PRINCIPAL PRESERVATION
PORTFOLIOS, INC.
CASH RESERVE PORTFOLIO
CLASS X COMMON STOCK (RETAIL CLASS)
MINIMUM INITIAL INVESTMENT: $1,000
The Principal Preservation Cash Reserve Portfolio (the ''Fund'') is one of a
series of separate mutual fund portfolios within the Principal Preservation
Portfolios, Inc. (''Principal Preservation'') family of funds. The Fund, a
money market fund, seeks to provide high current income consistent with
stability of principal and the maintenance of liquidity. The Fund invests in
domestic and foreign U.S. dollar-denominated money market obligations with
maturities of 397 days or less. The Fund's investment adviser (the ''Adviser'')
is Ziegler Asset Management, Inc.
The Fund offers two classes of authorized shares of Principal Preservation
common stock, the Class X Common Stock (the ''Class X Shares'' or ''Retail
Class'') and the Class Y Common Stock (the ''Class Y Shares'' or ''Institutional
Class'') (collectively referred to as the ''Classes''). The two Classes have in
place varying fee schedules-the Institutional Class may be purchased at net
asset value with no sales charge. For additional information regarding the
Institutional Class, investors may call B.C. Ziegler and Company at 800-826-
4600. For additional information regarding the salient features of the two
Classes, see ''Description of Shares'' on page 20 of this Prospectus.
This Prospectus sets forth concisely the information that an investor should
know before investing in shares of the Retail Class. Investors should read and
retain this Prospectus for future reference. A Statement of Additional
Information dated January 2, 1996, containing additional information about the
Fund, has been filed with the Securities and Exchange Commission and is
incorporated by reference into this Prospectus. A copy of the Statement of
Additional Information can be obtained without charge by telephone or written
request to B.C. Ziegler and Company (the ''Distributor''), 215 North Main
Street, West Bend, WI 53095 (Telephone 800-826-4600) or from Selected Dealers
that have agreements with respect to distribution of shares of the Fund.
Shareholder inquiries should be directed to Principal Preservation at 215 North
Main Street, West Bend, WI 53095; (Telephone 800-826-4600).
THE SHARES OF THE FUND OFFERED HEREBY ARE NEITHER INSURED NOR GUARANTEED AND
THE U.S. GOVERNMENT. WHILE PRINCIPAL PRESERVATION SEEKS TO MAINTAIN A STABLE
NET ASSET VALUE OF $1.00 PER SHARE OF THE FUND, THERE CAN BE NO ASSURANCE THAT
IT WILL BE ABLE TO DO SO ON A CONTINUING BASIS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is January 2, 1996.
QUESTIONS AND ANSWERS
WHAT ARE THE PRINCIPAL PRESERVATION PORTFOLIOS?
Principal Preservation is a Maryland corporation organized in 1984 as an
open-end, diversified investment company. Principal Preservation is a series
company, which means that its Board of Directors may establish additional
portfolios at any time. The Fund was established in 1993 with a single class of
common stock and operated as a retail spoke of a two-tiered, master/feeder fund
structure through December 31, 1995. Effective January 1, 1996, the Fund was
recapitalized with its present two Classes, and each outstanding share of Cash
Reserve Portfolio's original class of common stock was redesignated (without
otherwise affecting the rights and privileges appertaining thereto) as a share
of the Retail Class (the ''Reorganization''). Shares of the Fund's
Institutional Class and other portfolios of Principal Preservation are offered
by separate prospectuses.
WHAT ARE THE BENEFITS FROM INVESTING IN THE FUND?
Economies of Size. The Fund is designed to provide investors with an
opportunity pool their money to achieve economies of size and diversification.
This permits investors whose own securities portfolios may not be large enough
to obtain economically priced individual investment management service to take
advantage of the professional investment management expertise of the Adviser.
Professional management. The Fund provides professional management of your
investment.
Portfolio diversification. The fund combines the investment of many
investors to obtain a diversified portfolio of high quality, short-term money
market instruments. The burden of selecting securities is eased and the high
costs investors would otherwise incur through smaller purchases is trimmed.
Liquidity. The Fund is designed to maintain a $1.00 share price. Many
investors select money market fund investments for the daily liquidity and
stability of principal they provide. Shares of the Fund may be redeemed at any
time.
Retirement Plans. An investment in the Fund may also be made by a tax-
qualified retirement plan. You can invest through an IRA. Principal
Preservation makes certain prototype plans available to investors (see
''Shareholder Services - Tax Sheltered Retirement Plans'').
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund seeks to provide investors with a high level of current income
consistent with stability of principal and the maintenance of liquidity. For
detailed descriptions of the Fund's investment objective and policies, see
''Investment Objective and Policies'' below. There can be no assurance that the
Fund's investment objective will be achieved.
HOW IS INCOME DISTRIBUTED?
Dividends will be declared daily and paid monthly. Any net realized capital
gains will be declared and paid annually. Investors may receive their income
dividends and capital gain distributions in additional shares of the Retail
Class, in additional shares in another Principal Preservation portfolio
(investors should obtain a current prospectus and read it carefully before
investing in any of the other Principal Preservation Portfolios) or in cash (see
''Dividends, Capital Gains Distributions and Reinvestments'').
WHO MANAGES THE PORTFOLIO?
Ziegler Asset Management, Inc. (''ZAMI'') is the investment adviser for the
Fund, and also serves as Administrator to the Fund. The Adviser is an affiliate
of B.C. Ziegler and Company (''Ziegler''). Ziegler currently serves as
Distributor, Transfer and Dividend Disbursement Agent and Shareholder Servicing
Agent for the Fund. See ''Management.''
HOW CAN SHARES BE PURCHASED?
Shares may be purchased from the Distributor or from registered broker-
dealers and other financial institutions (''Selected Dealers'') who have entered
into agreements with the Distributor (see ''Purchase Of Shares''). There is no
sales charge.
The minimum initial investment is $1,000. The minimum subsequent investment
is $50. Registered broker-dealers and certain other financial institutions that
have entered into shareholder servicing agreements with the Fund (''Agents'')
may set higher initial and subsequent minimum investment amounts for persons who
purchase Fund shares through them, and may change those minimums from time to
time in their sole discretion (see ''Purchase of Shares'').
HOW CAN YOU REDEEM OR EXCHANGE YOUR SHARES?
Investors may redeem all or a portion of their shares on any business day.
Redemptions may be made by mail, telephone or check (see ''Redemptions'').
HOW CAN I LEARN MORE ABOUT THE FUND'S INSTITUTIONAL CLASS?
As noted above, in addition to its Retail Class of shares, the Fund also
offers an Institutional Class of shares. Shares of the Institutional Class may
be purchased by investors at net asset value with no sales charge through B.C.
Ziegler and Company. The minimum initial investment in the Institutional Class
is $50,000. The difference in the expense structure between the Retail Class
and the Institutional Class may result in variances in performance between the
two Classes. The Institutional Class is offered through a separate prospectus
which may be obtained without charge by telephone or written request to B.C.
Ziegler and Company, 215 North Main Street, West Bend, Wisconsin 53095
(telephone 800-826-4600), or from Selected Dealers that have entered into
agreements with respect to the distribution of shares of the Fund.
EXPENSES
The following table provides (i) a summary of estimated expenses relating to
purchases and sales of shares of the Retail Class, and the aggregate annual
operating expenses for the Retail Class, as a percentage of average net assets
of the Fund, and (ii) an example illustrating the dollar cost of such estimated
expenses on a $1,000 investment in the Fund.
SHAREHOLDER TRANSACTION EXPENSES
Redemption fee(1)<F1> None
Exchange fee None
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
Investment Advisory Fees .20%
Rule 12b-1 Distribution Fees(2)<F2> .15%
Other Operating Expenses: .60%
----
Shareholder Servicing Agent Fees(3)<F3> .25%
Administrative Fees .15%
Other Expenses(4)<F4> .20%
Total Operating Expenses .95%
----
----
(1)<F1>Investors are charged a wire redemption fee, which is currently $10.00
per wire. Also, redemptions of less than $250 made by check are subject to a
$10.00 service fee. See ''Redemptions.''
(2)<F2>The service fees paid pursuant to the Fund's Rule 12b-1 Plan are
described in more detail in the section of this Prospectus captioned
''Distribution Plan.''
(3)<F3>Class X Shares not maintained in a shareholder account serviced by a
shareholder servicing Agent (and therefore are not charged a shareholder
servicing fee) are held in accounts maintained on the books of the Fund and
serviced by Ziegler pursuant to the terms of a Transfer and Dividend Disbursing
Agent Agreement. Ziegler receives a fee for providing such services, which is
currently $16.00 per account. See ''Management Shareholder Servicing Agents.''
(4)<F4>Other Expenses reflect actual expenses incurred during the year ended
December 31, 1994 by Cash Reserve Portfolio, adjusted to give effect to the
Reorganization as though it occurred on January 1, 1994. Fees incurred in
future years for these services may be higher or lower than those shown in the
table.
EXAMPLE
You would pay the following expenses on a $1,000 investment in the Fund,
assuming 5% annual return and redemption at the end of each time period:
1 year.............................. $ 10.00
3 years............................. $ 30.00
5 years............................. $ 52.00
10 years............................ $116.00
THE PURPOSE OF THE TABEL IS TO ASSIST THE INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES AN INVESTOR WILL BEAR DIRECTLY OR INDIRECTLY. FOR
MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE
''MANAGEMENT,'' ''PURCHASE OF SHARES,'' ''REDEMPTIONS'' AND ''SHAREHOLDER
SERVICES.''THE ABOVE EXAMPLE 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 the Fund outstanding for the periods presented (prior to the
Reorganization). This information should be read in conjunction with the
audited financial statements and related notes contained in the Fund's 1994
Annual Report to Shareholders, and in conjunction with its unaudited financial
statements included in the Fund's Semi-Annual Report dated June 30, 1995, which
financial statements are incorporated herein by reference. The information
presented in the table as of and for the periods ended December 31, 1994 and
1993 has been audited by Price Waterhouse LLP, the Fund's independent
accountants. You may obtain copies of the Annual Report and Semi-Annual Report
without charge from the Distributor.
<TABLE>
<CAPTION> For the Period April 5, 1993
For the Six Months For the Year Ended (Commencement of Operations)
Ended June 30, 1995 December 31, 1994 to December 31, 1993
------------------- ------------------ ----------------------------
<S> <C> <C> <C>
(Selected data for each share of the Fund
outstanding throughout the periods)
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income 0.03 0.04 0.02
Less distributions:
Dividends from net investment income (0.03) (0.04) (0.02)
------ ----- ------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
----- ----- -----
----- ----- -----
Total investment return 5.32%(a)<F5> 3.64%(b)<F6> 2.99%(a)(b)<F5><F6>
Ratios/Supplemental Data:
Net assets, end of period
(nearest thousandth) $69,277 $52,593 $47,768
Ratio of Expenses to average net assets 0.79%(a)<F5> 1.05%(c)<F7> 1.03%(a)(c)<F5><F7>
Ratio of net investment income to
average net assets 5.31%(a)<F5> 3.62%(c)<F7> 2.73%(a)(c)<F5><F7>
(a)<F5>Annualized.
(b)<F6>Had the advisers not made capital contributions, the adjusted annualized
total returns would have been 1.91% and 2.99%, for 1994 and 1993, respectively.
(c)<F7>Reflects a voluntary waiver of fees and an expense reimbursement by the
Fund's adviser. If the voluntary waivers and expense reimbursement had not been
in place, the ratios of net investment income and expenses to average net assets
would have been 3.35% and 1.32%, respectively, for the fiscal year ended
December 31, 1994, and 2.44% and 1.32%, respectively, for the period ended
December 31, 1993.
(d)<F8>ZAMI has served as investment advisor to the Fund since August 1, 1994.
Prior to that time, Prospect Hill Advisors, Inc. served as investment adviser to
the Fund.
</TABLE>
INVESTMENT OBJECTIVE AND POLICIES
INTRODUCTION
Principal Preservation is a Maryland corporation organized in 1984 as an
open-end, diversified investment company. Principal Preservation is a series
company, which means that its Board of Directors may establish additional
portfolios at any time. The Fund was established in 1993 and the Retail Class
was established in 1995. The Fund seeks to obtain high current income
consistent with stability of principal and the maintenance of liquidity. The
Fund is not intended to constitute a balanced investment program and is not
designed for investors seeking capital gains or maximum income irrespective of
fluctuations in principal. Ziegler Asset Management, Inc. is the Adviser to the
Fund. The Adviser manages the investments of the Fund from day to day in
accordance with the Fund's investment objective and policies.
INVESTMENT OBJECTIVE
The Fund seeks to obtain a high level of current income to the extent
consistent with stability of principal and the maintenance of liquidity. The
Fund invests in high quality short-term money market instruments consistent with
its specific investment objective. Principal Preservation seeks to maintain a
net asset value of $1.00 per share of the Fund. There can be no assurance that
the investment objective of the Fund will be achieved or that Principal
Preservation will be able to maintain a per share net asset value of $1.00.
Securities in which the Fund invests may not earn as high a level of current
income as long-term or lower quality securities which generally have less
liquidity, greater market risk and more fluctuation in market value.
The investment objective of the Fund may not be changed without the vote of
the holders of a majority of the Fund's outstanding voting securities.
The following is a discussion of the various investments of and techniques
employed by the Fund. Additional information about the investment policies of
the Fund appears in the Statement of Additional Information.
INVESTMENT POLICIES
To achieve its investment objective, the Fund invests in U.S. dollar-
denominated short-term money market obligations, including securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
certificates of deposit, time deposits, bankers' acceptances and other short-
term obligations issued by domestic banks and domestic branches and subsidiaries
of foreign banks, repurchase agreements and high quality domestic commercial
paper and other short-term corporate obligations, including those with floating
or variable rates of interest. In addition, the Fund may lend portfolio
securities, enter into reverse repurchase agreements and, to a limited extent,
invest in securities issued by foreign banks and corporations outside the United
States. The Fund reserves the right to concentrate 25% or more of its total
assets in obligations of domestic branches of domestic banks.
Principal Preservation seeks to maintain a net asset value of $1.00 per share
of the Fund for purchases and redemptions. To permit this, the Fund uses the
amortized cost method of valuing its securities pursuant to Rule 2a-7 under the
Investment Company Act of 1940, as amended (the ''1940 Act''), certain
requirements of which are summarized below. For further information regarding
the amortized cost method of valuing securities, see `Determination of Net
Asset Value''in the Statement of Additional Information.
In accordance with Rule 2a-7, the Fund will maintain a dollar-weighted
average portfolio maturity of 90 days or less, purchase only instruments having
remaining maturities of 397 days or less and invest only in U.S. dollar-
denominated securities determined in accordance with procedures established by
the Board of Directors of the Fund (the ''Board of Directors'') to present
minimal credit risks and which are rated in one of the two highest rating
categories for debt obligations by at least two nationally recognized
statistical rating organizations (an ''NRSRO'') (or one NRSRO if the instrument
was rated by only one such organization) or, if unrated, are of comparable
quality as determined in accordance with procedures established by the Board of
Directors (collectively, ''Eligible Securities'').
Eligible Securities include ''First Tier Securities'' and ''Second Tier
Securities.'' First Tier Securities include those that possess a rating in the
highest category in the case of a single-rated security or at least two ratings
in the highest rating category in the case of multiple-rated securities or, if
the securities do not possess a rating, are determined to be of comparable
quality by the Adviser pursuant to the guidelines adopted by the Board of
Directors. Second Tier Securities are all other Eligible Securities. The Fund
will invest at least 95% of its total assets in First Tier Securities.
The NRSROs currently rating instruments of the type the Fund may purchase are
Moody's Investors Service, Inc., Standard & Poor's Corporation, Duff & Phelps,
Inc., Fitch Investors Service, Inc., IBCA Limited and IBCA Inc. and Thomson
BankWatch, Inc., and their rating criteria are described in the Appendix to the
Statement of Additional Information. The Statement of Additional Information
contains further information concerning the rating criteria and other
requirements governing the Fund's investments, including information relating to
the treatment of securities subject to a tender or demand feature and securities
deemed to possess a rating based on comparable rated securities of the same
issuer.
In addition, the Fund will not invest more than 5% of its total assets in the
securities (including the securities collateralizing a repurchase agreement) of,
or subject to puts (including letters of credit, guarantees or other credit
support) issued by, a single issuer, except that (i) the Fund may invest more
than 5% of its total assets in a single issuer for a period of up to three
business days in certain limited circumstances, (ii) the Fund may invest in
obligations issued or guaranteed by the U.S. Government (including those
collateralizing repurchase agreements) without any such limitation, and (iii)
the limitation with respect to puts does not apply to unconditional puts if no
more than 10% of the Fund's total assets is invested in securities issued or
guaranteed by the issuer of the unconditional put. Investments in rated
securities not rated in the highest category by at least two rating
organizations (or one rating organization if the instrument was rated by only
one such organization), and unrated securities not determined by the Adviser, in
accordance with guidelines and procedures established by the Board of Directors,
to be comparable to those rated in the highest category, will be limited to 5%
of the Fund's total assets, with the investment in any one such issuer being
limited to no more than the greater of 1% of the Fund's total assets or
$1,000,000. As to each security, these percentages are measured at the time the
Fund purchases the security.
Bank Obligations. The Fund may invest in U.S. dollar-denominated
certificates of deposit, time deposits, bankers' acceptances and other short-
term obligations issued by domestic banks and domestic branches and subsidiaries
of foreign banks. Certificates of deposit are certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time. Such instruments include Yankee Certificates of Deposit (''Yankee Cds''),
which are certificates of deposit denominated in U.S. dollars and issued in the
United States by the domestic branch of a foreign bank. Time deposits are non-
negotiable deposits maintained in a banking institution for a specified period
of time at a stated interest rate. Time deposits which may be held by the Fund
are not insured by the Federal Deposit Insurance Corporation or any other agency
of the U.S. Government. The Fund will not invest more than 10% of the value of
its net assets in time deposits maturing in longer than seven days and other
instruments which are illiquid or not readily marketable. The Fund may also
invest to a limited extent in certificates of deposit and time deposits issued
by foreign banks outside the United States. The Fund's investments in such
foreign bank obligations may not exceed 5% of the Fund's assets.
The Fund may also invest in bankers' acceptances and other short-term
obligations. Bankers' acceptances are credit instruments evidencing the
obligation of a bank to pay a draft drawn on it by a customer. These instruments
reflect the obligation both of the bank and of the drawer to pay the face amount
of the instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations which have either fixed, floating or variable
interest rates.
To the extent the Fund's investments are concentrated in the banking
industry, the Fund will have correspondingly greater exposure to the risk
factors which are characteristic of such investments. Sustained increases in
interest rates can adversely affect the availability or liquidity and cost of
capital funds for a bank's lending activities, and a deterioration in general
economic conditions could increase the exposure to credit losses. In addition,
the value of and the investment return on the Fund's shares could be affected by
economic or regulatory developments in or related to the banking industry, which
industry also is subject to the effects of the concentration of loan portfolios
in leveraged transactions and in particular businesses, and competition within
the banking industry, as well as with other types of financial institutions.
The Fund, however, will seek to minimize its exposure to such risks by investing
only in debt securities which are determined by the Adviser to be of high
quality.
U.S. Government and Agency Securities. Securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities, which differ only in their interest rates, maturities and times of
issuance. Treasury Bills have initial maturities of one year or less; Treasury
Notes have initial maturities of one to ten years; and Treasury Bonds generally
have initial maturities of greater than ten years. U.S. Government agency
securities in which the Fund commonly invests include securities issued by
Federal Home Loan Banks, Federal National Market Association, Federal Farm
Credit Bank Agency, Federal Home Loan Mortgage Corporation, Student Loan
Mortgage Association, Farmer's Home Administration, as well as others. Some
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, for example, Government National Mortgage Association pass-
through certificates, are supported by the full faith and credit of the U.S.
Treasury; others, such as those of the Federal Home Loan Banks, by the right of
the issuer to borrow from the Treasury; others, such as those issued by the
Federal National Mortgage Association, by discretionary authority of the U.S.
Government to purchase certain obligations of the agency or instrumentality; and
others, such as those issued by the Student Loan Marketing Association, only by
the credit of the agency or instrumentality. While the U.S. Government provides
financial support to such U.S. Government-sponsored agencies or
instrumentalities, no assurance can be given that it will always do so, since it
is not so obligated by law. The Fund will invest in such securities only when
the Adviser is satisfied that the credit risk with respect to the issuer is
minimal.
U.S. Government and agency securities in which the Fund may invest include
variable rate securities with maturities that may extend beyond 13 months from
the date of purchase. However, under Rule 2a-7, the Fund may purchase such
agency securities only if the interest rate adjusts not less frequently than
every 762 days and at each interest rate adjustment date the security reasonably
can be expected to have a market value that approximates its par value.
However, the Adviser has expressed its intention not to invest the Fund's assets
in certain categories of securities with final maturities in excess of 397 days
from the date of purchase, including but not limited to structured U.S.
Government agency securities such as dual index floaters, inverse floaters,
leveraged floaters, capped floaters, range floaters, floating rate securities
tied to the cost of funds of the 11th District Federal Home Loan Bank and
securities with interest rates tied to 10-year constant maturity U.S. Treasury
securities.
Commercial Paper. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by the Fund will consist only of U.S. dollar-denominated direct
obligations issued by domestic and, subject to the 5% limit discussed below (see
''Foreign Securities''), foreign entities. The other corporate obligations in
which the Fund may invest consist of high quality, U.S. dollar-denominated
short-term bonds and notes (including variable rate and amount master demand
notes) issued by domestic corporations.
Restricted Securities. The Fund may invest in securities that are subject to
legal or contractual restrictions on resale. These securities may be illiquid
and, thus, the Fund may not purchase them to the extent that more than 10% of
the value of its net assets would be invested in illiquid securities. However,
if a substantial market of qualified institutional buyers develops pursuant to
Rule 144A under the Securities Act of 1933, as amended, for such securities held
by the Fund, the Fund intends to treat such securities as liquid securities in
accordance with procedures approved by the Board of Directors. To the extent
that for a period of time, qualified institutional buyers cease purchasing such
restricted securities pursuant to Rule 144A, the Fund's investing in such
securities may have the effect of increasing the level of illiquidity in the
Portfolio during such period.
Securities Lending. The Fund may seek to increase its income by lending
securities from its portfolio to banks, brokers or dealers and other recognized
institutional investors needing to borrow securities. Such loans may not exceed
33 1/3% of the value of the Fund's total assets. In connection with such loans,
the Fund will receive collateral consisting of cash, U.S. Government and other
high quality securities or irrevocable letters of credit. Such collateral will
be maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. The Fund can increase its income through
the investment of such collateral. The Fund continues to be entitled to
payments in amounts equal to the interest payable on the loaned security, and
receives interest on the amount of the loan. Such loans will be terminable at
any time upon specified notice. The Fund might experience risk of loss if the
institution with which it has engaged in a portfolio loan transaction breaches
its agreement with the Fund.
Repurchase Agreements and Reverse Repurchase Agreements. Repurchase
agreements involve the acquisition by the Fund of an underlying debt instrument,
subject to an obligation of the seller to repurchase, and the Fund to resell,
the instrument at a fixed price, usually not more than one week after its
purchase. The Fund or a sub-custodian will have custody of securities acquired
by the Fund under a repurchase agreement.
The Fund may enter into repurchase agreements with banks or broker-dealers
with respect to government securities or other high quality securities
regardless of their remaining maturities, and will require that additional
securities be deposited with it if the value of the securities purchased should
decrease below the resale price. The Adviser will monitor on an ongoing basis
the value of the collateral in accordance with the terms of the repurchase
agreement. Certain costs may be incurred by the Fund in connection with the
sale of the securities if the seller does not repurchase them in accordance with
the repurchase agreement. In addition, if bankruptcy proceedings are commenced
with respect to the seller of the securities, realization on the securities by
the Fund may be delayed or limited. The Fund will consider on an ongoing basis
the creditworthiness of the institutions with which it enters into repurchase
agreements. Repurchase agreements are considered collateralized loans under the
1940 Act.
The Fund also may enter into repurchase agreements with entities that are
neither banks nor broker-dealers, provided that, in accordance with the Fund's
policies with respect to repurchase agreements, the Board of Directors of the
Fund approves or ratifies the transaction upon the determination by the Board,
or by the Adviser on its behalf, that entering into a repurchase agreement with
such entity presents minimal credit risk, that the entity presents no serious
risk of becoming involved in bankruptcy proceedings within the time frame
contemplated by the repurchase agreement, and that the repurchase agreement is
otherwise an eligible security for purchase by the Fund. Such entities are not
subject to the types and kinds of regulations or governmental supervision to
which banks and broker-dealers are subject, and there may not be available the
same types of financial information about such entities as is available with
respect to banks and broker-dealers.
The Fund may borrow funds for temporary or emergency purposes, such as
meeting larger than anticipated redemption requests, and not for leverage, in an
amount of up to one-third of the value of the Fund's total assets (including the
amount borrowed) less its total liabilities (not including the amount borrowed).
The Fund also may enter in agreements to sell portfolio securities to financial
institutions such as banks and broker-dealers and to repurchase them at a
mutually agreed date and price (a ''reverse repurchase agreement''). At the
time the Fund enters into a reverse repurchase agreement it will place in a
segregated custodial account cash, U.S. Government securities or high-grade debt
obligations having a value equal to the repurchase price, including accrued
interest. Reverse repurchase agreements involve the risk that the market value
of the securities sold by the Fund may decline below the repurchase price of
those securities. Reverse repurchase agreements are considered to be borrowings
by the Fund.
Foreign securities. Except for Yankee CDs, the Fund may invest no more than
5% of its total assets in U.S. dollar-denominated foreign securities issued
outside the United States, such as obligations of foreign branches and
subsidiaries of domestic banks and foreign banks, including Eurodollar
certificates of deposit, Eurodollar time deposits and Canadian time deposits,
commercial paper of Canadian and other foreign issuers, and U.S. dollar-
denominated obligations issued or guaranteed by one or more foreign governments
or any of their agencies or instrumentalities. For a complete description of
foreign securities the Fund may purchase, see ''Investment Program'' in the
Statement of Additional Information.
Guaranteed Investment Contracts. The Fund may invest in guaranteed
investment contracts (''GICs'') issued by insurance companies. Pursuant to such
contracts, the Fund makes cash contributions to a deposit fund of the insurance
company's general account. The insurance company then credits to the fund
guaranteed interest. The GICs provide that this guaranteed interest will not be
less than a certain minimum rate. The insurance company may assess periodic
charges against a GIC for expenses and service costs allocable to it, and the
charges will be deducted from the value of the deposit fund. Because the Fund
may not receive the principal amount of a GIC from the insurance company on
seven days' notice or less, the GIC is considered an illiquid investment and,
together with other instruments in the Fund which are not readily marketable,
will not exceed 10% of the Fund's total assets. The term of a GIC will be
thirteen months or less. In determining average weighted portfolio maturity, a
GIC will be deemed to have a maturity equal to the longer of the period of time
remaining until the next readjustment of the guaranteed interest rate or the
period of time remaining until the principal amount can be recovered from the
issuer through demand.
When-issued and Forward Commitment Securities. The Fund may purchase
securities on a ''when-issued'' basis and may purchase or sell securities on a
''forward commitment'' basis in order to hedge against anticipated changes in
interest rates and prices. When such transactions are negotiated, the price,
which is generally expressed in yield terms, is fixed at the time the commitment
is made, but delivery and payment for the securities take place at a later date.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Fund will enter into when-issued and forward
commitments only with the intention of actually receiving or delivering the
securities, as the case may be. At the time the Fund enters into a transaction
on a when-issued or forward commitment basis, a segregated account consisting of
cash or high grade liquid debt securities equal to the value of the when-issued
or forward commitment securities will be established and maintained. There is a
risk that the securities may not be delivered and that the Fund may incur a
loss.
Zero Coupon Obligations. The Fund may acquire zero coupon obligations when
consistent with its investment objective and policies. Such obligations have
greater price volatility than coupon obligations and will not result in payment
of interest until maturity. Since dividend income is accrued throughout the
term of the zero coupon obligation, but is not actually received until maturity,
the Fund may have to sell other securities to pay the accrued dividends prior to
maturity of the zero coupon obligation.
Investments in Other Investment Companies. The Fund occasionally may invest
in securities of other investment companies, subject to certain limitations and
restrictions described in the Statement of Additional Information. See
Investment Restriction No. 13 in the section of the Statement of Additional
Information captioned ''Investment Restrictions.'' Such securities are
purchased by the Fund primarily on an overnight basis with cash received by the
Fund too late in the business day to be invested that same day in securities in
which the Fund invests. However, subject to complying with the limitations and
restrictions set forth in the Statement of Additional Information, the Adviser
has the authority to make and retain investments in other investment companies
for an indefinite period of time, and may do so in response to presently
unforeseen market or economic conditions or other circumstances. An investment
by the Fund in other investment companies may cause the Fund to incur increased
administration and distribution costs.
Certain Other Obligations. In order to allow for investments in new
instruments that may be created in the future, upon Principal Preservation
supplementing this Prospectus, the Fund may invest in obligations other than
those listed previously, provided such investments are consistent with the
Fund's investment objective, policies and restrictions.
See ''Investment Program'' in the Statement of Additional Information for more
information about these and other types of instruments in which the Fund may
invest, including variable rate and floating rate securities, unsecured
promissory notes and participation interests.
FUNDAMENTAL INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which constitute
fundamental policies. Fundamental policies cannot be changed without the
approval of the holders of a majority of the outstanding voting securities of
the Fund, as defined in the 1940 Act. See ''Investment Restrictions'' in the
Statement of Additional Information.
The Fund may: (i) borrow money, but only from banks or through reverse
repurchase agreements for temporary or emergency (not leveraging) purposes, in
an amount of up to 33 1/3% of the value of the Fund's total assets (including
the amount borrowed) less liabilities (not including the amount borrowed) at the
time the borrowing is made (borrowings repaid within 60 days and not renewed or
extended are presumed to be for temporary purposes). While borrowings exceed 5%
of the value of the Fund's total assets, the Fund will not make any additional
investments; (ii) pledge, hypothecate, mortgage or otherwise encumber its
assets, but only, (a) to secure borrowings for temporary or emergency purposes,
or (b) in connection with entering into reverse repurchase agreements; (iii)
invest up to 5% of its total assets in the obligations of any single issuer,
provided that up to 25% of the value of the Fund's total assets may be invested
(subject to the provisions of Rule 2a-7) without regard to any such limitation,
and provided further that obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities may also be purchased without
regard to any such 5% limitation; (iv) concentrate 25% or more of its total
assets in bank obligations and invest up to 25% of its total assets in the
securities of issuers in any other industry, provided that there is no
limitation on investments and obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities; (v) invest up to 10% of its net
assets in repurchase agreements providing for settlement in more than seven days
after notice and in securities that are not readily marketable (which securities
could include participation and variable rate demand obligations as to which the
Portfolio cannot exercise a related demand feature and as to which there is no
secondary trading market). See ''Investment Restrictions'' in the Statement of
Additional Information.
CERTAIN INVESTMENT CONSIDERATIONS
The Fund attempts to increase yields by trading to take advantage of short-
term market variations. This policy should not adversely affect the Retail
Class, since the Fund usually does not pay brokerage commissions when it
purchases short-term debt obligations, although the prices at which such
instruments are traded generally reflect a premium or discount as compared to
their face or par values. The value of the portfolio securities held by the
Fund will vary inversely to changes in prevailing interest rates. Thus, if
interest rates have increased from the time a security was purchased, such
security, if sold, might be sold at a price less than its purchase cost.
Similarly, if interest rates have declined from the time a security was
purchased, such security, if sold, might be sold at a price greater than its
purchase cost. In either instance, if the security was purchased at face value
and held to maturity, no gain or loss would be realized.
MANAGEMENT
DIRECTORS AND OFFICERS
The Board of Directors of Principal Preservation is responsible for the
management of Principal Preservation and provides broad supervision over its
affairs. Principal Preservation's officers are responsible for the Fund's
operations. For more information with respect to the Directors of the Fund, see
''Management of Principal Preservation'' in the Statement of Additional
Information.
INVESTMENT ADVISER
Since August 1, 1994, Ziegler Asset Management, Inc. (''ZAMI'') has served as
the Adviser to the Fund. The Adviser is registered with the Securities and
Exchange Commission as an investment adviser. In addition to the Fund, the
Adviser serves as investment adviser to six other mutual fund series of
Principal Preservation and privately manages numerous customer advisory
accounts. On December 31, 1994, the Adviser had more than $579 million under
discretionary management. The address of the Adviser is 215 North Main Street,
West Bend, Wisconsin 53095.
The Adviser is an affiliate of B.C. Ziegler and Company. Ziegler currently
serves as Accounting/Pricing Agent, Distributor, Transfer and Dividend
Disbursement Agent and Shareholder Servicing Agent for the Fund. Ziegler is
registered with the Securities and Exchange Commission as an investment adviser
and securities broker/dealer and is a member of the National Association of
Securities Dealers, Inc. Ziegler has been engaged in the underwriting of debt
securities for more than 75 years. Ziegler and the Adviser are ultimately
controlled by The Ziegler Companies, Inc., a publicly-owned financial services
holding company.
The Adviser manages the assets of the Fund pursuant to an investment advisory
agreement dated December 29, 1995 (the ''Advisory Agreement''). On November 29,
1994, prior to the Reorganization, shareholders of the Fund approved a
substantively identical agreement with the Adviser relating to the management of
the Fund's assets. That agreement was replaced by the current Advisory
Agreement in the Reorganization. For services provided under the Advisory
Agreement, the Adviser receives from the Fund a fee, accrued daily and paid
monthly, at an annual rate equal to 0.20% of the Fund's average daily net
assets.
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, ZAMI, as administrator of
the Fund, provides the Fund with general office facilities and provides or
supervises the overall administration of the Fund including, among other
responsibilities, the negotiation of contracts and fees with, and the monitoring
of performance and billings of, the independent contractors and agents of the
Fund; the preparation and filing of all documents required for compliance by the
Fund with applicable laws and regulations; providing equipment and clerical
personnel necessary for maintaining the organization of the Fund; preparation of
certain documents in connection with meetings of the Board of Directors of the
Fund; and the maintenance of books and records of the Fund.
The Administrative Services Agreement with respect to the Fund provides that
ZAMI is entitled to receive an annual fee from the Fund accrued daily and paid
monthly at an annual rate of 0.15% of the Fund's average daily net assets up to
$200 million, and 0.10% of such assets over $200 million. This fee is approved
each year by the directors of Principal Preservation, including a majority of
the Independent Directors.
DISTRIBUTOR
Ziegler serves as the distributor of shares of the Fund and of other
Principal Preservation portfolios pursuant to a Distribution Agreement. The
Distribution Agreement between Principal Preservation and Ziegler will continue
from year to year if it is approved annually by Principal Preservation's Board
of Directors, including a majority of Independent Directors, or by a vote of the
holders of a majority of the outstanding shares. The agreement may be
terminated at any time by either party on 60 days written notice and will
automatically terminate if assigned by the Distributor. Principal Preservation
reimburses Ziegler for expenses incurred by it in connection with the
distribution of the Fund's shares through the Distribution Plan. See
''Distribution Plan.''
SHAREHOLDER SERVICING AGENTS
Ziegler presently serves as, and other brokers and financial institutions may
in the future serve as, shareholder servicing Agents with respect to Class X
Shares for shareholder accounts opened and maintained through them by their
customers. Such Agents provide shareholder services to the Fund 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 Class X Shares through the Agent; (b) aggregating and
processing purchase and redemption orders in Class X Shares 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 Class X Share ownership information with respect
to the Agent's customers who purchase and hold Class X Shares through the Agent;
(d) processing dividend payments and other distributions paid or made on Class X
Shares which are owned beneficially by the Agent's customers; (e) providing
subaccounting services with respect to Class X Shares purchased and held by the
Agent's customers through the Agent; (f) communications, such as proxies,
shareholder reports, dividend and tax notices and updated prospectuses relating
to Class X Shares owned beneficially by the Agent's customers; (g) receiving,
tabulating and transmitting proxies executed with respect to Class X Shares
owned beneficially by customers of the Agent; (h) providing necessary personnel
and facilities to establish and maintain the shareholder services contemplated
by the Shareholder 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 Class X
Shares; (j) furnishing, on behalf of the Distributor (either separately or on an
integrated basis with other reports sent by an Agent to its customers) all
immediate, monthly and annual statements and confirmations of all purchases and
redemptions of Class X Shares in the customer's account(s) required by
applicable federal or state law; (k) providing reports requested by the
Distributor containing state-by-state listing of the principal residences of the
Agent's customers who purchase and hold shares of the Fund through the Agent;
and (l) providing such other related services as Principal Preservation or a
customer of the Agent reasonably may request.
Under the Shareholder Servicing Agreement, the Agent receives a fee for
providing these services at an annual rate of up to 0.25% of the Fund's average
daily net assets representing the Class X Shares purchased and held through the
Agent by the Agent's customers. The Agent also is entitled to reimbursement
from the Fund for out-of-pocket expenses (as opposed to overhead and other
internal expenses of the Agent) that the Agent incurs in connection with
providing the services contemplated by the Shareholder Servicing Agreement,
including without limitation fees and expenses that the Agent pays to third
parties in connection with the processing and mailing of proxies and other
shareholder communications to its customers with respect to Fund shares they
purchase and hold through the Agent.
Ziegler provides transfer and dividend disbursing agent and other shareholder
account services with respect to all Class Y shareholder accounts and those
Class X shareholder accounts that are not serviced separately by a shareholder
servicing Agent. Ziegler provides these services pursuant to the terms of its
Transfer and Dividend Disbursing Agent Agreement with Principal Preservation,
and receives compensation from the Fund deemed reasonable by the Board of
Directors of Principal Preservation. The annual rate of compensation is
currently $16.00 per shareholder account, which is allocated among the accounts
serviced by Ziegler in this capacity. In addition to this compensation, the
Transfer and Dividend Disbursing Agent Agreement provides that Ziegler also is
entitled to reimbursement from the Fund for any out-of-pocket expenses that
Ziegler incurs in connection with providing services under the Agreement,
including but not limited to expenses for stationary, postage, telephone and
telegraph line toll charges, data communication lines and modems and reasonable
travel and living expenses.
CUSTODIAN AND DEPOSITORY; ACCOUNTING/PRICING AGENT
The Fund serves as custodian for its assets, including cash and securities.
Ziegler provides depository, sub-custodial and accounting services to the Fund,
including daily valuation of shares, pursuant to a Depository Contract and an
Accounting/Pricing Agreement. Under the Depository Contract, Ziegler is
entitled to receive compensation for its depository services on an annualized
basis as follows: 0.055% of the Fund's average daily net assets for the first
$50 million in assets of the Fund; 0.035% of the next $150 million; 0.03% of the
next $300 million; and 0.025% of any assets over $500 million. Ziegler is also
entitled to receive compensation from the Fund for accounting and pricing
services it provides under the Accounting/Pricing Agreement on an annualized
basis as follows: 0.04% of 1% of the Fund's average daily net assets for assets
between $50 million and $100 million; 0.03 of 1% on assets between $100 million
and $200 million; and 0.01% of 1% of any assets over $200 million, with an
annual compensation minimum of $15,000 and a maximum of $125,000. Ziegler also
serves as the Fund's portfolio securities depository and provides accounting and
pricing services to the Fund pursuant to a Depository Agreement and an
Accounting/Pricing Services Agreement, respectively. Ziegler receives no
compensation for serving as depository, but for its accounting and pricing
services receives an annual fee of $3,000 plus reimbursement for out-of-pocket
expenses.
EXPENSES
The Adviser bears all of its expenses for providing services under the
Advisory Agreement.
The respective expenses of the Fund include the compensation of the
respective officers and Directors of Principal Preservation who are not
affiliated with the Adviser or Ziegler; governmental fees; interest charges;
taxes; fees and expenses if any, of independent accountants and legal counsel;
and insurance premiums.
Expenses of the Fund also include all fees allocable to the Fund under
Principal Preservation's administrative services, distribution, shareholder
servicing and transfer and dividend disbursement agreements with Ziegler;
expenses of distributing and redeeming shares and servicing shareholder
accounts; expenses of preparing, printing and mailing prospectuses, reports,
notices, proxy statements and reports to shareholders and to governmental
officers and commissions; its allocated share, together with other portfolios of
Principal Preservation, of expenses associated with annual and special
shareholder meetings and Director's meetings; expenses relating to the issuance,
registration and qualification of shares of the Fund and the preparation,
printing and mailing of prospectuses for such purposes; and membership dues in
the Investment Company Institute allocable to the Fund. See ''Distribution
Expenses''below. Fees common to more than one of the Principal Preservation
portfolios are pro rated among them based on total assets. Fees of the Fund are
allocated equally on a per share basis without regard to class, except for
certain expenses which are incurred for the benefit of one of the Classes and
not the other (e.g., Rule 12b-1 fees which are incurred exclusively to reimburse
the Distributor for expenses it incurs in distributing Class X shares). These
latter expenses are allocated entirely to the class they are intended to
benefit.
DETERMINATION OF NET ASSET VALUE PER SHARE
Shares are sold at their net asset value per share. There is no sales charge
(see ''Purchase Of Shares''). The net asset value of the shares of the Fund is
determined and the shares of the Fund are priced as of 12:00 noon (New York
time) on each Business Day of the Fund. A ''Business Day'' is a day on which
the New York Stock Exchange (the ''Exchange'') is open for trading and any other
day (other than a day on which no shares of the Fund are tendered for redemption
and no order to purchase any shares is received) during which there is
sufficient trading in money market instruments that the Fund's net asset value
might be materially affected. Net asset value per share is calculated by
dividing the value of the Fund's net assets by the number of shares of the Fund
outstanding at the time the determination is made.
Although Principal Preservation seeks to maintain the net asset value per
share of the Fund at $1.00, there can be no assurance the net asset value will
not vary. The valuation of the Fund's securities is based on their amortized
cost. For more information concerning the amortized cost method of valuation,
see ''Determination of Net Asset Value'' in the Statement of Additional
Information.
PURCHASE OF SHARES
Shares of the Retail Class may be purchased by investors at net asset value
with no sales charge through Ziegler, Selected Dealers or shareholder servicing
Agents. The minimum initial investment in the Retail Class is $1,000. The
subsequent minimum investment in the Retail Class, as provided below, is $50.
Shares of the Fund may be purchased in only those states where they may be
lawfully sold. The Fund will not issue shares for consideration other than cash
except in the case of a bona fide reorganization or statutory merger or in
certain other acquisitions of portfolio securities which meet certain criteria
in accordance with state securities laws (see ''Purchase of Shares'' in the
Statement of Additional Information). Shares may be purchased by sending a
check payable to Principal Preservation Portfolios, Inc., 215 North Main Street,
West Bend, Wisconsin 53095.
You may also purchase shares by wire provided you advise Principal
Preservation in advance by calling 800-826-4600. Please wire funds to M&I First
National Bank, West Bend, Wisconsin (ABA #075909576), for credit to the account
of Principal Preservation, account number 692-343-7. Wire purchase instructions
must include the name of the Fund, Principal Preservation Cash Reserve
Portfolio, and the investor's account number. Wire purchases received by
Ziegler prior to 12:00 noon (New York time) on a Business Day are normally
effective that day. Wire purchases received after 12:00 noon (New York time)
are invested on the next Business Day.
Orders received by Ziegler or a securities dealer who has entered into a
dealer or agency agreement with the Distributor relating to the sale of shares
of the Fund (a ''Selected Dealer''), or by a shareholder servicing Agent, prior
to 12:00 noon (New York time) will be invested at the net asset value computed
at 12:00 noon (New York time). Purchases will therefore be effected on the same
day the purchase order is received provided such order is received prior to
12:00 noon (New York time) on any Business Day. Shares purchased earn dividends
from and including the day the purchase is effected. The Selected Dealer or
shareholder servicing Agent must promptly forward the order to Ziegler for the
investor to receive the next net asset value. It is anticipated that the net
asset value of $1.00 per share of the Fund will remain constant. Although there
can be no assurance that a $1.00 net asset value can be maintained on a
continual basis, specific investment policies and procedures will be employed to
accomplish this result.
The minimum initial investment is $1,000, and the minimum additional
investment is $50 (except for exchanges, the reinvestment of distributions from
a Principal Preservation portfolio, the reinvestment of distributions from
various unit investment trusts sponsored by Ziegler, contributions for various
retirement plans, or the reinvestment of interest and/or principal payments on
bonds issued by Ziegler Mortgage Securities, Inc. II, or the reinvestment of
interest payments on bonds underwritten by Ziegler). Shareholder servicing
Agents may establish higher minimums for persons who purchase shares of the Fund
through them, and may change those minimums from time to time in their
discretion.
A complete application must accompany the placement of an order for an
initial purchase. No account application is required for subsequent purchases.
Completed applications may be sent to Ziegler, the Fund's transfer agent, at the
address indicated above. The application may also be sent by facsimile. Please
contact the Fund at 1-800-826-4600.
REDEMPTIONS
You may have any or all of your shares redeemed as described below on any
Business Day at the net asset value next determined (see ''Determination Of Net
Asset Value Per Share'').
By Telephone. If you have completed the Telephone Redemption Authorization
and signature guarantee sections of the account application, you may redeem
shares by calling Principal Preservation at 800-826-4600. This authorization
must be on file at least five days prior to the first telephone redemption.
This authorization requires a signature guarantee. Redemption will be made by
wire to the bank account designated on the account application or a check will
be sent to you at the registered address for your account on the business day
following the redemption.
You cannot redeem shares by telephone if you hold stock certificates for
those shares. Additionally, shares paid for by personal, corporate, or
government check cannot normally be redeemed before the 15th day after the
purchase date or until the check clears.
By establishing the telephone redemption service, you authorize Ziegler or
the Fund, as the case may be, to: (1) act upon the instruction of any person by
telephone to redeem shares from the account for which such services have been
authorized; and (2) honor any written instructions for a change of address if
accompanied by a signature guarantee. You should bear in mind that, by
establishing the telephone redemption service, you assume some risks for
unauthorized transactions. Ziegler and the Fund have implemented, and any other
shareholder servicing Agents will be required to implement, procedures designed
to reasonably assure that telephone instructions are genuine. These procedures
include recording telephone conversations, requesting verification of various
pieces of personal information and providing written confirmation of such
transactions. If either of Ziegler or the Fund or any of their employees fail
to abide by these procedures, the Fund may be liable to a shareholder for losses
he or she suffers from any resulting unauthorized transaction(s). However,
neither Ziegler, the Fund, Principal Preservation, nor any of their employees
will be liable for losses suffered by you which result from following telephone
instructions reasonably believed to be genuine after verification pursuant to
these procedures. This service may be changed, modified or terminated at any
time. There is currently no charge for telephone redemptions, although a charge
may be imposed in the future.
By Mail. To redeem shares by mail, send the following information to the
Fund: (1) a written request for redemption signed by the registered owner(s) of
the shares, exactly as the account is registered, together with the
shareholder's account number; (2) the stock certificates for the shares being
redeemed, if the certificates are held by the shareholder; (3) any required
signature guarantees (see ''Signature Guarantees'' below); and (4) any
additional documents which might be required for redemptions by corporations,
executors, administrators, trustees, guardians, or other similar entities.
The Fund will redeem shares when it has received all necessary documents.
You will be notified promptly if your redemption request cannot be accepted.
The Fund cannot accept redemption requests which specify a particular date for
redemption or which specify any special conditions. Questions concerning
redemption procedures should be directed to the Fund or your Agent (if Ziegler
is your Agent, please call 800-826-4600).
Signature Guarantees. To protect you, your Agent and the Fund from fraud,
signature guarantees are required for certain redemptions. Signature guarantees
enable the Fund to be sure that you are the person who has authorized a
redemption from their account. Signature guarantees are required for: (1) any
redemptions by mail if the proceeds are to be paid to someone else or are to be
sent to an address other than your address as shown on Principal Preservation's
records; (2) any redemptions by mail which request that the proceeds be wired to
a bank; (3) authorizations to redeem by telephone; and (4) requests to transfer
the registration of shares to another owner. These requirements may be waived
by Principal Preservation in certain instances.
The Fund will accept signature guarantees from all institutions which are
eligible to provide them under federal or state law, provided the individual
giving the signature guarantee is authorized to do so. Institutions which
typically are eligible to provide signature guarantees include commercial banks,
trust companies, brokers, dealers, national securities exchanges, savings and
loan associations and credit unions. A signature guarantee is not the same as a
notarized signature.
Sending Redemption Proceeds. The Fund will not send redemption proceeds
until all payments for the shares being redeemed have cleared, which normally
takes 15 days from the receipt of payment for the shares.
By Mail. The Fund mails checks for redemption proceeds typically within one
or two days, but not later than seven days, after it receives the request and
all necessary documents.
By Wire. The Fund will normally wire redemption proceeds to your bank the
next business day after receiving the redemption request and all necessary
documents. The signatures on any written request for a wire redemption must be
guaranteed. Ziegler currently deducts a $10.00 wire charge from the redemption
proceeds. The Fund will advise you of any wire charges it imposes. These
charges are subject to change. You will be responsible for any charges which
your bank may make for receiving wires.
Checkwriting. Upon request, investors will be provided with checks to be
drawn on the Fund (''Redemption Checks''). Redemption Checks may be written for
amounts not exceeding $500,000. Investors who write Redemption Checks for
amounts under $250 will be charged a $10.00 service fee per check. When a
Redemption Check is presented for payment, a sufficient number of full and
fractional shares in the investor's account will be redeemed as of the next
determined net asset value to cover any amounts paid. Investors continue
earning income dividends until Redemption Checks are presented for payment.
Investors wishing to use this method of redemption must complete and return the
Account Information Form, which is available from the Fund. Redemption Checks
should not be used to close your account. The Fund reserves the right to modify
or terminate this privilege at any time. Redemption Checks may not be available
through Agents other than Ziegler. In addition, these Agents may impose other
fees and minimum balance requirements as a condition to checkwriting privileges.
With the Fund's approval, minimum amount requirements for Redemption Checks may
also vary.
Unless otherwise authorized on the Account Information Form, Redemption
Checks must be signed by all account owners. If the Fund receives written
notice from any owner revoking another owner's authority to sign individually,
the signatures of all account owners will be required for payment on any
Redemption Check. Shares purchased by check may not be redeemed via Redemption
Check until 15 days after receipt of funds for said shares. Investors may not
use checkwriting to redeem shares held in certificated form.
Your Agent or the Fund may refuse to honor Redemption Checks whenever the
right of redemption has been suspended, or if the account is otherwise impaired.
A $10.00 service fee per check will be charged if (a) a Redemption Check for
less than $250 is presented for payment, (b) the amount of a Redemption Check
presented for payment exceeds the value of the investor's account, (c) a
Redemption Check is presented that may not be cleared because it would require
redemption of shares purchased by check within 15 days, or (d) a stop payment is
requested.
Redemption Through Securities Brokers. Shares can also be redeemed through a
securities dealer, who may charge a fee.
Conditions on Redemptions. For accounts opened prior to May 1, 1995, if, due
to redemption, your account in the Fund drops below $500 for three months or
more, the Fund has the right to redeem your account, after giving 60 days
notice, unless you make additional investments to bring the account value to
$1,000 or more.
The Fund may suspend the right to redeem shares for any period during which
(a) the Exchange is closed or the Securities and Exchange Commission determines
that trading on the Exchange is restricted; (b) there is an emergency as a
result of which it is not reasonably practical for the Fund to sell its
securities or to calculate the fair value of its net assets; or (c) the
Securities and Exchange Commission may permit for the protection of the Fund's
shareholders, Principal Preservation's Board of Directors may determine that it
may not be reasonably practical for the Fund to calculate the fair value of its
net assets, and therefore it is possible that the Fund will suspend the right to
redeem shares.
It is possible that conditions may arise in the future which would, in the
opinion of the Board of Directors of Principal Preservation, make it undesirable
for the Fund to pay for all redemptions in cash. In such cases, the Board may
authorize payment to be made in securities or other property of the Fund.
SHAREHOLDER SERVICES
Principal Preservation offers a number of shareholder services designed to
facilitate investment in shares of the Fund. 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 Agent to determine if the Agent makes all of
these services available.
Automatic Investment Plan. An Automatic Investment Plan (''AIP'') may be
established at any time. The minimum initial investment to participate in the
AIP is $100 ($50 if your account is valued at more than $1,000). Minimum
subsequent monthly deposits are $100. By participating in the AIP, you may
automatically make purchases of Fund shares on a regular, convenient basis.
Under the AIP, 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 shares. The AIP can be implemented with any financial institutions
that will accept the debits. There is no service fee for participating in the
AIP. An application and instructions on establishing an AIP are available from
your shareholder servicing Agent 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 Fund (except for distributions from an IRA). The periodic
withdrawal plan involves the planned redemption of shares on a periodic basis by
receiving either fixed or variable amounts at periodic intervals. The minimum
periodic withdrawal plan amount 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 that new investment 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 of Distributions or Interest Payments. Unitholders of Ziegler
sponsored unit investment trusts, bondholders of Ziegler Mortgage Securities,
Inc. II bonds and purchasers of bonds underwritten by Ziegler may purchase
shares of the Fund by automatically reinvesting distributions from their unit
investment trust, reinvesting principal or interest from their Ziegler Mortgage
Securities, Inc. II bonds, or reinvesting interest payments on their bonds
underwritten by Ziegler. Unitholders and bondholders desiring to participate in
this plan should contact Ziegler for further information.
Tax Sheltered Retirement Plans. Shares of the Fund are available for
purchase in connection with the following tax- sheltered plans. Forms of plans
are available for (a) Individual Retirement Accounts, (b) 401(k) Plans, (c)
Simplified Employee Pensions (SEPs), and (d) 403(b) Plans for employees of most
nonprofit organizations. Copies of the plans and other information are available
from the Distributor. They should be carefully reviewed and considered with your
tax or financial adviser. IRA investors do not receive the benefits of long-term
capital gains treatment when funds are distributed from their account. For
further information regarding plan administration, custodial fees and other
details, investors should contact Ziegler.
Exchange Privilege. Provided the minimum investment requirement applicable
to the Fund is met, shares of the Fund 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
other Principal Preservation portfolio (as disclosed in the then current
prospectus for that Principal Preservation portfolio) will be charged in
connection with the exchange. However, if the shares of the Fund being exchanged
were initially acquired by exchange of shares from another Principal
Preservation portfolio on which a sales commission was paid, the previously-paid
sales commission will be credited against the amount of any sales commission
applicable to the exchange; provided, if a front-end sales commission was
previously paid with respect to the shares of the Fund 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.
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 a shareholder
in the Fund will realize a gain or loss for federal income tax purposes on the
related redemption of his or her shares in the Fund.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND REINVESTMENTS
The Fund determines its net income and realized capital gains, if any, on
each Business Day and allocates all such income and gain pro rata among the Fund
at the time of such determination. Principal Preservation declares dividends
from the Fund's income on each Business Day and pays cash dividends for the
preceding month within the first five Business Days of each month. The Fund
reserves the right to include realized short-term gains, if any, in any such
daily dividends. Distributions of the Fund's net realized long-term capital
gains, if any, and any undistributed net realized short-term capital gains are
normally declared and paid annually at the end of the fiscal year in which they
were earned to the extent they are not offset by any capital loss carryovers.
Since the Fund is subject to a 4% nondeductible excise tax on certain
undistributed amounts of ordinary income and capital gains, Principal
Preservation expects to make such other distributions as are necessary to avoid
the application of this tax. Unless a shareholder instructs Principal
Preservation to pay dividends or capital gains distributions in cash, dividends
and distributions will automatically be reinvested at net asset value in
additional shares of the Fund.
TAX STATUS
Principal Preservation intends to qualify the Fund as a regulated investment
company, as defined in the Internal Revenue Code of 1986, as amended (the
''Code''). Provided the Fund meets the requirements imposed by the Code, the
Fund will not pay any federal income or excise taxes. Dividends paid by the
Fund from its taxable net investment income and distributions by the Fund of its
net realized short-term capital gains are taxable to shareholders as ordinary
income, whether received in cash or reinvested in additional shares of the Fund.
Principal Preservation does not expect that the Fund will realize long-term
capital gains and thus does not contemplate paying distributions taxable to
shareholders as long-term capital gains. The Fund's dividends and distributions
will not qualify for the dividends-received deduction for corporations.
Statements as to the tax status of each shareholder's dividends and
distributions, if any, are mailed annually. Each shareholder will also receive,
if appropriate, various written notices after the end of the Fund's prior
taxable year as to the federal income tax status of his or her dividends and
distributions which were received from the Fund during that year. Shareholders
should consult their tax advisers to assess the consequences of investing in the
Fund under state and local laws generally and to determine whether dividends
paid by the Fund that represent interest derived from U.S. Government securities
are exempt from any applicable state or local income taxes.
DESCRIPTION OF SHARES
The authorized common stock of Principal Preservation consists of one billion
shares, par value $0.001 per share. The shares of Principal Preservation
presently are divided into nine series, including Cash Reserve. Presently 400
million shares of Principal Preservation's shares of common stock are allocated
to the Cash Reserve series, which consists of two Classes of common stock, the
Institutional Class and the Retail Class. Each class is presently allocated 200
million shares of Principal Preservation authorized common stock. The Board of
Directors of Principal Preservation may authorize the issuance of additional
series of common stock (portfolios), and/or additional classes within any such
series, and may increase or decrease the number of such shares in each series
and/or any such class(es).
Each share of each series of Principal Preservation (including each share of
the Classes) is entitled to one vote on each matter presented to shareholders of
that series. For matters that affect both Classes similarly (such as election
of directors, ratification of accountants, etc), holders of the separate Classes
of shares will vote together. On matters that affect the rights and privileges
appertaining to the shares of one class of Cash Reserve differently from the
rights and privileges appertaining to the other class, the shareholders of each
class will vote separately and, in order to be approved with respect to the
affected class, the requisite approval must be obtained from the holders of
shares within that class. Each share of Cash Reserve (including both Classes)
is entitled to participate pro rata in any dividends or other distributions
declared by the Board of Directors of Principal Preservation with respect to
Cash Reserve, and all shares of Cash Reserve have equal rights in the event of a
liquidation of Cash Reserve. Shares of both Classes of Cash Reserve 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 within the class as full shares
in that class. Shares do not have cumulative voting rights.
As a Maryland corporation, Principal Preservation is not required to hold
annual shareholder meetings unless required by law or deemed appropriate by the
Board of Directors. However, special meetings may be called for purposes such
as electing or removing Directors, changing fundamental investment policies or
approving an investment advisory contract. On matters affecting an individual
series (including Cash Reserve), such as approval of advisory or sub-advisory
contracts and changes in fundamental investment policies of that 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.
As defined in the 1940 Act and as used in this Prospectus, the phrase
''majority vote of the outstanding voting securities'' means the vote of the
lesser of: (1) 67% of the voting securities present at a meeting if the holders
of more than 50% of the outstanding voting securities are present in person or
by proxy; or (2) more than 50% of the outstanding voting securities.
DISTRIBUTION PLAN
The Fund is authorized under a Distribution Plan (the ''Plan'') pursuant to
Rule 12b-1 under the Act to use a portion of its assets to finance certain
activities relating to the distribution of its Class X Shares to investors. The
Plan permits payments to be made by the Fund to Ziegler to reimburse it for
expenditures incurred by it in connection with the distribution of shares to
investors. These payments include, but are not limited to, the payment of trail
commissions to Ziegler and Selected Dealers, advertising, preparation and
distribution of sales literature and prospectuses to prospective investors,
implementing and operating the Plan and performing other promotional or
administrative activities. Plan payments may also be made to reimburse Ziegler
for its overhead expenses related to distribution of 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. Currently, Principal
Preservation expects that all of the Fund's payments under the Plan will be used
to pay trail commissions. These commissions are accrued daily and paid quarterly
to Ziegler or to Selected Dealers and are equal on an annual basis to 0.15% of
the average daily net assets of the Fund.
Under the Plan, the payments as to the Fund may not exceed an amount computed
at an annual rate of 0.15 of 1% of the average daily net assets. The
Distribution Plan continues in effect, if not sooner terminated in accordance
with its terms, 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 the Adviser. For further
information regarding the Distribution Plan, see 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 for the Fund pursuant to an agreement with Principal Preservation. For
its services provided thereunder, Ziegler may collect certain fees, based on the
number of accounts, as agreed upon from time to time between Ziegler and
Principal Preservation (currently $16.00 per account). See ''Management-
Shareholder Servicing Agents.''
Shareholder Statements and Reports. Shareholders receive confirmations at
least quarterly regarding their transactions and reports at least semiannually
setting forth various financial and other information related to the Fund.
Shareholder Inquiries. Shareholder inquiries may be directed to Principal
Preservation at 215 North Main Street, West Bend, Wisconsin 53095; or by
telephone at (800-826-4600).
Performance Information. From time to time, the Fund may provide yield,
effective yield, and/or total rate of return quotations and may also quote fund
rankings in the relevant fund category from various sources, such as Lipper
Analytical Services, Inc. and IBC/Donoghue's Money Fund Report. The current
yield for the Fund will be calculated by dividend net investment income per
share during a recent 7-day period by the net asset value per share on the last
day of the period and annualizing the resulting quotient. The effective yield
takes into account the effects of compounding over the same 7-day period. Total
rate of return quotations will reflect the average annual percentage change
overstated periods in the value of an investment in the Fund. Yield reflects
only net portfolio income as of a stated time, while total rate of return
reflects all components of investment return over a stated period of time. The
Fund's quotations may from time to time be used in advertisements, shareholder
reports or other communications to shareholders. For a discussion of the manner
in which the Fund will calculate its yield, effective yield, and total rate of
return, see the Statement of Additional Information.
Investors should note that the investment results of the Fund will fluctuate
over time, and any presentation of the Fund's current yield, effective yield, or
total return for any prior period should not be considered a representation of
what an investment may earn or what an investor's yield or total return may be
in any future period.
PRINCIPAL PRESERVATION CASH RESERVE PORTFOLIO (THE ''PORTFOLIO'') CLASS X COMMON
STOCK (RETAIL CLASS)
ACCOUNT APPLICATION FORM
MAKE CHECK OR MAIL TO: Principal Preservation
215 North Main Street
West Bend, WI 53095
MONEY ORDER PAYABLE TO: Principal Preservation Cash Reserve Portfolio Class X
Common Stock
- ------------------------------------------------------------------------------
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)
- ------------------------------------------------------------------------------
INVESTMENT
The amount I wish to invest in Principal Preservation Cash Reserve Portfolio
Class X shares is $ (minimum $1,000)
----------------
- ------------------------------------------------------------------------------
REQUEST FOR INFORMATION
I am interested in the following. Please send me a prospectus:
Government, S&P 100 Plus, Insured Tax-Exempt, Tax-Exempt, Dividend Achievers and
Balanced Portfolios
- ------------------------------------------------------------------------------
METHOD OF PAYMENT
Shares purchased by personal or corporate check may not be redeemed
by telephone or otherwise until 15 days after investment date.
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.
Receive dividends in cash and reinvest capital gains.
Receive all distributions in cash.
(If no box is checked, all dividends and capital gain
distributions will be reinvested
in additional Class X shares.)
- ------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN (''AIP'')
If you select this option please review the terms and conditions in the
Prospectus. I hereby authorize the Portfolio to withdraw from my checking
account: $ ($100 minimum) 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
$1,000 must accompany application to be used to purchase Class X shares.
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 Automatic Investment 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.)
THIS FORM MUST BE ACCOMPANIED BY A PROSPECTUS.PP 341-1/96
- ------------------------------------------------------------------------------
TELEPHONE REDEMPTIONS - By wire to:
- ------------------------------------------------------------------------------
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
--------------- ----
$ .
----------------- ------------------------------
($250 minimum) Bank or Payee's Name
------------------------------
Monthly Quarterly Account Number
----------------- -------------------
Please allow 30 days to start a
program. Checks will be sent
------------------------------
on the 26th day of each month Name
(the next business day if a
holiday).
------------------------------
Street Address
Payment to be made to registered
------------------------------
owner's address of City State Zip
record.
Payment to be made to other than
registered shareholders,identified at right:
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 the Fund 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.''
X X
----------------------------------------------------------------
Signature of Applicant Date Signature of Joint
Registrant, if any
ONLY INDIVIDUALS
------------------------- -----------------------------
1. FILL IN Social Security Number Print Name of Taxpayer
Whose Number Appears at Left
- -----OR-----------------------------------------------------------------------
ONLY CORPORATIONS,
-----------------------
2. PARTNERSHIPS, Firm Name
TRUSTS
----------------- ----------------------------
INSTITUTIONS Date Signature and Title
FILL IN
-------------------------------------------------------
Taxpayer Identification Date Signature
Number and Title
- ------------------------------------------------------------------------------
SIGNATURE GUARANTEE (Required for Telephone Redemptions or Systematic Withdrawal
Payment options, if chosen above.) Signature(s) Guaranteed by commercial bank or
trust company or member firm of a national stock exchange.
By:---------------------------------------------------------------------------
(Authorized Signature) Name of Bank or Firm
- ------------------------------------------------------------------------------
DEALER IDENTIFICATION
B.C. Ziegler and Company (the ''Distributor''), acts as agent in all purchases
by the investor of the Fund's Class X shares. The Distributor and the authorized
dealer, if any, named below each authorizes and appoints B.C. Ziegler and
Company to act as its agent to execute the purchase of Fund Class X shares by
the investor, whether the payment is received from the Distributor, the
authorized dealer or directly from the investor, and to confirm such purchases
on their behalf.
- ------------------------------------------------------------------------------
Dealer's Name
- ------------------------------------------------------------------------------
Home Office Address City State Zip Code
By
- ------------------------------------------------------------------------------
Authorized Signature of Dealer Address of Office Servicing Account
- ------------------------------------------------------------------------------
Branch No. Salesman's No. Salesman's Last Name Dealer No.
TABLE OF CONTENTS
PAGE
Questions and Answers.......... 2
Expenses....................... 3
Financial Highlights........... 4
Investment Objective and Policies 5
Management..................... 10
Determination of Net Asset Value Per Share 13
Purchase of Shares............. 13
Redemptions.................... 14
Shareholder Services........... 16
Dividends, Capital Gains Distributions and Reinvestments 17
Tax Status..................... 17
Description of Shares.......... 18
Distribution Plan.............. 18
Other Information.............. 19
PRINCIPAL PRESERVATION
PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
INVESTMENT ADVISER & ADMINISTRATOR
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
DISTRIBUTOR, TRANSFER
AND DIVIDEND DISBURSING AGENT,
SHAREHOLDER SERVICING AGENT AND
DEPOSITORY AND ACCOUNTING AGENT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
COUNSEL
Quarles &Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
100 East Wisconsin Avenue
Suite 1500
Milwaukee, Wisconsin 53202
PP880-1/96
(Principal Preservation Logo)
Cash Reserve Portfolio
Class X Shares
(Retail Class)
JANUARY 2, 1996
PROSPECTUS
TABLE OF CONTENTS
PAGE
Questions and Answers.......... 2
Expenses....................... 3
Financial Highlights........... 4
Investment Objective and Policies 5
Management..................... 10
Determination of Net Asset Value Per Share 13
Purchase of Shares............. 13
Redemptions.................... 14
Shareholder Services........... 16
Dividends, Capital Gains Distributions and Reinvestments 17
Tax Status..................... 17
Description of Shares.......... 18
Distribution Plan.............. 18
Other Information.............. 19
PRINCIPAL PRESERVATION
PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
INVESTMENT ADVISER & ADMINISTRATOR
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
DISTRIBUTOR, TRANSFER
AND DIVIDEND DISBURSING AGENT,
SHAREHOLDER SERVICING AGENT AND
DEPOSITORY AND ACCOUNTING AGENT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
COUNSEL
Quarles &Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
100 East Wisconsin Avenue
Suite 1500
Milwaukee, Wisconsin 53202
BCZ240-1/96
CASH
RESERVE
PORTFOLIO
CLASS X SHARES
(RETAIL CLASS)
PROSPECTUS
January 2, 1996
(B.C. Ziegler and Company Logo)
Quality Investments Since 1902
STATEMENT OF ADDITIONAL INFORMATION
DATED JANUARY 2, 1996
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
CASH RESERVE PORTFOLIO
CLASS X COMMON STOCK (RETAIL CLASS)
215 North Main Street
West Bend, Wisconsin 53095
800-826-4600
This Statement of Additional Information and the prospectus to which it
relates describe the Class X Common Stock ("Class X Shares" or "Retail Class")
of the Principal Preservation Cash Reserve Portfolio (the "Fund"), one of
several separate mutual fund portfolios within the Principal Preservation
Portfolios, Inc. ("Principal Preservation") family of funds. Terms not
otherwise defined herein have the same meaning as in the Prospectus.
The Fund seeks to obtain high current income consistent with stability of
principal and the maintenance of liquidity.
- ------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------
Shares may be purchased, and a prospectus may be obtained, directly from
the Distributor, B.C. Ziegler and Company, Inc., 215 North Main Street, West
Bend, Wisconsin 53095, telephone 800-826-4600, from Selected Dealers who have
entered into Selected Dealer Agreements with the Distributor, or from
shareholder servicing Agents who have entered into Shareholder Servicing
Agreements with Principal Preservation (see the Prospectus dated January 2,
1996 for more complete information, including an account application.) This
Statement of Additional Information is not a prospectus, and should be read in
conjunction with the Prospectus.
TABLE OF CONTENTS
THE FUND...................................................... 2
INVESTMENT PROGRAM............................................ 2
INVESTMENT RESTRICTIONS....................................... 8
PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES................ 11
MANAGEMENT OF PRINCIPAL PRESERVATION.......................... 12
PERFORMANCE INFORMATION....................................... 20
DETERMINATION OF NET ASSET VALUE PER SHARE; VALUATION
OF SECURITIES; REDEMPTION IN KIND........................... 21
PURCHASE OF SHARES............................................ 23
TAX STATUS.................................................... 23
DISTRIBUTION EXPENSES......................................... 24
COUNSEL AND INDEPENDENT ACCOUNTANTS........................... 27
EXPERTS....................................................... 27
FINANCIAL STATEMENTS.......................................... 27
APPENDIX......................................................A-1
THE FUND
The Fund was established in 1993 with a single class of common stock and
operated as a retail spoke of a two-tiered, master/feeder fund structure through
December 31, 1995. Effective January 1, 1996, the Fund was recapitalized
with two classes of stock, the Class X Shares and Class Y Common Stock (the
"Institutional Class" or "Class Y Shares"). At that time each outstanding share
of Cash Reserve Portfolio's original class of common stock was redesignated
(without otherwise affecting the rights and privileges appertaining thereto) as
a share of the Retail Class, and shares of the Institutional Class were issued
in exchange for the outstanding shares of an institutional money market fund
that operated within the same master/feeder fund structure.
INVESTMENT PROGRAM
As described above and in the Fund's Prospectus, Class X Shares of the Fund
are designed to provide investors with current income. The Fund is not intended
to constitute a balanced investment program and is not designed for investors
seeking capital gains or maximum income irrespective of fluctuations in
principal.
The following information supplements and should be read in conjunction
-----------------------------------------------------------------------
with the section in the Prospectus entitled "Investment Objective and Policies."
- --------------------------------------------------------------------------------
Bank Obligations. Domestic commercial banks organized under Federal law
are supervised and examined by the Comptroller of the Currency and are required
to be members of the Federal Reserve System. Domestic banks organized under
state law are supervised and examined by state banking authorities and are
members of the Federal Reserve System only if they elect to join. In addition,
state banks are subject to Federal examination and to a substantial body of
Federal law and regulation. As a result of Federal or state laws and
regulations, domestic banks, among other things, generally are required to
maintain specified levels of reserves, are limited in the amounts which they can
loan to a single borrower, and are subject to other regulations designed to
promote financial soundness. However, not all of such laws and regulations
apply to the foreign branches of domestic banks.
Obligations of foreign branches and subsidiaries of domestic banks and
domestic and foreign branches of foreign banks, such as CDs and time deposits
("TDs"), may be general obligations of the parent banks in addition to the
issuing branch, or may be limited by the terms of a specific obligation and
governmental regulation. Such obligations are subject to different risks than
are those of domestic banks. These risks include foreign economic and political
developments, foreign governmental restrictions that may adversely affect
payment of principal and interest on the obligations, foreign exchange controls
and foreign withholding and other taxes on interest income. These foreign
branches and subsidiaries are not necessarily subject to the same or similar
regulatory requirements that apply to domestic banks, such as mandatory reserve
requirements, loan limitations, and accounting, auditing and financial
recordkeeping requirements. In addition, less information may be publicly
available about a foreign branch of a domestic bank or about a foreign bank than
about a domestic bank.
Obligations of United States branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by Federal or state regulation
as well as governmental action in the country in which the foreign bank has its
head office. A domestic branch of a foreign bank with assets in excess of $1
billion may be subject to reserve requirements imposed by the Federal Reserve
System or by the state in which the branch is located if the branch is licensed
in that state.
In addition, branches licensed by the Comptroller of the Currency and
branches licensed by certain states may be required to: (1) pledge to the
regulator, by depositing assets with a designated bank within the state, a
certain percentage of their assets as fixed from time to time by the appropriate
regulatory authority; and (2) maintain assets within the state in an amount
equal to a specified percentage of the aggregate amount of liabilities of the
foreign bank payable at or through all of its agencies or branches within the
state.
In view of the foregoing factors associated with the purchase of CDs and
TDs issued by foreign branches of domestic banks, by foreign subsidiaries of
domestic banks, by foreign branches of foreign banks or by domestic branches of
foreign banks, the Adviser carefully evaluates such investments on a case-by-
case basis.
Commercial Paper. The Fund may invest in commercial paper issued by major
corporations in reliance on the exemption from registration afforded by
Section 3(a)(3) under the Securities Act of 1933, as amended (the "1933 Act").
Such commercial paper may be issued only to finance current transactions and
must mature in nine months or less. Trading of such commercial paper is
conducted primarily by institutional investors through investment dealers, and
individual investor participation in the commercial paper market is very
limited. Such commercial paper generally can be readily traded in secondary
trading markets among qualified institutional buyers without registration
pursuant to the conditions of Rule 144A under the 1933 Act. The Fund also may
invest in commercial paper in reliance on the so-called "private placement"
exemption from registration which is afforded by Section 4(2) of the 1933 Act
("Section 4(2) paper"). Section 4(2) paper is restricted as to disposition
under the 1933 Act and generally is sold to institutional investors who agree
that they are purchasing the paper for investment and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) paper normally is resold to other institutional investors through
or with the assistance of the issuer or investment dealers who make a market in
the paper, thus providing liquidity.
The Adviser considers the legally restricted but readily saleable
Section 4(2) and Rule 144A paper to be liquid. However, pursuant to procedures
approved by the Board of Directors of Principal Preservation, if a particular
investment in Section 4(2) or Rule 144A paper is not determined to be liquid,
that investment will be included within the 10% limitation on illiquid
securities. The Adviser monitors the liquidity of the Fund's investments in
Section 4(2) and Rule 144A paper on a continuous basis.
Variable Rate and Floating Rate Demand Securities. The Fund may purchase
floating and variable rate demand notes and bonds, which are obligations
ordinarily having stated maturities in excess of 397 days, but which permit the
holder to demand payment of principal at any time, or at specified intervals not
exceeding 397 days, in each case upon not more than 30 days' notice. Variable
rate demand notes include master demand notes which are obligations that permit
the Fund to invest fluctuating amounts, which may change daily without penalty,
pursuant to direct arrangements between the Fund, as lender, and the borrower.
The interest rates on these notes fluctuate from time to time. The issuer of
such obligations normally has a corresponding right, after a given period, to
prepay in its discretion the outstanding principal amount of the obligations
plus accrued interest upon a specified number of days' notice to the holders of
such obligations. The interest rate on a floating rate demand obligation is
based on a known lending rate, such as a bank's prime rate, and is adjusted
automatically each time such rate is adjusted. The interest rate on a variable
rate demand obligation is adjusted automatically at specified intervals.
Frequently, such obligations are secured by letters of credit or other credit
support arrangements provided by banks. Because these obligations are direct
lending arrangements between the lender and borrower, it is not contemplated
that such instruments generally will be traded, and there generally is no
established secondary market for these obligations, although they are redeemable
at face value. Accordingly, where these obligations are not secured by letters
of credit or other credit support arrangements, the Fund's right to redeem is
dependent on the ability of the borrower to pay principal and interest on
demand.
Such obligations frequently are not rated by credit rating agencies and the
Fund may invest in obligations which are not so rated only if the Adviser
determines that at the time of investment the obligations are of comparable
quality to the other obligations in which the Fund may invest. The Adviser, on
behalf of the Fund, will consider on an ongoing basis the creditworthiness of
the issuers of the floating and variable rate demand obligations held by the
Fund. The Fund will not invest more than 10% of the value of its net assets in
floating or variable rate demand obligations as to which it cannot exercise the
demand feature on not more than seven days' notice if there is no secondary
market available for these obligations, and in other securities that are not
readily marketable. See "Investment Restrictions" below.
Unsecured Promissory Notes. The Fund also may purchase unsecured
promissory notes ("Notes") which are not readily marketable and have not been
registered under the 1933 Act, provided such investments are consistent with the
Fund's investment objective. The Notes purchased by the Fund will have
remaining maturities of 13 months or less, must be deemed under policies adopted
by the Board of Directors of Principal Preservation to present minimal credit
risks and will meet the quality criteria set forth in the Prospectus under
"Investment Policies." The Fund will invest no more than 10% of its net assets
in such Notes and in other securities that are not readily marketable (which
securities would include floating and variable rate demand obligations as to
which the Fund cannot exercise the demand feature described above and as to
which there is no secondary market). See "Investment Restrictions" below.
Participation Interests. The Fund may purchase from financial institutions
participation interests in securities in which the Fund may invest. A
participation interest gives the Fund an undivided interest in the security in
the proportion that the Fund's participation interest bears to the total
principal amount of the security. These instruments may have fixed, floating or
variable rates of interest, with remaining maturities of 13 months or less. If
the participation interest is unrated, or has been given a rating below that
which is permissible for purchase by the Fund, the participation interest will
be backed by an irrevocable letter of credit or guarantee of a bank, or the
payment obligation otherwise will be collateralized by U.S. Government
securities, or, in the case of unrated participation interests, the Adviser must
have determined that the instrument is of comparable quality to those
instruments in which the Fund may invest. For certain participation interests,
the Fund will have the right to demand payment, on not more than seven days'
notice, for all or any part of the Fund's participation interest in the
security, plus accrued interest. As to these instruments, the Fund intends to
exercise its right to demand payment only upon a default under the terms of the
security, as needed to provide liquidity to meet redemptions, or to maintain or
improve the quality of its investment portfolio. The Fund will not invest more
than 10% of its net assets in participation interests that do not have this
demand feature, and in other securities that are not readily marketable. See
"Investment Restrictions" below.
Lending of Portfolio Securities. To a limited extent, the Fund may lend
its portfolio securities to brokers, dealers and other institutional investors,
provided it receives cash collateral which at all times is maintained in an
amount equal to at least 100% of the current market value of the securities
loaned. By lending its portfolio securities, the Fund can increase its income
through the investment of the cash collateral. For the purposes of this policy,
the Fund considers collateral consisting of U.S. Government securities or
irrevocable letters of credit issued by banks whose securities meet the
standards for investment by the Fund to be the equivalent of cash. Such loans
may not exceed 33 1/3% of the value of the Fund's total assets. From time to
time, the Fund may return to the borrower and/or a third party which is
unaffiliated with the Fund, and which is acting as a "placing broker," a part of
the interest earned from the investment of collateral received for securities
loaned.
The Securities and Exchange Commission (the "SEC") currently requires that
the following conditions must be met whenever portfolio securities are loaned:
(1) the Fund must receive at least 100% cash collateral from the borrower;
(2) the borrower must increase such collateral whenever the market value of the
securities rises above the level of such collateral; (3) the Fund must be able
to terminate the loan at any time; (4) the Fund must receive reasonable interest
on the loan, as well as any interest or other distributions on the loaned
securities, and any increase in market value; and (5) the Fund may pay only
reasonable custodian fees in connection with the loan. These conditions may be
subject to future modification.
Foreign Securities. The Fund may invest no more than 5% of its total
assets in foreign securities, including U.S. dollar-denominated obligations of
foreign branches and subsidiaries of domestic banks and foreign banks, such as
Eurodollar certificates of deposit, which are U.S. dollar-denominated
certificates of deposit issued by branches of foreign and domestic banks located
outside the United States, and Yankee CDs, which are certificates of deposit
issued by a U.S. branch of a foreign bank denominated in U.S. dollars and held
in the United States; Eurodollar time deposits ("ETDs"), which are U.S. dollar-
denominated deposits in a foreign branch of a foreign or domestic bank, and
Canadian time deposits, which are essentially the same as ETDs except they are
issued by branches of major Canadian banks; high quality, U.S. dollar-
denominated short-term bonds and notes (including variable amount master demand
notes) issued by foreign corporations, including Canadian commercial paper,
which is commercial paper issued by a Canadian corporation or a Canadian
counterpart of a U.S. corporation, and Europaper, which is U.S. dollar-
denominated commercial paper of a foreign issuer; and U.S. dollar-denominated
obligations issued or guaranteed by one or more foreign governments or any of
their political subdivisions, agencies or instrumentalities that are determined
by the Adviser to be of comparable quality to the other obligations in which the
Fund may invest. Such securities also include debt obligations of supranational
entities. Supranational entities include international organizations designated
or supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the Asian
Development Bank and the InterAmerican Development Bank.
The Fund may be subject to investment risks with respect to foreign
securities that are different in some respects from those incurred by a fund
which invests only in debt obligations of U.S. domestic issuers, although such
obligations may be higher yielding when compared to the securities of U.S.
domestic issuers. In making foreign investments, therefore, the Fund will give
appropriate consideration to the following factors, among others.
Foreign securities markets generally are not as developed or efficient as
those in the United States. Securities of some foreign issuers are less liquid
and more volatile than securities of comparable U.S. issuers. Similarly, volume
and liquidity in most foreign securities markets are less than in the United
States and, at times, volatility of price can be greater than in the United
States. The issuers of some of these securities, such as bank obligations, may
be subject to less stringent or different regulation than are U.S. issuers. In
addition, there may be less publicly available information about a non-U.S.
issuer, and non-U.S. issuers generally are not subject to uniform accounting and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. issuers.
Because evidences of ownership of such securities usually are held outside
the United States, the Fund will be subject to additional risks which include
possible adverse political and economic developments, possible seizure or
nationalization of foreign deposits and possible adoption of governmental
restrictions which might adversely affect the payment of principal and interest
on the foreign securities or might restrict the payment of principal and
interest to investors located outside the country of the issuer, whether from
currency blockage or otherwise.
Furthermore, some of these securities are subject to brokerage taxes levied
by foreign governments, which have the effect of increasing the cost of such
investment and reducing the realized gain or increasing the realized loss on
such securities at the time of sale. Income earned or received by the Fund from
sources within foreign countries may be reduced by withholding and other taxes
imposed by such countries. Tax conventions between certain countries and the
United States, however, may reduce or eliminate such taxes. All such taxes paid
by the Fund will reduce its net income available for distribution to its
investors (e.g., the Retail Class). In selecting foreign securities, the
----
Adviser will consider available yields, and any applicable taxes. All such
investments will be U.S. dollar denominated.
Investments In Other Investment Companies. An investment by the Fund in
other investment companies -- which is limited by fundamental investment
restriction (13) below -- may cause the Fund to incur increased costs of
administration and distribution expenses.
Securities Rating Criteria. A description of the characteristics and
criteria of the various securities ratings used by several nationally recognized
securities rating organizations is included in Appendix A attached to this
Statement of Additional Information.
INVESTMENT RESTRICTIONS
The following restrictions, which are a matter of "fundamental policy," may
not be changed with respect to the Fund without the approval of a "majority of
the outstanding voting securities" of the Fund, which, under the Investment
Company Act of 1940 (the "1940 Act") and the rules thereunder and as used in
this Statement of Additional Information and the Prospectus, means, with respect
to the Fund, the lesser of (i) 67% or more of the outstanding voting securities
of the Fund present at a meeting, if the holders of more than 50% of the
outstanding voting securities of the Fund are present or represented by proxy,
or (ii) more than 50% of the outstanding voting securities of the Fund.
As a matter of fundamental policy, the Fund may not:
1. Issue senior securities.
2. Borrow money, except from banks or through repurchase agreements for
temporary or emergency (not leveraging) purposes in an amount up to 33.33% of
the value of the Fund's total assets (including the amount borrowed), less
liabilities (not including the amount borrowed) at the time the borrowing is
made. While borrowings exceed 5% of the value of the Fund's total assets, the
Fund will not make any additional investments.
3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except
(i) to secure borrowings for temporary or emergency purposes and (ii) in
connection with the purchase of securities on a forward commitment basis and the
entry into reverse repurchase agreements or for similar transactions.
4. Invest in puts, calls, straddles, spreads or any combination thereof
if, by reason of such investment, the value of the Fund's investments in all
such classes of securities would exceed 5% of the Fund's total assets.
5. Sell securities short or purchase securities on margin.
6. Act as underwriter of securities of other issuers, except insofar as
the Fund may be deemed an underwriter in connection with the disposition of a
portfolio security.
7. Enter into repurchase agreements providing for settlement in more than
seven days after notice or purchase securities which are not readily marketable
(which securities would include participation interests that are not subject to
the demand feature described in the then-current Prospectus and floating and
variable rate demand obligations as to which no secondary market exists and the
Fund cannot exercise the demand feature described in the then-current Prospectus
on not more than seven days' notice), if, in the aggregate, more than 10% of its
net assets would be so invested. The Fund may not invest in time deposits
maturing in more than seven days.
8. Purchase or sell real estate, real estate investment trust securities,
commodities, or oil and gas interests, except for any of the foregoing acquired
as a result of ownership of another portfolio or security.
9. Make short-term loans to others, except through the purchase of debt
obligations and through repurchase agreements referred to in the Prospectus, and
except that the Fund may lend its portfolio securities in an amount not to
exceed 33.33% of the value of its total assets. Any loans of portfolio
securities will be made according to guidelines established by the SEC and the
Board of Directors.
10. Invest more than 5% of its assets in the obligations of any other
issuer, except that up to 25% of the value of the Fund's total assets may be
invested without regard to any such limitations. Notwithstanding the foregoing,
to the extent required by the rules of the SEC, the Fund will not invest more
than 5% of its assets in the obligations of any one bank.
11. Invest more than 25% of its assets in the securities of issuers in any
industry other than banking, provided that there shall be no limitation on the
purchase of obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
12. Invest in companies for the purpose of exercising control.
13. Purchase securities of other investment companies if the purchase
would cause more than 10% of the value of the total assets of the Fund, as the
case may be, to be invested in investment company securities, provided that:
(i) the Fund will not make any investment in the securities of any single
investment company if, immediately after such investment, more than 3% of the
outstanding voting securities of such investment company would be owned by the
Fund, or more than 5% of the value of the total assets of the Fund, would be
invested in such investment company; and (ii) no such restrictions shall apply
to a purchase by the Fund of investment company securities as a part of a
merger, consolidation, acquisition of assets or reorganization.
14. Purchase securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, or
purchase equity securities of issuers which are not readily marketable if, by
reason thereof, the value of the Fund's aggregate investment in all classes of
such securities will exceed 5% of its total assets.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values or
assets will not constitute a violation of that restriction.
Principal Preservation may make commitments more restrictive than the
restrictions listed above so as to permit the sale of Fund shares in certain
states. In the event that, once such a commitment is made, the state
restrictions with respect to which the commitment was made are modified or
repealed, Principal Preservation reserves the right to correspondingly modify or
revoke the commitment; provided no such action on the part of Principal
Preservation may result in an investment restriction that is less restrictive
than restrictions 1-14 above. Should Principal Preservation determine that,
once made, any such commitment is no longer in the best interests of Fund and
its shareholders, Principal Preservation reserves the right to revoke the
commitment by terminating the sale of Fund shares in the state involved.
PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES
Subject to the general supervision of the Directors, the Adviser is
responsible for decisions to buy and sell securities for the Fund, the selection
of brokers and dealers to effect the transactions, and the negotiation of
brokerage commissions, if any. Purchases and sales of securities on a stock
exchange are effected through brokers who charge a commission for their
services. In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a profit
to the dealer. The Fund also expects that securities will be purchased at times
in underwritten offerings where the price includes a fixed amount of
compensation, generally referred to as the underwriter's concession or discount.
On occasion, the Fund may also purchase certain money market instruments
directly from an issuer, in which case no commission or discounts are paid.
The Adviser currently serves as investment manager to a number of clients,
and may in the future act as investment manager or adviser to others, including
other registered investment companies. It is the practice of the Adviser to
cause purchase and sale transactions to be allocated among the Fund and others
whose assets it manages in such manner as it deems equitable. In making such
allocation among the Fund and other client accounts, the main factors considered
are the respective investment objectives, the relative size of portfolio
holdings of the same or comparable securities, the availability of cash for
investment, the size of investment commitments generally held and opinions of
the persons responsible for managing the Fund and other client accounts.
The policy of the Fund regarding purchases and sales of securities is that
primary consideration will be given to obtaining the most favorable prices and
efficient executions of transactions. Consistent with this policy, when
securities transactions are effected on a stock exchange, the Fund's policy is
to pay commissions which are considered fair and reasonable without necessarily
determining that the lowest possible commissions are paid in all circumstances.
The Fund believes that a requirement always to seek the lowest possible
commission cost could impede effective portfolio management and preclude the
Fund and the Adviser from obtaining high quality execution and research
services. In seeking to determine the reasonableness of brokerage commissions
paid in any transactions, the Adviser relies upon its experience and knowledge
regarding commissions generally charged by various brokers and on its judgment
in evaluating the brokerage and research services received from the broker
effecting the transaction. Such determinations are necessarily subjective and
imprecise, as in most cases an exact dollar value for the services is not
ascertainable. In transactions effected with a dealer, acting as principal, who
furnishes research services to the Fund, the Fund will not purchase securities
at a higher price, or sell securities at a lower price, than would be the case
if the dealer had not furnished such services.
In seeking to implement the Fund's policies, the Adviser effects
transactions with those brokers and dealers whom the Adviser believes provide
the most favorable prices and are capable of providing efficient executions. If
the Adviser believes such prices and executions are obtainable from more than
one broker or dealer, it may give consideration to placing portfolio
transactions with those brokers and dealers who also furnish research and other
services to the Fund or the Adviser. Such services include, but are not limited
to, information as to the availability of securities for purchase or sale,
statistical or factual information or opinions pertaining to investment, wire
services, and appraisals or evaluation of portfolio securities.
The information and services received by the Adviser from brokers and
dealers may be of benefit to the Adviser in the management of accounts of some
of its other clients and may not in all cases benefit the Fund directly. While
the receipt of such information and services is useful in varying degrees and
would generally reduce the amount of research or services otherwise performed by
the Adviser and thereby reduce its expenses, it is of indeterminable value and
the Fund does not reduce the management fee it pays to the Adviser by any amount
that may be attributable to the value of such services.
MANAGEMENT OF PRINCIPAL PRESERVATION
The Directors and officers of Principal Preservation and their principal
occupations during the past five years are set forth below. Their titles may
have varied during that period. Asterisks indicate those Directors of Principal
Preservation who are "interested persons" (as defined in the 1940 Act) of
Principal Preservation. Unless otherwise indicated, the address of each
Director and officer of Principal Preservation is 215 North Main Street, West
Bend, Wisconsin 53095.
Position with Principal
Principal Occupation During
Name and Address Preservation Past Five Years
- ---------------- ------------- ----------------
R. D. Ziegler* President and Since 1973 Chairman
Director and Director and,
prior to 1990, Chief
Executive Officer, and
prior to 1986,
President, The Ziegler
Companies, Inc. and B.C.
Ziegler and Company;
Chairman and Director,
Ziegler Asset
Management, Inc.;
Director, Johnson
Controls, Inc.
(manufacturing).
Robert J. Tuszynski* Vice President Vice President, Director
and Director of Mutual Funds, B.C. Ziegler
and Company, since 1987.
Richard H. Aster, M.D. Director President and Director
1701 W. Wisconsin Ave. of Research, The Blood
Milwaukee, WI 53233 Center of Southeastern
Wisconsin, Inc.
Augustine J. English Director Retired; President,
P. O. Box 2353 Tupperware North America
Orlando, FL 32802 from 1990 to 1994
(manufacturing); prior to 1990,
President, The West Bend
Company (manufacturing), a
division of Dart Industries, a
subsidiary of Premark
International, Inc., of which
Mr. English was a Group Vice
President.
Stephen A. Roell Director Vice President, Chief
c/o Johnson Controls, Financial Officer and
Inc. Assistant Secretary,
5757 North Green Bay Johnson Controls, Inc.
Road since 1991; Corporate
P.O. Box 591 Controller and Assistant
Milwaukee, WI 53201 Secretary, Johnson Controls,
Inc. from 1990 to 1991;
Treasurer, Johnson Controls,
Inc. from 1987 to 1991.
John H. Lauderdale Vice President- Wholesaler, B.C.
Director of Ziegler and Company
Marketing since 1991; prior thereto
Account Executive, The Patten
Company.
Jay Ferrara Treasurer Assistant Vice
President, B.C. Ziegler and
Company, since 1994;
Controller, California
Investment Trust, from 1993 to
1994; prior thereto, Senior
Fund Accountant, Wells Fargo
Nikko Investment Advisors.
S. Charles O'Meara Secretary Senior Vice President and
General Counsel, B.C. Ziegler
and Company since 1993; prior
thereto, Partner, O'Meara,
Eckert, Pouros & Gonring (law
firm).
Principal Preservation pays the compensation of the three Principal
Preservation Directors who are not officers, directors or employees of Ziegler.
They receive an annual fee of $12,000 and an additional $450 for each Board or
Committee meeting attended. The Fund pays a pro rata portion of these fees.
Principal Preservation may also retain consultants, who will be paid a fee, to
provide the Board with advice and research on investment matters.
The table below shows fees paid to Directors of Principal Preservation for
the year ended December 31, 1995. Each series of Principal Preservation,
including the Fund, pays a proportionate share of these expenses based on the
ratio such series' total assets bear to the aggregate of the total assets of all
nine series of Principal Preservation. Principal Preservation made no payments
to its officers or directors who are affiliated with any investment advisor to
Principal Preservation.
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM
BENEFITS PRINCIPAL
NAME OF PERSON AGGREGATE ACCRUED PRESERVATION
AND COMPENSATION AS PART OF ESTIMATED AND
POSITION WITH FROM PRINCIPAL ANNUAL FUND COMPLEX
PRINCIPAL PRINCIPAL PRESERVATION'S BENEFITS OF
PRESERVATION PRESERVATION EXPENSES UPON WHICH
---------- ------------ -------- RETIREMENT PRINCIPAL
---------- PRESERVATION
IS A PART(1)<F1>
------------
R. D. Ziegler, -0- -0- -0- -0-
President and
Director
Robert J. -0- -0- -0- -0-
Tuszynski,
Vice President
and Director
Richard H. Aster, $13,800 -0- -0- $13,800
M.D. Director
Augustine J. $13,800 -0- -0- $13,800
English,
Director
Stephen A. Roell, $13,800 -0- -0- $13,800
Director
(1)<F1>No director or officer of Principal Preservation received compensation
from any other investment company within the same fund complex as
Principal Preservation.
At November 29, 1995, Principal Preservation's Directors and officers as a
group owned less than 1% of the shares of the Fund. As of that date, B.C.
Ziegler and Company, pursuant to shareholder servicing arrangements discussed
herein, owned of record 66.1% of the Fund's outstanding shares. No other
person was known to own, of record or beneficially, 5% or more of the
outstanding shares of the Fund as of that date.
INVESTMENT ADVISER
The Adviser, Ziegler Asset Management, Inc. ("ZAMI"), manages the assets of
the Fund pursuant to an Investment Advisory Agreement (the "Advisory Agreement")
and the investment policies described herein. Subject to such further policies
as the Board of Directors may determine, the Adviser makes investment decisions
for the Fund. The Adviser furnishes at its own expense all services, facilities
and personnel necessary in connection with managing the Fund's investments and
effecting securities transactions for the Fund.
The Advisory Agreement provides that the Adviser may render services to
others. The Advisory Agreement is terminable without penalty on not more than
60 days' nor less than 30 days' written notice by the Fund when authorized
either by majority vote of the investors in the Fund (with the vote of each
being in proportion to the amount of their investment) or by a vote of a
majority of the Board of Directors, or by the Adviser on not more than 60 days
nor less than 30 days written notice, and will automatically terminate in the
event of its assignment. The Advisory Agreement provides that neither the
Adviser nor its personnel shall be liable for any error of judgment or mistake
of law or for any loss arising out of any investment or for any act or omission
in the execution of security transactions for the Fund, except for willful
misfeasance, bad faith, gross negligence or reckless disregard of its or their
obligations and duties under the Advisory Agreement.
For its services under the Advisory Agreement, the Adviser receives from the
Fund a fee accrued daily and paid monthly at an annual rate equal to 0.20% of
the Fund's average daily net assets. Pursuant to the Advisory Agreement, for
the period from April 5, 1993 (commencement of operations) through December 31,
1993, and for the year ended December 31, 1994, the Fund accrued investment
advisory fees of $82,150 and $227,681, respectively, of which $1,501 and
$106,369, respectively, was waived voluntarily.
ADMINISTRATIVE SERVICES
Fund Administrative Services. ZAMI provides certain administrative services
----------------------------
to Principal Preservation, on behalf of the Fund, including: (a) providing
office space, equipment and clerical personnel necessary for maintaining the
organization of Principal Preservation; (b) providing personnel to serve as
directors, officers and employees of Principal Preservation to the extent
requested by Principal Preservation and as permitted and appropriate under
applicable laws and regulations; (c) supervising the overall administration of
Principal Preservation, including negotiation of contracts and fees with, and
the monitoring of performance and billings of, Principal Preservation's
independent contractors or agents; (c) preparing and, if applicable, filing all
documents required for compliance by Principal Preservation with applicable laws
and regulations; (e) preparing agendas and supporting documents for and minutes
of meetings of the Board of Directors of Principal Preservation and committees
thereof and shareholders of the Fund; and (f) maintaining other books and
records of Principal Preservation. ZAMI has agreed to provide these services
pursuant to an Administrative Services Agreement.
The Administrative Services Agreement provides that it will continue in
effect from year to year, as long as approved at least annually by Principal
Preservation's Board of Directors or by a vote of the outstanding voting
securities of the Fund and in either case by a majority of the Directors who are
not parties to the relevant Agreement or interested persons of any such party.
The Agreement terminates automatically if assigned and may be terminated without
penalty by either party on 60 days notice. The Agreement provides that neither
Ziegler nor its personnel shall be liable for any error of judgment or mistake
of law or for any loss arising out of any act or omission in the execution and
the discharge of its obligations under the 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
Agreement.
For providing the services contemplated by the Administrative Services
Agreement, ZAMI is entitled to receive a fee, computed daily and paid monthly,
at the annual rate of 0.15 of 1% of the Fund's average daily net assets. Prior
to January 1, 1996, Ziegler provided administrative services to the Fund under
the terms of an administrative services agreement with terms substantively
identical to those of the ZAMI Administrative Services Agreement. For the
period from April 5, 1993 (commencement of operations) through December 31,
1993, and for the year ended December 31, 1994, the Fund accrued administrative
fees aggregating $46,769 and $81,596, respectively, of which Ziegler voluntarily
reimbursed $25,946 and $66,088, respectively.
Accounting/Pricing Agreement. Pursuant to the terms of an Accounting/Pricing
----------------------------
Agreement between Ziegler and Principal Preservation, Ziegler provides fund
accounting and net asset value calculation services to the Fund. Under this
Accounting/Pricing Agreement, Ziegler is entitled to compensation at a rate
approved annually by the Board of Directors, plus reimbursement for reasonable
out-of-pocket expenses. The Fund currently pays Ziegler a monthly fee at an
annual rate of 0.04 of 1% on average daily net assets between $50 million and
$100 million, 0.03 of 1% on the next $100 million, and 0.01 of 1% on average
daily net assets in excess of $200 million, subject to a minimum annual fee of
$15,000 and a maximum annual fee of $125,000. For the period from April 5, 1993
(commencement of operations) through December 31, 1993, and for the year ended
December 31, 1994, the Fund accrued fees under the Accounting/Pricing Agreement
aggregating $20,310 and $38,311, respectively.
The services provided by Ziegler to the Fund under the Accounting/Pricing
Agreement include daily calculation of net asset value per share, maintenance of
original entry documents and books of record and general ledgers of the Fund,
posting of cash receipts and disbursements, reconciliation of bank account
balances on a monthly basis, recording purchases and sales based upon com-
munications from the Fund's portfolio managers, and preparing monthly and annual
summaries to assist in the preparation of financial statements of, and
regulatory reports for, the Fund. The Accounting/Pricing Agreement provides
that Ziegler may render fund accounting and pricing services to others,
continues in effect from year to year if approved by a majority of the Board of
Directors, terminates automatically if it is assigned, and may be terminated
without penalty by a majority vote of the investors in the Fund, with the vote
of each investor being in proportion to the amount of their respective
investments. The Accounting/Pricing Agreement also provides that neither
Ziegler nor its personnel shall be liable for any error of judgment or mistake
of law or for any loss suffered by the Fund in connection with the matters to
which the Accounting/Pricing Agreement relates, except for loss resulting from
willful misfeasance, bad faith or gross negligence in the performance of its or
their duties on behalf of the Fund or from reckless disregard by Ziegler or any
of its personnel of the duties of Ziegler under the Accounting/Pricing
Agreement. Ziegler's liability under the Accounting/Pricing Agreement is
limited in all events to one-year's fees received by Ziegler under the
Accounting/Pricing Agreement.
CUSTODIAN AND DEPOSITORY SERVICES
The Fund acts as custodian of its own assets (i.e., cash and its interest in
----
the portfolio securities). Pursuant to a Depository Contract, Ziegler, a
registered broker-dealer and registered investment adviser, acts as depository
of the Fund's assets. For providing services as Depository to the Fund, Ziegler
is entitled to reasonable compensation and reimbursement for expenses as agreed
upon from time to time between Ziegler and the Fund. The Fund currently pays
Ziegler a monthly fee under the Depository Contract at an annual rate of 0.055
of 1% on the first $50 million of the Fund's average daily net assets, 0.035 of
1% on the next $150 million, 0.030 of 1% on the next $300 million and 0.025 of
1% on average daily net assets in excess of $500 million, subject to a minimum
annual fee of $15,000. For the period April 5, 1993 through December 31, 1993,
and for the year ended December 31, 1994, fees accrued with respect to the
Fund's portfolio securities under a Depository Contract, substantively identical
to the Fund's, aggregated $21,298 and $58,942, respectively.
Ziegler's responsibilities as Depository for the Fund include safeguarding
and controlling its securities and other assets, handling the receipt and
delivery of securities, determining income and collecting interest on its
investments, and maintaining books of original entry for Fund accounting
purposes and other required books and accounts. Securities held by the Fund may
be deposited into authorized securities depositaries such as the Federal
Reserve-Treasury Department Book Entry System and the Depository Trust Company,
and may be held by a subcustodian bank if such arrangements are reviewed and
approved by the Board of Directors.
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 Fund.
Under such agreements, the shareholder servicing Agents maintain shareholder
accounts for Class X Shares of the Fund 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 0.25 of 1% of that portion of the Fund's average daily net assets allocated
to Class X 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 Fund. 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 Shares of the Fund held in accounts
serviced by the Agent or the Agent's verification or guarantee of any signature
of a shareholder owning Class X 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 $16.00 per account
for the Fund. The Fund also reimburses Ziegler for all out of pocket expenses
incurred in providing such services. Ziegler also has the right to retain
certain service charges as described from time to time in the current prospectus
of Principal Preservation. The Agency Agreement will continue in effect until
terminated, and may be terminated by either party without cause on 90 days prior
written notice. The Agency Agreement provides that Ziegler shall be indemnified
by and not be liable to Principal Preservation for any action taken or omitted
by it under such agreement, except for liability for breach of its obligation
to maintain all Principal Preservation records in absolute confidence.
For the period from April 5, 1993 through December 31, 1993, and for the year
ended December 31, 1994, fees received by Ziegler pursuant to the Shareholder
Servicing Agreement totaled $76,824 and $134,047, respectively. During those
same periods, Ziegler received fees of $352 and $1,007, respectively for
providing transfer and dividend disbursing services pursuant to the Agency
Agreement.
PERFORMANCE INFORMATION
Yield on Class X Shares is computed in accordance with a standardized method
which involves determining the net change in the value of a hypothetical pre-
existing Fund account having a balance of one Class X Share at the beginning of
a seven calendar day period for which yield is to be quoted, dividing the net
change computed at the end of the period by the value of the account at the
beginning of the period to obtain the base period return, and analyzing the
results (i.e., multiplying the base period return by 365/7). The net change in
the value of the account reflects the value of additional Class X Shares
purchased with dividends declared on the original Class X Share and any such
additional Class X Shares and fees that may be charged to shareholder accounts,
in proportion to the length of the base period and the Fund's average account
size, but does not include realized gains and losses or unrealized appreciation
and depreciation. Effective annualized yield is computed by adding 1 to the
base period return (calculated as described above), raising that sum to a power
equal to 365 divided by 7, and subtracting 1 from the result. The yield and the
effective yield for the Fund based on the seven days ended June 30, 1995 was
5.36% and 5.50%, respectively.
Yields on Class X Shares will fluctuate and are not necessarily
representative of future results. The investor should remember that yield is a
function of the type and quality of the instruments held by the Fund, portfolio
maturity and operating expenses. An investor's principal in the Fund is not
guaranteed. See "Determination of Net Asset Value" for a discussion of the
manner in which the Fund's price per share is determined.
From time to time, the Fund in its advertising and sales literature may
refer to the growth of assets managed or administered by the Adviser over
certain time periods.
Comparative performance information may be used from time to time in
advertising or marketing the Fund's Class X Shares, including data from Lipper
Analytical Services, Inc., IBC/Donoghue's Money Fund Report and other
publications.
DETERMINATION OF NET ASSET VALUE PER SHARE; VALUATION
OF SECURITIES; REDEMPTION IN KIND
The Prospectus discusses when the net asset value of the Fund is determined
for purposes of sales and redemptions. The net asset value per share of the
Fund is determined by subtracting the Fund's liabilities from the Fund's total
assets and dividing the result by the total number of shares outstanding. The
following is a description of the procedures used by the Fund in valuing its
assets.
The valuation of the Fund's securities is based on their amortized cost,
which does not take into account unrealized capital gains or losses. Amortized
cost valuation involves initially valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, generally without regard to the impact of fluctuating interest rates on
the market value of the instrument. Although this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price the Fund would receive if it
sold the instrument.
The Fund's use of the amortized cost method of valuing their securities is
permitted by a rule adopted by the SEC. The Fund will also maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase only
instruments having remaining maturities of 13 months or less and invest only in
securities determined by or under the supervision of the Board of Directors to
be of high quality with minimal credit risks.
Pursuant to the rule, the Board of Directors also has established procedures
designed to allow the Fund to stabilize, to the extent reasonably possible, the
Fund's price per share as computed for the purpose of sales and redemptions at
$1.00. These procedures include review of the Fund's holdings by the Board of
Directors, at such intervals as it deems appropriate, to determine whether the
value of the Fund's assets calculated by using available market quotations or
market equivalents deviates from such valuation based on amortized cost.
The rule also provides that the extent of any deviation between the value of
the Fund's assets based on available market quotations (or an appropriate
substitute which reflects current market conditions) and such valuation based on
amortized cost must be examined by the Board of Directors. In the event the
Board of Directors determines that a deviation exists that may result in
material dilution or other unfair results to new or existing investors or
existing shareholders, pursuant to the rule, the Board of Directors must cause
the Fund to take such corrective action as the Board of Directors regards as
necessary and appropriate, including: selling portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity; or valuing the Fund's assets by using available market quotations.
For the purpose of determining the deviation between the value of the Fund's
assets based on available market quotations and such valuation based on
amortized cost, if market quotations are not readily available, or if the
securities are illiquid, the value of such portfolio securities will be
determined in good faith by the Directors based upon calculations and findings
made by the Adviser, and reviewed by the Directors. The Directors may consider
that certain securities are securities for which market quotations are not
readily available if the validity of the quotations received with respect to
such securities appears to be questionable. Factors which the Directors might
consider as indicating that the validity of market quotes is questionable
include an inordinately large spread between bid and ask prices, or an in-
ordinately small number of quotations indicating that there is only a thin
market in the securities.
Principal Preservation, on behalf of the Fund, reserves the right, if
conditions exist which make cash payments undesirable, to honor any request for
redemption or repurchase order by making payment in whole or in part in readily
marketable securities chosen by Principal Preservation and valued as they are
for purposes of computing the Fund's net asset value (a redemption in kind). If
payment is made in securities, an investor may incur transaction expenses in
converting these securities into cash.
The Fund has elected, however, to be governed by Rule 18f-1 under the 1940
Act, as a result of which the Fund is obligated to redeem shares with respect to
any one investor during any 90-day period, solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of the
period.
Each investor in the Fund may add to or reduce its investment in the Fund on
each Business Day of the Fund. A "Business Day" is any day on which the New
York Stock Exchange is open for trading and any other day (other than a day on
which no shares of the Fund are tendered for redemption and no order to purchase
shares of the Fund is received) during which there is sufficient trading in
money market instruments that the Fund's net asset value might be materially
affected. As of 12:00 noon (New York time) on each such Business Day, net asset
value for the Classes of shares will be computed by dividing the value of the
Fund's total net assets by the total number of shares outstanding, including
both Classes.
PURCHASE OF SHARES
The Fund will not issue shares for consideration other than cash except in
the case of a bona fide reorganization, statutory merger, or in certain other
acquisition of securities in accordance with state securities laws, which:
(1) meet the investment objectives and policies of the Fund; (2) are acquired
for investment and not for resale; (3) are not restricted securities; and
(4) have a value which is readily ascertainable.
TAX STATUS
The following is only a summary of certain tax considerations generally
affecting the Fund and its shareholders, and is not intended as a substitute for
careful tax planning. Shareholders are urged to consult their tax advisers with
specific reference to their own tax situations.
Each series of a series company, such as Principal Preservation, is treated
as a single entity for Federal income tax purposes so that the net realized
capital gains and losses of the various series in one fund are not combined.
However, Class X Shares and Class Y Shares are treated as the same for tax
purposes.
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986 (the "Code"). In order to qualify as a regulated
investment company, the Fund must satisfy a number of requirements. Among such
requirements is the requirement that at least 90 percent of its gross income
must be derived from dividends, interest and gains from the sale or other
disposition of stock or other securities. Another requirement of current law is
that less than 30 percent of the Fund's gross income be derived from the sale or
other disposition of securities held for less than three months. In determining
these gross income requirements, a loss from the sale or other disposition of
securities does not enter into the computation.
The Fund will distribute substantially all of its net income and capital
gains so as to avoid any federal income tax to it. Although Principal
Preservation expects the Fund to be relieved of all or substantially all federal
income taxes, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located or in which it is otherwise deemed to be
conducting business, that portion of the Fund's income which is treated as
earned in any such state or locality could be subject to state and local tax.
Any such taxes paid by the Fund would reduce the amount of income and gains
available for distribution to its shareholders.
While the Fund does not expect to realize net long-term capital gains, any
such gains realized will be distributed annually as described in the Fund's
Prospectus. Such distributions ("capital gain dividends"), if any, will be
taxable to shareholders as long-term capital gains, regardless of how long a
shareholder has held Fund shares, and will be designated as capital gain
dividends in a written notice mailed by the Fund to shareholders after the close
of the Fund's prior taxable year.
Dividends and other distributions paid to individuals and other non-exempt
payees are subject to a 31% backup federal withholding tax if the Agent is not
provided with the shareholder's correct taxpayer identification number or
certification that the shareholder is not subject to such backup withholding or
if the Fund is notified that the shareholder has under-reported income in the
past. In addition, such backup withholding tax will apply to the proceeds of
redemption or repurchase of shares from a shareholder account for which the
correct taxpayer identification number has not been furnished. For most indi-
vidual taxpayers, the taxpayer identification number is the social security
number. An investor may furnish the Agent with such number and the required
certifications by completing and sending the Agent either the Account
Application form attached to the Prospectus or IRS Form W-9.
Interest on indebtedness incurred (directly or indirectly) by shareholders
to purchase or carry shares will not be deductible for Federal income tax
purposes.
If a shareholder exchanges shares of one Principal Preservation portfolio
for shares of another, the shareholder will recognize gain or loss for federal
income tax purposes. That gain or loss will be measured by the difference
between the shareholder's basis in the shares exchanged and the value of the
shares acquired.
DISTRIBUTION EXPENSES
Principal Preservation's Distribution Plan (the "Plan") is its written plan
contemplated by Rule 12b-1 (the "Rule") under the Act.
The Plan authorizes Ziegler, as the "Distributor" of the Fund's Class X
Shares, to make certain payments to any qualified recipient, as defined in the
Plan, that has rendered assistance in the distribution of the Fund's Class X
Shares (such as sale or placement of the Fund's Class X Shares, or administra-
tive assistance, such as maintenance of sub-accounting or other records).
Qualified recipients may include Selected Dealers, banks and other financial
institutions. The Plan also authorizes the Distributor to purchase advertising
for Class X Shares of the Fund, 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 the
Fund, up to a limit of 0.15 of 1% of the average net assets allocated to its
Class X Shares. 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 Principal Preservation 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: (a) 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; (b) the costs of preparing, printing and mailing of all prospec-
tuses to shareholders; (c) 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; (d) all legal and accounting fees relating to the
preparation of any such reports, prospectuses, proxies and proxy statements;
(e) all fees and expenses relating to the qualification of the funds and or
their shares under the securities or "Blue Sky" laws of any jurisdiction; (f)
all fees under the 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; (g) 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; (h) all costs of preparing and mailing confirmations
of shares sold or redeemed or share certificates and reports of share balances;
and (i) 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 Principal Preservation's
investment advisers are dependent primarily on the advisory fees paid to them.
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
authorized under the Plan. The Plan states that in taking any action
contemplated by Section 15 of the 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 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 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 carryover 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: (a) as reimbursement for direct expenses incurred in the course
of distributing Principal Preservation 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 (b) 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: (a) 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; (b) the amounts of expenses and the
purpose of each such expense; and (c) 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 by a majority of those Directors who are not interested persons of Principal
Preservation cast in person at a meeting called for the purpose of voting on
such continuance. The Plan may be terminated at any time without penalty by a
vote of a majority of those Directors who are not interested persons of
Principal Preservation or by the vote of the holders of a majority of the
outstanding voting securities of Principal Preservation, and, with respect to
any Principal Preservation portfolio or with respect to the Fund's Class X
Shares, by the vote of a majority of the outstanding shares of such portfolio or
of the outstanding Class X Shares, as the case may be. 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.
During the period from April 5, 1993 through December 31, 1993, and for the
year ended December 31, 1994, the Fund paid distribution fees to Ziegler with
respect to the predecessor of the Class X Shares pursuant to this Plan in the
total amounts of $47,582 and $83,118, respectively.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Quarles & Brady, as counsel for Principal Preservation, has rendered its
opinion as to certain legal matters regarding the due authorization and valid
issuance of the shares of common stock being sold pursuant to the Prospectus.
Price Waterhouse, LLP independent accountants, are the auditors of the Fund.
EXPERTS
The audited financial statements of the Fund incorporated by reference into
the Fund's Prospectus and this Statement of Additional Information have been so
incorporated in reliance on the report of Price Waterhouse, LLP independent
accountants, given on the authority of said firm as experts in accounting and
auditing in giving said report.
FINANCIAL STATEMENTS
The following audited financial statements and footnotes thereto of Principal
Preservation Cash Reserve Portfolio (the "Fund") and of the Prime Money Market
Portfolio (the "Hub"), the master fund in which the Fund invested all of its
investable assets until January 1, 1996, together with the Reports of the
Independent Accountants thereon, are incorporated herein by reference from the
Fund's 1994 Annual Report to Shareholders.
(1) Statements of Assets and Liabilities for the Fund and the Hub as of
December 31, 1994.
(2) Statements of Operations for the Fund and the Hub for the year ended
December 31, 1994.
(3) Statements of Changes in Net Assets for the Fund and the Hub for the
period from April 5, 1993 (commencement of operations) through
December 31, 1993, and for the year ended December 31, 1994.
(4) Schedule of Investments of the Hub as of December 31, 1994.
(5) Notes to Financial Statements.
The following unaudited financial statements and footnotes thereto of the
Fund and the Hub are incorporated herein by reference from the Fund's Semi-
Annual Report to Shareholders dated June 30, 1995.
(1) Statements of Assets and Liabilities for the Fund and the Hub as of
June 30, 1995.
(2) Statements of Operations for the Fund and the Hub for the six-months
ended June 30, 1995.
(3) Statements of Changes and Net Assets for the Fund and the Hub for the
six-month periods ended June 30, 1994 and June 30, 1995.
(4) Schedule of Investments of the Hub as of June 30, 1995.
(5) Notes to Financial Statements.
A copy of the Fund's 1994 Annual Report to Shareholders and of its Semi-
Annual Report to Shareholders dated June 30, 1995 may be obtained free of charge
from Ziegler upon request.
APPENDIX
A description of the two highest commercial paper, bond and other short- and
long-term rating categories assigned by Standard & Poor's Corporation ("S&P"),
Moody's Investors Service, Inc. ("Moody's"), Fitch Investors Service, Inc.
("Fitch"), Duff & Phelps, Inc. ("Duff"), IBCA Limited and IBCA Inc. ("IBCA") and
Thomson BankWatch, Inc. ("BankWatch") now follows.
COMMERCIAL PAPER AND SHORT-TERM RATINGS
The designation A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation. Capacity
for timely payment on issues with an A-2 designation is satisfactory. However,
the relative degree of safety is not as high as for issues designated A-1.
The rating Prime-1 (P-1) is the highest commercial paper rating assigned by
Moody's. Issuers of P-1 paper must have a superior ability for repayment of
senior short-term debt obligations, and Prime-1 repayment ability will often be
evidenced by leading market positions in well established industries, high rates
of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and well
established access to a range of financial markets and assured sources of
alternate liquidity. Issues rated Prime-2 (P-2) have a strong ability for
repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
The rating F-1+ (Exceptionally Strong Credit Quality) is the highest
commercial paper rating assigned by Fitch. Paper rated F-1+ is regarded as
having the strongest degree of assurance for timely payment. The rating F-2
(Very Strong Credit Quality) is the second highest commercial paper rating
assigned by Fitch which reflects an assurance of timely payment only slightly
less in degree than issues rated F-1+.
The rating Duff 1+ is the highest commercial paper rating assigned by Duff.
Paper rated Duff 1+ is regarded as having the highest certainty of timely
payment. Short-term liquidity, including internal operating factors and/or
access to alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations. Paper rated Duff 1 is regarded
as having a very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors
are minor.
The designation A1 by IBCA indicates that the obligation is supported by a
strong capacity for timely repayment. Those obligations rated Al+ are supported
by the highest capacity for timely repayment. Obligations rated A2 are
supported by a satisfactory capacity for timely repayment, although such
capacity may be susceptible to adverse changes in business, economic or
financial conditions.
The rating TBW-1 is the highest short-term obligation rating assigned by
BankWatch. A rating of TBW-1 indicates a very high likelihood that principal
and interest will be paid on a timely basis. Obligations rated TBW-2 are in the
second-highest category, indicating that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated TBW-1.
BOND AND LONG-TERM RATINGS
Bonds rated AAA have the highest rating assigned by S&P and possess an
extremely strong capacity to pay principal and interest. Bonds rated AA by S&P
are judged by S&P to have a very strong capacity to pay principal and interest,
and differ from the higher rated issues only in small degree. Bonds rated AA
may be modified by the addition of a plus or minus sign to show relative
standing in the category.
Bonds rated Aaa are judged by Moody's to be of the best quality. Bonds rated
Aa by Moody's are judged by Moody's to be of high quality by all standards and,
together with the Aaa group, they comprise what are generally known as high-
grade bonds. Bonds rated Aa are rated lower than Aaa bonds because margins of
protection may not be as large or fluctuations of protective elements may be of
greater amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in Aaa securities. Moody's applies
numerical modifiers 1, 2 and 3 in the Aa rating category. The modifier 1
indicates a ranking for the security in the higher end of this rating category,
the modifier 2 indicates a mid-range ranking, and the modifier 3 indicates a
ranking in the lower end of the rating category.
Bonds rated AAA by Fitch are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. Bonds rated AA by Fitch are considered to be investment
grade and of very high credit quality. The obligor's ability to pay interest
and repay principal is very strong, although not quite as strong as bonds rated
AAA. Because bonds rated in the AAA and AA categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these issuers
is generally rated F-1+. Bonds rated AA may be modified by the addition of a
plus or minus sign to show relative standing in the category.
Bonds rated AAA by Duff are considered to be of the highest credit quality.
The risk factors are negligible, being only slightly more than for risk-free
U.S. Treasury debt. Bonds rated AA+, AA and AA- are considered by Duff to be of
high credit quality with strong protection factors. Risk is modest but may
vary slightly from time to time because of economic conditions.
Obligations rated AAA by IBCA have the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial.
Adverse changes in business, economic or financial conditions are unlikely to
increase investment risk significantly. Obligations rated AA by IBCA have a
very low expectation of investment risk. Capacity for timely repayment of
principal and interest is substantial. Adverse changes in business, economic or
financial conditions may increase investment risk albeit not very significantly.
A plus or minus may be appended to a rating to denote relative status within
major rating categories.
IBCA also assigns a rating to certain international and U.S. banks. An IBCA
bank rating represents IBCA's current assessment of the strength of the bank and
whether such bank would receive support should it experience difficulties. In
its assessment of a bank, IBCA uses a dual rating system comprised of Legal
Ratings and Individual Ratings. In addition, IBCA assigns banks Long- and
Short-Term Ratings as used in the corporate ratings discussed above. Legal
Ratings, which range in gradation from 1 through 5, address the question of
whether the bank would receive support provided by central banks or shareholders
if it experienced difficulties, and such ratings are considered by IBCA to be a
prime factor in its assessment of credit risk. Individual Ratings, which range
in gradations from A through E, address the question of how the bank would be
viewed if it were entirely independent and could not rely on support from state
authorities or its owners.
In addition to its ratings of short-term obligations, BankWatch assigns a
rating to each issuer it rates, in gradations of A through E. BankWatch
examines all segments of the organization, including, where applicable, the
holding company and operating subsidiaries. Long-term debt obligations rated in
AAA, the highest category, indicate that the ability to repay principal and
interest on a timely basis is very high. A rating of AA, BankWatch's second-
highest category, indicates a superior ability to repay principal and interest
on a timely basis, with limited incremental risk compared to issues rated in the
highest category. BankWatch also assigns, in the case of foreign banks, a
country rating ranging from I through V, which represents an assessment of the
overall political and economic stability of the country in which the bank is
domiciled.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
INVESTMENT ADVISER
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
FUND ADMINISTRATOR
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
DISTRIBUTOR, TRANSFER AND
DIVIDEND DISBURSING AGENT, SHAREHOLDER
SERVICING AGENT, DEPOSITORY AND FUND
ACCOUNTING AGENT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
COUNSEL
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
100 East Wisconsin Avenue
Suite 1500
Milwaukee, Wisconsin 53202
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
CASH RESERVE PORTFOLIO
CLASS X COMMON STOCK (RETAIL CLASS)
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JANUARY 2, 1996
STATEMENT OF ADDITIONAL INFORMATION
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