolio entitled to notice of, and to vote at,
such Meeting and any adjournments thereof.
By Order of the Board of Directors
S. CHARLES O'MEARA
Secretary
West Bend, Wisconsin
March 26, 1996
YOUR VOTE IS IMPORTANT -- PLEASE RETURN YOUR PROXY CARD PROMPTLY
SHAREHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON. ANY SHAREHOLDER WHO
DOES NOT EXPECT TO ATTEND THE MEETING IS URGED TO INDICATE VOTING INSTRUCTIONS
ON THE ENCLOSED PROXY CARD, DATE AND SIGN IT, AND RETURN IT IN THE ENCLOSED
POST-PAID ENVELOPE. IN ORDER TO AVOID THE ADDITIONAL EXPENSE OF A SECOND
SOLICITATION, WE ASK YOUR COOPERATION IN MAILING YOUR PROXY PROMPTLY, NO MATTER
HOW LARGE OR SMALL YOUR HOLDINGS MAY BE.
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Rule 497(b)
1933 Act Reg. No. 333-01123
1940 Act File No. 811-4401
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095-3348
(414) 334-5521
PROXY STATEMENT/PROSPECTUS
Acquisition of the Assets of the Balanced Portfolio,
a series of Principal Preservation Portfolios, Inc.,
By, and In Exchange for Shares of Common Stock of, the
S&P 100 Plus Portfolio, another series of Principal Preservation
Portfolios, Inc.
This Proxy Statement/Prospectus is being furnished in connection with the
solicitation of proxies by the Board of Directors of Principal Preservation
Portfolios, Inc. ("Principal Preservation"), for use at a Special Meeting of
Shareholders of the Balanced Portfolio, a series of Principal Preservation, to
be held at 3:00 p.m. Central Time, on Wednesday, April 24, 1996, at The Bacchus
Restaurant (located in the West Bend Inn building), 2520 West Washington
Street, West Bend, Wisconsin (the "Meeting").
The purpose of the Meeting is to consider and vote on the Plan of
Reorganization and Liquidation (the "Plan") involving the Balanced Portfolio
and the S&P 100 Plus Portfolio (collectively, the "Portfolios" and
individually, a "Portfolio"), another series of Principal Preservation. The
Plan provides for the reorganization of the Balanced Portfolio into the S&P 100
Plus Portfolio. Pursuant to the Plan, all of the assets (net of liabilities)
of the Balanced Portfolio would be acquired by the S&P 100 Plus Portfolio in
exchange for shares of common stock, par value $.001 per share ("Common
Stock"), of the S&P 100 Plus Portfolio. Shares of Common Stock of the S&P 100
Plus Portfolio received by the Balanced Portfolio would then be distributed pro
rata to shareholders of the Balanced Portfolio, and the Balanced Portfolio
would be liquidated and discontinued. It is expected that the value of each
Balanced Portfolio shareholder's account in the S&P 100 Plus Portfolio after
these proposed transactions (the "Reorganization") would be the same as the
value of such shareholder's account in the Balanced Portfolio immediately prior
to the Reorganization. See "The Proposed Reorganization."
The investment objective of the S&P 100 Plus Portfolio is to obtain a
total return which exceeds the S&P 100 Index by investing in a portfolio of
common stocks which approximately parallels the composition of the S&P 100
Index, and by using options to attempt to enhance return and hedge protectively
against adverse changes in stock market values.
This Proxy Statement/Prospectus sets forth concisely the information about
the Balanced Portfolio, the S&P 100 Plus Portfolio, Principal Preservation and
the Reorganization that shareholders of the Balanced Portfolio should know
before voting on the Reorganization. It constitutes an offering of shares of
the S&P 100 Plus Portfolio only. Please read this Proxy Statement/Prospectus
carefully and retain it for future reference. The Statement of Additional
Information, dated March 22, 1996, relating to the proposed Reorganization
described in this Proxy Statement/Prospectus has been filed with the Securities
and Exchange Commission (the "Commission") and is incorporated by reference
herein. Copies of the Statement of Additional Information may be obtained
without charge by writing to B.C. Ziegler and Company ("Ziegler"), distributor
for Principal Preservation, at 215 North Main Street, West Bend, Wisconsin
53095, or by calling Ziegler at (800) 826-4600. Shareholders wishing to
request the Statement of Additional Information should ask for the "Balanced
Portfolio Reorganization SAI." In addition, the Prospectus, as supplemented,
and the Statement of Additional Information, as supplemented, of Principal
Preservation (covering both the Balanced Portfolio and the S&P 100 Plus
Portfolio), each dated May 1, 1995 (the "May 1, 1995 Prospectus" and the "May
1, 1995 SAI," respectively), and Principal Preservation's 1995 Annual Report to
Shareholders (the "Annual Report") have been filed with the Commission and are
incorporated by reference herein. A copy of the May 1, 1995 Prospectus and of
the Annual Report accompany this Proxy Statement/Prospectus, and copies of the
May 1, 1995 SAI may be obtained without charge by writing to or calling Ziegler
at the above address or telephone number.
THESE SECURITIES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR ENDORSED OR
GUARANTEED BY, ANY BANKING INSTITUTION, ARE NOT INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) OR ANY OTHER GOVERNMENTAL AGENCY
AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
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 REPRESENTATIVE TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is March 22, 1996.
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TABLE OF CONTENTS
<TABLE>
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Page
<S> <C>
AVAILABLE INFORMATION 2
INTRODUCTION, VOTING INFORMATION AND REQUIREMENTS 3
SYNOPSIS 4
Introduction 4
Proposed Reorganization 4
Reasons for the Reorganization 5
COMPARISON OF THE PORTFOLIOS 5
Investment Objectives and Policies 5
Expenses 7
Other Information About the Balanced Portfolio, the S&P 100 Plus Portfolio
and Principal Preservation 8
THE PROPOSED REORGANIZATION 9
Description of the Plan 9
Reasons for the Proposed Reorganization 10
Description of Securities To Be Issued 11
Tax Considerations 12
Capitalization 13
MISCELLANEOUS 13
Principal Shareholders 13
Auditors 13
Interests of Experts and Counsel 13
Cost of Solicitation 14
Other Matters 14
Shareholder Meetings 14
</TABLE>
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 the
S&P 100 Plus Portfolio offered hereby. As permitted by the rules and
regulations of the Commission, this Proxy Statement/Prospectus omits 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, 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 the Registration Statement can be obtained
from the Commission at prescribed rates by writing to the Commission at any
such address. For further information, reference is made to the Registration
Statement and to the exhibits thereto.
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 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 made hereunder shall under any circumstances
create any implication that there have been no changes in the affairs of
Principal Preservation subsequent to the date of this Proxy
Statement/Prospectus.
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INTRODUCTION, VOTING INFORMATION AND REQUIREMENTS
This Proxy Statement/Prospectus is being furnished to the shareholders of
the Balanced Portfolio in connection with the solicitation of proxies by the
Board of Directors of Principal Preservation to be used at a Special Meeting of
Shareholders of the Balanced Portfolio to be held on Wednesday, April 24, 1996
at 3:00 p.m., Central Time, at The Bacchus Restaurant (located in the West Bend
Inn building), 2520 West Washington Street, West Bend, Wisconsin. The purpose
the Meeting is to consider and vote on the Plan, pursuant to which the S&P 100
Plus Portfolio would acquire the assets (net of liabilities) of the Balanced
Portfolio in exchange for shares of Common Stock of the S&P 100 Plus Portfolio,
which shares would be distributed, pro rata, to the shareholders of the
Balanced Portfolio, and the Balanced Portfolio would be liquidated and
discontinued.
Any proxy which is properly executed and returned in time to be voted at
the Meeting will be voted in accordance with the instructions marked thereon.
In the absence of such instructions, the proxy will be voted "FOR" approval of
the Plan under Proposal 1. The duly appointed proxies may, in their
discretion, vote upon such other matters as may come before the Meeting or any
adjournments thereof. A shareholder may revoke his or her proxy at any time
prior to its exercise by delivering written notice of revocation to the
Secretary of Principal Preservation or by executing and delivering a later
dated proxy to Principal Preservation or by attending the Meeting in person to
vote the shares of the Balanced Portfolio held by such shareholder. Proxy
materials are expected to be mailed to shareholders of the Balanced Portfolio
on or about March 26, 1996.
The Board of Directors has determined that the shares of the Balanced
Portfolio are to be voted as a separate series on the proposal to approve the
Plan and that holders of shares of the other series of Principal Preservation,
including the S&P 100 Plus Portfolio, are not entitled to vote on the proposal
to approve the Plan.
The presence at the Meeting, in person or by proxy, of shareholders
representing one-third of all shares outstanding and entitled to vote on the
Plan constitutes a quorum for the transaction of business. Abstentions and
broker non-votes (i.e., 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)
will be treated as present for purposes of determining the presence or absence
of a quorum.
Approval of the Plan and the Reorganization contemplated thereby will
require the affirmative vote of "a majority of the outstanding voting
securities" of the Balanced Portfolio, as defined in the Investment Company Act
of 1940, as amended (the "1940 Act"). A majority of the outstanding voting
securities means the lesser of (1) 67% or more of the Balanced Portfolio's
shares present at the Meeting, if shareholders who are the owners of more than
50% of the Balanced Portfolio's shares then outstanding are present in person
or by proxy, or (2) more than 50% of the Balanced Portfolio's outstanding
shares. Accordingly, abstentions and broker non-votes will have the same
effect as votes cast against approval of the Plan.
In the event that sufficient votes in favor of the proposal to approve the
Plan are not received by the scheduled time of the Meeting, the persons named
as proxies in the enclosed proxy may propose and vote in favor of one or more
adjournments of the Meeting to permit further solicitation of proxies without
the necessity of further notice. Any such adjournment will require the
affirmative vote of a majority of the shares voted at the session of the
meeting to be adjourned.
Shareholders of record of the Balanced Portfolio at the close of business
on March 15, 1996 (the "Record Date") will be entitled to notice of and to vote
at the Meeting or any adjournment thereof. Each such shareholder will be
entitled to one vote for each share (and a fractional vote for each fractional
share) held by such shareholder on each matter presented at the Meeting. As of
the Record Date, there were 566,653 shares of the Balanced Portfolio
outstanding.
Under Maryland law, shareholders of the Balanced Portfolio will not be
entitled to any appraisal or similar rights in connection with the
Reorganization contemplated by the Plan. However, shareholders may redeem
their shares of the Balanced Portfolio at net asset value prior to the closing
date of the proposed Reorganization in the manner specified in the May 1, 1995
Prospectus.
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SYNOPSIS
The following is a summary of certain information contained elsewhere in
this Proxy Statement/Prospectus (including the copy of the Plan attached hereto
as Exhibit A), the May 1, 1995 Prospectus and the Annual Report which are
incorporated herein and copies of which accompany this Proxy
Statement/Prospectus. 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, the Plan, the May 1,
1995 Prospectus and the Annual Report.
INTRODUCTION
Shareholders of the Balanced Portfolio will be asked at the Meeting to
vote upon and approve the Plan. If approved by the shareholders of the
Balanced Portfolio, it is expected that the Reorganization will be consummated
immediately prior to the opening of business on May 1, 1996, or such later date
as Principal Preservation may determine (the "Closing Date").
The Portfolios are two of nine series currently offered by Principal
Preservation. The other series of Principal Preservation are not involved in
the transactions contemplated by the Plan. Ziegler Asset Management, Inc.
("Ziegler Asset Management" or the "Adviser") is the investment adviser for
both Portfolios, and PanAgora Asset Management, Inc. ("PanAgora") serves as
sub-adviser to the S&P 100 Plus Portfolio. Ziegler Asset Management and
PanAgora sometimes are referred to together herein as the "Advisers" of the S&P
100 Plus Portfolio. Ziegler serves as distributor ("Distributor"), depository,
accounting/pricing agent, and transfer and dividend disbursing agent ("Transfer
Agent") to the Portfolios.
If the Plan is consummated, shareholders of the Balanced Portfolio will
continue to enjoy the privileges of the Principal Preservation family of funds
as shareholders of the S&P 100 Plus Portfolio. Balanced Portfolio shareholders
will not pay any front-end load or sales commission on the shares of the S&P
100 Plus Portfolio they receive in the Reorganization. Additionally, it is a
condition of the Reorganization that Principal Preservation must receive a
legal opinion to the effect that the Reorganization will qualify as a tax-free
reorganization. Assuming that the Reorganization so qualifies, shareholders of
the Balanced Portfolio will not realize any capital gain or loss as a result of
the exchange in the Reorganization of their shares of the Balanced Portfolio
for shares of the S&P 100 Plus Portfolio.
However, it is anticipated that, in order to consummate the
Reorganization, it will be necessary for the Balanced Portfolio to liquidate a
portion of its investment securities that are either not eligible for purchase
by the S&P 100 Plus Portfolio or otherwise inconsistent with the S&P 100 Plus
Portfolio's investment objective, policies and programs. The disposition of
such securities by the Balanced Portfolio likely will result in the recognition
of capital gains attributable to the appreciated value of such securities over
the price at which they were purchased by the Balanced Portfolio, and such
capital gains will be distributed to, and will be taxable to, the shareholders
of the Balanced Portfolio. If the Closing Date of the Reorganization had
occurred on December 31, 1995, it is estimated that the Balanced Portfolio
would have recognized and distributed to its shareholders capital gains
totalling approximately $577,074, or $0.9873 per share. See "The Proposed
Reorganization - Tax Considerations." If, in lieu of the Reorganization, the
Balanced Fund had liquidated on December 31, 1995, the Balanced Portfolio would
have recognized and distributed to its shareholders capital gains totalling
approximately $1,198,343, or $2.0503 per share. Balanced Portfolio
shareholders should bear in mind that, if they elect to redeem or exchange
shares of the Balanced Portfolio prior to the proposed Reorganization, they
will realize taxable gain or loss to the extent the cash redemption proceeds,
or the value of the securities received in the exchange, as the case may be, is
greater or less than such shareholder's tax basis in his or her shares of the
Balanced Portfolio. See "Tax Status" in the accompanying May 1, 1995
Prospectus.
PROPOSED REORGANIZATION
The Plan describes the essential terms of the proposed Reorganization, and
is set forth in full as Appendix A to this Proxy Statement/Prospectus.
Pursuant to the Plan, the assets of the Balanced Portfolio (net of its
liabilities) will be transferred to the S&P 100 Plus Portfolio in exchange for
the issuance by the S&P 100 Plus Portfolio to the Balanced Portfolio of shares
of Common Stock of the S&P 100 Plus Portfolio. Liabilities of the Balanced
Portfolio which potentially could reduce the amount of the assets transferred
to the S&P 100 Plus Portfolio include, without limitation: (a) amounts owed to
shareholders of the Balanced Portfolio with respect to capital gains
distributions (including distributions of any capital gains realized in
connection with the Balanced Portfolio's sale of portfolio securities prior to
the Reorganization to conform its investment portfolio to that of the S&P 100
Plus Portfolio)
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and/or dividends declared but remaining unpaid as of the Closing Date; and (b)
accounts payable, taxes and other accrued and unpaid expenses, if any, incurred
in the normal operation of the business of the Balanced Portfolio up to and
including the Closing Date and/or expected to be incurred following the Closing
Date in connection with winding up and liquidating the Balanced Portfolio. The
costs and expenses incurred by the Balanced Portfolio in carrying out the
transactions contemplated by the Plan, including legal and accounting fees and
costs related to the calling and holding of the Meeting and the solicitation of
proxies in connection therewith, will be paid by Ziegler.
The aggregate net asset value of the shares of the S&P 100 Plus Portfolio
issued in the Reorganization will be equal to the aggregate value of the assets
of the Balanced Portfolio transferred to the S&P 100 Plus Portfolio in the
Reorganization. It is expected that the value of each Balanced Portfolio
Shareholder's account in the S&P 100 Plus Portfolio immediately after the
Reorganization will be the same as the value of such shareholder's account in
the Balanced Portfolio immediately prior to the Reorganization. As soon as
reasonably practicable after the closing of the Reorganization, the Balanced
Portfolio will pay or make provision for the payment of all of its debts and
liabilities, and will distribute all remaining assets, including the shares of
the S&P 100 Plus Portfolio received by it in the Reorganization, to its
shareholders on a pro rata basis. Thereafter, the status of the Balanced
Portfolio as a designated series of shares of Principal Preservation will be
discontinued, and shareholders of the Balanced Portfolio will become
shareholders of the S&P 100 Plus Portfolio.
REASONS FOR THE REORGANIZATION
The total net assets of the Balanced Portfolio have declined from
approximately $18.1 million as of December 31, 1993 to approximately $7.0
million as of December 31, 1995. The Board of Directors does not believe there
is any strong likelihood of appreciable growth in the assets of the Balanced
Portfolio in the near future, and the small size of the Balanced Portfolio
places it at a distinct disadvantage in attempting to achieve its investment
objective, and to compete with larger mutual funds having similar investment
objectives and programs. Its total return in the past has been enhanced by fee
waivers and expense reimbursements voluntarily undertaken by the Adviser, but
Ziegler Asset Management has indicated it is unwilling to continue such waivers
and reimbursements indefinitely into the future. Management and the Board of
Directors of Principal Preservation therefore sought to identify possible
mechanisms and structures that potentially could provide attractive alternative
investment opportunities to Balanced Portfolio shareholders. The
Reorganization is intended to provide the Balanced Portfolio's shareholders
with an investment alternative which has tax consequences potentially more
favorable than a liquidation of the Portfolio, and which allows them to remain
in the Principal Preservation family of funds as shareholders of the S&P 100
Plus Portfolio.
For these and additional reasons set forth below under "The Proposed
Reorganization - Reasons for the Proposed Reorganization," the Board of
Directors of Principal Preservation, including directors who are not
"interested persons" of Principal Preservation as defined in the 1940 Act (the
"Non-Interested Directors"), has unanimously concluded that: (i) the proposed
Reorganization would be in the best interests of the shareholders of the
Balanced Portfolio; and (ii) the interests of the shareholders of the Balanced
Portfolio would not be diluted as a result of the proposed Reorganization.
Accordingly, the Board of Directors unanimously recommends that shareholders
approve the Plan and the Reorganization contemplated thereby. If the Plan is
not so approved, the Balanced Portfolio will continue to operate, at least
temporarily, without change as a separate series of Principal Preservation,
until the Board of Directors determines to take alternative measures, including
possible liquidation of the Balanced Portfolio, with shareholder approval.
COMPARISON OF THE PORTFOLIOS
INVESTMENT OBJECTIVES AND POLICIES
Each of the Portfolios is a separate mutual fund having its own investment
objectives and policies. The investment objectives and policies of the
Portfolios are significantly different. The investment objective of the
Balanced Portfolio is to realize a combination of income and capital
appreciation which will result in the highest total return consistent with the
preservation of principal. It attempts to achieve its objective by investing
in a diversified portfolio of common stocks and fixed income securities. The
investment objective of the S&P 100 Plus Portfolio is to obtain a total return
which exceeds that of the S&P 100 Index by investing in a portfolio of common
stocks which approximately parallels the composition of the S&P 100 Index, and
by using options to attempt to enhance return and hedge protectively against
adverse changes in stock market values.
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With respect to the Balanced Portfolio, the Adviser varies the mix of
common stocks and debt or other fixed income securities from time to time in a
manner that, in its judgment, is most likely to maximize total return, given
the Adviser's assessment of the existing and anticipated general market and
economic conditions, changes in yields or interest rates, and changes in
existing fiscal or monetary policies. The Adviser seeks to invest in common
stocks of corporations that have quality balance sheets, strong management, a
high return on assets and long-term continued growth of dividends and earnings.
However, unlike the S&P 100 Plus Portfolio, the Balanced Portfolio's
investments in common stocks are not restricted to those listed on any
particular index.
The Balanced Portfolio's investments in debt or other fixed income
securities may include corporate notes, bonds and debentures, mortgage-backed
securities, short-term money market instruments and U.S. Government Securities.
Generally the Portfolio will limit its investment in debt securities to those
which are rated in one of the three highest rating categories by a Nationally
Recognized Statistical Rating Organization, or instruments and obligations
issued by the U.S. Treasury or backed by the unconditional full faith and
credit of the United States government, its agencies or instrumentalities
("U.S. Government Securities"). The Balanced Portfolio also may invest in
variable rate demand notes which, at the time of investment, are rated in the
two highest rating categories by a Nationally Recognized Statistical Rating
Organization or, if unrated, are issued by a corporation with outstanding debt
with an equivalent or better rating at the time of investment. Variable rate
demand notes are unsecured obligations redeemable upon notice that permit
investment of fluctuating amounts at varying rates of interest pursuant to
direct arrangements with the issuer. The Balanced Portfolio also may invest in
preferred stocks or in debentures or other fixed-income securities that are
convertible into or otherwise carry rights to acquire common stock.
The S&P 100 Plus Portfolio invests in common stocks which make up the S&P
100 Index, in the same relative proportion as the stocks in the Index comprise
the Index. For example, if a particular stock constituted 4% of the Index, the
S&P 100 Plus Portfolio would invest 4% of its assets in that stock. The S&P
100 Plus Portfolio does not select the stocks in the Index, and as the
composition of the Index changes so will the underlying portfolio of common
stocks in the S&P 100 Plus Portfolio. Under normal conditions, at least 65% of
the S&P 100 Plus Portfolio's total assets are invested in the common stocks
which make up the S&P 100 Index. Unlike the Balanced Portfolio, the S&P 100
Plus Portfolio's investment program does not utilize fixed income securities.
The S&P 100 Plus Portfolio writes (sells) covered call options and put
options and purchases call options and put options on individual stocks and
stock indices for the purposes and subject to the limitations described below.
The S&P 100 Plus Portfolio may seek to enhance its return by writing covered
call options or purchasing put options with respect to some or all of the
individual stocks held in its investment portfolio. Through the purchase of
call and put options with respect to individual stocks, the Advisers may at
times protectively hedge against an increase in the price of securities which
they plan to purchase for the S&P 100 Plus Portfolio, or against a decline in
the value of securities owned by the S&P 100 Plus Portfolio. Although such
hedging strategies are intended to reduce fluctuations in the Portfolio's net
asset value, the Portfolio's net asset value nonetheless is expected to
fluctuate to some degree. Expenses and losses incurred as a result of such
hedging transactions could reduce the S&P 100 Plus Portfolio's total return.
The S&P 100 Plus Portfolio also may engage in options transactions on
securities indices as a strategy to hedge against declines in the Index (and
thereby to hedge against a similar decline in its investment portfolio) and to
enhance the Portfolio's return through premium income. The success of these
strategies and gains and losses on investments in options depend on the
Advisers' ability to predict correctly the direction of movement in stock
prices and other economic factors. The Balanced Portfolio's investment program
does not utilize such strategies.
In general terms, the Balanced Portfolio invests in a balanced portfolio
of equity securities, bonds and money market instruments. The S&P 100 Plus
Portfolio, on the other hand, invests primarily in common stocks and options
and other hedging instruments. The Adviser manages the investment portfolio of
the Balanced Portfolio as if it constituted the complete investment program of
a prudent investor. The S&P 100 Plus Portfolio is not so diversified
and is not managed so as to be a complete investment program. Generally the
investment securities held in common between the Balanced Portfolio and the S&P
100 Plus Portfolio have accounted for only one-quarter to one-half of the total
net assets of the Balanced Portfolio. Notwithstanding these differences,
Principal Preservation's Board of Directors believes that an investment in the
S&P 100 Plus Portfolio would be appropriate for those investors with respect to
whom an investment in the Balanced Portfolio is appropriate. Nonetheless, each
stockholder of the Balanced Portfolio is urged to consider the differences in
the investment objectives and programs of the two Portfolios before voting on
the Reorganization.
There can be no assurance that the Portfolios will achieve their
respective investment objectives. Additional information regarding the
Portfolios' investment objectives and policies is included in the accompanying
May 1, 1995
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Prospectus and the May 1, 1995 SAI, each of which has been incorporated
herein by reference. See "Incorporation of Certain Documents by Reference."
EXPENSES
The following table sets forth the shareholder transaction expenses and
annual operating expenses for the Balanced and S&P 100 Plus Portfolios,
including pro forma expenses (giving effect to the Reorganization as though it
had occurred on January 1, 1995), for the fiscal year ended December 31, 1995:
<TABLE>
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S&P 100 PRO FORMA
BALANCED PLUS COMBINED
PORTFOLIO PORTFOLIO PORTFOLIO
---------------- ---------------- ----------------
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SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price)(1) 4.5% 4.5% 4.5%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) 0% 0% 0%
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds) 0% 0% 0%
Redemption Fees (as a percentage of amount redeemed)(3) 0% 0% 0%
Exchange Fee $5.00 $5.00 $5.00
ANNUAL OPERATING EXPENSES -- BEFORE WAIVERS AND
REIMBURSEMENTS
(AS A PERCENTAGE OF AVERAGE NET ASSETS)(3)
Management Fees
(Before Waivers) 0.60% 0.59% 0.58%
12b-1 Fees(4) 0.25% 0.25% 0.25%
Other Expenses:
Custodian Fees
Transfer Agent Fees 0.11% 0.04% 0.04%
Other Fees 0.12% 0.14% 0.14%
(Before Reimbursement)(5) 0.82% 0.20% 0.19%
----- ----- -----
Total Other Expenses 1.05% 0.38% 0.37%
Total Operating Expenses
(Before Reimbursement)(5) 1.90% 1.22% 1.20%
</TABLE>
1. Investors may qualify for a lower sales load. See "Purchase of Shares"
and "Shareholder Services" in the accompanying May 1, 1995 Prospectus.
Balanced Portfolio shareholders will not pay any sales load on shares of
the S&P 100 Plus Portfolio they receive in the Reorganization.
2. Ziegler, in its capacity as Transfer Agent, charges a fee (presently
$7.50) for redemptions by wire transfer.
3. The percentages expressing annual operating expenses are based on amounts
actually incurred during the year ended December 31, 1995. Fees paid by
the Portfolios for custodian and transfer agent services are determined on
a basis other than a straight percentage of average net assets. For a
discussion of fees associated with these services, see "Management - The
Advisors" in the accompanying May 1, 1995 Prospectus.
4. Prior to July 1, 1995, fees paid under Principal Preservation's Rule
12b-1 Distribution Plan by the S&P 100 Plus Portfolio were assessed only
on assets held in accounts opened on or after March 1, 1991. Principal
Preservation's Rule 12b-1 Distribution Plan was amended effective July 1,
1995 (the "Rule 12b-1 Distribution Plan Amendment") so that, from and
after that date, Rule 12b-1 Fees have been assessed on all assets of that
Portfolio. The "12b-1 Fees" reported in the table have been restated to
reflect the increased fees as though the Rule 12b-1 Distribution Plan
Amendment had been in effect for the entire year ended
7
<PAGE> 9
December 31, 1995. The "12b-1 Fees" actually paid by the S&P 100 Plus
Portfolio for the year ended December 31, 1995 amounted to 0.18% of
the Portfolio's average net assets.
5. For the year ended December 31, 1995, the Adviser committed to waive
advisory fees and/or reimburse expenses to the Balanced Portfolio so that
its total operating expenses for the year would not exceed 1.30% of its
average daily net assets. Giving effect to such waivers and
reimbursements, "Other Fees" and "Total Fund Operating Expenses" of the
Balanced Portfolio for the year were 0.18% and 1.26%, respectively, of the
Portfolio's average net assets.
In connection with the implementation of the Rule 12b-1 Distribution Plan
Amendment, the Adviser committed to reimburse expenses to the S&P 100 Plus
Portfolio so that, for 1995, its "Total Operating Expenses" would not
exceed 1.25% of its average daily net assets. After giving effect to this
expense reimbursement commitment, "Other Fees" for the S&P 100 Plus
Portfolio were 0.15% and its "Total Operating Expenses" were 1.16% for the
year ended December 31, 1995.
Example
Investors would pay the following expenses on a $1,000 investment in each
Portfolio, assuming 5% annual return and redemption at the end of each time
period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Balanced Portfolio $58 $85 $114 $196
S&P 100 Plus Portfolio $56 $80 $106 $180
Pro Forma Combined $56 $80 $106 $180
</TABLE>
The purpose of the table is to assist investors in understanding the various
costs and expenses they will bear directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Management," "Purchase of
Shares," "Redemptions" and "Shareholder Services" in the accompanying May 1,
1995 Prospectus. THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN SHOWN.
OTHER INFORMATION ABOUT THE BALANCED PORTFOLIO, THE S&P 100 PLUS PORTFOLIO AND
PRINCIPAL PRESERVATION
With the exception of the differences in investment objectives and
programs between the Balanced Portfolio and the S&P 100 Plus Portfolio
described above, the management and operation of the two Portfolios are nearly
identical. Each Portfolio is a separate series of Principal Preservation, and
is managed by Ziegler Asset Management (with the assistance of PanAgora in the
case of the S&P 100 Plus Portfolio) under the same Investment Advisory
Agreement. Ziegler serves as the Distributor of the shares of these Portfolios
pursuant to the same Distribution Agreement, provides fund accounting and
pricing services for the Portfolios pursuant to the same Accounting/Pricing
Agreement, serves as Transfer and Dividend Disbursing Agent for the Portfolios
pursuant to the same Transfer and Dividend Disbursing Agent Agreement, and
serves as Depository of the Portfolios (the Portfolios each function as
custodian of their own assets) pursuant to the same Depository Contract.
Provisions with respect to the purchase and redemption of shares and
available shareholder services in the Balanced Portfolio are the same as those
in the S&P 100 Plus Portfolio. The Reorganization will result in no changes to
any of the foregoing agreements or services.
For additional information about the Balanced Portfolio, S&P 100 Plus
Portfolio and Principal Preservation, including the organization and operation
of Principal Preservation, condensed historical financial information of the
two Portfolios, the principal risk factors associated with investments in the
Portfolios, management of Principal Preservation (including information about
the Advisers and other service providers providing services to the two
Portfolios and to Principal Preservation), the capital stock of Principal
Preservation, and purchases and redemptions of shares of Principal
Preservation, see the sections of the accompanying May 1, 1995 Prospectus
captioned: "Financial Highlights"; "Special Considerations"; "Management";
"Determination of Net Asset Value Per Share"; "Purchase of Shares";
"Redemptions"; "Shareholder Services"; "Dividends, Capital Gains Distributions
and Reinvestments"; "Tax Status"; and "Description of Shares." For
management's discussion and analysis regarding the factors that have affected
the Portfolio's recent performance, see the accompanying Annual Report.
8
<PAGE> 10
THE PROPOSED REORGANIZATION
The Board of Directors of Principal Preservation unanimously recommends
that the shareholders of the Balanced Portfolio vote to approve the Plan and
the Reorganization contemplated thereby. The Board of Directors, including the
Non-Interested Directors, believe that the Plan is fair to, and in the best
interests of, the shareholders of the Balanced Portfolio.
DESCRIPTION OF THE PLAN
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.
The Plan contemplates the transfer of all of the assets of the Balanced
Portfolio (net of its liabilities) to the S&P 100 Plus Portfolio, in exchange
for shares of Common Stock of the S&P 100 Plus Portfolio, and the pro rata
distribution, on the Closing Date, of such shares of the S&P 100 Plus Portfolio
to the shareholders of the Balanced Portfolio.
The S&P 100 Plus Portfolio would acquire the assets of the Balanced
Portfolio (net of its liabilities), including without limitation all cash
(except for cash retained to pay liabilities as described below), cash
equivalents, securities, receivables and other property owned by the Balanced
Portfolio, but excluding cash assets of the Balanced Portfolio sufficient to
pay all of its accrued but unpaid liabilities as of the Closing Date. The S&P
100 Plus Portfolio would not assume any debts, liabilities, obligations or
duties of the Balanced Portfolio. Rather, cash assets of the Balanced
Portfolio will be set aside on the Closing Date to pay all such liabilities
before or when they come due. Such liabilities potentially may include,
without limitation: (a) amounts owed to shareholders of the Balanced Portfolio
with respect to capital gains distributions (including distributions of any
capital gains realized in connection with the Balanced Portfolio's sale of
portfolio securities prior to the Reorganization to conform its investment
portfolio to that of the S&P 100 Plus Portfolio) and/or dividends declared but
remaining unpaid as of the Closing Date; and (b) accounts payable, taxes and
other accrued and unpaid expenses, if any, incurred in the normal operation of
the business of the Balanced Portfolio up to and including the Closing Date
and/or expected to be incurred following the Closing Date in connection with
the winding up and liquidation of the Balanced Portfolio. The costs and
expenses incurred by the Balanced Portfolio in carrying out the transactions
contemplated by the Plan, including legal and accounting fees and costs
relating to the calling and holding of the Meeting and the solicitation of
proxies in connection therewith, would be paid by Ziegler.
In consideration for the assets of the Balanced Portfolio transferred in
the Reorganization, the S&P 100 Plus Portfolio would issue to the Balanced
Portfolio shares of S&P 100 Plus Portfolio Common Stock having an aggregate net
asset value equal to the value of the assets so transferred by the Balanced
Portfolio. The assets of the Balanced Portfolio and the per share net asset
value of the shares of S&P 100 Plus Portfolio Common Stock would be valued as
of the close of business on the New York Stock Exchange on the business day
immediately preceding the consummation of the Reorganization. All such
valuations would be conducted in accordance with the policies and procedures
of the S&P 100 Plus Portfolio or the Balanced Portfolio, as the case may be, as
described under "Determination of Net Asset Value Per Share" in the
accompanying May 1, 1995 Prospectus and under "Determination of Net Asset Value
Per Share" in the May 1, 1995 SAI incorporated by reference herein.
As soon as practicable after the Closing Date, the Balanced Portfolio
would liquidate and distribute pro rata to its shareholders of record the
shares of Common Stock of the S&P 100 Plus Portfolio received by the Balanced
Portfolio. Such liquidation and distribution would be accomplished by opening
accounts on the books of the S&P 100 Plus Portfolio in the names of
shareholders of the Balanced Portfolio and by transferring the shares credited
to the account of the Balanced Portfolio on the books of the S&P 100 Plus
Portfolio. Each account opened would represent the respective pro rata number
of S&P 100 Plus Portfolio shares due to each Balanced Portfolio shareholder.
Fractional shares of the S&P 100 Plus Portfolio would be rounded to the nearest
thousandth of a share.
Accordingly, every shareholder of the Balanced Portfolio would own shares
of the S&P 100 Plus Portfolio immediately after the Reorganization, the net
asset value of which is expected to equal the aggregate net asset value of such
shareholder's Balanced Portfolio shares immediately prior to the
Reorganization. Moreover, because the S&P 100 Plus Portfolio shares would be
issued at net asset value in exchange for the net assets of the Balanced
Portfolio, and the aggregate value of those assets would equal the aggregate
value of the S&P 100 Plus Portfolio
9
<PAGE> 11
shares issued in exchange therefor, the net asset value per share of the S&P
100 Plus Portfolio would not change as a result of the Reorganization. Thus,
the Reorganization would not result in dilution to any Balanced Portfolio
shareholder. However, as discussed elsewhere herein, certain restructuring of
the Balanced Portfolio's investment portfolio that must be undertaken prior to,
and in preparation for, the Reorganization would give rise to capital gains
distributions taxable to Balanced Portfolio shareholders.
Any transfer taxes payable upon issuance of shares of the S&P 100 Plus
Portfolio in a name other than the registered holder of the shares on the books
of the Balanced Portfolio as of that time would be paid by the person to whom
such shares are to be issued as a condition of such transfer. Any reporting
responsibility of the Balanced Portfolio would continue to be the
responsibility of the Balanced Portfolio up to and including the Closing Date
and such later date on which the Balanced Portfolio is liquidated.
Because of the differences in the investment objectives, policies and
programs of the Balanced Portfolio as compared to the S&P 100 Plus Portfolio,
many of the investment securities held by the Balanced Portfolio are ineligible
for purchase by the S&P 100 Plus Portfolio or simply are incompatible with the
current strategies and programs of the S&P 100 Plus Portfolio. It is therefore
contemplated that, prior to the consummation of the Reorganization (but only
after approval by the Balanced Portfolio Shareholders), the Balanced Portfolio
would sell those of its investment securities which are ineligible for purchase
by the S&P 100 Plus Portfolio or otherwise incompatible with the S&P 100 Plus
Portfolio's investment strategies and programs. Many of such securities have
appreciated in value since they were acquired by the Balanced Portfolio and
therefore contain unrealized capital gains. At the time of sale of these
securities, the Balanced Portfolio would recognize the built-in capital gains
and, by virtue of its status as a regulated investment company under the Code,
would be required to distribute those gains to its shareholders. Such capital
gains distributions would be taxable to Balanced Portfolio shareholders whether
taken in cash or reinvested in additional shares, as described in the
accompanying May 1, 1995 Prospectus under the section captioned "Tax Status."
If the Reorganization had been consummated as of December 31, 1995, it is
estimated that the aggregate amount of such capital gains distributions would
have been approximately $577,074, or $0.9873 per share based on the shares
outstanding as of that date. If, in lieu of the Reorganization, the Balanced
Fund had liquidated on December 31, 1995, the Balanced Portfolio would have
recognized and distributed to its shareholders capital gains totalling
approximately $1,198,343, or $2.0503 per share.
On or prior to the Closing Date, the Balanced Portfolio would declare a
dividend to its shareholders, so that for the short taxable year of the
Balanced Portfolio that ends on the date of its dissolution, the Balanced
Portfolio would have declared an aggregate amount of dividends that: (a) is
equal to at least the sum of its net capital gain and 90% of its investment
company taxable income for such year; and (b) is sufficient to avoid any excise
tax on the Balanced Portfolio for the calendar year in which the Closing Date
occurs. The Balanced Portfolio would use its best efforts to pay any dividends
so declared and to distribute such capital gains prior to, or as soon as
reasonably practicable following, the Closing Date.
As soon as reasonably practicable following the Reorganization, the S&P
100 Plus Portfolio would invest the balance of the cash proceeds derived from
such sales of securities (and which are transferred to the S&P 100 Plus
Portfolio in the Reorganization with the other assets of the Balanced
Portfolio) in securities eligible for purchase by the S&P 100 Plus Portfolio,
and which otherwise are compatible with its investment strategies and programs.
Prior to the Closing Date, Principal Preservation may terminate the Plan
and abandon the Reorganization at any time, before or after approval by the
shareholders of the Balanced Portfolio. In addition, Principal Preservation
may amend the Plan in any manner, except that no amendment may be made
subsequent to the Meeting of shareholders of the Balanced Portfolio which would
detrimentally affect the value of the S&P 100 Plus Portfolio shares to be
issued.
REASONS FOR THE PROPOSED REORGANIZATION
Small funds, such as the Balanced Portfolio, 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. The Balanced
Portfolio's asset size has declined from approximately $18.1 million at
December 31, 1993 to approximately $7.0 million at December 31, 1995. Over the
same period, the S&P 100 Plus Portfolio experienced $17.0 million of asset
growth, and had total net assets of approximately $57.1 million at December 31,
1995. Certain costs associated with the operation of a mutual fund are
unrelated to its size (e.g., professional fees, certain administrative
expenses, etc.) and have a greater impact on the total returns of smaller
funds. In addition, brokerage commission
10
<PAGE> 12
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 by larger funds that have the ability to
trade their securities in large blocks. In recent years the Adviser voluntarily
has waived fees and reimbursed expenses to the Balanced Portfolio, which has
reduced its total expense ratio and has enhanced its total return as compared
to what it would have achieved without such measures. The Adviser has
indicated it is unwilling to continue such voluntary fee waivers and expense
reimbursements indefinitely into the future.
Given these factors and the Board of Director's belief that there is no
strong likelihood of any appreciable growth in the assets of the Balanced
Portfolio as a stand-alone fund in the near future, the Board of Directors and
management of Principal Preservation have considered available alternatives to
enhance the future total return potentially available to the Balanced
Portfolio's shareholders. The Board of Directors concluded that the
Reorganization is in the best interests of the Balanced Portfolio's
shareholders for a number of reasons, including the following:
(1) it provides the Balanced Portfolio's shareholders
with an opportunity to continue as members of the Principal
Preservation family of funds;
(2) because it is structured to qualify as a tax-free
reorganization under the Internal Revenue Code, the
Reorganization reduces the taxes that Balanced Portfolio
shareholders would experience if the Balanced Portfolio were
liquidated and, depending on a Balanced Portfolio
shareholder's tax basis in his or her shares, potentially may
reduce the taxes the shareholder would incur if he or she were
to exchange shares in the Balanced Portfolio for shares in
another Principal Preservation fund or, alternatively, if he
or she were to redeem Balanced Portfolio shares and reinvest
the redemption proceeds in another investment vehicle.
However, each shareholder's tax situation depends on his or
her particular circumstances, and shareholders therefore are
urged to consult with their own advisers. See "The Proposed
Reorganization - Tax Considerations";
(3) the similarities between the structure,
operations and service providers between the Balanced
Portfolio and the S&P 100 Plus Portfolio; and
(4) the cost savings that can be achieved by
combining the assets of the Balanced Portfolio with those of
the S&P 100 Plus Portfolio through greater economies of scale
(in this regard, see "Comparison of the Portfolios -
Expenses."
The Board further considered that the Reorganization potentially may
reduce or eliminate certain duplicative costs and expenses presently incurred
for services that are separately provided for both the Balanced Portfolio and
the S&P 100 Plus Portfolio. The Board also anticipates that the increased
assets of the combined Portfolio resulting from the Reorganization would enable
the shareholders of the S&P 100 Plus Portfolio (including the former
shareholders of the Balanced Portfolio) to realize economies of scale by
spreading certain fixed expenses (such as printing costs and fees for
professional services) over a larger asset base and by eliminating certain
audit and state registration fees. Expenses that are based on the value of
assets, such as advisory fees, the number of shareholder accounts processed by
the transfer agent, depository fees, and the like, also potentially may be
reduced by the Reorganization. In short, the former shareholders of the
Balanced Portfolio who become shareholders of the S&P 100 Plus Portfolio
potentially may enjoy a lower overall expense ratio. See "Comparison of the
Portfolios - Expenses." There of course can be no assurance that these
economies of scale and a lower overall expense ratio would be obtained.
DESCRIPTION OF SECURITIES TO BE ISSUED
Principal Preservation is a Maryland corporation organized in 1984 as an
open-end, diversified investment company. Principal Preservation is a series
company, which means that its Board of Directors may establish additional
portfolios at any time.
The authorized Common Stock of Principal Preservation consists of one
billion shares, par value $0.001 per share. The shares of Principal
Preservation are presently divided into nine separate series: Government
Portfolio, Insured Tax-Exempt Portfolio, Tax-Exempt Portfolio, S&P 100 Plus
Portfolio, Select Value Portfolio, Dividend Achievers Portfolio, Balanced
Portfolio, Wisconsin Tax-Exempt Portfolio and Cash Reserve Portfolio,
consisting of 50 million shares in each of the first eight Portfolios and 400
million in the Cash Reserve Portfolio.
11
<PAGE> 13
The Cash Reserve Portfolio's shares are further subdivided into separate
classes of 200 million shares each, Class X Common Stock (Retail Class) and
Class Y Common Stock (Institutional Class). There presently is pending a
separate reorganization, similar to the Reorganization, which would consolidate
the Insured Tax-Exempt Portfolio with and into the Tax-Exempt Portfolio. That
transaction is subject to approval by the shareholders of the Insured
Tax-Exempt Portfolio. The Board of Directors of Principal Preservation may
authorize the issuance of additional series and, within a series, additional
classes of stock, and may increase or decrease the number of shares in each
series or class.
Each share of Principal Preservation has one vote, and when issued and
paid for in accordance with the terms of the offering will be fully paid and
nonassessable. Each share of a series is entitled to participate pro rata in
any dividends or other distributions declared by the Board of Directors of
Principal Preservation with respect to that series, and all shares of a series
have equal rights in the event of liquidation of that series. Shares of stock
are redeemable at net asset value, at the option of the shareholder. 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 as a full share.
Each share of each series of Principal Preservation (including each share
of each of the Portfolios) is entitled to one vote on each matter presented to
shareholders of that series. As a Maryland corporation, Principal Preservation
is not required to hold, and in the future does not intend 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 policies or approving an
investment advisory contract. On matters affecting an individual series (such
as approval of advisory or sub-advisory contracts and changes in fundamental
investment policies of a 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. Shares do not have cumulative voting rights.
TAX CONSIDERATIONS
It is a condition to the Reorganization that Principal Preservation must
receive an opinion from Quarles & Brady, counsel to Principal Preservation, to
the effect that, for Federal income tax purposes: (a) the Reorganization will
constitute a reorganization within the meaning of Section 368(a)(1)(C) of the
Code; (b) no gain or loss will be recognized by either Portfolio upon the
transfer of assets of the Balanced Portfolio in exchange for shares of the S&P
100 Plus Portfolio; (c) no gain or loss will be recognized by shareholders of
the Balanced Portfolio upon the exchange of their shares of the Balanced
Portfolio for shares of the S&P 100 Plus Portfolio; (d) the S&P 100 Plus
Portfolio's basis in the assets acquired from the Balanced Portfolio will be
same as the basis of those assets in the hands of the Balanced Portfolio
immediately prior to the exchange; (e) the holding period of the assets of the
Balanced Portfolio in the hands of the S&P 100 Plus Portfolio will include the
holding period of the Balanced Portfolio; (f) the basis of shares of the S&P
100 Plus Portfolio received by each shareholder of the Balanced Portfolio
pursuant to the Reorganization will be the same as the shareholder's basis in
shares of the Balanced Portfolio surrendered in the exchange; and (g) the
holding period of shares of the S&P 100 Plus Portfolio received by each
shareholder of the Balanced Portfolio pursuant to the Reorganization will
include the shareholder's holding period of shares of the Balanced Portfolio
surrendered in the exchange, provided that the latter shares were held as
capital assets on the Closing Date.
Such opinion will not be binding on the Internal Revenue Service, and
Principal Preservation does not intend to seek a private letter ruling with
respect to the tax impacts of the Reorganization. If for any reason the
Reorganization does not qualify as a tax-free reorganization for Federal income
tax purposes, the Reorganization would be treated as a taxable asset sale and
purchase. The Balanced Portfolio would recognize gain or loss on the
transaction measured by the difference between the consideration received by
the Balanced Portfolio and the tax basis of the Balanced Portfolio assets. The
tax basis of the assets acquired by the S&P 100 Plus Portfolio would equal the
purchase price plus the amount of liabilities, if any, transferred to the S&P
100 Plus Portfolio. Upon distribution of shares of the S&P 100 Plus Portfolio
in the liquidation of the Balanced Portfolio, the shareholders of the Balanced
Portfolio would recognize gain or loss on the disposition of their Balanced
Portfolio shares measured by the difference between the fair market value of
the S&P 100 Plus Portfolio shares received by them and the basis of the
Balanced Portfolio shares surrendered in the exchange.
Notwithstanding the foregoing, it is expected that the Balanced Portfolio
will recognize gain on sales of its portfolio securities to be effected prior
to the Reorganization in order to dispose of securities which are not eligible
for purchase by the S&P 100 Plus Portfolio, or which simply are incompatible
with the S&P 100 Plus
12
<PAGE> 14
Portfolio's current investment strategies and programs. As noted above, any
capital gains realized by the Balanced Portfolio as a result of such sales must
be distributed to its shareholders prior to, or as soon as reasonably
practicable following, the Reorganization. A shareholder of the Balanced
Portfolio likely will recognize a capital gain for Federal income tax purposes
to the extent of any such distribution, absent special circumstances applicable
to that shareholder. In addition, any shareholder of the Balanced Portfolio
who elects to redeem shares of the S&P 100 Plus Portfolio received in the
Reorganization, or who elects to exchange those shares for shares in another
Principal Preservation mutual fund, or who elects to redeem or exchange his or
her shares of the Balanced Portfolio in advance of the Reorganization, will
recognize gain or loss for Federal income tax purposes in an amount equal to
difference between the amount of the cash proceeds received in such redemption
or the value of the shares received in such exchange, as the case may be, and
the shareholder's tax basis in the shares so redeemed or exchanged. In the
event of an exchange, the shareholders' tax basis in the shares received in the
exchange will be increased or decreased in an amount equal to the amount of the
gain or loss so realized. For a more detailed description of tax consequences
associated with redemptions and exchanges of shares, please refer to the
accompanying May 1, 1995 Prospectus.
The foregoing discussion of Federal tax consequences is included herein
for general information only. Each shareholder should consult with his or her
own tax adviser as to the specific tax consequences of the Reorganization,
including the application and effect of state and local tax laws. Because of
special or unique circumstances applicable to any given shareholder, the tax
consequences of the Reorganization and/or investment alternatives could be
significantly different.
CAPITALIZATION
The following table shows the unaudited capitalization of the Balanced
Portfolio and the S&P 100 Plus Portfolio, respectively, as of December 31,
1995, and the unaudited pro forma capitalization of the S&P 100 Plus Portfolio
as of that date giving effect to the Reorganization:
<TABLE>
<CAPTION>
PRO FORMA
BALANCED S&P 100 PLUS COMBINED
PORTFOLIO PORTFOLIO PORTFOLIO
---------- ------------ -----------
<S> <C> <C> <C>
Net Assets ................. $7,023,083 $57,061,615 $64,042,860
Net Asset Value Per Share .. $12.02 $19.53 $19.53
Shares Outstanding ......... 584,480 2,922,304 3,279,767
</TABLE>
THE BOARD OF DIRECTORS OF PRINCIPAL PRESERVATION UNANIMOUSLY RECOMMENDS
THAT SHAREHOLDERS OF THE BALANCED PORTFOLIO VOTE FOR APPROVAL OF THE PLAN AND
THE REORGANIZATION.
MISCELLANEOUS
PRINCIPAL SHAREHOLDERS
As of the Record Date, no person was known to own of record or
beneficially 5% or more of the outstanding shares of either Portfolio. The
directors and officers of Principal Preservation as a group own less than 1% of
the outstanding shares of each Portfolio. Neither Principal Preservation nor
either Portfolio is "controlled" (as that term is defined in the 1940 Act) by
any person.
AUDITORS
The firm of Arthur Andersen LLP has served Principal Preservation as
independent accountants and auditors since its inception in 1985. Arthur
Andersen LLP has no direct or indirect financial interest in Principal
Preservation or the Portfolios except as auditors and independent public
accountants. No representative of Arthur Andersen LLP is expected to be
present at the Meeting.
INTERESTS OF EXPERTS AND COUNSEL
13
<PAGE> 15
No expert or counsel named herein has a substantial interest in Principal
Preservation, either Portfolio, the Reorganization, or any other transaction
contemplated by this Proxy Statement/Prospectus.
COST OF SOLICITATION
Expenses in connection with the solicitation of proxies will be borne by
Ziegler. Upon request, Ziegler will reimburse brokers, dealers, banks and
voting trustees, or their nominees, for reasonable expenses incurred in
forwarding copies of the proxy materials to the beneficial owners of shares
which such persons hold of record. Solicitation of proxies will be principally
by mail. Proxies also may be solicited in person, or by telephone or
telegraph, by officers of Principal Preservation or by officers and employees
of Ziegler or by dealers and their representatives, without special
compensation. Proxies may also be solicited by a professional proxy
solicitation service if management of Principal Preservation should determine
that solicitation by such means is advisable.
OTHER MATTERS
The Board of Directors has not been informed and is not aware that any
other matter will be brought before the Meeting. However, unless expressly
indicated otherwise on the enclosed form of proxy, proxies may be voted with
discretionary authority with respect to any other matter that may properly be
presented at the meeting or any adjournment thereof.
SHAREHOLDER MEETINGS
Principal Preservation is organized as a Maryland corporation, and as such
is not required to hold annual meetings of shareholders. Principal
Preservation's Bylaws provide that 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 any sub-advisory agreement) or
ratification of the selection of independent public accountants is not required
to be acted upon by shareholders of Principal Preservation or any of its
series, including the Portfolios, under the 1940 Act. Meetings of shareholders
of any series will be held when and as determined necessary by the Board of
Directors of Principal Preservation and in accordance with the 1940 Act.
However, shareholders of any portfolio series wishing to submit proposals for
inclusion in a proxy statement for any future shareholder meetings should send
their written proposals to the Secretary of Principal Preservation at 215 North
Main Street, West Bend, Wisconsin 53095-3348.
15
<PAGE> 16
APPENDIX A
PRINCIPAL PRESERVATION BALANCED PORTFOLIO
PLAN OF REORGANIZATION AND LIQUIDATION
This Plan of Reorganization and Liquidation is made as of this 20th day of
February, 1996, by Principal Preservation Portfolios, Inc. ("Principal
Preservation"), on behalf of its two series known as the Balanced Portfolio and
the S&P 100 Plus Portfolio.
R E C I T A L S
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 Investment Company Act; and (c) presently has designated nine
separate series or investment portfolios including the Balanced Portfolio and
the S&P 100 Plus Portfolio;
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 Code. The Reorganization will comprise the transfer of substantially all
of the assets of the Balanced Portfolio to the S&P 100 Plus Portfolio in
exchange solely for shares of the S&P 100 Plus Portfolio's Common Stock, and
the constructive distribution at the Effective Time of such shares of the S&P
100 Plus Portfolio to the shareholders of the Balanced Portfolio in liquidation
of the Balanced Portfolio, all upon the terms and conditions hereinafter set
forth in this Plan; and
WHEREAS, the adoption and performance of this Plan has been authorized by
Principal Preservation's Board of Directors and, prior to the Closing Date,
will have been duly authorized by all other necessary corporate action on the
part of Principal Preservation, including approval by the shareholders of the
Balanced Portfolio.
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. DEFINITIONS
For purposes of this Plan, the following terms shall have the respective
meanings set forth below:
1.1 "BALANCED PORTFOLIO" means the Balanced Portfolio, a designated series
or investment portfolio of Principal Preservation.
1.2 "BALANCED PORTFOLIO SHAREHOLDERS" means the holders of record of the
issued and outstanding shares of common stock of the Balanced Portfolio as of
the close of business on the Valuation Date.
1.3 "BALANCED PORTFOLIO SHAREHOLDER MEETING" means a meeting of the
shareholders of the Balanced Portfolio to be convened in accordance with
applicable law and the Articles of Incorporation and Bylaws of Principal
Preservation to consider and vote upon the approval of this Plan and the
transactions contemplated hereby.
1.4 "BALANCED PORTFOLIO SHARES" means the issued and outstanding shares of
common stock of the Balanced Portfolio.
1.5 "CLOSING" means the transfer to the S&P 100 Plus Portfolio of the
assets of the Balanced Portfolio against delivery to the Balanced Portfolio of
the S&P 100 Plus Portfolio Shares as described in Section 2.1 of this Plan.
1.6 "CLOSING DATE" means May 1, 1996, or such other date as the parties may
mutually determine.
1.7 "CODE" means the Internal Revenue Code of 1986, as amended.
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1.8 "DEPOSITORY" means B.C. Ziegler & Company, acting in its capacity as
depository with respect to the assets of the Balanced Portfolio and the S&P 100
Plus Portfolio.
1.9 "EFFECTIVE TIME" means 8:00 a.m. Central Time on the Closing Date.
1.10 "EXCLUDED ASSETS" shall have the meaning set forth in Section 2.3 of
this Plan.
1.11 "INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, as
amended, and all of the rules and regulations adopted thereunder by the SEC.
1.12 "PERSON" means an individual or a corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization, or other entity, as the context requires.
1.13 "PLAN" means this Plan of Reorganization and Liquidation, together
with all schedules and exhibits attached hereto, as the same may be amended
from time to time in accordance with the terms hereof.
1.14 "PRINCIPAL PRESERVATION" means Principal Preservation Portfolios,
Inc., a corporation which: (a) is 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 Investment Company
Act; and (c) presently his designated nine separate series of its Common Stock,
par value $.001 per share, including the Balanced Portfolio and the S&P 100
Plus Portfolio.
1.15 "PRINCIPAL PRESERVATION PROSPECTUS" means the Prospectus, dated May 1,
1995, as supplemented on September 1, 1995 and January 31, 1996, of Principal
Preservation relating to the Balanced and S&P 100 Plus Portfolios, among other
series of Principal Preservation, included in Post-Effective Amendment No. 26
to Principal Preservation's Registration Statement on Form N-1A (Securities Act
Reg. No. 33-12), as filed with the SEC on March 2, 1995 pursuant to Rule 485(a)
under the Securities Act.
1.16 "REORGANIZATION" means the transactions described in and contemplated
by this Plan.
1.17 "REQUIRED BALANCED PORTFOLIO SHAREHOLDER VOTE" shall have the meaning
specified in Section 3.1 of this Plan.
1.18 "SEC" means the United States Securities and Exchange Commission.
1.19 "SECURITIES ACT" means the Securities Act of 1933, as amended, and all
rules and regulations adopted by the SEC pursuant thereto.
1.20 "S&P 100 PLUS PORTFOLIO" means the S&P 100 Plus Portfolio, a
designated series or investment portfolio of Principal Preservation.
1.21 "S&P 100 PLUS PORTFOLIO SHARES" means the shares of Common Stock of
the S&P 100 Plus Portfolio to be issued pursuant to this Plan, as described in
Section 2.1 hereof.
1.22 "VALUATION DATE" shall have the meaning set forth in Section 2.4 of
this Plan.
2. REORGANIZATION AND LIQUIDATION OF THE BALANCED PORTFOLIO.
2.1 TRANSFER OF BALANCED PORTFOLIO ASSETS; ISSUANCE OF S&P 100 PLUS
PORTFOLIO SHARES. At or prior to the Effective Time, all of the assets of the
Balanced Portfolio, except the Excluded Assets, shall be delivered to the
Depository for the account of the S&P 100 Plus Portfolio, in exchange for, and
against delivery to the Balanced Portfolio of, that number of S&P 100 Plus
Portfolio Shares (including, if applicable, fractional shares rounded to the
nearest thousandth of one whole share) having an aggregate net asset value
equal to the value of the assets of the Balanced Portfolio so delivered, all
determined and adjusted as provided in Section 2.2 of this Plan. As of the
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Effective Time and following delivery of such assets to the Depository, the S&P
100 Plus Portfolio shall receive good and marketable title to such assets
free and clear of all liens, security interests, pledges, charges, claims or
encumbrances of any and every kind.
2.2 COMPUTATION OF NET ASSET VALUE.
(a) The net asset value of the S&P 100 Plus Portfolio Shares and the net
value of the assets of the Balanced Portfolio transferred pursuant to this Plan
shall, in each case, be determined as of the close of business on the New York
Stock Exchange on the Valuation Date.
(b) The net asset value of the S&P 100 Plus Portfolio Shares shall be
computed in accordance with the practices and procedures of the S&P 100 Plus
Portfolio described in the Principal Preservation Prospectus. Likewise, the
value of the assets of the Balanced Portfolio to be transferred pursuant to
this Plan shall be computed in accordance with the practices and procedures of
the Balanced Portfolio described in the Principal Preservation Prospectus.
2.3 EXCLUDED ASSETS. There shall be deducted from the assets of the
Balanced Portfolio described in Section 2.1 all organizational expenses and
other assets of the Balanced Portfolio that would not have value to the S&P 100
Plus Portfolio, as well as cash in an amount estimated by Principal
Preservation to be sufficient to pay all liabilities of the Balanced Portfolio
accrued and unpaid as of the Effective Time, including, without limitation: (a)
amounts owed or to be owed to any Balanced Portfolio Shareholder, including
declared but unpaid dividends and capital gains distributions; and (b) accounts
payable, taxes and other accrued and unpaid expenses, if any, incurred in the
normal operation of the business of the Balanced Portfolio up to and including
the Closing Date and estimated to be incurred after the Closing Date in
connection with winding up the affairs of, and liquidating, the Balanced
Portfolio (together the "Excluded Assets").
2.4 VALUATION DATE. The assets of the Balanced Portfolio and the per share
net asset value of the S&P 100 Plus Portfolio Shares shall be valued as of the
close of business on the New York Stock Exchange on the business day next
preceding the Closing Date (the "Valuation Date"). The stock transfer books of
the Balanced Portfolio shall be permanently closed as of the close of business
on the Valuation Date, and only requests for the redemption of shares of the
Balanced Portfolio received in proper form prior to the close of trading on the
New York Stock Exchange on the Valuation Date shall be accepted by the Balanced
Portfolio. Redemption requests thereafter received by the Balanced Portfolio
shall be deemed to be redemption requests for S&P 100 Plus Portfolio Shares
(assuming that the transactions contemplated by this Plan have been
consummated) to be distributed to the Balanced Portfolio Shareholders pursuant
to this Plan.
2.5 DECLARATION OF DIVIDENDS AND CAPITAL DISTRIBUTIONS BY THE BALANCED
PORTFOLIO. On or prior to the Closing Date, the Balanced Portfolio will
declare a dividend to shareholders of record of the Balanced Portfolio as of or
prior to the Closing Date so that, for the short taxable year of the Balanced
Portfolio ending on the date on which the Balanced Portfolio is completely
liquidated and discontinued, the Balanced Portfolio will have declared an
aggregate amount of dividends which: (a) is equal to at least the sum of its
net capital gain (within the meaning of Section 852(b)(3) of the Code) and
ninety percent (90%) of its investment company taxable income (determined under
Section 852(b)(2) of the Code, but without regard to Section 852(b)(2)(D) of
the Code) for such taxable year; and (b) is sufficient to avoid any excise tax
on the Balanced Portfolio under Section 4982 of the Code for the calendar year
in which the Closing Date occurs, provided that the dividends that have been so
declared but have not been paid on or before such Closing Date are in fact paid
by the Balanced Portfolio prior to the end of such calendar year to the
shareholders of the Balanced Portfolio as of the record date for determining
shareholders entitled to receive payment of such dividend.
2.6 LIQUIDATION. As soon as reasonably practicable after the Closing Date,
the Balanced Portfolio shall pay or make provisions for all of its debts,
liabilities and taxes, and distribute all remaining assets, including the S&P
100 Plus Portfolio Shares received by it in the Reorganization and the balance,
if any, of the Excluded Assets, to the Balanced Portfolio Shareholders, and the
Balanced Portfolio's status as a designated series of shares of Principal
Preservation shall be discontinued.
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2.7 ISSUANCE OF S&P 100 PLUS PORTFOLIO SHARES. On the Closing Date,
Principal Preservation shall instruct its transfer agent to record on Principal
Preservation's books and records the pro rata interest of each of the Balanced
Portfolio Shareholders in the S&P 100 Plus Portfolio Shares in the name of such
Balanced Portfolio Shareholder. All Balanced Portfolio Shares then issued and
outstanding shall thereupon be canceled on the books of Principal Preservation.
Principal Preservation shall forward a confirmation of such ownership to each
of the Balanced Portfolio Shareholders. No redemption or repurchase of such
S&P 100 Plus Portfolio Shares credited to any Balanced Portfolio Shareholder in
respect of his or her Balanced Portfolio Shares which are represented by an
unsurrendered stock certificate shall be permitted until such certificate has
been surrendered to Principal Preservation for cancellation, or if such
certificate is lost or misplaced, until a lost certificate affidavit has been
executed and delivered to Principal Preservation.
2.8 LIABILITIES AND EXPENSES. The S&P 100 Plus Portfolio shall not assume
any liability of the Balanced Portfolio and the Balanced Portfolio shall use
its best efforts to discharge all known liabilities, so far as may be possible,
prior to the Closing Date.
3. CONDITIONS PRECEDENT TO CLOSING
The Closing of the Reorganization is subject to the conditions that on or
before the Closing Date:
3.1 APPROVAL OF PLAN BY SHAREHOLDERS OF THE BALANCED PORTFOLIO. The
Balanced Portfolio Shareholder Meeting shall have been duly called and held in
accordance with the provisions of the Investment Company Act, the Maryland
General Corporation Law and the Articles of Incorporation and Bylaws of
Principal Preservation, including compliance with the notice and quorum
requirements thereunder, and at such meeting the Plan shall have been approved
by the affirmative vote of the lesser of: (a) 67% or more of the Balanced
Portfolio Shares present at the Balanced Portfolio Shareholder Meeting and
entitled to vote, provided shareholders who are the owners of more than 50% of
the Balanced Portfolio Shares outstanding and entitled to vote on the Plan at
the Balanced Portfolio Shareholder Meeting are present at such Meeting in
person or by proxy; or (b) more than 50% of the Balanced Portfolio Shares
outstanding and entitled to vote on approval of the Plan at the Balanced
Portfolio Shareholder Meeting (the "Required Balanced Portfolio Shareholder
Vote").
3.2 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.
3.3 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 SEC and of state Blue Sky or securities authorities)
deemed necessary by 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 Balanced Portfolio.
3.4 EFFECTIVENESS OF REGISTRATION STATEMENT ON FORM N-14. Principal
Preservation's Registration Statement on Form N-14 to be prepared and filed
with the SEC with respect to the S&P 100 Plus Portfolio Shares, including the
Proxy Statement of the Balanced Portfolio soliciting approval of the Plan at
the Balanced Portfolio Shareholder Meeting constituting a part thereof, shall
have become effective under the Securities Act and no stop order suspending the
effectiveness thereof shall have been issued and, to the best knowledge of
Principal Preservation, no investigation or proceeding for that purpose shall
have been instituted or be pending, threatened or contemplated under the
Securities Act.
3.5 TAX OPINION. Principal Preservation shall have obtained an opinion of
Quarles & Brady, legal counsel to Principal Preservation, in form and substance
reasonably satisfactory to its Board of Directors, 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, and that,
accordingly, for Federal income tax purposes: (i) no gain or loss will be
recognized by either the Balanced Portfolio or the S&P 100 Plus Portfolio upon
the transfer of assets of the Balanced Portfolio in exchange for the S&P 100
Plus Portfolio Shares; (ii) no gain or loss will be recognized by the
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Balanced Portfolio Shareholders upon the liquidation of the Balanced Portfolio
and the related surrender of their shares of the Balanced Portfolio in exchange
for the S&P 100 Plus Portfolio Shares; (iii) the S&P 100 Plus Portfolio's basis
in the assets acquired from the Balanced Portfolio will be the same as the
basis of those assets in the hands of the Balanced Portfolio immediately prior
to the exchange; (iv) the holding period of the assets of the Balanced
Portfolio in the hands of the S&P 100 Plus Portfolio will include the holding
period of the Balanced Portfolio; (v) the basis of the S&P 100 Plus Portfolio
Shares received by each Balanced Portfolio Shareholder in connection with the
reorganization will be the same as the Balanced Portfolio Shareholder's basis
in his or her Balanced Portfolio Shares immediately prior to the
Reorganization; and (vi) the holding period of the S&P 100 Plus Portfolio
Shares received by each Balanced Portfolio Shareholder in connection with the
Reorganization will include such Balanced Portfolio Shareholder's holding
period of his or her Balanced Portfolio Shares held immediately prior to the
Reorganization, provided that such Balanced Portfolio Shares were held by such
Balanced Portfolio Shareholder as capital assets as of the Effective Time.
3.6 DECLARATION OF DIVIDENDS BY THE BALANCED PORTFOLIO. Prior to or on the
Closing Date, the Balanced Portfolio shall have declared a dividend or
dividends which, together with all previous such dividends, shall have the
effect of distributing to its shareholders all of the Balanced Portfolio's
investment company taxable income for taxable years ending on or prior to the
Closing Date (computed without regard to any deduction for dividends paid) and
all of its net capital gains realized in taxable years ending on or prior to
the Closing Date (after reduction for any capital loss carry forward).
4. EXPENSES
B.C. Ziegler and Company, the distributor of the shares for each of the
Balanced Portfolio and the S&P 100 Plus Portfolio, will bear the expenses
incurred by the Portfolios in connection with carrying out the provisions of
this Plan.
5. TERMINATION
5.1 MUTUAL AGREEMENT. This Plan may be terminated at any time by Principal
Preservation, and will be terminated by Principal Preservation if any of the
conditions precedent to the Reorganization or set forth in Article 3 has not
been satisfied as of the Closing Date.
5.2 EFFECTS OF TERMINATION. In the event of any such termination, there
shall be no liability for damage on the part of either the Balanced Portfolio
of the S&P 100 Plus Portfolio to the other.
6. AMENDMENT
This Plan may be amended, modified or supplemented in such manner as
Principal Preservation determines; provided, however, that following approval
of the Plan by the Required Balanced Portfolio Shareholder Vote, no such
amendment may change the provisions for determining the number of S&P 100 Plus
Portfolio Shares to be issued to the Balanced Portfolio Shareholders in any
fashion which adversely affects the Balanced Portfolio Shareholders, unless
such amendment has been approved by the Balanced Portfolio Shareholders.
7. MISCELLANEOUS
7.1 HEADINGS. The Article and Section headings contained in this Plan will
have reference purposes only and shall not affect in any way the meaning or
interpretation of this Plan.
7.2 GOVERNING LAW. This Plan shall be governed by and construed in
accordance with the laws of the State of Maryland, Principal Preservation's
Articles of Incorporation and Bylaws, and the Principal Preservation
Prospectus.
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IN WITNESS WHEREOF, on the authority of the Board of Directors of
Principal Preservation, this Plan has been executed by Principal Preservation's
duly authorized officer as of the day and year first written above.
BY ORDER OF THE BOARD OF DIRECTORS OF
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
(ON BEHALF OF THE BALANCED AND S&P 100 PLUS PORTFOLIOS)
By: /S/ R. D. ZIEGLER
R. D. Ziegler, Chairman of the Board and President
B.C. ZIEGLER AND COMPANY
(SOLELY FOR THE PURPOSE OF INDICATING ITS
AGREEMENT TO BE BOUND BY ARTICLE 4 HEREOF)
By: /S/ PETER D. ZIEGLER
Peter D. Ziegler, President and Chief Executive
Officer
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Rule 497(b)
1933 Act Reg. No. 333-01123
1940 Act File No. 811-4401
STATEMENT OF ADDITIONAL INFORMATION
DATED MARCH 22, 1996
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
800-826-4600
This Statement of Additional Information is not a prospectus, and should
be read in conjunction with the Proxy Statement/Prospectus dated March 22,
1996, relating to the reorganization (the "Reorganization") of the Balanced
Portfolio, a series of Principal Preservation Portfolios, Inc. ("Principal
Preservation"), into the S&P 100 Plus Portfolio, another series of Principal
Preservation. In connection with the Reorganization, the S&P 100 Plus
Portfolio would acquire all of the assets of the Balanced Portfolio (net of its
liabilities). In consideration for the Balanced Portfolio's transfer of its
assets to the S&P 100 Plus Portfolio, the S&P 100 Plus Portfolio would issue to
the Balanced Portfolio shares of Common Stock of the S&P 100 Plus Portfolio
with an aggregate net asset value equal to the value of the assets transferred
by the Balanced Portfolio. The Balanced Portfolio would thereafter distribute
the shares of the S&P 100 Plus Portfolio so received to its shareholders on a
pro rata basis, and the Balanced Portfolio subsequently would be liquidated and
discontinued. As a result of the Reorganization, shareholders of the Balanced
Portfolio would become shareholders of the S&P 100 Plus Portfolio. It is
expected that the aggregate net asset value of the shares of the S&P 100 Plus
Portfolio received by each shareholders of the Balanced Portfolio in the
Reorganization would be equal, immediately following the Reorganization, to the
aggregate net asset value of the shares of the Balanced Portfolio held by such
shareholder immediately prior to the Reorganization.
Except for the unaudited pro forma financial statements contained herein,
the information otherwise required to be set forth in this Statement of
Additional Information is included in: (i) the Prospectus of Principal
Preservation (relating to both the Balanced Portfolio and the S&P 100 Plus
Portfolio), dated May 1, 1995, as supplemented (the "May 1, 1995 Prospectus");
(ii) the Statement of Additional Information of Principal Preservation
(relating to both the Balanced Portfolio and the S&P 100 Plus Portfolio), dated
May 1, 1995, as supplemented (the "May 1, 1995 SAI"); and (iii) Principal
Preservation's 1995 Annual Report to Shareholders (the "Annual Report"). The
May 1, 1995 Prospectus, the May 1, 1995 SAI, and the Annual Report are
incorporated by reference herein.
Copies of the Proxy Statement/Prospectus, the May 1, 1995 Prospectus, the
May 1, 1995 SAI, and the Annual Report may be obtained free of charge by
writing to B.C. Ziegler and Company, the distributor for Principal Preservation
(the "Distributor"), at 215 North Main Street, West Bend, Wisconsin 53095, or
by calling the Distributor at (800) 826-4600.
EXPERTS
The audited financial statements of the Balanced Portfolio and the S&P 100
Plus Portfolio incorporated by reference into this Statement of Additional
Information have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, which also is
incorporated by reference into this Statement of Additional Information, in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.
HISTORICAL FINANCIAL STATEMENTS
The following audited historical financial statements and footnotes
thereto of the Balanced Portfolio and the S&P 100 Plus Portfolio, together with
the Report of the Independent Accountants thereon, are incorporated by
reference herein from the Annual Report:
(1) Balance Sheets for each of the Balanced Portfolio and the S&P
100 Plus Portfolio as of December 31, 1995;
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(2) Statements of Operations for each of the Balanced Portfolio
and the S&P 100 Plus Portfolio for the year ended December 31, 1995;
(3) Statements of Changes in Net Assets for each of the Balanced
Portfolio and the S&P 100 Plus Portfolio for the years ended
December 31, 1995 and 1994;
(4) Schedule of Investments of each of the Balanced Portfolio and
the S&P 100 Plus Portfolio as of December 31, 1995;
(5) Financial Highlights for each of the Balanced Portfolio and
the S&P 100 Plus Portfolio; and
(6) Notes to Financial Statements.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Set forth below are the following unaudited pro forma financial
statements: (a) unaudited Pro Forma Combining Statement of Assets and
Liabilities for the Balanced Portfolio and the S&P 100 Plus Portfolio as of
December 31, 1995, assuming the Reorganization had been consummated on that
date; (b) unaudited Pro Forma Combining Statement of Operations for the
Balanced Portfolio and the S&P 100 Plus Portfolio for the year ended December
31, 1995, giving effect to the Reorganization as if it had been consummated on
January 1, 1995; and (c) unaudited Pro Form Combining Schedule of Investments
of the Balanced Portfolio and the S&P 100 Plus Portfolio as of December 31,
1995, assuming the Reorganization had been consummated on that date.
This unaudited pro forma financial information should be read in
conjunction with, and is qualified in its entirety by, the audited historical
financial statements and accompanying notes of the Balanced Portfolio and the
S&P 100 Plus Portfolio included elsewhere in this Statement of Additional
Information. These unaudited pro forma combining financial statements are
intended for information purposes only, and are not necessarily indicative of
the future financial position or future results of the S&P 100 Plus Portfolio.
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PRINCIPAL PRESERVATION PORTFOLIOS, INC.- S&P 100 PLUS AND BALANCED PORTFOLIO
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
(unaudited)
<TABLE>
<CAPTION>
S&P 100 PRO FORMA
PLUS BALANCED COMBINED ADJUSTMENTS EFFECT
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments:
Long-term investments
in securities, (See
Schedule of Investments)... $53,320,630 $6,987,797 $60,308,427 19,121 (c) $60,327,548
Short-term investments .... 3,851,931 237,763 4,089,694 (19,121)(c) 4,070,573
--------------- --------------- --------------- --------------- ---------------
Total Investments...... 57,172,561 7,225,560 64,398,121 0.00 64,398,121
Cash ......................... 500 590 1,090 1,090
Receivables:
Capital shares sold ........ 115,712 4,303 120,015 120,015
Dividends and interest...... 121,292 58,565 179,857 179,857
--------------- --------------- --------------- --------------- ---------------
Total receivables...... 237,004 62,868 299,872 0 299,872
Other assets ................. 2,601 137 2,738 0 2,738
--------------- --------------- --------------- --------------- ---------------
Total Assets .......... $57,412,666 $7,289,155 $64,701,821 0 $64,701,821
=============== =============== =============== =============== ===============
LIABILITIES:
Payables:
Capital shares redeemed..... 24,404 220,015 244,419 244,419
Distributions to share-
holders................... 160,676 3,384 164,060 63,081 (d) 227,141
Expenses ................... 104,783 42,673 147,456 (21,243)(h) 126,213
Outstanding Option
Contracts................. 61,188 --- 61,188 61,188
--------------- --------------- --------------- --------------- ---------------
Total Liabilities..... 351,051 266,072 617,123 41,838 658,961
--------------- --------------- --------------- --------------- ---------------
NET ASSETS
Capital stock ................ 36,593,532 5,825,124 42,418,656 535,236 (d) 42,953,892
Undistributed (overdistributed)
net investment income ...... 1,634 311 1,945 1,945
Undistributed net realized
gains (losses) on
investments................. 5,698 (196,695) (190,997) 196,695 (d) 5,698
Net unrealized appreciation
on investments ............ 20,460,751 1,394,343 21,855,094 (773,769)(d) 21,081,325
--------------- --------------- --------------- --------------- ---------------
Total net assets ...... 57,061,615 7,023,083 64,084,698 (41,838) 64,042,860
--------------- --------------- --------------- --------------- ---------------
Total liabilities
and net assets...... $57,412,666 $7,289,155 $64,701,821 0 $64,701,821
=============== =============== =============== =============== ===============
Net asset value and
redemption price
per share .................. $19.53 $12.02 $19.53
=============== =============== ===============
Maximum offering price
per share .................. $20.45 $12.59 $20.45
=============== =============== ===============
<CAPTION>
SHARES OUTSTANDING RECONCILIATION BALANCED CONVERSION PRO FORMA
REINVESTMENT ADJUSTMENT SHARES
------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
NET ASSETS.................... 57,061,615 7,023,083 (41,838)(d) 64,042,860
SHARES AUTHORIZED............. 50,000,000 50,000,000 50,000,000
SHARES ISSUED AND OUTSTANDING. 2,922,304 584,480 48,525 (d)(i) (275,542)(j) 3,279,767
NET ASSET VALUE AND
REDEMPTION PRICE............ 19.53 12.02 19.53
</TABLE>
The accompanying notes to the combining pro forma financial statements are an
integral part of these statements.
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PRINCIPAL PRESERVATION PORTFOLIOS, INC.- S&P 100 PLUS PORTFOLIO AND BALANCED
PORTFOLIO
PRO FORMA COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(unaudited)
<TABLE>
<CAPTION>
S&P 100 PRO FORMA
PLUS BALANCED COMBINED ADJUSTMENTS EFFECT
--------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ...................... $1,129,421 $131,463 $1,260,884 $1,260,884
Interest ....................... 142,330 205,588 347,918 347,918
---------- -------- ---------- --------- -----------
Total investment
income .......... 1,271,751 337,051 1,608,802 1,608,802
EXPENSES:
Investment advisory fees ....... 292,466 45,711 338,177 (11,355)(e) 326,822
Custodian fees ................. 18,250 8,395 26,645 (6,100)(g) 20,545
Transfer agent fees ............ 68,445 9,125 77,570 77,570
Broker service fees ............ 90,873 18,792 109,665 109,665
Professional fees .............. 47,876 27,740 75,616 (23,893)(f)(h) 51,723
Registration ................... 16,060 16,060 32,120 (16,060)(h) 16,060
Communication .................. 12,210 1,229 13,439 13,439
Director fees .................. 14,205 3,457 17,662 17,662
Pricing of investments ......... 7,275 8,760 16,035 (8,760)(h) 7,275
Other .......................... 4,071 2,955 7,026 (2,955)(h) 4,071
---------- --------- ---------- --------- -----------
Total expenses ..... 571,731 142,224 713,955 (69,123) 644,832
Less expenses absorbed
by advisor ................ --- (47,880) (47,880) 47,880 (i) 0
---------- --------- ---------- --------- -----------
Net expenses ....... 571,731 94,344 666,075 (21,243) 644,832
---------- --------- ---------- --------- -----------
NET INVESTMENT INCOME .......... 700,020 242,707 942,727 21,243 963,970
---------- --------- ---------- --------- -----------
NET REALIZED GAINS
ON INVESTMENTS ............ 1,785,019 142,554 1,927,573 773,769 (d) 2,701,342
NET UNREALIZED APPRECIATION
ON INVESTMENTS ............ 12,487,128 1,369,971 13,857,099 (773,769)(d) 13,083,330
---------- --------- ---------- --------- -----------
Net gains
on investments .. 14,272,147 1,512,525 15,784,672 15,784,672
---------- --------- ---------- --------- -----------
NET INCREASE
IN NET ASSETS RESULTING
FROM OPERATIONS ........... $14,972,167 $1,755,232 $16,727,399 $21,243 $16,748,642
=========== ========== =========== ========= ===========
</TABLE>
The accompanying notes to the combining pro forma financial statements are an
integral part of these statements.
B-4
<PAGE> 26
S&P 100 PLUS PORTFOLIO
BALANCED PORTFOLIO
PRO-FORMA COMBINING SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
S&P 100 PLUS BALANCED PORTFOLIO COMBINED ADJUSTMENT PRO-FORMA EFFECT
------------------ ------------------- ---------------- ----------------- ------------------
NUMBER MARKET NUMBER MARKET NUMBER MARKET NUMBER MARKET NUMBER MARKET
OF SHARES VALUE OF SHARE VALUE OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE
--------- ----- -------- ----- --------- ----- --------- ----- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCKS - 94.1%
BASIC INDUSTRIES - 5.2%
Aluminum Company of America 4,800 253,800 0 0 4,800 253,800 600 31,725 5,400 285,525
* Bethlehem Steel Corporation 2,900 40,600 0 0 2,900 40,600 400 5,600 3,300 46,200
Boise Cascade Corporation 1,266 43,835 0 0 1,266 43,835 200 6,925 1,466 50,760
Champion International 2,600 109,200 0 0 2,600 109,200 300 12,600 2,900 121,800
Dow Chemical Company 7,250 510,219 0 0 7,250 510,219 900 63,338 8,150 573,557
DuPont (E.I.) de Nemours and
Company 15,200 1,062,100 0 0 15,200 1,062,100 2,000 139,750 17,200 1,201,850
Homestake Mining Company 3,800 59,375 0 0 3,800 59,375 500 7,813 4,300 67,188
International Paper Company 6,800 257,550 0 0 6,800 257,550 900 34,088 7,700 291,638
Monsanto Company 3,300 404,250 0 0 3,300 404,250 400 49,000 3,700 453,250
Weyerhaeuser Company 5,700 246,525 0 0 5,700 246,525 700 30,275 6,400 276,800
--------- -------- --------- ------- ---------
2,987,454 0 2,987,454 381,113 3,368,567
CONSUMER DURABLES - 4.7%
Black & Decker Corporation 2,300 81,075 0 0 2,300 81,075 300 10,575 2,600 91,650
Brunswick Corporation 2,600 62,400 0 0 2,600 62,400 300 7,200 2,900 69,600
Chrysler Corporation 10,200 586,975 0 0 10,200 586,975 1,300 74,811 11,500 661,786
Ford Motor Company 29,600 858,400 0 0 29,600 858,400 3,900 113,100 33,500 971,500
General Motors Corporation 20,700 1,094,513 0 0 20,700 1,094,513 2,700 142,763 23,400 1,237,276
--------- -------- --------- ------- ---------
2,683,363 0 2,683,363 348,449 3,031,812
CONSUMER NONDURABLES - 9.8%
Avon Products, Inc. 2,000 150,750 0 0 2,000 150,750 300 22,613 2,300 173,363
Coca-Cola Company 35,000 2,598,750 0 0 35,000 2,598,750 4,600 341,550 39,600 2,940,300
Colgate-Palmolive Company 4,000 281,000 1,850 129,962 5,850 410,962 (1,300) (91,325) 4,550 319,637
Eastman Kodak Company 9,400 629,800 2,350 157,450 11,750 787,250 (1,100) (73,700) 10,650 713,550
Heinz (H.J.) Company 10,100 334,562 0 0 10,100 334,562 1,300 43,063 11,400 377,625
International Flavors &
Fragrances 3,100 148,800 2,750 132,000 5,850 280,800 (2,300) (110,400) 3,550 170,400
PepsiCo, Inc. 21,900 1,223,662 3,100 173,213 25,000 1,396,875 (200) (11,175) 24,800 1,385,700
Polaroid Corporation 1,300 61,588 0 0 1,300 61,588 200 9,475 1,500 71,063
Ralston Purina Group 2,900 180,888 0 0 2,900 180,888 400 24,950 3,300 205,838
Gillette Company 0 0 3,200 166,800 3,200 166,800 (3,200) (174,038) 0 (7,238)
Kimberly-Clark Corporation 0 0 2,000 165,500 2,000 165,500 (2,000) (137,712) 0 27,788
--------- -------- --------- ------- ---------
5,609,800 924,925 6,534,725 (156,700) 6,378,025
CONSUMER SERVICE - 8.7%
Capital Cities/ABC, Inc. 4,300 530,512 0 0 4,300 530,512 600 69,932 4,900 600,444
Walt Disney Company 14,300 843,700 0 0 14,300 843,700 1,900 110,867 16,200 954,567
* Harrah's Entertainment 2,850 69,112 2,850 69,112 400 9,181 3,250 78,293
Kmart Corporation 12,600 91,350 0 0 12,600 91,350 1,700 12,237 14,300 103,587
Limited (The), Inc. 10,000 173,750 0 0 10,000 173,750 1,300 22,584 11,300 196,334
May Department Stores Company 6,900 291,525 0 0 6,900 291,525 900 38,508 7,800 330,033
McDonald's Corporation 19,400 875,425 3,500 157,938 22,900 1,033,363 (1,000) (43,263) 21,900 990,100
Sears, Roebuck and Co. 10,700 417,300 0 0 10,700 417,300 1,400 54,865 12,100 472,165
Tandy Corporation 2,000 83,000 0 0 2,000 83,000 300 10,951 2,300 93,951
* Toys "R" Us, Inc. 7,625 165,844 0 0 7,625 165,844 1,000 22,058 8,625 187,902
Wal-Mart Stores, Inc. 63,500 1,420,813 0 0 63,500 1,420,813 8,300 186,594 71,800 1,607,407
Dun & Bradstreet Corporation 0 0 2,300 148,925 2,300 148,925 (2,300) (148,925) 0 0
Walgreen Co. 0 0 5,400 161,325 5,400 161,325 (5,400) (161,325) 0 0
--------- -------- --------- ------- ---------
4,962,331 468,188 5,430,519 184,264 5,614,783
</TABLE>
Percentages shown are a percent of Pro Forma net assets. The
accompanying notes to Pro Forma Combining Statements are an integral part of
this schedule.
B-5
<PAGE> 27
S&P 100 PLUS PORTFOLIO
BALANCED PORTFOLIO
PRO-FORMA COMBINING SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
S&P 100 PLUS BALANCED PORTFOLIO COMBINED ADJUSTMENT PRO-FORMA EFFECT
------------------ ------------------- ---------------- ----------------- ------------------
NUMBER MARKET NUMBER MARKET NUMBER MARKET NUMBER MARKET NUMBER MARKET
OF SHARES VALUE OF SHARE VALUE OF SHARES VALUE OF SHARES VALUE OF SHARES VALUE
--------- ----- -------- ----- --------- ----- --------- ----- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CAPITAL GOODS - 10.7%
The Boeing Company 9,350 732,806 0 0 9,350 732,806 1,200 95,891 10,550 828,697
Fluor Corporation 2,300 151,800 0 0 2,300 151,800 300 19,841 2,600 171,641
General Dynamics Corporation 1,800 106,425 0 0 1,800 106,425 200 14,025 2,000 120,450
General Electric Company 46,100 3,319,200 2,300 165,600 48,400 3,484,800 3,800 270,233 52,200 3,755,033
Minnesota Mining and
Manufacturing Company 1,700 775,125 2,200 145,750 3,900 920,875 (200) (43,998) 3,700 876,877
Raytheon Company 6,700 316,575 0 0 6,700 316,575 900 41,764 7,600 358,339
Rockwell International
Corporation 6,100 322,538 0 0 6,100 322,538 800 42,426 6,900 364,964
* Teledyne, Inc. 1,500 38,438 0 0 1,500 38,438 200 4,924 1,700 43,362
United Technologies Corporation 3,500 332,062 0 0 3,500 332,062 500 43,742 4,000 375,804
Avery-Dennison Corporation 0 0 3,300 165,412 3,300 165,412 (3,300) (165,412) 0 0
--------- -------- --------- -------- ---------
6,094,969 476,762 6,571,731 323,436 6,895,167
ENERGY - 11.6%
Amoco Corporation 13,700 984,687 2,000 143,750 15,700 1,128,437 (200) (14,273) 15,500 1,114,164
Atlantic Richfield Company 4,400 487,300 0 0 4,400 487,300 600 63,759 5,000 551,059
Baker Hughes Incorporated 3,860 94,087 0 0 3,860 94,087 500 12,511 4,360 106,598
Coastal Corporation 2,900 108,025 0 0 2,900 108,025 400 14,232 3,300 122,257
Exxon Corporation 34,300 2,748,288 1,900 152,237 36,200 2,900,525 2,600 208,293 38,800 3,108,818
Halliburton Company 3,200 162,000 0 0 3,200 162,000 400 21,084 3,600 183,084
Mobil Corporation 11,000 1,232,000 1,350 151,200 12,350 1,383,200 100 10,408 12,450 1,393,608
Occidental Petroleum Corporation 8,800 188,100 0 0 8,800 188,100 1,100 24,494 9,900 212,594
Schlumberger Limited 6,700 463,975 0 0 6,700 463,975 900 61,188 7,600 525,163
Williams Companies, Inc. 2,800 122,850 0 0 2,800 122,850 400 16,270 3,200 139,120
Royal Dutch Petroleum Company 0 0 1,100 155,238 1,100 155,238 (1,100) (155,238) 0 0
--------- -------- --------- -------- ---------
6,591,312 602,425 7,193,737 262,728 7,456,465
FINANCIAL - 8.7%
American International Group,
Inc. 13,143 1,215,728 0 0 13,143 1,215,728 1,700 159,812 14,843 1,375,540
American Express Company 13,500 558,562 0 0 13,500 558,562 1,800 73,199 15,300 631,761
American General Corporation 5,600 195,300 0 0 5,600 195,300 700 25,726 6,300 221,026
BankAmerica Corporation 10,300 666,925 2,100 135,975 12,400 802,900 (700) (48,280) 11,700 754,620
CIGNA Corporation 2,000 206,500 0 0 2,000 206,500 300 27,173 2,300 233,673
Citicorp 11,700 786,825 0 0 11,700 786,825 1,500 103,301 13,200 890,126
First Chicago Corporation 8,725 344,638 0 0 8,725 344,638 1,100 45,018 9,825 389,656
First Fidelity Bancorporation 2,200 165,825 0 0 2,200 165,825 300 21,475 2,500 187,300
First Interstate Bancorp 2,300 313,950 0 0 2,300 313,950 300 41,378 2,600 355,328
Great Western Financial
Corporation 3,650 93,075 0 0 3,650 93,075 500 12,319 4,150 105,394
ITT Hartford Group, Inc. 3200 154,800 0 0 3,200 154,800 400 20,455 3,600 175,255
Merrill Lynch & Co., Inc. 4,900 249,900 0 0 4,900 249,900 600 32,556 5,500 282,456
Banc One Corporation 0 0 3,388 127,897 3,388 127,897 (3,388) (127,897) 0 0
Federal National Mortgage
Association 0 0 1,550 192,394 1,550 192,394 (1,550) (192,394) 0 0
Jefferson-Pilot Corporation 0 0 3,412 158,681 3,412 158,681 (3,412) (158,681) 0 0
--------- -------- --------- -------- ---------
4,952,028 614,947 5,566,975 35,160 5,602,135
HEALTH CARE - 10.4%
Baxter International Inc. 7,600 318,250 0 0 7,600 318,250 1,000 41,896 8,600 360,146
Bristol-Myers Squibb Company 14,260 1,224,578 0 0 14,260 1,224,578 1,900 160,598 16,160 1,385,176
Johnson & Johnson 17,800 1,524,125 2,000 171,250 19,800 1,695,375 300 28,869 20,100 1,724,244
Mallinckrodt Group Inc. 2,100 76,387 0 0 2,100 76,387 300 9,735 2,400 86,122
Merck & Co., Inc. 34,200 2,248,650 0 0 34,200 2,248,650 4,500 295,257 38,700 2,543,907
</TABLE>
Percentages shown are a percent of Pro Forma net assets.
The accompanying notes to Pro Forma Combining Statements are an integral part
of this schedule.
B-6
<PAGE> 28
S&P 100 PLUS PORTFOLIO
BALANCED PORTFOLIO
PRO-FORMA COMBINING SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
S&P 100 Plus Balanced Portfoli0 Combined Adjustment Pro-Forma Effect
------------------ ------------------- ---------------- ----------------- ------------------
Number Market Number Market Number Market Number Market Number Market
of Shares Value of Share Value of Shares Value of Shares Value of Shares Value
--------- ----- -------- ----- --------- ----- --------- ----- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HEALTH CARE - 10.4% (continued)
Pharmacia & Upjohn, Inc. 13,860 537,075 0 0 13,860 537,075 1,800 70,596 15,660 607,671
Schering-Plough Corporation 0 0 2,600 142,350 2,600 142,350 (2,600) (142,350) 0 0
--------- -------- ---------- --------- ----------
5,929,065 313,600 6,242,665 464,601 6,707,266
TECHNOLOGY - 10.5%
AMP Incorporated 5,800 222,575 3,000 115,125 8,800 337,700 (2,200) (85,959) 6,600 251,741
* Ceridian Corporation 1,800 74,250 0 0 1,800 74,250 200 9,463 2,000 83,713
* Computer Sciences Corporation 1,400 98,350 0 0 1,400 98,350 200 13,066 1,600 111,416
* Digital Equipment Corporation 4,100 262,913 0 0 4,100 262,913 500 34,599 4,600 297,512
* Federal Express Corporation 1,500 110,812 0 0 1,500 110,812 200 14,456 1,700 125,268
Harris Corporation 1,100 60,088 0 0 1,100 60,088 100 7,966 1,200 68,054
Hewlett-Packard Company 14,000 1,172,500 0 0 14,000 1,172,500 1,800 153,656 15,800 1,326,156
Honeywell Inc. 3,700 179,912 0 0 3,700 179,912 500 23,649 4,200 203,561
International Business Machine 15,700 1,440,475 0 0 15,700 1,440,475 2,100 189,215 17,800 1,629,690
Intel Corporation 23,000 1,305,250 0 0 23,000 1,305,250 3,000 171,469 26,000 1,476,719
* National Semiconductor Corpora 3,300 73,425 0 0 3,300 73,425 400 9,686 3,700 83,111
Northern Telecom Limited 6,900 296,700 0 0 6,900 296,700 900 38,754 7,800 335,454
Tektronix, Inc. 800 39,300 0 0 800 39,300 100 5,267 900 44,567
Texas Instruments Inc. 5,000 258,750 0 0 5,000 258,750 700 33,944 5,700 292,694
* Unisys Corporation 4,700 26,437 0 0 4,700 26,437 700 3,676 5,400 30,113
Xerox Corporation 2,847 390,039 1,150 157,550 3,997 547,589 (800) (106,139) 3,197 441,450
General Motors Corp $3.25 Pfd S 0 0 1,900 139,175 1,900 139,175 (1,900) (139,175) 0 0
Loral Corporation 0 0 5,200 183,950 5,200 183,950 (5,200) (183,950) 0 0
Pitney Bowes Inc. 0 0 2,900 136,300 2,900 136,300 (2,900) (136,300) 0 0
--------- -------- ---------- --------- ----------
6,011,776 732,100 6,743,876 57,343 6,801,219
TRANSPORATION - 1.2%
Burlington Northern Santa Fe Co 3,900 304,200 0 0 3,900 304,200 500 39,685 4,400 343,885
Delta Air Lines, Inc. 1,400 103,425 0 0 1,400 103,425 200 13,412 1,600 116,837
Norfolk Southern Corporation 3,800 301,625 0 0 3,800 301,625 500 39,851 4,300 341,476
--------- -------- ---------- --------- ----------
709,250 0 709,250 92,948 802,198
UTILITIES - 11.8%
American Telephone and Telegrap 43,742 2,832,295 1,900 123,025 45,642 2,955,320 3,800 248,653 49,442 3,203,973
American Electric Power Compan 5,100 206,550 0 0 5,100 206,550 700 27,123 5,800 233,673
Ameritech Corporation 15,300 902,700 0 0 15,300 902,700 2,000 118,717 17,300 1,021,417
Bell Atlantic Corporation 12,000 802,500 0 0 12,000 802,500 1,600 105,092 13,600 907,592
Entergy Corporation 6,400 187,200 0 0 6,400 187,200 800 24,792 7,200 211,992
MCI Communications Corporation 18,800 491,150 0 0 18,800 491,150 2,500 64,727 21,300 555,877
NYNEX Corporation 11,800 637200 0 0 11,800 637,200 1,500 83,694 13,300 720,894
Southern Company 18,400 453,100 0 0 18,400 453,100 2,400 59,415 20,800 512,515
Unicom Corporation 5,900 193,225 0 0 5,900 193,225 800 25,392 6,700 218,617
GTE Corporation 0 0 3,900 171,600 3,900 171,600 (3,900) (171,600) 0 0
SBC Communications Inc. 0 0 3,000 172,500 3,000 172,500 (3,000) (172,500) 0 0
--------- -------- ---------- --------- ----------
6,705,920 467,125 7,173,045 413,505 7,586,550
Total Common Stocks
(cost $32,754,313, 3,210,177 and
$38,157,168, respectively) 53,237,268 4,600,072 57,837,340 2,406,846 60,244,186
---------- --------- ---------- --------- ----------
</TABLE>
Percentages shown are a percent of Pro Forma net assets.
The accompanying notes to Pro Forma Combining Statements are an integral part
of this schedule.
B-7
<PAGE> 29
S&P 100 PLUS PORTFOLIO
BALANCED PORTFOLIO
PRO-FORMA COMBINING SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
S&P 100 PLUS BALANCED PORTFOLIO COMBINED
----------------------- ---------------------- ---------------------
NUMBER MARKET NUMBER MARKET NUMBER MARKET
OF SHARES VALUE OF SHARE VALUE OF SHARES VALUE
--------- ------ -------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Preferred Stock
Teledyne Inc. Ser E Preferred 60 862 0 0 60 862
----------- ---------- -----------
Option Contracts Purchased
SPX March 96 615 Cal 5,500 82,500 0 5500 82500
----------- ---------- -----------
CORPORATE BONDS
Northern States Power,6.125%,
due 12-01-2005 0 0 300,000 299,648 300,000 299,648
---------- ----------
Total Corporate Bonds (cost 0,
$297,360 and $0, respectively)) 299,648 299,648
U.S. GOVERNMENT OBLIGATIONS
U.S. Treasury Notes, 7.000%, due 09-30-1996 500,000 506,562 500,000 506,562
U.S. Treasury Notes, 6.125%, due 12-31-1996 0 0 500,000 504,843 500,000 504,843
U.S. Treasury Notes, 5.750%, due 10-31-1997 0 0 300,000 303,000 300,000 303,000
U.S. Treasury Notes, 5.350%, due 05-31-1998 0 0 250,000 250,859 250,000 250,859
U.S. Treasury Notes, 6.750%, due 06-30-1999 0 0 500,000 522,813 500,000 522,813
---------- ----------
Total U.S. Government Obligations
(cost $0,$2,085,917 and $0, respectively) 2,088,077 2,088,077
SHORT-TERM INVESTMENTS
MONEY MARKET
Prospect Hill $1,162,012 1,162,012 108,201 108,201 1,270,213 1,270,213
Federated Master Trust 1,700,651 1,700,651 0 0 1,700,651 1,700,651
Dreyfus Cash Managament 0 129,562 129,562 129,562 129,562
Total Short-Term Investments 2,862,663 237,763 3,100,426
GOVERNMENT SECURITIES
+ U.S. Treasury Bill
4.90%, due 03-21-1996 1,000,000 989,268 0 0 1,000,000 989,268
----------- ---------- -----------
Total Government Obligations 989,268 0 989,268
Total Investments $57,172,561 $7,225,560 $64,398,121
=========== ========== ===========
+ Segregated as collateral against option contracts
* Non Income Producing
<CAPTION>
ADJUSTMENT PRO-FORMA EFFECT
--------------------- -------------------------
NUMBER MARKET NUMBER MARKET
OF SHARES VALUE OF SHARES VALUE
--------- ------ --------- -------
<S> <C> <C> <C> <C>
Preferred Stock
Teledyne Inc. Ser E Preferred 0 60 862
---------- -----------
Option Contracts Purchased
SPX March 96 615 Cal 0 5500 82500
---------- -----------
CORPORATE BONDS
Northern States Power,6.125%, due 12-01-2005 (300,000) (299,648) 0 0
---------- -----------
Total Corporate Bonds (cost 0, $297,360 and $0, respectively)) (299,648) 0
U.S. GOVERNMENT OBLIGATIONS
U.S. Treasury Notes, 7.00%, due 09-30-1996 (500,000) (506,562) 0 0
U.S. Treasury Notes,6.125%, due 12-31-1996 (500,000) (504,843) 0 0
U.S. Treasury Notes, 5.75%, due 10-31-1997 (300,000) (303,000) 0 0
U.S. Treasury Notes, 5.35%, due 05-31-1998 (250,000) (250,859) 0 0
U.S. Treasury Notes, 6.75%, due 06-30-1999 (500,000) (522,813) 0 0
---------- -----------
Total U.S. Government Obligations (cost $0, $2,085,917 and $0, respectively) (2,088,077) 0
SHORT-TERM INVESTMENTS
MONEY MARKET
Prospect Hill (19,121) (19,121) 1,251,092 1,251,092
Federated Master Trust 1,700,651 1,700,651
Dreyfus Cash Managament 129,562 129,562
Total Short-Term Investments (19,121) (19,121) 3,081,305 3,081,305
GOVERNMENT SECURITIES
+ U.S. Treasury Bill
4.90%, due 03-21-1996 1,000,000 989,268
-----------
Total Government Obligations 0 0 989,268
Total Investments $64,398,121
===========
+ Segregated as collateral against option contracts
* Non Income Producing
</TABLE>
Percentages shown are a percent of Pro Forma net assets.
The accompanying notes to Pro Forma Combining Statements are
an integral part of this schedule.
B-8
<PAGE> 30
Prinicipal Preservation Portfolios Inc-S&P 100 Plus and Balanced Portfolios
Notes to Combining Pro Forma Financial Statements
(unaudited)
The pro forma adjustments to the foregoing pro forma combining financial
statements consist of:
a. The Reorganization involves the transfer of all assets of the Balanced
Portfolio (net of its liabilities) to the S&P 100 Plus Portfolio, in
exchange for shares of common stock of the S&P 100 Plus Portfolio, and the
pro rata distribution, on the Closing Date, of such shares of the S&P 100
Plus Portfolio to the shareholders of Balanced Portfolio as provided in
the Plan.
All of the expenses of the Reorganization associated with the
reorganization (which are estimated at $15,000) will be paid by B.C.
Ziegler and Company or one of its affiliates.
b. The foregoing unaudited Pro Forma Financial Statements consist of: (i) Pro
Forma Combining Statements of Assets and Liabilities as of December 31,
1995, assuming the Reorganization had been consummated on that date;
(ii) the Pro Forma Combining Statement of Operations the year ended
December 31, 1995, giving effect to the Reorganization as if it had been
consummated on January 1, 1995; and (iii) Pro Forma Combining Schedules of
Investments as of December 31, 1995, assuming the Reorganization had been
consummated on that date.
c. The net increase in long-term investments and corresponding net decrease
in short-term investments reflect the assumed sale of the Balanced Fund's
holdings of corporate bonds ($299,648) and U.S. Government obligations
($2,088,077), as well as the sale of common stock holdings of the
Balanced Portfolio that did not qualify for investment by the S&P 100 Plus
Portfolio and the rebalancing of the common stock positions to the
proportionate percentage holdings in the S&P 100 Plus Portfolio as of
December 31, 1995. The net effect of such sales of common stock and such
rebalancing is that $2,406,846 market value of common stocks would be
purchased, which, combined with the sale of corporate bonds and U.S.
Government obligations described above (amounting to $2,387,725), would
require the sale of $19,121 in short-term investments.
d. The sale of the securities in the Balanced Portfolio on December 31, 1995,
that do not qualify for investment by the S&P 100 plus Portfolio would
have resulted in a capital gains distribution of $577,074, net of the
capital loss carryforwards of $196,695. Based upon prior dividend
history in which approximately 93% of shares outstanding reinvested their
dividends, $535,236 of the total was treated as reinvested and $41,838 as
payable as a cash distribution. Additionally, the $21,243 reduction in pro
forma expenses was assumed to be distributed to the shareholders of the
combined Portfolio.
e. A reduction in the advisory fee reflects a lower fee due to the fact that
the resulting increase in assets of the combined Portfolio will
cross a breakpoint in the advisory fee schedule.
f. The reduction in fund accounting fees reflects elimination of the
minimum fee presently incurred by the Balanced Portfolio.
g. The reduction in the custodian fees reflects application of the custodian
fee schedule to the increased asset size of the combined Portfolio.
h. Reduction in professional services, registration, pricing and other fees
reflects the elimination of duplicative costs. No pro forma reductions or
adjustments in transfer agent, broker service, communication or director
fees would result from the Reorganization because such fees are based on
asset size or the number of shareholder accounts, as the case may be,
which would not be affected by the Reorganization.
i. The reversal of combined expenses absorbed by the advisor reflects the
fact that the expense ratio of 1.20% for the pro forma combined Portfolio
would be below the voluntary expense cap of 1.25% agreed to by the advisor
for the S&P 100 Plus Portfolio. Therefore, there would be no need for the
advisor to absorb any operating expenses of the combined Portfolio.
j. The share reconciliation includes (i) an increase to the Balanced
Portfolio of 48,525 shares to reflect the reinvestment of capital gain
dividends and (ii) a reduction in the combined shares outstanding
due to the higher net asset value per share of the S&P 100 Plus Portfolio.
B-9
<PAGE> 31
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
BALANCED PORTFOLIO
REVOCABLE PROXY FOR SPECIAL MEETING OF SHAREHOLDERS OF THE BALANCED PORTFOLIO TO
BE HELD ON APRIL 24, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert J. Tuszynski, S. Charles
O'Meara, and Jay Ferrara, and each of them individually, as proxy,
with full power of substitution, to represent and vote, as
designated below, all shares of the Balanced Portfolio, a series of
Principal Preservation Portfolios, Inc. ("Principal Preservation"),
that the undersigned is entitled to vote at the Special Meeting of
Shareholders of the Balanced Portfolio, to be held at The Bacchus
Restaurant (located in the West Bend Inn building), 2520 West
Washington Street, West Bend, Wisconsin, at 3:00 p.m., Central Time,
on April 24, 1996, or at any adjournment thereof, with respect to
the matters set forth below and described in the accompanying Notice
of Special Meeting and Proxy Statement/Prospectus, receipt of which
is hereby acknowledged.
Please place an "X" in the desired box for each item. 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.
1. PROPOSAL TO APPROVE a Plan of Reorganization and Liquidation (the
"Plan") involving the Balanced Portfolio and the S&P 100 Plus
Portfolio, another series of Principal Preservation, and the
consummation of the transactions contemplated therein (the
"Transaction"). The Plan provides for the reorganization of the
Balanced Portfolio into the S&P 100 Plus Portfolio. Pursuant to
the Plan, all of the assets of the Balanced Portfolio (net of its
liabilities) would be acquired by the S&P 100 Plus Portfolio in
exchange for shares of Common Stock of the S&P 100 Plus
Portfolio. Shares of the Common Stock of the S&P 100 Plus
Portfolio received by the Balanced Portfolio would then be
distributed, pro rata, to shareholders of the Balanced Portfolio,
and the Balanced Portfolio would be liquidated and discontinued.
It is expected that the value of each Balanced Portfolio
shareholder's account in the S&P 100 Plus Portfolio immediately
after the Transaction would be the same as the value of such
shareholder's account in the Balanced Portfolio immediately prior
to the Transaction.
/ / FOR / / AGAINST / / ABSTAIN
2. In their discretion, on such other matters as may properly come
before the meeting or any adjournment thereof.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" PROPOSAL 1.
(TO BE DATED AND SIGNED ON THE REVERSE SIDE)
<PAGE> 32
DATE: , 1996
-------------------------------
Please sign exactly as name
appears at left
-------------------------------
(If this account 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.
