As filed with the Securities and Exchange Commission on May 1, 1996.
1933 Act Registration No. 33-12
1940 Act File No. 811-4401
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 35 x
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 37 x
(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 J. TUSZYNSKI
Vice President and Treasurer
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 NORTH MAIN STREET
WEST BEND, WISCONSIN 53095
(Name and Address of Agent for Service)
Copy to:
CONRAD G. GOODKIND, ESQ.
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Approximate Date of Proposed Public Offerings: As soon as practicable
following the effective date of this amendment to the registration statement.
It is proposed that this filing will become effective
immediately upon filing pursuant to paragraph (b)
X on May 1, 1996 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on (date) pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2) of rule
485.
If appropriate, check the following:
this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment
Registrant has elected 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's Rule 24f-2 Notice for the year ended December 31,
1995 was filed on February 27, 1996.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
FORM N-1A
CROSS REFERENCE SHEET
Wisconsin Tax-Exempt
Form N-1A Portfolio
Item No. Prospectus Heading
- --------- --------------------
PART A
1. Cover Page......................... Cover Page
2. Synopsis........................... Questions and Answers; Expenses
3. Condensed Financial
Information...................... Financial Highlights
4. General Description of
Registrant....................... Questions and Answers; Description
of Shares
5. Management of the Fund............. Management; Determination of Net
Asset Value Per Share; Portfolio
Transactions and Brokerage; Other
Information
5A. Management's Discussion of
Fund Performance................... Not Applicable. See Annual Reports
6. Capital Stock and Other
Securities....................... Redemptions; Tax Status;
Description of Shares
7. Purchase of Securities Being
Offered.......................... Purchase of Shares; Determination
of Net Asset Value Per Share;
Redemptions; Distribution Expenses
8. Redemption or Repurchase........... Redemptions
9. Pending Legal Proceedings.......... None
PART B
10. Cover Page......................... Cover Page
11. Table of Contents.................. Table of Contents
12. General Information and History.... Not Applicable
13. Investment Objectives and
Policies......................... Investment Program; Investment
Restrictions
14. Management of the Fund............. Management of Principal
Preservation
15. Control Persons and Principal
Holders of Securities............ Not Applicable
16. Investment Advisory and
Other Services................... Management of Principal
Preservation
17. Brokerage Allocation
and Brokerage.................... Portfolio Transactions and
Brokerage
18. Capital Stock and Other
Securities....................... Determination of Net Asset Value
Per Share; Tax Status
19. Purchase, Redemption and
Pricing of Securities
Being Offered.................... Determination of Net Asset Value
Per Share; Purchase of Shares;
Distribution Expenses
20. Tax Status......................... Tax Status
21. Underwriters....................... Purchase of Shares
22. Calculation of Performance
Data............................. Performance Information; Portfolio
Ratings
23. Financial Statements............... Financial Statements
(PPP LOGO)
WISCONSIN
TAX-EXEMPT
PORTFOLIO
May 1, 1996
PROSPECTUS
PRINCIPAL PRESERVATION
PORTFOLIOS, INC.
WISCONSIN TAX-EXEMPT PORTFOLIO
The Wisconsin Tax-Exempt Portfolio (the "Portfolio") of the Principal
Preservation Portfolios, Inc. ("Principal Preservation") family of mutual funds
is offered by this Prospectus. The Portfolio's investment objective is to
provide investors with a high level of current income that is exempt from
federal income tax and Wisconsin personal income tax.
The risks and special characteristics of investing in the Portfolio are
highlighted in the sections of this Prospectus titled "Questions and Answers"
and "Special Considerations." The Portfolio is managed by Ziegler Asset
Management, Inc. ("Ziegler Asset Management" or the "Advisor"). 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 the Portfolio. Investors should read and
retain this Prospectus for future reference. A Statement of Additional
Information dated May 1, 1996, containing additional information about Principal
Preservation and the Portfolio 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 the Portfolio's Distributor, B.C. Ziegler and Company ("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 PORTFOLIO 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"), THE FEDERAL
RESERVE BOARD 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, 1996
QUESTIONS AND ANSWERS
WHAT ARE THE PRINCIPAL PRESERVATION PORTFOLIOS?
Principal Preservation is a Maryland corporation organized in 1984 as an
open-end, management investment company. Principal Preservation is a series
company, which means that its Board of Directors may establish additional
portfolios at any time. Presently six other series of Principal Preservation
are offered by separate prospectuses.
WHAT ARE THE BENEFITS FROM INVESTING IN THE PORTFOLIO?
Economy of Size. The Portfolio is 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 Advisor.
Professional Management. The 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.
Pooled Investing. The Portfolio combines the funds of many investors to
obtain a portfolio of numerous different issues of investment securities, the
income on which is exempt from federal and Wisconsin personal income tax. This
pooled investing strategy permits an investor to spread his or her risk over a
greater number of issues of investment securities, as compared to the number of
issues in which the investor may be able to invest individually. However,
investors should bear in mind that the Portfolio is a non-diversified mutual
fund, meaning that a significant portion of its assets may be invested from time
to time in securities of issuers associated with particular industries.
Moreover, the Portfolio's investments likely will be heavily concentrated in
Wisconsin and, in the event of an insufficient supply of Wisconsin issues, may
also or instead be concentrated in Puerto Rico. See "Investment Program --
Other Investment Practices and Associated Risks" and "Special Considerations."
Liquidity. Shares of the Portfolio may be redeemed at any time at their
current net asset value. See "Redemptions."
WHAT ARE THE PORTFOLIO'S INVESTMENT OBJECTIVES, POLICIES AND PROGRAMS?
The Portfolio's investment objective is to provide investors with a high
level of current income that is exempt from federal income tax and Wisconsin
personal income tax. There can be no assurance that the Portfolio's investment
objective will be achieved. See "Investment Objective and Policies."
Under normal market conditions, the Portfolio will invest primarily in "Tax
Exempt Obligations" (as defined under "Investment Program -- Tax Exempt
Obligations") issued by the State of Wisconsin, its municipalities, other
political subdivisions and public authorities of Wisconsin and obligations of
other entities (including territories and possessions of the United States and
political subdivisions and public authorities thereof) the interest on which is
exempt from federal income tax and from Wisconsin personal income tax. As a
matter of fundamental policy, the Portfolio will seek to invest at least 80% of
its assets so that the income earned thereon will be exempt from federal and
Wisconsin personal income taxes, and also will be exempt from federal and
applicable state alternative minimum tax ("AMT"). However, at any particular
time, up to 20% of the securities owned by the Portfolio may generate interest
that is an item of tax preference for purposes of federal and/or applicable
state AMT's. See "Dividends, Capital Gains Distributions and Reinvestments" and
"Tax Status." The Portfolio anticipates that substantially all of its
distributions to its shareholders will be otherwise exempt from federal income
tax and from Wisconsin personal income tax.
Shares of the Portfolio do not represent a complete investment program. The
Portfolio may not have the benefits of geographic diversification and may be
subject to the risks of concentrating its investments in certain economic
sectors or industries. While the Portfolio intends to invest primarily in Tax
Exempt Obligations issued in Wisconsin, only limited categories of municipal
securities are exempt from Wisconsin personal income tax, and it therefore is
possible that the Portfolio may invest a significant portion of its assets in
Tax Exempt Obligations issued by territories and possessions of the United
States, the District of Columbia, and their agencies or instrumentalities. As a
result, the Portfolio may invest up to 100% of its assets in Tax Exempt
Obligations of issuers outside of Wisconsin if such securities bear interest
which is exempt from federal and Wisconsin personal income taxes. Such outside
investments likely would include a significant number of Tax Exempt Obligations
of issuers in Puerto Rico. Generally, the value of an investment portfolio
consisting primarily of Tax Exempt Obligations will fluctuate inversely with the
general level of interest rates. The Portfolio may invest in floating and
variable rate demand notes, purchase securities on a "when issued" basis and
enter into repurchase agreements. Such investment practices may involve certain
special risks. See "Investment Program -- Other Investment Practices and
Associated Risks" and "Special Considerations."
The Portfolio may invest, without percentage limitation, in "investment
grade" securities (see "Investment Program -- Overview"). Securities included
in the lowest investment grade category have speculative characteristics. Up to
20% of the Portfolio's net assets may be invested in Tax Exempt Obligations
which are rated lower than investment grade; however, all Tax Exempt Obligations
in which the Portfolio invests will be rated B or higher by Moody's Investors
Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") or will be
judged by the Advisor to be of comparable quality. Such bonds are regard by S&P
as having the ability, at the time they are rated, to meet scheduled interest
and principal payments; however, Moody's states that the assurance of interest
and principal payments or of maintenance of other terms of the contract over any
long period of time may be small. See "Investment Program -- Overview" and, for
a more detailed description of S&P's and Moody's securities ratings, see
Appendix A to the Statement of Additional Information.
The Portfolio may invest more than 25% of its total assets in public agency
revenue bonds. However, it will not invest 25% or more of its total assets in
revenue bonds payable only from revenues derived from facilities or projects
within a single industry, except that the Portfolio may, in circumstances in
which other appropriate available investments may be in limited supply, invest
without limitation in housing, health care and/or utility obligations of public
bodies. See "Investment Program -- Other Investment Practices and Associated
Risks."
ARE THERE ANY RISKS TO CONSIDER?
Certain securities in which the Portfolio may invest and activities in which
it may engage involve special considerations and risks. For example, 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 Portfolio invests. The Portfolio's policy of investing primarily in
securities exempt from federal and Wisconsin personal income taxes may result in
a significant portion of the Portfolio's assets being invested in securities of
issuers located in Wisconsin and/or Puerto Rico, exposing the Portfolio to
special risks associated with geographic concentration. Also, as noted below,
the Portfolio may reinvest, from time to time, 25% or more of its total assets
in obligations of public bodies, including state and municipal housing
authorities, issued to finance projects in any one of three specified economic
sectors or industries, exposing the Portfolio to special risks associated with
industry concentration. See "Investment Program -- Other Investment Practices
and Associated Risks" and "Special Considerations."
HOW DOES THE PORTFOLIO DISTRIBUTE INCOME?
Dividends will be declared daily and paid monthly. Any net realized capital
gains will be declared and paid annually. Investors may receive their income
dividends and capital gain distributions in additional shares of the Portfolio,
in additional shares in another Principal Preservation portfolio, or in cash.
See "Dividends, Capital Gains Distributions and Reinvestments."
WHO MANAGES THE PORTFOLIO?
Ziegler Asset Management is the investment advisor for the Portfolio.
Ziegler Asset Management's principal office is located at 215 North Main Street,
West Bend, WI 53095; its telephone number is 800-826-4600. 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 the Portfolio's shares (the "Distributor"), or from broker-
dealers, banks and other financial institutions or firms that have entered into
selling agreements with the Distributor with respect to their assistance in
distributing shares of the Portfolio ("Selected Dealers"). See "Purchase of
Shares."
The minimum initial investment in the Portfolio is $1,000. The minimum
subsequent investment is $50.
HOW CAN SHARES BE REDEEMED OR EXCHANGED?
Shares may be redeemed by mail or telephone. The redemption values 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 the 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 Portfolio is provided through separate
prospectuses, copies of which can be obtained from the Distributor.
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)(1)<F1> 2.5%
Maximum Sales Load Imposed on Reinvested Dividends 0%
Deferred Sales Load 0%
Redemption Fees (2)<F2> 0%
Exchange Fee $5.00
ANNUAL FUND OPERATING EXPENSES -- AFTER REIMBURSEMENT
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.50%
Rule 12b-1 Distribution Fees (3)<F3> 0.25%
Other Expenses (after reimbursement) (4)<F4> 0.25%
-----
Total Fund Operating Expenses 1.00%
-----
-----
(1)<F1>Investors may be able to qualify for a lower sales load. See "Purchase
of Shares" and "Shareholder Services."
(2)<F2>Ziegler, in its capacity as transfer agent, charges a fee (presently
$7.50) for redemptions by wire transfer.
(3)<F3>Because the Rule 12b-1 distribution fee is paid annually rather than as a
one-time fee, long-term shareholders may pay more than the economic equivalent
of the maximum front-end sale charge permitted by the National Association of
Securities Dealers, Inc. ("NASD"), which is generally 6.25% of new sales plus an
interest factor.
(4)<F4>The Advisor has committed to reimburse expenses so that, for the year
ending December 31, 1996, the Portfolio's Total Fund Operating Expenses will
not exceed 1.00%. Without giving effect to this expense reimbursement
commitment, "Other Expenses" and "Total Fund Operating Expenses" for the year
ended December 31, 1995 would have been 0.44% and 1.19%, respectively.
EXAMPLE
You would pay the following expenses on a $1,000 investment in the Portfolio,
assuming 5% annual return and redemption at the end of each time period:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$35 $56 $79 $145
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 Serves." THE ABOVE EXAMPLES SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN SHOWN.
FINANCIAL HIGHLIGHTS
The following Financial Highlights table presents information relating to a
share of capital stock of the Portfolio outstanding for the period presented.
This information should be read in conjunction with the financial statements and
related notes thereto contained in the Portfolio's 1995 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 Portfolio's 1995 Annual
Report to Shareholders. Copies of the Annual Report are available without
charge from Ziegler.
WISCONSIN TAX-EXEMPT PORTFOLIO
------------------------------
For the period
from June 13, 1994
For the (commencement of
year ended operations) to
December 31, 1995 December 31, 1994
----------------- ------------------
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD $9.10 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .50 .25
Net realized and unrealized gains
(losses) on investments .95 (.90)
----- ------
TOTAL FROM INVESTMENT OPERATIONS 1.45 (.65)
----- ------
LESS DISTRIBUTIONS:
Dividends from net investment income (.50) (.25)
----- ------
TOTAL DISTRIBUTIONS (.50) (.25)
----- ------
NET ASSET VALUE, END OF PERIOD $10.05 $9.10
------ ------
------ ------
TOTAL RETURN**<F6> 16.32% (6.54%)+<F7>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (to nearest thousand) $18,986 $8,116
Ratio of expenses to average net assets 0.36%+<F7> 0.20%*<F5>+<F7>
Ratio of net investment income
to average net assets 5.00% 4.46%*<F5>+<F7>
Portfolio turnover rate 9.69%+<F7> 23.35%*<F5>
*<F5>Annualized.
**<F6>The Portfolio's sales charge is not reflected in total return as set forth
in the table.
+<F7>Reflects a voluntary reimbursement of operating expenses of 0.83% in 1995
and 1.45% in 1994.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio's investment objective is to provide investors with a high
level of current income that is exempt from federal income tax and Wisconsin
personal income tax. The following is a brief description of the investment
policies of the 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 the Portfolio will be achieved.
The Portfolio is subject to a number of investment restrictions which are
described in the section of the Statement of Additional Information entitled
"Investment Restrictions." Among these restrictions are that the Portfolio may
not borrow money or property except for temporary or emergency purposes. If the
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). The Portfolio will not pledge more than 15% of its net assets to
secure such borrowings. In the event the Portfolio's borrowing exceeds 5% of
the market value of its total assets, the Portfolio will not invest in any
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 the Portfolio are
not deemed to be a pledge of assets.
The Statement of Additional Information contains specific investment
restrictions which govern the investments of the Portfolio. Certain of these
restrictions and the Portfolio's investment objective are fundamental policies,
which means that they may not be changed without a majority vote of shareholders
of the Portfolio. All other investment policies and practices may be changed
without shareholder approval.
INVESTMENT PROGRAM
OVERVIEW
This section contains a general description of the investment program and
other investment practices of the Portfolio. Further information is contained
in the Statement of Additional Information. Shareholders will be notified prior
to implementation of any material change in the Portfolio's investment program.
It is a fundamental policy of the Portfolio that, in normal market
conditions, at least 80% of its income distributions to its shareholders will be
exempt from federal and Wisconsin personal income taxes, and also will be exempt
from federal and applicable state AMT's. However, at any particular time, up to
20% of the Portfolio's total assets may be invested in securities that generate
interest which is an item of tax preference for purposes of federal and/or
applicable state AMT's. See "Tax Status." During times of adverse market
conditions when a defensive investment posture is warranted, the Portfolio may
temporarily select investments without regard to the foregoing policy.
In normal market conditions, the Portfolio will invest primarily in Tax
Exempt Obligations that are exempt from federal income tax and Wisconsin
personal income tax. While the Portfolio intends to invest primarily in Tax
Exempt Obligations issued in Wisconsin, only limited categories of Wisconsin
issues of municipal securities are exempt from Wisconsin personal income taxes.
These include higher education bonds issued by the State of Wisconsin, public
housing authority bonds issued by Wisconsin municipalities, redevelopment
authority bonds issued by Wisconsin municipalities, certain bonds issued by the
Wisconsin Housing and Economic Development Authority and Wisconsin Housing
Finance Authority bonds. Due to the limited availability of such Wisconsin
issues, it is possible that the Portfolio may invest a significant portion of
its assets in obligations issued outside of Wisconsin. Categories of bonds
issued outside of Wisconsin which are exempt from Wisconsin personal income tax
include certain general obligation bonds issued by Puerto Rico, Guam and the
Virgin Islands, and certain public housing agency bonds issued by agencies
located outside of Wisconsin. The Portfolio may invest up to 100% of its assets
in tax exempt securities of issuers outside of Wisconsin if such securities bear
interest which is exempt from federal income tax and Wisconsin personal income
tax. The Advisor anticipates that, when other available investments that meet
the Portfolio's investment criteria are in limited supply, the Portfolio may
invest more than 25% of its assets in securities of Puerto Rico, its
municipalities, and other political subdivisions and public authorities. See
"Special Considerations -- Geographic Concentrations."
The Portfolio may invest, without percentage limitation, in securities rated
at the time of purchase within the four highest grades assigned by either
Moody's or S&P or, if unrated, that are judged by the Advisor, at the time of
purchase, to be of comparable quality. These are considered "investment grade"
securities. Bonds included in the lowest investment grade category have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to adversely affect the capacity of the obligor to
make principal and interest payments than is the case with higher rated bonds.
Up to 20% of the Tax Exempt Obligations purchased by the Portfolio may be rated
lower than investment grade; however, all Tax Exempt Obligations in which the
Portfolio invests must be rated B or higher by Moody's or S&P or, if unrated,
that are judged by the Advisor, at the time of purchase, to be of comparable
quality to securities rated B or higher. Bonds rated B are non-investment
grade, have a greater vulnerability to default than higher grade bonds and face
major ongoing uncertainties or exposure to adverse business, financial, or
economic conditions which likely would impair the capacity or willingness of the
issuers of such bonds to make scheduled payments of interest and principal.
Such bonds are regarded by S&P as having the ability, at the time they are
rated, to meet scheduled interest and principal payments; however, Moody's notes
that the assurance of interest and principal payments or of maintenance of other
terms of the contract over any long period of time may be small. Additionally,
periods of economic uncertainty and change likely will increase the volatility
of the market price of such bonds and, therefore, the net asset value of the
Portfolio.
The foregoing policies as to credit quality of portfolio investments will
apply only at the time of the purchase of a security. Subsequent to the
purchase of an issue by the Portfolio, Moody's or S&P may downgrade its
assessment of the credit characteristics of the issuer or, in the case of
unrated securities, the Advisors may reassess their view with respect to the
credit quality of the issuer. While the Advisor will consider such an event in
their determination of whether the Portfolio should continue to hold the
particular security in its investment portfolio, no such event will
automatically require the Advisor to dispose of the security. In no event,
however, will more than 5% of the Portfolio's total assets consist of securities
that have been downgraded to a rating lower than the minimum rating in which the
Portfolio is permitted to invest or, in the case of unrated securities, that
have been determined by the Advisor to be of a quality lower than such minimum
rating.
Rated as well as unrated Tax Exempt Obligations will be analyzed by the
Advisor on the basis of available information as to creditworthiness and with a
view to various qualitative factors and trends affecting Tax Exempt Obligations
generally. It should be noted, however, that the amount of information about
the financial condition of an issuer of Tax Exempt Obligations or an obligor
thereon may not be as extensive or as readily available as information regarding
securities that are more actively traded.
For temporary or liquidity purposes the Portfolio may invest in taxable
obligations, provided that, in normal market conditions, no more than 20% of the
Portfolio's income distributions during any year will be includable in gross
income for purposes of federal income tax or Wisconsin personal income tax. The
Portfolio may invest without limitation in taxable obligations on a temporary,
defensive basis under unusual or special market conditions. Such taxable
obligations, whether purchased for liquidity purposes or on a temporary,
defensive basis, may include: obligations of the U.S. government, its agencies
or instrumentalities; other debt securities rated within the two highest grades
by either Moody's or S&P; commercial paper rated in the highest grade by either
of such rating services; certificates of deposit and bankers' acceptances of
domestic banks which have capital, surplus and undivided profits of over $100
million; high-grade taxable municipal bonds; and repurchase agreements with
respect to any of the foregoing investments. The Portfolio also may hold its
assets in cash and, in accordance with limitations established in the
Portfolio's investment restrictions (see "Investment Restrictions" in the
Statement of Additional Information), in securities of tax-exempt money market
mutual funds. An investment by the Portfolio in securities of tax-exempt money
market mutual funds may cause the Portfolio to incur increased administration
and distribution costs.
TAX EXEMPT OBLIGATIONS
As used in this Prospectus, the term "Tax Exempt Obligations" refers to debt
obligations issued by or on behalf of a state or territory or its agencies,
instrumentalities, municipalities and political subdivisions, the interest
payable on which is, in the opinion of bond counsel, excludable from gross
income for purposes of federal income tax and from Wisconsin personal income
tax. In certain instances the interest on such obligations may be an item of
tax preference includable in alternative minimum taxable income depending upon
the shareholder's tax status. See "Tax Status." Tax Exempt Obligations include
primarily debt obligations issued to obtain funds for various public purposes
such as constructing public facilities and making loans to public institutions.
The two principal classifications of Tax Exempt Obligations are general
obligation bonds and revenue bonds. General obligation bonds are generally
secured by the full faith and credit of an issuer possessing general taxing
power and are payable from the issuer's general unrestricted revenues and not
from any particular fund or revenue source. Revenue bonds are payable only from
the revenues derived from a particular source or facility, such as a tax on
particular property or revenues derived from, for example, a municipal water or
sewer utility or an airport. Tax Exempt Obligations that benefit private
parties in a manner different than members of the public generally (so-called
private activity bonds or industrial development bonds)are in most cases revenue
bonds, payable solely from specific revenues of the project to be financed. The
credit quality of private activity bonds is usually directly related to the
creditworthiness of the user of the facilities (or the creditworthiness of a
third-party guarantor or other credit enhancement participant, if any).
Additionally, Tax Exempt Obligations may consist of short term notes sold by the
issuing municipality in anticipation of a bond sale, collection of taxes or
receipt of other revenue. There are, of course, variations in the quality of
Tax Exempt Obligations, both within a particular classification and between
classifications, depending on various factors.
The Portfolio also may purchase floating and variable rate demand notes from
municipal issuers. These notes normally have a stated maturity in excess of one
year, but permit the holder to demand payment of principal plus accrued interest
upon a specified number of days' notice. Frequently, such obligations are
secured by letters of credit or other credit support arrangements provided by
banks.
The yields on Tax Exempt Obligations are dependent on a variety of factors,
including general money market conditions, the financial condition of the
issuer, general market conditions, the size of a particular offering, the
maturity of the obligation and the rating of the issue. Generally, Tax Exempt
Obligations of longer maturity produce higher current yields than municipal
securities with shorter maturities but are subject to greater price fluctuation
due to changes in interest rates, tax laws and other general market factors.
Lower-rated Tax Exempt Obligations generally produce a higher yield than higher-
rated Tax Exempt Obligations due to the perception of a greater degree of risk
as to the payment of principal and interest. While the Portfolio may invest in
securities of any maturity, the weighted average maturity of the Portfolio's
investment portfolio is expected to range between approximately 15 to 25 years.
PORTFOLIO TURNOVER AND MATURITY
While it is not a policy of the Portfolio to trade actively for short-term
profits, the Portfolio will dispose of securities without regard to the time
they have been held when such action appears advisable to the Advisor. Frequent
trades of investment portfolio securities generally will result in higher
transaction and other costs. The portfolio turnover rate for the Portfolio is
not expected to exceed 100%.
LENDING OF PORTFOLIO SECURITIES
The 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, the
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 in short term, money market type instruments. 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.
The 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 Advisor's 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 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 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 Advisor
evaluates and continually monitors the creditworthiness of the institutional
borrowers to which the Portfolio lends its securities.
To minimize the foregoing risks, the Portfolio's securities lending practices
are subject to the following conditions and restrictions: (1) the Portfolio
will not make such loans in excess of 33% of the value of its total assets; (2)
the 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
of the loaned securities rises above the amount of the collateral; (4) the
Portfolio must have the right to terminate the loan at any time; (5) the
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 Portfolio may not pay any more than
reasonable custodian fees in connection with the loan.
OTHER INVESTMENT PRACTICES AND ASSOCIATED RISKS
To earn income, the Portfolio may enter into forward commitments, and may
make short sales of already owned securities.
Forward Commitments. The Portfolio may purchase securities for future
delivery, which may increase the Portfolio's overall investment exposure. If
the value of the securities declines prior to the scheduled delivery date, the
Portfolio's net asset value per share would decline correspondingly. The
Portfolio does not intend 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.
Short Sales "Against-the-Box." The Portfolio 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 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 segregated 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.
Repurchase Agreements. The Portfolio may enter into repurchase agreements
with respect to not more than 10% of its total assets (taken at current value),
except when investing for defensive purposes during times of adverse market
conditions. The Portfolio may enter into repurchase agreements with respect to
any securities which it may acquire (except for below investment grade bonds)
consistent with its investment policies and restrictions.
A repurchase agreement involves the purchase by the Portfolio of securities
with the condition that, after a stated period of time, the original seller (a
member bank of the Federal Reserve System or a recognized securities dealer)
will buy back the same securities ("collateral") at a predetermined price or
yield. Repurchase agreements involve certain risks not associated with direct
investments in securities. In the event the original seller defaults on its
obligation to repurchase, as a result of its bankruptcy or otherwise, the
Portfolio will seek to sell the collateral, which action could involve costs or
delays. In such case, the Portfolio's ability to dispose of the collateral to
recover such investment may be restricted or delayed. While collateral will at
all times be maintained in an amount equal to the repurchase price under the
agreement (including accrued interest due thereunder), to the extent proceeds
from the sale of collateral are less than the repurchase price, the Portfolio
could suffer a loss. Additional information regarding repurchase agreements is
set forth in the Statement of Additional Information.
State or Municipal Lease Obligations. The Portfolio is permitted to invest
up to 10% of the value of its net assets in state or municipal leases.
Municipal leases are obligations issued by Wisconsin and its local governments
or authorities to finance the acquisition of equipment and facilities.
Municipal leases may take the form of a lease, an installment purchase contract
or a participation certificate in any of the above. In determining leases in
which the Portfolio will invest, the Advisor will evaluate the credit rating of
the lessee and the terms of the lease. Additionally, the Advisor may require
that certain municipal leases be secured by a letter of credit or put
arrangement with an independent financial institution. Additional information
regarding municipal leases is set forth in the Statement of Additional
Information.
Concentration Policy. Although the Portfolio may invest 25% or more of its
total assets in limited obligation bonds, the Portfolio will not invest 25% or
more of its total assets in limited obligation bonds payable only from revenues
derived from facilities or projects within a single industry, except that the
Portfolio may invest without limitation, in circumstances in which other
appropriate available investments may be in limited supply, in housing, health
care and/or utility obligations. In such circumstances, economic, business,
political and other changes affecting one bond might also affect other bonds in
the same segment, thereby potentially increasing market or credit risk.
Appropriate available investments may be in limited supply, from time to time in
the opinion of the Advisor, due to, among other things, the Portfolio's
investment policy of investing primarily in obligations of Wisconsin (and
municipalities, other political subdivisions and public authorities thereof) and
of investing primarily in investment grade securities.
Housing Obligations. The Portfolio may invest, from time to time, 25% or
more of its total assets in obligations of public bodies, including state and
municipal housing authorities, issued to finance the purchase of single-family
mortgage loans or the construction of multifamily housing projects. Since
housing authority obligations, which are not general obligations of Wisconsin,
are generally supported to a large extent by Federal housing subsidy programs,
the failure of a housing authority to meet the qualifications required for
coverage under the Federal programs, or any legal or administrative
determination that the coverage of such Federal programs is not available to a
housing authority, could result in a decrease or elimination of subsidies
available for payment of principal and interest on such housing authority's
obligations. Weaknesses in Federal housing subsidy programs and their
administration also could result in a decrease of subsidies available for
payment of principal and interest on housing authority bonds. Repayment of
housing loans and home improvement loans in a timely manner is dependent on
factors affecting the housing market generally and upon the underwriting and
management ability of the individual agencies (i.e., the initial soundness of
the loan and the effective use of available remedies should there be a default
in loan payments). Economic developments, including fluctuations in interest
rates, failure or inability to increase rentals and increasing construction and
operating costs, may also adversely impact upon revenues of housing authorities.
Furthermore, adverse economic conditions may result in an increasing rate of
default of mortgagors on the underlying mortgage loans. In the case of some
housing authorities, inability to obtain additional financing also could reduce
revenues available to pay existing obligations. Single-family mortgage revenue
bonds are subject to extraordinary mandatory redemption at par at any time in
whole or in part from the proceeds derived from prepayments of underlying
mortgage loans and also from the unused proceeds of the issue within a stated
period which may be within a year from the date of issue.
Health Care Obligations. The Portfolio may invest, from time to time, 25% or
more of its total assets in obligations issued by public bodies, including state
and municipal authorities, to finance hospital or health care facilities or
equipment. The ability of any subject health care entity or hospital to make
payments in amounts sufficient to pay maturing principal and interest
obligations is dependent, among other things, upon the revenues, costs and
occupancy levels of the subject health care entity or hospital. Revenues and
expenses of hospitals and health care facilities will be affected by future
events and conditions relating generally to, among other things, demand for
health care services at the particular type of facility, increasing costs of
medical technology, utilization practices of physicians, the ability of the
facilities to provide the services required by patients, employee strikes and
other adverse labor actions, economic developments in the service area,
demographic changes, greater longevity and the higher medical expenses of
treating the elderly, increased competition from other health care providers and
rates that can be charged for the services provided. Additionally, a major
portion of hospital revenues typically is derived from federal or state programs
such as Medicare and Medicaid and from other insurers. The future solvency of
the Medicare trust fund is periodically subject to question. Changes in the
compensation and reimbursement formulas of these governmental programs or in the
rates of insurers may reduce revenues available for the payment of principal of
or interest on hospital revenue bonds. Governmental legislation or regulations
and other factors, such as the inability to obtain sufficient malpractice
insurance, may also adversely impact upon the revenues or costs of hospitals.
Future actions by the federal government with respect to Medicare and by the
federal and state governments with respect to Medicaid, reducing the total
amount of funds available for either or both of these programs or changing the
reimbursement regulations or their interpretation, could adversely affect the
amount of reimbursement available to hospital facilities. A number of
additional legislative proposals concerning health care are typically under
review by the United States Congress at any given time. These proposals span a
wide range of topics, including cost controls, national health insurance,
incentives for competition in the provision of health care services, tax
incentives and penalties related to health care insurance premiums and promotion
of prepaid health care plans. It is impossible to predict what legislative
reforms may be made in the future in the health care area and what effect, if
any, they may have on the health care industry generally or on the
creditworthiness of health care issuers of specific securities in which the
Portfolio may invest from time to time.
Utility Obligations. The Portfolio may invest, from time to time, 25% or
more of its total assets in obligations issued by public bodies, including state
and municipal utility authorities, to finance the operation or expansion of
utilities. Various future economic and other conditions may adversely impact
utility entities, including inflation, increases in financing requirements,
increases in raw material, construction and other operating costs, changes in
the demand for services and the effects of environmental and other governmental
regulations.
Other Risks. The exclusion from gross income for purposes of federal income
taxes and Wisconsin personal income taxes for certain housing, health care and
utility bonds depends on compliance with relevant provisions of the Internal
Revenue Code of 1986, as amended (the "Code"). The failure to comply with these
provisions could cause the interest on the bonds to become includable in gross
income, possibly retroactively to the date of issuance, thereby reducing the
value of the bonds, subjecting shareholders to unanticipated tax liabilities and
possibly requiring the Portfolio to sell the bonds at the reduced value.
Furthermore, such a failure to meet these ongoing requirements may not enable
the holder to accelerate payment of the bond or require the issuer to redeem the
bond. In any event, where a mortgage securing housing bonds is insured by the
Federal Housing Administration ("FHA") or other issuer, the consent of the FHA
or other issuer may be required before insurance proceeds would become payable
to redeem the bonds.
SPECIAL CONSIDERATIONS
ECONOMIC SECTOR AND INDUSTRY CONCENTRATION
As discussed above (See "Investment Program -- Other Investment Practices and
Associated Risks"), the Portfolio may, under certain circumstances, invest more
than 25% of its total assets in limited obligation bonds payable from revenues
of issuers involved in any one or more of the housing, utilities or health care
industries and economic sectors. There may be economic, business or political
developments or changes that affect all securities of a similar type, such as
proposed legislation affecting the financing of certain projects, shortages or
price increases of necessary materials, or declining market needs for certain
projects. As a result of the possible industry concentration of the Portfolio's
investment portfolio, developments affecting a single issuer or industry, or
securities financing similar types of projects, could have a significant effect
on the Portfolio's performance.
GEOGRAPHIC CONCENTRATIONS
Because, under normal market conditions, the Portfolio will invest primarily
in securities, the interest on which is exempt from federal income tax and from
Wisconsin personal income tax, it is likely that the Portfolio's investments
will be concentrated in securities issued by issuers located in Wisconsin.
Also, at times when the supply of Wisconsin issues is inadequate to meet the
investment needs of the Portfolio, a significant portion of the Portfolio's
assets will be invested in Tax Exempt Obligations originating from Puerto Rico.
This geographic concentration may expose the Portfolio to greater credit risks
than would be the case for an investment company investing in a nationally
diversified portfolio of municipal securities. The value of the Portfolio's
investments may be closely tied to local, political and economic conditions and
developments within the State of Wisconsin and/or the territory of Puerto Rico.
Other risks include possible tax changes, environmental concerns and differing
levels of supply and demand for debt obligations exempt from federal and
Wisconsin personal income taxes. The Portfolio's policies and programs seek to
minimize this geographic concentration risk in a number of ways. First, the
Portfolio intends to comply with the provisions of Subchapter M of the Code
which, in part, require that, at the close of each quarter of the taxable year,
those issues which represent more than 5% of the Portfolio's total assets must
be limited in the aggregate to 50% of the Portfolio's total assets, and that no
single issue may exceed 25% of the Portfolio's total assets. Moreover,
geographic concentration is reduced since the Portfolio's policies and programs
permit it to purchase securities issued by territories and possessions of the
United States outside of Wisconsin, including Puerto Rico, the Virgin Islands,
Guam and the District of Columbia, which are exempt from federal and Wisconsin
personal income taxes.
Wisconsin's economy, although fairly diverse, is primarily concentrated in
the services industry (accounting for approximately 25% of its total non-farm
employment) and secondarily in manufacturing and retail. Wisconsin's economy
has continued to outperform the national economy. The State's unemployment rate
has been below the national average for the past eight years, and its state
government has also maintained a balanced budget during that same period. As a
result, revenues and assets necessary to support and collateralized interest and
principal payments on bonds issued by Wisconsin public and private issuers in
which the Portfolio may invest remain relatively strong.
Since the early 1970s, manufacturing has been the primary force in Puerto
Rican development. Other major sectors of Puerto Rico's economy include
government, trade and services. Puerto Rico's unemployment rate remains
relatively high at approximately 14%-16%, and per capita income is less than
half of the average in the United States. Debt ratios for Puerto Rico are high
as it assumes much of the responsibility for financing improvements in the local
infrastructure. Puerto Rico's economic base remains centered around tax
advantages offered to U.S. manufacturing firms. Legislation or other action that
would eliminate or reduce such tax incentives might give rise to economic
instability and volatility in the market for municipal securities issued by or
on behalf of Puerto Rico, its agencies or instrumentalities, including those in
which the Portfolio invests.
For a more detailed description of the economies and financial conditions of
Wisconsin and Puerto Rico, see "Geographic Concentration Factors" in the
Statement of Additional Information.
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 the 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.
PRINCIPAL VALUE IF RATES:
----------------------------
MATURITY INCREASE 1% DECREASE 1%
-------- ----------- -----------
Intermediate Bonds 5 years $959 $1,043
Long-Term Bonds 20 years $901 $1,116
The Advisor will manage the debt securities in the Portfolio according to
their assessment of the interest rate outlook. During periods of rising
interest rates, the Advisor 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 Advisor will likely seek to lengthen the average
maturity.
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 Advisor is responsible for the Portfolio's investment management,
and Principal Preservation's officers are responsible for the Portfolio and
Principal Preservation's overall operations.
THE ADVISOR
The Portfolio is managed by Ziegler Asset Management, as investment advisor,
pursuant to the terms of the Investment Advisory Agreement.
Ziegler Asset Management is registered with the Securities and Exchange
Commission as an investment advisor. On December 31, 1995, Ziegler Asset
Management had more than $500 million under discretionary management. Ziegler
Asset Management is a wholly-owned subsidiary of The Ziegler Companies, Inc.
The Advisor provides the Portfolio with overall investment advisory and
administrative services. Subject to such policies as the Board of Directors may
determine, the Advisor makes investment decisions on behalf of the Portfolio,
makes available research and statistical data in connection therewith, and
supervises the acquisition and disposition of investments by the Portfolio,
including the selection of broker-dealers to carry out portfolio transactions.
The Advisor bears all of its own expenses of providing services under the
Advisory Agreement and pays all salaries, fees and expenses of the officers and
Directors of Principal Preservation who are affiliated with Ziegler Asset
Management. The Portfolio bears 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 the Advisor; interest expenses; fees and
expenses of the Distributor, 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 shareholders of
reports, proxies and prospectuses; and fees and expenses of membership in
industry organizations.
Under the Advisory Agreement, the Portfolio pays Ziegler Asset Management an
annual fee, in monthly installments, based on the average daily net assets of
the Portfolio. The fee is at an annual rate of 0.50 of 1% on average daily net
assets up to $250 million, and 0.40 of 1% on average daily net assets in excess
of $250 million.
THE DISTRIBUTOR, DEPOSITORY, TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING
PRICING AGENT AND SHAREHOLDER SERVICING AGENT
Ziegler, another wholly-owned subsidiary of The Ziegler Companies, Inc., also
serves as the Distributor of the shares of the Portfolio pursuant to a
Distribution Agreement; provides accounting and other administrative services,
including daily valuation of the shares of the Portfolio, pursuant to an
Accounting/Pricing Agreement; provides depository and custodial services with
respect to the portfolio securities of the Portfolio pursuant to a Depository
Contract; provides transfer agent services pursuant to a Transfer and Dividend
Disbursing Agency Agreement; and provides services to shareholders with respect
to shareholder accounts opened and maintained through Ziegler by its customers.
The Distribution Agreement provides that Ziegler is entitled to receive a
commission on its sales of the shares of the 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 sixty 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 the Portfolio's total assets of $30 million but less than $100 million, .02
of 1% of the Portfolio's total assets of $100 million but less than $250
million, and .01 of 1% of the 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 0.015 of 1% of assets in excess of $250 million.
Ziegler presently serves as, and other brokers and financial institutions may
in the future serve as, shareholder servicing Agents for shareholder accounts
opened and maintained through them by their customers. Such agents provide
shareholder services to the Portfolio with respect to these accounts pursuant to
separate shareholder servicing agreements with Principal Preservation. The
services include among others, (a) providing transfer agent and subtransfer
agent services for the Agent's customers who purchase and hold shares of the
Portfolio through the Agent; (b) aggregating and processing purchase and
redemption orders in shares of the Portfolio for the benefit of the Agent's
customers and transmitting and receiving funds in connection therewith,
including arranging for the wiring of funds; (c) preparing and distributing
statements showing share ownership information with respect to the Agent's
customers who purchase and hold shares of the Portfolio through the Agent; (d)
processing dividend payments and other distributions paid or made on shares of
the Portfolio which are owned beneficially by the Agent's customers; (e)
providing subaccounting services with respect to shares of the Portfolio
purchased and held by the Agent's customers through the Agent; (f) forwarding
shareholder communications, such as proxies, shareholder reports, dividend and
tax notices and updated prospectuses relating to shares of the Portfolio owned
beneficially by the Agent's customers; (g) receiving, tabulating and
transmitting proxies executed with respect to shares of the Portfolio owned
beneficially by customers of the Agent; (h) providing necessary personnel and
facilities to establish and maintain the shareholder services contemplated by
the shareholders servicing agreement; (i) verifying and guaranteeing signatures
of the Agent's customers in connection with redemption orders and transfers
among and changes in customer-designated accounts holding shares of the
Portfolio; (j) furnishing, on behalf of Ziegler as the Distributor (either
separately or on an integrated basis with other reports sent by the Agent to its
customers) all immediate, monthly and annual statements and confirmations of all
purchases and redemptions of shares of the Portfolio in the customer's
account(s) required by applicable federal or state laws; (k) providing reports
requested by Ziegler as Distributor which contain state-by-state listing of the
principal residences of the Agent's customers who purchase and hold shares of
the Portfolio through the Agent; and (l) providing such other related services
as Principal Preservation or a customer of the Agent reasonably may request.
Under Ziegler's Shareholder Servicing Agreement with Principal Preservation,
Ziegler receives a fee for providing these services at an annual rate of up to
0.15% of the Portfolio's average daily net assets representing shares owned by
Ziegler's customers and held in accounts serviced by Ziegler. The Portfolio
also reimburses Ziegler for certain out-of-pocket expenses it incurs in
providing these services. Ziegler also is entitled to reimbursement from the
Portfolio for out-of-pocket expenses (as opposed to overhead and other internal
expenses of Ziegler) that it incurs in connection with providing the services
contemplated by the shareholder servicing agreement, including without
limitation, fees and expenses that Ziegler pays to third parties in connection
with the processing and mailing of proxies and other shareholder communications
to its customers with respect to shares of the Portfolio purchased and held by
such customers through Ziegler.
Pursuant to the terms of a Transfer and Dividend Disbursing Agency Agreement
by and between Ziegler and Principal Preservation, Ziegler provides transfer and
dividend disbursing agent and other shareholder account services with respect to
all shareholder accounts that are not serviced separately by Ziegler or another
shareholder servicing agent pursuant to the terms of a shareholder servicing
agreement. 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 at $13.50 per account for the Portfolio. Principal
Preservation also reimburses Ziegler for all out-of-pocket expenses incurred in
providing such services.
THE PORTFOLIO MANAGER
Mr. Thomas P. Sancomb manages the investment of the assets of the Portfolio.
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 also serves as manager of the bond portfolios for
several other of the Principal Preservation portfolios.
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 2:30 p.m. New York
time, for the Portfolio.
PURCHASE OF SHARES
Orders received by Ziegler, a shareholder servicing agent, a bank or other
financial institution or registered broker/dealer that has entered into a
selling agreement with the Distributor with respect to shares of the Portfolio
(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 the Portfolio and
another Principal Preservation portfolio, reinvestments of distributions from
any Principal Preservation portfolio or 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
minimum additional investment requirement. An initial investment of $100 is
permitted if made pursuant to an automatic investment plan providing for
subsequent automatic investments of at least $100. See "Shareholder Services --
Systematics Purchase Plan."
Shares may be purchased by investors at net asset value plus a sales charge
as set forth below. The Portfolio will not issue shares for consideration other
than cash except in the case of a bona fide reorganization or statutory merger
or in certain other acquisitions of portfolio securities which meet certain
criteria in accordance with state securities laws. See "Purchase of Shares" in
the Statement of Additional Information. Shares may be purchased by sending a
check payable to Principal Preservation Portfolios, Inc., 215 North Main Street,
West Bend, Wisconsin 53095.
Shares may be purchased by investors at net asset value plus a sales charge
as follows:
PUBLIC OFFERING NET AMOUNT
SIZE OF INVESTMENT PRICE*<F8> INVESTED
------------------ --------------- ----------
Less than $50,000 2.5% 2.56%
$50,000 but less than $100,000 2.0% 2.04%
$100,000 but less than $250,000 1.5% 1.52%
$250,000 but less than $500,000 1.25% 1.26%
$500,000 but less than $1,000,000 1.0% 1.01%
$1,000,000 or more 0.0% 0%
*<F8>The sales charge reallowed by the Distributor to participating dealers and
the commissions paid by the Distributor to participating financial
institutions acting as agent for their customers are: (1) 0.5 of 1% for
purchases of less than $250,000; (2) 0.4 of 1% for purchases of $250,000 or
more, but less than $500,000; and (3) 0.3 of 1% for purchases of $500,000 or
more, but less than $1 million. No reallowance or commission will be paid in
connection with 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 or commission
to a Selected Dealer which employs a registered representative who sells,
during a specific period, a minimum dollar amount of shares, or may pay an
additional concession to Selected Dealers on such terms and conditions as the
Distributor determines. In no event will such additional concession or
commission paid by the Distributor to the Selected Dealer exceed the
difference between the sales charge and the Selected Dealer's allowance or
commission in respect of shares sold by the qualifying registered
representatives of the Selected Dealer. A Selected Dealer who receives such
an additional concession may be deemed to be "underwriter" in connection with
sales by it of such shares and in that capacity the Selected Dealer may be
subject to the applicable provisions of the Securities Act of
1933.
Banks, acting as agents for their customers and not for the 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 any Portfolio's shares, 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. The Portfolio shares are not deposits or
obligations of, or guaranteed or endorsed by, any bank or other financial
institution, are not insured or guaranteed by the U.S. Government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other federal
agency, and involve a risk of possible loss, including loss of principal.
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 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, or (4) 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 value of his shares, plus the offering price of
the new shares, reach a higher discount level. For example, if the current
value of the shares held by a shareholder in the Portfolio 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
1.5% on that additional investment. A shareholder's holdings in all Principal
Preservation portfolios which have a sales charge will be aggregated in
determining the break-point at which he is entitled to purchase in the Portfolio
or in any other Principal Preservation portfolio.
A third way is for a "purchases" to sign a non-binding letter of intent
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 letter of intent, 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 Letter of Intent 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 or Ziegler, his shareholder servicing agent or
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 selling 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.
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 front end sales charge and which is not part of Principal
Preservation. A purchase of shares of the Portfolio 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 the
Portfolio. 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 Asset Management, Inc. (which serves as sub-advisor to
Principal Preservation's S&P 100 Plus Portfolio), Skyline Asset Management, L.P.
(which serves as sub-advisor to the Select Value Portfolio) or Ziegler Asset
Management, and the trustee or custodian under any pension or profit-sharing
plan established for the benefit of their 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 the Portfolio or any other 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.
Shares may also be purchased without a sales charge by certain authorized
brokers, dealers, registered investment advisors and other financial
institutions that have entered into an agreement with Ziegler in accordance with
certain standards approved by Ziegler, providing specifically for the use of
Principal Preservation shares in particular investment products made available
for a fee to clients of such brokers, dealers, registered investment advisors
and other financial institutions.
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 Ziegler at 800-826-4600 or your shareholder servicing agent.
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, whichever occurs first.
By establishing the telephone redemption service, you authorize Ziegler or
your shareholder servicing 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. The shareholder assumes some risks for
unauthorized transactions by establishing the telephone redemption service.
Ziegler has implemented, and will require that each shareholder servicing agent
also implements, 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 Ziegler, a
shareholder servicing agent, Principal Preservation, Ziegler Asset Management or
any of their employees fails to abide by these procedures, Principal
Preservation may be liable to a shareholder for losses he suffers from any
resulting unauthorized transaction(s). However, none of Ziegler, any
shareholder servicing agent, Ziegler Asset Management, 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 Ziegler
or your shareholder servicing 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.
Ziegler or your shareholder servicing Agent will redeem shares when it has
received all necessary documents. You will be notified promptly by Ziegler or
your shareholder servicing agent if your redemption request cannot be accepted.
Neither Ziegler nor your shareholder servicing Agent may accept redemption
requests which specify a particular date for redemption or which specify any
special conditions. Questions concerning redemption procedures should be
directed to Ziegler at 800-826-4600 or to your shareholder servicing agent.
Signature Guarantees. To protect you, Ziegler or your shareholder servicing
Agent and Principal Preservation from fraud, signature guarantees are required
for certain redemptions. Signature guarantees enable Ziegler or your
shareholder servicing 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 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.
Ziegler or your shareholder servicing 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. Redemption proceeds will not be sent 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. Checks for redemption proceeds typically are mailed within one or
two days, but not later than seven days, after it receives the request and all
necessary documents.
By Wire. Wire redemption proceeds normally will be wired to your bank the
next business day after Ziegler or the shareholder servicing agent receives the
redemption request and all necessary documents. The signatures on any written
request for a wire redemption must be guaranteed. Ziegler 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.
Conditions on Redemptions. If, due to redemption, your account in the
Portfolio drops below $500 for three months or more, Principal Preservation 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 in the
Portfolio 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 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 Portfolio's shareholders.
It is possible that conditions may arise in the future which would, in the
opinion of the Board of Directors of Principal Preservation, make it undesirable
for the 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 the
Portfolio. However, the Portfolio has obligated itself under the 1940 Act to
redeem for cash all shares presented for redemption by any one shareholder up to
$250,000 (or 1% of the 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 Ziegler. Some of the services described below may not be
available from all shareholder servicing Agents. Shareholders and prospective
investors should check with their shareholder servicing Agent to determine if it
makes all of these services available.
Systematic Purchase Plan. A Systematic Purchase Plan ("SPP") may be
established at any time. The minimum initial investment to participate in the
SPP is $100 ($50 if the shareholder account is valued at more than $1,000).
Minimum subsequent monthly deposit are $100. By participating in the SPP, you
may automatically make purchases of shares in the Portfolio 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 the Portfolio 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 shareholder servicing Agent,
Ziegler 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 the Portfolio. 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 investments is soon
withdrawn. The minimum investment accepted while a withdrawal plan is in effect
is $1,000. The periodic withdrawal plan may be terminated at any time by
written notice.
Reinvestment Privilege. If you redeem shares in the Portfolio, you may
reinvest all or part of the redemption processed in the Portfolio, without a
sales charge, if you send written notice to Principal Preservation, Ziegler or
your shareholder servicing 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 privilege 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 may legally 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 Ziegler 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 Ziegler (currently $5.00) or the
shareholder servicing Agent.
In order to effect an exchange on a particular business day, Ziegler must
receive a completed exchange authorization form or other written instructions,
signed by all account owners, no later than 3:00 p.m. Eastern time. Exchange
authorization forms may be obtained from, and should be returned to, Ziegler at
215 North Main Street, West Bend, Wisconsin 53095. Ziegler may accept
instructions from selected dealers or shareholder servicing Agents, subject to
certain conditions and requirements, 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. All exchanges are subject to the conditions described above
under "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 the
Portfolio 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 Ziegler or their shareholder servicing Agent for
further information.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND REINVESTMENTS
Dividends from net investment income will be declared daily and paid monthly
in the Portfolio. Dividends may be taken in cash or additional shares at net
asset value (without a sales charge). You may also direct Ziegler or your
shareholder servicing agent to invest the dividends in shares of any other
Principal Preservation portfolio for which you have any account. The investment
occurs on the same day as the dividend distribution date. Unless you have
elected in writing to Ziegler or your shareholder servicing agent to receive
dividends and capital gain distributions in cash, they will be automatically
reinvested in additional shares of the Portfolio.
Capital gains distributions, if an, in the portfolios will be declared
annually and normally will be paid within 45 days after the end of the fiscal
year.
TAX STATUS
The Portfolio is treated as a separate entity for federal income tax
purposes. The Portfolio intends to qualify as a "regulated investment company"
under Subchapter M of the Code and to take all other action required to ensure
that no federal income taxes will be payable by the Portfolio and that the
Portfolio can pay exempt-interest dividends.
Federal Income Taxation. Distributions of net interest income from Tax
Exempt Obligations that are designated by the Portfolio as exempt-interest
dividends are excludable from the gross income of the Portfolio's shareholders.
The Portfolio's present policy is to designate exempt-interest dividends at each
daily distribution of net interest income. Shareholders are required for
information purposes to report exempt-interest dividends and other tax-exempt
interest on their tax returns.
Distributions paid from other interest income and from any net realized
short-term capital gains will be taxable to shareholders as ordinary income,
whether received in cash or in additional shares. Since none of the Portfolio's
income will consist of dividends from domestic corporations, the dividends
received deduction for corporations will not be applicable to taxable
distributions by the Portfolio. Distributions paid from long-term capital gains
(and designated as such) are taxable as long-term capital gains for federal
income tax purposes, whether received in cash or shares, regardless of how long
a shareholder has held shares in the Portfolio. Under a special provision of
the Revenue Reconciliation Act of 1993 (the "1993 Act"), if the Portfolio
purchases a bond with market discount and later sells or otherwise disposes of
the bond at a gain, it must recognize the gain as ordinary income (and not
capital gain), to the extent of the market discount. The amount of this gain
must also be treated as ordinary income by shareholders when distributed to
them. Under the 1993 Act, long-term capital gains of individuals are taxed at a
maximum rate of 28%, while the highest marginal regular tax rates on ordinary
income for individuals for 1993 and subsequent years are 36% (applicable to
taxable income in excess of $140,000 for married couples filing joint returns),
and 39.6% (for both individuals filing single returns and married couples filing
joint returns with taxable income in excess of $250,000). Shareholders not
subject to federal income taxation will not be taxed on distributions by the
Portfolio.
For federal income tax purposes, an AMT is imposed on taxpayers to the extent
that such tax, if any, exceeds a taxpayer's regular income tax liability (with
certain adjustments). Liability for AMT will depend on each shareholder's
individual tax situation.
Exempt-interest dividends attributable to interest income on certain Tax
Exempt Obligations issued after August 7, 1986 to finance certain private
activities will be treated as an item of tax preference that is included in
alternative minimum taxable income for purposes of computing the federal AMT for
all taxpayers and the federal environmental tax on corporations. The Portfolio
may invest up to 20% of its total assets in obligations the interest on which is
treated as an item of tax preference. Also, a portion of all other tax-exempt
interest received by a corporation, including exempt-interest dividends, will be
included in adjusted current earnings and in earnings and profits for purposes
of determining the federal corporate AMT, the environmental tax imposed on
corporations by Section 59A of the Code, and the branch profits tax imposed on
foreign corporations under Section 884 of the Code. Each shareholder is advised
to consult his or her tax adviser with respect to the possible effects of such
tax preference items.
Gain or loss realized on the sale or exchange of shares in the Portfolio will
be treated as capital gain or loss, provided that the shares represented a
capital asset in the hands of the shareholder. Such gain or loss will be long-
term gain or loss if the shares were held for more than one year. Furthermore,
any loss on the sale or exchange of shares held for six months or less (although
regulations may reduce this time to 31 days) will be disallowed for federal
income tax purposes to the extent of the amount of any exempt-interest dividends
received with respect to such shares.
Any loss on the sale or exchange of shares of the Portfolio generally will be
disallowed to the extent that a shareholder acquires or contracts to acquire
shares of the Portfolio within 30 days before or after such sale or exchange.
In addition, if a shareholder disposes of shares within 90 days of acquiring
such shares and purchases other shares of affiliated mutual funds managed by the
Advisor at a reduced sales charge, the shareholder's tax cost for determining
gain or loss on the shares which are disposed of is reduced by the lesser of the
amount of the sales charge that was paid when the shares disposed of were
acquired or the taxable income, with certain adjustments.
There is a possibility that shareholders may loose the tax-exempt status on
the accrued income of a Tax Exempt Obligation if they redeem their shares in the
Portfolio before a dividend has been declared. The redemption may convert the
tax-exempt income characterization of accrued dividends to a taxable capital
gain characterization to the shareholder. Shareholders should carefully
consider and consult with their own tax advisers regarding the tax effects on
them of such timing issues.
Wisconsin State Taxation. Dividends paid by the Wisconsin Portfolio that are
attributable to (1) interest earned on certain higher education bonds issued by
the State of Wisconsin, certain bonds issued by the Wisconsin Housing and
Economic Development authority, Wisconsin Housing Finance Authority bonds, and
public housing authority bonds and redevelopment authority bonds issued by
Wisconsin municipalities, the interest on which is exempt from taxation by
Wisconsin statute, and (2) interest earned on obligations of the U.S. government
or its territories and possessions, will not be included in the income of the
Portfolio shareholders subject to the Wisconsin personal income tax. All other
dividends paid by the Portfolio will be subject to the Wisconsin personal income
tax. Capital gain dividends qualifying as long-term capital gains for federal
tax purposes will be treated as long-term capital gains for Wisconsin income tax
purposes. Wisconsin taxes long-term capital gains at the same rates as ordinary
income, while imposing limitations on the deductibility of capital losses
similar to those under federal law.
Wisconsin imposes an alternative minimum tax on individuals, trusts, and
estates to the extent that such tax exceeds a taxpayer's regular tax liability.
Wisconsin AMT is based on federal alternative minimum taxable income, with
certain adjustments. Dividends paid by the Portfolio that are attributable to
interest paid on, (1) obligations issued by the State of Wisconsin or its
agencies, the interest on which is exempt from Wisconsin personal income tax
under Wisconsin statute, or (2) obligations of U.S. territories and possessions,
when received by shareholders subject to the Wisconsin personal income tax, will
be excluded from the Wisconsin alternative taxable income of those shareholders.
Buying a Dividend. On the record date for a distribution from capital gains
by the Portfolio, its share price is reduced by the amount of the distribution.
If you buy shares just before the record date ("buying a dividend"), you will
pay the full price for the shares, and then receive a portion of the price back
as a taxable distribution.
Other Tax Information. Under federal tax law, some investors may be subject
to a 31% withholding on reportable dividends, capital gains distributions and
redemption payments ("backup withholding"). Generally, investors subject to
backup withholding will those for whom a taxpayer identification number is not
on file with Principal Preservation or who, to Principal Preservation's
knowledge, have furnished an incorrect number. In order to avoid this
withholding requirement, an investor must certify on the account application
that the taxpayer identification number provided is correct and that the
investment is not other subject to backup withholding, or is exempt from backup
withholding.
The foregoing is only a summary of some of the important tax considerations
generally affecting the Portfolio and their shareholders. This discussion is
not intended as a substitute for careful tax planning. You are urged to consult
your tax adviser with specific reference to your own tax situation.
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 seven series: Wisconsin Tax-Exempt Portfolio, Government
Portfolio, Tax-Exempt Portfolio, S&P 100 Plus Portfolio, Select Value Portfolio,
Dividend Achievers Portfolio and Cash Reserve Portfolio, consisting of 50
million shares in each of the first six series and 400 million in the Cash
Reserve Portfolio. Shares of the Cash Reserve Portfolio are further divided
into two separate classes, Class X Common Stock (the Retail Class) and Class Y
Common Stock (the Institutional Class), consisting of 200 million shares each.
The Board of Directors of Principal Preservation may authorize the issuance of
additional series and, within each series, individual classes, 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
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
the Portfolio) 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 otherwise deemed appropriate by the Board of
Directors. 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 the Portfolio (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 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
portfolios as a factor in the selection of broker-dealers, subject to the policy
of obtaining best price and execution.
DISTRIBUTION EXPENSES
In addition to the sales charge deducted at the time of purchase, the
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 the Portfolio to the Distributor to reimburse it
for expenditures incurred by it in connection with the distribution of the
Portfolio's shares to investors. These payments include, but are not limited
to, the 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 the Portfolio. 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, the payments may not exceed an amount computed at an annual
rate of 0.25 of 1% of the average daily net assets of the Portfolio. 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 Plan" 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 confirmation at
least quarterly regarding their transactions and reports at least semiannually
setting forth various financial and other information related to the Portfolio.
Shareholder Inquiries. Shareholder inquiries may be direct 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 Portfolio may advertise its
"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 the Portfolio refers to the income generated
by an investment in the 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 the Portfolio refers to the average annual total
return for one, five and ten year periods (or so much thereof as the Portfolio
has been in existence). Total return is the change in redemption value of
shares purchased with an initial $1,000 investment, assuming the reinvestment of
dividends and capital gains distributions, after giving effect to the maximum
applicable sales charge. In addition, the Portfolio may advertise its "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
Portfolio's investment objective and policies, characteristics and quality of
the Portfolio 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 Portfolio 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.
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 may be made to that existing account at any time.
Additional investments of $100 or more may be made to existing accounts for
investments made pursuant to an Systematic Purchase Plan. Such 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
LETTER OF INTENT
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 Letter of Intent, however, shall remain unchanged. Each
separate purchase made pursuant to the Letter of Intent 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
Letter of Intent in placing each future order for shares while this Letter of
Intent 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 Letter of Intent. 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 Letter of Intent
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 at the Fund's
Transfer Agent and be subject to the terms of escrow.
2. If total purchases pursuant to this Letter of Intent 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 Letter of Intent are less than the
amount specified, you shall remit to the Dealer an amount equal to 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 Fund's 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 Fund's Transfer Agent as
attorney to surrender for redemption any or all shares on the books of the Fund,
under the conditions previously outlined, with full power of substitutions in
the premises.
5. Any dividends and capital gain distributions declared by the Fund 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 Portfolios 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 purchasing 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 or the Distributor of the total holdings in all Portfolios 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 the Funds' and the Transfer
Agent, acting as your attorneys-in-fact, to redeem any or all shares of the
Funds' 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 Fund shares
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 the Fund 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 the Fund 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 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 Agent. There is a
minimum initial investment of $100.00 for accounts opened under the SPP, and
for subsequent investments until your account balance reaches $1,000, after
which investments can be made in increments of $50 or more.
2. INVESTMENTS. The Portfolio 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. The Portfolio 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 the Portfolio without prior notice if any debit is not paid upon
presentation. The Portfolio shall be under no obligation to notify you of the
non-payment and the Portfolio shall have no liability whatsoever with respect
thereto. You may discontinue the SPP by written notice to the Agent which is
received at least ten business days prior to the collection date or the SPP
may be discontinued at any time by the Portfolio 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 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.
PRINCIPAL PRESERVATION PORTFOLIOS, INC. (the "Fund")
ACCOUNT APPLICATION FORM
MAKE CHECK OR
MONEY ORDER PAYABLE TO: Principal Preservation Portfolios
MAIL TO: Principal Preservation
215 North Main Street
West Bend, WI 53095
- ------------------------------------------------------------------------------
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
Indicate the amount you wish to invest in the Wisconsin Tax-Exempt Portfolio.
Minimum initial investment is as indicated.
___Wisconsin Tax-Exempt Portfolio__________________________
(minimum $1,000)
___I'm interested in any or all of the Principal Preservation Government, Tax-
Exempt, S&P 100 Plus, Select Value and/or Dividend Achievers. Please send me
the combined Prospectus for these Portfolios.
___I'm interested in the Cash Reserve Portfolio. Please send me a Prospectus.
- ------------------------------------------------------------------------------
METHOD OF PAYMENT
Shares purchased by personal or corporate check may not be redeemed by telephone
or otherwise until 15 days after invest ment 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:
___Reinvest all dividends and capital gain distributions.
(If no box is checked, all dividends and capital gain distributions will be
reinvested in additional shares.)
___Receive dividends in cash and reinvest capital gains.
___Receive all distributions in cash.
- ------------------------------------------------------------------------------
LETTER OF INTENT
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
Principal Preservations portfolios having a sales charge equal to at least:
___$50,000-$99,999 ___$500,000-$999,999
___$100,000-$249,999 ___$1,000,000 or more
___$250,000-$499,999
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 a Principal Preservation
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.
- ------------------------------------------------------------------------------
Account Number Account Number
- ------------------------------------------------------------------------------
Account Number Account Number
- ------------------------------------------------------------------------------
TELEPHONE EXCHANGE
____I authorize telephone exchange privileges.
If you request the telephone exchange option, you must obtain a Signature
Guarantee on back.
- ------------------------------------------------------------------------------
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. I
hereby authorize the Portfolio 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
Wisconsin Tax-Exempt 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."
1. 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
2. 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 shares of Principal Preservation. 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 shares of Principal
Preservation 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.
TABLE OF CONTENTS
Page
----
Questions and Answers 2
Expenses 4
Financial Highlights 5
Investment Objective and Policies 6
Investment Program 6
Special Considerations 11
Management 13
Determination of Net Asset Value Per Share 15
Purchase of Shares 15
Redemptions 18
Shareholder Services 20
Dividends, Capital Gains Distributions
and Reinvestments 21
Tax Status 21
Description of Shares 23
Portfolio Transactions and Brokerage 23
Distribution Expenses 24
Other Information 24
PRINCIPAL PRESERVATION
PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
INVESTMENT ADVISOR
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
DISTRIBUTOR, DEPOSITORY, ACCOUNTING/PRICING AGENT 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
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
PP895-5/96
STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 1996
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
WISCONSIN TAX-EXEMPT PORTFOLIO
215 North Main Street
West Bend, Wisconsin 53095
800-826-4600
This Statement of Additional Information and the Prospectus to which it
relates describe the Principal Preservation Wisconsin Tax-Exempt Portfolio (the
"Portfolio"). Principal Preservation Portfolios, Inc. ("Principal
Preservation") offers other mutual funds by separate prospectuses and statements
of additional information.
The objective of the Portfolio is to provide investors with a high level of
current income that is exempt from federal income tax and Wisconsin personal
income tax. There can be no assurance that this investment objective will be
achieved.
Statement of Additional Information
Shares may be purchased, and a Prospectus may be obtained, directly from
the Distributor, 215 North Main Street, West Bend, Wisconsin 53095, telephone
800-826-4600, or from Selected Dealers (see the Prospectus dated May 1, 1996 for
more complete information, including an account application.) This Statement of
Additional Information is not a Prospectus, and should be read in conjunction
with the Prospectus. Capitalized terms not otherwise defined in this Statement
of Additional Information have the meanings ascribed thereto in the Prospectus.
TABLE OF CONTENTS
Page
----
STATEMENT OF ADDITIONAL INFORMATION........................... 1
INVESTMENT PROGRAM............................................ 2
INVESTMENT RESTRICTIONS....................................... 9
GEOGRAPHIC CONCENTRATION FACTORS.............................. 11
MANAGEMENT OF PRINCIPAL PRESERVATION.......................... 15
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES........... 22
PERFORMANCE INFORMATION....................................... 22
DETERMINATION OF NET ASSET VALUE PER SHARE.................... 24
PURCHASE OF SHARES............................................ 25
TAX STATUS.................................................... 25
PORTFOLIO TRANSACTIONS AND BROKERAGE.......................... 26
DISTRIBUTION EXPENSES......................................... 27
CUSTODIAN..................................................... 29
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS.................... 29
PORTFOLIO RATINGS............................................. 29
FINANCIAL STATEMENTS.......................................... 29
DESCRIPTION OF RATINGS OF CERTAIN FIXED INCOME
SECURITIES..................................................A-1
INVESTMENT PROGRAM
The Prospectus describes the investment objective and policies of the
Portfolio. Certain instruments and techniques discussed in the Prospectus are
described in greater detail below.
Tax Exempt Obligations
- ----------------------
As used in this Statement of Additional Information, the term "Tax Exempt
Obligations" refers to debt obligations issued by or on behalf of a state or
territory of the United States or its agencies, instrumentalities,
municipalities and political subdivisions, the interest payable on which is, in
the opinion of bond counsel, excludable from gross income for purposes of
federal income tax (except, in certain instances, the alternative minimum tax,
depending upon the shareholder's tax status) and from the Wisconsin personal
income tax.
Tax Exempt Obligations are generally issued to obtain funds for various
public purposes, including the construction of a wide range of public facilities
such as airports, bridges, highways, housing, hospitals, mass transportation,
schools, streets, water and sewer works, and gas and electric utilities. Tax
Exempt Obligations may also be issued in connection with the refunding of
similar outstanding obligations, or obtaining funds to lend to other public
institutions, or for general operating expenses. In addition, Tax Exempt
Obligations may be issued by or on behalf of public authorities to obtain funds
to provide various privately-operated facilities for business and manufacturing,
housing, sports, pollution control, and for airport, mass transit, port, and
parking facilities.
The two principal classifications of Tax Exempt Obligations are "general
obligation bonds" and "revenue bonds." General obligation bonds are generally
secured by the full faith and credit of an issuer possessing general taxing
power and are payable from the issuer's general unrestricted revenues and not
from any particular fund or revenue source. Revenue bonds are payable only from
the revenues derived from a particular source or facility, such as a tax on
particular property or revenues derived from, for example, a municipal water or
sewer utility or an airport. Tax Exempt Obligations that benefit private
parties in a manner different than members of the public generally (so-called
private activity bonds or industrial development bonds) are in most cases
revenue bonds, payable solely from specific revenues of the project to be
financed. The credit quality of private activity bonds is usually directly
related to the credit worthiness of the user of the facilities (or the credit
worthiness of a third-party guarantor or other credit enhancement participant,
if any). Payment of principal and interest on private activity bonds generally
depends on the ability of such user to meet its financial obligations, or, in
case of default, upon the amount realizable upon the disposition of property
pledged as security for payment of the user's obligation.
Tax Exempt Obligations in which the Portfolio may invest may also include
short-term obligations such as municipal notes, which are generally used to
provide short-term working capital needs and typically have maturities of one
year or less. Such obligations may include Project Notes, Tax Anticipation
Notes, Bond Anticipation Notes and Tax-Exempt Commercial Paper, and other
similar short-term obligations.
The yields on Tax Exempt Obligations are on dependent on a variety of
factors, including the financial condition of the issuer or other obligor
thereon or the revenue source from which debt service is payable, general
economic and monetary conditions, conditions in the relevant market, the size of
a particular issue, maturity of the obligation and the rating, if any, of the
issue.
Obligations of issuers of Tax Exempt Obligations are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Reform Act of 1978. In
addition, the obligations of such issuers may become subject to laws enacted in
the future by Congress, state legislatures, or referenda extending the time for
payment of principal and/or interest, or imposing other constraints upon
enforcement of such obligations or upon the issuer's ability to generate tax
revenues. There is also the possibility that, as a result of litigation or
other conditions, the authority or ability of an issuer to pay, when due, the
principal of and interest on its Tax Exempt Obligations may be materially
affected.
From time to time, legislation has been introduced in Congress for the
purpose of restricting the availability of or eliminating the federal income tax
exemption for interest on Tax Exempt Obligations, some of which have been
enacted. Additional proposals may be introduced in the future which, if
enacted, could affect the availability of Tax Exempt Obligations for investment
by the Portfolio and the value of securities held by the Portfolio. In such
event, management of each Portfolio may discontinue the issuance of shares to
new investors and may re-evaluate the Portfolio's investment objective and
policies and adopt and implement possible changes to them and the investment
program of the Portfolio.
Non-Investment Grade Bonds
- --------------------------
The Portfolio may invest up to 20% of its assets in non-investment grade
bonds (those rated below the four highest categories by Moody's or S&P or judged
by the Advisor to be of comparable quality), provided that the Portfolio may not
invest in bonds rated below B at the time of purchase. These so-called "junk
bonds" are regarded, on balance, as predominantly speculative with respect to
the capacity of the issuer to pay interest and repay principal in accordance
with the terms of the obligation. While such bonds typically offer higher rates
of return than investment grade bonds, they also involve greater risk, including
greater risk of default. An economic downturn could severely disrupt the market
for such high yield bonds and adversely affect their value and the ability of
the issuers to repay principal and interest. The rate of incidence of default
on junk bonds is likely to increase during times of economic downturns and
extended periods of increasing interest rates. Yields on junk bonds will
fluctuate over time, and are generally more volatile than yields on investment
grade bonds.
The secondary trading market for junk bonds may be less well established
than for investment grade bonds, and such bonds may therefore be only thinly
traded. As a result, there may be no readily ascertainable market value of such
securities, in which case it will be more difficult for the Board of Directors
of the Portfolio to accurately value the securities, and consequently the
investment portfolio. Under such circumstances, the Board's subjective judgment
will play a greater role in the valuation. Additionally, adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may decrease
the values and liquidity of junk bonds, especially in a thinly traded market.
To the extent such securities are or become "illiquid" in the judgment of the
Board of Directors, the Portfolio's ability to purchase and hold such securities
will be subject to its investment restriction limiting its investment in
illiquid securities. See "Investment Restrictions."
As noted above, the Portfolio will not invest in junk bonds that are rated
below the sixth rating categories by Moody's or S&P (B for Moody's and for S&P)
or judged comparable by the Advisor. Bonds rated in the fifth category (Ba for
Moody's and BB for S&P) have less near-term vulnerability to default than other
speculative issues, however they face major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. However,
business and financial alternatives available to obligors of such bonds can
generally be identified which could assist them in satisfying their debt service
requirements. Bonds rated in the sixth category are considered highly
speculative. While the issuers of such bonds must be currently meeting debt
service requirements in order to achieve this rating, adverse business,
financial or economic conditions could likely impair the issuer's capacity or
willingness to pay interest and repay principal. A detailed description of the
characteristics associated with the various debt credit ratings established by
S&P and Moody's is set forth in Appendix A to this Statement of Additional
Information.
While rating categories help identify credit risks associated with bonds,
they do not evaluate the market value risk of junk bonds. Additionally, the
credit rating agencies may fail to promptly change the credit ratings to reflect
subsequent events. Accordingly, Principal Preservation's Board of Directors and
the Advisor continuously monitor the issuers of junk bonds held by the Portfolio
to assess and determine whether the issuers will have sufficient cash flow to
meet required principal and interest payments, and to assure the continued
liquidity of such bonds so that the Portfolio can meet redemption requests.
State or Municipal Lease Obligations
- ------------------------------------
The Portfolio may invest up to 10% of its net assets in state or municipal
leases and participation interests therein. The leases may take the form of a
lease, an installment purchase or a conditional sales contract or a
participation certificate in any of the above. Such leases may be entered into
by state and local governments and authorities to purchase or lease a wide array
of equipment such as fire, sanitation or police vehicles or telecommunications
equipment, buildings or other capital assets. State or municipal lease
obligations frequently have the special risks described below which are not
associated with general obligation or revenue bonds issued by public bodies.
The constitution and statutes of many states contain requirements with
which the state and municipalities must comply whenever incurring debt.
Depending on the circumstances, these requirements may include approving voter
referenda, debt limits, interest rate limits and public sale requirements.
Leases have evolved as a means for public bodies to acquire property and
equipment without needing to comply with all of the constitutional and statutory
requirements for the issuance of debt. The debt-issuance limitations may be
inapplicable for one or more of the following reasons: (i) the inclusion in
many leases or contracts of "nonappropriation" clauses that provide that the
public body has no obligation to make future payments under the lease or
contract unless money is appropriated for such purpose by the appropriate
legislative body on a yearly or other periodic basis (the "nonappropriation"
clause); (ii) the exclusion of a lease or conditional sales contract from the
definition of indebtedness under relevant state law; or (iii) a provision in the
lease for termination at the option of the public body at the end of each fiscal
year for any reason or, in some cases, automatically if not affirmatively
renewed.
An investment in municipal lease obligations is generally less liquid than
an investment in comparable tax-exempt bonds because there is a limited
secondary trading market for such obligations. Furthermore, if the lease is
terminated by the public body for nonappropriation or other reason not
constituting a default under the lease, the lessor, or holder of a participation
interest in the lease, is limited solely to repossession of the leased property
without any recourse to the general credit of the public body. The disposition
of the leased property by the lessor in the event of termination of the lease
might, in many cases, prove difficult or result in loss. Accordingly, municipal
lease obligations will be characterized by the Portfolio as illiquid for
purposes of determining whether it complies with its investment limitation with
respect to illiquid securities, except where Principal Preservation's Board of
Directors expressly determines such a municipal lease obligation is not
illiquid.
Government Securities
- ---------------------
As set forth in the Prospectus, under certain circumstances and subject to
certain limitations, the Portfolio may invest in obligations and instruments,
the interest on which is includable in gross income for purposes of federal and
state income taxation, including obligations of the U.S. government, its
agencies or instrumentalities. Direct obligations issued by the U.S. Treasury
include bills, notes and bonds which differ from each other only as to interest
rate, maturity and time of issuance. Treasury Bills have a maturity of one year
or less, Treasury Notes have maturities of one to ten years and Treasury Bonds
generally have maturities of greater than ten years.
Some obligations issued or guaranteed by U.S. government agencies and
instrumentalities are supported by the full faith and credit of the U.S.
Treasury, other obligations are secured by the right of the issuer to borrow
from the Treasury or are supported by the discretionary authority of the U.S.
government to purchase certain obligations of the agency or instrumentality, and
other obligations are supported only by the credit of the instrumentality
itself. Although the U.S. government provides financial support to such U.S.
government-sponsored agencies or instrumentalities, no assurance can be given
that it will always do so, since it is not so obligated by law. The Portfolio
will invest in such securities only when the Advisor are satisfied that the
credit risk with respect to the issuer is appropriate for the
Portfolio.
Repurchase Agreements
- ---------------------
The Portfolio may from time to time enter into repurchase agreements in
accordance with the limits set forth in the Prospectus. Repurchase agreements
involve the purchase by the Portfolio of securities with the condition that,
after a stated period of time, the original seller (a member bank of the Federal
Reserve System or a recognized securities dealer) will buy back the same
securities ("collateral") at a predetermined price or yield. The Portfolio may
invest in repurchase agreements of a duration of 7 days or less subject to the
limits on such investments stated in the Prospectus. The Portfolio's ability to
invest in repurchase agreements that mature in more than 7 days is subject to
the limits stated in the Prospectus as well its investment restriction limiting
investment in "illiquid" securities.
The Portfolio's depository will hold the securities underlying any
repurchase agreement as collateral or such securities will be part of the
Federal Reserve Book Entry System. The market value of the collateral
underlying the repurchase agreement will be determined on each business day. If
at any time the market value of the collateral falls below the repurchase price
of the repurchase agreement (including any accrued interest), the obligor under
the agreement will promptly furnish additional collateral to the depository so
that the total collateral is an amount at least equal to the repurchase price
plus accrued interest. The difference between the amount the Portfolio pays for
the securities and the amount it receives upon resale is accrued as interest and
reflected in its net income.
In determining whether to enter into a repurchase agreement, the Advisor
will take into account the creditworthiness of the original seller. In the
event the seller of the repurchase agreement becomes the subject of a bankruptcy
or insolvency proceeding, or in the event of the failure of the seller to
repurchase the underlying security as agreed, the Portfolio could experience
losses that include: (1) possible decline in the value of the collateral during
the period that the Portfolio seeks to enforce its rights with respect thereto,
and possible delay in the enforcement of such rights; (2) possible loss of all
or a part of the income or proceeds of the repurchase; (3) additional expenses
to the Portfolio in connection with enforcing those rights; and (4) possible
delay in the disposition of the underlying security pending court action or
possible loss of rights in such securities.
When-Issued and Delayed Delivery Transactions
- ---------------------------------------------
The Portfolio may purchase or sell securities in when-issued or delayed
delivery transactions subject to the limitations stated in the Prospectus. In
such transactions, instruments are bought or sold with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous yield or price to the Portfolio at the time of entering into the
transactions. The payment obligations and the interest rate are fixed at the
time the buyer enters into the commitment, although no interest accrues to the
purchaser prior to settlement of the transaction. Consistent with the
requirements of the 1940 Act, securities purchased on a when-issued basis are
recorded as an asset (with the purchase price being recorded as a liability) and
are subject to changes in value based upon changes in the general level of
interest rates. At the time of delivery of the security, the value may be more
or less than the transaction price. At the time the Portfolio enters into a
binding obligation to purchase securities on a when-issued basis, liquid assets
of the Portfolio having a value at least as great as the purchase price of the
securities to be purchased are identified on the books of the Portfolio and held
by the Portfolio's depository throughout the period of the obligation. The use
of these investment strategies may increase net asset value fluctuations.
The Portfolio will only make commitments to purchase securities on a when-
issued basis with the intention of actually acquiring the securities, and not
for the purpose of investment leverage, but the Portfolio reserves the right to
sell the securities before the settlement date if it is deemed advisable. When
payment is made for when-issued securities, the Portfolio will meet its
obligation from its then available cashflow, sale of securities held in the
separate account, sale of other securities or, although it normally would not
expect to do so, from sale of the when-issued securities themselves (which may
have a market value greater or lesser than the Portfolio's obligation). The
sale of securities to meet such obligations may involve a greater potential for
the realization of capital gains, which could cause the Portfolio to realize
income not exempt from federal income tax and Wisconsin personal income tax.
Investments in Other Investment Companies
- -----------------------------------------
An investment by the Portfolio in another investment company may cause the
Portfolio to incur increased administration and distribution expenses. Such
investments are limited by the Portfolio's investment restrictions. See
"Investment Restrictions" in this Statement of Additional Information.
Diversification
- ---------------
The number of issues of securities which meet the Portfolio's investment
objective and criteria may be somewhat limited. As a result, a relatively high
percentage of the Portfolio's assets may be invested from time to time in the
obligations of a limited number of issuers, some of which may be subject to the
same economic trends and/or be located in the same geographic area. Securities
held by the Portfolio may therefore be more susceptible to any single economic,
political or regulatory occurrence than the portfolio securities of diversified
investment companies.
The Portfolio will operate as a non-diversified management investment
company under the 1940 Act, but intends to comply with the diversification
requirements contained in the Internal Revenue Code of 1986. These provisions
of the Internal Revenue Code presently require that, at the end of each quarter
of the Portfolio's taxable year: (i) at least 50% of the market value of the
Portfolio's assets must be invested in cash, government securities, the
securities of other regulated investment companies and other securities, with
such other securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of the Portfolio's
total assets; and (ii) not more than 25% of the value of the Portfolio's total
assets can be invested in the securities of any one issuer (other than
government securities or the securities of other regulated investment
companies).
For purposes of such diversification, the identification of the issuer of
Tax Exempt Obligations depends on the terms and conditions of the security. If
a state or territory of the United States or the District of Columbia or a
political subdivision of any of them, as the case may be, pledges its full faith
and credit to payment of a security, such entity is deemed the sole issuer of
the security. If the assets and revenues of an agency, authority or
instrumentality of a state or territory of the United States or the District of
Columbia, or a political subdivision of any of them, are separate from those of
the state, territory, District or political subdivision, and the security is
backed only by the assets and revenues of the agency, authority or instru-
mentality, such agency, authority or instrumentality is deemed to be the sole
issuer of the security. Moreover, if the security is backed only by revenues of
an enterprise or specific projects of the state, territory or District, or a
political subdivision or agency, authority or instrumentality thereof, such as
utility revenue bonds, and the full faith and credit of the governmental unit is
not pledged to the payment of principal and interest on the obligation, such
enterprise or specific project is deemed the sole issuer. Similarly, in the
case of an industrial development bond, if that bond is backed only by certain
revenues to be received from the non-governmental user of the project financed
by the bond, then such non-governmental user is deemed to be the sole issuer.
If, however, in any of the above cases, a state, territory or the District, or a
political subdivision of any of them, or some other entity, guarantees a
security and the value of all securities issued or guaranteed by the guarantor
and owned by the Portfolio exceeds 10% of the value of the Portfolio's total
assets, the guarantee is considered a separate security and is treated as an
issue of the guarantor.
Portfolio Turnover
- ------------------
Principal Preservation has not established a limit to its portfolio turn-
over rates, nor will it attempt to achieve or be limited to predetermined rates
of portfolio turnover. Although Principal Preservation cannot predict its
portfolio turnover rates, the Portfolio's portfolio turnover rate is not
expected to exceed 100%. For the year ended December 31, 1995, the Portfolio's
turnover rate was 9.7%.
INVESTMENT RESTRICTIONS
The Portfolio has adopted the following fundamental investment restrictions
and policies which cannot be changed without the approval of the holders of the
lesser of (i) a majority of the outstanding shares of the Portfolio or (ii) 67%
of the shares represented at a meeting of shareholders at which the holders of
50% or more of the outstanding shares of the Portfolio are represented.
Policies that are not "fundamental policies" are subject to change by the Board
of Directors without shareholder approval. Any investment restriction which
involves a maximum percentage of securities or assets will not be considered to
be violated unless an excess over the percentage occurs immediately after, and
is caused by, an acquisition of securities or assets of, or borrowing by, the
Portfolio. The Portfolio may not:
(1) Purchase more than 10% of the outstanding voting securities of an
issuer, or invest in a company to get control or manage it.
(2) Invest 25% or more of its total assets, based on current market value
at the time of purchase, in securities of issuers in any single industry (except
that it may invest without limitation, in circumstances in which other
appropriate available instruments may be in limited supply, in housing, health
care and/or utility obligations); provided that there shall be no limitation on
the purchase of Tax Exempt Obligations and securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities.
(3) Borrow money or property except for temporary or emergency purposes.
If the Portfolio ever should borrow money it would only borrow from banks and in
an amount not exceeding 10% of the market value of its total assets (not
including the amount borrowed). The Portfolio will not pledge more than 15% of
its net assets to secure such borrowings. In the event the Portfolio's
borrowing exceeds 5% of the market value of its total assets the Portfolio will
not invest in any portfolio securities until its borrowings are reduced to below
5% of its total assets. For purposes of these restrictions, collateral arrange-
ments for premium and margin payments in connection with hedging activities, if
any, are not to be deemed to be a pledge of assets.
(4) Make loans, except that it may lend its portfolio securities, subject
to the conditions and limitations established in the Prospectus. For the
purposes of this restriction, investments in publicly-traded debt securities or
debt securities of the type customarily purchased by institutional investors and
investments in repurchase agreements are not considered loans.
(5) Underwrite the securities of other issuers, except where it might
technically be deemed to be an underwriter for purposes of the Securities Act of
1933 upon the disposition of certain securities.
(6) Issue senior securities.
(7) Purchase a security if, as a result, more than 10% of the value of the
Portfolio's net assets would be invested in: (i) securities with legal or
contractual restrictions on resale (other than investments and repurchase
agreements); (ii) securities for which market quotations are not readily
available; and (iii) repurchase agreements which do not provide for payment
within 7 days.
(8) Invest in commodities, but the Portfolio may invest in futures
contracts, options on futures, and options.
In accordance with the following non-fundamental policies, which may be
changed without shareholder approval, the Portfolio may not:
(1) Invest more than 5% of its total assets in securities of companies
which, including any predecessors, have a record of less than 3 years of
continuous operations.
(2) Buy or sell real estate, real estate investment trusts, real estate
limited partnerships, or oil and gas interests or leases, but this shall not
prevent the Portfolio from investing in Tax Exempt Obligations secured by real
estate or interests therein or in securities of companies whose business
involves the purchase or sale of real estate.
(3) Purchase warrants, except that the Portfolio may purchase warrants
which, when valued at lower of cost or market, do not exceed 5% of the value of
the Portfolio's net assets; included within the 5%, but not to exceed 2% of the
Portfolio's net assets, may be warrants which are not listed on the New York or
American Stock Exchange.
(4) Purchase or retain the securities of an issuer if those officers or
Directors of Principal Preservation or the Advisor (as defined under the caption
"Management of Principal Preservation -- The Investment Advisor" in this
Statement of Additional Information) who individually own beneficially more than
0.5 of 1% of the outstanding securities of such issuer together own beneficially
more than 5% of such outstanding securities; provided that no officer or
director shall be deemed to own beneficially securities held in other accounts
managed by such person or held in employee or similar plans for which such
person acts as trustee.
(5) Purchase securities on margin or effect short sales of securities,
except that the Portfolio may sell securities short where it holds a long
position in the same security which equals or exceeds the number of shares sold
short; provided that the Portfolio may not effect any such short sale of
securities if, as a result thereof, more than 10% of the Portfolio's net assets
would be held as collateral for such short positions.
(6) Purchase securities of other investment companies if the purchase
would cause more than 10% of the value of the total assets of the Portfolio to
be invested in investment company securities, provided that: (i) no investment
will be made in the securities of any single investment company if, immediately
after such investment, more than 3% of the outstanding voting securities of such
investment company would be owned by the Portfolio or more than 5% of the value
of the total assets of the Portfolio would be invested in such investment
company; and (ii) no such restrictions shall apply to a purchase of investment
company securities as a part of a merger, consolidation, reorganization or
acquisition of assets.
(7) Engage in futures and options transactions, other than as described in
its current Prospectus and Statement of Additional Information.
GEOGRAPHIC CONCENTRATION FACTORS
As discussed in the Portfolio's Prospectus (see "Special Considerations --
Geographic Concentrations" in the Prospectus), a significant portion of the
Portfolio's investments will consist of Wisconsin and/or Puerto Rican issues,
which exposes the Portfolio to risks associated with economic conditions in
those geographic areas. The following information is a brief summary of factors
affecting Wisconsin and Puerto Rico and does not purport to be a complete
description of such factors. The information is based primarily upon
information derived from public documents relating to securities offerings of
governmental and agency issuers in Wisconsin and Puerto Rico and other
historically reliable sources, but has not been independently verified by
Principal Preservation. The market value of the shares of the Portfolio may
fluctuate due to factors such as changes in interest rates, matters affecting
either or both of these geographic areas or for other reasons.
Factors Affecting Wisconsin
- ---------------------------
Wisconsin's economy, although fairly diverse, is primarily concentrated in
the services industry (accounting for approximately 25% of its non-farm
employment) and secondarily in the manufacture of durable goods and retail.
Federal, state and local government in Wisconsin is also a major employer. The
top five products made in Wisconsin are dairy products, motor vehicles, paper,
meat products and small engines.
Wisconsin continues to outperform the national economy. Wisconsin's
unemployment rate has been below the national average for the past eight years.
In August 1995, the State's unemployment rate was 3.3%, compared to a national
unemployment rate of approximately 6%. The State is highly ranked in terms of
job creation, especially in the creation of manufacturing jobs. Since 1987, the
State's personal income tax rate has been reduced from 7.9% to 6.93%, and the
current Governor, Tommy G. Thompson, has expressed his desire to implement
further reductions. At the same time, state spending has been controlled, with
balanced budgets experienced in each of the last eight years. Personal incomes
in Wisconsin continue to increase at a rate above that of the national average.
Wisconsin has an extremely diverse revenue-raising structure. In excess of
one-third of its total revenue is derived from the various taxes levied by the
State. The remainder comes from the federal government and from various kinds
of fees, licenses, permits and service charges paid by users of specific
services, privileges or facilities. Wisconsin's tax structure has a diverse
underlying base consisting of income, general and special product sales,
transfer of wealth and property value. About one-third of all taxes collected
by the State of Wisconsin is returned to local units of government. The
remaining funds are used for state operations and aid to individuals and
organizations. The combined operations of three state agencies (Department of
Health and Social Services, Department of Public Instruction and the University
of Wisconsin System) account for more than 50% of the total state expenditures.
Wisconsin has the authority to increase appropriations from or reduce taxes
below levels established in its budget. In recent years, Wisconsin has adopted
appropriation measures subsequent to passage of its budget act. However, it has
been the State's policy that supplemental appropriations adopted by the State
Legislature must be within revenue projections for the relevant fiscal period or
balanced by reductions in other appropriations. The spending from additional
appropriations historically has been matched by reduced disbursements, increased
revenues or a combination of the two.
Wisconsin has experienced and anticipates it will continue to experience
certain periods when its general fund is in a negative cash position. State
statutes provide certain administrative remedies to deal with these periods.
The Secretary of Administration may temporarily reallocate up to $400 million of
available cash in other funds to the general fund. The Secretary of
Administration may set priorities for payments from the general fund as well as
pro rate certain payments. State statutes mandate that all payments must be in
accordance with the following order of preference: (a) all direct and indirect
payments of principal and interest on Wisconsin general obligation debt must
have first priority and may not be pro rated or reduced; (b) all direct and
indirect payments of principal and interest on operating notes must take second
priority and may not be pro rated or reduced; (c) all Wisconsin employee
payrolls must take third priority, but may be pro rated or reduced; and (d) all
other payments are paid in a priority determined by the Secretary of
Administration and may be pro rated or reduced.
Governor Thompson's 1995-97 budget is expected to decrease local property
taxes by approximately $1.2 billion based on certain assumptions which might or
might not prove correct. It is not clear what effect, if any, such property tax
relief proposal will have on the Portfolio's investments or
prospects.
Factors Affecting Puerto Rico
- -----------------------------
The Portfolio may invest in obligations of the Commonwealth of Puerto Rico
and its political subdivisions, agencies and instrumentalities, that qualify as
Tax Exempt Obligations. The majority of Puerto Rico's debt is issued by 10 of
the major public agencies that are responsible for many of its public functions,
such as water, wastewater, highways, telecommunications, education and public
construction.
The Puerto Rico economy generally parallels the economic cycles of the
United States, as most goods are imported from the U.S. Interest rates also
generally mirror those of the United States. The Puerto Rico economy over the
past few decades has been dominated by capital-intensive manufacturing
industries such as pharmaceuticals and chemicals, instruments, electronics,
apparel, food products and machinery. Additional major economic sectors include
government, trade and services. Industrial production in Puerto Rico rose by
approximately 4.7% in 1994, an increase from 4.3% in 1993. High-tech economic
sectors have shown steady growth, while labor-intensive industries are generally
declining. The unemployment rate has remained at approximately 14% to 16%
during the past few years, and is expected to remain at such levels over the
short-term.
The Puerto Rico economy remains vulnerable to changes in world oil prices
(98% of Puerto Rico's oil needs are supplied by imports), American trade,
foreign policy and levels of federal assistance. Per capita income levels,
while the highest in the Caribbean at slightly more than $7,000, lag far behind
the United States.
Puerto Rico's real gross national product grew 3.5% in 1995, as compared to
2.5% in 1994. Economic expansion during the early 1990s has been dampened by
uncertainty over Section 936 tax credits and the plebescite regarding statehood,
as well as a sluggish U.S. economy. Strong growth in tourism, car sales and
shopping center development has been offset by weakness in the manufacturing,
insurance and government sectors. Construction activity has grown in recent
years, as the government has increased its spending on public works and
infrastructure improvements.
Puerto Rico's central government budget of $3.23 billion for 1994 was
approximately the same as the budget for 1993, although more funds are being
channeled to services such as law enforcement and education. Future spending
will be limited by a lack of new revenue sources, but budgetary demands are
expected to increase due to a poor infrastructure, especially in power
generation, waste disposal, roads and water and facilities. Debt ratios for
Puerto Rico are high as it assumes much of the responsibility for the local
infrastructure. The Commonwealth's general obligation debt is secured by a
first lien on all available revenues. Debt policy has sought to keep the rate
of growth of debt at or below that of the gross domestic product, although
recent substantial borrowings and general economic conditions mark a departure
from this policy. The per capita guaranteed debt burden is high at over $1,000,
of which guaranteed and tax-supported debt likely will exceed $2,000. Debt
service is more manageable relative to total expenditures at roughly 12% of
combined general and debt service fund expenditures.
Before the enactment of the Omnibus Budget Reconciliation Act of 1993
("OBRA"), under Section 936 of the Code, domestic corporations with a
substantial amount of their business operations in Puerto Rico could elect to
claim a tax credit under Section 936 that effectively eliminated their U.S.
income tax on income from business operations conducted in Puerto Rico. OBRA
has now limited the amount of the Section 936 credit available to corporations
in 1994 and subsequent years. Generally, a corporation may elect between two
alternative limitations on the amount of the credit. The first limitation is
based on the amount of the economic activity it conducts in Puerto Rico
(measured by compensation paid there and depreciation claimed on property
located and used in a trade or business there); the second is based on an
applicable percentage (40%, once the limitation is fully-phased in by 1998) of
the amount of the credit that would have been available to the corporation under
pre-OBRA law. It is impossible to predict with certainty whether, or to what
extent, these limitations on the Section 936 credit will result in a decrease in
the business operations of U.S. corporations in Puerto Rico. However, further
weakening of the Section 936 tax benefits would likely erode Puerto Rico's
competitive advantage. The North American Free Trade Agreement may also cause
companies to transfer their operations from Puerto Rico to Mexico with its lower
wages and transportation costs.
In August 1983, the United States enacted legislation widely known as the
Caribbean Basin Initiative ("CBI"). CBI, which is designed to encourage
economic development in the Caribbean and Central America, provides for: (a)
unilateral, duty-free access to a United States market for Caribbean Basin
products, except for a few selected commodities, for a period of 12 years; (b)
tax deductions for conventions held in the Caribbean; and (c) direct economic
assistance payments by the United States. CBI contains a number of measures
designed to maintain the competitive position of Puerto Rico and U.S. insular
possessions. Such measures include, among others, the inclusion in free trade
benefits of products that are processed in part in Puerto Rico, rebates to
Puerto Rico of excise taxes collected on rum imports and the exclusion of
processed tuna from duty-free treatment. The government of Puerto Rico strongly
supports the island's involvement in the CBI, particularly in relation to the
development of twin plants, or complementary projects. Under this program, the
labor-intensive phase of production generally occurs in a Caribbean or Central
American country, while the more sophisticated, higher technology phases take
place in Puerto Rico.
Puerto Rico has been a commonwealth of the United States since 1952. In a
plebiscite held in November 1993, 48% of Puerto Rico voters confirmed their
preference for commonwealth status, narrowly defeating the 46% who voted for
statehood. Only 4% voted for independence. Another vote on statehood is not
expected over the next several years. However, any vote on a change in Puerto
Rico's status requires the approval of the U.S. Congress. The effects of a
future decision to grant statehood or independence to Puerto Rico are uncertain,
although such a decision could result in economic instability, volatility in the
price and market for securities, and elimination or phase-out of the Section 936
tax credit.
MANAGEMENT OF PRINCIPAL PRESERVATION
Directors and Officers
- ----------------------
Under applicable law, the Board of Directors is responsible for management
of Principal Preservation, and provides broad supervision over its affairs. The
Advisor are responsible for the Portfolio's investment management, and the
Principal Preservation's officers are responsible for the Portfolio's
operations.
The Directors and officers of Principal Preservation and their principal
occupations during the past five years are set below. Their titles may have
varied during that period. Asterisks indicate those Directors who are
"interested persons" (as defined in the 1940 Act) of Principal Preservation.
Unless otherwise indicated, the address of each Director and officer of
Principal Preservation is 215 North Main Street, West Bend, Wisconsin 53095.
Position with Principal
Principal Occupation During
Name and Address Preservation Past Five Years
- ---------------- ------------- ---------------
R. D. Ziegler* President and Since 1973 Chairman and
Director Director and, prior to
1990, Chief Executive
Officer, and prior to
1986, President, The
Ziegler Companies, Inc.
and B.C. Ziegler and
Company; Chairman and
Director, Ziegler Asset
Management, Inc.;
Director, Johnson
Controls, Inc.
(manufacturing).
Robert J. Tuszynski* Vice President Director of Mutual Funds,
and Director B.C. Ziegler and Company,
since 1987; Trustee,
Chairman of the Board and
President, Prospect Hill
Trust and The Prime
Portfolios (registered
investment companies) from
1994 to 1996.
Richard H. Aster, M.D. Director President and Director of
1701 W. Wisconsin Ave. Research, The Blood Center
Milwaukee, WI 53233 of Southeastern Wisconsin,
Inc.
Augustine J. English Director Retired; President,
1724 Lake Roberts Court Tupperware North America
Windermere, FL 34786 from 1990 to 1994
(manufacturing); prior to
1990, President, The West
Bend Company
(manufacturing), a
division of Dart
Industries, a subsidiary
of Premark International,
Inc., of which Mr. English
was a Group Vice
President.
Ralph J. Eckert Director Chairman, Trustmark
2059 Keystone Ranch Road Insurance Cos. (Mutual
Dillon, CO 80435 Life Insurance Company);
Prior to 1991, Chairman,
President and Chief
Executive Officer
Trustmark Insurance Cos.
since 1971; Trustee of the
Board of Pensions of the
Evangelical Lutheran
Church of America since
1989; Trustee of the Board
of Pensions for the
Lutheran Church of America
from 1987-1989; and
Trustee of The Prime
Portfolios (registered
investment company) from
1993-1996.
John H. Lauderdale Vice President Wholesaler, B.C. Ziegler
Director of and Company since 1991;
Marketing prior Marketing thereto
Account Executive, The
Patten Company.
Jay Ferrara Treasurer Assistant Vice President,
B.C. Ziegler and Company
since 1994; Controller,
California Investment
Trust from 1993 to 1994;
prior thereto, Senior
Portfolio Accountant,
Wells Fargo Nikko
Investment Advisors.
S. Charles O'Meara Secretary Senior Vice President and
General Counsel, B.C.
Ziegler and Company since
1993; prior thereto,
Partner, O'Meara, Eckert,
Pourus & Gonring (law
firm).
Principal Preservation pays the compensation of the three Directors who are
not officers, directors or employees of the Advisor. Principal Preservation
will pay each of these Directors an annual fee of $12,000 and an additional $450
for each Board or committee meeting he attends. Principal Preservation may also
retain consultants, who will be paid a fee, to provide the Board with advice and
research on investment matters.
The table below shows fees paid to Directors of Principal Preservation for
the year ended December 31, 1995. Each series of Principal Preservation,
including the Portfolio, pays a proportionate share of these expenses based on
the ratio such series' total assets bear to the aggregate of the total assets of
all nine series of Principal Preservation. Principal Preservation made no
payments to its officers or directors who are affiliated with any investment
advisor to Principal Preservation.
TOTAL
COMPENSATION
PENSION OR FROM PRINCIPAL
RETIREMENT PRESERVATION
NAME OF PERSON AND AGGREGATE BENEFITS ACCRUED ESTIMATED AND FUND
POSITION WITH COMPENSATION AS PART OF ANNUAL COMPLEX OF
PRINCIPAL FROM PRINCIPAL PRINCIPAL BENEFITS WHICH PRINCIPAL
PRESERVATION PRESERVATION PRESERVATION'S UPON PRESERVATION
EXPENSES RETIREMENT WAS A PART(1)<F2>
- ---------------- ------------- ------------- ---------- --------------
R. D. Ziegler, -0- -0- -0- -0-
President and
Director
Robert J. Tuszynski, -0- -0- -0- -0-
Vice President
and Director
Richard H. Aster, M.D. $13,800 -0- -0- $13,800
Director
Augustine J. English, $13,800 -0- -0- $13,800
Director
Stephen A. Roell, $13,800 -0- -0- $13,800
Director
Ralph J. Eckert -0- -0- -0- $14,500
Director
(1)<F2>Prior to December 29, 1995, Principal Preservation was a part of a fund
complex that included two other registered investment companies. The
operations of those other two companies were discontinued at the close of
business on that date. Mr. Eckert, who became a Director of Principal
Preservation on January 19, 1996, previously served on the board of
trustees of one of the other companies in that complex.
The executive officers and Directors as a group (nine persons) owned
beneficially, as of January 31, 1996, shares of the Wisconsin Tax-Exempt
Portfolio representing less than 1% of all outstanding shares. This
management group's beneficial ownership of shares of Principal Preservation as
a whole also amounted to less than 1% of the outstanding shares. See also
"Control Persons and Principal Holders of Securities."
The Investment Advisor
- ----------------------
Basic information about the Advisor and the Advisory Agreement (the
"Agreement") is set forth in the Prospectus under "Management."
Under the Agreement, Ziegler Asset Management's fee will be reduced, or
Ziegler Asset Management will reimburse the Portfolio (up to the amount of its
fee), by an amount necessary to prevent the total expenses of the Portfolio
(excluding taxes, interest, brokerage commissions or transaction costs,
distribution fees and extraordinary expenses) from exceeding limits applicable
to the Portfolio in any state in which its shares are then qualified for sale.
The shares of the Portfolio are qualified for sale only in Wisconsin, which
has no such expense limitation.
For the period from June 13, 1994 (commencement of operations) through
December 31, 1994 and for the year ended December 31, 1995, the Portfolio
accrued fees under the Advisory Agreement totaling $14,077 and $69,551,
respectively.
Administrative Services
- -----------------------
Ziegler provides certain administrative, accounting and pricing services
to Principal Preservation, including calculating daily net asset value per
share; maintaining original entry documents and books of record and general
ledgers; posting cash receipts and disbursements; reconciling bank account
balances monthly; recording purchases and sales based upon portfolio manager
communications; and preparing monthly and annual summaries to assist in the
preparation of financial statements of, and regulatory reports for, Principal
Preservation. Ziegler has agreed to provide these services pursuant to the
terms of an Accounting/Pricing Agreement (the "Accounting/Pricing Agreement")
at rates found by the Board of Directors to be fair and reasonable in light of
the usual and customary charges made by unaffiliated vendors for similar
services. The current rate of payment for these services per year is .03 of
1% of the Portfolio's total assets of $30 million but less than $100 million,
.02 of 1% of the Portfolio's total assets of $100 million but less than $250
million and .01 of 1% of the Portfolio's total assets of $250 million or more,
with a minimum fee of $19,000 per Portfolio per year, plus expenses. The
Accounting/Pricing Agreement will continue in effect from year to year, as
long as it is approved at least annually by Principal Preservation's Board of
Directors or by a vote of the outstanding voting securities of Principal
Preservation and in either case by a majority of the Directors who are not
parties to the Accounting/Pricing Agreement or interested persons of any such
party. The Accounting/Pricing Agreement terminates automatically if assigned
and may be terminated without penalty by either party on 60 days notice. The
Accounting/Pricing Agreement provides that neither Ziegler nor their personnel
shall be liable for any error of judgment or mistake of law or for any loss
arising out of any act or omission in the execution and the discharge of its
obligations under the Accounting/Pricing Agreement, except for willful
misfeasance, bad faith or gross negligence in the performance of their duties
or by reason of reckless disregard of their obligations and duties under the
Accounting/Pricing Agreement, and in no case shall their liability exceed one
year's fee income received by them under such Agreement.
Depository Services
- -------------------
The Portfolio's portfolio securities are held by Ziegler as depository
pursuant to the terms of a Depository Contract. Ziegler also provides certain
administrative, clearing and record keeping functions for the Portfolio
pursuant to the Depository Contract. Under the terms of the Depository
Contract, Ziegler is entitled to reasonable compensation for its services and
expenses as Depository, as agreed upon from time to time between it and the
Board of Directors of Principal Preservation. The current rate of
compensation for these services is .055 of 1% of the first $10 million of the
Portfolio's assets, .03 of 1% of the next $40 million of assets, .016 of 1% of
the next $200 million of assets, and 0.15 of 1% of assets in excess of $250
million. The Depository Contract will continue in effect until terminated,
and may be terminated by either party without cause on 30 days' prior written
notice. The Depository Contract provides that Ziegler shall not be liable to
Principal Preservation or the Portfolio for any action taken or omitted by it
in good faith without negligence.
Shareholder Services
- --------------------
Ziegler has, and certain other brokers and financial institutions in the
future may, enter into shareholder servicing agreements with Principal
Preservation pursuant to which they provide shareholder services to the
Portfolio. Under such agreements, the shareholder servicing Agents maintain
shareholder accounts for the Portfolio and perform the functions of transfer
and dividend paying agents, among other services, with respect to such
accounts. For providing these services, each Agent receives a fee at an
annual rate of up to 0.15 of 1% of that portion of the Portfolio's average
daily net assets allocated to shares owned by the customers of such Agent and
held in the shareholder accounts maintained by the Agent. An Agent may impose
additional service charges and fees on its customer's accounts. The Agent
must invoice those charges and fees directly to the customer and may not
deduct them from the customer's holdings in the Portfolio. Each shareholder
servicing agreement continues in effect until terminated, and may be
terminated by either party without cause on not less than 30 days nor more
than 60 days prior notice. Each shareholder servicing agreement provides that
the Agent thereunder shall be indemnified by Principal Preservation for any
action taken or omitted by the Agent under the agreement except for, (a) the
bad faith or negligence of the Agent, its officers, employees or agents, or
(b) any breach of applicable law by the Agent, its officers, employees or
agents, or (c) any action of the Agent, its officers, employees or agents
which exceeds the legal authority of the Agent or its authority under its
shareholder servicing agreement, or (d) any error or omission of the Agent,
its officers, employees or agents with respect to the purchase, redemption and
transfer of Portfolio shares held in accounts serviced by the Agent or the
Agent's verification or guarantee of any signature of a shareholder owning
shares in such account.
For those shareholder accounts that are not separately serviced by an
Agent pursuant to the terms of a shareholder servicing agreement, Ziegler
provides transfer agent and dividend disbursing services pursuant to the terms
of a Transfer and Dividend Disbursing Agency Agreement (the "Agency
Agreement"). Under the terms of the Agency Agreement, Ziegler is entitled to
reasonable compensation for its services and expenses as agreed upon from time
to time between it and the Board of Directors of Principal Preservation. The
rate of compensation agreed upon for these services is currently $13.50 per
account for the Portfolio. The Portfolio also reimburses Ziegler for all out
of pocket expenses incurred in providing such services. Ziegler also has the
right to retain certain service charges as described from time to time in the
current Prospectus. The Agency Agreement will continue in effect until
terminated, and may be terminated by either party without cause on 90 days
prior written notice. The Agency Agreement provides that Ziegler shall be
indemnified by and not be liable to Principal Preservation for any action
taken or omitted by it under such agreement, except for liability for breach
of its obligation to maintain all Principal Preservation records in absolute
confidence.
Other Services
- --------------
In addition to the foregoing, Ziegler also serves as the principal
Distributor of the Portfolio's shares and receives commissions on sales of
Portfolio shares. See "Purchase of Shares." Ziegler also receives
reimbursement from the Portfolio for certain expenses Ziegler incurs in
connection with distributing the Portfolio's shares pursuant to the
Distribution Plan adopted by the Portfolio under Rule 12b-1 of the 1940 Act.
See "Distribution Expenses."
Fees paid to Ziegler Asset Management or Ziegler by the Portfolio for
services provided in all of these capacities for the year ended December 31,
1995, are reflected in the table below.
DESCRIPTION OF FEE AMOUNT
- ------------------ ------
Commissions on Portfolio Shares and
Rule 12b-1 Distribution Fees.......................... $ 35,207(1)<F3>
Accounting/Pricing Fees................................. 19,000
Depository Fees......................................... 6,570
Transfer and Dividend Disbursing
Agent Fees............................................ 12,390
Shareholder Servicing Fees.............................. -0-
Investment Advisory Fees................................ 69,551
TOTAL................................................. $142,718(2)<F4>
(1)<F3>Of these Rule 12b-1 Distribution Fees, $19,129 was retained by Ziegler or
paid to Ziegler's licensed representatives, and the balance was paid to
outside broker/dealers.
(2)<F4>Ziegler waived fees and reimbursed expenses aggregating $119,057.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of January 31, 1996, no person was known to Principal Preservation to
be the "beneficial owner" (determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934) of more than 5% of the outstanding shares of
Principal Preservation's common stock or of the outstanding shares of the
Portfolio. Information as to beneficial ownership was obtained from
information on file with the Securities and Exchange Commission or furnished
by the specified person or the transfer agent.
PERFORMANCE INFORMATION
From time to time the Portfolio may advertise its "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 the Portfolio refers to the income generated by an investment
in the 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 the Portfolio refers to the average annual
total return for one, five and ten year periods (or so much thereof as the
Portfolio has been in existence). Total return is the change in redemption
value of shares purchased with an initial $1,000 investment, assuming the
reinvestment of dividends and capital gain distributions, after giving effect
to the maximum applicable sales charge. In addition, the Portfolio may
advertise its "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 Portfolio's investment objectives and policies,
characteristics and quality of its portfolio securities and the market
conditions during the time period, and should not be considered as a
representation of what may be achieved in the future. Investors should
consider these factors and possible differences in the methods used in
calculating performance information when comparing the Portfolio's performance
to performance figures published for other investment vehicles.
Average annual total return is computed by finding the average annual
compounded rates of return over the 1, 5, and 10 year periods (or so much
thereof as the Portfolio has been in existence) ended on the date of the
balance sheet that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
n
P(1 + T) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1, 5, or 10 year periods at the end of the
1, 5, or 10 year periods (or fractional portion thereof).
In some circumstances the Portfolio may advertise its total return for a
1, 2 or 3-year period, or the total return since the Portfolio commenced
operations. In such circumstances the Portfolio will adjust the values used
in computing return to correspond to the time period for which the information
is provided.
Yield quotations are based on a 30-day (or one-month) period, and are
computed by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
Yield = 2 [(a-b + 1)6 - 1]
---
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
The total returns for the Portfolio for the year ended December 31, 1995
and for the period June 13, 1994 (commencement of operations) through December
31, 1995 were 13.41% and 3.83% (average annualized), respectively. The yield
for the Portfolio for the month ended December 31, 1995 was 4.57%. When
advertising yield, the Portfolio will not advertise a one-month or 30-day
period which ends more than 45 days before the date the advertisement is
published.
A tax equivalent yield is based on a 30-day (or one-month) period, and is
computed by dividing that portion of the yield of the Portfolio (as computed
in accordance with the description above) by one minus a stated income tax
rate and adding the products to that portion, if any, of the yield of the
Portfolio that is not tax-exempt. For the month ended December 31, 1995, the
Portfolio's taxable equivalent yield, based upon a 33% federal income tax
rate, was 6.82%.
Performance information for the Portfolios may be compared to various
unmanaged indices as well as indices of similar mutual funds. The Portfolio's
advertising may also quote rankings published by other recognized statistical
services or publishers such as Lipper Analytical Services, Inc., or
Weisenberger Investment Companies Service.
An illustration may be used comparing the growth in value of an initial
investment in the Portfolio compared to a fixed rate of return compounded on a
monthly basis. This illustration will reflect the effect of the Portfolio's
sales charge and fluctuations in net asset value, and will assume all income
and capital gain distributions are reinvested. The fixed rate of return will
be clearly stated and presented as a monthly compounded figure, and therefore
will not reflect any market fluctuation. The Portfolio may also use
illustrations comparing tax-free yields to equivalent taxable yields based on
maximum marginal tax rates at varying income levels, as well as illustrations
showing the effects of compounding on a tax-free investment as compared with a
taxable investment offering the same hypothetical yield.
The Portfolio may from time to time include its ranking as published by
other comparable national services which rank mutual funds, in advertisements
or in information presented to prospective shareholders.
DETERMINATION OF NET ASSET VALUE PER SHARE
Shares are sold at their net asset value per share plus the applicable
sales charge. See "Purchase of Shares." Net asset value per share of the
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 as of 2:30 New York time
at least once every weekday, Monday through Friday, except on customary
national business holidays which result in the closing of the New York Stock
Exchange (the "Exchange") (including New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day).
Hedging instruments will be valued at their last sale price prior to the
close of the Exchange, unless there have been no trades on that day and the
last sale price is below the bid, or above the asked, price. If the last
prior sale price is below the bid, instruments will be valued at the bid price
at the close of the Exchange; if the last prior sale price is above the asked,
the instrument will be valued at the asked price at the close of the Exchange.
Tax Exempt Obligations in which the Portfolio will invest are traded primarily
in the over-the-counter market. Securities for which market quotations are
readily available will be valued in the same manner as for hedging
instruments. Securities and other assets for which quotations are not readily
available will be valued at their fair value on a consistent basis using
valuation methods determined by the Board of Directors. The Portfolio intends
to determine fair value for such securities based in part upon the information
supplied by pricing services approved by the Board of Directors. Valuations
of portfolio securities furnished by the pricing service will be based upon a
computerized matrix system and/or appraisals by the pricing service in each
case in reliance upon information concerning market transactions and
quotations from recognized securities dealers.
PURCHASE OF SHARES
Ziegler acts as the principal Distributor for the Portfolio. Ziegler
will allow Selected Dealer discounts or pay selling commissions to Selected
Dealers (which are alike for all Selected Dealers) from the applicable public
offering price. Neither Ziegler nor Selected Dealers are permitted to
withhold placing orders to benefit themselves by a price change. The
Distribution Agreement between Principal Preservation and Ziegler will
continue from year to year if it is approved annually by Principal
Preservation's Board of Directors, including a majority of those Directors who
are not interested persons, or by a vote of the holders of a majority of the
outstanding shares. The Agreement may be terminated at any time by either
party on 60 days notice and will automatically terminate if assigned.
Shares of the Portfolio may be purchased by certain classes of persons
without a sales charge, or a reduced sales charge, as described in the
Prospectus. The Board of Directors believes this is appropriate because of
the minimal sales effort needed to accommodate these classes of persons.
Because sales to members of qualified groups result in economies of sales
efforts and sales related expenses, the Distributor is able to offer a reduced
sales charge to such persons. A "qualified group" is one which: (1) has been
in existence for more than six months; (2) has a purpose other than acquiring
shares at a discount; and (3) has more than ten members, is available to
arrange for group meetings between representatives of the Distributor or
Selected Dealers distributing shares of the Portfolio, and agrees to include
sales and other materials related to Principal Preservation in its mailings to
members at reduced or no cost to the Distributor or Selected Dealers. See
"Purchase of Shares -- Group Purchases" in the Prospectus.
TAX STATUS
Each series of a series company, such as Principal Preservation, is
treated as a single entity for Federal income tax purposes so that the net
realized capital gains and losses of the various portfolios in one fund are
not combined.
The Portfolio intends to qualify as a "regulated investment company"
under the Internal Revenue Code of 1986 (the "Code"). In order to qualify as
a regulated investment company, the Portfolio must satisfy a number of
requirements. Among such requirements is the requirement that at least 90
percent of the Portfolio's gross income must 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 percent of the
Portfolio's gross income be derived from the sale or other disposition of
securities (net of losses on designated hedges) held for less than three
months. In determining these gross income requirements, a loss from the sale
or other disposition of securities does not enter into the computation.
Gain or loss on the sale of U.S. government securities held by the
Portfolio for more than six months will generally be long-term capital gain or
loss. Gain or loss on the sale of U.S. government securities held for six
months or less will be short-term capital gain or loss. Gain or loss on the
sale, exchange, lapse, or termination of an option on securities will
generally be treated as a gain or loss from the sale of securities.
Dividends and other distributions paid to individuals and other non-
exempt payees are subject to a 31% backup Federal withholding tax if the Agent
is not provided with the shareholder's correct taxpayer identification number
or certification that the shareholder is not subject to such backup
withholding or if the Portfolio is notified that the shareholder has
underreported income in the past. In addition, such backup withholding tax
will apply to the proceeds of redemption or repurchase of shares from a
shareholder account for which the correct taxpayer identification number has
not been furnished. For most individual taxpayers, the taxpayer identifi-
cation number is the social security number. An investor may furnish the
Agent with such number and the required certifications by completing and
sending the Agent either the Account Application form attached to the
Prospectus or IRS Form W-9.
Interest on indebtedness incurred (directly or indirectly) by
shareholders to purchase or carry shares will not be deductible for Federal
income tax purposes. Further, persons who are "substantial users" (or persons
related thereto) of facilities financed by industrial development bonds should
consult their own tax advisor before purchasing the Portfolio's shares.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Basic information with respect to portfolio transactions and brokerage is
set forth in the Prospectus under "Portfolio Transactions and Brokerage." In
addition to the conditions and limitations there described, in the event
Ziegler is utilized as a broker by Principal Preservation and other Ziegler
clients are considering the same types of transactions simultaneously, Ziegler
will allocate the transactions and securities in which they are made in a
manner deemed by Ziegler to be equitable, taking into account size, timing and
amounts. This may affect the price and availability of securities to the
Portfolio.
DISTRIBUTION EXPENSES
Principal Preservation's Distribution Plan (the "Plan") is its written
plan contemplated by Rule 12b-1 (the "Rule") under the 1940 Act.
The Plan authorizes the Distributor to make certain payments to any
qualified recipient, as defined in the Plan, that has rendered assistance in
the distribution of Principal Preservation's shares (such as sale or placement
of Principal Preservation's shares, or administrative assistance, such as
maintenance of sub-accounting or other records). Qualified recipients include
banks and other financial institutions. The Plan also authorizes the
Distributor to purchase advertising for shares of the Portfolios, to pay for
sales literature and other promotional material, and to make payments to its
sales personnel. Any such payments to qualified recipients or expenses will
be reimbursed or paid by Principal Preservation, up to a limit of 0.25 of 1%
of the average net assets of the Portfolio. The Distributor bears its
expenses of distribution above the foregoing amounts. No reimbursement or
payment may be made for expenses of past fiscal years or in contemplation of
expenses for future fiscal years under the Plan.
The Plan states that if and to the extent that any of the payments by
Principal Preservation listed below are considered to be "primarily intended
to result in the sale of shares" issued by a portfolio within the meaning of
the Rule, such payments by Principal Preservation are authorized without limit
under the Plan and shall not be included in the limitations contained in the
Plan: (1) the costs of the preparation, printing and mailing of all required
reports and notices to shareholders, irrespective of whether such reports or
notices contain or are accompanied by material intended to result in the sale
of shares of Principal Preservation or other funds or other investments; (2)
the costs of preparing, printing and mailing of all prospectuses to
shareholders; (3) the costs of preparing, printing and mailing of any proxy
statements and proxies, irrespective of whether any such proxy statement
includes any item relating to, or directed toward, the sale of Principal
Preservation's shares; (4) all legal and accounting fees relating to the
preparation of any such reports, prospectuses, proxies and proxy statements;
(5) all fees and expenses relating to the qualification of Principal
Preservation and or their shares under the securities or "Blue Sky" laws of
any jurisdiction; (6) all fees under the 1940 Act and the Securities Act of
1933, including fees in connection with any application for exemption relating
to or directed toward the sale of Principal Preservation's shares; (7) all
fees and assessments of the Investment Company Institute or any successor
organization or industry association irrespective of whether some of its
activities are designed to provide sales assistance; (8) all costs of
preparing and mailing confirmations of shares sold or redeemed or share
certificates and reports of share balances; and (9) all costs of responding to
telephone or mail inquiries of shareholders.
The Plan also states that it is recognized that the costs of distribution
of Principal Preservation's shares are expected to exceed the sum of permitted
payments, permitted expenses, and the portion of the sales charge retained by
the Distributor, and that the profits, if any, of the Advisor are dependent
primarily on the advisory fees paid by Principal Preservation to Ziegler. If
and to the extent that any investment advisory fees paid by Principal
Preservation might, in view of any excess distribution costs, be considered as
indirectly financing any activity which is primarily intended to result in the
sale of shares issued by Principal Preservation, the payment of such fees is
nonetheless authorized under the Plan. The Plan states that in taking any
action contemplated by Section 15 of the 1940 Act as to any investment
advisory contract to which Principal Preservation is a party, the Board of
Directors including its Directors who are not "interested persons" as defined
in the 1940 Act, and who have no direct or indirect financial interest in the
operation of the Plan or any agreements related to the Plan ("Qualified
Directors"), shall, in acting on the terms of any such contract, apply the
"fiduciary duty" standard contained in Sections 36(a) and (b) of the 1940 Act.
Under the Plan, Principal Preservation is obligated to pay distribution
fees only to the extent of expenses actually incurred by the Distributor for
the current year, and thus there will be no carry-over expenses from the
previous years. The Plan permits the Distributor to pay a portion of the
distribution fee to authorized broker dealers, which may include banks or
other financial institutions, and to make payments to such persons based on
either or both of the following: (1) as reimbursement for direct expenses
incurred in the course of distributing Principal Preservation's shares or
providing administrative assistance to Principal Preservation or its
shareholders, including, but not limited to, advertising, printing and mailing
promotional material, telephone calls and lines, computer terminals and
personnel (including commissions and other compensation paid to such
personnel); and/or (2) at a specified percentage of the average value of
certain qualifying accounts of customers of such persons.
The Plan requires that while it is in effect the Distributor shall report
in writing at least quarterly to the Directors, and the Directors shall
review, the following: (1) the amounts of all payments, the identity of
recipients of each such payment, the basis on which each such recipient was
chosen and the basis on which the amount of the payment was made; (2) the
amounts of expenses and the purpose of each such expense; and (3) all costs of
the other payments specified in the Plan (making estimates of such costs where
necessary or desirable) in each case during the preceding calendar or fiscal
quarter.
The Plan will continue in effect from year to year only so long as such
continuance is specifically approved at least annually by the Board of
Directors and its Qualified Directors cast in person at a meeting called for
the purpose of voting on such continuance. The Plan may be terminated any
time without penalty by a vote of a majority of the Qualified Directors or by
the vote of the holders of a majority of the outstanding voting securities of
Principal Preservation (or with respect to any Portfolio, by the vote of a
majority of the outstanding shares of such Portfolio). The Plan may not be
amended to increase materially the amount of payments to be made without
shareholder approval. While the Plan is in effect, the selection and
nomination of those Directors who are not interested persons of Principal
Preservation is committed to the discretion of such disinterested Directors.
Nothing in the Plan will prevent the involvement of others in such selection
and nomination if the final decision on any such selection and nomination is
approved by a majority of such disinterested Directors.
CUSTODIAN
Principal Preservation serves as its own Custodian. The securities of
the Portfolio are held by Ziegler, an affiliated person of Principal
Preservation, as Depository. In addition Ziegler performs certain admin-
istrative, clearing and record keeping functions for the Portfolio. See
"Management of Principal Preservation -- Depository Services."
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
Quarles & Brady, as counsel to Principal Preservation, has rendered its
opinion as to certain legal matters regarding the due authorization and valid
issuance of the shares of common stock being sold pursuant to the Prospectus.
Arthur Andersen LLP, independent public accountants, are the auditors of
Principal Preservation.
PORTFOLIO RATINGS
The Portfolio may obtain and use a rating from a nationally recognized
statistical rating organization. A rating on the shares of an investment
company is a current assessment of creditworthiness with respect to the
investments held by such fund. This assessment takes into consideration the
financial capacity of the issuers and of any guarantors, insurers, lessees, or
mortgagors with respect to such investments. The assessment, however, does
not take into account the extent to which the Portfolio's expenses or
portfolio asset sales for less than the Portfolio's purchase price will reduce
yield or return. In addition, the rating is not a recommendation to purchase,
sell, or hold units, inasmuch as the rating does not comment as to market
price of the shares or suitability for a particular investor.
FINANCIAL STATEMENTS
The following audited financial statements and footnotes thereto of the
Principal Preservation Wisconsin Tax-Exempt Portfolio and the Report of the
Independent Public Accountants thereon are incorporated herein by reference
from the Principal Preservation Wisconsin Tax-Exempt Portfolio's 1995 Annual
Report to Shareholders.
1. Balance Sheet of the Portfolio dated December 31, 1995.
2. Statements of Changes in Net Assets of the Portfolio for the
period from June 13, 1994 (commencement of operations) through
December 31, 1994, and for the year ended December 31, 1995.
3. Statement of Operations of the Portfolio for the year ended
December 31, 1995.
A copy of the Principal Preservation Wisconsin Tax-Exempt Portfolio's
1994 Annual Report to Shareholders may be obtained free of charge by writing
to Principal Preservation, 215 North Main Street, West Bend, Wisconsin 53095.
APPENDIX A
SECURITIES RATINGS
As set forth in the Prospectus under the caption "Investment Program,"
generally, the Portfolio will limit its investment in debt securities to those
which are rated in one of certain specified categories by Moody's or S&P. The
following is a brief description of the rating systems used by these
organizations.
FIXED INCOME SECURITIES
Standard & Poor's Corporation.
- ------------------------------
An S&P debt rating is a current assessment of the creditworthiness of an
obligor with respect to a specific obligation. This assessment may take into
consideration obligors such as guarantors, insurers or lessees.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default - capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
II. Nature of and provisions of the obligation; and
III.Protection afforded by, and relative position of the obligation in the
event of bankruptcy, reorganization or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.
S&P's five highest rating categories are as follows:
AAA.Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small
degree.
A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in the
higher rated categories.
BBB.Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protective parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt
in higher-rated categories.
BB. Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which
could lead to inadequate capacity to meet timely interest and
principal payments. The BB rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BBB-
rating.
B. Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions will likely will
impair capacity or willingness to pay interest and repay principal.
The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied to BB or BB- rating.
Moody's Investors Service, Inc.
- -------------------------------
The purpose of Moody's Ratings is to provide investors with a simple system
of gradation by which the relative investment qualities of bonds may be noted.
Moody's five highest rating categories are as follows:
Aaa.Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa. Bonds which are Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude, or
there may be other elements present which make the long term risks
appear somewhat larger than in Aaa securities.
A. Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa.Bonds which are rated Baa are considered as medium grade obligations:
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba. Bonds which are Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not
well safeguarded during other good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B. Bonds which are B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of contract over any long period of time
may be small.
General
- -------
S&P ratings, other than "AAA", may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
The letter "p" following an S&P rating indicates the rating is provisional.
A provisional rating assumes the successful completion of the project being
financed by the issuance of the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion. Accordingly, the
investor should exercise his or her own judgment with respect to such likelihood
and risk.
Moody's security rating symbols may contain numerical modifiers to the "Aa"
through "B" rating classification. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
The symbol "Con" in a rating by Moody's indicates a provisional rating
given to bonds for which the security depends upon the completion of some act of
the fulfillment of some condition. These are bonds secured by: (1) earnings of
projects under construction; (2) earnings of projects unseasoned in operating
experience; (3) rentals which begin when facilities are completed; or (4)
payments to which some other limiting condition attaches. A parenthetical
rating denotes probable credit stature upon completion of construction or
elimination of basis of condition.
MUNICIPAL NOTE RATINGS
Moody's Investors Service, Inc.
- -------------------------------
MIG 1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable
strength of the preceding grades. Liquidity and cash flow
protection may be narrow and market access for refinancing is
likely to be less well established.
MIG 4. This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and
although not distinctly or predominantly speculative, there is
specific risk.
Standard & Poor's Corporation
- -----------------------------
SP-1. Notes rated SP-1 have very strong or strong capacity to pay
principal and interest. Those issues determined to possess
overwhelming safety characteristics are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and
interest.
Notes due in three years or less normally receive a note rating. Notes
maturing beyond three years normally receive a bond rating, although the
following criteria are used in making that assessment:
-Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue will be rated as a note.)
-Source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be rated as a note.)
The ratings of S&P, Moody's and Fitch represent their opinions as to the
quality of the instruments rated by them. It should be emphasized that such
ratings, which are subject to revision or withdrawal, are general and are not
absolute standards of quality.
Principal Preservation Portfolios, Inc.
215 North Main Street
West Bend, Wisconsin 53095
Investment Advisor
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
Distributor, Depository Accounting/Pricing
Agent, Shareholder Servicing Agent 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
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
WISCONSIN TAX-EXEMPT PORTFOLIO
MAY 1, 1996
STATEMENT OF ADDITIONAL INFORMATION
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
Part C. Other Information
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements of the Registrant included or
incorporated by reference into Part B for each series other than
the PSE Tech 100 Index Portfolio:
(1) Balance Sheet
(2) Statement of Changes in Net Assets
(3) Statement of Operations
(4) Schedule of Investments
(5) Report of Independent Accountants
(b) Exhibits:
See Exhibit Index following Signature Page, which Exhibit Index
is incorporated herein by this reference.
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
Not applicable.
Item 26. Number of Holders of Securities
-------------------------------
At January 31, 1996, the number of record holders of each class of
securities of Registrant or its predecessors, as the case may be, was:
Number of Holders of
Record of Shares of
Portfolio Common Stock
--------- ---------------------
Government Portfolio 2,480
S&P 100 Plus Portfolio 4,424
Tax-Exempt Portfolio 1,967
Select Value Portfolio 298
Dividend Achievers Portfolio 2,256
Wisconsin Tax-Exempt Portfolio 842
Cash Reserve Portfolio
Class X Common Stock 64
Class Y Common Stock 64
PSE Tech 100 Index Portfolio 0
Item 27. Indemnification
---------------
Reference is made to Article IX of the Registrant's Bylaws filed as
Exhibit No. 2 to its Registration Statement 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.
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 28. Business and Other Connections of Investment Advisor
----------------------------------------------------
(a) Ziegler Asset Management, Inc.
Ziegler Asset Management, Inc. is a wholly owned subsidiary of The
Ziegler Companies, Inc. It serves as investment advisor to all of the
Registrant's Portfolios.
Set forth below is a list of the officers and directors of Ziegler
Asset Management, Inc. as of December 31, 1995, together with information
as to any other business, profession, vocation or employment of a
substantial nature of those officers and directors during the past two
years:
POSITION WITH
ZIEGLER ASSET
NAME MANAGEMENT OTHER AFFILIATIONS(1)<F5>
- ---- ---------- ---------------------
R. D. Ziegler Chairman and Director Chairman and Director, B.C.
Ziegler and Company; Director,
Johnson Controls, Inc., 5757
N. Green Bay Avenue,
Milwaukee, WI 53201 (manu-
facturing)
Geoffrey G. Maclay, President and Chief President and Chief Executive
Jr. Executive Officer Officer, Ziegler Asset
Management, Inc.
P. D. Ziegler Senior Vice President President, Chief Executive
and Director Officer and Director, B.C.
Ziegler and Company; Director,
West Bend Mutual Insurance
Company, 1900 S. 18th Avenue,
West Bend, WI 53095
(insurance company)
Robert J. Tuszynski Vice President Vice President - Director of
Mutual Funds, B.C. Ziegler and
Company
M. J. Dion Vice President - Vice President - Portfolio
Portfolio Manager and Manager and Chief Investment
Chief Investment Officer, Ziegler Asset
Officer Management, Inc.
R. F. Patek Vice President - Vice President - Portfolio
Portfolio Manager Manager, Ziegler Asset
Management, Inc.
D. R. Wyatt Vice President - Market Vice President, B.C. Ziegler
Manager and Company
J. R. Schmidt Secretary Corporate Secretary, B.C.
Ziegler and Company
L. R. Van Horn Treasurer Senior Vice President -
Finance and Director, B.C.
Ziegler and Company
Note (1)<F5>: Certain of the indicated persons are officers or directors, or,
both of B.C. Ziegler and Company's parent, The Ziegler Companies, Inc., and of
other subsidiaries of its parent. Other than these affiliations, and except as
otherwise indicated on the table, the response is none.
(b) PanAgora Asset Management, Inc.
PanAgora Asset Management, Inc. is owned 50% by Nippon Life Insurance
Company; the other 50% is owned by Lehman Brothers, Inc. PanAgora Asset
Management, Inc. serves as sub-advisor to the S&P 100 Plus Portfolio of the
Registrant.
Set forth below is a list of the executive officers and directors of
PanAgora Asset Management, Inc., as of December 31, 1995, together with
information as to any other business, profession, vocation or employment of
a substantial nature of such persons during the past two
years(1)<F6>:
NAME TITLE ADDRESS PRINCIPAL OCCUPATION
(ELECTION DATE) ----- ------- --------------------
- --------------
Makoto Toda Director Nippon Life Insurance Managing Director of
(5/9/95) Company Nippon Life Insurance
1-2-2 Yuraku-cho Company
Chlyoda-Ku Tokyo, Japan
Tokyo 100,
Japan
Masatake Director Nippon Life Insurance Director of NLI
Shimaski Company International, Inc.
(11/12/93) 1251 Avenue of the Life Insurance Company
American Tokyo, Japan
Suite 5210
New York, NY 10020-1195
Haruski Director Nippon Life Insurance General Manager of
Deguohl Company Nippon Life Insurance
(5/9/95) 1-2-1 Yuraku-cho Company
Chlyoda-Ku Tokyo, Japan
Tokyo 100
Japan
Toru Director PanAgora Asset Managing Director
Morishiga (Vice Management, Inc., 260 PanAgora Asset
(5/9/95) Chairman) Franklin Street, 22nd Management, Inc.
Floor, Boston, MA 02110 Boston, MA
USA
Randolph S. Director Lehman Brothers
Petralia Holdings, Inc.
(7/17/95) 3 World Financial
Center
New York, NY 10265
USA
Bruce E. Director PanAgora Asset President and Chief
Clarke and Presi- Management, Inc. Executive Officer,
(10/7/94) dent 260 Franklin Street PanAgora Asset
22nd Floor Management, Inc.
Boston, MA 02110 Boston, MA
USA
Richard S. Director Lehman Brothers Chairman and Chief
Fuld, Jr. Holdings, Inc. Executive Officer
(11/12/93) 3 World Financial Lehman Brothers
Center New York, NY Holdings, Inc.
10285 New York, NY
USA
Bruce R. Director Lehman Brothers Chairman and CEO-
Lakefield (Chairman) International Europe
(4/08/94) One Broadgate Lehman Brothers
London EC2M 7HA International
England London, England
Edgar E. Director PanAgora Asset Director of Asset
Peters Management, Inc. Allocation
(3/15/96) 260 Franklin Street PanAgora Management,
22nd Floor Inc.
Boston, MA 02110 Boston, MA
USA
Paul R. Director PanAgora Asset Director of Equity and
Samuelson Management, Inc. Fixed
(3/15/95) 260 Franklin Street Income Investments
22nd Floor PanAgora Asset
Boston, MA 02110 Management, Inc.
USA Boston, MA
Kathleen I. Secretary PanAgora Asset Senior Manager,
DeVivo Management, Inc. Compliance Officer
(9/20/91) 260 Franklin Street PanAgora Asset
22nd Floor Management, Inc.
Boston, MA 02110 Boston, MA
USA
Michael H. Treasurer PanAgora Asset Senior Manager,
Turpin Management, Inc. Treasurer
(9/20/91) 260 Franklin Street PanAgora Asset
22nd Floor Management, Inc.
Boston, MA 02110 Boston, MA
USA
Note (1)<F6>: Certain of the indicated persons are officers or directors, or
both, of affiliates of PanAgora. Other than these affiliations, and except as
otherwise indicated on the table above, the response is none.
(c) Skyline Asset Management, L.P.
Skyline Asset Management, L.P. ("Skyline") is a limited partnership
whose general partner is Affiliated Managers Group, Inc. ("AMG") and whose
limited partners consist of corporations owned by four former management
employees of Skyline's predecessor in interest, namely Messrs. Dutton,
Kailin, Lutz and Maloney. AMG may be deemed to be controlled by Advent
VII, L.P., by virtue of the fact that Advent VII, L.P. owns more than 50%
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 limited
partnership, which in turn may be deemed to be controlled by its sole
general partner, TA Associates, Inc. Skyline's principal executive offices
are located at 311 South Wacker Drive, Suite 4500, Chicago, Illinois 60606.
AMG's principal executive offices are located at One International Place,
Boston, Massachusetts 02110. 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, Massachusetts
02110.
Set forth below is a list of the officers and directors of Skyline
Asset Management, L.P. as of December 31, 1995, together with information
as to any other business, profession, vocation or employment of a
substantial nature of those officers and directors during the past two
years (the business address of all such persons is c/o Skyline Asset
Management, L.P., 311 South Wacker Drive, Suite 4500, Chicago, Illinois
60606):
Position With Skyline
Name Asset Management, L.P. Principal Occupation
- ---- ---------------------- --------------------
William M. Dutton Chief Executive Chief Executive Officer of
Officer and Limited Skyline Asset Management, L.P.
Partner since June, 1995; Executive Vice
President, Mesirow Asset
Management, Inc., from April,
1984 through June, 1995;
President, Skyline Fund (regis-
tered investment company)
Kenneth S. Kailin Principal - Portfolio Principal - Portfolio Manager,
Manager and Limited Skyline Asset Management, L.P.
Partner since June, 1995; Senior Vice
President, Mesirow Asset
Management, Inc., from April,
1987 through June, 1995;
Executive Vice President,
Skyline Fund (registered
investment company)
Geoffrey P. Lutz Principal - Marketing Principal - Marketing, Skyline
and Limited Partner Asset Management, L.P. since
June, 1995; Vice President,
Mesirow Asset Management, Inc.,
May, 1992 through June, 1995;
prior thereto, Registered
Representative, Mesirow
Financial, Inc. and Mesirow
Investment Services, Inc.
(registered brokers-
dealers/investment advisers);
Executive Vice President,
Skyline Fund (registered
investment company)
Michael Maloney Principal - Securities Principal - Securities Analyst,
Analyst and Limited Skyline Asset Management, L.P.,
Partner since June, 1995; Investment
Analyst, Mesirow Asset
Management, Inc. from February,
1993 through June, 1995; prior
thereto Investment Analyst,
Baker Fentress & Co. (investment
manager); Senior Vice President,
Skyline Fund (registered
investment company)
Scott C. Blim Chief Operating Chief Operating Officer, Skyline
Officer Asset Management, L.P. since
September, 1995; Vice President,
Director and Chief
Administrative Officer, Murray
Johnstone International Ltd.
(investment firm) from 1989 to
1994; Secretary and Treasurer,
Skyline Fund (registered
investment company)
Item 29. Principal Underwriters
----------------------
(a)
Other Investment Companies
for which Underwriter Acts
As Underwriter, Depositor or
Underwriter Investment Adviser
----------- ------------------
B.C. Ziegler and Company An underwriter for American Tax-Exempt
Bond Trust, Series 1 (and subsequent series);
Ziegler U.S. Government Securities Trust, Series 1
(and subsequent series); American Income Trust,
Series 1 (and subsequent series); Ziegler Money
Market Trust; The Insured American Tax-Exempt Bond
Trust, Series 1 (and subsequent series); and
principal underwriter for Portico Funds.
(b) Set forth below is a list of the officers and directors of B.C.
Ziegler and Company as of December 31, 1995, together with information
as to any other business, profession, vocation or employment of a
substantial nature of those officers and directors during the past two
years. None of the persons identified serves as an officer or
director of the Registrant, except that R. Douglas Ziegler serves as
the Chairman of the Board, President and a Director of the Registrant,
Robert J. Tuszynski serves as Vice President and a Director of the
Registrant, Jay Ferrara serves as Treasurer of the Registrant, and S.
Charles O'Meara serves as Secretary of the Registrant. The address of
each officer and director of B.C. Ziegler and Company is 215 North
Main Street, West Bend, Wisconsin 53095, Phone (414) 334-5521.
Position With Position with
Name B.C. Ziegler Company Principal Preservation
---- -------------------- ----------------------
R. Douglas Ziegler Chairman of the Board Chairman of the Board
and Director and President
Peter D. Ziegler President, Chief
Executive Officer and
Director
S. Charles O'Meara Senior Vice President Secretary
and General Counsel
Eugene H. Rudnicki Senior Vice President
John C. Wagner Senior Vice President--
Retail Sales
Ronald N. Spears Senior Vice President
and Director
James R. Wyatt Senior Vice President
Donald A.
Carlson, Jr. Senior Vice President
Neil L.
Fuerbringer Senior Vice President--
Administration
Michael P. Doyle Senior Vice President--
Retail Operations
Lynn R. Van Horn Senior Vice President--
Finance and Director
Charles G. Stevens Vice President--
Marketing Director
Jack H. Downer Vice President--
MIS Director
Vernell D. Krueger Vice President--
Operations
Robert J. Tuszynski Vice President-- Vice President and
Director of Mutual Director
Funds
G. Aman Vice President--
Insurance
Sheila K. Hittman Vice President--
Personnel
James M. Bushman Vice President--
Recruiting and
Training Coordinator
Lay C. Rosenheimer Vice President--
Bond Sales Control
Darrell P. Frank Vice President--
Director of
Strategic Change
Janine R. Schmidt Corporate Secretary
Kathleen A. Lochen Assistant Secretary
Jeffrey C.
Vredenbregt Vice President,
Assistant Treasurer
and Controller
Robert J. Johnson Vice President--
Compliance
Ronald C. Strzok Assistant Vice
President--
Administration
Jay Ferrara Assistant Vice Treasurer
President--Mutual Funds
Item 30. Location of Accounts and Records
--------------------------------
(a)B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
General ledger, including subsidiary ledgers, corporate records
and contracts, Portfolio ledger. Shareholders documents,
including IRA documents.
(b)PanAgora Asset Management, Inc.
260 Franklin Street
Boston, Massachusetts 02110
Transaction journals and confirmations for options and portfolio
trades.
(c)Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
Transaction journals and confirmations for portfolio trades for
all of the Portfolios of the Registrant, except for the S&P 100
Plus Portfolio and the Select Value Portfolio.
(d)Skyline Asset Management, L.P.
311 South Wacker Drive
Suite 4500
Chicago, Illinois 60606
Transaction journals and confirmations for portfolio trades for
the Select Value Portfolio.
Item 31. Management Services
-------------------
Not applicable
Item 32. Undertakings
------------
Registrant undertakes that, at the request of the shareholders holding
10% or more of the outstanding shares of the Registrant, the
Registrant will hold a special meeting for the purpose of considering
the removal of a director from office, and the Registrant will
cooperate with and assist shareholders of record who notify the
Registrant that they wish to communicate with the other shareholders
for the purpose of obtaining signatures to request such a meeting, all
pursuant to and in accordance with Section 16(c) of the Investment
Company Act of 1940, as amended.
Registrant undertakes to furnish a copy of the Registrant's latest
Annual Report to Shareholders, upon request and without charge, to
each person to whom a Prospectus is delivered.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933, and has caused this Post-Effective
Amendment to its Registration Statement to be signed on its behalf by the under-
signed, thereunto duly authorized, all in the City of West Bend, State of
Wisconsin on this 25th day of April, 1996.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
/s/ R. D. Ziegler
By: ---------------------------
R. D. Ziegler, President
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to its Registration Statement on Form N-1A has been signed
on this 25th day of April, 1996, by the following persons in the capacities
indicated.
Signature Title
--------- -----
/s/ R. D. Ziegler
- --------------------------------- Director and President
R. D. Ziegler (Chief Executive Officer)
/s/ Robert J. Tuszynski
- --------------------------------- Director and Vice President
Robert J. Tuszynski (Chief Financial Officer)
/s/ Jay Ferrara
- --------------------------------- Treasurer (Chief Accounting
Jay Ferrara Officer)
Richard H. Aster*<F7> Director
- ---------------------------------
Richard H. Aster
August J. English*<F7> Director
- ---------------------------------
August J. English
Ralph J. Eckert*<F7> Director
- ---------------------------------
Ralph J. Eckert
/s/ Robert J. Tuszynski
*<F7>By: ------------------------------------------
Robert J. Tuszynski pursuant to a
Power of Attorney dated January 19, 1996
filed herewith (see following page)
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints R. D. Ziegler, Robert J. Tuszynski and S. Charles
O'Meara, or any of them, with full power of substitution, as his true and lawful
attorneys and agents, to execute in his name and on his behalf, in any and all
capacities, Principal Preservation Portfolios, Inc.'s Post-Effective Amendment
No. 33 to its Registration Statement on Form N-1A for the Portfolio known as the
PSE Technology Index Portfolio (Registration No. 811-4401 under the Securities
Act of 1933; File No. 33-12 under the Investment Company Act of 1940) filed with
the Securities and Exchange Commission under both the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, together with any
and all other instruments which such attorneys and agents, or any of them, deem
necessary or advisable to enable Principal Preservation Portfolios, Inc. to
comply with such Acts and the rules, regulations and requirements of the
Securities and Exchange Commission and the securities or Blue Sky laws of any
state or other jurisdiction, and the undersigned hereby ratifies and confirms as
his own act and deed any and all actions that such attorneys and agents, or any
of them, shall do or cause to be done by virtue hereof. Any of such attorneys
and agents have, and may exercise, all of the powers conferred herein.
IN WITNESS WHEREOF, each of the undersigned directors of Principal
Preservation Portfolios, Inc. has hereunto set his hand as of this 19th day of
January, 1996.
/s/ R. D. Ziegler /s/ Richard H. Aster
- ------------------------------ ----------------------------------
R. D. Ziegler Richard H. Aster
/s/ Robert J. Tuszynski /s/ August J. English
- ------------------------------ ----------------------------------
Robert J. Tuszynski August J. English
/s/ Ralph J. Eckert
-----------------------------------
Ralph J. Eckert
EXHIBIT INDEX
-------------
Exhibit Sequential
Number Description Page Number
- ------- ----------- -----------
1(a) Restated and Amended Articles of NA
Incorporation*<F8>
1(b) December 29, 1995 Articles Supplementary(1)<F9> NA
1(c) Form of Articles Supplementary reflecting NA
pending reorganizations of Balanced Portfolio
into S&P 100 Plus Portfolio and Insured Tax-
Exempt Portfolio into Tax-Exempt Portfolio(2)<F10>
1(d) Form of Articles Supplementary for PSE Tech NA
100 Index Portfolio(5)<F13>
2(a) By-Laws*<F8> NA
2(b) Amendment to Bylaws Adopted By Board NA
of Directors on January 20, 1995*<F8>
3 N/A
4 The Registrant's Operating Plan Relating NA
to Shares of Class X Common Stock and Class
Y Common Stock of the Cash Reserve
Portfolio(3)<F11>
5(a) Investment Advisory Agreement pertaining NA
to assets of Dividend Achievers Portfolio(4)<F12>
5(b) Investment Advisory Agreement pertaining NA
to the assets of Tax-Exempt, S&P 100 Plus,
Government, Wisconsin Tax-Exempt, Select
Value, and PSE Tech 100 Index Portfolios(5)<F13>
5(c) Sub-Advisory Agreement with PanAgora NA
Asset Management, Inc., including
form of amendment reducing fees
effective May 1, 1996(4) <F12>
5(d) Sub-Advisory Agreement with Skyline NA
Asset Management, L.P.(4)<F12>
5(e) Investment Advisory Agreement with NA
Ziegler Asset Management, Inc. with
respect to the Cash Reserve Portfolio(3)<F11>
6(a) Distribution Agreement(5)<F13> NA
6(b) Form of Selected Dealers Agreement(5)<F13> NA
7 N/A
8 Depository Contract(5)<F13> NA
9(a) Transfer and Dividend Disbursing Agent NA
Agreement(5)<F13>
9(b) License Agreement with Standard & Poor's NA
Corporation*<F8>
9(c) Accounting/Pricing Agreement between NA
Registrant and B.C. Ziegler and Company(5)<F13>
9(d) Shareholder Servicing Agreement by and
between B.C. Ziegler and Company and the
Registrant, as amended, relating to Class X
Shares of the Cash Reserve Portfolio and shares
of the Wisconsin Tax-Exempt Portfolio
9(e) Administrative Services Agreement with NA
Ziegler Asset Management, Inc. with
respect to the Cash Reserve Portfolio(1)<F9>
10 Opinion of Counsel*<F8> NA
11(a) Consent of Independent Public Accountants
11(b) Consent of Counsel (contained in NA
Exhibit 10)
12 N/A
14 Model Retirement Plan*<F8> NA
15 Rule 12b-1 Distribution Plan, as amended(5)<F13> NA
16 Schedule for Computation of Performance NA
Quotations*<F8>
17 Financial Data Schedule (Included
as Exhibit 27) NA
18 See Exhibit 4 NA
27 Financial Data Schedule
*<F8>Denotes previously filed as part of Registrant's Registration statement or
an amendment thereto, and incorporated herein by reference.
(1)<F9>Denotes previously filed as part of Registrant's Registration Statement
on Form N-14 (Reg. No. 33-99010) filed with the Commission on November 3,
1995.
(2)<F10>Denotes previously filed as part of Registrant's Registration Statement
on Form N-14 (Reg. No. 333-01123) filed with the Commission on February 20,
1996.
(3)<F11>Denotes previously filed as part of Post-Effective Amendment No. 31 to
this Registration Statement filed with the Commission on December 29, 1995.
(4)<F12>Denotes previously filed as part of Post-Effective Amendment No. 32 to
this Registration Statement filed with the Commission on March 1, 1996.
(5)<F13>Denotes previously filed as part of Post-Effective Amendment No. 33 to
this Registration Statement filed with the Commission on March 27, 1996.
SHAREHOLDER SERVICING AGREEMENT
THIS AGREEMENT, dated as of February 3, 1993, by and between Principal
Preservation Portfolio, a Maryland corporation (the "Corporation") and B.C.
Ziegler and Company, a Wisconsin corporation (the "Financial Agent"), as a
shareholder servicing agent hereunder (the "Agent");
W I T N E S S E T H:
WHEREAS, certain transactions in a series (the "Series") of the shares of
Common Stock (par value $0.001 per share) of the Corporation designated on
Schedule 1 hereto (the "Shares") may be made by investors who are customers of,
and using the services of, a Shareholder Servicing Agent (as defined in the
then-current prospectus of the Series) which has entered into a shareholder
servicing agreement with the Corporation;
WHEREAS, the Financial Agent wishes to make it possible for its customers,
to whom it is acting in certain fiduciary capacities (the "Customer"), to
purchase Shares and wishes to act as the Customers' agent in performing certain
administrative functions in connection with purchases and redemptions of Shares
from time to time upon the order and for the account of Customers and to provide
related services to its Customers in connection with their investments in the
Corporation; and
WHEREAS, it is in the interest of the Corporation to make the services of
the Agent available to Customers who are or may become shareholders of the
Corporation;
NOW, THEREFORE, the Corporation and the Financial Agent hereby agree as
follows:
1. APPOINTMENT. The Financial Agent, as Agent, hereby agrees to perform
certain services for Customers as hereinafter set forth. The Agent's
appointment hereunder is exclusive (except with respect to affiliates of the
Agent), and the parties recognize and agree that the Corporation may not enter
into other shareholder servicing agreements with non-affiliated financial
institutions without the consent of the Agent, which consent may not be
unreasonably withheld.
2. SERVICE TO BE PERFORMED.
2.1 TYPE OF SERVICE. The Agent shall be responsible for performing
shareholder account administrative and servicing functions, which shall include
without limitation: (a) answering Customer inquiries regarding account status
and history, the manner in which purchases and redemptions of the Shares may be
effected, and certain other matters pertaining to the Corporation; (b) assisting
Customers in designating and changing dividend options, account designations and
addresses; (c) providing necessary personnel and facilities to establish and
maintain certain shareholder accounts and records, as may reasonably be
requested from time to time by the Corporation; (d) assisting in processing
purchase and redemption transactions; (e) arranging for the wiring of funds; (f)
transmitting and receiving funds in connection with Customer orders to purchase
or redeem Shares; (g) verifying and guaranteeing Customer signatures in
connection with redemption orders, transfers among and changes in Customer-
designated accounts; (h) providing periodic statements showing a Customer's
account balances and, to the extent practicable, integration of such information
with information concerning other client transactions otherwise effected with or
through the Financial Agent; (i) furnishing on behalf of the Corporation's
distributor (either separately or on an integrated basis with other reports sent
to a Customer by the Agent) all immediate, monthly or annual statements and
confirmations of all purchases and redemptions of Shares in a Customer's account
required by applicable federal or state law, all such confirmations and
statements to conform to Rule 10b-10 under the Securities Exchange Act of 1934
and other applicable federal or state law; (j) transmitting proxy statements,
annual and semi-annual reports, updating prospectuses and supplements thereto
(or updating statements of additional information or supplements thereto if
requested by a Customer) and other communications from the Corporation to
Customers; (k) receiving, tabulating and transmitting to the Corporation proxies
executed by Customers with respect to annual and special meetings of
shareholders of the Corporation; (l) providing reports requested by the
Corporation's distributor containing state-by-state listings of the principal
residences of the beneficial owners of the Shares; and (m) providing such other
related services as the Corporation or a Customer may reasonably request. The
Agent shall acquire and hold Shares in a fiduciary capacity on behalf of its
Customers. The Agent shall provide all personnel and facilities to perform the
functions described in this paragraph with respect to its Customers.
2.2 STANDARD OF SERVICES. All services to be rendered by the Agent
hereunder shall be performed in a professional, competent and timely manner.
The details of the operating standards and procedures to be followed by the
Agent in performance of the services described above shall be determined from
time to time by agreement between the Agent and the Corporation. The
Corporation acknowledges that the Agent's ability to perform on a timely basis
certain of its obligations under this Agreement depends upon the Corporation's
timely delivery of certain materials and/or information to the Agent.
The Corporation agrees to use its best efforts to provide such materials to the
Agent in a timely manner.
3. FEES.
3.1 FEES FROM THE CORPORATION. In consideration for the services
described in Section 2 hereof and the incurring of expenses in connection
therewith, the Agent shall receive fees to be paid in arrears periodically (but
in no event less frequently than semi-annually) determined in accordance with a
formula to be established by agreement between the Corporation and the Agent and
to be based upon the average number of accounts serviced by the Agent during the
period for which payment is being made, the level of activity in accounts
serviced by the Agent during such period and the expenses incurred by the Agent
during such period; provided that such fees shall not exceed during any period
the amount payable at an annual rate of a percentage, as indicated on Schedule 1
hereto, of the average daily net assets of the Series represented by Shares
owned during the period for which payment is being made by Customers for whom
the Agent is the holder or agent of record or with whom it maintains a servicing
relationship. For purposes of determining the fees payable to the Agent
hereunder, the value of the Corporation's net assets shall be computed in the
manner specified in the Corporation's then-current prospectus for computation of
the net asset value of the Corporation's Shares. The above fees constitute all
fees to be paid to the Agent by the Corporation with respect to the transactions
contemplated hereby.
3.2 FEES FROM CUSTOMERS. It is agreed that the Financial Agent may impose
certain conditions on Customers, in addition to or different from those imposed
by the Corporation, such as requiring a minimum initial investment or charging
Customers direct fees for the same or similar services as are provided hereunder
by the Financial Agent as Agent (which fees may either relate specifically to
the Financial Agent's services with respect to the Corporation or generally
cover services not limited to those with respect to the Corporation); provided,
--------
however, that the Financial Agent may not charge Customers any direct fee which
- -------
would constitute a "sales load" within the meaning of Section 2(a)(35) of the
Investment Company Act of 1940, as amended (the "1940 Act") with respect to any
Series identified on Schedule 1 as subject to this limitation. The Financial
Agent shall bill Customers directly for such fees. In the event the Financial
Agent charges Customers such fees, it shall notify the Corporation in advance
and make appropriate prior written disclosure (such disclosure to be in
accordance with all applicable laws) to Customers of any such fees charged to
the Customer. To the extent required by applicable rules and regulations of the
Securities and Exchange Commission, the Corporation shall make written
disclosure of the fees paid or to be paid to the Agent pursuant to Section 3.1
of this Agreement. It is understood, however, that in no event shall the
Financial Agent have recourse or access as Agent or otherwise to the account of
any shareholder of the Corporation except to the extent expressly authorized by
law or by such shareholder, or to any assets of the Corporation, for payment of
any direct fees referred to in this Section 3.2.
4. INFORMATION PERTAINING TO THE SHARES. The Agent and its officers,
employees and agents are not authorized to make any representations concerning
the Corporation or the Shares to Customers or prospective Customers, excepting
only accurate communication of any information provided by or on behalf of any
administrator of the Corporation or any distributor of the Shares or any factual
information contained in the ten-current Corporation prospectus. In furnishing
such information regarding the Corporation or the shares, the Agent shall act as
agent for the Corporation. Advanced copies or proofs of all materials which are
generally circulated or disseminated by the Agent to Customers or prospective
Customers which identify or describe the Corporation shall be provided to the
Corporation at least 10 days prior to such circulation or dissemination (unless
the Corporation consents in writing to a shorter period), and such materials
shall not be circulated or disseminated or further circulated to disseminated at
any time after the Corporation shall have given written notice to the Agent or
any objection thereto.
Nothing in this Section 4 shall be construed to make the Corporation
liable for the use (as opposed to the accuracy) of any information about the
Corporation which is disseminated by the Agent.
5. USE OF THE AGENT'S NAME. The Corporation shall not use the name of
the Agent, the Financial Agent or any of its affiliates or subsidiaries in any
prospectus, sales literature or other material relating to the Corporation in a
manner not approved by the Agent prior thereto in writing; provided, however,
-----------------
that the approval of the Agent shall not be required for any use of its name
which merely refers in accurate and factual terms to its appointment hereunder
or which is required by the Securities and exchange Commission or any state
securities authority or any other appropriate regulatory, governmental or
judicial authority; provided, further, that in no event shall such approval be
-----------------
unreasonably withheld or delayed.
6. USE OF THE CORPORATION'S NAME. The Agent shall not use the name of
the corporation on any checks, bank drafts, bank statements or forms for other
than internal use in a manner not approved by the Corporation prior thereto in
writing; provided, however, that the approval of the Corporation shall not be
-----------------
required for the use of the Corporation's name in connection with communications
permitted by Section 4 hereof or (subject to Section 4, to the extent the same
may be applicable) for any use of the Corporation's name which merely refers in
accurate and factual terms to the Corporation in connection with the Agent's
role hereunder or which is required by the Securities and Exchange Commissioner
any state securities authority or any other appropriate regulatory, governmental
or judicial authority; provided, further, that in no event shall such approval
-----------------
be unreasonably withheld or delayed.
7. SECURITY. The Agent represents and warrants that to the best of its
knowledge, the various procedures and systems which it has implemented
(including provision for twenty-four hours a day restricted access) with regard
to safeguarding from loss or damage attributable to fire, theft or any other
cause the Corporation's records and other data and the Agent's records, data,
equipment, facilities and other property used in the performance of its
obligations hereunder are adequate and that it will make such changes therein
from time to time as in its judgment are required for the secure performance of
its obligations hereunder. The parties shall review such systems and procedures
on a periodic basis, and the Corporation shall from time to time specify the
types of records and other data of the corporation to be safeguarded in
accordance with this Section 7.
8. COMPLIANCE WITH LAWS. The Agent shall comply with all applicable
federal and state laws and regulations, including securities laws. The Agent
represents and warrants to the Corporation that the performance of all its
obligations hereunder will comply with all applicable laws and regulations, the
provisions of its charter documents and by-laws and all material contractual
obligations binding upon the Agent. The Agent furthermore undertakes that it
will promptly, after the Agent becomes so aware, inform the Corporation of any
change in applicable laws or regulations (or interpretations thereof) or in its
charter or by-laws or material contracts which would prevent or impair full
performance of any of its obligations hereunder.
9. REPORTS. To the extent requested by the Corporation from time to
time, the Agent agrees that it will provide the Treasurer of the Corporation
with a written report of the amounts expended by the Agent pursuant to this
Agreement and the purposes for which such expenditures were made. Such written
reports shall be in a form satisfactory to the Corporation and shall supply all
information necessary under applicable laws and regulations.
10. RECORD KEEPING.
10.1 SECTION 31(A). The Agent shall maintain records in a form acceptable
to the corporation and in compliance with applicable laws and the rules and
regulations of the Securities and Exchange Commission, including but not limited
to the record-keeping requirements of Section 31(a) of the 1940 Act and the
rules thereunder. such records shall be deemed to be the property of the
Corporation and will be made available, at the Corporation's request, for
inspection and use by the corporation, representatives of the Corporation and
governmental authorities. The Agent agrees that, for so long as it retains any
records of the Corporation, it will meet all reporting requirements pursuant to
the 1940 Act and applicable to the Agent with respect to such records.
10.2 RULES 17A-3 AND 17A-4. The Agent shall maintain accurate and complete
records with respect to services performed by the Agent in connection with the
purchase and redemption of Shares. Such records shall be maintained in a form
reasonably acceptable to the Corporation and in compliance with the requirements
of Rules 17a-3 and 17a-4 under the Securities Exchange Act of 1934, as amended,
pursuant to which any dealer of the Shares must maintain certain records. All
such records maintained by the Agent shall be the property of such dealer and
will be made available for inspection and use by the Corporation or such dealer
upon the request of either. The Agent shall file with the Securities and
Exchange Commission and other appropriate governmental authorities, and furnish
to the Corporation and any such dealer copies of, all reports and undertakings
as may be reasonably requested by the Corporation or such dealer in order to
comply with the said rules. If so requested by any such dealer, the Agent shall
confirm to such dealer its obligations under this Section 10.2 by a writing
reasonably satisfactory to such dealer.
10.3 IDENTIFICATION, ETC. OF RECORDS. The Corporation shall from time to
time instruct the Agent in writing as to, and the Corporation and the Agent
shall periodically review, the records to be maintained and the procedures to be
followed by the Agent in complying with the foregoing Sections 10.1 and 10.2 and
Section 8 to the extent it relates to record-keeping required under federal
securities laws and regulations. Notwithstanding the provisions of Section 8,
the Agent shall be entitled to rely on such instructions.
10.4 TRANSFER OF CUSTOMER DATA. In the event this Agreement is terminated
or a successor to the Agent is appointed, the Agent shall, at the expense of the
Corporation, transfer to such designee as the Corporation may direct a certified
list of the shareholders of the Corporation serviced by the Agent (with name,
address and tax identifications or Social Security number), a complete record of
the account of each such shareholder and the status thereof, and all other
relevant books, records, correspondence, and other data established or maintain
by the Agent under this Agreement. In the event this Agreement is terminated
by, the Agent will use its best efforts to cooperate in the orderly transfer of
such duties and responsibilities, including assistance in the establishment of
books, records and other data by the successor.
10.5 SURVIVAL OF RECORD-KEEPING OBLIGATIONS. The record-keeping
obligations imposed in this Section 10 shall survive the termination of this
Agreement for a period of three years.
10.6 OBLIGATIONS PURSUANT TO AGREEMENT ONLY. Nothing in this Section 10
shall be construed to mean that the Agent would, by virtue of its role
hereunder, be required under applicable law to maintain the records required to
be maintained by it under this Section 10, but it is understood that the Agent
has agreed to do so in order to enable the Corporation and its dealer or dealers
to comply with laws and regulations applicable to them.
10.7 AGENT'S RIGHTS TO COPY RECORDS. Anything in this Section 10 to the
contrary notwithstanding, except to the extent otherwise prohibited by law, the
Agent shall have the right to copy, maintain and use any records maintained by
the Agent pursuant to this Section 10, except as otherwise prohibited by
Sections 4 and 6 hereof.
11. FORCE MAJEURE. The Agent shall not be liable or responsible for
delays or errors by reason of circumstances beyond its reasonable control,
including, but not limited to, acts of civil or military authority, national
emergencies, labor difficulties, fire, mechanical breakdown, flood or
catastrophe, Acts of God, insurrection, war, riots or failure of communication
or power supply.
12. INDEMNIFICATION.
12.1 INDEMNIFICATION OF THE AGENT. The Corporation will indemnify and hold
the Agent harmless from all losses, claims, damages, liabilities or expenses
(including reasonable counsel fees and expenses) from any claim, demand, action
or suit (collectively, "Claims") (a) arising in connection with misstatements or
omissions in a Prospectus relating to the Series, actions or inactions by the
Corporation or any of its agents or contractors or the performance of the
Agent's obligations hereunder and (b) not resulting from (i) the bad faith or
negligence of the Agent,its officers, employees or agents, or (ii) any breach of
applicable law by the Agent, its officers, employees or agents, or (iii) any
action of the Agent, its officers, employees, or agents which exceeds the legal
authority of the Agent or its authority hereunder, or (iv) any error or omission
of the Agent, its officers, employees or agents with respect to the purchase,
redemption and transfer of Customers' Shares or the Agent's verification or
guarantee of any Customer signature. Notwithstanding anything herein to the
contrary, the corporation will indemnify and hold the Agent harmless from any
and all losses, claims, damages, liabilities or expenses (including reasonable
counsel fees and expenses) resulting from any claim as a result of its action in
accordance with any written instructions reasonably believed by the Agent to
have been executed by any person duly authorized by the Corporation, or as a
result of acting in reliance upon any instrument or stock certificate reasonably
believed by the Agent to have been genuine and signed, countersigned or executed
by a person duly authorized by the Corporation, excepting only the gross
negligence or bad faith of the Agent.
In any case in which the Corporation may be asked to indemnify or hold the
Agent harmless, the Corporation shall be advised of all pertinent facts
concerning the situation in question and the Agent shall use reasonable care to
identify and notify the corporation promptly concerning any situation which
presents or appears likely to present a claim for indemnification against the
Corporation. The Corporation shall have the option to defend the Agent against
any claim which may be the subject of indemnification hereunder. In the event
that the corporation elects to defend against such Claim, the defense shall be
conducted by counsel chosen by the Corporation and reasonably satisfactory to
the Agent. The Agent may retain additional counsel at its expense. Except with
the prior written consent of the Corporation, the Agent shall not confess any
Claim or make any compromise in any case in which the Corporation will be asked
to indemnify the Agent.
12.2 INDEMNIFICATION OF THE CORPORATION. Without limiting the rights of
the Corporation under applicable law, the Agent will indemnify and hold the
Corporation harmless from all losses, claims, damages, liabilities or expenses
(including reasonable counsel fees and expenses) from any claim (a) resulting
from (i) the bad faith or negligence of the Agent, its officers, employees or
agents, or (ii) any breach of applicable law by the Agent, its officers,
employees or agents, or (iii) any action of the Agent, its officers, employees
or agents which exceeds the legal authority of the Agent or its authority
hereunder, or (iv) any error or omission of the Agent, its officers, employees
or agents with respect to the purchase, redemption and transfer of Customers'
Shares or the Agent's verification or guarantee of any Customer signature, and
(b) not resulting from the Agent's actions in accordance with written
instructions reasonably believed by the Agent to have been executed by any
person duly authorized by the Corporation, or in reliance upon any instrument
or stock certificate reasonably believed by the Agent to have been genuine and
signed, countersigned or executed by a person duly authorized by the
Corporation.
In any case in which the Agent may be asked to indemnify or hold the
Corporation harmless, the Agent shall be advised of all pertinent facts
concerning the situation in question and the Corporation shall use reasonable
care to identify and notify the Agent promptly concerning any situation which
represents or appears likely to present a claim for indemnification against the
Agent. The Agent shall have the option to defend the Corporation against any
Claim which may be the subject of indemnification hereunder. In the event that
the Agent elects to defend against such Claim, the defense shall be conducted
by counsel chosen by the Agent and satisfactory to the corporation. The
Corporation may retain additional counsel at its expense. Except with the prior
written consent of the Agent, the Corporation shall not confess any Claim or
make any compromise in any case in which the Agent will be asked to indemnify
the Corporation.
12.3 SURVIVAL OF INDEMNITIES. The indemnities granted by the parties in
this Section 12 shall survive the termination of this Agreement.
13. INSURANCE. The Agent shall maintain reasonable insurance coverage
against any and all liabilities which may arise in connection with the
performance of its duties hereunder.
14. NOTICES. All notices or other communications hereunder to either
party shall be in writing and shall be deemed sufficient when mailed to such
party at the address of such party set forth in the preamble of this Agreement
or at such other address as such party may have designated by written notice to
the other, or, if delivered by other means, which actually received by the
appropriate party.
15. FURTHER ASSURANCES. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.
16. TERMINATION. This Agreement may be terminated by each of the
Financial Agent or the Corporation, without the payment of any penalty, at any
time upon not more than 60 days' nor less than 30 days' notice. Upon
termination hereof, the Corporation shall pay such compensation as may be due
the Agent as of the date of such termination.
17. CHANGES; AMENDMENTS. This Agreement may be changed or amended only by
written instrument signed by other parties.
18. DIVIDEND PAYMENT DATES. The Corporation hereby agrees, with respect
to a Series, that dividends otherwise payable to any Customer on the last
business day of each month shall, to the extent required by the Agent, be
distributed on such other date in each month as the Agent may designate as the
dividend distribution date with respect to such Customer.
19. SUBCONTRACTING BY AGENT. The Agent may, with the written approval of
the Corporation (such approval not to be unreasonably withheld or delayed),
subcontract for the performance of the Agent's obligations hereunder with any
one or more persons, including but not limited to any one or more persons which
is an affiliate of the Agent; provide, however, that the Agent shall be as fully
reasonable to the Corporation for the acts and omissions of any subcontractor as
it would be for its own acts or omissions.
20. AUTHORITY TO VOTE. The Corporation hereby confirms that, pursuant to
the Articles of Incorporation of the corporation, at any meeting of the
shareholders of the Corporation or the Series, the Agent is authorized to vote
any Shares held in accounts serviced by the Agent and which are otherwise not
represented in person or by proxy at the meeting, proportionately in accordance
with the votes cast by holders of all Shares otherwise represented at the
meeting in person or by proxy and held in accounts serviced by the Agent.
21. COMPLIANCE WITH LAWS AND POLICIES; CORPORATION. The Corporation
hereby agrees that it will comply with all laws and regulations applicable to
its operations and the Agent agrees that it will comply with all laws and
regulations applicable to its operations hereunder.
22. AUDIT. The Corporation shall maintain or arrange to be maintained
complete and accurate accounting records, in accordance with generally accepted
accounting principles. The Corporation shall retain or arrange to be retained
such records for a period of three years from the termination of this Agreement.
The Agent and its designated certified public accountants shall have access to
such records based on reasonable cause and professional judgment during normal
business hours upon reasonable notice to the Corporation.
23. MISCELLANEOUS. This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of the State of
Wisconsin. The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which taken together shall constitute one of the same
instrument. ThisAgreement has been executed on behalf of the Corporation by the
undersigned not individually, but in the capacity indicated.
PRINCIPLE PRESERVATIONS
PORTFOLIOS, INC.
/s/ R.D. Ziegler
By ---------------------------
Title: President
B.C. ZIEGLER AND COMPANY
/s/ Peter D. Ziegler
By ---------------------------
Title: President
SCHEDULE 1
----------
Principal Preservation Cash Reserve Subject to Section 3.2 limitation on
Portfolio 0.25% "sales load" fees.
Principal Preservation Wisconsin Tax- Subject to Section 3.2 limitation on
Exempt Portfolio 0.15% "sales load" fees.
Principal Preservation Select Subject to Section 3.2
Value Portfolio limitation on "sales load"
0.15% files.
AMENDMENT NO. 1 TO
SHAREHOLDER SERVICING AGREEMENT
This Amendment No. 1 To Shareholder Servicing Agreement is made and entered
into as of this 20th day of January, 1995 by and between Principal Preservation
Portfolios, Inc., a Maryland corporation (the "Corporation"), and B.C. Ziegler
and Company, a Wisconsin corporation (the "Financial Agent" or "Agent");
W I T N E S S E T H :
WHEREAS, the Corporation and the Financial Agent are parties to that
certain Shareholder Servicing Agreement, dated as of February 3, 1993 (the
"Shareholder Servicing Agreement"), and wish to amend its terms and conditions
in several respects effective as of the date hereof;
NOW, THEREFORE, the Corporation and the Financial Agent hereby agree as
follows:
SECTION 1. SERVICE TO BE PERFORMED - TYPE OF SERVICE. Section 2.1 of the
Shareholder Servicing Agreement is amended to read in its entirety as follows:
"The Agent shall be responsible for performing shareholder
account administrative and servicing functions, which shall
include without limitation: (a) providing transfer agent and
subtransfer agent services for the Agent's Customers who are the
beneficial owners of Shares; (b) aggregating and processing
purchase and redemption orders in Shares for the benefit of
Customers of the Agent, and transmitting and receiving funds in
connection therewith, including arranging for the wiring of
funds; (c) preparing and distributing statements showing Share
ownership of the Agent's Customers who beneficially own Shares;
(d) processing dividend payments and other distributions paid or
made on Shares owned beneficially by Customers of the Agent; (e)
providing subaccounting services with respect to Shares owned
beneficially by Customers of the Agent; (f) forwarding share-
holder communications, such as proxies, shareholder reports,
dividend and tax notices and updating prospectuses relating to
Shares beneficially owned by Customers of the Agent; (g)
receiving, tabulating and transmitting proxies executed with
respect to Shares owned beneficially by Customers of the Agent;
(h) providing necessary personnel and facilities to establish and
maintain the shareholder services contemplated by this Agreement;
(i) verifying and guaranteeing Customer signatures in connection
with redemption orders and transfers among and changes in
Customer-designated Share accounts; (j) furnishing on behalf of
the Corporation's distributor (either separately or on an
integrated basis with other reports sent to a Customer by the
Agent) all immediate, monthly or annual statements and confir-
mations of all purchases and redemptions of Shares in the Cus-
tomers' Share accounts required by applicable federal or state
law, all such confirmations and statements to conform to Rule
10b-10 under the Securities Exchange Act of 1934 and other ap-
plicable federal or state laws; (k) providing reports requested
by the Corporation's distributor containing state-by-state
listings of the principal residences of Customers of the Agent
who are the beneficial owners of Shares; and (l) providing such
other related services as the Corporation or a Customer may
reasonably request. The Agent shall acquire and hold Shares in a
fiduciary or custodial capacity on behalf of its Customers."
SECTION 2. FEES - FEES FROM THE CORPORATION. In addition to the fees
provided in Section 3.1 of the Shareholder Servicing Agreement, the Agent also
shall be entitled to reimbursement for out-of-pocket expenses (as opposed to
overhead and other internal expenses) it incurs in connection with providing the
services contemplated by the Shareholder Servicing Agreement, including without
limitation fees and expenses it pays to third parties in connection with the
processing and mailing of proxies and other shareholder communications to
Customers of the Agent with respect to Shares beneficially owned by them.
SECTION 3. SCHEDULE 1. Schedule 1 is amended to read in its entirety as
follows:
Schedule 1
----------
Principal Preservation Cash Subject to Section 3.2
Reserve Portfolio 0.25% limitation on "sales load"
fees.
Principal Preservation Subject to Section 3.2
Wisconsin Tax-Exempt limitation on "sales load"
Portfolio 0.15% fees."
SECTION 4. MISCELLANEOUS. Capitalized terms used in this Amendment No. 1
and not specifically defined herein shall have the meanings defined in the
Shareholder Servicing Agreement. Except as expressly set forth in this
Amendment No. 1, the Shareholder Servicing Agreement shall remain in full force
and effect, unaffected by this Amendment No. 1.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment
No. 1 to the Shareholder Servicing Agreement to be executed by its duly
authorized officer as of the day and year first written above.
PRINCIPAL PRESERVATION
PORTFOLIOS, INC.
/s/ R.D. Ziegler
By: ------------------------------
R. D. Ziegler, President
B.C. ZIEGLER AND COMPANY
/s/ Peter D. Ziegler
By: -----------------------------
Peter D. Ziegler, President
FIRST ADDENDUM TO SCHEDULE A
OF SHAREHOLDER SERVICING AGREEMENT
DATED FEBRUARY 3, 1993
BY AND BETWEEN PRINCIPAL PRESERVATION PORTFOLIO, INC.
AND B.C. ZIEGLER AND COMPANY
(AS AMENDED ON JANUARY 20, 1995)
In respect to the Series known as the Cash Reserve Portfolio, from and
after the effective date of Post-Effective Amendment No. 28 to Principal
Preservation Portfolios, Inc.'s Registration Statement on Form N-1A, only the
Class X Common Stock of the Cash Reserve Portfolio shall be subject to the terms
and provisions of the foregoing Agreement.
Dated as of this 29th day of December, 1995.
PRINCIPAL PRESERVATION PORTFOLIO, INC.
/s/ R.D. Ziegler
--------------------------------
R.D. Ziegler, President
B.C. ZIEGLER AND COMPANY
/s/ Peter D. Ziegler
--------------------------------
Peter D. Ziegler, President
EXHIBIT 11(A)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting part of this Post-Effective
Amendment No. 35 (the "Amendment") to this Registration Statement on Form N-1A
of our report dated January 19, 1996 relating to the financial statements and
financial highlights of the series of Principal Preservation Portfolios, Inc.
known as the Wisconsin Tax-Exempt Portfolio, which financial statements and
financial highlights also are incorporated by reference into the Amendment from
the Wisconsin Tax-Exempt Portfolio's 1995 Annual Report to Shareholders. We
also consent to the references to our firm under the heading "Financial
Highlights" in the Prospectus and under the headings "Counsel and Independent
Accountants" and "Experts" in the Statement of Additional Information.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
April 24, 1996
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