PRINCIPAL PRESERVATION
PORTFOLIOS, INC.
CASH RESERVE PORTFOLIO
CLASS Y COMMON STOCK (INSTITUTIONAL CLASS)
MINIMUM INITIAL INVESTMENT: $50,000
The Class Y Common Stock (the ''Class Y Shares'' or ''Institutional Class'')
of the Cash Reserve Portfolio (the ''Fund''), a money market series of Principal
Preservation Portfolios, Inc. (''Principal Preservation''), is one class of a
series of separate mutual fund portfolios within the Principal Preservation
family of funds. The Fund seeks to provide high current income consistent with
stability of principal and the maintenance of liquidity. The Fund invests in
domestic and foreign U.S. dollar-denominated money market obligations with
maturities of 397 days or less. The Fund's investment adviser (the ''Adviser'')
is Ziegler Asset Management, Inc. Shares of the Institutional Class are
continuously sold primarily to institutional investors, although sales are open
to the general public.
This Prospectus sets forth concisely the information that an investor should
know before investing in shares of the Fund. Investors should read and retain
this prospectus for future reference. A Statement of Additional Information
dated January 2, 1996, containing additional information about the Fund, has
been filed with the Securities and Exchange Commission and is incorporated by
reference into this Prospectus. A copy of the Statement of Additional
Information can be obtained without charge by telephone or written request to
B.C. Ziegler and Company (the ''Distributor''), 215 North Main Street, West
Bend, WI 53095 (Telephone 800-826-4600) or from Selected Dealers that have
agreements with respect to distribution of shares of the Fund. Shareholder
inquiries should be directed to Principal Preservation at 215 North Main Street,
West Bend, WI 53095; (Telephone 800-826-4600).
THE SHARES OF THE FUND OFFERED HEREBY ARE NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT. WHILE PRINCIPAL PRESERVATION SEEKS TO MAINTAIN A STABLE
NET ASSET VALUE OF $1.00 PER SHARE OF THE FUND, THERE CAN BE NO ASSURANCE THAT
IT WILL BE ABLE TO DO SO ON A CONTINUING BASIS.
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 PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is January 2, 1996.
QUESTIONS AND ANSWERS
WHAT ARE THE PRINCIPAL PRESERVATION PORTFOLIOS?
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 Fund was established in 1993 and the Institutional
Class was established in 1995. Prior to January 1, 1996 the Institutional Class
operated as a series of a separate investment company in a two-tiered
master/feeder fund structure under the name Prospect Hill Prime Money Market
Fund, a series of Prospect Hill Trust. Effective December 31, 1995, that two-
tiered structure was collapsed in a tax-free reorganization transaction (the
''Reorganization'') into the present dual class structure within the Fund.
Shares of Prospect Hill Prime Money Market Fund were converted in the
Reorganization into shares of the Fund's Institutional Class. Other portfolios
of Principal Preservation and a second class (the ''Retail Class'') of shares of
the Fund are offered by separate prospectuses.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund seeks to provide investors with a high level of current income
consistent with stability of principal and the maintenance of liquidity. For
detailed descriptions of the Fund's investment objective and policies, see
''Investment Objective and Policies'' below. There can be no assurance that the
Fund's investment objective will be achieved.
HOW IS INCOME DISTRIBUTED?
Dividends will be declared daily and paid monthly. Any net realized capital
gains will be declared and paid annually. Investors may receive their income
dividends and capital gain distributions in additional shares of the
Institutional Class, in additional shares in another Principal Preservation
portfolio (investors should obtain a current prospectus and read it carefully
before investing in any of the other Principal Preservation Portfolios) or in
cash (see ''Dividends, Capital Gains Distributions and Reinvestments'').
WHO MANAGES THE PORTFOLIO?
Ziegler Asset Management, Inc. is the investment adviser for the Fund, and
also serves as Administrator to the Fund. The Adviser is a wholly-owned
subsidiary of The Ziegler Companies, Inc. B.C. Ziegler and Company
(''Ziegler''), another wholly-owned subsidiary of The Ziegler Companies, Inc.,
currently serves as Distributor, Transfer and Dividend Disbursement Agent and
Shareholder Servicing Agent for the Fund. See ''Management.''
HOW CAN SHARES BE PURCHASED?
Shares are offered continuously and may be purchased by institutional and
non-institutional purchasers from the Distributor. There is no sales charge.
The minimum initial investment is $50,000. The minimum subsequent investment is
$100 (see ''Purchase of Shares'').
HOW CAN YOU REDEEM OR EXCHANGE YOUR SHARES?
Investors may redeem all or a portion of their shares on any business day.
Redemptions may be made by mail, telephone or check (see ''Redemptions'').
HOW CAN I LEARN MORE ABOUT THE FUND'S RETAIL CLASS?
As noted above, in addition to its Institutional Class of shares, the Fund
also offers a Retail Class of shares. The Retail Class is distributed through a
retail broker/dealer network, has a low ($1,000) minimum investment amount, and
carries a Rule 12b-1 distribution fee. The difference in the expense structure
between the Retail Class and the Institutional Class may result in variances in
performance between the two classes. The Retail Class is offered through a
separate prospectus which may be obtained without charge by telephone or written
request to B.C. Ziegler and Company, 215 North Main Street, West Bend, Wisconsin
53095 (telephone 800-826-4600), or from Selected Dealers that have entered into
agreements with respect to the distribution of shares of the Fund or any other
person offering shares of the Institutional Class described in this Prospectus.
EXPENSES
The following table provides (i) a summary of estimated expenses relating to
purchases and sales of shares of the Institutional Class, and the aggregate
annual operating expenses for the Institutional Class, as a percentage of
average net assets of the Institutional Class, and (ii) an example illustrating
the dollar cost of such estimated expenses on a $1,000 investment in the
Institutional Class.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
Investment management fees .20%
Distribution (Rule 12b-1) fees None
Administrative service fees .15%
Other expenses (1)<F1> .20%
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Total operating expenses .55%
-----
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(1)<F1>Other expenses reflect management's estimate of expenses anticipated for
the fiscal year ending December 31, 1996. Actual expenses may be higher or
lower on a percentage basis than those shown in the table, depending upon the
gross amount of such expenses and fluctuations in the average net assets of the
Fund.
EXAMPLE
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
A holder of shares of the Fund's Institutional
Class would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of
each time period $6.00 $18.00 $31.00 $69.00
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RETURNS MAY BE GREATER OR LESS
THAN THOSE SHOWN. The purpose of the table is to assist investors in
understanding the various costs and expenses that shareholders of the
Institutional Class will bear directly or indirectly. For more information with
respect to the expenses of the Institutional Class, see ''Management''.
INVESTMENT OBJECTIVE AND POLICIES
INTRODUCTION
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 Fund seeks to obtain high current income consistent
with stability of principal and the maintenance of liquidity. The Fund is not
intended to constitute a balanced investment program and is not designed for
investors seeking capital gains or maximum income irrespective of fluctuations
in principal. Ziegler Asset Management, Inc. is the Adviser to the Fund. The
Adviser manages the investments of the Fund from day to day in accordance with
the Fund's investment objective and policies. The selection of investments for
the Fund and the way they are managed depend on the condition and trends in the
economy and the financial market places.
INVESTMENT OBJECTIVE
The Fund seeks to obtain a high level of current income to the extent
consistent with stability of principal and the maintenance of liquidity. The
Fund invests in high quality short-term money market instruments consistent with
its specific investment objective. Principal Preservation seeks to maintain a
net asset value of $1.00 per share of the Fund. There can be no assurance that
the investment objective of the Fund will be achieved or that Principal
Preservation will be able to maintain a per share net asset value of $1.00.
Securities in which the Fund invests may not earn as high a level of current
income as long-term or lower quality securities which generally have less
liquidity, greater market risk and more fluctuation in market value.
The investment objective of the Fund may not be changed without the vote of
the holders of a majority of the Fund's outstanding voting securities, including
all classes voting together.
The following is a discussion of the various investments of and techniques
employed by the Fund. Additional information about the investment policies of
the Fund appears in the Statement of Additional Information.
INVESTMENT POLICIES
To achieve its investment objective, the Fund invests in U.S. dollar-
denominated short-term money market obligations, including securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
certificates of deposit, time deposits, bankers' acceptances and other short-
term obligations issued by domestic banks and domestic branches and subsidiaries
of foreign banks, repurchase agreements and high quality domestic commercial
paper and other short-term corporate obligations, including those with floating
or variable rates of interest. In addition, the Fund may lend portfolio
securities, enter into reverse repurchase agreements and, to a limited extent,
invest in securities issued by foreign banks and corporations outside the United
States. The Fund reserves the right to concentrate 25% or more of its total
assets in obligations of domestic branches of domestic banks.
Principal Preservation seeks to maintain a net asset value of $1.00 per share
of the Fund for purchases and redemptions. To permit this, the Fund uses the
amortized cost method of valuing its securities pursuant to Rule 2a-7 under the
Investment Company Act of 1940, as amended (the ''1940 Act''), certain
requirements of which are summarized below. For further information regarding
the amortized cost method of valuing securities, see ''Determination of Net
Asset Value''in the Statement of Additional Information.
In accordance with Rule 2a-7, the Fund will maintain a dollar-weighted
average portfolio maturity of 90 days or less, purchase only instruments having
remaining maturities of 397 days or less and invest only in U.S. dollar-
denominated securities determined in accordance with procedures established by
the Board of Directors of the Fund (the ''Board of Directors'') to present
minimal credit risks and which are rated in one of the two highest rating
categories for debt obligations by at least two nationally recognized
statistical rating organizations (an ''NRSRO'') (or one NRSRO if the instrument
was rated by only one such organization) or, if unrated, are of comparable
quality as determined in accordance with procedures established by the Board of
Directors (collectively, ''Eligible Securities'').
Eligible Securities include ''First Tier Securities'' and ''Second Tier
Securities.'' First Tier Securities include those that possess a rating in the
highest category in the case of a single-rated security or at least two ratings
in the highest rating category in the case of multiple-rated securities or, if
the securities do not possess a rating, are determined to be of comparable
quality by the Adviser pursuant to the guidelines adopted by the Board of
Directors. Second Tier Securities are all other Eligible Securities. The Fund
will invest at least 95% of its total assets in First Tier Securities.
The NRSROs currently rating instruments of the type the Fund may purchase are
Moody's Investors Service, Inc., Standard & Poor's Corporation, Duff & Phelps,
Inc., Fitch Investors Service, Inc., IBCA Limited and IBCA Inc. and Thomson
BankWatch, Inc., and their rating criteria are described in the Appendix to the
Statement of Additional Information. The Statement of Additional Information
contains further information concerning the rating criteria and other
requirements governing the Fund's investments, including information relating to
the treatment of securities subject to a tender or demand feature and securities
deemed to possess a rating based on comparable rated securities of the same
issuer.
In addition, the Fund will not invest more than 5% of its total assets in the
securities (including the securities collateralizing a repurchase agreement) of,
or subject to puts (including letters of credit, guarantees or other credit
support) issued by, a single issuer, except that (i) the Fund may invest more
than 5% of its total assets in a single issuer for a period of up to three
business days in certain limited circumstances, (ii) the Fund may invest in
obligations issued or guaranteed by the U.S. Government (including those
collateralizing repurchase agreements) without any such limitation, and (iii)
the limitation with respect to puts does not apply to unconditional puts if no
more than 10% of the Fund's total assets is invested in securities issued or
guaranteed by the issuer of the unconditional put. Investments in rated
securities not rated in the highest category by at least two rating
organizations (or one rating organization if the instrument was rated by only
one such organization), and unrated securities not determined by the Adviser, in
accordance with guidelines and procedures established by the Board of Directors,
to be comparable to those rated in the highest category, will be limited to 5%
of the Fund's total assets, with the investment in any one such issuer being
limited to no more than the greater of 1% of the Fund's total assets or
$1,000,000. As to each security, these percentages are measured at the time the
Fund purchases the security.
Bank Obligations. The Fund may invest in U.S. dollar-denominated
certificates of deposit, time deposits, bankers' acceptances and other short-
term obligations issued by domestic banks and domestic branches and subsidiaries
of foreign banks. Certificates of deposit are certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time. Such instruments include Yankee Certificates of Deposit (''Yankee CDs''),
which are certificates of deposit denominated in U.S. dollars and issued in the
United States by the domestic branch of a foreign bank. Time deposits are non-
negotiable deposits maintained in a banking institution for a specified period
of time at a stated interest rate. Time deposits which may be held by the Fund
are not insured by the Federal Deposit Insurance Corporation or any other agency
of the U.S. Government. The Fund will not invest more than 10% of the value of
its net assets in time deposits maturing in longer than seven days and other
instruments which are illiquid or not readily marketable. The Fund may also
invest to a limited extent in certificates of deposit and time deposits issued
by foreign banks outside the United States. The Fund's investments in such
foreign bank obligations may not exceed 5% of the Fund's assets.
The Fund may also invest in bankers' acceptances and other short-term
obligations. Bankers' acceptances are credit instruments evidencing the
obligation of a bank to pay a draft drawn on it by a customer. These instruments
reflect the obligation both of the bank and of the drawer to pay the face amount
of the instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations which have either fixed, floating or variable
interest rates.
To the extent the Fund's investments are concentrated in the banking
industry, the Fund will have correspondingly greater exposure to the risk
factors which are characteristic of such investments. Sustained increases in
interest rates can adversely affect the availability or liquidity and cost of
capital funds for a bank's lending activities, and a deterioration in general
economic conditions could increase the exposure to credit losses. In addition,
the value of and the investment return on the Fund's shares could be affected by
economic or regulatory developments in or related to the banking industry, which
industry also is subject to the effects of the concentration of loan portfolios
in leveraged transactions and in particular businesses, and competition within
the banking industry, as well as with other types of financial institutions.
The Fund, however, will seek to minimize its exposure to such risks by investing
only in debt securities which are determined by the Adviser to be of high
quality.
U.S. Government and Agency Securities. Securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities, which differ only in their interest rates, maturities and times of
issuance. Treasury Bills have initial maturities of one year or less; Treasury
Notes have initial maturities of one to ten years; and Treasury Bonds generally
have initial maturities of greater than ten years. U.S. Government agency
securities in which the Fund commonly invests include securities issued by
Federal Home Loan Banks, Federal National Market Association, Federal Farm
Credit Bank Agency, Federal Home Loan Mortgage Corporation, Student Loan
Mortgage Association, Farmer's Home Administration, as well as others. Some
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, for example, Government National Mortgage Association pass-
through certificates, are supported by the full faith and credit of the U.S.
Treasury; others, such as those of the Federal Home Loan Banks, by the right of
the issuer to borrow from the Treasury; others, such as those issued by the
Federal National Mortgage Association, by discretionary authority of the U.S.
Government to purchase certain obligations of the agency or instrumentality; and
others, such as those issued by the Student Loan Marketing Association, only by
the credit of the agency or instrumentality. While the U.S. Government provides
financial support to such U.S. Government-sponsored agencies or
instrumentalities, no assurance can be given that it will always do so, since it
is not so obligated by law. The Fund will invest in such securities only when
the Adviser is satisfied that the credit risk with respect to the issuer is
minimal.
U.S. Government and agency securities in which the Fund may invest include
variable and floating rate securities with maturities that may extend beyond 13
months from the date of purchase. However, under Rule 2a-7, the Fund may
purchase such agency securities only if the interest rate adjusts not less
frequently than every 762 days and at each interest rate adjustment date the
security reasonably can be expected to have a market value that approximates its
par value. However, the Adviser has expressed its intention not to invest the
Fund's assets in certain categories of securities with final maturities in
excess of 397 days from the date of purchase, including but not limited to
structured U.S. Government agency securities such as dual index floaters,
inverse floaters, leveraged floaters, capped floaters, range floaters, floating
rate securities tied to the cost of funds of the 11th District Federal Home Loan
Bank and securities with interest rates tied to 10-year constant maturity U.S.
Treasury securities.
Commercial Paper. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by the Fund will consist only of U.S. dollar-denominated direct
obligations issued by domestic and, subject to the 5% limit discussed below (see
''Foreign Securities''), foreign entities. The other corporate obligations in
which the Fund may invest consist of high quality, U.S. dollar-denominated
short-term bonds and notes (including variable rate and amount master demand
notes) issued by domestic corporations.
Restricted Securities. The Fund may invest in securities that are subject to
legal or contractual restrictions on resale. These securities may be illiquid
and, thus, the Fund may not purchase them to the extent that more than 10% of
the value of its net assets would be invested in illiquid securities. However,
if a substantial market of qualified institutional buyers develops pursuant to
Rule 144A under the Securities Act of 1933, as amended, for such securities held
by the Fund, the Fund intends to treat such securities as liquid securities in
accordance with procedures approved by the Board of Directors. To the extent
that for a period of time, qualified institutional buyers cease purchasing such
restricted securities pursuant to Rule 144A, the Fund's investing in such
securities may have the effect of increasing the level of illiquidity in the
Portfolio during such period.
Securities Lending. The Fund may seek to increase its income by lending
securities from its portfolio to banks, brokers or dealers and other recognized
institutional investors needing to borrow securities. Such loans may not exceed
33 1/3% of the value of the Fund's total assets. In connection with such loans,
the Fund will receive collateral consisting of cash, U.S. Government and other
high quality securities or irrevocable letters of credit. Such collateral will
be maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. The Fund can increase its income through
the investment of such collateral. The Fund continues to be entitled to
payments in amounts equal to the interest payable on the loaned security, and
receives interest on the amount of the loan. Such loans will be terminable at
any time upon specified notice. The Fund might experience risk of loss if the
institution with which it has engaged in a portfolio loan transaction breaches
its agreement with the Fund.
Repurchase Agreements and Reverse Repurchase Agreements. Repurchase
agreements involve the acquisition by the Fund of an underlying debt instrument,
subject to an obligation of the seller to repurchase, and the Fund to resell,
the instrument at a fixed price, usually not more than one week after its
purchase. The Fund or a sub-custodian will have custody of securities acquired
by the Fund under a repurchase agreement.
The Fund may enter into repurchase agreements with banks or broker-dealers
with respect to government securities or other high quality securities
regardless of their remaining maturities, and will require that additional
securities be deposited with it if the value of the securities purchased should
decrease below the resale price. The Adviser will monitor on an ongoing basis
the value of the collateral in accordance with the terms of the repurchase
agreement. Certain costs may be incurred by the Fund in connection with the
sale of the securities if the seller does not repurchase them in accordance with
the repurchase agreement. In addition, if bankruptcy proceedings are commenced
with respect to the seller of the securities, realization on the securities by
the Fund may be delayed or limited. The Fund will consider on an ongoing basis
the creditworthiness of the institutions with which it enters into repurchase
agreements. Repurchase agreements are considered collateralized loans under the
1940 Act.
The Fund also may enter into repurchase agreements with entities that are
neither banks nor broker-dealers, provided that, in accordance with the Fund's
policies with respect to repurchase agreements, the Board of Directors of the
Fund approves or ratifies the transaction upon the determination by the Board,
or by the Adviser on its behalf, that entering into a repurchase agreement with
such entity presents minimal credit risk, that the entity presents no serious
risk of becoming involved in bankruptcy proceedings within the time frame
contemplated by the repurchase agreement, and that the repurchase agreement is
otherwise an eligible security for purchase by the Fund. Such entities are not
subject to the types and kinds of regulations or governmental supervision to
which banks and broker-dealers are subject, and there may not be available the
same types of financial information about such entities as is available with
respect to banks and broker-dealers.
The Fund may borrow funds for temporary or emergency purposes, such as
meeting larger than anticipated redemption requests, and not for leverage, in an
amount of up to one-third of the value of the Fund's total assets (including the
amount borrowed) less its total liabilities (not including the amount borrowed).
The Fund also may enter in agreements to sell portfolio securities to financial
institutions such as banks and broker-dealers and to repurchase them at a
mutually agreed date and price (a ''reverse repurchase agreement''). At the
time the Fund enters into a reverse repurchase agreement it will place in a
segregated custodial account cash, U.S. Government securities or high-grade debt
obligations having a value equal to the repurchase price, including accrued
interest. Reverse repurchase agreements involve the risk that the market value
of the securities sold by the Fund may decline below the repurchase price of
those securities. Reverse repurchase agreements are considered to be borrowings
by the Fund.
Foreign securities. Except for Yankee CDs, the Fund may invest no more than
5% of its total assets in U.S. dollar-denominated foreign securities issued
outside the United States, such as obligations of foreign branches and
subsidiaries of domestic banks and foreign banks, including Eurodollar
certificates of deposit, Eurodollar time deposits and Canadian time deposits,
commercial paper of Canadian and other foreign issuers, and U.S. dollar-
denominated obligations issued or guaranteed by one or more foreign governments
or any of their agencies or instrumentalities. For a complete description of
foreign securities the Fund may purchase, see ''Investment Program'' in the
Statement of Additional Information.
Guaranteed Investment Contracts. The Fund may invest in guaranteed
investment contracts (''GICs'') issued by insurance companies. Pursuant to such
contracts, the Fund makes cash contributions to a deposit fund of the insurance
company's general account. The insurance company then credits to the fund
guaranteed interest. The GICs provide that this guaranteed interest will not be
less than a certain minimum rate. The insurance company may assess periodic
charges against a GIC for expenses and service costs allocable to it, and the
charges will be deducted from the value of the deposit fund. Because the Fund
may not receive the principal amount of a GIC from the insurance company on
seven days' notice or less, the GIC is considered an illiquid investment and,
together with other instruments in the Fund which are not readily marketable,
will not exceed 10% of the Fund's total assets. The term of a GIC will be
thirteen months or less. In determining average weighted portfolio maturity, a
GIC will be deemed to have a maturity equal to the longer of the period of time
remaining until the next readjustment of the guaranteed interest rate or the
period of time remaining until the principal amount can be recovered from the
issuer through demand.
When-issued and Forward Commitment Securities. The Fund may purchase
securities on a ''when-issued'' basis and may purchase or sell securities on a
''forward commitment'' basis in order to hedge against anticipated changes in
interest rates and prices. When such transactions are negotiated, the price,
which is generally expressed in yield terms, is fixed at the time the commitment
is made, but delivery and payment for the securities take place at a later date.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Fund will enter into when-issued and forward
commitments only with the intention of actually receiving or delivering the
securities, as the case may be. At the time the Fund enters into a transaction
on a when-issued or forward commitment basis, a segregated account consisting of
cash or high grade liquid debt securities equal to the value of the when-issued
or forward commitment securities will be established and maintained. There is a
risk that the securities may not be delivered and that the Fund may incur a
loss.
Zero Coupon Obligations. The Fund may acquire zero coupon obligations when
consistent with its investment objective and policies. Such obligations have
greater price volatility than coupon obligations and will not result in payment
of interest until maturity. Since dividend income is accrued throughout the
term of the zero coupon obligation, but is not actually received until maturity,
the Fund may have to sell other securities to pay the accrued dividends prior to
maturity of the zero coupon obligation.
Investments in Other Investment Companies. The Fund occasionally may invest
in securities of other investment companies, subject to certain limitations and
restrictions described in the Statement of Additional Information. See
Investment Restriction No. 13 in the section of the Statement of Additional
Information captioned ''Investment Restrictions.'' Such securities are
purchased by the Fund primarily on an overnight basis with cash received by the
Fund too late in the business day to be invested that same day in securities in
which the Fund invests. However, subject to complying with the limitations and
restrictions set forth in the Statement of Additional Information, the Adviser
has the authority to make and retain investments in other investment companies
for an indefinite period of time, and may do so in response to presently
unforeseen market or economic conditions or other circumstances. An investment
by the Fund in other investment companies may cause the Fund to incur increased
administration and distribution costs.
Certain Other Obligations. In order to allow for investments in new
instruments that may be created in the future, upon Principal Preservation
supplementing this Prospectus, the Fund may invest in obligations other than
those listed previously, provided such investments are consistent with the
Fund's investment objective, policies and restrictions.
See ''Investment Program'' in the Statement of Additional Information for more
information about these and other types of instruments in which the Fund may
invest, including variable rate and floating rate securities, unsecured
promissory notes and participation interests.
FUNDAMENTAL INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which constitute
fundamental policies. Fundamental policies cannot be changed without the
approval of the holders of a majority of the outstanding voting securities of
the Fund, as defined in the 1940 Act. See ''Investment Restrictions'' in the
Statement of Additional Information.
The Fund may: (i) borrow money, but only from banks or through reverse
repurchase agreements for temporary or emergency (not leveraging) purposes, in
an amount of up to 33 1/3% of the value of the Fund's total assets (including
the amount borrowed) less liabilities (not including the amount borrowed) at the
time the borrowing is made (borrowings repaid within 60 days and not renewed or
extended are presumed to be for temporary purposes). While borrowings exceed 5%
of the value of the Fund's total assets, the Fund will not make any additional
investments; (ii) pledge, hypothecate, mortgage or otherwise encumber its
assets, but only, (a) to secure borrowings for temporary or emergency purposes,
or (b) in connection with entering into reverse repurchase agreements; (iii)
invest up to 5% of its total assets in the obligations of any single issuer,
provided that up to 25% of the value of the Fund's total assets may be invested
(subject to the provisions of Rule 2a-7) without regard to any such limitation,
and provided further that obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities may also be purchased without
regard to any such 5% limitation; (iv) concentrate 25% or more of its total
assets in bank obligations and invest up to 25% of its total assets in the
securities of issuers in any other industry, provided that there is no
limitation on investments and obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities; (v) invest up to 10% of its net
assets in repurchase agreements providing for settlement in more than seven days
after notice and in securities that are not readily marketable (which securities
could include participation and variable rate demand obligations as to which the
Portfolio cannot exercise a related demand feature and as to which there is no
secondary trading market). See ''Investment Restrictions'' in the Statement of
Additional Information.
CERTAIN INVESTMENT CONSIDERATONS
The Fund attempts to increase yields by trading to take advantage of short-
term market variations. This policy should not adversely affect the
Institutional Class, since the Fund usually does not pay brokerage commissions
when it purchases short-term debt obligations, although the prices at which such
instruments are traded generally reflect a premium or discount as compared to
their face or par values. The value of the portfolio securities held by the
Fund will vary inversely to changes in prevailing interest rates. Thus, if
interest rates have increased from the time a security was purchased, such
security, if sold, might be sold at a price less than its purchase cost.
Similarly, if interest rates have declined from the time a security was
purchased, such security, if sold, might be sold at a price greater than its
purchase cost. In either instance, if the security was purchased at face value
and held to maturity, no gain or loss would be realized.
MANAGEMENT
DIRECTORS AND OFFICERS
The Board of Directors of Principal Preservation is responsible for the
management of Principal Preservation and provides broad supervision over its
affairs. Principal Preservation's officers are responsible for the Fund's
operations. For more information with respect to the Directors of the Fund, see
''Management of Principal Preservation'' in the Statement of Additional
Information.
INVESTMENT ADVISER
Since August 1, 1994, Ziegler Asset Management, Inc. has served as the
Adviser to the Fund and, prior to the Reorganization, to the Fund's predecessors
in interest. The Adviser also serves as Administrator to the Fund. The Adviser
is registered with the Securities and Exchange Commission as an investment
adviser. In addition to the Fund, the Adviser serves as investment adviser to
six other mutual fund series of Principal Preservation and privately manages
numerous customer advisory accounts. On December 31, 1994, the Adviser had more
than $579 million under discretionary management. The address of the Adviser is
215 North Main Street, West Bend, Wisconsin 53095.
The Adviser is a wholly-owned subsidiary of The Ziegler Companies, Inc.
Ziegler, another wholly-owned subsidiary of The Ziegler Companies, Inc.,
currently serves as Distributor, Transfer and Dividend Disbursement Agent and
Shareholder Servicing Agent for the Fund. Ziegler is registered with the
Securities and Exchange Commission as an investment adviser and securities
broker/dealer and is a member of the National Association of Securities Dealers,
Inc. Ziegler has been engaged in the underwriting of debt securities for more
than 75 years. The Ziegler Companies, Inc. is a publicly-owned financial
services holding company.
The Adviser manages the assets of the Fund pursuant to an investment advisory
agreement dated December 29, 1995 (the ''Advisory Agreement''). On November 29,
1994, prior to the Reorganization, shareholders of the Fund's predecessors in
interest approved a substantively identical investment advisory agreement, dated
August 1, 1994. For services provided under the Advisory Agreement, the Adviser
receives from the Fund a fee, accrued daily and paid monthly, at an annual rate
equal to 0.20% of the Fund's average daily net assets.
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, Ziegler Asset Management,
Inc., as administrator of the Fund, provides the Fund with general office
facilities and provides or supervises the overall administration of the Fund
including, among other responsibilities, the negotiation of contracts and fees
with, and the monitoring of performance and billings of, the independent
contractors and agents of the Fund; the preparation and filing of all documents
required for compliance by the Fund with applicable laws and regulations;
providing equipment and clerical personnel necessary for maintaining the
organization of the Fund; preparation of certain documents in connection with
meetings of the Board of Directors of the Fund; and the maintenance of books and
records of the Fund.
The Administrative Services Agreement with respect to the Fund provides that
Ziegler Asset Management, Inc. is entitled to receive an annual fee from the
Fund accrued daily and paid monthly at an annual rate of 0.15% of the Fund's
average daily net assets up to $200 million, and 0.10% of such assets over $200
million. This fee is approved each year by the Directors of Principal
Preservation, including a majority of the independent directors.
DISTRIBUTOR
Ziegler serves as the distributor of shares of the Fund's Institutional Class
and of other Principal Preservation portfolios pursuant to a Distribution
Agreement. The Distribution Agreement between Principal Preservation and
Ziegler will continue from year to year if it is approved annually by Principal
Preservation's Board of Directors, including a majority of Independent
Directors, or by a vote of the holders of a majority of the outstanding shares.
The agreement may be terminated at any time by either party on 60 days written
notice and will automatically terminate if assigned by the Distributor. Ziegler
receives no compensation for distributing shares of the Fund's Institutional
Class.
CUSTODIAN AND DEPOSITORY; ACCOUNTING/PRICING AGENT
The Fund serves as custodian for its assets, including cash and securities.
Ziegler provides depository, sub-custodial and accounting services to the Fund,
including daily valuation of shares, pursuant to a Depository Contract and an
Accounting/Pricing Agreement. Under the Depository Contract, Ziegler is
entitled to receive compensation for its depository services on an annualized
basis as follows: 0.055% of the Fund's average daily net assets for the first
$50 million in assets of the Fund; 0.035% of the next $150 million; 0.03% of the
next $300 million; and 0.025% of any assets over $500 million. Ziegler is also
entitled to receive compensation from the Fund for accounting and pricing
services it provides under the Accounting/Pricing Agreement on an annualized
basis as follows: 0.04 of 1% of the Fund's average daily net assets for assets
between $50 million and $100 million; 0.03 of 1% on assets between $100 million
and $200 million; and 0.01 of 1% of any assets over $200 million, with an annual
compensation minimum of $15,000 and a maximum of $125,000.
TRANSFER AND DIVIDEND DISBURSING AGENT
Ziegler provides Transfer and Dividend Disbursing Agent and other shareholder
account services to all shareholder accounts maintained in the Fund. Ziegler
provides these services pursuant to the terms of its Transfer Agent and Dividend
Disbursement Agreement with the Fund, and receives compensation from the Fund
deemed reasonable by the Board of Directors. The annual rate of compensation
presently is $16.00 per shareholder account (subject to a monthly minimum fee of
$200). Ziegler also is entitled to reimbursement for out-of-pocket expenses
including, without limitation, bank wire fees, statement mailing expenses,
supplies such as checks, envelopes and shareholder statements, telephone
expenses, data processing charges, etc.
EXPENSES
The Adviser bears all of its expenses for providing services under the
Advisory Agreement.
The expenses of the Fund include the compensation of the officers and
Directors of Principal Preservation who are not affiliated with the Adviser or
Ziegler; governmental fees; interest charges; taxes; fees and expenses if any,
of independent accountants, legal counsel; and insurance premiums.
Expenses of the Fund also include all fees of the Fund under Principal
Preservation's administrative services, distribution and transfer and dividend
disbursement agreements with Ziegler or the Adviser, as the case may be;
expenses of distributing and redeeming shares and servicing shareholder
accounts; expenses of preparing, printing and mailing prospectuses, reports,
notices, proxy statements and reports to shareholders and to governmental
officers and commissions; its allocated share, together with other portfolios of
Principal Preservation, of expenses associated with annual and special
shareholder meetings and Director's meetings; expenses relating to the issuance,
registration and qualification of shares of the Fund and the preparation,
printing and mailing of prospectuses for such purposes; and membership dues in
the Investment Company Institute allocable to the Fund. Fees common to more
than one of the Principal Preservation portfolios are pro rated among them based
on total assets, and fees of the Fund common to both Classes of the Fund's
shares are pro rated based on the number of shares of each Class outstanding.
DETERMINATION OF NET ASSET VALUE PER SHARE
Shares of the Fund are sold at their net asset value per share determined in
compliance with Rule 2a-7 under the 1940 Act. There is no sales charge (see
''Purchase Of Shares''). The net asset value of the shares of the Fund is
determined and the shares of the Fund are priced as of 12:00 noon (New York
time) on each Business Day of the Fund. A ''Business Day'' is a day on which
the New York Stock Exchange (the ''Exchange'') is open for trading and any other
day (other than a day on which no shares of the Fund are tendered for redemption
and no order to purchase any shares is received) during which there is
sufficient trading in money market instruments that the Fund's net asset value
might be materially affected. Net asset value per share is calculated by
dividing the value of the Fund's net assets by the number of shares of the Fund
outstanding at the time the determination is made.
Although Principal Preservation seeks to maintain the net asset value per
share of the Fund's Institutional Class at $1.00, there can be no assurance the
net asset value will not vary. The valuation of the Fund's securities is based
on their amortized cost. For more information concerning the amortized cost
method of valuation, see ''Determination of Net Asset Value'' in the Statement
of Additional Information.
PURCHASE OF SHARES
Shares of the Institutional Class may be purchased by investors at net asset
value with no sales charge through Ziegler. The minimum initial investment in
the Institutional Class is $50,000. The subsequent minimum investment in the
Institutional Class is $100. Shares of the Fund may be purchased in only those
states where they may be lawfully sold. The Fund will not issue shares for
consideration other than cash except in the case of a bona fide reorganization
or statutory merger or in certain other acquisitions of portfolio securities
which meet certain criteria in accordance with state securities laws (see
''Purchase of Shares'' in the Statement of Additional Information). Shares may
be purchased by sending a check payable to Principal Preservation Portfolios,
Inc., 215 North Main Street, West Bend, Wisconsin 53095.
You may also purchase shares by wire provided you advise Principal
Preservation in advance by calling 800-826-4600. Please wire funds to M&I First
National Bank, West Bend, Wisconsin (ABA #075909576), for credit to the account
of Principal Preservation, account number 692-343-7. Wire purchase instructions
must include the name of the Fund (Principal Preservation Cash Reserve
Portfolio), identification of the Class (Institutional Class), and the
investor's account number. Wire purchases received by Ziegler prior to 12:00
noon (New York time) on a Business Day are normally effective that day. Wire
purchases received after 12:00 noon (New York time) are invested on the next
Business Day.
Orders received by Ziegler prior to 12:00 noon (New York time) will be
invested at the net asset value computed at 12:00 noon (New York time).
Purchases will therefore be effected on the same day the purchase order is
received provided such order is received prior to 12:00 noon (New York time) on
any Business Day. Shares purchased earn dividends from and including the day
the purchase is effected. It is anticipated that the net asset value of $1.00
per share of the Fund's Institutional Class will remain constant. Although
there can be no assurance that a $1.00 net asset value can be maintained on a
continual basis, specific investment policies and procedures will be employed to
accomplish this result.
A complete application must accompany the placement of an order for an
initial purchase. No account application is required for subsequent purchases.
Completed applications may be sent to Ziegler, the Fund's transfer agent, at the
address indicated above. The application may also be sent by facsimile. Please
contact the Fund at 1-800-826-4600.
REDEMPTIONS
You may have any or all of your shares redeemed as described below on any
Business Day at the net asset value next determined (see ''Determination Of Net
Asset Value Per Share'').
By Telephone. If you have completed the Telephone Redemption Authorization
and signature guarantee sections of the account application, you may redeem
shares by calling Principal Preservation at 800-826-4600. This authorization
must be on file at least five days prior to the first telephone redemption.
This authorization requires a signature guarantee. Redemption will be made by
wire to the bank account designated on the account application or a check will
be sent to you at the registered address for your account on the business day
following the redemption.
You cannot redeem shares by telephone if you hold stock certificates for
those shares. Additionally, shares paid for by personal, corporate, or
government check cannot normally be redeemed before the 15th day after the
purchase date or until the check clears.
By establishing the telephone redemption service, you authorize Ziegler or
the Fund, as the case may be, to: (1) act upon the instruction of any person by
telephone to redeem shares from the account for which such services have been
authorized; and (2) honor any written instructions for a change of address if
accompanied by a signature guarantee. You should bear in mind that, by
establishing the telephone redemption service, you assume some risks for
unauthorized transactions. Ziegler and the Fund have implemented procedures
designed to reasonably assure that telephone instructions are genuine. These
procedures include recording telephone conversations, requesting verification of
various pieces of personal information and providing written confirmation of
such transactions. If either Ziegler or the Fund or any of their employees fail
to abide by these procedures, the Fund may be liable to a shareholder for losses
he or she suffers from any resulting unauthorized transaction(s). However,
neither Ziegler nor the Fund nor any of their employees will be liable for
losses suffered by you which result from following telephone instructions
reasonably believed to be genuine after verification pursuant to these
procedures. This service may be changed, modified or terminated at any time.
There is currently no charge for telephone redemptions, although a charge may be
imposed in the future.
By Mail. To redeem shares by mail, send the following information to the
Fund: (1) a written request for redemption signed by the registered owner(s) of
the shares, exactly as the account is registered, together with the
shareholder's account number; (2) the stock certificates for the shares being
redeemed, if the certificates are held by the shareholder; (3) any required
signature guarantees (see ''Signature Guarantees'' below); and (4) any
additional documents which might be required for redemptions by corporations,
executors, administrators, trustees, guardians, or other similar entities.
The Fund will redeem shares when it has received all necessary documents.
You will be notified promptly if your redemption request cannot be accepted.
The Fund cannot accept redemption requests which specify a particular date for
redemption or which specify any special conditions. Questions concerning
redemption procedures should be directed to the Fund at 800-826-4600.
Signature Guarantees. To protect you and the Fund from fraud, signature
guarantees are required for certain redemptions. Signature guarantees enable
the Fund to be sure that you are the person who has authorized a redemption from
their account. Signature guarantees are required for: (1) any redemptions by
mail if the proceeds are to be paid to someone else or are to be sent to an
address other than your address as shown on Principal Preservation's records;
(2) any redemptions by mail which request that the proceeds be wired to a bank;
(3) authorizations to redeem by telephone; and (4) requests to transfer the
registration of shares to another owner. These requirements may be waived by
Principal Preservation in certain instances.
The Fund will accept signature guarantees from all institutions which are
eligible to provide them under federal or state law, provided the individual
giving the signature guarantee is authorized to do so. Institutions which
typically are eligible to provide signature guarantees include commercial banks,
trust companies, brokers, dealers, national securities exchanges, savings and
loan associations and credit unions. A signature guarantee is not the same as a
notarized signature.
Sending Redemption Proceeds. The Fund will not send redemption proceeds
until all payments for the shares being redeemed have cleared, which normally
takes 15 days from the receipt of payment for the shares. By Mail. The Fund
mails checks for redemption proceeds typically within one or two days, but not
later than seven days, after it receives the request and all necessary
documents.
By Wire. The Fund will normally wire redemption proceeds to your bank the
next business day after receiving the redemption request and all necessary
documents. The signatures on any written request for a wire redemption must be
guaranteed. The Fund will advise you of any wire charges it imposes. These
charges are subject to change. You will be responsible for any charges which
your bank may make for receiving wires.Checkwriting. Upon request, investors
will be provided with checks to be drawn on the Fund (''Redemption Checks'').
Redemption Checks may be written for amounts not exceeding $500,000. Investors
who write Redemption Checks for amounts under $250 will be charged a $10.00
service fee per check. When a Redemption Check is presented for payment, a
sufficient number of full and fractional shares in the investor's account will
be redeemed as of the next determined net asset value to cover any amounts paid.
Investors continue earning income dividends until Redemption Checks are
presented for payment. Investors wishing to use this method of redemption must
complete and return the Account Information Form, which is available from the
Fund. Redemption Checks should not be used to close your account. The Fund
reserves the right to modify or terminate this privilege at any time.
Unless otherwise authorized on the Account Information Form, Redemption
Checks must be signed by all account owners. If the Fund receives written
notice from any owner revoking another owner's authority to sign individually,
the signatures of all account owners will be required for payment on any
Redemption Check. Shares purchased by check may not be redeemed via Redemption
Check until 15 days after receipt of funds for said shares. Investors may not
use checkwriting to redeem shares held in certificated form.
The Fund may refuse to honor Redemption Checks whenever the right of
redemption has been suspended, or if the account is otherwise impaired. A
$10.00 service fee per check will be charged if (a) a Redemption Check for less
than $250 is presented for payment, (b) the amount of a Redemption Check
presented for payment exceeds the value of the investor's account, (c) a
Redemption Check is presented that may not be cleared because it would require
redemption of shares purchased by check within 15 days, or (d) a stop payment is
requested which would require closing your current account and opening a new
one.
Conditions on Redemptions. For accounts opened in Prospect Hill Prime Money
Market Fund prior to May 1, 1995 and transferred to the Fund in the
Reorganization, if, due to redemption, your account in the Fund drops below $500
for three months or more, the Fund has the right to redeem your account, after
giving 60 days notice, unless you make additional investments to bring the
account value to $1,000 or more. For accounts opened on or after May 1, 1995,
if your account balance drops below $25,000 for three months or more, the Fund
has the right to redeem your account, after giving 60 days notice, unless you
make additional investments to bring the account value to $50,000 or more.
The Fund may suspend the right to redeem shares for any period during which
(a) the Exchange is closed or the Securities and Exchange Commission determines
that trading on the Exchange is restricted; (b) there is an emergency as a
result of which it is not reasonably practical for the Fund to sell its
securities or to calculate the fair value of its net assets; or (c) the
Securities and Exchange Commission may permit for the protection of the Fund's
shareholders, Principal Preservation's Board of Directors may determine that it
may not be reasonably practical for the Fund to calculate the fair value of its
net assets, and therefore it is possible that the Fund will suspend the right to
redeem shares.
It is possible that conditions may arise in the future which would, in the
opinion of the Board of Directors of Principal Preservation, make it undesirable
for the Fund to pay for all redemptions in cash. In such cases, the Board may
authorize payment to be made in securities or other property of the Fund.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND REINVESTMENTS
The Fund determines its net income and realized capital gains, if any, on
each Business Day and allocates all such income and gain pro rata among the Fund
at the time of such determination. Principal Preservation declares dividends
from the Fund's income on each Business Day and pays cash dividends for the
preceding month within the first five Business Days of each month. The Fund
reserves the right to include realized short-term gains, if any, in any such
daily dividends. Since the Fund is subject to a 4% nondeductible excise tax on
certain undistributed amounts of ordinary income and capital gains, Principal
Preservation expects to make such other distributions as are necessary to avoid
the application of this tax. Unless a shareholder instructs Principal
Preservation to pay dividends or capital gains distributions in cash, dividends
and distributions will automatically be reinvested at net asset value in
additional shares of the Fund.
TAX STATUS
Principal Preservation intends to qualify the Fund as a regulated investment
company, as defined in the Internal Revenue Code of 1986, as amended (the
''Code''). Provided the Fund meets the requirements imposed by the Code, the
Fund will not pay any federal income or excise taxes. Dividends paid by the
Fund from its taxable net investment income and distributions by the Fund of its
net realized short-term capital gains are taxable to shareholders as ordinary
income, whether received in cash or reinvested in additional shares of the Fund.
Principal Preservation does not expect that the Fund will realize long-term
capital gains and thus does not contemplate paying distributions taxable to
shareholders as long-term capital gains. The Fund's dividends and distributions
will not qualify for the dividends-received deduction for corporations.
Statements as to the tax status of each shareholder's dividends and
distributions, if any, are mailed annually. Each shareholder will also receive,
if appropriate, various written notices after the end of the Fund's prior
taxable year as to the federal income tax status of his or her dividends and
distributions which were received from the Fund during that year. Shareholders
should consult their tax advisers to assess the consequences of investing in the
Fund under state and local laws generally and to determine whether dividends
paid by the Fund that represent interest derived from U.S. Government securities
are exempt from any applicable state or local income taxes.
DESCRIPTION OF SHARES
PRINCIPAL PRESERVATION
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 series: Cash Reserve Portfolio, Government
Portfolio, Insured Tax-Exempt Portfolio, Tax-Exempt Portfolio, S&P 100 Plus
Portfolio, Select Value Portfolio, Dividend Achievers Portfolio, Balanced
Portfolio and Wisconsin Tax-Exempt Portfolio. Only shares of Class Y Common
Stock of the Cash Reserve Portfolio are offered by this Prospectus. The Board
of Directors of Principal Preservation may authorize the issuance of additional
series of common stock (portfolios) and may increase or decrease the number of
shares in each series.
Each share of each series of Principal Preservation (including each share of
each Class of the Fund) is entitled to one vote on each matter presented to
shareholders of that series, and when issued and paid for in accordance with the
terms of the offering will be fully paid and nonassessable. For matters that
affect both Classes of the Fund's shares similarly (such as election of
directors, ratification of accountants, etc.), holders of the separate classes
of shares will vote together. On matters that affect the rights and privileges
appertaining to the shares of one Class of the Fund differently than the rights
and privileges appertaining to the other Class, the shareholders of each Class
will vote separately and, in order to be approved with respect to the affected
Class, the requisite approval must be obtained from holders of shares within
that Class. Each share of the Fund (including both Classes) is entitled to
participate pro rata in any dividends or other distributions declared by the
Board of Directors of Principal Preservation with respect to the Fund, and all
shares of the Fund have equal rights in the event of a liquidation of the Fund.
Shares of both Classes 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
full shares. Shares do not have cumulative voting rights.
As a Maryland corporation, Principal Preservation is not required to hold
annual shareholder meetings unless required by law or deemed appropriate by the
Board of Directors. However, special meetings may be called for purposes such
as electing or removing Directors, changing fundamental investment policies or
approving an investment advisory contract. On matters affecting an individual
series (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.
As defined in the 1940 Act and as used in this Prospectus, the phrase
''majority vote of the outstanding voting securities'' means the vote of the
lesser of: (1) 67% of the voting securities present at a meeting if the holders
of more than 50% of the outstanding voting securities are present in person or
by proxy; or (2) more than 50% of the outstanding voting securities.
OTHER INFORMATION
Transfer and Dividend Disbursing Agent. Ziegler, 215 North Main Street, West
Bend, Wisconsin 53095 acts as transfer and dividend disbursing agent for the
Fund pursuant to an agreement with Principal Preservation. For its services
provided thereunder, Ziegler may collect certain fees, based on the number of
accounts, as agreed upon from time to time between Ziegler and Principal
Preservation (currently $16.00 per account). See ''Management-Transfer and
Dividend Disbursing Agent.''
Shareholder Statements and Reports. Shareholders receive confirmations at
least quarterly regarding their transactions and reports at least semiannually
setting forth various financial and other information related to the Fund.
Shareholder Inquiries. Shareholder inquiries may be directed to Principal
Preservation at 215 North Main Street, West Bend, Wisconsin 53095; or by
telephone at (800-826-4600).
Performance Information. From time to time, the Fund may provide yield,
effective yield, and/or total rate of return quotations and may also quote fund
rankings in the relevant fund category from various sources, such as Lipper
Analytical Services, Inc. and IBC/Donoghue's Money Fund Report. The current
yield for the Fund will be calculated by dividend net investment income per
share during a recent 7-day period by the net asset value per share on the last
day of the period and annualizing the resulting quotient. The effective yield
takes into account the effects of compounding over the same 7-day period. Total
rate of return quotations will reflect the average annual percentage change
overstated periods in the value of an investment in the Fund. Yield reflects
only net portfolio income as of a stated time, while total rate of return
reflects all components of investment return over a stated period of time. The
Fund's quotations may from time to time be used in advertisements, shareholder
reports or other communications to shareholders. For a discussion of the manner
in which the Fund will calculate its yield, effective yield, and total rate of
return, see the Statement of Additional Information.
Investors should note that the investment results of the Fund will fluctuate
over time, and any presentation of the Fund's current yield, effective yield, or
total return for any prior period should not be considered a representation of
what an investment may earn or what an investor's yield or total return may be
in any future period.
PRINCIPAL PRESERVATION CASH RESERVE PORTFOLIO
PURCHASE APPLICATION FORM
Class Y Common Stock
(Institutional Class)
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MAIL COMPLETED FOR ADDITIONAL
APPLICATION TO: PRINCIPAL PRESERVATION INFORMATION CALL
215 NORTH MAIN STREET 1-800-826-4600
WEST BEND, WI 53095
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1. ACCOUNT REGISTRATION
Name Line 1
-------------------------------------------------------------
Name Line 2
-------------------------------------------------------------
Name Line 3
-------------------------------------------------------------
Address Line 1
----------------------------------------------------------
Address Line 2
----------------------------------------------------------
City State Zip
------------------------------------------ --------- -------
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2. TAX I.D. # or SOCIAL SECURITY #
--------------------------- -------------
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3. TELEPHONE ( ) - Ext.
---- -------- ---------------------------- ---------------
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4. INITIAL INVESTMENT - Minimum $50,000
For Purchase of Class Y Common Stock of Cash Reserve Portfolio
Amount $
-----------
Investment by: Check Bank Wire (if by wire, Date)
-------------------
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5. DISTRIBUTION OPTION
1. Dividends (Check One) 2.Capital Gains (Check One)
Dividends reinvested in shares or Capital Gains reinvested in
shares or
Dividends in Cash Capital Gains in Cash
(If no option is selected, income and capital gain distributions will be
automatically reinvested in additional shares of the Fund.)
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6. ACCOUNT CLASS
Individual Investor OR
Financial Institution
A. Type (check one)
Bank Savings and Loan Association Insurance Company
Trust (per Rule 506(b)(2)(ii) of Regulation D) Yes No
B. Is applicant acting in a Fiduciary Capacity? Yes No
OR Other Institution
A. Type (check one)
Corporation Partnership Business Trust
Sole Proprietorship Business Development Company Credit Union
Employee Benefit Plan:
B. Is applicant acting in a Fiduciary Capacity? Yes No
C. Is applicant IRS Section 501 (c)(3) Qualified? Yes No
D. Total Asset Size in Excess of: (check one)
$500,000 $1,000,000 $5,000,000 $10,000,000 $14,000,000
E. Incorporated/Formed/Associated on (date)
---------------------
In State/Commonwealth of
------------------------------------
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7. TELEPHONE REDEMPTION OPTION (If you select this option, you must complete
the Signature Guarantee block in the Customer Acceptance section of the
application.)
I authorize redemptions by telephone for my account. I understand that the
Fund is authorized to act upon instructions from me or any person claiming to be
me and that the monies will be sent by check to the address of record or
credited to the bank account which is designated below in this section.
I understand that this option is subject to the terms and conditions set forth
in the Prospectus, and that all telephone transaction calls may be recorded. I
herby ratify any telephone redemption instructions given on this account and I
agree to indemnify and hold harmless the fund and any of its agents involved in
this transaction against any claim, loss, expense or damage, including but not
limited to legal fees, in connection with any telephone redemption transaction
effected on my account. I further understand that I bear the risk of loss as a
result of the Fund acting upon any instructions believed by it to be genuine.
BANK ACCOUNT INFORMATION
Bank
-----------------------------------------------------------------
Address
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ABA #
----------------------------------------------------------------
Account #
------------------------------------------------------------
Name(s) on account
---------------------------------------------------
I do NOT with to authorize redemptions by telephone for my account. I
understand that any redemption transaction on my account will only be effected
upon receipt of written instructions by me.
PP 212-1/96
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8. BUSINESS CERTIFICATION (This section must be completed in order to
process the Application.)
The following named persons, none of whom is less than eighteen years of
age, are currently all the officers/executors/trustees/general parties or other
authorized signatories of Applicant, and any one of them (the ''Authorized
Person'') is currently under the applicable governing document to purchase and
redeem and otherwise deal in shares of the Fund and deliver any instrument
necessary to effectuate the authority hereby confer.
Name of Authorized Person Title Signature
(Please Print or Type) (Must be included)
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------------------------------------------------------------------------
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The fund may, without inquiry, act upon the instruction of any person
purporting to be the Authorized Person named in the certification form last
received by the Fund. The fund shall not be liable for any claims, expenses
(including but not limited to legal fees) or losses resulting from the Fund
having acted upon any instruction reasonably believed by it to be genuine.
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A. FOR PARTNERSHIPS ONLY
We,
--------------------------------------------------------------------
(fill in names of general partners)
individually as general partners of Applicant, represent and warrant that
despite any dissolution or termination of Applicant or any modification or
termination of authority of any partner, the Fund may act hereunder and rely
hereon until written notice to the contrary shall be received by the Fund and
the Fund shall have had sufficient time to act thereon; each above named
Authorized Person, acting singly, is authorized to effect for Applicant
securities transactions in the Fund.
In witness whereof we have this day subscribed our names.
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General Partner General Partner General Partner
- ------------------------------------------------------------------------------
B. FOR CORPORATIONS AND UNINCORPORATED ASSOCIATIONS ONLY
I, , Secretary of Applicant, do hereby
---------------------------------
certify that at a meeting on at which a quorum was
---------------------------
present throughout, the board of directors of the corporation/the membership,
board of trustees or directors of the association duly adopted a resolution,
which is in full force and effect and in accordance with Applicant's charter and
by-laws, which resolution did the following:
1. Empowered each above named Authorized
Person in Section 7, acting singly, to
effect for Applicant securities transactions
in the Prospect Hill Prime Money Market Fund
(the ''Fund'');
2. Authorized the Secretary to certify from
time to time the names and titles of the
officers of Applicant and to notify the
Fund;
3. Authorized the Secretary to certify that
such a resolution has been duly adopted and
will remain in full force and effect until
the Fund receives a subsequent revoking
certification.
(CORPORATE SEAL)
(Required for Application Processing)
In witness whereof I have this day subscribed my name and, if a corporation,
affixed the seal of the corporation.
The undersigned officer (other than the Secretary) hereby certifies that the
foregoing instrument has been signed by the Secretary of the
corporation/association.
- -------------------------------------------------------------------------------
Secretary Certifying Officer of the Corporation or Unincorporated
Association
- ------------------------------------------------------------------------------
C. FOR ALL OTHER INSTITUTIONAL INVESTORS (INCLUDING TRUSTS AND ESTATES)
We certify that each above named authorized Person, acting singly, is
authorized to effect securities transactions for Applicant on the terms
described above. All trustees must sign. Please include copy of living trust
document or certified copy of Letters of Testamentary/Trusteeship.
- ------------------------------------------------------------------------------
Certifying Executors/Trustees/Others Certifying Executors/Trustees/Others
- ------------------------------------------------------------------------------
9. TAX CERTIFICATION AND SHAREHOLDER AUTHORIZATION
Under penalties of perjury, I (we) certify (1) that the number(s) shown on
this application is my (our) correct Tax Identification Number(s) (Social
Security Number(s)) and (2) that I (we) am (are) not subject to backup
withholding either because I(we) have not been notified that I (we) am (are)
subject to backup withholding as a result of a failure to report all interest or
dividends, or the Internal Revenue Service has notified me (us) that I (we) am
(are) no longer subject to backup withholding. (If you have been notified by the
Internal Revenue Service that you are currently subject to backup withholding,
strike out clause (2).)
- ------------------------------------------------------------------------------
10. CUSTOMER ACCEPTANCE
Under penalties of perjury, I (we) certify that the information in items1
through 9 above is true, correct and complete. I (We) understand that the
Principal Preservation Cash Reserve Portfolio account is not a bank deposit
account or FDIC insured. I (We) am (are) of legal age. I (We) have received and
read a current Fund Prospectus and understand the terms and conditions.
-----------------------------------------------------------------
Individual (or Custodian) Date
-----------------------------------------------------------------
Joint Tenant (if any) Date
-----------------------------------------------------------------
Corporate Officer or Trustee Date
-----------------------------------------------------------------
Title of Corporate Officer or Trustee Date
- ------------------------------------------------------------------------------
SIGNATURE GUARANTEE
(Required for Telephone redemption option.)
The signature guarantee must be provided by a commercial bank, trust company,
member of a national securities exchange, savings and loan or a credit union. A
signature guarantee is not the same as a notarized signature.
TABLE OF CONTENTS
PAGE
Questions and Answers.......... 2
Expenses....................... 3
Investment Objective and Policies 4
Management..................... 9
Determination of Net Asset Value Per Share 11
Purchase of Shares............. 11
Redemptions.................... 12
Dividends, Capital Gains Distributions and Reinvestments 14
Tax Status..................... 14
Description of Shares.......... 14
Other Information.............. 15
PRINCIPAL PRESERVATION
PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
INVESTMENT ADVISER &ADMINISTRATOR
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
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
PP 207-1/96
(Principal Preservation Logo)
Cash Reserve Portfolio
Class Y Shares
(Institutional Class)
JANUARY 2, 1996
PROSPECTUS
STATEMENT OF ADDITIONAL INFORMATION
DATED JANUARY 2, 1996
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
CASH RESERVE PORTFOLIO--CLASS Y COMMON STOCK (INSTITUTIONAL CLASS)
215 North Main Street
West Bend, Wisconsin 53095
800-826-4600
This Statement of Additional Information and the prospectus to which it
relates describe the Class Y Common Stock ("Class Y Shares" or "Institutional
Class") of the Principal Preservation Cash Reserve Portfolio (the "Fund").
Terms not otherwise defined herein have the same meaning as in the Prospectus.
Principal Preservation Portfolios, Inc. ("Principal Preservation") offers other
mutual funds by separate prospectuses and statements of additional information.
The Fund seeks to obtain high current income consistent with stability of
principal and the maintenance of liquidity.
- ------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------
Shares may be purchased, and a prospectus may be obtained, directly from
the Distributor, B.C. Ziegler and Company, Inc., 215 North Main Street, West
Bend, Wisconsin 53095, telephone 800-826-4600 (see the Prospectus dated January
2, 1996 for more complete information, including an account application.) This
Statement of Additional Information is not a prospectus, and should be read in
conjunction with the Prospectus.
TABLE OF CONTENTS
THE FUND................................................................... 2
INVESTMENT PROGRAM......................................................... 3
INVESTMENT RESTRICTIONS.................................................... 9
PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES............................. 11
MANAGEMENT OF PRINCIPAL PRESERVATION....................................... 13
TRANSFER AND DIVIDEND DISBURSING AGENT SERVICES............................ 18
PERFORMANCE INFORMATION.................................................... 19
DETERMINATION OF NET ASSET VALUE; VALUATION OF SECURITIES; REDEMPTION IN
KIND.................................................................. 20
PURCHASE OF SHARES......................................................... 22
TAX STATUS................................................................. 22
COUNSEL AND INDEPENDENT ACCOUNTANTS........................................ 23
APPENDIX...................................................................A-1
THE FUND
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 Fund was established in 1993 and the Institutional
Class was established on January 1, 1996.
Prior to January 1, 1996 the Institutional Class was operated as a
separate series of Prospect Hill Trust, a series open-end management investment
company organized as a Massachusetts business trust. Prospect Hill Trust
consisted of a single institutional money market fund known as the Prospect Hill
Prime Money Market Fund. Prospect Hill Prime Money Market Fund and the Cash
Reserve Portfolio comprised the two spokes of a Hub and Spoke(R) money market
fund complex. In this structure, the Cash Reserve Portfolio and the Prospect
Hill Prime Money Market Fund invested all of their investable assets in the
Prime Money Market Portfolio, a series of The Prime Portfolios. Ziegler Asset
Management, Inc. managed the investment and reinvestment of the assets held in
the Prime Money Market Portfolio.
Effective on December 31, 1995, this two-tiered, Hub and Spoke structure
was collapsed into a dual class capital structure within the Fund. In that
reorganization transaction, all outstanding shares of the Fund's original,
single class of common stock were converted on a one-for-one basis into shares
of the Fund's newly-designated Class X Common Stock, and all outstanding shares
of the Prospect Hill Prime Money Market Fund were converted on a one-for-one
basis into shares of the Fund's newly-designated Class Y Common Stock.
INVESTMENT PROGRAM
As described above and in the Prospectus for the Institutional Class, the
Fund is designed to provide investors with current income. The Fund is not
intended to constitute a balanced investment program and is not designed for
investors seeking capital gains or maximum income irrespective of fluctuations
in principal.
The following is a discussion of the various investments of and techniques
employed by the Fund. The following information supplements and should be read
--------------------------------------------------------
in conjunction with the section in the Prospectus entitled "Investment Objective
- --------------------------------------------------------------------------------
and Policies."
- --------------
Bank Obligations. Domestic commercial banks organized under Federal law
are supervised and examined by the Comptroller of the Currency and are required
to be members of the Federal Reserve System. Domestic banks organized under
state law are supervised and examined by state banking authorities and are
members of the Federal Reserve System only if they elect to join. In addition,
state banks are subject to Federal examination and to a substantial body of
Federal law and regulation. As a result of Federal or state laws and
regulations, domestic banks, among other things, generally are required to
maintain specified levels of reserves, are limited in the amounts which they can
loan to a single borrower, and are subject to other regulations designed to
promote financial soundness. However, not all of such laws and regulations
apply to the foreign branches of domestic banks.
Obligations of foreign branches and subsidiaries of domestic banks and
domestic and foreign branches of foreign banks, such as CDs and time deposits
("TDs"), may be general obligations of the parent banks in addition to the
issuing branch, or may be limited by the terms of a specific obligation and
governmental regulation. Such obligations are subject to different risks than
are those of domestic banks. These risks include foreign economic and political
developments, foreign governmental restrictions that may adversely affect
payment of principal and interest on the obligations, foreign exchange controls
and foreign withholding and other taxes on interest income. These foreign
branches and subsidiaries are not necessarily subject to the same or similar
regulatory requirements that apply to domestic banks, such as mandatory reserve
requirements, loan limitations, and accounting, auditing and financial
recordkeeping requirements. In addition, less information may be publicly
available about a foreign branch of a domestic bank or about a foreign bank than
about a domestic bank.
Obligations of United States branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by Federal or state regulation
as well as governmental action in the country in which the foreign bank has its
head office. A domestic branch of a foreign bank with assets in excess of $1
billion may be subject to reserve requirements imposed by the Federal Reserve
System or by the state in which the branch is located if the branch is licensed
in that state.
In addition, branches licensed by the Comptroller of the Currency and
branches licensed by certain states may be required to: (1) pledge to the
regulator, by depositing assets with a designated bank within the state, a
certain percentage of their assets as fixed from time to time by the appropriate
regulatory authority; and (2) maintain assets within the state in an amount
equal to a specified percentage of the aggregate amount of liabilities of the
foreign bank payable at or through all of its agencies or branches within the
state.
In view of the foregoing factors associated with the purchase of CDs and
TDs issued by foreign branches of domestic banks, by foreign subsidiaries of
domestic banks, by foreign branches of foreign banks or by domestic branches of
foreign banks, the Adviser carefully evaluates such investments on a case-by-
case basis.
Commercial Paper. The Fund may invest in commercial paper issued by major
corporations in reliance on the exemption from registration afforded by
Section 3(a)(3) under the Securities Act of 1933, as amended (the "1933 Act").
Such commercial paper may be issued only to finance current transactions and
must mature in nine months or less. Trading of such commercial paper is
conducted primarily by institutional investors through investment dealers, and
individual investor participation in the commercial paper market is very
limited. Such commercial paper generally can be readily traded in secondary
trading markets among qualified institutional buyers without registration
pursuant to the conditions of Rule 144A under the 1933 Act.
The Fund also may invest in commercial paper in reliance on the so-called
"private placement" exemption from registration which is afforded by
Section 4(2) of the 1933 Act ("Section 4(2) paper"). Section 4(2) paper is
restricted as to disposition under the 1933 Act and generally is sold to
institutional investors such as the Fund who agree that they are purchasing the
paper for investment and not with a view to public distribution. Any resale by
the purchaser must be in an exempt transaction. Section 4(2) paper normally is
resold to other institutional investors like the Fund through or with the
assistance of the issuer or investment dealers who make a market in the paper,
thus providing liquidity.
The Adviser considers the legally restricted but readily saleable
Section 4(2) and Rule 144A paper to be liquid. However, pursuant to procedures
approved by the Board of Directors of the Fund if a particular investment in
Section 4(2) or Rule 144A paper is not determined to be liquid, that investment
will be included within the 10% limitation on illiquid securities. The Adviser
monitors the liquidity of the Fund's investments in Section 4(2) and Rule 144A
paper on a continuous basis.
Variable Rate and Floating Rate Demand Securities. The Fund may purchase
floating and variable rate demand notes and bonds, which are obligations
ordinarily having stated maturities in excess of 397 days, but which permit the
holder to demand payment of principal at any time, or at specified intervals not
exceeding 397 days, in each case upon not more than 30 days' notice. Variable
rate demand notes include master demand notes which are obligations that permit
the Fund to invest fluctuating amounts, which may change daily without penalty,
pursuant to direct arrangements between the Fund, as lender, and the borrower.
The interest rates on these notes fluctuate from time to time. The issuer of
such obligations normally has a corresponding right, after a given period, to
prepay in its discretion the outstanding principal amount of the obligations
plus accrued interest upon a specified number of days' notice to the holders of
such obligations. The interest rate on a floating rate demand obligation is
based on a known lending rate, such as a bank's prime rate, and is adjusted
automatically each time such rate is adjusted. The interest rate on a variable
rate demand obligation is adjusted automatically at specified intervals.
Frequently, such obligations are secured by letters of credit or other credit
support arrangements provided by banks. Because these obligations are direct
lending arrangements between the lender and borrower, it is not contemplated
that such instruments generally will be traded, and there generally is no
established secondary market for these obligations, although they are redeemable
at face value. Accordingly, where these obligations are not secured by letters
of credit or other credit support arrangements, the Fund's right to redeem is
dependent on the ability of the borrower to pay principal and interest on
demand.
Such obligations frequently are not rated by credit rating agencies and the
Fund may invest in obligations which are not so rated only if the Adviser
determines that at the time of investment the obligations are of comparable
quality to the other obligations in which the Fund may invest. The Adviser, on
behalf of the Fund, will consider on an ongoing basis the creditworthiness of
the issuers of the floating and variable rate demand obligations held by the
Fund. The Fund will not invest more than 10% of the value of its net assets in
floating or variable rate demand obligations as to which it cannot exercise the
demand feature on not more than seven days' notice if there is no secondary
market available for these obligations, and in other securities that are not
readily marketable. See "Investment Restrictions" below.
Unsecured Promissory Notes. The Fund also may purchase unsecured
promissory notes ("Notes") which are not readily marketable and have not been
registered under the 1933 Act, provided such investments are consistent with the
Fund's investment objective. The Notes purchased by the Fund will have
remaining maturities of 13 months or less, must be deemed under policies adopted
by the Board of Trustees of the Fund to present minimal credit risks and will
meet the quality criteria set forth in the Prospectus under "Investment
Policies." The Fund will invest no more than 10% of its net assets in such Notes
and in other securities that are not readily marketable (which securities would
include floating and variable rate demand obligations as to which the Fund
cannot exercise the demand feature described above and as to which there is no
secondary market). See "Investment Restrictions" below.
Participation Interests. The Fund may purchase from financial institutions
participation interests in securities in which the Fund may invest. A
participation interest gives the Fund an undivided interest in the security in
the proportion that the Fund's participation interest bears to the total
principal amount of the security. These instruments may have fixed, floating or
variable rates of interest, with remaining maturities of 13 months or less. If
the participation interest is unrated, or has been given a rating below that
which is permissible for purchase by the Fund, the participation interest will
be backed by an irrevocable letter of credit or guarantee of a bank, or the
payment obligation otherwise will be collateralized by U.S. Government
securities, or, in the case of unrated participation interests, the Adviser must
have determined that the instrument is of comparable quality to those
instruments in which the Fund may invest. For certain participation interests,
the Fund will have the right to demand payment, on not more than seven days'
notice, for all or any part of the Fund's participation interest in the
security, plus accrued interest. As to these instruments, the Fund intends to
exercise its right to demand payment only upon a default under the terms of the
security, as needed to provide liquidity to meet redemptions, or to maintain or
improve the quality of its investment portfolio. The Fund will not invest more
than 10% of its net assets in participation interests that do not have this
demand feature, and in other securities that are not readily marketable. See
"Investment Restrictions" below.
Lending of Portfolio Securities. To a limited extent, the Fund may lend
its portfolio securities to brokers, dealers and other institutional investors,
provided it receives cash collateral which at all times is maintained in an
amount equal to at least 100% of the current market value of the securities
loaned. By lending its portfolio securities, the Fund can increase its income
through the investment of the cash collateral. For the purposes of this policy,
the Fund considers collateral consisting of U.S. Government securities or
irrevocable letters of credit issued by banks whose securities meet the
standards for investment by the Fund to be the equivalent of cash. Such loans
may not exceed 33 1/3% of the value of the Fund's total assets. From time to
time, the Fund may return to the borrower and/or a third party which is
unaffiliated with the Fund and which is acting as a "placing broker," a part of
the interest earned from the investment of collateral received for securities
loaned.
The Securities and Exchange Commission (the "SEC") currently requires that
the following conditions must be met whenever portfolio securities are loaned:
(1) the Fund must receive at least 100% cash collateral from the borrower;
(2) the borrower must increase such collateral whenever the market value of the
securities rises above the level of such collateral; (3) the Fund must be able
to terminate the loan at any time; (4) the Fund must receive reasonable interest
on the loan, as well as any interest or other distributions on the loaned
securities, and any increase in market value; and (5) the Fund may pay only
reasonable custodian fees in connection with the loan. These conditions may be
subject to future modification.
Foreign Securities. The Fund may invest no more than 5% of its total
assets in foreign securities, including U.S. dollar-denominated obligations of
foreign branches and subsidiaries of domestic banks and foreign banks, such as
Eurodollar certificates of deposit, which are U.S. dollar-denominated
certificates of deposit issued by branches of foreign and domestic banks located
outside the United States, and Yankee CDs, which are certificates of deposit
issued by a U.S. branch of a foreign bank denominated in U.S. dollars and held
in the United States; Eurodollar time deposits ("ETDs"), which are U.S. dollar-
denominated deposits in a foreign branch of a foreign or domestic bank, and
Canadian time deposits, which are essentially the same as ETDs except they are
issued by branches of major Canadian banks; high quality, U.S. dollar-
denominated short-term bonds and notes (including variable amount master demand
notes) issued by foreign corporations, including Canadian commercial paper,
which is commercial paper issued by a Canadian corporation or a Canadian
counterpart of a U.S. corporation, and Europaper, which is U.S. dollar-
denominated commercial paper of a foreign issuer; and U.S. dollar-denominated
obligations issued or guaranteed by one or more foreign governments or any of
their political subdivisions, agencies or instrumentalities that are determined
by the Adviser to be of comparable quality to the other obligations in which the
Fund may invest. Such securities also include debt obligations of supranational
entities. Supranational entities include international organizations designated
or supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the Asian
Development Bank and the InterAmerican Development Bank.
The Fund may be subject to investment risks with respect to foreign
securities that are different in some respects from those incurred by a fund
which invests only in debt obligations of U.S. domestic issuers, although such
obligations may be higher yielding when compared to the securities of U.S.
domestic issuers. In making foreign investments, therefore, the Fund will give
appropriate consideration to the following factors, among others.
Foreign securities markets generally are not as developed or efficient as
those in the United States. Securities of some foreign issuers are less liquid
and more volatile than securities of comparable U.S. issuers. Similarly, volume
and liquidity in most foreign securities markets are less than in the United
States and, at times, volatility of price can be greater than in the United
States. The issuers of some of these securities, such as bank obligations, may
be subject to less stringent or different regulation than are U.S. issuers. In
addition, there may be less publicly available information about a non-U.S.
issuer, and non-U.S. issuers generally are not subject to uniform accounting and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. issuers.
Because evidences of ownership of such securities usually are held outside
the United States, the Fund will be subject to additional risks which include
possible adverse political and economic developments, possible seizure or
nationalization of foreign deposits and possible adoption of governmental
restrictions which might adversely affect the payment of principal and interest
on the foreign securities or might restrict the payment of principal and
interest to investors located outside the country of the issuer, whether from
currency blockage or otherwise.
Furthermore, some of these securities are subject to brokerage taxes levied
by foreign governments, which have the effect of increasing the cost of such
investment and reducing the realized gain or increasing the realized loss on
such securities at the time of sale. Income earned or received by the Fund from
sources within foreign countries may be reduced by withholding and other taxes
imposed by such countries. Tax conventions between certain countries and the
United States, however, may reduce or eliminate such taxes. All such taxes paid
by the Fund will reduce its net income available for distribution to its
investors (e.g., the Fund). In selecting foreign securities, the Adviser will
----
consider available yields, and any applicable taxes. All such investments will
be U.S. dollar denominated.
Investments In Other Investment Companies. An investment by the Fund in
other investment companies -- which is limited by fundamental investment
restriction (13) below -- may cause the Fund to incur increased costs of
administration and distribution expenses.
Securities Rating Criteria. A description of the characteristics and
criteria of the various securities ratings used by several nationally recognized
securities rating organizations is included in Appendix A attached to this
Statement of Additional Information.
INVESTMENT RESTRICTIONS
The following restrictions, which are a matter of "fundamental policy," may
not be changed with respect to the Fund without the approval of a "majority of
the outstanding voting securities" of the Fund, which, under the Investment
Company Act of 1940 (the "1940 Act") and the rules thereunder and as used in
this Statement of Additional Information and the Prospectus, means, with respect
to the Fund, the lesser of (i) 67% or more of the outstanding voting securities
of the Fund present at a meeting, if the holders of more than 50% of the
outstanding voting securities of the Fund are present or represented by proxy,
or (ii) more than 50% of the outstanding voting securities of the Fund.
Whenever Principal Preservation is requested to vote on a fundamental policy of
the Fund, Principal Preservation will hold a meeting of Fund shareholders and
will cast its vote as instructed by Fund shareholders.
As a matter of fundamental policy, the Fund may not:
1. Issue senior securities.
2. Borrow money, except from banks or through repurchase agreements for
temporary or emergency (not leveraging) purposes in an amount up to 33.33% of
the value of the Fund's total assets (including the amount borrowed), less
liabilities (not including the amount borrowed) at the time the borrowing is
made. While borrowings exceed 5% of the value of the Fund's total assets, the
Fund will not make any additional investments.
3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except
(I) to secure borrowings for temporary or emergency purposes and (ii) in
connection with the purchase of securities on a forward commitment basis and the
entry into reverse repurchase agreements or for similar transactions.
4. Invest in puts, calls, straddles, spreads or any combination thereof
if, by reason of such investment, the value of the Fund's investments in all
such classes of securities would exceed 5% of the Fund's total assets.
5. Sell securities short or purchase securities on margin.
6. Act as underwriter of securities of other issuers, except insofar as
the Fund may be deemed an underwriter in connection with the disposition of a
portfolio security.
7. Enter into repurchase agreements providing for settlement in more than
seven days after notice or purchase securities which are not readily marketable
(which securities would include participation interests that are not subject to
the demand feature described in the then-current Prospectus and floating and
variable rate demand obligations as to which no secondary market exists and the
Fund cannot exercise the demand feature described in the then-current Prospectus
on not more than seven days' notice), if, in the aggregate, more than 10% of its
net assets would be so invested. The Fund may not invest in time deposits
maturing in more than seven days.
8. Purchase or sell real estate, real estate investment trust securities,
commodities, or oil and gas interests, except for any of the foregoing acquired
as a result of ownership of another portfolio or security.
9. Make short term loans to others, except through the purchase of debt
obligations and through repurchase agreements referred to in the Prospectus, and
except that the Fund may lend its portfolio securities in an amount not to
exceed 33.33% of the value of its total assets. Any loans of portfolio
securities will be made according to guidelines established by the SEC and the
Fund's Board of Directors.
10. Invest more than 5% of its assets in the obligations of any other
issuer, except that up to 25% of the value of the Fund's total assets may be
invested without regard to any such limitations. Notwithstanding the foregoing,
to the extent required by the rules of the SEC, the Fund will not invest more
than 5% of its assets in the obligations of any one bank.
11. Invest more than 25% of its assets in the securities of issuers in any
industry other than banking, provided that there shall be no limitation on the
purchase of obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
12. Invest in companies for the purpose of exercising control.
13. Purchase securities of other investment companies if the purchase
would cause more than 10% of the value of the total assets of the Fund to be
invested in investment company securities, provided that: (i) the Fund will not
make any investment in the securities of any single investment company if,
immediately after such investment, more than 3% of the outstanding voting
securities of such investment company would be owned by the Fund or more than 5%
of the value of the total assets of the Fund would be invested in such
investment company; and (ii) no such restrictions shall apply to a purchase by
the Fund of investment company securities as a part of a merger, consolidation,
acquisition of assets or reorganization.
14. Purchase securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, or
purchase equity securities of issuers which are not readily marketable if, by
reason thereof, the value of the Fund's aggregate investment in all classes of
such securities will exceed 5% of its total assets.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values or
assets will not constitute a violation of that restriction.
Principal Preservation and the Fund may make commitments more restrictive
than the restrictions listed above so as to permit the sale of shares of the
Institutional Class in certain states. In the event that, once such a
commitment is made, the state restrictions with respect to which the commitment
was made are modified or repealed, Principal Preservation reserves the right to
correspondingly modify or revoke the commitment; provided no such action on the
part of Principal Preservation may result in an investment restriction that is
less restrictive than restrictions 1-14 above. Should Principal Preservation
determine that, once made, any such commitment is no longer in the best
interests of Fund and its shareholders, Principal Preservation reserves the
right to revoke the commitment by terminating the sale of shares in the state
involved.
PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES
Subject to the general supervision of the Directors, the Adviser is
responsible for decisions to buy and sell securities for the Fund, the selection
of brokers and dealers to effect the transactions, and the negotiation of
brokerage commissions, if any. Purchases and sales of securities on a stock
exchange are effected through brokers who charge a commission for their
services. In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a profit
to the dealer. The Fund also expects that securities will be purchased at times
in underwritten offerings where the price includes a fixed amount of
compensation, generally referred to as the underwriter's concession or discount.
On occasion, the Fund may also purchase certain money market instruments
directly from an issuer, in which case no commission or discounts are paid.
The Adviser currently serves as investment manager to a number of clients,
and may in the future act as investment manager or adviser to others, including
other registered investment companies. It is the practice of the Adviser to
cause purchase and sale transactions to be allocated among the Fund and others
whose assets it manages in such manner as it deems equitable. In making such
allocation among the Fund and other client accounts, the main factors considered
are the respective investment objectives, the relative size of portfolio
holdings of the same or comparable securities, the availability of cash for
investment, the size of investment commitments generally held and opinions of
the persons responsible for managing the Fund and other client accounts.
The policy of the Fund regarding purchases and sales of securities is that
primary consideration will be given to obtaining the most favorable prices and
efficient executions of transactions. Consistent with this policy, when
securities transactions are effected on a stock exchange, the Fund's policy is
to pay commissions which are considered fair and reasonable without necessarily
determining that the lowest possible commissions are paid in all circumstances.
The Fund believes that a requirement always to seek the lowest possible
commission cost could impede effective portfolio management and preclude the
Fund and the Adviser from obtaining high quality execution and research
services. In seeking to determine the reasonableness of brokerage commissions
paid in any transactions, the Adviser relies upon its experience and knowledge
regarding commissions generally charged by various brokers and on its judgment
in evaluating the brokerage and research services received from the broker
effecting the transaction. Such determinations are necessarily subjective and
imprecise, as in most cases an exact dollar value for the services is not
ascertainable. In transactions effected with a dealer, acting as principal, who
furnishes research services to the Fund, the Fund will not purchase securities
at a higher price, or sell securities at a lower price, than would be the case
if the dealer had not furnished such services.
In seeking to implement the Fund's policies, the Adviser effects
transactions with those brokers and dealers whom the Adviser believes provide
the most favorable prices and are capable of providing efficient executions. If
the Adviser believes such prices and executions are obtainable from more than
one broker or dealer, it may give consideration to placing portfolio
transactions with those brokers and dealers who also furnish research and other
services to the Fund or the Adviser. Such services include, but are not limited
to, information as to the availability of securities for purchase or sale,
statistical or factual information or opinions pertaining to investment, wire
services, and appraisals or evaluation of portfolio securities.
The information and services received by the Adviser from brokers and
dealers may be of benefit to the Adviser in the management of accounts of some
of its other clients and may not in all cases benefit the Fund directly. While
the receipt of such information and services is useful in varying degrees and
would generally reduce the amount of research or services otherwise performed by
the Adviser and thereby reduce its expenses, it is of indeterminable value and
the Fund does not reduce the management fee it pays to the Adviser by any amount
that may be attributable to the value of such services.
MANAGEMENT OF PRINCIPAL PRESERVATION
The Directors and officers of Principal Preservation and their principal
occupations during the past five years are set forth below. Their titles may
have varied during that period. Asterisks indicate those Directors of Principal
Preservation who are "interested persons" (as defined in the 1940 Act) of
Principal Preservation. Unless otherwise indicated, the address of each
Director and officer of Principal Preservation is 215 North Main Street, West
Bend, Wisconsin 53095.
PRINCIPAL PRESERVATION
- ----------------------
Position with Principal
Principal Occupation During
Name and Address Preservation Past Five Years
- ---------------- ------------- ----------------
R. D. Ziegler* President and Since 1973 Chairman
Director and Director and, prior to
1990, Chief Executive Officer,
and prior to 1986, President,
The Ziegler Companies, Inc. and
B.C. Ziegler and Company;
Chairman and Director, Ziegler
Asset Management, Inc.;
Director, Johnson Controls,
Inc. (manufacturing).
Robert J. Tuszynski* Vice President Vice President, Director
and Director of Mutual Funds, B.C. Ziegler
and Company, since 1987;
Trustee, Chairman of the Board
and President, Prospect Hill
Trust and The Prime Portfolios
(registered investment
companies).
Richard H. Aster, M.D. Director President and Director
1701 W. Wisconsin Ave. of Research, The Blood
Milwaukee, WI 53233 Center of Southeastern
Wisconsin, Inc.
Augustine J. English Director Retired; President,
P. O. Box 2353 Tupperware North America
Orlando, FL 32802 from 1990 to 1994
(manufacturing); prior to 1990,
President, The West Bend
Company (manufacturing), a
division of Dart Industries, a
subsidiary of Premark
International, Inc., of which
Mr. English was a Group Vice
President.
Stephen A. Roell Director Vice President, Chief
c/o Johnson Controls, Financial Officer and
Inc. Assistant Secretary,
5757 North Green Bay Johnson Controls, Inc.
Road since 1991; Corporate
P.O. Box 591 Controller and Assistant
Milwaukee, WI 53201 Secretary, Johnson Controls,
Inc. from 1990 to 1991;
Treasurer, Johnson Controls,
Inc. from 1987 to 1991.
John H. Lauderdale Vice President- Wholesaler, B.C.
Director of Ziegler and Company
Marketing since 1991; prior thereto
Account Executive, The Patten
Company.
Jay Ferrara Treasurer Assistant Vice
President, B.C. Ziegler and
Company, since 1994;
Controller, California
Investment Trust, from 1993 to
1994; prior thereto, Senior
Portfolio Accountant, Wells
Fargo Nikko Investment
Advisors.
S. Charles O'Meara Secretary Senior Vice President and
General Counsel, B.C. Ziegler
and Company since 1993; prior
thereto, Partner, O'Meara,
Eckert, Pouros & Gonring (law
firm).
Principal Preservation pays the compensation of the three Principal
Preservation Directors who are not officers, directors or employees of Ziegler.
They receive an annual fee of $12,000 and an additional $450 for each Board or
Committee meeting attended. The Fund pays a pro rata portion of these fees.
Principal Preservation may also retain consultants, who will be paid a fee, to
provide the Board with advice and research on investment matters.
The table below shows fees paid to Directors of Principal Preservation for
the year ended December 31, 1995. Each series of Principal Preservation,
including the Fund, pays a proportionate share of these expenses based on the
ratio such series' total assets bear to the aggregate of the total assets of all
nine series of Principal Preservation. Principal Preservation made no payments
to its officers or directors who are affiliated with any investment advisor to
Principal Preservation.
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM
BENEFITS PRINCIPAL
NAME OF PERSON AGGREGATE ACCRUED PRESERVATION
AND COMPENSATION AS PART OF ESTIMATED AND
POSITION WITH FROM PRINCIPAL ANNUAL FUND COMPLEX
PRINCIPAL PRINCIPAL PRESERVATION'S BENEFITS OF
PRESERVATION PRESERVATION EXPENSES UPON WHICH
------ ------------ ----------- RETIREMENT PRINCIPAL
---------- PRESERVATION
IS A PART(1)<F1>
---------------
R. D. Ziegler, -0- -0- -0- -0-
President and
Director
Robert J. -0- -0- -0- -0-
Tuszynski,
Vice President
and DirectorD
Richard H. Aster, $13,800 -0- -0- $13,800
M.D.
Director
Augustine J. $13,800 -0- -0- $13,800
English,
Director
Stephen A. Roell, $13,800 -0- -0- $13,800
Director
(1)<F1>No director or officer of Principal Preservation received compensation
from any other investment company within the same fund complex as Principal
Preservation.
As of November 29, 1995, the following shareholders owned of record or, to
the knowledge of management, beneficially, more than 5% of the outstanding
shares of the Fund and its predecessor combined:
Name and Address of Number of Percent of
Shareholder Shares Outstanding Shares
- ------------------- ------- ------------------
M&I First National Bank 23,316,368 18.8 %
321 North Main Street
P. O. Box 1980
West Bend, WI 53095
B.C. Ziegler and Co. (1)<F2> 82,044,920 66.1%
215 N. Main St.
West Bend, WI 53095
(1)<F2>Owned of record as nominee holder. B.C. Ziegler and Company disclaims
beneficial ownership with respect to these shares.
INVESTMENT ADVISER
The Adviser manages the assets of the Fund pursuant to an Investment
Advisory Agreement (the "Advisory Agreement") and the investment policies
described herein. Subject to such further policies as the Board of Directors
may determine, the Adviser makes investment decisions for the Fund. The Adviser
furnishes at its own expense all services, facilities and personnel necessary in
connection with managing the Fund's investments and effecting securities
transactions for the Fund.
The Advisory Agreement provides that the Adviser may render services to
others. The Advisory Agreement is terminable without penalty on not more than
60 days' nor less than 30 days' written notice by the Fund when authorized
either by majority vote of the investors in the Fund (with the vote of each
being in proportion to the amount of their investment) or by a vote of a
majority of the Board of Directors, or by the Adviser on not more than 60 days
nor less than 30 days written notice, and will automatically terminate in the
event of its assignment. The Advisory Agreement provides that neither the
Adviser nor its personnel shall be liable for any error of judgment or mistake
of law or for any loss arising out of any investment or for any act or omission
in the execution of security transactions for the Fund, for willful misfeasance,
bad faith, gross negligence or reckless disregard of its or their obligations
and duties under the Advisory Agreement.
For its services under the Advisory Agreement, the Adviser receives from
the Fund a fee accrued daily and paid monthly at an annual rate equal to 0.20%
of the Fund's average daily net assets.
ADMINISTRATIVE SERVICES
Fund Administrative Services. Ziegler Asset Management, Inc. provides
----------------------------
certain administrative services to Principal Preservation, including:
(a) providing office space, equipment and clerical personnel necessary for
maintaining the organization of Principal Preservation; (b) providing personnel
to serve as directors, officers and employees of Principal Preservation to the
extent requested by Principal Preservation and as permitted and appropriate
under applicable laws and regulations; (c) supervising the overall
administration of Principal Preservation, including negotiation of contracts and
fees with, and the monitoring of performance and billings of, Principal
Preservation's independent contractors or agents; (d) preparing and, if
applicable, filing all documents required for compliance by Principal
Preservation with applicable laws and regulations; (e) preparing agendas and
supporting documents for and minutes of meetings of the Board of Directors of
Principal Preservation and committees thereof and shareholders of the Fund;
(f) maintaining other books and records of Principal Preservation; and
(g) calculating daily net asset value per share for the Fund.
B.C. Ziegler & Company provides certain accounting and pricing services to
the Fund, including: (a) posting cash receipts and disbursements for the Fund;
(b) reconciling bank account balances monthly for the Fund; (c) recording
purchases and sales based upon the Fund's portfolio manager communications;
(d) preparing monthly and annual summaries to assist in the preparation of
financial statements of, and regulatory reports for, the Fund; and (e) computing
the Fund's daily net asset value. Ziegler has agreed to provide these services
pursuant to an Accounting/Pricing Agreement. Ziegler Asset Management, Inc. has
agreed to provide these services pursuant to an Administrative Services
Agreement.
The Administrative Services and Accounting/Pricing Agreements each provide
that they will continue in effect from year to year, as long as approved at
least annually by Principal Preservation's Board of Directors or by a vote of
the outstanding voting securities of the Fund and in either case by a majority
of the Directors who are not parties to the relevant Agreement or interested
persons of any such party. Each Agreement terminates automatically if assigned
and may be terminated without penalty by either party on 60 days notice. Each
Agreement provides that neither Ziegler Asset Management, Inc. nor Ziegler, as
the case may be, nor its personnel shall be liable for any error of judgment or
mistake of law or for any loss arising out of any act or omission in the
execution and the discharge of its obligations under the Agreements, except for
willful misfeasance, bad faith or gross negligence in the performance of their
duties or by reason of reckless disregard of their obligations and duties under
the Agreements.
For providing the services contemplated by the Administrative Services
Agreement, Ziegler Asset Management, Inc. is entitled to receive a fee, computed
daily and paid monthly, at the annual rate of 0.15% of the Fund's average daily
net assets up to $200 million, and 0.10% of such assets over $200 million.
For providing the services contemplated by the Accounting/Pricing
Agreement, Ziegler is entitled to compensation at a rate approved annually by
the Directors of Principal Preservation, plus reimbursement for reasonable out-
of-pocket expenses. Under the presently approved fee structure, Cash Reserve
will pay Ziegler a monthly fee at an annual rate of 0.04% on average daily net
assets between $50 million and $100 million, 0.03% on the next $100 million, and
0.01% on average daily net assets in excess of $200 million, subject to a
minimum annual fee of $15,000 and a maximum annual fee of $125,000.
CUSTODIAN AND DEPOSITORY SERVICES
The Fund acts as custodian of its own assets (i.e., cash and securities).
----
Pursuant to a Depository Contract, Ziegler, a registered broker-dealer and
registered investment adviser, acts as depository of the Fund's assets. For
providing services as Depository to Cash Reserve, Ziegler is entitled to
reasonable compensation and reimbursement for expenses as agreed upon from time
to time between Ziegler and Principal Preservation. Cash Reserve will pay
Ziegler a monthly fee under the Depository Contract at an annual rate of 0.055%
on the first $50 million of Cash Reserve's average daily net assets, 0.035% on
the next $150 million, 0.030% on the next $300 million, and 0.025% on average
daily net assets in excess of $500 million, subject to a minimum annual fee of
$15,000.
Ziegler's responsibilities as Depository for the Fund include safeguarding
and controlling securities and other assets, handling the receipt and delivery
of securities, determining income and collecting interest on investments, and
maintaining books of original entry for Fund accounting purposes and other
required books and accounts. Securities held by the Fund may be deposited into
authorized securities depositaries such as the Federal Reserve-Treasury
Department Book Entry System and the Depository Trust Company, and may be held
by a subcustodian bank if such arrangements are reviewed and approved by the
Board of Directors.
TRANSFER AND DIVIDEND DISBURSING AGENT SERVICES
Ziegler provides transfer agent and dividend disbursing services with
respect to Class Y Shares pursuant to the terms of a Transfer and Dividend
Disbursing Agency Agreement (the "Agency Agreement"). Under the terms of the
Agency Agreement, Ziegler is entitled to reasonable compensation for its
services and expenses as agreed upon from time to time between it and the Board
of Directors of Principal Preservation. The rate of compensation agreed upon
for these services is currently $16.00 per account for the Fund. The Fund also
reimburses Ziegler for all out of pocket expenses incurred in providing such
services. Ziegler also has the right to retain certain service charges as
described from time to time in the current prospectus of Principal Preservation.
The Agency Agreement will continue in effect until terminated, and may be
terminated by either party without cause on 90 days prior written notice. The
Agency Agreement provides that Ziegler shall be indemnified by and not be liable
to Principal Preservation for any action taken or omitted by it under such
agreement, except for liability for breach of its obligation to maintain all
Principal Preservation records in absolute confidence.
PERFORMANCE INFORMATION
Yield is computed in accordance with a standardized method which involves
determining the net change in the value of a hypothetical pre-existing Fund
account having a balance of one Class Y Share at the beginning of a seven
calendar day period for which yield is to be quoted, dividing the net change
computed at the end of the period by the value of the account at the beginning
of the period to obtain the base period return, and analyzing the results (i.e.,
multiplying the base period return by 365/7). The net change in the value of
the account reflects the value of additional Class Y Shares purchased with
dividends declared on the original Class Y Share and any such additional shares
and fees that may be charged to shareholder accounts, in proportion to the
length of the base period and the Fund's average account size, but does not
include realized gains and losses or unrealized appreciation and depreciation.
Effective annualized yield is computed by adding 1 to the base period return
(calculated as described above), raising that sum to a power equal to 365
divided by 7, and subtracting 1 from the result.
Yields will fluctuate and are not necessarily representative of future
results. The investor should remember that yield is a function of the type and
quality of the instruments held by the Fund, portfolio maturity and operating
expenses. An investor's principal in the Fund is not guaranteed. See
"Determination of Net Asset Value" for a discussion of the manner in which the
Fund's price per share is determined.
From time to time, the Fund in its advertising and sales literature may
refer to the growth of assets managed or administered by the Adviser over
certain time periods.
Comparative performance information may be used from time to time in
advertising or marketing the Fund's shares, including data from Lipper
Analytical Services, Inc., IBC/Donoghue's Money Fund Report and other
publications.
DETERMINATION OF NET ASSET VALUE; VALUATION
OF SECURITIES; REDEMPTION IN KIND
The Prospectus discusses when the net asset value of the Fund is determined
for purposes of sales and redemptions. The following is a description of the
procedures used by the Fund in valuing its assets.
The valuation of the Fund's securities is based on their amortized cost,
which does not take into account unrealized capital gains or losses. Amortized
cost valuation involves initially valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, generally without regard to the impact of fluctuating interest rates on
the market value of the instrument. Although this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price the Fund would receive if it
sold the instrument.
The Fund's use of the amortized cost method of valuing their securities is
permitted by a rule adopted by the SEC. The Fund will also maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase only
instruments having remaining maturities of 13 months or less and invest only in
securities determined by or under the supervision of the Board of Directors to
be of high quality with minimal credit risks.
Pursuant to the Rule, the Board of Directors also has established
procedures designed to allow the Fund to stabilize, to the extent reasonably
possible, the Fund's price per share as computed for the purpose of sales and
redemptions at $1.00. These procedures include review of the Fund's holdings by
the Board of Directors, at such intervals as it deems appropriate, to determine
whether the value of the Fund's assets calculated by using available market
quotations or market equivalents deviates from such valuation based on amortized
cost.
The rule also provides that the extent of any deviation between the value
of the Fund's assets based on available market quotations (or an appropriate
substitute which reflects current market conditions) and such valuation based on
amortized cost must be examined by the Fund's Board of Directors. In the event
the Board of Directors determines that a deviation exists that may result in
material dilution or other unfair results to new or existing investors or
existing shareholders, pursuant to the rule, the Board of Directors must cause
the Fund to take such corrective action as the Board of Directors regards as
necessary and appropriate, including: selling portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity; or valuing the Fund's assets by using available market quotations.
For the purpose of determining the deviation between the value of the
Fund's assets based on available market quotations and such valuation based on
amortized cost, if market quotations are not readily available, or if the
securities are illiquid, the value of such portfolio securities will be
determined in good faith by the Directors based upon calculations and findings
made by the Adviser, and reviewed by the Directors. The Directors may consider
that certain securities are securities for which market quotations are not
readily available if the validity of the quotations received with respect to
such securities appears to be questionable. Factors which the Directors might
consider as indicating that the validity of market quotes is questionable
include an inordinately large spread between bid and ask prices, or an in-
ordinately small number of quotations indicating that there is only a thin
market in the securities.
Principal Preservation, on behalf of the Fund, reserves the right, if
conditions exist which make cash payments undesirable, to honor any request for
redemption or repurchase order by making payment in whole or in part in readily
marketable securities chosen by Principal Preservation or the Fund, as the case
may be, and valued as they are for purposes of computing the Fund's or the
Institutional Class net asset value, as the case may be (a redemption in kind).
If payment is made in securities, an investor may incur transaction expenses in
converting these securities into cash.
The Fund has elected, however, to be governed by Rule 18f-1 under the 1940
Act, as a result of which the Fund is obligated to redeem beneficial interests
with respect to any one investor during any 90-day period, solely in cash up to
the lesser of $250,000 or 1% of the net asset value of the Fund at the beginning
of the period.
Each investor in the Fund may add to or reduce its investment in the Fund
on each Business Day of the Fund. A "Business Day" is any day on which the New
York Stock Exchange is open for trading and any other day (other than a day on
which no shares of the Fund are tendered for redemption and no order to purchase
shares of the Fund is received) during which there is sufficient trading in
money market instruments that the Fund's net asset value might be materially
affected. As of 12:00 noon (New York time) on each such Business Day, the net
asset value of outstanding shares will be computed by dividing the value of the
Fund's total net assets by the total number of shares outstanding, including
both Classes of shares.
PURCHASE OF SHARES
The Fund will not issue shares for consideration other than cash except in
the case of a bona fide reorganization, statutory merger, or in certain other
acquisition of securities in accordance with state securities laws, which:
(1) meet the investment objectives and policies of the Fund; (2) are acquired
for investment and not for resale; (3) are not restricted securities; and
(4) have a value which is readily ascertainable.
TAX STATUS
The following is only a summary of certain tax considerations generally
affecting the Fund and its shareholders, and is not intended as a substitute for
careful tax planning. Shareholders are urged to consult their tax advisers with
specific reference to their own tax situations.
Each series of a series company, such as Principal Preservation, is treated
as a single entity for Federal income tax purposes so that the net realized
capital gains and losses of the various series in one fund are not combined.
However, separate classes of a single series, such as the Class X and Class Y
Shares of the Fund, are taxed commonly as shares of a single tax entity.
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986 (the "Code"). In order to qualify as a regulated
investment company, the Fund must satisfy a number of requirements. Among such
requirements is the requirement that at least 90 percent of its gross income
must be derived from dividends, interest and gains from the sale or other
disposition of stock or other securities. Another requirement of current law is
that less than 30 percent of the Fund's gross income be derived from the sale or
other disposition of securities held for less than three months. In determining
these gross income requirements, a loss from the sale or other disposition of
securities does not enter into the computation.
The Fund will distribute substantially all of its net income and capital
gains so as to avoid any federal income tax to it. Although Principal
Preservation expects the Fund to be relieved of all or substantially all federal
income taxes, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located or in which it is otherwise deemed to be
conducting business, that portion of the Fund's income which is treated as
earned in any such state or locality could be subject to state and local tax.
Any such taxes paid by the Fund would reduce the amount of income and gains
available for distribution to its shareholders.
While the Fund does not expect to realize net long-term capital gains, any
such gains realized will be distributed annually as described in the Fund's
Prospectus. Such distributions ("capital gain dividends"), if any, will be
taxable to shareholders as long-term capital gains, regardless of how long a
shareholder has held Fund shares, and will be designated as capital gain
dividends in a written notice mailed by the Fund to shareholders after the close
of the Fund's prior taxable year.
Dividends and other distributions paid to individuals and other non-exempt
payees are subject to a 31% backup federal withholding tax if the Agent is not
provided with the shareholder's correct taxpayer identification number or
certification that the shareholder is not subject to such backup withholding or
if the Fund is notified that the shareholder has under-reported income in the
past. In addition, such backup withholding tax will apply to the proceeds of
redemption or repurchase of shares from a shareholder account for which the
correct taxpayer identification number has not been furnished. For most indi-
vidual taxpayers, the taxpayer identification number is the social security
number. An investor may furnish the Agent with such number and the required
certifications by completing and sending the Agent either the Account
Application form attached to the Prospectus or IRS Form W-9.
Interest on indebtedness incurred (directly or indirectly) by shareholders
to purchase or carry shares will not be deductible for Federal income tax
purposes.
If a shareholder exchanges shares of one Principal Preservation portfolio
for shares of another, the shareholder will recognize gain or loss for federal
income tax purposes. That gain or loss will be measured by the difference
between the shareholder's basis in the shares exchanged and the value of the
shares acquired.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Quarles & Brady, as counsel for Principal Preservation, has rendered its
opinion as to certain legal matters regarding the due authorization and valid
issuance of the shares of common stock being sold pursuant to the Prospectus.
Price Waterhouse, LLP independent accountants, are the auditors of the Fund.
APPENDIX
A description of the two highest commercial paper, bond and other short-
and long-term rating categories assigned by Standard & Poor's Corporation
("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch Investors Service,
Inc. ("Fitch"), Duff & Phelps, Inc. ("Duff"), IBCA Limited and IBCA Inc.
("IBCA") and Thomson BankWatch, Inc. ("BankWatch") now follows.
COMMERCIAL PAPER AND SHORT-TERM RATINGS
The designation A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation. Capacity
for timely payment on issues with an A-2 designation is satisfactory. However,
the relative degree of safety is not as high as for issues designated A-1.
The rating Prime-1 (P-1) is the highest commercial paper rating assigned by
Moody's. Issuers of P-1 paper must have a superior ability for repayment of
senior short-term debt obligations, and Prime-1 repayment ability will often be
evidenced by leading market positions in well established industries, high rates
of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and well
established access to a range of financial markets and assured sources of
alternate liquidity. Issues rated Prime-2 (P-2) have a strong ability for
repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
The rating F-1+ (Exceptionally Strong Credit Quality) is the highest
commercial paper rating assigned by Fitch. Paper rated F-1+ is regarded as
having the strongest degree of assurance for timely payment. The rating F-2
(Very Strong Credit Quality) is the second highest commercial paper rating
assigned by Fitch which reflects an assurance of timely payment only slightly
less in degree than issues rated F-1+.
The rating Duff 1+ is the highest commercial paper rating assigned by Duff.
Paper rated Duff 1+ is regarded as having the highest certainty of timely
payment. Short-term liquidity, including internal operating factors and/or
access to alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations. Paper rated Duff 1 is regarded
as having a very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors
are minor.
The designation A1 by IBCA indicates that the obligation is supported by a
strong capacity for timely repayment. Those obligations rated Al+ are supported
by the highest capacity for timely repayment. Obligations rated A2 are
supported by a satisfactory capacity for timely repayment, although such
capacity may be susceptible to adverse changes in business, economic or
financial conditions.
The rating TBW-1 is the highest short-term obligation rating assigned by
BankWatch. A rating of TBW-1 indicates a very high likelihood that principal
and interest will be paid on a timely basis. Obligations rated TBW-2 are in the
second-highest category, indicating that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated TBW-1.
BOND AND LONG-TERM RATINGS
Bonds rated AAA have the highest rating assigned by S&P and possess an
extremely strong capacity to pay principal and interest. Bonds rated AA by S&P
are judged by S&P to have a very strong capacity to pay principal and interest,
and differ from the higher rated issues only in small degree. Bonds rated AA
may be modified by the addition of a plus or minus sign to show relative
standing in the category.
Bonds rated Aaa are judged by Moody's to be of the best quality. Bonds
rated Aa by Moody's are judged by Moody's to be of high quality by all standards
and, together with the Aaa group, they comprise what are generally known as
high-grade bonds. Bonds rated Aa are rated lower than Aaa bonds because margins
of protection may not be as large or fluctuations of protective elements may be
of greater amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in Aaa securities. Moody's applies
numerical modifiers 1, 2 and 3 in the Aa rating category. The modifier 1
indicates a ranking for the security in the higher end of this rating category,
the modifier 2 indicates a mid-range ranking, and the modifier 3 indicates a
ranking in the lower end of the rating category.
Bonds rated AAA by Fitch are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. Bonds rated AA by Fitch are considered to be investment
grade and of very high credit quality. The obligor's ability to pay interest
and repay principal is very strong, although not quite as strong as bonds rated
AAA. Because bonds rated in the AAA and AA categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these issuers
is generally rated F-1+. Bonds rated AA may be modified by the addition of a
plus or minus sign to show relative standing in the category.
Bonds rated AAA by Duff are considered to be of the highest credit quality.
The risk factors are negligible, being only slightly more than for risk-free
U.S. Treasury debt. Bonds rated AA+, AA and AA- are considered by Duff to be of
high credit quality with strong protection factors. Risk is modest but may vary
slightly from time to time because of economic conditions.
Obligations rated AAA by IBCA have the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial.
Adverse changes in business, economic or financial conditions are unlikely to
increase investment risk significantly. Obligations rated AA by IBCA have a
very low expectation of investment risk. Capacity for timely repayment of
principal and interest is substantial. Adverse changes in business, economic or
financial conditions may increase investment risk albeit not very significantly.
A plus or minus may be appended to a rating to denote relative status within
major rating categories.
IBCA also assigns a rating to certain international and U.S. banks. An
IBCA bank rating represents IBCA's current assessment of the strength of the
bank and whether such bank would receive support should it experience
difficulties. In its assessment of a bank, IBCA uses a dual rating system
comprised of Legal Ratings and Individual Ratings. In addition, IBCA assigns
banks Long- and Short-Term Ratings as used in the corporate ratings discussed
above. Legal Ratings, which range in gradation from 1 through 5, address the
question of whether the bank would receive support provided by central banks or
shareholders if it experienced difficulties, and such ratings are considered by
IBCA to be a prime factor in its assessment of credit risk. Individual Ratings,
which range in gradations from A through E, address the question of how the bank
would be viewed if it were entirely independent and could not rely on support
from state authorities or its owners.
In addition to its ratings of short-term obligations, BankWatch assigns a
rating to each issuer it rates, in gradations of A through E. BankWatch examines
all segments of the organization, including, where applicable, the holding
company and operating subsidiaries. Long-term debt obligations rated in AAA,
the highest category, indicate that the ability to repay principal and interest
on a timely basis is very high. A rating of AA, BankWatch's second-highest
category, indicates a superior ability to repay principal and interest on a
timely basis, with limited incremental risk compared to issues rated in the
highest category. BankWatch also assigns, in the case of foreign banks, a
country rating ranging from I through V, which represents an assessment of the
overall political and economic stability of the country in which the bank is
domiciled.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
INVESTMENT ADVISER AND ADMINISTRATOR
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
DISTRIBUTOR, TRANSFER AND
DIVIDEND DISBURSING AGENT, SHAREHOLDER
SERVICING AGENT, DEPOSITORY AND FUND
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
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
CASH RESERVE PORTFOLIO
CLASS Y COMMON STOCK (INSTITUTIONAL CLASS)
JANUARY 2, 1996
STATEMENT OF ADDITIONAL INFORMATION
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