<PAGE> 1
As filed with the Securities and Exchange Commission on May 1, 1996.
Registration No. 333-01125
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. ___ [X] Post-Effective Amendment No. 1
(Check appropriate box or boxes)
================================================================================
<TABLE>
<S> <C>
Exact Name of Registrant as Specified in Charter: Area Code and Telephone Number:
PRINCIPAL PRESERVATION PORTFOLIOS, INC. (414) 334-5521
Address of Principal Executive Offices (Number, Street, City, State, Zip Code):
215 NORTH MAIN STREET
WEST BEND, WISCONSIN 53095
Name and Address of Agent for Service: With a copy to:
ROBERT J. TUSZYNSKI
VICE PRESIDENT CONRAD G. GOODKIND
PRINCIPAL PRESERVATION PORTFOLIOS, INC. QUARLES & BRADY
215 NORTH MAIN STREET 411 EAST WISCONSIN AVENUE
WEST BEND, WISCONSIN 53095-3348 MILWAUKEE, WISCONSIN 53202
</TABLE>
Approximate Date of Proposed Public Offering: March 22, 1996 (the
date on which this Registration Statement became effective).
It is proposed that this filing will become effective immediately upon
filing pursuant to Rule 485(b).
================================================================================
The Registrant has previously filed a declaration registering an
indefinite number of its shares of Common Stock, par value $.001 per share,
pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended.
Accordingly, no filing fee is payable herewith. The Registrant's Rule 24f-2
Notice for the year ended December 31, 1995 was filed on February 27, 1996.
================================================================================
<PAGE> 2
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
CROSS REFERENCE SHEET
(Pursuant to Rule 481(a) showing the location in the Prospectus and
the Statement of Additional Information of the responses to the Items of Parts
A and B of Form N-14.)
<TABLE>
<CAPTION>
Caption or Subheading in Prospectus
Item No. on Form N-14 or Statement of Additional Information
--------------------- --------------------------------------
<S> <C>
PART A - INFORMATION REQUIRED IN THE PROSPECTUS
1. Beginning of Registration Statement and Cover Page
Outside Front Cover Page of Prospectus
2. Beginning and Outside Back Cover Page of Table of Contents
Prospectus
3. Fee Table, Synopsis Information and Risk Synopsis; *
Factors
4. Information About the Transaction Synopsis; the Proposed Reorganization;
Appendix A
5. Information About the Registrant Synopsis; Miscellaneous;*
6. Information About the Company Being Synopsis; Miscellaneous;*
Acquired
7. Voting Information Introduction, Voting Information and
Requirements
8. Interest of Certain Persons and Experts Miscellaneous
9. Additional Information Required for Not Applicable
Reoffering by Persons Deemed to be
Underwriters
PART B -- INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Not Applicable
12. Additional Information About the Registrant *
13. Additional Information About the Company *
Being Acquired
14. Financial Statements Historical Financial Statements; Unaudited
Proforma Financial Statements
</TABLE>
______________________
*Incorporated by reference.
<PAGE> 3
The purpose of this Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-14 is to file as exhibits thereto an opinion
of counsel as to the legality of the shares being registered (Exhibit 11) and
an opinion of counsel regarding certain tax matters and consequences to
shareholders (Exhibit 12).
PART A - INFORMATION REQUIRED IN A PROSPECTUS
In response to Part A of Form N-14, the Registrant hereby incorporates
by reference Part A of its Registration Statement on Form N-14 (Registration
No. 333-01125), as filed with the Securities and Exchange Commission on
February 21, 1996, which includes the Proxy Statement/Prospectus filed with the
Securities and Exchange Commission on March 25, 1996 under Rule 497.
PART B - INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
In response to Part B of Form N-14, the Registrant hereby incorporates
by reference Part B of its Registration Statement on Form N-14 (Registration
No. 333-01125), as filed with the Securities and Exchange Commission on
February 21, 1996, which includes the Statement of Additional Information filed
with the Securities and Exchange Commission on March 25, 1996 under Rule 497.
PART C - OTHER INFORMATION
In partial response to Part C of Form N-14, the Registrant hereby
incorporates by reference Part C of its Registration Statement on Form N-14
(Registration No. 333-01125), as filed with the Securities and Exchange
Commission on February 21, 1996. In further response to Item 16, the
Registrant hereby amends the Exhibit Index to include an opinion of counsel as
to the legality of the securities being registered and an opinion of counsel
regarding certain tax matters and consequences to shareholders filed as
Exhibits 11 and 12, respectively.
<PAGE> 4
SIGNATURES
As required by the Securities Act of 1933, this Amendment to the
Registration Statement has been signed on behalf of the Registrant, in the City
of West Bend, in the State of Wisconsin, on the 30th day of April, 1996.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
By: /s/ R. D. Ziegler
------------------------------------------------------
R. D. Ziegler, President and Chief Executive Officer
As required by the Securities Act of 1933, this Amendment to the
Registration Statement has been signed on this 30th day of April, 1996 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ R. D. Ziegler Director and President
------------------------------- (Chief Executive Officer)
R. D. Ziegler
/s/ Robert J. Tuszynski Director and Vice President
------------------------------- (Chief Financial Officer)
Robert J. Tuszynski
/s/ Jay Ferrara Treasurer (Chief Accounting Officer)
-------------------------------
Jay Ferrara
Richard H. Aster* Director
-------------------------------
Richard H. Aster
August J. English* Director
-------------------------------
August J. English
Ralph J. Eckert* Director
-------------------------------
Ralph J. Eckert
*By: /s/ Robert J. Tuszynski
------------------------------------------------
Robert J. Tuszynski, pursuant to power
of attorney dated February 20, 1996 and
previously filed
</TABLE>
C-1
<PAGE> 5
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
EXHIBIT TO INDEX
TO
REGISTRATION STATEMENT ON FORM N-14
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
------- ----------- -----------
<S> <C> <C>
(1)(a) Restated and Amended Articles of Incorporation*
(1)(b) Form of Articles Supplementary**
(2)(a) By-Laws*
(2)(b) Amendment to Bylaws Adopted by Board of Directors on January 20, 1995*
(3) None
(4) Insured Tax-Exempt Portfolio's Plan of Reorganization and Liquidation**
(5)(a) Specimen Certificate representing shares in Insured Tax-Exempt
Portfolio*
(5)(b) Specimen Certificate representing shares in Tax-Exempt Portfolio*
(6)(a) Investment Advisory Agreement pertaining to the assets of Insured Tax-
Exempt, Tax-Exempt, S&P 100 Plus, Government, Balanced, Wisconsin Tax-
Exempt and Select Value Portfolios*
(7)(a) Distribution Agreement*
(7)(b) Form of Selected Dealers Agreement*
(8) None
(9) Depository Contract*
(10)(a) Rule 12b-1 Distribution Plan*
(10)(b) Amendment No. 1 to Rule 12b-1 Distribution Plan*
(11) Opinion of Counsel regarding the legality of securities being
registered
(12) Opinion of Counsel regarding certain tax matters and consequences to
shareholders
(13)(a) Transfer and Dividend Disbursing Agent Agreement*
(13)(b) Accounting/Pricing Agreement between Registrant and B.C. Ziegler and
Company*
(14)(a) Consent of Independent Accountants
</TABLE>
C-2
<PAGE> 6
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
------- ----------- -----------
<S> <C> <C>
(14)(b) Consent of Counsel regarding legal and tax opinions in Exhibits 11
and 12, respectively**
(15) None
(16) Powers of Attorney**
(17) Rule 24f-2 Notice**
</TABLE>
_________________
* Previously filed as part of the Registrant's Registration Statement on
Form N-1A (Reg. Nos. 33-12 and 811-4401), or an amendment thereto, and
incorporated herein by reference.
** Previously filed as part of the Registrant's Registration Statement on
Form N-14 (Reg. No. 333-01125), and incorporated herein by reference.
C-3
<PAGE> 1
[QUARLES & BRADY LETTERHEAD]
Exhibit 11
May 1, 1996
Principal Preservation Portfolios, Inc.
215 North Main Street
West Bend, Wisconsin 53095
Gentlemen:
In connection with the registration of shares of the Tax-Exempt
Portfolio, a series of Principal Preservation Portfolios, Inc., a Maryland
corporation (the "Registrant"), you have requested that we furnish you with the
following opinion, which we understand is to be used in connection with and
filed as an exhibit to the Registration Statement on Form N-14 (as may be
amended, the "Registration Statement") initially filed with the Securities and
Exchange Commission on February 21, 1996 (1933 Act Reg. No. 333-01125).
We understand that the shares of Common Stock of the Tax-Exempt
Portfolio to which the Registration Statement relates will be issued in
exchange for outstanding shares of the Insured Tax-Exempt Portfolio, another
separate series of the Registrant, pursuant to the terms of a Plan of
Reorganization and Liquidation (the "Plan of Reorganization"), dated February
20, 1996, all as described in the Registrant's Registration Statement. For
purposes of rendering this opinion, we have examined originals or copies of
such documents as we consider necessary, including those listed below. In
conducting such examination, we have assumed the genuineness of all signatures
and the authenticity of all documents submitted to us as originals and the
conformity to original documents of all documents submitted to us as copies.
The documents we have examined include:
1. The Registration Statement;
2. Articles Supplementary dated April 24, 1996 filed with, and
approved by, the State of Maryland State Department of
Assessments and Taxation on April 30, 1996 to take effect as
of the date of this opinion letter;
3. The Plan of Reorganization;
4. Minutes of a January 19, 1996 meeting of the Registrant's
Board of Directors at which the Board authorized the
transactions described in the Plan of Reorganization;
5. Resolutions approving the Plan of Reorganization duly adopted
by the shareholders of the Insured Tax-Exempt Portfolio at a
special meeting held on April 24, 1996;
6. Other documents and certificates exchanged between the parties
at the closing contemplated by and pursuant to the Plan of
Reorganization; and
7. Such certificates of public officials and other public
documents, certificates of officers and representatives of the
parties to the Plan of Reorganization and such matters of law
as we have deemed relevant to the opinions expressed herein.
<PAGE> 2
Principal Preservation Portfolios, Inc.
May 1, 1996
Page 2
Based upon and subject to the foregoing, after having given due regard
to such issues of law as we deemed relevant, and assuming that:
1. The Registration Statement remains effective, and the Proxy
Statement/Prospectus which is a part thereof and your Proxy
Statement/Prospectus delivery procedures with respect thereto
fulfill all the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940 throughout all periods
relevant to this opinion;
2. All offers and issuances of shares of Common Stock of the
Tax-Exempt Portfolio registered under the Registration
Statement are conducted in a manner complying with the terms
of the Plan of Reorganization and the Registration Statement;
and
3. All offers and issuances of shares of Common Stock of the
Tax-Exempt Portfolio registered under the Registration
Statement are conducted in compliance with the state
securities laws of the states having jurisdiction thereof;
we are of the opinion that shares of Common Stock of the Tax-Exempt Portfolio
covered by the Registration Statement will be, when issued, legally and validly
issued, fully paid and non-assessable.
Very truly yours,
QUARLES & BRADY
<PAGE> 1
[QUARLES & BRADY LETTERHEAD]
Exhibit 12
May 1, 1996
Board of Directors
Principal Preservation Portfolios, Inc.
215 North Main Street
West Bend, WI 53095-3317
RE: TAX OPINION WITH RESPECT TO THE ACQUISITION OF THE ASSETS OF
THE INSURED TAX-EXEMPT PORTFOLIO, A SERIES OF PRINCIPAL
PRESERVATION PORTFOLIOS, INC., BY THE TAX-EXEMPT PORTFOLIO, A
SERIES OF PRINCIPAL PRESERVATION PORTFOLIOS, INC.
Ladies and Gentlemen:
At your request, we are rendering our opinion with respect to certain
federal income tax questions in connection with the proposed acquisition of the
assets of the Insured Tax-Exempt Portfolio ("Insured"), a series of Principal
Preservation Portfolios, Inc. (the "Fund"), by the Tax-Exempt Portfolio
("Tax-Exempt"), a series of the Fund. We do not express any opinion in this
letter with respect to any issues pertaining to any state or local taxes.
We have examined the Principal Preservation Insured Tax-Exempt
Portfolio Plan of Reorganization and Liquidation, dated as of February 20, 1996
(the "Plan"), which sets forth the terms of the proposed transactions. In
addition, the parties to the transaction have made various representations
concerning the transaction, including their purposes for entering into the
transaction.
STATEMENT OF FACTS
A. THE FUND.
The Fund is a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"). The Fund is a Maryland corporation with its principal office at 215
North Main Street, West Bend, Wisconsin 53095-3317. The authorized capital
stock of the Fund consists of one billion shares of common stock, $.001 par
value per share, issuable in such series as authorized and established from
time to
<PAGE> 2
Board of Directors
Principal Preservation Portfolios, Inc.
Page 2
May 1, 1996
time by the Board of Directors of the Fund. Shares of nine series, or
"portfolios," have been authorized, including Insured and Tax-Exempt.
B. INSURED.
Insured is a portfolio of the Fund. The Board of Directors of the Fund
has authorized and established a series of voting common stock ($0.001 par
value per share) known as Insured. Of the fifty million authorized shares of
Insured series, approximately 1,823,623 shares were issued and outstanding as
of December 31, 1995. Insured's investment objective is to obtain the highest
total return consistent with the preservation of principal through investing in
a diversified portfolio of municipal securities, each of which is covered by
insurance which provides for the timely payment of principal at maturity and
interest. On December 31, 1995 Insured's investments consisted of long-term
tax- exempt securities (99.8% of total assets), and short-term tax-exempt and
money market accounts (0.02% of total assets).
C. TAX-EXEMPT.
Tax-Exempt is a portfolio of the Fund. The Board of Directors of the
Fund has authorized and establishing a series of voting common stock ($0.001
par value per share) known as Tax-Exempt. Of the fifty million authorized
shares of Tax-Exempt series, approximately 6,010,621 shares were issued and
outstanding as of December 31, 1995. Tax-Exempt's investment objective is to
obtain the highest total return, consistent with the preservation of principal,
through investment in high quality municipal bonds with remaining maturities of
two to twenty years. On December 31, 1995 Tax-Exempt's investments consisted
of long-term tax-exempt securities (99.8% of total assets), and short-term tax-
exempt securities and money market accounts (0.02% of total assets).
D. PROPOSED TRANSACTION.
On January 19, 1996, the Board of Directors of the Fund approved, and
on April 24, 1996, the shareholders of Insured will be asked to approve, the
Plan which provides for the acquisition by Tax-Exempt of all of the assets of
Insured in exchange for stock of Tax-Exempt (except for assets retained by
Insured for the purpose of discharging its estimated liabilities).
In exchange for Insured's assets Tax-Exempt will deliver to Insured
that number of shares of Tax-Exempt voting common stock as shall be determined
by dividing the value of Insured's net assets
<PAGE> 3
Board of Directors
Principal Preservation Portfolios, Inc.
Page 3
May 1, 1996
to be so exchanged by the net asset value per share of Tax-Exempt voting common
stock, both valued at the close of business on the New York Stock Exchange on
the business day immediately preceding the consummation of the proposed
transaction. Insured will then transfer the Tax-Exempt shares to its
shareholders on a pro rata basis according to the number of Insured shares held
by those shareholders, and Insured will then, in effect, be completely
liquidated, and the designation of that series will be discontinued.
The stock transfers will be accomplished by book entries. Fractional
shares will be rounded to the nearest thousandth of a share.
E. BUSINESS PURPOSES.
In connection with the proposed transaction, you have stated that the
business purposes therefor include the following:
The reorganization would be a means of combining similar portfolios
with comparable investment objectives and policies and would permit the
shareholders of Insured to pursue substantially the same investment goals in a
potentially larger combined portfolio. The Board of Directors determined that
the benefits to Insured of maintaining insurance on each municipal security in
its portfolio do not outweigh the costs of such insurance, the other costs and
expenses of operating separate, but similar, portfolios and the adverse effect
of such costs on Insured's total return and yield. The Board of Directors also
believes that the lack of growth of investment in Insured may suggest limited
interest in Insured as an alternative to other tax-exempt funds. Moreover, the
municipal securities in which Insured invests have generally been eligible for
investment by Tax-Exempt, and have not required Insured to obtain a portfolio
insurance policy thereon. In addition, all of the municipal securities in
which Tax-Exempt invests are investment grade, involving little risk of
non-payment.
The reorganization should permit the reduction or elimination of
certain duplicative costs and expenses presently incurred for services that are
separately performed for both Insured and Tax-Exempt. It is anticipated that
the larger aggregate net assets of the combined portfolio resulting from the
reorganization should enable the shareholders of Tax-Exempt (including the
former shareholders of Insured) to obtain economies of scale by spreading
certain fixed expenses (such as printing costs and fees for professional
services) over a larger asset base and by eliminating certain audit and state
registration fees. Expenses that are based
<PAGE> 4
Board of Directors
Principal Preservation Portfolios, Inc.
Page 4
May 1, 1996
on the value of assets, such as advisory fees, or the number of shareholder
accounts, such as custody and transfer agent fees, would also be reduced by the
reorganization. The former shareholders of Insured who become shareholders of
Tax-Exempt, as well as shareholders of Tax-Exempt itself, may expect to enjoy a
lower overall expense ratio.
The Board also believes that the reorganization would enable the
resulting combined portfolio, with its larger asset base, to achieve enhanced
investment performance and distribution capability. These goals are
anticipated to be achieved by the reorganization because the expected increase
in the size of the combined portfolio should potentially increase its operating
efficiencies, enhance the ability of the adviser for this combined Portfolio to
effect securities transactions on more favorable terms, and give the adviser
greater investment flexibility and the ability to select a larger number of
portfolio securities for the combined portfolio, with the attendant ability to
spread investment risks among a larger number of portfolio securities.
REPRESENTATIONS
The following representations have been made in connection with the
proposed transaction:
1. The Fund is a diversified, open-end management company and has
been registered as such with the Securities and Exchange Commission under the
1940 Act at all times during the past three years.
2. Each portfolio of the Fund (including Tax-Exempt and Insured)
is a segregated portfolio of assets, the beneficial interests in which are
owned by the holders of a class or series of voting stock of the Fund that is
preferred over all other classes or series in respect of such portfolio of
assets.
3. The Fund is a regulated investment company within the meaning
of Section 851 of the Internal Revenue Code of 1986, as amended (the "Code").
With respect to each of Insured and Tax-Exempt, no more than 25 percent of the
value of the portfolio's total assets is invested in the stock and securities
of any one issuer and not more than 50 percent of the value of its total assets
is invested in the stock and securities of 5 or fewer issuers. Furthermore,
subsequent to the proposed transaction, no more than 25 percent of the value of
Tax-Exempt's total assets will be invested in the stock and securities of any
one issuer nor will
<PAGE> 5
Board of Directors
Principal Preservation Portfolios, Inc.
Page 5
May 1, 1996
more than 50 percent of the value of its total assets be invested in the stock
and securities of 5 or fewer issuers. For purposes of this representation, in
determining total assets, there shall be excluded cash and cash items
(including receivables), U.S. Government securities, and assets acquired
(through incurring indebtedness or otherwise) for purposes of meeting the
requirements of Section 368(a)(2)(F)(ii) of the Code. Furthermore, none of the
assets of Insured or Tax-Exempt was acquired for purposes of meeting the
requirements of Section 368(a)(2)(F)(ii).
4. Tax-Exempt and Insured are investment companies as defined in
Sections 368(a)(2)(F)(i) and (iii) of the Code. Tax-Exempt and Insured have,
for all their taxable years, elected to be taxed as regulated investment
companies as defined in Sections 851 through 855 of the Code. After the
reorganization, Tax-Exempt intends to continue to elect to be taxed as a
regulated investment company for all subsequent taxable years.
5. There is no plan or intention by Insured's shareholders who
own five percent or more of the stock of Insured, and to the best knowledge of
the management of the Fund, Insured, and Tax-Exempt there is no plan or
intention on the part of any of Insured's shareholders to sell, exchange,
redeem or otherwise dispose of a number of shares of Tax-Exempt stock received
in the transaction that would reduce the ownership by the shareholders of
Insured of the stock of Tax-Exempt to a number of shares having a value, as of
the date of the transaction, of less than 50 percent of the value of all of the
formerly outstanding stock of Insured as of the same date. Shares of Insured
stock and shares of Tax-Exempt stock held by Insured shareholders and otherwise
sold, redeemed, or disposed of prior or subsequent to the transaction will be
considered in making this representation.
6. Tax-Exempt will acquire at least 90 percent of the fair market
value of the net assets and at least 70 percent of the fair market value of the
gross assets held by Insured immediately prior to the transaction. For
purposes of this representation, amounts, if any, used by Insured to pay its
reorganization expenses, amounts paid by Insured to shareholders, if any, who
receive cash or other property, and all redemptions and distributions (except
for ordinary course regulated investment company dividends, including capital
gain dividends) made by Insured immediately preceding the transfer will be
included as assets of Insured held immediately prior to the transaction.
<PAGE> 6
Board of Directors
Principal Preservation Portfolios, Inc.
Page 6
May 1, 1996
7. Insured will distribute the stock it receives in the
transaction and its other properties (if any) and liquidate pursuant to the
Plan.
8. Tax-Exempt has no plan or intention to sell or otherwise
dispose of any of the assets of Insured acquired in the transaction, except for
dispositions made in the ordinary course of business and to the extent
necessary to maintain its status as a series of an open end investment company
under the 1940 Act.
9. Tax-Exempt has no plan or intention to redeem or otherwise
reacquire any of its stock to be issued in the transaction, except that
Tax-Exempt, as an open-end investment company registered with the Securities
and Exchange Commission, is required by Section 22(e) of the 1940 Act to redeem
any of its shares presented to it for redemption. To the best knowledge of the
management of Tax-Exempt, Insured, and the Fund the exchanging Insured
shareholders have no plan or intention to present their Tax-Exempt shares for
redemption.
10. Tax-Exempt will assume none of the liabilities of Insured, nor
will any of the Insured assets be subject to any liabilities.
11. B.C. Ziegler and Company, in its capacity as the distributor
for Insured, has previously committed to Insured to pay certain expenses
incurred by Insured, including the type of expenses incurred in connection with
the transaction, and will pay such expenses. B.C. Ziegler and Company, in its
capacity as the distributor for Tax-Exempt, has previously committed to pay
certain expenses of Insured, including the type of expenses incurred in
connection with the transaction, and will pay such expenses. Insured's
shareholders will pay their own expenses, if any, incurred in connection with
the transaction.
12. There is no intercorporate indebtedness existing between
Tax-Exempt and Insured that was issued, acquired, or will be settled at a
discount.
13. Tax-Exempt does not own, directly or indirectly, nor has it
owned during the past five years, directly or indirectly, any stock of Insured.
14. Following the transaction, Tax-Exempt will continue the
historic business of Insured (as a series of an open-end investment company) or
use a significant portion of Insured's assets in a business (as a series of an
open-end investment company).
<PAGE> 7
Board of Directors
Principal Preservation Portfolios, Inc.
Page 7
May 1, 1996
15. Neither the Fund nor any portfolio thereof (including
Tax-Exempt and Insured) is under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
16. The fair market value of the Tax-Exempt stock received by each
Insured shareholder will be approximately equal to the fair market value of the
Insured stock surrendered in the exchange.
17. The fair market value of the Insured assets transferred to
Tax-Exempt will be approximately equal to the fair market value of the
Tax-Exempt stock exchanged therefor.
18. None of the compensation received by any shareholder of
Insured who is also an employee of Insured, Tax-Exempt, or the Fund will be
separate consideration for, or allocable to, any of his or her Insured shares;
none of the shares of Tax-Exempt received by any such shareholder of Insured
pursuant to the Plan will be separate consideration for, or allocable to, any
employment agreement; and the compensation paid to any such shareholder of
Insured will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arms-length for similar services.
APPLICABLE LAW
A. THE STATUTORY REQUIREMENTS.
Section 368(a)(1)(C) of the Code provides that the term
"reorganization" includes the acquisition by one corporation, in exchange
solely for a part of its voting stock, of substantially all of the properties
of another corporation. Section 368(a)(2)(F) provides that if, immediately
before a transaction described in Section 368(a)(1), two or more parties to the
transaction were investment companies, then the transaction shall not be
considered to be a reorganization with respect to any such investment company,
unless it was a regulated investment company, a real estate investment trust or
a corporation which meets the requirements of Section 368(a)(2)(F)(ii).
Section 851(a)(1) of the Code defines the term "regulated investment
company" to include any domestic corporation which at all times during the
taxable year is registered under the 1940 Act as a management company, business
development company or unit investment trust. The Fund has been registered
under the 1940 Act as a management company at all times during the past three
years.
<PAGE> 8
Board of Directors
Principal Preservation Portfolios, Inc.
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May 1, 1996
Section 851(h) of the Code provides that in the case of a regulated investment
company having more than one fund, each fund of such regulated investment
company shall be treated as a separate corporation for purposes of the Code,
except with respect to the definition of regulated investment company described
above. For purposes of the foregoing, a "fund" means a segregated portfolio of
assets, the beneficial interests in which are owned by the holders of a class or
series of stock of the regulated investment company that is preferred over all
other classes or series in respect of such portfolio of assets.
B. THE NONSTATUTORY REQUIREMENTS.
In addition to the statutory requirements of Section 368, a
reorganization must also satisfy various nonstatutory requirements including
the business purpose, the continuity of ownership, and the continuity of
business enterprise requirements. In our opinion the business purposes
expressed by the parties satisfy the business purpose requirement.
Furthermore, the representations made by the parties clearly demonstrate that
there will be a continuity of ownership.
Treas. Reg. Section 1.368-1(d) provides that, as a general rule,
continuity of business enterprise requires that the acquiring corporation
either use a significant portion of the acquired corporation's assets in a
business or continue the acquired corporation's historic business. If an
acquired corporation has more than one line of business, the continuity of
business enterprise requirement is satisfied if the acquiring corporation
continues a significant line of business.
Insured and Tax-Exempt are two portfolios of the Fund, a regulated
investment company. Pursuant to Section 851(h) of the Code these two
portfolios are treated as if they were separate corporations under the Code.
Each of the two portfolios has sought to obtain its objective of the highest
total return consistent with the preservation of principal through investment
in municipal bonds, interest on which is tax-exempt for federal income tax
purposes. After the proposed transaction, Tax-Exempt will continue to seek the
highest return consistent with the preservation of principal through investment
in municipal bonds. In our opinion Tax-Exempt will continue the historic
business of Insured after the proposed transaction.
<PAGE> 9
Board of Directors
Principal Preservation Portfolios, Inc.
Page 9
May 1, 1996
C. ADDITIONAL STATUTORY PROVISIONS.
Sections 361 and 357(a) of the Code provide that generally no gain or
loss will be recognized if a transferor corporation which is a party to a
reorganization exchanges property pursuant to the plan of reorganization.
As provided in Section 362(b) of the Code, if property is acquired by a
corporation in connection with a reorganization, then the basis of the property
is the same as it would be in the hands of the transferor. Similarly, as a
result of Section 1223(2) of the Code, if a corporation acquires property in a
transaction in which there is a carry-over basis, the corporation shall include
in its holding period the period for which this property was held by the
transferor.
Section 354(a)(1) of the Code provides that no gain or loss will be
recognized by the holder of stock in a corporation which is a party to a
reorganization if the stock is exchanged solely for stock of another party to
the reorganization, and Section 358(a)(1) of the Code provides that the basis
of property permitted to be received under Section 354 of the Code without the
recognition of gain or loss is the same as the property exchanged, decreased by
the amount of money or the fair market value of any other property received by
the taxpayer and in the amount of any loss which the taxpayer recognized on the
exchange, and increased by the amount which was treated as a dividend and the
amount of any gain recognized by the taxpayer on the exchange (excluding any
part of such gain that was treated as a dividend). Under Section 1223(1) of
the Code, a stockholder's holding period for the property acquired in the
exchange shall include the holding period of the exchanged property, provided
the property exchanged was a capital asset on the date of the exchange.
OPINION
On the basis of the foregoing information and representations, and
assuming that the transaction is consummated in a manner consistent with the
terms of the Plan and that the representations remain accurate and true
immediately prior to the consummation of the transaction, our opinion is as
follows:
1. The acquisition by Tax-Exempt of substantially all of the
assets of Insured in exchange solely for Tax-Exempt voting common stock,
followed by the pro rata distribution by Insured to its shareholders of such
shares of Tax-Exempt voting common stock in
<PAGE> 10
Board of Directors
Principal Preservation Portfolios, Inc.
Page 10
May 1, 1996
complete liquidation of Insured, will constitute a reorganization within the
meaning of Section 368(a)(1)(C) of the Code. For purposes of this opinion,
"substantially all" means at least 90 percent of the fair market value of the
net assets and at least 70 percent of the fair market value of the gross assets
of Insured. Tax-Exempt and Insured will each be "a party to a reorganization"
within the meaning of Section 368(b) of the Code.
2. No gain or loss will be recognized by Insured on the transfer
of substantially all of its assets to Tax-Exempt solely in exchange for shares
of Tax-Exempt voting common stock (Section 361(a)). No gain or loss will be
recognized by Insured on the distribution to the shareholders of Insured of the
shares of Tax-Exempt received pursuant to the Plan (Section 361(c)) of the
Code.
3. No gain or loss will be recognized by Tax-Exempt upon the
receipt of the assets of Insured solely in exchange for Tax-Exempt voting
common stock (Section 1032(a)) of the Code.
4. The basis of the assets of Insured in the hands of Tax-Exempt
will be the same as the basis of those assets in the hands of Insured
immediately prior to the transaction (Section 362(b)) of the Code.
5. The holding period of the assets of Insured in the hands of
Tax-Exempt will include the holding period of those assets in the hands of
Insured immediately prior to the transaction (Section 1223(2)) of the Code.
6. No gain or loss will be recognized by the shareholders of
Insured upon the receipt solely of Tax-Exempt voting common stock (including
fractional shares) solely in exchange for Insured stock (Section 354(a)(1)) of
the Code.
7. The basis of the Tax-Exempt voting common stock received by
the Insured shareholders (including fractional shares) will be the same as
their basis in the stock of Insured surrendered in exchange therefor (Section
358(a)(1)) of the Code.
8. The holding period of the Tax-Exempt voting common stock
received by the Insured shareholders (including fractional shares) will include
the holding period of the Insured stock surrendered in exchange therefor,
provided that such stock was held as a capital assets in the hands of Insured
shareholders on the date of the exchange (Section 1223(1)) of the Code.
<PAGE> 11
Board of Directors
Principal Preservation Portfolios, Inc.
Page 11
May 1, 1996
This opinion is based upon our best interpretation of the existing
Code, Treasury Regulations, judicial decisions, the published revenue rulings,
procedures, notices and releases of the Internal Revenue Service, and such
other authorities as we have considered relevant. This opinion states what we
believe a court would likely determine. Legislative, judicial or
administrative changes may occur which could be retroactive and adversely
affect our opinion. Furthermore, if the reorganization becomes the subject of
an administrative or judicial proceeding, no assurance can be given that our
opinion would be followed.
No opinion is expressed regarding the tax treatment of the transaction
under any other provision of the Code or Treasury Regulations. In addition, no
opinion is expressed regarding the tax treatment of any conditions existing at
the time of or effects resulting from the proposed transaction that are not
specifically covered by the above statements.
This opinion has been furnished solely for the benefit of the Fund,
Insured, Tax-Exempt, and their shareholders, and it may not be relied upon or
used by any other person or for any other purpose without our express written
consent.
Very truly yours,
QUARLES & BRADY
<PAGE> 1
Exhibit 14(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in the Proxy Statement/Prospectus and Statement of Additional
Information, which are incorporated by reference in this Post-Effective
Amendment No. 1 (this "Amendment") to the Registration Statement on Form N-14,
of our report dated January 19, 1996 included in Principal Preservation
Portfolio, Inc.'s Annual Report to Shareholders for the year ended December 31,
1995. The Annual Report to Shareholders is incorporated by reference in the
Proxy Statement/Prospectus and the Statement of Additional Information. We
also hereby consent to all references to our firm included in the Proxy
Statement/Prospectus and the Statement of Additional Information incorporated
by reference in this Amendment.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
April 30, 1996
