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Tax-Exempt Portfolio
Government Portfolio
S&P 100 Plus Portfolio
Dividend Achievers Portfolio
Select Value Portfolio
PSETech 100 Index Portfolio
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SEMIANNUAL REPORT
TO SHAREHOLDERS
(UNAUDITED)
JUNE 30, 1998
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PRINCIPAL PRESERVATION PORTFOLIOS, INC.
PRESIDENT'S LETTER/MANAGEMENT DISCUSSION AND ANALYSIS
SEMIANNUAL REPORT TO SHAREHOLDERS
JUNE 30, 1998
August 25, 1998
Dear Shareholders,
We are pleased to present the semi annual report to shareholders of Principal
Preservation Portfolios, Inc for the six months ended June 30, 1998. The total
net assets of the mutual fund family continued to grow, moving from
approximately $490,000,000 as of December 31, 1997 to approximately
$521,000,000. The growth in the assets occurred through both market
appreciation and net sales in the long term funds fueled primarily by our equity
portfolios. During the first six months of 1998, continued low inflation,
unemployment and a reasonable growth rate contributed to record highs on each of
the major indices such as the Dow Jones Industrial, the S&P 500 and the S&P 100.
Generally, investors moved to large capitalized, well financed companies and
avoided more thinly capitalized companies due to continuing concerns of Asian
market turmoil. On the flip side, the bond markets, responding to the continued
positive news on inflation and the economy, have traded in a very narrow
fashion. Since it does not appear that the Fed is prepared to tighten interest
rates presently, the remainder of the year looks promising for the stable bond
market.
The following pages discuss specific factors for each portfolio's performance
versus the benchmarks. Each of the portfolios were fairly successful in
achieving a favorable performance relative to its benchmark.
On May 15, 1998, shareholders elected each of the directors nominated
including our newest director, Richard J. Glaisner. Dick replaces R. Douglas
Ziegler who stepped down to concentrate his efforts on managing private
accounts. Doug was formerly the Chairman and prior to 1996 the President and
CEO of Principal Preservation, as well as a Director of the funds since their
inception in 1984. Dick Glaisner joins the Principal Preservation Board with
over thirty years of financial service experience, most recently as President of
GS2 Securities in Milwaukee, Wisconsin. We thank Doug for his contribution and
years of service and look forward to Mr. Glaisner's input in the future.
By now, you should have received our first attempt at a plain English
prospectus. We redesigned the prospectus to highlight subject matter through
the use of icons to point you to information necessary for understanding each
portfolio. We welcome your comments and view this as a work in process. Next
we are undertaking to revise our annual and semiannual reports and continue to
improve our prospectuses to encourage reading of the information contained in
them.
Sincerely,
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 and should an investor wish to receive more information about the
portfolios, they should obtain a prospectus which includes a discussion of each
investment objective and all sales charges and expenses of the relevant
portfolio(s).
MANAGEMENT DISCUSSION AND ANALYSIS
STANDARDIZED PERFORMANCE
During the course of the presentations, the net asset value returns are
shown. However, sine a customer may pay a sales charge upon placing an
investment with Principal Preservation, the following are the standardized
average annual total returns, including the sales charge.
<TABLE>
PERIOD ENDING JUNE 30, 1998
----------------------------------------------------------------
SINCE
ONE YEAR FIVE YEAR TEN YEAR INCEPTION
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Tax Exempt Portfolio 4.47% 5.29% 7.21%*<F1> --
Government Portfolio 5.58% 4.34% 7.53%*<F1> --
S&P 100 Plus Portfolio 22.59% 20.61% 16.27%*<F1> --
Dividend Achievers Portfolio 15.08% 18.04% 14.04%*<F1> --
Select Value Portfolio 11.81% -- -- 17.52%
PSE Tech 100 Index Portfolio 15.46% -- -- 21.36%
</TABLE>
*<F1> Note: If a fund has been in existence longer than 10 years, the 10
year return is shown.
FIXED INCOME ANALYSIS
Record highs in the major stock indices during the first six months of 1998
helped keep investor focus on equities and from fixed income securities.
Because of the stable economy, long term yields on U.S. Treasury bonds continued
to fall, albeit slightly. The Asian financial market crisis, involving the
continued weakening of some of the Asian economies, including Japan, may put
pressure on the credit markets in the latter half of 1998.
GENERAL STOCK MARKET ANALYSIS
During the six months ended June 30, 1998, the bull market for stock mutual
fund investors continued. As the major market indices reached new highs,
investors gravitated towards larger companies with stronger domestic operations
reflecting concerns with the continuing plight of the Far East economic crisis.
The six-month return of the S&P 100 was 21.4% compared to the S&P 500 return of
17.7% and the Russell 2000 return of 4.9%. Stock mutual fund inflows continued
at a strong pace for much of the period but began to slow in June of 1998. Low
unemployment, moderate growth and very little inflation all helped to
counterbalance the effects of the Asian market crisis. The second half of 1998
may be more volatile as industry analysts closely scrutinize earning reports of
companies for early signs of weakening profits.
TAX-EXEMPT PORTFOLIO
The six-month total return for Principal Preservation Tax-Exempt Portfolio
was 1.56% compared to the Lipper General Municipal Debt Funds of 2.26%. The
municipal bond market, similar to the US Treasury market, witnessed the yield on
20-year AAA municipal bonds falling from 4.94% on December 31, 1997 to 4.75% in
mid January. However, a large supply of new issues during the first quarter
weakened the municipal bond market moving yields on tax-exempt bonds to over 5%.
However, the move was only an approximate 0.06% rise in yield from December 31.
As a result, the total return achieved by the Tax-Exempt Portfolio was due to
the interest income earned on the fund. Since the portfolio focuses on high
credit quality bonds, (those bonds with A or better credit ratings by
independent rating agencies), the fund under-performed high yield municipal bond
funds (which hold more lower quality bonds) in the relatively stable interest
rate environment. During the first quarter, the Portfolio Manager divested out
of higher coupon defensive positions and replaced them with lower coupon
securities. In mid February, he concentrated again on higher coupon securities
through the remainder of the quarter. Since the market was weakening from mid
January through March, the lower coupon securities did not maintain their price
as well as the higher coupon securities.
During the second quarter, the Portfolio Manager has laddered the portfolio
almost evenly between bonds with a premium and bonds that were trading at a
discount. In addition, the Manager, due to compressed yields between those
states that have a high state income tax and states that have little or no
income tax, was able to obtain securities in states that issue bonds
infrequently such as Kansas and Alabama.
He also purchased high quality bonds such as the Colorado Water Bond 5%
coupon due September 1, 2019 and the New Jersey Education Facilities for
Princeton University, 5% coupon due July 1, 2024. Moody's and Standard & Poor's
rate both of these securities AAA.
Currently the yield curve is relatively flat and AAA municipal bonds are
trading at yields over 90% of comparable treasuries. As a result, the Portfolio
Manager anticipates a solid third and fourth quarter, since municipal bonds have
historically yielded only 80% of treasury yields. The Portfolio Manager also is
eliminating the portfolio's exposure to energy and healthcare bonds because of
potential deregulation and the administration and congress addressing Medicare
problems.
GOVERNMENT PORTFOLIO
Similar to the municipal bond market, the U.S. Treasury market traded in a
narrow band during the first quarter. The U.S. Treasury market weakened after
an initial rally through mid January. Additionally, the bond market began to
react to a lower supply of U.S. Treasury securities, as the U.S. Treasury takes
advantage of record receipts to pay down the national debt, something that has
not been done since 1971. Combined with low inflation, low unemployment and the
relatively strong economy, the domestic bond managers' sentiment, as based on
the Ried Thunberg survey, hit an all time high in March, evidenced by managers
moving their benchmark out to 107% of their target duration. At the conclusion
of the first quarter the yield spread between two year and ten year U.S.
Treasury Bonds was only 8 basis points compared to an historical average of 72
basis points over the last 20 years.
During the second quarter, the market participants in the Ried Thunberg
Survey continued to be more bullish as managers moved out to 109% of their
duration benchmarks. In addition, managers have been keeping their cash levels
at 3% or less which indicated they are fully invested and expecting a lower
interest rate environment in the future. As a result, the five-year U.S.
Treasury Bond traded in a narrow band between 5.29% and 5.35% and the ten-year
U.S. Treasury Bond traded at 5.78% to 5.81%. With a decrease in the supply of
treasuries due to the budget surplus and an increase in demand from foreign
market participants, we expect lower interest rates over the next six months.
The portfolio management team during the first quarter began to move out of
shorter duration premium treasuries and extend out on the yield curve. The
modified duration of the Government Portfolio is 4.8 years compared to the
Merrill Lynch all maturity duration of 5.5 years at the end of the quarter. The
management team was unwilling to move the duration further than the Merrill
Lynch duration benchmark until there is more evidence of a slowing economy.
They began to position the portfolio in April in anticipation of positive
quarterly gross domestic product numbers, reducing premium coupon positions of
the portfolio and moving into lower coupon longer maturity treasury notes and
bonds. They also kept the GNMA position to approximately 7%. As a result, the
fund's performance picked-up in the second quarter compared to the benchmarks.
Given the flat yield curve, the management team anticipates maintaining
positions in the five-year part of the yield curve rather than going out any
longer. The team believes that when rates move, it may be lower due to slower
economic growth and continued subdued inflation.
S&P 100 PLUS PORTFOLIO
The S&P 100 Plus Portfolio net asset value total return for the six months
ended June 30, 1998 was 20.87% compared to the S&P Index return of 21.4%. The
general market environment for the first six months favored large cap securities
as the S&P 100 Index outperformed the S&P 500 Index by approximately 3.7% and
also outperformed the Russell 2000 by 15%. During the first quarter, the Asian
countries' emerging financial difficulties cast a shadow on the U.S. equity
market as many analysts predicted that U.S. firm sales and earnings would be
adversely impacted, especially since this region had been a source of strong
growth opportunities. Beginning with Intel's announcement on January 13 that
earnings had actually increased 9% more than analyst estimates and other larger
companies announcing results ahead of analyst expectations, investors began to
reevaluate their strategies. As a result, cash flows into stock mutual funds
accelerated. This helped to drive equity indices to record highs by the end of
the first quarter. During the second quarter, many huge mergers were announced
such as BankAmerica with NationsBank, Bank One with First Chicago and Citicorp
with Travelers. These events, coupled with continued low inflation, continued
to fuel the equity markets. At the same time, the Federal Reserve did not
proactively change the overall Fed Funds rate. This somewhat counterbalanced
Asia's inability to adequately address economic turmoil that impacted U.S.
multinationals overseas.
During the first six months, the Manager equitized cash with S&P 500 futures.
The effect of the S&P 500 Index futures lagging the S&P 100 Index caused a
slight 0.10% under performance of the portfolio to the index. Even so, there
was value added by over and underweighting certain securities within the S&P 100
Plus Portfolio including overweighting Citicorp and Cisco Systems, and
underweighting General Motors.
Looking ahead, the Portfolio Manager anticipates increased volatility in the
second half of the year due to continued problems in the Far East, and
additional companies may experience reduced profits brought on by the lack of
pricing power. Overall, the manager remains positive on the market's prospects
and intends to employ his over and under weighting strategies in a consistent
manner.
DIVIDEND ACHIEVERS PORTFOLIO
The net asset year-too-date total return for the Dividend Achievers Portfolio
was 11.74% compared to the S&P 500 of 17.70% and the Lipper Analytical Growth
and Income Funds Average of 11.92%. As was the case in 1997, managed equity
portfolios had a difficult time beating the major market indices. The Dividend
Achievers Portfolio began the year with a strong start, but faded during the
last part of the first quarter due to weakness in the funds technology holdings
and a handful of significant stock declines. Missed earnings expectations by
Compaq and Intel, worried investors that their expected growth rates would slow
over the near term, those worries helped to hold down the prices of the two
stocks and cast a cloud over the other PC makers including Hewlett Packard.
Although Intel and Hewlett Packard produced positive returns for the fund for
the first quarter they still trailed the impressive figures posted by the S&P
500. Tidewater, an oil services company, dropped precipitously with other
stocks in its industry as oil prices declined. Diebold, another technology
company, slipped in price throughout the quarter as it reported slower revenue
growth, particularly in Asia. Kimberly Clark, also hurt portfolio performance
when its stock price declined by over 10% after an announced weak European sales
that would depress first quarter earnings. Despite the set backs in the
technology sector and individual securities, Dividend Achievers Portfolio still
outperformed the average growth and income fund by 0.7% fueled in a large part
by the drug and medical equipment industries.
During the second quarter, the communications energies and utilities sectors
provided positive returns while consumer cyclicals financial and technology
trailed the benchmark sector performance. The markets during the second quarter
provided a roller coaster performance to investors, performing marginally
positive during April and June while dipping into negative territory during May.
It is interesting to note that the negative return in May as measured by the S&P
500 Index was the first negative monthly return since October 1987. There has
been much discussion in the media regarding the deterioration of earnings power
and weakness of foreign economies. However, the domestic equity markets have
remained strong performers and continue to attract significant equity capital,
especially in the large capitalization sector. The Co-Managers anticipate that
the increased volatility that began during May will continue into the remainder
of 1998 based upon analyst expectations of companies' earnings.
SELECT VALUE PORTFOLIO
The net asset value total return for the six-month period ended June 30, 1998
for the Select Value Portfolio was 6.21% compared to the Russell 2000 return of
4.93%. The one-year total return was 18.01% compared to the Russell 2000
performance of 16.5%. As measured by the Russell 2000 Index and the S&P 500
Index, small company stocks under performed large company stocks for the six
month period, especially in the second quarter. In fact, while the Russell 2000
dropped nearly 5% during the second quarter, the S&P 500 rose over 3% almost an
8% difference in only a three-month period. The most widely sighted factor was
a preference for large and perceived "safe" companies. It appears investors
were influenced by the impact Asia's severe economy troubles could have on U.S.
businesses. While the U.S. economy is likely to slow, many of these Asian
related fears seem excessive. According to Morningstar Inc., small value
managers under performed small cap growth managers modestly in the second
quarter. Consumer stocks were relatively strong performers for many growth
managers, as unemployment was low and consumer confidence was high. Value
managers were hurt by holdings in cyclical firms. On a relative basis, interest
rate sensitive groups like financials and utilities held up reasonably well.
After a strong first quarter, the portfolio's performance slipped relative to
its benchmark during the second quarter. As small company stocks in general
corrected sharply during the period, the portfolio stock selection also
contributed to a slight under performance due to deterioration of corporate
fundamentals relative to the Russell 2000 in the second quarter. The largest
sectors of the portfolio in the second quarter consisted of consumer and
financial stocks. Combined, these broad areas represented nearly half of the
portfolios holdings. Consumer discretionary stocks in the portfolio, while
modestly under performing the corresponding benchmark sector, held up relatively
well. Companies such as Fingerhut Companies, Inc., Kellwood Company and Clear
Stores Inc. had strong performance especially in the second quarter versus other
consumer related areas such as staffing services, where demand slowed
unexpectedly. Financial stocks in the portfolio seemed to be hurt by profit
taking and also the exposure to out of favor real estate industry. However,
fundamentals for the vast majority of the portfolios financial holdings continue
to be quite strong and the Portfolio Manager believes, over time, the stock
prices should follow the underlying business trends.
The worst performing sector for the portfolio in the second quarter was
technology. This sector is an area that the Portfolio Manager looks for long
term appreciation. Unfortunately, near term demand for technology products has
been sluggish and selling prices have been falling. Overall, the combination of
weakening business conditions in some holdings and profit taking in others led
to poor stock returns in many areas.
As the Portfolio Manager looks ahead, the impact of economic woes in Asia,
strong dollar, and the prolonged General Motors strike in the U.S. should slow
down the U.S. economy. More companies will find it harder to meet the investors
lofty demand. However, low unemployment, high consumer confidence and low
interest rates should create reasonably good growth conditions for future profit
growth. While large company stocks continue to sell at extraordinary high
valuation levels, small company stocks continue to under perform large company
stocks despite more attractive valuation levels and better profit growth
potential. At some point, the Manager believes investors will return
aggressively to small stock investing. However, a catalyst is needed to change
investor psychology. The Portfolio Manager has positioned the portfolio for the
anticipated sustained turnaround in small company stocks. Accordingly, he has
focused on a broad range of companies with attractive near term profit growth
potential and compelling valuation.
PSE TECH 100 INDEX PORTFOLIO
The net asset value year-to-date total return for the PSE Tech 100 Index
Portfolio was 18.81% compared to the PSE Index return of 19.26%. The year-to-
date total return continued to outperform the S&P 500 Index return of 17.70%.
During the first quarter of 1998, the technology portfolio enjoyed strong
performance relative to the S&P 500 return. Investors favored larger well
capitalized technology companies versus small start-up technology issues.
However, near the close of the first quarter, volatility increased in the
technology sector.
Intel, which announced strong fourth quarter earnings, pre-announced during
March that its estimate for first quarter revenues was overly optimistic,
causing the price of the stock to plunge 13% during the month. Following
Intel's cautionary outlook in March, other technology companies also announced
concerns regarding their near term outlook for both revenue growth and earnings.
Compaq Computer and 3COM Corporation both predicted a slow down in future
corporate performance, mainly for operational and logistic issues but also as a
result of the troubles occurring in the Asian economies. Finally, Microsoft
came under assault not only by competitors but also by the Federal Government.
The Department of Justice and a Congressional Committee questioned Microsoft and
Bill Gates regarding the company's business practices and future direction
especially with respect to the Internet. While the company presently remains
strongly positioned within the software marketplace, the Government's
intervention cloudy makes their future outlook somewhat murky. Even with these
issues, it appears investors continue to view the technology sector of the
equity markets positively.
During the second quarter of 1998, the technology sector was essentially flat
in terms of investment performance versus the S&P 500 Index, returning 3.3%.
The second quarter marked increased volatility. At the end of April, the
Department of Justice along with 11 states Attorney Generals filed suit against
Microsoft alleging anticompetitive market behavior and violation of the
Country's antitrust laws. Concurrently the FTC began threatening antitrust
charges against Intel Corp. Soon thereafter, an uneasiness in the sector arose
over the potential implications against these bellwethers, although investment
performance continued to trend upward until the middle of May. At this point,
Hewlett Packard announced its third consecutive quarter of disappointing
earnings, coming in 17% below expectations. The following day, National
Semiconductor preannounced after the close that it too would underperform
expectations. However, in June, the technology sector began to "right the
ship". Cisco was named chief equipment provider for Sprint's new IOM
communications network, which will enhance and integrate voice, video and data
through single networks. In addition, a Federal Appeals Court ruled in favor of
Microsoft on its appeal of a judge's ruling regarding an earlier case that
Justice Department brought involving the integration of the company's web
browser within Windows 95.
Although the second quarter's performance was flat, it does appear that the
technology sector may be gaining momentum. The markets have discounted earnings
preannouncements and the focus should shift to those companies doing well. The
networking and Internet sectors appear poised for continued strong performance
and price appreciation.
While there remains pockets of weakness such as PC manufacturing,
semiconductors and semiconductor equipment manufacturing, overall the technology
sector should show reasonable performance during the second half of the year.
The Portfolio Manager is intrigued by the forced efficiencies mandated by the
strength of the dollar, and believes these will provide positive ramifications
for many technology companies moving forward. In addition, the strong U.S.
domestic economy along with the need for continued European technology spending
should buffer the sector against any performance free fall. The variance
between the portfolio's performance to the index is due to fund expenses and a
slight under performance of the PSE futures contracts.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
FINANCIAL HIGHLIGHTS
The following presents information relating to a share of capital stock of each
of six portfolios of Principal Preservation Portfolios, Inc. outstanding for the
following periods presented, which should be read in conjunction with the
financial statements and related notes:
<TABLE>
TAX-EXEMPT PORTFOLIO
----------------------------------------------------------------------------------------------------
For the six
months ended For the years ended December 31,
June 30, 1998 ----------------------------------------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993 1992 1991 1990 1989
------------ ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $9.52 $9.30 $9.39 $8.36 $9.41 $8.67 $8.46 $8.19 $8.23 $8.06
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income .19 .41 .43 .45 .45 .48 .50 .53 .53 .55
Net realized and
unrealized gains (losses)
on investments (.04) .44 (.09) 1.03 (1.05) .74 .21 .27 (.04) .17
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS .15 .85 .34 1.48 (.60) 1.22 .71 .80 .49 .72
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income (.19) (.41) (.43) (.45) (.45) (.48) (.50) (.53) (.53) (.55)
Distributions from net
realized gains
on investments -- (.22) -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (.19) (.63) (.43) (.45) (.45) (.48) (.50) (.53) (.53) (.55)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $9.48 $9.52 $9.30 $9.39 $8.36 $9.41 $8.67 $8.46 $8.19 $ 8.23
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL RETURN*<F2> 1.6% 9.4% 3.8% 18.1% (6.4)% 14.3% 8.6% 10.0% 6.2% 9.2%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of period
(to nearest thousand) $58,174 $60,252 $66,310 $56,443 $55,492 $68,102 $60,171 $63,932 $65,265 $73,333
Ratio of net expenses to
average net assets 1.1% 1.1% 1.1%+<F3> 1.0%+<F3> 1.0% 0.9% 0.9% 0.9% 0.9% 1.0%
Ratio of net investment
income to average
net assets 4.0% 4.4% 4.7%+<F3> 4.9%+<F3> 5.2% 5.2% 5.9% 6.3% 6.6% 6.7%
Portfolio turnover rate 124.4% 209.2% 163.1% 105.9% 36.1% 56.3% 48.5% 38.3% 40.3% 21.5%
</TABLE>
*<F2> The Fund's sales charge is not reflected in total return as set forth in
the table.
+<F3> Reflects a voluntary reimbursement of fund expenses of 0.1% in 1996 and
0.01% in 1995, respectively.
<TABLE>
GOVERNMENT PORTFOLIO
----------------------------------------------------------------------------------------------------
For the six
months ended For the years ended December 31,
June 30, 1998 ----------------------------------------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993 1992 1991 1990 1989
------------ ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.28 $ 9.20 $ 9.64 $ 8.84 $ 9.98 $ 9.64 $ 9.68 $ 9.10 $ 9.11 $ 8.88
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income .27 .63 .64 .61 .61 .63 .67 .73 .76 .75
Net realized and
unrealized gains
(losses)
on investments .02 .08 (.44) .80 (1.14) .35 (.04) .58 (.01) .23
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS .29 .71 .20 1.41 (.53) .98 .63 1.31 .75 .98
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income (.28) (.63) (.64) (.61) (.61) (.64) (.67) (.73) (.76) (.75)
Distributions from net
realized gains
on investments -- -- -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (.28) (.63) (.64) (.61) (.61) (.64) (.67) (.73) (.76) (.75)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $9.29 $ 9.28 $ 9.20 $ 9.64 $ 8.84 $ 9.98 $ 9.64 $ 9.68 $ 9.10 $ 9.11
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL RETURN*<F4> 3.3% 8.1% 2.3% 16.3% (5.4)% 10.3% 6.8% 15.1% 8.7% 11.5%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of period
(to nearest thousand) $39,687 $40,683 $44,920 $49,319 $47,324 $54,327 $37,634 $32,737 $29,351 $30,631
Ratio of net expenses to
average net assets 1.2%+<F5> 1.1%+<F5> 1.1%+<F5> 1.1%+<F5> 1.1% 1.0% 1.0% 1.1% 1.2% 1.2%+<F5>
Ratio of net investment
income to average
net assets 5.9% 7.0%+<F5> 7.0%+<F5> 6.5%+<F5> 6.6% 6.2% 7.0% 8.0% 8.5% 8.4%+<F5>
Portfolio turnover rate 69.2% 78.6% 36.9% 68.2% 106.1% 8.7% 10.0% 62.2% 57.1% 141.8%
</TABLE>
*<F4> The Fund's sales charge is not reflected in total return as set forth
in the table.
+<F5> Reflects a voluntary reimbursement of fund expenses of 0.01% in 1998,
0.04% in 1997, 0.04% in 1996, 0.02% in 1995, 0.1% in 1989, and 0.5% in
1988, respectively.
<TABLE>
S&P 100 PLUS PORTFOLIO
----------------------------------------------------------------------------------------------------
For the six
months ended For the years ended December 31,
June 30, 1998 ----------------------------------------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993 1992 1991 1990 1989
------------ ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $27.04 $22.08 $19.53 $14.95 $15.04 $14.01 $14.22 $11.60 $12.27 $10.11
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income .10 .26 .29 .25 .25 .21 .24 .27 .28 .26
Net realized and
unrealized gains
(losses) on
investments 5.54 5.63 4.07 5.21 (.09) 1.14 .48 2.93 (.67) 2.17
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS 5.64 5.89 4.36 5.46 .16 1.35 .72 3.20 (.39) 2.43
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income (.10) (.26) (.29) (.25) (.25) (.21) (.24) (.27) (.28) (.26)
Distributions from
net realized gains
on investments -- (.65) (1.52) (.63) -- (.11) (.69) (.31) -- (.01)
Distributions in excess
of net realized gains -- (.02) -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (.10) (.93) (1.81) (.88) (.25) (.32) (.93) (.58) (.28) (.27)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $32.58 $27.04 $22.08 $19.53 $14.95 $15.04 $14.01 $14.22 $11.60 $12.27
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL RETURN*<F6> 20.9% 26.8% 22.4% 36.7% 1.1% 9.7% 5.2% 27.8% (3.2)% 24.3%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of period
(to nearest thousand) $136,372 $105,738 $77,517 $57,062 $40,034 $38,944 $30,025 $27,420 $20,413 $20,811
Ratio of net expenses to
average net assets 0.8%+<F7> 0.9%+<F7> 1.0%+<F7> 1.2% 1.2% 1.2% 1.3% 1.3%1.3%+<F7> 1.3%+<F7>
Ratio of net investment
income to average
net assets 0.7% 1.0%+<F7> 1.4%+<F7> 1.4% 1.7% 1.4% 1.7% 2.0%+<F7>2.4%+<F7> 2.3%+<F7>
Portfolio turnover rate 4.0% 17.0% 8.0% 3.5% 1.0% 2.2% 8.5% 3.1% 1.9% 3.0%
Average commission paid
per share+<F8> $0.0257 $0.0235 $0.0348 -- -- -- -- -- -- --
</TABLE>
*<F6> The Fund's sales charge is not reflected in total return as set forth
in the table.
+<F7> Reflects a voluntary reimbursement of fund expenses of 0.08% in 1998,
0.11% in 1997, 0.01% in 1996, 0.2% in 1990, 0.4% in 1989, and 0.8% in 1988,
respectively.
+<F8> 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>
DIVIDEND ACHIEVERS PORTFOLIO
----------------------------------------------------------------------------------------------------
For the six
months ended For the years ended December 31,
June 30, 1998 ----------------------------------------------------------------------------------------
(Unaudited) 1997 1996 1995 1994 1993 1992 1991 1990 1989
------------ ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $25.13 $20.01 $16.97 $13.24 $13.40 $14.25 $14.84 $11.50 $11.65 $10.00
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income .02 .13 .14 .18 .18 .14 .14 .25 .25 .28
Net realized and
unrealized gains
(losses) on
investments 2.93 5.43 3.54 3.99 (.02) (.85) .31 4.14 (.15) 1.65
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS 2.95 5.56 3.68 4.17 .16 (.71) .45 4.39 .10 1.93
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income (.03) (.13) (.14) (.18) (.18) (.14) (.14) (.25) (.25) (.28)
Distributions from
net realized gains
on investments -- (.31) (.50) (.26) (.14) -- (.90) (.80) -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (.03) (.44) (.64) (.44) (.32) (.14) (1.04) (1.05) (.25) (.28)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $28.05 $25.13 $20.01 $16.97 $13.24 $13.40 $14.25 $14.84 $11.50 $11.65
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL RETURN*<F9> 11.7% 27.9% 21.8% 31.7% 1.2% (5.0)% 3.1% 38.5% 1.0% 19.5%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of period
(to nearest thousand) $42,262 $39,565 $30,504 $25,393 $20,231 $24,928 $27,020 $18,202 $11,468 $12,750
Ratio of net expenses to
average net assets 1.3% 1.2%+<F10> 1.2%+<F10> 1.3%+<F10> 1.5%1.3%+<F10>1.2%+<F10>1.2%+<F10>1.2%+<F10>1.2%+<F10>
Ratio of net investment
income to average
net assets 0.2% 0.6%+<F10> 0.8%+<F10> 1.2%+<F10> 1.3%1.0%+<F10>1.0%+<F10>1.8%+<F10>2.3%+<F10>2.6%+<F10>
Portfolio turnover rate 6.1% 11.9% 13.1% 28.2% 36.5% 92.7% 83.0% 96.5% 47.7% 30.9%
Average commission paid
per share+<F11> $0.0472 $0.0484 $0.0609 -- -- -- -- -- -- --
</TABLE>
*<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 0.1% in 1997,
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, and 1.7% in 1988, respectively.
+<F11> 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
For the six August 23, 1994
months ended For the years ended December 31, (commencement
June 30, 1998 ----------------------------------------------- of operations) to
(Unaudited) 1997 1996 1995 December 31, 1994
-------------- ------ ------ ------ ------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $12.07 $10.97 $10.21 $ 9.03 $ 9.55
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income -- .01 .04 .14 .04
Net realized and unrealized
gains (losses) on investments .75 2.93 2.68 1.73 (.51)
------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS .75 2.94 2.72 1.87 (.47)
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income -- (.01) (.04) (.14) (.03)
Distributions from net realized
gains on investments -- (1.83) (1.92) (.43) (.01)
Distributions in excess of net
realized gains on investments -- -- -- (.12) --
Book return of capital -- -- -- -- (.01)
------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS -- (1.84) (1.96) (.69) (.05)
------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $12.82 $12.07 $10.97 $10.21 $ 9.03
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL RETURN**<F13> 6.2% 27.2% 26.7% 20.8% (5.0)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(to nearest thousand) $11,118 $8,497 $4,829 $3,445 $1,935
Ratio of net expenses to
average net assets 1.3%+<F14> 1.1%+<F14> 1.0%+<F14> 0.8%+<F14> 0.8%*+<F14>
Ratio of net investment
income to average net assets -- 0.1%+<F14> 0.3%+<F14> 1.4%+<F14> 1.1%*+<F14>
Portfolio turnover rate 42.8% 82.5% 122.2% 124.3% 20.2%
Average commission
paid per share+<F15> $0.0373 $0.0467 $0.0611 -- --
</TABLE>
*<F12> Annualized.
**<F13> The Fund's sales charge is not reflected in total return as set forth
in the table.
+<F14> Reflects a voluntary reimbursement of fund expenses of 0.4% in 1998,
1.0% in 1997, 1.4% in 1996, 2.5% in 1995 and 0.4% in 1994,
respectively.
+<F15> 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>
PSE TECH 100 INDEX PORTFOLIO
-----------------------------------------------
For the period from
For the six June 10, 1996
months ended (commencement
June 30, 1998 For the year ended of operations) to
(Unaudited) December 31, 1997 December 31, 1996
------------ ------------------ ------------------
<S> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD $12.39 $10.76 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .01 .04 .03
Net realized and unrealized gains
on investments 2.32 2.04 1.03
------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 2.33 2.08 1.06
------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income (.01) (.04) (.03)
Distributions from net realized gains
on investments -- (.38) (.24)
Distributions in excess of net realized gains -- (.03) (.03)
------ ------ ------
TOTAL DISTRIBUTIONS (.01) (.45) (.30)
------ ------ ------
NET ASSET VALUE, END OF PERIOD $14.71 $12.39 $10.76
------ ------ ------
------ ------ ------
TOTAL RETURN**<F16> 18.8% 19.4% 10.7%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (to nearest thousand) $44,001 $27,144 $6,004
Ratio of net expenses to average net assets 0.5%+<F18> 0.2%+<F18> 0.0%*+<F18>
Ratio of net investment income to average
net assets 0.2% 0.3%+<F18> 0.7%*+<F18>
Portfolio turnover rate 3.0% 22.0% 3.0%
Average commission paid per share $0.0320 $0.0544 $0.0634
</TABLE>
*<F16> Annualized.
**<F17> The Fund's sales charge is not reflected in total return as set forth
in the table.
+<F18> Reflects a voluntary reimbursement of fund expenses of 0.5% in 1998,
1.1% and 3.3% in 1997 and 1996, respectively.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
BALANCE SHEETS
JUNE 30, 1998 (UNAUDITED)
<TABLE>
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 $58,268,861 $39,091,491 $ 67,947,404 $19,026,999 $10,458,078 $39,153,366
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Long-term investments
in securities $57,805,856 $38,964,378 $133,680,581 $41,212,965 $10,187,436 $42,832,097
Short-term investments 755,000 99,000 2,383,000 1,080,000 960,000 638,000
----------- ----------- ----------- ----------- ----------- -----------
Total investments (See
Schedule of Investments) 58,560,856 39,063,378 136,063,581 42,292,965 11,147,436 43,470,097
Cash 790 665 529 562 528 913
Receivables:
Capital shares sold 4,746 -- 487,666 16,329 51,815 132,495
Dividends and interest 756,360 774,478 155,318 28,323 18,352 18,313
Investments sold 1,000,388 -- -- -- 21,429 445,934
MarginVariation -- -- (19,125) -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total receivables 1,761,494 774,478 623,859 44,652 91,596 596,742
Other assets 1,678 1,121 2,194 855 3,270 10,210
----------- ----------- ----------- ----------- ----------- -----------
Total assets $60,324,818 $39,839,642 $136,690,163 $42,339,034 $11,242,830 $44,077,962
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
LIABILITIES:
Payables:
Capital shares redeemed $ 10,400 $ 12,451 $ 186,997 $ 3,672 $ -- $ 52,930
Distributions to shareholders 70,728 68,881 17,279 926 -- 4,937
Management fees 27,393 19,159 43,832 24,591 6,354 16,453
Other accrued expenses 64,735 52,455 70,001 48,217 20,715 2,717
Investments purchased 1,977,618 -- -- -- 97,675 --
Other Liabilities -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities 2,150,874 152,946 318,109 77,406 124,744 77,037
----------- ----------- ----------- ----------- ----------- -----------
NET ASSETS:
Capital stock 56,763,502 42,098,484 67,132,582 17,671,052 9,700,383 38,615,198
Undistributed
net investment income (927) 7,040 13,193 -- (1,967) 1,079
Distributions in excess of
net investment income -- -- -- (9,854) -- --
Undistributed net realized gains
(losses) on investments 1,119,374 (2,390,715) 1,110,102 1,334,464 730,312 1,067,917
Accumulated distributions
in excess of net realized
gains on investments -- -- -- -- -- --
Net unrealized appreciation
on investments 291,995 (28,113) 68,116,177 23,265,966 689,358 4,316,731
----------- ----------- ----------- ----------- ----------- -----------
Total net assets 58,173,944 39,686,696 136,372,054 42,261,628 11,118,086 44,000,925
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities
and net assets $60,324,818 $39,839,642 $136,690,163 $42,339,034 $11,242,830 $44,077,962
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE AND
REDEMPTION PRICE PER SHARE $ 9.48 $ 9.30 $ 32.58 $ 28.05 $ 12.82 $ 14.71
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
MAXIMUM OFFERING PRICE
PER SHARE $ 9.82 $ 9.64 $ 34.39 $ 29.60 $ 13.53 $ 15.53
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
<TABLE>
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 $ -- $ -- $ 825,025 $ 287,853 $ 38,287 $ 62,302
Interest 1,502,748 1,425,784 76,419 18,494 25,367 60,745
----------- ----------- ----------- ----------- ----------- -----------
Total investment
income 1,502,748 1,425,784 901,444 306,347 63,654 123,047
----------- ----------- ----------- ----------- ----------- -----------
EXPENSES:
Investment advisory fees 171,389 119,654 261,835 157,016 37,894 92,132
Custodian fees 10,317 8,145 12,127 7,421 2,715 5,737
Transfer agent fees 21,720 21,720 35,160 13,756 3,620 15,250
Broker service fees 73,584 49,861 151,426 52,419 12,618 45,857
Professional fees 25,960 21,296 38,500 20,788 16,709 19,394
Registration 5,068 7,240 7,660 7,380 7,491 8,495
Communication 3,258 2,896 6,071 2,715 1,448 1,629
Director fees 6,168 3,769 9,841 3,262 1,759 2,938
Pricing of investments 3,620 1,448 4,163 2,353 2,715 3,620
Deferred organization expense -- -- -- -- 1,350 1,676
Other 6,329 3,587 4,731 2,981 1,030 1,567
----------- ----------- ----------- ----------- ----------- -----------
Total expenses 327,413 239,616 531,514 270,091 89,349 198,295
Less expenses absorbed
by advisor -- (1,101) (46,443) -- (23,728) (106,225)
----------- ----------- ----------- ----------- ----------- -----------
Net expenses 327,413 238,515 485,071 270,091 65,621 92,070
----------- ----------- ----------- ----------- ----------- -----------
NET INVESTMENT INCOME 1,175,335 1,187,269 416,373 36,256 (1,967) 30,977
----------- ----------- ----------- ----------- ----------- -----------
NET REALIZED GAINS (LOSSES)
ON INVESTMENTS 1,106,891 244,574 1,195,453 1,334,464 729,257 1,155,381
NET UNREALIZED APPRECIATION
(DEPRECIATION) ON INVESTMENTS (1,325,129) (152,464) 21,092,771 3,298,328 (229,444) 4,318,386
----------- ----------- ----------- ----------- ----------- -----------
Net gains
on investments (218,238) 92,110 22,288,224 4,632,792 499,813 5,473,767
----------- ----------- ----------- ----------- ----------- -----------
NET INCREASE
IN NET ASSETS RESULTING
FROM OPERATIONS $ 957,097 $1,279,379 $22,704,597 $4,669,048 $ 497,846 $5,504,744
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
<TABLE>
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 $ 1,175,335 $ 1,187,269 $ 416,373 $ 36,256 $ (1,967) $ 30,977
Net realized gains (losses)
on investments 1,106,891 244,574 1,195,453 1,334,464 729,257 1,155,381
Change in unrealized
appreciation on
investments for the year (1,325,129) (152,464) 21,092,771 3,298,328 (229,444) 4,318,386
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease)
in net assets resulting
from operations 957,097 1,279,379 22,704,597 4,669,048 497,846 5,504,744
----------- ----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
($0.1878, $0.2750, $0.10,
$0.03, $0.00 and $0.01 per
share, respectively) (1,176,262) (1,189,498) (412,027) (46,728) -- (29,898)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions (1,176,262) (1,189,498) (412,027) (46,728) -- (29,898)
----------- ----------- ----------- ----------- ----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued 1,092,265 611,543 13,012,353 1,894,051 2,628,688 14,688,614
Net asset value of shares
issued in distributions 736,092 752,580 381,869 44,584 1,490 28,253
Cost of shares redeemed (3,686,954) (2,450,521) (5,052,628) (3,864,314) (507,317) (3,335,091)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease)
in net assets from
capital share transactions (1,858,597) (1,086,398) 8,341,594 (1,925,679) 2,122,861 11,381,776
----------- ----------- ----------- ----------- ----------- -----------
Total increase
(decrease) (2,077,762) (996,517) 30,634,164 2,696,641 2,620,707 16,856,622
NET ASSETS:
Balance at beginning of period 60,251,706 40,683,213 105,737,890 39,564,987 8,497,379 27,144,303
----------- ----------- ----------- ----------- ----------- -----------
Balance at end of period $58,173,944 $39,686,696 $136,372,054 $42,261,628 $11,118,086 $44,000,925
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
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 $2,712,915 $2,896,981 $ 964,232 $ 206,159 $ 5,761 $ 47,169
Net realized gains (losses)
on investments 1,579,674 (109,653) 2,481,302 482,030 1,114,765 788,765
Change in unrealized
appreciation (depreciation) on
investments for the year 1,245,199 409,277 17,819,182 7,845,885 382,946 (558,697)
----------- ----------- ----------- ----------- ----------- -----------
Net increase
in net assets resulting
from operations 5,537,788 3,196,605 21,264,716 8,534,074 1,503,472 277,237
----------- ----------- ----------- ----------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
($0.41, $0.63, $0.26,
$0.13, $0.01 and $0.04 per
share, respectively) (2,714,833) (2,894,367) (958,870) (205,541) (6,066) (48,726)
Net realized gains on investments
($0.22, $0.00, $0.67, $0.31, $1.83,
$0.41 per share, respectively) (1,378,906) -- (2,481,302) (482,087) (1,133,908) (788,766)
Distributions in excess of net
realized gains on investments
($0.00, $0.00, $0.02, $0.00,
$0.00, $0.03) -- -- (70,840) -- -- (72,790)
----------- ----------- ----------- ----------- ----------- -----------
Total distributions (4,093,739) (2,894,367) (3,511,012) (687,628) (1,139,974) (910,282)
----------- ----------- ----------- ----------- ----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued 1,020,616 1,103,575 14,155,839 2,376,217 2,635,024 21,947,857
Net asset value of shares
issued in distributions 2,620,844 1,780,243 3,288,624 658,099 1,138,276 765,288
Cost of shares redeemed (11,143,760) (7,423,139) (6,977,054) (1,819,551) (468,420) (939,753)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease)
in net assets from
capital share transactions (7,502,300) (4,539,321) 10,467,409 1,214,765 3,304,880 21,773,392
----------- ----------- ----------- ----------- ----------- -----------
Total increase
(decrease) (6,058,251) (4,237,083) 28,221,113 9,061,211 3,668,378 21,140,347
NET ASSETS:
Balance at beginning of period 66,309,957 44,920,296 77,516,777 30,503,776 4,829,001 6,003,956
----------- ----------- ----------- ----------- ----------- -----------
Balance at end of period $60,251,706 $40,683,213 $105,737,890 $39,564,987 $8,497,379 $27,144,303
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 (UNAUDITED)
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&P 100 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, 1997,
were comprised of the following:
<TABLE>
S&P 100 DIVIDEND SELECT PSE TECH 100
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net realized gains
on investments $1,106,981 $ 244,574 $ 893,463 $1,334,464 $ 729,251 $1,071,015
Net realized gains
on options and futures -- -- 301,990 -- -- 84,366
----------- ----------- ----------- ----------- ----------- -----------
Total net realized gains
on investments $1,106,981 $ 244,574 $1,195,453 $1,334,464 $ 729,251 $1,155,381
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
(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, 1997, the Government
Portfolio has capital loss carryforwards of $2,483,664 and $151,408
expiring in 2002 and 2005, respectively. 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 realized gains on investments in the PSE
Tech 100 Index Portfolio of $72,790, for the year ended December 31, 1997,
are the result of losses on wash sales which are recognized for book
purposes but not for tax purposes and the reversal of Section 1256 mark to
market loss utilized in 1996. 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 $70,840, for the year ended December 31, 1997 are as a
result of current year Section 1256 mark to market gains and the reversal
of Section 1256 mark to market loss utilized in 1996. This distribution
does not represent a tax return of capital.
Distributions in excess of net investment income in the Dividend Achievers
Portfolio of $9,854 was made as of June 30, 1998. It is anticipated that
as of year end no distributions in excess of net investment income will be
made as of December 31, 1998 in this Portfolio.
The character of distributions made during the year from net investment
income or net realized gains may differ from the characterization for
federal income tax purposes due to differences in the recognition of
income, expense or gain items for financial statement and tax purposes.
Where appropriate, reclassifications between net asset accounts are made
for such differences that are permanent in nature. Accordingly, at December
31, 1997, reclassifications were recorded to increase undistributed net
investment income by $635, and decrease capital stock by $635 in the tax-
exempt fund.
(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.
(j) Reclassifications
Certain reclassifications have been made to the 1996 financial statements
to conform with 1997 presentation.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH
RELATED PARTIES --
The Fund has Investment Advisory Agreements ("the Agreements") with Ziegler
Asset Management, Inc. ("ZAMI"), (with whom certain officers and directors
of the Fund are affiliated) to serve as Investment Advisor (the "Advisor").
Pursuant to the Agreement, ZAMI manages the Tax-Exempt Portfolio,
Government Portfolio, S&P 100 Plus 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 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.
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.
The Advisor voluntarily reimbursed the Government Portfolio $1,101, S&P 100
Plus Portfolio $46,443, the Select Value Portfolio $23,728 and the PSE Tech
100 Index Portfolio $106,225 in 1998. 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 six months ended June 30, 1998, were as follows for each
Portfolio:
<TABLE>
ACCOUNTING
TRANSFER COMMISSIONS AND PRICING DEPOSITORY 12B-1
AGENT FEES ON PORTFOLIO SHARES FEES FEES*<F19> FEES
----------- -------------------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C>
Tax-Exempt Portfolio $ 21,737 $ 29,988 $ 14,116 $ 7,043 $ 47,865
Government Portfolio 21,012 11,958 11,059 5,736 38,710
S&P 100 Plus Portfolio 44,369 250,949 21,787 9,777 119,442
Dividend Achievers Portfolio 16,277 33,140 11,287 5,285 45,918
Select Value Portfolio 5,247 46,807 9,500 2,007 7,126
PSE Tech 100 Index Portfolio 25,437 130,572 10,342 4,340 20,828
---------- ---------- ---------- ---------- ----------
TOTAL $ 134,079 $ 503,414 $ 78,091 $ 34,188 $ 279,889
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
During the six months ended June 30, 1998, an affiliate of Ziegler received
$7,490 representing commissions from the purchases and sales of investments
of the Dividend Achievers Portfolio.
*<F19> On March 30, 1998, Firstar Trust Company became the Fund's
Custodian. Therefore, the Depository Fees paid to Ziegler is for the period
from January 1, 1998 through March 30, 1998.
3. INVESTMENT TRANSACTIONS --
Purchases and proceeds from sales of securities, excluding short-term
investments, for the six months ended June 30, 1998 aggregated:
PURCHASES PROCEEDS FROM SALES
------------- --------------------
Tax-Exempt Portfolio $73,948,553 $74,522,250
Government Portfolio 27,361,246 28,182,795
S&P 100 Plus Portfolio 14,050,719 4,743,872
Dividend Achievers Portfolio 2,536,838 3,572,921
Select Value Portfolio 6,301,822 3,975,447
PSE Tech 100 Index Portfolio 16,823,403 1,071,005
Net tax basis unrealized appreciation (depreciation) on investments as of
June 30, 1998, included:
<TABLE>
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 $ 498,992 $ 519,663 $68,333,219 $23,353,292 $ 1,412,620 $ 8,063,531
Gross unrealized (depreciation) (206,996) (547,776) (217,042) (87,326) (723,262) (3,746,800)
----------- ----------- ----------- ----------- ----------- -----------
Net unrealized appreciation
(depreciation) $ 291,995 $ (28,113) $68,116,177 $23,265,966 $ 689,358 $ 4,316,731
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Tax basis cost of investments $58,268,861 $39,091,491 $67,947,404 $19,026,999 $10,458,078 $39,153,366
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TALBE>
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&P 100 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 year ended December 31, 1997, and
the six months ended June 30, 1998 were as follows:
</TABLE>
<TABLE>
S&P 100 DIVIDEND SELECT PSE TECH 100
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
SHARES OUTSTANDING
AT DECEMBER31, 1996 7,133,382 4,881,592 3,510,921 1,524,240 440,156 557,743
Shares issued 108,140 120,669 547,072 103,755 206,442 1,641,640
Shares issued in distributions 277,993 194,941 123,433 26,807 94,057 61,666
Shares redeemed (1,189,129) (814,205) (271,193) (80,563) (36,482) (70,874)
----------- ----------- ----------- ----------- ----------- -----------
SHARES OUTSTANDING
AT DECEMBER 31, 1997 6,330,386 4,382,997 3,910,233 1,574,239 704,173 2,190,175
Shares issued 114,954 65,777 429,344 69,076 201,911 1,032,858
Shares issued in distributions 77,747 80,979 12,010 1,584 123 1,957
Shares redeemed (389,235) (263,591) (165,769) (138,134) (38,831) (233,900)
----------- ----------- ----------- ----------- ----------- -----------
SHARES OUTSTANDING
AT JUNE 30, 1998 6,133,852 4,266,162 4,185,818 1,506,765 867,376 2,991,090
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
(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 5.25% of the offering price or 5.54% 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 94.75.
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. FUTURES CONTRACTS WRITTEN --
An analysis of the futures contracts written for the six months ended June
30, 1998, in the S&P 100 Plus and PSE Tech 100 Index Portfolios,
respectively, were as follows:
<TABLE>
AGGREGATE FACE
NUMBER OF CONTRACTS VALUE OF CONTRACTS
------------------- ------------------
<S> <C> <C>
S&P 100 PLUS PORTFOLIO:
Outstanding at December 31, 1997 8 $ 1,888,032
Contracts opened 13 3,534,104
Contracts closed (12) (2,941,164)
----- -------------
Outstanding at June 30, 1998 9 $ 2,480,972
----- -------------
----- -------------
</TABLE>
<TABLE>
AGGREGATE FACE
NUMBER OF CONTRACTS VALUE OF CONTRACTS
------------------- ------------------
<S> <C> <C>
PSE TECH 100 INDEX PORTFOLIO:
Outstanding at December 31, 1997 7 $ 1,014,456
Contracts opened 24 4,071,392
Contracts closed (24) (3,887,942)
----- -------------
Outstanding at June 30, 1998 7 $ 1,197,906
----- -------------
----- -------------
</TABLE>
The number of financial futures contracts and the gross unrealized
appreciation, as of June 30, 1998, for each Portfolio were as follows:
<TABLE>
AGGREGATE FACE
NUMBER OF CONTRACTS VALUE OF CONTRACTS
------------------- ------------------
<S> <C> <C>
S&P 100 PLUS PORTFOLIO:
S&P 500 Financial Futures Contract expiration
date September 1998 9 $90,778
PSE TECH 100 INDEX PORTFOLIO:
PSE Technology 100 Index Futures Contract
expiration date September 1998 7 $27,094
</TABLE>
7. THE RESULTS OF THE SHAREHOLDERS' MEETING OF PRINCIPAL PRESERVATION
PORTFOLIOS, INC. HELD ON MAY 15, 1998 WERE AS FOLLOWS --
(a) Each of the five directors were elected with at least 182,447,482
shares out of a possible 199,845,457 shares outstanding voting in
favor of each nominee.
(a) Each Portfolio at the fund appointed Arthur Andersen as the
independent accountants.
<TABLE>
% OF
SHARES OUTSTANDING SHARES VOTING YES OUTSTANDING SHARES
------------------- ------------------ -----------------
<S> <C> <C> <C>
Tax-Exempt 6,301,161 4,188,027 66.5%
Government 4,341,156 2,187,586 50.4%
S&P 100 Plus 4,071,497 3,073,526 75.5%
Dividend Achievers 1,583,568 1,201,292 75.9%
Select Value 792,131 642,226 81.1%
PSE Tech 100 2,622,915 1,981,515 75.6%
</TABLE>
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
TAX-EXEMPT PORTFOLIO
SCHEDULE OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL S&P MOODY'S
AMOUNT DESCRIPTION RATING RATING VALUE
(UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG-TERM TAX-EXEMPT SECURITIES -- 99.4%
ALABAMA -- 2.0%
$1,190,000 Alabama Agricultural and Mechanical University Revenue Bonds, AAA Aaa $ 1,173,638
5.00%, due 11-01-2016
ARKANSAS -- 4.0%
2,270,000 City of Conway, Arkansas, Sales and Use Tax Capital Improvement AAA NR 2,343,775
Bonds, Series 1997A, 5.35%, due 12-01-2017
COLORADO -- 3.4%
1,000,000 Centennial Water and Sanitation District, Douglas County, Colorado, AAA Aaa 1,012,500
Water and Sewer Revenue Refunding Bonds, Series 1997A, 5.125%,
due 12-01-2017
1,000,000 Colorado Water Resources and Power Development Authority, NR Aaa 977,500
Drinking Water Revenue Bonds, 1998 Series A, 5.00%,
due 09-01-2019
FLORIDA -- 1.7%
1,000,000 State of Florida, Full Faith and Credit State Board of Education, Public AA+ Aa2 975,000
Education Capital Outlay Bonds, 1996 Series B, 4.875%,
due 06-01-2018
IDAHO -- 1.7%
1,000,000 Boise State University, Idaho, Revenue Refunding and Improvement AAA NR 986,250
Bonds - Student Fee, 5.00%, due 04-01-2023
ILLINOIS -- 7.1%
3,000,000 Chicago School Reform Board of Trustees Board of Education, AAA Aaa 2,992,500
Chicago, Illinois, Unlimited Tax GO (Dedicated Tax Revenue) Series
1997A, 5.25%, due 12-01-2022
+ 1,000,000 Community Unit School District #220 (Barrington) Lake, Cook, Kane AAA Aaa 1,156,250
and Mchenry Counties, Illinois, General Obligation School Bonds,
Series 1998, 6.30%, due 12-01-2017
INDIANA -- 6.8%
1,000,000 Hamilton Southeastern Consolidated School Building Corporation, AAA Aaa 1,022,500
(Hamilton County, Indiana), First Mortgage Bonds, Series 1996, 5.25%,
due 01-15-2017
1,500,000 Indiana State Office Building Commission, Capitol Complex Revenue AAA Aaa 1,914,375
Bonds, Series 1990A (Senate Avenue Parking Facility), 7.40%,
due 07-01-2015
1,000,000 West Lafayette, Indiana, High School Building Corporation Revenue AAA Aaa 990,000
Refunding Bonds, First Mortgage, 5.250%, due 07-15-2019
KANSAS -- 7.6%
2,500,000 Kansas State Development Finance Authority Revenue Bonds, Water AA+ Aa1 2,443,750
Pollution Control Revolving Fund-II, 5.00%, due 05-01-2020
2,000,000 City of Topeka, Kansas, Water and Water Pollution Control Utility NR Aaa 1,992,500
Revenue Bonds, Series 1998B, 5.05%, due 08-01-2018
KENTUCKY -- 1.7%
1,000,000 Lexington-Fayette Urban County Government, Kentucky, University of NR Aaa 980,000
Kentucky Alumni Association Revenue Refunding Bonds, 5.00%,
due 11-01-2020
LOUISIANA -- 6.8%
1,000,000 Louisiana Public Facilities Authority Revenue Refunding Bonds, AAA Aaa 985,000
Dillard University Project, 5.00%, due 02-01-2018
2,000,000 Public Improvement Bonds, Issue of 1998-A, City of New Orleans, AAA Aaa 1,987,500
Louisiana, 5.125%, due 12-01-2018
1,000,000 Parishwide School District of the Parish of Orleans, State of Louisiana, NR Aaa 990,000
General Obligation School Bonds, Series 1998A, 5.125%,
due 09-10-2022
MASSACHUSETTS -- 5.2%
1,000,000 Massachusetts Bay Transportation Authority, General Transportation AAA Aaa 997,500
System Revenue Bonds, Series B, 5.25%, due 03-01-2026
1,100,000 Massachusetts State Water Pollution Abatement Trust-MWRA Loan AA Aa1 1,087,625
Program Revenue Bonds, Series A, 5.00%, due 08-01-2015
1,000,000 Town of North Andover, Massachusetts, General Obligation Municipal AAA Aaa 953,750
Purpose Loan of 1998 Bonds, 4.75%, due 01-15-2018
MICHIGAN -- 8.7%
1,000,000 Baldwin, Michigan, Community School, General Obligation-Unlimited, NR Aaa 1,001,250
5.20%, due 05-01-2023
1,000,000 Caledonia Community Schools, Counties of Kent, Allegan and Barry, AAA Aaa 1,026,250
State of Michigan, 1993 Refunding Bonds (General Obligation-
Unlimited Tax), 5.50%, due 05-01-2022
1,000,000 Dexter Community Schools, Counties of Washtenaw and Livingston, AAA Aaa 990,000
State of Michigan, 1998 School Building and Site Bonds, (Unlimited
Tax GO), 5.00%, due 05-01-2023
1,000,000 School District of the City of Ferndale, County of Oakland, State of AAA Aaa 1,018,750
Michigan, 1995 School Building & Site and Refunding Bonds
(Unlimited Tax General Obligation), 5.375%, due 05-01-2016
1,000,000 Lake Orion Community School District, County of Oakland, State of AAA Aaa 992,500
Michigan, 1998 School Building and Site Bonds (GO-Unlimited Tax),
5.125%, due 05-01-2023
MINNESOTA -- 3.4%
1,000,000 Independent School District 728, Elk River, Minnesota, General NR Aaa 1,027,500
Obligation School Building Bonds, Series 1997, (MInnesota School
District Credit Enhancement Program), 5.375%, due 02-02-2017
1,000,000 Minnesota Public Facilities Authority, Water Pollution Control Revenue AAA Aaa 961,250
Bonds, Series 1998A, 4.750%, due 03-01-2019
MISSISSIPPI -- 3.4%
1,000,000 Mississippi Development Special Obligation Revenue Bonds, (DeSoto AAA Aaa 986,250
County Convention Center Project), 5.00%, due 11-01-2017
1,000,000 Certificates of Participation (East Mississippi Correctional Facility AAA Aaa 985,000
Project), Series 1997, Payments under Lease/Purchase Agreement,
5.0%, due 01-01-2018
MISSOURI -- 3.0%
1,750,000 Missouri State Environmental Improvement & Energy Resource NR Aa1 1,760,937
Authority, Water Pollution Control Revolving Fund, Series E, 5.125%,
due 01-01-2019
NEW HAMPSHIRE -- 2.4%
1,355,000 Town of Hudson, New Hampshire, General Obligation Bonds NR Aa3 1,377,019
Unlimited Tax, 5.250%, due 03-15-2028
NEW JERSEY -- 3.5%
1,000,000 Camden County, New Jersey, Municipal Utilities Authority Sewer AAA Aaa 1,018,750
Revenue Refunding Bonds County Agreement, 5.20%, due 07-15-2015
1,000,000 New Jersey Educational Facilities Authority, Princeton University AAA Aaa 985,000
Revenue Bonds, 1998 Series E, 5.00%, due 07-01-2024
NEW MEXICO -- 1.8%
+ $1,000,000 Bernalillo County, New Mexico, Gross Receipts Tax Revenue AA Aa3 1,035,000
Refunding Bonds, 5.25%, due 04-01-2027
NEW YORK -- 1.7%
1,000,000 Orange County, New York, General Obligation Bonds, Various NR Aa2 1,003,750
Purposes Serial Bonds-1997, 5.125%, due 09-01-2016
NORTH DAKOTA -- 2.4%
1,370,000 Fargo School District Building Authority, Cass County, North Dakota, NR Aaa 1,381,987
First Mortgage Revenue Bonds, Series 1997B, 5.20%, due 05-01-2017
OHIO -- 4.3%
1,000,000 State of Ohio (Ohio Building Authority) Workers' Compensation AA- A2 971,250
Facilities Bonds (William Green Building) 1993 Series A, 4.75%,
due 04-01-2014
1,500,000 State of Ohio Higher Educational Facility Revenue Bonds (Cash AA Aa3 1,501,875
Western Reserve University 1997 Series C), 5.125%, 10-01-2017
OKLAHOMA -- 1.9%
1,000,000 Tulsa Industrial Authority Revenue and Refunding Bonds, (The AAA Aaa 1,128,750
University of Tulsa), Series 1996A, 6.00%, due 10-01-2016
PENNSYLVANIA -- 5.2%
2,000,000 County of Beaver, Pennsylvania, General Obligation Bonds, Series of NR Aaa 2,005,000
1997, 5.150%, due 10-01-2017
1,000,000 The Harrisburg Authority, Dauphin County, Pennsylvania, Tax-Exempt AAA NR 1,043,750
Revenue Bonds, (The City of Harrisburg Project), Series II of 1997,
5.625%, due 09-15-2017
TENNESSEE -- 2.9%
1,700,000 Shelby County, Tennessee, General Obligation Refunding Bonds, 1998 AA+ Aa2 1,680,875
Series A, 5.10%, due 03-01-2022
TEXAS -- 3.3%
2,000,000 Port of Port Arthur Navigation District of Jefferson County, Texas, AAA Aaa 1,937,500
Unlimited Tax Refunding Bonds, Series 1998, 4.875%, due 03-01-2017
VIRGINIA -- 1.7%
1,000,000 City of Richmond, Virginia, Public Utility Revenue and Refunding A+ A1 1,003,750
Bonds, Series 1998A, 5.25%, due 01-15-2018
WASHINGTON -- 1.8%
1,000,000 City of Tacoma, Washington, Water System Revenue Bonds, 1997, AAA Aaa 1,020,000
5.25%, due 12-01-2017 ------------
Total Long-Term Tax-Exempt Securities (Cost $57,513,861) 57,805,856
SHORT-TERM TAX-EXEMPT SECURITIES -- 1.3%
MONEY MARKET
755,000 Firstar Tax-Exempt Money Market Fund 755,000
------------
Total Short-Term Investments 755,000
------------
Total Investments $58,560,856
------------
------------
</TABLE>
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
JUNE 30, 1998 (UNAUDITED)
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL INTEREST MARKET
AMOUNT DESCRIPTION RATE MATURITY VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 98.2%
U.S. GOVERNMENT OBLIGATIONS -- 92.6%
$ 2,520,000 U.S. Treasury Note 7.125% 02-29-2000 $ 2,588,913
4,950,000 U.S. Treasury Note 5.750% 11-30-2002 4,991,763
6,000,000 U.S. Treasury Note 11.125% 08-15-2003 7,471,872
7,350,000 U.S. Treasury Note 7.875% 11-15-2004 8,257,262
4,575,000 U.S. Treasury Bond 10.750% 08-15-2005 5,953,219
7,130,000 U.S. Treasury Note 6.250% 02-15-2007 7,470,899
-----------
Total U.S. Government Obligations 36,733,928
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION POOLS -- 5.6%
515,345 Pool #407884 7.000% 09-15-2025 524,044
444,350 Pool #420853 7.000% 01-15-2026 451,850
724,735 Pool #422688 7.000% 05-15-2026 736,968
508,996 Pool #451586 7.000% 08-15-2027 517,588
-----------
Total Agency Obligations 2,230,450
-----------
Total U.S. Government and Agency Obligations (Cost $38,992,491) 38,964,378
-----------
SHORT-TERMINVESTMENTS -- 0.2%
MONEYMARKET -- 0.2%
99,000 Firstar Government Trust 99,000
-----------
Total Short-Term Investments 99,000
-----------
Total Investments $39,063,378
-----------
-----------
</TABLE>
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
JUNE 30, 1998 (UNAUDITED)
- -------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS -- 98.0%
BASIC INDUSTRIES -- 4.3%
Aluminum Company of America 5,300 $ 349,469
*<F21> Bethlehem Steel Corporation 3,400 42,288
Boise Cascade Corporation 1,466 48,011
Champion International 2,900 142,644
Dow Chemical Company 6,950 671,978
Homestake Mining Company 6,800 70,550
International Paper Company 9,700 417,100
Monsanto Company 19,500 1,089,562
Weyerhaeuser Company 6,100 281,744
Dupont (E.I.) de Nemours and Company 36,900 2,753,662
-----------
5,867,008
-----------
CONSUMER DURABLES -- 3.4%
Black &Decker Corporation 2,900 176,900
Brunswick Corporation 3,000 74,250
Chrysler Corporation 20,500 1,155,688
Ford Motor Company 37,200 2,194,800
General Motors Corporation 16,000 1,069,000
-----------
4,670,638
-----------
CONSUMER NONDURABLES -- 11.5%
Avon Products, Inc. 4,100 317,750
Coca-Cola Company 76,300 6,523,650
Colgate-Palmolive Company 9,400 827,200
Eastman Kodak Company 10,700 781,769
Heinz (H.J.) Company 11,700 656,662
International Flavors & Fragrances Inc. 3,350 145,516
PepsiCo, Inc. 48,200 1,985,237
Polaroid Corporation 1,400 49,788
Procter & Gamble Company 44,500 4,052,281
Ralston Purina Group 3,200 373,800
-----------
15,713,653
-----------
CONSUMER SERVICE -- 7.9%
Walt Disney Company 22,600 2,374,412
*<F21> Harrah's Entertainment, Inc. 3,150 73,238
*<F21> Kmart Corporation 16,300 313,775
Limited (The), Inc. 8,239 272,917
May Department Stores Company 7,500 491,250
McDonald's Corporation 22,300 1,538,700
Sears, Roebuck &Co. 13,000 793,812
Tandy Corporation 3,100 164,494
*<F21> Toys "R" Us, Inc. 9,325 219,720
Wal-Mart Stores, Inc. 74,600 4,531,950
-----------
10,774,268
-----------
CAPITAL GOODS -- 10.9%
Allegheny Teledyne Inc. 6,292 143,930
The Boeing Company 39,312 1,751,841
Fluor Corporation 2,600 132,600
General Dynamics Corporation 3,800 176,700
General Electric Company 108,200 9,846,200
Minnesota Mining & Manufacturing Company 13,300 1,093,094
Raytheon Company, Class B Shares 11,200 662,200
Rockwell International Corporation 6,200 297,987
United Technologies Corporation 7,300 675,250
-----------
14,779,802
-----------
ENERGY -- 9.3%
Amoco Corporation 31,400 1,307,025
*<F22> Atlantic Richfield Company 10,300 804,688
Baker Hughes Incorporated 5,460 188,711
Coastal Corporation 3,200 223,400
Exxon Corporation 81,000 5,776,312
Halliburton Company 8,100 360,956
Mobil Corporation 28,800 2,206,800
Occidental Petroleum Corporation 11,600 313,200
Schlumberger Limited 15,500 1,058,844
Williams Companies, Inc. 13,600 459,000
-----------
12,698,936
-----------
FINANCIAL -- 11.6%
American International Group, Inc. 22,764 3,323,544
American Express Company 18,500 2,109,000
American General Corporation 8,200 583,738
BankAmerica Corporation 27,800 2,402,962
CIGNA Corporation 6,800 469,200
Citicorp 14,900 2,223,825
First Chicago NBD Corp. 9,225 817,566
Hartford Financial Services Group 3,600 411,750
Merrill Lynch &Co., Inc. 12,000 1,107,000
NationsBank Corporation 31,500 2,409,750
-----------
15,858,335
-----------
HEALTH CARE -- 10.5%
Baxter International Inc. 9,300 500,456
Bristol-Myers Squibb Company 32,920 3,783,743
Columbia/HCA Healthcare Corporation 20,500 597,063
Johnson &Johnson 44,400 3,274,500
Mallinckrodt, Inc. 2,300 68,281
Merck &Co., Inc. 40,000 5,350,000
Pharmacia & Upjohn, Inc. 16,560 763,830
-----------
14,337,873
-----------
TECHNOLOGY -- 20.8%
AMP Incorporated 6,750 232,031
*<F21> Ceridian Corporation 2,100 123,375
*<F21> Cisco Systems, Inc. 40,150 3,696,309
Computer Sciences Corporation 5,100 326,400
*<F21> FDX Corporation 4,500 282,375
Harris Corporation 2,400 107,250
Hewlett-Packard Company 33,500 2,005,812
Honeywell Inc. 3,900 325,894
International Business Machines Corporation 31,500 3,616,594
Intel Corporation 61,200 4,536,450
*<F21> Microsoft Corporation 82,800 8,973,450
*<F21> National Semiconductor Corporation 5,300 69,894
Northern Telecom Limited 17,300 981,775
*<F21> Oracle Corporation 31,225 766,964
Tektronix, Inc. 1,500 53,063
Texas Instruments Inc. 12,600 734,737
*<F21> Unisys Corporation 7,900 223,175
Xerox Corporation 12,891 1,310,048
-----------
28,365,596
-----------
TRANSPORTATION -- 0.8%
Burlington Northern Santa Fe Corporation 4,700 461,481
Delta Air Lines, Inc. 2,200 284,350
Norfolk Southern Corporation 12,400 369,675
-----------
1,115,506
-----------
UTILITIES -- 7.0%
AT&T Corp. 53,992 3,084,293
American Electric Power Company, Inc. 5,700 258,638
Ameritech Corporation 36,100 1,619,987
Bell Atlantic Corporation 51,382 2,344,304
Entergy Corporation 7,600 218,500
MCICommunications Corporation 18,900 1,098,562
Southern Company 22,600 625,738
Unicom Corporation 7,100 248,944
-----------
9,498,966
-----------
Total Common Stocks (Cost $65,655,182) 133,680,581
-----------
SHORT-TERM INVESTMENTS -- 1.7%
MONEY MARKET
Firstar Institutional Money Market Fund $2,383,000 2,383,000
-----------
Total Short-Term Investments 2,383,000
-----------
Total Investments $136,063,584
-----------
-----------
FUTURES CONTRACTS
S&P 500 Index Future expires September, 1998 9 2,571,750
-----------
Total Futures Contracts (Cost $2,480,972) 2,571,750
-----------
*<F21> Non-income producing
+<F22> 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
JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS -- 97.5%
CONSUMER NONDURABLES -- 16.7%
Coca-Cola Company 10,000 $ 855,000
Gillette Company 35,200 1,995,400
Kimberly-Clark Corporation 21,600 990,900
Mattel, Inc. 15,000 634,688
PepsiCo, Inc. 37,000 1,523,937
Sherwin-Williams Company 31,400 1,040,125
-----------
7,040,050
-----------
CONSUMER SERVICE -- 12.3%
Walt Disney Company 10,000 1,050,625
McDonald's Corporation 21,600 1,490,400
McGraw-Hill Companies, Inc. 8,500 693,281
Walgreen Co. 48,000 1,983,000
-----------
5,217,306
-----------
CONSUMER NONCYCLICAL -- 3.3%
Becton, Dickinson &Company 18,000 1,397,250
-----------
1,397,250
-----------
CAPITAL GOODS -- 10.7%
Avery-Dennison Corporation 28,400 1,526,500
General Electric Company 24,000 2,184,000
Minnesota Mining & Manufacturing Company 10,000 821,875
-----------
4,532,375
-----------
ENERGY -- 10.0%
Mobil Corporation 14,400 1,103,400
Royal Dutch Petroleum Company 24,000 1,315,500
Williams Companies, Inc. 54,000 1,822,500
-----------
4,241,400
-----------
FINANCIAL -- 14.7%
Banc One Corporation 11,000 613,938
BankAmerica Corporation 20,000 1,728,750
Federal Home Loan Mortgage Corporation 16,000 753,000
Federal National Mortgage Association 30,000 1,822,500
Jefferson-Pilot Corporation 22,500 1,303,593
-----------
6,221,781
-----------
HEALTH CARE -- 10.9%
Johnson & Johnson 21,600 1,593,000
Merck &Co., Inc. 12,000 1,605,000
Pfizer,Inc. 13,000 1,412,938
-----------
4,610,938
-----------
INDUSTRIAL -- 3.2%
Illinois Tool Works, Inc. 20,000 1,333,750
-----------
1,333,750
-----------
TECHNOLOGY -- 11.1%
Diebold, Inc. 18,562 535,977
Harris Corporation 12,000 536,250
Hewlett-Packard Company 20,000 1,197,500
Intel Corporation 16,200 1,200,825
Johnson Controls, Inc. 9,000 514,688
Xerox Corporation 7,000 711,375
-----------
4,696,615
-----------
UTILITIES -- 4.6%
SBC Communications, Inc. 21,600 864,000
Sprint Corporation 15,000 1,057,500
-----------
1,921,500
-----------
Total Common Stocks (Cost $17,946,999) 41,212,965
-----------
SHORT-TERM INVESTMENTS -- 2.6%
MONEYMARKET
Firstar Institutional Money Market Fund 1,080,000 1,080,000
-----------
Total Short-Term Investments 1,080,000
-----------
Total Investments $42,292,965
-----------
-----------
*<F20> 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.
SELECT VALUE PORTFOLIO
SCHEDULE OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS -- 91.6%
AUTOS & TRANSPORTATION -- 2.7%
*<F23> Covenant Transport, Inc., Class A 7,900 $ 154,050
*<F23> Dura Automotive Systems, Inc. 4,500 144,563
-----------
298,613
-----------
CONSUMER DISCRETIONARY -- 19.3%
*<F23> Alternative Resources Corporation 13,800 170,775
*<F23> Brylane Inc. 2,700 124,200
*<F23> CDI Corp. 2,700 72,225
Claire's Stores, Inc. 11,000 225,500
Fingerhut Companies, Inc. 10,700 353,100
*<F23> Gildan Activewear, Inc. Class A
Subordinate Voting Shares 14,400 93,600
Harman International Industries, Inc. 2,600 100,100
Kellwood Co 3,300 117,975
Libbey, Inc. 4,200 160,912
*<F23> United Stationers 4,900 317,275
*<F23> World Color Press, Inc. 6,300 220,500
*<F23> Zale Corporation 5,800 184,512
-----------
2,140,674
-----------
CONSUMER STAPLES -- 3.9%
First Brands Corporation 11,200 287,000
International Multifoods Corporation 5,300 145,750
-----------
432,750
-----------
ENERGY -- 3.0%
*<F23> Newfield Exploration Company 9,000 223,875
*<F23> Swift Energy Company 7,240 115,388
-----------
339,263
-----------
FINANCIAL -- 22.0%
American General Hospitality Corporation 11,600 246,500
American Heritage Life Investment
Corporation 6,800 157,250
CMACInvestment Corporation 3,900 239,850
Enhance Financial Services Group Inc. 9,800 330,750
*<F23> FIRSTPLUS Financial Group, Inc. 4,400 158,400
Fremont General Corporation 4,100 222,169
HCCInsurance Holdings, Inc. 10,100 222,200
*<F23> Highlands Insurance Group, Inc. 4,900 90,650
Horace Mann Educators Corporation 6,100 210,450
Parkway Properties, Inc. 4,200 123,900
Peoples Heritage Financial Group, Inc. 10,200 240,975
Prentiss Properties Trust 8,200 199,362
-----------
2,442,456
-----------
HEALTH CARE -- 11.6%
Arrow International, Inc. 5,800 159,138
DENTSPLY International, Inc. 6,500 162,500
Integrated Health Services, Inc. 7,400 277,500
*<F23> Marquette Medical Systems, Inc. 12,000 307,874
*<F23> Sola International, Inc. 4,000 130,750
*<F23> Trigon Healthcare, Inc. 7,100 256,931
-----------
1,294,693
-----------
MATERIALS & PROCESSING -- 4.8%
Hughes Supply, Inc. 3,000 109,875
*<F23> International Specialty Products, Inc. . 11,400 212,325
*<F23> Wolverine Tube, Inc. 5,700 216,600
-----------
538,800
-----------
PRODUCER DURABLES -- 13.2%
Beldon Inc. 3,200 98,000
*<F23> Coltec Industries, Inc. 10,100 200,737
*<F23> DeCrane Aircraft Holdings, Inc. 9,100 158,113
General Cable Corp. 11,000 317,625
*<F23> MagneTek, Inc. 13,100 206,325
Pentair Inc. 7,400 314,500
*<F23> TriStar Aerospace Co. 11,100 172,050
-----------
1,467,350
-----------
TECHNOLOGY -- 11.1%
*<F23> Anixter International, Inc. 13,700 261,156
*<F23> Artesyn Technologies, Inc. 15,600 249,600
*<F23> CHS Electronics, Inc. 12,000 214,500
*<F23> Coherent, Inc. 12,600 216,168
*<F23> DII Group, Inc. 9,800 167,213
*<F23> International Manufacturing Services, Inc. 18,400 124,200
-----------
1,232,837
-----------
Total Common Stocks (Cost $9,489,078) 10,187,436
-----------
SHORT-TERM INVESTMENTS -- 8.6%
DEMAND NOTES -- 7.2%
American Family Financial Services, Inc. $100,000 100,000
General Mills, Inc. 400,000 400,000
Johnson Controls, Inc. 300,000 300,000
-----------
800,000
-----------
MONEY MARKET -- 1.4%
Firstar Institutional Money Market Fund 160,000 160,000
-----------
160,000
-----------
Total Short-Term Investments 960,000
-----------
Total Investments $11,147,436
-----------
-----------
*<F23>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
JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCKS -- 97.3%
BIOTECHNOLOGY --7.3%
*<F24> Amgen, Inc. 10,700 $ 699,513
*<F24> Biogen, Inc. 10,700 524,300
*<F24> Centocor, Inc. 10,700 387,875
*<F24> Chiron Corporation 10,700 167,856
*<F24> Genentech, Inc. 10,700 726,262
*<F24> Immunex Corporation 10,700 708,875
-----------
3,214,681
-----------
CAD/CAM -- 3.1%
Autodesk, Inc. 10,700 413,287
*<F24> Evans &Sutherland Computer Corporation 10,700 269,506
*<F24> Intergraph Corporation 10,700 91,619
*<F24> Mentor Graphics Corporation 10,700 113,019
*<F24> Synopsys, Inc. 10,700 489,525
-----------
1,376,956
-----------
DATA COMMUNICATIONS -- 13.4%
*<F24> 3Com Corporation 10,700 328,356
*<F24> Adaptec, Inc. 10,700 153,144
*<F24> ADC Telecommunications, Inc. 10,700 390,884
*<F24> Ascend Communications 10,700 530,319
*<F24> Bay Networks, Inc. 10,700 345,075
*<F24> Cabletron Systems, Inc. 10,700 143,781
*<F24> Cisco Systems, Inc. 10,700 985,069
*<F24> DSCCommunications Corporation 10,700 321,000
Lucent Technologies 10,700 890,106
*<F24> Newbridge Networks Corporation 10,700 256,131
Scientific - Atlanta, Inc. 10,700 271,513
*<F24> Standard Microsystems Corporation 10,700 94,294
Symbol Technologies, Inc. 10,700 403,925
*<F24> Tellabs, Inc. 10,700 766,387
-----------
5,879,984
-----------
DATA STORAGE AND PROCESSING -- 2.7%
*<F24> Applied Magnetics Corporation 10,700 81,588
*<F24> Exabyte Corporation 10,700 89,277
*<F24> Komag, Incorporated 10,700 57,178
*<F24> Quantum Corporation 10,700 222,025
*<F24> Seagate Technology, Inc. 10,700 254,794
*<F24> Storage Technology Corporation 10,700 464,112
-----------
1,168,974
-----------
ELECTRONIC EQUIPMENT -- 2.6%
AMP Incorporated 10,700 367,812
Linear Technologies 10,700 645,344
Sensormatic Electronics Corporation 10,700 149,800
-----------
1,162,956
-----------
INFORMATION PROCESSING -- 12.8%
America Online, Inc. 10,700 1,134,200
Automatic Data Processing, Inc. 10,700 779,762
*<F24> Ceridian Corporation 10,700 628,625
Computer Sciences Corporation 10,700 684,800
Comsat Corporation 10,700 302,944
Electronic Data Systems 10,700 428,000
*<F24> Yahoo!, Inc. 10,700 1,685,250
-----------
5,643,581
-----------
LARGE DIVERSIFIED COMPUTER MANUFACTURING -- 3.5%
+<F25> International Business
Machines Corporation 10,700 1,228,494
*<F24> Unisys Corporation 10,700 302,275
-----------
1,530,769
-----------
MEDICAL TECHNOLOGY -- 9.1%
*<F24> Acuson Corporation 10,700 194,606
Biomet, Inc. 10,700 353,769
*<F24> Boston Scientific Corporation 10,700 766,388
*<F24> Coherent, Inc. 10,700 183,571
*<F24> Genzyme Corporation 10,700 273,519
HBO & Company 10,700 377,175
Medtronic, Inc. 10,700 682,125
Shared Medical Systems Corporation 10,700 785,781
*<F24> St. Jude Medical, Inc. 10,700 393,894
-----------
4,010,828
-----------
MICRO COMPUTER MANUFACTURERS -- 6.6%
*<F24> Apple Computer, Inc. 10,700 306,956
Compaq Computer Corporation 10,700 303,613
*<F24> Data General Corporation 10,700 159,831
*<F24> Dell Computer Corporation 10,700 993,094
*<F24> Gateway 2000, Inc. 10,700 541,687
*<F24> Micron Electronics, Inc. 10,700 129,069
*<F24> Sun Microsystems, Inc. 10,700 464,781
-----------
2,899,031
-----------
MINI AND MAINFRAME COMPUTER MANUFACTURERS --3.4%
*<F24> EMC Corporation 10,700 479,494
Hewlett-Packard Company 10,700 640,662
*<F24> Silicon Graphics, Inc. 10,700 129,737
*<F24> Stratus Computer, Inc. 10,700 270,844
-----------
1,520,737
-----------
OFFICE AUTOMATION EQUIPMENT -- 3.6%
Harris Corporation 10,700 478,156
Xerox Corporation 10,700 1,087,388
-----------
1,565,544
-----------
SEMICONDUCTOR CAPITAL EQUIPMENT MANUFACTURERS -- 3.7%
*<F24> Analog Devices, Inc. 10,700 262,819
*<F24> Applied Materials, Inc. 10,700 315,650
*<F24> KLA Instruments Corporation 10,700 296,256
*<F24> Kulicke &Soffa Industries, Inc. 10,700 181,900
*<F24> Lam Research Corporation 10,700 204,638
*<F24> Novellus Systems, Inc. 10,700 381,856
-----------
1,643,119
-----------
SEMICONDUCTOR MANUFACTURERS -- 6.9%
*<F24> Advanced Micro Devices, Inc. 10,700 182,569
*<F24> Cypress Semiconductor Corporation 10,700 88,944
Intel Corporation 10,700 793,137
*<F24> Micron Technology, Inc. 10,700 265,494
Motorola, Inc. 10,700 562,419
*<F24> National Semiconductor Corporation 10,700 141,106
Texas Instruments Inc. 10,700 623,944
*<F24> Xilinx, Inc. 10,700 363,800
-----------
3,021,413
-----------
SOFTWARE PRODUCTS -- 10.4%
Adobe Systems, Inc. 10,700 454,081
*<F24> BMC Software, Inc. 10,700 555,731
*<F24> Cadence Design Systems, Inc. 10,700 334,375
Computer Associates International, Inc. 10,700 594,519
*<F24> Informix Corporation 10,700 84,596
*<F24> Imprise Corporation 10,700 78,913
*<F24> Microsoft Corporation 10,700 1,159,612
*<F24> Novell, Inc. 10,700 136,425
*<F24> Oracle Corporation 10,700 262,819
*<F24> PeopleSoft, Inc. 10,700 502,900
*<F24> Sybase, Inc. 10,700 74,565
*<F24> Symantec Corporation 10,700 279,537
*<F24> System Software Associates, Inc. 10,700 76,238
-----------
4,594,311
-----------
TEST, ANALYSIS, AND INSTRUMENTATION EQUIPMENT -- 8.2%
General Signal Corporation 10,700 385,200
Honeywell Inc. 10,700 894,119
Millipore Corporation 10,700 291,575
Perkin-Elmer Corporation 10,700 665,406
Tektronix, Inc. 10,700 378,513
*<F24> Teradyne, Inc. 10,700 286,225
*<F24> Thermo Instrument Systems, Inc. 10,700 280,875
Varian Associates, Inc. 10,700 417,300
-----------
3,599,213
-----------
Total Common Stocks (Cost $38,542,460) 42,832,097
-----------
SHORT-TERM INVESTMENTS -- 1.4%
MONEY MARKET
Firstar Institutional Money
Market Fund $638,000 638,000
-----------
Total Short-Term Investments 638,000
-----------
TOTAL INVESTMENTS $43,470,097
-----------
-----------
FUTURES CONTRACTS
PSE Technology 100 Index,
Expiring September, 1998 7 1,225,000
-----------
Total Futures Contracts (Cost $1,197,906) 1,225,000
-----------
*<F24>Non-income producing
+<F25>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.
215 North Main Street
West Bend, Wisconsin 53095
OFFICERS AND DIRECTORS
Richard H. Aster, M.D., Director
Augustine J. English, Director
Ralph J. Eckert, Director
Richard J. Glaisner, 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
DISTRIBUTOR, TRANSFER AND DIVIDEND
DISBURSING AGENT AND FUND ACCOUNTANT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
CUSTODIAN
Firstar Trust Company
615 East Michigan Street
Milwaukee, Wisconsin 53202
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.
PSEis 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 344-8/98
