SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. __)
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Section 240.14a-12
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
(Name of Registrant as Specified in Its Charter)
Not Applicable
------------------------
(Name of Person(s) Filing Proxy Statement if other than the
Registrant)
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PRINCIPAL PRESERVATION PORTFOLIOS, INC.
SELECT VALUE PORTFOLIO
215 North Main Street
West Bend, Wisconsin 53095-3317
(414) 334-5521
June 12, 1998
Dear Select Value Portfolio Shareholder:
Enclosed is a notice of a Special Meeting of Shareholders of the Select Value
Portfolio (the "Fund") of Principal Preservation Portfolios, Inc. ("Principal
Preservation") to be held on Tuesday, July 21, 1998, together with a Proxy
Statement and Form of Proxy relating to the business to be transacted at the
meeting.
The Special Meeting of Shareholders is being called for the purpose of
approving a new Sub-Advisory Agreement (the "New Sub-Advisory Agreement") among
Principal Preservation (on behalf of the Fund), Ziegler Asset Management, Inc.
("ZAMI") and Skyline Asset Management, L.P. ("Skyline"). The parties entered
into the New Sub-Advisory Agreement effective May 28, 1998 in connection with
the deemed indirect change of control of Skyline. Such change of control may
constitute a technical assignment of the previous Sub-Advisory Agreement with
Skyline resulting in its automatic termination. Provisions of federal
securities laws provide for the automatic termination of advisory contracts
upon their assignment and require shareholder approval of new advisory
contracts. Federal securities laws permit the New Sub-Advisory Agreement to
become effective immediately so long as it is approved by shareholders of the
Fund within 120 days after termination of the previous Sub-Advisory
Agreement.
We regret having to seek your approval of a New Sub-Advisory Agreement so
soon after holding a special shareholders meeting on other matters, but these
matters are outside of our control. We have only recently become aware of
the indirect change of control of Skyline.
THE TERMS OF THE NEW SUB-ADVISORY AGREEMENT, INCLUDING SUB-ADVISORY FEES, ARE
IDENTICAL TO THOSE OF THE PREVIOUS SUB-ADVISORY AGREEMENT (EXCEPT FOR THE
EFFECTIVE AND TERMINATION DATES). UNDER THE NEW SUB-ADVISORY AGREEMENT, SKYLINE
WILL CONTINUE TO MANAGE THE ASSETS OF THE SELECT VALUE PORTFOLIO PURSUANT TO THE
SAME INVESTMENT OBJECTIVES AND POLICIES PRESENTLY IN EFFECT FOR THE FUND, AND
THE TEAM OF INVESTMENT PROFESSIONALS AND ANALYSTS AT SKYLINE HEADED BY THE
CURRENT PORTFOLIO MANAGER WILL CONTINUE TO BE RESPONSIBLE FOR MAKING INVESTMENT
DECISIONS FOR THE FUND.
The Board of Directors has unanimously approved the New Sub-Advisory
Agreement and recommends that the shareholders of the Select Value Portfolio
approve the New Sub-Advisory Agreement. Affiliates of Skyline will bear all
costs of this proxy solicitation and any costs related to the Special Meeting of
Shareholders. The Fund will not be responsible for any of these costs.
Thank you for your continued confidence in Principal Preservation Portfolios,
Inc. Your cooperation and participation in completing and returning the
enclosed proxy will ensure that your vote is counted.
Very truly yours,
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
/s/ Robert J. Tuszynski
Robert J. Tuszynski
President
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
SELECT VALUE PORTFOLIO
215 North Main Street
West Bend, Wisconsin 53095-3317
(414) 334-5521
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
on July 21, 1998
TO SHAREHOLDERS OF THE SELECT VALUE PORTFOLIO:
A Special Meeting of Shareholders of the Select Value Portfolio (the "Fund")
of the Principal Preservation Portfolios, Inc. will be held on Tuesday, July 21,
1998 at 3:00 p.m., local time, at the West Bend Inn, 2520 West Washington
Street, West Bend, Wisconsin, for the following purposes:
1. To approve, with respect to the Fund, a new Sub-Advisory Agreement by and
among Principal Preservation Portfolios, Inc., on behalf of the Fund, Ziegler
Asset Management, Inc. and Skyline Asset Management, L.P. ("Skyline"), pursuant
to which Skyline will continue to serve as sub-adviser with respect to the
assets of the Fund. The new Sub-Advisory Agreement requires shareholder
approval because the previous Sub-Advisory Agreement with Skyline terminated
automatically due to its technical assignment resulting from transactions
indirectly affecting Skyline. The new Sub-Advisory Agreement is identical to
the previous Sub-Advisory Agreement (other than with respect to effective and
termination dates), and does not change the fees paid to Skyline, the Fund's
investment objective, policies and strategies or the composition of Skyline's
portfolio management team responsible for making investment decisions for the
Fund. A copy of the new Sub-Advisory Agreement is attached as Appendix A to the
enclosed Proxy Statement; and
2. To transact such other business as properly may come before the meeting or
an adjournment thereof.
The Board of Directors has fixed the close of business on June 1, 1998 as the
record date for determining shareholders entitled to notice of, and to vote at,
the Special Meeting and any adjournment thereof. Only shareholders of record at
the close of business on that date will be entitled to vote.
Your attention is invited to the Proxy Statement accompanying this notice for
more complete information regarding the matters to be acted upon at the Special
Meeting.
By Order of the Board of Directors
/s/ S. CHARLES O'MEARA
S. CHARLES O'MEARA
Secretary
West Bend, Wisconsin
June 12, 1998
YOUR VOTE IS IMPORTANT. IN ORDER TO AVOID THE ADDITIONAL EXPENSE OF A SECOND
SOLICITATION, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT
PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
PROXY STATEMENT
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
SELECT VALUE PORTFOLIO
215 North Main Street
West Bend, Wisconsin 53095-3317
(414) 334-5521
SOLICITATION, PURPOSE AND VOTING
SOLICITATION
The enclosed Proxy is being solicited by the Board of Directors of the
Principal Preservation Portfolios, Inc. ("Principal Preservation") in connection
with the Special Meeting of Shareholders of the Select Value Portfolio (the
"Fund") to be held on Tuesday, July 21, 1998, at 3:00 p.m., local time, at the
West Bend Inn, 2520 West Washington Street, West Bend, Wisconsin, or any
adjournment thereof (the "Special Meeting"). You are encouraged to read
carefully this Proxy Statement and mark and return the accompanying proxy.
PURPOSE
The purpose of the Special Meeting is to consider and vote upon a proposal to
approve a new Sub-Advisory Agreement (the "New Sub-Advisory Agreement") among
Principal Preservation (on behalf of the Fund), Ziegler Asset Management, Inc.
("ZAMI" or the "Adviser"), as the investment adviser of the Fund, and Skyline
Asset Management, L.P., a Delaware limited partnership and sub-adviser for the
Fund ("Skyline"). The New Sub-Advisory Agreement became effective on May 28,
1998 following the occurrence of an indirect change of control of Skyline's
general partner, Affiliated Managers Group, Inc. Approval by the Fund
shareholders of the New Sub-Advisory Agreement is required because such a
change of control could be deemed to be a technical assignment of the previous
Sub-Advisory Agreement resulting in its automatic termination. Under provisions
of the Investment Company Act of 1940 (the "1940 Act"), advisory contracts
terminate automatically if assigned, and new advisory contracts require
shareholder approval. A change in control of an adviser is deemed an assignment
of the adviser's advisory contracts. In accordance with Rule 15a-4 under the
1940 Act, the Fund is seeking to obtain shareholder approval of the New Sub-
Advisory Agreement within 120 days following termination of the previous
Sub-Advisory Agreement.
Under the New Sub-Advisory Agreement, Skyline will continue to serve as Sub-
Adviser to the Fund on terms and conditions identical to those of the previous
Sub-Advisory Agreement pursuant to which Skyline provides sub-advisory services
to the Fund. See "Proposal 1 -- Approval of New Sub-Advisory Agreement" below.
QUORUM AND VOTING
Shares represented by properly executed proxies received by Principal
Preservation will be voted at the Special Meeting and any adjournment thereof in
accordance with the terms of such proxies. However, if no instructions are
specified, shares will be voted "FOR" approval of the New Sub-Advisory Agreement
under Proposal 1, and in the discretion of the persons named in the proxy on
Proposal 2. A shareholder may revoke his or her proxy at any time prior to the
voting thereof by filing a written notice of revocation with the Secretary of
Principal Preservation, by delivering a duly executed proxy bearing a later
date, or by attending the Special Meeting and voting his or her shares in
person.
The presence at the meeting, in person or by proxy, of shareholders
representing one-third of all shares of the Fund outstanding and entitled to
vote on a matter constitutes a quorum for the transaction of business. In
tabulating votes on any matter, abstentions and broker non-votes (i.e., proxies
from brokers or nominees indicating that such persons have not received
instructions from the beneficial owners or other persons entitled to vote shares
as to a matter with respect to which the brokers or nominees do not have
discretionary power to vote) will be treated as present for purposes of
determining the presence or absence of a quorum.
Approval of the New Sub-Advisory Agreement (Proposal 1) requires the
affirmative vote of "a majority of the outstanding voting securities" of the
Fund, which is defined under the 1940 Act to mean at least a majority of the
outstanding voting shares of the Fund or, if less, 67% of the voting shares
represented at a meeting at which the holders of 50% or more of the outstanding
voting shares of the Fund are present or represented by proxy. Accordingly,
abstentions and broker non-votes will have the same effect as votes cast against
approval of the New Sub-Advisory Agreement.
Shareholders of record of the Select Value Portfolio at the close of business
on June 1, 1998 will be entitled to one vote on each matter presented for each
share so held. At that date, there were 843,270 shares of the Fund outstanding.
UPON REQUEST AND AT NO COST TO A REQUESTING SHAREHOLDER, THE FUND WILL MAIL,
BY FIRST-CLASS MAIL, COPIES OF ITS ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR
ENDED DECEMBER 31, 1997. REQUESTS SHOULD BE DIRECTED TO THE ATTENTION OF MR.
ROBERT J. TUSZYNSKI, PRESIDENT OF PRINCIPAL PRESERVATION PORTFOLIOS, INC., 215
NORTH MAIN STREET, WEST BEND, WISCONSIN 53095, TELEPHONE: 1-800-826-4600.
This proxy material is being mailed to shareholders on or about June 12,
1998.
PROPOSAL 1 -- APPROVAL OF NEW SUB-ADVISORY AGREEMENT
BACKGROUND
The Special Meeting has been called for the purpose of considering the
adoption of the New Sub-Advisory Agreement for the Fund. A technical assignment
of the previous Sub-Advisory Agreement among Principal Preservation, on behalf
of the Fund, the Adviser and Skyline, dated August 30, 1995 (the "Previous Sub-
Advisory Agreement"), may be deemed to have occurred in connection with
transactions that may have resulted in an indirect change in control of Skyline,
as described below (the "Transaction"). Under provisions of the 1940 Act, the
Previous Sub-Advisory Agreement may be deemed to have terminated automatically
in connection with the Transaction because a change in control of Skyline is
deemed an assignment of the agreement. See "Description of the Transaction."
In order to eliminate any uncertainty about Skyline's ability to continue to
provide advisory services to the Fund notwithstanding the occurrence of the
Transaction, Principal Preservation, on behalf of the Fund, the Adviser and
Skyline have entered into the New Sub-Advisory Agreement, which became effective
on May 28, 1998. The New Sub-Advisory Agreement has terms and conditions
(including the rate of compensation to be paid to Skyline thereunder) identical
to those of the Previous Sub-Advisory Agreement (except with respect to
effective and termination dates). Provisions of the 1940 Act require that the
New Sub-Advisory Agreement must be approved by the shareholders of the Fund
within 120 days following termination of the Previous Sub-Advisory Agreement on
May 28, 1998. Accordingly, shareholders are being asked to approve the New
Sub-Advisory Agreement at the Special Meeting. A copy of the New Sub-Advisory
Agreement is attached as Appendix A to this Proxy Statement.
----------
DESCRIPTION OF PREVIOUS SUB-ADVISORY AGREEMENT
Ziegler Asset Management, Inc., 215 North Main Street, West Bend, Wisconsin
53095, is the investment adviser for the Fund, as well as the other seven
portfolios of Principal Preservation. The Investment Advisory Agreement between
the Adviser and Principal Preservation, dated December 29, 1995 (the "Advisory
Agreement"), is not affected by the Transaction and will remain in full force
and effect regardless of whether the New Sub-Advisory Agreement is approved.
Under the terms of the Advisory Agreement, the fee payable by the Fund to the
Adviser, which is calculated daily and paid monthly, is at the annual rate of
0.75 of 1% of the Fund's average daily net assets up to $250 million, and at the
annual rate of 0.65 of 1% of the Fund's net assets in excess of $250 million.
The Adviser and Principal Preservation (acting on behalf of the Fund)
retained Skyline to serve as the Sub-Adviser to the Fund under the terms of the
Previous Sub-Advisory Agreement. The shareholders of the Fund approved the
Previous Sub-Advisory Agreement on August 30, 1995. Under the Previous Sub-
Advisory Agreement, Skyline, subject to the direction and control of the Adviser
and the Board of Directors of Principal Preservation, determined the securities
that were purchased or sold by the Fund, arranged for their purchase and sale
and rendered other assistance to the Adviser in formulating and implementing the
investment program of the Fund. Skyline furnished or paid for all facilities,
equipment and supplies required for it to carry out its duties under the
Previous Sub-Advisory Agreement, including, but not limited to, office space,
office equipment, furnishings and personnel. Under the Previous Sub-Advisory
Agreement, Skyline received a fee, calculated daily and paid monthly out of the
fee paid to the Adviser under the Advisory Agreement, at an annual rate of 0.375
of 1% of the Fund's average daily net assets up to $250 million, 0.350 of 1% of
the next $250 million of the Fund's average daily net assets, and 0.325 of 1% of
average daily net assets in excess of $500 million.
Unless earlier terminated as described below, the Previous Sub-Advisory
remained in effect from year to year only so long as such continuance was
specifically approved at least annually in the manner required under the 1940
Act. The 1940 Act provides that the requisite approval shall be deemed to have
been obtained only if the Previous Sub-Advisory Agreement was specifically
approved at least annually: (i) by the vote of a majority of the Directors who
are not parties to the Previous Sub-Advisory Agreement or "interested persons"
(as defined in the 1940 Act) of any such party cast in person at a meeting
called for the purpose of voting on such approval; and (ii) either by the vote
of a majority of the entire Board of Directors or by the vote of the holders of
a "majority" (as defined in the 1940 Act) of the outstanding voting securities
of the Fund.
The Previous Sub-Advisory Agreement further provided that it may be
terminated by the Sub-Adviser at any time without penalty upon giving Principal
Preservation and the Adviser sixty (60) days written notice, and could be
terminated by Principal Preservation or the Adviser at any time without penalty
upon giving the Sub-Adviser sixty (60) days written notice, provided that such
termination by Principal Preservation was directed or approved by the vote of a
majority of all of its Directors in office at the time or by the vote of the
holders of a "majority" (as defined in the 1940 Act) of the voting securities of
the Fund. In addition, the Previous Sub-Advisory Agreement automatically
terminated in the event of its "assignment" (as defined in the 1940 Act to
include assignment in connection with certain transactions affecting Skyline,
which includes the Transaction) and in the event that the Advisory Agreement was
terminated.
DESCRIPTION OF NEW SUB-ADVISORY AGREEMENT
The New Sub-Advisory Agreement differs from the Previous Sub-Advisory
Agreement only with respect to the effective date and termination date. In all
other respects, the New Sub-Advisory Agreement and the Previous Sub-Advisory
Agreement are identical. The effective date of the New Sub-Advisory Agreement
is May 28, 1998. Subject to compliance with Rule 15a-4 under the 1940 Act, as
described under "Consequences of the Transaction" below, the New Sub-Advisory
Agreement will expire two years after its effective date, unless approved for
annual continuance prior to that time in accordance with the procedures
described above for the Previous Sub-Advisory Agreement.
The New Sub-Advisory Agreement, like the Previous Sub-Advisory Agreement,
provides that Skyline (and its officers, directors, agents, employees,
controlling persons, shareholders and any other person or entity affiliated with
the Skyline) shall not be liable to Principal Preservation or its shareholders
for any loss suffered as a consequence of any act or omission of Skyline or any
of the foregoing related parties or entities in connection with the New Sub-
Advisory Agreement except by reason of its willful misfeasance, bad faith or
gross negligence in the performance of its duties or by reason of reckless
disregard of its obligations under the New Sub-Advisory Agreement.
APPROVAL REQUIRED
In order to be approved, the New Sub-Advisory Agreement must receive the
affirmative vote of at least a majority of the outstanding shares of the Fund,
or if less, 67% of the shares represented at a meeting of shareholders at which
the holders of 50% or more of the outstanding shares of the Fund are present or
represented by proxy.
DESCRIPTION OF THE TRANSACTION
Skyline is controlled by its general partner, Affiliated Managers Group, Inc.
("AMG"). AMG is a public company, more than 25% of the outstanding voting
common stock of which was owned, prior to the Transaction, by a number of
private equity funds ultimately managed by TA Associates, Inc. ("TA"). As a
result, prior to the Transaction, TA may have been deemed to control AMG and
Skyline for purposes of the 1940 Act.
The Fund has been advised that TA caused one of the funds it manages to
distribute AMG voting stock to investors of such fund and that certain shares of
AMG non-voting stock were converted by their holder into AMG voting stock. The
result of these events (which are collectively referred to herein as the
"Transaction") has reduced the percentage of voting stock of AMG beneficially
owned by TA to below 25% (the level deemed to constitute control), which in
turn could be deemed to constitute a change in control of Skyline.
CONSEQUENCES OF THE TRANSACTION
The Transaction has led to a deemed indirect change of control of Skyline,
which may constitute an assignment of the Previous Sub-Advisory Agreement under
the 1940 Act, resulting in its automatic termination. In order to enable
Skyline to continue providing sub-advisory services to the Fund notwithstanding
this assignment, the Adviser, Skyline and the Fund entered into the New Sub-
Advisory Agreement, which became effective on May 28, 1998, subject to approval
by shareholders of the Fund. The 1940 Act prohibits any person from providing
advisory or sub-advisory services to an investment company for a fee, except
pursuant to a written agreement approved by shareholders of the fund. Because
of the circumstances under which the Transaction occurred, this approval may be
obtained at any time within 120 days after the Transaction (and resulting
termination of the Previous Sub-Advisory Agreement) in accordance with Rule
15a-4 under the 1940 Act.
Rule 15a-4 provides that, when an investment advisory (or sub-advisory)
contract terminates automatically by reason of a change-in-control transaction
affecting the adviser (or sub-adviser) under specified circumstances, the
adviser (or sub-adviser) and investment company may enter into a new contract
and the adviser (or sub-adviser) may provide investment advisory services under
the new contract for a period of up to 120 days pending approval of the new
contract by the shareholders of the investment company.
If the New Sub-Advisory Agreement is not approved by the shareholders of the
Fund within 120 days following termination of the Previous Sub-Advisory Agree-
ment, the Directors of Principal Preservation will consider what course of
action to pursue with respect to the Fund. Such course of action could involve
seeking to engage Skyline to provide investment management services on an
interim basis (subject to any required regulatory action) during the period
required to obtain approval by shareholders of the New Sub-Advisory Agreement
or another sub-advisory agreement with Skyline, having the Adviser assume
responsibilities for the management of the assets of the Fund pursuant to the
Advisory Agreement, or seeking to make other arrangements for obtaining such
services from another source, as the Directors consider appropriate.
COMPLIANCE WITH SECTION 15(F) OF THE 1940 ACT
Section 15(f) of the 1940 Act permits Skyline or any of its affiliates to
receive any compensation or benefit in connection with a change-in-control
transaction, provided two conditions are satisfied.
First, no unfair burden may be imposed on the Fund as a result of the
transaction or any expressed or implied terms, conditions or understandings,
applicable thereto. The term "unfair burden," as defined in the 1940 Act,
includes any arrangement during the two-year period after the transaction
whereby Skyline (or any predecessor or successor sub-adviser), or any interested
person of Skyline or of such predecessor or successor sub-adviser, receives or
is entitled to receive any compensation, directly or indirectly from the Fund or
its security holders (other than fees for bona fide sub-advisory or other
services) or from any person in connection with the purchase or sale of
securities or any property to, from, or on behalf of the Fund (other than fees
for bona fide principal underwriting services). No such compensation
arrangements were associated with the Transaction.
The second condition is that, during the three-year period immediately
following consummation of the Transaction, at least 75% of Principal
Preservation's Board of Directors must not be "interested persons" (as that
term is defined in the 1940 Act) of Skyline. None of the members of Principal
Preservation's Board of Directors presently are "interested persons" with
respect to Skyline, nor are they expected to be following the Transaction.
Accordingly, the conditions of Section 15(f) of the 1940 Act are expected to be
met in connection with the Transaction.
INFORMATION CONCERNING SKYLINE
Skyline Asset Management, L.P., 311 South Wacker Drive, Suite 4500, Chicago,
Illinois 60606, is the sub-adviser for the Fund. Skyline is a Delaware limited
partnership and registered with the Securities and Exchange Commission
(the "SEC") as an investment adviser.
Skyline's general partner is Affiliated Managers Group, Inc. See
"Information concerning AMG" below. The limited partners of Skyline are
corporations wholly owned by five Skyline officers, William M. Dutton, Kenneth
S. Kailin, Stephen F. Kendall, Geoffrey P. Lutz and Michael Maloney
The officers of Skyline manage its day-to-day operations and investment
advisory business. AMG does not manage the day-to-day operations of Skyline, nor
does it participate in the investment process. Neither AMG nor TA has the power
or authority to participate in the day-to-day management or operations of
Skyline under Skyline's organizational documents. Skyline has advised the Fund
that the Transaction will have no effect on the management or operations of
Skyline.
William M. Dutton has been Managing Partner and Chief Investment Officer of
Skyline since 1998; under the partnership agreement of Skyline, Mr. Dutton is,
and has been since September 1995, its President and Chief Executive Officer.
Mr. Dutton serves as a member of the Skyline team responsible for managing the
Fund's assets. He was Executive Vice President of Mesirow Asset Management,
Inc. from April 1984 to August 1995. Mr. Dutton is also President and a Trustee
of Skyline Funds, a registered investment company. Mr. Dutton is the portfolio
manager for the Skyline Funds' Special Equities Portfolio, having served in such
capacity since 1987, and manages the portfolio of a private investment
partnership and separately managed accounts. Mr. Dutton, who is a certified
public accountant, received an undergraduate degree in English Literature from
Princeton University, and a master's degree in accounting from the University of
Illinois.
Kenneth S. Kailin has been Partner and Portfolio Manager of Skyline since
1998. He was Principal - Portfolio Manager of Skyline from September 1995 until
1998. Mr. Kailin, as portfolio manager for the Fund, heads up the team that
manages the Fund's assets. Mr. Kailin is also an Executive Vice President of
Skyline Funds and portfolio manager of the Skyline Small Cap Value Plus
Portfolio. He was Senior Vice President of Mesirow Asset Management, Inc. from
April 1987 to August 1995. Prior to his work in the investment field, Mr.
Kailin was employed in the banking industry. Mr. Kailin received his Bachelor
of Science degree in Finance from Indiana University and his M.B.A. degree from
the University of Chicago. In addition, he is a Chartered Financial Analyst.
Stephen F. Kendall is Partner and Chief Operating Officer of Skyline. Mr.
Kendall has served in such capacity since February 1998. Mr. Kendall is also an
Executive Vice President of Skyline Funds. He was Regional Vice President,
Metro Region of Nabisco Biscuit Company from January 1996 to January 1998, and
held various other positions with Nabisco from 1983 to 1996. Mr. Kendall
received a Bachelor of Arts degree from Miami University of Ohio.
Geoffrey P. Lutz has been Partner, Institutional Marketing of Skyline since
1998. He was Principal - Marketing of Skyline from September 1995 until 1998.
He is also an Executive Vice President of Skyline Funds. Mr. Lutz formerly was
Vice President of Mesirow Asset Management, Inc. from May 1992 to August 1995.
Prior thereto, he was a Registered Representative for Mesirow Financial, Inc.
and Mesirow Investment Services, Inc., registered broker-dealers and investment
advisers. Mr. Lutz holds a Bachelor of Arts degree from Loyola University.
Michael Maloney has been Partner and Senior Securities Analyst of Skyline
since 1998. He was Principal - Securities Analyst from September 1995 until
1998. He is a Senior Vice President of Skyline Funds. Mr. Maloney was
Securities Analyst for Mesirow Asset Management, Inc. from February 1993 to
August 1995. Previously, Mr. Maloney was a vice president and investment
analyst at Baker, Fentress & Company, a closed-end management investment
company. Mr. Maloney earned his Bachelor of Arts degree from DePaul University
and his M.B.A. in Finance from the University of Wisconsin- Madison. He is a
Chartered Financial Analyst.
Skyline serves as investment adviser to Skyline Funds' three portfolios.
Each of these portfolios has as its investment objective to seek maximum capital
appreciation primarily through investment in common stocks that Skyline
considers undervalued. Skyline Special Equities Portfolio (closed to new
investors) emphasizes investments in small companies whose outstanding shares
have an aggregate market value of less than $1 million. Skyline Small Cap
Contrarian Portfolio emphasizes investments in small companies whose outstanding
shares have an aggregate market value of $50 million to $2 billion. Skyline
Small Cap Value Plus Portfolio emphasizes investments in small companies whose
outstanding shares have an aggregate market value under $2 billion.
As of December 31, 1997, the total net assets of the three Skyline Funds were
$467,069,690 for the Skyline Special Equities Portfolio, $165,686,772 for the
Skyline Small Cap Value Portfolio, and $4,752,517 for the Skyline Small Cap
Contrarian Portfolio. Skyline's annual rate of compensation for each of these
portfolios is equal to 1.50% of the first $200 million of average daily net
assets, 1.45% of the next $200 million, 1.40% of the next $200 million, and
1.35% of average daily net assets in excess of $600 million. The compensation
to Skyline with respect to each of these portfolios is a comprehensive fee for
management and advisory services and for the assumption of ordinary operating
expenses of the portfolios. Skyline has agreed to reimburse each of these
portfolios to the extent that, in any fiscal year, the Portfolio's aggregate
expenses (including advisory fees and reimbursement of organizational expenses
but excluding extraordinary costs), exceed an annual rate of 1.75%, 1.75% and
2.00% for the Skyline Special Equities Portfolios, the Skyline Small Cap
Contrarian Portfolio and the Skyline Small Cap Value Plus Portfolio,
respectively.
INFORMATION CONCERNING AMG
Affiliated Managers Group, Inc., a Delaware corporation, is the general
partner of Skyline. AMG, a publicly traded company on the New York Stock
Exchange, is an asset management holding company that acquires interests in
investment management firms. Since its founding in December 1993, AMG has grown
to 10 investment management firms with over $40 billion in assets under
management. The executive offices of AMG are located at Two International
Place, 23rd Floor, Boston, Massachusetts 02110.
A group of private investment funds ultimately managed by TA collectively
owned over 25% of the outstanding voting securities of AMG until the Transaction
which reduced TA's ownership to less than 25%. TA, a Boston-based private
equity investment firm, co-founded AMG. Until the Transaction, TA may have been
deemed to "control" AMG for purposes of the 1940 Act and thus may have been
deemed to control Skyline. TA's address is High Street Tower, Suite 2500, 125
High Street, Boston, Massachusetts 02110.
DIRECTORS' CONSIDERATIONS AND RECOMMENDATION
In considering the New Sub-Advisory Agreement, the Board of Directors of
Principal Preservation carefully evaluated a number of relevant factors,
including but not limited to: (1) a comparison of the fees and expense ratios
(including advisory fees) of the Fund to those of other similar mutual funds;
(2) the historical performance of the Fund, including the Fund's performance
during the time Skyline has served as its sub-adviser ; (3) the nature and
quality of the services that have been rendered and are expected to be rendered
to the Fund by Skyline; (4) the distinct investment objectives and policies of
the Fund; (5) the fact that the compensation payable to Skyline under the New
Sub-Advisory Agreement is at the same rate as the compensation payable to
Skyline under the Previous Sub-Advisory Agreement; (6) the fact that the terms
of the New Sub-Advisory Agreement are identical to those of the Previous Sub-
Advisory Agreement; (7) the history, reputation, qualification and background of
Skyline and AMG, as well as the qualifications of their personnel and their
respective operations and financial condition; (8) the portfolio manager's
investment performance record; (9) the benefits resulting from Skyline's
affiliation with AMG; (10) the absence of any special or inappropriate benefits
that would be obtained by Skyline and its affiliates from the relationship,
including a consideration of soft dollar arrangements; (11) the consequences of
the Transaction on Skyline's management and operations; and (12) other factors
deemed relevant by the Board. The Board of Directors has been advised that the
Transaction will have no effect on the management, operations or personnel of
Skyline or the services rendered to the Fund.
Based upon these considerations, the Board unanimously determined that it
would be in the best interests of the Fund to have Skyline continue to serve as
the Fund's sub-adviser following the Transaction. The Board of Directors has
further unanimously determined that the terms of the New Sub-Advisory Agreement
are fair to, and in the best interests of, the Fund and its shareholders.
Principal Preservation, on behalf of the Fund, entered into the New Sub-Advisory
Agreement effective May 28, 1998.
ACCORDINGLY, THE BOARD OF DIRECTORS, NONE OF WHOM IS AN "INTERESTED PERSON"
OF SKYLINE OR AMG, UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS OF THE FUND VOTE
"FOR" APPROVAL OF THE NEW SUB-ADVISORY AGREEMENT.
OTHER BUSINESS
Management of Principal Preservation is not aware of any other matters that
will come before the Special Meeting. However, if any other business should
come before the Special Meeting, your proxy, if signed and returned, will give
discretionary authority to the persons designated in it to vote according to
their best judgment on such matters.
ADDITIONAL INFORMATION
ADMINISTRATOR AND DISTRIBUTOR
B.C. Ziegler and Company ("B.C. Ziegler") serves as the distributor for the
shares of each portfolio of Principal Preservation, including the Fund, and also
serves as the depository, accounting/pricing agent and transfer and dividend
disbursing agent for each Portfolio. B.C. Ziegler is registered with the SEC as
a securities broker-dealer and is a member of the National Association of
Securities Dealers. B.C. Ziegler has been engaged in the underwriting of debt
securities for more than 75 years. The Adviser and B.C. Ziegler are each wholly
owned subsidiaries of The Ziegler Companies, Inc. The principal address of B.C.
Ziegler, the Adviser and The Ziegler Companies, Inc. is 215 North Main Street,
West Bend, Wisconsin 53095.
AUDITORS
The firm of Arthur Andersen LLP has served Principal Preservation as
independent accountants and auditors since its inception in 1985, and has served
as independent accountants and auditors to the Fund since its commencement of
operations on August 23, 1994. Arthur Andersen LLP has no direct or indirect
financial interest in Principal Preservation or the Fund except as auditors and
independent public accountants. No representative of Arthur Andersen LLP is
expected to be present at the Special Meeting.
PRINCIPAL SHAREHOLDERS AND CERTAIN BENEFICIAL OWNERS
As of June 1, 1998, no person was known to own of record or beneficially five
percent (5%) or more of the outstanding shares of the Fund, except that Ziegler
Growth Retirement Plan, 215 North Main Street, West Bend, Wisconsin, owned of
record 199,927 shares, or approximately 23.7% of the Fund and B.C. Ziegler, 215
North Main Street, West Bend, Wisconsin, owned 60,538 shares, or approximately
7.2% of the Fund. Information as to beneficial ownership was obtained from
information on file with the SEC or furnished by the specified person or the
Fund's transfer agent.
The following table shows shares of the Fund beneficially owned by each
Director, and the group consisting of all Directors and officers of Principal
Preservation, at June 1, 1998.
NUMBER OF SHARES
OF THE FUND(1)
NAME AND POSITION(S) WITH PRINCIPAL PRESERVATION <F1>
- ------------------------------------------------ ---------------
Robert J. Tuszynski; President and Director(2)<F2>(3)<F3> 5,513
Richard H. Aster, M.D.; Director 471
Augustine J. English; Director 0
Ralph J. Eckert; Director 443
Richard J. Glaisner; Director(2)<F2> 0
All directors and officers as a group (9 persons) 12,656
- ----------------------
(1)<F1> These figures are based on information furnished by the respective
individuals and by B.C. Ziegler, the Fund's transfer agent. Certain of the
individuals listed share voting and investment power with his spouse with
respect to some or all of the shares listed opposite his name. Each individual
Director or executive officer beneficially owns less than 1% of the shares of
the Fund. The directors and officers as a group own 15% of the shares of the
Fund.
(2)<F2> Is an "interested person" (as defined in the 1940 Act) of Principal
Preservation as a result of his affiliation(s) with Ziegler and/or the Adviser.
(3)<F3> Includes shares held in the Ziegler Growth Retirement Plan for the
account of the named person. The terms of that Plan allow the named person
to direct the disposition of shares held in his account.
COST OF SOLICITATION
In addition to this solicitation of proxies by mail, proxies may be solicited
by officers of Principal Preservation and by officers and employees of B.C.
Ziegler or the Adviser, personally or by telephone or telegraph, without special
compensation. Proxies may also be solicited by a professional proxy
solicitation service should management of Principal Preservation determine that
solicitation by such means is advisable. The cost of preparing and mailing
proxy materials, of the Special Meeting, and of soliciting proxies will be borne
by AMG and its affiliates. No such costs will be borne by the Fund.
ADJOURNMENT
In the event that sufficient votes in favor of the proposal set forth in the
Notice of Special Meeting which accompanies this Proxy Statement are not
received by the time scheduled for the Special Meeting, the persons named as
proxies may propose one or more adjournments of the Special meeting to permit
further solicitation of proxies with respect to such proposal. Any such
adjournment will require the affirmative vote of a majority of the votes cast on
the question in person or by proxy at the session of the Special Meeting to be
adjourned. The persons named as proxy will vote in favor of such adjournment
those proxies which they are entitled to vote in favor of such proposal. They
will vote against any such adjournment those proxies required to be voted
against any such proposal. The costs of any such additional solicitation and of
any adjourned session will be borne by AMG and its affiliates.
SHAREHOLDER MEETINGS
Principal Preservation is organized as a Maryland corporation, and as such is
not required to hold annual meetings of shareholders. Principal Preservation's
Bylaws provide that Principal Preservation is not required to hold annual
meetings of shareholders in any year in which the election of Directors,
approval of an investment advisory agreement (or any sub-advisory agreement) or
ratification of the selection of independent public accountants is not required
to be acted upon by shareholders of Principal Preservation or of any of is
portfolio series, including the Fund, under the 1940 Act. Meetings of
shareholders of the Fund will be held when and as determined necessary by the
Board of Directors of Principal Preservation and in accordance with the 1940
Act. However, shareholders of any portfolio series wishing to submit proposals
for inclusion in a proxy statement for any future shareholder meetings should
send their written proposals to the Secretary of Principal Preservation at 215
North Main Street, West Bend, Wisconsin 53095.
By Order of the Board of Directors
/s/ S. CHARLES O'MEARA
S. CHARLES O'MEARA
Secretary
West Bend, Wisconsin
June 12, 1998
APPENDIX A
----------
SUB-ADVISORY AGREEMENT
AGREEMENT made as of the 28th day of May, 1998, by and among PRINCIPAL
PRESERVATION PORTFOLIOS, INC., a Maryland corporation (the "Fund"), ZIEGLER
ASSET MANAGEMENT, INC., a Wisconsin corporation (the "Adviser"), and SKYLINE
ASSET MANAGEMENT, L.P., a Delaware limited partnership (the "Sub-Adviser").
W I T N E S S E T H
For good and valuable consideration, the receipt of which is hereby
acknowledged, it is hereby agreed by and among the parties hereto as follows:
1. IN GENERAL
The Sub-Adviser agrees, as more fully set forth herein, to act as Sub-
Adviser to the Fund with respect to the investment and reinvestment of the
assets of the Select Value Portfolio and of any other series of common stock
of the Fund as the parties may mutually agree and specify from time to time
on Exhibit A hereto. The Select Value Portfolio and each other such series
---------
is referred to herein as a "Portfolio." The Sub-Adviser agrees to supervise
and arrange the purchase of securities and the sale of securities held in
the investment portfolios of each Portfolio specified on Exhibit A. It is
---------
understood that the Fund may create one or more additional series of shares
and that, if it does so, this Agreement may be amended by the mutual written
consent of the parties to include such additional series under the terms of
this Agreement.
2. DUTIES AND OBLIGATIONS OF THE SUB-ADVISER WITH RESPECT TO INVESTMENTS OF
ASSETS OF THE PORTFOLIOS
(a) Subject to the succeeding provisions of this section and subject to the
oversight and review of the Adviser and the direction and control of the Board
of Directors of the Fund, the Sub-Adviser shall:
(i) Determine what securities shall be purchased or sold by each
Portfolio specified on Exhibit A;
---------
(ii) Arrange for the purchase and the sale of securities held in each
Portfolio specified on Exhibit A; and
---------
(iii) Provide the Adviser and the Directors with such reports as may
reasonably be requested in connection with the discharge of the
foregoing responsibilities and the discharge of the Adviser's
responsibilities under its Investment Advisory Agreement with the
Fund and those of B.C. Ziegler and Company (the "Distributor")
under its Distribution Agreement with the Fund.
(b) Any investment purchases or sales made by the Sub-Adviser under this
section shall at all times conform to, and be in accordance with, any
requirements imposed by: (1) the provisions of the Investment Company Act of
1940 (the "Act") and of any rules or regulations in force thereunder; and (2)
the provisions of the Articles of Incorporation and By-Laws of the Fund as
amended from time to time; (3) any policies and determinations of the Board of
Directors of the Fund; and (4) the fundamental policies of the Fund, as
reflected in its registration statement under the Act, or as amended by the
shareholders of the Fund; provided that copies of the items referred to in
clauses (2), (3) and (4) shall have been furnished to the Sub-Adviser.
(c) The Sub-Adviser shall give the Fund the benefit of its best judgment and
effort in rendering services hereunder. In the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations or duties
("disabling conduct") hereunder on the part of the Sub-Adviser (and its
officers, directors, agents, employees, controlling persons, shareholders and
any other person or entity affiliated with the Sub-Adviser) the Sub-Adviser
shall not be subject to liability to the Fund or to any shareholder of the Fund
for any act or omission in the course of, or connected with, rendering services
hereunder, including without limitation any error of judgment or mistake of law
or for any loss suffered by any of them in connection with the matters to which
this Agreement relates, except to the extent specified in Section 36(b) of the
Act concerning loss resulting from a breach of fiduciary duty with respect to
the receipt of compensation for services. Except for such disabling conduct,
the Fund shall indemnify the Sub-Adviser (and its officers, directors, agents,
employees, controlling persons, shareholders and any other person or entity
affiliated with the Sub-Adviser) against any liability arising from the Sub-
Adviser's conduct under this Agreement to the extent permitted by the Fund's
Articles of Incorporation, By-Laws and applicable law.
(d) Nothing in this Agreement shall prevent the Sub-Adviser or any affiliated
person (as defined in the Act) of the Sub-Adviser from acting as investment
advisor or manager for any other person, firm or corporation and shall not in
any way limit or restrict the Sub-Adviser or any such affiliated person from
buying, selling or trading any securities for its or their own accounts or for
the accounts of others for whom it or they may be acting, provided, however,
that the Sub-Adviser expressly represents that it will undertake no activities
which, in its judgment, will adversely affect the performance of its obligations
to the Fund under this Agreement or under the Act. It is agreed that the Sub-
Adviser shall have no responsibility or liability for the accuracy or
completeness of the Fund's Registration Statement under the Act and the
Securities Act of 1933, except for information supplied by the Sub-Adviser for
inclusion therein. The Sub-Adviser shall be deemed to be an independent
contractor and, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Fund in any way or otherwise be deemed an
agent of the Fund.
(e) In connection with its duties to arrange for the purchase and sale of
each Portfolio's portfolio securities, the Sub-Adviser shall follow the
principles set forth in any investment advisory agreement in effect from time to
time between the Fund and the Adviser, provided that a copy of any such
agreement shall have been provided to the Sub-Adviser. The Sub-Adviser will
promptly communicate to the Adviser and to the officers and the Directors of the
Fund such information relating to portfolio transactions as they may reasonably
request.
3. ALLOCATION OF EXPENSES
The Sub-Adviser agrees that it will furnish the Fund, at the Sub-Adviser's
expense, with all office space and facilities, equipment and clerical personnel
necessary for carrying out the Sub-Adviser's duties under this Agreement. The
Sub-Adviser will also pay all compensation of those of the Fund's officers and
employees, if any, and of those Directors, if any, who in each case are
affiliated persons of the Sub-Adviser.
4. CERTAIN RECORDS
Any records required to be maintained and preserved pursuant to the
provisions of Rule 31a-1 and Rule 31a-2 under the Act which are prepared or
maintained by the Sub-Adviser on behalf of the Fund are the property of the Fund
and will be surrendered promptly to the Fund or the Adviser on request.
5. REFERENCE TO THE SUB-ADVISER
Neither the Fund nor the Adviser or any affiliate or agent thereof shall
make reference to or use the name of the Sub-Adviser or any of its affiliates in
any advertising or promotional materials without the prior approval of the Sub-
Adviser, which approval shall not be unreasonably withheld.
6. COMPENSATION OF THE SUB-ADVISER
The Adviser agrees to pay the Sub-Adviser, and the Sub-Adviser agrees to
accept as full compensation for all services rendered by the Sub-Adviser as
such, a management fee as specified on Exhibit A.
7. DURATION AND TERMINATION
(a) This Agreement shall go into effect with respect to the Select Value
Portfolio on the date hereof. In the event the parties hereto mutually agree
that one or more series of the Fund should be included as additional
"Portfolio(s)" hereunder, this Agreement shall become effective with respect to
each such additional Portfolio on the date specified on Exhibit A hereto. Once
effective with respect to any Portfolio(s), this Agreement shall, unless
terminated as hereinafter provided, continue in effect for a period of two years
with respect to such Portfolio, and thereafter from year to year, but only so
long as such continuance is specifically approved at least annually by a
majority of the Fund's Board of Directors, or by the vote of the holders of a
"majority" (as defined in the Act) of the outstanding voting securities of the
relevant Portfolio(s), and, in either case, a majority of the Directors who are
not parties to this Agreement or "interested persons" (as defined in the Act) of
any such party cast in person at a meeting called for the purpose of voting on
such approval.
(b) This Agreement may be terminated by the Sub-Adviser in its entirety or
with respect to any one or more specifically identified Portfolios at any time
without penalty upon giving the Fund and the Adviser sixty (60) days' written
notice (which notice may be waived by the Fund and the Adviser) and may be
terminated by the Fund or the Adviser in its entirety or with respect to any one
or more specifically identified Portfolios at any time without penalty upon
giving the Sub-Adviser sixty (60) days' written notice (which notice may be
waived by the Sub-Adviser), provided that such termination by the Fund shall be
directed or approved by the vote of a majority of all of its Directors in office
at the time or by the vote of the holders of a "majority" (as defined in the
Act) of the voting securities of each Portfolio with respect which the Agreement
is to be terminated. This Agreement shall automatically terminate in the event
of its "assignment" (as defined in the Act). If this Agreement has not been
approved by the holders of a "majority" (as defined in the Act) of the
outstanding voting securities of the Select Value Portfolio during the period
from the date hereof until the date 120 days thereafter, it shall automatically
terminate with regard to the Select Value Portfolio on the last day of such
period. This Agreement will also automatically terminate in the event that the
Investment Advisory Agreement by and between the Fund and the Adviser is
terminated for any reason.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing instrument
to be executed by their duly authorized officers and their seals to be hereto
affixed, all as of the day and year first above written.
PRINCIPAL PRESERVATION ZIEGLER ASSET MANAGEMENT, INC.
PORTFOLIOS, INC.
By: By:
---------------------------------- ----------------------------
Robert J. Tuszynski, President Geoffrey G. Maclay, Jr.,
President and Chief Executive
Officer
SKYLINE ASSET MANAGEMENT, L.P.
By:
--------------------------
Its:
--------------------------
EXHIBIT A
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
SKYLINE ASSET MANAGEMENT, L.P.
SUB-ADVISORY AGREEMENT
1. Select Value Portfolio
a. Determined pursuant to Section 7(a) of this Agreement.
b. Management Fee: computed daily and paid monthly at the annual rate of 0.375
of one percent on the Select Value Portfolio's first $250 million of average
daily net assets, reducing 0.025 of one percent on each $250 million thereafter,
down to an annual rate of 0.325 of one percent on average daily net assets over
$350 million.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
SELECT VALUE PORTFOLIO
REVOCABLE PROXY FOR 1998 SPECIAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert J. Tuszynski, S. Charles O'Meara
and Franklin P. Ciano, and each of them, Proxy, with full power of substitution,
to represent and vote, as designated below, all shares of stock of the Select
Value Portfolio of Principal Preservation Portfolios, Inc. that the undersigned
is entitled to vote at the Special Meeting of Shareholders of Principal
Preservation Portfolios, Inc. to be held at the West Bend Inn, 2520 West
Washington Street, West Bend, Wisconsin at 3:00 P.M., on Tuesday, July 21, 1998,
or at any adjournmentthereof, with respect to the matters set forth on the
reverse side and described in the accompanying Notice of Special Meeting and
Proxy Statement, receipt of which is hereby acknowledged.
DATE:--------------------, 1998
(If this account is owned by more than one person, all owners
should sign. Persons signing as executors, administrators,
trustees or in similar capacities should so indicate.)
(Please sign exactly as name appears at left)
Please place an "X" in the desired box for each item.
Shares represented by this Proxy will be voted as directed by the shareholder.
IF NO DIRECTION IS SUPPLIED, THE PROXY WILL BE VOTED FOR PROPOSAL 1.
---
1. Proposal to approve the New Sub-Advisory Agreement by and among
Principal Preservation Portfolios, Inc. (on the behalf of the Select Value
Portfolio), Ziegler Asset Management, Inc. and Skyline Asset Management,
L.P., a copy of which is attached as Appendix A to the accompanying Proxy
Statement. ----------
--- FOR --- AGAINST --- ABSTAIN
2. In their discretion on such other matters as may properly come before
the meeting or any adjournment thereof.
