(PRINCIPAL PRESERVATION LOGO)
Tax-Exempt Portfolio
Government Portfolio
S&P100 Plus Portfolio
Dividend Achievers Portfolio
Select Value Portfolio
PSETech 100 Index Portfolio
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ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1997
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PRINCIPAL PRESERVATION PORTFOLIOS, INC.
PRESIDENT'S LETTER/MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT TO SHAREHOLDERS
DECEMBER 31, 1997
February 23, 1998
Dear Shareholders:
I am pleased to present the annual report to shareholders of Principal
Preservation Portfolios, Inc. Total net assets of the mutual fund family have
grown from $411,000,000 at December 31, 1996 to a current level in excess of
$500,000,000 as of the date of this letter. The growth occurred equally through
market appreciation and net sales in both the long term and money market fund
assets.
Continuing the trend from 1995 and 1996, investors of stock mutual funds
enjoyed strong returns during 1997, reaching record highs in the Dow, the S&P
500 and other major indices. Only a brief setback due to turmoil in the Asian
financial markets took any luster off the strong returns. Overall, bond markets
enjoyed a stable year, partly because the Federal Reserve was not inclined to
move interest rates as inflation appeared under control. Yields of bonds
trended downward anywhere from 0.10% to 0.40%, adding positive total return to
the interest paid.
Overall, the Fund family performed in line with the benchmarks and each
portfolio's performance compared favorably to the average for mutual funds in
its respective category. On the following pages we will discuss further each
portfolio's performance and the reasons for over or under performance.
We have contacted each of our vendors with respect to year 2000 compliance
issues. As a result, we have received assurances that compliance will be
achieved. Each of the vendors have begun system modifications and are executing
testing phases of the implementation program. To our knowledge the year 2000
should not have an impact on any vendor's ability to continue to provide its
service.
We thank you for your continued support as a shareholder of Principal
Preservation.
Sincerely,
/s/ Robert J. Tuszynski
Robert J. Tuszynski
President and CEO
The accompanying report is intended for the existing shareholders of Principal
Preservation. It does not constitute an offer to sell. Any investor wishing to
receive more information about the portfolios should obtain a prospectus which
includes a discussion of each investment objective and all sales charges and
expenses of the relevant portfolio(s).
MANAGEMENT DISCUSSION AND ANALYSIS
FIXED INCOME ANALYSIS
During the course of the year, broad-based stock and bond market rallies kept
investor focus on longer term securities. As a result of a stable economy and a
perception that little to no inflation was occurring, the yield on the 30-year
U.S. Treasury Bond fell from 6.80% to 5.92% in 1997. Municipal yields for 30-
year AAA general obligation bonds fell from 5.39% to 4.99%. Yields for A rated
general obligation bonds fell from 5.68% to 5.22% during the same period,
thereby tightening the yield curve between bonds of a higher credit quality as
compared to those of lower credit quality. Consistent with taxable short term
interest rates, the short end of the municipal bond market remained fairly
constant, declining in yield by only 0.08%. The Federal Reserve Board did not
change the Federal Funds rate during the last nine months of 1997. The rapid
decline of the long term interest rates, coupled with stable short rates, caused
a flattening of the yield curve. While the severe downturn in the Asian
financial markets fueled a downturn in the equity markets, the credit markets
showed optimism that domestic inflation would remain under control. Therefore,
the bond market did not experience the same downturn. However, we did witness
increased investor demand for higher quality municipal securities in the fourth
quarter of 1997.
GENERAL STOCK MARKET ANALYSIS
In general, 1997 was a good year for stock mutual fund investors. The major
market indices reached new highs, and the rally was broad based, covering many
market sectors and companies of all market capitalizations, large and small.
However, larger cap stock indices performed better than small cap stocks, as
evidenced by comparing the 33.38% total return of the S&P 500 to the 22.36%
total return of the Russell 2000 index. The economy was strong, including robust
Gross Domestic Product growth, low unemployment, and high consumer confidence.
Historically this environment is accompanied by higher interest rates and
inflation. However, 1997 was different in this regard, as interest rates fell
and inflation remained in check. The Asian market financial crisis caused many
investors to focus on the stocks of large companies as a safe haven.
TAX-EXEMPT PORTFOLIO
Shown below is a comparison of the change in value of a $10,000 investment in
Principal Preservation Tax-Exempt Portfolio and the Lehman 20-Year Municipal
Bond Index. The graph reflects a deduction from the amount invested for the
applicable sales charge.
Principal Preservation Lehman 20-Year
Date Tax-Exempt Portfolio Municipal Bond Index
------- -------------------- --------------------
12/31/87 $9,650 $10,000
1/29/88 $9,570 $10,356
2/29/88 $9,554 $10,466
3/31/88 $9,609 $10,345
4/29/88 $9,700 $10,424
5/31/88 $9,816 $10,394
6/30/88 $9,920 $10,546
7/29/88 $9,964 $10,615
8/31/88 $10,022 $10,625
9/30/88 $10,103 $10,817
10/31/88 $10,234 $11,007
11/30/88 $10,115 $10,906
12/31/88 $10,222 $11,017
1/31/89 $10,368 $11,245
2/28/89 $10,325 $11,117
3/31/89 $10,281 $11,090
4/28/89 $10,470 $11,353
5/31/89 $10,646 $11,589
6/30/89 $10,771 $11,747
7/31/89 $10,871 $11,907
8/31/89 $10,826 $11,790
9/30/89 $10,834 $11,755
10/31/89 $10,949 $11,898
11/30/89 $11,036 $12,106
12/31/89 $11,164 $12,205
1/31/90 $11,144 $12,148
2/28/90 $11,192 $12,256
3/31/90 $11,240 $12,260
4/30/90 $11,136 $12,172
5/31/90 $11,296 $12,437
6/30/90 $11,384 $12,546
7/31/90 $11,514 $12,730
8/31/90 $11,391 $12,545
9/30/90 $11,396 $12,553
10/31/90 $11,561 $12,780
11/30/90 $11,767 $13,037
12/31/90 $11,859 $13,094
1/31/91 $11,995 $13,269
2/28/91 $12,132 $13,384
3/31/91 $12,153 $13,389
4/30/91 $12,232 $13,567
5/31/91 $12,312 $13,688
6/30/91 $12,377 $13,674
7/31/91 $12,458 $13,841
8/31/91 $12,614 $14,024
9/30/91 $12,726 $14,206
10/31/91 $12,854 $14,334
11/30/91 $12,889 $14,374
12/31/91 $13,047 $14,683
1/31/92 $13,129 $14,717
2/29/92 $13,118 $14,721
3/31/92 $13,168 $14,727
4/30/92 $13,312 $14,858
5/31/92 $13,471 $15,033
6/30/92 $13,646 $15,286
7/31/92 $14,140 $15,745
8/31/92 $13,934 $15,591
9/30/92 $13,968 $15,692
10/30/92 $13,760 $15,538
11/30/92 $14,071 $15,816
12/31/92 $14,172 $15,977
1/31/93 $14,437 $16,162
2/28/93 $15,030 $16,747
3/31/93 $14,883 $16,569
4/30/93 $15,050 $16,736
5/31/93 $15,135 $16,830
6/30/93 $15,386 $17,111
7/31/93 $15,418 $17,133
8/31/93 $15,753 $17,489
9/30/93 $15,972 $17,688
10/30/93 $16,003 $17,722
11/30/93 $15,845 $17,566
12/31/93 $16,202 $17,937
1/31/94 $16,405 $18,163
2/28/94 $15,935 $17,620
3/31/94 $15,203 $16,691
4/30/94 $15,338 $16,828
5/31/94 $15,474 $17,027
6/30/94 $15,363 $16,857
7/31/94 $15,676 $17,243
8/31/94 $15,706 $17,291
9/30/94 $15,453 $16,945
10/31/94 $15,110 $16,498
11/30/94 $14,783 $16,112
12/31/94 $15,162 $16,618
1/31/95 $15,686 $17,268
2/28/95 $16,176 $17,895
3/31/95 $16,354 $18,099
4/30/95 $16,367 $18,095
5/31/95 $16,952 $18,777
6/30/95 $16,706 $18,488
7/31/95 $16,793 $18,584
8/31/95 $17,028 $18,839
9/30/95 $17,133 $18,988
10/31/95 $17,428 $19,392
11/30/95 $17,705 $19,821
12/31/95 $17,898 $20,098
1/31/96 $17,985 $20,200
2/29/96 $17,842 $19,970
3/31/96 $17,603 $19,650
4/30/96 $17,537 $19,571
5/31/96 $17,531 $19,594
6/30/96 $17,755 $19,870
7/31/96 $17,883 $20,065
8/31/96 $17,834 $20,033
9/30/96 $18,159 $20,438
10/31/96 $18,347 $20,683
11/30/96 $18,695 $21,115
12/31/96 $18,571 $20,990
1/31/97 $18,543 $20,969
2/28/97 $18,694 $21,193
3/31/97 $18,323 $20,860
4/30/97 $18,534 $21,092
5/31/97 $18,846 $21,472
6/30/97 $19,060 $21,743
7/31/97 $19,783 $22,474
8/31/97 $19,399 $22,198
9/30/97 $19,694 $22,504
10/31/97 $19,824 $22,668
11/30/97 $19,954 $22,852
12/31/97 $20,318 $23,268
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 5-YEAR 10-YEAR
Tax-Exempt: ------ ------ -------
Full Sales Charge 5.57% 6.71% 7.35%
Net Asset Value 9.40% 7.47% 7.73%
Past performance is not predictive of future performance.
LEHMAN 20-YEAR MUNICIPAL BOND INDEX
The Lehman 20-Year Municipal Bond Index is a broad based index containing
over 22,000 issues with maturities ranging from 2-30 years. The issues
comprising the index are generated from the issues completed within the last
five years with total issue size of $50,000,000 and larger. The average quality
rating is "AA." The index performance shown above does not include sales charges
or other fees which would have been incurred had an investor attempted to
replicate the index.
TAX-EXEMPT PORTFOLIO
The total return of the Tax-Exempt Portfolio for the 12 months ended December
31, 1997 was 9.40%, compared to the Lehman 20 year municipal bond return of
10.85%. However, the portfolio compared favorably to the average total return of
Morningstar General Municipal Bond Category of 8.10%.
Due to the flattening yield curve, the tightened yield differential between
AAA and A rated securities, and uncertainty surrounding what effects the Asian
financial markets may have on the U.S. financial markets in the future, the
portfolio manager continued his focus on high credit-quality issues, which
typically offer somewhat lower yielding coupons. As a result, the portfolio's
performance generally followed the municipal market, but lagged funds that used
unrated municipal bonds.
The portfolio manager made some adjustments to the portfolio's holdings. He
eliminated issues from states that do not have an income tax on municipal bonds,
and invested the proceeds in municipal issues from states that do tax municipal
bonds. He also sold higher priced, higher yield securities that had soon
approaching call dates, and replaced them with securities that have lower coupon
rates, and no call provision bonds. These moves increased the turnover rate
above historic levels and generated capital gains. As a result of these moves,
the manager was able to perform quite well in the stable to falling interest
rate environment that persisted throughout 1997. He does not anticipate changing
his position in the near future, as he believes the bond market will remain
relatively stable.
GOVERNMENT PORTFOLIO
Shown below is a graphic depiction of the Government Portfolio versus the
Lehman Intermediate Government Bond Index. The graph reflects a deduction from
the amount invested for the applicable sales charge.
Principal Preservation Lehman Intermediate
date Government Portfolio Government Bond Index
---- -------------------- ---------------------
12/31/87 $9,650 $10,000
1/29/88 $9,971 $10,248
2/29/88 $10,016 $10,357
3/31/88 $9,889 $10,314
4/29/88 $9,793 $10,296
5/31/88 $9,696 $10,247
6/30/88 $9,905 $10,414
7/29/88 $9,908 $10,383
8/31/88 $9,977 $10,396
9/30/88 $10,182 $10,576
10/31/88 $10,321 $10,722
11/30/88 $10,233 $10,630
12/31/88 $10,280 $10,641
1/31/89 $10,365 $10,747
2/28/89 $10,265 $10,701
3/31/89 $10,317 $10,751
4/28/89 $10,475 $10,968
5/31/89 $10,715 $11,180
6/30/89 $11,016 $11,465
7/31/89 $11,223 $11,698
8/31/89 $11,029 $11,856
9/30/89 $11,067 $11,913
10/31/89 $11,329 $12,163
11/30/89 $11,430 $12,283
12/31/89 $11,458 $12,319
1/31/90 $11,335 $12,243
2/28/90 $11,362 $12,288
3/31/90 $11,353 $12,303
4/30/90 $11,255 $12,262
5/31/90 $11,530 $12,524
6/30/90 $11,690 $12,689
7/31/90 $11,852 $12,867
8/31/90 $11,725 $12,821
9/30/90 $11,837 $12,935
10/31/90 $12,015 $13,115
11/30/90 $12,276 $13,313
12/31/90 $12,456 $13,497
1/31/91 $12,556 $13,636
2/28/91 $12,627 $13,719
3/31/91 $12,670 $13,794
4/30/91 $12,797 $13,936
5/31/91 $12,854 $14,014
6/30/91 $12,799 $14,025
7/31/91 $12,943 $14,176
8/31/91 $13,275 $14,445
9/30/91 $13,549 $14,691
10/31/91 $13,694 $14,858
11/30/91 $13,855 $15,032
12/31/91 $14,341 $15,397
1/31/92 $14,045 $15,249
2/29/92 $14,087 $15,296
3/31/92 $13,961 $15,235
4/30/92 $14,059 $15,372
5/31/92 $14,340 $15,601
6/30/92 $14,592 $15,826
7/31/92 $15,014 $16,130
8/31/92 $15,175 $16,295
9/30/92 $15,445 $16,520
10/30/92 $15,170 $16,322
11/30/92 $15,069 $16,255
12/31/92 $15,316 $16,465
1/31/93 $15,691 $16,771
2/28/93 $16,034 $17,018
3/31/93 $16,091 $17,081
4/30/93 $16,225 $17,214
5/31/93 $16,179 $17,168
6/30/93 $16,560 $17,417
7/31/93 $16,583 $17,452
8/31/93 $16,936 $17,712
9/30/93 $17,022 $17,785
10/30/93 $17,057 $17,828
11/30/93 $16,824 $17,741
12/31/93 $16,895 $17,814
1/31/94 $17,118 $17,990
2/28/94 $16,708 $17,744
3/31/94 $16,265 $17,485
4/30/94 $16,111 $17,371
5/31/94 $16,096 $17,383
6/30/94 $16,045 $17,386
7/31/94 $16,309 $17,614
8/31/94 $16,346 $17,665
9/30/94 $16,082 $17,518
10/31/94 $16,065 $17,522
11/30/94 $15,959 $17,445
12/31/94 $15,980 $17,503
1/31/95 $16,255 $17,788
2/28/95 $16,632 $18,131
3/31/95 $16,709 $18,231
4/30/95 $16,915 $18,442
5/31/95 $17,510 $18,962
6/30/95 $17,619 $19,083
7/31/95 $17,599 $19,093
8/31/95 $17,785 $19,250
9/30/95 $17,918 $19,379
10/31/95 $18,147 $19,590
11/30/95 $18,394 $19,829
12/31/95 $18,591 $20,025
1/31/96 $18,695 $20,193
2/29/96 $18,406 $19,979
3/31/96 $18,258 $19,887
4/30/96 $18,168 $19,829
5/31/96 $18,116 $19,819
6/30/96 $18,321 $20,021
7/31/96 $18,348 $20,083
8/31/96 $18,317 $20,105
9/30/96 $18,587 $20,364
10/31/96 $18,940 $20,698
11/30/96 $19,253 $20,948
12/31/96 $19,014 $20,835
1/31/97 $19,042 $20,914
2/28/97 $19,069 $20,947
3/31/97 $18,803 $20,828
4/30/97 $19,061 $21,064
5/31/97 $19,197 $21,228
6/30/97 $19,397 $21,411
7/31/97 $19,941 $21,805
8/31/97 $19,710 $21,722
9/30/97 $19,998 $21,959
10/31/97 $20,308 $22,216
11/30/97 $20,332 $22,265
12/31/97 $20,554 $22,445
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 5-YEAR 10-YEAR
Government: ------ ------ -------
Full Sales Charge 4.32% 5.31% 7.46%
Net Asset Value 8.10% 6.06% 7.85%
Past performance is not predictive of future performance.
LEHMAN INTERMEDIATE GOVERNMENT BOND INDEX
The Lehman Intermediate Government Bond Index represents a total return of
U.S. Government bonds ranging in maturity from 2-10 years. The average duration
of the underlying index is approximately four years. The index does not contain
any sales charge or expenses or other fees that would have to be incurred had an
investor attempted to replicate the index.
GOVERNMENT PORTFOLIO
The total return for the Government Portfolio (on the basis of net amount
invested) for the twelve months ended December 31, 1997 was 8.10%, compared to
the Lehman Intermediate Government Index return of 8.20% and the Morningstar
Intermediate Government and all U.S. Government category averages of 8.41% and
8.05%, respectively.
The bond market benefitted from the financial crisis that struck the Asian
markets early in the fourth quarter. As the full brunt of the crisis hit,
investors moved to U.S. dollar denominated assets, including U.S. Treasury
Securities. This move helped fuel a decline in interest rates, which caused a
drop in yields ranging from 0.15% on the five-year U.S. Treasury Note to 0.37%
on the thirty-year U.S. Treasury Bond. The portfolio performance was affected by
the yield decline, which contributed to its total return of 2.78%, as compared
to 2.53% for Morningstar's all U.S. Government category average.
During the course of the year, the portfolio manager continued to reduce the
portfolio's exposure to the shortest premium Treasury positions, trading out of
them for more current coupon securities. This move helped the portfolio during
the falling interest rates that persisted throughout 1997. Conversely, the
manager maintained a light position weighting of between 5-10% in mortgage
backed securities, which underperformed the Treasury market. The manager does
not intend to add to the mortgage backed positions, because he does not
anticipate any rise in interest rates in the near future.
S&P 100 PLUS PORTFOLIO
Shown below is a comparison of a $10,000 investment in the S&P 100 Plus
Portfolio versus the S&P 100 Index. The graph reflects a deduction from the
amount invested for the applicable sales charge.
Principal Preservation S&P 100
Date S&P 100 Plus Portfolio Index
---- ----------------------- ------
12/31/87 $9,475 $10,000
1/29/88 $9,813 $10,327
2/29/88 $10,266 $10,791
3/31/88 $9,882 $10,311
4/29/88 $10,070 $10,509
5/31/88 $10,229 $10,655
6/30/88 $10,695 $11,187
7/29/88 $10,705 $11,149
8/31/88 $10,396 $10,679
9/30/88 $10,755 $11,073
10/31/88 $11,026 $11,402
11/30/88 $10,936 $11,291
12/31/88 $11,099 $11,478
1/31/89 $11,824 $12,412
2/28/89 $11,538 $11,992
3/31/89 $11,593 $12,134
4/28/89 $12,046 $12,789
5/31/89 $12,377 $13,175
6/30/89 $12,253 $13,052
7/31/89 $13,309 $14,242
8/31/89 $13,598 $14,562
9/30/89 $13,529 $14,502
10/31/89 $13,249 $14,205
11/30/89 $13,495 $14,469
12/31/89 $13,792 $14,795
1/31/90 $12,915 $13,853
2/28/90 $13,151 $14,126
3/31/90 $13,453 $14,495
4/30/90 $13,215 $14,253
5/31/90 $14,436 $15,611
6/30/90 $14,343 $15,510
7/31/90 $14,321 $15,481
8/31/90 $13,048 $14,066
9/30/90 $12,466 $13,408
10/31/90 $12,397 $13,338
11/30/90 $13,106 $14,136
12/31/90 $13,356 $14,400
1/31/91 $14,046 $15,137
2/28/91 $15,060 $16,242
3/31/91 $15,426 $16,617
4/30/91 $15,460 $16,640
5/31/91 $16,155 $17,405
6/30/91 $15,412 $16,643
7/31/91 $16,156 $17,465
8/31/91 $16,331 $17,701
9/30/91 $15,945 $17,290
10/31/91 $16,096 $17,504
11/30/91 $15,407 $16,804
12/31/91 $17,062 $18,459
1/31/92 $16,811 $18,217
2/29/92 $17,074 $18,514
3/31/92 $16,778 $18,212
4/30/92 $17,297 $18,800
5/31/92 $17,406 $18,933
6/30/92 $17,108 $18,647
7/31/92 $17,689 $19,246
8/31/92 $17,216 $18,767
9/30/92 $17,279 $18,806
10/30/92 $17,219 $18,742
11/30/92 $17,766 $19,319
12/31/92 $17,947 $19,553
1/31/93 $18,165 $19,817
2/28/93 $18,485 $20,188
3/31/93 $18,820 $20,574
4/30/93 $18,460 $20,228
5/31/93 $18,975 $20,821
6/30/93 $18,955 $20,829
7/31/93 $18,814 $20,729
8/31/93 $19,524 $21,498
9/30/93 $19,267 $21,214
10/30/93 $19,578 $21,560
11/30/93 $19,487 $21,513
12/31/93 $19,689 $21,872
1/31/94 $20,435 $22,723
2/28/94 $19,925 $22,189
3/31/94 $18,937 $21,144
4/30/94 $19,081 $21,303
5/31/94 $19,515 $21,831
6/30/94 $18,933 $21,187
7/31/94 $19,593 $21,973
8/31/94 $20,200 $22,692
9/30/94 $19,817 $22,254
10/31/94 $20,255 $22,784
11/30/94 $19,565 $22,016
12/31/94 $19,909 $22,445
1/31/95 $20,268 $22,887
2/28/95 $21,160 $23,956
3/31/95 $21,800 $24,749
4/30/95 $22,601 $25,727
5/31/95 $23,510 $26,846
6/30/95 $24,010 $27,466
7/31/95 $24,735 $28,378
8/31/95 $24,600 $28,230
9/30/95 $25,774 $29,642
10/31/95 $25,774 $29,663
11/30/95 $26,797 $30,894
12/31/95 $27,217 $31,413
1/31/96 $28,290 $32,739
2/29/96 $28,638 $33,201
3/31/96 $28,921 $33,540
4/30/96 $29,271 $34,020
5/31/96 $29,983 $34,945
6/30/96 $30,030 $35,081
7/31/96 $28,544 $33,443
8/31/96 $29,188 $34,246
9/30/96 $30,681 $36,064
10/31/96 $31,455 $37,139
11/30/96 $33,901 $40,099
12/31/96 $33,318 $39,441
1/31/97 $35,355 $42,312
2/28/97 $35,250 $42,219
3/31/97 $33,944 $40,572
4/30/97 $35,957 $43,282
5/31/97 $37,864 $45,628
6/30/97 $39,461 $47,592
7/31/97 $42,707 $51,471
8/31/97 $39,931 $48,172
9/30/97 $41,987 $50,735
10/31/97 $40,131 $48,543
11/30/97 $42,200 $51,111
12/31/97 $42,239 $51,285
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 5-YEAR 10-YEAR
S&P 100 Plus: ------ ------ -------
Full Sales Charge 20.12% 17.40% 15.48%
Net Asset Value 26.78% 18.67% 16.10%
Past performance is not predictive of future performance.
S&P 100 INDEX
The S&P 100 Index is a broad based stock index comprised of the largest 100
securities in the United States based upon market capitalization. The index
results do not include any sales charges or any other fees investors would incur
had they attempted to replicate the index.
S&P 100 PLUS PORTFOLIO
The total return for the S&P 100 Plus Portfolio (on the net amount invested)
for the year ended December 31, 1997 was 26.78%, compared to the S&P 100 Index
performance of 30.03% and the Lipper Growth and Income Fund Average of 27.0%.
Much of the 3.25% under performance as compared to the S&P 100 Index can be
attributed to the period before May 1, 1997. Prior to this time the over/ under
weighting strategies employed by the sub-advisor did not perform well in the
prevailing market environment. As the new portfolio manager began to implement
his strategy, the performance relative to the index began to improve. The
factors driving the improvement were the rebalancing of the entire portfolio to
more closely replicate the index, less emphasis on over-weighting strategies in
individual stocks, and a reduction in the cash position of the portfolio. Until
the fourth quarter, this strategy kept the portfolio, after the effect of
expenses, within 0.05% of the performance of the Index. During the fourth
quarter, as the impact of the Asian financial crisis hit, over weighted
technology stocks accounted for under performance relative to the index of
approximately 0.20%. The remaining over weighted positions resulted in under
performance of 0.10% during the fourth quarter of 1997. Overall, the performance
relative to the Index improved as compared to the first four months.
DIVIDEND ACHIEVERS PORTFOLIO
Shown below is a graphic comparison between a $10,000 investment made in
Dividend Achievers versus the S&P 500 Index. The graph reflects a deduction from
the amount invested for the applicable sales charge.
Principal Preservation S&P 500
Date Dividend Achievers Portfolio Index
12/31/87 $9,475 $10,000
1/29/88 $9,886 $10,421
2/29/88 $10,318 $10,907
3/31/88 $10,086 $10,570
4/29/88 $10,086 $10,687
5/31/88 $10,097 $10,780
6/30/88 $10,522 $11,275
7/29/88 $10,436 $11,232
8/31/88 $10,255 $10,850
9/30/88 $10,684 $11,312
10/31/88 $10,878 $11,626
11/30/88 $10,663 $11,460
12/31/88 $10,896 $11,659
1/31/89 $11,332 $12,512
2/28/89 $11,179 $12,200
3/31/89 $11,416 $12,484
4/28/89 $11,746 $13,132
5/31/89 $12,218 $13,664
6/30/89 $12,155 $13,586
7/31/89 $13,072 $14,813
8/31/89 $13,083 $15,103
9/30/89 $13,031 $15,041
10/31/89 $12,532 $14,692
11/30/89 $12,709 $14,992
12/31/89 $13,020 $15,352
1/31/90 $12,249 $14,322
2/28/90 $12,294 $14,507
3/31/90 $12,495 $14,891
4/30/90 $12,169 $14,520
5/31/90 $13,181 $15,936
6/30/90 $13,327 $15,829
7/31/90 $13,248 $15,778
8/31/90 $12,186 $14,352
9/30/90 $11,712 $13,653
10/31/90 $11,734 $13,594
11/30/90 $12,564 $14,472
12/31/90 $13,147 $14,876
1/31/91 $13,685 $15,525
2/28/91 $14,634 $16,635
3/31/91 $15,423 $17,038
4/30/91 $15,377 $17,079
5/31/91 $16,123 $17,815
6/30/91 $15,400 $16,999
7/31/91 $16,034 $17,791
8/31/91 $16,403 $18,213
9/30/91 $16,040 $17,909
10/31/91 $16,573 $18,149
11/30/91 $15,993 $17,418
12/31/91 $18,206 $19,411
1/31/92 $17,629 $19,050
2/29/92 $17,531 $19,298
3/31/92 $17,236 $18,922
4/30/92 $17,298 $19,478
5/31/92 $17,249 $19,573
6/30/92 $16,707 $19,281
7/31/92 $17,521 $20,070
8/31/92 $17,460 $19,659
9/30/92 $17,495 $19,891
10/30/92 $18,039 $19,961
11/30/92 $18,732 $20,642
12/31/92 $18,772 $20,896
1/31/93 $18,364 $21,072
2/28/93 $18,179 $21,363
3/31/93 $18,647 $21,814
4/30/93 $17,762 $21,286
5/31/93 $17,907 $21,856
6/30/93 $17,841 $21,919
7/31/93 $17,563 $21,831
8/31/93 $18,000 $22,658
9/30/93 $17,869 $22,484
10/30/93 $18,214 $22,949
11/30/93 $17,644 $22,731
12/31/93 $17,831 $23,006
1/31/94 $18,230 $23,788
2/28/94 $17,937 $23,143
3/31/94 $17,129 $22,134
4/30/94 $17,436 $22,384
5/31/94 $17,810 $22,751
6/30/94 $17,510 $22,194
7/31/94 $17,978 $22,922
8/31/94 $18,407 $23,862
9/30/94 $17,850 $23,277
10/31/94 $18,172 $23,801
11/30/94 $17,769 $22,935
12/31/94 $18,050 $23,274
1/31/95 $18,145 $23,877
2/28/95 $18,636 $24,806
3/31/95 $19,019 $25,538
4/30/95 $19,813 $26,289
5/31/95 $20,333 $27,338
6/30/95 $20,590 $27,972
7/31/95 $21,194 $28,898
8/31/95 $21,084 $28,970
9/30/95 $21,919 $30,193
10/31/95 $22,511 $30,084
11/30/95 $23,365 $31,405
12/31/95 $23,770 $32,011
1/31/96 $24,876 $33,099
2/29/96 $25,114 $33,407
3/31/96 $25,110 $33,728
4/30/96 $25,475 $34,224
5/31/96 $25,910 $35,107
6/30/96 $26,377 $35,240
7/31/96 $25,534 $33,682
8/31/96 $25,758 $34,393
9/30/96 $27,438 $36,329
10/31/96 $27,719 $37,332
11/30/96 $29,607 $40,154
12/31/96 $28,943 $39,359
1/31/97 $30,780 $41,815
2/28/97 $31,257 $42,145
3/31/97 $29,657 $40,417
4/30/97 $31,454 $42,826
5/31/97 $32,569 $45,432
6/30/97 $34,047 $47,467
7/31/97 $35,989 $51,241
8/31/97 $33,207 $48,377
9/30/97 $34,931 $51,021
10/31/97 $34,452 $49,322
11/30/97 $36,239 $51,601
12/31/97 $37,008 $52,486
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 5-YEAR 10-YEAR
------ ------ -------
Dividend Achievers:
Full Sales Charge 21.15% 13.31% 13.97%
Net Asset Value 27.87% 14.54% 14.58%
Past performance is not predictive of future performance.
S&P 500 INDEX
The S&P 500 Index is a broad based stock index representing, based upon
market capitalization, the 500 largest companies in the United States. The index
does not adjust for any sales charges or other fees and expenses which would
have been incurred had an investor attempted to replicate the index.
DIVIDEND ACHIEVERS PORTFOLIO
The Dividend Achievers Portfolio's total return (on the net amount invested)
was 27.87% for the year ended December 31, 1997. This compares to the one year
total return of 33.38% for the S&P 500 index and the 27.00% return for the
Lipper Growth and Income Fund Average.
Based upon momentum, investors drove the return for the S&P 500 to record
heights. The Dividend Achievers Portfolio's performance lagged for the first
three quarters. However, with the much mentioned crisis in Asia, investors
attention shifted away from general large cap companies to companies with strong
balance sheets. As a result, the portfolio manager's patience rewarded
shareholders with a strong fourth quarter performance of 5.94%, compared to the
S&P 500 Index of 3.07% and the Lipper Growth and Income Fund Average of 0.79%.
The out performance was broad based, with 20 of the 36 portfolio positions out
performing the S&P 500 Index. However, increased positions in the technology
sector during the quarter hindered performance. Overall, the portfolio manager
did not drastically change the composition from the prior year. Instead he
patiently waited for his long term outlook on the individual companies to
provide the immediate returns in the current economic environment.
SELECT VALUE PORTFOLIO
Shown below is a comparison of a $10,000 investment in the Select Value
Portfolio versus the S&P MidCap 400 Index. The graph reflects a deduction from
the amount invested for the applicable sales charge.
Principal Preservation S&P MidCap Russell 2000
Date Select Value Portfolio 400 Index Index
8/23/94*<F1> $9,475 $10,000 $10,000
8/31/94 $9,474 $10,176 $10,232
9/30/94 $9,365 $9,986 $10,184
10/31/94 $9,157 $10,096 $10,141
11/30/94 $8,800 $9,641 $9,712
12/31/94 $9,005 $9,730 $9,956
1/31/95 $8,755 $9,831 $9,816
2/28/95 $9,044 $10,347 $10,203
3/31/95 $9,220 $10,527 $10,370
4/30/95 $9,210 $10,739 $10,585
5/31/95 $9,360 $10,999 $10,746
6/30/95 $9,613 $11,447 $11,279
7/31/95 $10,247 $12,043 $11,920
8/31/95 $10,408 $12,265 $12,142
9/30/95 $10,704 $12,563 $12,344
10/31/95 $10,401 $12,240 $11,782
11/30/95 $10,764 $12,771 $12,272
12/31/95 $10,878 $12,739 $12,565
1/31/96 $11,102 $12,925 $12,542
2/29/96 $11,421 $13,362 $12,922
3/31/96 $11,452 $13,524 $13,078
4/30/96 $12,209 $13,936 $13,477
5/31/96 $12,551 $14,124 $13,659
6/30/96 $12,232 $13,913 $13,455
7/31/96 $11,453 $12,974 $12,547
8/31/96 $12,114 $13,723 $13,271
9/30/96 $12,521 $14,321 $13,850
10/31/96 $12,799 $14,363 $13,891
11/30/96 $13,472 $15,171 $14,672
12/31/96 $13,777 $15,188 $14,688
1/31/97 $13,928 $15,758 $15,239
2/28/97 $13,676 $15,629 $15,114
3/31/97 $13,162 $14,965 $14,472
4/30/97 $13,400 $15,353 $14,847
5/31/97 $14,656 $16,695 $16,145
6/30/97 $15,774 $17,164 $16,599
7/31/97 $16,590 $18,862 $18,241
8/31/97 $16,866 $18,839 $18,219
9/30/97 $18,152 $19,921 $19,266
10/31/97 $17,396 $19,054 $18,428
11/30/97 $17,371 $19,336 $18,701
12/31/97 $17,526 $20,085 $19,426
AVERAGE ANNUAL TOTAL RETURN
1-YEAR SINCE INCEPTION
8/23/94
Select Value: ------ --------------
Full Sales Charge 20.53% 18.18%
Net Asset Value 27.21% 20.09%
*<F1>August 23, 1994 inception date.
Past performance is not predictive of future performance.
S&P MIDCAP 400 INDEX
S&P MidCap 400 Index is a broad stock index comprised of 400 medium-size
companies. The index tracks the general stock market performance of 400 medium-
size companies. The index results do not include any sales charge or any other
fees investors would incur had they attempted to replicate the index.
SELECT VALUE PORTFOLIO
The Select Value Portfolio's total return was 27.21%, compared to the S&P 400
Midcap Index return of 27.46% and the Russell 2000 return of 22.36%. In this
report we have graphed both the S&P 400 Midcap Index and the Russell 2000
compared to the Select Value Portfolio. In future reports we will compare the
portfolio only to the Russell 2000. When the Select Value Portfolio began
operations in 1994, the S&P 400 Midcap fit the criteria of stocks with similar
market capitalization to the Select Value Portfolio. The portfolio manager has
maintained a strict investment philosophy of investing in stocks that have
market capitalizations between $800,000,000 to $2,000,000,000. The S&P 400
Midcap Index average market capitalization has increased to $3,000,000,000,
whereas the Russell 2000 has an average market capitalization of $750,000,000.
The manager has fairly consistently maintained the average capitalization of the
portfolio at $910,000,000. As a result, we believe that the Russell 2000 is a
better indication of the expected performance of the Select Value Portfolio.
The Select Value Portfolio's results were driven by strong performance in the
financial services stocks and auto and transportation issues which generated
returns in excess of 40%. Other sectors that contributed to the portfolio's
performance were the consumer discretionary, health care and technology.
Disappointing returns were limited in 1997 to small sectors of the portfolio,
including energy, materials and processing, utilities and consumer staples.
The portfolio manager anticipates that the U.S. economy will slow from the
1997 pace, as pressures from Asia and weak consumer spending trends take hold.
However, inflation continues to be stable, and low interest rates will encourage
growth. This may provide the basis for a positive environment for stocks.
Smaller companies appear to be catching up with the large companies' focus on
new technology, outsourcing and manufacturing processes. Thus, smaller companies
may be able to provide efficiencies that will flow through to increase stock
performance.
PSE TECH 100 INDEX PORTFOLIO
Shown below is a comparison of a $10,000 investment in the PSE Tech 100 Index
versus the Pacific Stock Exchange Technology Stock Index. The graph reflects a
deduction from the amount invested for the applicable sales charge.
Principal Preservation Pacific Stock
PSE Tech 100 Index Exchange Technology
Date Portfolio Stock Index
6/10/96*<F1> $9,475 $10,000
6/30/96 $8,973 $9,506
7/31/96 $8,300 $8,775
8/31/96 $8,821 $9,315
9/30/96 $9,622 $10,157
10/31/96 $9,480 $10,005
11/30/96 $10,751 $11,362
12/31/96 $10,488 $11,095
1/31/97 $11,580 $12,267
2/28/97 $11,092 $11,750
3/31/97 $10,472 $11,096
4/30/97 $10,824 $11,477
5/31/97 $12,132 $12,866
6/30/97 $12,205 $12,956
7/31/97 $14,071 $14,956
8/31/97 $14,051 $14,937
9/30/97 $14,525 $15,444
10/31/97 $12,990 $13,858
11/30/97 $13,029 $13,897
12/31/97 $12,520 $13,361
AVERAGE ANNUAL TOTAL RETURN
1-YEAR SINCE INCEPTION
6/10/96
PSE Tech 100 Index: ------ ---------------
Full Sales Charge 13.09% 15.51%
Net Asset Value 19.35% 19.54%
*<F1>June 10, 1996 inception date.
Past performance is not predictive of future performance.
PACIFIC STOCK EXCHANGE TECHNOLOGY STOCK INDEX
The Pacific Stock Exchange Technology Stock Index consists of 100 common
stocks of companies in 15 different industries. The index results do not include
any sales charges or any other fees investors would incur had they attempted to
replicate the index.
PSE TECH 100 INDEX PORTFOLIO
The total return for the PSE Tech 100 Index Portfolio was 19.35% (on the
basis of net amount invested) for the year ended December 31, 1997, as compared
to the PSE Tech 100 Index of 20.40% and the 12.00% average return of the Lipper
Science and Technology sector. The portfolio began the year with approximately
$6,000,000 in net assets, and finished with $25,000,000. Currently, the net
assets are over $34,000,000.
The portfolio, due to its small size and accelerated net sales at the
beginning of the year, under performed to the Index. Large cash inflows resulted
in larger daily cash positions as a percentage of net assets than desired.
Attempts to equitize these cash positions with index futures increased
transaction costs and underperformed the Index on a gross basis. Also,
investment of the cash in Index stocks resulted in brokerage commissions, which
further reduced the portfolio's performance compared to the Index.
During the fourth quarter, the technology sector was affected by Wall
Street's concern over earnings. In addition, as institutional investors reduced
their technology holdings, the Asian market crisis occurred. Since Asia has been
a strong growth factor for many technology companies, any significant problems
in the region adversely affect some of the companies' future growth prospects.
However, mitigating factors should include increased spending by the European
community, lower component costs for Asian manufacturing and continued expansion
of the domestic marketplace.
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>
<CAPTION>
TAX-EXEMPT PORTFOLIO
_________________________________________________________________________
For the years ended December 31,
_________________________________________________________________________
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
----- ----- ----- ----- ------ ----- ------ ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $9.30 $9.39 $8.36 $9.41 $8.67 $8.46 $8.19 $8.23 $8.06 $8.14
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income .41 .43 .45 .45 .48 .50 .53 .53 .55 .55
Net realized and
unrealized gains (losses)
on investments .44 (.09) 1.03 (1.05) .74 .21 .27 (.04) .17 (.08)
----- ----- ----- ----- ------ ----- ------ ------ ----- -----
TOTAL FROM INVESTMENT
OPERATIONS .85 .34 1.48 (.60) 1.22 .71 .80 .49 .72 .47
----- ----- ----- ----- ------ ----- ------ ------ ----- -----
LESS DISTRIBUTIONS:
Dividends from net
investment income (.41) (.43) (.45) (.45) (.48) (.50) (.53) (.53) (.55) (.55)
Distributions from net realized
gains on investments (.22) -- -- -- -- -- -- -- -- --
----- ----- ----- ----- ------ ----- ------ ------ ----- -----
TOTAL DISTRIBUTIONS (.63) (.43) (.45) (.45) (.48) (.50) (.53) (.53) (.55) (.55)
----- ----- ----- ----- ------ ----- ------ ------ ----- -----
NET ASSET VALUE,
END OF PERIOD $9.52 $9.30 $9.39 $8.36 $9.41 $8.67 $8.46 $8.19 $8.23 $8.06
===== ====== ===== ===== ===== ===== ===== ===== ===== =====
TOTAL RETURN*<F1> 9.4% 3.8% 18.1% (6.4)% 14.3% 8.6% 10.0% 6.2% 9.2% 6.0%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of period
(to nearest thousand) $60,252 $66,310 $56,443 $55,492 $68,102 $60,171 $63,932 $65,265 $73,333 $85,469
Ratio of net expenses to
average net assets 1.1% 1.1%+<F2> 1.0%+<F2> 1.0% 0.9% 0.9% 0.9% 0.9% 1.0% 1.2%
Ratio of net investment
income to average net assets 4.4% 4.7%+<F2> 4.9%+<F2> 5.2% 5.2% 5.9% 6.3% 6.6% 6.7% 6.9%
Portfolio turnover rate 209.2% 163.1% 105.9% 36.1% 56.3% 48.5% 38.3% 40.3% 21.5% 38.8%
*<F1>The Fund's sales charge is not reflected in total return as set forth in
the table.
+ <F2>Reflects a voluntary reimbursement of fund expenses of 0.1% in 1996 and
0.01% in 1995, respectively.
</TABLE>
<TABLE>
<CAPTION>
Government Portfolio
_______________________________________________________________________________________________
For the years ended December 31,
_______________________________________________________________________________________________
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
----- ----- ----- ----- ------ ----- ------ ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $9.20 $9.64 $8.84 $9.98 $9.64 $9.68 $9.10 $9.11 $8.88 $9.11
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income .63 .64 .61 .61 .63 .67 .73 .76 .75 .75
Net realized and
unrealized gains (losses)
on investments .08 (.44) .80 (1.14) .35 (.04) .58 (.01) .23 (.17)
----- ----- ----- ----- ------ ----- ------ ------ ----- -----
TOTAL FROM INVESTMENT
OPERATIONS .71 .20 1.41 (.53) .98 .63 1.31 .75 .98 .58
----- ----- ----- ----- ------ ----- ------ ------ ----- -----
LESS DISTRIBUTIONS:
Dividends from net
investment income (.63) (.64) (.61) (.61) (.64) (.67) (.73) (.76) (.75) (.75)
Distributions from net
realized gains
on investments -- -- -- -- -- -- -- -- -- (.06)
----- ----- ----- ----- ------ ----- ------ ------ ----- -----
TOTAL DISTRIBUTIONS (.63) (.64) (.61) (.61) (.64) (.67) (.73) (.76) (.75) (.81)
----- ----- ----- ----- ------ ----- ------ ------ ----- -----
NET ASSET VALUE,
END OF PERIOD $9.28 $9.20 $9.64 $8.84 $9.98 $9.64 $9.68 $9.10 $9.11 $8.88
====== ===== ===== ===== ====== ====== ===== ===== ===== ======
TOTAL RETURN*<F1> 8.1% 2.3% 16.3% (5.4)% 10.3% 6.8% 15.1% 8.7% 11.5% 6.5%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of period
(to nearest thousand) $40,683 $44,920 $49,319 $47,324 $54,327 $37,634 $32,737 $29,351 $30,631 $32,950
Ratio of net expenses to
average net assets 1.1%+<F2> 1.1%+<F2> 1.1%+<F2> 1.1% 1.0% 1.0% 1.1% 1.2% 1.2%+<F2> 1.2%+<F2>
Ratio of net investment
income to average net assets7.0%+<F2> 7.0%+<F2> 6.5%+<F2> 6.6% 6.2% 7.0% 8.0% 8.5% 8.4%+<F2> 8.3%+<F2>
Portfolio turnover rate 78.6% 36.9% 68.2% 106.1% 8.7% 10.0% 62.2% 57.1% 141.8% 36.7%
*<F1>The Fund's sales charge is not reflected in total return as set forth in
the able.
+<F2>Reflects a voluntary reimbursement of fund expenses of 0.04% in 1997, 0.04%
in 1996, 0.02% in 1995, 0.1% in 1989, and 0.5% in 1988, respectively.
</TABLE>
<TABLE>
<CAPTION>
S&P 100 Plus Portfolio
_______________________________________________________________________________________________
For the years ended December 31,
_______________________________________________________________________________________________
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
----- ----- ----- ----- ------ ----- ------ ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $22.08 $19.53 $14.95 $15.04 $14.01 $14.22 $11.60 $12.27 $10.11 $9.62
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income .26 .29 .25 .25 .21 .24 .27 .28 .26 .26
Net realized and
unrealized gains (losses)
on investments 5.63 4.07 5.21 (.09) 1.14 .48 2.93 (.67) 2.17 1.37
----- ----- ----- ----- ------ ----- ------ ------ ----- -----
TOTAL FROM INVESTMENT
OPERATIONS 5.89 4.36 5.46 .16 1.35 .72 3.20 (.39) 2.43 1.63
----- ----- ----- ----- ------ ----- ------ ------ ----- -----
LESS DISTRIBUTIONS:
Dividends from net
investment income (.26) (.29) (.25) (.25) (.21) (.24) (.27) (.28) (.26) (.26)
Distributions from
net realized gains
on investments (.65) (1.52) (.63) -- (.11) (.69) (.31) -- (.01) (.88)
Distributions in excess
of net realized gains (.02) -- -- -- -- -- -- -- -- --
----- ----- ----- ----- ------ ----- ------ ------ ----- -----
TOTAL DISTRIBUTIONS (.93) (1.81) (.88) (.25) (.32) (.93) (.58) (.28) (.27) (1.14)
----- ----- ----- ----- ------ ----- ------ ------ ----- -----
NET ASSET VALUE,
END OF PERIOD $27.04 $22.08 $19.53 $14.95 $15.04 $14.01 $14.22 $11.60 $12.27 $10.11
======= ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN*<F1> 26.8% 22.4% 36.7% 1.1% 9.7% 5.2% 27.8% (3.2)% 24.3% 17.1%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of period
(to nearest thousand) $105,738 $77,517 $57,062 $40,034 $38,944 $30,025 $27,420 $20,413 $20,811 $16,960
Ratio of net expenses to
average net assets 0.9%+<F2> 1.0%+<F2> 1.2% 1.2% 1.2% 1.3% 1.3% 1.3%+<F2> 1.3%+<F2> 1.4%+<F2>
Ratio of net investment
income to average net
assets 1.0%+<F2> 1.4%+<F2> 1.4% 1.7% 1.4% 1.7% 2.0%+ 2.4%+<F2> 2.3%+<F2> 2.5%+<F2>
Portfolio turnover rate 17.0% 8.0% 3.5% 1.0% 2.2% 8.5% 3.1% 1.9% 3.0% 37.5%
Average commission paid
per share+<F3> $0.0235 $0.0348 -- -- -- -- -- -- -- --
*<F1>The Fund's sales charge is not reflected in total return as set forth in
the table.
+<F2>Reflects a voluntary reimbursement of fund expenses of 0.11% in 1997,
0.01% in 1996, 0.2% in 1990, 0.4% in 1989, and 0.8% in 1988, respectively.
+<F3>Average commission rate paid per share for security purchases and sales
during the period. Presentation of the rate is only required for fiscal years
beginning after September 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
DIVIDEND ACHIEVERS PORTFOLIO
_______________________________________________________________________________________________
For the years ended December 31,
_______________________________________________________________________________________________
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
----- ----- ----- ----- ------ ----- ------ ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $20.01 $16.97 $13.24 $13.40 $14.25 $14.84 $11.50 $11.65 $10.00 $8.99
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income .13 .14 .18 .18 .14 .14 .25 .25 .28 .28
Net realized and
unrealized gains (losses)
on investments 5.43 3.54 3.99 (.02) (.85) .31 4.14 (.15) 1.65 1.06
----- ----- ----- ----- ------ ----- ------ ------ ----- -----
TOTAL FROM INVESTMENT
OPERATIONS 5.56 3.68 4.17 .16 (.71) .45 4.39 .10 1.93 1.34
----- ----- ----- ----- ------ ----- ------ ------ ----- -----
LESS DISTRIBUTIONS:
Dividends from net
investment income (.13) (.14) (.18) (.18) (.14) (.14) (.25) (.25) (.28) (.27)
Distributions from
net realized gains
on investments (.31) (.50) (.26) (.14) -- (.90) (.80) -- -- (.06)
----- ----- ----- ----- ------ ----- ------ ------ ----- -----
TOTAL DISTRIBUTIONS (.44) (.64) (.44) (.32) (.14) (1.04) (1.05) (.25) (.28) (.33)
----- ----- ----- ----- ------ ----- ------ ------ ----- -----
NET ASSET VALUE,
END OF PERIOD $25.13 $20.01 $16.97 $13.24 $13.40 $14.25 $14.84 $11.50 $11.65 $10.00
====== ====== ====== ====== ====== ====== ====== ====== ====== =======
TOTAL RETURN*<F1> 27.9% 21.8% 31.7% 1.2% (5.0)% 3.1% 38.5% 1.0% 19.5% 15.0%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of period
(to nearest thousand) $39,565 $30,504 $25,393 $20,231 $24,928 $27,020 $18,202 $11,468 $12,750 $6,854
Ratio of net expenses to
average net assets 1.2%+<F2> 1.2%+<F2> 1.3%+<F2> 1.5% 1.3%+<F2> 1.2%+<F2> 1.2%+<F2> 1.2%+<F2> 1.2%+<F2> 1.2%+<F2>
Ratio of net investment
income to average net
assets 0.6%+<F2> 0.8%+<F2> 1.2%+<F2> 1.3% 1.0%+<F2> 1.0%+<F2> 1.8%+<F2> 2.3%+<F2> 2.6%+<F2> 2.9%+<F2>
Portfolio turnover rate 11.9% 13.1% 28.2% 36.5% 92.7% 83.0% 96.5% 47.7% 30.9% 10.1%
Average commission paid
per share+<F3> $0.0484 $0.0609 -- -- -- -- -- -- -- --
*<F1>The Fund's sales charge is not reflected in total return as set forth in
the table.
+<F2> 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.
+<F3>Average commission rate paid per share for security purchases and sales
during the period. Presentation of the rate is only required for fiscal years
beginning after September 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
SELECT VALUE PORTFOLIO
-------------------------------------------------------------
For the
period from
August 23, 1994
(commencement
For the years ended December 31, of operations) to
--------------------------
1997 1996 1995 December 31, 1994
----- ----- ----- ------------------
<S> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $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 2.93 2.68 1.73 (.51)
------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 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 $12.07 $10.97 $10.21 $9.03
======= ====== ======= ======
TOTAL RETURN**<F2> 27.2% 26.7% 20.8% (5.0)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(to nearest thousand) $8,497 $4,829 $3,445 $1,935
Ratio of net expenses to
average net assets 1.1%+<F3> 1.0%+<F3> 0.8%+<F3> 0.8%*<F1>+<F3>
Ratio of net investment
income to average net assets 0.1%+<F3> 0.3%+<F3> 1.4%+<F3> 1.1%*<F1>+<F3>
Portfolio turnover rate 82.5% 122.2% 124.3% 20.2%
Average commission paid per share+<F4> $0.0467 $0.0611 -- --
*<F1>Annualized.
**<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 1.0% in 1997, 1.4%
in 1996, 2.5% in 1995 and 0.4% in 1994, respectively.
+<F4>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
June 10, 1996
(commencement
For the year ended of operations) to
December 31, 1997 December 31, 1996
----------------- -----------------
Per Share Data:
NET ASSET VALUE, BEGINNING OF PERIOD $10.76 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .04 .03
Net realized and unrealized gains
on investments 2.04 1.03
------- ------
TOTAL FROM INVESTMENT OPERATIONS 2.08 1.06
------- ------
LESS DISTRIBUTIONS:
Dividends from net investment income (.04) (.03)
Distributions from net realized gains
on investments (.38) (.24)
Distributions in excess of net realized
gains (.03) (.03)
------- ------
TOTAL DISTRIBUTIONS (.45) (.30)
------- ------
NET ASSET VALUE, END OF PERIOD $12.39 $10.76
====== ======
TOTAL RETURN**<F2> 19.4% 10.7%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (to nearest
thousand) $27,144 $6,004
Ratio of net expenses to average net assets 0.2%+<F3> 0.0%*+
Ratio of net investment income to average <F1><F3>
net assets 0.3%+<F3> 0.7%*+
<F1><F3>
Portfolio turnover rate 22.0% 3.0%
Average commission paid per share $0.0544 $0.0634
*<F1>Annualized.
**<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 1.1% and 3.3% in
1997 and 1996, respectively.
BALANCE SHEETS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
S&P 100 DIVIDEND SELECT PSE TECH 100
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX
----------- ----------- --------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments:
Cost basis of investments $58,404,025 $39,971,675 $58,263,915 $19,614,348 $7,610,343 $26,810,126
=========== =========== =========== =========== ========== ===========
Long-term investments
in securities $59,709,381 $40,008,761 $104,577,766 $38,950,720 $8,090,505 $26,279,446
Short-term investments 311,768 87,265 709,555 631,266 438,640 529,025
------------ ----------- ------------ ----------- ----------- -----------
Total investments (See
Schedule of Investments) 60,021,149 40,096,026 105,287,321 39,581,986 8,529,145 26,808,471
Cash 476 860 116 625 806 935
Receivables:
Capital shares sold 12,921 18,935 576,015 44,527 68,982 463,950
Dividends and interest 815,909 754,647 162,572 47,278 10,925 12,395
Variation margin on futures -- -- (400) -- -- 4,084
------------ ----------- ------------ ----------- ----------- -----------
Total receivables 828,830 773,582 738,187 91,805 79,907 480,429
Other assets 5,672 3,802 8,079 3,101 5,056 12,845
------------ ----------- ------------ ----------- ----------- -----------
Total assets $60,856,127 $40,874,270 $106,033,703 $39,677,517 $8,614,914 $27,302,680
============ =========== ============ =========== ========== ===========
LIABILITIES:
Payables:
Capital shares redeemed $9,016 $34,147 $14,278 $9,937 $-- $13
Distributions to shareholders 494,027 82,292 170,945 22,136 1,943 140,972
Management fees 28,895 20,629 38,472 24,311 5,182 10,731
Other accrued expenses 72,483 53,989 72,118 56,146 31,741 6,661
Investments purchased -- -- -- -- 78,669 --
<PAGE>
------------ ----------- ------------ ----------- ----------- -----------
Total liabilities 604,421 191,057 295,813 112,530 117,535 158,377
------------ ----------- ------------ ----------- ----------- -----------
NET ASSETS:
Capital stock 58,622,099 43,184,882 58,790,988 19,596,731 7,577,522 27,233,422
Undistributed
net investment income -- 9,269 8,847 618 -- --
Undistributed net realized gains
(losses) on investments 12,483 (2,635,289) -- -- 1,055 --
Accumulated distributions
in excess of net realized
gains on investments -- -- (85,351) -- -- (87,464)
Net unrealized appreciation
(depreciation) on investments 1,617,124 124,351 47,023,406 19,967,638 918,802 (1,655)
------------ ----------- ------------ ----------- ----------- -----------
Total net assets 60,251,706 40,683,213 105,737,890 39,564,987 8,497,379 27,144,303
------------ ----------- ------------ ----------- ----------- -----------
Total liabilities
and net assets $60,856,127 $40,874,270 $106,033,703 $39,677,517 $8,614,914 $27,302,680
============ =========== ============ ============ =========== ===========
NET ASSET VALUE AND
REDEMPTION PRICE PER SHARE $9.52 $9.28 $27.04 $25.13 $12.07 $12.39
============ =========== ============ ============ =========== ===========
MAXIMUM OFFERING PRICE
PER SHARE $9.87 $9.62 $28.54 $26.52 $12.74 $13.08
============ =========== ============ ============ =========== ===========
The accompanying notes to financial statements are an integral part of these
statements.
</TABLE>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
S&P 100 DIVIDEND SELECT PSE TECH 100
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX
----------- ----------- --------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $-- $-- $1,568,126 $602,503 $54,162 $54,363
Interest 3,393,144 3,370,021 195,383 41,132 23,051 23,651
----------- --------- ---------- ---------- ---------- ----------
Total investment
income 3,393,144 3,370,021 1,763,509 643,635 77,213 78,014
----------- --------- ---------- ---------- ---------- ----------
EXPENSES:
Investment advisory fees 359,288 248,936 424,699 265,344 50,294 76,584
Custodian fees 21,387 17,069 26,223 14,643 3,467 8,311
Transfer agent fees 42,474 43,495 75,457 30,259 8,160 21,195
Broker service fees 156,068 104,422 235,681 88,814 16,077 38,168
Professional fees 55,400 44,028 74,383 41,027 32,895 32,850
Registration 9,034 13,271 12,108 11,438 12,421 17,347
Communication 5,717 3,558 16,874 4,933 3,183 4,018
Director fees 13,195 8,776 19,144 7,058 2,172 1,449
Pricing of investments 7,519 2,508 8,075 5,715 5,755 5,719
Deferred organization expense -- -- -- -- 2,723 3,380
Other 10,147 4,607 5,362 3,056 273 1,097
----------- --------- ---------- ---------- ---------- ----------
Total expenses 680,229 490,670 898,006 472,287 137,420 210,118
Less expenses absorbed
by advisor -- (17,630) (98,729) (34,811) (65,968) (179,273)
----------- --------- ---------- ---------- ---------- ----------
Net expenses 680,229 473,040 799,277 437,476 71,452 30,845
----------- --------- ---------- ---------- ---------- ----------
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
NET UNREALIZED APPRECIATION
(DEPRECIATION) ON INVESTMENTS 1,245,199 409,277 17,819,182 7,845,885 382,946 (558,697)
----------- --------- ---------- ---------- ---------- ----------
Net gains
on investments 2,824,873 299,624 20,300,484 8,327,915 1,497,711 230,068
----------- --------- ---------- ---------- ---------- ----------
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
========== ========== =========== ========== =========== ==========
The accompanying notes to financial statements are an integral part of these
statements.
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
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
=========== =========== =========== =========== ========== ===========
The accompanying notes to financial statements are an integral part of these
statements.
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
JUNE 10, 1996
(COMMENCEMENT
OF OPERATIONS) TO
FOR THE YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1996
------------------------------------------------------------------------
S&P 100 DIVIDEND SELECT PSE TECH 100
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX
----------- ------------ -------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income $2,957,312 $3,192,630 $924,307 $209,810 $13,336 $17,041
Net realized gains
on investments 2,354,480 255,262 4,967,362 745,303 776,545 133,242
Change in unrealized
appreciation (depreciation) on
investments for the year (2,455,863) (2,474,321) 8,743,473 4,496,576 208,072 557,042
----------- --------- ---------- ---------- ---------- ----------
Net increase
in net assets resulting
from operations 2,855,929 973,571 14,635,142 5,451,689 997,953 707,325
----------- --------- ---------- ---------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
($0.43, $0.64, $0.29,
$0.14, $0.04 and $0.03 per
share, respectively) (2,963,760) (3,188,500) (922,456) (209,079) (13,315) (16,744)
Net realized gains on investments
($0.00, $0.00, $1.52, $0.50, $1.92,
$0.27 per share, respectively) -- -- (4,967,362) (745,546) (716,162) (133,242)
Distributions in excess of net
realized gains on investments
($0.00, $0.00, $0.0041,
$0.00, $0.0029 and
$0.0263 respectively) -- -- (20,209) -- (1,280) (14,674)
----------- --------- ---------- ---------- ---------- ----------
Total distributions (2,963,760) (3,188,500) (5,910,027) (954,625) (730,757) (164,660)
----------- --------- ---------- ---------- ---------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued 18,035,561 1,716,722 13,143,343 2,130,809 919,856 5,472,772
Net asset value of shares
issued in distributions 1,761,086 1,988,896 5,526,856 903,536 730,066 156,519
Cost of shares redeemed (9,821,429) (5,889,771) (6,940,152) (2,420,357) (532,986) (168,000)
__________ __________ __________ __________ _________ _________
Net increase (decrease)
in net assets from
capital share transactions 9,975,218 (2,184,153) 11,730,047 613,988 1,116,936 5,461,291
----------- --------- ---------- ---------- ---------- ----------
Total increase
(decrease) 9,867,387 (4,399,082) 20,455,162 5,111,052 1,384,132 6,003,956
NET ASSETS:
Balance at beginning of period 56,442,570 49,319,378 57,061,615 25,392,724 3,444,869 --
----------- --------- ---------- ---------- ---------- ----------
Balance at end of period $66,309,957 $44,920,296 $77,516,777 $30,503,776 $4,829,001 $6,003,956
=========== =========== =========== =========== =========== ==========
</TABLE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES --
Principal Preservation Portfolios, Inc. (the "Fund"), registered under the
Investment Company Act of 1940 as an open-end management investment company, is
a series company with eight portfolios: Tax-Exempt Portfolio, Government
Portfolio, S&P100 Plus Portfolio, Dividend Achievers Portfolio, Select Value
Portfolio, PSE Tech 100 Index Portfolio, Wisconsin Tax-Exempt Portfolio and the
Cash Reserve Portfolio. This report contains the information of all portfolios,
except for the Cash Reserve Portfolio and the Wisconsin Tax-Exempt Portfolio,
information with respect to which is contained in separate reports. The assets
and liabilities of each portfolio are segregated and a shareholder's interest is
limited to the portfolio in which the shareholder owns shares.
The following is a summary of the significant accounting policies of the Fund.
(a) Long-Term Securities and Short-Term Investments
The long-term tax-exempt securities are valued at market or fair value using
quotations by an independent pricing service (the "Service"). When in the
judgment of the Service, quoted bid prices for securities are readily available
and are representative of the bid side of the market, these investments are
valued at the mean between quoted bid prices (as obtained by the Service from
dealers in such securities) and ask prices (as calculated by the Service based
upon its evaluation of the market for such securities). Securities for which, in
the judgment of the Service, there are no readily obtainable market quotations
(which may constitute a majority of the portfolio's securities) are carried at
fair value as determined by the Service, based on methods which include
consideration of yields or prices of municipal securities of comparable quality,
coupon, maturity, type, indications as to values from dealers, and general
market conditions.
Long-term taxable fixed income securities are valued at market using
quotations provided by an independent pricing service.
Common and preferred stocks are valued at the last sales price reported by
the New York Stock Exchange, other appropriate exchanges, or NASDAQ, on the date
of valuation. Common and preferred stocks not traded on that date are valued at
the last bid price.
Short-term investments are valued at amortized cost, which approximates
market value.
Investment transactions are recorded on the trade date.
Premiums on long-term tax-exempt securities are amortized to the shorter of
call date or maturity. The fund does not amortize premiums on taxable long-term
securities. The fund amortizes all discounts on taxable securities and on
original issue discount tax-exempt securities.
(b) Option Transactions
For hedging purposes, the S&P 100 Plus Portfolio and the PSE Tech 100 Index
Portfolio may buy and sell put and call options, write covered call options on
portfolio securities, write cash-secured puts, and write call options that are
not covered for cross-hedging purposes. The risk in writing a call option is
that a fund gives up the opportunity for profit if the market price of the
security increases. The risk in writing a put option is that a fund may incur a
loss if the market price of the security decreases and the option is exercised.
The risk in buying an option is that a fund pays a premium whether or not the
option is exercised. A fund also has the additional risk of not being able to
enter into a closing transaction if a liquid secondary market does not exist.
The S&P 100 Plus Portfolio also may write over-the-counter options where the
completion of the obligation is dependent upon the credit standing of another
party.
Option contracts are valued daily, and unrealized appreciation or
depreciation is recorded. A fund will realize a gain or loss upon expiration or
closing of the option transaction. When an option is exercised, the proceeds on
sales for a written call option, the purchase cost for a written put option, or
the cost of a security for a purchased put or call option is adjusted by the
amount of premium received or paid.
(c) Futures Contracts
The S&P 100 Plus and PSE Tech 100 Index Portfolios may utilize futures
contracts to a limited extent. The primary risks associated with the use of
futures contracts include an imperfect correlation between the change in market
value of the securities held by the Fund and the prices of futures contracts and
the possibility of an illiquid market. Futures contracts are based upon their
quoted daily settlement prices.
Upon entering into a futures contract, the Fund is required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Fund each day. The variation margin payments are equal
to the daily changes in the contract value and are recorded as unrealized
appreciation (depreciation) until the contracts are terminated at which time
realized gains and losses are recognized.
(d) Net Realized Gains and Losses and Investment Income
Net realized gains and losses on securities sales (including options) are
computed on the identified cost basis. Dividend income is recorded on the ex-
dividend date. Interest income is recorded on an accrual basis. Total net
realized gains on investments for the year ended December 31, 1997, were
comprised of the following:
<TABLE>
<CAPTION>
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 (losses)
on investments $1,579,674 $(109,653) $1,799,563 $ 482,030 $1,114,765 $810,446
Net realized gains (losses)
on options and futures -- -- 681,739 -- -- (21,681)
----------- --------- ---------- ---------- ---------- ----------
Total net realized gains
(losses) on investments $1,579,674 $(109,653) $2,481,302 $482,030 $1,114,765 $788,765
========== ========= ========== ========= ========== =========
</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.
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 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 PSE Tech 100 Index Portfolio pays ZAMI a monthly fee
based upon the PSE Tech 100 average daily net assets at the rate of .50% of the
first $50,000,000 of average daily net assets, .30% of the next $200,000,000 of
average daily net assets, .25% of the next $250,000,000 of average daily net
assets and .20% of average daily net assets in excess of $500,000,000.
Pursuant to the Agreement, ZAMI has retained Skyline Asset Management, Inc.
("Skyline") to manage the Select Value Portfolio. Under the Agreement, the
Select Value Portfolio pays ZAMI a monthly fee based on the average daily net
assets of the Portfolio at the rate of .75% of the first $250,000,000 of the
Portfolio's average daily net assets, and .65% on average daily net assets
exceeding $250,000,000. ZAMI pays Skyline 50% of the fee paid by the Select
Value Portfolio.
Pursuant to the Agreement, ZAMI retained PanAgora Asset Management, Inc.
("PanAgora") from the period from January 1 1997 through April 30, 1997 to
manage the S&P 100 Plus Portfolio. Under the Agreement, the S&P 100 Plus
Portfolio pays Ziegler a monthly fee based on the average daily net assets of
the Portfolio at the rate of .575% of the first $20,000,000 of the Portfolio's
average daily net assets, .45% on the next $30,000,000, .40% on the next
$50,000,000 in assets, .35% on the next $400,000,000 in assets, down to .30% on
average daily net assets over $500,000,000. ZAMI paid PanAgora .20% on the first
$100,000,000 in assets and 50% of the fee paid by the S&P 100 Plus Portfolio,
net of a pro rata amount of expenses, if any, paid by ZAMI in the operation of
the Portfolio. Beginning May 1, 1997, ZAMI solely managed the S&P 100 Plus
Portfolio, eliminating the Sub-Advisory contract with PanAgora.
The Advisor voluntarily reimbursed the Government Portfolio $17,630, S&P 100
Plus Portfolio $98,729, the Dividend Achievers Portfolio $34,811, the Select
Value Portfolio $65,968 and the PSE Tech 100 Index Portfolio $179,273 in 1997.
The Advisor is not obligated to continue the voluntary reimbursement in the
future.
Ziegler has an Accounting and Pricing Agreement with the Fund to perform
accounting and pricing services, a Depository Agreement with the Fund to be the
depository for all investment securities and cash, and a Transfer and Dividend
Disbursing and Shareholder Services Agency Agreement with the Fund to provide
Transfer Agent Services. In addition, each Portfolio pays Ziegler commissions on
sales of Portfolio shares. The transfer agent fees, commissions, accounting and
pricing fees and depository fees paid to Ziegler for the year ended December 31,
1997, were as follows for each Portfolio:
<TABLE>
<CAPTION>
ACCOUNTING
TRANSFER COMMISSIONS AND PRICING DEPOSITORY 12B-1
AGENT FEES ON PORTFOLIO SHARES FEES FEES FEES
----------- ------------------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Tax-Exempt Portfolio $43,961 $23,711 $28,797 $22,148 $102,043
Government Portfolio 44,404 17,919 22,601 17,621 82,835
S&P100 Plus Portfolio 74,974 308,152 37,391 27,051 190,209
Dividend Achievers Portfolio 30,430 35,580 20,418 13,935 80,130
Select Value Portfolio 5,978 52,442 19,000 4,282 8,421
PSE Tech 100 Index Portfolio 19,782 77,640 19,000 7,897 20,489
--------- --------- --------- --------- ----------
TOTAL $219,529 $515,444 $147,207 $92,934 $484,127
========= ========= ========= ========= =========
</TABLE>
During the year ended December 31 1997, an affiliate of Ziegler received
$9,685 representing commissions from the purchases and sales of investments of
the Dividend Achievers Portfolio.
3. INVESTMENT TRANSACTIONS --
Purchases and proceeds from sales of securities, excluding short-term
investments, for the year ended December 31, 1997 aggregated:
PURCHASES PROCEEDS FROM SALES
---------- -------------------
Tax-Exempt Portfolio $129,103,310 $135,820,829
Government Portfolio 32,265,714 36,518,827
S&P100 Plus Portfolio 28,803,895 15,142,401
Dividend Achievers Portfolio 5,046,040 4,104,614
Select Value Portfolio 8,062,690 5,001,768
PSE Tech 100 Index Portfolio 24,397,686 3,246,329
Net tax basis unrealized appreciation (depreciation) on investments as of
December 31, 1997, included:
<TABLE>
<CAPTION>
S&P 100 DIVIDEND SELECT PSE TECH 100
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX
----------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gross unrealized appreciation $1,617,124 $624,041 $47,952,573 $20,026,476 $1,712,811 $2,184,256
Gross unrealized (depreciation) -- (499,690) (929,167) (58,838) (254,009) (2,185,911)
----------- --------- ---------- ---------- ---------- ----------
Net unrealized appreciation
(depreciation) $1,617,124 $124,351 $47,023,406 $19,967,638 $918,802 $(1,655)
=========== ========= =========== =========== ========= ==========
Tax basis cost of investments $58,404,025 $39,971,675 $58,263,215 $19,614,348 $7,610,343 $26,810,126
=========== =========== =========== ============ =========== ===========
</TABLE>
4. LINE OF CREDIT --
The Fund has an available line of credit of $3,000,000. However, each
Portfolio's borrowings, by investment restriction, cannot exceed 10% of the
total net assets not including the borrowings. Interest expense incurred in
connection with such borrowings was not material during the year. Borrowings
under this arrangement bear interest approximating the then current Prime Rate.
All borrowings under this line of credit are guaranteed by Ziegler. Each
Portfolio's policies allow borrowings for temporary or emergency purposes.
5. CAPITAL SHARE TRANSACTIONS --
(a) The Fund has authorized capital of 1,000,000,000 shares at $.001 par
value per share. The Fund's shares are divided into the separate portfolios. The
Fund's 300,000,000 authorized shares are allocated to the existing portfolios as
follows:
AUTHORIZED SHARES
-----------------
Tax-Exempt Portfolio 50,000,000
Government Portfolio 50,000,000
S&P100 Plus Portfolio 50,000,000
Dividend Achievers Portfolio 50,000,000
Select Value Portfolio 50,000,000
PSE Tech 100 Index Portfolio 50,000,000
----------
TOTAL 300,000,000
===========
The Cash Reserve Portfolio has been allotted 400,000,000 shares, 200,000,000
shares of which are designated as Class X Common Stock (the Retail Class) and
200,000,000 shares of which are designated Class Y Common Stock (the
Institutional Class) and the Wisconsin Tax-Exempt Portfolio has been allotted
50,000,000 shares. The remaining 250,000,000 Fund shares may be allocated to any
of the above portfolios, the Cash Reserve Portfolio, the Wisconsin Tax-Exempt
Portfolio or to new portfolios as determined by the Board of Directors. The
shares of each Portfolio have equal rights and privileges with all other shares
of that Portfolio.
(b) Capital share activity during the years ended December 31, 1996 and
December 31, 1997, were as follows:
<TABLE>
<CAPTION>
S&P 100 DIVIDEND SELECT PSE TECH 100
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX*<F1>
----------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
SHARES OUTSTANDING
AT DECEMBER 31, 1995 6,010,621 5,116,732 2,922,304 1,496,326 337,356 --
Shares issued 2,002,713 184,756 659,065 112,219 82,311 558,213
Shares issued in
distributions 191,596 214,869 251,205 45,606 66,517 14,582
Shares redeemed (1,071,548) (634,765) (321,653) (129,911) (46,028) (15,052)
----------- --------- ---------- ---------- ---------- ----------
SHARES OUTSTANDING
AT DECEMBER31, 1996 7,133,382 4,881,592 3,510,921 1,524,240 440,156 557,743
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
========== ========== ========== ========== ========= ==========
*<F1>Amounts shown for the PSE Tech 100 Index Portfolio are the result of the
Fund's operations from its commencement of operations on
June 10, 1996.
</TABLE>
(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 year ended December 31,
1997, in the S&P 100 Plus and PSE Tech 100 Index Portfolios, respectively, were
as follows:
AGGREGATE FACE
NUMBER OF CONTRACTS VALUE OF CONTRACTS
------------------ -------------------
S&P 100 PLUS PORTFOLIO:
Outstanding at December 31, 1996 17 $6,329,536
Contracts opened 37 13,671,639
Contracts closed (46) (18,113,143)
------ -----------
Outstanding at December 31, 1997 8 $1,888,032
====== ===========
AGGREGATE FACE
NUMBER OF CONTRACTS VALUE OF CONTRACTS
------------------- -----------------
PSE TECH 100 INDEX PORTFOLIO:
Outstanding at December 31, 1996 3 $369,474
Contracts opened 20 2,962,760
Contracts closed (16) (2,317,778)
----- ----------
Outstanding at December 31, 1997 7 $1,014,456
===== ===========
The number of financial futures contracts and the gross unrealized appreciation,
as of December 31, 1997, for each Portfolio were as follows:
UNREALIZED
NUMBER OF CONTRACTS APPRECIATION
------------------- ------------
S&P 100 PLUS PORTFOLIO:
S&P 500 Financial Futures Contract expiration
date March 1998 8 $70,168
PSE Tech 100 Index Portfolio:
PSE Technology 100 Index Futures Contract expiration
date March 1998 7 $12,794
TAX-EXEMPT PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL S&P MOODY'S
AMOUNT DESCRIPTION RATING RATING VALUE
(UNAUDITED)
---------- ----------- ---------------- ----------
<S> <C> <C> <C> <C>
LONG-TERM TAX-EXEMPT SECURITIES -- 99.1%
CALIFORNIA -- 5.3%
$1,000,000 Los Angeles County Public Works Financing Authority, Lease Revenue AAA Aaa $1,003,750
Bonds (Multiple Capital Facilities Project IV), 5.25%, due 12-01-2016
1,000,000 Los Angeles, County Public Works Financing Authority, Capital AA- Aa1 973,750
Construction and Refunding Bonds, (Los Angeles County Flood
Control District), 5.00%, due 03-01-2017
1,300,000 The Regents of the University of California, Refunding Revenue Bonds AAA Aaa 1,244,750
(Multiple Purpose Projects), Series C, 4.75%, due 09-01-2016
COLORADO -- 5.5%
1,310,000 Centennial Water and Sanitation District, Colorado Water and Sewer AAA Aaa 1,318,187
Revenue Refunding Bonds, Series A, 5.125%, due 12-01-2017
1,015,000 City of Colorado Springs, Colorado Utilities System Improvement AA Aa2 1,016,269
and Refunding Revenue Bonds, Series 1994A, 5.10%, due 11-15-2016
1,000,000 Steamboat Springs School District No. RE-2, Routt County, Colorado, AAA Aaa 986,250
General Obligation Bonds, Series 1997, 5.00%, due 12-01-2017
CONNECTICUT -- 1.7%
1,000,000 City of Bridgeport, Connecticut, General Obligation Bonds, 1997 AAA Aaa 1,012,500
Series A, 5.250%, due 03-01-2017
FLORIDA -- 3.5%
1,000,000 State of Florida Full Faith and Credit, State Board of Education, Public AA+ Aa2 966,250
Education Capital Outlay Refunding Bonds, 1995 Series D, 4.75%,
due 06-01-2017
1,200,000 City of Sarasota, Florida, Water and Sewer System Revenue Refunding AAA Aaa 1,123,500
Bonds, Series 1993-C, 4.50%, due 10-01-2016
GEORGIA -- 4.7%
1,000,000 Atlanta, Georgia, Public Improvement General Obligation Bonds, AA Aa3 1,003,750
Series B, 5.125%, due 12-01-2016
2,000,000 City of Atlanta, Georgia, Water and Sewerage Revenue Bonds, Series AAA Aaa 1,810,000
1993, 4.50%, due 01-01-2018
INDIANA -- 6.5%
1,000,000 Hamilton Southeastern Consolidated School Building Corporation, AAA Aaa 1,010,000
(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 1,933,125
Bonds, Series 1990A (Senate Avenue Parking Facility), 7.40%,
due 07-01-2015
1,000,000 IPS School Building Corporation (Indianapolis, Indiana) First Mortgage AAA Aaa 1,003,750
Refunding Bonds, Series 1997, 5.250%, due 07-05-2017
LOUISIANA -- 1.7%
1,000,000 Orleans Parish, Louisiana, Parishwide School District General NR Aaa 998,750
Obligation Bonds, Series A, 5.125%, due 09-01-2018
MASSACHUSETTS -- 5.0%
1,000,000 Town of Fairhaven, Massachusetts, General Obligation Bonds, 5.250%, AAA Aaa 1,015,000
due 06-15-2016
1,000,000 Massachusetts Bay Transportation Authority General Transportation AAA Aaa 1,010,000
System Bonds, 1995 Series B, 5.25%, due 03-01-2017
1,000,000 Massachusetts Turnpike Authority, Metropolitan Highway System AAA Aaa 1,011,250
Revenue Bonds, 1997 Series B (Subordinated), 5.250%,
due 01-01-2017
MICHIGAN -- 10.0%
1,000,000 Battle Creek, Michigan, Downtown Development Authority Tax AAA NR 986,250
Allocation Bonds, 5.00%, due 05-01-2017
1,000,000 Board of Control of Grand Valley State University, General Revenue AAA Aaa 1,011,250
and Refunding Bonds, Series 1997, 5.25%, due 10-01-2017
1,000,000 Hudsonville Public Schools, Counties of Ottawa and Allegan, State of AAA Aaa 1,000,000
Michigan, 1997 School Building and Site and Refunding Bonds,
(General Obligation-Unlimited Tax), 5.20%, due 05-01-2016
1,000,000 State Building Authority, State of Michigan, 1993 Revenue Refunding AAA Aaa 1,003,750
Bonds, Series I, 5.300%, due 10-01-2016
1,000,000 City of Wyoming, Michigan, Building Authority Bonds, Series 1997, AAA Aaa 1,006,250
(Limited Tax General Obligation), 5.250%, due 05-01-2018
1,000,000 Zeeland Public Schools, Counties of Ottawa and Allegan, Michigan, AAA Aaa 1,008,750
1997 Refunding Bonds (General Obligation-Unlimited Tax), 5.25%,
due 05-01-2016
MINNESOTA -- 10.3%
2,000,000 General Obligation School Building Bonds, Series 1994A, Independent AAA Aaa 1,975,000
School District No. 270, Hopkins, Minnesota, 4.875%, due 02-01-2014
1,000,000 Minnesota Public Facilities Authority, Water Pollution Control Revenue AAA Aaa 1,038,750
Bonds, Series B, 5.40%, due 03-01-2016
2,000,000 State of Minnesota, General Obligation State Various Purpose Bonds, AAA Aaa 2,002,500
5.00%, due 08-01-2017
1,200,000 St. Paul, Minnesota, Independent School District #625, Series A, AA+ Aa1 1,165,500
General Obligation (Unlimited Tax), 4.75%, due 02-01-2016
MISSISSIPPI -- 1.6%
1,000,000 Mississippi Development Bank Special Obligation Bonds, Series 1997 AAA Aaa 987,500
(DeSoto County, Mississippi, Convention Center Project), 5.00%,
due 11-01-2018
MISSOURI -- 6.2%
1,000,000 School District of Kansas City, Missouri, Building Corporation Insured AAA Aaa 1,002,500
Leasehold Revenue Bonds, Series 1993, (The School District of Kansas
City, Missouri, Capital Improvement Project), 5.00%, due 02-01-2014
1,750,000 Missouri State Environmental Improvement & Energy Resource NR Aa1 1,743,437
Authority, Water Pollution Control Revolving Fund, Series E, 5.125%,
due 01-01-2019
1,000,000 City of St. Charles, Missouri, Public Facilities Authority Leasehold AAA Aaa 1,008,750
Revenue Bonds, Series 1997 (City of St. Charles, Missouri, Lessee),
5.050%, due 02-01-2012
NEW JERSEY -- 1.6%
1,000,000 New Jersey Transportation Trust Fund Authority, Transportation AAA Aaa 986,250
System Bonds, 1997 Series A, 5.00%, due 06-15-2018
NEW YORK -- 1.7%
1,000,000 Montgomery, Otsego, Schoharie Counties, New York, Solid Waste AAA Aaa 1,003,750
Management Authority, Revenue Refunding Bonds, Series A, 5.25%,
due 01-01-2014
NORTH DAKOTA -- 1.9%
1,120,000 Fargo School District Building Authority, Cass County, North Dakota, NR Aaa 1,122,800
First Mortgage Revenue Bonds, Series 1997B, 5.20%, due 05-01-2017
OHIO -- 7.6%
1,400,000 Butler County, Ohio, Transportation Improvement District Revenue AAA Aaa 1,398,250
Bonds, Series A, 5.125%, due 04-01-2017
2,175,000 Columbus, Ohio, General Obligation Bonds, Series 2, 5.0%, AAA Aaa 2,175,000
due 06-15-2016
1,000,000 County of Cuyahoga, Ohio, General Obligation (Limited Tax) Various AA Aa2 1,026,250
Purpose Improvement Bonds, Series 1995, 5.25%, due 11-15-2015
OKLAHOMA -- 1.9%
1,000,000 Tulsa Industrial Authority Revenue and Refunding Bonds, (The AAA Aaa 1,125,000
University of Tulsa) Series 1996A, 6.00%, due 10-01-2016
PENNSYLVANIA -- 12.0%
2,000,000 Beaver County, Pennsylvania, General Obligation Bonds, 5.15%, NR Aaa 2,000,000
due 10-01-2017
2,000,000 Bethlehem Authority Northampton & Lehigh Counties, Pennsylvania, AAA Aaa 1,952,500
Water Revenue Refunding Bonds, Series of 1994, 4.875%,
due 11-15-2014
1,000,000 The Harrisburg Authority, Dauphin County, Pennsylvania, Tax-Exempt AAA Aaa 1,041,250
Revenue Bonds (The City of Harrisburg Project), Series II of 1997,
5.625%, due 09-15-2017
1,200,000 County of Montgomery, Pennsylvania, General Obligation Bonds, AAA Aaa 1,227,000
Series of 1997, 5.40%, due 09-15-2018
1,000,000 Commonwealth of Pennsylvania Higher Educational Facilities AAA Aaa 1,008,750
Authority Revenue Bonds, State System of Higher Education, Series H,
5.375%, due 06-15-2018
SOUTH CAROLINA -- 1.7%
1,000,000 City of Greer, South Carolina, Combined Utility System Revenue AAA Aaa 995,000
Bonds, Series 1997, 5.000%, due 09-01-2017
TENNESSEE -- 3.3%
1,000,000 City of Jackson, Tennessee, General Obligation Refunding and NR Aaa 1,002,500
Improvement Bonds, Series 1997, 5.125%, due 03-01-2017
1,000,000 Tennessee Local Development Authority State Loan Programs Revenue AAA Aaa 1,001,250
Bonds, 1997 Refunding Series A, 5.125%, due 03-01-2016
VIRGINIA -- 3.3%
2,000,000 Commonwealth Transportation Board of Virginia, Transportation AA Aa2 2,005,000
Revenue Refunding Bonds, Series 1997B, (Northern Virginia Transport
District Program), 5.125%, due 05-15-2017
WASHINGTON -- 2.1%
1,250,000 City of Tacoma, Washington, Water System Revenue Bonds, AAA Aaa 1,257,813
1997, 5.25%, due 12-01-2017 -----------
Total Long-Term Tax-Exempt Securities (Cost $58,092,257) 59,709,381
SHORT-TERM TAX-EXEMPT SECURITIES -- 0.5%
MONEY MARKET
$311,768 Federated Tax-Free Trust 311,768
----------
Total Investments $60,021,149
===========
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
</TABLE>
GOVERNMENT PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MARKET
AMOUNT DESCRIPTION RATE MATURITY VALUE
---------- ------------ ---------- --------- -------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 98.3%
U.S. GOVERNMENT OBLIGATIONS -- 92.7%
$2,500,000 U.S. Treasury Note 5.625% 12-31-1999 $2,499,218
4,300,000 U.S. Treasury Note 11.625% 11-15-2002 5,361,562
6,500,000 U.S. Treasury Note 11.125% 08-15-2003 8,159,528
9,350,000 U.S. Treasury Note 7.875% 11-15-2004 10,454,469
4,575,000 U.S. Treasury Bond 10.750% 08-15-2005 5,953,219
5,130,000 U.S. Treasury Note 6.250% 02-15-2007 5,296,725
-----------
Total U.S. Government Obligations 37,724,721
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 5.6%
532,636 Pool #407884 7.000% 09-15-2025 537,297
460,541 Pool #420853 7.000% 01-15-2026 464,571
758,793 Pool #422688 7.000% 05-15-2026 765,433
512,257 Pool #451586 7.000% 08-15-2027 516,739
----------
Total Agency Obligations 2,284,040
----------
Total U.S. Government and Agency Obligations (Cost $39,884,410) 40,008,761
-----------
SHORT-TERMINVESTMENTS -- 0.2%
MONEY MARKET
$87,265 Dreyfus Treasury Prime Cash Management 87,265
-----------
Total Short-Term Investments 87,265
-----------
Total Investments $40,096,026
===========
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
</TABLE>
S&P100 PLUS PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
NUMBER
OF SHARES MARKET
OR PAR VALUE VALUE
------------ ---------
COMMON STOCKS -- 97.7%
BASIC INDUSTRIES -- 4.6%
Aluminum Company of America 4,800 $337,800
*<F1>Bethlehem Steel Corporation 3,400 29,325
Boise Cascade Corporation 1,466 44,347
Champion International 2,900 131,406
Dow Chemical Company 6,950 705,425
Dupont (E.I.) de Nemours
and Company 35,400 2,126,213
Homestake Mining Company 4,500 39,937
International Paper Company 9,200 396,750
Monsanto Company 18,000 756,000
Weyerhaeuser Company 6,100 299,281
------------
4,866,484
------------
CONSUMER DURABLES -- 3.6%
Black & Decker Corporation 2,900 113,281
Brunswick Corporation 3,000 90,937
Chrysler Corporation 20,500 721,344
Ford Motor Company 37,200 1,811,175
General Motors Corporation 18,000 1,091,250
------------
3,827,987
------------
CONSUMER NONDURABLES -- 8.7%
Avon Products, Inc. 4,100 251,638
Coca-Cola Company 72,800 4,850,300
Colgate-Palmolive Company 8,900 654,150
Eastman Kodak Company 9,200 559,475
Heinz (H.J.) Company 11,200 569,100
International Flavors & Fragrances Inc. 3,350 172,525
PepsiCo, Inc. 48,200 1,756,287
Polaroid Corporation 1,400 68,163
Ralston Purina Group 3,200 297,400
------------
9,179,038
------------
CONSUMER SERVICE -- 7.1%
Walt Disney Company 21,100 2,090,219
*<F1>Harrah's Entertainment, Inc. 3,150 59,456
*<F1>Kmart Corporation 14,800 171,125
Limited (The), Inc. 8,239 210,095
May Department Stores Company 6,500 342,469
McDonald's Corporation 20,300 969,325
Sears, Roebuck & Co. 11,500 520,375
Tandy Corporation 3,100 119,544
*<F1>Toys "R" Us, Inc. 8,325 261,717
Wal-Mart Stores, Inc. 70,600 2,784,287
------------
7,528,612
------------
CAPITAL GOODS -- 11.5%
Allegheny Teledyne Inc. 5,292 136,930
The Boeing Company 35,812 1,752,550
Fluor Corporation 2,100 78,488
General Dynamics Corporation 1,900 164,231
General Electric Company 103,200 7,572,300
Minnesota Mining &
Manufacturing Company 12,300 1,009,369
Raytheon Company, Class B Shares 10,200 515,100
Rockwell International Corporation 6,700 350,075
United Technologies Corporation 7,300 531,531
------------
12,110,574
------------
ENERGY -- 10.8%
Amoco Corporation 14,700 1,251,338
+<F2>Atlantic Richfield Company 9,800 785,225
Baker Hughes Incorporated 4,960 216,380
Coastal Corporation 3,200 198,200
+<F2>Exxon Corporation 77,800 4,760,388
Halliburton Company 7,600 394,725
Mobil Corporation 24,300 1,754,156
Occidental Petroleum Corporation 10,100 296,056
Schlumberger Limited 19,000 1,529,500
Williams Companies, Inc. 9,600 272,400
------------
11,458,368
------------
FINANCIAL -- 11.1%
American International Group, Inc. 21,764 2,366,835
American Express Company 14,500 1,294,125
American General Corporation 7,200 389,250
BankAmerica Corporation 27,000 1,971,000
CIGNA Corporation 1,800 311,513
Citicorp 17,900 2,263,231
First Chicago NBD Corp. 8,725 728,538
Hartford Financial Services Group 3,600 336,825
Merrill Lynch &Co., Inc. 10,000 729,375
NationsBank Corporation 22,500 1,368,281
------------
11,758,973
------------
HEALTH CARE -- 10.7%
Baxter International Inc. 8,300 418,631
Bristol-Myers Squibb Company 30,920 2,925,805
Columbia/HCA Healthcare
Corporation 20,500 607,313
Johnson & Johnson 41,900 2,760,162
Mallinckrodt, Inc. 2,300 87,400
Merck & Co., Inc. 37,500 3,984,375
Pharmacia & Upjohn, Inc. 15,560 569,885
------------
11,353,571
------------
TECHNOLOGY -- 20.1%
AMP Incorporated 6,750 283,500
*<F1>Ceridian Corporation 2,100 96,206
*<F1>Cisco Systems, Inc. 37,650 2,098,987
*<F1>Computer Sciences Corporation 2,300 192,050
*<F1>Digital Equipment Corporation 4,800 177,600
*<F1>Federal Express Corporation 3,500 213,719
Harris Corporation 2,400 110,100
Hewlett-Packard Company 32,500 2,031,250
Honeywell Inc. 3,900 267,150
International Business Machines
Corporation 31,000 3,241,437
Intel Corporation 58,200 4,088,550
*<F1>Microsoft Corporation 42,500 5,493,125
*<F1>National Semiconductor Corporation 4,800 124,500
Northern Telecom Limited 7,900 703,100
*<F1>Oracle Corporation 30,725 685,552
Tektronix, Inc. 1,500 59,531
Texas Instruments Inc. 12,100 544,500
*<F1>Unisys Corporation 5,400 74,925
Xerox Corporation 9,891 730,079
------------
21,215,861
------------
TRANSPORTATION -- 1.0%
Burlington Northern
Santa Fe Corporation 4,700 436,806
Delta Air Lines, Inc. 2,200 261,800
Norfolk Southern Corporation 11,400 351,263
------------
1,049,869
------------
UTILITIES -- 8.5%
AT&T Corp. 51,992 3,184,510
American Electric Power
Company, Inc. 5,700 294,263
Ameritech Corporation 17,300 1,392,650
+<F2>Bell Atlantic Corporation 24,191 2,201,381
Entergy Corporation 7,100 212,556
MCICommunications Corporation 21,400 916,187
Southern Company 21,100 545,963
Unicom Corporation 6,600 202,950
------------
8,950,460
------------
Total Common Stocks
(cost $56,348,334) 103,299,797
------------
U.S GOVERNMENT AND AGENCY OBLIGATIONS -- 1.2%
+<F2>U.S. Treasury Bill
5.54%, due 04-30-1998 $1,300,000 1,277,969
------------
Total Government
Obligations (cost $1,276,194) 1,277,969
------------
SHORT-TERM INVESTMENTS -- 0.7%
MONEY MARKET
Dreyfus Cash Management Plus 691,449 691,449
Federated Master Trust 18,106 18,106
------------
Total Short-Term Investments 709,555
------------
Total Investments $105,287,321
=============
FUTURES CONTRACTS
FUTURES
*<F1>S&P 500 Index Future expires
March, 1998 8 1,958,200
------------
<PAGE>
Total Futures Contracts
(cost $1,888,032) 1,958,200
------------
*<F1> Non-income producing
+<F2> 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.
DIVIDEND ACHIEVERS PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
NUMBER MARKET
OF SHARES VALUE
---------- -------
COMMON STOCKS -- 98.4%
CONSUMER NONDURABLES -- 18.4%
Coca-Cola Company 16,000 $1,066,000
Gillette Company 21,600 2,169,450
Heinz (H.J.)Company 15,000 762,188
Kimberly-Clark Corporation 21,600 1,065,150
PepsiCo, Inc. 37,000 1,348,187
Sherwin-Williams Company 31,400 871,350
----------
7,282,325
----------
CONSUMER SERVICE -- 10.8%
Walt Disney Company 10,000 990,625
McDonald's Corporation 21,600 1,031,400
McGraw-Hill, Inc. 8,500 629,000
*<F1>Tricon Global Restaurants, Inc. 3,700 107,531
Walgreen Company 48,000 1,506,000
----------
4,264,556
----------
CONSUMER NONCYCLICAL -- 2.3%
Becton, Dickinson &Company 18,000 900,000
----------
900,000
----------
CAPITAL GOODS -- 9.7%
Avery-Dennison Corporation 28,400 1,270,900
General Electric Company 24,000 1,761,000
Minnesota Mining &
Manufacturing Company 10,000 820,625
----------
3,852,525
----------
ENERGY -- 11.0%
Mobil Corporation 14,400 1,039,500
Royal Dutch Petroleum Company 24,000 1,300,500
Tidewater, Inc. 9,000 496,125
Williams Companies, Inc. 54,000 1,532,250
----------
4,368,375
----------
FINANCIAL -- 14.9%
Banc One Corporation 10,000 543,125
BankAmerica Corporation 20,000 1,460,000
Federal Home Loan Mortgage
Corporation 16,000 671,000
Federal National Mortgage
Association 36,000 2,054,250
Jefferson-Pilot Corporation 15,000 1,168,125
----------
5,896,500
----------
HEALTH CARE -- 10.7%
Bristol-Myers Squibb Company 6,000 567,750
Johnson & Johnson 21,600 1,422,900
Merck & Co., Inc. 12,000 1,275,000
Pfizer,Inc. 13,000 969,313
----------
4,234,963
----------
INDUSTRIAL -- 3.0%
Illinois Tool Works, Inc. 20,000 1,202,500
----------
1,202,500
----------
TECHNOLOGY -- 13.4%
Diebold, Inc. 36,562 1,850,951
Hewlett-Packard Company 20,000 1,250,000
International Business Machines
Corporation 5,000 522,812
Intel Corporation 16,200 1,138,050
Xerox Corporation 7,000 516,688
----------
5,278,501
----------
UTILITIES -- 4.2%
Southwestern Bell Corporation 10,800 791,100
Sprint Corporation 15,000 879,375
----------
1,670,475
----------
Total Common Stocks
(cost $18,983,082) 38,950,720
----------
SHORT-TERM INVESTMENTS -- 1.6%
MONEYMARKET
Dreyfus Cash Management Plus 586,414 586,414
Federated Master Trust 44,852 44,852
----------
Total Short-Term Investments 631,266
----------
Total Investments $39,581,986
===========
* <F1>Non-income producing
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
SELECT VALUE PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
NUMBER
OF SHARES MARKET
OR PAR VALUE VALUE
------------ -------
AUTOS & TRANSPORTATION -- 1.9%
*<F1>Gulfstream Aerospace Corporation 5,600 $163,800
----------
163,800
----------
CONSUMER DISCRETIONARY -- 28.0%
*<F1>Bell & Howell Company 9,100 220,106
*<F1>Brylane Inc. 5,100 251,175
*<F1>CDI Corp. 5,000 228,750
Fingerhut Companies, Inc. 8,400 179,550
*<F1>Furniture Brands International, Inc. 10,000 205,000
Harman International Industries, Inc. 1,900 80,631
Harland (John H.) Company 4,300 90,300
Kellwood Co 5,600 168,000
Libbey, Inc. 4,200 159,075
*<F1>Tommy Hilfiger Corporation 4,200 147,525
*<F1>United Stationers Inc. 5,200 250,250
*<F1>World Color Press, Inc. 9,000 239,063
*<F1>Zale Corporation 6,800 156,400
----------
2,375,825
----------
CONSUMER STAPLES -- 1.6%
International Multifoods Corporation 4,700 133,069
----------
133,069
----------
ENERGY -- 5.0%
*<F1>Forcenegery Inc. 6,300 164,981
*<F1>Newfield Exploration Company 900 20,981
*<F1>Santa Fe Energy Resources, Inc. 9,400 105,750
*<F1>Swift Energy Company 6,240 131,430
----------
423,142
----------
FINANCIAL -- 22.8%
Advanta Corporation, Class B 3,100 78,662
American General Hospitality
Corporation 7,000 187,250
American Heritage Life Investment
Corporation 3,900 140,400
CMACInvestment Corporation 3,600 217,350
Enhance Financial Services Group Inc. 3,400 202,300
*<F1>FIRSTPLUS Financial Group, Inc. 4,800 184,200
Fremont General Corporation 4,100 224,475
*<F1>Highlands Insurance Group, Inc. 4,100 116,337
Horace Mann Educators Corporation 5,000 142,188
Parkway Properties, Inc. 3,600 123,525
Peoples Heritage Financial Group, Inc. 3,400 156,400
Prentiss Properties Trust 5,800 162,038
----------
1,935,125
----------
HEALTH CARE -- 8.1%
Integrated Health Services, Inc. 8,200 255,737
*<F1>Marquette Medical Systems, Inc. 3,900 103,838
*<F1>Sierra Health Services, Inc. 2,900 97,513
*<F1>Trigon Healthcare, Inc. 8,900 232,512
----------
689,600
----------
MATERIALS & PROCESSING -- 7.5%
Hughes Supply, Inc. 6,200 216,612
*<F1>International Specialty Products, Inc. . 13,900 207,631
*<F1>UCARInternational Inc. 5,400 215,663
----------
639,906
----------
PRODUCER DURABLES -- 13.0%
AGCOCorporation 5,700 166,725
Cincinnati Milacron, Inc. 7,700 199,719
General Cable Corp. 4,700 170,081
*<F1>MagneTek, Inc. 9,700 189,150
Pentair Inc. 6,400 230,000
TriMas Corporation 4,400 151,250
----------
1,106,925
----------
TECHNOLOGY -- 7.3%
*<F1>Coherent, Inc. 7,100 249,387
*<F1>Computer Products, Inc. 1,500 33,938
Galileo International, Inc. 5,300 146,413
*<F1>Zebra Technologies Corporation 6,500 193,375
----------
623,113
----------
Total Common Stocks
(cost $7,171,703) 8,090,505
----------
SHORT-TERM INVESTMENTS -- 5.2%
COMMERCIAL PAPER -- 3.5%
General Electric Capital
Corporation, 5.83%,
due 01-07-1998 $300,000 300,000
----------
300,000
----------
MONEY MARKET -- 1.7%
Dreyfus Cash Management Plus 96,180 96,180
Federated Master Trust 42,460 42,460
----------
138,640
----------
Total Short-Term Investments 438,640
----------
Total Investments $8,529,145
==========
*<F1>Non-income producing
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
PSE TECH 100 INDEX PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
NUMBER
OF SHARES MARKET
OR PAR VALUE VALUE
------------ -------
COMMON STOCKS -- 96.5%
BIOTECHNOLOGY --6.8%
*<F1>Amgen, Inc. 7,100 $384,288
*<F1>Biogen, Inc. 7,100 258,262
*<F1>Centocor, Inc. 7,100 236,075
*<F1>Chiron Corporation 7,100 120,700
*<F1>Genentech, Inc. 7,100 430,438
*<F1>Immunex Corporation 7,100 383,400
*<F1>Xoma Corporation 7,100 39,494
-----------
1,852,657
-----------
CAD/CAM -- 2.3%
Autodesk, Inc. 7,100 262,700
*<F1>Evans & Sutherland Computer
Corporation 7,100 205,900
*<F1>Intergraph Corporation 7,100 71,000
*<F1>Mentor Graphics Corporation 7,100 68,781
*<F1>QMS, Inc. 7,100 18,194
-----------
626,575
-----------
DATA COMMUNICATIONS -- 13.7%
*+ 3Com Corporation 7,100 248,056
<F1><F2>
*+ Adaptec, Inc. 7,100 263,587
<F1><F2>
*+ ADC Telecommunications, Inc. 7,100 296,425
<F1><F2>
*<F1>Ascend Communications 7,100 173,950
*<F1>Bay Networks, Inc. 7,100 181,494
*<F1>Cabletron Systems, Inc. 7,100 106,500
*<F1>Cendant Corporation 7,100 244,063
*<F1>Cisco Systems, Inc. 7,100 395,825
*<F1>DSCCommunications Corporation 7,100 170,400
Lucent Technologies 7,100 567,112
*<F1>Newbridge Networks Corporation 7,100 247,613
Scientific - Atlanta, Inc. 7,100 118,925
*<F1>Standard Microsystems Corporation 7,100 61,681
Symbol Technologies, Inc. 7,100 268,025
*<F1>Tellabs, Inc. 7,100 375,412
-----------
3,719,068
-----------
DATA STORAGE AND PROCESSING -- 3.5%
*<F1>Applied Magnetics Corporation 7,100 78,988
*<F1>Exabyte Corporation 7,100 45,706
*<F1>Komag, Incorporated 7,100 105,612
*<F1>Quantum Corporation 7,100 142,444
*<F1>Seagate Technology, Inc. 7,100 136,675
*<F1>Storage Technology Corporation 7,100 439,756
-----------
949,181
-----------
ELECTRONIC EQUIPMENT -- 3.0%
AMP Incorporated 7,100 298,200
Linear Technologies 7,100 409,138
Sensormatic Electronics Corporation 7,100 116,706
-----------
824,044
-----------
INFORMATION PROCESSING -- 9.1%
*+ America Online, Inc. 7,100 633,231
<F1><F2>
Automatic Data Processing, Inc. 7,100 435,762
*<F1>Ceridian Corporation 7,100 325,269
*<F1>Computer Sciences Corporation 7,100 592,850
Comsat Corporation 7,100 172,175
Electronic Data Systems 7,100 311,956
-----------
2,471,243
-----------
LARGE DIVERSIFIED COMPUTER
MANUFACTURING -- 4.1%
*<F1>Digital Equipment Corporation 7,100 262,700
International Business
Machines Corporation 7,100 742,394
*<F1>Unisys Corporation 7,100 98,513
-----------
1,103,607
-----------
MEDICAL TECHNOLOGY -- 7.8%
*+ Acuson Corporation 7,100 117,594
<F1><F2>
Biomet, Inc. 7,100 181,937
*<F1>Boston Scientific Corporation 7,100 325,713
*<F1>Coherent, Inc. 7,100 249,387
*<F1>Genzyme Corporation 7,100 197,025
Medtronic, Inc. 7,100 371,419
Shared Medical Systems Corporation 7,100 468,600
*<F1>St. Jude Medical, Inc. 7,100 216,550
-----------
2,128,225
-----------
MICRO COMPUTER MANUFACTURERS -- 6.4%
*+ Apple Computer, Inc. 7,100 93,188
<F1><F2>
*<F1>Compaq Computer Corporation 7,100 400,706
*<F1>Data General Corporation 7,100 123,806
*<F1>Dell Computer Corporation 7,100 596,400
*<F1>Gateway 2000, Inc. 7,100 231,637
*<F1>Sun Microsystems, Inc. 7,100 283,113
-----------
1,728,850
-----------
MINI AND MAINFRAME COMPUTER
MANUFACTURERS -- 3.7%
*<F1>EMC Corporation 7,100 194,806
Hewlett-Packard Company 7,100 443,750
*<F1>Silicon Graphics, Inc. 7,100 88,306
*<F1>Stratus Computer, Inc. 7,100 268,469
-----------
995,331
-----------
OFFICE AUTOMATION EQUIPMENT -- 3.1%
Harris Corporation 7,100 325,712
Xerox Corporation 7,100 524,069
-----------
849,781
-----------
SEMICONDUCTOR CAPITAL EQUIPMENT
MANUFACTURERS -- 3.9%
*+ Analog Devices, Inc. 7,100 196,581
<F1><F2>
*<F1>Applied Materials, Inc. 7,100 213,888
*<F1>KLA Instruments Corporation 7,100 274,237
*<F1>Kulicke & Soffa Industries, Inc. 7,100 132,238
*<F1>Novellus Systems, Inc. 7,100 229,419
-----------
1,046,363
-----------
SEMICONDUCTOR MANUFACTURERS -- 7.9%
*<F1>Advanced Micro Devices, Inc. 7,100 127,356
*# Chips &Technologies, Inc. 7,100 102,506
<F1><F3>
*<F1>Cypress Semiconductor Corporation 7,100 60,350
Intel Corporation 7,100 498,775
*<F1>Micron Technology, Inc. 7,100 184,600
Motorola, Inc. 7,100 405,144
*<F1>National Semiconductor Corporation 7,100 184,156
Texas Instruments Inc. 7,100 319,500
*<F1>Xilinx, Inc. 7,100 248,944
-----------
2,131,331
-----------
SOFTWARE PRODUCTS -- 11.5%
+<F2>Adobe Systems, Inc. 7,100 292,875
*<F1>BMC Software, Inc. 7,100 465,937
*<F1>Borland International, Inc. 7,100 51,919
*<F1>Cadence Design Systems, Inc. 7,100 173,950
Computer Associates
International, Inc. 7,100 375,413
*<F1>Informix Corporation 7,100 33,725
*<F1>Microsoft Corporation 7,100 917,675
*<F1>Novell, Inc. 7,100 53,250
*<F1>Oracle Corporation 7,100 158,419
*<F1>PeopleSoft, Inc. 7,100 276,900
*<F1>Sybase, Inc. 7,100 94,519
*<F1>Symantec Corporation 7,100 155,756
*<F1>System Software Associates, Inc. 7,100 62,125
-----------
3,112,463
-----------
TEST, ANALYSIS, AND INSTRUMENTATION
EQUIPMENT -- 9.7%
General Signal Corporation 7,100 299,531
Honeywell Inc. 7,100 486,350
Millipore Corporation 7,100 240,956
Perkin-Elmer Corporation 7,100 504,544
Tektronix, Inc. 7,100 281,781
*<F1>Teradyne, Inc. 7,100 227,200
TEST, ANALYSIS, AND INSTRUMENTATION
EQUIPMENT -- 9.7% (Continued)
*<F1>Thermo Instrument Systems, Inc. 7,100 244,506
Varian Associates, Inc. 7,100 358,994
-----------
2,643,862
-----------
Total Common Stocks
(Cost $26,196,955) 26,182,581
-----------
GOVERNMENT SECURITIES -- 0.4%
+<F3>U.S. Treasury Bill, 5.06%,
due 07-23-1998 $50,000 48,536
+<F3>U.S. Treasury Bill, 5.09%,
due 08-20-1998 $50,000 48,329
-----------
Total Government Securities
(Cost $96,940) 96,865
-----------
SHORT-TERM INVESTMENTS -- 1.9%
MONEY MARKET
Dreyfus Cash Management Plus 474,842 $474,842
Federated Master Trust 54,183 54,183
-----------
Total Short-Term Investments 529,025
-----------
TOTAL INVESTMENTS $26,808,471
===========
FUTURES CONTRACTS
FUTURES
PSE Technology 100 Index,
Expiring March 1998 7 1,027,250
-----------
Total Futures Contracts
(Cost $1,014,456) 1,027,250
-----------
*<F1>Non-income producing
+<F2>Segregated as collateral against futures
#<F3>Tendered
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Principal Preservation Portfolios, Inc. and
the Shareholders of the Tax-Exempt,
Government, S&P 100 Plus, Dividend Achievers,
Select Value and PSETech 100 Index Portfolios:
We have audited the accompanying balance sheets, including the schedules of
investments, of the PRINCIPAL PRESERVATION PORTFOLIOS, INC. (a Maryland
corporation) Tax-Exempt, Government, S&P 100 Plus, Dividend Achievers, Select
Value and PSE Tech 100 Index Portfolios as of December 31, 1997, and the related
statements of operations for the year then ended and the statements of changes
in net assets for each of the two years in the period then ended (the period
June 10, 1996 to December 31, 1997 for the PSE Tech 100 Index Portfolio) and the
financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the depositories, banks and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Principal Preservation Portfolios, Inc. Tax-Exempt, Government, S&P 100 Plus,
Dividend Achievers, Select Value and PSE Tech 100 Index Portfolios as of
December 31, 1997, the results of their operations for the year then ended and
the changes in their net assets for each of the two years in the period then
ended (the period June 10, 1996 to December 31, 1997 for the PSE Tech 100 Index
Portfolio) and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
January 16, 1998.
PRINCIPAL PRESERVATION
PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
OFFICERS AND DIRECTORS
R.D. Ziegler, Chairman, Director
Richard H. Aster, M.D., Director
Augustine J. English, Director
Ralph J. Eckert, Director
Robert J. Tuszynski, President, Director
Frank Ciano, Chief Financial Officer and Treasurer
John Lauderdale, Vice President of Marketing
S. Charles O'Meara, Secretary
Marc Dion, Vice President
INVESTMENT ADVISORS
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
Skyline Asset Management
311 South Wacker Drive, Suite 4500
Chicago, Illinois 60606
PanAgora Asset Management, Inc.
260 Franklin Street
Boston, Massachusetts 02110
DISTRIBUTOR, TRANSFER AND DIVIDEND
DISBURSING AGENT, DEPOSITORY AND FUND ACCOUNTANT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
CUSTODIAN
Principal Preservation Portfolios, Inc.
215 North Main Street
West Bend, Wisconsin 53095
COUNSEL
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
AUDITOR
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
"Standard & Poor's," "Standard &Poor's 100," "S&P," "100" are trademarks of
Standard &Poor's Corporation and have been licensed for use by B.C. Ziegler and
Company.
PSE is the service mark of the Pacific Stock Exchange Incorporated and has been
licensed for use by B.C. Ziegler and Company.
This report has been prepared for the information of shareholders of Principal
Preservation Portfolios, Inc., and may not be used in connection with the
offering of securities unless preceded or accompanied by a current Prospectus.
PP 343-2/98
