(PPP LOGO)
CASH RESERVE PORTFOLIO
CLASS X SHARES
(RETAIL CLASS)
------------
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1996
------------
(PPP LOGO)
CASH RESERVE PORTFOLIO
CLASS Y SHARES
(INSTITUTIONAL CLASS)
------------
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1996
------------
CASH RESERVE PORTFOLIO
ANNUAL REPORT TO SHAREHOLDERS
February 24, 1997
Dear Shareholder:
Interest rates remained relatively stable throughout 1996. The Federal
Reserve, while cutting the target Fed Funds rate from 5.50% to 5.25% during the
first quarter of 1996, was steadfast in leaving the rate unchanged since that
time. This consistency resulted in short term instruments trading in a very
narrow interest rate range. The 90 day U.S. Treasury Bill yield opened the year
at 5.07% and finished the year at 5.18%. Commercial paper rates were 5.45% at
the beginning of the year and finished at 5.50%. Overall, the short term market
remained relatively flat for the year.
During the course of the year, the portfolio manager shifted the asset
allocation from over fifty percent in government agency paper to a more
traditional emphasis on top rated commercial paper. The asset allocation of the
fund as of December 31, 1996 was 52% in A1/P1 commercial paper, 31% in U.S.
government agency discount notes and the remaining 17% in an overnight
repurchase agreement. None of the commercial paper was split rated nor raised
any credit concerns with respect to the underlying issuer. Toward year end, the
manager maintained a weighted average maturity of approximately 20 days.
The fund began the year with $86,500,000 in total assets, increased to
$134,500,000 as of June 30, 1996, and declined to $125,100,000 at year end. The
seven day annualized yield for the Retail Class of shares, net of expense
absorption, was 4.66% as of December 31, 1996 as compared to 5.04% as of
December 31, 1995. The comparative average seven day annualized yields for the
First Tier Money Market Fund category as measured by IBC Donoghue was 5.14% on
December 29, 1995 and 4.78% on December 27, 1996. Much of the decline in rates
can be attributed to the decline in the Fed Funds rate.
We anticipate that the short term interest rate environment will be fairly
stable in the first half of 1997, without significant changes in the overnight
Fed Funds rate. As we move through the year, the manager intends to lengthen the
average maturity slightly, but will maintain a shorter average life during the
first quarter of 1997.
In October, 1996 Price Waterhouse LLP ("Price Waterhouse") resigned as the
independent accountant of the Cash Reserve Portfolio of Principal Preservation
Portfolios, Inc. (the "Portfolio") and Arthur Andersen LLP ("Arthur Andersen")
was then selected as the Funds' independent auditor. The Portfolio selection of
Arthur Andersen as its independent auditor was approved by the Funds' Board of
Directors.
The reports on the financial statements prepared by Price Waterhouse for the
fiscal years ended December 31, 1995 for the Portfolio did not contain an
adverse opinion or a disclaimer of opinion, and was not qualified or modified as
to uncertainty, audit scope, or accounting principles. During the Portfolios'
two most recent fiscal years and up to and including October, 1996, there were
no disagreements between the Funds and Price Waterhouse on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope of procedure, which disagreement(s), if not resolved to the satisfaction
of Price Waterhouse would have caused it to make reference to the subject matter
or the disagreement(s) in its report.
Sincerely,
/s/ Robert J. Tuszynski
Robert J. Tuszynski
President and CEO
The accompanying report is intended for the existing shareholders of Principal
Preservation. It does not constitute an offer to sell. Any investor wishing to
receive more information about the portfolios should obtain a prospectus which
includes a discussion of each investment objective and all sales charges and
expenses of the relevant portfolio(s).
CASH RESERVE PORTFOLIO
ANNUAL REPORT TO SHAREHOLDERS
February 24, 1997
Dear Shareholder:
Interest rates remained relatively stable throughout 1996. The Federal
Reserve, while cutting the target Fed Funds rate from 5.50% to 5.25% during the
first quarter of 1996, was steadfast in leaving the rate unchanged since that
time. This consistency resulted in short term instruments trading in a very
narrow interest rate range. The 90 day U.S. Treasury Bill yield opened the year
at 5.07% and finished the year at 5.18%. Commercial paper rates were 5.45% at
the beginning of the year and finished at 5.50%. Overall, the short term market
remained relatively flat for the year.
During the course of the year, the portfolio manager shifted the asset
allocation from over fifty percent in government agency paper to a more
traditional emphasis on top rated commercial paper. The asset allocation of the
fund as of December 31, 1996 was 52% in A1/P1 commercial paper, 31% in U.S.
government agency discount notes and the remaining 17% in an overnight
repurchase agreement. None of the commercial paper was split rated nor raised
any credit concerns with respect to the underlying issuer. Toward year end, the
manager maintained a weighted average maturity of approximately 20 days.
The fund began the year with $86,500,000 in total assets, increased to
$134,500,000 as of June 30, 1996, and declined to $125,100,000 at year end. The
seven day annualized yield for the Institutional Class of shares, net of expense
absorption, was 5.05% as of December 31, 1996 as compared to 5.33% as of
December 31, 1995. The comparative average seven day annualized yields for the
Institutional Money Market Fund category as measured by IBC Donoghue was 5.35%
on December 29, 1995 and 5.04% on December 27, 1996. Much of the decline in
rates can be attributed to the decline in the Fed Funds rate.
We anticipate that the short term interest rate environment will be fairly
stable in the first half of 1997, without significant changes in the overnight
Fed Funds rate. As we move through the year, the manager intends to lengthen the
average maturity slightly, but will maintain a shorter average life during the
first quarter of 1997.
In October, 1996 Price Waterhouse LLP ("Price Waterhouse") resigned as the
independent accountant of the Cash Reserve Portfolio of Principal Preservation
Portfolios, Inc. (the "Portfolio") and Arthur Andersen LLP ("Arthur Andersen")
was then selected as the Funds' independent auditor. The Portfolio selection of
Arthur Andersen as its independent auditor was approved by the Funds' Board of
Directors.
The reports on the financial statements prepared by Price Waterhouse for the
fiscal years ended December 31, 1995 for the Portfolio did not contain an
adverse opinion or a disclaimer of opinion, and was not qualified or modified as
to uncertainty, audit scope, or accounting principles. During the Portfolios'
two most recent fiscal years and up to and including October, 1996, there were
no disagreements between the Funds and Price Waterhouse on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope of procedure, which disagreement(s), if not resolved to the satisfaction
of Price Waterhouse would have caused it to make reference to the subject matter
or the disagreement(s) in its report.
Sincerely,
/s/ Robert J. Tuszynski
Robert J. Tuszynski
President and CEO
The accompanying report is intended for the existing shareholders of Principal
Preservation. It does not constitute an offer to sell. Any investor wishing to
receive more information about the portfolios should obtain a prospectus which
includes a discussion of each investment objective and all sales charges and
expenses of the relevant portfolio(s).
CASH RESERVE PORTFOLIO
CLASS X SHARES (RETAIL CLASS)
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 5, 1993
(COMMENCEMENT
OF OPERATIONS)
FOR THE YEARS ENDED DECEMBER 31, TO DECEMBER 31,
--------------------------------------
1996 1995 1994 1993
------- ------- -------- ---------------
<S> <C> <C> <C> <C>
(Selected data for each share of the Fund
outstanding throughout the periods)
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00
------- ------- -------- --------
Income from investment operations:
Net investment income 0.05 0.05 0.04 0.02
Less distributions:
Dividends from net investment income (0.05) (0.05) (0.04) (0.02)
------- ------- -------- --------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00
======== ======== ======== ========
Total investment return (b)<F2> 4.78% 5.32% 3.64% 2.99% (a)<F1>
Ratios/Supplemental Data:
Net assets, end of period (nearest thousand) $89,946 $86,590 $52,593 $47,768
Ratio of expenses to average net assets (c)<F3> 0.78% 0.79% 1.05% 1.03% (a)<F1>
Capital contributions (d)<F4> -- 0.06% -- --
Ratio of net investment income
to average net assets (c)<F3> 4.73% 5.23% 3.62% 2.73% (a)<F1>
Prior to 1996, the assets of the Cash Reserve Portfolio were invested in the
Prime Money Market Portfolio ("Prime") of The Prime Portfolios. At the opening
of business on January 1, 1996, the assets of Prime were liquidated and
transferred to the Principal Preservation Cash Reserve Portfolio ("Fund"). At
that time, Classes were established for the Cash Reserve Portfolio, Class X
(Retail) and Class Y (Institutional). Assets of Prime which previously were
attributed to the Fund were allocated to the Fund's Class X(Retail) shares.
Information as of and results for periods ended prior to January 1, 1996 reflect
the Fund's investments in Prime. Results for the year ended December 31, 1996
reflect the new dual class structure.
(a)<F1>Annualized.
(b)<F2>Prior to 1996, the advisers to Prime made capital contributions to offset
losses in securities. Had the advisers not made capital contributions, the
adjusted annualized total returns would have been 5.26% and 1.91% for 1995 and
1994, respectively.
(c)<F3>Prior to 1996, the ratio reflects the Fund's share of Prime's expenses as
well as voluntary waivers of fees and expense reimbursements by Prime's adviser.
For the year ended December 31, 1996, the Fund's adviser and administrator
voluntarily waived a portion of their fees. Without these voluntary waivers and
expense reimbursements, the annualized ratios of net investment income and
expenses to average net assets would have been as follows:
FOR THE PERIOD
APRIL 5, 1993
(COMMENCEMENT
OF OPERATIONS)
FOR THE YEARS ENDED DECEMBER 31, TO DECEMBER 31,
--------------------------------
1996 1995 1994 1993
------ ------ ------ --------------
Ratio of expenses to
average net assets 0.99% 1.16% 1.32% 1.32%
Ratio of net investment income
to average net assets 4.63% 4.86% 3.35% 2.44%
(d)<F4>For the year ended December 31, 1995, the manner in which capital
contributions are presented changed from the prior year as a result of a
Securities and Exchange Commission Division of Investment Management letter
clarifying the presentation of capital contributions. For the year ended
December 31, 1995, capital contributions were presented in the financial
statements of both the Fund and Prime, whereas in 1994 capital contributions
were presented only in Prime's financial statements.
The accompanying notes are an integral part of the financial statements.
</TABLE>
CASH RESERVE PORTFOLIO
CLASS Y SHARES (INSTITUTIONAL CLASS)
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
DECEMBER 31, 1996
------------------
(Selected data for each share of the Fund
outstanding throughout the periods)
Net asset value, beginning of period $1.00
------
Income from investment operations:
Net investment income 0.05
Less distributions:
Dividends from net investment income (0.05)
-------
Net asset value, end of period $1.00
=======
Total investment return 5.20%
Ratios/Supplemental Data:
Net assets, end of period (nearest thousand) $35,120
Ratio of expenses to average net assets (a)<F5> 0.34%
Ratio of net investment income to average net assets (a)<F5> 4.95%
(a)<F5>For the year ended December 31, 1996, the adviser and administrator
voluntarily waived a portion of their fees. Without these voluntary waivers, the
annualized ratios would have been as follows:
Ratio of expenses to average net assets 0.54%
Ratio of net investment income to average net assets 4.75%
The accompanying notes are an integral part of the financial statements.
CASH RESERVE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
ASSETS:
Investments in Securities, at amortized cost and value:
U.S. Government and Agency Obligations $38,244,079
Short Term Investments 86,857,176
Interest Receivable 131,629
Investments Sold 21,103
Other Assets 32,000
-----------
Total Assets 125,285,987
LIABILITIES:
Dividends payable (Retail Class X) $0
Dividends payable (Institutional Class Y) 95,531
Accrued expenses 121,956
---------
Total Liabilities 217,487
----------
NET ASSETS $125,068,500
==========
NET ASSETS CONSIST OF:
Capital Stock $125,257,189
Undistributed net investment income 1,898
Accumulated net realized loss (190,587)
----------
Net Assets $125,068,500
==========
INSTITUTIONAL CLASS Y
Net Assets (in 000's) $35,121
Shares Authorized 200,000
Shares Issued and Outstanding 35,184
Net asset value and redemption price per share $1.00
RETAIL CLASS X
Net Assets (in 000's) $89,947
Shares Authorized 200,000
Shares Issued and Outstanding 90,079
Net asset value and redemption price per share $1.00
The accompanying notes are an integral part of the financial statements.
CASH RESERVE PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
INVESTMENT INCOME:
Interest income $6,994,714
----------
Total investment income 6,994,714
---------
EXPENSES:
Investment advisory fees 256,191
Administration fees 192,145
Shareholder service fees Class X 223,602
Distribution fees Class X 134,161
Professional fees 104,778
Depository fees 62,415
Directors fees 21,265
Registration fees 30,295
Transfer agent fees Class X 1,460
Transfer agent fees Class Y 2,920
Pricing 4,468
Printing and postage fees Class X 24,820
Printing and postage fees Class Y 5,110
Deferred organization expense 7,696
Miscellaneous expenses 6,128
---------
Total expenses 1,077,454
Less: Waiver by the Adviser/Administrator (264,627)
---------
Net expenses 812,827
----------
NET INVESTMENT INCOME 6,181,887
Net realized loss on investments (53,333)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $6,128,554
==========
The accompanying notes are an integral part of the financial statements.
CASH RESERVE PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31,DECEMBER 31,
1996 1995
------------ -----------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $6,181,887 $3,711,725
Net realized loss on investments (53,333) (14,488)
----------- ----------
Net increase in net assets resulting
from operations 6,128,554 3,697,237
CAPITAL TRANSACTIONS:
Proceeds from sales of shares 436,903,589 92,866,961
Reinvestment of dividends 4,890,666 3,961,848
Cost of shares redeemed (403,263,856)(62,832,764)
----------- ----------
Net increase in net assets resulting
from share transactions 38,530,399 33,996,045
DISTRIBUTIONS FROM NET INVESTMENT INCOME:
Class X Shares (4,204,427) (3,736,929)
Class Y Shares (1,975,562) --
----------- ----------
Total distributions (6,179,989) (3,736,929)
CAPITAL CONTRIBUTIONS -- 39,692
----------- ----------
Total increase in net assets 38,478,964 33,996,045
NET ASSETS:
Beginning of period 86,589,536 52,593,491
----------- ----------
End of period (including undistributed net
investment income of $1,898
and 0, respectively) $125,068,500 $86,589,536
=========== ==========
The accompanying notes are an integral part of the financial statements.
CASH RESERVE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - ORGANIZATION
Principal Preservation Cash Reserve Portfolio (the "Fund") is a separate series
of Principal Preservation Portfolios, Inc., (the "Company"), a Maryland
corporation organized in 1984. The Fund's investment objective is to seek high
current income to the extent consistent with stability of principal and the
maintenance of liquidity. The Company is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The Fund
commenced operations on April 5, 1993. Class Yshares were first offered on
January 1, 1996.
Through December 31, 1995, the Fund sought to achieve its investment objective
by investing all the investable assets in the Prime Money Market Portfolio (the
"Portfolio") a separate series of The Prime Portfolios, an open-end, diversified
management investment company. Prime had the same investment objectives as the
Fund.
Effective January 1, 1996, pursuant to an Agreement and Plan of Reorganization
and Liquidation dated December 8, 1995, this master/feeder fund structure was
unwound, and the Fund withdrew its investment in the Portfolio. The Fund was
restructured to increase its authorized capital from 300 million to 400 million
shares of the Company's authorized common stock, which were subdivided into two
separate classes of 200 million shares each: Class X Common Stock (Retail
Class) and Class Y Common Stock (Institutional Class). All shares of the Fund
outstanding immediately prior to this restructuring were redesignated (without
otherwise affecting their rights and preferences) as shares of the Retail Class.
Financial statements and results of operations presented herein as of and for
periods ended prior to January 1, 1996 reflect the performance of the Fund's
investments through Prime.
Each class of shares has identical rights and privileges, except with respect to
service organization fees and distribution fees paid by Class X Shares, voting
rights on matters affecting a single Class of shares and the exchange privileges
of each Class of shares.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies of the Fund:
a) VALUATION OF INVESTMENTS - Money market instruments are valued at amortized
cost, which the Directors have determined in good faith constitutes fair value.
The Fund's use of amortized cost is subject to the Fund's compliance with
certain conditions as specified under Rule 2a-7 of the Investment Company Act of
1940.
b) INTEREST INCOME - Interest income consists of interest accrued and discount
earned (including both original issue and market discount) on the investments of
the Fund, accrued ratably to the date of expected maturity. Premiums are
amortized on the investments of the Fund, accrued ratably to the date of
expected maturity.
c) FEDERAL INCOME TAXES - The Fund intends to distribute substantially all of
its taxable income to its shareholders and otherwise comply with the provisions
of the Internal Revenue Code applicable to regulated investment companies.
Accordingly, no provision for federal income or excise taxes is necessary. As of
December 31, 1996, the Fund has Federal income tax capital loss carryforwards of
$53,333 and $140,095 expiring in 2003 and 2002, respectively. It is management's
intention to make no distribution of any future realized capital gains until its
Federal income tax capital loss carry forward is exhausted.
d) DEFERRED ORGANIZATION EXPENSES - Expenses incurred by Class X in connection
with its organization and the initial public offering of its shares are being
amortized by the Fund over the period of benefit, but not to exceed five years
from the commencement of operations. These expenses were advanced by B.C.
Ziegler and Company ("BCZ"), a wholly-owned subsidiary of The Ziegler Companies,
Inc., who was reimbursed by the Fund.
e) EXPENSE ALLOCATION - The Fund bears all costs of its operations other than
expenses specifically assumed by BCZ. Expenses incurred by the Company with
respect to any two or more funds in the series are allocated in proportion to
the average net assets of each fund, except where allocations of direct expenses
in each fund can otherwise be made fairly. Net investment income, including
expenses, other than class specific expenses and realized and unrealized gains
and losses are allocated daily to each class of shares based upon the relative
net asset value of outstanding shares of each class of shares at the beginning
of the day.
f) 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 reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
g) OTHER - Investment transactions are accounted for on the date the security
is purchased or sold. The Fund has investments in repurchase agreements, which
are securities purchased from another party who agrees to repurchase the
security within a specified time period at a specified price. It is the policy
of the Fund to require the custodian bank to have legally segregated within the
Federal Reserve/Treasury book-entry system, all securities held as collateral in
support of the repurchase agreements. Procedures have been established by the
Fund to monitor the market value of the collateral to ensure the existence of a
proper level of collateral.
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less
than the repurchase price on the sale of the collateral securities.
NOTE 3 - TRANSACTIONS WITH AFFILIATES
a) ADMINISTRATION FEES - Pursuant to an Administrative Services Agreement,
Ziegler Asset Management, Inc. ("ZAMI"), a wholly-owned subsidiary of The
Ziegler Companies, Inc., provides the Fund general office facilities and
supervises the overall administration of the Fund. For these services, ZAMI
receives a fee computed daily and payable monthly totalling 0.15% of average
daily net assets up to $200 million, and 0.10% of such assets over $200 million.
For the year ended December 31, 1996, the Fund incurred administration fees of
$192,145. ZAMI voluntarily waived $264,627 of its collective advisory and
administrative fees during the year ended December 31, 1996. This waiver may be
discontinued at any time by ZAMI.
b) INVESTMENT ADVISORY FEES - ZAMI is also the Investment Adviser to the Fund.
For its services under the Investment Advisory Agreement, the advisor receives
from the Fund a fee accrued daily and paid monthly at an annual rate equal to
0.20% of the Portfolio's average daily net assets. For the year ended December
31, 1996, the Fund incurred total Advisory fees of $256,191.
c) DISTRIBUTION FEES - The Class X Retail Shares of the Fund has adopted a
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940. The Plan authorizes the Fund to make payments to BCZ to
reimburse BCZ for expenditures incurred in connection with the distribution of
Class X shares to investors. Under the Plan, payments made by the Fund may not
exceed 0.15% of average daily net assets of Class X shares. For the year ended
December 31, 1996, the Fund incurred distribution fees aggregating $134,161.
d) SHAREHOLDER SERVICING FEES - BCZ and certain other brokers and financial
institutions serve as shareholder servicing agents for shareholder accounts
opened and maintained through them by their customers in the Class X Retail
Shares. Under this agreement, BCZ receives a fee of up to 0.25% of the Retail
Class's average daily net assets representing shares owned by BCZ's customers
and held in accounts serviced by BCZ. BCZ also serves as transfer and dividend
disbursing agent for all shareholder accounts holding Class X shares which are
not serviced separately by a shareholder servicing agent and for all shareholder
accounts holding Class Y shares. Fees currently charged by BCZ to each class of
shares for this service are $16 per shareholder account. For the year ended
December 31, 1996, the Fund incurred shareholder servicing fees aggregating
$223,602.
e) DEPOSITORY FEES - The Fund has entered into an agreement with BCZ to
provide the Fund with depository services. For these services, the Fund
currently pays BCZ a fee based on average daily net assets, computed monthly, at
an annual rate of 0.055% on the first $50 million of net assets, 0.035% on the
next $150 million of such assets, 0.030% on the next $300 million and 0.025% on
amounts over $500 million of such assets. For the year ended December 31, 1996,
the Fund incurred total depository fees of $62,415.
f) FUND ACCOUNTING FEES - The Fund has entered into an agreement with BCZ to
provide the Fund with Accounting/Pricing services. For these services, the Fund
currently pays BCZ a base fee of $15,000 and a fee based on average daily net
assets, computed monthly at an annual rate of 0.04% on net assets between $50
million and $100 million, 0.03% on the next $100 million of such assets, and
0.01% on amounts over $200 million of such assets. For the year ended December
31, 1996, the Fund incurred total fund accounting fees of $45,625.
NOTE 4 - INVESTMENT TRANSACTIONS
Purchases and sales (including maturities) of U.S. Government securities,
excluding all short-term securities, aggregated $12,048,957 and $28,288,207,
respectively.
NOTE 5 - CAPITAL CONTRIBUTION
During the year ended December 31, 1995, BCA contributed capital to the Cash
Reserve Portfolio to offset 1995 realized losses of $14,488 and 1994 realized
losses of $25,204. Neither BCZ nor any of its affiliates received any shares of
common stock or any other consideration in exchange for this contribution which
further increased the assets of the Fund.
NOTE 6 - CAPITAL SHARE TRANSACTIONS
In connection with the restructuring described in Note 1, effective at the open
of business on January 1, 1996 all previously outstanding shares of Cash Reserve
Portfolio were reclassified as Class X Retail Shares. At the same time, Class Y
Institutional Shares were issued in exchange for outstanding shares of Prospect
Hill Prime Money Market Fund, a series of Prospect Hill Trust, which, like the
Fund, prior to that time had invested all of its investable assets in Prime.
Transactions in capital shares for the Fund, in thousands, were as follows:
CLASS X CLASS Y
------- -------
SHARES OUTSTANDING
AT DECEMBER 31, 1995 86,687 0
Shares sold 93,195 343,755
Shares reinvested 4,204 686
Shares redeemed (94,007) (309,257)
-------- ---------
SHARES OUTSTANDING
AT DECEMBER 31, 1996 90,079 35,184
======= ========
<TABLE>
<CAPTION>
CASH RESERVE PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
PRINCIPAL MATURITY INTEREST VALUE
AMOUNT DATE RATE (NOTE 2A)
--------- -------- -------- ---------
<S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 30.6%
$2,000,000 U.S. Treasury Note 2/28/97 6.875% $2,005,172
----------
Total Treasuries 2,005,172
----------
FEDERAL FARM CREDIT BANK ("FFCB")
3,000,000 FFCB Note 3/3/97 4.950 2,998,890
----------
Total Federal Farm Credit Bank 2,998,890
----------
FEDERAL HOME LOAN BANK ("FHLB")
2,155,000 FHLB Discount Note 1/30/97 5.270 2,145,851
2,650,000 FHLB Discount Note 1/8/97 5.470 2,647,181
3,000,000 FHLB Discount Note 1/28/97 5.410 2,987,827
2,000,000 FHLB Note 3/4/97 4.940 1,999,432
----------
Total Federal Home Loan Bank 9,780,291
----------
FEDERAL HOME LOAN MORTGAGE CORPORATION ("FHLMC")
3,000,000 FHLMC Discount Note 1/31/97 5.320 2,986,700
3,000,000 FHLMC Discount Note 1/14/97 5.280 2,994,280
3,000,000 FHLMC Discount Note 1/8/97 5.350 2,996,879
----------
Total Federal Home Loan Mortgage Corporation 8,977,859
----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FNMA")
1,500,000 FNMA Discount Note 1/14/97 5.270 1,497,145
3,000,000 FNMA Discount Note 1/16/97 5.300 2,993,375
2,000,000 FNMA Discount Note 1/24/97 5.400 1,993,100
3,000,000 FNMA Discount Note 1/3/97 5.270 2,999,122
----------
Total Federal National Mortgage Association 9,482,742
----------
STUDENT LOAN MARKETING ASSOCIATION ("SLMA")
5,000,000 SLMA Discount Note 1/2/97 6.300 4,999,125
----------
Total Student Loan Marketing Association 4,999,125
----------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS 38,244,079
----------
The accompanying notes to financial statements are an integral part of this
schedule.
</TABLE>
<TABLE>
<CAPTION>
CASH RESERVE PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
PRINCIPAL MATURITY INTEREST VALUE
AMOUNT DATE RATE (NOTE 2A)
--------- -------- -------- ---------
<S> <C> <C> <C>
SHORT TERM -- 69.4%
COMMERCIAL PAPER
$2,500,000 American General Finance Corporation 1/31/97 5.500% $2,488,542
2,000,000 American General Finance Corporation 1/21/97 5.310 1,994,100
1,500,000 American General Finance Corporation 1/6/97 5.310 1,498,894
3,000,000 American Express Credit Corporation 1/6/97 5.450 2,997,729
3,000,000 American Express Credit Corporation 1/30/97 5.330 2,987,119
3,000,000 Associates Corporation 1/17/97 5.320 2,992,907
3,000,000 Associates Corporation 1/15/97 5.320 2,993,793
2,000,000 The CIT Group Holdings Corporation 1/7/97 5.300 1,998,233
2,000,000 The CIT Group Holdings Corporation 2/13/97 5.410 1,987,076
2,000,000 The CIT Group Holdings Corporation 1/15/97 5.420 1,995,784
3,000,000 Commercial Credit Corporation 1/13/97 5.350 2,994,650
3,000,000 Commercial Credit Corporation 1/24/97 5.300 2,990,014
3,000,000 E.I. du Pont de Nemours and Company 1/22/97 5.260 2,990,795
3,000,000 E.I. du Pont de Nemours and Company 1/7/97 5.250 2,997,375
4,000,000 Ford Motor Credit Corporation 1/8/97 5.310 3,995,870
2,000,000 Ford Motor Credit Corporation 1/23/97 5.340 1,993,473
3,000,000 General Electric Capital Corporation 1/23/97 5.400 2,990,100
3,000,000 General Electric Capital Corporation 2/13/97 5.370 2,980,758
3,000,000 Household Finance Corporation 1/14/97 5.400 2,994,134
3,000,000 Household Finance Corporation 1/28/97 5.320 2,988,030
3,500,000 Marshall & Ilsley Corporation 1/30/97 5.360 3,484,888
2,500,000 Marshall & Ilsley Corporation 2/4/97 5.370 2,487,321
3,000,000 Norwest Financial Corporation 1/6/97 5.310 2,997,791
3,000,000 Norwest Financial Corporation 1/31/97 5.500 2,986,250
----------
Total Commercial Paper 65,805,626
----------
REPURCHASE AGREEMENT
21,051,550 First Boston Corporation 1/2/97 6.500 21,051,550
----------
(Agreement dated 12/31/96, collateralized by
$19,840,000 par value in U.S. Treasury Notes
due 8/15/04, $21,580,650 market value)
Total Repurchase Agreement 21,051,550
----------
TOTAL SHORT TERM 86,857,176
----------
Total Investments, at Amortized Cost $125,101,255
============
The accompanying notes to financial statements are an integral part of this
schedule.
</TABLE>
CASH RESERVE PORTFOLIO
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Principal Preservation Portfolios, Inc. and the
Shareholders of the Cash Reserve Portfolio:
We have audited the accompanying balance sheet, including the schedule of
investments, of the PRINCIPAL PRESERVATION PORTFOLIOS, INC. (a Maryland
corporation) Cash Reserve Portfolio as of December 31, 1996, and the related
statement of operations, statement of changes in net assets and financial
highlights for the year then ended. 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 audit. The statement of changes in net assets for the year ended
December 31, 1995 and the financial highlights for the year ended December 31,
1995 and all prior periods presented were audited by other auditors whose report
dated February 26, 1996 expressed an unqualified opinion.
We conducted our audit 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 audit provides 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. Cash Reserve Portfolio as of December
31, 1996, the results of its operations, the changes in its net assets and
financial highlights for the year then ended, 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 ADVISOR AND ADMINISTRATOR
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
DISTRIBUTOR, DEPOSITORY, TRANSFER AND DIVIDEND
DISBURSING AGENT, ACCOUNTING/PRICING AGENT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
COUNSEL
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
This report has been prepared for the information of shareholders of Principal
Preservation Portfolios, Inc. Cash Reserve Portfolio, and may not be used in
connection with the offering of securities unless preceded or accompanied by a
current Prospectus.
PP 178-2/97
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 ADVISOR AND ADMINISTRATOR
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
DISTRIBUTOR, DEPOSITORY, TRANSFER AND DIVIDEND
DISBURSING AGENT, ACCOUNTING/PRICING AGENT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
COUNSEL
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
This report has been prepared for the information of shareholders of Principal
Preservation Portfolios, Inc. Cash Reserve Portfolio, and may not be used in
connection with the offering of securities unless preceded or accompanied by a
current Prospectus.
PP 809-2/97
