(Principal Preservation Logo)
Cash Reserve Portfolio
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1995
PRINCIPAL PRESERVATION PORTFOLIOS, INC. - CASH RESERE PORTFOLIO
ANNUAL REPORT TO SHAREHOLDERS
February 26, 1996
Dear Cash Reserve Shareholder:
During 1995, the portfolio manager of the Prime Money Market Portfolio
continued to reduce its positions in Farmers Home Administration and Small
Business Administration floating rate securities, and further diversified the
portfolio by investing in commercial paper issues with a laddered maturity
structure. Toward the end of 1995, the short end of the yield curve was
inverted, resulting in yields on overnight repurchase agreements that exceeded
yields on three month U.S. Treasury Bills. As the yield curve began to
normalize, the manager began to move into long U.S. Treasury Bills extending the
Portfolio's average maturity to 57 days on December 31, 1995.
As of December 31, 1995, the portfolio held approximately 17% in overnight
repurchase agreements collateralized by U.S. Treasury securities, 42% in
discount commercial paper and the remaining 40% in U.S. Government and Agency
obligations.
Management believes that during the first half of the year there will be
recessionary pressures on the Federal Reserve to lower the overnight lending
rate thereby causing short term interest rates to fall. The seven day yield of
the Cash Reserve Portfolio began the year at 4.77% and closed at 5.04% on
December 31, 1995.
The results of the shareholders meeting held on April 26, 1995 to elect
Directors and ratify the appointment of Price Waterhouse LLP as Independent
Accountants were as follows:
DIRECTORS ACCOUNTANTS
--------- -----------
Total Shares Outstanding 58,789,157 58,789,157
Shares Voted in Favor 56,955,664 56,315,311
Shares Voting Against 873,534 1,513,886
On December 31, 1995, at the close of business, Cash Reserve Portfolio and
Prospect Hill Prime Money Market Fund (''Prospect Hill'') both withdrew their
assets (subject to their liabilities) from the Prime Money Market Portfolio.
Prospect Hill then transferred its assets to Principal Preservation Cash Reserve
Portfolio in exchange for shares of Cash Reserve's newly-designated
Institutional Class. To distinguish your shares of Cash Reserve from this new
Institutional Class, your shares will now be referred to as Class X Common
Stock, or Retail Shares, of Cash Reserve. This entire transaction is explained
in more detail in the footnotes to the accompanying financial statements of
Prime Money Market Portfolio and Cash Reserve. On behalf of The Prime
Portfolios' Trustees, it has been our pleasure to serve you.
Sincerely,
/s/ Robert J. Tuszynski
Robert J. Tuszynski
Chairman - The Prime Portfolios
The report contained herein is meant to be information to the existing
shareholders of Principal Preservation. This does not constitute an offer to
sell and should an investor wish to receive more information about the
portfolios, they should obtain a prospectus which includes a discussion of each
investment objective and all sales charges and expenses of the fund.
PRINCIPAL PRESERVATION PORTFOLIOS, INC. - CASH RESERVE PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR THE PERIOD
APRIL 5, 1993
FOR THE FOR THE (COMMENCEMENT
YEAR ENDED YEAR ENDED OF OPERATIONS)
DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
1995 1994 1993
------------ ----------- -------------
(Selected data for each share of the Fund outstanding throughout the periods)
Net asset value, beginning of period $1.00 $1.00 $1.00
----- ----- -----
Income from investment operations:
Net investment income 0.05 0.04 0.02
Less distributions:
Dividends from net investment income (0.05) (0.04) (0.02)
------ ----- -----
Net asset value, end of period $1.00 $1.00 $1.00
------- ------- -------
------- ------- -------
Total investment return (b)<F2> 5.32% 3.64% 2.99% (a)<F1>
Ratios/Supplemental Data:
Net assets, end of period
(nearest thousand) $86,590 $52,593 $47,768
Ratio of expenses to
average net assets (c)<F3> 0.79% 1.05% 1.03% (a)<F1>
Capital contributions (d)<F4> 0.06% - -
Ratio of net investment income
to average net assets (c)<F3> 5.23% 3.62% 2.73% (a)<F1>
(a)<F1>Annualized.
(b)<F2>As described in the notes to the Prime Money Market Portfolio's financial
statements, had the advisers not made capital contributions, the adjusted
annualized total return would have been 5.26%, 1.91% and 2.99% for 1995, 1994
and 1993, respectively.
(c)<F3>Reflects the Fund's share of Prime Money Market Portfolio's expenses as
well as a voluntary waiver of fees and an expense reimbursement by the
Portfolio's adviser. If the voluntary waivers and expense reimbursement had not
been in place, the annualized ratios of net investment income and expenses to
average net assets would have been 4.86% and 1.16% respectively, for the year
ended December 31, 1995, and 3.35% and 1.32%, respectively, for the year ended
December 31, 1994, and 2.44% and 1.32%, respectively, for the period ended
December 31, 1993.
(d)<F4>For the year ended December 31, 1995, the manner in which capital
contributions are presented changed from the prior year as a result of a recent
Securities and Exchange Commission Division of Investment Management letter
clarifying the presentation of capital contributions. For the year ended
December 31, 1995, capital contributions are presented in the financial
statements of both the Fund and Prime Money Market Portfolio, whereas in 1994
capital contributions were presented in the Prime Money Market Portfolio's
financial statements only.
The accompanying notes are an integral part of the financial statements.
PRINCIPAL PRESERVATION PORTFOLIOS, INC. - CASH RESERVE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
Assets:
Investment in Prime Money Market Portfolio $86,689,926
Receivable from affiliate 66,424
Deferred organization expenses 15,911
Prepaid expenses 14,756
----------
Total Assets $86,787,017
----------
----------
Liabilities:
Dividends payable 18
Payable to affiliates 128,908
Other accrued expenses 68,555
-------
Total Liabilities 197,481
Net Assets:
Capital stock, $.001 per value, 300 million shares
authorized, 86,687,788 outstanding 86,726,790
Undistributed net income -
Accumulated net realized loss from Portfolio (137,254)
----------
Total Net Assets 86,589,536
----------
Total Liabilities and Net Assets $86,787,017
----------
----------
Net asset value, offering and redemption price per share $1.00
--------
--------
The accompanying notes are an integral part of the financial statements.
PRINCIPAL PRESERVATION PORTFOLIOS, INC. - CASH RESERVE PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
Investment Income From Portfolio:
Interest income $4,269,603
Allocated expenses (206,536)
---------
Net investment income from Portfolio 4,063,067
Expenses:
Shareholder servicing fees $174,627
Distribution fees 107,180
Administration fees 108,619
Printing fees 50,699
Professional fees 9,504
Registration fees 26,617
Fund accounting fees 3,000
Amortization of organization expenses 5,188
Director insurance 8,023
Director fees 5,892
Transfer agent fees 1,230
Other expenses 1,000
--------
Total expenses (before waiver) 501,579
Less: Waiver of expenses (150,237)
--------
Net expenses 351,342
--------
Net Investment Income 3,711,725
Net realized loss from Portfolio (14,488)
---------
Net Increase in Net Assets Resulting From Operations $3,697,237
---------
---------
PRINCIPAL PRESERVATION PORTFOLIOS, INC. - CASH RESERVE PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
Increase in Net Assets:
Operations:
Net investment income $3,711,725 $1,983,397
Net realized loss on investments (14,488) (124,412)
--------- ---------
Net increase in net assets resulting
from operations 3,697,237 1,858,985
--------- ---------
Distributions:
Net investment income (3,736,929) (1,958,193)
---------- ----------
Total distributions to shareholders (3,736,929) (1,958,193)
---------- ----------
Capital Transactions:
Proceeds from sales of shares 92,866,961 59,926,536
Dividends reinvested 3,961,848 1,853,944
Payment for shares redeemed (62,832,764) (56,855,676)
----------- -----------
Net increase in net assets resulting
from capital transactions 33,996,045 4,924,804
Capital contributions (See
footnote (d) on page 2): 39,692 -
---------- ----------
Total increase in net assets 33,996,045 4,825,596
Net assets, beginning of year 52,593,491 47,767,895
---------- ----------
Net assets, end of year (including
undistributed net investment income of
-0- and $25,204, respectively) $86,589,536 $52,593,491
---------- ----------
---------- ----------
The accompanying notes are an integral part of the financial statements.
PRINCIPAL PRESERVATION PORTFOLIOS, INC. - CASH RESERVE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1 - ORGANIZATION
Principal Preservation Cash Reserve Portfolio (the ''Fund'') is a separate
series of Principal Preservation Portfolios, Inc., (the ''Company''), a Maryland
corporation organized in 1984. The Company is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The Fund commenced operations on April 5, 1993.
Through December 31, 1995, the Fund sought to achieve its investment objective
of high current income to the extent consistent with stability of principal and
the maintenance of liquidity by investing all the investable assets of the Fund
in Prime Money Market Portfolio (the ''Portfolio''), which, like the Fund, is an
open-end, diversified management investment company having the same investment
objectives as the Fund. The financial statements of the Portfolio, including the
Schedule of Investments, are included elsewhere in this report and should be
read in conjunction with the Fund's financial statements.
As discussed in Note 6, effective January 1, 1996, pursuant to the Agreement and
Plan of Reorganization and Liquidation dated December 8, 1995, the Fund withdrew
its investment in the Portfolio.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies of the Fund:
a) VALUATION OF INVESTMENTS - The value of such investment reflects the Fund's
proportionate interest in the net assets of the Portfolio (68% at December 31,
1995).
b) INTEREST INCOME AND DIVIDENDS TO SHAREHOLDERS - The Fund earns interest
income, net of Portfolio expenses, daily on its investment in the Portfolio.
Dividends to shareholders are declared daily and paid monthly.
c) FEDERAL INCOME TAXES - The Fund intends to distribute substantially all of
its taxable income to its shareholders and otherwise comply with the provisions
of the Internal Revenue Code applicable to regulated investment companies.
Accordingly, no provision for federal income or excise taxes is necessary. As of
December 31, 1995, the Fund has a Federal income tax capital loss carry forward
of $99,274 expiring in 2002. A capital loss carry forward of $23,011 was
utilized in the year ended December 31, 1995. It is management's intention to
make no distribution of any future realized capital gains until its Federal
income tax capital loss carry forward is exhausted.
d) DEFERRED ORGANIZATION EXPENSES - Expenses incurred by the Fund in
connection with its organization and the initial public offering of its shares
are being amortized by the Fund over the period of benefit, but not to exceed
five years from the commencement of operations. These expenses were advanced by
B.C. Ziegler and Company (''BCZ'') who was reimbursed by the Fund.
e) EXPENSE ALLOCATION - The Fund bears all costs of its operations other than
expenses specifically assumed by BCZ. Expenses incurred by the Company with
respect to any two or more funds in the series are allocated in proportion to
the average net assets of each fund, except where allocations of direct expenses
in each fund can otherwise be made fairly.
f) USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
g) OTHER - All the net income and realized gains (losses) of the Portfolio is
allocated pro rata among the Fund and the other investors in the Portfolio in
proportion to the average assets of each Fund at the time of such determination.
NOTE 3 - TRANSACTIONS WITH AFFILIATES
a) ADMINISTRATION FEES - Pursuant to an Administrative Services Agreement, BCZ
provides the Fund general office facilities and supervises the overall
administration of the Fund. For these services, BCZ receives a fee computed
daily and payable monthly totalling 0.15% of average daily net assets. For the
year ended December 31, 1995, the Portfolio accrued administration fees
aggregating $108,619. On January 1, 1996, BCZ began receiving a fee for these
services computed daily and payable monthly totalling 0.15% of average daily net
assets up to $200 million, and 0.10% of such assets over $200 million.
b) DISTRIBUTION FEES - The Fund has adopted a Distribution Plan (the ''Plan'')
pursuant to Rule 12b-1 under the Investment Company Act of 1940. The Plan
authorizes the fund to make payments to BCZ to reimburse BCZ for expenditures
incurred in connection with the distribution of shares to investors. Under the
Plan, payments made by the Fund may not exceed 0.15% of average daily net
assets. For the year ended December 31, 1995, the Portfolio accrued distribution
fees aggregating $107,180.
c) SHAREHOLDER SERVICING FEES - BCZ and certain other brokers and financial
institutions serve as shareholder servicing agents for shareholder accounts
opened and maintained through them by their customers. Under this agreement, BCZ
receives a fee of up to .25% of the Fund's average daily net assets representing
shares owned by BCZ's customers and held in accounts serviced by BCZ. BCZ also
serves as transfer and dividend disbursing agent for all other shareholder
accounts not serviced separately by a shareholder servicing agent. Fees
currently charged by BCZ to the Fund for this service are $16 per shareholder
account. For the year ended December 31, 1995, the Portfolio accrued shareholder
servicing fees aggregating $174,627.
d) ACCOUNTING FEES - BCZ also serves as the Fund's portfolio securities
depository and provides accounting and pricing services to the Fund pursuant to
a Depository Agreement and an Accounting/Pricing Services Agreement,
respectively. BCZ receives no compensation for serving as depository, but
received total accounting and pricing fees of $3,000 for the year ended December
31, 1995.
e) DIRECTOR FEES - Independent Directors of the Company receive an annual fee
of $12,000 and an additional $450 for each Board or Committee meeting attended.
The Fund pays a pro rata portion of these fees. In addition, unaffiliated
Directors are reimbursed for reasonable expenses incurred in relation to
attendance at the meetings.
f) WAIVER OF EXPENSES - During the year ended December 31, 1995, BCZ waived
fees of $150,237 for certain expenses. These voluntary waivers may be
discontinued at any time by BCZ.
NOTE 4 - INVESTMENT TRANSACTIONS
For the year ended December 31, 1995, additions and reductions in the Fund's
investment in the Portfolio aggregated $92,868,370 and $63,044,177,
respectively.
NOTE 5 - CAPITAL CONTRIBUTION
During the year ended December 31, 1995, BCZ contributed capital to the Cash
Reserve Portfolio to offset current year realized losses of $14,488 and prior
year realized losses of $25,204. Neither BCZ nor any of its affiliates received
any shares of common stock or any other consideration in exchange for this
contribution which further increased the assets of Portfolio.
Additionally, on December 29, 1995, BCZ made a capital contribution to Prospect
Hill Prime Money Market Portfolio (''Prospect Hill'') totaling $46,981 to
equalize the net asset value between Prospect Hill and Preservation Portfolios,
Inc. Cash Reserve Portfolio, as well as $9,289 to offset current year losses and
$32,043 to offset prior year losses.
Further, the Fund received the benefit of capital contributions made to the
Portfolio during the twelve months ended December 31, 1994 to offset the decline
of certain of the Portfolio securities. A discussion of the 1994 capital
contributions is contained in the notes to the financial statements of the
Portfolio. Such financial statements are attached to this report.
NOTE 6 - SUBSEQUENT EVENT
Effective after the close of business on December 31, 1995, and pursuant to the
terms of an Agreement and Plan of Reorganization and Liquidation by and between
Prospect Hill Trust (on behalf of Prospect Hill), and Principal Preservation
Portfolios, Inc. (''Principal Preservation'') (on behalf of the Fund), Prospect
Hill was reorganized in a tax-free reorganization into a newly-designated class
of institutional shares of the Fund. In anticipation of this transaction and
pursuant to action taken by the Board of Directors of Principal Preservation,
immediately prior to the reorganization of Prospect Hill, the capitalization of
the Fund was restructured to increase from 300 million to 400 million the number
of shares of Principal Preservation's authorized common stock allocated to the
Fund, and those 400 million shares were subdivided into two separate classes of
200 million shares each: Class X Common Stock (Retail Class) and Class Y Common
Stock (Institutional Class). All outstanding shares of the Fund were
redesignated (without otherwise affecting their rights and preferences) as
shares of the Retail Class. Immediately prior to the reorganization, Prospect
Hill and the Fund each withdrew all of their net assets from the Portfolio.
Prospect Hill then transferred its net assets in exchange for shares of the
Fund's Institutional Class.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of Principal
Preservation Cash Reserve Portfolio
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Principal Preservation Cash Reserve Portfolio (the ''Fund'') (a separate series
of Principal Preservation Portfolios, Inc.) at December 31, 1995, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended and the financial highlights for each
of the two years in the period ended December 31, 1995 and for the period April
5, 1993 (commencement of operations) through December 31, 1993, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as ''financial statements'') are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Milwaukee, Wisconsin
February 26, 1996
PRIME MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
PRINCIPAL MATURITY INTEREST VALUE
AMOUNT DATE RATE (NOTE 2A)
--------- -------- -------- ---------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 40.4%
$2,000,000 U.S. Treasury Bill 1/25/96 5.40% $1,993,106
2,000,000 U.S. Treasury Bill 5/30/96 5.85 1,954,353
2,000,000 U.S. Treasury Bill 7/25/96 5.35 1,939,126
1,000,000 U.S. Treasury Bill 7/25/96 5.46 968,909
2,000,000 U.S. Treasury Bill 8/22/96 5.47 1,929,194
---------
Total Treasury Bills 8,784,688
---------
AGENCY FOR INTERNATIONAL DEVELOPMENT
2,315,020 Agency for International
Development (Israel) (b)<F6> 1/1/06 5.47 2,315,020
455,000 Agency for International
Development (Panama) (a)<F5> 8/1/11 6.18 455,459
---------
Total Agency for International Development 2,770,479
---------
FARMERS HOME ADMINISTRATION (''FmHA'')
115,372 FmHA (c)<F7> 7/26/96 9.75 115,372
56,848 FmHA (c)<F7> 7/8/99 8.75 57,134
72,901 FmHA (c)<F7> 6/15/00 7.00 72,901
73,645 FmHA (c)<F7> 11/1/00 7.50 73,645
164,397 FmHA (c)<F7> 12/12/11 7.25 164,954
73,312 FmHA (c)<F7> 3/4/14 7.75 73,565
7,902 FmHA (c)<F7> 7/1/22 7.13 7,910
267,480 FmHA (c)<F7> 10/5/22 7.13 268,338
90,867 FmHA (c)<F7> 6/15/23 6.85 90,867
225,951 FmHA (c)<F7> 8/24/23 6.85 225,951
---------
Total Farmers Home Administration 1,150,637
---------
FEDERAL FARM CREDIT BANK (''FFCB'')
4,005,000 FFCB Discount Note 1/24/96 5.53 3,991,465
---------
Total Federal Farm Credit Bank 3,991,465
---------
FEDERAL HOME LOAN BANK (''FHLB'')
5,000,000 FHLB Discount Note 1/10/96 5.53 4,993,856
1,000,000 FHLB Discount Note 1/26/96 5.03 999,519
5,000,000 FHLB Discount Note 1/31/96 5.50 4,977,847
1,000,000 FHLB Floating Rate Note (a)<F5> 3/8/96 5.51 999,812
----------
Total Federal Home Loan Bank 11,971,034
----------
FEDERAL HOME LOAN MORTGAGE CORPORATION (''FHLMC'')
2,000,000 FHLMC Discount Note 2/1/96 5.59 1,990,684
2,068,000 FHLMC Discount Note 6/3/96 5.27 2,021,682
---------
Total Federal Home Loan Mortgage Corporation 4,012,366
---------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (''FNMA'')
2,000,000 FNMA, Discount Note 3/15/96 5.57 1,977,410
2,500,000 FNMA, Discount Note 4/16/96 5.37 2,460,844
3,000,000 FNMA 9/20/96 5.60 2,996,025
2,000,000 FNMA 9/23/96 5.50 1,995,465
2,000,000 FNMA 12/10/96 7.70 2,039,575
----------
Total Federal National Mortgage Association 11,469,319
----------
STUDENT
LOAN MARKETING ASSOCIATION (''SLMA'')
2,000,000 SLMA Floating Rate Note (a)<F5> 12/20/96 5.26 2,000,000
---------
Total Student Loan Marketing Association 2,000,000
---------
SMALL BUSINESS ADMINISTRATION (''SBA'')
613,982 SBA Pool #500981 (c)<F7> 7/25/05 7.50 620,198
117,197 SBA Pool #501140 (c)<F7> 9/25/06 7.13 117,690
665,589 SBA Pool #501934 (c)<F7> 7/25/09 6.88 669,441
25,913 SBA Pool #501471 (c)<F7> 2/25/11 10.38 28,739
167,721 SBA Pool #500263 (c)<F7> 4/25/12 8.00 172,179
1,381,656 SBA Pool #502348 (c)<F7> 9/25/13 6.63 1,381,656
439,688 SBA Pool #501218 (c)<F7> 7/25/15 7.25 447,349
755,685 SBA Pool #502122 (c)<F7> 1/25/18 6.75 762,826
429,342 SBA Loan (c)<F7> 1/15/04 8.23 440,475
87,708 SBA Loan (c)<F7> 6/15/05 7.63 89,389
352,776 SBA Loan (c)<F7> 7/15/05 7.63 359,740
279,575 SBA Loan (c)<F7> 12/15/06 7.73 286,395
---------
Total Small Business Administration 5,376,077
---------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS 51,526,065
----------
SHORT TERM - 59.4%
COMMERCIAL PAPER
3,000,000 American General Corporation 1/11/96 5.58 2,995,815
1,000,000 American General Corporation 4/4/96 5.50 985,792
2,000,000 American General Corporation 4/11/96 5.48 1,969,556
3,000,000 American Express Credit Corporation 1/9/96 5.62 2,996,721
2,000,000 American Express Credit Corporation 4/25/96 5.39 1,965,863
1,000,000 American Express Credit Corporation 6/18/96 5.46 974,520
3,000,000 Associates Corporation 2/21/96 5.67 2,976,375
1,000,000 Associates Corporation 3/4/96 5.52 990,493
2,000,000 Associates Corporation 3/29/96 5.53 1,973,272
2,000,000 The CIT Group Holdings Corporation 1/31/96 5.67 1,990,865
2,000,000 The CIT Group Holdings Corporation 3/28/96 5.55 1,973,483
2,000,000 The CIT Group Holdings Corporation 4/10/96 5.52 1,969,640
2,000,000 Commercial Credit Corporation 1/19/96 5.74 1,994,579
1,000,000 Commercial Credit Corporation 1/25/96 5.68 996,371
3,000,000 Commercial Credit Corporation 1/25/96 5.60 2,989,267
2,000,000 Ford Motor Credit Corporation 1/4/96 5.60 1,999,378
2,000,000 Ford Motor Credit Corporation 2/12/96 5.69 1,987,039
1,000,000 Ford Motor Credit Corporation 4/1/96 5.58 986,050
1,000,000 Ford Motor Credit Corporation 4/1/96 5.47 986,325
2,000,000 General Electric Capital Corporation 1/22/96 5.62 1,993,755
2,000,000 General Electric Capital Corporation 1/25/96 5.61 1,992,832
1,000,000 General Electric Capital Corporation 1/30/96 5.55 995,715
1,000,000 General Electric Capital Corporation 4/11/96 5.49 984,750
3,000,000 Household Finance Corporation 1/3/96 5.63 2,999,531
2,000,000 Household Finance Corporation 2/9/96 5.50 1,988,389
1,000,000 Household Finance Corporation 4/15/96 5.40 984,400
2,000,000 Norwest Financial 2/7/96 5.70 1,988,600
1,000,000 Norwest Financial 2/23/96 5.50 992,056
2,000,000 Norwest Financial 3/4/96 5.58 1,980,780
1,000,000 Norwest Financial 6/10/96 5.45 975,778
----------
Total Commercial Paper 53,577,990
----------
REPURCHASE AGREEMENT
22,066,279 First Boston Corp. 1/2/96 5.70 22,066,279
(Agreement dated 12/29/95, collateralized
by $20,395,000 par value in
U.S. Treasury Notes due 8/15/04,
$22,622,516.41 market value)
TOTAL SHORT TERM 75,644,269
-----------
Total Investments, at Amortized Cost - 99.8% 127,170,334
Other Assets, less Liabilities - 0.2% 193,449
-----------
Net Assets - 100% $127,363,783
-----------
Notes to Schedule of Investments
- --------------------------------
(a)<F5>The security has a floating/variable rate coupon payment tied to the
Treasury Bill lending rate. The coupon payment adjusts weekly or quarterly
thereby reducing the effective maturity to one year or less.
(b)<F6>The security has a floating/variable rate coupon payment tied to the 6
month LIBOR lending rate. The coupon payment adjusts weekly thereby reducing
the effective maturity to one year or less.
(c)<F7>The security has a floating/variable rate coupon payment tied to the
Prime lending rate. The coupon payment adjusts either daily, monthly,
quarterly, semi-annually or annually thereby reducing the effective maturity to
one year or less.
See notes to financial statements.
PRIME MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
ASSETS:
Investments in securities, at amortized cost and value:
U.S. Government and agency obligations $51,526,065
Short-term investments 75,644,269
Interest receivable 381,383
Receivable from affiliate 61,247
-----------
Total Assets 127,612,964
LIABILITIES:
Advisory fee payable $50,668
Administrative fee payable 28,122
Depository fee payable 41,661
Fund accounting fee payable 32,723
Other accrued expenses 96,007
------
Total Liabilities 249,181
-----------
NET ASSETS $127,363,783
-----------
-----------
REPRESENTED BY:
Paid-in capital $127,363,783
-----------
-----------
PRIME MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
INTEREST INCOME $6,936,078
---------
EXPENSES:
Investment advisory fees 232,297
Administrative fees 114,635
Depository fees 54,956
Professional fees 64,289
Fund accounting fees 42,142
Compensation of trustees 26,565
Insurance fees 8,050
Printing 2,460
--------
Total Expenses 545,394
Less: Waiver of advisory fees (174,070)
Waiver of administrative fees (18,811)
---------
Net Expenses 352,513
---------
NET INVESTMENT INCOME 6,583,565
Net realized loss from investments (23,778)
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $6,559,787
---------
---------
See notes to financial statements.
PRIME MONEY MARKET PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income $6,583,565 $4,851,575
Net realized loss from investments ($23,778) (2,173,642)
--------- ----------
Net increase in net assets resulting
from operations 6,559,787 2,677,933
CAPITAL TRANSACTIONS:
Contributions 373,372,253 418,360,333
Withdrawals (349,027,857) (407,820,077)
------------ ------------
Net increase in net assets resulting
from capital transactions 24,344,396 10,540,256
CAPITAL CONTRIBUTIONS (NOTE 5): 128,005 1,921,146
---------- ----------
Total increase in net assets 31,032,188 15,139,335
NET ASSETS:
Beginning of year 96,331,595 81,192,260
----------- ----------
End of year $127,363,783 $96,331,595
----------- ----------
----------- ----------
PRIME MONEY MARKET PORTFOLIO
SUPPLEMENTARY DATA
FOR THE PERIOD
APRIL 5, 1993
FOR THE FOR THE (COMMENCEMENT
YEAR ENDED YEAR ENDED OF OPERATIONS)
DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
1995 1994 1993
------------ ------------ ------------
RATIOS:
Net investment income to
average net assets (b)<F9> 5.70% 4.35% 3.49%(a)<F8>
Expenses to average net assets (b)<F9> 0.31% 0.39% 0.41%(a)<F8>
Total realized losses to
average net assets (Note 5) (0.02%) (1.95%) -
Capital contributions to average
net assets (Note 5) 0.11% 1.73% -
(a)<F8>Annualized.
(b)<F9>Reflects a waiver of fees by the adviser, and an expense reimbursement by
the adviser. If the voluntary waivers and reimbursement of expenses had not been
in place, the ratio of net investment income to average net assets and expenses
to average net assets would have been 5.53% and 0.47%, respectively, for the
year ended December 31, 1995, 4.19% and 0.54%, respectively, for the year ended
December 31, 1994 and 3.28% and 0.62%, respectively, for the period ended
December 31, 1993.
See notes to financial statements.
PRIME MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1 - ORGANIZATION
Prime Money Market Portfolio (the ''Portfolio'') is a series of the Prime
Portfolios and is registered under the Investment Company Act of 1940, as
amended, as a no-load, diversified, open-end management investment company which
is organized as a trust under the laws of the State of New York. The Portfolio
commenced operations April 5, 1993.
As discussed in Note 6, pursuant to the Agreement and Plan of Reorganization and
Liquidation, the two investors in the Portfolio withdrew their respective
investments following the close of business on December 31, 1995.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies of the
Portfolio:
a) VALUATION OF INVESTMENTS - Money market instruments are valued at amortized
cost, which the Trustees have determined in good faith constitutes fair value.
The Portfolio's use of amortized cost is subject to the Portfolio's compliance
with certain conditions as specified under Rule 2a-7 of the Investment Company
Act of 1940.
b) INTEREST INCOME - Interest income consists of interest accrued and discount
earned (including both original issue and market discount) on the investments of
the Portfolio, accrued ratably to the date of expected maturity. Premiums are
amortized on the investments of the Portfolio, accrued ratably to the date of
expected maturity.
c) FEDERAL INCOME TAXES - The Portfolio's policy is to comply with the
applicable provisions of the Internal Revenue Code of 1986, as amended.
Accordingly, no provision for federal income tax is necessary. The Portfolio
will be treated as a partnership for federal income tax purposes. As such, each
investor in the Portfolio will be taxed on its share of the Portfolio's ordinary
income and capital gains. It is intended that the Portfolio's assets will be
managed in such a way that an investor in the Portfolio will be able to satisfy
the requirements of Subchapter M of the Internal Revenue Code. The tax cost
basis is substantially similar to the book cost basis of investment securities.
d) USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
e) OTHER - Investment transactions are accounted for on the date the security
is purchased or sold. The Portfolio has investments in repurchase agreements,
which are securities purchased from another party who agrees to repurchase the
security within a specified time period at a specified price. It is the policy
of the Portfolio to require the custodian bank to have legally segregated within
the Federal Reserve/Treasury book-entry system, all securities held as
collateral in support of the repurchase agreements. Procedures have been
established by the Portfolio to monitor the market value of the collateral to
ensure the existence of a proper level of collateral.
NOTE 3 - TRANSACTIONS WITH AFFILIATES
a) ADMINISTRATION FEES - On May 1, 1995, B.C. Ziegler and Company (''BCZ'')
was hired to serve as administrator and exclusive placement agent to the
Portfolio. BCZ provides management and administrative services necessary for the
operations of the Portfolio, furnishes office space and facilities required for
conducting the business of the Portfolio and pays the compensation of the
Portfolio's officers affiliated with BCZ. Prior thereto, Signature Broker Dealer
Services (''Signature'') served as administrator.
For these services, BCZ receives from the Portfolio a fee accrued daily and
paid monthly at an annual rate equal to 0.10% of the average daily net assets of
the Portfolio, up to $200 million of net assets, and 0.05% of such assets over
$200 million. For the year ended December 31, 1995, the Portfolio incurred total
Administrative fees of $114,635 of which $31,940 was paid to Signature and
$82,695 was paid to BCZ, of which $18,811 was voluntarily waived by BCZ during
1995.
b) INVESTMENT ADVISORY FEES - Ziegler Asset Management, Inc. (''ZAMI'') a
wholly-owned subsidiary of The Ziegler Companies, Inc., is the Investment
Adviser to the Portfolio. For its services under the Investment Advisory
Agreement, the advisor receives from the Portfolio a fee accrued daily and paid
monthly at an annual rate equal to 0.20% of the Portfolio's average daily net
assets. For the year ended December 31, 1995, the Portfolio incurred total
Advisory fees of $232,297 of which $174,070 was voluntarily waived by the
advisor.
c) TRUSTEE FEES - Independent Trustees of the Portfolio receive an annual fee
of $10,000 and $500 for each meeting of the Board of Trustees attended. In
addition, the Portfolio reimburses unaffiliated Trustees for reasonable expenses
incurred in relation to attendance at the meetings. For the year ended December
31, 1995, the Portfolio incurred Trustee fees and expenses of $26,565.
d) DEPOSITORY FEES - The Portfolio has entered into an agreement with BCZ to
provide the Portfolio with depository services. For these services, the
Portfolio currently pays BCZ a fee based on average daily net assets, computed
monthly, at an annual rate of 0.055% on the first $50 million of net assets,
0.035% on the next $150 million of such assets, 0.030% on the next $300 million
and 0.025% on amounts over $500 million of such assets. For the year ended
December 31, 1995, the Portfolio incurred total Depository fees of $54,956.
e) FUND ACCOUNTING FEES - The Portfolio has entered into an agreement with BCZ
to provide the Portfolio with Accounting/Pricing services. For these services,
the Portfolio currently pays BCZ a base fee base of $15,000 and a fee based on
average daily net assets, computed monthly at an annual rate of 0.04% on net
assets between $50 million and $100 million, 0.03% on the next $100 million of
such assets, and 0.01% on amounts over $200 million of such assets. For the year
ended December 31, 1995, the Portfolio incurred total Fund Accounting fees of
$42,142.
NOTE 4 - INVESTMENT TRANSACTIONS
Purchases and sales (including maturities) of U.S. Government securities
aggregated $7,954,682,855 and $7,925,252,445, respectively.
NOTE 5 - CAPITAL CONTRIBUTION
On December 29, 1995, BCZ made a capital contribution to Prospect Hill Prime
Money Market Portfolio (''Prospect Hill'') totaling $46,981 to equalize the net
asset value between Prospect Hill and Principal Preservation Portfolios, Inc.
Cash Reserve Portfolio (''Cash Reserve''). Additionally, BCZ contributed capital
to offset current year losses of $9,289 and prior year realized losses of
$32,043. Neither BCZ or any of its affiliates received any shares of common
stock or any other consideration in exchange for the contributions which
increased assets of the Portfolio.
During the year ended December 31, 1995, BCZ contributed capital to Cash Reserve
to offset realized losses of $14,488 and prior year realized losses of $25,204.
Neither BCZ nor any of its affiliates received any shares of common stock or any
other consideration in exchange for the contributions which further increased
the assets of the Portfolio.
During the year ended December 31, 1994, certain of the Portfolio's U.S.
Government adjustable rate securities declined in value as interest rates rose.
These securities were U.S. Government floating or variable rate securities such
as dual index floaters or securities whose indices lagged short term interest
rates. On July 13, 1994 the Portfolio sold three U.S. Government adjustable rate
securities for $3,239,792 (amortized cost $3,389,490). Prospect Hill Advisors,
Inc., the Portfolio's former adviser, contributed capital in the aggregate
amount of $149,698, offsetting the loss on the sale of the securities. Prospect
Hill received no shares of common stock or other consideration in exchange for
this contribution, which increased total net assets of the Portfolio.
During the period from July 28, 1994 through October 4, 1994, the Portfolio sold
similar securities with book values aggregating $23,374,806 to persons who may
be deemed affiliates of ZAMI. The fair value of the securities totalled
$21,655,712. The sale has been treated as a realized loss to the Portfolio with
an offsetting capital contribution of $1,719,094. The persons who may be deemed
affiliates of ZAMI received no shares of common stock or other consideration in
exchange for the contributions, which further increased total net assets of the
Portfolio.
Additionally, an affiliate of ZAMI made cash contributions to offset capital
losses totalling $52,354 during 1994. The affiliate of ZAMI received no shares
of common stock or other consideration in exchange for the contributions, which
further increased total net assets of the Portfolio.
NOTE 6 - SUBSEQUENT EVENT
Effective after the close of business on December 31, 1995, and pursuant to the
terms of an Agreement and Plan of Reorganization and Liquidation by and between
Prospect Hill Trust (on behalf of Prospect Hill), and Principal Preservation
Portfolios, Inc. (''Principal Preservation'') (on behalf of Cash Reserve),
Prospect Hill was reorganized in a tax-free reorganization into a newly-
designated class of institutional shares of Cash Reserve. In anticipation of
this transaction and pursuant to action taken by the Board of Directors of
Principal Preservation, immediately prior to the reorganization of Prospect
Hill, the capitalization of Cash Reserve was restructured to increase from 300
million to 400 million the number of shares of Principal Preservation's
authorized common stock allocated to Cash Reserve, and those 400 million shares
were subdivided into two separate classes of 200 million shares each: Class X
Common Stock (Retail Class) and Class Y Common Stock (Institutional Class). All
outstanding shares of Cash Reserve were redesignated (without otherwise
affecting their rights and preferences) as shares of the Retail Class.
Immediately prior to the reorganization, Prospect Hill and Cash Reserve each
withdrew all of their net assets from the Portfolio. The affairs of Prospect
Hill and the Portfolio are being wound up, and those two investment companies
will be dissolved in accordance with the provisions of their respective
Declarations of Trust and applicable laws.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Investors and Trustees of
Prime Money Market Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of Prime Money Market Portfolio (the
''Portfolio'') (a series of the Prime Portfolios) at December 31, 1995, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended and its supplementary data
for each of the two years in the period ended December 31, 1995 and for the
period April 5, 1993 (commencement of operations) through to December 31, 1993,
in conformity with generally accepted accounting principles. These financial
statements and supplementary data (hereafter referred to as ''financial
statements'') are the responsibility of the Portfolio's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1995 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Milwaukee, Wisconsin
February 26, 1996
PRINCIPAL PRESERVATION
PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
INVESTMENT ADVISER
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
ADMINISTRATOR, DISTRIBUTOR, TRANSFER
AND DIVIDEND DISBURSING AGENT,
SHAREHOLDER SERVICING AGENT AND
DEPOSITORY AND ACCOUNTING AGENT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
COUNSEL
Quarles &Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
100 East Wisconsin Avenue
Suite 1500
Milwaukee, Wisconsin 53202
This report has been prepared for the information of shareholders of Principal
Preservation Portfolios, Inc. Cash Reserve Portfolio, and may not be used in
connection with the offering of securities unless preceded or accompanied by a
current Prospectus.
PP 178-2/96
