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Tax-Exempt Portfolio
Government Portfolio
S&P 100 Plus Portfolio
Dividend Achievers Portfolio
Select Value Portfolio
PSE Tech 100 Index Portfolio
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ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1996
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PRINCIPAL PRESERVATION PORTFOLIOS, INC.
PRESIDENT'S LETTER/MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT TO SHAREHOLDERS
DECEMBER 31, 1996
February 25, 1997
Dear Shareholders:
We are pleased to present our annual report for the year ended December 31,
1996. The long term net assets continued on an upward trend from $237,000,000 at
the beginning of the year to $256,800,000 at the end of the year. The largest
increases were in the S&P 100 Plus Portfolio, the Wisconsin Tax-Exempt Portfolio
and our newest portfolio, the PSE Tech 100 Index Portfolio.
The PSE Tech 100 Index Portfolio, which commenced operations on June 10,
1996, is the only technology index mutual fund in the country. The Portfolio has
received publicity in major news publications and, as of the date of this
report, has over $8,400,000 in net assets. Complementing our other portfolios,
this portfolio adds a deeper dimension of structured aggressiveness to our fund
family.
The stock markets enjoyed another profitable year as the major indices
continued to reach new record highs. Your equity funds participated in that
climb and posted very strong returns relative to other funds in similar
investment categories. The bond portfolios also ranked reasonably well against
fixed income benchmarks. Unfortunately, the bond market took a back seat to the
equity markets. We will discuss each portfolio's performance on the following
pages.
Principal Preservation strives to be a unique product niche among fund
families marketed through distribution channels offering advice to their
customers. We rely on the knowledge and familiarity those investment
professionals have of you, your investment goals, and how our product fits your
long term investment strategy. As we continue to grow our assets and look for
cost efficiencies to pass along to our investors, we will strive to provide
returns on your investment that are better than the average in each category.
Our commitment is to describe our products clearly, making investment decisions
easier. Thank you for your continuing investments in Principal Preservation
Portfolios, Inc.
Sincerely,
/s/ Robert J. Tuszynski
Robert J. Tuszynski
President and CEO
The report contained herein is meant to be information to the existing
shareholders of Principal Preservation. This does not constitute an offer to
sell securities of any portfolio and should an investor wish to receive more
information about the portfolios, should obtain a prospectus which includes a
discussion of each portfolio's investment objective and all applicable sales
charges and expenses.
MANAGEMENT DISCUSSION AND ANALYSIS
The following discussion of each of the portfolios in the Principal
Preservation mutual fund family provides a profile on the risks involved in
investing in each of the funds. Beginning with bond portfolios, we will
demonstrate how each of the portfolios reacts to, or is tied to, market changes.
Market changes, despite moves made by the portfolio managers to minimize risk or
maximize returns, will influence performance in each of the portfolios.
FIXED INCOME ANALYSIS
The fixed income markets began the year anticipating many Federal Reserve
Board interest-rate adjustments. The Fed only reduced the Fed Funds Rate during
January, 1996 by 0.25%. However, because of the anticipation by bond investors,
the direction of interest rates moved rapidly and caused increased volatility in
the underlying prices. The 30 year Treasury Bond began the year at 5.95% moving
to a high of 7.2% in July before falling to 6.64% at year end. Generally, the
fixed income markets finished 1996 in lackluster fashion. The outlook for 1997
is anticipated to follow much of the same pattern, as many economists do not
foresee big movements in interest rates. On pages 3 and 4 of this report is a
discussion of each of the bond portfolio's general characteristics and how those
characteristics affected the portfolio's performance during 1996.
EQUITY DISCUSSION AND ANALYSIS
The stock market experienced another record setting year. When the Federal
Reserve began the year by lowering the Fed funds rate and then left the rate
unchanged for the remainder of the year, the positive gains made in key economic
areas, coupled with consistent growth, propelled the U.S. stock markets to
strong investment returns. The Dow Jones Industrial Average reached a record
high of 6560.91 on December 27, 1996, and finished the year with a total return
of 28.86%. Large capitalization growth companies, on average, fared better than
small cap stocks during 1996. Companies which traded at prices reflecting
comparatively low value ratios (such as price to earnings) reported strong
performance during the last half of 1996, especially in the fourth quarter. The
technology sector led the market during the fourth quarter.
As we examine our stock portfolios, we measure risk from a slightly different
perspective. Since the typical equity investor has a longer investment horizon
than the fixed income investor and the historical returns for an average stock
mutual fund are higher, we measure our portfolios in relation to average equity
benchmarks. The S&P 500 currently is considered by investors to represent the
market. Commonly, stock fund performance will begin with a comparison against
the S&P 500 index and may extend to other indices. Increased price volatility as
compared to the S&P 500 index usually indicates more market risk, but also
presents an opportunity for greater return. On pages 5-8 is an analysis
comparing each portfolio to its appropriate benchmark, and evaluates its overall
performance.
TAX-EXEMPT PORTFOLIO
Shown below is a comparison of the change in value of a $10,000 investment in
Principal Preservation Tax-Exempt Portfolio and the Lehman 20-Year Municipal
Bond Index. The graph reflects a deduction from the amount invested for the
applicable sales charge.
Date Principal Preservation Lehman 20-Year
Tax-Exempt Portfolio Municipal Bond Index
12/31/86 $9,650 $10,000
1/31/87 $9,747 $10,301
2/28/87 $9,778 $10,351
3/31/87 $9,809 $10,241
4/30/87 $9,553 $9,727
5/31/87 $9,542 $9,678
6/30/87 $9,711 $9,963
7/31/87 $9,883 $10,065
8/31/87 $10,056 $10,088
9/30/87 $9,898 $9,716
10/31/87 $9,231 $9,750
11/30/87 $9,442 $10,004
12/31/87 $9,566 $10,149
1/29/88 $9,493 $10,510
2/29/88 $9,477 $10,621
3/31/88 $9,531 $10,498
4/29/88 $9,622 $10,578
5/31/88 $9,736 $10,547
6/30/88 $9,840 $10,701
7/29/88 $9,884 $10,771
8/31/88 $9,941 $10,781
9/30/88 $10,023 $10,976
10/31/88 $10,153 $11,169
11/30/88 $10,035 $11,066
12/31/88 $10,142 $11,179
1/31/89 $10,287 $11,410
2/28/89 $10,243 $11,280
3/31/89 $10,200 $11,253
4/28/89 $10,387 $11,520
5/31/89 $10,563 $11,760
6/30/89 $10,687 $11,920
7/31/89 $10,787 $12,082
8/31/89 $10,742 $11,964
9/30/89 $10,750 $11,928
10/31/89 $10,864 $12,074
11/30/89 $10,951 $12,285
12/31/89 $11,078 $12,386
1/31/90 $11,058 $12,328
2/28/90 $11,105 $12,438
3/31/90 $11,153 $12,442
4/30/90 $11,050 $12,352
5/31/90 $11,208 $12,621
6/30/90 $11,296 $12,732
7/31/90 $11,426 $12,919
8/31/90 $11,305 $12,732
9/30/90 $11,309 $12,740
10/31/90 $11,473 $12,971
11/30/90 $11,677 $13,232
12/31/90 $11,768 $13,290
1/31/91 $11,904 $13,468
2/28/91 $12,039 $13,585
3/31/91 $12,060 $13,590
4/30/91 $12,138 $13,771
5/31/91 $12,217 $13,894
6/30/91 $12,282 $13,880
7/31/91 $12,362 $14,049
8/31/91 $12,516 $14,234
9/30/91 $12,628 $14,419
10/31/91 $12,754 $14,549
11/30/91 $12,788 $14,590
12/31/91 $12,946 $14,904
1/31/92 $13,027 $14,938
2/29/92 $13,017 $14,942
3/31/92 $13,066 $14,948
4/30/92 $13,209 $15,081
5/31/92 $13,366 $15,259
6/30/92 $13,540 $15,515
7/31/92 $14,030 $15,980
8/31/92 $13,825 $15,823
9/30/92 $13,858 $15,926
10/30/92 $13,652 $15,770
11/30/92 $13,960 $16,052
12/31/92 $14,061 $16,216
1/31/93 $14,324 $16,404
2/28/93 $14,912 $16,998
3/31/93 $14,766 $16,818
4/30/93 $14,932 $16,988
5/31/93 $15,015 $17,083
6/30/93 $15,265 $17,368
7/31/93 $15,297 $17,391
8/31/93 $15,630 $17,753
9/30/93 $15,848 $17,955
10/30/93 $15,878 $17,989
11/30/93 $15,722 $17,831
12/31/93 $16,076 $18,207
1/31/94 $16,277 $18,436
2/28/94 $15,810 $17,885
3/31/94 $15,082 $16,942
4/30/94 $15,217 $17,081
5/31/94 $15,350 $17,283
6/30/94 $15,240 $17,110
7/31/94 $15,549 $17,502
8/31/94 $15,579 $17,551
9/30/94 $15,328 $17,200
10/31/94 $14,988 $16,746
11/30/94 $14,664 $16,354
12/31/94 $15,039 $16,868
1/31/95 $15,560 $17,528
2/28/95 $16,045 $18,164
3/31/95 $16,222 $18,371
4/30/95 $16,235 $18,367
5/31/95 $16,814 $19,059
6/30/95 $16,571 $18,765
7/31/95 $16,657 $18,863
8/31/95 $16,890 $19,121
9/30/95 $16,995 $19,272
10/31/95 $17,287 $19,682
11/30/95 $17,562 $20,117
12/31/95 $17,753 $20,399
1/31/96 $17,839 $20,503
2/29/96 $17,698 $20,269
3/31/96 $17,461 $19,945
4/30/96 $17,394 $19,865
5/31/96 $17,389 $19,889
6/30/96 $17,612 $20,169
7/31/96 $17,738 $20,367
8/31/96 $17,690 $20,334
9/30/96 $18,012 $20,745
10/31/96 $18,200 $20,994
11/30/96 $18,546 $21,433
12/31/96 $18,423 $21,307
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 5-YEAR 10-YEAR
Tax-Exempt:
Full Sales Charge 0.13% 6.54% 6.29%
Net Asset Value 3.76% 7.30% 6.67%
Past performance is not predictive of future performance.
LEHMAN 20-YEAR MUNICIPAL BOND INDEX
The Lehman 20-Year Municipal Bond Index is a broad based index containing
over 22,000 issues with maturities ranging from 2-30 years. The issues
comprising the index are generated from the issues completed within the last
five years with total issue size of $50,000,000 and larger. The average quality
rating is "AA." The index performance shown above does not include sales charges
or other fees which would have been incurred had an investor attempted to
replicate the index.
TAX-EXEMPT PORTFOLIO
The Tax-Exempt Portfolio's performance is presented from December 31, 1986
through December 31, 1996. It is based upon a $10,000 investment at the
Portfolio's then offering price, including the effect of a 3.5% sales charge. It
represents the actual total returns for each of the years ended December 31, net
of any fees and expenses charged during those periods.
The Tax-Exempt Portfolio involves somewhat greater credit and market risk
than the Government Portfolio attributable primarily to its investments in
municipal securities. However, this Portfolio, with over 95% of its investments
consisting of AA or better rated securities and an average maturity of 18.5
years, tends to have less price volatility than many municipal bond funds. Tax-
exempt bond funds not only experience price changes as interest rates fluctuate,
but also experience changes in prices due to state credit upgrades and
downgrades. The Portfolio maintains positions across many states to diversify
this risk. Change in credit of certain market sectors and types of municipal
securities, such as those issued to build power plants, also affect the market
value of the Portfolio's municipal securities.
The manager of the Tax-Exempt Portfolio did not alter the maturity of the
Portfolio significantly, ranging from a high of 18.2 to a low of 17.1 years. For
the most part the Tax-exempt Portfolio tracked favorably during the year in
comparison to the Lehman 20 year municipal bond index. The manager continued to
focus on improving the diversification of the portfolio from 42 municipalities
located in 21 states at the beginning of the year to 49 municipalities in 26
states at year end. The manager also focused on improving the yield to maturity
in an attempt to increase the value of the underlying securities. Yield to
maturity is defined as the income earned on the security added to the effect of
the price measured on an annualized basis over the remaining life of the
security. Therefore, the manager traded approximately $29,650,000 par value in
this manner improving the yield to maturity of the Portfolio by 0.07%. Finally,
during the second half of 1996, bonds issued by certain states ("specialty
bonds") were traded at discounted prices from their normal trading range. The
manager moved approximately $24,000,000 in par value representing 22 different
municipalities. The portfolio turnover rate was higher than in recent years,
because the manager traded many of the municipal securities to increase the cost
basis of the securities in order to utilize tax loss carryforwards. A total of
$33,940,000 par value of securities was purchased and sold affecting the
turnover percentage by 55%. The one year total return for the Tax-Exempt
Portfolio, without any reduction for the effect of the sales charge, was 3.76%
compared to the Lehman 20-Year Municipal Bond Index of 4.45%.
GOVERNMENT PORTFOLIO
Shown below is a graphic depiction of the Government Portfolio versus the
Lehman Intermediate Government Bond Index. The graph reflects a deduction from
the amount invested for the applicable sales charge.
Date Principal Preservation Lehman Intermediate
Government Portfolio Government Bond Index
12/31/86 $9,650 $10,000
1/31/87 $9,807 $10,090
2/28/87 $9,892 $10,140
3/31/87 $9,777 $10,118
4/30/87 $9,573 $9,939
5/31/87 $9,573 $9,917
6/30/87 $9,666 $10,034
7/31/87 $9,545 $10,056
8/31/87 $9,496 $10,030
9/30/87 $9,290 $9,905
10/31/87 $9,819 $10,200
11/30/87 $9,844 $10,261
12/31/87 $9,917 $10,361
1/29/88 $10,307 $10,618
2/29/88 $10,353 $10,731
3/31/88 $10,223 $10,686
4/29/88 $10,124 $10,668
5/31/88 $10,023 $10,617
6/30/88 $10,240 $10,790
7/29/88 $10,242 $10,758
8/31/88 $10,315 $10,772
9/30/88 $10,526 $10,958
10/31/88 $10,669 $11,109
11/30/88 $10,578 $11,013
12/31/88 $10,626 $11,024
1/31/89 $10,714 $11,134
2/28/89 $10,610 $11,086
3/31/89 $10,663 $11,138
4/28/89 $10,828 $11,363
5/31/89 $11,076 $11,582
6/30/89 $11,387 $11,877
7/31/89 $11,601 $12,118
8/31/89 $11,402 $12,282
9/30/89 $11,440 $12,341
10/31/89 $11,710 $12,600
11/30/89 $11,816 $12,725
12/31/89 $11,844 $12,762
1/31/90 $11,716 $12,683
2/28/90 $11,745 $12,730
3/31/90 $11,736 $12,745
4/30/90 $11,634 $12,703
5/31/90 $11,919 $12,975
6/30/90 $12,085 $13,146
7/31/90 $12,251 $13,330
8/31/90 $12,120 $13,282
9/30/90 $12,235 $13,400
10/31/90 $12,420 $13,586
11/30/90 $12,690 $13,791
12/31/90 $12,876 $13,981
1/31/91 $12,979 $14,125
2/28/91 $13,052 $14,211
3/31/91 $13,096 $14,289
4/30/91 $13,227 $14,436
5/31/91 $13,287 $14,517
6/30/91 $13,230 $14,529
7/31/91 $13,378 $14,686
8/31/91 $13,720 $14,965
9/30/91 $14,004 $15,219
10/31/91 $14,154 $15,392
11/30/91 $14,321 $15,572
12/31/91 $14,824 $15,950
1/31/92 $14,517 $15,797
2/29/92 $14,561 $15,846
3/31/92 $14,531 $15,783
4/30/92 $14,532 $15,925
5/31/92 $14,823 $16,162
6/30/92 $15,084 $16,395
7/31/92 $15,519 $16,710
8/31/92 $15,686 $16,880
9/30/92 $15,965 $17,113
10/30/92 $15,681 $16,908
11/30/92 $15,577 $16,839
12/31/92 $15,833 $17,056
1/31/93 $16,220 $17,373
2/28/93 $16,576 $17,628
3/31/93 $16,634 $17,693
4/30/93 $16,772 $17,831
5/31/93 $16,725 $17,783
6/30/93 $17,118 $18,041
7/31/93 $17,142 $18,077
8/31/93 $17,507 $18,346
9/30/93 $17,596 $18,421
10/30/93 $17,633 $18,465
11/30/93 $17,392 $18,375
12/31/93 $17,465 $18,450
1/31/94 $17,695 $18,633
2/28/94 $17,270 $18,378
3/31/94 $16,813 $18,110
4/30/94 $16,653 $17,992
5/31/94 $16,636 $18,005
6/30/94 $16,585 $18,009
7/31/94 $16,857 $18,245
8/31/94 $16,895 $18,298
9/30/94 $16,622 $18,146
10/31/94 $16,603 $18,150
11/30/94 $16,494 $18,070
12/31/94 $16,517 $18,130
1/31/95 $16,801 $18,426
2/28/95 $17,191 $18,782
3/31/95 $17,270 $18,885
4/30/95 $17,482 $19,104
5/31/95 $18,098 $19,643
6/30/95 $18,212 $19,769
7/31/95 $18,190 $19,779
8/31/95 $18,383 $19,941
9/30/95 $18,521 $20,075
10/31/95 $18,758 $20,294
11/30/95 $19,013 $20,542
12/31/95 $19,216 $20,745
1/31/96 $19,324 $20,919
2/29/96 $19,024 $20,697
3/31/96 $18,870 $20,602
4/30/96 $18,778 $20,542
5/31/96 $18,723 $20,532
6/30/96 $18,935 $20,741
7/31/96 $18,963 $20,805
8/31/96 $18,931 $20,828
9/30/96 $19,211 $21,097
10/31/96 $19,576 $21,443
11/30/96 $19,901 $21,702
12/31/96 $19,654 $21,585
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 5-YEAR 10-YEAR
Government:
Full Sales Charge (1.31)% 5.04% 6.98%
Net Asset Value 2.27% 5.79% 7.36%
Past performance is not predictive of future performance.
LEHMAN INTERMEDIATE GOVERNMENT BOND INDEX
The Lehman Intermediate Government Bond Index represents a total return of
U.S. Government bonds ranging in maturity from 2-10 years. The average duration
of the underlying index is approximately four years. The index does not contain
any sales charge or expenses or other fees that would have to be incurred had an
investor attempted to replicate the index.
GOVERNMENT PORTFOLIO
The Government Portfolio's performance is presented from December 31, 1986
through December 31, 1996. It is based upon a $10,000 investment at the
Portfolio's then offering price, including the effect of a 3.5% sales charge. It
represents the actual total returns for each of the years ended December 31, net
of any fees and expenses charged during those periods.
Our Government Portfolio exhibits the least market or credit risk because the
average maturity of the portfolio is less than 10 years and the securities in
which it invests are backed by the full faith and credit of the United States
Government. However, by investing in intermediate fixed income securities, the
Portfolio is subject to price fluctuations as yields change. The portfolio's
total return is dependent on the movement of interest rates in general. As
yields fall the price moves up. The opposite occurs when yields rise. During
periods of anticipated increases in interest rates, the manager attempts to
buffer any losses by shortening the maturity.
During the first seven months of 1996, the manager employed a barbell
approach. The maturities were centered around the 2.5 year and 8.0 year ranges.
Because the middle range (3-5 years) of the yield curve performed better than
either the short term or the 8-10 year range, the Government Portfolio under-
performed the Lehman benchmark by approximately 1.9%. During August and
continuing into September, the manager adjusted the Portfolio to include
positions in the five year range and eliminate the short positions. As a result,
the Government Portfolio outperformed the benchmark by 0.25% during the final
four months of 1996. The Government Portfolio's total return, without any
reduction for the effect of the sales charge, for the year ended December 31,
1996 was 2.28%, compared to the benchmark return of 4.05%.
S&P 100 PLUS PORTFOLIO
Shown below is a comparison of a $10,000 investment in the S&P 100 Plus
Portfolio versus the S&P 100 Index. The graph reflects a deduction from the
amount invested for the applicable sales charge.
Principal Preservation
Date S&P 100 Plus Portfolio S&P 100 Index
12/31/86 $9,550 $10,000
1/31/87 $10,612 $11,411
2/28/87 $11,015 $11,888
3/31/87 $11,329 $12,292
4/30/87 $11,329 $12,293
5/31/87 $11,532 $12,479
6/30/87 $12,113 $13,118
7/31/87 $12,605 $13,714
8/31/87 $13,134 $14,363
9/30/87 $12,819 $13,936
10/31/87 $10,230 $10,987
11/30/87 $9,342 $9,931
12/31/87 $9,942 $10,616
1/29/88 $10,293 $10,963
2/29/88 $10,769 $11,455
3/31/88 $10,366 $10,945
4/29/88 $10,564 $11,155
5/31/88 $10,731 $11,310
6/30/88 $11,220 $11,874
7/29/88 $11,230 $11,834
8/31/88 $10,905 $11,335
9/30/88 $11,282 $11,753
10/31/88 $11,566 $12,102
11/30/88 $11,471 $11,985
12/31/88 $11,642 $12,184
1/31/89 $12,402 $13,176
2/28/89 $12,103 $12,731
3/31/89 $12,161 $12,881
4/28/89 $12,635 $13,577
5/31/89 $12,982 $13,987
6/30/89 $12,852 $13,857
7/31/89 $13,959 $15,121
8/31/89 $14,262 $15,461
9/30/89 $14,189 $15,398
10/31/89 $13,897 $15,082
11/30/89 $14,154 $15,363
12/31/89 $14,465 $15,709
1/31/90 $13,545 $14,708
2/28/90 $13,793 $14,998
3/31/90 $14,109 $15,389
4/30/90 $13,861 $15,132
5/31/90 $15,142 $16,574
6/30/90 $15,045 $16,466
7/31/90 $15,021 $16,435
8/31/90 $13,686 $14,933
9/30/90 $13,076 $14,234
10/31/90 $13,004 $14,160
11/30/90 $13,748 $15,007
12/31/90 $14,009 $15,288
1/31/91 $14,733 $16,071
2/28/91 $15,795 $17,244
3/31/91 $16,179 $17,642
4/30/91 $16,216 $17,667
5/31/91 $16,944 $18,480
6/30/91 $16,165 $17,671
7/31/91 $16,946 $18,544
8/31/91 $17,129 $18,794
9/30/91 $16,725 $18,358
10/31/91 $16,884 $18,586
11/30/91 $16,161 $17,843
12/31/91 $17,898 $19,601
1/31/92 $17,633 $19,344
2/29/92 $17,910 $19,659
3/31/92 $17,598 $19,339
4/30/92 $18,142 $19,964
5/31/92 $18,256 $20,106
6/30/92 $17,942 $19,802
7/31/92 $18,552 $20,438
8/31/92 $18,057 $19,929
9/30/92 $18,124 $19,971
10/30/92 $18,061 $19,903
11/30/92 $18,635 $20,516
12/31/92 $18,825 $20,764
1/31/93 $19,053 $21,044
2/28/93 $19,388 $21,438
3/31/93 $19,741 $21,847
4/30/93 $19,364 $21,480
5/31/93 $19,904 $22,109
6/30/93 $19,884 $22,118
7/31/93 $19,735 $22,012
8/31/93 $20,479 $22,829
9/30/93 $20,209 $22,528
10/30/93 $20,534 $22,895
11/30/93 $20,440 $22,845
12/31/93 $20,653 $23,227
1/31/94 $21,436 $24,131
2/28/94 $20,900 $23,564
3/31/94 $19,863 $22,454
4/30/94 $20,014 $22,622
5/31/94 $20,468 $23,183
6/30/94 $19,858 $22,499
7/31/94 $20,551 $23,334
8/31/94 $21,188 $24,097
9/30/94 $20,785 $23,632
10/31/94 $21,244 $24,194
11/30/94 $20,522 $23,379
12/31/94 $20,881 $23,835
1/31/95 $21,259 $24,305
2/28/95 $22,194 $25,440
3/31/95 $22,864 $26,282
4/30/95 $23,705 $27,320
5/31/95 $24,658 $28,508
6/30/95 $25,183 $29,167
7/31/95 $25,944 $30,135
8/31/95 $25,804 $29,978
9/30/95 $27,035 $31,477
10/31/95 $27,035 $31,499
11/30/95 $28,108 $32,806
12/31/95 $28,549 $33,357
1/31/96 $29,674 $34,706
2/28/96 $30,039 $35,255
3/31/96 $30,336 $35,615
4/30/96 $30,703 $36,124
5/31/96 $31,452 $37,107
6/30/96 $31,499 $37,252
7/31/96 $29,940 $35,512
8/31/96 $30,617 $36,364
9/30/96 $32,185 $38,295
10/31/96 $32,996 $39,436
11/30/96 $35,563 $42,579
12/31/96 $34,951 $41,881
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 5-YEAR 10-YEAR
S&P 100 Plus:
Full Sales Charge 16.91% 13.24% 13.31%
Net Asset Value 22.42% 14.29% 13.84%
Past performance is not predicitve of future performance.
S&P 100 INDEX
The S&P 100 Index is a broad based stock index comprised of the largest 100
securities in the United States based upon market capitalization. The index
results do not include any sales charges or any other fees investors would incur
had they attempted to replicate the index.
S&P 100 PLUS PORTFOLIO
The S&P 100 Plus Portfolio's performance is presented from December 31, 1986
through December 31, 1996. It is based upon a $10,000 investment at the
Portfolio's then offering price, including the effect of a 4.5% sales charge. It
represents the actual total returns for each of the years ended December 31, net
of any fees and expenses charged during those periods.
Of our equity portfolios, the S&P 100 Plus Portfolio offers the least
volatility risk as compared to major indices, since its base investment
philosophy is to match the S&P 100 Index and then apply either an over/under
weighting strategy or use options to enhance the return in attempt to outperform
the index. Generally, the return of this Portfolio can be predicted or measured
by the movement of the market. Unlike our other equity portfolios, the active
management for this Portfolio is generally minimal, consisting principally of
adjusting the investments to conform to changes in the Index and managing the
enhancement strategies.
The S&P 100 Plus Portfolio had a total return of 22.9%, without any reduction
for the effect of the sales charge, for the one year ended December 31, 1996,
compared to 25.55% for the S&P 100 Index. The average growth and income fund's
return was 20.78%, as reported by Lipper Analytical Services. During the first
half of the year, the options strategies detracted value from the S&P 100 Plus
Portfolio, as the manager was slightly bearish on his view of the market. The
manager shifted emphasis from options enhancement strategies to over/under
weighting strategies in the later half of 1996. The manager over weighted stocks
such as Champion, Fluor, and Pharmacia and Upjohn in anticipation that they
would outperform the Index, however they under-performed. Five securities of the
S&P 100 Index dominated the return, but the manager did not anticipate such
strong performance by those stocks and did not overweight them. In addition, the
manager kept an approximate 8-10% in U.S. Treasury Securities, and equitized the
position with S&P 500 futures. The S&P 500 index return of 22.9% trailed the S&P
100 by 2.6% during 1996, resulting in further under-performance compared to the
Index. As the manager approaches 1997, cash will be reduced and a realignment of
the over/under weighting strategies will occur.
DIVIDEND ACHIEVERS PORTFOLIO
Shown below is a graphic comparison between a $10,000 investment made in
Dividend Achievers versus the S&P 500 Index. The graph reflects a deduction from
the amount invested for the applicable sales charge.
Date Principal Preservation
Dividend Achievers Portfolio S&P 500 Index
1/2/87*<F1> $9,550 $10,000
1/31/87 $9,920 $11,347
2/28/87 $10,220 $11,795
3/31/87 $10,250 $12,136
4/30/87 $10,110 $12,028
5/31/87 $10,120 $12,133
6/30/87 $10,613 $12,746
7/31/87 $11,099 $13,392
8/31/87 $11,393 $13,892
9/30/87 $11,145 $13,588
10/31/87 $9,065 $10,661
11/30/87 $8,657 $9,783
12/31/87 $9,243 $10,527
1/29/88 $9,644 $10,970
2/29/88 $10,065 $11,481
3/31/88 $9,839 $11,126
4/29/88 $9,839 $11,249
5/31/88 $9,850 $11,347
6/30/88 $10,265 $11,868
7/29/88 $10,182 $11,823
8/31/88 $10,005 $11,421
9/30/88 $10,424 $11,908
10/31/88 $10,613 $12,239
11/30/88 $10,403 $12,064
12/31/88 $10,631 $12,274
1/31/89 $11,056 $13,172
2/28/89 $10,907 $12,844
3/31/89 $11,138 $13,143
4/28/89 $11,459 $13,825
5/31/89 $11,920 $14,385
6/30/89 $11,859 $14,303
7/31/89 $12,754 $15,595
8/31/89 $12,764 $15,901
9/30/89 $12,713 $15,836
10/31/89 $12,225 $15,469
11/30/89 $12,399 $15,785
12/31/89 $12,703 $16,164
1/31/90 $11,951 $15,079
2/28/90 $11,994 $15,274
3/31/90 $12,191 $15,679
4/30/90 $11,873 $15,289
5/31/90 $12,860 $16,780
6/30/90 $13,003 $16,668
7/31/90 $12,926 $16,615
8/31/90 $11,891 $15,113
9/30/90 $11,428 $14,377
10/31/90 $11,450 $14,315
11/30/90 $12,260 $15,240
12/31/90 $12,830 $15,665
1/31/91 $13,355 $16,348
2/28/91 $14,281 $17,517
3/31/91 $15,051 $17,941
4/30/91 $15,006 $17,984
5/31/91 $15,734 $18,759
6/30/91 $15,028 $17,900
7/31/91 $15,647 $18,734
8/31/91 $16,007 $19,178
9/30/91 $15,652 $18,858
10/31/91 $16,172 $19,111
11/30/91 $15,606 $18,341
12/31/91 $17,764 $20,439
1/31/92 $17,201 $20,059
2/29/92 $17,105 $20,320
3/31/92 $16,818 $19,924
4/30/92 $16,879 $20,510
5/31/92 $16,832 $20,610
6/30/92 $16,303 $20,300
7/31/92 $17,097 $21,133
8/31/92 $17,037 $20,700
9/30/92 $17,071 $20,944
10/30/92 $17,602 $21,017
11/30/92 $18,278 $21,734
12/31/92 $18,318 $22,001
1/31/93 $17,919 $22,186
2/28/93 $17,740 $22,492
3/31/93 $18,196 $22,967
4/30/93 $17,332 $22,411
5/31/93 $17,474 $23,012
6/30/93 $17,409 $23,079
7/31/93 $17,137 $22,987
8/31/93 $17,564 $23,858
9/30/93 $17,436 $23,674
10/30/93 $17,773 $24,164
11/30/93 $17,217 $23,934
12/31/93 $17,400 $24,223
1/31/94 $17,790 $25,047
2/28/94 $17,504 $24,368
3/31/94 $16,716 $23,306
4/30/94 $17,015 $23,569
5/31/94 $17,379 $23,956
6/30/94 $17,085 $23,369
7/31/94 $17,543 $24,136
8/31/94 $17,961 $25,126
9/30/94 $17,417 $24,510
10/31/94 $17,732 $25,061
11/30/94 $17,338 $24,149
12/31/94 $17,612 $24,506
1/31/95 $17,705 $25,141
2/28/95 $18,183 $26,119
3/31/95 $18,558 $26,890
4/30/95 $19,332 $27,681
5/31/95 $19,838 $28,785
6/30/95 $20,090 $29,453
7/31/95 $20,679 $30,428
8/31/95 $20,571 $30,504
9/30/95 $21,386 $31,791
10/31/95 $21,963 $31,677
11/30/95 $22,795 $33,068
12/31/95 $23,189 $33,706
1/31/96 $24,270 $34,852
2/29/96 $24,503 $35,176
3/31/96 $24,498 $35,514
4/30/96 $24,853 $36,036
5/31/96 $25,278 $36,966
6/30/96 $25,733 $37,106
7/31/96 $24,910 $35,466
8/31/96 $25,129 $36,214
9/30/96 $26,767 $38,253
10/31/96 $27,043 $39,309
11/30/96 $28,885 $42,280
12/31/96 $28,238 $41,444
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 5-YEAR SINCE INCEPTION 1/2/87
Dividend Achievers:
Full Sales Charge 16.28% 8.69% 10.93%
Net Asset Value 21.76% 9.70% 11.44%
*<F1>January 2, 1987 inception date.
Past performance is not predictive of future performance.
S&P 500 INDEX
The S&P 500 Index is a broad based stock index representing, based upon
market capitalization, the 500 largest companies in the United States. The index
does not adjust for any sales charges or other fees and expenses which would
have been incurred had an investor attempted to replicate the index.
DIVIDEND ACHIEVERS PORTFOLIO
The Dividend Achievers Portfolio's performance is presented from January 2,
1987, commencement of operations, through December 31, 1996. It is based upon a
$10,000 investment at the Portfolio's then offering price, including the effect
of a 4.5% sales charge. It represents the actual total returns for each of the
years ended December 31, net of any fees and expenses charged during those
periods.
The Dividend Achievers Portfolio contains slightly more volatility risk than
the S&P 100 Plus Portfolio. The Portfolio holds approximately 35 securities
attempting to maintain a sector diversification similar to the S&P 500. However,
its core investment strategy is to focus on growth stocks whose record of
earnings and dividends are above the average of all stocks in the index. As a
result, the earnings of the companies are less volatile from year to year than
the S&P 500 Index and therefore, on average, tend to under-perform the Index in
a rapidly growing economy. This past year rewarded strong growth companies.
The total return of the Dividend Achievers Portfolio, without any reduction
for the effect of the sales charge, was 21.76% compared to a total return of
22.96% for the S&P 500 Index and 20.78% for the Lipper Growth and Income
category. Throughout much of 1996, the Portfolio benefitted by the sector
diversification it maintained. The performance of Avery Dennison, Bank America,
Coca Cola, Gillette and Green Tree Financial all contributed strongly to the
Portfolio's 1996 performance. Conversely, the positions of GTE Corporation,
McDonalds, Pepsico and SBC Communications subtracted from that performance.
For much of the year, Dividend Achievers outperformed the S&P 500 Index, but
lost ground to the Index during December. Announcements of earnings below
analysts expectations for Electronic Data Systems and Albertsons resulted in a
2% under-performance to the Index in the fourth quarter. Despite this setback,
the Portfolio generated a very good return to its shareholders and has
consistently provided above average returns on both a three year cumulative and
rolling 12 month basis.
SELECT VALUE PORTFOLIO
Shown below is a comparison of a $10,000 investment in the Select Value
Portfolio versus the S&P MidCap 400 Index. The graph reflects a deduction from
the amount invested for the applicable sales charge.
Date Principal Preservation S&P MidCap
Select Value Portfolio 400 Index
8/23/94*<F2> $9,550 $10,000
8/31/94 $9,550 $10,176
9/30/94 $9,440 $9,986
10/31/94 $9,230 $10,096
11/30/94 $8,870 $9,641
12/31/94 $9,077 $9,729
1/31/95 $8,826 $9,830
2/28/95 $9,117 $10,345
3/31/95 $9,294 $10,525
4/30/95 $9,284 $10,737
5/31/95 $9,435 $10,996
6/30/95 $9,690 $11,444
7/31/95 $10,330 $12,040
8/31/95 $10,492 $12,262
9/30/95 $10,790 $12,559
10/31/95 $10,485 $12,236
11/30/95 $10,851 $12,767
12/31/95 $10,965 $12,735
1/31/96 $11,191 $12,920
2/29/96 $11,513 $13,358
3/31/96 $11,544 $13,518
4/30/96 $12,307 $13,931
5/31/96 $12,650 $14,119
6/30/96 $12,329 $13,907
7/31/96 $11,544 $12,968
8/31/96 $12,211 $13,717
9/30/96 $12,621 $14,315
10/31/96 $12,901 $14,357
11/30/96 $13,580 $15,165
12/31/96 $13,887 $15,182
AVERAGE ANNUAL TOTAL RETURN
SINCE INCEPTION
1-YEAR 8/23/94
Select Value:
Full Sales Charge 20.95% 14.93%
Net Asset Value 26.65% 17.19%
*<F2>August 23, 1994 inception date.
Past performance is not predictive of future performance.
S&P MIDCAP 400 INDEX
S&P MidCap 400 Index is a broad stock index comprised of 400 medium-size
companies. The index tracks the general stock market performance of 400 medium-
size companies. The index results do not include any sales charge or any other
fees investors would incur had they attempted to replicate the index.
SELECT VALUE PORTFOLIO
The Select Value Portfolio's performance is presented from August 23, 1994,
commencement of operations, through December 31, 1996. It is based upon a
$10,000 investment at the Portfolio's then offering price, including the effect
of a 4.5% sales charge. It represents the actual total returns for each of the
years ended December 31, net of any fees and expenses charged during those
periods.
The Select Value Portfolio, due to its small to mid cap value investment
style, exhibits greater risk than either the S&P 100 Plus or the Dividend
Achievers Portfolios for the following two reasons. Small to mid cap stocks
generally are more sensitive to economic changes. When the economy is weak, the
companies face a tougher challenge to maintain their earnings, as typically they
have limited financial strength. Secondly, a value manager searches for stocks
that offer upside price potential. In a rapidly growing economy and stock
market, stock prices generally are inflated and the universe of value stocks
diminishes. Under these circumstances, the average growth manager typically
outperforms value managers.
The overall performance of the Select Value Portfolio was very good, posting
a return, without any reduction for the effect of the sales charge, of 26.65%
compared to the S&P 400 MidCap index of 19.21% and for the Russell 2000 return
of 16.49%. The Portfolio benefited from having large weightings in economically
sensitive stocks, consumer stocks, and financial stocks. Beyond the sector
weightings, individual selection of stocks such as Claire's Stores, Pier 1
Imports and Alberto-Culver contributed to the successful return in 1996.
The Portfolio's performance was enhanced by the Consumer Discretionary,
Financial Services and Producer Durables sectors in the first quarter of 1996,
and a general over-performance in the second quarter by every sector represented
in the Portfolio. The only disappointing sectors during this period were
Technology and Health Care. The Select Value Portfolio's total return on net
assets during this six month period was 12.34% compared to the S&P Midcap return
of 9.22% and the Russell 2000 return of 10.36%.
The last half of the year started with increased market volatility. Overall
market returns declined, led by the technology sector and a steady reversal of
earlier trends in the months following. This correction provided the portfolio
manager with opportunities to obtain stocks at low prices compared to their
underlying financial strength. As a result of a strong domestic economy, these
stocks enjoyed a meaningful increase in earnings, driving their prices up and
producing a second six month return on net assets of 12.74%, compared to the
total return of the S&P Midcap Index of 9.15% and the Russell 2000 return of
5.55%.
PSE TECH 100 INDEX PORTFOLIO
Shown below is a comparison of a $10,000 investment in the PSE Tech 100 Index
versus the Pacific Stock Exchange Technology Stock Index. The graph reflects a
deduction from the amount invested for the applicable sales charge.
Date Principal Preservation Pacific Stock Exchange
PSE Tech 100 Index Portfolio Technology Stock Index
6/10/96*<F3> $9,550 $10,000
6/30/96 $9,044 $9,506
7/31/96 $8,366 $8,775
8/31/96 $8,891 $9,315
9/30/96 $9,698 $10,157
10/31/96 $9,554 $10,005
11/30/96 $10,835 $11,362
12/31/96 $10,570 $11,095
AVERAGE ANNUAL TOTAL RETURN
SINCE INCEPTION 6/10/96
PSE Tech 100 Index:
Full Sales Charge 5.72%
Net Asset Value 10.69%
*<F3>June 10, 1996 inception date.
Past performance is not predictive of future performance.
PACIFIC STOCK EXCHANGE TECHNOLOGY STOCK INDEX
The Pacific Stock Exchange Technology Stock Index consists of 100 common
stocks of companies in 15 different industries. The index results do not include
any sales charges or any other fees investors would incur had they attempted to
replicate the index.
PSE TECH 100 INDEX PORTFOLIO
The PSE Tech 100 Index Portfolio's performance is presented from June 10,
1996, commencement of operations, through December 31, 1996. It is based upon a
$10,000 investment at the Portfolio's then offering price, including the effect
of a 4.5% sales charge. It represents the actual total returns for each of the
years ended December 31, net of any fees and expenses charged during those
periods.
The PSE Tech 100 Index Portfolio has the greatest potential for volatility
compared to all of our stock portfolios. Its management philosophy is to be a
passive investment vehicle tied to a specific index, the PSE Technology Index.
The makeup of the Portfolio therefore ties its return to the technology sector.
As a consequence, the return can be expected to deviate against broad based
market indices. We believe that the emphasis of the U.S. economy is shifting to
the information and service sectors which should bode well for this Portfolio
long term. However, the short term movements may be large in either direction
and may not correlate closely to general market returns in any one year.
The total return, without any reduction for the effect of the sales charge,
of the PSE Tech 100 Index Portfolio from inception on June 10, 1996 to December
31, 1996 was 10.69% compared to the PSE Technology Index return of 10.92%. The
comparable return for the S&P 500 Index was 11.54%.
During the first two months of the Portfolio's operations, the technology
sector faced a large correction causing a downward price movement, recovering by
September to post a total return on net assets of 1.55% through September 30,
1996. The negative impact on performance can be attributed to speculative
technology companies' earnings not keeping pace with analysts' expectations. The
markets extrapolated the performance of these companies to the technology sector
in general. Concerns over inflation and related fears of increases in the Fed
Funds rates also negatively affected the performance of technology stocks, as
compared to the market generally. However, towards the end of the third quarter,
the economic outlook brightened, as it appeared that the economy was slowing on
its own and that interest rates would remain stable. In addition, over 75% of
technology stocks met or exceeded analysts' expectations.
The last quarter marked consistent improvement in the sector as a whole.
During this period, investors focused on larger more established technology
companies such as Intel, IBM and Microsoft, rather than the more speculative
start up companies. Continued low interest rates and subdued inflation allowed
stability in earnings announcements, which drove up stock prices in the sector.
The total return on net assets for the PSE Tech 100 Portfolio was 9.0% in the
fourth quarter of 1996.
Throughout much of the period, the variance of the PSE Tech 100 Portfolio to
the Index ranged from +0.10% to (0.20%).The investment advisor and distributor
waived all of their fees and reimbursed all expenses to the Portfolio during
1996. While the portfolio manager has done a good job fully investing the new
sales, brokerage commissions incurred in this process reduced the performance of
the Portfolio relative to the Index. The size of the Portfolio at December 31,
1996 was approximately $6,000,000 and growing. We expect to continue to reduce
the tracking variance through growth.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
FINANCIAL HIGHLIGHTS
The following tables present information relating to a share of capital stock
of each of six portfolios of Principal Preservation Portfolios, Inc. outstanding
for the periods presented. This information should be read in conjunction with
the financial statements and related notes included in this annual report:
<TABLE>
<CAPTION>
TAX-EXEMPT PORTFOLIO
----------------------------------------------------------------------
For the years ended December 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $9.39 $8.36 $9.41 $8.67 $8.46 $8.19
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income .43 .45 .45 .48 .50 .53
Net realized and
unrealized gains (losses)
on investments (.09) 1.03 (1.05) .74 .21 .27
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS .34 1.48 (.60) 1.22 .71 .80
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income (.43) (.45) (.45) (.48) (.50) (.53)
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (.43) (.45) (.45) (.48) (.50) (.53)
------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $9.30 $9.39 $8.36 $9.41 $8.67 $8.46
====== ====== ====== ====== ====== ======
TOTAL RETURN*<F7> 3.8% 18.1% (6.4)% 14.3% 8.6% 10.0%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of period
(to nearest thousand) $66,310 $56,443 $55,492 $68,102 $60,171 $63,932
Ratio of net expenses to
average net assets 1.1%+<F8> 1.0%+<F8> 1.0% 0.9% 0.9% 0.9%
Ratio of net investment
income to average net assets 4.7%+<F8> 4.9%+<F8> 5.2% 5.2% 5.9% 6.3%
Portfolio turnover rate 163.1% 105.9% 36.1% 56.3% 48.5% 38.3%
*<F7>The Fund's sales charge is not reflected in total return as set forth in
the table.
+<F8>Reflects a voluntary reimbursement of fund expenses of 0.1% in 1996 and
0.01% in 1995, respectively.
</TABLE>
<TABLE>
<CAPTION>
For the years ended December 31,
---------------------------------------------
1990 1989 1988 1987
------ ------ ------ -----
<S> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $8.23 $8.06 $8.14 $8.81
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income .53 .55 .55 .60
Net realized and
unrealized gains (losses)
on investments (.04) .17 (.08) (.67)
------ ------ ------ -----
TOTAL FROM INVESTMENT
OPERATIONS .49 .72 .47 (.07)
------ ------ ------ -----
LESS DISTRIBUTIONS:
Dividends from net
investment income (.53) (.55) (.55) (.60)
------ ------ ------ -----
TOTAL DISTRIBUTIONS (.53) (.55) (.55) (.60)
------ ------ ------ -----
NET ASSET VALUE,
END OF PERIOD $8.19 $8.23 $8.06 $8.14
====== ====== ====== ======
TOTAL RETURN*<F7> 6.2% 9.2% 6.0% (0.9)%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of period
(to nearest thousand) $65,265 $73,333 $85,469 $107,471
Ratio of net expenses to
average net assets 0.9% 1.0% 1.2% 1.1%
Ratio of net investment
income to average net assets 6.6% 6.7% 6.9% 7.1%
Portfolio turnover rate 40.3% 21.5% 38.8% 18.0%
*<F7>The Fund's sales charge is not reflected in total return as set forth in
the table.
+<F8>Reflects a voluntary reimbursement of fund expenses of 0.1% in 1996 and
0.01% in 1995, respectively.
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT PORTFOLIO
------------------------------------------------------------------------
For the years ended December 31,
-------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $9.64 $8.84 $9.98 $9.64 $9.68 $9.10
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income .64 .61 .61 .63 .67 .73
Net realized and
unrealized gains (losses)
on investments (.44) .80 (1.14) .35 (.04) .58
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS .20 1.41 (.53) .98 .63 1.31
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income (.64) (.61) (.61) (.64) (.67) (.73)
Distributions from net
realized gains
on investments -- -- -- -- -- --
Distribution of capital -- -- -- -- -- --
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (.64) (.61) (.61) (.64) (.67) (.73)
------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $9.20 $9.64 $8.84 $9.98 $9.64 $9.68
====== ====== ====== ====== ====== ======
TOTAL RETURN*<F9> 2.3% 16.3% (5.4)% 10.3% 6.8% 15.1%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of period
(to nearest thousand) $44,920 $49,319 $47,324 $54,327 $37,634 $32,737
Ratio of net expenses to
average net assets 1.1%+<F10> 1.1%+<F10> 1.1% 1.0% 1.0% 1.1%
Ratio of net investment
income to average net assets 7.0%+<F10> 6.5%+<F10> 6.6% 6.2% 7.0% 8.0%
Portfolio turnover rate 36.9% 68.2% 106.1% 8.7% 10.0% 62.2%
*<F9>The Fund's sales charge is not reflected in total return as set forth in
the table.
+<F10>Reflects a voluntary reimbursement of fund expenses of 0.04% in 1996,
0.02% in 1995, 0.1% in 1989, 0.5% in 1988 and 0.3% in 1987, respectively.
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT PORTFOLIO
-----------------------------------------------
For the years ended December 31,
-------------------------------------------------
1990 1989 1988 1987
------ ------ ------ ------
<S> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $9.11 $8.88 $9.11 $9.71
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income .76 .75 .75 .73
Net realized and
unrealized gains (losses)
on investments (.01) .23 (.17) (.42)
------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS .75 .98 .58 .31
------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income (.76) (.75) (.75) (.73)
Distributions from net
realized gains
on investments -- -- (.06) (.13)
Distribution of capital -- -- -- (.05)
------ ------ ------ ------
TOTAL DISTRIBUTIONS (.76) (.75) (.81) (.91)
------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $9.10 $9.11 $8.88 $9.11
====== ======= ====== ======
TOTAL RETURN*<F9> 8.7% 11.5% 6.5% 3.4%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of period
(to nearest thousand) $29,351 $30,631 $32,950 $31,036
Ratio of net expenses to
average net assets 1.2% 1.2%+<F10> 1.2%+<F10> 1.3%+<F10>
Ratio of net investment
income to average net assets 8.5% 8.4%+<F10> 8.3%+<F10> 7.8%+<F10>
Portfolio turnover rate 57.1% 141.8% 36.7% 80.2%
*<F9>The Fund's sales charge is not reflected in total return as set forth in
the table.
+<F10>Reflects a voluntary reimbursement of fund expenses of 0.04% in 1996,
0.02% in 1995, 0.1% in 1989, 0.5% in 1988 and 0.3% in 1987, respectively.
</TABLE>
<TABLE>
<CAPTION>
S&P 100 PLUS PORTFOLIO
----------------------------------------------------------------------
For the years ended December 31,
------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $19.53 $14.95 $15.04 $14.01 $14.22 $11.60
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income .29 .25 .25 .21 .24 .27
Net realized and
unrealized gains (losses)
on investments 4.07 5.21 (.09) 1.14 .48 2.93
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS 4.36 5.46 .16 1.35 .72 3.20
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income (.29) (.25) (.25) (.21) (.24) (.27)
Distributions from
net realized gains
on investments (1.52) (.63) -- (.11) (.69) (.31)
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (1.81) (.88) (.25) (.32) (.93) (.58)
------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $22.08 $19.53 $14.95 $15.04 $14.01 $14.22
======= ======= ======= ======= ======= =======
TOTAL RETURN*<F11> 22.4% 36.7% 1.1% 9.7% 5.2% 27.8%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of period
(to nearest thousand) $77,517 $57,062 $40,034 $38,944 $30,025 $27,420
Ratio of net expenses to
average net assets 1.0%+<F12> 1.2% 1.2% 1.2% 1.3% 1.3%
Ratio of net investment
income to average net assets 1.4%+<F12> 1.4% 1.7% 1.4% 1.7% 2.0%
Portfolio turnover rate 8.0% 3.5% 1.0% 2.2% 8.5% 3.1%
Average commission paid
per share+<F13> $0.0348 -- -- -- -- --
*<F11>The Fund's sales charge is not reflected in total return as set forth in
the table.
+<F12>Reflects a voluntary reimbursement of fund expenses of 0.01% in 1996,
0.2% in 1990, 0.4% in 1989, 0.8% in 1988 and 1.7% in 1987, respectively.
+<F13>Average commission rate paid per share for security purchases and sales
during the period. Presentation of the rate is only required for fiscal years
beginning after September 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
S&P 100 PLUS PORTFOLIO
----------------------------------------------
For the years ended December 31,
------------------------------------------------
1990 1989 1988 1987
------ ------ ------ ------
<S> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $12.27 $10.11 $9.62 $10.43
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income .28 .26 .26 .33
Net realized and
unrealized gains (losses)
on investments (.67) 2.17 1.37 .14
------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS (.39) 2.43 1.63 .47
------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income (.28) (.26) (.26) (.33)
Distributions from
net realized gains
on investments -- (.01) (.88) (.95)
------ ------ ------ ------
TOTAL DISTRIBUTIONS (.28) (.27) (1.14) (1.28)
NET ASSET VALUE,
END OF PERIOD $11.60 $12.27 $10.11 $9.62
======= ====== ====== ======
TOTAL RETURN*<F11> (3.2)% 24.3% 17.1% 4.1%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of period
(to nearest thousand) $20,413 $20,811 $16,960 $18,752
Ratio of net expenses to
average net assets 1.3%+<F12> 1.3%+<F12> 1.4%+<F12> 0.6%+<F12>
Ratio of net investment
income to average net assets 2.4%+<F12> 2.3%+<F12> 2.5%+<F12> 2.7%+<F12>
Portfolio turnover rate 1.9% 3.0% 37.5% 54.3%
Average commission paid
per share+<F13> -- -- -- --
*<F11>The Fund's sales charge is not reflected in total return as set forth in
the table.
+<F12>Reflects a voluntary reimbursement of fund expenses of 0.01% in 1996,
0.2% in 1990, 0.4% in 1989, 0.8% in 1988 and 1.7% in 1987, respectively.
+<F13>Average commission rate paid per share for security purchases and sales
during the period. Presentation of the rate is only required for fiscal years
beginning after September 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
DIVIDEND ACHIEVERS PORTFOLIO
------------------------------------------------------------------------
For the years ended December 31,
-------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $16.97 $13.24 $13.40 $14.25 $14.84 $11.50
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income .14 .18 .18 .14 .14 .25
Net realized and
unrealized gains (losses)
on investments 3.54 3.99 (.02) (.85) .31 4.14
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS 3.68 4.17 .16 (.71) .45 4.39
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income (.14) (.18) (.18) (.14) (.14) (.25)
Distributions from
net realized gains
on investments (.50) (.26) (.14) -- (.90) (.80)
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (.64) (.44) (.32) (.14) (1.04) (1.05)
------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $20.01 $16.97 $13.24 $13.40 $14.25 $14.84
====== ====== ====== ======= ======= =======
TOTAL RETURN*<F14> 21.8% 31.7% 1.2% (5.0)% 3.1% 38.5%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of period
(to nearest thousand) $30,504 $25,393 $20,231 $24,928 $27,020 $18,202
Ratio of net expenses to
average net assets 1.2%+<F15> 1.3%+<F15> 1.5% 1.3%+<F15> 1.2%+<F15> 1.2%+<F15>
Ratio of net investment
income to average net assets 0.8%+<F15> 1.2%+<F15> 1.3% 1.0%+<F15> 1.0%+<F15> 1.8%+<F15>
Portfolio turnover rate 13.1% 28.2% 36.5% 92.7% 83.0% 96.5%
Average commission paid
per share+<F16> $0.0609 -- -- -- -- --
*<F14>The Fund's sales charge is not reflected in total return as set forth in
the table.
+<F15>Reflects a voluntary reimbursement of fund expenses of 0.1% in 1996,
0.2% in 1995, 0.1% in 1993, 0.1% in 1992, 0.2% in 1991, 0.5% in 1990, 0.7% in
1989, 1.7% in 1988 and 2.3% in 1987, respectively.
+<F16>Average commission rate paid per share for security purchases and sales
during the period. Presentation of the rate is only required for fiscal years
beginning after September 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
DIVIDEND ACHIEVERS PORTFOLIO
------------------------------------------------
For the years ended December 31,
-------------------------------------------------
1990 1989 1988 1987
------ ------ ------ ------
<S> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $11.65 $10.00 $8.99 $9.55
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income .25 .28 .28 .28
Net realized and
unrealized gains (losses)
on investments (.15) 1.65 1.06 (.56)
------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS .10 1.93 1.34 (.28)
------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income (.25) (.28) (.27) (.28)
Distributions from
net realized gains
on investments -- -- (.06) --
------ ------ ------ ------
TOTAL DISTRIBUTIONS (.25) (.28) (.33) (.28)
------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $11.50 $11.65 $10.00 $8.99
======= ====== ======= =======
TOTAL RETURN*<F14> 1.0% 19.5% 15.0% (3.2)%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of period
(to nearest thousand) $11,468 $12,750 $6,854 $6,796
Ratio of net expenses to
average net assets 1.2%+<F15> 1.2%+<F15> 1.2%+<F15> 0.6%+<F15>
Ratio of net investment
income to average net assets 2.3%+<F15> 2.6%+<F15> 2.9%+<F15> 2.7%+<F15>
Portfolio turnover rate 47.7% 30.9% 10.1% 10.5%
Average commission paid
per share+<F16> -- -- -- --
*<F14>The Fund's sales charge is not reflected in total return as set forth in
the table.
+<F15>Reflects a voluntary reimbursement of fund expenses of 0.1% in 1996,
0.2% in 1995, 0.1% in 1993, 0.1% in 1992, 0.2% in 1991, 0.5% in 1990, 0.7% in
1989, 1.7% in 1988 and 2.3% in 1987, respectively.
+<F16>Average commission rate paid per share for security purchases and sales
during the period. Presentation of the rate is only required for fiscal years
beginning after September 1, 1995.
</TABLE>
SELECT VALUE PORTFOLIO
------------------------------------
For the
period from
August 23, 1994
For the years ended (commencement
December 31, of operations) to
------ ---------
1996 1995 December 31, 1994
------ ----- ------------------
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $10.21 $9.03 $9.55
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income .04 .14 .04
Net realized and
unrealized gains (losses)
on investments 2.68 1.73 (.51)
------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS 2.72 1.87 (.47)
------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income (.04) (.14) (.03)
Distributions from
net realized gains
on investments (1.92) (.43) (.01)
Distributions in excess of net
realized gains on investments -- (.12) --
Book return of capital -- -- (.01)
------ ------ ------
TOTAL DISTRIBUTIONS (1.96) (.69) (.05)
------ ------ ------
NET ASSET VALUE,
END OF PERIOD $10.97 $10.21 $9.03
====== ======= ======
TOTAL RETURN**<F18> 26.7% 20.8% (5.0)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(to nearest thousand) $4,829 $3,445 $1,935
Ratio of net expenses to
average net assets 1.0%+<F19>0.8%+<F19> 0.8%*<F17>+
Ratio of net investment <F19>
income to average net assets 0.3%+<F19>1.4%+<F19> 1.1%*<F17>+
<F19>
Portfolio turnover rate 122.2% 124.3% 20.2%
Average commission paid
per share+<F20> $0.0611 -- --
*<F17>Annualized.
**<F18>The Fund's sales charge is not reflected in total return as set forth in
the table.
+<F19>Reflects a voluntary reimbursement of expenses of 2.5% in 1995 and 0.4%
in 1994.
+<F20>Average commission rate paid per share for purchases and sales of
securities during this period. Presentation of the rate is required only
for fiscal years beginning after September 1, 1995.
PSE TECH 100 INDEX PORTFOLIO
----------------------------
For the period from
June 10, 1996
(commencement
of operations) to
December 31, 1996
-----------------
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .03
Net realized and unrealized gains
on investments 1.03
------
TOTAL FROM INVESTMENT OPERATIONS 1.06
------
LESS DISTRIBUTIONS:
Dividends from net investment income (.03)
Distributions from net realized gains
on investments (.24)
Distributions in excess of net realized gains (.03)
-------
TOTAL DISTRIBUTIONS (.30)
-------
NET ASSET VALUE, END OF PERIOD $10.76
=======
TOTAL RETURN**<F22> 10.7%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (to nearest thousand) $6,004
Ratio of net expenses to average net assets 0.0%*<F21>+
Ratio of net investment income to average <F23>
net assets 0.7%*<F21>+
<F23>
Portfolio turnover rate 3.0%
Average commission paid per share $0.0634
*<F21>Annualized.
**<F22>The Fund's sales charge is not reflected in total return as set forth in
the table.
+<F23>Reflects a voluntary reimbursement of fund expenses of 3.3% in 1996.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
<TABLE>
BALANCE SHEETS
DECEMBER 31, 1996
<CAPTION>
S&P 100 DIVIDEND SELECT PSE TECH 100
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX
----------- ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments:
Cost basis of investments $65,008,858 $44,399,692 $48,610,519 $18,426,725 $4,341,686 $5,465,529
=========== =========== ============ ============ =========== ===========
Long-term investments
in securities $65,164,978 $43,852,598 $77,741,899 $30,163,409 $ 4,647,677 $ 5,702,557
Short-term investments 215,805 262,168 72,844 385,069 229,865 320,014
----------- ----------- ------------ ----------- ----------- ------------
Total investments (See
Schedule of Investments) 65,380,783 44,114,766 77,814,743 30,548,478 4,877,542 6,022,571
Cash 752 190 925 749 818 644
Receivables:
Capital shares sold 21,712 546 147,608 9,425 13,457 119,004
Dividends and interest 1,144,391 998,129 133,897 51,922 5,960 3,182
Investments sold -- -- -- -- 20,190 --
Margin variation -- -- (124,100) -- -- (3,000)
----------- ----------- ------------ ----------- ----------- ------------
Total receivables 1,166,103 998,675 157,405 61,347 39,607 119,186
Other assets 9,201 5,886 8,769 3,477 7,755 15,257
----------- ----------- ------------ ----------- ----------- ------------
Total assets $66,556,839 $45,119,517 $77,981,842 $30,614,051 $ 4,925,722 $ 6,157,658
=========== =========== ============ ============ =========== ===========
LIABILITIES:
Payables:
Capital shares redeemed $21,438 $11,699 $17,201 $-- $-- $110,248
Distributions to shareholders 106,656 104,289 334,195 40,826 629 7,866
Expenses 118,788 83,233 113,669 69,449 22,928 35,588
Investments purchased -- -- -- -- 73,164 --
----------- ----------- ------------ ----------- ----------- ------------
Total liabilities 246,882 199,221 465,065 110,275 96,721 153,702
----------- ----------- ------------ ----------- ----------- ------------
NET ASSETS:
Capital stock 66,157,168 47,724,203 48,323,579 18,382,023 4,272,947 5,461,291
Undistributed (overdistributed)
net investment income -- 6,655 3,485 -- -- 297
Accumulated distributions in
excess of net investment income (30,866) -- -- -- -- --
Undistributed net realized gains
(losses) on investments (188,270) (2,525,636) -- -- 20,198 --
Accumulated distributions in
excess of net realized gains -- -- (14,511) -- -- (14,674)
Net unrealized appreciation
(depreciation) on investments 371,925 (284,926) 29,204,224 12,121,753 535,856 557,042
----------- ----------- ------------ ----------- ----------- ------------
Total net assets 66,309,957 44,920,296 77,516,777 30,503,776 4,829,001 6,003,956
----------- ----------- ------------ ----------- ----------- ------------
Total liabilities
and net assets $66,556,839 $45,119,517 $77,981,842 $30,614,051 $ 4,925,722 $ 6,157,658
=========== =========== ============ ============ =========== ===========
NET ASSET VALUE AND
REDEMPTION PRICE PER SHARE $9.30 $9.20 $22.08 $20.01 $10.97 $10.76
=========== =========== ============ ============ =========== ===========
MAXIMUM OFFERING PRICE
PER SHARE $9.64 $9.53 $23.12 $20.95 $11.49 $11.27
=========== =========== ============ ============ =========== ===========
The accompanying notes to financial statements are an integral part of these
statements.
</TABLE>
<TABLE>
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
STATEMENTS OF OPERATIONS
<CAPTION>
FOR THE
PERIOD FROM
JUNE 10, 1996
(COMMENCEMENT
OF OPERATIONS) TO
FOR THE YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1996
------------------------------------------------------------------------------
S&P 100 DIVIDEND SELECT PSE TECH 100
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $-- $-- $1,351,361 $509,331 $37,012 $8,814
Interest 3,652,468 3,709,602 263,438 26,217 18,486 8,227
---------- ----------- ------------ ----------- ----------- -----------
Total investment
income 3,652,468 3,709,602 1,614,799 535,548 55,498 17,041
---------- ----------- ------------ ----------- ----------- -----------
EXPENSES:
Investment advisory fees 365,939 275,693 335,560 206,154 31,295 11,180
Custodian fees 22,387 18,830 21,889 8,560 3,660 2,360
Transfer agent fees 43,397 42,778 60,378 18,751 3,618 4,150
Broker service fees 158,573 115,162 170,338 69,234 10,428 5,493
Professional fees 57,732 48,100 63,437 38,427 28,888 19,581
Registration 12,078 11,140 14,604 7,604 10,878 21,975
Communication 6,588 6,792 10,022 3,847 640 2,871
Director fees 14,068 12,373 13,859 4,338 538 1,580
Pricing of investments 9,574 1,896 8,065 3,996 5,196 5,100
Deferred organization expense -- -- -- -- 2,730 1,898
Other (income) expense 8,528 3,468 2,751 (620) 1,979 1,790
---------- ----------- ------------ ----------- ----------- -----------
Total expenses 698,864 536,232 700,903 360,291 99,850 77,978
Less expenses absorbed
by advisor (3,708) (19,260) (10,411) (34,553) (57,688) (77,978)
---------- ----------- ------------ ----------- ----------- -----------
Net expenses 695,156 516,972 690,492 325,738 42,162 --
---------- ----------- ------------ ----------- ----------- -----------
NET INVESTMENT INCOME 2,957,312 3,192,630 924,307 209,810 13,336 17,041
---------- ----------- ------------ ----------- ----------- -----------
NET REALIZED GAINS
ON INVESTMENTS 2,354,480 255,262 4,967,362 745,303 776,545 133,242
NET UNREALIZED APPRECIATION
(DEPRECIATION) ON INVESTMENTS (2,455,863) (2,474,321) 8,743,473 4,496,576 208,072 557,042
---------- ----------- ------------ ----------- ----------- -----------
Net gains (losses)
on investments (101,383) (2,219,059) 13,710,835 5,241,879 984,617 690,284
---------- ----------- ------------ ----------- ----------- -----------
NET INCREASE
IN NET ASSETS RESULTING
FROM OPERATIONS $2,855,929 $973,571 $14,635,142 $5,451,689 $997,953 $707,325
========== ========== ==========- =========== =========== ===========
The accompanying notes to financial statements are an integral part of these
statements.
</TABLE>
<TABLE>
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
FOR THE
PERIOD FROM
JUNE 10, 1996
(COMMENCEMENT
OF OPERATIONS) TO
FOR THE YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1996
-------------------------------------------------------------------------------
S&P 100 DIVIDEND SELECT PSE TECH 100
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX
----------- ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income $2,957,312 $3,192,630 $924,307 $209,810 $13,336 $17,041
Net realized gains
on investments 2,354,480 255,262 4,967,362 745,303 776,545 133,242
Change in unrealized
appreciation (depreciation) on
investments for the year (2,455,863) (2,474,321) 8,743,473 4,496,576 208,072 557,042
----------- ------------ ------------ ------------ ----------- ------------
Net increase
in net assets resulting
from operations 2,855,929 973,571 14,635,142 5,451,689 997,953 707,325
----------- ------------ ------------ ------------ ----------- ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
($0.43, $0.64, $0.29,
$0.14, $0.04 and $0.03 per
share, respectively) (2,945,969) (3,188,500) (922,456) (209,079) (13,315) (16,744)
Distribution in excess of net
investment income ($0.0025
per share) (17,791) -- -- -- -- --
Net realized gains on investments
($0.00, $0.00, $1.52, $0.50, $1.92,
$0.27 per share, respectively) -- -- (4,967,362) (745,546) (716,162) (133,242)
Distributions in excess of net
realized gains on investments
($0.00, $0.00, $0.0041,
$0.00, $0.0029 and
$0.0263 respectively) -- -- (20,209) -- (1,280) (14,674)
----------- ------------ ------------ ------------ ----------- ------------
Total distributions (2,963,760) (3,188,500) (5,910,027) (954,625) (730,757) (164,660)
----------- ------------ ------------ ------------ ----------- ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued 18,035,561 1,716,722 13,143,343 2,130,809 919,856 5,472,772
Net asset value of shares
issued in distributions 1,761,086 1,988,896 5,526,856 903,536 730,066 156,519
Cost of shares redeemed (9,821,429) (5,889,771) (6,940,152) (2,420,357) (532,986) (168,000)
----------- ------------ ------------ ------------ ----------- ------------
Net increase (decrease)
in net assets from
capital share transactions 9,975,218 (2,184,153) 11,730,047 613,988 1,116,936 5,461,291
----------- ------------ ------------ ------------ ----------- ------------
Total increase
(decrease) 9,867,387 (4,399,082) 20,455,162 5,111,052 1,384,132 6,003,956
NET ASSETS:
Balance at beginning of period 56,442,570 49,319,378 57,061,615 25,392,724 3,444,869 --
----------- ------------ ------------ ------------ ----------- ------------
Balance at end of period $66,309,957 $44,920,296 $77,516,777 $30,503,776 $4,829,001 $6,003,956
=========== ============ =========== =========== =========== ===========
The accompanying notes to financial statements are an integral part of these
statements.
</TABLE>
<TABLE>
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
<CAPTION>
S&P 100 DIVIDEND SELECT
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income $2,795,206 $3,204,056 $700,020 $266,215 $38,708
Net realized gains
on investments 1,105,058 1,836,450 1,785,019 382,791 136,222
Change in unrealized
appreciation on
investments for the year 5,538,312 2,379,924 12,487,128 5,573,287 371,571
----------- ----------- ---------- ---------- ----------
Net increase
in net assets resulting
from operations 9,438,576 7,420,430 14,972,167 6,222,293 546,501
----------- ----------- ---------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
($0.45, $0.48, $0.61, $0.25,
$0.18, $0.36 and $0.14 per share,
respectively) (2,808,860) (3,204,316) (702,285) (267,608) (39,348)
Distribution in excess of
net investment income
($0.0043 per share, respectively) (24,414) -- -- -- --
Net realized gains on
investments ($0.06, $0.63, $0.26
and $0.43, per share, respectively) -- -- (1,775,849) (384,753) (135,963)
Distributions in excess of net
realized gains on investments
($0.12 per share) -- -- -- -- (39,165)
----------- ----------- ---------- ---------- ----------
Total distributions (2,833,274) (3,204,316) (2,478,134) (652,361) (214,476)
----------- ----------- ---------- ---------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued 1,111,492 2,072,873 6,000,304 1,607,602 1,242,252
Net asset value of shares
issued in distributions 1,671,982 2,001,656 2,263,855 610,544 212,883
Cost of shares redeemed (8,437,841) (6,295,288) (3,730,220) (2,626,317) (277,053)
----------- ----------- ---------- ---------- ----------
Net increase (decrease)
in net assets from
capital share
transactions (5,654,367) (2,220,759) 4,533,939 (408,171) 1,178,082
----------- ----------- ---------- ---------- ----------
Total increase 950,935 1,995,355 17,027,972 5,161,761 1,510,107
NET ASSETS:
Balance at beginning of year 55,491,635 47,324,023 40,033,643 20,230,963 1,934,762
----------- ----------- ---------- ---------- ----------
Balance at end of year $56,442,570 $49,319,378 $57,061,615 $25,392,724 $3,444,869
=========== =========== =========== =========== ==========
</TABLE>
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES --
Principal Preservation Portfolios, Inc. (the "Fund"), registered under the
Investment Company Act of 1940 as an open-end management investment company, is
a series company with eight portfolios: Tax-Exempt Portfolio, Government
Portfolio, S&P100 Plus Portfolio, Dividend Achievers Portfolio, Select Value
Portfolio, PSE Tech 100 Index Portfolio, Wisconsin Tax-Exempt Portfolio and the
Cash Reserve Portfolio. This report contains the information of all portfolios,
except for the Cash Reserve Portfolio and the Wisconsin Tax-Exempt Portfolio,
information with respect to which is contained in separate reports. The assets
and liabilities of each portfolio are segregated and a shareholder's interest is
limited to the portfolio in which the shareholder owns shares.
The following is a summary of the significant accounting policies of the Fund.
(a) Long-Term Securities and Short-Term Investments
The long-term tax-exempt securities are valued at market or fair value using
quotations by an independent pricing service (the "Service"). When in the
judgment of the Service, quoted bid prices for securities are readily available
and are representative of the bid side of the market, these investments are
valued at the mean between quoted bid prices (as obtained by the Service from
dealers in such securities) and ask prices (as calculated by the Service based
upon its evaluation of the market for such securities). Securities for which, in
the judgment of the Service, there are no readily obtainable market quotations
(which may constitute a majority of the portfolio's securities) are carried at
fair value as determined by the Service, based on methods which include
consideration of yields or prices of municipal securities of comparable quality,
coupon, maturity, type, indications as to values from dealers, and general
market conditions.
Long-term taxable fixed income securities are valued at market using
quotations provided by an independent pricing service.
Common and preferred stocks are valued at the last sales price reported by
the New York Stock Exchange, other appropriate exchanges, or NASDAQ, on the date
of valuation. Common and preferred stocks not traded on that date are valued at
the last bid price.
Short-term investments are valued at amortized cost, which approximates
market value.
Investment transactions are recorded on the trade date.
Premiums on long-term tax-exempt securities are amortized to the shorter of
call date or maturity. The fund does not amortize premiums on taxable long-term
securities. The fund amortizes all discounts on taxable securities and on
original issue discount tax-exempt securities.
(b) Option Transactions
For hedging purposes, the S&P 100 Plus Portfolio and the PSE Tech 100 Index
Portfolio may buy and sell put and call options, write covered call options on
portfolio securities, write cash-secured puts, and write call options that are
not covered for cross-hedging purposes. The risk in writing a call option is
that a fund gives up the opportunity for profit if the market price of the
security increases. The risk in writing a put option is that a fund may incur a
loss if the market price of the security decreases and the option is exercised.
The risk in buying an option is that a fund pays a premium whether or not the
option is exercised. A fund also has the additional risk of not being able to
enter into a closing transaction if a liquid secondary market does not exist.
The S&P 100 Plus Portfolio also may write over-the-counter options where the
completion of the obligation is dependent upon the credit standing of another
party.
Option contracts are valued daily, and unrealized appreciation or
depreciation is recorded. A fund will realize a gain or loss upon expiration or
closing of the option transaction. When an option is exercised, the proceeds on
sales for a written call option, the purchase cost for a written put option, or
the cost of a security for a purchased put or call option is adjusted by the
amount of premium received or paid.
(c) Futures Contracts
The S&P 100 Plus and PSE Tech 100 Index Portfolios may utilize futures
contracts to a limited extent. The primary risks associated with the use of
futures contracts include an imperfect correlation between the change in market
value of the securities held by the Fund and the prices of futures contracts and
the possibility of an illiquid market. Futures contracts are based upon their
quoted daily settlement prices.
Upon entering into a futures contract, the Fund is required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Fund each day. The variation margin payments are equal
to the daily changes in the contract value and are recorded as unrealized
appreciation (depreciation) until the contracts are terminated at which time
realized gains and losses are recognized.
(d) Net Realized Gains and Losses and Investment Income
Net realized gains and losses on securities sales (including options) are
computed on the identified cost basis. Dividend income is recorded on the ex-
dividend date. Interest income is recorded on an accrual basis. Total net
realized gains on investments for the year ended December 31, 1996, were
comprised of the following:
PSE TECH
S&P 100 DIVIDEND SELECT 100
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX*
<F24>
--------- ---------- ------ --------- ----- -------
Net realized
gains on
investments $2,354,480 $255,262 $4,148,826 $745,303 $776,545 $118,913
Net realized gains
on options and
futures -- -- 818,536 -- -- 14,329
---------- -------- -------- -------- -------- --------
Total net realized gains
(losses) on
investments $2,354,480 $255,262 $4,967,362 $745,303 $776,545 $133,242
---------- -------- ---------- -------- -------- --------
---------- -------- ---------- -------- -------- --------
*<F24>Amounts shown for the PSE Tech 100 Index Portfolio are the result of the
Fund's operations from its commencement of operations on June 10, 1996.
(e) Federal Income Taxes
Provision has not been made for Federal income taxes since each portfolio
has elected to be taxed as a "regulated investment company" and intends to
distribute substantially all income to its shareholders and otherwise comply
with the provisions of the Internal Revenue Code applicable to regulated
investment companies. As of December 31, 1996, the Tax-Exempt Portfolio has
Federal income tax capital loss carryforwards of $47,000 expiring in 2001 and
$141,270 expiring in 2003; the Government Portfolio has capital loss
carryforwards of $2,525,636 expiring in 2002. It is management's intention to
make no distribution of any future realized capital gains until the Federal
income tax capital loss carryforwards are exhausted.
Distributions in excess of net investment income in the Tax-Exempt Portfolio
of $17,791 and $24,414 for the year ended December 31, 1996 and 1995,
respectively, are the result of different accounting treatment of market
discount on investments for book and tax purposes. This distribution does not
represent a tax return of capital.
Distributions in excess of net realized gains on investments in the Select
Value Portfolio and PSE Tech 100 Index Portfolio of $1,280 and $18,730,
respectively, for the year ended December 31, 1996, are the result of losses on
wash sales which are recognized for book purposes but not for tax purposes. This
distribution does not represent a tax return of capital.
Distributions in excess of net realized gains on investments in the S&P 100
Plus Portfolio of $20,209, for the year ended December 31, 1996 are as a result
of the reversal of Section 1256 mark to market loss utilized in 1995. This
distribution does not represent a tax return of capital.
Distributions in excess of net realized gains on investments in the Select
Value Portfolio of $39,165 for the year ended December 31, 1995, are the result
of losses on wash sales which are recognized for book purposes but not for tax
purposes. This distribution does not represent a tax return of capital.
(f) Expenses
Fund expenses associated with a specific portfolio are charged to that
portfolio as they are incurred. Common expenses incurred by the Fund are
allocated, as incurred, between the portfolios based upon the ratio of the net
assets of each portfolio to the combined net assets of the Fund.
(g) Distributions to Shareholders
Dividends to shareholders are recorded on the ex-dividend date.
(h) Deferred Organization Costs
Costs incurred with the organization, initial registration and public
offering of shares aggregating $13,627 for the Select Value Portfolio and
$16,900 for the PSETech 100 Index Portfolio have been paid by the Fund and are
being amortized over a five year period.
(i) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH RELATED PARTIES -
On January 31, 1996, the Fund assigned its Investment Advisory Agreements (the
"Agreements") with B.C. Ziegler and Company ("Ziegler"), (with whom certain
officers and directors of the Fund are affiliated) to Ziegler Asset Management,
Inc., ("ZAMI") to serve as Investment Advisor (the "Advisor"). Both Ziegler and
ZAMI are wholly owned subsidiaries of The Ziegler Companies, Inc. and therefore
the assignment did not constitute a change in control. Pursuant to the
Agreement, ZAMI manages the Tax-Exempt Portfolio, Government Portfolio, Dividend
Achievers Portfolio and PSE Tech 100 Index Portfolio. Under the Agreement, the
Tax-Exempt and Government Portfolios pay ZAMI a monthly fee based upon the
average daily net assets of each portfolio at the rate of .60% of the first
$50,000,000 of each portfolio's average daily net assets, reducing to .50% on
the next $200,000,000 of each portfolio's average daily net assets and .40% of
each portfolio's average daily net assets in excess of $250,000,000.
Under its Agreement, the Dividend Achievers Portfolio pays ZAMI a monthly fee
based upon the Dividend Achievers average daily net assets at the rate of .75%
of the first $250,000,000 of average daily net assets, reducing to .70% on the
next $250,000,000 and .65% on the average daily net assets of over $500,000,000.
Under its Agreement, the PSETech 100 Index Portfolio pays ZAMI a monthly fee
based upon the PSE Tech 100 average daily net assets at the rate of .50% of the
first $50,000,000 of average daily net assets, .30% of the next $200,000,000 of
average daily net assets, .25% of the next $250,000,000 of average daily net
assets and .20% of average daily net assets in excess of $500,000,000.
Pursuant to the Agreement, ZAMI has retained Skyline Asset Management, Inc.
("Skyline") to manage the Select Value Portfolio. Under the Agreement, the
Select Value Portfolio pays ZAMI a monthly fee based on the average daily net
assets of the Portfolio at the rate of .75% of the first $250,000,000 of the
Portfolio's average daily net assets, and .65% on average daily net assets
exceeding $250,000,000. ZAMI pays Skyline 50% of the fee paid by the Select
Value Portfolio.
Pursuant to the Agreement, ZAMI has retained PanAgora Asset Management, Inc.
("PanAgora") to manage the S&P 100 Plus Portfolio. Under the Agreement, the S&P
100 Plus Portfolio pays Ziegler a monthly fee based on the average daily net
assets of the Portfolio at the rate of .575% of the first $20,000,000 of the
Portfolio's average daily net assets, .45% on the next $30,000,000, .40% on the
next $50,000,000 in assets, .35% on the next $400,000,000 in assets, down to
.30% on average daily net assets over $500,000,000. ZAMI pays PanAgora .20% on
the first $100,000,000 in assets and 50% of the fee paid by the S&P 100 Plus
Portfolio, net of a pro rata amount of expenses, if any, paid by ZAMI in the
operation of the Portfolio.
The Advisor voluntarily reimbursed the Tax-Exempt Portfolio $3,708, the
Government Portfolio $19,260, S&P 100 Plus Portfolio $10,411, the Dividend
Achievers Portfolio $34,553, the Select Value Portfolio $57,688 and the PSE Tech
100 Index Portfolio $77,978. The Advisor is not obligated to continue the
voluntary reimbursement in the future.
Ziegler has an Accounting and Pricing Agreement with the Fund to perform
accounting and pricing services, a Depository Agreement with the Fund to be the
depository for all investment securities and cash, and a Transfer and Dividend
Disbursing and Shareholder Services Agency Agreement with the Fund to provide
Transfer Agent Services. In addition, each Portfolio pays Ziegler commissions on
sales of Portfolio shares. The transfer agent fees, commissions, accounting and
pricing fees and depository fees paid to Ziegler for the year ended December 31,
1996, were as follows for each Portfolio:
COMMISSIONS ACCOUNTING
ON AND
TRANSFER PORTFOLIO PRICING DEPOSITORY 12B-1
AGENT FEES SHARES FEES FEES FEES
---------- -------- ------- ------- ------
Tax-Exempt Portfolio $45,023 $19,959 $28,760 $21,679 $96,661
Government Portfolio 48,096 22,414 23,920 19,050 95,141
S&P 100 Plus Portfolio 66,427 208,097 29,932 21,759 130,759
Dividend Achievers
Portfolio 31,425 27,620 19,014 11,297 59,281
Select Value Portfolio 4,272 13,100 18,900 2,996 4,864
PSE Tech 100 Index
Portfolio 3,050 7,591 9,025 1,844 1,844
-------- -------- -------- -------- --------
TOTAL $198,293 $298,781 $129,551 $78,625 $388,550
======== ======== ======== ======= ========
During 1996, an affiliate of Ziegler received $10,458 representing commissions
from the purchases and sales of investments of the Dividend Achievers Portfolio.
3. INVESTMENT TRANSACTIONS --
Purchases and proceeds from sales of securities, excluding short-term
investments, for the year ended December 31, 1996 aggregated:
PROCEEDS
PURCHASES FROM SALES
--------- ----------
Tax-Exempt Portfolio $100,985,731 $105,588,141
Government Portfolio 16,736,227 18,862,894
S&P 100 Plus Portfolio 13,357,667 4,982,179
Dividend Achievers Portfolio 4,577,696 3,564,584
Select Value Portfolio 6,051,372 4,714,961
PSE Tech 100 Index Portfolio*<F25> 5,648,745 118,878
*<F25>Amounts shown for the PSE Tech 100 Index Portfolio are the result of the
Fund's operations from its commencement of operations on June 10, 1996.
Net tax basis unrealized appreciation (depreciation) on investments as of
December 31, 1996, included:
<TABLE>
<CAPTION>
S&P 100 DIVIDEND SELECT PSE TECH 100
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX
----------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Gross unrealized
appreciation $448,656 $357,891 $29,886,145 $12,121,754 $623,463 $693,831
Gross unrealized
(depreciation) (119,022) (642,817) (702,280) -- (89,923) (152,176)
---------- ----------- ----------- ----------- ---------- ----------
Net unrealized appreciation
(depreciation) $329,634 $(284,926) $29,183,865 $12,121,754 $533,540 $541,655
========== =========== =========== ============ ========== ==========
Tax basis cost of investments $65,051,149 $44,399,692 $48,630,878 $18,426,725 $4,344,002 $5,480,916
========== =========== =========== ============ =========== ==========
</TABLE>
4. LINE OF CREDIT --
The Fund has an available line of credit of $3,000,000. However, each
Portfolio's borrowings, by investment restriction, cannot exceed 10% of the
total net assets not including the borrowings. Interest expense incurred in
connection with such borrowings was not material during the year. Borrowings
under this arrangement bear interest approximating the then current Prime Rate.
All borrowings under this line of credit are guaranteed by Ziegler. Each
Portfolio's policies allow borrowings for temporary or emergency purposes.
5. CAPITAL SHARE TRANSACTIONS --
(a) The Fund has authorized capital of 1,000,000,000 shares at $.001 par
value per share. The Fund's shares are divided into the separate portfolios. The
Fund's 300,000,000 authorized shares are allocated to the existing portfolios as
follows:
AUTHORIZED SHARES
-----------------
Tax-Exempt Portfolio .....................50,000,000
Government Portfolio .....................50,000,000
S&P100 Plus Portfolio ....................50,000,000
Dividend Achievers Portfolio .............50,000,000
Select Value Portfolio ...................50,000,000
PSE Tech 100 Index Portfolio .............50,000,000
-----------
TOTAL 300,000,000
===========
The Cash Reserve Portfolio has been allotted 400,000,000 shares, 200,000,000
shares of which are designated as Class X Common Stock (the Retail Class) and
200,000,000 shares of which are designated Class Y Common Stock (the
Institutional Class) and the Wisconsin Tax-Exempt Portfolio has been allotted
50,000,000 shares. The remaining 250,000,000 Fund shares may be allocated to any
of the above portfolios, the Cash Reserve Portfolio, the Wisconsin Tax-Exempt
Portfolio or to new portfolios as determined by the Board of Directors. The
shares of each Portfolio have equal rights and privileges with all other shares
of that Portfolio.
(b) Capital share activity during the years ended December 31, 1995 and
December 31, 1996, were as follows:
<TABLE>
<CAPTION>
S&P 100 DIVIDEND SELECT PSE TECH 100
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX*<F26>
----------- ----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
SHARES OUTSTANDING
AT DECEMBER 31, 1994 6,636,245 5,351,867 2,678,094 1,528,559 214,153 --
Shares issued 123,855 223,052 336,655 109,425 129,950 --
Shares issued in distributions 185,261 214,457 118,292 37,666 21,034 --
Shares redeemed (934,740) (672,644) (210,737) (179,324) (27,781) --
----------- ----------- ---------- ---------- ---------- -----------
SHARES OUTSTANDING
AT DECEMBER 31, 1995 6,010,621 5,116,732 2,922,304 1,496,326 337,356 --
Shares issued 2,002,713 184,756 659,065 112,219 82,311 558,213
Shares issued in distributions 191,596 214,869 251,205 45,606 66,517 14,582
Shares redeemed (1,071,548) (634,765) (321,653) (129,911) (46,028) (15,052)
----------- ----------- ---------- ---------- ---------- -----------
SHARES OUTSTANDING
AT DECEMBER31, 1996 7,133,382 4,881,592 3,510,921 1,524,240 440,156 557,743
========== ========== =========== ========== ========== ==========
*<F26>Amounts shown for the PSE Tech 100 Index Portfolio are the result of
the Fund's operations from its commencement of operations on June 10, 1996.
</TABLE>
Undistributed net realized losses on investments of $101,250 in the Tax-
Exempt Portfolio have been reclassified to capital stock for income tax capital
loss carryforwards which expired in 1996.
(c) For the S&P 100 Plus Portfolio, the Dividend Achievers Portfolio, the
Select Value Portfolio and the PSE Tech 100 Index Portfolio, the maximum
offering price per share is computed based on a maximum sales charge of 4.5% of
the offering price or 4.71% of the net asset value. For the purpose of this
computation, the price per share is derived from multiplying the net asset value
and redemption price per share by 100 and then dividing the product by 95.5.
For the Tax-Exempt and Government Portfolios, the maximum offering price per
share is computed based on a maximum sales charge of 3.5% of the offering price
or 3.62% of the net asset value. For these portfolios the price per share is
derived from multiplying the net asset value and redemption price per share by
100 and then dividing the product by 96.5.
6. OPTION CONTRACTS WRITTEN --
An analysis of option contracts written for the year ended December 31, 1996
is as follows:
NUMBER OF CONTRACTS AMOUNT OF PREMIUM
------------------- -----------------
S&P 100 PLUS PORTFOLIO:
Outstanding at December 31, 1995 55 $ 52,083
Contracts opened 65 110,301
Contracts closed 120 162,384
Closed -- --
Exercised -- --
---- ---------
Outstanding at December 31, 1996 -- $ --
==== =========
7. FUTURES CONTRACTS WRITTEN --
An analysis of the futures contracts written for the year ended December 31,
1996, and for the period from June 10, 1996 (commencement of operations) through
December 31, 1996 for the S&P 100 Plus and PSE Tech 100 Index Portfolios,
respectively, were as follows:
AGGREGATE FACE
NUMBER OF CONTRACTS VALUE OF CONTRACTS
------------------- ------------------
S&P 100 PLUS PORTFOLIO:
Outstanding at December 31, 1995 -- $ --
Contracts opened 55 19,283,815
Contracts closed 38 12,954,279
--- -------------
Outstanding at December 31, 1996 17 $ 6,329,536
=== =============
AGGREGATE OF FACE
NUMBER OF CONTRACTS VALUE OF CONTRACTS
------------------- ------------------
PSE TECH 100 INDEX PORTFOLIO:
Outstanding at June 10, 1996
(commencement of operations) -- $ --
Contracts opened 9 1,008,672
Contracts closed 6 639,198
--- ------------
Outstanding at December 31, 1996 3 $ 369,474
=== ============
The number of financial futures contracts and the gross unrealized
(depreciation), as of December 31, 1996, for each Portfolio were as follows:
UNREALIZED
NUMBER OF CONTRACTS (DEPRECIATION)
------------------- -------------
S&P 100 PLUS PORTFOLIO:
S&P 500 Financial Futures Contract
expiration date 3/97 17 ($1,286)
PSE TECH 100 INDEX PORTFOLIO:
PSE Technology 100 Index Futures
Contract expiration date 3/97 3 ($3,474)
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
TAX-EXEMPT PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
- -------------------------------------------------------------------------------
PRINCIPAL S&P MOODY'S
AMOUNT DESCRIPTION RATING RATING VALUE
(UNAUDITED)
- -------------------------------------------------------------------------------
LONG-TERM TAX-EXEMPT SECURITIES -- 98.3%
ALABAMA -- 9.1%
$1,000,000 Private Colleges and Universities
Facilities Authority (Alabama)
Revenue Bonds (Tuskegee University
Project), Series 1996-A, 5.90%,
due 09-01-2016 AAA Aaa $1,015,000
1,000,000 City of Birmingham, Alabama,
General Obligation Bonds, Series
1993-B, 5.625%, due 04-01-2013 AA A1 1,003,750
1,000,000 Refunding and Capital Outlay
Special Tax Bonds, Series 1992,
Birmingham-Jefferson Civic
Center Authority (Jefferson County,
Alabama), 5.50%, due 09-01-2014 AAA Aaa 992,500
2,000,000 The Special Care Facility Financing
Authority of the City of Birmingham-
Carraway, Revenue Bonds, Series 1995-A
(Carraway Methodist Health System),
5.875%, due 08-15-2015 AAA NR 2,007,500
1,000,000 The Medical Clinic Board of the City
of Montgomery, Alabama, Health Care
Facility Revenue Bonds, Jackson Hospital
&Clinic, Series 1996, 5.875%,
due 03-01-2016 AAA Aaa 1,020,000
ALASKA -- 1.6%
1,000,000 Municipality of Anchorage, Alaska, 1995
General Obligation General Purpose and
General Obligation Refunding General Purpose
Bonds, Series A, 6.00%,
due 02-01-2015 AAA Aaa 1,031,250
ARIZONA -- 1.8%
1,125,000 Kyrene Elementary School District No.
28 of Maricopa County, Arizona, School
Improvement Bonds, Project of 1993,
Series B (1995), 6.00%,
due 07-01-2014 AAA Aaa 1,172,812
CALIFORNIA -- 4.9%
1,000,000 Los Angeles County Public Works Financing
Authority Lease Revenue Bonds (Multiple
Capital Facilities Project IV), 5.25%,
due 12-01-2016 AAA Aaa 956,250
1,095,000 The City of Los Angeles, Wastewater
System Revenue Bonds, Refunding Series
1993-D, 6.00%, due 11-01-2014 AAA Aaa 1,134,694
1,200,000 City and County of San Francisco Sewer
Revenue Refunding Bonds, Series 1992,
5.50%, due 10-01-2015 AAA Aaa 1,189,500
CONNECTICUT -- 1.5%
1,000,000 State of Connecticut Health and Educational
Facilities Authority Revenue Bonds, Yale-
New Haven Hospital Issue, Series H, 5.625%,
due 07-01-2016 AAA Aaa 1,000,000
GEORGIA -- 3.2%
1,150,000 Griffin-Spalding County School System
(Georgia) General Obligation School Bonds,
Series 1996, 5.55%, due 02-01-2016 AAA Aaa 1,139,938
1,000,000 Houston County School District (Georgia)
General Obligation Bonds, Series 1996,
5.50%, due 03-01-2016 AAA Aaa 990,000
ILLINOIS -- 9.0%
1,000,000 City of Aurora, Kane, Dupage, Kendall
and Will Counties, Illinois, General
Obligation Corporate Purpose Bonds,
Series 1996, 5.875%, due 01-01-2016 AAA Aaa 1,015,000
1,000,000 Public Building Commission of Chicago,
Building Revenue Bonds (Chicago Park
District) Series C of 1993, 5.80%,
due 01-01-2013 AAA Aaa 1,008,750
1,000,000 Illinois Health Facilities Authority
Revenue Bonds, Series 1996 (Silver Cross
Hospital), 5.875%, due 08-15-2016 AAA Aaa 1,016,250
1,000,000 State of Illinois, General Obligation
Bonds, Series of December, 1995,
5.125%, due 12-01-2015 AAA Aaa 943,750
1,000,000 Metropolitan Fair and Exposition
Authority (Illinois)Dedicated State
Tax Revenue Bonds, Series 1986, 6.00%,
due 06-01-2014 AAA Aaa 1,001,640
1,000,000 The Board of Trustees of Northern
Illinois University, Auxiliary
Facilities System Revenue Bonds,
Series 1996, 5.70%, due 04-01-2016 AAA Aaa 1,005,000
INDIANA -- 6.8%
1,500,000 Indiana State Office Building Commission
Capitol Complex Revenue Bonds, Series
1990A (Senate Avenue Parking Facility),
7.40%, due 07-01-2015 AAA Aaa 1,824,375
1,500,000 School Building Corporation of Warren
Township, (Marion County, Indiana)First
Mortgage Bonds, Series 1992A, 6.00%,
due 07-15-2012 NR A2 1,558,125
1,100,000 Westfield High School 1995 Building
Corporation, (Hamilton County, Indiana),
First Mortgage Bonds, Series 1995,
5.70%, due 07-15-2013 AAA Aaa 1,115,125
MASSACHUSETTS -- 1.5%
1,000,000 Massachusetts Water Resources Authority
General Revenue Refunding Bonds, 1993
Series B, 5.25%, due 03-01-2013 AAA Aaa 971,250
MICHIGAN -- 6.9%
1,500,000 Michigan Municipal Bond Authority, Local
Government Loan Program Revenue Bonds,
Series 1994A (Wayne County Building Authority
Bonds), 6.00%, due 12-01-2013 AAA Aaa 1,563,750
1,000,000 State of Michigan, State Trunk Line Fund
Bonds, Series 1996A, 5.50%,
due 11-01-2016 AAA Aaa 985,000
1,000,000 Paw Paw Public Schools County of Van Buren,
State of Michigan, 1995 School Building
and Site Bonds (General Obligation-Unlimited
Tax), 5.60%, due 05-01-2015 AAA Aaa 1,003,750
1,000,000 Warren Consolidated Schools, Counties
of Macomb and Oakland, State of
Michigan, 1993 Refunding Bonds
(General Obligation Unlimited Tax),
5.50%, due 05-01-2014 AAA Aaa 997,500
MISSOURI -- 3.0%
1,000,000 Kansas City Municipal Assistance
Corporation, Leasehold Revenue Capital
Improvement Bonds (Kansas City, Missouri,
Lessee), Series 1996B, 5.70%,
due 01-15-2013 AAA Aaa 1,015,000
1,000,000 The City of St. Louis, Missouri Parking
Revenue Refunding Bonds, Series 1996,
5.375%, due 12-15-2016 AAA Aaa 982,500
NEW HAMPSHIRE -- 1.6%
1,035,000 New Hampshire Municipal Bond Bank,
1996 Series D Bonds, 5.50%,
due 01-15-2013 AAA Aaa 1,031,119
NEW JERSEY -- 1.5%
1,000,000 The Board of Education of the Southern
Regional High School District, County
of Ocean, New Jersey School Bonds
(Callable), 5.50%, due 09-01-2013 AAA Aaa 998,750
NEW YORK -- 1.9%
1,400,000 Battery Park City Authority Senior
Revenue Refunding Bonds, Series 1993A,
5.00%, due 11-01-2013 AA A1 1,277,500
NORTH CAROLINA -- 1.5%
1,000,000 Charlotte-Mecklenberg Hospital Authority
(North Carolina) Health Care Revenue Bonds,
Series 1996A, 5.90%, due 01-15-2016 AA Aa3 1,017,500
OHIO -- 4.7%
1,045,000 County of Montgomery, Ohio Various Purpose
General Obligation Bonds, Series 1996,
5.60%, due 12-01-2015 AA Aa2 1,048,919
1,000,000 Northeast Ohio Regional Sewer District
Wastewater Improvement Revenue Refunding
Bonds, Series 1995, 5.6%,
due 11-15-2014 AAA Aaa 1,010,000
1,000,000 State of Ohio (Ohio Higher Education
Facilities Commission) Higher Educational
Facility Revenue Bonds, (University of
Dayton 1994 Project), 5.80%,
due 12-01-2014 AAA Aaa 1,025,000
OKLAHOMA -- 4.3%
1,020,000 Norman Regional Hospital Authority
(Norman, Oklahoma), Hospital Revenue
Refunding Bonds, 1996 Series A, 5.625%,
due 09-01-2016 AAA Aaa 1,008,525
1,800,000 Pottawatomie County Development Authority,
Water Revenue Bonds, Series 1993
(North Deer Creek Reservoir Project),
5.80%, due 07-01-2015 AAA Aaa 1,811,250
PENNSYLVANIA -- 1.5%
1,000,000 Ephrata Area School District, Lancaster
County, Pennsylvania, General Obligation
Bonds, Series of 1996, 5.75%,
due 10-15-2016 AAA Aaa 1,020,000
RHODE ISLAND -- 1.7%
1,150,000 Rhode Island Convention Center Authority,
Revenue Bonds, 1993 Series A, 5.50%,
due 05-15-2013 AAA Aaa 1,132,750
SOUTH CAROLINA -- 1.4%
1,000,000 Charleston County Airport District,
Charleston, South Carolina, Airport
System Revenue Bonds, Refunding Series
1993, 5.00%, due 07-01-2013 AAA Aaa 926,250
TENNESSEE -- 3.7%
1,000,000 The Sports Authority of the Metro
Government of Nashville &Davidson County,
Public Improve Revenue Bonds (Stadium
Project), Series 1996, 5.75%,
due 07-01-2014 AAA Aaa 1,018,750
1,400,000 The Sports Authority of the Metro
Government of Nashville &Davidson County,
Public Improve Revenue Bonds (Stadium
Project), Series 1996, 5.75%,
ue 07-01-2016 AAA Aaa 1,421,000
TEXAS -- 4.6%
2,000,000 Brazos River Authority (Texas),
Collateralized Revenue Refunding Bonds
(Houston Lighting &Power Company
Project), Series 1995, 5.80%,
due 08-01-2015 AAA Aaa 2,010,000
1,000,000 Texas Water Development Board, State
Revolving Fund, Senior Lien Revenue Bonds,
Series 1992, 6.00%, due 07-15-2013 AAA Aa1 1,031,250
UTAH -- 3.3%
1,185,000 State of Utah, State Building Ownership
Authority, Lease Revenue Refunding Bonds,
Series 1992A, (Department of Employment
Security Project), 5.75%,
due 08-15-2011 AA Aa2 1,198,331
1,000,000 State of Utah, State Building Ownership
Authority Lease Revenue Bonds (State
Facilities Master Lease Program),
Series 1995A, 5.70%, due 05-15-2015 AAA Aaa 1,005,000
VIRGINIA -- 8.3%
1,000,000 Chesapeake, Virginia, Industrial
Development Authority, Public Facility
Lease Revenue Bonds (City Jail Project),
Series of 1994, 5.625%,
due 06-01-2014 AAA Aaa 1,005,000
2,500,000 Hampton Roads Regional Jail Authority,
Regional Jail Facility, Revenue Bonds,
Series A, 5.625%, due 07-01-2016 AAA Aaa 2,521,875
1,000,000 Southeastern Public Service Authority of
Virginia, Senior Revenue &Revenue
Refunding Bonds, Series 1989 (Regional
Solid Waste System), 6.00%,
due 07-01-2015 AAA Aaa 1,010,000
1,000,000 Virginia Resources Authority Solid Waste
Disposal System Revenue Bonds (County of
Prince William - Refunding), 1995 Series A,
5.50%, due 04-01-2015 AA NR 980,000
WASHINGTON -- 1.5%
1,000,000 State of Washington, General Obligation
Bonds, Series 1994B, 5.75%,
due 05-01-2013 AA Aa2 1,015,000
WISCONSIN -- 7.5%
1,000,000 State of Wisconsin, General Obligation
Bonds of 1996, Series C, 5.70%,
due 05-01-2016 AA Aa2 1,017,500
1,000,000 Wisconsin Health and Educational
Facilities Authority, Revenue Bonds,
Series 1995, (Franciscan Skemp Medical
Center, Inc.), 6.125%,
due 11-15-2015 AAA Aaa 1,023,750
1,000,000 Wisconsin Health and Educational
Facilities Authority, Revenue Bonds,
Series 1996 (The Medical College of
Wisconsin, Inc. Project), 5.40%,
due 12-01-2016 AA+ NR 967,500
2,000,000 Wisconsin Health and Educational
Facilities Authority, Revenue Bonds,
Series 1996, (Aurora Medical Group, Inc.
Project), 5.60%, due 11-15-2016 AAA Aaa 1,972,500
-----------
Total Long-Term Tax-Exempt Securities (Cost $64,793,053) 65,164,978
SHORT-TERM TAX-EXEMPT SECURITIES -- 0.3%
MONEY MARKET
$ 215,805 Federated Tax-Free Trust 215,805
-----------
Total Investments $65,380,783
===========
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
GOVERNMENT PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
- -------------------------------------------------------------------------------
PRINCIPAL INTEREST MARKET
AMOUNT DESCRIPTION RATE MATURITY VALUE
- -------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS -- 97.6%
$12,200,000 U.S. Treasury Note 7.875% 08-15-2001 $13,008,250
7,800,000 U.S. Treasury Note 11.625% 11-15-2002 9,835,309
8,500,000 U.S. Treasury Note 11.125% 08-15-2003 10,680,777
6,650,000 U.S. Treasury Note 7.875% 11-15-2004 7,258,887
3,000,000 U.S. Treasury Note 8.125% 02-15-1998 3,069,375
----------
Total U.S. Government Obligations (Cost $44,137,524) 43,852,598
SHORT-TERM INVESTMENTS -- 0.6%
MONEY MARKET
$ 262,168 Dreyfus Treasury Prime Cash Management 262,168
-----------
Total Investments $44,114,766
===========
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
S&P 100 PLUS PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
- ------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
OR PAR VALUE
- ------------------------------------------------------------
COMMON STOCKS -- 92.7%
BASIC INDUSTRIES -- 4.8%
Aluminum Company of America 4,800 $ 306,000
*<F2>Bethlehem Steel Corporation 2,900 26,100
Boise Cascade Corporation 1,266 40,196
Champion International 14,000 605,500
Dow Chemical Company 7,250 568,219
Dupont (E.I.) de Nemours
and Company 6,900 651,187
Homestake Mining Company 3,800 54,150
International Paper Company 8,100 327,038
Monsanto Company 14,500 563,687
Weyerhaeuser Company 11,700 554,287
-----------
3,696,364
-----------
CONSUMER DURABLES -- 3.8%
Black &Decker Corporation 2,300 69,288
Brunswick Corporation 2,600 62,400
Chrysler Corporation 21,200 699,600
Ford Motor Company 35,300 1,125,187
General Motors Corporation 18,200 1,014,650
-----------
2,971,125
-----------
CONSUMER NONDURABLES -- 9.0%
Avon Products, Inc. 4,000 228,500
Coca-Cola Company 65,000 3,420,625
Colgate-Palmolive Company 5,850 539,663
Eastman Kodak Company 6,800 545,700
Heinz (H.J.) Company 10,100 361,075
International Flavors &
Fragrances Inc. 5,850 263,250
PepsiCo, Inc. 46,200 1,351,350
Polaroid Corporation 1,300 56,550
Ralston Purina Group 2,900 212,787
-----------
6,979,500
-----------
CONSUMER SERVICE -- 7.6%
Walt Disney Company 18,600 1,295,025
*<F2>Harrah's Entertainment, Inc. 16,150 320,981
*<F2>Kmart Corporation 12,600 130,725
Limited (The), Inc. 7,539 138,529
May Department Stores Company 6,900 322,575
McDonald's Corporation 22,500 1,018,125
Sears, Roebuck &Co. 19,700 908,663
Tandy Corporation 1,700 74,800
*<F2>Toys "R" Us, Inc. 7,625 228,750
Wal-Mart Stores, Inc. 63,000 1,441,125
-----------
5,879,298
-----------
CAPITAL GOODS -- 10.9%
Allegheny Teledyne Inc. 15,592 358,616
The Boeing Company 9,606 1,021,838
Fluor Corporation 10,200 640,050
General Dynamics Corporation 1,800 126,900
General Electric Company 44,150 4,365,331
Minnesota Mining &
Manufacturing Company 9,900 820,463
Raytheon Company 6,700 322,437
Rockwell International
Corporation 6,100 371,338
United Technologies Corporation 7,000 462,000
-----------
8,488,973
-----------
ENERGY -- 12.3%
Amoco Corporation 26,400 2,125,200
+<F3>Atlantic Richfield Company 4,400 583,000
Baker Hughes Incorporated 3,860 133,170
Coastal Corporation 2,900 141,738
+<F3>Exxon Corporation 36,200 3,547,600
Halliburton Company 7,700 463,925
Mobil Corporation 12,350 1,509,787
Occidental Petroleum Corporation 8,800 205,700
Schlumberger Limited 6,700 669,163
Williams Companies, Inc. 4,200 157,500
-----------
9,536,783
-----------
FINANCIAL -- 9.9%
American International
Group, Inc. 13,143 1,422,730
American Express Company 13,500 762,750
American General Corporation 5,600 228,900
BankAmerica Corporation 10,100 1,007,475
CIGNA Corporation 2,000 273,250
Citicorp 11,700 1,205,100
First Chicago NBD Corporation 24,425 1,312,844
Great Western Financial
Corporation 3,650 105,850
ITT Hartford Group, Inc. 3,200 216,000
Merrill Lynch & Co., Inc. 14,400 1,173,600
-----------
7,708,499
-----------
HEALTH CARE -- 8.3%
Baxter International Inc. 7,600 311,600
Bristol-Myers Squibb Company 660 71,775
Columbia/HCA Healthcare
Corporation 18,300 745,725
Johnson &Johnson 30,400 1,512,400
Mallinckrodt, Inc. 2,100 92,663
Merck &Co., Inc. 27,100 2,147,675
Pharmacia & Upjohn, Inc. 39,160 1,551,715
-----------
6,433,553
-----------
TECHNOLOGY -- 16.9%
AMP Incorporated 8,550 328,106
*<F2>Ceridian Corporation 10,200 413,100
*+ Cisco Systems, Inc. 18,200 1,157,975
<F2><F3>
*<F2>Computer Sciences Corporation 5,400 443,475
*<F2>Digital Equipment Corporation 5,300 192,788
*+ Federal Express Corporation 3,000 133,500
<F2><F3>
Harris Corporation 1,100 75,487
Hewlett-Packard Company 28,000 1,407,000
Honeywell Inc. 3,700 243,275
+<F3>International Business Machines
Corporation 15,700 2,370,700
Intel Corporation 24,700 3,234,156
*<F2>National Semiconductor
Corporation 3,700 90,188
Northern Telecom Limited 7,900 488,812
*<F2>Oracle Corporation 26,650 1,112,637
Tektronix, Inc. 8,400 430,500
Texas Instruments Inc. 4,300 274,125
*<F2>Unisys Corporation 5,200 35,100
Xerox Corporation 11,991 631,026
-----------
13,061,950
-----------
TRANSPORTATION -- 1.5%
Burlington Northern
Santa Fe Corporation 5,100 440,513
Delta Air Lines, Inc. 5,100 361,462
Norfolk Southern Corporation 3,800 332,500
-----------
1,134,475
-----------
UTILITIES -- 7.7%
+<F3>American Telephone and
Telegraph Company 35,592 1,548,252
American Electric Power
Company, Inc. 5,100 209,738
Ameritech Corporation 15,300 927,562
Bell Atlantic Corporation 12,000 777,000
Entergy Corporation 17,200 477,300
MCI Communications Corporation 18,800 614,525
NYNEX Corporation 11,800 567,875
Southern Company 18,400 416,300
Unicom Corporation 17,100 463,838
-----------
6,002,390
-----------
Total Common Stocks
(cost $42,686,840) 71,892,910
-----------
U.S GOVERNMENT AND AGENCY OBLIGATIONS -- 7.5%
+<F3>U.S. Treasury Bill
4.81%, due 03-06-1997 5,900,000 5,848,989
-----------
Total Government
Obligations (cost $5,849,549) 5,848,989
-----------
SHORT-TERM INVESTMENTS -- 0.1%
MONEY MARKET -- 0.1%
Dreyfus Cash Management Plus 69,927 69,927
Federated Master Trust 2,917 2,917
-----------
Total Short-Term Investments 72,844
-----------
Total Investments $77,814,743
===========
FUTURES CONTRACTS
FUTURES
S&P 500 Index Future expires
March, 1997 17 6,328,250
-----------
Total Futures Contracts
(cost $6,329,536) 6,328,250
-----------
*<F2>Non-income producing
+<F3>Segregated as collateral against futures
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
DIVIDEND ACHIEVERS PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
- ------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
- ------------------------------------------------------------
COMMON STOCKS -- 98.9%
CONSUMER NONDURABLES -- 22.7%
Coca-Cola Company 16,000 $ 842,000
Eastman Kodak Company 10,800 866,700
Gillette Company 21,600 1,679,400
Heinz (H.J.)Company 15,000 536,250
Kimberly-Clark Corporation 10,800 1,028,700
PepsiCo, Inc. 37,000 1,082,250
Sherwin-Williams Company 15,700 879,200
-----------
6,914,500
-----------
CONSUMER SERVICE -- 8.6%
Walt Disney Company 10,000 696,250
McDonald's Corporation 21,600 977,400
Walgreen Company 24,000 960,000
-----------
2,633,650
-----------
CONSUMER NONCYCLICAL -- 2.5%
Becton, Dickinson &Company 18,000 780,750
-----------
780,750
-----------
CAPITAL GOODS -- 9.9%
Avery-Dennison Corporation 28,400 1,004,650
General Electric Company 12,000 1,186,500
Minnesota Mining &
Manufacturing Company 10,000 828,750
-----------
3,019,900
-----------
ENERGY -- 9.6%
Mobil Corporation 7,200 880,200
Royal Dutch Petroleum Company 6,000 1,024,500
Williams Companies, Inc. 27,000 1,012,500
-----------
2,917,200
-----------
FINANCIAL -- 13.8%
BankAmerica Corporation 10,000 997,500
Federal Home Loan Mortgage
Corporation 4,000 440,500
Federal National Mortgage
Association 36,000 1,341,000
Green Tree Financial Corporation 14,750 569,719
Jefferson-Pilot Corporation 15,000 849,375
-----------
4,198,094
-----------
HEALTH CARE -- 8.4%
Baxter International Inc. 13,000 533,000
Johnson &Johnson 21,600 1,074,600
Merck & Co., Inc. 12,000 951,000
-----------
2,558,600
-----------
INDUSTRIAL -- 4.2%
Illinois Central Corporation 15,000 480,000
Illinois Tool Works, Inc. 10,000 798,750
-----------
1,278,750
-----------
TECHNOLOGY -- 13.9%
Diebold, Inc. 24,375 1,532,578
Electronic Data Systems
Corporation 18,400 795,800
Hewlett-Packard Company 20,000 1,005,000
Intel Corporation 7,000 916,562
-----------
4,249,940
-----------
UTILITIES -- 5.3%
GTE Corporation 10,000 455,000
SBC Communications, Inc. 10,800 558,900
Sprint Corporation 15,000 598,125
-----------
1,612,025
-----------
Total Common Stocks
(cost $18,041,656) 30,163,409
-----------
SHORT-TERM INVESTMENTS -- 1.3%
MONEY MARKET -- 1.3%
Dreyfus Cash Management Plus 352,307 352,307
Federated Master Trust 32,762 32,762
-----------
Total Short-Term Investments 385,069
-----------
Total Investments $30,548,478
===========
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
SELECT VALUE PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
- ------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
OR PAR VALUE
- ------------------------------------------------------------
COMMON STOCKS -- 96.2%
AUTOS & TRANSPORTATION -- 8.2%
Borg-Warner Automotive, Inc. 1,200 $ 46,200
Canadian National Railway Company 1,800 68,400
Echlin Inc. 1,500 47,438
Titan Wheel International, Inc. 7,200 91,800
USFreightways Corporation 5,200 142,675
----------
396,513
----------
CONSUMER DISCRETIONARY -- 18.3%
*<F4>Furniture Brands
International, Inc. 10,700 149,800
Harman International
Industries, Inc. 2,400 133,500
Herman Miller, Inc. 1,000 56,625
Hughes Supply, Inc. 1,500 64,687
Libbey, Inc. 3,000 83,625
Pier 1 Imports, Inc. 10,120 178,365
*<F4>Unisource Worldwide, Inc.
(When, As & If Issued) 3,400 68,850
*<F4>World Color Press, Inc. 7,700 148,225
----------
883,677
----------
CONSUMER STAPLES -- 3.1%
First Brands Corporation 5,200 147,550
----------
147,550
----------
ENERGY -- 4.5%
*<F4>Forcengery Inc. 1,700 61,625
*<F4>Santa Fe Energy Resources, Inc. 6,500 90,188
*<F4>Seagull Energy Corporation 3,000 66,000
----------
217,813
----------
FINANCIAL -- 19.5%
Advanta Corporation, Class B 1,600 65,400
CMAC Investment Corporation 3,600 132,300
Horace Mann Educators Corporation 3,100 125,162
*<F4>Olympic Financial Ltd. 6,100 87,688
PennCorp Financial Group, Inc. 3,600 129,600
Peoples Heritage
Financial Group, Inc. 1,500 42,000
Sovereign Bancorp, Inc. 9,300 122,062
United Companies
Financial Corporation 4,200 111,825
Western National Corporation 6,500 125,125
----------
941,162
----------
HEALTH CARE -- 7.9%
Fisher Scientific International 3,400 160,225
Intergrated Health Services, Inc. 4,700 114,562
*<F4>Sierrs Health Services, Inc. 4,300 105,888
----------
380,675
----------
MATERIALS & PROCESSING -- 2.4%
*<F4>Dal-Tile International Inc. 3,100 63,162
*<F4>UCAR International Inc. 1,400 52,675
----------
115,837
----------
OTHER -- 7.7%
Arden Realty Group, Inc. 2,200 61,050
*<F4>Champion Enterprises, Inc. 7,500 146,250
Prentiss Properties Trust 2,300 57,500
Public Storage, Inc. 3,500 108,500
----------
373,300
----------
PRODUCER DURABLES -- 10.9%
AGCO Corporation 4,200 120,225
Applied Power, Inc. -- Class A 2,800 110,950
Belden Inc. 3,900 144,300
Greenfield Industries, Inc. 5,000 153,125
----------
528,600
----------
TECHNOLOGY -- 11.3%
*<F4>BancTec, Inc. 3,000 61,875
*<F4>Berg Electronics Corporation 5,200 152,750
*<F4>Coherent, Inc. 2,300 97,175
*<F4>DecisionOne Corporation 6,800 112,200
Wyle Electronics 3,100 122,450
----------
546,450
----------
UTILITIES -- 2.4%
Enron Global Power &
Pipelines L.L.C. 4,300 116,100
----------
116,100
----------
Total Common Stocks
(cost $4,111,821) 4,647,677
----------
SHORT-TERM INVESTMENTS -- 4.8%
MONEY MARKET -- 4.8%
Dreyfus Cash Management Plus 109,483 109,483
Federated Master Trust 120,382 120,382
----------
229,865
----------
Total Short-Term Investments 229,865
----------
Total Investments $4,877,542
==========
*<F4>Non-income producing
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
PSE TECH 100 INDEX PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
- ------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
OR PAR VALUE
- ------------------------------------------------------------
COMMON STOCKS -- 93.4%
BIOTECHNOLOGY -- 5.8%
*+ Amgen, Inc. 1,550 $ 84,281
<F5><F6>
*+ Biogen, Inc. 1,550 60,063
<F5><F6>
*<F5>Centocor, Inc. 1,550 55,412
*<F5>Chiron Corporation 1,550 28,869
*<F5>Genentech, Inc. 1,550 83,119
*<F5>Immunex Corporation 1,550 30,225
*<F5>Xoma Corporation 1,550 7,944
----------
349,913
----------
CAD/CAM -- 2.0%
+<F6>Autodesk, Inc. 1,550 43,400
*<F5>Evans & Sutherland Computer
Corporation 1,550 38,750
*<F5>Intergraph Corporation 1,550 15,887
*<F5>Mentor Graphics Corporation 1,550 15,113
*<F5>QMS, Inc. 1,550 8,138
----------
121,288
----------
DATA COMMUNICATIONS -- 13.4%
*<F5>3Com Corporation 1,550 113,731
*+ Adaptec, Inc. 1,550 62,000
<F5><F6>
*+ ADC Telecommunications, Inc. 1,550 48,244
<F5><F6>
*<F5>Bay Networks, Inc. 1,550 32,356
*<F5>Cabletron Systems, Inc. 1,550 51,538
*<F5>Cisco Systems, Inc. 1,550 98,619
*<F5>DSC Communications Corporation 1,550 27,706
Harris Corporation 1,550 106,369
*<F5>Novellus Systems, Inc. 1,550 83,990
*<F5>Octel Communications Corporation 1,550 27,125
Scientific - Atlanta, Inc. 1,550 23,250
*<F5>Symbol Technologies, Inc. 1,550 68,587
*<F5>Tellabs, Inc. 1,550 58,319
----------
801,834
----------
DATA STORAGE AND PROCESSING -- 4.9%
*+ Applied Magnetics Corporation 1,550 46,306
<F5><F6>
*<F5>AST Research, Inc. 1,550 6,490
*<F5>Exabyte Corporation 1,550 20,731
*<F5>Komag, Incorporated 1,550 42,044
*<F5>Quantum Corporation 1,550 44,369
*<F5>Seagate Technology, Inc. 1,550 61,225
*<F5>Storage Technology Corporation 1,550 73,819
----------
294,984
----------
ELECTRONIC EQUIPMENT -- 1.4%
AMP Incorporated 1,550 59,481
Sensormatic Electronics
Corporation 1,550 25,963
----------
85,444
----------
INFORMATION PROCESSING -- 5.8%
*+ America Online, Inc. 1,550 51,537
<F5><F6>
Automatic Data Processing, Inc. 1,550 66,456
*<F5>Ceridian Corporation 1,550 62,775
*<F5>Computer Sciences Corporation 1,550 127,294
Comsat Corporation 1,550 38,169
----------
346,231
----------
LARGE DIVERSIFIED COMPUTER
MANUFACTURING -- 6.7%
*<F5>Digital Equipment Corporation 1,550 56,381
Honeywell Inc. 1,550 101,912
International Business
Machines Corporation 1,550 234,050
*<F5>Unisys Corporation 1,550 10,463
----------
402,806
----------
MEDICAL TECHNOLOGY -- 8.3%
*+ Acuson Corporation 1,550 37,781
<F5><F6>
Biomet, Inc. 1,550 23,444
*<F5>Boston Scientific Corporation 1,550 93,000
*<F5>Coherent, Inc. 1,550 65,487
*<F5>Genzyme Corporation 1,550 33,713
Medtronic, Inc. 1,550 105,400
Shared Medical Systems
Corporation 1,550 76,337
*<F5>St. Jude Medical, Inc. 1,550 66,069
----------
501,231
----------
MICRO COMPUTER MANUFACTURERS -- 5.2%
*+ Apple Computer, Inc. 1,550 32,356
<F5><F6>
*<F5>Compaq Computer Corporation 1,550 115,087
*<F5>Dell Computer Corporation 1,550 82,344
*<F5>Gateway 2000, Inc. 1,550 83,022
----------
312,809
----------
MINI AND MAINFRAME COMPUTER
MANUFACTURERS -- 4.5%
*+ Amdahl Corporation 1,550 18,794
<F5><F6>
*<F5>Data General Corporation 1,550 22,475
*<F5>EMC Corporation 1,550 51,344
*<F5>Informix Corporation 1,550 31,581
*<F5>Silicon Graphics, Inc. 1,550 39,525
*<F5>Stratus Computer, Inc. 1,550 42,237
*<F5>Sun Microsystems, Inc. 1,550 39,816
*<F5>Tandem Computers, Inc. 1,550 21,312
----------
267,084
----------
OFFICE AUTOMATION EQUIPMENT -- 2.7%
*<F5>CUC International, Inc. 1,550 36,813
*<F5>Newbrige Networks Corporation 1,550 43,787
Xerox Corporation 1,550 81,569
----------
162,169
----------
SEMICONDUCTOR CAPITAL EQUIPMENT
MANUFACTURERS -- 3.4%
*+ Applied Materials, Inc. 1,550 55,703
<F5><F6>
*<F5>Cadence Design Systems, Inc. 1,550 61,613
*<F5>KLA Instruments Corporation 1,550 55,025
*<F5>Kulicke &Soffa Industries, Inc. 1,550 29,450
----------
201,791
----------
SEMICONDUCTOR MANUFACTURERS -- 10.7%
*+ Advanced Micro Devices, Inc. 1,550 39,912
<F5><F6>
*<F5>Chips & Technologies, Inc. 1,550 28,288
*<F5>Cypress Semiconductor Corporation 1,550 21,894
Intel Corporation 1,550 202,953
Micron Technology, Inc. 1,550 45,144
Motorola, Inc. 1,550 95,131
*<F5>National Semiconductor
Corporation 1,550 37,781
*<F5>Standard Microsystems Corporation 1,550 14,725
Texas Instruments Inc. 1,550 98,813
*<F5>Xilinx, Inc. 1,550 57,059
----------
641,700
----------
SOFTWARE PRODUCTS -- 8.0%
+<F6>Adobe Systems, Inc. 1,550 57,931
*+ BMC Software, Inc. 1,550 64,131
<F5><F6>
*<F5>Borland International, Inc. 1,550 8,428
Computer Associates
International, Inc. 1,550 77,112
*<F5>Microsoft Corporation 1,550 128,069
*<F5>Novell, Inc. 1,550 14,676
*<F5>Oracle Corporation 1,550 64,713
*<F5>Sybase, Inc. 1,550 25,866
*<F5>Symantec Corporation 1,550 22,475
*<F5>System Software Associates, Inc. 1,550 16,469
----------
479,870
----------
TEST, ANALYSIS, AND INSTRUMENTATION
EQUIPMENT -- 10.6%
*+ Analog Devices, Inc. 1,550 52,506
<F5><F6>
General Signal Corporation 1,550 66,263
Hewlett-Packard Company 1,550 77,888
Measurex Corporation 1,550 37,200
Millipore Corporation 1,550 64,131
Perkin-Elmer Corporation 1,550 91,256
Tektronix, Inc. 1,550 79,438
*<F5>Teradyne, Inc. 1,550 37,781
*<F5>Thermo Instrument Systems, Inc. 1,550 51,344
Varian Associates, Inc. 1,550 78,856
----------
636,663
----------
Total Common Stocks
(Cost $5,045,599) 5,605,817
----------
GOVERNMENT SECURITIES -- 1.6%
+<F6>U.S. Treasury Bill, 5.52%,
due 08-21-1997 $100,000 96,740
----------
Total Government Securities
(Cost $96,442) 96,740
----------
SHORT-TERM INVESTMENTS -- 5.3%
MONEY MARKET -- 5.3%
Dreyfus Cash Management Plus $265,483 265,483
Federated Master Trust 54,531 54,531
----------
Total Money Market 320,014
----------
Total Short-Term Investments 416,754
----------
TOTAL INVESTMENTS $6,022,571
==========
FUTURES
PSE Technology 100 Index,
Expiring March 1997 3 366,000
----------
Total Futures
(Cost $369,474) 366,000
----------
*<F5>Non-income producing
+<F6>Segregated as collateral against futures
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Principal Preservation Portfolios, Inc. and
the Shareholders of the Tax-Exempt,
Government, S&P 100 Plus, Dividend Achievers,
Select Value and PSETech 100 Index Portfolios:
We have audited the accompanying balance sheets, including the schedules of
investments, of the PRINCIPAL PRESERVATION PORTFOLIOS, INC. (a Maryland
corporation) Tax-Exempt, Government, S&P 100 Plus, Dividend Achievers, Select
Value and PSE Tech 100 Index Portfolios as of December 31, 1996, and the related
statements of operations for the year then ended (the period from June 10, 1996,
commencement of operations, to December 31, 1996 for the PSE Tech 100 Index
Portfolio) and the statements of changes in net assets for each of the two years
in the period then ended (the period June 10, 1996 to December 31, 1996 for the
PSE Tech 100 Index Portfolio) and the financial highlights for each of the
periods presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the depositories, banks and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Principal Preservation Portfolios, Inc. Tax-Exempt, Government, S&P 100 Plus,
Dividend Achievers, Select Value and PSE Tech 100 Index Portfolios as of
December 31, 1996, the results of their operations for the year then ended (the
period from June 10, 1996 to December 31, 1996 for the PSE Tech 100 Index
Portfolio) and the changes in their net assets for each of the two years in the
period then ended (the period June 10, 1996 to December 31, 1996 for the PSE
Tech 100 Index Portfolio) and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
January 17, 1997.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
OFFICERS AND DIRECTORS
R.D. Ziegler, Chairman, Director
Richard H. Aster, M.D., Director
Augustine J. English, Director
Ralph J. Eckert, Director
Robert J. Tuszynski, President, Director
Frank Ciano, Chief Financial Officer and Treasurer
John Lauderdale, Vice President of Marketing
S. Charles O'Meara, Secretary
Marc Dion, Vice President
INVESTMENT ADVISORS
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
Skyline Asset Management
311 South Wacker Drive, Suite 4500
Chicago, Illinois 60606
PanAgora Asset Management, Inc.
260 Franklin Street
Boston, Massachusetts 02110
DISTRIBUTOR, TRANSFER AND DIVIDEND
DISBURSING AGENT, DEPOSITORY AND FUND ACCOUNTANT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
CUSTODIAN
Principal Preservation Portfolios, Inc.
215 North Main Street
West Bend, Wisconsin 53095
COUNSEL
Quarles &Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
AUDITOR
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
"Standard & Poor's," "Standard & Poor's 100," "S&P," "100" are trademarks of
Standard & Poor's Corporation and have been licensed for use by B.C. Ziegler and
Company.
PSE is the service mark of the Pacific Stock Exchange Incorporated and has been
licensed for use by B.C. Ziegler and Company.
This report has been prepared for the information of shareholders of Principal
Preservation Portfolios, Inc., and may not be used in connection with the
offering of securities unless preceded or accompanied by a current Prospectus.
PP 343-2/97
