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As filed with the Securities and Exchange Commission on February 21, 1996.
Registration No. 33-
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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. ___ [ ] Post-Effective Amendment No. ___
(Check appropriate box or boxes)
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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 Services: With a copy to:
ROBERT J. TUSZYNSKI CONRAD G. GOODKIND
VICE PRESIDENT QUARLES & BRADY
PRINCIPAL PRESERVATION PORTFOLIOS, INC. 411 EAST WISCONSIN AVENUE
215 NORTH MAIN STREET MILWAUKEE, WISCONSIN 53202
WEST BEND, WISCONSIN 53095
Approximate Date of Proposed Public Offering: As soon as practicable
after this Registration Statement becomes effective.
It is proposed that this filing will become effective on March 22,
1996, pursuant to Rule 488.
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The Registrant has previously filed a declaration registering an
indefinite number of its shares of beneficial interest pursuant to Rule 24f-2
under the Investment Company Act of 1940, as amended. Accordingly, no filing
fee is payable herewith. The Registrant filed the notice required by Rule
24f-2 for its most recent fiscal year ended December 31, 1995, will be filed on
or before February 29, 1996.
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Page 1 of ___ pages.
The Exhibit Index is located at page ___ of the sequential numbering system.
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PRINCIPAL PRESERVATION PORTFOLIOS, INC.
CROSS REFERENCE SHEET
(Pursuant to Rule 481(a) showing the location in the Prospectus and
the Statement of Additional Information of the responses to the Items of Parts
A and B of Form N-14.)
<TABLE>
<CAPTION>
Caption or Subheading in Prospectus
Item No. on Form N-14 or Statement of Additional Information
- --------------------- --------------------------------------
<S> <C>
PART A - INFORMATION REQUIRED IN THE PROSPECTUS
1. Beginning of Registration Statement and Outside Cover Page
Front Cover Page of Prospectus
2. Beginning and Outside Back Cover Page of Table of Contents
Prospectus
3. Fee Table, Synopsis Information and Risk 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 Acquired Synopsis; Miscellaneous; *
7. Voting Information Introduction, Voting Information and Requirements
8. Interests of Certain Persons and Experts Miscellaneous
9. Additional Information Required for Reoffering Not Applicable
by Persons Deemed to be Underwriters
PART B - INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Not Applicable
12. Additional Information About the Registrant *
13. Additional Information About the Company *
Being Acquired
14. Financial Statements Historical Financial Statements; Unaudited Pro Forma Financial
Statements
</TABLE>
____________________
* Incorporated by reference
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PRINCIPAL PRESERVATION PORTFOLIOS, INC.
BALANCED PORTFOLIO
215 North Main Street
West Bend, Wisconsin 53095-3348
(414) 334-5521
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
ON APRIL 24, 1996
To the Shareholders of THE BALANCED PORTFOLIO
OF PRINCIPAL PRESERVATION PORTFOLIOS, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Meeting") of the Balanced Portfolio (the "Balanced Portfolio"), a series of
Principal Preservation Portfolios, Inc. ("Principal Preservation"), will be
held on Wednesday, April 24, 1996 at 3:00 p.m., Central Time, at the West Bend
Community Memorial Library, 230 South 6th Avenue, West Bend, Wisconsin. The
purpose of the Meeting is to consider and to act upon the following proposals:
1. To approve a Plan of Reorganization and Liquidation (the
"Plan") under which the net assets of the Balanced Portfolio
would be transferred to the S&P 100 Plus Portfolio ("S&P 100
Plus Portfolio"), an existing series of Principal
Preservation. Pursuant to the Plan, the S&P 100 Plus
Portfolio would issue to the Balanced Portfolio, in exchange
for such assets, shares of Common Stock of the S&P 100 Plus
Portfolio with an aggregate net asset value equal to the value
of the Balanced Portfolio's assets so transferred. The
Balanced Portfolio would make a pro rata distribution to its
shareholders of such shares of the S&P 100 Plus Portfolio, and
the Balanced Portfolio shareholders thereby would become
shareholders of the S&P 100 Plus Portfolio. It is expected
that the value of each Balanced Portfolio shareholder's
account in the S&P 100 Plus Portfolio after the exchange would
be the same as the value of such shareholder's account in the
Balanced Portfolio immediately prior to the exchange.
2. To transact such other business as may properly come before
the Meeting or any adjournments thereof.
The Board of Directors of Principal Preservation has fixed the close
of business on March 15, 1996, as the record date for the determination of
shareholders of the Balanced Portfolio entitled to notice of, and to vote at,
such Meeting and any adjournments thereof.
By Order of the Board of Directors
S. CHARLES O'MEARA
Secretary
West Bend, Wisconsin
March 26, 1996
YOUR VOTE IS IMPORTANT -- PLEASE RETURN YOUR PROXY CARD PROMPTLY
SHAREHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON. ANY SHAREHOLDER WHO
DOES NOT EXPECT TO ATTEND THE MEETING IS URGED TO INDICATE VOTING INSTRUCTIONS
ON THE ENCLOSED PROXY CARD, DATE AND SIGN IT, AND RETURN IT IN THE ENCLOSED
POST-PAID ENVELOPE. IN ORDER TO AVOID THE ADDITIONAL EXPENSE OF A SECOND
SOLICITATION, WE ASK YOUR COOPERATION IN MAILING YOUR PROXY PROMPTLY, NO MATTER
HOW LARGE OR SMALL YOUR HOLDINGS MAY BE.
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PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095-3348
(414) 334-5521
PROXY STATEMENT/PROSPECTUS
Acquisition of the Assets of the Balanced Portfolio,
a series of Principal Preservation Portfolios, Inc.,
By, and In Exchange for Shares of Common Stock of, the S&P
100 Plus Portfolio, another series of Principal Preservation Portfolios, Inc.
This Proxy Statement/Prospectus is being furnished in connection with
the solicitation of proxies by the Board of Directors of Principal Preservation
Portfolios, Inc. ("Principal Preservation"), for use at a Special Meeting of
Shareholders of the Balanced Portfolio, a series of Principal Preservation, to
be held at 3:00 p.m. Central Time, on Wednesday, April 24, 1996, at the West
Bend Community Memorial Library, 230 South 6th Avenue, West Bend, Wisconsin
(the "Meeting").
The purpose of the Meeting is to consider and vote on the Plan of
Reorganization and Liquidation (the "Plan") involving the Balanced Portfolio
and the S&P 100 Plus Portfolio (collectively, the "Portfolios" and
individually, a "Portfolio"), another series of Principal Preservation. The
Plan provides for the reorganization of the Balanced Portfolio into the S&P 100
Plus Portfolio. Pursuant to the Plan, all of the assets (net of liabilities)
of the Balanced Portfolio would be acquired by the S&P 100 Plus Portfolio in
exchange for shares of common stock, par value $.001 per share ("Common
Stock"), of the S&P 100 Plus Portfolio. Shares of Common Stock of the S&P 100
Plus Portfolio received by the Balanced Portfolio would then be distributed pro
rata to shareholders of the Balanced Portfolio, and the Balanced Portfolio
would be liquidated and discontinued. It is expected that the value of each
Balanced Portfolio shareholder's account in the S&P 100 Plus Portfolio after
these proposed transactions (the "Reorganization") would be the same as the
value of such shareholder's account in the Balanced Portfolio immediately prior
to the Reorganization. See "The Proposed Reorganization."
This Proxy Statement/Prospectus sets forth concisely the information
about the Balanced Portfolio, the S&P 100 Plus Portfolio, Principal
Preservation and the Reorganization that shareholders of the Balanced Portfolio
should know before voting on the Reorganization. It constitutes an offering of
shares of the S&P 100 Plus Portfolio only. Please read this Proxy
Statement/Prospectus carefully and retain it for future reference.
THESE SECURITIES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR ENDORSED OR
GUARANTEED BY, ANY BANKING INSTITUTION, ARE NOT INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) OR ANY OTHER GOVERNMENTAL AGENCY
AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATIVE TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is March 22, 1996.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
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Page
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AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
INTRODUCTION, VOTING INFORMATION AND REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SYNOPSIS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Proposed Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Reasons for the Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
COMPARISON OF THE PORTFOLIOS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Other Information About the Balanced Portfolio, the S&P 100 Plus Portfolio and Principal
Preservation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
THE PROPOSED REORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Description of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Reasons for the Proposed Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Description of Securities To Be Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Interests of Experts and Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Cost of Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Shareholder Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
AVAILABLE INFORMATION
Principal Preservation has filed with the Commission a Registration
Statement on Form N-14 (the "Registration Statement") under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the shares of the
S&P 100 Plus Portfolio offered hereby. As permitted by the rules and
regulations of the Commission, this Proxy Statement/Prospectus omits certain
information, exhibits and undertakings contained in the Registration Statement.
Such additional information can be inspected at the principal offices of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, as well as the
following regional offices: Seven World Trade Center, 13th Floor, New York,
New York 10048; and CitiCorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60621. Copies of the Registration Statement can be obtained
from the Commission at prescribed rates by writing to the Commission at any
such address. For further information, reference is made to the Registration
Statement and to the exhibits thereto.
No person has been authorized to give any information or to make any
representations other than those contained in this Proxy Statement/Prospectus
in connection with the offer contained in this Proxy Statement/Prospectus and,
if given or made, such other information or representations must not be relied
upon as
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having been authorized by Principal Preservation. This Proxy
Statement/Prospectus does not constitute an offer to sell securities in any
state or other jurisdiction to any person to whom it would be unlawful to make
such offer in such state or jurisdiction. Neither the delivery of this Proxy
Statement/Prospectus nor any sale made hereunder shall under any circumstances
create any implication that there have been no changes in the affairs of
Principal Preservation subsequent to the date of this Proxy
Statement/Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
A Statement of Additional Information, dated March 22, 1996, relating
to the proposed Reorganization described in this Proxy Statement/Prospectus has
been filed with the Securities and Exchange Commission (the "Commission") and
is incorporated by reference herein. Copies of the Statement of Additional
Information may be obtained without charge by writing to B.C. Ziegler and
Company ("Ziegler"), distributor for Principal Preservation, at 215 North Main
Street, West Bend, Wisconsin 53095, or by calling Ziegler at (800) 826-4600.
Shareholders wishing to request the Statement of Additional Information should
ask for the "Balanced Portfolio Reorganization SAI." In addition, the
Prospectus, as supplemented, and the Statement of Additional Information, as
supplemented, of Principal Preservation (covering both the Balanced Portfolio
and the S&P 100 Plus Portfolio), each dated May 1, 1995 (the "May 1, 1995
Prospectus" and the "May 1, 1995 SAI," respectively), and Principal
Preservation's 1995 Annual Report to Shareholders (the "Annual Report") have
been filed with the Commission and are incorporated by reference herein. A
copy of the May 1, 1995 Prospectus and of the Annual Report accompany this
Proxy Statement/Prospectus, and copies of the May 1, 1995 SAI may be obtained
without charge by writing to or calling Ziegler at the above address or
telephone number.
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INTRODUCTION, VOTING INFORMATION AND REQUIREMENTS
This Proxy Statement/Prospectus is being furnished to the shareholders
of the Balanced Portfolio in connection with the solicitation of proxies by the
Board of Directors of Principal Preservation to be used at a Special Meeting of
Shareholders of the Balanced Portfolio to be held on Wednesday, April 24, 1996
at 3:00 p.m., Central Time, at the West Bend Community Memorial Library, 230
South 6th Avenue, West Bend, Wisconsin. The purpose of the Meeting is to
consider and vote on the Plan, pursuant to which the S&P 100 Plus Portfolio
would acquire the assets (net of liabilities) of the Balanced Portfolio in
exchange for shares of Common Stock of the S&P 100 Plus Portfolio, which shares
would be distributed, pro rata, to the shareholders of the Balanced Portfolio,
and the Balanced Portfolio would be liquidated and discontinued.
Any proxy which is properly executed and returned in time to be voted
at the Meeting will be voted in accordance with the instructions marked
thereon. In the absence of such instructions, the proxy will be voted "FOR"
approval of the Plan under Proposal 1. The duly appointed proxies may, in
their discretion, vote upon such other matters as may come before the Meeting
or any adjournments thereof. A shareholder may revoke his or her proxy at any
time prior to its exercise by delivering written notice of revocation to the
Secretary of Principal Preservation or by executing and delivering a later
dated proxy to Principal Preservation or by attending the Meeting in person to
vote the shares of the Balanced Portfolio held by such shareholder. Proxy
materials are expected to be mailed to shareholders of the Balanced Portfolio
on or about March 26, 1996.
The Board of Directors has determined that the shares of the Balanced
Portfolio are to be voted as a separate series on the proposal to approve the
Plan and that holders of shares of the other series of Principal Preservation,
including the S&P 100 Plus Portfolio, are not entitled to vote on the proposal
to approve the Plan.
The presence at the Meeting, in person or by proxy, of shareholders
representing one-third of all shares outstanding and entitled to vote on the
Plan constitutes a quorum for the transaction of business. Abstentions and
broker non-votes (i.e., proxies from brokers or other nominee owners indicating
that such persons have not received instructions from the beneficial owners or
other persons entitled to vote the shares as to a matter with respect to which
the brokers or other nominee owners do not have discretionary power to vote)
will be treated as present for purposes of determining the presence or absence
of a quorum.
Approval of the Plan and the Reorganization contemplated thereby will
require the affirmative vote of "a majority of the outstanding voting
securities" of the Balanced Portfolio, as defined in the Investment Company Act
of 1940, as amended (the "1940 Act"). A majority of the outstanding voting
securities means the lesser of (1) 67% or more of the Balanced Portfolio's
shares present at the Meeting, if shareholders who are the owners of more than
50% of the Balanced Portfolio's shares then outstanding are present in person
or by proxy, or (2) more than 50% of the Balanced Portfolio's outstanding
shares. Accordingly, abstentions and broker non-votes will have the same
effect as votes cast against approval of the Plan.
In the event that sufficient votes in favor of the proposal to approve
the Plan are not received by the scheduled time of the Meeting, the persons
named as proxies in the enclosed proxy may propose and vote in favor of one or
more adjournments of the Meeting to permit further solicitation of proxies
without the necessity of further notice. Any such adjournment will require the
affirmative vote of a majority of the shares voted at the session of the
meeting to be adjourned.
Shareholders of record of the Balanced Portfolio at the close of
business on March 15, 1996 (the "Record Date") will be entitled to notice of
and to vote at the Meeting or any adjournment thereof. Each such shareholder
will be entitled to one vote for each share (and a fractional vote for each
fractional share) held by such shareholder on each matter presented at the
Meeting. As of the Record Date, there were _________ shares of the Balanced
Portfolio outstanding.
Under Maryland law, shareholders of the Balanced Portfolio will not be
entitled to any appraisal or similar rights in connection with the
Reorganization contemplated by the Plan. However, shareholders may redeem
their
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shares of the Balanced Portfolio at net asset value prior to the closing date
of the proposed Reorganization in the manner specified in the May 1, 1995
Prospectus.
SYNOPSIS
The following is a summary of certain information contained elsewhere
in this Proxy Statement/Prospectus (including the copy of the Plan attached
hereto as Exhibit A), the May 1, 1995 Prospectus and the Annual Report which
are incorporated herein and copies of which accompany this Proxy
Statement/Prospectus. This summary is not intended to be complete and is
qualified in all respects by reference to the more detailed information
appearing elsewhere in this Proxy Statement/Prospectus, the Plan, the May 1,
1995 Prospectus and the Annual Report.
INTRODUCTION
Shareholders of the Balanced Portfolio will be asked at the Meeting to
vote upon and approve the Plan. If approved by the shareholders of the
Balanced Portfolio, it is expected that the Reorganization will be consummated
immediately prior to the opening of business on May 1, 1996, or such later date
as Principal Preservation may determine (the "Closing Date").
The Portfolios are two of nine series currently offered by Principal
Preservation. The other series of Principal Preservation are not involved in
the transactions contemplated by the Plan. Ziegler Asset Management, Inc.
("Ziegler Asset Management" or the "Adviser") is the investment adviser for
both Portfolios, and PanAgora Asset Management, Inc. ("PanAgora") serves as
sub-adviser to the S&P 100 Plus Portfolio. Ziegler Asset Management and
PanAgora sometimes are referred to together herein as the "Advisers" of the S&P
100 Plus Portfolio. Ziegler serves as distributor ("Distributor"), depository,
accounting/pricing agent, and transfer and dividend disbursing agent ("Transfer
Agent") to the Portfolios.
If the Plan is consummated, shareholders of the Balanced Portfolio
will continue to enjoy the privileges of the Principal Preservation family of
funds as shareholders of the S&P 100 Plus Portfolio. Balanced Portfolio
shareholders will not pay any front-end load or sales commission on the shares
of the S&P 100 Plus Portfolio they receive in the Reorganization.
Additionally, it is a condition of the Reorganization that Principal
Preservation must receive a legal opinion to the effect that the Reorganization
will qualify as a tax-free reorganization. Assuming that the Reorganization so
qualifies, shareholders of the Balanced Portfolio will not realize any capital
gain or loss as a result of the exchange in the Reorganization of their shares
of the Balanced Portfolio for shares of the S&P 100 Plus Portfolio.
However, it is anticipated that, in order to consummate the
Reorganization, it will be necessary for the Balanced Portfolio to liquidate a
portion of its investment securities that are either not eligible for purchase
by the S&P 100 Plus Portfolio or otherwise inconsistent with the S&P 100 Plus
Portfolio's investment objective, policies and programs. The disposition of
such securities by the Balanced Portfolio likely will result in the recognition
of capital gains attributable to the appreciated value of such securities over
the price at which they were purchased by the Balanced Portfolio, and such
capital gains will be distributed to, and will be taxable to, the shareholders
of the Balanced Portfolio. If the Closing Date of the Reorganization had
occurred on December 31, 1995, it is estimated that the Balanced Portfolio
would have recognized and distributed to its shareholders capital gains
totalling approximately $577,074, or $0.9873 per share. See "The Proposed
Reorganization - Tax Considerations." Balanced Portfolio shareholders should
bear in mind that, if they elect to redeem or exchange shares of the Balanced
Portfolio prior to the proposed Reorganization, they will realize taxable gain
or loss to the extent the cash redemption proceeds, or the value of the
securities received in the exchange, as the case may be, is greater or less
than such shareholder's tax basis in his or her shares of the Balanced
Portfolio. See "Tax Status" in the accompanying May 1, 1995 Prospectus.
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PROPOSED REORGANIZATION
The Plan describes the essential terms of the proposed Reorganization,
and is set forth in full as Appendix A to this Proxy Statement/Prospectus.
Pursuant to the Plan, the assets of the Balanced Portfolio (net of its
liabilities) will be transferred to the S&P 100 Plus Portfolio in exchange for
the issuance by the S&P 100 Plus Portfolio to the Balanced Portfolio of shares
of Common Stock of the S&P 100 Plus Portfolio. Liabilities of the Balanced
Portfolio which potentially could reduce the amount of the assets transferred
to the S&P 100 Plus Portfolio include, without limitation: (a) amounts owed to
shareholders of the Balanced Portfolio with respect to capital gains
distributions (including distributions of any capital gains realized in
connection with the Balanced Portfolio's sale of portfolio securities prior to
the Reorganization to conform its investment portfolio to that of the S&P 100
Plus Portfolio) and/or dividends declared but remaining unpaid as of the
Closing Date; and (b) accounts payable, taxes and other accrued and unpaid
expenses, if any, incurred in the normal operation of the business of the
Balanced Portfolio up to and including the Closing Date and/or expected to be
incurred following the Closing Date in connection with winding up and
liquidating the Balanced Portfolio. The costs and expenses incurred by the
Balanced Portfolio in carrying out the transactions contemplated by the Plan,
including legal and accounting fees and costs related to the calling and
holding of the Meeting and the solicitation of proxies in connection therewith,
will be paid by Ziegler.
The aggregate net asset value of the shares of the S&P 100 Plus
Portfolio issued in the Reorganization will be equal to the aggregate value of
the assets of the Balanced Portfolio transferred to the S&P 100 Plus Portfolio
in the Reorganization. It is expected that the value of each Balanced
Portfolio Shareholder's account in the S&P 100 Plus Portfolio immediately after
the Reorganization will be the same as the value of such shareholder's account
in the Balanced Portfolio immediately prior to the Reorganization. As soon as
reasonably practicable after the closing of the Reorganization, the Balanced
Portfolio will pay or make provision for the payment of all of its debts and
liabilities, and will distribute all remaining assets, including the shares of
the S&P 100 Plus Portfolio received by it in the Reorganization, to its
shareholders on a pro rata basis. Thereafter, the status of the Balanced
Portfolio as a designated series of shares of Principal Preservation will be
discontinued, and shareholders of the Balanced Portfolio will become
shareholders of the S&P 100 Plus Portfolio.
REASONS FOR THE REORGANIZATION
The total net assets of the Balanced Portfolio have declined from
approximately $18.1 million as of December 31, 1993 to approximately $7.0
million as of December 31, 1995. The Board of Directors does not believe there
is any strong likelihood of appreciable growth in the assets of the Balanced
Portfolio in the near future, and the small size of the Balanced Portfolio
places it at a distinct disadvantage in attempting to achieve its investment
objective, and to compete with larger mutual funds having similar investment
objectives and programs. Its total return in the past has been enhanced by fee
waivers and expense reimbursements voluntarily undertaken by the Adviser, but
Ziegler Asset Management has indicated it is unwilling to continue such waivers
and reimbursements indefinitely into the future. Management and the Board of
Directors of Principal Preservation therefore sought to identify possible
mechanisms and structures that potentially could provide attractive alternative
investment opportunities to Balanced Portfolio shareholders. The
Reorganization is intended to provide the Balanced Portfolio's shareholders
with an investment alternative which has tax consequences potentially more
favorable than a liquidation of the Portfolio, and which allows them to remain
in the Principal Preservation family of funds as shareholders of the S&P 100
Plus Portfolio.
For these and additional reasons set forth below under "The Proposed
Reorganization - Reasons for the Proposed Reorganization," the Board of
Directors of Principal Preservation, including directors who are not
"interested persons" of Principal Preservation as defined in the 1940 Act (the
"Non-Interested Directors"), has unanimously concluded that: (i) the proposed
Reorganization would be in the best interests of the shareholders of the
Balanced Portfolio; and (ii) the interests of the shareholders of the Balanced
Portfolio would not be diluted as a result of the proposed Reorganization.
Accordingly, the Board of Directors unanimously recommends that shareholders
approve the Plan and the Reorganization contemplated thereby. If the Plan is
not so approved, the Balanced Portfolio will continue to operate, at least
temporarily, without change as a separate series of Principal Preservation,
until the Board of Directors determines to take alternative measures, including
possible liquidation of the Balanced Portfolio, with shareholder approval.
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COMPARISON OF THE PORTFOLIOS
INVESTMENT OBJECTIVES AND POLICIES
Each of the Portfolios is a separate mutual fund having its own
investment objectives and policies. The investment objectives and policies of
the Portfolios are significantly different. The investment objective of the
Balanced Portfolio is to realize a combination of income and capital
appreciation which will result in the highest total return consistent with the
preservation of principal. It attempts to achieve its objective by investing
in a diversified portfolio of common stocks and fixed income securities. The
investment objective of the S&P 100 Plus Portfolio is to obtain a total return
which exceeds that of the S&P 100 Index by investing in a portfolio of common
stocks which approximately parallels the composition of the S&P 100 Index, and
by using options to attempt to enhance return and hedge protectively against
adverse changes in stock market values.
With respect to the Balanced Portfolio, the Adviser varies the mix of
common stocks and debt or other fixed income securities from time to time in a
manner that, in its judgment, is most likely to maximize total return, given
the Adviser's assessment of the existing and anticipated general market and
economic conditions, changes in yields or interest rates, and changes in
existing fiscal or monetary policies. The Adviser seeks to invest in common
stocks of corporations that have quality balance sheets, strong management, a
high return on assets and long-term continued growth of dividends and earnings.
However, unlike the S&P 100 Plus Portfolio, the Balanced Portfolio's
investments in common stocks are not restricted to those listed on any
particular index.
The Balanced Portfolio's investments in debt or other fixed income
securities may include corporate notes, bonds and debentures, mortgage-backed
securities, short-term money market instruments and U.S. Government Securities.
Generally the Portfolio will limit its investment in debt securities to those
which are rated in one of the three highest rating categories by a Nationally
Recognized Statistical Rating Organization, or instruments and obligations
issued by the U.S. Treasury or backed by the unconditional full faith and
credit of the United States government, its agencies or instrumentalities
("U.S. Government Securities"). The Balanced Portfolio also may invest in
variable rate demand notes which, at the time of investment, are rated in the
two highest rating categories by a Nationally Recognized Statistical Rating
Organization or, if unrated, are issued by a corporation with outstanding debt
with an equivalent or better rating at the time of investment. Variable rate
demand notes are unsecured obligations redeemable upon notice that permit
investment of fluctuating amounts at varying rates of interest pursuant to
direct arrangements with the issuer. The Balanced Portfolio also may invest in
preferred stocks or in debentures or other fixed-income securities that are
convertible into or otherwise carry rights to acquire common stock.
The S&P 100 Plus Portfolio invests in common stocks which make up the
S&P 100 Index, in the same relative proportion as the stocks in the Index
comprise the Index. For example, if a particular stock constituted 4% of the
Index, the S&P 100 Plus Portfolio would invest 4% of its assets in that stock.
The S&P 100 Plus Portfolio does not select the stocks in the Index, and as the
composition of the Index changes so will the underlying portfolio of common
stocks in the S&P 100 Plus Portfolio. Under normal conditions, at least 65% of
the S&P 100 Plus Portfolio's total assets are invested in the common stocks
which make up the S&P 100 Index. Unlike the Balanced Portfolio, the S&P 100
Plus Portfolio's investment program does not utilize fixed income securities.
The S&P 100 Plus Portfolio writes (sells) covered call options and put
options and purchases call options and put options on individual stocks and
stock indices for the purposes and subject to the limitations described below.
The S&P 100 Plus Portfolio may seek to enhance its return by writing covered
call options or purchasing put options with respect to some or all of the
individual stocks held in its investment portfolio. Through the purchase of
call and put options with respect to individual stocks, the Advisers may at
times protectively hedge against an increase in the price of securities which
they plan to purchase for the S&P 100 Plus Portfolio, or against a decline in
the value of securities owned by the S&P 100 Plus Portfolio. Although such
hedging strategies are intended to reduce fluctuations in the Portfolio's net
asset value, the Portfolio's net asset value nonetheless is expected to
fluctuate to some degree. Expenses and losses incurred as a result of such
hedging transactions could reduce the S&P 100 Plus Portfolio's total return.
The S&P 100 Plus Portfolio also may engage in options transactions on
securities indices as a strategy to hedge against declines in the Index (and
thereby to hedge against a similar decline in its investment
7
<PAGE> 11
portfolio) and to enhance the Portfolio's return through premium income. The
success of these strategies and gains and losses on investments in options
depend on the Advisers' ability to predict correctly the direction of movement
in stock prices and other economic factors. The Balanced Portfolio's
investment program does not utilize such strategies.
In general terms, the Balanced Portfolio invests in a balanced
portfolio of equity securities, bonds and money market instruments. The S&P
100 Plus Portfolio, on the other hand, invests primarily in common stocks and
options and other hedging instruments. The Adviser manages the investment
portfolio of the Balanced Portfolio as if it constituted the complete
investment program of a prudent investor. The S&P 100 Plus Portfolio is not
so diversified and is not managed so as to be a complete investment program.
Generally the investment securities held in common between the Balanced
Portfolio and the S&P 100 Plus Portfolio have accounted for only one-quarter to
one-half of the total net assets of the Balanced Portfolio. Notwithstanding
these differences, Principal Preservation's Board of Directors believes that an
investment in the S&P 100 Plus Portfolio would be appropriate for those
investors with respect to whom an investment in the Balanced Portfolio is
appropriate. Nonetheless, each stockholder of the Balanced Portfolio is urged
to consider the differences in the investment objectives and programs of the
two Portfolios before voting on the Reorganization.
There can be no assurance that the Portfolios will achieve their
respective investment objectives. Additional information regarding the
Portfolios' investment objectives and policies is included in the accompanying
May 1, 1995 Prospectus and the May 1, 1995 SAI, each of which has been
incorporated herein by reference. See "Incorporation of Certain Documents by
Reference."
8
<PAGE> 12
EXPENSES
The following table sets forth the shareholder transaction expenses
and annual operating expenses for the Balanced and S&P 100 Plus Portfolios,
including pro forma expenses (giving effect to the Reorganization as though it
had occurred on January 1, 1995), for the fiscal year ended December 31, 1995:
<TABLE>
<CAPTION>
S&P 100 PRO FORMA
BALANCED PLUS COMBINED
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a 4.5% 4.5% 4.5%
percentage of offering price)(1)
Maximum Sales Load Imposed on Reinvested 0% 0% 0%
Dividends (as a percentage of offering price)
Deferred Sales Load (as a percentage of 0% 0% 0%
original purchase price or redemption
proceeds)
Redemption Fees (as a percentage of amount 0% 0% 0%
redeemed)(2)
Exchange Fee $5.00 $5.00 $5.00
ANNUAL OPERATING EXPENSES -- BEFORE WAIVERS AND REIMBURSEMENTS
(AS A PERCENTAGE OF AVERAGE NET ASSETS)(3)
Management Fees
(Before Waivers) 0.60% 0.59% 0.58%
12b-1 Fees(4) 0.25% 0.25% 0.25%
Other Expenses:
Custodian Fees 0.11% 0.04% 0.04%
Transfer Agent Fees 0.12% 0.14% 0.14%
Other Fees 0.82% 0.20% 0.19%
(Before Reimbursement)(5) ------ ----- -----
Total Other Expenses 1.05% 0.38% 0.37%
Total Operating Expenses
(Before Reimbursement)(5) 1.90% 1.22% 1.20%
- ------------------------------
</TABLE>
1. Investors may qualify for a lower sales load. See "Purchase of
Shares" and "Shareholder Services" in the accompanying May 1, 1995
Prospectus. Balanced Portfolio shareholders will not pay any sales
load on shares of the S&P 100 Plus Portfolio they receive in the
Reorganization.
2. Ziegler, in its capacity as Transfer Agent, charges a fee (presently
$7.50) for redemptions by wire transfer.
3. The percentages expressing annual operating expenses are based on
amounts actually incurred during the year ended December 31, 1995.
Fees paid by the Portfolios for custodian and transfer agent services
are determined on a basis other than a straight percentage of average
net assets. For a discussion of fees associated with these services,
see "Management - The Advisors" in the accompanying May 1, 1995
Prospectus.
4. Prior to July 1, 1995, fees paid under Principal Preservation's Rule
12b-1 Distribution Plan by the S&P 100 Plus Portfolio were assessed
only on assets held in accounts opened on or after March 1, 1991.
Principal Preservation's Rule 12b-1 Distribution Plan was amended
effective July 1, 1995 (the "Rule 12b-1 Distribution Plan Amendment")
so that, from and after that date, Rule 12b-1 Fees have been assessed
on
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<PAGE> 13
all assets of that Portfolio. The "12b-1 Fees" reported in the table
have been restated to reflect the increased fees as though the Rule
12b-1 Distribution Plan Amendment had been in effect for the entire
year ended December 31, 1995. The "12b-1 Fees" actually paid by the
S&P 100 Plus Portfolio for the year ended December 31, 1995 amounted
to 0.18% of the Portfolio's average net assets.
5. For the year ended December 31, 1995, the Adviser committed to waive
advisory fees and/or reimburse expenses to the Balanced Portfolio so
that its total operating expenses for the year would not exceed 1.30%
of its average daily net assets. Giving effect to such waivers and
reimbursements, "Other Fees" and "Total Fund Operating Expenses" of
the Balanced Portfolio for the year were 0.18% and 1.26%,
respectively, of the Portfolio's average net assets.
In connection with the implementation of the Rule 12b-1 Distribution
Plan Amendment, the Adviser committed to reimburse expenses to the S&P
100 Plus Portfolio so that, for 1995, its "Total Operating Expenses"
would not exceed 1.25% of its average daily net assets. After giving
effect to this expense reimbursement commitment, "Other Fees" for the
S&P 100 Plus Portfolio were 0.15% and its "Total Operating Expenses"
were 1.16% for the year ended December 31, 1995.
Example
Investors would pay the following expenses on a $1,000 investment in each
Portfolio, assuming 5% annual return and redemption at the end of each time
period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Balanced Portfolio $58 $85 $114 $196
S&P 100 Plus Portfolio $56 $80 $106 $180
Pro Forma Combined $56 $80 $106 $180
</TABLE>
The purpose of the table is to assist investors in understanding the various
costs and expenses they will bear directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Management," "Purchase of
Shares," "Redemptions" and "Shareholder Services" in the accompanying May 1,
1995 Prospectus. THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN SHOWN.
OTHER INFORMATION ABOUT THE BALANCED PORTFOLIO, THE S&P 100 PLUS PORTFOLIO AND
PRINCIPAL PRESERVATION
With the exception of the differences in investment objectives and
programs between the Balanced Portfolio and the S&P 100 Plus Portfolio
described above, the management and operation of the two Portfolios are nearly
identical. Each Portfolio is a separate series of Principal Preservation, and
is managed by Ziegler Asset Management (with the assistance of PanAgora in the
case of the S&P 100 Plus Portfolio) under the same Investment Advisory
Agreement. Ziegler serves as the Distributor of the shares of these Portfolios
pursuant to the same Distribution Agreement, provides fund accounting and
pricing services for the Portfolios pursuant to the same Accounting/Pricing
Agreement, serves as Transfer and Dividend Disbursing Agent for the Portfolios
pursuant to the same Transfer and Dividend Disbursing Agent Agreement, and
serves as Depository of the Portfolios (the Portfolios each function as
custodian of their own assets) pursuant to the same Depository Contract.
Provisions with respect to the purchase and redemption of shares and available
shareholder services in the Balanced Portfolio are the same as those in the S&P
100 Plus Portfolio. The Reorganization will result in no changes to any of the
foregoing agreements or services.
For additional information about the Balanced Portfolio, S&P 100 Plus
Portfolio and Principal Preservation, including the organization and operation
of Principal Preservation, condensed historical financial information of the
two Portfolios, the principal risk factors associated with investments in the
Portfolios, management of Principal Preservation (including information about
the Advisers and other service providers providing services to the two
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<PAGE> 14
Portfolios and to Principal Preservation), the capital stock of Principal
Preservation, and purchases and redemptions of shares of Principal
Preservation, see the sections of the accompanying May 1, 1995 Prospectus
captioned: "Financial Highlights"; "Special Considerations"; "Management";
"Determination of Net Asset Value Per Share"; "Purchase of Shares";
"Redemptions"; "Shareholder Services"; "Dividends, Capital Gains Distributions
and Reinvestments"; "Tax Status"; and "Description of Shares." For
management's discussion and analysis regarding the factors that have affected
the Portfolio's recent performance, see the accompanying Annual Report.
THE PROPOSED REORGANIZATION
The Board of Directors of Principal Preservation unanimously
recommends that the shareholders of the Balanced Portfolio vote to approve the
Plan and the Reorganization contemplated thereby. The Board of Directors,
including the Non-Interested Directors, believe that the Plan is fair to, and
in the best interests of, the shareholders of the Balanced Portfolio.
DESCRIPTION OF THE PLAN
The terms and conditions under which the proposed Reorganization would
be consummated are set forth in the Plan. Significant provisions of the Plan
are summarized below; however, this summary is qualified in its entirety by
reference to the Plan, a copy of which is attached as Appendix A to this Proxy
Statement/Prospectus.
The Plan contemplates the transfer of all of the assets of the
Balanced Portfolio (net of its liabilities) to the S&P 100 Plus Portfolio, in
exchange for shares of Common Stock of the S&P 100 Plus Portfolio, and the pro
rata distribution, on the Closing Date, of such shares of the S&P 100 Plus
Portfolio to the shareholders of the Balanced Portfolio.
The S&P 100 Plus Portfolio would acquire the assets of the Balanced
Portfolio (net of its liabilities), including without limitation all cash
(except for cash retained to pay liabilities as described below), cash
equivalents, securities, receivables and other property owned by the Balanced
Portfolio, but excluding cash assets of the Balanced Portfolio sufficient to
pay all of its accrued but unpaid liabilities as of the Closing Date. The S&P
100 Plus Portfolio would not assume any debts, liabilities, obligations or
duties of the Balanced Portfolio. Rather, cash assets of the Balanced
Portfolio will be set aside on the Closing Date to pay all such liabilities
before or when they come due. Such liabilities potentially may include,
without limitation: (a) amounts owed to shareholders of the Balanced Portfolio
with respect to capital gains distributions (including distributions of any
capital gains realized in connection with the Balanced Portfolio's sale of
portfolio securities prior to the Reorganization to conform its investment
portfolio to that of the S&P 100 Plus Portfolio) and/or dividends declared but
remaining unpaid as of the Closing Date; and (b) accounts payable, taxes and
other accrued and unpaid expenses, if any, incurred in the normal operation of
the business of the Balanced Portfolio up to and including the Closing Date
and/or expected to be incurred following the Closing Date in connection with
the winding up and liquidation of the Balanced Portfolio. The costs and
expenses incurred by the Balanced Portfolio in carrying out the transactions
contemplated by the Plan, including legal and accounting fees and costs
relating to the calling and holding of the Meeting and the solicitation of
proxies in connection therewith, would be paid by Ziegler.
In consideration for the assets of the Balanced Portfolio transferred
in the Reorganization, the S&P 100 Plus Portfolio would issue to the Balanced
Portfolio shares of S&P 100 Plus Portfolio Common Stock having an aggregate net
asset value equal to the value of the assets so transferred by the Balanced
Portfolio. The assets of the Balanced Portfolio and the per share net asset
value of the shares of S&P 100 Plus Portfolio Common Stock would be valued as
of the close of business on the New York Stock Exchange on the business day
immediately preceding the consummation of the Reorganization. All such
valuations would be conducted in accordance with the policies and procedures of
the S&P 100 Plus Portfolio or the Balanced Portfolio, as the case may be, as
described under "Determination of Net Asset Value Per Share" in the
accompanying May 1, 1995 Prospectus and under "Determination of Net Asset Value
Per Share" in the May 1, 1995 SAI incorporated by reference herein.
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<PAGE> 15
As soon as practicable after the Closing Date, the Balanced Portfolio
would liquidate and distribute pro rata to its shareholders of record the
shares of Common Stock of the S&P 100 Plus Portfolio received by the Balanced
Portfolio. Such liquidation and distribution would be accomplished by opening
accounts on the books of the S&P 100 Plus Portfolio in the names of
shareholders of the Balanced Portfolio and by transferring the shares credited
to the account of the Balanced Portfolio on the books of the S&P 100 Plus
Portfolio. Each account opened would represent the respective pro rata number
of S&P 100 Plus Portfolio shares due to each Balanced Portfolio shareholder.
Fractional shares of the S&P 100 Plus Portfolio would be rounded to the nearest
thousandth of a share.
Accordingly, every shareholder of the Balanced Portfolio would own
shares of the S&P 100 Plus Portfolio immediately after the Reorganization, the
net asset value of which is expected to equal the aggregate net asset value of
such shareholder's Balanced Portfolio shares immediately prior to the
Reorganization. Moreover, because the S&P 100 Plus Portfolio shares would be
issued at net asset value in exchange for the net assets of the Balanced
Portfolio, and the aggregate value of those assets would equal the aggregate
value of the S&P 100 Plus Portfolio shares issued in exchange therefor, the net
asset value per share of the S&P 100 Plus Portfolio would not change as a
result of the Reorganization. Thus, the Reorganization would not result in
dilution to any Balanced Portfolio shareholder. However, as discussed
elsewhere herein, certain restructuring of the Balanced Portfolio's investment
portfolio that must be undertaken prior to, and in preparation for, the
Reorganization would give rise to capital gains distributions taxable to
Balanced Portfolio shareholders.
Any transfer taxes payable upon issuance of shares of the S&P 100 Plus
Portfolio in a name other than the registered holder of the shares on the books
of the Balanced Portfolio as of that time would be paid by the person to whom
such shares are to be issued as a condition of such transfer. Any reporting
responsibility of the Balanced Portfolio would continue to be the
responsibility of the Balanced Portfolio up to and including the Closing Date
and such later date on which the Balanced Portfolio is liquidated.
Because of the differences in the investment objectives, policies and
programs of the Balanced Portfolio as compared to the S&P 100 Plus Portfolio,
many of the investment securities held by the Balanced Portfolio are ineligible
for purchase by the S&P 100 Plus Portfolio or simply are incompatible with the
current strategies and programs of the S&P 100 Plus Portfolio. It is therefore
contemplated that, prior to the consummation of the Reorganization (but only
after approval by the Balanced Portfolio Shareholders), the Balanced Portfolio
would sell those of its investment securities which are ineligible for purchase
by the S&P 100 Plus Portfolio or otherwise incompatible with the S&P 100 Plus
Portfolio's investment strategies and programs. Many of such securities have
appreciated in value since they were acquired by the Balanced Portfolio and
therefore contain unrealized capital gains. At the time of sale of these
securities, the Balanced Portfolio would recognize the built-in capital gains
and, by virtue of its status as a regulated investment company under the Code,
would be required to distribute those gains to its shareholders. Such capital
gains distributions would be taxable to Balanced Portfolio shareholders whether
taken in cash or reinvested in additional shares, as described in the
accompanying May 1, 1995 Prospectus under the section captioned "Tax Status."
If the Reorganization had been consummated as of December 31, 1995, it is
estimated that the aggregate amount of such capital gains distributions would
have been approximately $577,074, or $0.9873 per share based on the shares
outstanding as of that date.
On or prior to the Closing Date, the Balanced Portfolio would declare
a dividend to its shareholders, so that for the short taxable year of the
Balanced Portfolio that ends on the date of its dissolution, the Balanced
Portfolio would have declared an aggregate amount of dividends that: (a) is
equal to at least the sum of its net capital gain and 90% of its investment
company taxable income for such year; and (b) is sufficient to avoid any excise
tax on the Balanced Portfolio for the calendar year in which the Closing Date
occurs. The S&P 100 Plus Portfolio would use its best efforts to pay any
dividends so declared and to distribute such capital gains prior to, or as soon
as reasonably practicable following, the Closing Date.
As soon as reasonably practicable following the Reorganization, the
S&P 100 Plus Portfolio would invest the balance of the cash proceeds derived
from such sales of securities (and which are transferred to the S&P 100 Plus
Portfolio in the Reorganization with the other assets of the Balanced
Portfolio) in securities eligible for
12
<PAGE> 16
purchase by the S&P 100 Plus Portfolio, and which otherwise are compatible with
its investment strategies and programs.
Prior to the Closing Date, Principal Preservation may terminate the
Plan and abandon the Reorganization at any time, before or after approval by
the shareholders of the Balanced Portfolio. In addition, Principal
Preservation may amend the Plan in any manner, except that no amendment may be
made subsequent to the Meeting of shareholders of the Balanced Portfolio which
would detrimentally affect the value of the S&P 100 Plus Portfolio shares to be
issued.
REASONS FOR THE PROPOSED REORGANIZATION
Small funds, such as the Balanced Portfolio, cannot be operated as
efficiently as larger funds, and therefore are at a distinct disadvantage in
attempting to compete for new investors and additional assets. The Balanced
Portfolio's asset size has declined from approximately $18.1 million at
December 31, 1993 to approximately $7.0 million at December 31, 1995. Over the
same period, the S&P 100 Plus Portfolio experienced $17.0 million of asset
growth, and had total net assets of approximately $57.1 million at December 31,
1995. Certain costs associated with the operation of a mutual fund are
unrelated to its size (e.g., professional fees, certain administrative
expenses, etc.) and have a greater impact on the total returns of smaller
funds. In addition, brokerage commission rates tend to decrease as the size of
the block of securities being traded increases, and purchases and sales of
securities can therefore generally be effected at more favorable prices by
larger funds that have the ability to trade their securities in large blocks.
In recent years the Adviser voluntarily has waived fees and reimbursed expenses
to the Balanced Portfolio, which has reduced its total expense ratio and has
enhanced its total return as compared to what it would have achieved without
such measures. The Adviser has indicated it is unwilling to continue such
voluntary fee waivers and expense reimbursements indefinitely into the future.
Given these factors and the Board of Director's belief that there is
no strong likelihood of any appreciable growth in the assets of the Balanced
Portfolio as a stand-alone fund in the near future, the Board of Directors and
management of Principal Preservation have considered available alternatives to
enhance the future total return potentially available to the Balanced
Portfolio's shareholders. The Board of Directors concluded that the
Reorganization is in the best interests of the Balanced Portfolio's
shareholders for a number of reasons, including the following:
(1) it provides the Balanced Portfolio's shareholders with an
opportunity to continue as members of the Principal
Preservation family of funds;
(2) because it is structured to qualify as a tax-free
reorganization under the Internal Revenue Code, the
Reorganization reduces the taxes that Balanced Portfolio
shareholders would experience if the Balanced Portfolio
were liquidated and, depending on a Balanced Portfolio
shareholder's tax basis in his or her shares, potentially
may reduce the taxes the shareholder would incur if he or
she were to exchange shares in the Balanced Portfolio for
shares in another Principal Preservation fund or,
alternatively, if he or she were to redeem Balanced
Portfolio shares and reinvest the redemption proceeds in
another investment vehicle. However, each shareholder's
tax situation depends on his or her particular
circumstances, and shareholders therefore are urged to
consult with their own advisers. See "The Proposed
Reorganization - Tax Considerations";
(3) the similarities between the structure, operations and
service providers between the Balanced Portfolio and the
S&P 100 Plus Portfolio; and
(4) the cost savings that can be achieved by combining the
assets of the Balanced Portfolio with those of the S&P 100
Plus Portfolio through greater economies of scale (in this
regard, see "Comparison of the Portfolios - Expenses."
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<PAGE> 17
The Board further considered that the Reorganization potentially may
reduce or eliminate certain duplicative costs and expenses presently incurred
for services that are separately provided for both the Balanced Portfolio and
the S&P 100 Plus Portfolio. The Board also anticipates that the increased
assets of the combined Portfolio resulting from the Reorganization would enable
the shareholders of the S&P 100 Plus Portfolio (including the former
shareholders of the Balanced Portfolio) to realize economies of scale by
spreading certain fixed expenses (such as printing costs and fees for
professional services) over a larger asset base and by eliminating certain
audit and state registration fees. Expenses that are based on the value of
assets, such as advisory fees, the number of shareholder accounts processed by
the transfer agent, depository fees, and the like, also potentially may be
reduced by the Reorganization. In short, the former shareholders of the
Balanced Portfolio who become shareholders of the S&P 100 Plus Portfolio
potentially may enjoy a lower overall expense ratio. See "Comparison of the
Portfolios - Expenses." There of course can be no assurance that these
economies of scale and a lower overall expense ratio would be obtained.
DESCRIPTION OF SECURITIES TO BE ISSUED
Principal Preservation is a Maryland corporation organized in 1984 as
an open-end, diversified investment company. Principal Preservation is a
series company, which means that its Board of Directors may establish
additional portfolios at any time.
The authorized Common Stock of Principal Preservation consists of one
billion shares, par value $0.001 per share. The shares of Principal
Preservation are presently divided into nine separate series: Government
Portfolio, Insured Tax-Exempt Portfolio, Tax-Exempt Portfolio, S&P 100 Plus
Portfolio, Select Value Portfolio, Dividend Achievers Portfolio, Balanced
Portfolio, Wisconsin Tax-Exempt Portfolio and Cash Reserve Portfolio,
consisting of 50 million shares in each of the first eight Portfolios and 400
million in the Cash Reserve Portfolio. The Cash Reserve Portfolio's shares are
further subdivided into separate classes of 200 million shares each, Class X
Common Stock (Retail Class) and Class Y Common Stock (Institutional Class).
There presently is pending a separate reorganization, similar to the
Reorganization, which would consolidate the Insured Tax-Exempt Portfolio with
and into the Tax-Exempt Portfolio. That transaction is subject to approval by
the shareholders of the Insured Tax-Exempt Portfolio. The Board of Directors
of Principal Preservation may authorize the issuance of additional series and,
within a series, additional classes of stock, and may increase or decrease the
number of shares in each series or class.
Each share of Principal Preservation has one vote, and when issued and
paid for in accordance with the terms of the offering will be fully paid and
nonassessable. Each share of a series is entitled to participate pro rata in
any dividends or other distributions declared by the Board of Directors of
Principal Preservation with respect to that series, and all shares of a series
have equal rights in the event of liquidation of that series. Shares of stock
are redeemable at net asset value, at the option of the shareholder. Shares
have no preemptive, subscription or conversion rights and are freely
transferable. Shares can be issued as full shares or fractions of shares. A
fraction of a share has the same kind of rights and privileges as a full share.
Each share of each series of Principal Preservation (including each
share of each of the Portfolios) is entitled to one vote on each matter
presented to shareholders of that series. As a Maryland corporation, Principal
Preservation is not required to hold, and in the future does not intend to
hold, annual shareholder meetings unless required by law or deemed appropriate
by the Board of Directors. However, special meetings may be called for
purposes such as electing or removing directors, changing fundamental policies
or approving an investment advisory contract. On matters affecting an
individual series (such as approval of advisory or sub-advisory contracts and
changes in fundamental investment policies of a series) a separate vote of the
shares of that series is required. Shares of a series are not entitled to vote
on any matter not affecting that series. All shares of each series vote
together in the election of directors. Shares do not have cumulative voting
rights.
TAX CONSIDERATIONS
It is a condition to the Reorganization that Principal Preservation
must receive an opinion from Quarles & Brady, counsel to Principal
Preservation, to the effect that, for Federal income tax purposes: (a) the
Reorganization will constitute a reorganization
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<PAGE> 18
within the meaning of Section 368(a)(1)(C) of the Code; (b) no gain or loss
will be recognized by either Portfolio upon the transfer of assets of the
Balanced Portfolio in exchange for shares of the S&P 100 Plus Portfolio; (c) no
gain or loss will be recognized by shareholders of the Balanced Portfolio upon
the exchange of their shares of the Balanced Portfolio for shares of the S&P
100 Plus Portfolio; (d) the S&P 100 Plus Portfolio's basis in the assets
acquired from the Balanced Portfolio will be same as the basis of those assets
in the hands of the Balanced Portfolio immediately prior to the exchange; (e)
the holding period of the assets of the Balanced Portfolio in the hands of the
S&P 100 Plus Portfolio will include the holding period of the Balanced
Portfolio; (f) the basis of shares of the S&P 100 Plus Portfolio received by
each shareholder of the Balanced Portfolio pursuant to the Reorganization will
be the same as the shareholder's basis in shares of the Balanced Portfolio
surrendered in the exchange; and (g) the holding period of shares of the S&P
100 Plus Portfolio received by each shareholder of the Balanced Portfolio
pursuant to the Reorganization will include the shareholder's holding period of
shares of the Balanced Portfolio surrendered in the exchange, provided that the
latter shares were held as capital assets on the Closing Date.
Such opinion will not be binding on the Internal Revenue Service, and
Principal Preservation does not intend to seek a private letter ruling with
respect to the tax impacts of the Reorganization. If for any reason the
Reorganization does not qualify as a tax-free reorganization for Federal income
tax purposes, the Reorganization would be treated as a taxable asset sale and
purchase. The Balanced Portfolio would recognize gain or loss on the
transaction measured by the difference between the consideration received by
the Balanced Portfolio and the tax basis of the Balanced Portfolio assets. The
tax basis of the assets acquired by the S&P 100 Plus Portfolio would equal the
purchase price plus the amount of liabilities, if any, transferred to the S&P
100 Plus Portfolio. Upon distribution of shares of the S&P 100 Plus Portfolio
in the liquidation of the Balanced Portfolio, the shareholders of the Balanced
Portfolio would recognize gain or loss on the disposition of their Balanced
Portfolio shares measured by the difference between the fair market value of
the S&P 100 Plus Portfolio shares received by them and the basis of the
Balanced Portfolio shares surrendered in the exchange.
Notwithstanding the foregoing, it is expected that the Balanced
Portfolio will recognize gain on sales of its portfolio securities to be
effected prior to the Reorganization in order to dispose of securities which
are not eligible for purchase by the S&P 100 Plus Portfolio, or which simply
are incompatible with the S&P 100 Plus Portfolio's current investment
strategies and programs. As noted above, any capital gains realized by the
Balanced Portfolio as a result of such sales must be distributed to its
shareholders prior to, or as soon as reasonably practicable following, the
Reorganization. A shareholder of the Balanced Portfolio likely will recognize
a capital gain for Federal income tax purposes to the extent of any such
distribution, absent special circumstances applicable to that shareholder. In
addition, any shareholder of the Balanced Portfolio who elects to redeem shares
of the S&P 100 Plus Portfolio received in the Reorganization, or who elects to
exchange those shares for shares in another Principal Preservation mutual fund,
or who elects to redeem or exchange his or her shares of the Balanced Portfolio
in advance of the Reorganization, will recognize gain or loss for Federal
income tax purposes in an amount equal to difference between the amount of the
cash proceeds received in such redemption or the value of the shares received
in such exchange, as the case may be, and the shareholder's tax basis in the
shares so redeemed or exchanged. In the event of an exchange, the
shareholders' tax basis in the shares received in the exchange will be
increased or decreased in an amount equal to the amount of the gain or loss so
realized. For a more detailed description of tax consequences associated with
redemptions and exchanges of shares, please refer to the accompanying May 1,
1995 Prospectus.
The foregoing discussion of Federal tax consequences is included
herein for general information only. Each shareholder should consult with his
or her own tax adviser as to the specific tax consequences of the
Reorganization, including the application and effect of state and local tax
laws. Because of special or unique circumstances applicable to any given
shareholder, the tax consequences of the Reorganization and/or investment
alternatives could be significantly different.
15
<PAGE> 19
CAPITALIZATION
The following table shows the unaudited capitalization of the Balanced
Portfolio and the S&P 100 Plus Portfolio, respectively, as of December 31,
1995, and the unaudited pro forma capitalization of the S&P 100 Plus Portfolio
as of that date giving effect to the Reorganization:
<TABLE>
<CAPTION>
PRO FORMA
BALANCED S&P 100 PLUS COMBINED
PORTFOLIO PORTFOLIO PORTFOLIO
--------- ---------- ---------
<S> <C> <C> <C>
Net Assets . . . . . . . . . . . . $7,023,083 $57,061,615 $64,042,860
Net Asset Value Per Share . . . . . $12.02 $19.53 $19.53
Shares Outstanding . . . . . . . . 584,480 2,922,304 3,279,767
</TABLE>
THE BOARD OF DIRECTORS OF PRINCIPAL PRESERVATION UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS OF THE BALANCED PORTFOLIO VOTE FOR APPROVAL OF THE
PLAN AND THE REORGANIZATION.
MISCELLANEOUS
PRINCIPAL SHAREHOLDERS
As of the Record Date, no person was known to own of record or
beneficially 5% or more of the outstanding shares of either Portfolio. The
directors and officers of Principal Preservation as a group own less than 1% of
the outstanding shares of each Portfolio. Neither Principal Preservation nor
either Portfolio is "controlled" (as that term is defined in the 1940 Act) by
any person.
AUDITORS
The firm of Arthur Andersen LLP has served Principal Preservation as
independent accountants and auditors since its inception in 1985. Arthur
Andersen LLP has no direct or indirect financial interest in Principal
Preservation or the Portfolios except as auditors and independent public
accountants. No representative of Arthur Andersen LLP is expected to be
present at the Meeting.
INTERESTS OF EXPERTS AND COUNSEL
No expert or counsel named herein has a substantial interest in
Principal Preservation, either Portfolio, the Reorganization, or any other
transaction contemplated by this Proxy Statement/Prospectus.
COST OF SOLICITATION
Expenses in connection with the solicitation of proxies will be borne
by Ziegler. Upon request, Ziegler will reimburse brokers, dealers, banks and
voting trustees, or their nominees, for reasonable expenses incurred in
forwarding copies of the proxy materials to the beneficial owners of shares
which such persons hold of record. Solicitation of proxies will be principally
by mail. Proxies also may be solicited in person, or by telephone or
telegraph, by officers of Principal Preservation or by officers and employees
of Ziegler or by dealers and their representatives, without special
compensation. Proxies may also be solicited by a professional proxy
solicitation service if management of Principal Preservation should determine
that solicitation by such means is advisable.
16
<PAGE> 20
OTHER MATTERS
The Board of Directors has not been informed and is not aware that any
other matter will be brought before the Meeting. However, unless expressly
indicated otherwise on the enclosed form of proxy, proxies may be voted with
discretionary authority with respect to any other matter that may properly be
presented at the meeting or any adjournment thereof.
SHAREHOLDER MEETINGS
Principal Preservation is organized as a Maryland corporation, and as
such is not required to hold annual meetings of shareholders. Principal
Preservation's Bylaws provide that Principal Preservation is not required to
hold a shareholder meeting in any year in which the election of directors,
approval of an investment advisory agreement (or any sub-advisory agreement) or
ratification of the selection of independent public accountants is not required
to be acted upon by shareholders of Principal Preservation or any of its
series, including the Portfolios, under the 1940 Act. Meetings of shareholders
of any series will be held when and as determined necessary by the Board of
Directors of Principal Preservation and in accordance with the 1940 Act.
However, shareholders of any portfolio series wishing to submit proposals for
inclusion in a proxy statement for any future shareholder meetings should send
their written proposals to the Secretary of Principal Preservation at 215 North
Main Street, West Bend, Wisconsin 53095-3348.
17
<PAGE> 21
APPENDIX A
PRINCIPAL PRESERVATION BALANCED PORTFOLIO
PLAN OF REORGANIZATION AND LIQUIDATION
This Plan of Reorganization and Liquidation is made as of this 20th
day of February, 1996, by Principal Preservation Portfolios, Inc. ("Principal
Preservation"), on behalf of its two series known as the Balanced Portfolio and
the S&P 100 Plus Portfolio.
R E C I T A L S
WHEREAS, Principal Preservation: (a) is a Maryland corporation duly
organized, validly existing and in good standing under the laws of the State of
Maryland; (b) is registered as an open-end, series, management investment
company under the Investment Company Act; and (c) presently has designated nine
separate series or investment portfolios including the Balanced Portfolio and
the S&P 100 Plus Portfolio;
WHEREAS, this Plan is intended to be, and is adopted as, a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of
the Code. The Reorganization will comprise the transfer of substantially all
of the assets of the Balanced Portfolio to the S&P 100 Plus Portfolio in
exchange solely for shares of the S&P 100 Plus Portfolio's Common Stock, and
the constructive distribution at the Effective Time of such shares of the S&P
100 Plus Portfolio to the shareholders of the Balanced Portfolio in liquidation
of the Balanced Portfolio, all upon the terms and conditions hereinafter set
forth in this Plan; and
WHEREAS, the adoption and performance of this Plan has been authorized
by Principal Preservation's Board of Directors and, prior to the Closing Date,
will have been duly authorized by all other necessary corporate action on the
part of Principal Preservation, including approval by the shareholders of the
Balanced Portfolio.
A G R E E M E N T
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. DEFINITIONS
For purposes of this Plan, the following terms shall have the
respective meanings set forth below:
1.1 "BALANCED PORTFOLIO" means the Balanced Portfolio, a
designated series or investment portfolio of Principal Preservation.
1.2 "BALANCED PORTFOLIO SHAREHOLDERS" means the holders of record
of the issued and outstanding shares of common stock of the Balanced Portfolio
as of the close of business on the Valuation Date.
1.3 "BALANCED PORTFOLIO SHAREHOLDER MEETING" means a meeting of
the shareholders of the Balanced Portfolio to be convened in accordance with
applicable law and the Articles of Incorporation and Bylaws of Principal
Preservation to consider and vote upon the approval of this Plan and the
transactions contemplated hereby.
1.4 "BALANCED PORTFOLIO SHARES" means the issued and outstanding
shares of common stock of the Balanced Portfolio.
1.5 "CLOSING" means the transfer to the S&P 100 Plus Portfolio of
the assets of the Balanced Portfolio against delivery to the Balanced Portfolio
of the S&P 100 Plus Portfolio Shares as described in Section 2.1 of this Plan.
1.6 "CLOSING DATE" means May 1, 1996, or such other date as the
parties may mutually determine.
1.7 "CODE" means the Internal Revenue Code of 1986, as amended.
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<PAGE> 22
1.8 "DEPOSITORY" means B.C. Ziegler & Company, acting in its
capacity as depository with respect to the assets of the Balanced Portfolio and
the S&P 100 Plus Portfolio.
1.9 "EFFECTIVE TIME" means 8:00 a.m. Central Time on the Closing
Date.
1.10 "EXCLUDED ASSETS" shall have the meaning set forth in Section
2.3 of this Plan.
1.11 "INVESTMENT COMPANY ACT" means the Investment Company Act of
1940, as amended, and all of the rules and regulations adopted thereunder by
the SEC.
1.12 "PERSON" means an individual or a corporation, partnership,
limited liability company, joint venture, association, trust, unincorporated
organization, or other entity, as the context requires.
1.13 "PLAN" means this Plan of Reorganization and Liquidation,
together with all schedules and exhibits attached hereto, as the same may be
amended from time to time in accordance with the terms hereof.
1.14 "PRINCIPAL PRESERVATION" means Principal Preservation
Portfolios, Inc., a corporation which: (a) is duly organized, validly existing
and in good standing under the laws of the State of Maryland; (b) is registered
as an open-end, series, management investment company under the Investment
Company Act; and (c) presently his designated nine separate series of its
Common Stock, par value $.001 per share, including the Balanced Portfolio and
the S&P 100 Plus Portfolio.
1.15 "PRINCIPAL PRESERVATION PROSPECTUS" means the Prospectus,
dated May 1, 1995, as supplemented on September 1, 1995 and January 31, 1996,
of Principal Preservation relating to the Balanced and S&P 100 Plus Portfolios,
among other series of Principal Preservation, included in Post-Effective
Amendment No. 26 to Principal Preservation's Registration Statement on Form
N-1A (Securities Act Reg. No. 33-12), as filed with the SEC on March 2, 1995
pursuant to Rule 485(a) under the Securities Act.
1.16 "REORGANIZATION" means the transactions described in and
contemplated by this Plan.
1.17 "REQUIRED BALANCED PORTFOLIO SHAREHOLDER VOTE" shall have the
meaning specified in Section 3.1 of this Plan.
1.18 "SEC" means the United States Securities and Exchange
Commission.
1.19 "SECURITIES ACT" means the Securities Act of 1933, as amended,
and all rules and regulations adopted by the SEC pursuant thereto.
1.20 "S&P 100 PLUS PORTFOLIO" means the S&P 100 Plus Portfolio, a
designated series or investment portfolio of Principal Preservation.
1.21 "S&P 100 PLUS PORTFOLIO SHARES" means the shares of Common
Stock of the S&P 100 Plus Portfolio to be issued pursuant to this Plan, as
described in Section 2.1 hereof.
1.22 "VALUATION DATE" shall have the meaning set forth in Section
2.4 of this Plan.
2. REORGANIZATION AND LIQUIDATION OF THE BALANCED PORTFOLIO.
2.1 TRANSFER OF BALANCED PORTFOLIO ASSETS; ISSUANCE OF S&P 100
PLUS PORTFOLIO SHARES. At or prior to the Effective Time, all of the assets of
the Balanced Portfolio, except the Excluded Assets, shall be delivered to the
Depository for the account of the S&P 100 Plus Portfolio, in exchange for, and
against delivery to the Balanced Portfolio of, that number of S&P 100 Plus
Portfolio Shares (including, if applicable, fractional shares rounded to the
nearest thousandth of one whole share) having an aggregate net asset value
equal to the value of the assets of the Balanced Portfolio so delivered, all
determined and adjusted as provided in Section 2.2 of this Plan. As of the
A-2
<PAGE> 23
Effective Time and following delivery of such assets to the Depository, the S&P
100 Plus Portfolio shall receive good and marketable title to such assets free
and clear of all liens, security interests, pledges, charges, claims or
encumbrances of any and every kind.
2.2 COMPUTATION OF NET ASSET VALUE.
(a) The net asset value of the S&P 100 Plus Portfolio
Shares and the net value of the assets of the Balanced Portfolio transferred
pursuant to this Plan shall, in each case, be determined as of the close of
business on the New York Stock Exchange on the Valuation Date.
(b) The net asset value of the S&P 100 Plus Portfolio
Shares shall be computed in accordance with the practices and procedures of the
S&P 100 Plus Portfolio described in the Principal Preservation Prospectus.
Likewise, the value of the assets of the Balanced Portfolio to be transferred
pursuant to this Plan shall be computed in accordance with the practices and
procedures of the Balanced Portfolio described in the Principal Preservation
Prospectus.
2.3 EXCLUDED ASSETS. There shall be deducted from the assets of
the Balanced Portfolio described in Section 2.1 all organizational expenses and
other assets of the Balanced Portfolio that would not have value to the S&P 100
Plus Portfolio, as well as cash in an amount estimated by Principal
Preservation to be sufficient to pay all liabilities of the Balanced Portfolio
accrued and unpaid as of the Effective Time, including, without limitation: (a)
amounts owed or to be owed to any Balanced Portfolio Shareholder, including
declared but unpaid dividends and capital gains distributions; and (b) accounts
payable, taxes and other accrued and unpaid expenses, if any, incurred in the
normal operation of the business of the Balanced Portfolio up to and including
the Closing Date and estimated to be incurred after the Closing Date in
connection with winding up the affairs of, and liquidating, the Balanced
Portfolio (together the "Excluded Assets").
2.4 VALUATION DATE. The assets of the Balanced Portfolio and the
per share net asset value of the S&P 100 Plus Portfolio Shares shall be valued
as of the close of business on the New York Stock Exchange on the business day
next preceding the Closing Date (the "Valuation Date"). The stock transfer
books of the Balanced Portfolio shall be permanently closed as of the close of
business on the Valuation Date, and only requests for the redemption of shares
of the Balanced Portfolio received in proper form prior to the close of trading
on the New York Stock Exchange on the Valuation Date shall be accepted by the
Balanced Portfolio. Redemption requests thereafter received by the Balanced
Portfolio shall be deemed to be redemption requests for S&P 100 Plus Portfolio
Shares (assuming that the transactions contemplated by this Plan have been
consummated) to be distributed to the Balanced Portfolio Shareholders pursuant
to this Plan.
2.5 DECLARATION OF DIVIDENDS AND CAPITAL DISTRIBUTIONS BY THE
BALANCED PORTFOLIO. On or prior to the Closing Date, the Balanced Portfolio
will declare a dividend to shareholders of record of the Balanced Portfolio as
of or prior to the Closing Date so that, for the short taxable year of the
Balanced Portfolio ending on the date on which the Balanced Portfolio is
completely liquidated and discontinued, the Balanced Portfolio will have
declared an aggregate amount of dividends which: (a) is equal to at least the
sum of its net capital gain (within the meaning of Section 852(b)(3) of the
Code) and ninety percent (90%) of its investment company taxable income
(determined under Section 852(b)(2) of the Code, but without regard to Section
852(b)(2)(D) of the Code) for such taxable year; and (b) is sufficient to avoid
any excise tax on the Balanced Portfolio under Section 4982 of the Code for the
calendar year in which the Closing Date occurs, provided that the dividends
that have been so declared but have not been paid on or before such Closing
Date are in fact paid by the Balanced Portfolio prior to the end of such
calendar year to the shareholders of the Balanced Portfolio as of the record
date for determining shareholders entitled to receive payment of such dividend.
2.6 LIQUIDATION. As soon as reasonably practicable after the
Closing Date, the Balanced Portfolio shall pay or make provisions for all of
its debts, liabilities and taxes, and distribute all remaining assets,
including the S&P
A-3
<PAGE> 24
100 Plus Portfolio Shares received by it in the Reorganization and the balance,
if any, of the Excluded Assets, to the Balanced Portfolio Shareholders, and the
Balanced Portfolio's status as a designated series of shares of Principal
Preservation shall be discontinued.
2.7 ISSUANCE OF S&P 100 PLUS PORTFOLIO SHARES. On the Closing
Date, Principal Preservation shall instruct its transfer agent to record on
Principal Preservation's books and records the pro rata interest of each of the
Balanced Portfolio Shareholders in the S&P 100 Plus Portfolio Shares in the
name of such Balanced Portfolio Shareholder. All Balanced Portfolio Shares
then issued and outstanding shall thereupon be canceled on the books of
Principal Preservation. Principal Preservation shall forward a confirmation of
such ownership to each of the Balanced Portfolio Shareholders. No redemption
or repurchase of such S&P 100 Plus Portfolio Shares credited to any Balanced
Portfolio Shareholder in respect of his or her Balanced Portfolio Shares which
are represented by an unsurrendered stock certificate shall be permitted until
such certificate has been surrendered to Principal Preservation for
cancellation, or if such certificate is lost or misplaced, until a lost
certificate affidavit has been executed and delivered to Principal
Preservation.
2.8 LIABILITIES AND EXPENSES. The S&P 100 Plus Portfolio shall
not assume any liability of the Balanced Portfolio and the Balanced Portfolio
shall use its best efforts to discharge all known liabilities, so far as may be
possible, prior to the Closing Date.
3. CONDITIONS PRECEDENT TO CLOSING
The Closing of the Reorganization is subject to the conditions that on
or before the Closing Date:
3.1 APPROVAL OF PLAN BY SHAREHOLDERS OF THE BALANCED PORTFOLIO.
The Balanced Portfolio Shareholder Meeting shall have been duly called and held
in accordance with the provisions of the Investment Company Act, the Maryland
General Corporation Law and the Articles of Incorporation and Bylaws of
Principal Preservation, including compliance with the notice and quorum
requirements thereunder, and at such meeting the Plan shall have been approved
by the affirmative vote of the lesser of: (a) 67% or more of the Balanced
Portfolio Shares present at the Balanced Portfolio Shareholder Meeting and
entitled to vote, provided shareholders who are the owners of more than 50% of
the Balanced Portfolio Shares outstanding and entitled to vote on the Plan at
the Balanced Portfolio Shareholder Meeting are present at such Meeting in
person or by proxy; or (b) more than 50% of the Balanced Portfolio Shares
outstanding and entitled to vote on approval of the Plan at the Balanced
Portfolio Shareholder Meeting (the "Required Balanced Portfolio Shareholder
Vote").
3.2 NO ADVERSE ACTIONS. On the Closing Date, no action, suit or
other proceeding shall be pending before any court or governmental agency in
which it is sought to restrain or prohibit or obtain damages or other relief in
connection with this Plan or the transactions contemplated hereby.
3.3 CONSENTS AND APPROVALS. All consents of other parties and all
other consents, orders and permits of federal, state and local regulatory
authorities (including those of the SEC and of state Blue Sky or securities
authorities) deemed necessary by Principal Preservation to permit consummation,
in all material respects, of the transactions contemplated hereby, shall have
been obtained, except where failure to obtain any such consent, order or permit
would not involve a risk of a material adverse effect on the assets or
properties of the Balanced Portfolio.
3.4 EFFECTIVENESS OF REGISTRATION STATEMENT ON FORM N-14.
Principal Preservation's Registration Statement on Form N-14 to be prepared and
filed with the SEC with respect to the S&P 100 Plus Portfolio Shares, including
the Proxy Statement of the Balanced Portfolio soliciting approval of the Plan
at the Balanced Portfolio Shareholder Meeting constituting a part thereof,
shall have become effective under the Securities Act and no stop order
suspending the effectiveness thereof shall have been issued and, to the best
knowledge of Principal Preservation, no investigation or proceeding for that
purpose shall have been instituted or be pending, threatened or contemplated
under the Securities Act.
3.5 TAX OPINION. Principal Preservation shall have obtained an
opinion of Quarles & Brady, legal counsel to Principal Preservation, in form
and substance reasonably satisfactory to its Board of Directors, to the effect
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<PAGE> 25
that the Reorganization will constitute a tax-free reorganization pursuant to
Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended, and
that, accordingly, for Federal income tax purposes: (i) no gain or loss will
be recognized by either the Balanced Portfolio or the S&P 100 Plus Portfolio
upon the transfer of assets of the Balanced Portfolio in exchange for the S&P
100 Plus Portfolio Shares; (ii) no gain or loss will be recognized by the
Balanced Portfolio Shareholders upon the liquidation of the Balanced Portfolio
and the related surrender of their shares of the Balanced Portfolio in exchange
for the S&P 100 Plus Portfolio Shares; (iii) the S&P 100 Plus Portfolio's basis
in the assets acquired from the Balanced Portfolio will be the same as the
basis of those assets in the hands of the Balanced Portfolio immediately prior
to the exchange; (iv) the holding period of the assets of the Balanced
Portfolio in the hands of the S&P 100 Plus Portfolio will include the holding
period of the Balanced Portfolio; (v) the basis of the S&P 100 Plus Portfolio
Shares received by each Balanced Portfolio Shareholder in connection with the
reorganization will be the same as the Balanced Portfolio Shareholder's basis
in his or her Balanced Portfolio Shares immediately prior to the
Reorganization; and (vi) the holding period of the S&P 100 Plus Portfolio
Shares received by each Balanced Portfolio Shareholder in connection with the
Reorganization will include such Balanced Portfolio Shareholder's holding
period of his or her Balanced Portfolio Shares held immediately prior to the
Reorganization, provided that such Balanced Portfolio Shares were held by such
Balanced Portfolio Shareholder as capital assets as of the Effective Time.
3.6 DECLARATION OF DIVIDENDS BY THE BALANCED PORTFOLIO. Prior to
or on the Closing Date, the Balanced Portfolio shall have declared a dividend
or dividends which, together with all previous such dividends, shall have the
effect of distributing to its shareholders all of the Balanced Portfolio's
investment company taxable income for taxable years ending on or prior to the
Closing Date (computed without regard to any deduction for dividends paid) and
all of its net capital gains realized in taxable years ending on or prior to
the Closing Date (after reduction for any capital loss carry forward).
4. EXPENSES
B.C. Ziegler and Company, the distributor of the shares for each of
the Balanced Portfolio and the S&P 100 Plus Portfolio, will bear the expenses
incurred by the Portfolios in connection with carrying out the provisions of
this Plan.
5. TERMINATION
5.1 MUTUAL AGREEMENT. This Plan may be terminated at any time by
Principal Preservation, and will be terminated by Principal Preservation if any
of the conditions precedent to the Reorganization or set forth in Article 3 has
not been satisfied as of the Closing Date.
5.2 EFFECTS OF TERMINATION. In the event of any such termination,
there shall be no liability for damage on the part of either the Balanced
Portfolio of the S&P 100 Plus Portfolio to the other.
6. AMENDMENT
This Plan may be amended, modified or supplemented in such manner as
Principal Preservation determines; provided, however, that following approval
of the Plan by the Required Balanced Portfolio Shareholder Vote, no such
amendment may change the provisions for determining the number of S&P 100 Plus
Portfolio Shares to be issued to the Balanced Portfolio Shareholders in any
fashion which adversely affects the Balanced Portfolio Shareholders, unless
such amendment has been approved by the Balanced Portfolio Shareholders.
7. MISCELLANEOUS
7.1 HEADINGS. The Article and Section headings contained in this
Plan will have reference purposes only and shall not affect in any way the
meaning or interpretation of this Plan.
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<PAGE> 26
7.2 GOVERNING LAW. This Plan shall be governed by and construed
in accordance with the laws of the State of Maryland, Principal Preservation's
Articles of Incorporation and Bylaws, and the Principal Preservation
Prospectus.
IN WITNESS WHEREOF, on the authority of the Board of Directors of
Principal Preservation, this Plan has been executed by Principal Preservation's
duly authorized officer as of the day and year first written above.
BY ORDER OF THE BOARD OF DIRECTORS OF
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
(ON BEHALF OF THE BALANCED AND S&P 100 PLUS PORTFOLIOS)
By:
--------------------------------------------------
R. D. Ziegler, Chairman of the Board and President
B.C. ZIEGLER AND COMPANY
(SOLELY FOR THE PURPOSE OF INDICATING ITS AGREEMENT
TO BE BOUND BY ARTICLE 4 HEREOF)
By:
--------------------------------------------------
Peter D. Ziegler, President and
Chief Executive Officer
A-6
<PAGE> 27
STATEMENT OF ADDITIONAL INFORMATION
DATED MARCH 22, 1996
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
800-826-4600
This Statement of Additional Information is not a prospectus, and
should be read in conjunction with the Proxy Statement/Prospectus dated March
22, 1996, relating to the reorganization (the "Reorganization") of the Balanced
Portfolio, a series of Principal Preservation Portfolios, Inc. ("Principal
Preservation"), into the S&P 100 Plus Portfolio, another series of Principal
Preservation. In connection with the Reorganization, the S&P 100 Plus
Portfolio would acquire all of the assets of the Balanced Portfolio (net of its
liabilities). In consideration for the Balanced Portfolio's transfer of its
assets to the S&P 100 Plus Portfolio, the S&P 100 Plus Portfolio would issue to
the Balanced Portfolio shares of Common Stock of the S&P 100 Plus Portfolio
with an aggregate net asset value equal to the value of the assets transferred
by the Balanced Portfolio. The Balanced Portfolio would thereafter distribute
the shares of the S&P 100 Plus Portfolio so received to its shareholders on a
pro rata basis, and the Balanced Portfolio subsequently would be liquidated and
discontinued. As a result of the Reorganization, shareholders of the Balanced
Portfolio would become shareholders of the S&P 100 Plus Portfolio. It is
expected that the aggregate net asset value of the shares of the S&P 100 Plus
Portfolio received by each shareholders of the Balanced Portfolio in the
Reorganization would be equal, immediately following the Reorganization, to the
aggregate net asset value of the shares of the Balanced Portfolio held by such
shareholder immediately prior to the Reorganization.
Except for the unaudited pro forma financial statements contained
herein, the information otherwise required to be set forth in this Statement of
Additional Information is included in: (i) the Prospectus of Principal
Preservation (relating to both the Balanced Portfolio and the S&P 100 Plus
Portfolio), dated May 1, 1995, as supplemented (the "May 1, 1995 Prospectus");
(ii) the Statement of Additional Information of Principal Preservation
(relating to both the Balanced Portfolio and the S&P 100 Plus Portfolio), dated
May 1, 1995, as supplemented (the "May 1, 1995 SAI"); and (iii) Principal
Preservation's 1995 Annual Report to Shareholders (the "Annual Report"). The
May 1, 1995 Prospectus, the May 1, 1995 SAI, and the Annual Report are
incorporated by reference herein.
Copies of the Proxy Statement/Prospectus, the May 1, 1995 Prospectus,
the May 1, 1995 SAI, and the Annual Report may be obtained free of charge by
writing to B.C. Ziegler and Company, the distributor for Principal Preservation
(the "Distributor"), at 215 North Main Street, West Bend, Wisconsin 53095, or
by calling the Distributor at (800) 826-4600.
EXPERTS
The audited financial statements of the Balanced Portfolio and the S&P
100 Plus Portfolio incorporated by reference into this Statement of Additional
Information have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, which also is
incorporated by reference into this Statement of Additional Information, in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.
HISTORICAL FINANCIAL STATEMENTS
The following audited historical financial statements and footnotes
thereto of the Balanced Portfolio and the S&P 100 Plus Portfolio, together with
the Report of the Independent Accountants thereon, are incorporated by
reference herein from the Annual Report:
(1) Balance Sheets for each of the Balanced Portfolio and the S&P
100 Plus Portfolio as of December 31, 1995;
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<PAGE> 28
(2) Statements of Operations for each of the Balanced Portfolio
and the S&P 100 Plus Portfolio for the year ended December 31,
1995;
(3) Statements of Changes in Net Assets for each of the Balanced
Portfolio and the S&P 100 Plus Portfolio for the years ended
December 31, 1995 and 1994;
(4) Schedule of Investments of each of the Balanced Portfolio and
the S&P 100 Plus Portfolio as of December 31, 1995;
(5) Financial Highlights for each of the Balanced Portfolio and
the S&P 100 Plus Portfolio; and
(6) Notes to Financial Statements.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Set forth below are the following unaudited pro forma financial
statements: (a) unaudited Pro Forma Combining Statement of Assets and
Liabilities for the Balanced Portfolio and the S&P 100 Plus Portfolio as of
December 31, 1995, assuming the Reorganization had been consummated on that
date; (b) unaudited Pro Forma Combining Statement of Operations for the
Balanced Portfolio and the S&P 100 Plus Portfolio for the year ended December
31, 1995, giving effect to the Reorganization as if it had been consummated on
January 1, 1995; and (c) unaudited Pro Forma Combining Schedule of Investments
of the Balanced Portfolio and the S&P 100 Plus Portfolio as of December 31,
1995, assuming the Reorganization had been consummated on that date.
This unaudited pro forma financial information should be read in
conjunction with, and is qualified in its entirety by, the audited historical
financial statements and accompanying notes of the Balanced Portfolio and the
S&P 100 Plus Portfolio included elsewhere in this Statement of Additional
Information. These unaudited pro forma combining financial statements are
intended for information purposes only, and are not necessarily indicative of
the future financial position or future results of the S&P 100 Plus Portfolio.
B-2
<PAGE> 29
PRINCIPAL PRESERVATION PORTFOLIOS, INC.- S&P 100 PLUS AND BALANCED PORTFOLIO
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
(unaudited)
<TABLE>
<CAPTION>
S&P 100 PRO FORMA
PLUS BALANCED COMBINED ADJUSTMENTS EFFECT
------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments:
Long-term investments
in securities, (See
Schedule of Investments) ...... $53,320,630 $6,987,797 $60,308,427 19,121 (c) $60,327,548
Short-term investments ........ 3,851,931 237,763 4,089,694 (19,121)(c) 4,070,573
----------- ---------- ----------- ------- -----------
Total Investments .......... 57,172,561 7,225,560 64,398,121 0.00 64,398,121
Cash ............................. 500 590 1,090 1,090
Receivables:
Capital shares sold ........... 115,712 4,303 120,015 120,015
Dividends and interest ........ 121,292 58,565 179,857 179,857
----------- ---------- ----------- ------- -----------
Total receivables .......... 237,004 62,868 299,872 0 299,872
Other assets ..................... 2,601 137 2,738 0 2,738
----------- ---------- ----------- ------- -----------
Total Assets ............... $57,412,666 $7,289,155 $64,701,821 0 $64,701,821
=========== ========== =========== ======= ===========
LIABILITIES:
Payables:
Capital shares redeemed ....... 24,404 220,015 244,419 244,419
Distributions to shareholders . 160,676 3,384 164,060 63,081 (d) 227,141
Expenses ...................... 104,783 42,673 147,456 (21,243)(h) 126,213
Outstanding Option Contracts .. 61,188 --- 61,188 61,188
----------- ---------- ----------- ------- -----------
Total Liabilities .......... 351,051 266,072 617,123 41,838 658,961
----------- ---------- ----------- ------- -----------
NET ASSETS
Capital stock .................... 36,593,532 5,825,124 42,418,656 535,236 (d) 42,953,892
Undistributed(overdistributed) net
investment income .............. 1,634 311 1,945 1,945
Undistributed net realized gains .
(losses) on investments ........ 5,698 (196,695) (190,997) 196,695 (d) 5,698
Net unrealized appreciation
on investments ................. 20,460,751 1,394,343 21,855,094 (773,769)(d) 21,081,325
----------- ---------- ----------- ------- -----------
Total net assets .......... 57,061,615 7,023,083 64,084,698 (41,838) 64,042,860
----------- ---------- ----------- ------- -----------
Total liabilities
and net assets ........... $57,412,666 $7,289,155 $64,701,821 0 $64,701,821
=========== ========== =========== ======= ===========
NET ASSET VALUE AND
REDEMPTION PRICE
PER SHARE ..................... $19.53 $12.02 $19.53
=========== ========== ===========
MAXIMUM OFFERING PRICE
PER SHARE .................... $20.45 $12.59 $20.45
=========== ========== ===========
<CAPTION>
Shares Outstanding Reconciliation BALANCED CONVERSION PRO FORMA
REINVESTMENT ADJUSTMENT SHARES
<S> <C> <C> <C> <C> <C>
Net Assets....................... 57,061,615 7,023,083 (41,838)(d) 64,042,860
Shares Authorized................ 50,000,000 50,000,000 50,000,000
Shares Issued and Outstanding.... 2,922,304 584,480 48,525 (d) (275,542)(i) 3,279,767
Net Asset Value and
Redemption Price............... 19.53 12.02 19.53
</TABLE>
The accompanying notes to the combining pro forma financial statements are an
integral part of these statements.
B-3
<PAGE> 30
PRINCIPAL PRESERVATION PORTFOLIOS, INC.- S&P 100 PLUS PORTFOLIO AND BALANCED
PORTFOLIO
PRO FORMA COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(unaudited)
<TABLE>
<CAPTION>
S&P 100 PRO FORMA
PLUS BALANCED COMBINED ADJUSTMENTS EFFECT
------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Investment Income:
Dividends ....................... $1,129,421 $131,463 $1,260,884 $1,260,884
Interest ........................ 142,330 205,588 347,918 347,918
---------- -------- --------- ------- ----------
Total investment
income .................. 1,271,751 337,051 1,608,802 1,608,802
EXPENSES:
Investment advisory fees ........ 292,466 45,711 338,177 (11,355)(e) 326,822
Custodian fees .................. 18,250 8,395 26,645 (6,100)(g) 20,545
Transfer agent fees ............. 68,445 9,125 77,570 77,570
Broker service fees ............. 90,873 18,792 109,665 109,665
Professional fees ............... 47,876 27,740 75,616 (23,893)(f)(h) 51,723
Registration .................... 16,060 16,060 32,120 (16,060)(h) 16,060
Communication ................... 12,210 1,229 13,439 13,439
Director fees ................... 14,205 3,457 17,662 17,662
Pricing of investments .......... 7,275 8,760 16,035 (8,760)(h) 7,275
Other ........................... 4,071 2,955 7,026 (2,955)(h) 4,071
---------- -------- --------- ------- ----------
Total expenses ........... 571,731 142,224 713,955 (69,123) 644,832
Less expenses absorbed
by advisor .................... --- (47,880) (47,880) 47,880 0
---------- -------- --------- ------- ----------
Net expenses ............... 571,731 94,344 666,075 (21,243) 644,832
---------- -------- --------- ------- ----------
NET INVESTMENT INCOME ........... 700,020 242,707 942,727 21,243 963,970
---------- -------- --------- ------- ----------
NET REALIZED GAINS
ON INVESTMENTS ................ 1,785,019 142,554 1,927,573 773,769 (d) 2,701,342
NET UNREALIZED APPRECIATION
ON INVESTMENTS ................ 12,487,128 1,369,971 13,857,099 (773,769)(d) 13,083,330
---------- -------- --------- ------- ----------
Net gains
on investments .......... 14,272,147 1,512,525 15,784,672 15,784,672
---------- -------- --------- ------- ----------
NET INCREASE
IN NET ASSETS RESULTING
FROM OPERATIONS .............. $14,972,167 $1,755,232 $16,727,399 $21,243 $16,748,642
=========== ========== =========== ======= ===========
</TABLE>
The accompanying notes to the combining pro forma financial statements are an
integral part of these statements.
B-4
<PAGE> 31
S&P 100 PLUS PORTFOLIO
BALANCED PORTFOLIO
PRO-FORMA COMBINING SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
S&P 100 Plus Balanced Portfolio Combined
------------------ ------------------ -------------------
Number Market Number Market Number Market
of Shares Value of Shares Value of Shares Value
--------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS - 94.1%
BASIC INDUSTRIES - 5.2%
Aluminum Company of America 4,800 253,800 0 0 4,800 253,800
* Bethlehem Steel Corporation 2,900 40,600 0 0 2,900 40,600
Boise Cascade Corporation 1,266 43,835 0 0 1,266 43,835
Champion International 2,600 109,200 0 0 2,600 109,200
Dow Chemical Company 7,250 510,219 0 0 7,250 510,219
DuPont (E.I.) de Nemours and Company 15,200 1,062,100 0 0 15,200 1,062,100
Homestake Mining Company 3,800 59,375 0 0 3,800 59,375
International Paper Company 6,800 257,550 0 0 6,800 257,550
Monsanto Company 3,300 404,250 0 0 3,300 404,250
Weyerhaeuser Company 5,700 246,525 0 0 5,700 246,525
--------- ------- ---------
2,987,454 0 2,987,454
CONSUMER DURABLES - 4.7%
Black & Decker Corporation 2,300 81,075 0 0 2,300 81,075
Brunswick Corporation 2,600 62,400 0 0 2,600 62,400
Chrysler Corporation 10,200 586,975 0 0 10,200 586,975
Ford Motor Company 29,600 858,400 0 0 29,600 858,400
General Motors Corporation 20,700 1,094,513 0 0 20,700 1,094,513
--------- ------- ---------
2,683,363 0 2,683,363
CONSUMER NONDURABLES - 9.8%
Avon Products, Inc. 2,000 150,750 0 0 2,000 150,750
Coca-Cola Company 35,000 2,598,750 0 0 35,000 2,598,750
Colgate-Palmolive Company 4,000 281,000 1,850 129,962 5,850 410,962
Eastman Kodak Company 9,400 629,800 2,350 157,450 11,750 787,250
Heinz (H.J.) Company 10,100 334,562 0 0 10,100 334,562
International Flavors & Fragrances Inc. 3,100 148,800 2,750 132,000 5,850 280,800
PepsiCo, Inc. 21,900 1,223,662 3,100 173,213 25,000 1,396,875
Polaroid Corporation 1,300 61,588 0 0 1,300 61,588
Ralston Purina Group 2,900 180,888 0 0 2,900 180,888
Gillette Company 0 0 3,200 166,800 3,200 166,800
Kimberly-Clark Corporation 0 0 2,000 165,500 2,000 165,500
--------- ------- ---------
5,609,800 924,925 6,534,725
CONSUMER SERVICE - 8.7%
Capital Cities/ABC, Inc. 4,300 530,512 0 0 4,300 530,512
Walt Disney Company 14,300 843,700 0 0 14,300 843,700
* Harrah's Entertainment 2,850 69,112 2,850 69,112
Kmart Corporation 12,600 91,350 0 0 12,600 91,350
Limited (The), Inc. 10,000 173,750 0 0 10,000 173,750
May Department Stores Company 6,900 291,525 0 0 6,900 291,525
McDonald's Corporation 19,400 875,425 3,500 157,938 22,900 1,033,363
Sears, Roebuck and Co. 10,700 417,300 0 0 10,700 417,300
Tandy Corporation 2,000 83,000 0 0 2,000 83,000
* Toys "R" Us, Inc. 7,625 165,844 0 0 7,625 165,844
Wal-Mart Stores, Inc. 63,500 1,420,813 0 0 63,500 1,420,813
Dun & Bradstreet Corporation 0 0 2,300 148,925 2,300 148,925
Walgreen Co. 0 0 5,400 161,325 5,400 161,325
--------- ------- ---------
4,962,331 468,188 5,430,519
<CAPTION>
Adjustments Pro-Forma Effect
----------------- ------------------
Number Market Number Market
of Shares Value of Shares Value
--------- ----- --------- -----
<S> <C> <C> <C> <C>
COMMON STOCKS - 94.1%
BASIC INDUSTRIES - 5.2%
Aluminum Company of America 600 31,725 5,400 285,525
* Bethlehem Steel Corporation 400 5,600 3,300 46,200
Boise Cascade Corporation 200 6,925 1,466 50,760
Champion International 300 12,600 2,900 121,800
Dow Chemical Company 900 63,338 8,150 573,557
DuPont (E.I.) de Nemours and Company 2,000 139,750 17,200 1,201,850
Homestake Mining Company 500 7,813 4,300 67,188
International Paper Company 900 34,088 7,700 291,638
Monsanto Company 400 49,000 3,700 453,250
Weyerhaeuser Company 700 30,275 6,400 276,800
---------
3,368,567
CONSUMER DURABLES - 4.7%
Black & Decker Corporation 300 10,575 2,600 91,650
Brunswick Corporation 300 7,200 2,900 69,600
Chrysler Corporation 1,300 74,811 11,500 661,786
Ford Motor Company 3,900 113,100 33,500 971,500
General Motors Corporation 2,700 142,763 23,400 1,237,276
---------
3,031,812
CONSUMER NONDURABLES - 9.8%
Avon Products, Inc. 300 22,613 2,300 173,363
Coca-Cola Company 4,600 341,550 39,600 2,940,300
Colgate-Palmolive Company (1,300) (91,325) 4,550 319,637
Eastman Kodak Company (1,100) (73,700) 10,650 713,550
Heinz (H.J.) Company 1,300 43,063 11,400 377,625
International Flavors & Fragrances Inc (2,300) (110,400) 3,550 170,400
PepsiCo, Inc. (200) (11,175) 24,800 1,385,700
Polaroid Corporation 200 9,475 1,500 71,063
Ralston Purina Group 400 24,950 3,300 205,838
Gillette Company (3,200) (174,038) 0 (7,238)
Kimberly-Clark Corporation (2,000) (137,712) 0 27,788
---------
6,378,025
CONSUMER SERVICE - 8.7%
Capital Cities/ABC, Inc. 600 69,932 4,900 600,444
Walt Disney Company 1,900 110,867 16,200 954,567
* Harrah's Entertainment 400 9,181 3,250 78,293
Kmart Corporation 1,700 12,237 14,300 103,587
Limited (The), Inc. 1,300 22,584 11,300 196,334
May Department Stores Company 900 38,508 7,800 330,033
McDonald's Corporation (1,000) (43,263) 21,900 990,100
Sears, Roebuck and Co. 1,400 54,865 12,100 472,165
Tandy Corporation 300 10,951 2,300 93,951
* Toys "R" Us, Inc. 1,000 22,058 8,625 187,902
Wal-Mart Stores, Inc. 8,300 186,594 71,800 1,607,407
Dun & Bradstreet Corporation (2,300) (148,925) 0 0
Walgreen Co. (5,400) (161,325) 0 0
---------
5,614,783
</TABLE>
Percentages shown are a percent of Pro Forma net assets.
The accompanying notes to Pro Forma Combining Statements are an integral part
of this schedule.
B-5
<PAGE> 32
S&P 100 PLUS PORTFOLIO
BALANCED PORTFOLIO
PRO-FORMA COMBINING SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
S&P 100 Plus Balanced Portfolio Combined
------------------ ------------------ -------------------
Number Market Number Market Number Market
of Shares Value of Shares Value of Shares Value
--------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
CAPITAL GOODS - 10.7%
The Boeing Company 9,350 732,806 0 0 9,350 732,806
Fluor Corporation 2,300 151,800 0 0 2,300 151,800
General Dynamics Corporation 1,800 106,425 0 0 1,800 106,425
General Electric Company 46,100 3,319,200 2,300 165,600 48,400 3,484,800
Minnesota Mining and Manufacturing Company 1,700 775,125 2,200 145,750 3,900 920,875
Raytheon Company 6,700 316,575 0 0 6,700 316,575
Rockwell International Corporation 6,100 322,538 0 0 6,100 322,538
* Teledyne, Inc. 1,500 38,438 0 0 1,500 38,438
United Technologies Corporation 3,500 332,062 0 0 3,500 332,062
Avery-Dennison Corporation 0 0 3,300 165,412 3,300 165,412
--------- ------- ---------
6,094,969 476,762 6,571,731
ENERGY - 11.6%
Amoco Corporation 13,700 984,687 2,000 143,750 15,700 1,128,437
Atlantic Richfield Company 4,400 487,300 0 0 4,400 487,300
Baker Hughes Incorporated 3,860 94,087 0 0 3,860 94,087
Coastal Corporation 2,900 108,025 0 0 2,900 108,025
Exxon Corporation 34,300 2,748,288 1,900 152,237 36,200 2,900,525
Halliburton Company 3,200 162,000 0 0 3,200 162,000
Mobil Corporation 11,000 1,232,000 1,350 151,200 12,350 1,383,200
Occidental Petroleum Corporation 8,800 188,100 0 0 8,800 188,100
Schlumberger Limited 6,700 463,975 0 0 6,700 463,975
Williams Companies, Inc. 2,800 122,850 0 0 2,800 122,850
Royal Dutch Petroleum Company 0 0 1,100 155,238 1,100 155,238
--------- ------- ---------
6,591,312 602,425 7,193,737
FINANCIAL -8.7%
American International Group, Inc. 13,143 1,215,728 0 0 13,143 1,215,728
American Express Company 13,500 558,562 0 0 13,500 558,562
American General Corporation 5,600 195,300 0 0 5,600 195,300
BankAmerica Corporation 10,300 666,925 2,100 135,975 12,400 802,900
CIGNA Corporation 2,000 206,500 0 0 2,000 206,500
Citicorp 11,700 786,825 0 0 11,700 786,825
First Chicago Corporation 8,725 344,638 0 0 8,725 344,638
First Fidelity Bancorporation 2,200 165,825 0 0 2,200 165,825
First Interstate Bancorp 2,300 313,950 0 0 2,300 313,950
Great Western Financial Corporation 3,650 93,075 0 0 3,650 93,075
ITT Hartford Group, Inc. 3200 154,800 0 0 3,200 154,800
Merrill Lynch & Co., Inc. 4,900 249,900 0 0 4,900 249,900
Banc One Corporation 0 0 3,388 127,897 3,388 127,897
Federal National Mortgage Association 0 0 1,550 192,394 1,550 192,394
Jefferson-Pilot Corporation 0 0 3,412 158,681 3,412 158,681
--------- ------- ---------
4,952,028 614,947 5,566,975
HEALTH CARE - 10.4%
Baxter International Inc. 7,600 318,250 0 0 7,600 318,250
Bristol-Myers Squibb Company 14,260 1,224,578 0 0 14,260 1,224,578
Johnson & Johnson 17,800 1,524,125 2,000 171,250 19,800 1,695,375
Mallinckrodt Group Inc. 2,100 76,387 0 0 2,100 76,387
Merck & Co., Inc. 34,200 2,248,650 0 0 34,200 2,248,650
<CAPTION>
Adjustments Pro-Forma Effect
----------------- ------------------
Number Market Number Market
of Shares Value of Shares Value
--------- ----- --------- -----
<S> <C> <C> <C> <C>
CAPITAL GOODS - 10.7%
The Boeing Company 1,200 95,891 10,550 828,697
Fluor Corporation 300 19,841 2,600 171,641
General Dynamics Corporation 200 14,025 2,000 120,450
General Electric Company 3,800 270,233 52,200 3,755,033
Minnesota Mining and Manufacturing Company (200) (43,998) 3,700 876,877
Raytheon Company 900 41,764 7,600 358,339
Rockwell International Corporation 800 42,426 6,900 364,964
* Teledyne, Inc. 200 4,924 1,700 43,362
United Technologies Corporation 500 43,742 4,000 375,804
Avery-Dennison Corporation (3,300) (165,412) 0 0
---------
6,895,167
ENERGY - 11.6%
Amoco Corporation (200) (14,273) 15,500 1,114,164
Atlantic Richfield Company 600 63,759 5,000 551,059
Baker Hughes Incorporated 500 12,511 4,360 106,598
Coastal Corporation 400 14,232 3,300 122,257
Exxon Corporation 2,600 208,293 38,800 3,108,818
Halliburton Company 400 21,084 3,600 183,084
Mobil Corporation 100 10,408 12,450 1,393,608
Occidental Petroleum Corporation 1,100 24,494 9,900 212,594
Schlumberger Limited 900 61,188 7,600 525,163
Williams Companies, Inc. 400 16,270 3,200 139,120
Royal Dutch Petroleum Company (1,100) (155,238) 0 0
---------
7,456,465
FINANCIAL -8.7%
American International Group, Inc. 1,700 159,812 14,843 1,375,540
American Express Company 1,800 73,199 15,300 631,761
American General Corporation 700 25,726 6,300 221,026
BankAmerica Corporation (700) (48,280) 11,700 754,620
CIGNA Corporation 300 27,173 2,300 233,673
Citicorp 1,500 103,301 13,200 890,126
First Chicago Corporation 1,100 45,018 9,825 389,656
First Fidelity Bancorporation 300 21,475 2,500 187,300
First Interstate Bancorp 300 41,378 2,600 355,328
Great Western Financial Corporation 500 12,319 4,150 105,394
ITT Hartford Group, Inc. 400 20,455 3,600 175,255
Merrill Lynch & Co., Inc. 600 32,556 5,500 282,456
Banc One Corporation (3,388) (127,897) 0 0
Federal National Mortgage Association (1,550) (192,394) 0 0
Jefferson-Pilot Corporation (3,412) (158,681) 0 0
---------
5,602,135
HEALTH CARE - 10.4%
Baxter International Inc. 1,000 41,896 8,600 360,146
Bristol-Myers Squibb Company 1,900 160,598 16,160 1,385,176
Johnson & Johnson 300 28,869 20,100 1,724,244
Mallinckrodt Group Inc. 300 9,735 2,400 86,122
---------
Merck & Co., Inc. 4,500 295,257 38,700 2,543,907
</TABLE>
Percentages shown are a percent of Pro Forma net assets.
The accompanying notes to Pro Forma Combining Statements are an integral
part of this schedule.
B-6
<PAGE> 33
S&P 100 PLUS PORTFOLIO
BALANCED PORTFOLIO
PRO-FORMA COMBINING SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
S&P 100 Plus Balanced Portfolio Combined
------------------ ------------------ -------------------
Number Market Number Market Number Market
of Shares Value of Shares Value of Shares Value
--------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
HEALTH CARE - 10.4% (continued)
Pharmacia & Upjohn, Inc. 13,860 537,075 0 0 13,860 537,075
Schering-Plough Corporation 0 0 2,600 142,350 2,600 142,350
--------- ------- ---------
5,929,065 313,600 6,242,665
TECHNOLOGY - 10.5%
AMP Incorporated 5,800 222,575 3,000 115,125 8,800 337,700
* Ceridian Corporation 1,800 74,250 0 0 1,800 74,250
* Computer Sciences Corporation 1,400 98,350 0 0 1,400 98,350
* Digital Equipment Corporation 4,100 262,913 0 0 4,100 262,913
* Federal Express Corporation 1,500 110,812 0 0 1,500 110,812
Harris Corporation 1,100 60,088 0 0 1,100 60,088
Hewlett-Packard Company 14,000 1,172,500 0 0 14,000 1,172,500
Honeywell Inc. 3,700 179,912 0 0 3,700 179,912
International Business Machines Corporati 15,700 1,440,475 0 0 15,700 1,440,475
Intel Corporation 23,000 1,305,250 0 0 23,000 1,305,250
* National Semiconductor Corporation 3,300 73,425 0 0 3,300 73,425
Northern Telecom Limited 6,900 296,700 0 0 6,900 296,700
Tektronix, Inc. 800 39,300 0 0 800 39,300
Texas Instruments Inc. 5,000 258,750 0 0 5,000 258,750
* Unisys Corporation 4,700 26,437 0 0 4,700 26,437
Xerox Corporation 2,847 390,039 1,150 157,550 3,997 547,589
General Motors Corp $3.25 Pfd Ser C 0 0 1,900 139,175 1,900 139,175
Loral Corporation 0 0 5,200 183,950 5,200 183,950
Pitney Bowes Inc. 0 0 2,900 136,300 2,900 136,300
--------- ------- ---------
6,011,776 732,100 6,743,876
TRANSPORATION - 1.2%
Burlington Northern Santa Fe Corporation 3,900 304,200 0 0 3,900 304,200
Delta Air Lines, Inc. 1,400 103,425 0 0 1,400 103,425
Norfolk Southern Corporation 3,800 301,625 0 0 3,800 301,625
--------- ------- ---------
709,250 0 709,250
UTILITIES - 11.8%
American Telephone and Telegraph Company 43,742 2,832,295 1,900 123,025 45,642 2,955,320
American Electric Power Company, Inc. 5,100 206,550 0 0 5,100 206,550
Ameritech Corporation 15,300 902,700 0 0 15,300 902,700
Bell Atlantic Corporation 12,000 802,500 0 0 12,000 802,500
Entergy Corporation 6,400 187,200 0 0 6,400 187,200
MCI Communications Corporation 18,800 491,150 0 0 18,800 491,150
NYNEX Corporation 11,800 637200 0 0 11,800 637,200
Southern Company 18,400 453,100 0 0 18,400 453,100
Unicom Corporation 5,900 193,225 0 0 5,900 193,225
GTE Corporation 0 0 3,900 171,600 3,900 171,600
SBC Communications Inc. 0 0 3,000 172,500 3,000 172,500
--------- ------- ---------
6,705,920 467,125 7,173,045
Total Common Stocks
(cost $32,754,313, 3,210,177 and $38,157,168,
respectively) 53,237,268 4,600,072 57,837,340
---------- --------- ----------
<CAPTION>
Adjustments Pro-Forma Effect
----------------- ------------------
Number Market Number Market
of Shares Value of Shares Value
--------- ----- --------- -----
<S> <C> <C> <C> <C>
HEALTH CARE - 10.4% (continued)
Pharmacia & Upjohn, Inc. 1,800 70,596 15,660 607,671
Schering-Plough Corporation (2,600) (142,350) 0 0
---------
6,707,266
TECHNOLOGY - 10.5%
AMP Incorporated (2,200) (85,959) 6,600 251,741
* Ceridian Corporation 200 9,463 2,000 83,713
* Computer Sciences Corporation 200 13,066 1,600 111,416
* Digital Equipment Corporation 500 34,599 4,600 297,512
* Federal Express Corporation 200 14,456 1,700 125,268
Harris Corporation 100 7,966 1,200 68,054
Hewlett-Packard Company 1,800 153,656 15,800 1,326,156
Honeywell Inc. 500 23,649 4,200 203,561
International Business Machines Corporati 2,100 189,215 17,800 1,629,690
Intel Corporation 3,000 171,469 26,000 1,476,719
* National Semiconductor Corporation 400 9,686 3,700 83,111
Northern Telecom Limited 900 38,754 7,800 335,454
Tektronix, Inc. 100 5,267 900 44,567
Texas Instruments Inc. 700 33,944 5,700 292,694
* Unisys Corporation 700 3,676 5,400 30,113
Xerox Corporation (800) (106,139) 3,197 441,450
General Motors Corp $3.25 Pfd Ser C (1,900) (139,175) 0 0
Loral Corporation (5,200) (183,950) 0 0
Pitney Bowes Inc. (2,900) (136,300) 0 0
---------
6,801,219
TRANSPORATION - 1.2%
Burlington Northern Santa Fe Corporation 500 39,685 4,400 343,885
Delta Air Lines, Inc. 200 13,412 1,600 116,837
Norfolk Southern Corporation 500 39,851 4,300 341,476
---------
802,198
UTILITIES - 11.8%
American Telephone and Telegraph Company 3,800 248,653 49,442 3,203,973
American Electric Power Company, Inc. 700 27,123 5,800 233,673
Ameritech Corporation 2,000 118,717 17,300 1,021,417
Bell Atlantic Corporation 1,600 105,092 13,600 907,592
Entergy Corporation 800 24,792 7,200 211,992
MCI Communications Corporation 2,500 64,727 21,300 555,877
NYNEX Corporation 1,500 83,694 13,300 720,894
Southern Company 2,400 59,415 20,800 512,515
Unicom Corporation 800 25,392 6,700 218,617
GTE Corporation (3,900) (171,600) 0 0
SBC Communications Inc. (3,000) (172,500) 0 0
---------
7,586,550
Total Common Stocks
(cost $32,754,313, 3,210,177 and $38,157,168,
respectively) 2,406,846 60,244,186
</TABLE>
Percentages shown are a percent of Pro Forma net assets.
The accompanying notes to Pro Forma Combining Statements are an integral part
of this schedule.
B-7
<PAGE> 34
S&P 100 PLUS PORTFOLIO
BALANCED PORTFOLIO
PRO-FORMA COMBINING SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
S&P 100 Plus Balanced Portfolio Combined
------------------ ------------------ -------------------
Number Market Number Market Number Market
of Shares Value of Shares Value of Shares Value
--------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Preferred Stock
----------- -----------
Teledyne Inc. Ser E Preferred 60 862 0 0 60 862
----------- -----------
Option Contracts Purchased
----------- -----------
SPX March 96 615 Cal 5,500 82,500 5500 82500
----------- -----------
CORPORATE BONDS
Northern States Power,6.125%, due 12-01-20 0 0 300,000 299,648 300,000 299,648
Total Corporate Bonds ( cost 0, $297,360 and 299,648 299,648
$0, respectively)
U.S. GOVERNMENT OBLICATIONS
U.S. Treasury Notes, 7.00%, due 09-30-1996 500,000 506,562 500,000 506,562
U.S. Treasury Notes,6.125%, due 12-31-1996 0 0 500,000 504,843 500,000 504,843
U.S. Treasury Notes, 5.75%, due 10-31-1997 0 0 300,000 303,000 300,000 303,000
U.S. Treasury Notes, 5.35%, due 05-31-1998 0 0 250,000 250,859 250,000 250,859
U.S. Treasury Notes, 6.75%, due 06-30-1999 0 0 500,000 522,813 500,000 522,813
---------- -----------
Total U.S. Government Obligations 2,088,077 2,088,077
(cost $0,$2,085,917 and $0, respectively)
SHORT-TERM INVESTMENTS
MONEY MARKET
Prospect Hill $1,162,012 1,162,012 108,201 108,201 1,270,213 1,270,213
Federated Master Trust 1,700,651 1,700,651 0 0 1,700,651 1,700,651
Dreyfus Cash Managament 0 129,562 129,562 129,562 129,562
Total Short-Term Investments 2,862,663 237,763 3,100,426
GOVERNMENT SECURITIES
+ U.S. Treasury Bill
4.90%, due 03-21-1996 1,000,000 989,268 0 0 1,000,000 989,268
----------- ---------- -----------
Total Govrnment Obligations 989,268 0 989,268
Total Investments $57,172,561 $7,225,560 $64,398,121
=========== ========== ===========
+ Segregated as collateral against option contracts
* Non Income Producing
<CAPTION>
Adjustments Pro-Forma Effect
----------------- -------------------
Number Market Number Market
of Shares Value of Shares Value
--------- ----- --------- -----
<S> <C> <C> <C> <C>
Preferred Stock
-----------
Teledyne Inc. Ser E Preferred 60 862
-----------
Option Contracts Purchased
-----------
SPX March 96 615 Cal 5,500 82,500
-----------
CORPORATE BONDS
Northern States Power,6.125%, due 12-01-20 (300,000) (299,648) 0 0
Total Corporate Bonds ( cost 0, $297,360 and (299,648) 0
$0, respectively))
U.S. GOVERNMENT OBLICATIONS
U.S. Treasury Notes, 7.00%, due 09-30-1996 (500,000) (506,562) 0 0
U.S. Treasury Notes,6.125%, due 12-31-1996 (500,000) (504,843) 0 0
U.S. Treasury Notes, 5.75%, due 10-31-1997 (300,000) (303,000) 0 0
U.S. Treasury Notes, 5.35%, due 05-31-1998 (250,000) (250,859) 0 0
U.S. Treasury Notes, 6.75%, due 06-30-1999 (500,000) (522,813) 0 0
----------- -----------
Total U.S. Government Obligations (2,088,077) 0
(cost $0,$2,085,917 and $0, respectively
SHORT-TERM INVESTMENTS
MONEY MARKET
Prospect Hill (19,121) (19,121) 1,251,092 1,251,092
Federated Master Trust 1,700,651 1,700,651
Dreyfus Cash Managament 129,562 129,562
Total Short-Term Investments (19,121) (19,121) 3,081,305 3,081,305
GOVERNMENT SECURITIES
+ U.S. Treasury Bill
4.90%, due 03-21-1996 1,000,000 989,268
-----------
Total Govrnment Obligations 0 0 989,268
Total Investments $64,398,121
===========
+ Segregated as collateral against option contracts
* Non Income Producing
</TABLE>
Percentages shown are a percent of Pro Forma net assets.
The accompanying notes to Pro Forma Combining Statements are an integral part
of this schedule.
B-8
<PAGE> 35
Principal Preservation Portfolios Inc- S&P 100 Plus and Balanced Portfolios
Notes to Combining Pro Forma Financial Statements
(unaudited)
The pro forma adjustments to the foregoing pro forma combining financial
statements consist of:
a. The Reorganization involves the transfer of all assets of the
Balanced Portfolio (net of its liabilities) to the S&P
100 Plus Portfolio, in exchange for shares of common stock of
the S&P 100 Plus Portfolio, and the pro rata distribution, on
the Closing Date, of such shares of the S&P 100 Plus Portfolio
to the shareholders of Balanced Portfolio as provided in the
Plan.
All of the expenses of the reorganization associated with the
reorganization (which are estimated at $15,000) will be paid
by B.C. Ziegler and Company or one of its affiliates.
b. The foregoing unaudited Pro Forma Financial Statements consist
of: (i) Pro Forma Combining Statements of Assets and
Liabilities as of December 31, 1995, assuming the
Reorganization had been consummated on that date; (ii) the
Pro Forma Combining Statement of Operations the year ended
December 31, 1995, giving effect to the Reorganization as if
it had been consummated on January 1, 1995; and (iii) Pro
Forma Combining Schedules of Investments as of December
31,1995, assuming the Reorganization had been consummated on
that date.
c. Adjustment to reflect the sale of securities held by the
Balanced Portfolio that do not qualify for investment by the
S&P 100 Plus Portfolio, as well as to re-balance the combined
Portfolio to the common stock proportionate investments
existing in the S&P 100 Plus Portfolio prior to the
Reorganization.
d. The sale of the securities in the Balanced Portfolio on
December 31, 1995, that do not qualify for investment by the
S&P 100 Plus Portfolio would have resulted in a capital gains
distribution of $577,074, net of the capital loss
carryforwards of $196,695. Based upon prior dividend history
in which approximately 93% of shares outstanding reinvested
their dividends, $535,236 of the total was treated as
reinvested and $41,838 as payable as a cash distribution.
Additionally, the $21,243 reduction in pro forma expenses was
assumed to be distributed to the shareholders of the Combined
Portfolio.
e. A reduction in the advisory fee reflects a lower fee due to
the fact that the resulting increase in assets of the Combined
Portfolio will cross a breakpoint in the advisory fee schedule.
f. The reduction in fund accounting fees reflects elimination of
the minimum fee presently incurred by the Balanced Portfolio.
g. The reduction in the custodian fees reflects application of
the custodian fee schedule to the increased asset size of the
Combined Portfolio.
h. Reduction in professional services, registration, pricing and
other fees reflects the elimination of duplicative costs.
i. The share reconciliation includes (i) an increase to the
Balanced Portfolio of 48,525 shares to reflect the
reinvestment of capital gain dividends and (ii) a reduction
of 275,542 in the combined shares outstanding due to the
higher net asset value per share of the S&P 100 Plus Portfolio.
B-9
<PAGE> 36
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
Part C. Other Information
Item 15. Indemnification
Reference is made to Article IX of the Registrant's Bylaws filed as
Exhibit No. 2 to its Registration Statement on Form N-1A, as amended
(Reg. Nos. 33-12 and 811-4401), with respect to the indemnification of
Registrant's directors and officers, which is set forth below:
Section 9.1. Indemnification of Officers, Directors, Employees and
Agents. The Corporation shall indemnify each person who was or is a
party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative ("Proceeding"), by reason of the fact
that he is or was a Director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as
a Director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against all
expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in
connection with such Proceeding to the fullest extent permitted by
law; provided that:
(a) whether or not there is an adjudication of liability
in such Proceeding, the Corporation shall not indemnify any person for
any liability arising by reason of such person's willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office or under any contract or
agreement with the Corporation ("disabling conduct"); and
(b) the Corporation shall not indemnify any person
unless:
(1) the court or other body before which the
Proceeding was brought (i) dismisses the Proceeding
for insufficiency of evidence of any disabling
conduct, or (ii) reaches a final decision on the
merits that such person was not liable by reason of
disabling conduct; or
(2) absent such a decision, a reasonable
determination is made, based upon a review of the
facts, by (i) the vote of a majority of a quorum of
the Directors of the Corporation who are neither
interested persons of the Corporation as defined in
the Investment Company Act of 1940 nor parties to the
Proceeding, or (ii) if such quorum is not obtainable,
or even if obtainable, if a majority of a quorum of
Directors described in paragraph (b)(2)(i) above so
directs, by independent legal counsel in a written
opinion, that such person was not liable by reason of
disabling conduct.
Expenses (including attorneys' fees) incurred in defending a
Proceeding will be paid by the Corporation in advance of the final
disposition thereof upon an undertaking by such person to repay such
expenses (unless it is ultimately determined that he is entitled to
indemnification), if:
(1) such person shall provide adequately security for his
undertaking;
(2) the Corporation shall be insured against losses
arising by reason of such advance; or
(3) a majority of a quorum of the Directors of the
Corporation who are neither interested persons of the
Corporation as defined in the Investment Company Act
of 1940 nor parties to the Proceeding, or independent
legal counsel in a written opinion, shall determine,
based on a review of readily available facts, that
there is reason to believe that such person will be
found to be entitled to indemnification.
C-1
<PAGE> 37
Section 9.2 Insurance of Officers, Directors, Employees and
Agents. The Corporation may purchase and maintain insurance on behalf
of any person who is or was a Director, officer, employee or agent of
the Corporation, or is or was serving at the request of the
Corporation as a Director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in or
arising out of his position. However, in no event will the
Corporation purchase insurance to indemnify any such person for any
act for which the Corporation itself is not permitted to indemnify
him.
Registrant undertakes that insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted
to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of
such issue.
Item 16. Exhibits
See Exhibit Index following the Signature Page of this Registration
Statement, which Exhibit Index is incorporated herein by this reference.
Item 17. Undertakings
(1) The Registrant agrees that prior to any public reoffering of
the securities registered through the use of a prospectus
which is a part of this Registration Statement by any person
or party who is deemed to be an underwriter within the meaning
of Rule 145(c) under the Securities Act of 1933, as amended,
the reoffering prospectus will contain the information called
for by the applicable registration form for reofferings by
persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable
form.
(2) The Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an
amendment to this Registration Statement and will not be used
until the amendment is effective, and that, in determining any
liability under the Securities Act of 1933, as amended, each
post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein, and
the offering of the securities at that time shall be deemed to
be the initial bona fide offering of them.
C-2
<PAGE> 38
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement
has been signed on behalf of the Registrant, in the City of West Bend, in the
State of Wisconsin, on the 20th day of February, 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 Registration Statement
has been signed on this 20th day of February, 1996 by the following persons in
the capacities indicated. Each person whose signature appears below hereby
constitutes and appoints R. D. Ziegler and Robert J. Tuszynski, or either of
them, as his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including pre-effective
and post-effective amendments) to this Registration Statement and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto either or both said
attorneys-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully as he
might or could do in person, hereby ratifying and confirming all that either or
both said attorneys-in-fact and agents may lawfully do or cause to be done by
virtue hereof.
SIGNATURE TITLE
--------- -----
/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
/s/ Richard H. Aster Director
-------------------------------
Richard H. Aster
/s/ August J. English Director
-------------------------------
August J. English
/s/ Ralph J. Eckert Director
-------------------------------
Ralph J. Eckert
C-3
<PAGE> 39
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) Balanced Portfolio's Plan of Reorganization and Liquidation
(5)(a) Specimen Certificate representing shares of the S&P 100 Plus Portfolio*
(5)(b) Specimen Certificate representing shares of the Balanced 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*
(6)(b) Sub-Advisory Agreement with PanAgora Asset Management, Inc. relating to
the assets of the S&P 100 Plus Portfolio.*
(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) Form of Opinion of Counsel regarding the legality of securities being
registered
(12) Form of Opinion of Counsel regarding certain tax matters and
consequences to shareholders
(13)(a) Transfer and Dividend Disbursing Agent Agreement*
(13)(b) License Agreement with Standard & Poor's Corporation*
(13)(c) Accounting/Pricing Agreement between Registrant and B.C. Ziegler and
Company*
(14)(a) Consent of Independent Accountants
(14)(b) Consent of Counsel regarding legal and tax opinions in Exhibits 11 and
12, respectively
</TABLE>
<PAGE> 40
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
------- ----------- -----------
<S> <C> <C>
(15) None
(16) Powers of Attorney (included on Signature Page of this Registration
Statement)
(17)(a) Rule 24f-2 Notice
(17)(b) Registrant's 1995 Annual Report to Shareholders
(17)(c) Registrant's Prospectus dated May 1, 1995, as supplemented
</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.
<PAGE> 1
EXHIBIT 1(b)
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
ARTICLES SUPPLEMENTARY
The Board of Directors of Principal Preservation Portfolios, Inc.
("Principal Preservation"), a corporation organized and existing under the laws
of the State of Maryland, by Resolution unanimously adopted on January 19,
1996, has taken action to withdraw the designation of, and to discontinue, its
two series known as the Balanced Portfolio and the Insured Tax-Exempt
Portfolio. The shareholders of those two Portfolios, voting separately,
approved such withdrawal and discontinuance at special meetings held on April
24, 1996. This action is to become effective as of May 1, 1996 or, if later,
upon the filing and acceptance of these Articles Supplementary with and by the
Maryland Department of Assessments and Taxation. By this action the presently
designated series and, within certain series, classes of shares of Principal
Preservation's Common Stock, par value $.001 par share, consist of the
following:
<TABLE>
<CAPTION>
Series No. of Shares
------ -------------
<S> <C>
Tax-Exempt Portfolio 50 million
Government Portfolio 50 million
Dividend Achievers Portfolio 50 million
S&P 100 Plus Portfolio 50 million
Wisconsin Tax-Exempt Portfolio 50 million
Select Value Portfolio 50 million
Cash Reserve Portfolio
Class X Common Stock 200 million
Class Y Common Stock 200 million
</TABLE>
This action does not alter the number of authorized shares of Principal
Preservation, which consists of one billion shares, par value $0.001 per share.
The Board of Directors has taken this action pursuant to the powers
conferred upon it under Section 7.1 of Principal Preservation Portfolios,
Inc.'s Articles of Incorporation and Sections 2.105(a)(9), 2.105(c) and 2.208
of the Maryland General Corporation Law, all subject to approval by the
affected shareholders, which shareholder approval have been obtained.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
By:
-----------------------------------
R.D. Ziegler, President
Attest:
By:
----------------------------------
S. Charles O'Meara, Secretary
<PAGE> 2
STATE OF WISCONSIN )
) SS
COUNTY OF WASHINGTON )
On this 24th day of April, 1996, before me a Notary Public for the State and
County set forth above, personally came R.D. Ziegler, as President of Principal
Preservation Portfolios, Inc., and S. Charles O'Meara, as Secretary of
Principal Preservation Portfolios, Inc., and in their said capacities each
acknowledged the foregoing Articles Supplementary to be the act and deed of
said corporation and further acknowledged that, to the best of their knowledge,
the matters and facts set forth are true in all material respects under the
penalties of perjury.
IN WITNESS WHEREOF, I have signed below in my own hand and attached my
official seal on the day and year set forth above.
[Notary Seal]
Notary Public
----------------------------
My Commission expires:
-------------------
-2-
<PAGE> 1
EXHIBIT 11
Draft Dated February 20, 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,
"Registration Statement") initially filed with the Securities and Exchange
Commission on or about February 21, 1996.
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 considered 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. The Articles Supplementary dated April __, 1996, filed and approved by the
State of Maryland State Department of Assessments and Taxation on April
__, 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 deemed relevant to the
opinions expressed herein.
<PAGE> 2
Principal Preservation Portfolio's, Inc.
Draft Dated February 20, 1996
Page 2
Based upon and subject to the foregoing, after having given due regard to
such issues of law as we deemed relevant, and assuming that:
1. The Registration Statement remains effective, and the Proxy
Statement/Prospectus which is a part thereof and your Proxy
Statement/Prospectus delivery procedures with respect thereto fulfill all
the requirements of the Securities Act of 1933 and the Investment Company
Act of 1940 throughout all periods relevant to this opinion;
2. All offers and issuances of shares of Common Stock of the S & P 100 Plus
Portfolio registered under the Registration Statement are conducted in a
manner complying with the terms of the Plan of Reorganization and the
Registration Statement; and
3. All offers and issuances of shares of Common Stock of the S & P 100 Plus
Portfolio registered under the Registration Statement are conducted in
compliance with the state securities laws of the states having jurisdiction
thereof;
we are of the opinion that shares of Common Stock of the S & P 100 Plus
Portfolio covered by the Registration Statement will be, when issued, legally
and validly issued, fully paid and non-assessable.
Very truly yours,
QUARLES & BRADY
291:ba
760314.41101
<PAGE> 1
EXHIBIT 12
DRAFT
2/20/96
February ___, 1996
Board of Directors
Principal Preservation Portfolios, Inc.
215 North Main Street
West Bend WI 53095-3317
RE: TAX OPINION WITH RESPECT TO THE ACQUISITION OF THE ASSETS
OF THE BALANCED PORTFOLIO OF PRINCIPAL PRESERVATION PORTFOLIOS,
INC. BY THE S&P 100 PLUS PORTFOLIO OF PRINCIPAL PRESERVATION
PORTFOLIOS, INC.
Gentlemen:
At your request, we are rendering our opinion with respect to certain
federal income tax questions in connection with the proposed acquisition of the
assets of the Balanced Portfolio ("Balanced"), a series of Principal
Preservation Portfolios, Inc. (the "Fund"), by the S&P 100 Plus Portfolio
("S&P"), a series of the Fund. We do not express any opinion in this letter
with respect to any issues pertaining to state or local taxes.
We have examined Principal Preservation Balanced Portfolio Plan of
Reorganization and Liquidation, dated as of February 20, 1996 (the "Plan"),
which sets forth the terms of the proposed transaction. In addition, the
parties to the transaction have made various representations concerning the
transaction, including their purposes for entering into the transaction.
STATEMENT OF FACTS
A. THE FUND.
The Fund is a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as amended. The Fund is a
Maryland corporation with its principal office at 215 North Main Street, West
Bend, Wisconsin 53095-3317. The authorized capital stock of the Fund consists
of one billion shares of common stock, $.001 par value per share, issuable in
such series as authorized and established from time to time by the Board of
Directors. Shares of nine series, or "portfolios," have been authorized,
including Balanced and S&P.
<PAGE> 2
Board of Directors
Principal Preservation Portfolios, Inc.
February __, 1996
Page 2
B. BALANCED.
Balanced is a portfolio of the Fund. The Board of Directors of the Fund
has authorized and established a series of common stock ($0.001 par value per
share) known as Balanced. Of the fifty million authorized shares of Balanced
series, approximately 584,480 shares were issued and outstanding as of
December 31, 1995. Balanced's investment objective is to realize a combination
of income and capital appreciation which will result in the highest total
return consistent with the preservation of principal. Balanced has
traditionally invested in a diversified portfolio of common stocks, corporate
debt obligations and the debt obligations of the U.S. government and its
agencies. On December 31, 1995, the investments of Balanced consisted of the
following percentages: corporate stocks (64%), debt obligations of the U.S.
government and its agencies (29%), corporate debt obligations (4%), and money
market investments (3%).
C. S&P.
S&P is a portfolio of the Fund. The Board of Directors of the Fund has
authorized and established a series of common stock ($0.001 par value per
share) known as S&P 100 Plus. Of the fifty million authorized shares of S&P
series, approximately 2,922,304 shares were issued and outstanding
as of December 31, 1995. S&P's investment objective is to obtain a total
return that exceeds the S&P 100 Index. S&P has traditionally invested
primarily in a diversified portfolio of common stocks which approximately
parallels the composition of the S&P 100 Index. On December 31, 1995, the
investments of S&P consisted of the following percentages: corporate stocks
(93%), debt obligations of the U.S. government (2%), and money market
investments (5%).
D. PROPOSED TRANSACTION.
On January 19, 1996, the Board of Directors of the Fund approved, and on
April 24, 1996, the shareholders of Balanced will be asked to approve, the Plan
which provides for the acquisition by S&P of all of the assets of Balanced
(except for assets retained by Balanced for the purposes of discharging its
estimated liabilities) in exchange for stock of S&P. It is anticipated that
prior to the acquisition (but following shareholder approval) Balanced will
sell those of its assets that are not eligible for investment by S&P.
Following the acquisition, S&P will reinvest any remaining sale proceeds in
securities eligible for purchase by S&P.
In exchange for Balanced's assets S&P will deliver to Balanced that number
of shares of S&P' voting common stock as shall be
<PAGE> 3
Board of Directors
Principal Preservation Portfolios, Inc.
February __, 1996
Page 3
determined by dividing the fair market value of Balanced's assets to be
so exchanged by the net asset value per share of S&P' voting common stock, both
valued at the close of business on the New York Stock Exchange on the business
day immediately preceding the consummation of the proposed transaction.
Balanced will then transfer the S&P shares to its shareholders on a pro rata
basis according to the number of Balanced shares held by those shareholders and
Balanced will then, in effect, be completely liquidated, and the designation of
that series will be discontinued.
The stock transfers will be accomplished by book entries. Fractional
shares will be rounded to the nearest thousandth of a share.
E. BUSINESS PURPOSES.
In connection with the proposed transaction, you have stated that the
business purposes therefor include the following:
Small funds, such as Balanced, cannot be operated as efficiently as larger
funds, and therefore are at a distinct disadvantage in attempting to compete
for new investors and additional assets. Certain costs associated with the
operation of a mutual fund are unrelated to its size (e.g., professional fees,
certain administrative expenses, etc.). In addition, brokerage commission
rates tend to decrease as the size of the block of securities being traded
increases, and purchases and sales of securities can therefore generally be
effected at more favorable prices in larger blocks.
Given these factors and the belief of the Board of Directors of the Fund
that there is no strong likelihood of any appreciable growth in the assets of
Balanced as a stand-alone fund in the near future, the Board of Directors and
management of the Fund have considered available alternatives to enhance the
future total return potentially available to Balanced's shareholders. The
Board of Directors concluded that the reorganization is in the best interests
of Balanced's shareholders for a number of reasons, including the following:
(1) it provides Balanced's shareholders with an
opportunity to continue as members of the Fund's family of
funds;
(2) the similarities between the structure,
operations and service providers between Balanced and S&P;
and
<PAGE> 4
Board of Directors
Principal Preservation Portfolios, Inc.
February __, 1996
Page 4
(3) the cost savings that can be achieved by
combining the assets of Balanced with those of S&P through
greater economies of scale.
REPRESENTATIONS
The following representations have been made in connection with the
proposed transaction:
1. The Fund is a diversified, open-end management company and has been
registered as such with the Securities and Exchange Commission under the
1940 Act at all times during the past three years.
2. Each portfolio of the Fund (including S&P and Balanced) is a segregated
portfolio of assets, the beneficial interests in which are owned by the holders
of a class or series of voting stock of the Fund that is preferred over all
other classes or series in respect of such portfolio of assets.
3. The Fund is a regulated investment company within the meaning of
Section 851 of the Internal Revenue Code (the "Code"). With respect to each of
Balanced and S&P, no more than 25 percent of the value of the portfolio's total
assets is invested in the stock and securities of any one issuer and not more
than 50 percent of the value of its total assets is invested in the stock and
securities of 5 or fewer issuers. Furthermore, subsequent to the proposed
transaction, no more than 25 percent of the value of S&P's total assets will be
invested in the stock and securities of any one issuer nor will more than 50
percent of the value of its total assets be invested in the stock and
securities of 5 or fewer issuers. For purposes of this representation, in
determining total assets, there shall be excluded cash and cash items
(including receivables), U.S. Government securities, and assets acquired
(through incurring indebtedness or otherwise) for purposes of meeting the
requirements of Section 368(a)(2)(F)(ii) of the Code. Furthermore, none of the
assets of S&P or Balanced was acquired for purposes of meeting the requirements
of Section 368(a)(2)(F)(ii).
4. S&P and Balanced are investment companies as defined in Sections
368(a)(2)(F)(i) and (iii) of the Code. S&P and Balanced have, for all their
taxable years, elected to be taxed as regulated investment companies as defined
in Sections 851 through 855 of the Code. After the reorganization, S&P intends
to continue to elect to be taxed as a regulated investment company for all
subsequent taxable years.
5. There is no plan or intention by Balanced's shareholders who own five
percent or more of the stock of Balanced, and to the best of the knowledge of
the management of the Fund there is no
<PAGE> 5
Board of Directors
Principal Preservation Portfolios, Inc.
February __, 1996
Page 5
plan or intention on the part of shareholders of Balanced to sell,
exchange, redeem or otherwise dispose of a number of shares of S&P stock
received in the transaction that would reduce the ownership by the shareholders
of Balanced of the S&P stock to a number of shares having a value, as of the
date of the transaction, of less than 50 percent of the value of all of the
formerly outstanding stock of Balanced as of the same date. Shares of Balanced
stock and shares of S&P stock held by Balanced shareholders and otherwise sold,
redeemed, or disposed of prior or subsequent to the transaction will be
considered in making this representation.
6. S&P will acquire at least 90 percent of the fair market value of the
net assets and at least 70 percent of the fair market value of the gross assets
held by Balanced immediately prior to the transaction. For purposes of this
representation, amounts used by Balanced to pay its reorganization expenses,
and all redemptions and distributions (except for ordinary course regulated
investment company dividends, including capital gain dividends) made by
Balanced immediately preceding the transfer will be included as assets of
Balanced held immediately prior to the transaction.
7. Balanced will distribute the stock it receives in the transaction, and
its other properties (if any) and liquidate pursuant to the Plan.
8. S&P has no plan or intention to sell or otherwise dispose of any of the
assets of Balanced acquired in the transaction, except for dispositions made in
the ordinary course of business and to the extent necessary to maintain its
status as a series of an open-end investment company under the 1940 Act.
9. S&P has no plan or intention to redeem or otherwise reacquire any of
its stock to be issued in the transaction, except that S&P, as an open-end
investment company registered with the Securities and Exchange Commission, is
required by Section 22(e) of the 1940 Act to redeem any of its shares presented
to it for redemption. To the best knowledge of the management of the Fund, the
exchanging Balanced shareholders have no plan or intention to present their S&P
shares for redemption.
10. S&P will assume none of the liabilities of Balanced, nor will any of
the Balanced assets be subject to any liabilities.
11. B. C. Ziegler and Company, in its capacity as the distributor for
Balanced, has previously committed to Balanced to pay certain expenses incurred
by Balanced, including the type of expenses incurred in connection with the
transaction, and will pay such expenses. B.C.
<PAGE> 6
Board of Directors
Principal Preservation Portfolios, Inc.
February __, 1996
Page 6
Ziegler and Company, in its capacity as the distributor for
S&P, has previously committed to S&P to pay certain expenses of S&P, including
the type of expenses incurred in connection with the transaction, and will pay
such expenses. Balanced's shareholders will pay their own respective expenses,
if any, incurred in connection with the transaction.
12. There is no intercorporate indebtedness existing between S&P and
Balanced that was issued, acquired, or will be settled at a discount.
13. S&P does not own, directly or indirectly, nor has it owned during the
past five years, directly or indirectly, any stock of Balanced.
14. Following the transaction, S&P will continue the historic business of
Balanced (as a series of an open-end investment company) or use a significant
portion of Balanced's assets in a business (as a series of an open-end
investment company).
15. Neither the Fund nor any portfolio thereof (including S&P and
Balanced) is under the jurisdiction of a court in a Title 11 or similar case
within the meaning of Section 368(a)(3)(A) of the Code.
16. The fair market value of the S&P stock received by each Balanced
shareholder will be approximately equal to the fair market value of the
Balanced stock surrendered in the exchange.
17. The fair market value of the Balanced assets transferred will be
approximately equal to the fair market value of the S&P stock exchanged
therefor.
18. None of the compensation received by any shareholder of Balanced who
is also an employee of Balanced, S&P, or the Fund will be separate
consideration for, or allocable to, any of his or her Balanced shares; none of
the shares of S&P received by any such shareholder of Balanced pursuant to the
Plan will be separate consideration for, or allocable to, any employment
agreement; and the compensation paid to any such shareholder of Balanced will
be for services actually rendered and will be commensurate with amounts paid to
third parties bargaining at arms-length for similar services.
<PAGE> 7
Board of Directors
Principal Preservation Portfolios, Inc.
February __, 1996
Page 7
APPLICABLE LAW
A. THE STATUTORY REQUIREMENTS.
Section 368(a)(1)(C) of the Code provides that the term "reorganization"
includes the acquisition by one corporation, in exchange solely for a part of
its voting stock, of substantially all of the properties of another
corporation. Section 368(a)(2)(F) provides that if, immediately before a
transaction described in Section 368(a)(1), two or more parties to the
transaction were investment companies, then the transaction shall not be
considered to be a reorganization with respect to any such investment company,
unless it was a regulated investment company, a real estate investment trust or
a corporation which meets the requirements of Section 368(a)(2)(F)(ii).
Section 851(a)(1) of the Code defines the term "regulated investment
company" to include any domestic corporation which at all times during the
taxable year is registered under the 1940 Act as a management company, business
development company or unit investment trust. The Fund has been registered
under the 1940 Act as a management company at all times during the past three
years. Section 851(h) of the Code, as amended by the Tax Reform Act of 1986,
provides that in the case of a regulated investment company having more than
one fund, each fund of such regulated investment company shall be treated as a
separate corporation for purposes of the Internal Revenue Code, except with
respect to the definition of regulated investment company described above. For
purposes of the foregoing, a "fund" means a segregated portfolio of assets, the
beneficial interests in which are owned by the holders of a class or series of
stock of the regulated investment company that is preferred over all other
classes or series in respect of such portfolio of assets.
We have considered whether the "substantially all" requirement of Section
368(a)(1)(C) would be affected by any sales of assets and the reinvestment of
the proceeds by Balanced prior to the proposed transaction. As stated in Rev.
Rul. 88-48, 1988-1 C.B. 117, the position of the I.R.S. is that the
"substantially all" requirement addresses divisive transactions in which some
assets are transferred to an acquiring corporation and others are retained.
The proposed transaction is not divisive because (1) sales proceeds will be
reinvested in assets which will be transferred to S&P, (2) any sales will be to
unrelated purchasers, and (3) the shareholders of Balanced will not retain any
interest in the assets. See Rev. Rul. 88-48, 1988-1 C.B. 117.
<PAGE> 8
Board of Directors
Principal Preservation Portfolios, Inc.
February __, 1996
Page 8
B. THE NONSTATUTORY REQUIREMENTS.
In addition to the statutory requirements of Section 368, a reorganization
must also satisfy various nonstatutory requirements including the business
purpose, the continuity of ownership, and the continuity of business enterprise
requirements. In our opinion the business purposes expressed by the parties
satisfy the business purpose requirement. Furthermore, the representations
made by the parties clearly demonstrate that there will be a continuity of
ownership.
Treas. Reg. Section 1.368-1(d)(2) provides that, as a general rule,
continuity of business enterprise requires that the acquiring corporation
either use a significant portion of the acquired corporation's assets in a
business or continue the acquired corporation's historic business. If an
acquired corporation has more than one line of business, the continuity of
business enterprise requirement is satisfied if the acquiring corporation
continues a significant line of business. For example, in Example (1) of
Treas. Reg. Section 1.368-1(d)(5) the continuity of business enterprise
requirement was met when the acquiring corporation continued a line of business
with a value of approximately one-third the value of the acquired corporation,
even though the acquired corporation had sold the other two lines of business
for cash and marketable securities.
Balanced and S&P are two portfolios of the Fund, a regulated investment
company. Pursuant to Section 851 of the Code these two portfolios are treated
as if they were separate corporations under the Code. The two portfolios have
each sought to obtain their objective through a combination of income and
capital appreciation. Balanced has invested in common stocks (including stocks
of companies that comprise the S&P 100 Index), corporate debt obligations and
debt obligations of the U.S. government and its agencies. S&P has invested
primarily in common stocks that comprise the S&P 100 Index. In our opinion S&P
will continue the historic business of Balanced after the proposed transaction
even though the particular securities (e.g., common stocks of Corp. A and Corp.
B) which S&P will hold in some cases may differ from the particular securities
(e.g., common stocks of Corp. C and Corp. D) held by Balanced prior to the sale
and reinvestment by Balanced.
In Rev. Rul. 87-76, 1987-2 C.B. 84, the I.R.S. considered a corporation
("Acquired") which was in the investment business and which had traditionally
invested in corporate stocks and bonds. Pursuant to a plan of reorganization,
Acquired sold its entire portfolio of corporate stocks and bonds and reinvested
the proceeds in municipal bonds (the income from which was exempt from federal
<PAGE> 9
Board of Directors
Principal Preservation Portfolios, Inc.
February __, 1996
Page 9
income tax). An investment company ("Acquiring") whose portfolio consisted
exclusively of municipal bonds then acquired substantially all of Acquired's
assets in exchange for shares of Acquiring voting stock. The I.R.S. ruled that
the reorganization did not qualify under Section 368(a)(1)(C) of the Code
because Acquired's traditional business of investing in corporate stocks and
bonds was not the same line of business as investing in tax-exempt municipal
bonds. In our opinion, Rev. Rul. 87-76 is not applicable to the proposed
transaction because the nature of the investment goals and traditional
portfolios of Balanced and S&P are similar, unlike the taxable corporate
instruments/tax free municipal bonds instruments/tax-free municipal bonds
dichotomy considered in Rev. Rul. 87-76. Balanced and S&P each invest
significantly in common stocks. S&P invests primarily in common stocks that
make up the S&P 100 Index, and Balanced has traditionally also invested a
significant portion of its assets in such common stocks. This is unlike Rev.
Rul. 87-76 in which one fund invested only in tax-free municipal bonds and the
other fund invested only in securities which generated taxable income and did
not invest in municipal bonds. In our opinion, the differences in investment
philosophies between Balanced and S&P and the changes resulting from those
differences will not constitute a failure by S&P to continue an historic
business of Balanced.
C. ADDITIONAL STATUTORY PROVISIONS.
Sections 361 and 357(a) of the Code provide that generally no gain or loss
will be recognized if a transferor corporation which is a party to a
reorganization exchanges property pursuant to the plan of reorganization.
As provided in Section 362(b) of the Code, if property is acquired by a
corporation in connection with a reorganization, then the basis of the property
is the same as it would be in the hands of the transferor. Similarly, as a
result of Section 1223(2) of the Code, if a corporation acquires property in a
transaction in which there is carry-over basis, the corporation shall include
in its holding period the period for which this property was held by the
transferor.
Section 354(a)(1) of the Code provides that no gain or loss will be
recognized by the holder of stock in a corporation which is a party to a
reorganization if the stock is exchanged solely for stock of another party to
the reorganization, and Section 358(a)(1) of the Code provides that the basis
of property permitted to be received under Section 354 of the Code without the
recognition of gain or loss is the same as the property exchanged, decreased by
the amount of money or the fair market value of any other property received by
the taxpayer and the amount of any loss which the taxpayer recognized on the
exchange, and increased by the amount which was treated as a dividend and the
<PAGE> 10
Board of Directors
Principal Preservation Portfolios, Inc.
February __, 1996
Page 10
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, the
Plan, and assuming that the transaction is consummated in a manner consistent
with the terms of the Plan and that the representations remain accurate and
true immediately prior to the consummation of the transaction, our opinion is
as follows:
1. The acquisition by S&P of substantially all of the assets of Balanced
in exchange solely for S&P voting common stock, followed by the pro rata
distribution by Balanced to its shareholders of the S&P voting common stock in
complete liquidation of Balanced, will constitute a reorganization within the
meaning of Section 368(a)(1)(C) of the Code. For purposes of this opinion,
"substantially all" means at least 90 percent of the fair market value of the
net assets and at least 70 percent of the fair market value of the gross assets
of Balanced. S&P and Balanced will each be "a party to a reorganization"
within the meaning of Section 368(b) of the Code.
2. No gain or loss will be recognized by Balanced on the transfer of
substantially all of its assets to S&P solely in exchange for shares of S&P
voting common stock (Section 361(a) of the Code). No gain or loss will be
recognized by Balanced on the distribution to the shareholders of Balanced of
the shares of S&P received pursuant to the Plan (Section 361(c)of the Code).
3. No gain or loss will be recognized by S&P upon the receipt of the
assets of Balanced solely in exchange for S&P voting common stock (Section
1032(a) of the Code).
4. The basis of the assets of Balanced in the hands of S&P will be the
same as the basis of those assets in the hands of Balanced immediately prior to
the transaction (Section 362(b) of the Code).
5. The holding period of the assets of Balanced in the hands of S&P will
include the holding period of those assets in the hands of Balanced immediately
prior to the transaction (Section 1223(2) of the Code).
<PAGE> 11
Board of Directors
Principal Preservation Portfolios, Inc.
February __, 1996
Page 11
6. No gain or loss will be recognized by the shareholders of
Balanced upon the receipt solely of S&P voting common stock (including
fractional shares) solely in exchange for Balanced stock (Section 354(a)(1) of
the Code).
7. The basis of the S&P voting common stock received by the
Balanced shareholders (including fractional shares) will be the same as their
basis in the stock of Balanced surrendered in exchange therefor (Section
358(a)(1) of the Code).
8. The holding period of the S&P voting common stock received by
the Balanced shareholders (including fractional shares) will include the
holding period of the Balanced stock surrendered in exchange therefor, provided
that such stock was held as a capital asset in the hands of Balanced
shareholders on the date of the exchange (Section 1223(1) of the Code).
This opinion is based upon our best interpretation of the existing
Code, Treasury Regulations, judicial decisions, the published revenue rulings,
procedures, notices and releases of the Internal Revenue Service, and such
other authorities as we have considered relevant. This opinion states what we
believe a court would likely determine. Legislative, judicial or
administrative changes may occur which could be retroactive and adversely
affect our opinion. Furthermore, if the reorganization becomes the subject of
an administrative or judicial proceeding, no assurance can be given that our
opinion would be followed.
No opinion is expressed regarding the tax treatment of the transaction
under any other provision of the Code or Treasury Regulations. In addition, no
opinion is expressed regarding the tax treatment of any conditions existing at
the time of or effects resulting from the proposed transaction that are not
specifically covered by the above statements.
This opinion has been furnished solely for the benefit of the Fund, Balanced,
S&P, and their shareholders, and it may not be relied upon or used by any other
person or for any other purpose without our express written consent.
Very truly yours,
QUARLES & BRADY
<PAGE> 1
EXHIBIT 14(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this 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,
which Annual Report is incorporated by reference in the Registration Statement,
and to all references to our firm included in the Registration Statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
February 21, 1996.
<PAGE> 1
[LETTERHEAD OF QUARLES & BRADY] EXHIBIT 14(b)
February 20, 1996
Securities and Exchange Commission
Division of Investment Management
Judiciary Plaza
450 Fifth Street, N.W.
Washington DC 20549
Re: PRINCIPAL PRESERVATION PORTFOLIOS, INC.
REGISTRATION STATEMENT ON FORM N-14
Ladies and Gentlemen:
We hereby consent to the inclusion in Principal Preservation Portfolios,
Inc.'s (the "Registrant's") Registration Statement on Form N-14 (the
"Registration Statement") to be filed with the Commission on or about February
21, 1996, of our opinion as to the legality of the securities being registered
pursuant to such Registration Statement. We also consent to the inclusion in
such Registration Statement of our tax opinion relating to the reorganization
of the Registrant's Balanced Portfolio into the Registrant's S&P 100 Plus
Portfolio. The shares of the Registrant's S&P 100 Plus Portfolio covered by
the Registration Statement are being issued in connection with this
reorganization transaction.
We also consent to the Registrant's use of our name as it appears in
the Proxy Statement/Prospectus and Statement of Additional Information
constituting parts of the Registration Statement.
Very truly yours,
QUARLES & BRADY
/s/ Fredrick G. Lautz
Fredrick G. Lautz
<PAGE> 1
EXHIBIT 17(a)
As filed with the Securities and Exchange Commission on August 30, 1985.
Registration No. 33-00012
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. _______ [ ]
Post-Effective Amendment No. _______ [ ]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. _______ [ ]
(Check appropriate box or boxes)
__________________
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
(Exact name of registrant as specified in charter)
215 NORTH MAIN STREET
WEST BEND, WISCONSIN 53095
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (414) 334-5521
ROBERT A. STEPHAN, Senior Vice President
215 NORTH MAIN STREET
WEST BEND, WISCONSIN 53095
(Name and Address of Agent for Service)
Copy to:
CONRAD G. GOODKIND, ESQ.
Quarles & Brady
780 North Water Street
Milwaukee, Wisconsin 53202
Approximate Date of Proposed Public Offerings: As soon as practicable after
the effective date of registrant's statement.
It is proposed that this filing will become effective
_____ immediately upon filing pursuant to paragraph (b)
_____ on (date) pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)
_____ on (date) pursuant to paragraph (a) of rule 485
__________________
CALCULATION OF REGISTRATION FEE
____________________________________________
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AMOUNT OF
BEING REGISTERED REGISTERED PER SHARE REGISTRATION FEE
<S> <C> <C> <C>
_______________________________________________________________________________________________________________
Common Stock, Indefinite* $10.00 $500
$0.001 par value
_______________________________________________________________________________________________________________
</TABLE>
* Registrant elects to register an indefinite number of shares of Common
Stock, $0.001 par value, pursuant to Rule 24f-2 under the Investment
Company Act of 1940.
__________________
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section
<PAGE> 2
EXHIBIT 17
8(a) of the Securities Act of 1933 or until the registration statement shall
become effective on such a date as the Commission, acting pursuant to said
Section 8(a) may determine.
<PAGE> 1
EXHIBIT 17(b)
(PRINCIPAL PRESERVATION LOGO)
TAX-EXEMPT PORTFOLIO
INSURED TAX-EXEMPT PORTFOLIO
GOVERNMENT PORTFOLIO
S&P100 PLUS PORTFOLIO
DIVIDEND ACHIEVERS PORTFOLIO
BALANCED PORTFOLIO
SELECT VALUE PORTFOLIO
------------
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1995
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
PRESIDENT'S LETTER/MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT TO SHAREHOLDERS
DECEMBER 31, 1995
February 20, 1996
Dear Shareholders:
We are pleased to provide our annual report for the year ended December 31,
1995. The long-term fund net assets, buoyed by strong capital markets,
increased from $202,000,000 to $237,000,000. The largest increases in fund
assets were realized in the S&P 100 Plus and Wisconsin Tax-Exempt Portfolios
(whose annual report is being sent separately).
The Dow Jones Industrial Average, as well the Standard & Poor's 500 indices
touched new historical highs on December 14, 1995. As of the date of this
report, both indices continue to push to record heights exceeding 5,600 and 660
respectively. The bond markets, through lowering of the overnight lending rate
by the Federal Reserve, witnessed a reduction of long-term interest rates,
causing bond prices to increase. Each of the long-term portfolios participated
in this positive performance, giving the shareholders good comparative total
returns in their respective categories. A further discussion of the individual
fund performances follow on the next few pages.
Page 1
<PAGE> 2
It is with mixed emotion that I report that effective January 19, 1996,
Steven Roell tendered his resignation to the Principal Preservation Portfolios
Board of Directors. We wish him well in his pursuits. However, I am pleased to
report that Ralph Eckert has been appointed to fill his position. Ralph is the
retired Chief Executive Officer of Benefit Trust Life Insurance Company. More
recently, he served on The Prime Portfolios (a registered investment company)
Board of Trustees. Ralph, as was Steve, is a very competent and thorough
individual in whom we are confident will make a strong addition to the Board.
Finally, at the end of March, 1996, we will be saying goodbye to Vern Van
Vooren, who will be retiring after nearly 33 years with B.C. Ziegler and
Company. Vern has been an outstanding individual to work with and who always
exhibited a high degree of integrity in his portfolio management work for
Principal Preservation. Thomas Sancomb will assume the management
responsibilities of the Tax-Exempt and Insured Tax-Exempt Portfolios, while the
Government Portfolio will be managed by the Investment Committee. Tom, as the
Tax-Exempt and Insured Tax-Exempt Portfolios trader, has worked closely with
Vern since the inception of these Funds in 1984 and 1986 respectively. Tom has
been with B.C. Ziegler and Company since 1975 and has served on the Investment
Committee for Principal Preservation since 1984. While we will miss Vern, we
are committed to providing the shareholders of Principal Preservation with the
same degree of care exhibited by Vern in the management of each of the fixed
income portfolios.
Sincerely,
/s/ R. D. Ziegler
R. D. Ziegler
President
The report contained herein is meant to be information to the existing
shareholders of Principal Preservation. This does not constitute an offer to
sell securities of any portfolio and should an investor wish to receive more
information about the portfolios, should obtain a prospectus which includes a
discussion of each portfolio's investment objective and all applicable sales
charges and expenses.
MANAGEMENT DISCUSSION AND ANALYSIS
TAX-EXEMPT PORTFOLIO
Shown below is a comparison of the change in value of a $10,000 investment in
Principal Preservation Tax-Exempt Portfolio and the Lehman 20-Year Municipal
Bond Index.
AVERAGE ANNUAL TOTAL RETURN
(Includes the effect of the sales charge)
1-YEAR 13.92%
5-YEAR 7.81%
10-YEAR 6.42%
<TABLE>
<CAPTION>
Date Principal Preservation Lehman 20-Year
Tax-Exempt Portfolio Municipal Bond Index
<S> <C> <C>
12/31/85 $9,650 $10,000
1/31/86 $10,035 $10,589
2/28/86 $9,819 $11,009
3/31/86 $9,457 $11,012
4/30/86 $9,437 $11,021
5/31/86 $9,593 $10,841
6/30/86 $9,385 $10,944
7/31/86 $9,553 $11,011
8/31/86 $9,700 $11,504
9/30/86 $9,904 $11,533
10/31/86 $10,019 $11,733
</TABLE>
Page 2
<PAGE> 3
<TABLE>
<S> <C> <C>
11/30/86 $10,119 $11,965
12/31/86 $10,128 $11,931
1/31/87 $10,229 $12,290
2/28/87 $10,262 $12,350
3/31/87 $10,295 $12,219
4/30/87 $10,026 $11,606
5/31/87 $10,014 $11,548
6/30/87 $10,192 $11,888
7/31/87 $10,372 $12,009
8/31/87 $10,554 $12,037
9/30/87 $10,388 $11,593
10/31/87 $9,688 $11,634
11/30/87 $9,909 $11,938
12/31/87 $10,040 $12,111
1/29/88 $9,963 $12,542
2/29/88 $9,947 $12,675
3/31/88 $10,004 $12,528
4/29/88 $10,099 $12,623
5/31/88 $10,219 $12,586
6/30/88 $10,327 $12,770
7/29/88 $10,373 $12,853
8/31/88 $10,433 $12,865
9/30/88 $10,519 $13,098
10/31/88 $10,656 $13,329
11/30/88 $10,532 $13,206
12/31/88 $10,644 $13,341
1/31/89 $10,796 $13,617
2/28/89 $10,751 $13,462
3/31/89 $10,706 $13,430
4/28/89 $10,902 $13,748
5/31/89 $11,086 $14,034
6/30/89 $11,217 $14,225
7/31/89 $11,321 $14,418
8/31/89 $11,275 $14,277
9/30/89 $11,283 $14,234
10/31/89 $11,403 $14,408
11/30/89 $11,494 $14,660
12/31/89 $11,627 $14,780
1/31/90 $11,606 $14,711
2/28/90 $11,656 $14,842
3/31/90 $11,706 $14,846
4/30/90 $11,598 $14,739
5/31/90 $11,764 $15,060
6/30/90 $11,856 $15,193
7/31/90 $11,992 $15,416
8/31/90 $11,865 $15,192
9/30/90 $11,870 $15,201
10/31/90 $12,042 $15,476
11/30/90 $12,256 $15,787
12/31/90 $12,352 $15,856
1/31/91 $12,494 $16,068
2/28/91 $12,636 $16,208
3/31/91 $12,657 $16,214
4/30/91 $12,739 $16,430
5/31/91 $12,822 $16,576
6/30/91 $12,890 $16,559
7/31/91 $12,974 $16,761
8/31/91 $13,136 $16,982
9/30/91 $13,253 $17,203
10/31/91 $13,386 $17,358
11/30/91 $13,422 $17,407
12/31/91 $13,587 $17,781
1/31/92 $13,673 $17,822
2/29/92 $13,662 $17,827
3/31/92 $13,714 $17,834
4/30/92 $13,863 $17,993
5/31/92 $14,028 $18,205
6/30/92 $14,210 $18,511
7/31/92 $14,724 $19,066
</TABLE>
Page 3
<PAGE> 4
<TABLE>
<S> <C> <C>
8/31/92 $14,509 $18,879
9/30/92 $14,544 $19,002
10/30/92 $14,327 $18,816
11/30/92 $14,651 $19,153
12/31/92 $14,756 $19,348
1/31/93 $15,032 $19,572
2/28/93 $15,650 $20,281
3/31/93 $15,497 $20,066
4/30/93 $15,671 $20,269
5/31/93 $15,759 $20,383
6/30/93 $16,021 $20,723
7/31/93 $16,055 $20,750
8/31/93 $16,405 $21,182
9/30/93 $16,633 $21,423
10/30/93 $16,665 $21,464
11/30/93 $16,502 $21,275
12/31/93 $16,873 $21,724
1/31/94 $17,084 $21,998
2/28/94 $16,594 $21,340
3/31/94 $15,831 $20,215
4/30/94 $15,972 $20,381
5/31/94 $16,113 $20,621
6/30/94 $15,997 $20,415
7/31/94 $16,322 $20,883
8/31/94 $16,353 $20,941
9/30/94 $16,090 $20,522
10/31/94 $15,733 $19,980
11/30/94 $15,393 $19,512
12/31/94 $15,787 $20,125
1/31/95 $16,333 $20,912
2/28/95 $16,843 $21,671
3/31/95 $17,028 $21,918
4/30/95 $17,042 $21,914
5/31/95 $17,650 $22,740
6/30/95 $17,394 $22,390
7/31/95 $17,484 $22,506
8/31/95 $17,729 $22,814
9/30/95 $17,839 $22,994
10/31/95 $18,146 $23,484
11/30/95 $18,435 $24,003
12/31/95 $18,633 $24,339
</TABLE>
Past performance is not predictive of future performance.
LEHMAN 20-YEAR MUNICIPAL BOND INDEX
The Lehman 20-Year Municipal Bond Index is a broad based index containing
over 22,000 issues with maturities ranging from 2-30 years. The issues
comprising the index are generated from the issues completed within the last
five years with total issue size of $50,000,000 and larger. The average quality
rating is AA. The index performance shown above does not include sales
charges or other fees which would have been incurred had an investor attempted
to replicate the index.
TAX-EXEMPT PORTFOLIO
The Tax-Exempt Portfolio's performance is presented from December 31, 1985
through December 31, 1995.
It is based upon a $10,000 investment at the Portfolio's then offering price,
which included a 3.5% sales charge. It represents the actual total returns for
each of the years ended December 31, net of any fees and expenses charged
during those periods.
DISCUSSION AND ANALYSIS
During 1995, interest rates declined in tax-exempt securities in response to
the Federal Reserve policy makers lowering the overnight lending rate twice
during the last two quarters of 1995. However, because of much discussion on
the flat tax proposal, prices on municipal securities did not increase as much
as
Page 4
<PAGE> 5
the taxable sector. Therefore, at December 31, 1995, the yield on a generic
AAA municipal security was 5.28% compared to the yield on the 30 year Treasury
of 5.95%, a very small spread by historical standards and gave many more
investors an after tax income advantage for investing in municipal securities.
The Tax-Exempt Portfolio manager continued to take advantage of a relatively
stable interest rate environment in the latter half of the year and readjusted
the portfolio. The manager reduced the holdings in the Utility sector from
approximately 24.5% to 13.8% of the portfolio and increased the power and lease
revenue sectors from 2.0% to 7.6% and from 8.9% to 14.6%, respectively. The
manager did so to improve on the overall yield to maturity, as well as the
credit quality, of the portfolio. The major state diversification changes
included reductions in California, Illinois and Pennsylvania with additions to
Alaska, Indiana, Michigan and New York. Many of these moves were done to
facilitate a higher yield as well as the improvement in the credit quality. The
Tax-Exempt Portfolio has produced returns over the five year period that puts
it in the 15th percentile of 203 general municipal bond funds as measured by
Morningstar for the year ended December 31, 1995.
The one, five and ten year average annualized total returns, including the
effect of the sales charges, for the period ended December 31, 1995, were
13.92%, 7.81% and 6.42%, respectively.
INSURED TAX-EXEMPT PORTFOLIO
Shown below is a graphical depiction of the Insured Tax-Exempt Portfolio
versus the broad based Lehman 20-Year Municipal Bond Index.
AVERAGE ANNUAL TOTAL RETURN
(Includes the effect of the sales charge)
1-YEAR 13.54%
5-YEAR 7.23%
SINCE INCEPTION 9/30/86 7.18%
<TABLE>
<CAPTION>
Date Principal Preservation Insured Lehman 20-Year
Tax-Exempt Portfolio Municipal Bond Index
<S> <C> <C>
9/30/86<F1>* $9,550 $10,000
10/31/86 $9,717 $10,172
11/30/86 $9,922 $10,372
12/31/86 $9,967 $10,342
1/31/87 $10,216 $10,653
2/28/87 $10,322 $10,704
3/31/87 $10,183 $10,589
4/30/87 $9,409 $10,057
5/31/87 $9,336 $10,006
6/30/87 $9,598 $10,299
7/31/87 $9,705 $10,403
8/31/87 $9,748 $10,426
9/30/87 $9,240 $10,040
10/31/87 $9,328 $10,074
11/30/87 $9,631 $10,336
12/31/87 $9,860 $10,485
1/29/88 $10,253 $10,857
2/29/88 $10,363 $10,971
3/31/88 $10,076 $10,843
4/29/88 $10,174 $10,924
5/31/88 $10,227 $10,892
6/30/88 $10,370 $11,050
7/29/88 $10,435 $11,121
8/31/88 $10,478 $11,130
9/30/88 $10,636 $11,330
10/31/88 $10,851 $11,528
11/30/88 $10,724 $11,421
12/31/88 $10,999 $11,537
1/31/89 $11,137 $11,775
2/28/89 $11,020 $11,639
3/31/89 $10,995 $11,611
4/28/89 $11,288 $11,885
5/31/89 $11,606 $12,131
</TABLE>
Page 5
<PAGE> 6
<TABLE>
<S> <C> <C>
6/30/89 $11,781 $12,295
7/31/89 $11,896 $12,461
8/31/89 $11,749 $12,338
9/30/89 $11,697 $12,300
10/31/89 $11,816 $12,449
11/30/89 $12,008 $12,666
12/31/89 $12,067 $12,769
1/31/90 $11,967 $12,708
2/28/90 $12,052 $12,820
3/31/90 $12,113 $12,823
4/30/90 $11,937 $12,729
5/31/90 $12,212 $13,006
6/30/90 $12,311 $13,119
7/31/90 $12,500 $13,311
8/31/90 $12,271 $13,117
9/30/90 $12,245 $13,124
10/31/90 $12,451 $13,361
11/30/90 $12,749 $13,628
12/31/90 $12,801 $13,687
1/31/91 $12,931 $13,869
2/28/91 $13,034 $13,989
3/31/91 $13,031 $13,994
4/30/91 $13,187 $14,179
5/31/91 $13,291 $14,304
6/30/91 $13,262 $14,289
7/31/91 $13,380 $14,462
8/31/91 $13,540 $14,652
9/30/91 $13,646 $14,841
10/31/91 $13,766 $14,974
11/30/91 $13,818 $15,015
12/31/91 $14,035 $15,337
1/31/92 $14,088 $15,371
2/29/92 $14,071 $15,375
3/31/92 $14,110 $15,380
4/30/92 $14,216 $15,516
5/31/92 $14,378 $15,698
6/30/92 $14,612 $15,960
7/31/92 $15,145 $16,438
8/31/92 $14,867 $16,276
9/30/92 $14,931 $16,381
10/30/92 $14,679 $16,219
11/30/92 $15,022 $16,509
12/31/92 $15,158 $16,676
1/31/93 $15,408 $16,869
2/28/93 $16,091 $17,478
3/31/93 $15,888 $17,292
4/30/93 $16,060 $17,466
5/31/93 $16,127 $17,562
6/30/93 $16,378 $17,855
7/31/93 $16,430 $17,877
8/31/93 $16,790 $18,248
9/30/93 $16,965 $18,455
10/30/93 $16,999 $18,489
11/30/93 $16,800 $18,325
12/31/93 $17,165 $18,711
1/31/94 $17,365 $18,947
2/28/94 $16,875 $18,380
3/31/94 $16,053 $17,411
4/30/94 $16,170 $17,554
5/31/94 $16,337 $17,761
6/30/94 $16,203 $17,583
7/31/94 $16,522 $17,986
8/31/94 $16,555 $18,036
9/30/94 $16,270 $17,675
10/31/94 $15,932 $17,208
11/30/94 $15,559 $16,805
12/31/94 $15,979 $17,333
1/31/95 $16,689 $18,011
2/28/95 $17,233 $18,665
</TABLE>
Page 6
<PAGE> 7
<TABLE>
<S> <C> <C>
3/31/95 $17,411 $18,878
4/30/95 $17,397 $18,874
5/31/95 $17,965 $19,586
6/30/95 $17,716 $19,284
7/31/95 $17,805 $19,384
8/31/95 $18,021 $19,650
9/30/95 $18,127 $19,805
10/31/95 $18,435 $20,227
11/30/95 $18,816 $20,674
12/31/95 $18,998 $20,963
</TABLE>
*<F1>September 30, 1986 inception date
Past performance is not predictive of future performance.
LEHMAN 20-YEAR MUNICIPAL BOND INDEX
The Lehman 20-Year Municipal Bond Index is a broad based index containing
over 22,000 issues with maturities ranging from 2-30 years. The issues
comprising the index are generated from the issues completed within the last
five years with total issue size of $50,000,000 and larger. The average quality
rating is AA. The index performance shown above does not include sales
charges or other fees which would have been incurred had an investor attempted
to replicate the index.
INSURED TAX-EXEMPT PORTFOLIO
The Insured Tax-Exempt Portfolio's performance is presented from September
30, 1986, commencement of operations, through December 31, 1995. It is based
upon a $10,000 investment at the Portfolio's then offering price, which
included a 3.5% sales charge. It represents the actual total returns for each
of the years ended December 31, net of any fees and expenses charged during
those periods.
DISCUSSION AND ANALYSIS
The Insured Tax-Exempt Portfolio also participated in the falling interest
rate environment. The manager, while following much the same strategy of the
Tax-Exempt Portfolio, readjusted the portfolio into different sectors and
states. The manager reduced the exposure to the utility, lease revenue and
general obligation sectors and increased the power and hospital sectors. The
state diversification changes were the elimination of California and Georgia,
with reductions to Mississippi, Nevada, Oklahoma and Texas. Increases were made
to bonds issued by Illinois, Michigan, North Carolina and Vermont. In the
process, the manager reduced the average maturity by approximately one half
year.
The one, five and since inception average annualized total returns, including
the effect of the sales charges, for the period ended December 31, 1995, were
13.54%, 7.23% and 7.18%, respectively.
GOVERNMENT PORTFOLIO
Shown below is a graphic depiction of the Government Portfolio versus the
Lehman Intermediate Government Bond Index.
AVERAGE ANNUAL TOTAL RETURN
(Includes the effect of the sales charge)
1-YEAR 12.27%
5-YEAR 7.57%
10-YEAR 8.19%
<TABLE>
<CAPTION>
Date Principal Preservation Lehman Intermediate
Government Portfolio Government Bond Index
<S> <C> <C>
12/31/85 $9,650 $10,000
1/31/86 $9,654 $10,062
2/28/86 $10,170 $10,300
3/31/86 $10,531 $10,577
4/30/86 $10,572 $10,647
5/31/86 $10,347 $10,510
</TABLE>
Page 7
<PAGE> 8
<TABLE>
<S> <C> <C>
6/30/86 $10,701 $10,764
7/31/86 $10,679 $10,882
8/31/86 $11,062 $11,136
9/30/86 $10,779 $11,031
10/31/86 $10,920 $11,170
11/30/86 $11,051 $11,277
12/31/86 $11,044 $11,306
1/31/87 $11,224 $11,408
2/28/87 $11,321 $11,465
3/31/87 $11,190 $11,440
4/30/87 $10,957 $11,238
5/31/87 $10,957 $11,213
6/30/87 $11,063 $11,345
7/31/87 $10,924 $11,370
8/31/87 $10,868 $11,340
9/30/87 $10,632 $11,198
10/31/87 $11,238 $11,532
11/30/87 $11,266 $11,601
12/31/87 $11,416 $11,714
1/29/88 $11,796 $12,005
2/29/88 $11,849 $12,132
3/31/88 $11,700 $12,081
4/29/88 $11,587 $12,060
5/31/88 $11,472 $12,002
6/30/88 $11,720 $12,198
7/29/88 $11,722 $12,161
8/31/88 $11,805 $12,177
9/30/88 $12,047 $12,388
10/31/88 $12,211 $12,559
11/30/88 $12,107 $12,451
12/31/88 $12,161 $12,463
1/31/89 $12,262 $12,588
2/28/89 $12,143 $12,534
3/31/89 $12,204 $12,593
4/28/89 $12,392 $12,847
5/31/89 $12,676 $13,095
6/30/89 $13,032 $13,429
7/31/89 $13,277 $13,702
8/31/89 $13,049 $13,887
9/30/89 $13,093 $13,954
10/31/89 $13,402 $14,247
11/30/89 $13,523 $14,388
12/31/89 $13,555 $14,430
1/31/90 $13,409 $14,341
2/28/90 $13,443 $14,394
3/31/90 $13,432 $14,411
4/30/90 $13,315 $14,363
5/31/90 $13,641 $14,670
6/30/90 $13,831 $14,864
7/31/90 $14,022 $15,072
8/31/90 $13,872 $15,018
9/30/90 $14,004 $15,152
10/31/90 $14,215 $15,363
11/30/90 $14,523 $15,595
12/31/90 $14,736 $15,810
1/31/91 $14,854 $15,973
2/28/91 $14,937 $16,070
3/31/91 $14,988 $16,158
4/30/91 $15,138 $16,324
5/31/91 $15,206 $16,415
6/30/91 $15,141 $16,428
7/31/91 $15,311 $16,605
8/31/91 $15,703 $16,920
9/30/91 $16,028 $17,208
10/31/91 $16,199 $17,404
11/30/91 $16,390 $17,608
12/31/91 $16,965 $18,036
1/31/92 $16,614 $17,863
2/29/92 $16,664 $17,918
</TABLE>
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<PAGE> 9
<TABLE>
<S> <C> <C>
3/31/92 $16,516 $17,846
4/30/92 $16,632 $18,007
5/31/92 $16,965 $18,275
6/30/92 $17,264 $18,538
7/31/92 $17,763 $18,894
8/31/92 $17,953 $19,087
9/30/92 $18,273 $19,350
10/30/92 $17,948 $19,118
11/30/92 $17,830 $19,040
12/31/92 $18,122 $19,286
1/31/93 $18,566 $19,645
2/28/93 $18,973 $19,934
3/31/93 $19,039 $20,008
4/30/93 $19,197 $20,164
5/31/93 $19,143 $20,110
6/30/93 $19,593 $20,402
7/31/93 $19,620 $20,443
8/31/93 $20,038 $20,748
9/30/93 $20,140 $20,833
10/30/93 $20,182 $20,883
11/30/93 $19,906 $20,781
12/31/93 $19,990 $20,866
1/31/94 $20,254 $21,073
2/28/94 $19,768 $20,784
3/31/94 $19,244 $20,481
4/30/94 $19,061 $20,348
5/31/94 $19,042 $20,362
6/30/94 $18,983 $20,366
7/31/94 $19,294 $20,633
8/31/94 $19,338 $20,693
9/30/94 $19,025 $20,521
10/31/94 $19,004 $20,525
11/30/94 $18,879 $20,435
12/31/94 $18,905 $20,502
1/31/95 $19,230 $20,836
2/28/95 $19,676 $21,238
3/31/95 $19,767 $21,355
4/30/95 $20,010 $21,603
5/31/95 $20,714 $22,212
6/30/95 $20,844 $22,354
7/31/95 $20,819 $22,365
8/31/95 $21,040 $22,548
9/30/95 $21,198 $22,699
10/31/95 $21,469 $22,946
11/30/95 $21,761 $23,226
12/31/95 $21,995 $23,456
</TABLE>
Past performance is not predictive of future performance.
LEHMAN INTERMEDIATE GOVERNMENT BOND INDEX
The Lehman Intermediate Government Bond Index represents a total return of
U.S. Government bonds ranging in maturity from 2-10 years. The average duration
of the underlying index is approximately four years. The index does not contain
any sales charge or expenses or other fees that would have to be incurred had
an investor attempted to replicate the index.
GOVERNMENT PORTFOLIO
The Government Portfolio's performance is presented from December 31, 1985
through December 31, 1995. It is based upon a $10,000 investment at the
Portfolio's then offering price, which included a 3.5% sales charge. It
represents the actual total returns for each of the years ended December 31,
net of any fees and expenses charged during those periods.
DISCUSSION AND ANALYSIS
The Government Portfolio enjoyed good total return performance during 1995 by
Page 9
<PAGE> 10
posting a total return, including reinvested dividends, of 16.34%. Vern Van
Vooren, the Portfolio Manager, began the year with a barbell strategy. This
involved investing approximately 50% of the portfolio in bonds with a maturity
in two to three years and the other half in bonds with an average maturity of
eight to ten years. Shortly after the Fed moved interest rates lower, the
manager moved the long end of the portfolio from ten to seven years. This move,
while it provided immediate benefit, did not keep pace with the overall
Treasury market. At that time, the portfolio manager was concerned with an
economy that was showing signs of being inflationary.
During the last half of 1995, Vern moved once again to a laddered maturity
approach for the portfolio by investing approximately 5% in a position that
matured on February 15, 1996, as well as approximately 20% in bonds that mature
in the year 2003. These moves kept the average maturity of the portfolio at
approximately 4.75 years and a duration of 3.54 years at December 31, 1995.
Vern is expecting further easing by the Federal Reserve during the first six
months of 1996 due to a slowing of the economy.
The one, five and ten year average annualized total returns, including the
effect of the sales charges, for the period ended December 31, 1995, were
12.27%, 7.57% and 8.19%, respectively.
S&P 100 PLUS PORTFOLIO
Shown below is a comparison of a $10,000 investment in the S&P 100 Plus
Portfolio versus the S&P 100 Index.
AVERAGE ANNUAL TOTAL RETURN
(Includes the effect of the sales charge)
1-YEAR 30.56%
5-YEAR 14.24%
10-YEAR 12.70%
<TABLE>
<CAPTION>
Date Principal Preservation S&P 100 Index
S&P 100 Plus Portfolio
<S> <C> <C>
12/31/85 $9,550 $10,000
1/31/86 $9,520 $9,933
2/28/86 $10,071 $10,555
3/31/86 $10,572 $11,067
4/30/86 $10,552 $11,049
5/31/86 $10,954 $11,614
6/30/86 $11,088 $11,626
7/31/86 $10,485 $10,919
8/31/86 $11,192 $11,695
9/30/86 $10,454 $10,860
10/31/86 $10,925 $11,382
11/30/86 $11,260 $11,741
12/31/86 $11,074 $11,524
1/31/87 $12,305 $13,150
2/28/87 $12,773 $13,700
3/31/87 $13,137 $14,166
4/30/87 $13,137 $14,167
5/31/87 $13,372 $14,381
6/30/87 $14,046 $15,117
7/31/87 $14,616 $15,803
8/31/87 $15,230 $16,550
9/30/87 $14,864 $16,058
10/31/87 $11,861 $12,660
11/30/87 $10,831 $11,443
12/31/87 $11,526 $12,233
1/29/88 $11,933 $12,633
2/29/88 $12,484 $13,200
3/31/88 $12,017 $12,613
4/29/88 $12,247 $12,855
5/31/88 $12,441 $13,034
6/30/88 $13,008 $13,684
7/29/88 $13,020 $13,637
8/31/88 $12,644 $13,062
</TABLE>
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<PAGE> 11
<TABLE>
<S> <C> <C>
9/30/88 $13,081 $13,544
10/31/88 $13,411 $13,946
11/30/88 $13,301 $13,811
12/31/88 $13,499 $14,040
1/31/89 $14,380 $15,183
2/28/89 $14,033 $14,670
3/31/89 $14,100 $14,843
4/28/89 $14,650 $15,645
5/31/89 $15,053 $16,117
6/30/89 $14,902 $15,967
7/31/89 $16,185 $17,423
8/31/89 $16,536 $17,815
9/30/89 $16,452 $17,742
10/31/89 $16,113 $17,378
11/30/89 $16,411 $17,701
12/31/89 $16,772 $18,099
1/31/90 $15,705 $16,946
2/28/90 $15,992 $17,280
3/31/90 $16,358 $17,731
4/30/90 $16,070 $17,435
5/31/90 $17,555 $19,097
6/30/90 $17,443 $18,973
7/31/90 $17,415 $18,937
8/31/90 $15,867 $17,206
9/30/90 $15,159 $16,401
10/31/90 $15,076 $16,316
11/30/90 $15,938 $17,292
12/31/90 $16,241 $17,615
1/31/91 $17,081 $18,517
2/28/91 $18,313 $19,869
3/31/91 $18,758 $20,328
4/30/91 $18,801 $20,356
5/31/91 $19,645 $21,292
6/30/91 $18,741 $20,359
7/31/91 $19,646 $21,365
8/31/91 $19,858 $21,653
9/30/91 $19,389 $21,151
10/31/91 $19,573 $21,413
11/30/91 $18,735 $20,556
12/31/91 $20,749 $22,581
1/31/92 $20,442 $22,285
2/29/92 $20,763 $22,648
3/31/92 $20,402 $22,279
4/30/92 $21,032 $22,999
5/31/92 $21,165 $23,162
6/30/92 $20,801 $22,812
7/31/92 $21,508 $23,544
8/31/92 $20,934 $22,958
9/30/92 $21,011 $23,006
10/30/92 $20,937 $22,928
11/30/92 $21,603 $23,634
12/31/92 $21,823 $23,920
1/31/93 $22,087 $24,243
2/28/93 $22,476 $24,696
3/31/93 $22,885 $25,168
4/30/93 $22,448 $24,745
5/31/93 $23,074 $25,470
6/30/93 $23,051 $25,480
7/31/93 $22,878 $25,358
8/31/93 $23,741 $26,299
9/30/93 $23,428 $25,952
10/30/93 $23,805 $26,375
11/30/93 $23,695 $26,317
12/31/93 $23,941 $26,756
1/31/94 $24,848 $27,797
2/28/94 $24,227 $27,144
3/31/94 $23,025 $25,866
4/30/94 $23,200 $26,060
5/31/94 $23,727 $26,706
</TABLE>
Page 11
<PAGE> 12
<TABLE>
<S> <C> <C>
6/30/94 $23,020 $25,918
7/31/94 $23,823 $26,880
8/31/94 $24,562 $27,759
9/30/94 $24,095 $27,223
10/31/94 $24,627 $27,871
11/30/94 $23,790 $26,932
12/31/94 $24,206 $27,457
1/31/95 $24,644 $27,998
2/28/95 $25,728 $29,306
3/31/95 $26,505 $30,276
4/30/95 $27,480 $31,472
5/31/95 $28,585 $32,841
6/30/95 $29,194 $33,600
7/31/95 $30,076 $34,716
8/31/95 $29,914 $34,535
9/30/95 $31,341 $36,262
10/31/95 $31,341 $36,287
11/30/95 $32,585 $37,793
12/31/95 $33,100 $38,428
</TABLE>
Past performance is not predictive of future performance.
S&P 100 INDEX
The S&P 100 Index is a broad based stock index comprised of the largest 100
securities in the United States based upon market capitalization. The index
results do not include any sales charges or any other fees investors would
incur had they attempted to replicate the index.
S&P 100 PLUS PORTFOLIO
The S&P 100 Plus Portfolio's performance is presented from December 31,
1985 through December 31, 1995. It is based upon a $10,000 investment at the
Portfolio's then offering price, which included a 4.5% sales charge. It
represents the actual total returns for each of the years ended December 31,
net of any fees and expenses charged during those periods.
DISCUSSION AND ANALYSIS
The S&P 100 Plus Portfolio continued to benefit from the investor focus on
large capitalized securities in 1995 and posted a total return, including
dividends reinvested, of 36.71%. A moderate 6-7% cash position in this
portfolio continued to keep the portfolio behind the actual index. However,
because of the index strategy, the fund clearly outperformed the average growth
and income average by 5.9%.
During the latter half of 1995, William Zink, the Portfolio Manager, did not
utilize much of the option strategies except as a means of equitizing cash.
Bill believed that the overall market was going to continue to trend upwards
but was concerned with the strong possibility of weaker earnings across many
corporations. Bill was also concerned about the lack of a compromise on the
federal budget and the long-term effects to the overall economy.
The one, five and ten year average annualized total returns, including the
effect of the sales charges, for the period ended December 31, 1995, were
30.56%, 14.24% and 12.70%, respectively.
DIVIDEND ACHIEVERS PORTFOLIO
Shown below is a graphic comparison between a $10,000 investment made in
Dividend Achievers versus the S&P 500 Index.
AVERAGE ANNUAL TOTAL RETURN
(Includes the effect of the sales charge)
1-YEAR 25.76%
5-YEAR 11.54%
SINCE INCEPTION 1/2/87 9.80%
Page 12
<PAGE> 13
<TABLE>
<CAPTION>
Date Principal Preservation S&P 500 Index
Dividend Achievers Portfolio
<S> <C> <C>
1/2/87<F4>* $9,550 $10,000
1/31/87 $9,920 $11,346
2/28/87 $10,220 $11,793
3/31/87 $10,250 $12,133
4/30/87 $10,109 $12,024
5/31/87 $10,119 $12,128
6/30/87 $10,612 $12,739
7/31/87 $11,098 $13,384
8/31/87 $11,392 $13,882
9/30/87 $11,144 $13,577
10/31/87 $9,064 $10,652
11/30/87 $8,656 $9,773
12/31/87 $9,242 $10,516
1/29/88 $9,643 $10,957
2/29/88 $10,065 $11,467
3/31/88 $9,839 $11,112
4/29/88 $9,839 $11,234
5/31/88 $9,849 $11,331
6/30/88 $10,263 $11,850
7/29/88 $10,180 $11,804
8/31/88 $10,003 $11,401
9/30/88 $10,422 $11,886
10/31/88 $10,611 $12,216
11/30/88 $10,401 $12,040
12/31/88 $10,629 $12,248
1/31/89 $11,054 $13,144
2/28/89 $10,905 $12,816
3/31/89 $11,136 $13,113
4/28/89 $11,457 $13,793
5/31/89 $11,918 $14,350
6/30/89 $11,857 $14,268
7/31/89 $12,751 $15,555
8/31/89 $12,762 $15,859
9/30/89 $12,711 $15,793
10/31/89 $12,224 $15,426
11/30/89 $12,397 $15,739
12/31/89 $12,701 $16,116
1/31/90 $11,948 $15,034
2/28/90 $11,992 $15,226
3/31/90 $12,188 $15,629
4/30/90 $11,870 $15,239
5/31/90 $12,857 $16,724
6/30/90 $12,999 $16,611
7/31/90 $12,922 $16,556
8/31/90 $11,887 $15,059
9/30/90 $11,424 $14,324
10/31/90 $11,446 $14,262
11/30/90 $12,255 $15,182
12/31/90 $12,825 $15,605
1/31/91 $13,349 $16,284
2/28/91 $14,274 $17,447
3/31/91 $15,044 $17,869
4/30/91 $14,999 $17,910
5/31/91 $15,727 $18,681
6/30/91 $15,021 $17,825
7/31/91 $15,640 $18,654
8/31/91 $16,000 $19,095
9/30/91 $15,646 $18,776
10/31/91 $16,166 $19,026
11/30/91 $15,601 $18,258
12/31/91 $17,758 $20,346
1/31/92 $17,196 $19,967
2/29/92 $17,100 $20,225
3/31/92 $16,813 $19,830
4/30/92 $16,873 $20,412
</TABLE>
Page 13
<PAGE> 14
<TABLE>
<C> <C> <C>
5/31/92 $16,825 $20,511
6/30/92 $16,297 $20,204
7/31/92 $17,091 $21,030
8/31/92 $17,031 $20,598
9/30/92 $17,066 $20,840
10/30/92 $17,596 $20,912
11/30/92 $18,272 $21,624
12/31/92 $18,311 $21,889
1/31/93 $17,913 $22,072
2/28/93 $17,733 $22,375
3/31/93 $18,189 $22,846
4/30/93 $17,326 $22,292
5/31/93 $17,468 $22,889
6/30/93 $17,403 $22,954
7/31/93 $17,132 $22,861
8/31/93 $17,558 $23,727
9/30/93 $17,430 $23,543
10/30/93 $17,767 $24,029
11/30/93 $17,210 $23,800
12/31/93 $17,393 $24,087
1/31/94 $17,782 $24,906
2/28/94 $17,497 $24,231
3/31/94 $16,709 $23,175
4/30/94 $17,008 $23,472
5/31/94 $17,372 $23,857
6/30/94 $17,080 $23,273
7/31/94 $17,537 $24,036
8/31/94 $17,954 $25,021
9/30/94 $17,411 $24,408
10/31/94 $17,726 $24,957
11/30/94 $17,333 $24,049
12/31/94 $17,607 $24,405
1/31/95 $17,700 $25,037
2/28/95 $18,179 $26,011
3/31/95 $18,552 $26,778
4/30/95 $19,326 $27,565
5/31/95 $19,833 $28,665
6/30/95 $20,084 $29,330
7/31/95 $20,674 $30,301
8/31/95 $20,566 $30,377
9/30/95 $21,381 $31,659
10/31/95 $21,958 $31,545
11/30/95 $22,791 $32,930
12/31/95 $23,186 $33,566
</TABLE>
*<F4>January 2, 1987 inception date.
Past performance is not predictive of future performance.
S&P 500 INDEX
The S&P 500 Index is a broad based stock index representing, based upon
market capitalization, the 500 largest companies in the United States. The
index does not adjust for any sales charges or other fees and expenses which
would have been incurred had an investor attempted to replicate the index.
DIVIDEND ACHIEVERS PORTFOLIO
The Dividend Achievers Portfolio's performance is presented from January 2,
1987, commencement of operations, through December 31, 1995. It is based upon a
$10,000 investment at the Portfolio's then offering price, which included a
4.5% sales charge. It represents the actual total returns for each of the years
ended December 31, net of any fees and expenses charged during those periods.
DISCUSSION AND ANALYSIS
The Dividend Achievers Portfolio enjoyed a solid year of performance posting
a total return of 31.69% which was ahead of the growth and income fund average
of 29.6%. At the start of 1995, the larger cash position impacted the total
return. However, Doug Ziegler, the Portfolio Manager, quickly reduced his cash
Page 14
<PAGE> 15
position and consequently, the portfolio participated either at or above the
market performance in each of the last three quarters of 1995.
During the second half of 1995, investors moved into the types of companies
in which the portfolio invests. These include companies whose strong balance
sheet, and increasing earnings and dividends make them popular with investors
concerned about the future of the economy. In addition, Doug balanced this
approach with sector diversification among strong companies, that while
exhibiting increased earnings and dividends, fall just outside of the universe
of companies whose dividends increased in at least eight of the last ten years.
This strategy helped the shareholders to realize a return of 15.45% for the
last half of 1995 compared with a return of 14.45% for the S&P 500 Index during
the same period.
The current portfolio, as of February 9, 1996 contains 34 issues, and has a
slight overweighting in the technology sector as compared to the S&P 500 Index.
Doug is currently maintaining a 2% cash position and believes that the market
will continue to push to higher levels during the first half of 1996. The top
five stock holdings as of December 31, 1995, were Gillette Company, Federal
National Mortgage Corp., Pepsico Incorporated, McDonalds Corporation and
General Motors Class E.
The one, five and since inception average annualized total returns, including
the effect of the sales charges, for the period ended December 31, 1995, were
25.76%, 11.54% and 9.80%, respectively.
BALANCED PORTFOLIO
Shown below is a graphic comparison of a $10,000 investment in the Balanced
Portfolio versus the broad based indexes of the S&P 500 Index and the Lehman
Intermediate Government Bond Index.
AVERAGE ANNUAL TOTAL RETURN
(Includes the effect of the sales charge)
1-YEAR 20.40%
SINCE INCEPTION 7/1/92 7.40%
<TABLE>
<CAPTION>
Date Principal Preservation Lehman Intermediate S&P 500 Index
Balanced Portfolio Government Bond Index
<S> <C> <C> <C>
7/1/92<F2>* $9,550 $10,000 $10,000
7/31/92 $9,731 $10,191 $10,408
8/31/92 $9,798 $10,294 $10,194
9/30/92 $9,805 $10,435 $10,313
10/30/92 $9,940 $10,309 $10,348
11/30/92 $10,113 $10,266 $10,700
12/31/92 $10,105 $10,397 $10,830
1/31/93 $10,057 $10,589 $10,920
2/28/93 $10,115 $10,744 $11,070
3/31/93 $10,217 $10,783 $11,303
4/30/93 $10,022 $10,866 $11,028
5/31/93 $10,091 $10,836 $11,323
6/30/93 $10,130 $10,992 $11,355
7/31/93 $10,002 $11,013 $11,308
8/31/93 $10,169 $11,176 $11,736
9/30/93 $10,142 $11,221 $11,644
10/30/93 $10,261 $11,247 $11,884
11/30/93 $10,162 $11,191 $11,771
12/31/93 $10,253 $11,236 $11,912
1/31/94 $10,343 $11,347 $12,317
2/28/94 $10,213 $11,192 $11,983
3/31/94 $9,974 $11,029 $11,461
4/30/94 $10,014 $10,957 $11,608
5/31/94 $10,105 $10,965 $11,798
6/30/94 $9,964 $10,967 $11,509
7/31/94 $10,167 $11,111 $11,886
8/31/94 $10,349 $11,143 $12,373
9/30/94 $10,250 $11,051 $12,070
10/31/94 $10,312 $11,053 $12,342
</TABLE>
Page 15
<PAGE> 16
<TABLE>
<S> <C> <C> <C>
11/30/94 $10,056 $11,004 $11,893
12/31/94 $10,184 $11,040 $12,069
1/31/95 $10,349 $11,220 $12,382
2/28/95 $10,587 $11,437 $12,864
3/31/95 $10,772 $11,500 $13,243
4/30/95 $11,023 $11,633 $13,632
5/31/95 $11,273 $11,961 $14,176
6/30/95 $11,352 $12,038 $14,505
7/31/95 $11,458 $12,044 $14,985
8/31/95 $11,468 $12,143 $15,022
9/30/95 $11,886 $12,224 $15,656
10/31/95 $12,099 $12,357 $15,600
11/30/95 $12,597 $12,508 $16,285
12/31/95 $12,839 $12,632 $16,599
</TABLE>
*<F2> July 1, 1992 inception date.
Past performance is not predictive of future performance.
S&P 500 INDEX
The S&P 500 Index is a broad based stock index representing, based upon
market capitalization, the 500 largest companies in the United States. The
index does not reflect any sales charges or other fees and expenses which would
have been incurred had an investor attempted to replicate the index.
LEHMAN INTERMEDIATE GOVERNMENT BOND INDEX
The Lehman Intermediate Government Bond Index represents a total return of
U.S. Government bonds ranging in maturity from 2-10 years. The average duration
of the underlying index is approximately four years. The index does not contain
any sales charge or expenses or other fees that would have to be incurred had
an investor attempted to replicate the index.
BALANCED PORTFOLIO
The Balanced Portfolio's performance is presented from July 1, 1992,
commencement of operations, through December 31, 1995. It is based upon a
$10,000 investment at the Portfolio's then offering price, which included a
4.5% sales charge. It represents the actual total returns for each of the years
ended December 31, net of any fees and expenses charged during those periods.
DISCUSSION AND ANALYSIS
The Balanced Portfolio had a total return of 26.08% for the year ended
December 31, 1995. During the first half of 1995, Ralph Patek, the Portfolio
Manager, had a cash position of approximately 6%. He subsequently reduced that
to approximately 2%. He, as well, kept a very short maturity on the fixed
income securities which therefore did not participate as much in the rising
bond prices due to falling interest rates.
As investors began to focus on large capitalized stocks with higher dividend
yields, the equity side of the portfolio performed extremely well. At the end
of 1995, Ralph was overweighting the oil stock sector and slightly
underweighting the technology sector which clearly helped the fund performance
in the fourth quarter. His top five holdings were Federal National Mortgage
Corporation, Loral Corporation, Pepsico Incorporated, SBC Communications Inc.
and GTE Corp.
The one year and since inception average annualized total returns, including
the effect of the sales charges, for the period ended December 31, 1995, were
20.40% and 7.40%, respectively.
SELECT VALUE PORTFOLIO
Shown below is a comparison of a $10,000 investment in the Select Value
Portfolio versus the S&P MidCap 400 Index.
AVERAGE ANNUAL TOTAL RETURN
(Includes the effect of the sales charge)
1-YEAR 15.37%
Page 16
<PAGE> 17
SINCE INCEPTION 8/23/94 7.01%
<TABLE>
<CAPTION>
Date Principal Preservation S&P MidCap
Select Value Portfolio 400 Index
<S> <C> <C>
8/23/94*<F3> $9,550 $10,000
8/31/94 $9,550 $10,524
9/30/94 $9,440 $10,327
10/31/94 $9,230 $10,441
11/30/94 $8,870 $9,970
12/31/94 $9,077 $10,061
1/31/95 $8,825 $10,166
2/28/95 $9,117 $10,699
3/31/95 $9,294 $10,885
4/30/95 $9,284 $11,104
5/31/95 $9,435 $11,372
6/30/95 $9,690 $11,835
7/31/95 $10,329 $12,452
8/31/95 $10,491 $12,681
9/30/95 $10,790 $12,988
10/31/95 $10,484 $12,654
11/30/95 $10,851 $13,203
12/31/95 $10,965 $13,170
</TABLE>
* <F3>August 23, 1994 inception date.
Past performance is not predictive of future performance.
S&P MIDCAP 400 INDEX
S&P MidCap 400 Index is a broad stock index comprised of 400 medium-size
companies. The index tracks the general stock market performance of 400 medium-
size companies. The index results do not include any sales charge or any other
fees investors would incur had they attempted to replicate the index.
SELECT VALUE PORTFOLIO
The Select Value Portfolio's performance is presented from August 23, 1994,
commencement of operations, through December 31, 1995. It is based upon a
$10,000 investment at the Portfolio's then offering price, which included a
4.5% sales charge. It represents the actual total returns for each of the years
ended December 31, net of any fees and expenses charged during those periods.
DISCUSSION AND ANALYSIS
The Select Value Portfolio had a total return, including reinvested
dividends, of 20.81% for the year ended December 31, 1995. The performance
improved from the first half of the year when it lagged the indices, to the
second half when it outperformed both the Russell 2000 and S&P 400 Midcap
Indexes.
According to Ken Kailin, the Portfolio Manager, small to mid company
investment managers tended to outperform value-oriented managers due to strong
returns from technology and health care stocks. While the Portfolio was helped
considerably by an overweighting in financial stocks in 1995, underweighted
positions in technology and health care hindered the Portfolio's performance
for most of the year. The Portfolio was also overweighted in economically
sensitive stocks, which hurt performance. In general, 1995 saw industries with
low market values relative to growth prospects underperformed the general stock
market, while sectors with rapid profit growth and high market values surged.
Therefore the value style approach to investing did not do as well as the rest
of the market.
The one year and since inception average annualized total returns, including
the effect of the sales charges, for the period ended December 31, 1995, were
15.37% and 7.01%, respectively.
RESULTS OF VOTING
On August 29, 1995, Principal Preservation Portfolios, Inc. Select Value
Page 17
<PAGE> 18
Portfolio held a special meeting of the shareholders to approve the change in
the subadvisor from Mesirow Asset Management, Inc. to Skyline Asset Management,
Inc. The total shares outstanding on the record date were 296,074 shares. At
the meeting, 186,685 shares were represented by proxy or in person. A total of
185,877 shares or 62.8% of the shares outstanding, voting in favor of the
proposal, 593 shares voted against and 215 abstained voting the proposal.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
FINANCIAL HIGHLIGHTS
The following presents information relating to a share of capital stock of
each of seven portfolios of Principal Preservation Portfolios, Inc. outstanding
for the following periods presented, which should be read in conjunction with
the financial statements and related notes included in this annual report:
<TABLE>
<CAPTION>
TAX-EXEMPT PORTFOLIO
-----------------------------------------------------------------------
For the years ended December 31,
-----------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $8.36 $9.41 $8.67 $8.46 $8.19 $8.23 $8.06 $8.14 $8.81 $9.02
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income .45 .45 .48 .50 .53 .53 .55 .55 .60 .63
Net realized and
unrealized gains (losses)
on investments 1.03 (1.05) .74 .21 .27 (.04) .17 (.08) (.67) (.21)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL FROM INVESTMENT
OPERATIONS 1.48 (.60) 1.22 .71 .80 .49 .72 .47 (.07) .42
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
LESS DISTRIBUTIONS:
Dividends from net
investment income (.45) (.45) (.48) (.50) (.53) (.53) (.55) (.55) (.60) (.63)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS (.45) (.45) (.48) (.50) (.53) (.53) (.55) (.55) (.60) (.63)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE,
END OF PERIOD $ 9.39 $ 8.36 $ 9.41 $ 8.67 $ 8.46 $ 8.19 $ 8.23 $ 8.06 $ 8.14 $ 8.81
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
TOTAL RETURN*<F1> 18.1% (6.4)% 14.3% 8.6% 10.0% 6.2% 9.2% 6.0% (0.9)% 5.0%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(to nearest thousand) $56,443 $55,492 $68,102 $60,171 $63,932 $65,265 $73,333 $85,469 $107,471 $143,635
Ratio of net expenses to
average net assets 1.0%+<F2> 1.0% 0.9% 0.9% 0.9% 0.9% 1.0% 1.2% 1.1% 1.1%
Ratio of net investment
income to average net assets 4.9%+<F2> 5.2% 5.2% 5.9% 6.3% 6.6% 6.7% 6.9% 7.1% 7.2%
Portfolio turnover rate 105.9% 36.1% 56.3% 48.5% 38.3% 40.3% 21.5% 38.8% 18.0% 26.0%
</TABLE>
*<F1>The Fund's sales charge is not reflected in total return as set forth in
the table.
+<F2>Reflects a voluntary reimbursement of fund expenses of 0.01% in 1995.
Page 18
<PAGE> 19
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
INSURED TAX-EXEMPT PORTFOLIO
-------------------------------------------------------------------------------------------
For the
period from
September 30,
1986
(commencement
of operations)
For the years ended December 31, to December 31,
-----------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $9.26 $10.50 $10.14 $10.14 $9.80 $9.82 $9.50 $9.07 $9.81 $9.55
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income .48 .49 .52 .56 .58 .59 .58 .59 .63 .16
Net realized and
unrealized gains (losses)
on investments 1.12 (1.21) .80 .23 .34 (.02) .32 .43 (.74) .26
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL FROM INVESTMENT
OPERATIONS 1.60 (.72) 1.32 .79 .92 .57 .90 1.02 (.11) .42
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
LESS DISTRIBUTIONS:
Dividends from net
investment income (.48) (.49) (.53) (.55) (.58) (.59) (.58) (.59) (.63) (.16)
Distributions from net
realized gains
on investments (.06) (.03) (.43) (.24) - - - - - -
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS (.54) (.52) (.96) (.79) (.58) (.59) (.58) (.59) (.63) (.16)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE,
END OF PERIOD $10.32 $9.26 $10.50 $10.14 $10.14 $9.80 $9.82 $9.50 $9.07 $9.81
===== ===== ====== ====== ===== ===== ===== ===== ===== =====
TOTAL RETURN**<F4> 17.7% (6.9)% 13.2% 8.0% 9.7% 6.1% 9.7% 11.6% (1.1)% 4.4%
RATIOS/SUPPLEMENTAL DATA:
Net asset value, end of period
(to nearest thousand) $18,830 $17,848 $20,540 $18,362 $17,971 $17,081 $18,088 $17,658 $16,272 $11,615
Ratio of net expenses to
average net assets 1.2%+<F5> 1.2% 1.1% 1.2% 1.2% 1.2% 1.3% 1.3%+<F5> 0.7% -%*<F3> +<F5>
Ratio of net investment
income to average net assets 4.8%+<F5> 5.1% 4.9% 5.4% 5.9% 6.1% 6.0% 6.3%+<F5> 6.8% 5.8%*<F3> +<F5>
Portfolio turnover rate 64.9% 26.5% 39.3% 57.4% 51.1% 25.1% 29.4% 82.9% 44.8% 1.2%
</TABLE>
*<F3>Annualized.
**<F4>The Fund's sales charge is not reflected in total return as set forth in
the table.
+<F5>Reflects a voluntary reimbursement of fund expenses of 0.06% in 1995,0.5%
in 1988, 1.2% in 1987 and 5.0% in 1986 respectively.
Page 19
<PAGE> 20
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
GOVERNMENT PORTFOLIO
------------------------------------------------------------------------
For the years ended December 31,
-----------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1 987 198 6
------ ---- ----- ----- ----- ----- ------ ------ --------
<S> <C> < C> <C> <C> <C> <C> <C> <C> <C > <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $8.84 $ 9.98 $9.64 $9.68 $9.10 $9.11 $8.88 $9.11 $9.71 $9.37
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income .61 .61 .63 .67 .73 .76 .75 .75 .73 .80
Net realized and
unrealized gains (losses)
on investments .80 (1.14) .35 (.04) .58 (.01) .23 (.17) (.42) .49
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL FROM INVESTMENT
OPERATIONS 1.41 (.53) .98 .63 1.31 .75 .98 .58 .31 1.29
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
LESS DISTRIBUTIONS:
Dividends from net
investment income (.61) (.61) (.64) (.67) (.73) (.76) (.75) (.75) (.73) (.83)
Distributions from net
realized gains
on investments - - - - - - - (.06) (.13) (.12)
Distribution of capital - - - - - - - - (.05) -
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS (.61) (.61) (.64) (.67) (.73) (.76) (.75) (.81) (.91) (.95)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE,
END OF PERIOD $ 9.64 $8.84 $ 9.98 $ 9.64 $ 9.68 $ 9.10 $ 9.11 $8.88 $ 9.11 $ 9.71
===== ===== ===== ===== ===== ===== ===== ===== ===== ======
TOTAL RETURN*<F6> 16.3% (5.4)% 10.3% 6.8% 15.1% 8.7% 11.5% 6.5% 3.4% 14.5%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(to nearest thousand) $49,319 $47,324 $54,327 $37,634 $32,737 $29,351 $30,631 $32,950 $31,036 $32,162
Ratio of net expenses to
average net assets 1.1%+<F7> 1.1% 1.0% 1.0% 1.1% 1.2% 1.2%+<F7> 1.2%+<F7> 1.3%+<F7> 0.7%+<F7>
Ratio of net investment
income to average net assets 6.5%+<F7> 6.6% 6.2% 7.0% 8.0% 8.5% 8.4%+<F7> 8.3%+<F7> 7.8%+<F7> 7.8%+<F7>
Portfolio turnover rate 68.2% 10 6.1% 8.7% 10.0% 62.2% 57.1% 141.8% 36.7% 80.2% 307%
</TABLE>
*<F6>The Fund's sales charge is not reflected in total return as set forth in
the table.
+<F7>Reflects a voluntary reimbursement of fund expenses of 0.02% in 1995, 0.1%
in 1989, 0.5% in 1988, 0.3% in 1987 and 1.2% in 1986 respectively.
Page 20
<PAGE> 21
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
S&P 100 PLUS PORTFOLIO
------------------------------------------------------------------------------------------
For the years ended December 31,
------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
------ ------ ------ ------ ------ ------ ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $14.95 $15.04 $14.01 $14.22 $11.60 $12.27 $10.11 $9.62 $10.43 $9.42
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income .25 .25 .21 .24 .27 .28 .26 .26 .33 .38
Net realized and
unrealized gains (losses)
on investments 5.21 (.09) 1.14 .48 2.93 (.67) 2.17 1.37 .14 1.03
------- ------ ------ ------ ------ ------ ------ ------ ----- ------
TOTAL FROM INVESTMENT
OPERATIONS 5.46 .16 1.35 .72 3.20 (.39) 2.43 1.63 .47 1.41
------- ------ ------ ------ ------ ------ ------ ------ ----- ------
LESS DISTRIBUTIONS:
Dividends from net
investment income (.25) (.25) (.21) (.24) (.27) (.28) (.26) (.26) (.33) (.36)
Distributions from
net realized gains
on investments (.63) - (.11) (.69) (.31) - (.01) (.88) (.95) (.04)
------- ------ ------ ------ ------ ------ ------ ------ ----- ------
TOTAL DISTRIBUTIONS (.88) (.25) (.32) (.93) (.58) (.28) (.27) (1.14) (1.28) (.40)
------- ------ ------ ------ ------ ------ ------ ------ ----- ------
NET ASSET VALUE,
END OF PERIOD $ 19.53 $14.95 $15.04 $14.01 $14.22 $11.60 $12.27 $10.11 $9.62 $10.43
======= ====== ====== ====== ====== ====== ====== ====== ===== ======
TOTAL RETURN*<F8> 36.7% 1.1% 9.7% 5.2% 27.8% (3.2)% 24.3% 17.1% 4.1% 16.0%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(to nearest thousand) $57,062 $40,034 $38,944 $30,025 $27,420 $20,413 $20,811 $16,960 $18,752 $9,826
Ratio of net expenses to
average net assets 1.2% 1.2% 1.2% 1.3% 1.3% 1.3%+<F9> 1.3%+<F9> 1.4%+<F9> 0.6%+<F9> -%+<F9>
Ratio of net investment
income to average
net assets 1.4% 1.7% 1.4% 1.7% 2.0% 2.4%+<F9> 2.3%+<F9> 2.5%+<F9> 2.7%+<F9> 3.7%+<F9>
Portfolio turnover rate 3.5% 1.0% 2.2% 8.5% 3.1% 1.9% 3.0% 37.5% 54.3% 12.8%
</TABLE>
*<F8>The Fund's sales charge is not reflected in total return as set forth in
the table.
+<F9>Reflects a voluntary reimbursement of fund expenses of 0.2% in 1990, 0.4%
in 1989, 0.8% in 1988, 1.7% in 1987 and 3.7% in 1986 respectively.
Page 21
<PAGE> 22
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
DIVIDEND ACHIEVERS PORTFOLIO
-------------------------------------------------------------------------------------------
For the years ended December 31,
-------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987
------ ------ ------ ----- ------ ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $13.24 $13.40 $14.25 $14.84 $11.50 $11.65 $10.00 $8.99 $9.55
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income .18 .18 .14 .14 .25 .25 .28 .28 .28
Net realized and unrealized
gains (losses) on investments 3.99 (.02) (.85) .31 4.14 (.15) 1.65 1.06 (.56)
------ ------ ------ ----- ------ ----- ------ ----- -----
TOTAL FROM INVESTMENT OPERATIONS 4.17 .16 (.71) .45 4.39 .10 1.93 1.34 (.28)
------ ------ ------ ----- ------ ----- ------ ----- -----
LESS DISTRIBUTIONS:
Dividends from net investment
income (.18) (.18) (.14) (.14) (.25) (.25) (.28) (.27) (.28)
Distributions from net realized
gains on investments (.26) (.14) - (.90) (.80) - - (.06) -
------ ------ ------ ----- ------ ----- ------ ----- -----
TOTAL DISTRIBUTIONS (.44) (.32) (.14) (1.04) (1.05) (.25) (.28) (.33) (.28)
------ ------ ------ ----- ------ ----- ------ ----- -----
NET ASSET VALUE, END OF PERIOD $16.97 $13.24 $13.40 $14.25 $14.84 $11.50 $11.65 $10.00 $8.99
====== ====== ====== ====== ====== ====== ====== ====== =====
TOTAL RETURN*<F10> 31.7% 1.2% (5.0)% 3.1% 38.5% 1.0% 19.5% 15.0% (3.2)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (to
nearest thousand) $25,393 $20,231 $24,928 $27,020 $18,202 $11,468 $12,750 $6,854 $6,796
Ratio of net expenses to average
net assets 1.3%+<F11> 1.5% 1.3%+<F11> 1.2%+<F11> 1.2%+<F11> 1.2%+<F11> 1.2%+<F11> 1.2%+<F11> 0.6%+<F11>
Ratio of net investment income to
average net assets 1.2%+<F11> 1.3% 1.0%+<F11> 1.0%+<F1> 1.8%+<F11> 2.3%+<F11> 2.6%+<F11> 2.9%+<F11> 2.7%+<F11>
Portfolio turnover rate 28.2% 36.5% 92.7% 83.0% 96.5% 47.7% 30.9% 10.1% 10.5%
*<F10>The Fund's sales charge is not reflected in total return as set forth in
the table.
+<F11>Reflects a voluntary reimbursement of fund expenses of 0.2% in 1995, 0.1%
in 1993, 0.1% in 1992, 0.2% in 1991, 0.5% in 1990, 0.7% in 1989, 1.7% in 1988
and 2.3% in 1987 respectively.
</TABLE>
Page 22
<PAGE> 23
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
--------------------------------------------------------
For the
period from
July 1, 1992
For the years ended December 31, (commencement
-------------------------------- of operations) to
1995 1994 1993 December 31, 1992
------- ------ ------ -----------------
<S> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD $9.85 $10.29 $10.44 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .36 .37 .30 .13
Net realized and unrealized gains (losses)
on investments 2.17 (.44) (.15) .45
------ ------ ----- ------
TOTAL FROM INVESTMENT OPERATIONS 2.53 (.07) .15 .58
------ ------ ----- ------
LESS DISTRIBUTIONS:
Dividends from net investment income (.36) (.37) (.30) (.13)
Distributions from net realized gains
on investments - - - (.01)
------ ------ ----- ------
TOTAL DISTRIBUTIONS (.36) (.37) (.30) (.14)
------ ------ ----- ------
NET ASSET VALUE, END OF PERIOD $12.02 $9.85 $10.29 $10.44
====== ====== ===== ======
TOTAL RETURN**<F13> 26.1% (0.7)% 1.5% 5.8%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (to nearest thousand) $7,023 $10,255 $18,099 $17,408
Ratio of net expenses to average net assets 1.3%+<F14> 1.2%+<F14> 1.3%+<F14> 1.3%*<F12>
Ratio of net investment income to average
net assets 3.2%+<F14> 3.7%+<F14> 2.9%+<F14> 2.6%*<F12>
Portfolio turnover rate 1.9% 13.7% 30.8% 16.6%
</TABLE>
*<F12>Annualized.
**<F13>The Fund's sales charge is not reflected in total return as set forth
in the table.
+<F14>Reflects a voluntary reimbursement of fund expenses of 0.6% in 1995, 0.3%
in 1994 and 0.1% for 1993.
Page 23
<PAGE> 24
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
FINANCIAL HIGHLIGHTS (Continued)
SELECT VALUE PORTFOLIO
<TABLE>
<CAPTION>
For the period from
August 23, 1994
For the year ended (commencement of
operations) to
December 31, 1995 December 31, 1994
------------------- ------------------
<S> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD $9.03 $9.55
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .14 .04
Net realized and unrealized gains (losses)
on investments 1.73 (.51)
----- -----
TOTAL FROM INVESTMENT OPERATIONS 1.87 (.47)
----- -----
LESS DISTRIBUTIONS:
Dividends from net investment income (.14) (.03)
Distributions from net realized gains
on investments (.43) (.01)
Distributions in excess of net realized gains
on investments (.12) -
Book return of capital - (.01)
----- -----
TOTAL DISTRIBUTIONS (.69) (.05)
------ -----
NET ASSET VALUE, END OF PERIOD $10.21 $9.03
====== ======
TOTAL RETURN**<F16> 20.8% (5.0)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (to nearest thousand) $3,445 $1,935
Ratio of net expenses to average net assets 0.8%+<F17> 0.8%*<F15><F17>+
Ratio of net investment income to average
net assets 1.4%+<F17> 1.1%*+<F15><F17>
Portfolio turnover rate 124.3% 20.2%
</TABLE>
Page 24
<PAGE> 25
*<F15>Annualized.
**<F16>The Fund's sales charge is not reflected in total return as set forth in
the table.
+<F17>Reflects a voluntary reimbursement of fund expenses of 2.5% in 1995 and
0.4% in 1994.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
<TABLE>
<CAPTION>
BALANCE SHEETS
DECEMBER 31, 1995
INSURED S&P 100 DIVIDEND SELECT
TAX-EXEMPT TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS BALANCED VALUE
----------- ---------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments:
Long-term investments
in securities $55,427,133 $18,548,131 $48,436,732 $53,320,630 $24,653,721 $6,987,797 $3,067,129
Short-term investments 113,452 32,185 181,097 3,851,931 800,329 237,763 388,783
----------- ---------- ---------- ---------- ---------- --------- ---------
Total investments (See
Schedule of Investments) 55,540,585 18,580,316 48,617,829 57,172,561 25,454,050 7,225,560 3,455,912
Cash 799 422 746 500 261 590 967
Receivables:
Capital shares sold 6,827 5,251 40,710 115,712 8,112 4,303 3,660
Dividends and interest 1,103,463 341,605 1,004,383 121,292 45,583 58,565 6,035
----------- ---------- ---------- ---------- ---------- --------- ---------
Total receivables 1,110,290 346,856 1,045,093 237,004 53,695 62,868 9,695
Other assets 2,690 879 2,511 2,601 1,026 137 9,927
----------- ---------- ---------- ---------- ---------- --------- ---------
Total assets $56,654,364 $18,928,473 $49,666,179 $57,412,666 $25,509,032 $7,289,155 $3,476,501
=========== ========== ========== ========== ========== ========= =========
LIABILITIES:
Payables:
Capital shares redeemed $66 $1,076 $157,316 $24,404 $6,040 $220,015 $-
Distributions to shareholders 102,910 52,880 102,195 160,676 25,944 3,384 1,356
Expenses 108,818 44,214 87,290 104,783 84,324 42,673 20,051
Investments purchased - - - - - - 10,225
Outstanding Option
Contracts - - - 61,188 - - -
----------- ---------- ---------- ---------- ---------- --------- ---------
Total liabilities 211,794 98,170 346,801 351,051 116,308 266,072 31,632
----------- ---------- ---------- ---------- ---------- --------- ---------
NET ASSETS:
Capital stock 56,285,533 17,937,660 49,913,318 36,593,532 17,767,359 5,825,124 3,155,990
Undistributed
net investment income - 2,452 2,525 1,634 - 311 -
Accumulated distributions in
excess of net investment income (24,415) - - - - - -
Undistributed net realized gains
(losses) on investments (2,646,336) 454 (2,785,860) 5,698 188 (196,695) (38,905)
Net unrealized appreciation
on investments 2,827,788 889,737 2,189,395 20,460,751 7,625,177 1,394,343 327,784
----------- ---------- ---------- ---------- ---------- --------- ---------
Total net assets 56,442,570 18,830,303 49,319,378 57,061,615 25,392,724 7,023,083 3,444,869
----------- ---------- ---------- ---------- ---------- --------- ---------
Total liabilities
and net assets $56,654,364 $18,928,473 $49,666,179 $57,412,666 $25,509,032$ 7,289,155 $3,476,501
=========== ========== ========== ========== ========== ========= =========
NET ASSET VALUE AND
REDEMPTION PRICE PER SHARE $ 9.39 $10.32 $ 9.64 $19.53 $16.97 $12.02 $10.21
MAXIMUM OFFERING PRICE
PER SHARE $ 9.73 $10.69 $9.99 $20.45 $17.77 $12.59 $10.69
=========== ========== ========== ========== ========== ========= =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
Page 25
<PAGE> 26
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
INSURED S&P 100 DIVIDEND SELECT
TAX-EXEMPT TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS BALANCED VALUE
---------- ---------- ---------- --------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $- $- $- $1,129,421 $462,175 $131,463 $42,598
Interest 3,386,999 1,110,406 3,755,141 142,330 96,055 205,588 17,550
---------- ---------- ---------- --------- --------- -------- -------
Total investment
income 3,386,999 1,110,406 3,755,141 1,271,751 558,230 337,051 60,148
EXPENSES:
Investment advisory fees 332,888 110,521 295,379 292,466 168,713 45,711 21,143
Custodian fees 19,465 9,855 20,075 18,250 12,775 8,395 3,650
Transfer agent fees 51,465 20,805 59,320 68,445 47,815 9,125 3,920
Broker service fees 81,288 26,750 91,726 90,873 41,325 18,792 7,140
Professional fees 53,617 31,025 50,090 47,876 32,120 27,740 30,126
Registration 17,193 13,140 16,004 16,060 16,060 16,060 18,967
Communication 5,032 2,255 6,175 12,210 6,656 1,229 1,694
Director fees 17,364 5,687 15,516 14,205 7,231 3,457 365
Pricing of investments 8,165 3,640 2,640 7,275 5,390 8,760 4,990
Deferred organization
expense - - - - - - 2,723
Other (income) expense 9,015 4,087 4,265 4,071 3,369 2,955 (307)
---------- ---------- ---------- --------- --------- -------- -------
Total expenses 595,492 227,765 561,190 571,731 341,454 142,224 94,411
Less expenses absorbed
by advisor (3,699) (9,688) (10,105) - (49,439) (47,880) (72,971)
---------- ---------- ---------- --------- --------- -------- -------
Net expenses 591,793 218,077 551,085 571,731 292,015 94,344 21,440
---------- ---------- ---------- --------- --------- -------- -------
NET INVESTMENT INCOME 2,795,206 892,329 3,204,056 700,020 266,215 242,707 38,708
---------- ---------- ---------- --------- --------- -------- -------
NET REALIZED GAINS
ON INVESTMENTS 1,105,058 111,976 1,836,450 1,785,019 382,791 142,554 136,222
NET UNREALIZED APPRECIATION
ON INVESTMENTS 5,538,312 2,004,622 2,379,924 12,487,128 5,573,287 1,369,971 371,571
---------- ---------- ---------- --------- --------- -------- -------
Net gains
on investments 6,643,370 2,116,598 4,216,374 14,272,147 5,956,078 1,512,525 507,793
---------- ---------- ---------- --------- --------- -------- -------
NET INCREASE IN NET
ASSETS RESULTING
FROM OPERATIONS $9,438,576 $3,008,927 $7,420,430 $14,972,167 $ 6,222,293 $1,755,232 $546,501
=========== ========== ========== ========== ========== ========= =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
Page 26
<PAGE> 27
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
INSURED S&P 100 DIVIDEND SELECT
TAX-EXEMPT TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS BALANCED VALUE
---------- ---------- ---------- -------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income $2,795,206 $892,329 $3,204,056 $700,020 $266,215 $242,707 $38,708
Net realized gains
on investments 1,105,058 111,976 1,836,450 1,785,019 382,791 142,554 136,222
Change in unrealized
appreciation on
investments for the year 5,538,312 2,004,622 2,379,924 12,487,128 5,573,287 1,369,971 371,571
---------- --------- --------- ---------- --------- --------- -------
Net increase
in net assets resulting
from operations 9,438,576 3,008,927 7,420,430 14,972,167 6,222,293 1,755,232 546,501
---------- --------- --------- ---------- --------- --------- -------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
($0.45, $0.48, $0.61, $0.25,
$0.18, $0.36 and $0.14 per share,
respectively) (2,808,860) (893,180) (3,204,316) (702,285) (267,608) (245,116) (39,348)
Distribution in excess of
net investment income
($0.0043 per share, respectively) (24,414) - - - - - -
Net realized gains on
investments ($0.06, $0.63, $0.26
and $0.43, per share, respectively) - (113,460) - (1,775,849) (384,753) - (135,963)
Distributions in excess of net
realized gains on investments
($0.12 per share) - - - - - - (39,165)
---------- --------- --------- ---------- --------- --------- -------
Total distributions (2,833,274) (1,006,640) (3,204,316) (2,478,134) (652,361) (245,116) (214,476)
---------- --------- --------- ---------- --------- --------- -------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued 1,111,492 582,297 2,072,873 6,000,304 1,607,602 303,619 1,242,252
Net asset value of shares
issued in distributions 1,671,982 664,850 2,001,656 2,263,855 610,544 224,079 212,883
Cost of shares redeemed (8,437,841) (2,267,046) (6,295,288) (3,730,220) (2,626,317) (5,269,345) (277,053)
---------- --------- --------- ---------- --------- --------- -------
Net increase (decrease)
in net assets from
capital share
transactions (5,654,367) (1,019,879) (2,220,759) 4,533,939 (408,171) (4,741,647) 1,178,082
---------- --------- --------- ---------- --------- --------- --------
Total increase (decrease) 950,935 982,388 1,995,355 17,027,972 5,161,761 (3,231,531) 1,510,107
NET ASSETS:
Balance at beginning of year 55,491,635 17,847,915 47,324,023 40,033,643 20,230,963 10,254,614 1,934,762
---------- --------- --------- ---------- --------- --------- ---------
Balance at end of year $56,442,570 $18,830,303 $49,319,378 $57,061,615 $25,392,724 $7,023,083 $3,444,869
========== ========== ========== ========== ========== ========= =========
The accompanying notes to financial statements are an integral part of these
statements.
</TABLE>
Page 27
<PAGE> 28
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
AUGUST 23, 1994
(COMMENCEMENT
OF OPERATIONS) TO
DECEMBER 31,
1994
INSURED S&P 100 DIVIDEND SELECT
TAX-EXEMPT TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS BALANCED VALUE
---------- ---------- ---------- -------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income $3,173,829 $955,841 $3,293,561 $666,087 $283,776 $561,540 $5,209
Net realized gains (losses)
on investments (47,241) 66,090 (2,756,736) 35,946 247,262 (158,142) 1,218
Change in unrealized
depreciation on
investments for the year (7,355,137) (2,433,455) (3,446,518) (280,056) (283,366) (551,820) (43,787)
---------- ---------- ---------- -------- -------- -------- -------
Net increase (decrease)
in net assets resulting
from operations (4,228,549) (1,411,524) (2,909,693) 421,977 247,672 (148,422) (37,360)
---------- ---------- ---------- -------- -------- -------- -------
NET EQUALIZATION CREDITS
(DEBITS) - - - (1,543) (6,017) (34,419) 3,533
---------- ---------- ---------- -------- -------- -------- -------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
($0.45, $0.49, $0.61, $0.25,
$0.18, $0.37 and $0.03 per share,
respectively) (3,161,569) (955,954) (3,291,718) (662,823) (278,981) (524,879) (5,172)
Net realized gains on
investments ($0.03, $0.01,
$0.14, and $0.01 per share,
respectively) - (64,943) - (9,023) (217,698) - (1,218)
Book return of capital
($0.01 per share) - - - - - - (3,533)
---------- ---------- ---------- -------- -------- -------- -------
Total distributions (3,161,569) (1,020,897) (3,291,718) (671,846) (496,679) (524,879) (9,923)
---------- ---------- ---------- -------- -------- -------- -------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued 2,416,990 766,966 4,589,107 6,312,396 823,795 755,568 1,972,277
Net asset value of shares
issued in distributions 1,892,770 658,465 2,070,080 611,250 462,811 479,744 9,910
Cost of shares redeemed (9,529,596) (1,684,903) (7,461,251) (5,582,809) (5,728,824) (8,372,304) (3,675)
---------- ---------- ---------- -------- ---------- -------- -------
Net increase (decrease)
in net assets from
capital share
transactions (5,219,836) (259,472) (802,064) 1,340,837 (4,442,218) (7,136,992) 1,978,512
---------- ---------- ---------- --------- ---------- -------- --------
Total increase (decrease) (12,609,954) (2,691,893) (7,003,475) 1,089,425 (4,697,242) (7,844,712) 1,934,762
NET ASSETS:
Balance at beginning of year 68,101,589 20,539,808 54,327,498 38,944,218 24,928,205 18,099,326 -
---------- ---------- ---------- ---------- ---------- ---------- -------
Balance at end of year $55,491,635 $17,847,915 $47,324,023 $40,033,643 $20,230,963 $10,254,614 $ 1,934,762
========== ========== ========== ========= ========== ========== =========
The accompanying notes to financial statements are an integral part of these
statements.
</TABLE>
Page 28
<PAGE> 29
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SIGNIFICANT ACCOUNTING POLICIES -
Principal Preservation Portfolios, Inc. (the "Fund"), registered under the
Investment Company Act of 1940 as an open-end management investment company, is
a series company with nine portfolios: Tax-Exempt Portfolio, Insured Tax-Exempt
Portfolio, Government Portfolio, S&P100 Plus Portfolio, Dividend Achievers
Portfolio, Balanced Portfolio, Select Value Portfolio, Wisconsin Tax-Exempt
Portfolio and the Cash Reserve Portfolio. This report contains the information
of all portfolios, except for the Cash Reserve Portfolio and the Wisconsin Tax-
Exempt Portfolio which are contained in separate reports. The assets and
liabilities of each portfolio are segregated and a shareholder's interest is
limited to the portfolio in which the shareholder owns shares.
The following is a summary of the significant accounting policies of the Fund.
(a) Long-Term Securities and Short-Term Investments
The long-term tax-exempt securities are valued at market or fair value using
quotations by an independent pricing service (the "Service"). When in the
judgment of the Service, quoted bid prices for securities are readily available
and are representative of the bid side of the market, these investments are
valued at the mean between quoted bid prices (as obtained by the Service from
dealers in such securities) and ask prices (as calculated by the Service based
upon its evaluation of the market for such securities). Securities for which,
in the judgment of the Service, there are no readily obtainable market
quotations (which may constitute a majority of the portfolio's securities) are
carried at fair value as determined by the Service, based on methods which
include consideration of yields or prices of municipal securities of comparable
quality, coupon, maturity, type, indications as to values from dealers, and
general market conditions.
Long-term taxable fixed income securities are valued at market using
quotations provided by an independent pricing service.
Common and preferred stocks are valued at the last sales price reported by
the New York Stock Exchange, other appropriate exchanges, or NASDAQ, on the
date of valuation. Common and preferred stocks not traded on that date are
valued at the last bid price.
Short-term investments are valued at amortized cost, which approximates
market value.
Investment transactions are recorded on the trade date.
Premiums on long-term tax-exempt securities are amortized to the shorter of
call date or maturity. The fund does not amortize premiums on taxable long-term
securities. The fund amortizes all discounts on taxable securities and on
original issue discount tax-exempt securities.
(b) Option Transactions
For hedging purposes, the S&P 100 Plus Portfolio may buy and sell put and
call options, write covered call options on portfolio securities, write cash-
secured puts, and write call options that are not covered for cross-hedging
purposes. The risk in writing a call option is that a fund gives up the
opportunity for profit if the market price of the security increases. The risk
in writing a put option is that a fund may incur a loss if the market price of
the security decreases and the option is exercised. The risk in buying an
option is that a fund pays a premium whether or not the option is exercised. A
fund also has the additional risk of not being able to enter into a closing
transaction if a liquid secondary market does not exist. The S&P 100 Plus
Portfolio also may write over-the-counter options where the completion of the
obligation is dependent upon the credit standing of another party.
Page 29
<PAGE> 30
Option contracts are valued daily, and unrealized appreciation or
depreciation is recorded. A fund will realize a gain or loss upon expiration or
closing of the option transaction. When an option is exercised, the proceeds on
sales for a written call option, the purchase cost for a written put option, or
the cost of a security for a purchased put or call option is adjusted by the
amount of premium received or paid.
(c) Net Realized Gains and Losses and Investment Income
Net realized gains and losses on securities sales (including options) are
computed on the identified cost basis. Dividend income is recorded on the ex-
dividend date. Interest income is recorded on an accrual basis. Total net
realized gains on investments for the year ended December 31, 1995, were
comprised of the following:
<TABLE>
<CAPTION>
INSURED S&P 100 DIVIDEND SELECT
TAX-EXEMPT TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS BALANCED VALUE
---------- ---------- ---------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net realized gains
on investments $1,105,058 $111,976 $1,836,450 $1,623,224 $382,791 $142,554 $136,222
Net realized gains
on options - - - 161,795 - - -
---------- -------- --------- --------- ------- ------- -------
Total net realized gains
on investments $1,105,058 $111,976 $1,836,450 $1,785,019 $382,791 $142,554 $136,222
========== ======== ========== ========== ======== ======== ========
</TABLE>
(d) Federal Income Taxes
Provision has not been made for Federal income taxes since each portfolio
has elected to be taxed as a "regulated investment company" and intends to
distribute substantially all income to its shareholders and otherwise comply
with the provisions of the Internal Revenue Code applicable to regulated
investment companies. As of December 31, 1995, the Tax-Exempt Portfolio has
Federal income tax capital loss carry forwards of $2,597,000 expiring in 1996
and $47,000 expiring in 2002; the Government Portfolio has capital loss carry
forwards of $29,000 expiring in 1999 and $2,757,000 expiring in 2002; the
Balanced Portfolio has capital loss carry forwards of $38,000 expiring in 2001
and $158,000 expiring in 2002. It is management's intention to make no
distribution of any future realized capital gains until the Federal income tax
capital loss carry forwards are exhausted.
Distributions in excess of net investment income in the Tax-Exempt Portfolio
of $24,414 for the year ended December 31, 1995, are the result of different
accounting treatment of market discount on investments for book and tax
purposes. This distribution does not represent a tax return of capital.
Distributions in excess of net realized gains on investments in the Select
Value Portfolio of $39,165 for the year ended December 31, 1995, are the result
of losses on wash sales which are recognized for book purposes but not for tax
purposes. This distribution does not represent a tax return of capital.
(e) Expenses
Fund expenses associated with a specific portfolio are charged to that
portfolio as they are incurred. Common expenses incurred by the Fund are
allocated, as incurred, between the portfolios based upon the ratio of the net
assets of each portfolio to the combined net assets of the Fund.
(f) Distributions to Shareholders
Dividends to shareholders are recorded on the ex-dividend date.
Page 30
<PAGE> 31
(g) Insurance
Insurance guaranteeing the scheduled payment of the principal and interest
on the bonds in the Insured Tax-Exempt Portfolio ("Portfolio") has been
obtained by the issuer of the bonds or by the Portfolio. Such insurance does
not guarantee the market value of the bonds or the net asset value of the
Portfolio.
(h) Deferred Organization Costs
Costs incurred with the organization, initial registration and public
offering of shares aggregating $13,627 for the Select Value Portfolio have been
paid by the Fund and are being amortized over a five year period.
(i) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH RELATED PARTIES -
The Fund has Investment Advisory Agreements (the "Agreements") with B.C.
Ziegler and Company ("Ziegler"), (with whom certain officers and directors of
the Fund are affiliated) to serve as Investment Advisor (the "Advisor").
Pursuant to a SubAdvisory Agreement, Ziegler retains Ziegler Asset Management,
Inc. ("ZAMI"), an affiliate of Ziegler, to assist in the management of the
Tax-Exempt Portfolio, Insured Tax-Exempt Portfolio, Government Portfolio,
Dividend Achievers Portfolio and Balanced Portfolio. In January 1996, the
investment operations conducted by Ziegler were transferred to ZAMI and,
following approval by the Fund's Board of Directors, the Agreements were
assigned to ZAMI, which became the "Advisor," and the Sub-Advisory Agreement
with ZAMI was thereby terminated. See Note 7-Subsequent Events below. The
information set forth below in this note describes the Agreements (and Sub-
Advisory Agreement) in effect for the year ended December 31, 1995. Under the
Agreement, the Tax-Exempt, Insured Tax-Exempt and Government Portfolios pay
Ziegler a monthly fee based upon the average daily net assets of each portfolio
at the rate of .60% of the first $50,000,000 of each portfolio's average daily
net assets, reducing to .50% on the next $200,000,000 of each portfolio's
average daily net assets and .40% of each portfolio's average daily net assets
in excess of $250,000,000. Ziegler pays ZAMI 30% of the fee paid by each of the
portfolios, net of a pro rata amount of expenses, if any, paid by Ziegler in
the operation of the portfolio.
Under its Agreement, the Dividend Achievers Portfolio pays Ziegler a monthly
fee based upon the Dividend Achievers average daily net assets at the rate of
.75% of the first $250,000,000 of average daily net assets, reducing to .70% on
the next $250,000,000, to .65% on the average daily net assets of over
$500,000,000. Ziegler pays ZAMI 50% of the fee paid by the Dividend Achievers
Portfolio, net of a pro rata amount of expenses, if any, paid by Ziegler in the
operation of the portfolio.
Under its Agreement, the Balanced Portfolio pays Ziegler a monthly fee based
upon the Balanced average daily net assets at the rate of 0.60% of the first
$50,000,000 of average daily net assets, 0.50% of the next $200,000,000 of
average daily net assets and 0.40% of the average daily net assets in excess of
$250,000,000. Ziegler pays ZAMI .30% on the first $50,000,000 of average daily
net assets, 25% on the next $150,000,000 of average daily net assets and .20%
on average daily net assets over $200,000,000, net of a pro rata amount of
expenses, if any, paid by Ziegler in the operation of the fund.
Pursuant to the Agreement, Ziegler has retained PanAgora Asset Management,
Inc. ("PanAgora") to manage the S&P 100 Plus Portfolio. Under the Agreement,
the S&P 100 Plus Portfolio pays Ziegler a monthly fee based on the average
daily net assets of the Portfolio at the rate of .75% of the first $20,000,000
of the Portfolio's average daily net assets, .50% on the next $30,000,000, .40%
on the next $50,000,000 in assets, .35% on the next $400,000,000 in assets,
down to .30% on average daily net assets over $500,000,000. Ziegler pays
PanAgora 50% of
Page 31
<PAGE> 32
the fee paid by the S&P 100 Plus Portfolio, net of a pro rata
amount of expenses, if any, paid by Ziegler in the operation of the Portfolio.
Pursuant to the Agreement, Ziegler has retained Skyline Asset Management, Inc.
(''Skyline'') to manage the Select Value Portfolio. Under the Agreement, the
Select Value Portfolio pays Ziegler a monthly fee based on the average daily
net assets of the Portfolio at the rate of .75% of the first $250,000,000 of
the Portfolio's average daily net assets, and .65% on average daily net assets
exceeding $250,000,000. Ziegler pays Skyline 50% of the fee paid by the Select
Value Portfolio, net of a pro rata amount of expenses, if any, paid by Ziegler
in the operation of the Portfolio.
The Agreements provide that the Advisor's fee will be reduced or the Advisor
will reimburse each Portfolio, by an amount necessary to prevent the total
expenses of each Portfolio from exceeding limits applicable to each Portfolio
in any state in which its shares are qualified for sale. For the S&P 100 Plus
Portfolio any such reduction or reimbursement will be shared by PanAgora in the
same proportion it would share in the advisory fee after expenses. The same
applies for the Select Value Portfolio and its' relationship with Skyline.
For the year ended December 31, 1995, none of the Portfolios exceeded the
statutory expense limitation. However, the Advisor voluntarily reimbursed the
Tax-Exempt Portfolio $3,699, the Insured Tax-Exempt Portfolio $9,688, the
Government Portfolio $10,105, the Dividend Achievers Portfolio $49,439, the
Balanced Portfolio $47,880 and the Select Value Portfolio $72,971. The Advisor
is not obligated to continue the voluntary reimbursement in the future.
On May 17, 1991, the Fund's shareholders approved a Distribution Agreement
under Rule 12b-1. According to this agreement the Fund pays a distribution fee
of up to 0.25% to the distributor which is passed through to the broker/dealer
as a service fee. This fee is calculated on the average daily net assets of
accounts opened on or after March 1, 1991, and is shown as broker service fees
in the Statements of Operations.
Ziegler has an Accounting and Pricing Agreement with the Fund to perform
accounting and pricing services, a Depository Agreement with the Fund to be the
depository for all investment securities and cash, and a Transfer and Dividend
Disbursing and Shareholder Services Agency Agreement with the Fund to provide
Transfer Agent Services. In addition, each Portfolio pays Ziegler commissions
on sales of Portfolio shares. The transfer agent fees, commissions, accounting
and pricing fees and depository fees paid to Ziegler during the year ended
December 31, 1995, were as follows for each Portfolio:
<TABLE>
<CAPTION>
ACCOUNTING
TRANSFER COMMISSIONS AND PRICING DEPOSITORY
AGENT FEES ON PORTFOLIO FEES FEES
SHARES
---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Tax-Exempt Portfolio $45,055 $46,341 $26,951 $20,253
Insured Tax-Exempt Portfolio 18,159 17,253 19,000 8,964
Government Portfolio 55,057 76,633 24,731 19,319
S&P100 Plus Portfolio 64,422 177,540 24,213 17,017
Dividend Achievers Portfolio 37,897 35,089 19,000 9,721
Balanced Portfolio 8,274 14,357 19,000 4,825
Select Value Portfolio 3,855 18,676 19,000 3,090
------- -------- -------- --------
TOTAL $232,719 $385,889 $151,895 $83,189
======== ======== ======== ========
</TABLE>
During 1995, an affiliate of Ziegler received $17,596 representing commissions
from the purchases and sales of investments of the Dividend Achievers Portfolio
and $3,770 representing commissions from the purchases and sales of investments
of the Balanced Portfolio.
3. INVESTMENT TRANSACTIONS -
Purchases and proceeds from sales of securities, excluding short-term
investments, for the year ended December 31, 1995 aggregated:
Page 32
<PAGE> 33
<TABLE>
<CAPTION>
PURCHASES PROCEEDS FROM SALES
---------- -------------------
<S> <C> <C>
Tax-Exempt Portfolio $59,078,284 $63,125,257
Insured Tax-Exempt Portfolio 11,763,688 12,597,904
Government Portfolio 32,985,594 33,416,339
S&P100 Plus Portfolio 3,608,113 1,606,198
Dividend Achievers Portfolio 7,604,624 5,876,866
Balanced Portfolio 136,781 3,807,199
Select Value Portfolio 4,121,566 3,193,458
</TABLE>
Net unrealized appreciation on investments as of December 31, 1995, included:
<TABLE>
<CAPTION>
INSURED S&P 100 DIVIDEND SELECT
TAX-EXEMPT TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS BALANCED VALUE
---------- ---------- ---------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross unrealized
appreciation $2,844,924 $904,163 $2,189,395 $21,441,857 $7,625,177 $1,419,969 $379,736
Gross unrealized
(depreciation) (17,136) (14,426) - (981,106) - (25,626) (51,952)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net unrealized
appreciation $2,827,788 $889,737 $2,189,395 $20,460,751 $7,625,177 $1,394,343 $327,784
========== ========== ========== ========== ========== ========== ==========
</TABLE>
4. LINE OF CREDIT -
The Fund has an available line of credit of $3,000,000. However, each
Portfolio's borrowings, by investment restriction, cannot exceed 10% of the
total net assets not including the borrowings. Interest expense incurred in
connection with such borrowings was not material during the year. Borrowings
under this arrangement bear interest approximating the then current Prime Rate.
All borrowings under this line of credit are guaranteed by Ziegler. Each
Portfolio's policies allow borrowings for temporary or emergency purposes.
5. CAPTIAL SHARE TRANSACTIONS -
(a) The Fund has authorized capital of 1,000,000,000 shares at $.001 par value
per share. The Fund's shares are divided into the separate portfolios. Three
hundred fifty million of the Fund's authorized shares are allocated to the
existing portfolios as follows:
<TABLE>
<CAPTION>
AUTHORIZED SHARES
-----------------
<S> <C> <C>
Tax-Exempt Portfolio 50,000,000
Insured Tax-Exempt Portfolio 50,000,000
Government Portfolio 50,000,000
S&P100 Plus Portfolio 50,000,000
Dividend Achievers Portfolio 50,000,000
Balanced Portfolio 50,000,000
Select Value Portfolio 50,000,000
------------
TOTAL 350,000,000
============
</TABLE>
The Cash Reserve Portfolio has been allotted 400,000,000 shares and the
Wisconsin Tax-Exempt Portfolio has been allotted 50,000,000 shares. The Cash
Reserve Portfolio's shares are further subdivided into separate series of
200,000,000 shares each, Class X Common Stock (Retail Class) and Class Y Common
Stock (Institutional Class). The remaining 200,000,000 Fund shares may be
allocated to any of the above Portfolios, the Cash Reserve Portfolio, the
Wisconsin Tax-Exempt Portfolio or to new portfolios as determined by the Board
of Directors. The shares of each Portfolio have equal rights and privileges
with
Page 33
<PAGE> 34
all other shares of that Portfolio.
(b) Capital share activity during the years ended December 31, 1994 and
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
INSURED S&P 100 DIVIDEND SELECT
TAX-EXEMPT TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS BALANCED VALUE*<F23>
---------- ---------- ---------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
SHARES OUTSTANDING
AT DECEMBER 31, 1993 7,235,721 1,955,796 5,443,146 2,589,791 1,859,976 1,759,073 -
Shares issued 270,681 77,746 486,979 420,403 61,803 74,790 213,466
Shares issued in distributions 216,632 68,070 223,291 41,686 35,116 48,404 1,097
Shares redeemed (1,086,789) (173,684) (801,549) (373,786) (428,336) (841,181) (410)
---------- --------- --------- --------- --------- --------- -------
SHARES OUTSTANDING
AT DECEMBER 31, 1994 6,636,245 1,927,928 5,351,867 2,678,094 1,528,559 1,041,086 214,153
Shares issued 123,855 58,905 223,052 336,655 109,425 28,818 129,950
Shares issued in distributions 185,261 66,428 214,457 118,292 37,666 20,506 21,034
Shares redeemed (934,740) (229,298) (672,644) (210,737) (179,324) (505,930) (27,781)
--------- --------- --------- --------- --------- --------- ----------
SHARES OUTSTANDING
AT DECEMBER 31, 1995 6,010,621 1,823,963 5,116,732 2,922,304 1,496,326 584,480 337,356
========== ========== ========== ========== ========== ========== ==========
*<F23>Amounts shown for the Select Value Portfolio are the result of the
Fund's operations from its commencement of operations on August 23, 1994.
</TABLE>
(c) Maximum offering price per share for the S&P 100 Plus, Dividend Achievers,
Balanced and Select Value Portfolios is computed based on a maximum sales
charge of 4.5% of the offering price or 4.71% of the net asset value. As of May
1, 1995 the maximum offering price per share for the Tax-Exempt, Insured
Tax-Exempt and Government Portfolios is computed based on a maximum sales
charge of 3.5% of the offering price or 3.62% of the net asset value. For the
purpose of this computation, the price per share is derived from multiplying
the net asset value and redemption price per share by 100 and then dividing the
product by 95.5 and 96.5, respectively.
6. OPTION CONTRACTS WRITTEN -
An analysis of option contracts written by the S&P 100 Plus Portfolio for the
year ended December 31, 1995 is as follows:
<TABLE>
<CAPTION>
NUMBER OF CONTRACTS AMOUNT OF PREMIUM
------------------- -----------------
<S> <C> <C>
Written 845 $173,891
Expired 332 71,898
Closed 100 7,962
Exercised 358 41,948
Outstanding:
Beginning of year 0 0
------ --------
End of Year 55 52,083
====== ========
</TABLE>
7. SUBSEQUENT EVENTS -
(a) At the January 19, 1996 Board of Directors Meeting, the Directors approved
the assignment of the Advisory contract from B.C. Ziegler and Company to
Siegler Asset Management, Inc. Both of the companies are wholly owned
subsidiaries of The Ziegler Companies, Inc. All of the expenses, personnel and
terms of agreements will be identical in all material respects and will not
affect the shareholders.
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<PAGE> 35
(b) At the January 19, 1996 Board of Directors Meeting, the Directors
approved, subject to shareholder approval, the reorganization of the Balanced
Portfolio into the S&P 100 Plus Portfolio and the reorganization of the Insured
Tax-Exempt Portfolio into the Tax-Exempt Portfolio, and recommended that the
shareholders of the Balanced Portfolio and the Insured Tax-Exempt Portfolio, as
the case may be, approve the reorganizations. These reorganizations must now be
approved by such shareholders. If consummated, the net assets of the Balanced
Portfolio and Insured Tax-Exempt Portfolio would be sold through tax-free
reorganizations on or about April 30, 1996.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
TAX-EXEMPT PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL S&P MOODY'S
AMOUNT DESCRIPTION RATING RATING VALUE
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG-TERM TAX-EXEMPT SECURITIES - 98.2%
ALASKA - 6.7%
$1,000,000 Alaska Energy Authority, Power Revenue Bonds, First Series (Bradley AAA Aaa $1,086,250
Lake Hydroelectric Project), 7.25%, due 07-01-2009
1,500,000 Municipality of Anchorage, Alaska, 1995 General Obligation, General AAA Aaa 1,550,625
Purpose and General Obligation Refunding General Purpose Bonds,
Series A, 6.00%, due 02-01-2015
1,000,000 Municipality of Anchorage, Alaska, Hospital Revenue Refunding AA- A1 1,125,000
Bonds (Sisters of Providence Project), 7.125%, due 10-01-2005
CALIFORNIA - 2.0%
1,095,000 The City of Los Angeles, Wastewater System Revenue Bonds, AAA Aaa 1,153,856
Refunding Series 1993-D, 6.00%, due 11-01-2014
FLORIDA - 1.9%
1,000,000 City of Cape Coral, Florida, Wastewater Assessment Refunding and AAA Aaa 1,083,750
Improvement Bonds, Series 1992 (Green Area), 6.25%, due 07-01-2008
HAWAII - 1.8%
1,000,000 City and County of Honolulu, Hawaii, General Obligation Bonds, AAA Aaa 998,750
Series 1995A, 5.25%, due 11-01-2013
ILLINOIS - 10.0%
1,000,000 City of Chicago, General Obligation Bonds, Project Series A of 1992, AAA Aaa 1,055,000
6.25%, due 01-01-2012
1,000,000 Public Building Commission of Chicago, Building Revenue Bonds AAA Aaa 1,028,750
(Chicago Part District) Series C of 1993, 5.80%, due 01-01-2013
1,515,000 Illinois Educational Facilities Authority, Revenue Bonds, Illinois A A1 1,537,725
Wesleyan University, Series 1993, 5.60%, due 09-01-2013
1,000,000 State of Illinois, Build Illinois Bonds (Sales Tax Revenue Refunding AAA A1 1,022,500
Bonds) Series Q, 5.75%, due 06-15-2014
1,000,000 Metropolitan Fair and Exposition Authority (Illinois)Dedicated State AAA Aaa 1,002,070
Tax Revenue Bonds, Series 1986, 6.00%, due 06-01-2014
INDIANA - 13.6%
1,400,000 Ball State University Board of Trustees, Ball State University Student AAA Aaa 1,463,000
</TABLE>
Page 35
<PAGE> 36
<TABLE>
<S> <C> <C> <C> <C>
Fee Bonds, Series G, 6.125%, due 07-01-2014
1,000,000 Hammond Multi-School Building Corporation (Lake County, Indiana) AAA Aaa 1,027,500
First Mortgage Bonds, Series 1995, 5.80%, due 01-15-2015
1,000,000 Indiana State Office Building Commission Capitol Complex Revenue AAA Aaa 1,241,250
Bonds, Series 1990A (Senate Avenue Parking Facility), 7.40%,
due 07-01-2015
1,170,000 Hospital Authority of Marion County (Indiana) Hospital Revenue AA- AA2 1,212,413
Refunding Bonds, Series 1989 (Methodist Hospital of Indiana, Inc.),
6.50%, due 09-01-2013
1,110,000 Hospital Authority of Monroe County, Hospital Revenue Refunding AAA Aaa 1,180,762
Bonds, Series 1989 (Bloomington Hospital Project), 7.125%,
due 05-01-2011
1,500,000 School Building Corporation of Warren Township, (Marion County, NR A2 1,556,250
Indiana)First Mortgage Bonds, Series 1992A, 6.00%, due 07-15-2012
IOWA - 1.9%
1,000,000 State of Iowa, Certificates of Participation, Series 1992, 6.500%, AAA Aaa 1,087,500
due 07-01-2006
MASSACHUSETTS - 1.8%
1,040,000 Town of Franklin, Massachusetts, General Obligation Bonds, 5.25%, AAA Aaa 1,036,100
due 11-15-2012
MICHIGAN - 13.6%
1,210,000 Berkley School District, Oakland County, Michigan, 1995 School AAA Aaa 1,229,663
Building and Site Bonds (General Obligation - Unlimited Tax),
5.625%, due 01-01-2015
1,000,000 Clarkston Community Schools, County of Oakland, Michigan, 1993 AA AA2 1,028,750
School Building &Site & Refunding Bonds (GO-Unlimited Tax),
5.90%, due 05-01-2016
1,750,000 City of Detroit, Michigan, Sewage Disposal System Revenue and AAA Aaa 1,789,375
Revenue Refunding Bonds, Series 1993-A, 5.70%, due 07-01-2013
1,000,000 City of Kalamazoo, Kalamazoo County, Michigan, Downtown AA- A1 1,010,000
Development Refunding Bonds, Series 1993 (General Obligation
Limited Tax), 5.50%, due 04-01-2013
1,500,000 Michigan Municipal Bond Authority, Local Government Loan Program AAA Aaa 1,586,250
Revenue Bonds, Series 1994A(Wayne County Building Authority
Bonds), 6.00%, due 12-01-2013
1,000,000 State of Michigan, Comprehensive Transportation Refunding Bonds, AA- A1 1,015,000
Series 1992B, 5.75%, due 05-15-2011
MINNESOTA - 1.8%
1,000,000 Independent School District 196 (Rosemount - Apple Valley - Eagan), AA AA2 1,035,000
Minnesota, General Obligation School Building Bonds, Series 1994A,
5.875%, due 06-01-2014
NEVADA - 1.9%
1,000,000 Washoe County, Nevada, Gas and Water Facility Revenue Refunding AAA Aaa 1,053,750
Bonds, Variable Rate Demand, 6.30%, due 12-01-2014
NEW YORK - 6.4%
1,650,000 Dutchess County Resource Recovery Agency, New York Solid AAA Aaa 1,831,500
Waste Management System Revenue Bonds, Series 1990A, 7.50%,
due 01-01-2009
1,700,000 Dormitory Authority of the State of New York, New York University AAA Aaa 1,780,750
Insured Revenue Bonds, Series 1991, 6.00%, due 07-01-2015
OKLAHOMA - 7.0%
1,000,000 Norman Regional Hospital Authority, (Norman, Oklahoma) Hospital AAA Aaa 1,090,000
</TABLE>
Page 36
<PAGE> 37
<TABLE>
<S> <C>
Total Investments $55,540,585
==========
</TABLE>
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
<TABLE>
<S> <C> <C> <C> <C>
Revenue Bonds, Series 1991, 6.75%, due 09-01-2011
1,000,000 City of Oklahoma City, Oklahoma, General Obligation Bonds, Series AA AA2 1,026,250
1994, 5.625%, due 03-01-2013
1,800,000 Pottawatomie County Development Authority, Water Revenue AAA Aaa 1,831,500
Bonds, Series 1993 (North Deer Creek Reservoir Project), 5.80%,
due 07-01-2015
RHODE ISLAND - 2.0%
1,150,000 Rhode Island Convention Center Authority, Revenue Bonds, 1993 AAA Aaa 1,157,188
Series A, 5.50%, due 05-15-2013
TENNESSEE - 1.8%
1,000,000 Shelby County, Tennessee, General Obligation Refunding Bonds, 1995 AA+ AA2 1,028,750
Series A, 5.625%, due 04-01-2015
TEXAS - 6.3%
1,300,000 Brazos River Authority (Texas), Collateralized Revenue Refunding AAA Aaa 1,327,625
Bonds (Houston Lighting &Power Company Project), Series 1995,
5.80%, due 08-01-2015
1,000,000 Dallas - Fort Worth Regional Airport Joint Revenue Refunding Bonds, AAA Aaa 1,165,000
Series 1992A, 7.375%, due 11-01-2011
1,000,000 Texas Water Development Board, State Revolving Fund, Senior Lien AAA AA2 1,057,500
Revenue Bonds, Series 1992, 6.00%, due 07-15-2013
UTAH - 4.0%
1,185,000 State of Utah, State Building Ownership Authority, Lease Revenue AA AA2 1,216,106
Refunding Bonds, Series 1992A, (Department of Employment Security
Project), 5.75%, due 08-15-2011
1,000,000 State of Utah, State Building Ownership Authority Lease Revenue AAA Aaa 1,023,750
Bonds (State Facilities Master Lease Program), Series 1995A, 5.70%,
due 05-15-2015
VIRGINIA - 6.8%
1,000,000 Chesapeake, Virginia, Industrial Development Authority, Public AAA Aaa 1,020,000
Facility Lease Revenue Bonds (City Jail Project), Series of 1994,
5.625%, due 06-01-2014
1,750,000 Fairfax County Water Authority, Water Refunding Revenue Bonds, AA- AA2 1,785,000
Series 1992, 5.75%, due 04-01-2014
1,000,000 Southeastern Public Service Authority of Virginia, Senior Revenue & AAA Aaa 1,016,250
Revenue Refunding Bonds, Series 1989 (Regional Solid Waste
System), 6.00%, due 07-01-2015
WASHINGTON - 1.8%
1,000,000 State of Washington, General Obligation Bonds, Series 1994B, 5.75%, AAA Aaa 1,013,750
due 05-01-2013
WISCONSIN - 5.1%
1,000,000 Wisconsin Health and Educational Facilities Authority, Revenue AA2 NR 1,043,750
Bonds, Series 1995, (Franciscan Skemp Medical Center, Inc.),
6.125%, due 11-15-2015
1,750,000 Wisconsin Health Facility Authority, Revenue Bonds, Series 1987 A NR 1,815,625
(Good Samaritan Medical Center, Inc. Refinancing), St. Luke's ----------
Hospital, Inc., Milwaukee, Wisconsin, 7.00%, due 03-01-2009
Total Long-Term Tax-Exempt Securities (Cost $52,599,345) 55,427,133
SHORT-TERM TAX-EXEMPT SECURITIES - 0.2%
MONEY MARKET
$113,452 Federated Tax-Free Trust 113,452
----------
</TABLE>
Page 37
<PAGE> 38
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
INSURED TAX-EXEMPT PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL S&P MOODY'S
AMOUNT DESCRIPTION RATING RATING VALUE
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM TAX-EXEMPT SECURITIES - 98.5%
ALASKA - 4.3%
$800,000 Municipality of Anchorage, Alaska, 1993 General Obligation School AAA Aaa $804,000
Bonds, 5.60%, due 01-01-2014 (AMBAC)
DISTRICT OF COLUMBIA - 1.1%
200,000 District of Columbia, (Washington, D.C.) General Obligation Bonds, AAA Aaa 209,750
Series 1992B, 6.30%, due 06-01-2012 (MBIA)
ILLINOIS - 17.0%
900,000 City of Chicago, General Obligation Bonds, (Emergency Telephone AAA Aaa 904,500
System) Series 1993, 5.625%, due 01-01-2023 (FGIC)
700,000 Public Building Commission of Chicago, Building Revenue Bonds, AAA Aaa 797,125
(Board of Education of the City of Chicago) Series A of 1990, 6.50%,
due 01-01-2018 (MBIA)
550,000 Illinois Health Facilities Authority, Revenue Bonds, Series 1992B, AAA Aaa 591,250
(Franciscan Sisters Health Care Corp. Project), 6.625%,
due 09-01-2013 (MBIA)
900,000 Illinois Municipal Electric Agency, Power Supply System Revenue AAA Aaa 905,625
Bonds, Series 1991A, 5.75%, due 02-01-2021 (AMBAC)
INDIANA - 6.3%
600,000 Hospital Authority of Richmond (Indiana) Hospital Refunding Revenue AAA Aaa 633,000
Bonds, Series 1992 (Reid Hospital &Health Care Services, Inc.),
6.25%, due 01-01-2012 (FGIC)
500,000 Hospital Authority of St. Joseph County (Indiana) Fixed Rate AAA Aaa 550,625
Hospital Revenue Refunding Bonds, Series 1991A, 7.00%,
due 08-15-2011 (MBIA)
IOWA - 2.8%
510,000 City of Waterloo, Black Hawk County, Iowa, General Obligation AAA Aaa 524,662
Bonds, Series 1994A, 6.00%, due 06-01-2014 (FSA)
LOUISIANA - 3.8%
700,000 Public Improvement Bonds, Issue of 1995, City of New Orleans, AAA Aaa 717,500
Louisiana, 5.85%, due 11-01-2013 (FGIC)
MASSACHUSETTS - 3.3%
</TABLE>
PAGE 38
<PAGE> 39
<TABLE>
<S> <C> <C> <C>
600,000 Boston Water and Sewer Commission, General Revenue Bonds, 1991 AAA Aaa 616,500
Series A (Senior Series) 6.00%, due 11-01-2021 (FGIC)
MICHIGAN - 10.0%
1,000,000 Economic Development Corporation of the County of Gratiot, AAA Aaa 973,750
Michigan, Limited Obligation Revenue Refunding Bonds Series 1993
(Michigan Masonic Home Project), 5.20%, due 11-15-2012 (AMBAC)
400,000 School District of the City of River Rouge, County of Wayne, State of AAA Aaa 406,500
Michigan, 1993 School Building and Site Bonds (General Obligation-
Unlimited Tax), 5.60%, due 05-01-2014 (FSA)
500,000 Shelby Public School, Oceana County, Michigan, 1995 School Building AAA Aaa 507,500
and Site Bonds (General Obligation-Unlimited Tax), 5.60%,
due 05-01-2013 (MBIA)
NORTH CAROLINA - 7.0%
900,000 North Carolina Municipal Power Agency Number 1, Catawba Electric AAA Aaa 911,250
Revenue Bonds, Series 1992, 5.75%, due 01-01-2015 (MBIA)
400,000 North Carolina Eastern Municipal Power Agency, Power System AAA Aaa 398,000
Revenue Bonds, Refunding Series 1993B, 5.50%, due 01-01-2017
(FGIC)
PENNSYLVANIA - 3.9%
700,000 Greater Johnstown Water Authority, Cambria County, Pennsylvania AAA Aaa 740,250
Water Revenue Bonds, Series of 1992, 6.40%, due 01-01-2012 (FSA)
SOUTH CAROLINA - 2.3%
400,000 Piedmont Municipal Power Agency (South Carolina) Electric Revenue AAA Aaa 441,000
Bonds, 1991 Refunding Series A, 6.125%, due 01-01-2007 (FGIC)
TEXAS - 4.0%
700,000 City of Houston, Texas, Water and Sewer System, Junior Lien Revenue AAA Aaa 750,750
Bonds, Series 1991A, 6.50%, due 12-01-2021 (AMBAC)
UTAH - 8.2%
675,000 Central Utah Water Conservancy District, State of Utah, General AAA Aaa 652,219
Obligation (Limited Tax) Refunding Bonds, Series 1993, 5.25%,
due 04-01-2018 (MBIA)
900,000 Salt Lake County Water Conservancy District, Water Conservancy AAA Aaa 886,500
Revenue Bonds, Series 1993A, 5.35%, due 10-01-2018 (AMBAC)
VERMONT - 5.5%
1,000,000 Vermont Educational & Health Buildings Financing Agency, Hospital AAA Aaa 1,036,250
Revenue Bonds (Medical Center Hospital of Vermont) Series 1993,
6.20%, due 09-01-2016 (FGIC)
WASHINGTON - 4.3%
350,000 Everett School District No. 2, Snohomish County, Unlimited Tax AAA Aaa 371,875
General Obligation and Refunding Bonds, Series 1993, 6.20%,
due 12-01-2012 (MBIA)
400,000 Snohomish County, Washington, Solid Waste Revenue Bonds, 7.00%, AAA Aaa 437,000
due 12-01-2010 (MBIA)
WISCONSIN - 10.1%
700,000 Unified School District of Antigo, Langlade, Marathon and AAA Aaa 742,875
Shawano Counties, Wisconsin, Certificates of Participation, 6.60%,
due 07-15-2008 (FSA)
400,000 Wisconsin Health and Educational Facilities Authority, Revenue Bonds, AAA Aaa 433,000
Series 1992, (Children's Hospital of Wisconsin, Inc. Project), 6.50%,
due 08-15-2010 (FGIC)
700,000 Wisconsin Health Facilities Authority Revenue Bonds Series 1987 A NR 728,875
(Good Samaritan Medical Center Refinancing)St. Luke's Hospital Inc.,
Milwaukee, Wisconsin, 7.25%, due 03-01-2014 (FGIC)
</TABLE>
Page 39
<PAGE> 40
<TABLE>
<S> <C> <C> <C>
WYOMING - 4.6%
800,000 Trustees of the University of Wyoming, Facilities Revenue Bonds, AAA Aaa 876,000
Series 1991, 7.10%, due 06-01-2010 (MBIA) ----------
Total Long-Term Tax-Exempt Securities (Cost $17,658,395) 18,548,131
SHORT-TERM TAX-EXEMPT SECURITIES - 0.2%
MONEY MARKET
$27,072 Federated Tax-Free Trust 27,072
5,113 Portico Tax-Exempt 5,113
----------
Total Short-Term Investments 32,185
----------
Total Investments $18,580,316
===========
</TABLE>
AMBAC: American Municipal Bond Assurance Corporation
FSA: Financial Security Assurance
FGIC: Financial Guaranty Insurance Company
MBIA: Municipal Bond Insurance Association
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
GOVERNMENT PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MARKET
AMOUNT DESCRIPTION RATE MATURITY VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS - 98.2%
$7,800,000 U.S. Treasury Note 8.125% 02-15-1998 $8,248,500
2,000,000 U.S. Treasury Note 7.375% 05-15-1996 2,016,250
7,800,000 U.S. Treasury Note 11.625% 11-15-2002 10,520,250
7,500,000 U.S. Treasury Note 7.375% 11-15-1997 7,785,937
8,500,000 U.S. Treasury Note 11.125% 08-15-2003 11,419,206
3,300,000 U.S. Treasury Note 7.875% 11-15-2004 3,822,839
4,500,000 U.S. Treasury Note 8.000% 01-15-1997 4,623,750
----------
Total U.S. Government Obligations (Cost $46,247,337) 48,436,732
SHORT-TERM INVESTMENTS - 0.4%
MONEY MARKET
$181,097 Dreyfus Treasury Prime Cash Management 181,097
----------
Total Investments $48,617,829
===========
</TABLE>
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
Page 40
<PAGE> 41
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
S&P100 PLUS PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- --------
<S> <C> <C>
COMMON STOCKS - 93.3%
BASIC INDUSTRIES - 5.2%
Aluminum Company of America 4,800 $253,800
*<F18>Bethlehem Steel Corporation 2,900 40,600
Boise Cascade Corporation 1,266 43,835
Champion International 2,600 109,200
Dow Chemical Company 7,250 510,219
Dupont (E.I.) de Nemours
and Company 15,200 1,062,100
Homestake Mining Company 3,800 59,375
International Paper Company 6,800 257,550
Monsanto Company 3,300 404,250
Weyerhaeuser Company 5,700 246,525
---------
2,987,454
---------
CONSUMER DURABLES - 4.7%
Black & Decker Corporation 2,300 81,075
Brunswick Corporation 2,600 62,400
Chrysler Corporation 10,600 586,975
Ford Motor Company 29,600 858,400
General Motors Corporation 20,700 1,094,513
---------
2,683,363
---------
CONSUMER NONDURABLES - 9.8%
Avon Products, Inc. 2,000 150,750
Coca-Cola Company 35,000 2,598,750
Colgate-Palmolive Company 4,000 281,000
Eastman Kodak Company 9,400 629,800
Heinz (H.J.) Company 10,100 334,562
International Flavors &
Fragrances Inc. 3,100 148,800
PepsiCo, Inc. 21,900 1,223,662
Polaroid Corporation 1,300 61,588
Ralston Purina Group 2,900 180,888
---------
5,609,800
---------
CONSUMER SERVICE - 8.7%
Capital Cities/ABC, Inc. 4,300 530,512
Walt Disney Company 14,300 843,700
*<F18>Harrah's Entertainment, Inc. 2,850 69,112
Kmart Corporation 12,600 91,350
Limited (The), Inc. 10,000 173,750
May Department Stores Company 6,900 291,525
McDonald's Corporation 19,400 875,425
Sears, Roebuck &Co. 10,700 417,300
Tandy Corporation 2,000 83,000
*<F18>Toys "R" Us, Inc. 7,625 165,844
Wal-Mart Stores, Inc. 63,500 1,420,813
---------
4,962,331
---------
CAPITAL GOODS - 10.7%
</TABLE>
Page 41
<PAGE> 42
<TABLE>
<S> <C> <C>
The Boeing Company 9,350 732,806
Fluor Corporation 2,300 151,800
General Dynamics Corporation 1,800 106,425
General Electric Company 46,100 3,319,200
Minnesota Mining &
Manufacturing Company 11,700 775,125
Raytheon Company 6,700 316,575
Rockwell International Corporation 6,100 322,538
Teledyne, Inc. 1,500 38,438
United Technologies Corporation 3,500 332,062
---------
6,094,969
---------
ENERGY - 11.6%
Amoco Corporation 13,700 984,687
Atlantic Richfield Company 4,400 487,300
Baker Hughes Incorporated 3,860 94,087
Coastal Corporation 2,900 108,025
Exxon Corporation 34,300 2,748,288
Halliburton Company 3,200 162,000
Mobil Corporation 11,000 1,232,000
Occidental Petroleum Corporation 8,800 188,100
Schlumberger Limited 6,700 463,975
Williams Companies, Inc. 2,800 122,850
---------
6,591,312
---------
FINANCIAL - 8.7%
American International Group, Inc. 13,143 1,215,728
American Express Company 13,500 558,562
American General Corporation 5,600 195,300
BankAmerica Corporation 10,300 666,925
CIGNA Corporation 2,000 206,500
Citicorp 11,700 786,825
First Chicago NBD Corporation 8,725 344,638
First Fidelity Bancorporation 2,200 165,825
First Interstate Bancorp 2,300 313,950
Great Western Financial Corporation 3,650 93,075
ITT Hartford Group, Inc. 3,200 154,800
Merrill Lynch &Co., Inc. 4,900 249,900
---------
4,952,028
---------
HEALTH CARE - 10.4%
Baxter International Inc. 7,600 318,250
Bristol-Myers Squibb Company 14,260 1,224,578
Johnson &Johnson 17,800 1,524,125
Mallinckrodt Group Inc. 2,100 76,387
Merck &Co., Inc. 34,200 2,248,650
Pharmacia & Upjohn, Inc. 13,860 537,075
---------
5,929,065
---------
TECHNOLOGY - 10.5%
AMP Incorporated 5,800 222,575
*<F18>Ceridian Corporation 1,800 74,250
*<F18>Computer Sciences Corporation 1,400 98,350
*<F18>Digital Equipment Corporation 4,100 262,913
*<F18>Federal Express Corporation 1,500 110,812
Harris Corporation 1,100 60,088
Hewlett-Packard Company 14,000 1,172,500
Honeywell Inc. 3,700 179,912
International Business Machines
Corporation 15,700 1,440,475
Intel Corporation 23,000 1,305,250
*<F18>National Semiconductor Corporation 3,300 73,425
Northern Telecom Limited 6,900 296,700
Tektronix, Inc. 800 39,300
Texas Instruments Inc. 5,000 258,750
</TABLE>
Page 42
<PAGE> 43
<TABLE>
<S> <C> <C>
*<F18>Unisys Corporation 4,700 26,437
Xerox Corporation 2,847 390,039
---------
6,011,776
---------
TRANSPORTATION - 1.2%
Burlington Northern
Santa Fe Corporation 3,900 304,200
Delta Air Lines, Inc. 1,400 103,425
Norfolk Southern Corporation 3,800 301,625
--------
709,250
-------
UTILITIES - 11.8%
American Telephone and
Telegraph Company 43,742 2,832,295
American Electric Power
Company, Inc. 5,100 206,550
Ameritech Corporation 15,300 902,700
Bell Atlantic Corporation 12,000 802,500
Entergy Corporation 6,400 187,200
MCICommunications Corporation 18,800 491,150
*<F18>NYNEX Corporation 11,800 637,200
Southern Company 18,400 453,100
Unicom Corporation 5,900 193,225
---------
6,705,920
---------
Total Common Stocks
(cost $32,754,313) 53,237,268
----------
PREFERRED STOCK - 0.0%
CAPITAL GOODS - 0.0%
Teledyne Inc. Series E Preferred 60 862
------
Total Preferred Stock (cost $892) 862
------
OPTION CONTRACTS PURCHASED - 0.1%
SPXMarch 96 615 Call 5,500 82,500
------
Total Calls Purchased (cost $95,727) 82,500
------
SHORT-TERM INVESTMENTS - 6.7%
MONEY MARKET - 5.0%
Federated Master Trust 1,700,651 1,700,651
Prospect Hill 1,162,012 1,162,012
---------
Total Short-Term Investments 2,862,663
---------
GOVERNMENT OBLIGATIONS - 1.7%
+<F19>U.S. Treasury Bill
4.90%, due 03-21-1996 $1,000,000 989,268
---------
Total Government
Obligations (cost $989,111) 989,268
----------
Total Investments $57,172,561
===========
</TABLE>
*<F18> Non-income producing
+<F19> Segregated as collateral against option contracts.
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
Page 43
<PAGE> 44
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
DIVIDEND ACHIEVERS PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
---------- -------
<S> <C> <C>
COMMON STOCKS - 97.1%
AUTOS AND TRANSPORTATION - 1.5%
Illinois Central Corporation 10,000 $383,750
--------
383,750
--------
CONSUMER NONDURABLES - 24.5%
Coca-Cola Company 8,000 594,000
Eastman Kodak Company 10,800 723,600
Gillette Company 21,600 1,125,900
Heinz (H.J.)Company 15,000 496,875
International Flavors &
Fragrances Inc. 14,900 715,200
Kimberly-Clark Corporation 10,800 893,700
PepsiCo, Inc. 18,500 1,033,688
Sherwin-Williams Company 15,700 639,775
---------
6,222,738
---------
CONSUMER SERVICE - 11.3%
Albertsons, Inc. 18,100 595,037
Walt Disney Company 10,000 590,000
McDonald's Corporation 21,600 974,700
Walgreen Co. 24,000 717,000
---------
2,876,737
---------
CAPITAL GOODS - 8.8%
Avery-Dennison Corporation 14,200 711,775
General Electric Company 12,000 864,000
Minnesota Mining &
Manufacturing Company 10,000 662,500
---------
2,238,275
---------
ENERGY - 9.6%
Mobil Corporation 7,200 806,400
Royal Dutch Petroleum Company 5,935 837,577
Williams Companies, Inc. 18,000 789,750
---------
2,433,727
---------
FINANCIAL - 11.8%
BankAmerica Corporation 10,000 647,500
Federal National Mortgage
Association 9,000 1,117,125
Jefferson-Pilot Corporation 15,000 697,500
MGICInvestment Corporation 10,000 542,500
---------
3,004,625
---------
HEALTH CARE - 5.3%
Baxter International Inc. 10,000 418,750
Johnson &Johnson 10,800 924,750
---------
1,343,500
---------
TECHNOLOGY - 17.7%
</TABLE>
Page 44
<PAGE> 45
<TABLE>
<S> <C> <C>
AMP Incorporated 16,000 614,000
Diebold, Inc. 16,250 899,844
General Motors Corporation -
Class E Common Stock 18,400 956,800
Hewlett-Packard Company 10,000 837,500
Intel Corporation 10,000 567,500
Motorola, Inc. 10,800 615,600
---------
4,491,244
---------
UTILITIES - 6.6%
GTE Corporation 10,000 440,000
SBC Communications, Inc. 10,800 621,000
Sprint Corporation 15,000 598,125
---------
1,659,125
---------
Total Common Stocks
(cost $17,028,544) 24,653,721
----------
SHORT-TERM INVESTMENTS - 3.1%
MONEY MARKET - 3.1%
Federated Master Trust 700,675 700,675
Prospect Hill 99,654 99,654
----------
Total Short-Term Investments 800,329
----------
Total Investments $25,454,050
===========
</TABLE>
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
BALANCED PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
OR PAR VALUE
------------ --------
<S> <C> <C>
COMMON STOCKS - 65.5%
CONSUMER NONDURABLES - 13.1%
Colgate-Palmolive Company 1,850 $129,962
Eastman Kodak Company 2,350 157,450
Gillette Company 3,200 166,800
International Flavors &
Fragrances Inc. 2,750 132,000
Kimberly-Clark Corporation 2,000 165,500
PepsiCo, Inc. 3,100 173,213
-------
924,925
-------
CONSUMER SERVICE - 6.7%
Dun & Bradstreet Corporation 2,300 148,925
McDonald's Corporation 3,500 157,938
Walgreen Co. 5,400 161,325
-------
468,188
-------
</TABLE>
Page 45
<PAGE> 46
<TABLE>
<S> <C> <C>
CAPITAL GOODS - 6.8%
Avery-Dennison Corporation 3,300 165,412
General Electric Company 2,300 165,600
Minnesota Mining &
Manufacturing Company 2,200 145,750
-------
476,762
-------
ENERGY - 8.5%
Amoco Corporation 2,000 143,750
Exxon Corporation 1,900 152,237
Mobil Corporation 1,350 151,200
Royal Dutch Petroleum Company 1,100 155,238
-------
602,425
-------
FINANCIAL - 8.8%
Banc One Corporation 3,388 127,897
BankAmerica Corporation 2,100 135,975
Federal National Mortgage
Association 1,550 192,394
Jefferson-Pilot Corporation 3,412 158,681
-------
614,947
-------
HEALTH CARE - 4.5%
Johnson & Johnson 2,000 171,250
Schering-Plough Corporation 2,600 142,350
-------
313,600
-------
TECHNOLOGY - 10.4%
AMP Incorporated 3,000 115,125
General Motors Corporation -
$3.25 Preferred, Series C 1,900 139,175
Loral Corporation 5,200 183,950
Pitney Bowes Inc. 2,900 136,300
Xerox Corporation 1,150 157,550
-------
732,100
-------
UTILITIES - 6.7%
American Telephone and
Telegraph Company 1,900 123,025
GTE Corporation 3,900 171,600
SBC Communications, Inc. 3,000 172,500
-------
467,125
-------
Total Common Stocks
(cost $3,210,177) 4,600,072
---------
CORPORATE BONDS - 4.3%
Northern States Power,
6.125%, 12-01-2005 $300,000 299,648
-------
Total Corporate Bonds
(cost $297,360) 299,648
-------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MARKET
AMOUNT DESCRIPTION RATE MATURITY VALUE
- -----------------------------------------------------------------------
<S> <S> <S> <S>
U.S. GOVERNMENT OBLIGATIONS - 29.7%
$300,000 U.S. Treasury Note 5.750% 10-31-1997 $303,000
</TABLE>
Page 46
<PAGE> 47
<TABLE>
<S> <C> <C> <C> <C>
500,000 U.S. Treasury Note 6.125% 12-31-1996 504,843
250,000 U.S. Treasury Note 5.375% 05-31-1998 250,859
500,000 U.S. Treasury Note 7.000% 09-30-1996 506,562
500,000 U.S. Treasury Note 6.750% 06-30-1999 522,813
---------
Total U.S. Government Obligations (Cost $2,085,917) 2,088,077
---------
SHORT-TERM INVESTMENTS - 3.4%
MONEY MARKET - 3.4%
$129,562 Dreyfus Cash Management Plus 129,562
108,201 Prospect Hill 108,201
---------
Total Short-Term Investments 237,763
---------
Total Investments $7,225,560
==========
</TABLE>
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
SELECT VALUE PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
OR PAR VALUE
------------ -------
<S> <C> <C>
COMMON STOCKS - 89.0%
AUTOS & TRANSPORTATION - 5.2%
*<F22>Canadian National Railway Company,
Common Shares Represented by
Installment Receipts 500 $7,500
Echlin Inc. 2,300 83,950
Illinois Central Corporation 2,300 88,263
-------
179,713
-------
CONSUMER DISCRETIONARY - 11.5%
Alberto-Culver Company, Class A 2,800 85,400
*<F22>Buffets, Inc. 3,300 45,375
Claire's Stores, Inc. 3,500 61,687
*<F22>Jones Apparel Group, Inc. 2,600 102,375
Pier 1 Imports, Inc. 8,420 95,778
Royal Caribbean Cruises, Ltd. 200 4,400
-------
395,015
-------
CONSUMER STAPLES - 7.7%
Dial Corporation 3,000 88,875
First Brands Corporation 2,200 104,775
Hudson Foods, Inc. 4,200 72,450
-------
266,100
-------
ENERGY - 1.8%
*<F22>Newfield Exploration Company 2,300 62,100
-------
62,100
-------
</TABLE>
Page 47
<PAGE> 48
<TABLE>
<S> <C> <C>
FINANCIAL - 25.8%
AT&T Capital Corporation 700 26,775
Advanta Corporation, Class B 1,700 61,837
*<F22>Amresco, Inc. 2,800 35,700
Cullen/Forst Bankers, Inc. 1,400 70,000
Finova Group Inc. 1,200 57,900
Fremont General Corporation 2,000 73,500
Greenpoint Financial Corporation 2,900 77,575
Paul Revere Corporation (The) 3,200 66,400
PennCorp Financial Group, Inc. 3,000 88,125
Prudential Reinsurance Holdings, Inc. 3,800 88,825
Reinsurance Group of America,
Incorporated 2,000 73,250
Selective Insurance Group, Inc. 500 17,750
Southern National Corporation 3,000 78,750
The PMI Group, Inc. 1,600 72,400
-------
888,787
-------
HEALTH CARE - 7.9%
*<F22>Community Psychiatric Centers 6,900 $84,525
*<F22>Sierra Health Services, Inc. 3,000 95,250
*<F22>Sybron International Corporation -
Wisconsin 3,900 92,625
-------
272,400
-------
MATERIALS & PROCESSING - 7.2%
*<F22>American Standard Companies, Inc. 2,800 78,400
Interface, Inc. 3,100 52,700
*<F22>UCAR International Inc. 2,900 97,875
*<F22>WCI Steel, Inc. 4,500 19,688
-------
248,663
-------
OTHER - 3.6%
Patriot American Hospitality, Inc. 2,200 56,650
Public Storage, Inc. 3,500 66,500
-------
123,150
-------
PRODUCER DURABLES - 8.8%
AGCO Corporation 2,000 102,000
Belden Inc. 3,200 82,400
Kaydon Corporation 1,700 51,638
Mark IV Industries, Inc. 3,395 67,051
-------
303,089
-------
TECHNOLOGY - 9.5%
*<F22>Arrow Electronics, Inc. 1,700 73,312
Dallas Semiconductor Corporation 2,500 51,875
*<F22>Gateway 2000, Inc. 2,500 61,250
*<F22>Komag, Incorporated 1,400 64,575
*<F22>Marshall Industries 2,400 77,100
-------
328,112
-------
Total Common Stocks
(cost $2,739,345) 3,067,129
---------
SHORT-TERM INVESTMENTS - 11.3%
COMMERCIAL PAPER - 3.6%
American Express Credit Corporation,
5.628%, due 01-22-1996 $125,000 125,000
MONEY MARKET - 7.7%
Federated Master Trust 133,535 133,535
Prospect Hill 130,248 130,248
---------
</TABLE>
Page 48
<PAGE> 49
<TABLE>
<S> <C>
263,783
---------
Total Short-Term Investments 388,783
---------
Total Investments $3,455,912
==========
</TABLE>
*<F22>Non-income producing
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Principal Preservation Portfolios, Inc. and
the Shareholders of the Tax-Exempt,
Insured Tax-Exempt, Government, S&P 100 Plus,
Dividend Achievers, Balanced and Select Value Portfolios:
We have audited the accompanying balance sheets, including the schedules of
investments, of the PRINCIPAL PRESERVATION PORTFOLIOS, INC. (a Maryland
corporation) Tax-Exempt, Insured Tax-Exempt, Government, S&P 100 Plus, Dividend
Achievers, Balanced and Select Value Portfolios as of December 31, 1995, and
the related statements of operations for the year then ended and the statements
of changes in net assets for each of the two years in the period then ended
(the year ended December 31, 1995 and the period August 23, 1994 commencement
of operations to December 31, 1994 for the Select Value Portfolio) and the
financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statement. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the depositories, banks and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Principal Preservation Portfolios, Inc. Tax-Exempt, Insured Tax-Exempt,
Government, S&P 100 Plus, Dividend Achievers, Balanced and Select Value
Portfolios as of December 31, 1995, the results of their operations for the
year then ended and the changes in their net assets for each of the two years
in the period then ended (the year ended December 31, 1995 and the period
August 23, 1994 to December 31, 1994 for the Select Value Portfolio) and the
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
January 19, 1996.
Page 49
<PAGE> 50
PRINCIPAL PRESERVATION
PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
OFFICERS AND DIRECTORS
R.D. Ziegler, President, Director
Richard H. Aster, M.D., Director
Augustine J. English, Director
Ralph J. Eckert, Director
Robert J. Tuszynski, Vice President, Director
Jay Ferrara, Treasurer
John Lauderdale, Vice President of Marketing
S. Charles O'Meara, Secretary
INVESTMENT ADVISORS
Skyline Asset Management
311 South Wacker Drive, Suite 4500
Chicago, Illinois 60606
PanAgora Asset Management, Inc.
260 Franklin Street
Boston, Massachusetts 02110
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
DISTRIBUTOR, TRANSFER AND DIVIDEND
DISBURSING AGENT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
CUSTODIAN
Principal Preservation Portfolios, Inc.
215 North Main Street
West Bend, Wisconsin 53095
COUNSEL
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
AUDITOR
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
"Standard & Poor's," "Standard & Poor's 100," "S&P," "100" are trademarks of
Standard & Poor's Corporation and have been licensed for use by B.C. Ziegler
and Company.
This report has been prepared for the information of shareholders of Principal
Preservation Portfolios, Inc., and may not be used in connection with the
offering of securities unless preceded or accompanied by a current Prospectus.
Page 50
<PAGE> 1
EXHIBIT 17(c)
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
SUPPLEMENT DATED JANUARY 31, 1996
TO THE PROSPECTUS DATED MAY 1, 1995
CHANGE IN DIRECTOR
Mr. Stephen A. Roell, a director of Principal Preservation, resigned from
his position effective January 19, 1996 to pursue other opportunities which
potentially could compromise his status as an independent director. At a
meeting held on January 19, 1996, the remaining directors of Principal
Preservation appointed Ralph J. Eckert to fill the vacancy created by Mr.
Roell's resignation. Mr. Eckert presently is retired. He served as Chief
Executive Officer of Benefit Trust Life Insurance Company from September, 1954
to April, 1991. He also served as a trustee of the Board of Pensions for the
Lutheran Church of America from 1987 to 1989, and as Trustee of The Prime
Portfolios (a registered investment company) from 1993 through 1995. Mr.
Eckert presently serves as Chairman of the Board of Benefit Trust Life
Insurance Company and as a Trustee of the Board of Pensions of the Evangelical
Lutheran Church of America.
RESTRUCTURING OF INVESTMENT ADVISOR
As a part of a general restructuring and realignment of the business
operations of The Ziegler Companies, Inc., the parent company of Ziegler and of
Ziegler Asset Management, the investment advisory operations conducted by
Ziegler are being transferred to Ziegler Asset Management. Accordingly, with
respect to the Government, Insured Tax-Exempt, Tax-Exempt, Dividend Achievers
and Balanced Portfolios, Ziegler Asset Management will serve directly as the
investment advisor instead of indirectly as the subadvisor. With respect to
the S&P 100 Plus and Select Value Portfolios, Ziegler Asset Management will
serve as the principal investment advisor in place of Ziegler, and Panagora
Asset Management and Skyline Asset Management, L.P. will continue serving as
subadvisors to the S&P 100 Plus Portfolio and the Select Value Portfolio,
respectively.
This restructuring will not affect in any way the advisory services
provided to the Portfolios. Ziegler Asset Management will provide advisory
services directly to the Portfolios on the same terms and conditions (including
advisory fees) as those under which Ziegler heretofore has provided advisory
services. The Portfolio managers and other advisory personnel who have
provided investment advice and other advisory services to the Portfolios up to
the present time will continue to provide those same services in their same
capacities. Additionally, Ziegler will continue to serve as the Dividend
Disbursing and Transfer Agent, Depository, Accounting/ Pricing Agent and
Distributor for each of the Portfolios.
PENDING PORTFOLIO MANAGER CHANGE FOR GOVERNMENT, TAX-EXEMPT AND INSURED TAX-
EXEMPT PORTFOLIOS
Effective at the close of business on Friday, March 29, 1996, Mr. Vern Van
Vooren, portfolio manager for the Government, Tax-Exempt and Insured Tax-Exempt
Portfolios, will retire. A committee of advisory personnel will manage the
assets of the Government Portfolio. Mr. Thomas P. Sancomb will take over as
portfolio manager for the Tax-Exempt and Insured Tax-Exempt portfolios. Mr.
Sancomb has served with Ziegler and Ziegler Asset Management in various
capacities since March, 1975. He has served on Ziegler's Investment Committee
since July, 1984. He is a Vice President of both Ziegler and Ziegler Asset
Management. Mr. Sancomb has assisted Mr. Van Vooren with the management of the
Government, Insured Tax-Exempt and Tax-Exempt portfolios in the past.
PROPOSED REORGANIZATION OF THE INSURED TAX-EXEMPT PORTFOLIO INTO THE TAX-EXEMPT
PORTFOLIO
Principal Preservation's Board of Directors has approved a proposed
transaction (the "Proposed Reorganization") in which the Insured Tax-Exempt
Portfolio would be reorganized and combined with the Tax-Exempt Portfolio. In
the Proposed Reorganization, the Insured Tax-Exempt Portfolio would transfer
substantially all of its net assets to the Tax-Exempt Portfolio. Shareholders
of the Insured Tax-Exempt Portfolio would receive, in exchange for their
Insured Tax-Exempt Portfolio shares, that number of shares of the Tax-Exempt
Portfolio having an aggregate net asset value equal to the aggregate value of
the assets of the Insured Tax-Exempt Portfolio transferred to the Insured
Tax-Exempt Portfolio. Shareholders of the Insured Tax-Exempt Portfolio would
not pay any load or sales commission on the shares of the Tax-Exempt Portfolio
they receive. The Proposed Reorganization would be structured to qualify as a
tax-free reorganization and, if it so qualifies, shareholders of the Insured
Tax-Exempt Portfolio would not recognize any taxable gain or loss as a result
of the exchange of their shares.
The transaction is subject to normal and customary closing conditions and
to approval by shareholders of the Insured Tax-Exempt Portfolio at a special
meeting to be called and held for that purpose during Spring, 1996.
Shareholders will receive a separate Proxy Statement/Prospectus in connection
with the special meeting.
The investment objectives and the investment portfolios of the Insured
Tax-Exempt and Tax-Exempt Portfolios are substantially similar, with the
exception that the investment securities of the Tax-Exempt Portfolio are not
covered by insurance which provides for the timely payment of principal at
maturity and interest. The Board of Directors of Principal Preservation
believes the high quality of the investment securities purchased and held by
both of the Insured Tax-Exempt and Tax-Exempt Portfolios minimizes the risk of
default on those securities, and that it therefore is prudent to eliminate the
insurance and the cost associated with premiums paid by the Insured Tax-Exempt
Portfolio for such coverage. Also, based on the total assets held by these
individual Portfolios as of December 31, 1995, their combined assets would
exceed the first break point in the advisory fee applicable to the Tax-Exempt
Portfolio, and accordingly would reduce the effective rate of the overall
advisory fees paid by these Portfolios.
<PAGE> 2
For a more complete discussion of the investment objectives and programs
and the service fees paid by these Portfolios, please refer to Principal
Preservation's May 1, 1995 Prospectus relating to these two Portfolios.
PROPOSED REORGANIZATION OF THE BALANCED PORTFOLIO INTO THE S&P 100 PLUS
PORTFOLIO
The Board of Directors of Principal Preservation has approved a proposed
reorganization (the "Proposed Reorganization") pursuant to which the Balanced
Portfolio would be reorganized and combined with the S&P 100 Plus Portfolio.
In the Proposed Reorganization, the Balanced Portfolio would transfer
substantially all of its net assets to the S&P 100 Plus Portfolio.
Shareholders of the Balanced Portfolio would receive, in exchange for their
shares of the Balanced Portfolio, that number of shares of the S&P 100 Plus
Portfolio having an aggregate net asset value equal to the aggregate value of
the assets of the Balanced Portfolio transferred to the S&P 100 Plus Portfolio.
Shareholders of the Balanced Portfolio would not pay any load or sales
commission on the shares of the S&P 100 Plus Portfolio they receive. The
transaction would be structured to qualify as a tax-free reorganization and, if
it so qualifies, shareholders of the Balanced Portfolio would not recognize any
taxable gain or loss as a result of the exchange of their shares. However, as
described in more detail below, the Proposed Reorganization likely would result
in shareholders of the Balanced Portfolio recognizing taxable capital gains
with respect to the disposition of certain appreciated investment securities
held by the Balanced Portfolio.
The transaction is subject to normal and customary closing conditions and
to approval by the shareholders of the Insured Tax-Exempt Portfolio at a
special meeting to be called and held for that purpose during Spring, 1996.
Shareholders will receive a separate Proxy Statement/Prospectus in connection
with the special meeting.
The total net assets of the Balanced Portfolio have declined from
approximately $18.1 million on December 31, 1993 to $7.0 million as of
December 31, 1995. The Board of Directors does not believe there is any strong
likelihood of appreciable growth in the assets of the Balanced Portfolio in the
near future, and Ziegler has indicated it is unwilling to continue subsidizing
this Portfolio indefinitely through fee waivers and expense reimbursements, as
it has in the past. The Proposed Reorganization is intended to provide the
shareholders of the Balanced Portfolio with an investment alternative under a
structure that alleviates, at least to some extent, the taxable gain they would
realize if they instead were to exchange into a different Principal
Preservation investment portfolio, or if they redeemed their shares and
reinvested the proceeds in some other investment vehicle.
The investment objectives and programs of these two Portfolios are
significantly different. The Balanced Portfolio's investment objective is to
realize a combination of income and capital appreciation which will result in
the highest total return consistent with the preservation of principal. The
S&P 100 Plus Portfolio seeks to obtain a total return from dividends and
unrealized and realized capital gains from stocks and options which exceeds
that of the S&P 100 Index. The Balanced Portfolio seeks to achieve its
objective by investing in a diversified portfolio of common stocks, debt and
other fixed income securities, while the S&P 100 Plus Portfolio seeks to
achieve its objective by investing in a portfolio of common stocks which
approximately parallels the composition of the S&P 100 Index and by engaging in
various portfolio strategies involving the use of options contracts to attempt
to enhance total return and hedge protectively against adverse changes in stock
market values.
As a result of these differences, a significant portion of the investment
securities of the Balanced Portfolio are ineligible for purchase by the S&P 100
Plus Portfolio or otherwise are inconsistent with the investment program and
strategies of the S&P 100 Plus Portfolio. Such nonconforming securities would
be sold immediately prior to the Proposed Reorganization, and the sale proceeds
would be reinvested immediately following the Proposed Reorganization in
securities that fit within the S&P 100 Plus Portfolio's investment program and
policies. The sale of these securities by the Balanced Portfolio likely would
result in the realization of capital gains attributable to the appreciated
value of such securities. Such capital gains would be taxable to the
shareholders of the Balanced Portfolio.
For a more complete discussion of the investment policies and programs of
these two Portfolios, please refer to the May 1, 1995 Prospectus of Principal
Preservation relating to these two Portfolios.
<PAGE> 3
Rule 497(e)
1933 Act Reg. No. 33-12
1940 Act File No. 811-4401
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
SELECT VALUE PORTFOLIO
SUPPLEMENT DATED SEPTEMBER 1, 1995
TO THE PROSPECTUS DATED MAY 1, 1995
DEVELOPMENTS WITH RESPECT TO NEW SUB-ADVISORY AGREEMENT
Effective August 30, 1995, pursuant to an affirmative vote of a majority of
the shareholders of the Select Value Portfolio, the Select Value Portfolio has
entered into a new Sub-Advisory Agreement by and among Principal Preservation
Portfolios, Inc. (on behalf of the Select Value Portfolio), B.C. Ziegler and
Company, and Skyline Asset Management, L.P.
Prior to August 31, 1995, Mesirow Asset Management, Inc. ("Mesirow")
acted as the sub-advisor for the Select Value Portfolio. On June 6,
1995, Mesirow and its parent company, Mesirow Financial Holdings, Inc. agreed
to sell most of Mesirow's institutional business to a newly-organized limited
partnership called Skyline Asset Management, L.P. ("Skyline Management").
This transaction was consummated on August 31, 1995. Skyline Management's
offices are located at 311 South Wacker Drive, 45th Floor, Chicago, Illinois
60606. Skyline Management is registered with the SEC as an investment adviser.
The President and Chief Executive Officer of Skyline Management is William
M. Dutton, who has assisted with the management of the Select Value Portfolio's
assets since its inception. Mr. Dutton serves as a member of the team that
manages the Select Value Portfolio's assets. Kenneth S. Kailin, who has been
primarily responsible for the management of the Select Value Portfolio's assets
since its inception, heads up the team that manages those assets. Mr. Kailin,
together with Geoffrey P. Lutz and Michael Maloney, are officers of Skyline
Management.
Skyline Management's general partner is Affiliated Managers Group, Inc.
("AMG") and its limited partners consist of corporations owned by four former
management employees of Mesirow, including Messrs. Kailin and Dutton. AMG is a
Boston-based private holding company that makes equity investments in
investment management firms in which management personnel retain a significant
interest in the future of the business. As of June 15, 1995, AMG served as
general partner to two registered investment advisers and was a member of a
third adviser structured as a limited liability company, which manage in the
aggregate approximately $2.6 billion in investments.
AMG is a Delaware corporation which has its offices at One International
Place, Boston, MA 02110. AMG may be deemed to be controlled by Advent VII,
L.P., a Delaware limited partnership, because Advent VII, L.P. owns greater
than fifty percent of the voting stock of AMG. Advent VII, L.P. in turn may be
deemed to be controlled by its sole general partner, TA Associates VII, L.P., a
Delaware limited partnership, which in turn may be deemed to be controlled by
its sole general partner, TA Associates, Inc., a Delaware corporation. The
address of each of Advent VII, L.P., TA Associates VII, L.P. and TA Associates,
Inc., is c/o TA Associates, Inc., High Street Tower, Suite 2500, 125 High
Street, Boston, MA 02110. AMG has advised the Fund that TA Associates, Inc.,
which was founded in 1968, has invested directly or indirectly in over 200
enterprises prior to its investment in AMG.
<PAGE> 4
PRINCIPAL PRESERVATION
PORTFOLIOS, INC.
Seven portfolios (the "Portfolios") of the Principal Preservation
Portfolios, Inc. ("Principal Preservation") family of mutual funds are
offered by this Prospectus:
GOVERNMENT PORTFOLIO
INSURED TAX-EXEMPT PORTFOLIO
TAX-EXEMPT PORTFOLIO
S&P 100 PLUS PORTFOLIO
SELECT VALUE PORTFOLIO
DIVIDEND ACHIEVERS PORTFOLIO
BALANCED PORTFOLIO
The risks and special characteristics of investing in each of the
Portfolios are highlighted in the sections of this Prospectus titled
"Questions and Answers" and "Special Considerations." Each Portfolio is
managed by B.C. Ziegler and Company ("Ziegler"), as investment advisor.
Ziegler Asset Management, Inc. ("Ziegler Asset Management") serves as
sub-advisor to all of the Portfolios except the S&P 100 Plus and Select Value
Portfolios, with respect to which PanAgora Asset Management, Inc.
("PanAgora") and Mesirow Asset Management, Inc. ("Mesirow"), respectively,
serve as sub-advisor. The investment advisor and relevant sub-advisor(s) are
sometimes referred to together as the "Advisors" of the relevant
Portfolio(s). Shareholder inquiries should be directed to Principal
Preservation at 215 North Main Street, West Bend, WI 53095; telephone
800-826-4600.
This Prospectus sets forth concisely the information that an investor should
know before investing in shares of any of the Portfolios. Investors should read
and retain this Prospectus for future reference. A Statement of Additional
Information dated May 1, 1995, containing additional information about
Principal Preservation and the Portfolios 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 upon request to Ziegler, 215 North Main Street, West Bend, WI 53095
(telephone 800-826-4600) or from Selected Dealers that have agreements with
respect to the distribution of shares of the Portfolios.
SHARES OF THE PORTFOLIOS ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR
ENDORSED OR GUARANTEED BY, ANY BANKING INSTITUTION, ARE NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC") OR ANY OTHER
GOVERNMENTAL AGENCY AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
===============================================================================
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
===============================================================================
THE DATE OF THIS PROSPECTUS IS MAY 1, 1995.
<PAGE> 5
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. Two additional series of Principal Preservation, the
Cash Reserve Portfolio and the Wisconsin Tax-Exempt Portfolio, are offered by
separate Prospectuses.
WHAT ARE THE BENEFITS FROM INVESTING IN THE PORTFOLIOS?
Economy of Size. The Portfolios are designed to provide investors with an
opportunity to pool their money to achieve economies of size and
diversification. This permits investors, whose own securities' portfolios may
not be large enough to obtain individual investment management services on a
cost-effective basis, to take advantage of the professional investment
management expertise of the Advisors.
A choice of portfolios. Principal Preservation offers investors seven
distinct portfolio choices through this Prospectus:
Government Portfolio Select Value Portfolio
Insured Tax-Exempt Portfolio Dividend Achievers Portfolio
Tax-Exempt Portfolio Balanced Portfolio
S&P 100 Plus Portfolio
The Insured Tax-Exempt Portfolio and the Tax-Exempt Portfolio are sometimes
referred to together as the Tax-Exempt Portfolios.
Professional management. Each Portfolio provides professional management of
your investment. Maintaining records of your investments is made timely and
convenient with detailed statements of your investment activity and account
status.
Portfolio diversification. Mutual funds combine the funds of many investors
to obtain a diversified portfolio. The burden of selecting securities is eased
and the high cost investors would otherwise incur through smaller purchases is
trimmed.
Liquidity. Shares of any Portfolio may be redeemed at any time at their
current net asset value. See "Redemptions."
Retirement Plans. The tax-deferred advantages of tax-qualified retirement
plans are open to investors in Principal Preservation. You can invest, with a
$500 minimum investment, through an IRA. Principal Preservation makes certain
prototype plans available to investors. See "Shareholder Services - Tax
Sheltered Retirement Plans." Because most of the interest income from the Tax-
Exempt Portfolios is exempt from federal income tax, shares of those Portfolios
are not recommended for purchase by a tax sheltered retirement plan.
WHAT ARE THE PORTFOLIOS' INVESTMENT OBJECTIVES?
Each Portfolio has its own investment objectives and policies. See
"Investment Objectives" and "Investment Program" in this Prospectus and
"Investment Program" in the Statement of Additional Information. There can be
no assurance that a Portfolio's investment objective will be achieved.
GOVERNMENT PORTFOLIO: to obtain the highest total return consistent with
preservation of principal through investing in a portfolio of instruments and
obligations issued by the U.S. Treasury, or which are backed by the
unconditional full faith and credit of the United States government, its
agencies or instrumentalities ("U.S. Government Securities").
-2-
<PAGE> 6
INSURED TAX-EXEMPT PORTFOLIO: to obtain the highest total return consistent
with 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.
TAX-EXEMPT PORTFOLIO: to obtain the highest total return consistent with
preservation of principal through investing in high quality municipal bonds
with remaining maturities of two to 20 years.
S&P 100 PLUS PORTFOLIO: to obtain a total return which exceeds that of the
S&P 100 Index by investing in a portfolio of common stocks which approximately
parallels the composition of the S&P 100 Index, and by using options to attempt
to enhance return and hedge protectively against adverse changes in stock
market values.
SELECT VALUE PORTFOLIO: seeks to obtain maximum capital appreciation
primarily through investment in common stocks that the Advisors consider
undervalued relative to earnings, book value, or potential earnings growth.
The Select Value Portfolio pursues its investment objective generally by
emphasizing investments in smaller to medium-sized companies, although the
Portfolio is not restricted to investments in companies of any particular size.
DIVIDEND ACHIEVERS PORTFOLIO: to obtain capital appreciation and income
through investing in a portfolio of common stocks of companies that have
achieved a superior record of dividend growth.
BALANCED PORTFOLIO: to realize a combination of income and capital
appreciation which will result in the highest total return consistent with the
preservation of principal. The Balanced Portfolio seeks to obtain its objective
by investing in a diversified portfolio of common stocks and fixed income
securities.
ARE THERE ANY RISKS TO CONSIDER?
Certain securities in which the Portfolios may invest and activities in
which they may engage involve special considerations and risks. For example, the
cyclical nature of the stock market may affect the value of equity securities,
changes in interest rates and average maturities may affect the value of debt
securities, and changes in general economic conditions and in the financial
positions and credit ratings of issuers may affect the value of all types of
securities in which the Portfolios invest.
The Select Value Portfolio is designed for long term investors willing to
accept more investment risk and volatility than the stock market in general,
but with less investment risk and volatility than aggressive capital
appreciation funds. The Select Value Portfolio's net asset value may be
subject to above- average fluctuations than the net asset values of other
equity-based investment companies because greater than average risk will be
assumed in investing in smaller to medium-sized companies for the purpose of
seeking to maximize capital appreciation. See "Investment Program - Select
Value Portfolio."
Certain hedging strategies and related option transactions in which the S&P
100 Plus and Dividend Achievers Portfolios may engage expose those Portfolios
to special risks. See "Investment Program - Option Activities - Risks
Associated With Options."
WHAT ARE THE ADVANTAGES OF STOCK INDEXING?
Stock indexing allows investors to purchase a package of common stocks, the
value of which moves with the value of the market index it is designed to
follow, such as the Standard & Poor's 100 Index, the Standard & Poor's 500
Index and the New York Stock Exchange Composite Index. In recent years, the
performance of a high percentage of individual investment managers has not
matched the performance of such stock indices.
WHY IS THE INSURED TAX-EXEMPT PORTFOLIO INSURED?
Insurance provides additional credit risk protection to investors in
municipal securities. The insurance guarantees the timely payment of principal
and interest on the bonds held by this Portfolio. While the insurance reduces
the risks
-3-
<PAGE> 7
associated with an issuer's default on its obligations to make timely
payments of principal and interest, it does not protect against the risk of
fluctuations in market value. The insurance relates to the municipal securities
held by the Portfolio rather than the shares of the Portfolio. The cost of the
insurance is an expense that reduces the yield of the Portfolio. See
"Investment Program - Insured Tax-Exempt Portfolio."
HOW DO THE PORTFOLIOS DISTRIBUTE INCOME?
Dividends will be declared daily and paid monthly in the Government,
Insured Tax-Exempt and Tax-Exempt Portfolios, and will be declared and
paid quarterly in the S&P 100 Plus, Select Value, Dividend Achievers and
Balanced Portfolios. 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 Portfolio, in additional shares in
another Principal Preservation portfolio or in cash. See "Dividends, Capital
Gains Distributions And Reinvestments."
WHO MANAGES THE PORTFOLIOS?
Ziegler is the investment advisor for each of the Portfolios. PanAgora is
the sub-advisor for the S&P 100 Plus Portfolio, Mesirow is the sub-advisor for
the Select Value Portfolio and Ziegler Asset Management, a wholly owned
subsidiary of Ziegler, is the sub-advisor for the Government, Insured
Tax-Exempt, Tax-Exempt, Dividend Achievers and Balanced Portfolios. See
"Management."
HOW CAN SHARES BE PURCHASED?
Shares may be purchased at the public offering price next determined after
receipt of an order to purchase. The offering price is the net asset value per
share plus a sales charge. Shares may be purchased from Ziegler in its capacity
as distributor of each Portfolio's shares (the "Distributor"), or from
broker-dealers and other financial institutions or firms that have entered
into agreements with the Distributor with respect to their assistance in
distributing shares of the Portfolios ("Selected Dealers"). See "Purchase of
Shares." B.C. Ziegler and Company's principal office is at 215 North Main
Street, West Bend, WI 53095; telephone 800-826-4600.
The minimum initial investment in a Portfolio is $1,000. The minimum
subsequent investment is $50.
HOW CAN YOU REDEEM OR EXCHANGE YOUR SHARES?
Shares may be redeemed by mail or telephone. The redemption value of the
shares is the net asset value per share as of the close of business on the day
the redemption request is received in proper form. Subject to a service charge
(currently $5.00), shares of any Portfolio may be exchanged for shares of any
other Principal Preservation portfolio on the basis of their relative net asset
value after the shares to be exchanged have been held for more than six months.
See "Redemptions" and "Shareholder Services." Information as to Principal
Preservation portfolios other than the seven Portfolios offered by this
Prospectus is provided by separate prospectuses, copies of which can be
obtained from the Distributor.
-4-
<PAGE> 8
EXPENSES
<TABLE>
<CAPTION>
INSURED S&P 100 SELECT DIVIDEND
GOVERNMENT TAX-EXEMPT TAX-EXEMPT PLUS VALUE ACHIEVERS BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- ---------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) (1)............... 3.5% 3.5% 3.5% 4.5% 4.5% 4.5% 4.5%
Maximum Sales Load Imposed
on Reinvested Dividends (as a
percentage of offering price)..... 0% 0% 0% 0% 0% 0% 0%
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds)..... 0% 0% 0% 0% 0% 0% 0%
Redemption Fees (as a percentage
of amount redeemed) (2)........... 0% 0% 0% 0% 0% 0% 0%
Exchange Fee ...................... $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00
<CAPTION>
ANNUAL FUND OPERATING EXPENSES - AFTER WAIVERS AND REIMBURSEMENTS
(AS A PERCENTAGE OF AVERAGE NET ASSETS) (3)
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees
(After Waivers) (5) ............ 0.60% 0.60% 0.60% 0.63% 0.35% 0.70% 0.60%
12b-1 Fees (4)..................... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses:
Custodian Fees ................... 0.04% 0.05% 0.03% 0.04% 0.05% 0.05% 0.05%
Transfer Agent Fees .............. 0.15% 0.12% 0.08% 0.18% 0.20% 0.26% 0.07%
Other Fees
(After Reimbursement) (5)..... 0.11% 0.18% 0.19% 0.15% 0.45% 0.04% 0.33%
----- ----- ----- ----- ----- ----- -----
Total Other Expenses .............. 0.30% 0.35% 0.30% 0.37% 0.70% 0.35% 0.45%
Total Fund Operating Expenses
(After Reimbursement) (5)...... 1.15% 1.20% 1.15% 1.25% 1.30% 1.30% 1.30%
</TABLE>
- ------------------------
(1) Investors may be able to qualify for a lower sales load. See "Purchase
of Shares" and "Shareholder Services."
(2) Ziegler, in its capacity as transfer agent, charges a fee (presently
$7.50) for redemptions by wire transfer.
(3) The percentages expressing annual operating expenses are based on
amounts actually incurred during the year ended December 31, 1994,
except that fees shown for the Select Value Portfolio (which first
commenced operations on August 23, 1994) are based on management's
estimates for fiscal 1995 giving effect to waivers and reimbursements
described in footnote (5) below. Fees paid by all of the Portfolios for
custodian and transfer agent services are determined on a basis other than
a straight percentage of average net assets. For a discussion of fees
associated with these services, see "Management - The Advisors."
(4) Fees payable under Principal Preservation's Rule 12b-1 Distribution Plan
by the Government, Insured Tax-Exempt, Tax-Exempt, S&P 100 Plus and
Dividend Achievers Portfolios presently are assessed only on assets held
in accounts opened on or after March 1, 1991. The "12b-1 Fees" shown for
those Portfolios in the table reflect an amendment to Principal
Preservation's Rule 12b-1 Distribution Plan (the "Rule 12b-1 Distribution
Plan Amendment"), which will take effect on July 1, 1995 and which will
result in "12b-1 Fees" being assessed on all assets of those five
Portfolios. The "12b-1 Fees" actually paid by the Government, Insured
Tax-Exempt, Tax-Exempt, S&P 100 Plus and Dividend Achievers Portfolios for
the year ended December 31, 1994 amounted to 0.11%, 0.04%, 0.04%, 0.11%
and 0.11% of the respective Portfolio's average net assets.
Because the Rule 12b-1 distribution fee is paid quarterly throughout
the life of the investment rather than as a one-time fee, long term
shareholders may pay more than the economic equivalent of the maximum
front-end sales charge permitted by the National Association of Securities
Dealers ("NASD"), which is generally 6.25% of new sales plus an interest
factor.
(5) For 1995 the Advisor has committed to waive advisory fees and/or
reimburse expenses to the Select Value, Dividend Achievers and Balanced
Portfolios so that, for 1995, the total operating expenses of those
Portfolios will not exceed 1.30% of their average daily net assets.
Without giving effect to such waivers and reimbursements, "Management
Fees" for the Dividend Achievers Portfolio would have been 0.75% of the
-5-
<PAGE> 9
Portfolio's average net assets; "Other Fees" for the Dividend Achievers
and Balanced Portfolios would have been 0.36% and 0.53% of the respective
Portfolio's average net assets; and "Total Fund Operating Expenses" for
those Portfolios would have been 1.67% and 1.50% of the respective
Portfolio's average net assets.
Also, in connection with the implementation of the Rule 12b-1
Distribution Plan Amendment, Ziegler has committed to reimburse expenses to
each of the Government, Insured Tax-Exempt, Tax-Exempt, S&P 100 Plus and
Dividend Achievers Portfolios so that, on an annualized basis, their "Total
Fund Operating Expenses" will not exceed 1.15%, 1.20%, 1.15%, 1.25% and
1.30%, respectively, of their average daily net assets. Without giving
effect to this expense reimbursement commitment, "Other Fees" for these
five Portfolios would have been 0.20%, 0.36%, 0.21%, 0.23% and 0.36%,
respectively, and their "Total Operating Expenses"would have been 1.24%,
1.38%, 1.17%, 1.33% and 1.67%, respectively.
EXAMPLE
You would pay the following expenses on a $1,000 investment in each
Portfolio, assuming 5% annual return and redemption at the end of each time
period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Government Portfolio ................ $46 $70 $96 $170
Insured Tax-Exempt Portfolio ........ 47 72 99 176
Tax-Exempt Portfolio ................ 46 70 96 170
S&P 100 Plus Portfolio .............. 57 83 111 189
Select Value Portfolio .............. 58 84 - -
Dividend Achievers Portfolio ........ 58 84 113 195
Balanced Portfolio .................. 58 84 113 195
</TABLE>
The purpose of the table is to assist investors in understanding the
various costs and expenses they will bear directly or indirectly. For more
complete descriptions of the various costs and expenses, see "Management,"
"Purchase Of Shares," "Redemptions" and "Shareholder Services." THE ABOVE
EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN SHOWN.
-6-
<PAGE> 10
FINANCIAL HIGHLIGHTS
The following Financial Highlights tables present information relating to a
share of capital stock of each Portfolio outstanding for the periods presented.
This information should be read in conjunction with the financial statements
and related notes thereto contained in Principal Preservation's 1994 Annual
Report to Shareholders, which financial statements are incorporated herein by
reference. The information has been audited by Arthur Andersen LLP, independent
public accountants, whose report thereon is contained in the 1994 Annual Report
to Shareholders, copies of which are available without charge from the
Distributor.
<TABLE>
<CAPTION>
GOVERNMENT PORTFOLIO
--------------------------------------------------------------------------------------------
For the
period from
December 20,
1985
(commencement
For the years ended December 31, of operations)
---------------------------------------------------------------------------- to December 31,
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
------ ----- ----- ----- ------ ------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD .......... $9.98 $9.64 $9.68 $9.10 $ 9.11 $ 8.88 $ 9.11 $ 9.71 $ 9.37 $ 9.35
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income......... .61 .63 .67 .73 .76 .75 .75 .73 .80 .03
Net realized and
unrealized gains (losses)
on investments.............. (1.14) .35 (.04) .58 (.01) .23 (.17) (.42) .49 (.01)
----- ----- ----- ----- ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS.................. (.53) .98 .63 1.31 .75 .98 .58 .31 1.29 .02
----- ----- ----- ----- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income........... (.61) (.64) (.67) (.73) (.76) (.75) (.75) (.73) (.83) -
Distributions from net
realized gains
on investments.............. - - - - - - (.06) (.13) (.12) -
Distribution of capital....... - - - - - - - (.05) - -
----- ----- ----- ----- ------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS........... (.61) (.64) (.67) (.73) (.76) (.75) (.81) (.91) (.95) -
----- ----- ----- ----- ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD................. $ 8.84 $ 9.98 $ 9.64 $ 9.68 $ 9.10 $ 9.11 $ 8.88 $ 9.11 $ 9.71 $ 9.37
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN** (5.4)% 10.3% 6.8% 15.1% 8.7% 11.5% 6.5% 3.4% 14.5% -%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(to nearest thousand)......... $47,324 $54,327 $37,634 $32,737 $29,351 $30,631 $32,950 $31,036 $32,162 $8,398
Ratio of net expenses to
average net assets............ 1.1% 1.0% 1.0% 1.1% 1.2% 1.2%+ 1.2%+ 1.3%+ 0.7%+ -%
Ratio of net investment
income to average net assets.. 6.6% 6.2% 7.0% 8.0% 8.5% 8.4%+ 8.3%+ 7.8%+ 7.8%+ 9.1%*
Portfolio turnover rate......... 106.1% 8.7% 10.0% 62.2% 57.1% 141.8% 36.7% 80.2% 307% -%
</TABLE>
- ---------------------
* Annualized.
** The Portfolio's sales charge is not reflected in total return as set
forth in the table.
+ Reflects a voluntary reimbursement of expenses of 0.1% in 1989, 0.5% in
1988, 0.3% in 1987 and 1.2% in 1986.
-7-
<PAGE> 11
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
INSURED TAX-EXEMPT PORTFOLIO
--------------------------------------------------------------------------------------------
For the
period from
September 30,
1986
(commencement
For the years ended December 31, of operations)
-------------------------------------------------------------------------- to December 31,
1994 1993 1992 1991 1990 1989 1988 1987 1986
----- ----- ----- ----- ----- ----- ----- ----- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD.......... $10.50 $10.14 $10.14 $9.80 $9.82 $9.50 $9.07 $9.81 $9.55
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income...... .49 .52 .56 .58 .59 .58 .59 .63 .16
Net realized and
unrealized gains (losses)
on investments........... (1.21) .80 .23 .34 (.02) .32 .43 (.74) .26
----- ----- ----- ---- ----- ---- ---- ----- -----
TOTAL FROM INVESTMENT
OPERATIONS............... (.72) 1.32 .79 .92 .57 .90 1.02 (.11) .42
----- ----- ----- ---- ----- ---- ---- ----- -----
LESS DISTRIBUTIONS:
Dividends from net
investment income........ (.49) (.53) (.55) (.58) (.59) (.58) (.59) (.63) (.16)
Distributions from net
realized gains
on investments........... (.03) (.43) (.24) - - - - - -
----- ----- ----- ---- ----- ---- ---- ----- -----
TOTAL DISTRIBUTIONS.......... (.52) (.96) (.79) (.58) (.59) (.58) (.59) (.63) (.16)
----- ----- ----- ---- ----- ---- ---- ----- -----
NET ASSET VALUE,
END OF PERIOD................ $ 9.26 $ 10.50 $ 10.14 $ 10.14 $ 9.80 $ 9.82 $ 9.50 $ 9.07 $ 9.81
====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN**................. (6.9)% 13.2% 8.0% 9.7% 6.1% 9.7% 11.6% (1.1)% 4.4%
RATIOS/SUPPLEMENTAL DATA:
Net asset value, end of period
(to nearest thousand)........ $17,848 $20,540 $18,362 $17,971 $17,081 $18,088 $17,658 $16,272 $11,615
Ratio of net expenses to
average net assets........... 1.2% 1.1% 1.2% 1.2% 1.2% 1.3% 1.3%+ 0.7%+ -%
Ratio of net investment
income to average net assets. 5.1% 4.9% 5.4% 5.9% 6.1% 6.0% 6.3%+ 6.8%+ 5.8%*+
Portfolio turnover rate........ 26.5% 39.3% 57.4% 51.1% 25.1% 29.4% 82.9% 44.8% 1.2%
</TABLE>
- ------------------
* Annualized.
** The Portfolio's sales charge is not reflected in total return as set
forth in the table.
+ Reflects a voluntary reimbursement of expenses of 0.5% in 1988, 1.2% in
1987 and 5.0% in 1986.
-8-
<PAGE> 12
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
TAX-EXEMPT PORTFOLIO
-----------------------------------------------------------------------------------------------
For the years ended December 31,
-----------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD.......... $9.41 $8.67 $8.46 $8.19 $8.23 $8.06 $8.14 $8.81 $9.02 $9.15
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income...... .45 .48 .50 .53 .53 .55 .55 .60 .63 .76
Net realized and
unrealized gains (losses)
on investments............. (1.05) .74 .21 .27 (.04) .17 (.08) (.67) (.21) (.13)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL FROM INVESTMENT
OPERATIONS................. (0.60) 1.22 .71 .80 .49 .72 .47 (.07) .42 .63
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
LESS DISTRIBUTIONS:
Dividends from net
investment income.......... (0.45) (.48) (.50) (.53) (.53) (.55) (.55) (.60) (.63) (.76)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS.......... (0.45) (.48) (.50) (.53) (.53) (.55) (.55) (.60) (.63) (.76)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE,
END OF PERIOD................ $ 8.36 $ 9.41 $ 8.67 $ 8.46 $ 8.19 $ 8.23 $ 8.06 $ 8.14 $ 8.81 $ 9.02
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN*.................. (6.4)% 14.3% 8.6% 10.0% 6.2% 9.2% 6.0% (0.9)% 5.0% 7.0%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(to nearest thousand)........ $55,492 $68,102 $60,171 $63,932 $65,265 $73,333 $85,469 $107,471 $143,635 $101,295
Ratio of net expenses to
average net assets........... 1.0% 0.9% 0.9% 0.9% 0.9% 1.0% 1.2% 1.1% 1.1% 1.2%
Ratio of net investment
income to average net assets. 5.2% 5.2% 5.9% 6.3% 6.6% 6.7% 6.9% 7.1% 7.2% 8.1%
Portfolio turnover rate........ 36.1% 56.3% 48.5% 38.3% 40.3% 21.5% 38.8% 18.0% 26.0% 55.0%
</TABLE>
- ------------------
* The Portfolio's sales charge is not reflected in total return as set
forth in the table.
-9-
<PAGE> 13
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
S&P 100 PLUS PORTFOLIO
--------------------------------------------------------------------------------------------------
For the
period from
December 20,
1985
(commencement
For the years ended December 31, of operations)
------------------------------------------------------------------------------------ to December 31,
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
---- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD.......... $15.04 $14.01 $14.22 $11.60 $12.27 $10.11 $9.62 $10.43 $9.42 $9.35
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income........ .25 .21 .24 .27 .28 .26 .26 .33 .38 .03
Net realized and
unrealized gains (losses)
on investments............. (.09) 1.14 .48 2.93 (.67) 2.17 1.37 .14 1.03 .04
----- ---- ----- ----- ----- ----- ---- ----- ---- ----
TOTAL FROM INVESTMENT
OPERATIONS................. .16 1.35 .72 3.20 (.39) 2.43 1.63 .47 1.41 .07
----- ---- ----- ----- ----- ----- ---- ----- ---- ----
LESS DISTRIBUTIONS:
Dividends from net
investment income.......... (.25) (.21) (.24) (.27) (.28) (.26) (.26) (.33) (.36) -
Distributions from
net realized gains
on investments............. - (.11) (.69) (.31) - (.01) (.88) (.95) (.04) -
----- ---- ----- ----- ----- ----- ---- ----- ---- ----
TOTAL DISTRIBUTIONS.......... (.25) (.32) (.93) (.58) (.28) (.27) (1.14) (1.28) (.40) -
----- ---- ----- ----- ----- ----- ---- ----- ---- ----
NET ASSET VALUE,
END OF PERIOD................ $14.95 $15.04 $14.01 $14.22 $11.60 $12.27 $10.11 $ 9.62 $ 10.43 $ 9.42
====== ====== ====== ====== ====== ====== ====== ====== ======= =======
TOTAL RETURN**................. 1.1% 9.7% 5.2% 27.8% (3.2)% 24.3% 17.1% 4.1% 16.0% -%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(to nearest thousand)........ $40,034 $38,944 $30,025 $27,420 $20,413 $20,811 $16,960 $18,752 $9,826 $2,666
Ratio of net expenses to
average net assets........... 1.2% 1.2% 1.3% 1.3% 1.3%+ 1.3%+ 1.4%+ 0.6%+ -% -%
Ratio of net investment
income to average
net assets................... 1.7% 1.4% 1.7% 2.0% 2.4%+ 2.3%+ 2.5%+ 2.7%+ 3.7%+ 3.4%*
Portfolio turnover rate........ 1.0% 2.2% 8.5% 3.1% 1.9% 3.0% 37.5% 54.3% 12.8% -%
</TABLE>
- ----------------------------
* Annualized.
** The Portfolio's sales charge is not reflected in total return as set
forth in the table.
+ Reflects a voluntary reimbursement of expenses of 0.2% in 1990, 0.4% in
1989, 0.8% in 1988, 1.7% in 1987 and 3.7% in 1986.
-10-
<PAGE> 14
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
SELECT VALUE PORTFOLIO
-------------------------------
For the period from
August 23, 1994
(commencement of operations) to
December 31, 1994
-------------------------------
<S> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD............. $ 9.55
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.......................... .04
Net realized and unrealized gains (losses)
on investments............................... (.51)
-----
TOTAL FROM INVESTMENT OPERATIONS............... (.47)
-----
LESS DISTRIBUTIONS:
Dividends from net investment income........... (.03)
Distributions from net realized gains
on investments............................... (.01)
Book return of capital......................... (.01)
-----
TOTAL DISTRIBUTIONS............................ (.05)
-----
NET ASSET VALUE, END OF PERIOD................... $ 9.03
======
TOTAL RETURN**................................... (5.0)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (to nearest thousand).. $1,935
Ratio of net expenses to average net assets ..... 0.8%*+
Ratio of net investment income to average
net assets..................................... 1.1%*+
Portfolio turnover rate.......................... 20.2%
</TABLE>
- --------------------------
* Annualized.
** The Portfolio's sales charge is not reflected in total return as set
forth in the table.
+ Reflects a voluntary reimbursement of expenses of 0.4% in 1994.
-11-
<PAGE> 15
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
DIVIDEND ACHIEVERS PORTFOLIO
--------------------------------------------------------------------------
For the years ended December 31,
--------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD....................... $13.40 $14.25 $14.84 $11.50 $11.65 $10.00 $8.99 $9.55
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................... .18 .14 .14 .25 .25 .28 .28 .28
Net realized and unrealized gains (losses)
on investments ......................... (.02) (.85) .31 4.14 (.15) 1.65 1.06 (.56)
----- ----- ----- ----- ----- ----- ---- -----
TOTAL FROM INVESTMENT OPERATIONS.......... .16 (.71) .45 4.39 .10 1.93 1.34 (.28)
----- ----- ----- ----- ----- ----- ---- -----
LESS DISTRIBUTIONS:
Dividends from net
investment income........................ (.18) (.14) (.14) (.25) (.25) (.28) (.27) (.28)
Distributions from net realized gains
on investments.......................... (.14) - (.90) (.80) - - (.06) -
----- ----- ----- ----- ----- ----- ---- -----
TOTAL DISTRIBUTIONS....................... (.32) (.14) (1.04) (1.05) (.25) (.28) (.33) (.28)
----- ----- ----- ----- ----- ----- ---- -----
NET ASSET VALUE, END OF PERIOD.............. $ 13.24 $ 13.40 $ 14.25 $ 14.84 $ 11.50 $ 11.65 $ 10.00 $ 8.99
======= ======= ======= ======= ======= ======= ======= ========
TOTAL RETURN**.............................. 1.2% (5.0)% 3.1% 38.5% 1.0% 19.5% 15.0% (3.2)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(to nearest thousand).................... $20,231 $24,928 $27,020 $18,202 $11,468 $12,750 $6,854 $6,796
Ratio of net expenses to
average net assets....................... 1.5% 1.3%+ 1.2%+ 1.2%+ 1.2%+ 1.2%+ 1.2%+ 0.6%+
Ratio of net investment income to average
net assets................................ 1.3% 1.0%+ 1.0%+ 1.8%+ 2.3%+ >2.6%+ 2.9%+ 2.7%+
Portfolio turnover rate..................... 36.5% 92.7% 83.0% 96.5% 47.7% 30.9% 10.1% 10.5%
</TABLE>
- ----------------------
** The Portfolio's sales charge is not reflected in total return as set
forth in the table.
+ Reflects a voluntary reimbursement of expenses of 0.1% in 1993, 0.1% in
1992, 0.2% in 1991, 0.5% in 1990, 0.7% in 1989, 1.7% in 1988 and 2.3%
in 1987.
-12-
<PAGE> 16
FINANCIAL HIGHLIGHTS (Continued)
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
--------------------------------------------------------
For the
period from
July 1, 1992
For the years ended December 31, (commencement
-------------------------------- of operations) to
1994 1993 December 31, 1992
------ ------ -----------------
<S> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD............ $10.29 $10.44 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income......................... .37 .30 .13
Net realized and unrealized gains (losses)
on investments.............................. (.44) (.15) .45
----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS.............. (.07) .15 .58
----- ----- -----
LESS DISTRIBUTIONS:
Dividends from net investment income.......... (.37) (.30) (.13)
Distributions from net realized gains
on investments.............................. - - (.01)
------ ----- ------
TOTAL DISTRIBUTIONS........................... (.37) (.30) (.14)
------ ----- ------
NET ASSET VALUE, END OF PERIOD.................. $ 9.85 $ 10.29 $ 10.44
====== ====== ======
TOTAL RETURN**.................................. (0.7)% 1.5% 5.8%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (to nearest thousand). $10,255 $18,099 $17,408
Ratio of net expenses to average net assets..... 1.2%+ 1.3%+ 1.3%*
Ratio of net investment income to average
net assets.................................... 3.7%+ 2.9%+ 2.6%*
Portfolio turnover rate......................... 13.7% 30.8% 16.6%
</TABLE>
- ----------------------
* Annualized.
** The Portfolio's sales charge is not reflected in total return as set
forth in the table.
+ Reflects a voluntary reimbursement of expenses of 0.3% in 1994 and 0.1%
for 1993.
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<PAGE> 17
INVESTMENT OBJECTIVES
The following is a brief description of the investment objectives and
policies of each Portfolio. Certain instruments and techniques discussed in
this summary are described in greater detail under "Investment Program" in
this Prospectus and in the Statement of Additional Information. There can be no
assurance that the investment objective of any Portfolio will be achieved.
The Statement of Additional Information contains specific investment
restrictions which govern the investments of each Portfolio. Certain of these
restrictions and each Portfolio's investment objective are fundamental
policies, which means that they may not be changed without a majority vote of
shareholders of that Portfolio. All other investment policies and practices may
be changed without shareholder approval. The fundamental restrictions
applicable to the Portfolios include a prohibition on purchasing a security,
other than a "U.S. Government Security"(as defined below) or a security
necessary to approximate the composition of an index, if as a result more than
5% of the total assets of the Portfolio would be invested in the securities of
the issuer, or if the Portfolio would own more than 10% of the outstanding
voting securities of the issuer.
Each Portfolio is subject to a number of additional investment restrictions
which are described in the section of the Statement of Additional Information
entitled "Investment Restrictions." Among these restrictions are that no
Portfolio may borrow money or property except for temporary or emergency
purposes. If a Portfolio borrows money it will only borrow from banks and in an
amount not exceeding 10% of the market value of its total assets (not including
the amount borrowed). No Portfolio will pledge more than 15% of its net assets
to secure such borrowings. In the event a Portfolio's borrowing exceeds 5% of
the market value of its total assets, the Portfolio will not invest in any
additional securities until its borrowings are reduced to less than 5% of total
assets. For purposes of these restrictions, collateral arrangements for premium
and margin payments in connection with the hedging activities of a Portfolio
are not deemed to be a pledge of assets.
GOVERNMENT PORTFOLIO
The investment objective of this Portfolio is to obtain the highest total
return consistent with preservation of principal through investments in U.S.
Government Securities.
INSURED TAX-EXEMPT PORTFOLIO
The investment objective of this Portfolio is to obtain the highest total
return consistent with 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. It is a fundamental policy of the Portfolio to have at least 80% of
its net assets invested in tax-exempt securities and at least 80% of its total
assets in securities covered by insurance, under normal conditions.
TAX-EXEMPT PORTFOLIO
The investment objective of this Portfolio 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 20 years. It
is a fundamental policy of the Portfolio to invest at least 90% of its total
assets in tax-exempt municipal securities, under ordinary circumstances.
Substantially all of the Portfolio's interest income is intended to be exempt
from federal income taxes, but may be subject to state and local taxes. Any
capital gain will be subject to federal income tax and may be subject to state
and local taxes. See "Tax Status."
S&P 100 PLUS PORTFOLIO
The investment objective of this Portfolio is to obtain a total return from
dividends and unrealized and realized capital gains from stocks and options
which exceeds that of the S&P 100 Index by investing in a portfolio of common
stocks which approximately parallels the composition of the S&P 100 Index and
by engaging in various portfolio
-14-
<PAGE> 18
strategies involving the use of options contracts to attempt to enhance
total return and hedge protectively against adverse changes in stock market
values. It is not the Portfolio's intention to replicate the S&P 100 Index at
all times. The S&P 100 Index was designed to track closely the S&P 500 Index,
which is designed to be representative of the stock market as a whole. There
have been some significant variances in recent years in the correlation between
the S&P 100 and S&P 500 Indices and between the S&P 500 Index and the broad
market for large capitalization common stocks. There can be no assurance that
any index will correlate precisely to the stock market as a whole over any
specific period of time, or that the S&P 100 Plus Portfolio's performance will
parallel that of either of these Indices or the stock market generally.
The S&P 100 Index was created by the Chicago Board Options Exchange (CBOE)
in 1983 with stocks selected from the optionable equities traded on that
exchange. These 100 stocks include many large U.S. corporations. Exxon
Corporation, Wal-Mart Stores, Inc., General Electric Co., Coca Cola Company and
American Telephone and Telegraph Company are five of the largest components of
the index. A complete list of the stocks currently comprising the S&P 100
Index is included as Appendix A to this Prospectus. The total market value of
the stocks which comprise the S&P 100 Index was approximately 25.8% of the
market value of the securities traded on the New York Stock Exchange as of
December 31, 1993.
SELECT VALUE PORTFOLIO
The Select Value Portfolio seeks to obtain maximum capital appreciation
primarily through investments in common stocks that the Advisors consider
undervalued relative to earnings, book value or potential earnings growth. The
Portfolio pursues its investment objective generally by investing in smaller
and medium-sized companies, although the Portfolio is not restricted to
investments in companies of any particular size. Smaller companies have market
capitalizations of less than $400 million, and medium-sized companies have
market capitalizations ranging from $400 million to $2 billion. Market
capitalization is calculated by multiplying the total number of a company's
outstanding common shares by the per share market price of such shares.
DIVIDEND ACHIEVERS PORTFOLIO
The investment objective of this Portfolio is to obtain capital
appreciation and income through investment in a portfolio of common stocks of
companies that have achieved a superior record of dividend growth. Because
stocks with a record of superior dividend growth are frequently accorded a
market premium, they will generally not carry a high yield.
BALANCED PORTFOLIO
The investment objective of the Balanced Portfolio is to realize a
combination of income and capital appreciation which will result in the highest
total return consistent with the preservation of principal. In order to achieve
this objective, the Balanced Portfolio will invest in a diversified portfolio
of common stocks, debt or other fixed income securities. Under normal
conditions, the Balanced Portfolio will maintain approximately 45-55% of its
assets in common stocks, although this percentage may range from 35% to 65%
depending on market circumstances. The remainder of the Balanced Portfolio will
be invested in debt or other fixed income securities, with at least 25% of its
assets invested in fixed income senior securities, and the Advisors will
maintain a cash or cash equivalent position deemed appropriate by them in
relation to requirements of the Balanced Portfolio and market conditions.
INVESTMENT PROGRAM
OVERVIEW
This section contains a general description of the investment program and
other investment practices of each Portfolio. Further information is contained
in the Statement of Additional Information. Shareholders will be notified prior
to implementation of any material change in a Portfolio's investment program.
-15-
<PAGE> 19
GOVERNMENT PORTFOLIO
To achieve its objective of obtaining the highest total return consistent
with preservation of principal, this Portfolio will invest in U.S. Government
Securities. These securities are issued with original maturities of from a few
days to 30 years or more, and with varying coupon rates. Although the Portfolio
is not limited as to the average maturity of its bonds, the Advisors believe
that an average maturity of five to ten years is most consistent with the
Portfolio's investment objective. The Advisors have indicated that the
Portfolio's average maturity will be maintained in this range unless and until
market conditions warrant a change and advance notice has been provided to
shareholders. Under normal conditions, the Portfolio does not intend to
purchase zero coupon bonds. However, to the extent such bonds may be utilized,
they would involve greater price volatility than interest bearing bonds of
comparable maturities and would result in taxable income without actual cash
distributions. Under normal market conditions at least 65% of the Portfolio's
assets will be invested in U.S. Government Securities. This Portfolio may also
enter into forward commitments for the purchase of U.S. Government Securities,
may make short sales of securities already owned to defer realization of a gain
for Federal income tax purposes and may lend its portfolio securities. See
"Lending of Portfolio Securities"and "Other Investment Practices" below.
INSURED TAX-EXEMPT PORTFOLIO
The Portfolio seeks to obtain its objective by investing primarily in
municipal securities, such as general obligation, revenue and industrial
development bonds. The timely payment of principal and interest of each
municipal security in the Portfolio is either insured under a policy obtained
for such securities prior to their purchase by the Portfolio or is insured
under one or more policies obtained by the Portfolio, except for certain
temporary short-term investments, money market fund investments, U.S.
Government Securities or securities collateralized by U.S. Government
Securities. Substantially all of the Portfolio's interest income is intended
to be exempt from federal income taxes, but may be subject to state and local
taxes. Any capital gain will be subject to federal income tax and may be
subject to state and local tax. See "Tax Status."
Each municipal security in which the Insured Tax-Exempt Portfolio invests
will be covered by one of the insurance policies described below. Although each
insurer's quality standards may vary from time to time, generally such insurers
insure only those municipal securities that are rated at the date of purchase:
(1) in the case of long-term debt, in the four highest ratings of S&P (AAA, AA,
A and BBB) or Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa, A and
Baa); (2) in the case of short-term notes, SP-1 through SP-2 by S&P or MIG 1
through MIG 4 by Moody's; or (3) in the case of tax-exempt commercial paper,
A-1 through A-2 by S&P or Prime-1 through Prime-2 by Moody's. Any insurer may
also insure lower rated or unrated municipal securities that meet the insurer's
standards. The Portfolio may invest, without any limitation as to rating
category, in any securities for which it obtains insurance coverage. For a
description of such ratings, see "Description of Ratings of Certain Fixed
Income Securities" in the Statement of Additional Information. The cost of
insurance on the Portfolio will reduce the Portfolio's yield. The insurance
obtained by the Portfolio does not, of course, insure against fluctuations in
the net asset value of the Portfolio. The Portfolio may also enter into forward
commitments for the purchase of municipal securities, may make short sales of
securities already owned to defer realization of a gain or loss for federal
income tax purposes and may lend its portfolio securities. See "Lending of
Portfolio Securities" and "Other Investment Practices" below.
Timely payment of all principal and interest of each municipal security in
the Portfolio is either insured under a policy obtained for such securities
prior to their purchase by the Portfolio or under one or more policies obtained
by the Portfolio to cover otherwise uninsured securities. The Portfolio expects
to limit its purchases of preinsured securities to those insured by Financial
Guaranty Insurance Company ("Financial Guaranty"), Municipal Bond Insurance
Association or Bond Investors Guaranty Insurance Company or another insurer
whose claims-paying ability is rated "AAA" by both S&P and Moody's at the
time of purchase. In addition, the Portfolio has obtained a policy (the
"Portfolio Policy") from Financial Guaranty to insure all of the Portfolio's
otherwise uninsured municipal securities (except
-16-
<PAGE> 20
for certain temporary short-term investments, money market fund investments,
U.S. Government Securities or securities collateralized by U.S. Government
Securities). No representation is made as to any insurer's ability to meet its
commitments.
Each policy provides, in general, that in the event of nonpayment of
interest or principal, when due, in respect of an insured municipal security,
the insurer is obligated to make such payment on the date when the payment is
due, after it has been notified by the Portfolio that such nonpayment has
occurred.
Insurance on preinsured securities is generally obtained by the issuer of
the municipal securities at the time of issuance and all premiums
respecting such securities for their lives are paid in advance by the issuer.
Such insurance is noncancelable and will continue in force so long as the
municipal securities are outstanding and the insurer remains in business. The
insurance will generally have a positive effect on the resale value of the
insured securities, although its exact effect, if any, cannot be estimated.
The Portfolio Policy obtained by the Portfolio from Financial Guaranty on
non-preinsured securities is effective only so long as the Portfolio is in
existence, the insurer is still in business and the municipal securities
described in the policy continue to be held by the Portfolio. However, the
Portfolio Policy grants the Portfolio a noncancelable option to insure any
security covered by the Portfolio Policy to maturity, upon sale of the security
from the Portfolio.
The Secondary Market Policy. The Portfolio may also purchase from Financial
Guaranty a secondary market insurance policy (a "Secondary Market Policy") on
any municipal obligations currently covered by the Portfolio Policy regardless
of the then existing credit status or rating of the issuer of the security. The
coverage and obligation to pay monthly premiums under the Portfolio Policy
would cease with respect to any obligation with the purchase by the Portfolio
of a Secondary Market Policy.
The Secondary Market Policy insures against nonpayment of scheduled
principal and interest for the remaining term of the municipal obligation,
regardless of whether the Portfolio then owns such obligation. The lump sum
premium under this policy is fixed at the time the municipal obligation
is first insured under the Portfolio Policy. The insurance is noncancelable and
continues in force so long as the municipal obligations so insured are
outstanding.
The Secondary Market Policy would enable the Portfolio to sell a municipal
obligation to a third party as a AAA/Aaa rated insured obligation at a market
price higher than might otherwise be obtainable if the obligation were sold
without the insurance coverage. (Such rating is not automatic, however, and
must specifically be requested for each obligation.)
Because coverage under the Portfolio Policy terminates upon the Portfolio's
sale of a municipal security insured thereunder, such insurance does not have
an effect on the resale value of such security. Therefore, except to the extent
the Portfolio purchases insurance under a Secondary Market Policy, it is the
Portfolio's intention to retain any insured securities which are in default or
in significant risk of default, and to place a value on the insurance which
will be equal to the difference between the market value of similar obligations
which are not in default. Because of this practice, the Advisors may be unable
to manage the Portfolio to the extent that it holds defaulted securities, which
may limit its ability in certain circumstances to purchase other securities. An
insured security that is in default may be an illiquid security and will be
held by the Portfolio subject to the Portfolio's policy on illiquid securities.
See "Investment Restrictions" in the Statement of Additional Information.
Financial Guaranty is a wholly-owned subsidiary of FGIC Corporation, a
Delaware holding company. FGIC Corporation is a wholly-owned subsidiary of
General Electric Capital Corporation. Neither FGIC Corporation nor General
Electric Capital Corporation is obligated to pay the debts of or claims against
Financial Guaranty. Financial Guar-
-17-
<PAGE> 21
anty is domiciled in the State of New York and is subject to regulation
by the State of New York Insurance Department. As of December 31, 1994, the
total capital and surplus of Financial Guaranty was approximately $893.7
million. Copies of Financial Guaranty's financial statements, prepared on the
basis of statutory accounting principles, and FGIC Corporation's financial
statements, prepared on the basis of generally accepted accounting principles,
may be obtained by writing to Financial Guaranty at 115 Broadway, New York, New
York 10006, Attention: Communications Department (telephone: 212/312-3000) or
to the New York State Insurance Department at 160 West Broadway, 18th Floor, New
York, New York 10013, Attention: Property Companies Bureau (telephone:
212/621-0389).
The policy of insurance obtained by Principal Preservation from Financial
Guaranty and the agreement and negotiations in respect thereof represent the
only relationship between Financial Guaranty and the Fund. Otherwise, neither
Financial Guaranty nor its parent, or any affiliate thereof has any significant
relationship, direct or indirect, with Principal Preservation.
TAX-EXEMPT PORTFOLIO
This Portfolio will invest primarily in municipal securities rated at the
time of purchase in an "A" category or higher by Moody's, S&P or by Fitch
Investors Service, Inc. For a description of such ratings, see "Description of
Ratings of Certain Fixed Income Securities" in the Statement of Additional
Information. The Portfolio's bonds will generally consist of municipal
securities with remaining maturities of two to 20 years. The Portfolio may also
enter into forward commitments for the purchase of municipal securities, may
make short sales of securities already owned to defer realization of a gain or
loss for federal income tax purposes and may lend its portfolio securities. See
"Lending of Portfolio Securities" and "Other Investment Practices" below.
S&P PLUS PORTFOLIO
This Portfolio invests in the common stocks which make up the S&P 100
Index, in the same relative proportion as the stocks in the index
comprise the index. For example, at December 31, 1994, Exxon comprised
approximately 5.38% of the S&P 100 Index, and it is the intention of this
Portfolio to invest the same percentage of its common stock interests in Exxon.
The Advisors will attempt to match the S&P 100 Index as closely as is
economically feasible, given the higher transaction costs of trading common
stocks in less than 100 share lots. Portfolio purchases in approximately $4.7
million increments will allow the companies with the lowest index weighting to
be bought in 100 share lots. The Portfolio does not select the stocks in the
index, and as the composition of the index changes, so will the underlying
portfolio of common stocks in the Portfolio. As soon as practicable after
receipt of notification of changes in the S&P 100 Index (either as to the
securities comprising the index or the percentage of total composition
represented by particular securities), the Advisors will attempt to adjust the
composition of the Portfolio in a similar manner. Although the Advisors will
actively manage the hedging activities of this Portfolio, the stock portion may
be considered unmanaged in that it will reflect the composition of the S&P 100
Index. Under normal market conditions, at least 65% of this Portfolio's total
assets will be invested in the common stocks which make up the S&P 100 Index.
The S&P 100 Plus Portfolio may write (sell) covered call options and put
options and may purchase call options and put options on individual stocks and
stock indices for the purposes and subject to the limitations described herein.
The Portfolio may seek to enhance its return by writing covered call options or
purchasing put options with respect to some or all of the individual stocks
held in its portfolio. Through the purchase of call and put options with
respect to individual stocks, the Portfolio may at times protectively hedge
against an increase in the price of securities which the Portfolio plans to
purchase or against a decline in the value of securities owned by the
Portfolio. Whenever the Portfolio does not own securities underlying on open
option position sufficient to cover the position, the Portfolio will maintain
in a segregated account with its depository cash or cash equivalents sufficient
to cover the market value of the open position. Although such hedging
strategies are intended to reduce fluctuations in the Portfolio's net asset
value, the Portfolio nonetheless anticipates that its net asset value will
fluctuate to some degree. Expenses and losses incurred as a result of such
transactions could reduce the Portfolio's return.
-18-
<PAGE> 22
The Portfolio may also engage in options transactions on securities indices
as a strategy to hedge against declines in the index (and thereby to hedge
against a similar decline in its portfolio) and to enhance the Portfolio's
return through premium income. The success of these strategies and gains and
losses on investments in options depend on the Advisors' ability to predict
correctly the direction of movement in stock prices and other economic factors.
While the Portfolio has open index option positions, it will maintain in a
segregated account with its depository cash or cash equivalents sufficient to
cover the market value of its open positions in accordance with the practices
of the exchanges on which the options are traded. Those practices generally
will require that the value of the open positions be determined daily and that
the amount of the segregated account be adjusted accordingly. For a more
detailed description of the Portfolio's option activities and strategies, as
well as limitations and restrictions applicable thereto, see "Option
Activities" below.
This Portfolio also may make short sales of securities already owned and
may lend its portfolio securities. See "Lending of Portfolio Securities" and
"Other Investment Practices" below.
This Portfolio is not sponsored, endorsed, sold or promoted by the
Standard & Poor's Corporation ("S&P"). S&P makes no representation or
warranty, implied or expressed, to the shareholders of the Portfolio, or any
member of the public regarding the advisability of investing in index funds
generally, or in this Portfolio particularly, or the ability of the S&P Index to
track general stock market performance. S&P's only relationship to this
Portfolio is the licensing of the S&P trademarks and S&P 100 which is
determined, composed and calculated by S&P without regard to this Portfolio.
"Standard & Poor's," "Standard & Poor's 100," "S&P," "S&P 100" and "100" in
connection with the S&P 100 are trademarks of Standard & Poor's Corporation.
SELECT VALUE PORTFOLIO
The Portfolio pursues its investment objective generally by investing in
smaller sized companies, having market capitalizations of less than $400
million, and medium-sized companies, having market capitalizations ranging from
$400 million to $2 billion. Although the Portfolio is not restricted to any
particular investments, companies in which the Portfolio invests do business in
a cross-section of industries and generally fall into one of the following
three categories:
1. A company that the Advisors believe will achieve above average growth
in revenues and earnings, but that is selling at a price/earnings ratio at or
below the average for the Standard & Poor's 500 Stock Index.
2. A company that has experienced problems leading to a depressed stock
price where the Advisors believe that there is a reasonable likelihood that the
company's operations will improve.
3. A company that does not fall into the above categories, but because of
special circumstances appears undervalued and consequently offers potential for
appreciation.
The Portfolio is ordinarily substantially fully invested and, under normal
market conditions, at least 65% of the Portfolio's total assets will be
invested in common stocks of domestic issuers. The Portfolio may also invest up
to 5% of its total assets directly in securities of foreign issuers not
publicly traded in the United States, and may invest without regard to this
restriction in securities of foreign issuers represented by American Depository
Receipts (ADRs), which are receipts issued by an American bank or trust company
and traded on national securities exchange evidencing ownership of the
underlying foreign securities, and equity securities issued by Canadian
issuers. The Portfolio may invest up to 35% of its total assets in
high-quality, fixed-income securities and short-term investments. The Portfolio
also may invest up to 5% of its net assets in warrants for the purchase of
equity securities in which the Portfolio may invest.
-19-
<PAGE> 23
The Portfolio employs a value-oriented style of investing, which from time
to time is more or less favored by investors compared to a strategy focusing on
investment in growth-oriented stocks. Although value investing has been less
favored over the past several years, in the Advisors' judgment the advantage of
value-oriented stocks over growth-oriented stocks is greater than usual during
periods of economic recovery. During periods of economic weakness, growth-
oriented stocks may provide solid earnings growth despite the difficult
economic environment, but as the economy improves, many investors are reluctant
to pay a premium for high-priced growth stocks when lower-priced stocks that
are also showing good earnings growth are available.
Smaller and medium-sized company stocks as a group may outperform or
underperform larger capitalization stocks as a group over various periods. For
example, large capitalization stocks generally outperformed smaller
capitalization stocks for most of the mid to late 1980s through 1990. However,
smaller capitalization stocks were the best performing category of equity
securities in 1991, rewarding investors in smaller capitalization stocks for
the greater risk inherent in such stocks. The performance cycle of medium
capitalization stocks tends to mirror that of smaller capitalization stocks,
but with less pronounced peaks and troughs (meaning somewhat lower gains, but
also reduced volatility.)
The performance advantage of smaller capitalization stocks has historically
been greatest in periods of recovery after economic weakness. Comparing stock
performance during and immediately after the last six economic recessions,
smaller capitalization stocks have outperformed larger capitalization stocks by
a margin of nearly two to one. When coupled with a value-oriented investment
strategy, the advantage has historically been even greater.
High-quality, fixed-income securities in which the Portfolio may invest are
limited to those securities which are rated at the time of purchase within the
two highest rating categories assigned by Moody's Investors Service, Inc. or
Standard & Poor's Corporation, or securities which are unrated, provided that
such securities are judged by the Advisors, at the time of purchase, to be of
comparable quality to securities rated within such two highest categories. See
the Statement of Additional Information for a description of these securities
ratings. General characteristics of fixed-income securities are described
under "Special Considerations - Debt or Other Fixed Income Securities" in
this Prospectus.
The Portfolio may invest in short-term investments in management of cash
receipts, for liquidity for anticipated redemptions, to meet its cash flow
needs to enable the Portfolio to take advantage of buying opportunities or
during periods when, in the opinion of the Advisors, attractive equity
investments are unavailable. The Portfolio may increase its position in
short-term investments for temporary defensive purposes, such as when the
securities markets or economic conditions are expected to enter a period of
decline, but will not invest more than 35% of its total assets in short-term
investments at any one time. Short-term investments in which the Portfolio may
invest are discussed in more detail under "Special Considerations - Short-Term
Instruments." The Portfolio will only invest in short-term investments which,
in the opinion of the Advisors, present minimal credit and interest rate risk,
especially when it is investing in such securities for temporary defensive
purposes.
Other instruments in which the Select Value Portfolio may invest, including
foreign securities, repurchase agreements, loans of portfolio securities and
short sales of securities, as well as, special considerations associated with
those investments, are discussed below. See "Investment Program - Other
Investment Practices" and "Special Considerations."
DIVIDEND ACHIEVERS PORTFOLIO
The Portfolio invests primarily in common stocks of companies with a superior
record of dividend growth. Such companies typically have strong balance
sheets. In addition to providing an income stream from dividend payments, the
Advisors believe that the market values of these stocks will increase over time
because anticipated future dividend growth is typically reflected in increased
market prices. Generally, the Portfolio limits its investments to the common
-20-
<PAGE> 24
stocks of companies that have increased their payment of cash dividends
annually for at least eight of the past ten calendar years, and which have a
compound annual dividend growth of at least 10% per year over that ten-year
period. As of December 31, 1994, approximately 280 companies traded on the New
York or American Stock Exchange or quoted in the NASDAQ National Market System
met these criteria. Depending on the availability of stocks meeting these
criteria, market conditions or portfolio diversification, the Portfolio may
invest in the common stocks of other companies with either a superior record of
dividend growth or that have a demonstrated earnings growth and potential to
pay dividends at a superior rate.
The Portfolio also intends to invest a portion of its assets in liquid
reserves to meet cash flow requirements. Under normal conditions, the Portfolio
anticipates that such reserves will not exceed 20% of total assets. The
Portfolio may increase its reserves for temporary defensive purposes or to
enable it to take advantage of buying opportunities. The Portfolio's reserves
will be invested in money market instruments, including U.S. Government
Securities, certificates of deposit, banker's acceptances, commercial paper and
short-term corporate debt securities.
The Portfolio may seek to enhance income by writing covered call options or
purchasing put options with respect to some or all of its portfolio of common
stocks, but has no present intention to do so. See "Option Activities" below.
This Portfolio may also make short sales of securities already owned and lend
its portfolio securities. See "Lending of Portfolio Securities" and "Other
Investment Practices" below.
BALANCED PORTFOLIO
To achieve the objective of this Portfolio, the Advisors will vary the mix
of common stocks and debt or other fixed income securities from time to time in
a manner that, in the Advisors' judgment, is most likely to maximize total
return, given the Advisors' assessment of the existing and anticipated general
market and economic conditions, changes in yields or interest rates, and
changes in existing fiscal or monetary policies. The Advisors will seek to
invest in common stocks of corporations that have quality balance sheets,
strong management, a high return on assets and long term continued growth of
dividends and earnings.
The Balanced Portfolio's investments in debt or other fixed income
securities may include corporate notes, bonds and debentures,
mortgage-backed securities, short term money market instruments and U.S.
Government Securities. Generally, the Portfolio will limit its investment in
debt securities to those which are rated in one of the three highest categories
by a Nationally Recognized Statistical Rating Organization or are U.S.
Government Securities. The Balanced Portfolio will not invest or hold more than
5% of its assets in non-investment grade debt securities either through the
purchase of such securities or the downgrading of securities already held by the
Portfolio.
The Balanced Portfolio may also invest in variable rate demand notes which,
at the date of investment, are rated in the two highest rating categories by a
Nationally Recognized Statistical Rating Organization, or, if unrated, are
issued by a corporation with outstanding debt with an equivalent or better
rating at the time of investment. Variable rate demand notes are unsecured
obligations redeemable upon notice that permit investment of fluctuating
amounts at varying rates of interest pursuant to direct arrangements with the
issuer. The Balanced Portfolio may also invest in preferred stocks or in
debentures or other fixed-income securities that are convertible into or
otherwise carry rights to acquire common stock.
In order to protect against loss, the Advisors have adopted policies with
respect to the quality of debt or other fixed income securities in which the
Balanced Portfolio may invest. Those policies rely in part on ratings assigned
to such securities, or to other debt securities of the issuer, by a Nationally
Recognized Statistical Rating Organization. For a description of such ratings
systems, see "Description of Ratings of Certain Fixed Income Securities" in
the Statement of Additional Information. The Balanced Portfolio will generally
invest only in debt securities which, at the time of purchase, are rated in one
of the top three rating categories by a Nationally Recognized Statistical
Rating Organiza-
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<PAGE> 25
tion. In the event a debt security held in the Balanced Portfolio is downgraded
to a rating below the lowest category permitted by this policy, the
Advisors will consider this fact together with other circumstances in
determining whether to continue to hold the security. However, downgrading alone
will not require the sale of the security, subject to the Portfolio's policy
that it will not invest in, or hold, more than 5% of its assets in non-
investment grade debt securities.
This Portfolio also may make short sales of securities already owned, may
lend its portfolio securities, and may enter into repurchase agreements. See
"Lending of Portfolio Securities" and "Other Investment Practices" below.
Because of the Balanced Portfolio's diversification of investments among
equity and debt securities, the Advisors believe the Balanced Portfolio is an
appropriate investment for individual retirement accounts, pension and profit
sharing plans, and similar retirement accounts.
OPTION ACTIVITIES
General. The financial markets have become increasingly volatile in recent
years. The Advisors believe it is possible to minimize the adverse affects of
those fluctuations and intend to use options on certain stock indices and
individual stocks with respect to the S&P 100 Plus Portfolio. Options on
individual stocks also may be utilized by the Dividend Achievers Portfolio, but
the Advisors have no plans to do so at this time.
Description of Options. The S&P 100 Plus and Dividend Achievers Portfolios
may write (sell) covered call options and buy covered put options on individual
stocks held in their portfolios. The S&P 100 Plus Portfolio may also engage in
similar options transactions on stock indices and short-term securities, and
may purchase call options and write (sell) put options on individual stocks and
stock indices. Put and call options for various stocks and stock indices are
traded on registered securities exchanges. The Advisors expect to use an index
option other than the S&P 100 Index or the S&P 500 Index only if the exchange
on which the S&P options are traded is closed, there is insufficient liquidity
in the options, or if the Portfolio or the Advisors reach exchange position
limits.
Put and call options on a securities index are similar to options on an
individual stock. The principal difference is that an option on a securities
index is settled only in cash. The exercising holder of an index option,
instead of receiving a security, receives the difference between the closing
price of the securities index and the exercise price of the option times a
specified multiple ($100 in the case of the S&P 100 Index).
Risks Associated With Options. The option activities in which the S&P 100
Plus and Dividend Achievers Portfolios may engage expose those Portfolios to
certain risks described below. To minimize these risks, each Portfolio will
limit its option activities so that no more than 5% of its net assets will be
invested at any time in premiums and margins associated with its open option
positions. Additionally, whenever a Portfolio does not own securities
underlying an open option position sufficient to cover the position, the
Portfolio will maintain in a segregated account with its depository cash or
cash equivalents sufficient to cover the market value of its open option
positions. The cash and cash equivalents in such segregated accounts will be
adjusted daily to reflect changes in the market value of the open option
positions in accordance with the practices of the exchanges on which the
options are traded.
The ability of a Portfolio to engage in option activities may be limited by
certain income tax considerations. For example, the limitation on the
percentage of gross income which a Portfolio may realize from transactions in
securities held for less than three months (see "Tax Status") may restrict
the Portfolio's ability to effect transactions in securities held for less than
that period. Therefore, risks may result from changes in market conditions
which differ substantially from those anticipated by the Advisors when option
positions are established, and a Portfolio's ability to adjust its securities
holdings to react to such changes may be limited.
Option activities involve transaction costs consisting of brokerage
commissions and premiums. These costs will reduce the yield of a Portfolio.
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<PAGE> 26
Options transactions by a Portfolio involve the risks that the Portfolio
may be unable at times to close out its positions, that transactions may not
accomplish their purpose because of imperfect market correlations, that, in
hedging transactions, the price movements in the securities underlying the
options may not follow the price movements of the portfolio securities subject
to the hedge, or that the market will move in a direction that makes the option
positions unprofitable.
The effective use of options transactions is dependent, among other things,
on the Portfolio's ability to close out option positions at times when the
Advisors deem it desirable to do so. Although the Portfolio will enter into
options positions only if the Advisors believe that a liquid secondary market
exists for such options, there is no assurance that the Portfolio will be able
to effect closing transactions at any particular time or at an acceptable
price. The Portfolio generally expects that its options transactions will be
conducted on registered securities exchanges. It is impossible to predict the
amount of trading interest that may exist in various types of options. No
Portfolio will engage in options transactions for leveraging purposes.
The securities exchanges have established limitations governing the maximum
number of options which may be utilized by an investor or group of investors
acting in concert. It is possible that the Portfolios and other clients of the
Advisors may be considered to be such a group. These position limits may
restrict a Portfolio's ability to purchase or sell options on a particular
security.
Price movements in a Portfolio may not correlate perfectly with movements
in the level of the index because of the potential inability of the Portfolio to
match the weightings of its securities precisely to the index the Portfolio is
tracking, because the Portfolio's securities may be substantially different
than the securities which are reflected in the index, and because of the
transaction costs which accompany purchases and sales of actual stock
positions.
LENDING OF PORTFOLIO SECURITIES
Each Portfolio may lend its portfolio securities to brokers, dealers and
other institutional investors, provided the Portfolio 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. For the purposes of this policy,
a Portfolio 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 Portfolio to be the equivalent of cash. During
the term of the loan, the Portfolio is entitled to receive interest and other
distributions paid on the loaned securities, as well as any appreciation in the
market value. The Portfolio is also entitled to receive interest from the
institutional borrower based on the value of the securities loaned. The
Portfolio seeks to increase its income by investing the cash collateral
received on the loan. From time to time, a Portfolio may return to the
borrower, and/or a third party which is unaffiliated with Principal
Preservation and which is acting as a "placing broker," a part of the
interest earned from the investment of the collateral received for securities
loaned.
A lending Portfolio does not have the right to vote the securities loaned
during the existence of the loan, but can call the loan to permit voting of the
securities if, in the Advisors' judgment, a material event requiring a
shareholder vote would otherwise occur before the loan is repaid. In the event
of bankruptcy or other default of the borrowing institution, the lending
Portfolio could experience delays in liquidating the loan collateral or
recovering the loaned securities, and incur risk of loss including: (1)
possible decline in the value of the collateral or in the value of the
securities loaned during the period while the lending Portfolio seeks to
enforce its rights thereto; (2) possible subnormal levels of income and lack of
access to income during this period; and (3) expenses of enforcing its rights.
To minimize these risks, the Advisors evaluate and continually monitor the
creditworthiness of the institutional borrowers to which the lending Portfolio
lends its securities.
To minimize the foregoing risks, each Portfolio's securities lending
practices are subject to the following conditions and restrictions: (1) no
Portfolio may make such loans in excess of 33% of the value of its total
assets; (2) the lending Portfolio must receive cash collateral in an amount at
least equal to 100% of the value of the securities loaned; (3) the
institutional borrower must be required to increase the amount of the cash
collateral whenever the market value
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<PAGE> 27
of the loaned securities rises above the amount of the collateral; (4)
the lending Portfolio must have the right to terminate the loan at any time; (5)
the lending Portfolio must receive reasonable interest on the loan, as well as
any interest or other distributions on the loaned securities and any increase in
the market value of the loaned securities; and (6) the lending Portfolio may not
pay any more than reasonable custodian fees in connection with the loan.
OTHER INVESTMENT PRACTICES
To earn additional income, any of the Portfolios may make short sales of
already owned securities, certain of the Portfolios may enter into forward
commitments and the Select Value and Balanced Portfolios may enter into
repurchase agreements.
Short Sales "Against-the-Box." The Portfolios may make short sales of
securities or maintain a short position, provided that at all times when a
short position is open the Portfolio owns an equal amount of such securities of
the same issue as, and equal in amount to, the securities sold short, and that
not more than 10% of the Portfolio's net assets (determined at the time of
short sale) may be held as collateral for such sales. It is the present
intention of management to make such sales only to defer realization of gain or
loss for federal income tax purposes.
Forward Commitments. Both Tax-Exempt Portfolios, the Government Portfolio
and the Balanced Portfolio may purchase securities for future delivery, which
may increase the Portfolio's overall investment exposure if the value of the
securities declines. The Portfolios plan not to engage in forward commitment
transactions if, after such purchase, more than 5% of the Portfolio's net
assets would consist of such securities. See "When-Issued and Delayed Delivery
Transactions"in the Statement of Additional Information.
Repurchase Agreements. The Select Value and Balanced Portfolios may enter
into repurchase agreements, however the Advisors do not intend to invest more
than 5% of the total assets of either Portfolio in such instruments.
Repurchase agreements involve the acquisition by the Portfolio of an underlying
debt instrument, subject to the obligation of the seller (a bank or securities
dealer) to repurchase, and the Portfolio to sell, the security at the same
price plus an amount equal to an agreed upon interest rate within a specified
time, usually less than one week. The Portfolios may, on occasion, invest in
repurchase agreements with maturities in excess of seven days. The
participating Portfolio could suffer a loss and increased expense in connection
with the sale of the underlying security if the seller does not repurchase the
security in accordance with the terms of the repurchase agreement. To minimize
the risk of loss, each Portfolio will require continual maintenance of
collateral (in cash or U.S. Government Securities) held by the Portfolio's
depository in an amount equal to, or in excess of, the market value of the
securities which are subject to the repurchase agreement.
SPECIAL CONSIDERATIONS
COMMON STOCKS
As discussed above, some of the Portfolios will invest a portion of their
assets in common stock and securities convertible into common stocks. The
market for such securities tends to be cyclical, with alternating periods of
rising and falling market prices.
An investment in the Select Value Portfolio may involve an above average
degree of risk because of its concentration in common stocks of smaller and
medium-sized companies, which tend to be more volatile and less liquid than
stocks of large companies. Smaller and medium-sized companies, as compared to
larger companies, may have shorter histories of operations, may not have as
great an ability to raise additional capital, may have a less diversified
product line making them susceptible to market pressure, and may have a smaller
public market for their shares. However, an attempt is made to minimize the
risk through portfolio diversification and the use of a stock selection
strategy that emphasizes undervalued stocks, many of which have already
declined in price.
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<PAGE> 28
Securities owned by the Select Value Portfolio may be traded in the over-
the-counter market or on a regional securities exchange and may not be traded
every day or in the volume typical of securities traded on a national securities
exchange. As a result, disposition by the Select Value Portfolio of portfolio
securities to meet redemptions by shareholders or otherwise may require the
Portfolio to sell these securities at a discount from market prices, to sell
during periods when such disposition is not desirable, or to make many small
sales over a lengthy period of time.
DEBT OR OTHER FIXED INCOME SECURITIES
The total return earned on a Portfolio's debt or other fixed income
securities will consist of the change in the net asset value per share of the
Portfolio attributable to changes in the market value of such securities,
together with the per share income generated by those securities. The net asset
value of fixed income securities will be affected primarily by changes in
interest rates, average maturities and the investment and credit quality of the
securities in the Portfolio.
A bond's yield reflects the fixed annual interest as a percent of its
current price (the same concept is true for other debt and fixed income
securities). This price (the bond's market value) must increase or decrease in
order to adjust the bond's yield to current interest rate levels. Therefore,
bond prices generally move in the opposite direction of interest rates. As a
result, interest rate fluctuations will affect the net asset value of the fixed
income securities held by a Portfolio, but will not affect the income received
by the Portfolio from its existing fixed income securities. However, changes in
prevailing interest rates will affect the yield on shares subsequently issued by
the Portfolio. In addition, such fluctuations would affect the income received
on any variable rate demand notes or other variable rate securities held by the
Portfolio.
Movements in interest rates typically have a greater effect on the prices
of longer term bonds than those with shorter maturities. The following table
illustrates the effect of a 1% change in interest rates on a $1,000 bond with a
7% coupon.
<TABLE>
<CAPTION>
Principal Value if Rates:
Maturity Increase 1% Decrease 1%
-------- ----------- --------------
<S> <C> <C> <C>
Intermediate Bond ............. 5 years $959 $1,043
Long-term Bond ................ 20 years $901 $1,116
</TABLE>
The Advisors will manage the debt securities in each Portfolio according to
their assessment of the interest rate outlook. During periods of rising
interest rates, the Advisors will likely attempt to shorten the average
maturity of the Portfolio to cushion the effect of falling bond prices on the
Portfolio's share prices. When interest rates are falling and bond prices are
increasing, on the other hand, the Advisors will likely seek to lengthen the
average maturity.
Certain mortgage-backed securities which may be purchased by the Balanced
Portfolio provide for a prepayment privilege and for amortized payments of both
interest and principal over the term of the security. The yield on the original
investment in such securities applies only to the unpaid principal balance, as
the Balanced Portfolio must reinvest the periodic payments of principal at
prevailing market interest rates which may be higher or lower than the rate on
the original security. Thus, a prepayment may require the Balanced Portfolio to
reinvest at lower yields than were received from the original investment. If
these instruments were purchased at a premium in the market, and if prepayment
occurs, such prepayments will be at par or stated value, which will result in
reduced return on such transactions.
SHORT-TERM INSTRUMENTS
Short-term instruments in which the Select Value and Balanced Portfolios
may invest include U.S. Treasury bills or other U.S. Government or Governmental
agency or instrumentality obligations; certificates of deposit; banker's
acceptances and time deposits; high quality commercial paper, variable rate
demand notes, repurchase agreements and other short-term high grade corporate
obligations; and shares of money market mutual funds. A variable rate demand
note is issued pursuant to a written agreement between the issuer and the
holder, its amount may from time to time be increased by the holder (subject to
an agreed maximum), or decreased by the holder
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<PAGE> 29
or the issuer, the rate of interest payable on the security varies with
an agreed formula and the security is typically rated by a rating agency.
Transfer of such notes is usually restricted by the issuer, and there is no
secondary trading market for such notes. Neither Portfolio will purchase such
variable rate demand notes unless, at the time of purchase, the issuer has
unsecured debt securities outstanding that are ranked within the two highest
categories by a Nationally Recognized Statistical Rating Organization or, if
rated, the notes fall within such categories.
To the extent either Portfolio invests in shares of money market mutual
funds, investment management and administrative fees, distribution costs and
other operating expenses incurred by those funds would be duplicative of those
incurred by the Portfolio, and would reduce the return received by the
Portfolio on assets so invested. Neither Portfolio may invest more than 10% of
the Portfolio's total assets in securities of other investment companies. See
"Investment Program - Investments in Other Investment Companies" in the
Statement of Additional Information.
FOREIGN SECURITIES
The Select Value Portfolio may invest a portion of its assets in securities
of foreign issuers not publicly traded in the United States, as well as ADRs
and securities of Canadian issuers. Investments in foreign securities involve
certain inherent risks, such as exchange rate fluctuations, political, social
or economic instability of the country of issue, adverse diplomatic
developments, the possible imposition of exchange controls, confiscatory taxes
or expropriation, decreased liquidity, greater price volatility, less publicly
available information and lack of uniformity in accounting, auditing and
financial reporting standards. Currency fluctuations will affect the net asset
value of foreign securities held by the Select Value Portfolio irrespective of
the performance of the underlying asset or investment.
PORTFOLIO TURNOVER
The Portfolios have not established a limit to their portfolio turnover
rate. Although no Portfolio can predict its portfolio turnover rate, it is not
expected that any of the Portfolios, other than the Government and Select Value
Portfolios, will have a portfolio turnover rate in excess of 100%. The
portfolio turnover rates for the Government and Select Value Portfolios are not
expected to exceed 200%. A high rate of portfolio turnover (in excess of 100%)
involves correspondingly greater brokerage expenses or other trading costs as
compared to a lower turnover rate, which expense must be borne by the trading
Portfolio and its shareholders. High portfolio turnover rates also may result
in the realization of substantial net short-term gains, and any distributions
resulting from such gains will be ordinary income for federal income tax
purposes. The portfolio turnover rates for each Portfolio are included in the
tables under the section of this Prospectus captioned "Financial Highlights."
OPTON ACTIVITIES
For a description of certain risks associated with option activities in
which the S&P 100 Plus and Dividend Achievers Portfolios may engage, see
"Investment Program - Option Activities - Risks Associated With Options."
MANAGEMENT
DIRECTORS AND OFFICERS
The Board of Directors of Principal Preservation is responsible for
management of Principal Preservation and provides broad supervision over its
affairs. The Advisors are responsible for each Portfolio's investment
management, and Principal Preservation's officers are responsible for each
Portfolio's and Principal Preservation's overall operations.
THE ADVISORS
Each Portfolio is managed by Ziegler, 215 North Main Street, West Bend,
Wisconsin 53095, as investment advisor, pursuant to the terms of two Investment
Advisory Agreements (together the "Advisory Agreements"), one relating to the
Government, Insured Tax-Exempt, Tax-Exempt, S&P 100 Plus, Select Value and
Balanced Portfolios, and the other relating to the Dividend Achievers
Portfolio. Ziegler Asset Management, a wholly-owned subsidiary of Ziegler
located at the same address, assists with the management of all of the
Portfolios, except the S&P 100 Plus and
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<PAGE> 30
Select Value Portfolios, pursuant to the terms of a Sub-Advisory
Agreement ("Ziegler Asset Management Agreement"), by and among Principal
Preservation, Ziegler and Ziegler Asset Management. PanAgora, 260 Franklin
Street, Boston, Massachusetts 02110, assists with the management of the S&P 100
Plus Portfolio as sub-advisor pursuant to the terms of a Sub-Advisory Agreement
("PanAgora Agreement"), by and among Principal Preservation, Ziegler and
PanAgora. Mesirow, 350 North Clark Street, Chicago, Illinois 60610, assists with
the management of the Select Value Portfolio as sub-advisor pursuant to the
terms of a sub-advisory agreement ("Mesirow Agreement"), by and among Principal
Preservation, Ziegler and Mesirow. The Ziegler Asset Management, PanAgora and
Mesirow Agreements are sometimes referred to collectively as the "Sub-Advisory
Agreements."
Ziegler is registered with the Securities and Exchange Commission as an
investment advisor and securities broker-dealer and is a member of the National
Association of Securities Dealers. It has been engaged in the underwriting of
debt securities for more than 75 years. Ziegler Asset Management is registered
with the Securities and Exchange Commission as an investment advisor. On
December 31, 1994, it had more than $523 million under discretionary
management. Ziegler and Ziegler Asset Management are each wholly-owned
subsidiaries of The Ziegler Companies, Inc.
PanAgora is also registered with the Securities and Exchange Commission as
an investment advisor. On December 31, 1994, PanAgora had more than $9.5 billion
under discretionary management and $2.1 billion in non-discretionary
management. Fifty percent of the outstanding voting stock of PanAgora is owned
by Nippon Life Insurance Company; the remaining 50% is owned by Lehman
Brothers, Inc.
Mesirow also is registered with the Securities and Exchange Commission as
an investment advisor. Mesirow, including its predecessor, Delphi Capital
Management, Inc., has been engaged in the investment advisory business since
1973 and, as of December 31, 1994, managed over $879 million in assets,
including numerous institutional and individual accounts. Mesirow also serves
as an investment advisor to another registered investment company, offering two
series which have investment objectives similar to that of the Select Value
Portfolio. Mesirow is a wholly-owned subsidiary of Mesirow Financial Services,
Inc., which in turn is a wholly-owned subsidiary of Mesirow Financial Holdings,
Inc., a diversified holding company that has provided financial services to
individuals, businesses and institutions since 1937.
Registration with the Securities and Exchange Commission does not
constitute an approval or recommendation of any of the foregoing firms.
The Advisors provide the Portfolios with overall investment advisory and
administrative services. Subject to such policies as the Board of Directors may
determine, the Advisors make investment decisions on behalf of each Portfolio,
make available research and statistical data in connection therewith, and
supervise the acquisition and disposition of investments by each Portfolio,
including the selection of broker-dealers to carry out portfolio transactions.
Each of the Advisors bears all of its own expenses of providing services
under the Advisory and Sub-Advisory Agreements and pays all salaries, fees and
expenses of the officers and Directors of Principal Preservation who are
affiliated with them. The Portfolios bear all other expenses including, but not
limited to, necessary office space, telephone and other communications
facilities and personnel competent to perform administrative, clerical and
shareholder relations functions; salary, fees and expenses (including legal
fees) of those Directors, officers and employees of Principal Preservation who
are not officers, directors or employees of any of the Advisors; interest
expenses; fees and expenses of the Depository, Transfer Agent and Dividend
Disbursing Agent; administrative expenses; taxes and governmental fees;
brokerage commissions and other expenses incurred in acquiring or disposing of
portfolio securities, expenses of registering and qualifying shares for sale
with the Securities and Exchange Commission and with various state securities
commissions; accounting and legal costs; insurance premiums; expenses of
maintaining Principal Preservation's legal existence and of shareholders'
meetings; expenses of preparation and distribution to existing
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<PAGE> 31
shareholders of reports, proxies and prospectuses; and fees and expenses
of membership in industry organizations. Fees common to more than one Portfolio
are prorated among them based on their total assets.
Under the Advisory Agreements, each Portfolio pays Ziegler an annual fee,
in monthly installments, based on the average daily net assets of the Portfolio.
Pursuant to the terms of the Sub-Advisory Agreements, Ziegler pays Ziegler
Asset Management, PanAgora, or Mesirow, as the case may be, a portion of the
advisory fee it receives from each Portfolio. While the advisory fees of the
S&P 100 Plus, Select Value and Dividend Achievers Portfolios are higher than
the fees paid by most mutual funds, Principal Preservation's Board of Directors
believes they are consistent with the fees paid by funds with investment
characteristics and objectives similar to those Portfolios. The chart below
sets forth the rates of the advisory and sub-advisory fees.
<TABLE>
<CAPTION>
ADVISORY FEES
PAID BY THE PORTFOLIO SUB-ADVISORY FEES
PORTFOLIOS AND NET ASSETS TO ZIEGLER PAID BY ZIEGLER (1)
------------------------- --------------------- -------------------
<S> <C> <C>
Government, Insured Tax-Exempt and
Tax-Exempt Portfolios:
a. First $50 million in net assets ......... 0.60 of 1% 0.18 of 1%
b. Next $200 million in net assets ......... 0.50 of 1% 0.15 of 1%
c. Net assets in excess of $250 million .... 0.40 of 1% 0.12 of 1%
S&P 100 Plus Portfolio:
a. First $20 million in net assets ......... 0.75 of 1% (2)
b. Next $30 million in net assets .......... 0.50 of 1%
c. Next $50 million in net assets .......... 0.40 of 1%
d. Next $400 million in net assets ......... 0.35 of 1%
e. Net assets in excess of $500 million .... 0.30 of 1%
Select Value Portfolio:
a. First $250 million in net assets ........ 0.75 of 1% 0.375 of 1%
b. Net assets in excess of $250 million .... 0.65 of 1% 0.325 of 1%
Dividend Achievers Portfolio:
a. First $250 million in net assets ........ 0.75 of 1% 0.375 of 1%
b. Second $250 million in net assets ....... 0.70 of 1% 0.350 of 1%
c. Net assets in excess of $500 million .... 0.65 of 1% 0.325 of 1%
Balanced Portfolio:
a. First $50 million in net assets ......... 0.60 of 1% 0.30 of 1%
b. Next $150 million in net assets ......... 0.50 of 1% 0.25 of 1%
c. Next $50 million in net assets .......... 0.50 of 1% 0.20 of 1%
d. Net assets in excess of $250 million .... 0.40 of 1% 0.20 of 1%
</TABLE>
(1) Sub-Advisory fees are paid to Ziegler Asset Management, except for
those relating to the S&P 100 Plus and Select Value Portfolios, which are
paid to PanAgora and Mesirow, respectively.
(2) Ziegler pays PanAgora 50% of the fee it receives from the S&P 100 Plus
Portfolio (net of any applicable reimbursement by Ziegler to the Portfolio
for expenses of the Portfolio in excess of certain state limitations).
THE DISTRIBUTOR, CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
In addition to serving as an investment advisor to Principal Preservation,
Ziegler also serves as the Distributor of the shares of each Portfolio pursuant
to a Distribution Agreement; provides accounting and other administrative
services, including daily valuation of the shares of each Portfolio, pursuant
to an Accounting/Pricing Agreement; pro-
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<PAGE> 32
vides depository and custodial services with respect to the portfolio
securities of each Portfolio pursuant to a Depository Contract; and provides
transfer agent services pursuant to a Transfer and Dividend Disbursing Agency
Agreement. As discussed above, Ziegler Asset Management also serves as
Sub-Advisor to certain Portfolios of Principal Preservation. In addition,
Ziegler Thrift Trading, Inc., an affiliate of Ziegler which is a registered
broker-dealer, may effect portfolio securities transactions as agent for the
Portfolios and in that capacity receives brokerage commissions from the
Portfolio. See "Portfolio Transactions and Brokerage."
The Distribution Agreement appointing Ziegler as Principal Preservation's
Distributor provides that Ziegler is entitled to receive a commission on its
sales of the shares of each Portfolio at the rate disclosed in Principal
Preservation's current Prospectus (see "Purchase of Shares"). Out of these
commissions, Ziegler allows Selected Dealer discounts (which are alike for all
Selected Dealers) from the applicable public offering price. The Distribution
Agreement continues from year to year if it is approved annually by Principal
Preservation's Board of Directors, including a majority of those Directors who
are not interested persons of Principal Preservation, or by a vote of the
holders of a majority of the outstanding shares. The Distribution Agreement may
be terminated at any time by either party on 60 days written notice and will
automatically terminate if assigned. Principal Preservation also reimburses
Ziegler for certain expenditures incurred by it in connection with the
distribution of Principal Preservation's shares pursuant to a Distribution Plan
adopted under Rule 12b-1 of the 1940 Act. See "Distribution Expenses."
The Accounting/Pricing Agreement provides that Ziegler is entitled to
receive a fee for accounting services provided thereunder at an annual
rate of .03 of 1% of a Portfolio's total assets of $30 million but less than
$100 million, .02 of 1% of a Portfolio's total assets of $100 million but less
than $250 million and .01 of 1% of a Portfolio's total assets of $250 million or
more, with a minimum fee of $19,000 per Portfolio per year, plus expenses. The
Depository Contract provides that Ziegler is entitled to receive compensation
deemed reasonable by the Board of Directors of Principal Preservation for
services provided thereunder. The rate of compensation is currently set at .055
of 1% of the first $10 million of Principal Preservation's assets, .03 of 1% of
the next $40 million of Principal Preservation's assets, .016 of 1% of the next
$200 million of assets, and .015 of 1% of assets in excess of $250 million. The
Transfer and Dividend Disbursing Agency Agreement provides that Ziegler is
entitled to receive compensation deemed reasonable by the Board of Directors of
Principal Preservation for services provided thereunder. The rate of
compensation is currently set at $13.50 per account for the Tax-Exempt, Insured
Tax-Exempt and Government Portfolios and $8.50 per account for the S&P 100 Plus,
Select Value, Dividend Achievers and Balanced Portfolios. Principal Preservation
also reimburses Ziegler for all out-of-pocket expenses incurred in providing
such services. As Transfer and Dividend Disbursing Agent, Ziegler may also
collect certain fees from shareholders as disclosed in this Prospectus.
THE PORTFOLIO MANAGERS
Mr. Vern C. VanVooren has managed the investment of the assets of the Tax-
Exempt, Government and Insured Tax-Exempt Portfolios since their inceptions in
July, 1984, December, 1985 and December, 1986, respectively. He is a member of
the Ziegler Asset Management Investment Committee and serves as a Bond
Portfolio Manager for Ziegler Asset Management.
Mr. William G. Zink has managed the investment of the assets of the S&P 100
Plus Portfolio since May, 1991. Mr. Zink is a Senior Equity Manager with
PanAgora, and has served in this capacity since PanAgora's origin in 1991.
Investment decisions for the Select Value Portfolio are made by a team of
investment professionals and analysts employed by Mesirow. Mesirow has served
as sub-advisor to the Portfolio since the commencement of its operations in
August, 1994. Its team is headed by Mr. Kenneth S. Kailin, the portfolio
manager. Mr. Kailin is a vice president, analyst and portfolio manager with
Mesirow, having joined the firm in 1987. Mr. Kailin also serves as portfolio
manager of another registered investment company which has an investment
objective, policies and restrictions similar to those of the Select Value
Portfolio. Mr. Kailin's investment team includes Mr. Stephen G. Gaber,
managing director
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and chief operating officer of Mesirow, and Mr. William M. Dutton, executive
vice president, securities analyst and portfolio manager with Mesirow, who
together have had over 40 years of investment experience.
Since January, 1992, Mr. R. Douglas Ziegler has managed the investment of
the assets of the Dividend Achievers Portfolio. Mr. Ziegler is the Chairman of
the Board of both Ziegler and Ziegler Asset Management, and also is a director
and the President of Principal Preservation.
Mr. Ralph F. Patek has managed the investment of the assets of the Balanced
Portfolio since its inception in July, 1993. Mr. Patek has served as a Vice
President, Portfolio Manager for Ziegler Asset Management since July, 1993, and
is a Chartered Financial Analyst.
DETERMINATION OF NET ASSET VALUE PER SHARE
Net asset value per share of each Portfolio is determined by subtracting
the Portfolio's liabilities (including accrued expenses and dividends
payable) from the Portfolio's total assets (the value of the securities the
Portfolio holds plus cash or other assets, including interest accrued but not
yet received) and dividing the result by the total number of shares outstanding.
The net asset value per share will be calculated every week day, Monday through
Friday, except on customary national business holidays which result in closing
of the New York Stock Exchange (the "Exchange"). The calculation is as of the
close of trading on the Exchange (4:00 p.m. New York time) for the S&P 100 Plus,
Select Value, Dividend Achievers and Balanced Portfolios, 2:30 p.m. New York
time for the Tax- Exempt Portfolios, and 3:00 p.m. New York time for the
Government Portfolio.
PURCHASE OF SHARES
Orders received by the Distributor or a Selected Dealer prior to the close
of business on the Exchange will be invested at the net asset value computed on
that day. Orders received after the close of trading on the Exchange will be
invested at the net asset value determined as of the close of trading on the
Exchange on the next business day. Except as described below, the minimum
initial investment is $1,000, and the minimum additional investment is $50.
Exchanges between Portfolios, reinvestments of distributions from a Portfolio
or distributions from various unit investment trusts sponsored by Ziegler,
reinvestments of interest and/or principal payments on bonds issued by Ziegler
Mortgage Securities, Inc. II and reinvestments of interest payments on bonds
underwritten by Ziegler are not subject to the $50 minimum additional
investment requirement. The minimum initial investment for individual
retirement accounts (IRAs), Keogh plans, self-directed retirement plan accounts
and custodial accounts under the Uniform Gifts/Transfers to Minors Act is $500
and the minimum additional investment is $25. For minimum requirements for
investments made through an automatic investment plan, see "Shareholder
Services - Systematic Purchase Plan."
Shares may be purchased by investors at net asset value plus a sales charge
as set forth below. None of the Portfolios will 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, along with a completed account
application, or through a Selected Dealer.
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Shares may be purchased by investors at net asset value plus a sales charge
(expressed as a percentage of the offering price and of the net amount
invested) as follows:
<TABLE>
<CAPTION>
PUBLIC OFFERING NET AMOUNT SELECTED DEALER
SIZE OF INVESTMENT PRICE INVESTED REALLOWANCE*
------------------ --------------- ---------- --------------
<S> <C> <C> <C>
FOR THE S&P 100 PLUS, SELECT VALUE,
DIVIDEND ACHIEVERS AND BALANCED PORTFOLIOS:
Less than $50,000 ..................... 4.50% 4.71% 4.00%
$50,000 but less than $100,000 ......... 4.00% 4.17% 3.50%
$100,000 but less than $250,000 ........ 3.50% 3.63% 3.00%
$250,000 but less than $500,000 ........ 3.00% 3.09% 2.60%
$500,000 but less than $1,000,000 ...... 2.50% 2.56% 2.20%
$1,000,000 or more .................... 0.00% 0.00% 0.00%
FOR THE GOVERNMENT, INSURED TAX-EXEMPT AND
TAX-EXEMPT PORTFOLIOS:
Less than $25,000 ...................... 3.50% 3.63% 3.00%
$25,000 but less than $50,000 ......... 3.00% 3.09% 2.75%
$50,000 but less than $100,000 ......... 2.50% 2.56% 2.25%
$100,000 but less than $250,000 ........ 2.00% 2.04% 1.75%
$250,000 but less than $500,000 ........ 1.50% 1.52% 1.25%
$500,000 but less than $1,000,000 ...... 1.00% 1.01% 1.00%
$1,000,000 or more .................... 0.00% 0.00% 0.00%
</TABLE>
- -----------------------
*In addition to the Selected Dealer Reallowance shown above, the
Distributor may pay an additional commission to participating dealers and
participating financial institutions acting as agent for their customers
in an amount up to the difference between the sales charge and the
Selected Dealer Reallowance in respect of the shares sold. No reallowance
applies to purchases of $1 million or more. The Distributor may offer
additional compensation in the form of trips, merchandise or entertainment
as sales incentives to Selected Dealers. The Distributor's sales
representatives may not qualify to participate in some of these incentive
compensation programs and the Distributor may offer similar incentive
compensation programs in which only its own sales representatives qualify
to participate. In addition to the amount paid to Selected Dealers, the
Distributor may from time to time pay an additional concession to a
Selected Dealer which employs a registered representative who sells,
during a specific period, a minimum dollar amount of shares. In no event
will such additional concession paid by the Distributor to the Selected
Dealer exceed the difference between the sales charge and the Selected
Dealer Reallowance in respect of shares sold by the qualifying registered
representative. Selected Dealers who receive a concession may be deemed to
be "underwriters" in connection with sales by them of such shares and in
that capacity they may be subject to the applicable provisions of the
Securities Act of 1933.
Banks, acting as agents for their customers and not for any Portfolio or
the Distributor, from time to time may purchase Portfolio shares for the
accounts of such customers. Generally, the Glass-Steagall Act prohibits
banks from engaging in the business of underwriting, selling or distributing
securities. Should the activities of any bank, acting as agent for its customers
in connection with the purchase of the shares of any Portfolio, be deemed to
violate the Glass-Steagall Act, management will take whatever action, if any, is
appropriate in order to provide efficient services for the Portfolio. Management
does not believe that a termination in the relationship with a bank would result
in any material adverse consequences to the Portfolio. In addition, state
securities laws on this issue may differ, and banks and financial institutions
may be required to register as dealers pursuant to state law. Investors should
be aware that the shares of the Portfolios are not deposits or obligations of,
or guaranteed or endorsed by, any bank, and are not insured or guaranteed by the
U.S. Government, the Federal Deposit Insurance Corporation, the Federal Reserve
Board, or any other federal agency.
Reduced Sales Charges. There are several ways to pay a lower sales charge.
One is to increase the initial investment to reach a higher discount level. The
above scale is applicable to initial purchases of Principal Preservation
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shares by any "purchaser." The term "purchaser" includes (1) an
individual, (2) an individual, his or her spouse and their children under the
age of 21 purchasing shares for his or her own accounts, (3) a trustee or other
fiduciary purchasing shares for a single trust estate or single fiduciary
account, (4) a pension, profit-sharing, or other employee benefit plan qualified
or non-qualified under Section 401 of the Internal Revenue Code, (5) tax-exempt
organizations enumerated in Section 501(c)(3) or (13) of the Code, (6) employee
benefit plans qualified under Section 401 of the Code of a single employer or
employers who are "affiliated persons" of each other within the meaning of
Section 2(a)(3)(c) of the Act, or (7) any other organized group of persons,
whether incorporated or not, provided the organization has been in existence for
at least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount.
Another way to pay a lower sales charge is for a "purchaser" to add to his
investment so that the current offering price value of his shares plus the new
investment, reach a higher discount level. For example, if the current offering
price value of the shares held by a shareholder in the Portfolios equals
$100,000, the shareholder will pay a reduced sales charge on additional
purchases of shares. If the shareholder invested an additional $100,000, the
sales charge would be 3.5% on that additional investment. A shareholder's
holdings in all Portfolios which have a sales charge will be aggregated in
determining the break-point at which he is entitled to purchase in any
Portfolio.
A third way is for a "purchaser" to sign a non-binding statement of
intention to invest $50,000 or more over a 13 month period in any one or
combination of Principal Preservation Portfolios which have a sales charge. If
the purchases are completed during that period, each purchase will be at a
sales charge applicable to the aggregate of the shareholder's intended
purchases. Under terms set forth in the statement of intention, shares valued
at 5% of the amount of intended purchase are escrowed and will be redeemed to
cover the additional sales charge payable if the statement is not completed.
Any remaining shares held in escrow will be released to the purchaser. A
purchaser will continue to earn dividends and capital gains distributions
declared by a Portfolio with respect to shares held in escrow.
Group Purchases. A reduced sales charge is also available to members of a
qualified group. The sales charge for such persons is calculated by taking into
account the aggregate dollar value of shares of all Principal Preservation
shares sold subject to a sales charge being purchased or currently held by all
members of the group. Further information on group purchases is contained in
"Purchase of Shares" in the Statement of Additional Information.
To receive the benefit of the reduced sales charge, the shareholder must
inform Principal Preservation, Ziegler or the Selected Dealer that the
shareholder qualifies for such a discount.
PURCHASES AT NET ASSET VALUE
Shares may be purchased at net asset value (that is, without a sales
charge) by a purchaser purchasing at least $1 million of shares or the
value of whose account at the time of purchase is at least $1 million if the
purchase is made through a Selected Dealer who has executed a dealer agreement
with the Distributor. The term "purchaser" has the meaning described in "Reduced
Sales Charges,"above. The Distributor may make a payment or payments, out of its
own funds, to the Selected Dealer in an amount not to exceed 0.75 of 1% of the
amount invested. All or a part of such payment may be conditioned on the monies
remaining invested with Principal Preservation for a minimum period of time.
Any pension, profit sharing or other employee benefit plan qualified under
Section 401 of the Internal Revenue Code may also purchase shares at net asset
value. If such a plan purchases shares of any of the Portfolios through a
Selected Dealer, the Distributor may make a payment or payments, out of its own
funds, to the Selected Dealer in an amount not to exceed 0.75 of 1% of the
amount invested.
Any state, county, or city, or any instrumentality, department, authority
or agency thereof, that purchases at least $500,000 of shares or the value of
whose account at the time of purchase is at least $500,000 also qualifies to
purchase shares without a sales charge.
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<PAGE> 36
Shares may also be purchased at net asset value when payment for those
shares represents the proceeds from the redemption of shares of another
mutual fund which charges a sales charge and which is not part of Principal
Preservation. A purchase of shares of Principal Preservation may be made at net
asset value under this provision regardless of whether the sales charge was paid
on the shares redeemed in the unrelated fund, but the redemption of those shares
must have occurred no more than 60 days prior to the purchase of shares of
Principal Preservation. The Distributor may make a payment or payments, out of
its own funds, to Selected Dealers effecting such exchanges, in an amount not to
exceed 0.50 of 1% of the amount invested. All or a part of such payment may be
conditioned upon the monies remaining invested with Principal Preservation for a
minimum period of time. Shares of Principal Preservation in addition to those
qualifying for purchase at net asset value under this provision may be purchased
at net asset value plus the normal sales charge.
Shares may also be purchased at net asset value by: Directors and officers
of Principal Preservation (including shares purchased jointly with or
individually by any such person's spouse and shares purchased by any such
person's children or grandchildren under age 21); employees of Ziegler,
Selected Dealers, PanAgora and Mesirow, and the trustee or custodian under any
pension or profit-sharing plan established for the benefit of the employees of
any of the foregoing. The term "employee" includes an employee's spouse
(including the surviving spouse of a deceased employee), parents, children and
grandchildren under age 21, and retired employees. Shares may also be
purchased with a reduced sales charge of 0.50 of 1% by directors of The Ziegler
Companies, Inc. who are not also employees of Ziegler.
Shares may also be purchased without a sales charge upon the reinvestment
of distributions from any Principal Preservation portfolio, or investment of
distributions from various unit investment trusts sponsored by Ziegler; the
reinvestment of principal or interest payments on bonds issued by Ziegler
Mortgage Securities, Inc. II; or the reinvestment of interest payments on bonds
underwritten by Ziegler.
REDEMPTIONS
You may have any or all of your shares redeemed as described below on any
day Principal Preservation is open for business at the net asset value next
determined. See "Determination Of Net Asset Value Per Share." If the order is
received prior to the close of the Exchange the redemption will be at the net
asset value calculated that day. If not, you will receive the net asset value
calculated as of the close of trading on the next business day.
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. At your request, 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. See "Redemptions - Sending
Redemption Proceeds - By Wire."
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, as
Principal Preservation's transfer agent (the "Transfer Agent"), 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 assume some risk for unauthorized transactions by establishing the
telephone redemption services. The Transfer Agent has 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 the Transfer Agent,
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<PAGE> 37
Principal Preservation, or any of their employees fails to abide by
these procedures, Principal Preservation may be liable to a shareholder for
losses the shareholder suffers from any resulting unauthorized transaction(s).
However, none of the Transfer Agent, Principal Preservation or any of their
employees will be liable for losses suffered by a shareholder 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
Transfer Agent: (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 shareholders; (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 Transfer Agent will redeem shares when it has received all necessary
documents. You will be notified promptly by the Transfer Agent if your
redemption request cannot be accepted. The Transfer Agent 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 Transfer Agent at 800-826-4600.
Signature Guarantees. To protect you, the Transfer Agent and Principal
Preservation from fraud, signature guarantees are required for certain
redemptions. Signature guarantees enable the Transfer Agent to be sure that you
are the person who has authorized a redemption from your 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, unless you designated the bank as
an authorized recipient of the wire on your account application or subsequent
authorization form and such application or authorization includes a signature
guarantee; (3) any redemptions by mail if the proceeds are to be sent to an
address for the shareholder that has been changed within the past thirty (30)
days; (4) authorizations to redeem by telephone; and (5) requests to transfer
the registration of shares to another owner. These requirements may be waived
by Principal Preservation in certain instances.
The Transfer Agent will accept signature guarantees from all institutions
which are eligible to provide them under federal or state law. 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 Transfer Agent will not send redemption
proceeds until all payments for the shares being redeemed have cleared, which
may take up to 15 days from the purchase date of the shares.
By Mail. The Transfer Agent 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 Transfer Agent 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 Transfer Agent currently deducts a $7.50
wire charge from the redemption proceeds. This charge is subject to change. You
will be responsible for any charges which your bank may make for receiving
wires.
Redemption Through Securities Brokers. Shares can also be redeemed through
a securities dealer, who may charge a fee.
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Conditions on Redemptions. If, due to redemption, your account in a
Portfolio drops below $500 for three months or more, the Portfolio has
the right to redeem your account, after giving 60 days' written notice, unless
you make additional investments to bring the account value to $1,000 or more.
Principal Preservation may suspend the right to redeem shares of one or
more of the Portfolios for any period during which: (1) the Exchange is closed
or the Securities and Exchange Commission determines that trading on the
Exchange is restricted; (2) there is an emergency as a result of which it is not
reasonably practical for the Portfolio(s) to sell its securities or to
calculate the fair value of its net assets; or (3) the Securities and Exchange
Commission may permit for the protection of the shareholders of the
Portfolio(s).
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 a Portfolio to pay for all redemptions in cash. In such cases,
the Board may authorize payment to be made in securities or other property of a
Portfolio. However, the Portfolios have obligated themselves under the 1940
Act to redeem for cash all shares presented for redemption by any one
shareholder up to $250,000 (or 1% of a Portfolio's net assets if that is less)
in any 90-day period. Securities delivered in payment of redemptions would be
valued at the same value assigned to them in computing the net asset value per
share. Persons receiving such securities would incur brokerage costs when these
securities are sold.
SHAREHOLDER SERVICES
Principal Preservation offers a number of shareholder services designed to
facilitate investment in Portfolio shares. Full details of each of the
services, copies of the various plans described below and instructions as to
how to participate in the various services or plans can be obtained from
Principal Preservation, or the Distributor.
Systematic Purchase Plan. A Systematic Purchase Plan ("SPP") may be
established at any time with a minimum initial investment of $100 and minimum
subsequent monthly investments of $100. The minimum subsequent monthly
investment is reduced to $50 for IRAs, Keogh plans, self-directed retirement
plan accounts and custodial accounts under the Uniform Gifts/Transfers to
Minors Act until your account balance reaches $500, after which the minimum is
further reduced to $25. The minimum subsequent investment is also reduced to
$50 for all other accounts with balances of $1,000 or more. By participating in
the SPP, you may automatically make purchases of Principal Preservation shares
on a regular, convenient basis. Under the SPP, your bank or other financial
institution honors preauthorized debits of a selected amount drawn on your
account each month and applied to the purchase of Principal Preservation
shares. The SPP can be implemented with any financial institution that will
accept the debits. There is no service fee for participating in the SPP. An
application and instructions on establishing the SPP are available from your
registered representative, the Distributor or Principal Preservation.
Periodic Withdrawal Plan. You may establish a periodic withdrawal plan if
you own or purchase shares having a current offering price value of at least
$10,000 in a single Portfolio (except no such minimum applies for distributions
from an IRA). The periodic withdrawal plan involves the planned redemption of
shares on a periodic basis by receiving either fixed or variable amounts at
periodic intervals. The minimum amount you may receive under a periodic
withdrawal plan is $150 per month. Normally, you would not make regular
investments at the same time you are receiving periodic withdrawal payments
because it is not in your interest to pay a sales charge on new investments
when, in effect, a portion of your new investment is soon withdrawn. The
minimum investment accepted while a withdrawal plan is in effect is $1,000. You
may terminate your periodic withdrawal plan at any time by written notice to
Principal Preservation or the Transfer Agent.
Reinvestment Privilege. If you redeem shares, you may reinvest all or part of
the redemption proceeds in the same Portfolio, without a sales charge, if you
send written notice to Principal Preservation or the Transfer Agent not more
than 30 days after the shares are redeemed. Your redemption proceeds will be
reinvested on the basis of net asset value of the shares in effect immediately
after receipt of the written request. You may exercise this reinvestment
privi-
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<PAGE> 39
lege only once upon redemption of your shares. Any capital gains tax you
incur on the redemption of your shares is not altered by your subsequent
exercise of this privilege. If the redemption resulted in a loss and
reinvestment is made in shares, the loss will not be recognized.
Exchange Privilege. Subject to compliance with applicable minimum
investment requirements, shares of any Principal Preservation portfolio
may be exchanged for shares of any other Principal Preservation portfolio in any
state where the exchange legally may be made. The standard sales commission
applicable to purchases of shares of the Principal Preservation portfolio into
which the exchange is being made (as disclosed in the then current prospectus
for that Principal Preservation portfolio) will be charged in connection with
the exchange, less any sales commission previously paid by the shareholder with
respect to the shares being exchanged. However, if a front-end sales commission
was previously paid with respect to the shares being exchanged and the
investment represented by such shares has been held in one or more Principal
Preservation portfolios continuously for at least one year prior to the proposed
exchange, then no additional sales commission will be charged in connection with
the exchange. Before engaging in any such exchange, a shareholder should obtain
from the Distributor and carefully read the current prospectus relating to the
Principal Preservation portfolio into which he or she intends to exchange. Such
exchanges may be subject to a service charge by the Transfer Agent (currently
$5.00).
In order to effect an exchange on a particular business day, the Transfer
Agent must receive a completed exchange authorization form or other written
instructions, signed by all account holders, no later than 3:00 p.m. Eastern
Time. Exchange authorization forms may be obtained from, and should be returned
to, the Transfer Agent at 215 North Main Street, West Bend, Wisconsin 53095.
The Transfer Agent may accept instructions from Selected Dealers, subject to
certain conditions and requirements, by wire or telephone, for the exchange of
shares held in an investor's account. Principal Preservation may amend, suspend
or revoke this exchange privilege at any time, but will provide shareholders at
least 60 days' prior notice of any change that adversely affects their rights
under this exchange privilege. Exchanges are subject to the conditions
described above under "Redemptions - Conditions on Redemptions."
An exchange of shares is considered a sale for tax purposes and you will
realize a gain or loss for federal income tax purposes.
An excessive number of exchanges may be disadvantageous to Principal
Preservation. Therefore, Principal Preservation, in addition to its right to
reject any exchange, reserves the right to terminate the exchange privilege of
any shareholder who makes more than three exchanges of shares in 12 months or
more than one exchange per calendar quarter.
Reinvestment of Distributions or Interest Payments. Unit holders of Ziegler
sponsored unit investment trusts, holders of Ziegler Mortgage Securities, Inc.
II bonds and holders of bonds underwritten by Ziegler may purchase shares of
Principal Preservation by automatically reinvesting distributions from their
unit investment trust, reinvesting principal or interest from their Ziegler
Mortgage Securities, Inc. II bonds, or reinvesting interest from the bonds
underwritten by Ziegler, as the case may be. Unit holders and bondholders
desiring to participate in this plan should contact the Distributor for further
information.
Tax Sheltered Retirement Plans. Shares of the Portfolios are available for
purchase in connection with the following tax-sheltered plans: (1) Individual
Retirement Accounts; (2) Keogh plans; (3) 401(k) Plans; and (4) 403(b) Plans
for employees of most nonprofit organizations. Detailed information concerning
these plans and prototypes of these plans and other information are available
from the Distributor. They should be carefully reviewed and considered with
your tax or financial adviser. IRA investors do not receive the benefits of
long-term capital gains treatment when funds are distributed from their
account.
For further information regarding plan administration, custodial fees and
other details, investors should contact the Distributor.
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DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND REINVESTMENTS
Dividends from net investment income will be declared daily and paid
monthly in the Government, Insured Tax-Exempt and Tax-Exempt Portfolios,
and will be declared and paid quarterly in the S&P 100 Plus, Select Value,
Dividend Achievers and Balanced Portfolios. Dividends may be taken in cash or
additional shares at net asset value (without a sales charge). You may also
direct the Transfer Agent to invest the dividends in shares of any other
Principal Preservation portfolio for which you have an account. The investment
occurs on the same day as the dividend distribution date. Unless you have
elected in writing to the Transfer Agent to receive dividends and capital gain
distributions in cash, they will be automatically reinvested in additional
shares of the relevant Portfolio.
Capital gains distributions, if any, in all Portfolios will be declared
annually and normally will be paid within 45 days after the end of the fiscal
year.
TAX STATUS
Each Portfolio intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986 (the "Code"). In order to
so qualify, each Portfolio must satisfy a number of requirements, including the
requirement that at least 90% of the Portfolio's gross income be derived from
dividends, interest and gains from the sale or other disposition of stock or
other securities. Another requirement is that less than 30% of a Portfolio's
gross income be derived from the sale or other disposition of securities held
for less than three months (netting gains and losses which are parts of
designated hedges). In determining these gross income requirements, a loss from
the sale or other disposition of securities does not enter into the
computation.
Each Portfolio will distribute substantially all of its net income and
capital gains. Regulated investment companies, in most instances, pay a
nondeductible four percent excise tax on the amount, if any, by which actual
distributions of investment income and capital gains are less than
distributions required by the Code. Principal Preservation intends to make
distributions in a manner which will avoid the excise tax. The federal income
tax status of all distributions will be reported to shareholders annually. That
part of the Tax- Exempt Portfolios' net investment income which is attributable
to interest from tax-exempt securities and which is distributed to shareholders
will be designated as an "exempt-interest dividend" under the Code. A
Portfolio's distributions are taxable when they are paid, whether a shareholder
takes them in cash or reinvests them in additional shares, except that
distributions declared in December and paid in January each year are taxable as
if paid on December 31 of the earlier year.
The exemption of exempt-interest dividends for federal income tax purposes
does not necessarily result in exemption under the tax laws of any state or
local taxing authority which vary with respect to the taxation of such dividend
income. It is possible that some states will exempt from tax that portion of
the exempt-interest dividend which represents interest received by the
Tax-Exempt Portfolios on that state's securities. Therefore, each of the
Tax-Exempt Portfolios will report annually to its shareholders the percentage
of interest income received on a state-by-state basis. You should consult with
your tax adviser regarding the extent, if any, to which exempt-interest
dividends are exempt under state laws applicable to your dividend
distributions.
A portion of the net investment income of the Government, S&P 100 Plus,
Dividend Achievers and Balanced Portfolios will qualify for the 70% dividends
received deduction for corporations.
Each series of a series company, such as Principal Preservation, is treated
as a separate entity for federal income tax purposes so that the net realized
capital gains and losses of Principal Preservation's separate portfolios are
not combined.
DESCRIPTION OF SHARES
The authorized common stock of Principal Preservation consists of one billion
shares, par value of $0.001 per share. The shares of Principal Preservation are
presently divided into nine series: Government Portfolio, Insured Tax-
-37-
<PAGE> 41
Exempt Portfolio, Tax-Exempt Portfolio, S&P 100 Plus Portfolio, Select
Value Portfolio, Dividend Achievers Portfolio, Balanced Portfolio, Wisconsin
Tax-Exempt Portfolio and Cash Reserve Portfolio, consisting of 50 million shares
in each of the first eight Portfolios and 300 million in the Cash Reserve
Portfolio. The Board of Directors of Principal Preservation may authorize the
issuance of additional series and may increase or decrease the number of shares
in each series.
Each share of Principal Preservation has one vote, and when issued and paid
for in accordance with the terms of the offering will be fully paid and
nonassessable. Each share of a series is entitled to participate pro rata in
any dividends or other distributions declared by the Board of Directors of
Principal Preservation with respect to that series, and all shares of a series
have equal rights in the event of liquidation of that series. Shares of stock
are redeemable at net asset value, at the option of the shareholder. Shares
have no preemptive, subscription or conversion rights and are freely
transferable. Shares can be issued as full shares or fractions of shares. A
fraction of a share has the same kind of rights and privileges as a full share.
Each share of each series of Principal Preservation (including each share
of each of the Portfolios) is entitled to one vote on each matter presented to
shareholders of that series. As a Maryland corporation, Principal Preservation
is not required to hold, and in the future does not plan to hold, annual
shareholder meetings unless required by law or deemed appropriate by the Board
of Directors. However, special meetings may be called for purposes such as
electing or removing Directors, changing fundamental policies or approving an
investment advisory contract. On matters affecting an individual series (such
as approval of advisory or sub-advisory contracts and changes in fundamental
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 used in the Prospectus, the phrase "majority vote" of the outstanding
shares of a series (or of Principal Preservation) means the vote of the lesser
of: (1) 67% of the shares of the Portfolio (or Principal Preservation) present
at the meeting if the holders of more than 50% of the outstanding shares are
present in person or by proxy; or (2) more than 50% of the outstanding shares
of the Portfolio (or Principal Preservation).
PORTFOLIO TRANSACTIONS AND BROKERAGE
Purchase and sale orders for portfolio securities may be effected through
brokers, although it is expected that transactions in debt securities will
generally be conducted with dealers acting as principals. Purchases and sales
of securities on a stock exchange are effected through brokers who charge a
commission for their services. Purchases and sales of securities traded over-
the-counter may be effected through brokers or dealers. Brokerage commissions
on securities and options are subject to negotiation between Principal
Preservation and the broker.
Principal Preservation will not deal with Ziegler or its affiliates in any
transaction in which they act as a principal, but to the extent and in the
manner permitted by the 1940 Act may effect brokerage transactions through
them. The Advisors may utilize the services of Ziegler or an affiliate as a
broker if the commissions, fees or other remuneration received by them are
reasonable and fair compared to the commissions, fees and other remuneration
paid to other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time. See "Portfolio Transactions and Brokerage" in the
Statement of Additional Information.
Allocation of transactions, including their frequency, to various dealers
is determined by the Advisors in their best judgment and in a manner deemed fair
and reasonable to shareholders. The primary consideration is prompt and
efficient execution of orders in an effective manner at the most favorable
price. Principal Preservation may also consider sales of shares of its various
series as a factor in the selection of broker-dealers, subject to the policy of
obtaining best price and execution.
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<PAGE> 42
DISTRIBUTION EXPENSES
In addition to the sales charge deducted at the time of purchase, each
Portfolio is authorized under a Distribution Plan (the "Plan") pursuant to
Rule 12b-1 under the 1940 Act to use a portion of its assets to finance certain
activities relating to the distribution of its shares to investors. The Plan
permits payments to be made by each Portfolio to the Distributor to reimburse
it for expenditures incurred by it in connection with the distribution of each
Portfolio's shares to investors. These payments include, but are not limited
to, payments to selling representatives or brokers as a service fee,
advertising, preparation and distribution of sales literature and prospectuses
to prospective investors, implementing and operating the Plan and performing
other promotional or administrative activities on behalf of each of the
Portfolios. Plan payments may also be made to reimburse the Distributor for its
overhead expenses related to distribution of the Portfolio's shares. No
reimbursement may be made under the Plan for expenses of the past fiscal years
or in contemplation of expenses for future fiscal years.
Under the Plan, payments presently may not exceed an amount computed at an
annual rate of 0.25 of 1% of the average daily net assets of any Portfolio.
However, with respect to the Government Portfolio, Insured Tax-Exempt
Portfolio, Tax-Exempt Portfolio, S&P 100 Plus Portfolio and Dividend Achievers
Portfolios, net assets allocated to accounts opened prior to March 1, 1991 are
excluded from the fee calculation (including assets contributed to such
accounts on or after March 1, 1991, provided the account was opened prior to
March 1, 1991). On April 27, 1995, the shareholders of those five Portfolios
approved an amendment to the Plan (the "Plan Amendment") which provides that,
commencing July 1, 1995, the fee payable by those Portfolios under the Plan
will be assessed on the Portfolio's total net assets, including net assets
allocated to accounts opened prior to March 1, 1991. As a phase-in measure, the
Advisor has committed that it will reimburse expenses to each of those
Portfolios as necessary so that, for the period commencing July 1, 1995 and
continuing through December 31, 1996, the annualized operating expenses of
those Portfolios will not exceed the following amounts, stated as a percentage
of the relevant Portfolio's average daily net assets: Government Portfolio -
1.15%; Insured Tax-Exempt Portfolio - 1.20%; Tax-Exempt Portfolio - 1.15%; S&P
100 Plus Portfolio - 1.25%; and Dividend Achievers Portfolio - 1.30%.
The Distribution Plan continues in effect, if not sooner terminated, for
successive one-year periods, provided that its continuance is specifically
approved by the vote of the Directors, including a majority of the Directors
who are not interested persons of any of the Advisors. For further information
regarding the Distribution Plan, see "Distribution Expenses" in the Statement
of Additional Information.
OTHER INFORMATION
Transfer and Dividend Disbursing Agent. B.C. Ziegler and Company, 215 North
Main Street, West Bend, Wisconsin 53095, acts as 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
Portfolios.
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 Portfolios may advertise their
"yield" and "total return." Yield is based on historical earnings and total
return is based on historical distributions; neither is intended to indicate
future performance. The "yield" of a Portfolio refers to the income generated
by an investment in that Portfolio over a one month period (which period will
be stated in the advertisement). This income is then "annualized." That is,
the amount of income generated by the investment during the month is assumed to
be generated each month over a 12-month period and is shown as a percentage of
the investment. "Total return" of a Portfolio refers to the average annual
total return for one, five and ten year periods (or so much thereof as a
Portfolio has been in existence). Total return is
-39-
<PAGE> 43
the change in redemption value of shares purchased with an initial
$10,000 investment, assuming the reinvestment of dividends and capital gains
distributions, after giving effect to the maximum applicable sales charge. In
addition, the Tax-Exempt and Insured Tax-Exempt Portfolios may advertise their
"tax equivalent yield," which is computed by dividing that portion of the
Portfolio's yield which is tax-exempt by one minus a stated income tax rate and
adding the product to that portion, if any, of the yield of the Portfolio which
is not tax-exempt. Performance information should be considered in light of the
Portfolios' investment objectives and policies, characteristics and quality of
the Portfolios and the market conditions during the time period, and should not
be considered as a representation of what may be achieved in the future. Further
information is contained in the Statement of Additional Information.
Portfolio Rating. From time to time the Portfolios may obtain and use a
rating from a nationally recognized statistical rating organization. For a
description of such ratings, see "Portfolio Ratings" in the Statement of
Additional Information.
-40-
<PAGE> 44
(This Page Intentionally Left Blank.)
-41-
<PAGE> 45
(This Page Intentionally Left Blank.)
-42-
<PAGE> 46
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
TERMS AND CONDITIONS OF GENERAL APPLICATION FORM
ADDITIONAL INVESTMENTS
After a Shareholder account is established, additional investments in the
amount of $50 or more ($25 or more for IRAs, Keogh Plans, Self-Directed
Retirement Plan Accounts, and Custodial Accounts under the Uniform
Gifts/Transfers to Minors Act) may be made to that existing account at any
time. Additional investments will be applied to the purchase of full and
fractional shares of the specified Portfolio at the public offering price.
These investments should be accompanied by an investment transmittal stub
(attached to any previously received shareholder confirmation) and mailed
directly to B.C. Ziegler and Company, 215 North Main Street, West Bend,
Wisconsin 53095 (the Transfer Agent). Additional investments can also be made
through your dealer.
INFORMATION PERTAINING TO THE
STATEMENT OF INTENTION
Subject to conditions specified below, each purchase during the 13-month
period subsequent to the effective date of this application will be made at the
public offering price applicable to a single transaction of the dollar amount
indicated, as described in the then effective prospectus. The offering price
may be further reduced under the Combined Purchase and Cumulative Investment
Privilege if the Transfer Agent is advised of any shares previously purchased
and still owned. You understand that you may, at any time during the period,
revise upward your stated intention by submitting a written request to that
effect. Such revision shall provide for the escrowing of additional shares. The
original period of the Statement, however, shall remain unchanged. Each
separate purchase made pursuant to the Statement is subject to the terms and
conditions contained in the prospectus in effect at the time of that particular
purchase. It is understood that you make no commitment to purchase shares, but
that if purchases so made within 13 months from this date do not aggregate the
amount specified, you will pay the increased amounts of sales charge prescribed
in the terms of escrow. You or your dealer must refer to this Statement of
Intention in placing each future order for shares while this Statement is in
effect. It is understood that when remitting funds directly to the Transfer
Agent for investment in your account, specific reference must be made to this
Statement. This cancels and supersedes any previous instructions which you may
have given inconsistent with the above. You have received a copy of the current
prospectus to which this application relates.
Terms of Escrow to the Statement of Intention
1. To assure compliance with provisions of the Investment Company Act of
1940, out of the initial purchase (or subsequent purchase if necessary) 5% of
the dollar amount indicated on the reverse side hereof will be held in escrow
in the form of shares (computed to the nearest full share at the applicable
public offering price) registered in your name. These shares will be held by
the Transfer Agent and be subject to the terms of escrow.
2. If total purchases pursuant to this Statement equal the amount of the
specified expected aggregate purchase, escrow shares will be released from
restriction and be deposited to your account.
3. If the total purchases pursuant to this Statement are less than the
difference between the dollar amount of sales charge actually paid and the
amount of sales charge which would have been paid on the total purchases if all
such purchases had been made at a single time. If the Distributor or the dealer,
within 10 business days after request, does not receive this amount, they will
instruct the Transfer Agent to redeem an appropriate number of escrow shares to
realize such difference. If the proceeds from this redemption are inadequate,
you will be liable to the Distributor or the dealer for the difference. The
remaining shares after the redemption will be deposited to your account unless
otherwise instructed.
4. You hereby irrevocably constitute and appoint the Transfer Agent as
attorney to surrender for redemption any or all shares on the books of
Principal Preservation, under the conditions previously outlined, with full
power of substitutions in the premises.
5. Any dividends and capital gain distributions declared by Principal
Preservation with respect to escrowed shares will be added to the escrow
account.
COMBINED PURCHASE AND
CUMULATIVE INVESTMENT PRIVILEGE
Shares may be purchased at the offering price applicable to the total of
(a) dollar amount then being purchased plus (b) an amount equal to the value of
the combined holdings of all series of Principal Preservation that have a sales
charge of (1) an individual; (2) an individual, his spouse and their children
under the age of 21 purchasing securities for his or their own account; (3) a
trustee or other fiduciary pur-
<PAGE> 47
chasing for a single trust, estate or single fiduciary account; (4) a
pension, profit sharing or other employee benefit plan qualified or
non-qualified under Section 401 of the Internal Revenue Code (the "Code"); (5)
tax-exempt organizations enumerated in Section 501(c)(3) or (13) of the Code;
(6) employee benefit plans qualified under Section 401 of the Code of a single
employer or of employers who are "affiliated persons" of each other within the
meaning of Section 2(a)(3)(c) of the Securities Act of 1933, as amended; or (7)
any other organized group of persons, whether incorporated or not, provided the
organization has been in existence for at least six months and has some purpose
other than the purchase of redeemable securities of a registered investment
company at a discount. In order for this cumulative quantity discount to be made
available, the shareholder or his securities dealer must notify B.C. Ziegler and
Company of the total holdings in all series of Principal Preservation each time
an order is placed.
TELEPHONE REDEMPTIONS
If you elect to redeem by telephone, a signature guarantee must be included
with the application. This authorizes and directs Principal Preservation and
the Transfer Agent, acting as your attorneys-in-fact, to redeem any or all
shares of Principal Preservation pursuant to instructions received by telephone
from you or any other person and to wire the proceeds to the bank account
designated in your application. You agree that any telephone instructions may
be recorded.
DEALER AUTHORIZATION
The dealer, in signing the Authorization, authorizes B.C. Ziegler and
Company, as its agent and on its behalf, to purchase from time to time shares
of Principal Preservation necessary for the shareholder who has signed the
Authorization. B.C. Ziegler and Company is authorized and directed where
necessary to cause the shares to be transferred to the name of the shareholder
on the books of Principal Preservation to retain and to account to the dealer
for the dealer's sales charge due on each purchase, to confirm each direct sale
to the shareholder on behalf of the dealer, and to transmit to the shareholder
each new prospectus of Principal Preservation or supplement thereto delivered
to it for that purpose. The dealer guarantees the genuineness of the
signature(s) on the Authorization and represents that each person who has
signed the Authorization is of legal age and not under legal disability. The
dealer also represents that it is a duly licensed and registered dealer and
that it may lawfully sell the specified securities in the state designated as
the investor's mailing address. It further represents, if the sale has been
made within the United States, that it is a member of the NASD and has entered
into a soliciting dealer agreement with B.C. Ziegler and Company with respect
to such shares.
TERMS AND CONDITIONS FOR ESTABLISHING SYSTEMATIC PURCHASE PLAN
1. OPENING A SYSTEMATIC PURCHASE PLAN ("SPP"). An SPP may be established at
any time by submitting the information requested above to the Transfer
Agent. Depending on the date you elect to have automatic investments made,
the SPP may take up to 30 days to commence after receipt of the SPP request
by the Transfer Agent. There is a minimum initial investment of $100.00 for
accounts opened under the SPP, and for subsequent investments ($50 or more
for IRAs, Keogh Plans, Self-Directed Retirement Plan Accounts, and Custodial
Accounts under the Uniform Gifts/Transfers to Minors Act, until your account
balance reaches $500, after which investments can be made in increments of
$25 or more). The additional investment amount drops to $50 for SPP
participants whose accounts exceed $1,000.
2. INVESTMENTS. Principal Preservation shall collect the amount specified from
your account at the designated financial institution as hereby
authorized, debiting such account to its own order. Other than the sales
charge, there are no service fees for participation in the SPP. Principal
Preservation shall treat each deposit as if it were made by you directly.
3. TERMINATION. The privilege of making deposits under this service may be
revoked by Principal Preservation without prior notice if any debit is
not paid upon presentation. Principal Preservation shall be under no
obligation to notify you of the non-payment and Principal Preservation shall
have no liability whatsoever with respect thereto. You may discontinue the
SPP by written notice to the Transfer Agent which is received at least ten
business days prior to the collection date or the SPP may be discontinued at
any time by Principal Preservation upon 30 days written notice prior to any
collection date.
4. CHANGES IN ACCOUNT. In order to continue participation in the SPP, you must
notify the Transfer Agent in writing of changes in your account. A
"Voided" check reflecting the change of account must be attached to the
written notification.
5. AVAILABILITY. The SPP is available only through financial institutions that
have agreed to participate in such plans and may not be available to
residents of certain states.
<PAGE> 48
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
ACCOUNT APPLICATION FORM
MAKE CHECK OR MAIL TO: Principal Preservation
215 North Main Street
West Bend, WI 53095
MONEY ORDER PAYABLE TO: Principal Preservation Portfolios, Inc.
- ------------------------------------------------------------------------------
ACCOUNT REGISTRATION
Individual __________________________________________________________________
First Middle Initial Last Name
Joint Owner __________________________________________________________________
First Middle Initial Last Name
(In case of joint registration, a joint tenancy with right of survivorship
will be presumed, unless otherwise indicated.)
Uniform Gift To Minor ________________________________________________________
Custodian's Name
Other_________________________________________________________________________
Name of corporation, other organization or fiduciary; if trust, state
trustee, maker and date of trust
_______________________________ ____________________________________
Print - Street Address (Area code) Telephone No. (optional)
_______________________________ ____________________________________
City State Zip Code
Citizen of: / / United States / / Other____________________________________
(please specify)
PORTFOLIO SELECTION
Choose the Portfolio(s) in which you wish to open an account and indicate the
amount you wish to invest in each. Minimum initial investment is $1,000 ($500
for IRAs, Keogh Plans, Self-Directed Retirement Plan Accounts and Custodial
Accounts under the Uniform Gifts/Transfers to Minors Act).
<TABLE>
<S> <C>
/ / Government Portfolio ______ / / Dividend Achievers Portfolio ________
/ / Insured Tax-Exempt Portfolio ______ / / Balanced Portfolio _______
/ / Tax-Exempt Portfolio ______ / / I'm interested in the Cash Reserve
Portfolio. Please send me a Prospectus.
/ / S&P 100 Plus Portfolio ______ / / I'm interested in the Wisconsin
Tax-Exempt Portfolio.
Please send me a Prospectus.
/ / Select Value Portfolio ______
</TABLE>
METHOD OF PAYMENT
Shares purchased by personal or corporate check may not be redeemed by
telephone or otherwise until 15 days after investment date or until the check
clears.
/ / Personal Check or / / Other (specify) _________________
DIVIDEND AND DISTRIBUTION OPTIONS
Until I advise you to the contrary, I elect to:
<TABLE>
<S> <C>
/ / Reinvest all dividends and capital / / Receive dividends in cash and
gain distributions. reinvest capital gains.
(If no box is checked, all dividends and
capital gainb distributions will be / / Receive all distributions in cash.
reinvested in additional shares.)
</TABLE>
STATEMENT OF INTENTION
Effective Date___________________________________
(Not more than 90 days prior to date of signature)
The investor intends, but shall be under no obligation, to invest over a 13-
month period from the date of purchase an aggregate amount in any of the
Portfolios having a sales charge equal to at least:
<TABLE>
<S> <C>
/ / $25,000-$49,999 / / $250,000-$499,999
/ / $50,000-$99,999 / / $500,000-$999,999
/ / $100,000-$249,999 / / $1,000,000 or more
</TABLE>
Each purchase will be made at the public offering price applicable to a single
purchase of the dollar amount designated above, as described in the Prospectus
(see "PURCHASE OF SHARES").
RIGHTS OF ACCUMULATION
I qualify for Rights of Accumulation as described in the Prospectus. Listed
below are all the accounts from the different Portfolios of Principal
Preservation sold subject to a sales charge which should be credited toward the
reduced sales charge.
<TABLE>
<S> <C>
Account Number ______________________ Account Number ___________________
Account Number ______________________ Account Number ___________________
</TABLE>
TELEPHONE EXCHANGE
/ / I authorize telephone exchange privileges.
If you request the telephone exchange option, you must obtain a
Signature Guarantee on back.
<PAGE> 49
SYSTEMATIC PURCHASE PLAN ("SPP")
If you select this option please review the terms and conditions in the
Prospectus. New accounts please fill in information in account registration and
select one Portfolio under Portfolio Selection. I hereby authorize Principal
Preservation to withdraw from my checking account: $________ (see Terms and
Conditions) on or about the / / 5th or / / 20th of each month.
An account must be previously established or a check in the amount of at least
_________must accompany application to be used to purchase shares of the
following Portfolio:__________________________________________________________
Through the financial institution as follows:
______________________________________ __________________________
Name of Financial Institution Branch Name and Number
______________________________________________________________________________
Address of Financial Institution
Please attach an unsigned and voided check from the checking account you wish
to use for the Systematic Purchase Plan. Write "Void" across the face of the
check. Your check must be imprinted with all name(s) on your bank account and
carry your financial institution's magnetic ink coding numbers across the
bottom.
Signature Signature Date
______________________________________________________________________________
(If your checking account is held by more than one person, all account
holders must sign this application.)
TELEPHONE REDEMPTIONS - / / By wire to: or / / By mail to registered owner's
address of record.
______________________________________________________________________________
Bank Name and Your Bank ABA Routing Number
______________________________________ __________________________
Bank Address - Street Name of Bank Account
______________________________________ __________________________
City State Zip Your Bank Account Number
If you request Telephone Redemptions, you must obtain a Signature Guarantee
(below).
SYSTEMATIC WITHDRAWAL PAYMENT
Beginning ____________, 19 ____ please send checks in the amount of
$_________________.
($150 minimum)
Monthly___________Quarterly______________
Please allow 30 days to start a program. Checks will be sent on the 26th day of
each month (the next business day if a holiday).
/ / Payment to be made to registered owner's address of record.
/ / Payment to be made to other than registered shareholders, identified at
right:
______________________________________________________________________________
Bank or Payee's Name
______________________________________________________________________________
Account Number
______________________________________________________________________________
Name
______________________________________________________________________________
Street Address
______________________________________________________________________________
City State Zip
If you request payments to be made other than to the registered shareholder,
you must obtain a Signature Guarantee (below).
SIGNATURE (This section must be filled out by new accounts.)
By the execution of this Application the investor represents and warrants that
he has full right, power and authority, and, if a natural person is of legal
age in his state of residence, to make the investment applied for pursuant to
this Application, and the person or persons, if any, signing on behalf of the
investor represent and warrant that they are duly authorized to sign this
Application, and to purchase or redeem shares of Principal Preservation on
behalf of the investor. The investor hereby affirms that he has received a
current Prospectus.
"Under penalties of perjury, I certify (1) that the number shown on this form
is my correct taxpayer identification number and (2) that I am not subject to
backup withholding either because I have not been notified that I am subject to
backup withholding as a result of a failure to report all interest or
dividends, or the Internal Revenue Service has notified me that I am no longer
subject to backup withholding."
ONLY INDIVIDUALS FILL IN
X X
_______________________ ________ ________________________________________
Signature of Applicant Date Signature of Joint Registrant, if any
_______________________ ____________________________________________________
Social Security Number Print Name of Taxpayer Whose Number Appears at Left
OR
ONLY CORPORATIONS, PARTNERSHIPS, TRUSTS INSTITUTIONS FILL IN
______________________________________________________________________________
Firm Name
______________________________________ __________________________
Date Signature and Title
______________________________________ __________________________
Taxpayer Identification Number Date Signature and Title
SIGNATURE GUARANTEE (Required for Telephone Redemptions or Systematic
Withdrawal Payment options, if chosen above.) Signature(s) Guaranteed by
commercial bank, trust company, savings and loan association, credit union or
member firm of a national stock exchange.
By:___________________________________________________________________________
(Authorized Signature) Name of bank, association or firm
DEALER IDENTIFICATION
B.C. Ziegler and Company (the "Distributor"), acts as agent in all purchases
by the investor of Principal Preservation shares. The Distributor and the
authorized dealer, if any, named below each authorizes and appoints B.C.
Ziegler and Company to act as its agent to execute the purchase of Principal
Preservation shares by the investor, whether the payment is received from the
Distributor, the authorized dealer or directly from the investor, and to
confirm such purchases on their behalf.
______________________________________________________________________________
Dealer's Name
______________________________________________________________________________
Home Office Address City State Zip Code
By ___________________________________________________________________________
Authorized Signature of Dealer Address of Office Servicing Account
_____________ __________________ ______________________ ___________
Branch No. Salesman's No. Salesman's Last Name Dealer No.
<PAGE> 50
APPENDIX A
COMPOSITION OF THE S&P 100 INDEX*
(AS OF DECEMBER 31, 1994)
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
COMPANY NAME COMPOSITION
- ------------ -----------
<S> <C>
Aluminum Company of America . . . . . . . . . . . . . . . . . 0.55
American Electric Power Company Inc.. . . . . . . . . . . . . 0.43
American Express Company. . . . . . . . . . . . . . . . . . . 1.07
American General. . . . . . . . . . . . . . . . . . . . . . . 0.41
American International Group, Inc.. . . . . . . . . . . . . . 2.21
American Telephone and Telegraph Company. . . . . . . . . . . 5.60
Ameritech . . . . . . . . . . . . . . . . . . . . . . . . . . 1.58
Amoco Corp. . . . . . . . . . . . . . . . . . . . . . . . . . 2.09
AMP Incorporated. . . . . . . . . . . . . . . . . . . . . . . 0.54
Atlantic Richfield Company. . . . . . . . . . . . . . . . . . 1.17
Avon Products, Inc. . . . . . . . . . . . . . . . . . . . . . 0.30
Baker-Hughes Inc. . . . . . . . . . . . . . . . . . . . . . . 0.18
BankAmerica Corp. . . . . . . . . . . . . . . . . . . . . . . 1.05
Baxter International Inc. . . . . . . . . . . . . . . . . . . 0.57
Bell Atlantic . . . . . . . . . . . . . . . . . . . . . . . . 1.55
Bethlehem Steel Corporation . . . . . . . . . . . . . . . . . 0.14
Black & Decker Manufacturing Company. . . . . . . . . . . . . 0.14
Boeing Company. . . . . . . . . . . . . . . . . . . . . . . . 1.14
Boise Cascade Corporation . . . . . . . . . . . . . . . . . . 0.07
Bristol-Meyers Squibb . . . . . . . . . . . . . . . . . . . . 2.11
Brunswick Corporation . . . . . . . . . . . . . . . . . . . . 0.13
Burlington Northern, Inc. . . . . . . . . . . . . . . . . . . 0.31
Capital Cities/ABC Inc. . . . . . . . . . . . . . . . . . . . 0.94
Ceridian Corporation. . . . . . . . . . . . . . . . . . . . . 0.09
Champion International Corporation. . . . . . . . . . . . . . 0.24
Chrysler Corporation. . . . . . . . . . . . . . . . . . . . . 1.24
CIGNA Corporation . . . . . . . . . . . . . . . . . . . . . . 0.33
Citicorp. . . . . . . . . . . . . . . . . . . . . . . . . . . 1.16
Coastal Corp. . . . . . . . . . . . . . . . . . . . . . . . . 0.19
Coca-Cola Company . . . . . . . . . . . . . . . . . . . . . . 4.72
Colgate Palmolive Company . . . . . . . . . . . . . . . . . . 0.65
Computer Sciences Corporation . . . . . . . . . . . . . . . . 0.18
Delta Air Lines, Inc. . . . . . . . . . . . . . . . . . . . . 0.18
Digital Equipment Corporation . . . . . . . . . . . . . . . . 0.34
Dow Chemical Company. . . . . . . . . . . . . . . . . . . . . 1.33
DuPont (E.I.) de Nemours. . . . . . . . . . . . . . . . . . . 2.73
Eastman Kodak Company . . . . . . . . . . . . . . . . . . . . 1.16
Entergy Corp. . . . . . . . . . . . . . . . . . . . . . . . . 0.35
Exxon Corporation . . . . . . . . . . . . . . . . . . . . . . 5.38
Federal Express . . . . . . . . . . . . . . . . . . . . . . . 0.24
First Fidelity Bancorp. . . . . . . . . . . . . . . . . . . . 0.26
First Chicago Corp. . . . . . . . . . . . . . . . . . . . . . 0.31
First Interstate Bancorp. . . . . . . . . . . . . . . . . . . 0.37
Fluor Corporation . . . . . . . . . . . . . . . . . . . . . . 0.25
Ford Motor Company. . . . . . . . . . . . . . . . . . . . . . 2.04
General Dynamics Corporation. . . . . . . . . . . . . . . . . 0.20
General Electric Company. . . . . . . . . . . . . . . . . . . 6.20
General Motors Corporation. . . . . . . . . . . . . . . . . . 2.27
Great Western Financial Corporation . . . . . . . . . . . . . 0.15
Halliburton Company . . . . . . . . . . . . . . . . . . . . . 0.27
Harris Corporation. . . . . . . . . . . . . . . . . . . . . . 0.12
Heinz (H.J.) Company. . . . . . . . . . . . . . . . . . . . . 0.65
Hewlett-Packard Company . . . . . . . . . . . . . . . . . . . 1.81
Homestake Mining Company. . . . . . . . . . . . . . . . . . . 0.17
Honeywell, Inc. . . . . . . . . . . . . . . . . . . . . . . . 0.29
Intel Corporation . . . . . . . . . . . . . . . . . . . . . . 1.89
International Business Machines Corp. . . . . . . . . . . . . 2.08
International Flavors & Fragrances Inc. . . . . . . . . . . . 0.37
International Paper. . . . . . . . . . . . . . . . . . . . . 0.67
ITT Corporation . . . . . . . . . . . . . . . . . . . . . . . 0.67
Johnson & Johnson . . . . . . . . . . . . . . . . . . . . . . 2.51
K Mart Corporation. . . . . . . . . . . . . . . . . . . . . . 0.42
Limited, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 0.54
Mallinckrodt Group, Inc.. . . . . . . . . . . . . . . . . . . 0.16
May Department Stores . . . . . . . . . . . . . . . . . . . . 0.60
McDonald's Corporation. . . . . . . . . . . . . . . . . . . . 1.46
MCI Communications. . . . . . . . . . . . . . . . . . . . . . 0.89
Merck and Company . . . . . . . . . . . . . . . . . . . . . . 3.42
Merrill Lynch and Company . . . . . . . . . . . . . . . . . . 0.49
Minnesota Mining & Manufacturing. . . . . . . . . . . . . . . 1.60
Mobil Corporation . . . . . . . . . . . . . . . . . . . . . . 2.39
Monsanto Company. . . . . . . . . . . . . . . . . . . . . . . 0.58
National Semiconductor Corporation. . . . . . . . . . . . . . 0.17
Norfolk Southern Corporation. . . . . . . . . . . . . . . . . 0.58
Northern Telecom Limited. . . . . . . . . . . . . . . . . . . 0.60
Occidental Petroleum Corporation. . . . . . . . . . . . . . . 0.43
PepsiCo, Inc. . . . . . . . . . . . . . . . . . . . . . . . . 2.05
Polaroid Corporation. . . . . . . . . . . . . . . . . . . . . 0.10
Promus Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 0.22
Ralston Purina Company. . . . . . . . . . . . . . . . . . . . 0.32
Raytheon Compan.y . . . . . . . . . . . . . . . . . . . . . . 0.60
Rockwell International Corporation. . . . . . . . . . . . . . 0.56
Schlumberger Limited. . . . . . . . . . . . . . . . . . . . . 0.87
Sears, Roebuck and Company .. . . . . . . . . . . . . . . . . 1.15
Skyline Corporation . . . . . . . . . . . . . . . . . . . . . 0.02
Southern Company. . . . . . . . . . . . . . . . . . . . . . . 0.93
Tandy Corporation . . . . . . . . . . . . . . . . . . . . . . 0.22
Tektronix, Inc. . . . . . . . . . . . . . . . . . . . . . . . 0.07
Teledyne, Inc.. . . . . . . . . . . . . . . . . . . . . . . . 0.06
Texas Instruments Incorporated. . . . . . . . . . . . . . . . 0.49
The Walt Disney Company . . . . . . . . . . . . . . . . . . . 1.76
Toys "R" Us . . . . . . . . . . . . . . . . . . . . . . . . . 0.62
Unicom Corp.. . . . . . . . . . . . . . . . . . . . . . . . . 0.37
Unisys Corporation. . . . . . . . . . . . . . . . . . . . . . 0.10
United Technologies Corporation . . . . . . . . . . . . . . . 0.56
Upjohn Company. . . . . . . . . . . . . . . . . . . . . . . . 0.38
Wal-Mart Stores, Inc. . . . . . . . . . . . . . . . . . . . . 3.48
Weyerhaeuser Company. . . . . . . . . . . . . . . . . . . . . 0.55
Williams Companies. . . . . . . . . . . . . . . . . . . . . . 0.16
Xerox Corporation . . . . . . . . . . . . . . . . . . . . . . 0.75
</TABLE>
* "Standard & Poor's", "Standard & Poor's 100", "S&P", "S&P 100" and "100" are
registered trademarks of Standard & Poor's Corporation.
A-1
<PAGE> 51
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Questions and Answers ........ 2
Expenses ...................... 5
Financial Highlights........... 7
Investment Objectives ......... 14
Investment Program ............ 15
Special Considerations ........ 24
Management ................... 26
Determination of Net Asset
Value Per Share ............. 30
Purchase of Shares ............ 30
Redemptions ................... 33
Shareholder Services .......... 35
Dividends, Capital Gains
Distributions and
Reinvestments................ 37
Tax Status .................... 37
Description of Shares ......... 37
Portfolio Transactions
and Brokerage ............... 38
Distribution Expenses ......... 39
Other Information ............. 39
</TABLE>
PRINCIPAL PRESERVATION
PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
INVESTMENT ADVISORS
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
PanAgora Asset Management, Inc.
260 Franklin Street
Boston, Massachusetts 02110
Mesirow Asset Management, Inc.
350 North Clark Street
Chicago, Illinois 60610
DISTRIBUTOR, CUSTODIAN AND TRANSFER AND DIVIDEND
DISBURSING AGENT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
COUNSEL
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
AUDITOR
Arthur Andersen LLP
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
PP800-5/95
[PRINCIPAL PRESERVATION LOGO]
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May 1, 1995
PROSPECTUS
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