<PAGE> 1
As filed with the Securities and Exchange Commission on April 2, 1998.
1933 Act Registration No. 33-12
1940 Act File No. 811-4401
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 41
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 43
--
(Check appropriate box or boxes)
-------------------
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
(Exact name of registrant as specified in charter)
215 NORTH MAIN STREET
WEST BEND, WISCONSIN 53095
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (414) 334-5521
ROBERT J. TUSZYNSKI
President and Director
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 NORTH MAIN STREET
WEST BEND, WISCONSIN 53095
(Name and Address of Agent for Service)
Copy to:
CONRAD G. GOODKIND, ESQ.
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Approximate Date of Proposed Public Offerings: As soon as practicable
following the effective date of this amendment to the registration statement.
It is proposed that this filing will become effective
___ immediately upon filing pursuant to paragraph (b)
on (date) pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
_X_ on (June 1, 1998) pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following:
_____ this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment
____________
Registrant has elected to register an indefinite number of shares of
Common Stock, $0.001 par value, pursuant to Rule 24f-2 under The Investment
Company Act of 1940. The Registrant's Rule 24f-2 Notice for the year ended
December 31, 1997 was filed on February 26, 1998
================================================================================
<PAGE> 2
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
FORM N1-A
CROSS-REFERENCE SHEET
-----------------------------------------------
<TABLE>
<CAPTION>
FORM N-1A
ITEM NO. PROSPECTUS HEADING
- -------- ------------------
<S> <C>
PART A
1. Cover Page............................. Cover Page
2. Synopsis............................... Overview; Expenses
3. Condensed Financial Information........ N/A
4. General Description of
Registrant............................ Overview; Additional Investment
Practices and Risks;
Description of Shares
5. Management of the Fund................. Management; Determination of
Net Asset Value Per Share;
Other Information
5A. Management's Discussion of Fund
Performance........................... N/A
6. Capital Stock and Other
Securities............................ Redemptions; Dividends, Capital
Gains Distributions and
Reinvestments; Tax Status;
Description of Shares
7. Purchase of Securities Being
Offered............................... Purchasing Shares;
Determination of Net Asset
Value Per Share; Redemptions;
Distribution Expenses
8. Redemption or Repurchase............... Redemptions
9. Pending Legal Proceedings.............. None
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
FORM N-1A
ITEM NO. SAI HEADING
- -------- -----------
<S> <C>
PART B
10. Cover Page ............................ Cover Page
11. Table of Contents ..................... Table of Contents
12. General Information and History........ N/A
13. Investment Objectives and Policies..... Investment Program; Investment
Restrictions
14. Management of the Fund................. Management of Principal
Preservation
15. Control Persons and Principal
Holders of Securities................. Control Persons and Principal
Holders of Securities
16. Investment Advisory and
Other Services........................ Management of Principal
Preservation
17. Brokerage Allocation and
Brokerage............................. Portfolio Transactions and
Brokerage
18. Capital Stock and Other
Securities............................ Determination of Net Asset
Value Per Share; Tax Status
19. Purchase, Redemption and Pricing
of Securities Being Offered........... Determination of Net Asset
Value Per Share; Purchase of
Shares; Distribution Expenses
20. Tax Status............................. Tax Status
21. Underwriters........................... Purchase of Shares;
Distribution Expenses;
Management of Principal
Preservation
22. Calculation of Performance Data........ Performance Information;
Portfolio Ratings
23. Financial Statements................... Financial Statements
</TABLE>
<PAGE> 4
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
Principal Preservation Portfolios, Inc. ("Principal Preservation") is a
family of mutual funds contained within a single investment company organized in
1984 as a Maryland corporation. This Prospectus describes Class A shares for all
six of the mutual funds (the "Portfolios") of Principal Preservation, listed
below, and also describes Class B shares for the Equity-Oriented Portfolios.
Class B shares presently are not available for the Income-Oriented Portfolios:
INCOME-ORIENTED PORTFOLIOS: EQUITY-ORIENTED PORTFOLIOS:
TAX-EXEMPT PORTFOLIO S&P 100 PLUS PORTFOLIO
GOVERNMENT PORTFOLIO DIVIDEND ACHIEVERS PORTFOLIO
SELECT VALUE PORTFOLIO
PSE TECH 100 INDEX PORTFOLIO
This Prospectus has information you should know before you decide to
invest. Please read it carefully and keep it with your investment records. There
is a Table of Contents on the next page which allows you to quickly find
information about investment strategies, Portfolio managers, buying and selling
shares and other information about the Portfolios.
A supplement to this Prospectus, the Statement of Additional
Information dated June 1, 1998, contains further information about the
Portfolios' investment limitations and policies, as well as other information.
The SAI has been filed with the Securities and Exchange Commission, and its
contents are incorporated by reference into this Prospectus. The Table of
Contents has a section describing many of the items that are contained in the
SAI. A copy of the SAI can be obtained without charge upon telephone request to
Principal Preservation's distributor, B.C. Ziegler and Company ("Ziegler") at
800-826-4600, or from Selected Dealers that have agreements with respect to the
distribution of shares of the Portfolios.
THE PORTFOLIOS' SHARES ARE NOT BANK DEPOSITS AND ARE NOT GUARANTEED
OR INSURED BY THE FEDERAL DEPOSIT INSURANCE COMPANY (FDIC) OR ANY
OTHER AGENCY OF THE U.S. GOVERNMENT. AS WITH ANY INVESTMENT IN
SECURITIES, YOU ASSUME A CERTAIN AMOUNT OF RISK. YOU COULD LOSE MONEY
INVESTING IN ANY OF THE PORTFOLIOS.
================================================================================
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. IF
ANYONE TELLS YOU OTHERWISE THEY ARE COMMITTING A CRIME.
================================================================================
THE DATE OF THIS PROSPECTUS IS JUNE 1, 1998.
<PAGE> 5
The following Table of Contents is designed to give you, the potential
investor, an easy way to find the information you are looking for and answer
questions to assist you in your investment choice.
THE PORTFOLIOS' STRUCTURE AND DESCRIPTION OF THEIR SERVICE PROVIDERS CAN
BE FOUND ON:
Structure of Principal Preservation page
Board of Directors page
Investment Advisor page
Distributor page
Service Agents page
THE INVESTMENT CONSIDERATIONS ARE ORGANIZED INTO THREE SEPARATE
COMPONENTS:
General investment risks associated with the
majority of the Portfolios' assets page
Specific investment objectives, program and
expense information for
Tax-Exempt Portfolio pages
Government Portfolio pages
S&P 100 Plus Portfolio pages
Dividend Achievers Portfolio pages
Select Value Portfolio pages
PSE Tech Index 100 Portfolio pages
Additional risks associated with securities of
the Portfolios less frequently pages
ACCOUNT INFORMATION, SHAREHOLDER SERVICES AND HOW TO BUY OR SELL
SHARES OF EACH PORTFOLIO:
How to buy Portfolio shares (including sales
charges and combined purchase programs) pages
How to redeem Portfolio shares pages
How to exchange between Portfolios pages
How to begin an automatic investment plan pages
How to begin an automatic withdrawal plan pages
IRA and other qualified plan programs pages
2
<PAGE> 6
THE FOLLOWING ITEMS ARE CONTAINED IN THE STATEMENT OF ADDITIONAL
INFORMATION.
Description of ratings of Certain fixed-income securities.
Further detailed investment strategies and risks involved with securities used
less frequently (usually less than 5% of net assets)
Detailed description of total return and yield calculations of each Portfolio
3
<PAGE> 7
OVERVIEW
BENEFITS FROM INVESTING IN MUTUAL FUNDS
A Choice of Portfolios. Principal Preservation offers investors eight
distinct mutual funds choices. This prospectus describes the six Portfolios
described below. Two additional mutual funds of Principal Preservation, the Cash
Reserve Portfolio and the Wisconsin Tax-Exempt Portfolio, are offered by
separate prospectuses that can be obtained by calling Ziegler.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVES(1) PRIMARY INVESTMENTS
<S> <C> <C>
Tax-Exempt Portfolio Highest total return, consistent High quality municipal bonds
with preservation of principal with remaining maturities of
two to twenty years
Government Portfolio Highest total return, consistent Instruments and obligations
with preservation of principal issued by the U.S. Treasury, or
which are backed by the unconditional
full faith and credit of the United
States Government, its agencies or
instrumentalities
S&P 100 Plus Portfolio Total return from dividends A portfolio of common stocks
and capital gains which, that approximately parallels the
before operating expenses, composition of the S&P 100
exceeds the total return of the Index
S&P 100 Index
Dividend Achievers Capital growth and current Common stocks of companies
Portfolio income that have achieved a superior
record of dividend growth
Select Value Portfolio Long-term capital growth Common stocks of smaller to
medium-sized companies that
the Advisors consider to be
undervalued relative to
earnings, book value or
potential earnings growth
</TABLE>
4
<PAGE> 8
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVES(1) PRIMARY INVESTMENTS
<S> <C> <C>
PSE Tech 100 Index Total return, before operating The common stocks of all 100
Portfolio expenses, that replicates total companies included in the PSE
return of PSE Technology Technology Index in approximately the
Index. same proportions as those stocks
are represented on the Index
</TABLE>
- -----------------------
(1) There can be no assurance that any of the Portfolios will achieve its
objective.
Liquidity. Shares of any Portfolio may be redeemed at any time at
their current share price, called their net asset value. See "Redeeming and
Exchanging Shares."
Retirement Plans. The tax-deferred advantages of tax-qualified
retirement plans are open to investors in Principal Preservation. You can
invest, with a $500 minimum investment, through an IRA. Principal Preservation
makes certain prototype plans available to investors. See "Shareholder Services
- - Tax Sheltered Retirement Plans." Because most of the interest income from the
Tax-Exempt Portfolio is exempt from federal income tax, shares of that Portfolio
are not recommended for purchase by a tax-sheltered retirement plan.
GENERAL RISKS TO CONSIDER
Certain securities in which the Portfolios invest and activities in
which they engage involve special considerations and risks. The table below
describes some of the general risks associated with fixed-income securities
(such as bonds) and equity securities (such as common stocks) in which the
Portfolios commonly invest.
<TABLE>
<CAPTION>
FIXED INCOME SECURITIES EQUITY SECURITIES
<S> <C>
Interest Rate Risk - Market Risk -
The value of bonds typically Common stock prices overall will
moves in the opposite direction rise and fall over short and even
of interest rates. Bonds of extended periods. The equity markets
longer maturities are affected tend to move in cycles, and a
to a greater degree by changes Portfolio's net asset value will
in interest rates than bonds of fluctuate with these price changes
shorter maturities. and market fluctuations.
</TABLE>
5
<PAGE> 9
<TABLE>
<CAPTION>
FIXED INCOME SECURITIES EQUITY SECURITIES
<S> <C>
Credit Risk - The creditworthiness of issuers Objective Risk - Objective risk is the risk
of bonds could deteriorate with general that a Portfolio's equity investments may not
economic conditions, or as a result of fluctuate in the same manner as the stock
developments affecting the industry in markets generally. This is because each of
which the borrower of the bond proceeds the equity-oriented Portfolios selects stocks
operates, or because of developments for investment in accordance with defined
affecting the issuer uniquely. Such a objectives and policies. The Portfolio's
deterioration signals a higher risk of default resulting investment portfolio will focus on
on interest and principal payments, and stocks of specified sizes of companies,
likely would cause the bonds to decline in companies included on certain stock
value, resulting in a corresponding decline indices, companies in certain industries or
in the Portfolio's net asset value. market sectors, or companies meeting other
specified criteria that will not be
representative of the market generally.
</TABLE>
Other risks specific to each Portfolio are discussed in the following
summary information about the individual Portfolios. Risks associated with
special investment strategies and techniques used by some of the Portfolios are
discussed in the Section of this Prospectus called "Additional Investment
Practices and Risks."
INVESTMENT ADVISORS
Each Portfolio is managed by Ziegler Asset Management, Inc. ("Ziegler
Asset Management" or the "Advisor"), whose address is 215 North Main Street,
West Bend, WI 53095. Skyline Asset Management, L.P. ("Skyline"; together with
the Advisor, the "Advisors") serves as sub-advisor to the Select Value
Portfolio. Skyline's address is 311 South Wacker Drive, Suite 4500, Chicago,
IL 60606.
EXPENSES
Costs are an important consideration in choosing a mutual fund. That's
because you, as a shareholder, pay the costs of operating a fund, plus any
transaction costs associated with buying, selling, or exchanging shares.
Shareholder transaction expenses are charges you pay when you buy, sell
or exchange shares. In the case of purchases and exchanges, shareholder
transaction expenses reduce the amount of your payment that is invested in
shares of the mutual fund. In the case of sales, shareholder transaction
expenses reduce the amount of the sale proceeds returned to you.
6
<PAGE> 10
Annual fund operating expenses, on the other hand, are expenses that a
mutual fund pays to conduct its business, including investment advisory fees and
the costs of maintaining shareholder accounts, administering the fund, providing
shareholder services, and other activities of the mutual fund. Annual fund
operating expenses are deducted from a mutual fund's assets, and therefore
reduce its total return.
TWO CLASSES OF SHARES
This prospectus describes two classes of shares, Class A shares for all
six Portfolios and Class B shares for the S&P 100 Plus, Dividend Achievers,
Select Value and PSE Tech 100 Index Portfolios. You pay a sales charge
immediately when you purchase Class A shares (front-end sales charge). You pay a
sales charge when you redeem Class B shares held for less than six years
(contingent deferred sales charge). In addition, you pay higher "12b-1 fees" for
Class B shares than Class A shares. See "Distribution Expenses."
Whether you should purchase Class A or Class B shares depends on how
long you intend to hold the shares and the size of your investment. If you
intend to own shares for more than six years and have a smaller investment, you
should consider Class B shares. If you plan to redeem shares in less than six
years or have a larger investment, you should consider Class A shares. The
following table shows some of the differences between Class A and Class B
shares:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
<S> <C>
Maximum 5.25% front-end sales charge No front-end sales charge
No contingent deferred sales charge Maximum 5.0% contingent
deferred sales charge
(reducing each year
you own your shares,
and going to zero
after six years)
Lower annual expenses, including the Higher annual expenses, including the 12b-1 fee, than Class A shares
12b-1 fee, than Class B shares
No conversion to Class B shares Automatic conversion to Class A shares
eight years
</TABLE>
You should bear in mind that exchanges of shares among the various
mutual funds included in the Principal Preservation family can be made only for
shares of the same Class, except that Class A shares of any Principal
Preservation mutual fund may be exchanged for Class X (Retail Class) shares of
the Cash Reserve Portfolio, and vice versa. As a result, Class B shares can be
exchanged only for shares of the other Portfolios that offer Class B shares.
7
<PAGE> 11
TAX-EXEMPT PORTFOLIO
INVESTMENT OBJECTIVE
The Portfolio seeks to provide the highest total return, consistent
with preserving principal, by investing in high quality municipal bonds with
remaining maturities of two to twenty years.
INVESTMENT POLICIES AND PROGRAM
Under normal market conditions, the Portfolio invests at least 90% of
its total assets in tax-exempt municipal securities. This investment policy is
fundamental, which means it cannot be changed unless a majority of the
Portfolio's shareholders vote to do so. The Portfolio will invest primarily in
municipal securities rated at the time of purchase in an "A" category or higher
by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Ratings
Services ("S&P"), or Fitch Investors Service, Inc. For a description of such
ratings, see the Statement of Additional Information.
INVESTMENT RISKS
In addition to interest rate risk and credit risk, this Portfolio is
subject to the risk of changes in tax rates. Changes in federal income tax rates
may affect both the net asset value and the Portfolio's taxable equivalent
interest.
ANNUAL ADVISORY FEE
0.60 of 1% on the first $50 million;
0.50 of 1% on the next $200 million in net assets;
0.40 of 1% on average daily net assets in excess of $250 million
PORTFOLIO MANAGER
Mr. Thomas P. Sancomb has served as portfolio manager for the
Tax-Exempt Portfolio since April, 1996. Mr. Sancomb has served with Ziegler and
Ziegler Asset Management in various capacities since March 1975. He has served
on Ziegler's Investment Committee since July, 1984. He is a Vice President of
both Ziegler and Ziegler Asset Management.
8
<PAGE> 12
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Front-End Sales Charge (as a percentage of offering 3.5%
price) (1)
Maximum Sales Charge Imposed on Reinvested Dividends None
Contingent Deferred Sales Charge None
Redemption Fees (Ziegler charges $7.50 for each wire None
redemption)
Exchange Fee $5.00
</TABLE>
- ---------------------
(1) To determine if you qualify for a lower sales charge, see "Purchasing
Shares" and "Shareholder Services."
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)(1)
Management Fees 0.58%
12b-1 Fees 0.25%
Other Expenses:
Custodian Fees 0.02%
Transfer Agent Fees 0.09%
Other Fees 0.16%
-----
Total Other Expenses 0.27%
Total Fund Operating Expenses 1.10%
- ---------------------
(1) The percentages expressing annual operating expenses are based on
amounts actually incurred during the year ended December 31, 1997. Fees
paid by the Portfolio for custodian and transfer agent services are
determined on a basis other than a straight percentage of average net
assets. For a discussion of fees associated with these services, see
"Management -The Advisors."
9
<PAGE> 13
EXPENSE EXAMPLE
The following example illustrates the hypothetical expenses that you
would incur on a $1,000 investment in the Tax-Exempt Portfolio over various
periods:
<TABLE>
<S> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$46 $69 $93 $164
</TABLE>
THIS EXAMPLE IS FOR COMPARISON PURPOSES ONLY AND IS NOT A REPRESENTATION OF THE
PORTFOLIO'S ACTUAL EXPENSES AND RETURNS, EITHER PAST OR FUTURE. FOR MORE
COMPLETE DESCRIPTIONS OF VARIOUS COSTS AND EXPENSES, SEE "MANAGEMENT,"
"PURCHASING SHARES," "REDEEMING AND EXCHANGING
SHARES" AND "SHAREHOLDER SERVICES."
FINANCIAL HIGHLIGHTS
The following table covers the Tax-Exempt Portfolio for the periods
presented and is based on a share of capital stock outstanding throughout the
applicable period. You should read the table in conjunction with the financial
statements and related notes, which have been audited by Arthur Andersen LLP,
independent accountants. The financial statements are contained in Principal
Preservation's 1997 Annual Report to Shareholders, copies of which are available
from Ziegler without charge.
10
<PAGE> 14
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA;
NET ASSET VALUE, $9.30 $9.39 $ 8.36 $ 9.41 $ 8.67 $ 8.46
BEGINNING OF
PERIOD
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment income .41 .43 .45 .45 .48 .50
Net realized and .44 (.09) 1.03 (1.05) .74 .21
unrealized gains (losses) ------ ------- ------- ------- ------- -------
on investments
TOTAL FROM INVESTMENT .85 .34 1.48 (.60) 1.22 .71
OPERATIONS ------ ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net (.41) (.43) (.45) (.45) (.48) (.50)
investment income
Distributions from net (.22) -- -- -- -- --
realized gains on ------ ------- ------- ------- ------- -------
investments
TOTAL DISTRIBUTIONS (.63) (.43) (.45) (.45) (480) (.50)
------ ------- ------- ------- ------- -------
NET ASSET VALUE, END $9.52 $9.30 $9.39 $8.36 $9.41 $8.67
OF PERIOD ====== ======= ======= ======= ======= =======
TOTAL RETURN* 9.4% 3.8% 18.1% (6.4)% 14.3% 8.6%
RATIOS/
SUPPLEMENTAL DATA:
Net assets, end of period $60,252 $66,310 $56,443 $55,492 $68,102 $60,171
(to nearest thousand)
Ratio of net expenses to 1.1% 1.1%+ 1.0%+ 1.0% 0.9% 0.9%
average net assets
Ratio of net investment 4.4% 4.7%+ 4.9%+ 5.2% 5.2% 5.9%
income to average net
assets
Portfolio turnover rate 209.2% 163.1% 105.9% 36.1% 56.3% 48.5%
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
1991 1990 1989 1988
---- ---- ---- ----
<S> <C> <C> <C> <C>
PER SHARE DATA;
NET ASSET VALUE, $ 8.19 $ 8.23 $ 8.06 $ 8.14
BEGINNING OF
PERIOD
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment income .53 .53 .55 .55
Net realized and .27 (.04) .17 (.08)
unrealized gains (losses) ------- ------- ------- -------
on investments
TOTAL FROM INVESTMENT .80 .49 .72 .47
OPERATIONS ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net (.53) (.53) (.55) (.55)
investment income
Distributions from net -- -- -- --
realized gains on ------- ------- ------- -------
investments
TOTAL DISTRIBUTIONS (.53) (.53) (.55) (.55)
------- ------- ------- -------
NET ASSET VALUE, END $8.46 $8.19 $8.23 $8.06
OF PERIOD ======= ======= ======= =======
TOTAL RETURN* 10.0% 6.2% 9.2% 6.0%
RATIOS/
SUPPLEMENTAL DATA:
Net assets, end of period $63,932 $65,265 $73,333 $85,469
(to nearest thousand)
Ratio of net expenses to 0.9% 0.9% 1.0% 1.2%
average net assets
Ratio of net investment 6.3% 6.6% 6.7% 6.9%
income to average net
assets
Portfolio turnover rate 38.3% 40.3% 21.5% 38.8%
</TABLE>
- --------------------
* The front-end sales charge for Class A shares is not reflected in total return
as set forth in the table.
+ Reflects a voluntary reimbursement of expenses of 0.1% in 1996 and 0.01% in
1995.
11
<PAGE> 15
GOVERNMENT PORTFOLIO
INVESTMENT OBJECTIVE
The Government Portfolio seeks to obtain the highest total return,
consistent with preserving principal, by investing in a portfolio of instruments
and obligations issued by the U.S. Treasury or which are backed by the
unconditional full faith and credit of the United States government, its
agencies or instrumentalities ("U.S. Government Securities").
INVESTMENT POLICIES AND PROGRAM
Under normal market conditions, at least 65% of the Portfolio's total
assets will be invested in U.S. Government Securities. These securities are
issued with original maturities of from a few days to 30 years or more, and have
varying coupon rates. Although the Portfolio is not limited as to the average
maturity of its bonds, the Advisor believes that an average maturity of five to
ten years is most consistent with the Portfolio's investment objective, and
intends to maintain the Portfolio's average maturity in this range unless and
until market conditions warrant a change.
INVESTMENT RISKS
The Portfolio is subject to interest rate risk. Since the Portfolio's
investments are concentrated in U.S. Government Securities, credit risk is not a
significant consideration for this Portfolio.
ANNUAL ADVISORY FEE
0.60 of 1% on the first $50 million;
0.50 of 1% on the next $200 million;
0.40 of 1% on average daily net assets of excess of $250 million
PORTFOLIO MANAGER
An investment team consisting of advisory personnel of Ziegler Asset
Management has been responsible for managing the assets of the Government
Portfolio since April 1996. Mr. Brian K. Andrew has been the team leader since
May 1997. Mr. Andrew joined Ziegler Asset Management in September 1994 and is a
portfolio manager and member of its Investment Committee. Mr. Andrew previously
served as Executive Vice President of GSC Capital Corp., an investment advisor,
and Assistant Vice President of Bank One Wisconsin Trust Company. Mr. Andrew is
a chartered financial analyst and received a B.S. in Finance from the University
of Minnesota in 1991. The investment team also includes Thomas P. Sancomb
(described above under "Tax-Exempt Portfolios") and Craig Vanucci, a chartered
financial analyst, portfolio manager and member of the Investment Committee of
Ziegler Asset Management
12
<PAGE> 16
since August 1994. Mr. Vanucci is also the portfolio manager for the Cash
Reserve Portfolio of Principal Preservation.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Front-End Sales Charge (as a percentage of offering 3.5%
price) (1)
Maximum Sales Charge Imposed on Reinvested Dividends None
Contingent Deferred Sales Charge None
Redemption Fees (Ziegler charges $7.50 for each wire None
redemption)
Exchange Fee $5.00
</TABLE>
- ---------------------
(1) To determine if you qualify for a lower sales charge, see "Purchasing
Shares" and "Shareholder Services"
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSET)(1)
<TABLE>
<S> <C>
Management Fees 0.60%
12b-1 Fees 0.25%
Other Expenses:
Custodian Fees 0.02%
Transfer Agent Fees 0.12%
Other Fees 0.19%
-----
Total Other Expenses 0.33%
Total Fund Operating Expenses 1.18%
</TABLE>
- ---------------------
(1) The percentages expressing annual operating expenses are based on
amounts actually incurred during the year ended December 31, 1997. Fees
paid the Portfolio for custodian and transfer agent services are
determined on a basis other than a straight percentage of average net
assets. For a discussion of fees associated with these services, see
"Management -The Advisors."
13
<PAGE> 17
EXPENSE EXAMPLE
The following example illustrates the hypothetical expenses that you
would incur on a $1,000 investment in the Government Portfolio over various
periods:
<TABLE>
<S> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$47 $71 $98 $173
</TABLE>
This example is for comparison purposes only and is not a representation of the
Portfolio's actual expenses and returns, either past or future. For more
complete descriptions of various costs and expenses, see "Management,"
"Purchasing Shares," "Redeeming and Exchanging Shares" and "Shareholder
Services."
FINANCIAL HIGHLIGHTS
The following table covers the Government Portfolio for the periods
presented and is based on a share of capital stock outstanding throughout the
applicable period. You should read the table in conjunction with the financial
statements and related notes, which have been audited by Arthur Andersen LLP,
independent accountants. The financial statements are contained in Principal
Preservation's 1997 Annual Report to Shareholders, copies of which are available
from Ziegler without charge.
14
<PAGE> 18
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <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
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment income .63 .64 .61 .61 .63 .67
Net realized and
unrealized gains
(losses) on investments .08 (.44) .80 (1.14) .35 (.04)
--- ----- -------- ------- ----- -------
TOTAL FROM INVESTMENT
OPERATIONS .71 .20 1.41 (.53) .98 .63
--- ----- ------- ------- ----- ------
LESS
DISTRIBUTIONS:
Dividends from net
investment income (.63) (.64) (.61) (.61) (.64) (.67)
Distributions from net
realized gains on
investments --- --- --- --- --- ---
----- ----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS (.63) (.64) (.61) (.61) (.64) (.67)
----- ------- ------- ------- ------- -------
NET ASSET VALUE,
END OF PERIOD $ 9.28 $ 9.20 $ 9.64 $ 8.84 $ 9.98 $ 9.64
====== ====== ====== ====== ====== ======
TOTAL RETURN* 8.1% 2.3% 16.3% (5.4)% 10.3% 6.8%
RATIOS/SUPPLEMENT-
AL DATA:
Net assets, end of
period (to nearest
thousand) $40,683 $44,920 $49,319 $47,324 $54,327 $37,634
Ratio of net expenses
to average net assets 1.1% + 1.1%+ 1.1%+ 1.1% 1.0% 1.0%
Ratio of net investment
income to average net
assets 7.0% + 7.0%+ 6.5%+ 6.6% 6.2% 7.0%
Portfolio turnover rate 78.6% 36.9% 68.2% 106.1% 8.7% 10.0%
<CAPTION>
-----------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1991 1990 1989 1988
---- ---- ---- ----
<S> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF
PERIOD $ 9.10 $ 9.11 $ 8.88 $ 9.11
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment income .73 .76 .75 .75
Net realized and
unrealized gains
(losses) on investments .58 (.01) .23 (.17)
----- ------- ---- -----
TOTAL FROM INVESTMENT
OPERATIONS 1.31 .75 .98 .59
----- ----- ---- -----
LESS
DISTRIBUTIONS:
Dividends from net
investment income (.73) (.76) (.75) (.75)
Distributions from net
realized gains on
investments --- --- --- (.06)
------- ------- ------- -------
TOTAL DISTRIBUTIONS (.73) (.76) (.75) (.81)
------- ------- ------- -------
NET ASSET VALUE,
END OF PERIOD $ 9.68 $ 9.10 $ 9.11 $ 8.88
====== ====== ====== ======
TOTAL RETURN* 15.1% 8.7% 11.5% 6.5%
RATIOS/SUPPLEMENT-
AL DATA:
Net assets, end of
period (to nearest
thousand) $32,737 $29,351 $30,631 $32,950
Ratio of net expenses
to average net assets 1.1% 1.2% 1.2% + 1.2%+
Ratio of net investment
income to average net
assets 8.0% 8.5% 8.4% + 8.3$+
Portfolio turnover rate 62.2% 57.1% 141.8% 36.7%
</TABLE>
* The front-end sales charge for Class A shares is not reflected in total return
as set forth in the table.
+ Reflects a voluntary reimbursement of expenses of 0.04% in each of 1997 and
1996, 0.02% in 1995, 0.1% in 1989, and 0.5% in 1988.
15
<PAGE> 19
S&P 100 PLUS PORTFOLIO
INVESTMENT OBJECTIVE
The S&P 100 Plus Portfolio seeks to obtain a total return from
dividends and capital gains which, before deducting the Portfolio's operating
expenses, exceeds the total return of the S&P 100 Index. The S&P 100 Index is
designed to be representative of the stock market as a whole, and consists of
100 common stocks of many large U.S. corporations across a broad spectrum of
industries. The Portfolio attempts to achieve its objective by investing in a
portfolio of common stocks that approximately parallels the composition of the
S&P 100 Index, but it does not intend to replicate the Index at all times.
INVESTMENT POLICIES AND PROGRAM
The S&P 100 Plus Portfolio invests in the common stocks which make up
the S&P 100 Index, in approximately the same proportion as they are held in the
Index. Whenever the Advisor receives notification of a change in the composition
of the Index, the Advisor will make a corresponding change in the composition of
the Portfolio as soon as practicable. At times, the Advisor may underweight or
overweight the Portfolio's investments in certain stocks that it believes will
under perform or outperform the Index. Under normal market conditions, at least
65% of this Portfolio's total assets will be invested in the common stocks which
make up the Index.
At times, the Portfolio will hold uncommitted cash, which will be
invested in short-term, money market instruments. In order to achieve a return
on such uncommitted cash which approximates the investment performance of the
S&P 100 Index, the Advisor may elect to invest such cash in exchange-traded
futures contracts and options on the S&P 500 Index and/or the S&P 100 Index.
This practice is commonly referred to as "equitizing cash." For a discussion of
these options and futures instruments and the risks associated with their use by
the Portfolios, see "Additional Investment Practices and Risks - Options and
Futures Activities."
INVESTMENT RISKS
Market and Objective Risks. The Portfolio is subject to market risk,
and to objective risk insofar as large capitalization stocks included in the S&P
100 Plus Index may trail returns from the overall stock market for short or even
extended periods.
Overweighting/Underweighting Strategies. Overweighting/underweighting
strategies involve the risk that the Advisor will incorrectly identify those
stocks that will either under perform or outperform the Index. If the Advisor's
judgment proves correct, the Portfolio's performance will improve relative to
the S&P 100 Index. Conversely, if the Advisor's judgment proves incorrect, the
Portfolio's performance will decline relative to the Index.
16
<PAGE> 20
Imperfect Correlation. The Portfolio's performance will not precisely
track that of the S&P 100 Plus Portfolio. In addition to the effects of the
Advisor's overweighting/ underweighting strategies, instruments used by the
Advisor to equitize cash may not perform the same as the Index under all market
conditions. Unlike the Index, the Portfolio must incur transaction costs (e.g.,
brokerage commissions, etc.) in order to maintain a portfolio of securities that
closely mirrors the composition of the Index, and also incurs other fees and
operating expenses.
ANNUAL ADVISORY FEE
0.575 of 1% on the first $20 million;
0.450 of 1% on the next $30 million;
0.400 of 1% on the next $50 million;
0.350 of 1% on the next $400 million;
0.300 of 1% on average daily net assets in excess of $500 million
PORTFOLIO MANAGER
An investment team lead by Jay Ferrara manages the assets of the S&P
100 Plus Portfolio. Mr. Ferrara is Vice President - Portfolio Manager and
Analyst for Ziegler Asset Management and Assistant Vice President of Ziegler. He
has more than 12 years of experience in the mutual fund industry. Prior to
joining Principal Preservation, Mr. Ferrara served as Senior Portfolio
Accountant for Wells Fargo Nikko Investment Advisors and, from 1993 to 1994, as
Controller of the California Investment Trust. Mr. Ferrara's investment team for
the S&P 100 Plus Portfolio includes Marc Dion, a chartered financial analyst and
Vice President and Chief Investment Officer of the Advisor, with more than 10
years of investment experience, and Ralph Patek, also a chartered financial
analyst and Vice President of Ziegler Asset Management with more than 30 years
of investment experience.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
-------------- --------------
<S> <C> <C>
Maximum Front-End Sales Charge 5.25% None
(as a percentage of offering price)(1)
Maximum Sales Charge Imposed on None None
Reinvested Dividends
Contingent Deferred Sales Charge None 5.00%
(as a percentage of original purchase
price or redemption proceeds,
whichever is less)(1)
</TABLE>
17
<PAGE> 21
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
-------------- --------------
<S> <C> <C>
Redemption Fees (Ziegler charges None None
$7.50 for each wire redemption)
Exchange Fee $5.00 $5.00
</TABLE>
- --------------------
(1) You may qualify for a lower front-end sales charge on your purchases of
Class A shares. Moreover, the contingent deferred sales charge is
reduced for each year that the Class B shares are owned, and is
eliminated after six years. See "Purchasing Shares" and "Shareholder
Services."
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES -
AFTER WAIVERS AND REIMBURSEMENTS
(AS A PERCENTAGE OF AVERAGE NET ASSET)(1) CLASS A SHARES CLASS B SHARES
- -------------------------------------- -------------- --------------
<S> <C> <C>
Management Fees (After Waivers)(2) 0.35% 0.35%
12-b-1 Fees 0.25% 1.00%
Other Expenses
Custodian Fees 0.03% 0.03%
Transfer Agent Fees 0.10% 0.10%
Other Fees (After Reimbursement)(2) 0.12% 0.12%
----- -----
Total Other Expenses 0.25% 0.25%
Total Fund Operating Expenses (After 0.85% 1.60%
Waivers and Reimbursements)(2)
</TABLE>
- -----------------------
(1) The percentages expressing annual operating expenses are based on
amounts actually incurred during the year ended December 31, 1997, net
of applicable fee waivers and expense reimbursements in effect for the
current year. See note (2). Fees paid by the Portfolio for custodian
and transfer agent services are determined on a basis other than a
straight percentage of average net assets. For a discussion of fees
associated with these services, see "Management -The Advisors."
(2) The Advisor has committed to waive advisory fees and or reimburse
expenses to the S&P 100 Plus Portfolio so that, for fiscal year 1998,
the total operating expenses for Class A and Class B shares of the
Portfolio will not exceed 0.85% and 1.60% of the
18
<PAGE> 22
Portfolio's average daily net assets, respectively. Without giving
effect to such waivers and reimbursements, "Management Fees," "Other
Fees," and "Total Fund Operating Expenses" as a percentage of the
Portfolio's average daily net assets would be: 0.44%, 0.12% and 0.94%,
respectively, for Class A shares, and 0.44%, 0.12% and 1.69%,
respectively, for Class B shares.
EXPENSE EXAMPLE
The following example illustrates the hypothetical expenses that you
would incur on a $1,000 investment over various periods:
<TABLE>
<CAPTION>
CLASS B SHARES
WITHOUT
CLASS A SHARES CLASS B SHARES REDEMPTION
-------------- -------------- ----------
<S> <C> <C> <C>
After 1 year $61 $66 $16
AFTER 3 YEARS $78 $80 $50
AFTER 5 YEARS $97 $97 $87
AFTER 10 YEARS $152 $170* $170*
</TABLE>
- --------------------
* Class B shares automatically convert to Class A shares after eight
years.
This example is for comparison purposes only and is not a
representation of the portfolio's actual expenses and returns, either past or
future. For more complete descriptions of various costs and expenses, see
"Management," "Purchasing Shares," "Redeeming and Exchanging Shares" and
"Shareholder Services."
FINANCIAL HIGHLIGHTS
The following table covers the S&P 100 Plus Portfolio for the periods
presented. The information is based on a Class A share outstanding throughout
the applicable period. You should read the table in conjunction with the
financial statements and related notes, which have been audited by Arthur
Andersen LLP, independent accountants. The financial statements are contained in
Principal Preservation's 1997 Annual Report to Shareholders, copies of which are
available from the Distributor without charge. Since Class B shares are first
being offered by this Prospectus, no financial highlights are presented for
Class B shares.
19
<PAGE> 23
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <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
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment income .26 .29 .25 .25 .21 .24
Net realized and
unrealized gains
(losses) on investments 5.63 4.07 5.21 (.09) 1.14 .48
---- ------ ------ ------- ------- -------
TOTAL FROM INVESTMENT
OPERATIONS 5.89 4.36 5.46 .16 1.35 .72
---- ------ ------ ------- ------- -------
LESS
DISTRIBUTIONS:
Dividends from net
investment income (.26) (.29) (.25) (.25) (.21) (.24)
Distributions from net
realized gains on
investments (.65) (1.52) (.63) --- (.11) (.69)
Distributions in excess
of net realized gains (.02) -- -- -- -- --
---- ------ ------ ------- ------- -------
TOTAL DISTRIBUTIONS (.93) (1.81) (.88) (.25) (.32) (.93)
---- ------ ------ ------- ------- -------
NET ASSET VALUE,
END OF PERIOD $27.04 $22.08 $19.53 $ 14.95 $ 15.04 $14.01
====== ====== ====== ======= ======= =======
TOTAL RETURN* 26.8% 22.4% 36.7% 1.1% 9.7% 5.2%
RATIOS/
SUPPLEMENTAL
DATA:
Net assets, end of
period (to nearest
thousand) $105,738 $77,517 $57,062 $40,034 $38,944 $30,025
Ratio of net expenses
to average net assets 0.9%+ 1.0%+ 1.2% 1.2% 1.2% 1.3%
Ratio of net investment
income to average net
assets 1.0%+ 1.4%+ 1.4% 1.7% 1.4% 1.7
Portfolio turnover rate 17.0% 8.0% 3.5% 1.0% 2.2% 8.5%
Average commission $0.0235 $0.0348 ---- ------- ------- -------
paid per share+
<CAPTION>
-------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1991 1990 1989 1988
---- ---- ---- ----
<S> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF
PERIOD $11.60 $12.27 $10.11 $ 9.62
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment income .27 .28 .26 .26
Net realized and
unrealized gains
(losses) on investments 2.93 (.67) 2.17 1.37
----- ------- ----- -----
TOTAL FROM INVESTMENT
OPERATIONS 3.20 (.39) 2.43 1.63
----- ------- ---- -----
LESS
DISTRIBUTIONS:
Dividends from net
investment income (.27) (.28) (.26) (.26)
Distributions from net
realized gains on
investments (.31) --- (.01) (.88)
Distributions in excess
of net realized gains -- -- --- --
------ -------- ------- -------
TOTAL DISTRIBUTIONS (.58) (.28) (.27) (1.14)
------ ------- ------- -------
NET ASSET VALUE,
END OF PERIOD $14.22 $11.60 $12.27 $10.11
====== ====== ====== ======
TOTAL RETURN* 27.8% (3.2)% 24.3% 17.1%
RATIOS/
SUPPLEMENTAL
DATA:
Net assets, end of
period (to nearest
thousand) $27,420 $20,413 $20,811 $16,960
Ratio of net expenses
to average net assets 1.3% 1.3%+ 1.3% + 1.4%+
Ratio of net investment
income to average net
assets 2.0% 2.4%+ 2.3% + 2.5%+
Portfolio turnover rate 3.1% 1.9% 3.0% 37.5%
Average commission --- --- --- ---
paid per share+
</TABLE>
- --------------------
* The front-end sales charge for Class A shares is not reflected in total return
as set forth in the table.
+ Reflects a voluntary reimbursement of expenses of 0.11% in 1997, 0.01%
in 1996, 0.20% in 1990, 0.40% in 1989, and 0.80% in 1988.
+ Average commission rate paid per share for purchases and sales of
securities during this period. Presentation of the rate is required
only for fiscal years beginning after September 1, 1995.
20
<PAGE> 24
DIVIDEND ACHIEVERS PORTFOLIO
INVESTMENT OBJECTIVE
The Dividend Achievers Portfolio seeks to obtain capital appreciation
and income by investing in a portfolio of common stocks of companies that have
achieved a superior record of dividend growth.
INVESTMENT POLICIES AND PROGRAM
The Portfolio invests primarily in common stocks of companies which:
(a) have market capitalizations in excess of $2 billion; (b) have increased
their payment of cash dividends annually for at least four of the past five
calendar years; and (c) have a five-year average dividend growth rate which
exceeds that of the S&P 500 Index by at least 20%. As of December 31, 1997,
approximately 210 companies traded on the New York or American Stock Exchange or
listed on the Nasdaq Stock Market met these criteria. Such companies typically
have strong balance sheets. In addition to providing an income stream from
dividend payments, the Advisor believes that the market values of these stocks
will increase over time, because anticipated future dividend growth typically is
reflected in increased market prices.
INVESTMENT RISKS
Market and Objective Risks. The Portfolio is subject to market risk,
and to objective risk insofar as the returns from mid to large capitalization
stocks of the type in which the Portfolio invests, or those within its specified
universe in particular, may trail returns as compared to the overall stock
market.
Stock Selection Risk. The Portfolio will not hold all of the stocks
that meet its investment criteria. Rather, the Advisor will select from that
universe the stocks that it believes will best help the Portfolio to reach its
objective. Accordingly, the Portfolio's performance may be better or worse than
the performance of the universe of stocks which meet the Portfolio's investment
criteria.
ANNUAL ADVISORY FEE
0.75 of 1% on the first $250 million in net assets;
0.70 of 1% on the next $250 million;
0.65 of 1% on average daily net assets in excess of $500 million.
PORTFOLIO MANAGER
Since May 1, 1998, the Portfolio has been managed jointly by Jay
Ferrara and Marc Dion, each of whom also participates in the management of the
S&P 100 Plus Portfolio. See "S&P 100 Plus Portfolio - Portfolio Manager."
21
<PAGE> 25
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
<S> <C> <C>
Maximum Front-End Sales Charge 5.25% None
(as a percentage of offering price)(1)
Maximum Sales Charge Imposed on None None
Reinvested Dividends
Contingent Deferred Sales Charge None 5.00%
(as a percentage of original purchase
price or redemption proceeds,
whichever is less)(1)
Redemption Fees (Ziegler charges None None
$7.50 for each wire redemption)
Exchange Fee $5.00 $5.00
</TABLE>
- ----------------------
(1) You may qualify for a lower front-end sales charge on your purchases of
Class A shares. Moreover, the contingent deferred sales charge is
reduced for each year that the Class B shares are owned, and is
eliminated after six years. See "Purchasing Shares" and "Shareholder
Services."
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES -
AFTER WAIVERS AND REIMBURSEMENTS
(AS A PERCENTAGE OF AVERAGE NET ASSET)(1) CLASS A SHARES CLASS B SHARES
- -------------------------------------- -------------- --------------
<S> <C> <C>
Management Fees (After Waivers)(2) 0.72% 0.72%
12b-1 Fees 0.25% 1.00%
Other Expenses
Custodian Fees 0.03% 0.03%
Transfer Agent Fees 0.11% 0.11%
Other Fees (After Reimbursement)(2) 0.19% 0.19%
----- -----
Total Other Expenses 0.33% 0.33%
Total Fund Operating Expenses (After 1.30% 2.05%
Waivers and Reimbursements)(2)
</TABLE>
<PAGE> 26
- -----------------------
(1) The percentages expressing annual operating expenses are based on
amounts actually incurred during the year ended December 31, 1997, net
of applicable fee waivers and expense reimbursements in effect for the
current year. See note (2). Fees paid by the Portfolio for custodian
and transfer agent services are determined on a basis other than a
straight percentage of average net assets. For a discussion of fees
associated with these services, see "Management -The Advisors."
(2) The Advisor has committed to waive advisory fees with respect to the
Portfolio so that for fiscal year 1998 the total operating expenses
for Class A and Class B shares of the Portfolio will not exceed 1.30%
and 2.05% of the Portfolio's average daily net assets, respectively.
Without giving effect to such waivers and reimbursements, "Management
Fees," "Other Fees," and "Total Fund Operating Expenses" as a
percentage of the Portfolio's average daily net assets would be:
0.75%, 0.19% and 1.33%, respectively, for Class A shares, and 0.75%,
0.19% and 2.08%, respectively, for Class B shares.
EXPENSE EXAMPLE
The following example illustrates the hypothetical expenses that you
would incur on a $1,000 investment over various periods:
<TABLE>
<CAPTION>
CLASS B SHARES
WITHOUT
CLASS A SHARES CLASS B SHARES REDEMPTION
<S> <C> <C> <C>
After 1 year $65 $71 $21
AFTER 3 YEARS $92 $94 $64
AFTER 5 YEARS $120 $120 $110
AFTER 10 YEARS $201 $218* $218*
</TABLE>
- --------------------
* CLASS B SHARES AUTOMATICALLY CONVERT TO CLASS A SHARES AFTER EIGHT
YEARS.
THIS EXAMPLE IS FOR COMPARISON PURPOSES ONLY AND IS NOT A
REPRESENTATION OF THE PORTFOLIO'S ACTUAL EXPENSES AND RETURNS, EITHER PAST OR
FUTURE. FOR MORE COMPLETE DESCRIPTIONS OF VARIOUS COSTS AND EXPENSES, SEE
"MANAGEMENT," "PURCHASING SHARES," "REDEEMING AND EXCHANGING SHARES" AND
"SHAREHOLDER SERVICES."
23
<PAGE> 27
FINANCIAL HIGHLIGHTS
The following table covers the Dividend Achievers Portfolio for the
periods presented. The information is based on a Class A share outstanding
throughout the applicable period. You should read the table in conjunction with
the financial statements and related notes, which have been audited by Arthur
Andersen LLP, independent accountants. The financial statements are contained in
Principal Preservation's 1997 Annual Report to Shareholders, copies of which are
available from the Distributor without charge. Since Class B shares are first
being offered by this Prospectus, no financial highlights are presented for
Class B shares.
24
<PAGE> 28
<TABLE>
<CAPTION>
----------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <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
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment income .13 .14 .18 .18 .14 .14
Net realized and
unrealized gains
(losses) on investments 5.43 3.54 3.99 (.02 ) (.85) .31
----- ----- ------- ------- ------- --------
TOTAL FROM INVESTMENT
OPERATIONS 5.56 3.68 4.17 .16 (.71) .45
----- ----- ------- ------- ------- --------
LESS
DISTRIBUTIONS:
Dividends from net
investment income (.13) (.14) (.18) (.18 ) (.14) (.14 )
Distributions from net
realized gains on
investments (.31) (.50) (.26) (.14 ) --- (.90 )
----- ----- ------- ------- ------- --------
TOTAL DISTRIBUTIONS (.44) (.64) (.44) (.32) (.14) (1.04)
----- ----- ------- ------- ------- --------
NET ASSET VALUE,
END OF PERIOD $25.13 $20.01 $16.97 $13.24 $13.40 $14.25
===== ====== ====== ======= ======== ========
TOTAL RETURN* 27.9% 21.8% 31.7% 1.2% (5.0)% 3.1%
RATIOS/
SUPPLEMENTAL
DATA:
Net assets, end of
period (to nearest
thousand) $39,565 $30,504 $25,393 $20,231 $24,928 $27,020
Ratio of net expenses
to average net assets 1.2% + 1.2%+ 1.3%+ 1.5% 1.3%+ 1.2% +
Ratio of net investment
income to average net
assets 0.6% + 0.8%+ 1.2%+ 1.3% 1.0%+ 1.0%+
Portfolio turnover rate 11.9% 13.1% 28.2% 36.5% 92.7% 83.0%
Average commission $0.0484 $0.0609 --- --- --- ---
paid per share+
<CAPTION>
---------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------
1991 1990 1989 1988
---- ---- ---- ----
<S> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF
PERIOD $11.50 $11.65 $10.00 $ 8.99
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment income .25 .25 .28 .28
Net realized and
unrealized gains
(losses) on investments 4.14 (.15) 1.65 1.06
------ ------- ------ ------
TOTAL FROM INVESTMENT
OPERATIONS 4.39 .10 1.93 1.34
------ ------ ------ ------
LESS
DISTRIBUTIONS:
Dividends from net
investment income (.25) (.25) (.28) (.27
Distributions from net
realized gains on
investments (.80) --- --- (.06)
------- ------- ------- ------
TOTAL DISTRIBUTIONS (1.05) (.25) (.28) (.33)
-------- ------- ------- -------
NET ASSET VALUE,
END OF PERIOD $14.84 $11.50 $11.65 $10.00
====== ====== ====== ======
TOTAL RETURN* 38.5% 1.0% 19.5% 15.0%
RATIOS/
SUPPLEMENTAL
DATA:
Net assets, end of
period (to nearest
thousand) $18,202 $11,468 $12,750 $6,854
Ratio of net expenses
to average net assets 1.2%+ 1.2%+ 1.2% + 1.2%+
Ratio of net investment
income to average net
assets 1.8%+ 2.3%+ 2.6% + 2.9%+
Portfolio turnover rate 96.5% 47.7% 30.9% 10.1%
Average commission --- --- -- ---
paid per share+
</TABLE>
- --------------------
* The front-end sales charge for Class A shares is not reflected in total return
as set forth in the table.
+ Reflects voluntary reimbursements of expenses as shown below:
1997 - 0.1% 1991 - 0.2%
1996 - 0.1% 1990 - 0.5%
1995 - 0.2% 1989 - 0.7%
1993 - 0.1% 1988 - 1.7%
1992 - 0.1%
+ Average commission rate paid per share for purchases and sales of
securities during this period. Presentation of the rate is required
only for fiscal years beginning after September 1, 1995.
25
<PAGE> 29
SELECT VALUE PORTFOLIO
INVESTMENT OBJECTIVE
The Portfolio seeks to obtain maximum capital appreciation by investing
primarily in common stocks that the Advisors consider undervalued relative to
earnings, book value, or potential earnings growth.
INVESTMENT POLICIES AND PROGRAM
The Portfolio pursues its investment objective generally by investing
in smaller-sized companies having market capitalizations ranging from $400
million to $2 billion, although the Portfolio is not restricted to investments
in companies of any particular size. Under normal market conditions, at least
65% of the Portfolio's total assets will be invested in common stocks of
domestic issuers. The Portfolio uses a value-oriented style of investing,
emphasizing companies with relatively low price/earnings ratios, reasonable
financial strength and strong cash flows. These companies tend to be out of
favor with investors.
The Portfolio may invest up to 35% of its total assets in high-quality,
fixed-income securities and short-term investments. High-quality, fixed-income
securities in which the Portfolio may invest are limited to those securities
which are rated at the time of purchase within the two highest rating categories
assigned by Moody's or S&P, or securities which are unrated, provided that such
securities are judged by the Advisors, at the time of purchase, to be of
comparable quality to securities rated within such two highest categories.
The Portfolio may also invest up to 5% of its total assets directly in
securities of foreign issuers not publicly traded in the United States, and may
invest without regard to this restriction in securities of foreign issuers
represented by American Depository Receipts (ADRs). ADRs are receipts issued by
an American bank or trust company and traded on national securities exchange
evidencing ownership of the underlying foreign securities, and equity securities
issued by Canadian issuers.
INVESTMENT RISKS
Market and Objective Risk. The Portfolio is subject to market risk, and
also to objective risk insofar as the returns from the types of stocks held by
the Portfolio (attractively priced or "value" stocks) may trail returns from the
overall stock market. As a group, value stocks tend to go through cycles of
relative under performance and out performance in comparison to common stocks
generally. Also, stocks of smaller to medium sized companies, such as those in
which the Select Value Portfolio invests, historically have experienced more
price volatility than larger capitalization stocks. The value of the Portfolio's
investments therefore may tend to increase and decrease substantially more than
the stock market in general, as measured by broad based indices such as the S&P
500 Index.
26
<PAGE> 30
Stock Selection Risk. The value-oriented style of investing used by the
Portfolio depends on the ability of the Advisors to select stocks that perform
well. The Portfolio is subject to the risk that the Advisors' stock selections
may not achieve the desired appreciation in value, or may even decline in value.
WHO SHOULD INVEST IN THE PORTFOLIO
The Select Value Portfolio is designed for long-term investors who
characterize their investment temperament as "moderately aggressive," and is not
appropriate for market timers or other short-term investors. Value funds
generally emphasize companies that - considering their assets and earnings
history - have relatively low stock prices. Such funds are appropriate for
investors who want the potential for capital gains but are less tolerant of the
share price fluctuations found in more aggressive investments, for example,
growth funds.
ANNUAL ADVISORY FEE
0.75 of 1% on the first $250 million;
0.65 of 1% on average daily net assets in excess of $250 million.
Sub-Advisory fees are paid by the Advisor to Skyline at the following
rates:
0.375 of 1% of the first $250 million of the Portfolio's average daily
net assets;
0.325 of 1% of average daily net assets in excess of $250 million
PORTFOLIO MANAGER
Investment decisions for the Select Value Portfolio are made by a team
of investment professionals and analysts. The team is headed by Mr. Kenneth
S. Kailin. Mr. Kailin is an officer of Skyline who joined the firm's predecessor
in 1987. Mr. Kailin also serves as portfolio manager for another registered
investment company which has an investment objective, policies and restrictions
similar to those of the Select Value Portfolio. Mr. Kailin's investment team
includes Mr. William M. Dutton, President and Chief Executive Officer of
Skyline.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
-------------- --------------
<S> <C> <C>
Maximum Front-End Sales Charge 5.25% None
(as a percentage of offering price)(1)
Maximum Sales Charge Imposed on None None
Reinvested Dividends
</TABLE>
27
<PAGE> 31
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
-------------- --------------
<S> <C> <C>
Contingent Deferred Sales Charge None 5.00%
(as a percentage of original purchase
price or redemption proceeds,
whichever is less)(1)
Redemption Fees (Ziegler charges None None
$7.50 for each wire redemption)
Exchange Fee $5.00 $5.00
</TABLE>
- ---------------------
(1) You may qualify for a lower front-end sales charge on your purchases of
Class A shares. Moreover, the contingent deferred sales charge is
reduced for each year that the Class B shares are owned, and is
eliminated after six years. See "Purchasing Shares" and "Shareholder
Services."
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES -
AFTER WAIVERS AND REIMBURSEMENTS
(AS A PERCENTAGE OF AVERAGE NET ASSET)(1) CLASS A SHARES CLASS B SHARES
- -------------------------------------- -------------- --------------
<S> <C> <C>
Management Fees (After Waivers)(2) 0.37% 0.37%
12b-1 Fees 0.25% 1.00%
Other Expenses
Custodian Fees 0.03% 0.03%
Transfer Agent Fees 0.12% 0.12%
Other Fees (After Reimbursement)(2) 0.53% 0.53%
----- -----
Total Other Expenses 0.68% 0.68%
Total Fund Operating Expenses (After 1.30% 2.05%
Waivers and Reimbursements)(2)
</TABLE>
- -----------------------
(1) The percentages expressing annual operating expenses are based on
amounts actually incurred during the year ended December 31, 1997, net
of applicable fee waivers and expense reimbursements in effect for the
current year. See note (2). Fees paid by the Portfolio for custodian
and transfer agent services are determined on a basis other than a
straight percentage of average net assets. For a discussion of fees
associated with these services, see "Management-The Advisors."
28
<PAGE> 32
(2) The Advisor has committed to waive advisory fees and/or reimburse
expenses to the Select Value Portfolio so that for fiscal year 1998
the total operating expenses for Class A and Class B shares of the
Portfolio will not exceed 1.30% and 2.05% of the Portfolio's average
daily net assets, respectively. Without giving effect to such
waivers and reimbursements, "Management Fees," "Other Fees," and
"Total Fund Operating Expenses" as a percentage of the Portfolio's
average daily net assets would be: 0.75%, 0.59% and 1.74%,
respectively, for Class A shares, and 0.75%, 0.59% and 2.49%,
respectively, for Class B shares.
EXPENSE EXAMPLE
The following example illustrates the hypothetical expenses that you
would incur on a $1,000 investment over various periods:
<TABLE>
<CAPTION>
CLASS B SHARES
WITHOUT
CLASS A SHARES CLASS B SHARES REDEMPTION
-------------- --------------- ----------
<S> <C> <C> <C>
After 1 year $65 $71 $21
After 3 years $92 $94 $64
After 5 years $120 $120 $110
After 10 years $201 $218* $218*
</TABLE>
- --------------------
* Class B shares automatically convert to Class A shares after eight
years.
This example is for comparison purposes only and is not a
representation of the Portfolio's actual expenses and returns, either past or
future. For more complete descriptions of various costs and expenses, see
"Management," "Purchasing Shares," "Redeeming and Exchanging Shares" and
"Shareholder Services."
FINANCIAL HIGHLIGHTS
The following table covers the Select Value Portfolio for the periods
presented. The information is based on a Class A share outstanding throughout
the applicable period. You should read the table in conjunction with the
financial statements and related notes, which have been audited by Arthur
Andersen LLP, independent accountants. The financial statements are contained in
Principal Preservation's 1997 Annual Report to Shareholders, copies of which are
available from the Distributor without charge. Since Class B shares are first
being offered by this Prospectus, no financial highlights are presented for
Class B shares.
29
<PAGE> 33
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
AUGUST 23, 1994
FOR THE YEARS ENDED DECEMBER 31, (COMMENCEMENT OF OPERATIONS)
----------------------------------------------- TO DECEMBER 31, 1994
1997 1996 1995 ---------------------
---- ---- ----
<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** 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%+ 1.0%+ 0.8%+ 0.8%*+
Ratio of net investment income to average
net assets 0.1%+ 0.3%+ 1.4%+ 1.1%*+
Portfolio turnover rate 82.5% 122.2% 124.3% 20.2%
Average commission paid per share+ $0.0467 $0.0611 --- ---
</TABLE>
- --------------------
* Annualized.
** The front-end sales charge for Class A shares is not reflected in total
return as set forth in the table.
+ Reflects a voluntary reimbursement of expenses of 1.0% in 1997, 1.4% in
1996, 2.5% in 1995 and 0.4% in 1994.
+ Average commission rate paid per share for purchases and sales of securities
during this period. Presentation of the rate is required only for fiscal
years beginning after September 1, 1995.
30
<PAGE> 34
PSE TECH 100 INDEX PORTFOLIO
INVESTMENT OBJECTIVE
The PSE Tech 100 Index Portfolio seeks to obtain a total return, before
operating expenses of the Portfolio are deducted, that replicates the total
return of the Pacific Stock Exchange Technology Stock Index (the "PSE Technology
Index"). The PSE Technology Index, which consists of common stocks of 100
technology companies, is widely recognized as a benchmark for the technology
sector of the United States stock market.
INVESTMENT POLICIES
The Portfolio seeks to achieve its objective by investing in all 100
common stocks included in the PSE Technology Index in approximately the same
proportions as they are represented in the Index. The Portfolio attempts to
remain fully invested in common stocks. Under normal market conditions, the
Portfolio will invest at least 95% of its assets in the common stocks included
in the PSE Technology Index and futures contracts and options. The Portfolio
will maintain at least 90% of its assets in common stocks traded on the PSE
Technology Index, except that the percentage of its assets so invested
temporarily (and in any event for a period of not more than five trading days)
may fall below the 90% mark if the Portfolio receives cash inflows that cannot
practically be invested immediately in units of common stocks that replicate the
Index.
From time to time up to 5% of the Portfolio's assets may be held in
cash, cash equivalents or certain short-term, fixed-income securities. These
investments will not perform the same as the PSE Technology Index. In order to
help the performance of the Portfolio more closely replicate the performance of
the PSE Technology Index, the Portfolio may equitize its cash position by
investing up to 20% of its assets in exchange-traded index futures contracts and
index options. For a more detailed explanation of these instruments and certain
risks associated with their use, see "Additional Investment Practices and Risks
- - Options and Futures Activities."
INVESTMENT RISKS
Market and Objective Risk. The PSE Technology Index is subject to
market risk. Also, the technology market sector (in which the Portfolio focuses
its investments) increases and decreases in favor with the investing public
relative to the stock market generally. As a result, the Portfolio's share price
is subject to volatility. Moreover, because the PSE Technology Index is
price-weighted, its performance, and the corresponding performance of the
Portfolio, will be more sensitive to price movements in higher-priced stocks
than in lower-priced stocks. Additionally, the PSE Technology Index incudes
common stocks of many small to medium sized companies, which historically have
been more volatile and less liquid than stocks of larger companies. For these
reasons, the Portfolio may experience more volatility and greater
31
<PAGE> 35
price swings as compared to the stock market generally. See "Additional
Investment Practices and Risks."
Correlation Risk. Although the Advisor will attempt to replicate the
performance of the PSE Technology Index, there can be no assurance that it will
be able to do so in all market conditions. For example, the index options and
futures used by the Advisor to equitize the Portfolio's cash positions and
short-term investments may not precisely track the performance of the PSE
Technology Index. Also, the Portfolio will incur brokerage commissions and other
transaction costs in order to maintain investments that mirror the PSE
Technology Index, and will incur advisory and other service fees and operating
costs and expenses that will reduce the total return of the Portfolio as
compared to that of the PSE Technology Index.
ANNUAL ADVISORY FEE
0.50 of 1% on the first $50 million;
0.30 of 1% on the next $200 million;
0.25 of 1% on the next $250 million;
0.20 of 1% on average daily net assets in excess of $500 million
PORTFOLIO MANAGER
Mr. Jay Ferrara has been the portfolio manager for the PSE Tech 100
Index Portfolio since its inception June, 1996. For information about
Mr. Ferrara, see "S&P 100 Plus Portfolio - Portfolio Manager."
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
-------------- --------------
<S> <C> <C>
Maximum Front-End Sales Charge 5.25% None
(as a percentage of offering price)(1)
Maximum Sales Charge Imposed on None None
Reinvested Dividends
Contingent Deferred Sales Charge None 5.00%
(as a percentage of original purchase
price or redemption proceeds,
whichever is less)(1)
Redemption Fees (Ziegler charges None None
$7.50 for each wire redemption)
Exchange Fee $5.00 $5.00
</TABLE>
32
<PAGE> 36
- ----------------------
(1) You may qualify for a lower front-end sales charge on your purchases of
Class A shares. Moreover, the contingent deferred sales charge is
reduced for each year that the Class B shares are owned, and is
eliminated after six years. See "Purchasing Shares" and "Shareholder
Services."
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES -
AFTER WAIVERS AND REIMBURSEMENTS
(AS A PERCENTAGE OF AVERAGE NET ASSET)(1) CLASS A SHARES CLASS B SHARES
- -------------------------------------- -------------- --------------
<S> <C> <C>
Management Fees (After Waivers)(2) 0.00% 0.00%
12b-1 Fees 0.25% 1.00%
Other Expenses
Custodian Fees 0.08% 0.08%
Transfer Agent Fees 0.17% 0.17%
Other Fees (After Reimbursement)(2) 0.20% 0.20%
----- -----
Total Other Expenses 0.45% 0.45%
Total Fund Operating Expenses (After 0.70% 1.45%
Waivers and Reimbursements)(2)
</TABLE>
- -----------------------
(1) The percentages expressing annual operating expenses are based on
amounts actually incurred during the year ended December 31, 1997, net
of applicable fee waivers and expense reimbursements in effect for the
current year. See note (2). Fees paid by the Portfolio for custodian
and transfer agent services are determined on a basis other than a
straight percentage of average net assets. For a discussion of fees
associated with these services, see "Management-The Advisors."
(2) The Advisor has committed to waive advisory fees and/or reimburse
expenses to the Portfolio so that for fiscal year 1998 the total
operating expenses for Class A and Class B shares of the Portfolio will
not exceed 0.70% and 1.45%, respectively, of the Portfolio's average
daily net assets. Without giving effect to such waivers and
reimbursements, "Management Fees," "Other Fees," and "Total Fund
Operating Expenses" as a percentage of the Portfolio's average daily
net assets would be: 0.50%, 0.22% and 1.22%, respectively, for Class A
shares and 0.50%, 0.22% and 1.97%, respectively, for Class B shares.
33
<PAGE> 37
EXPENSE EXAMPLE
The following example illustrates the hypothetical expenses that you
would incur on a $1,000 investment over various periods:
<TABLE>
<CAPTION>
CLASS B SHARES
WITHOUT
CLASS A SHARES CLASS B SHARES REDEMPTION
-------------- ------------- --------------
<S> <C> <C> <C>
After 1 year $59 $65 $15
After 3 years $74 $76 $46
After 5 years $89 $89 $79
After 10 years $135 $153* $153*
</TABLE>
- --------------------
* Class B shares automatically convert to Class A shares after eight
years.
This example is for comparison purposes only and is not a
representation of the Portfolio's actual expenses and returns, either past or
future. For more complete descriptions of various costs and expenses, see
"Management," "Purchasing Shares," "Redeeming and Exchanging Shares" and
"Shareholder Services."
FINANCIAL HIGHLIGHTS
The following table covers the PSE Tech 100 Index Portfolio for the
periods presented. The information is based on a Class A share outstanding
throughout the applicable period. You should read the table in conjunction with
the financial statements and related notes, which have been audited by Arthur
Andersen LLP, independent accountants. The financial statements are contained in
Principal Preservation's 1997 Annual Report to Shareholders, copies of which are
available from the Distributor without charge. Since Class B shares are first
being offered by this Prospectus, no financial highlights are presented for
Class B shares.
34
<PAGE> 38
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JUNE 10, 1996
(COMMENCEMENT
FOR YEAR ENDED OF OPERATIONS) TO
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- ------------------
<S> <C> <C>
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** 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 asset 0.2%+ 0.0%+
Ratio of net investment income to average net assets 0.3%+ 0.7%+
Portfolio turnover rate 22.0% 3.0%
Average commission paid per share $0.0544 $0.0634
</TABLE>
- -----------------------------------
* Annualized.
** The front-end sales charge for Class A shares is not reflected in
total return as set forth in the table.
+ Reflects a voluntary reimbursement of expenses of 1.1% in 1997 and
3.3% in 1996.
35
<PAGE> 39
ADDITIONAL INVESTMENT PRACTICES AND RISKS
DEBT AND OTHER FIXED INCOME SECURITIES
A bond's yield reflects the fixed annual interest as a percent of its
current price. This price (the bond's market value) must increase or decrease in
order to adjust the bond's yield to current interest rate levels. Therefore,
bond prices generally move in the opposite direction of interest rates. As a
result, interest rate fluctuations will affect the net asset value of the fixed
income securities held by a Portfolio, but will not affect the income received
by the Portfolio from its existing fixed income securities. However, changes in
prevailing interest rates will affect the yield on shares subsequently issued by
the Portfolio. In addition, such fluctuations would affect the income received
on any variable rate demand notes or other variable rate securities held by the
Portfolio.
Movements in interest rates typically have a greater effect on the
prices of longer-term bonds than those with shorter maturities. The following
table illustrates the effect of a 1% change in interest rates on a $1,000 bond
with a 7% coupon.
<TABLE>
<CAPTION>
PRINCIPAL VALUE IF RATES:
-------------------------
MATURITY INCREASE 1% DECREASE 1%
-------- ----------- -----------
<S> <C> <C> <C>
Intermediate Bond 5 years $959 $1,043
Long-Term Bond 20 years $901 $1,116
</TABLE>
The Advisors will manage the debt securities in the Tax-Exempt and
Government Portfolios according to their assessment of the interest rate
outlook. During periods of rising interest rates, the Advisors will likely
attempt to shorten the average maturity of the Portfolio to cushion the effect
of falling bond prices on the Portfolio's share prices. When interest rates are
falling and bond prices are increasing, on the other hand, the Advisors will
likely seek to lengthen the average maturity.
STOCK INDEXING
General. Index funds, such as the S&P 100 Plus and PSE Tech 100 Index
Portfolios, are "passively managed," meaning they try to match, as closely as
possible, the performance of a target securities index by holding each stock
found in the index in roughly the same proportion as represented in the index
itself. For example, if 5% of the S&P 100 Index were made up of the assets of a
specific company, the S&P 100 Plus Portfolio would invest 5% of its assets in
that company.
Indexing appeals to many investors for a number of reasons, including
its simplicity (indexing is a straightforward marketing-matching strategy);
diversification (indices generally cover a wide variety of companies and
industries); relative performance predictability (an
36
<PAGE> 40
index fund is expected to move in the same direction - up or down - as its
target index); and comparatively low cost (index funds do not have many of the
expenses of an actively-managed mutual fund, such as research and company
visits). Also, assuming the composition of the relevant index remains fairly
stable, index funds may experience lower portfolio turnover rates, which would
result in reduced transaction costs (brokerage commissions, etc.) and capital
gains. With respect to the PSE Tech 100 Index Portfolio, investors should bear
in mind that this latter benefit may not hold true. The PSE Technology Index has
experienced rather rapid changeover at times, as a result of the volatility of
the technology industry generally and of specific companies included in the
Index from time to time.
The performance of an index fund generally will trail the performance
of the index it attempts to replicate. This is because the mutual fund and its
investors incur operating costs and expenses that are not shared by an index.
For example, investors may pay sales charges which result in less than all of
the price they pay for their mutual fund shares being invested in common stocks
of companies included in the index. With respect to the S&P 100 Index and PSE
Tech 100 Index Portfolios, investors pay a front-end sales charge for Class A
shares at the time of purchase, and a contingent deferred sales charge for Class
B shares at the time of redemption (if redeemed less than six years after the
date of purchase). These sales charges reduce the total return on the
shareholder's mutual fund shares, as compared to a direct investment in stocks.
Additionally, when a mutual fund invests the cash proceeds it receives
from investors in common stocks of companies included in the index, the mutual
fund must pay brokerage commissions, which further reduce the amount invested.
As the composition of the index changes, the mutual fund must make corresponding
adjustments in its holdings, which gives rise to additional brokerage
commissions. Finally, mutual funds incur other operating expenses, including
investment management fees, custodial and transfer agent fees, legal and
accounting fees and possibly 12b-1 service and distribution fees, all of which
reduce the mutual fund's total return. No such fees affect the total return of
the index.
Finally, because of liquidity needs and other constraints under which
mutual funds operate, index funds generally cannot invest their assets so that
they correlate 100% at all times with the common stocks of the index. Although
many index funds attempt to use options and futures strategies to generate
returns on these assets which replicate the return on the index, these
strategies are imperfect and give rise to additional transaction costs.
For these reasons, investors should expect that the performance of an
index mutual fund will lag that of the index it attempts to replicate. In
recognition of this disparity, the S&P 100 Plus and PSE Tech 100 Index
Portfolios compare their gross returns (returns before deducting the
Portfolios' operating expenses) to their respective benchmark indices.
S&P 100 Index. The S&P 100 Index was created by the Chicago Board
Options Exchange (CBOE) in 1983 with stocks selected from the optionable
equities traded on that exchange. The 100 stocks on the Index include many
large U.S. corporations. General
37
<PAGE> 41
Electric Company, Exxon Corporation, Coca-Cola Company, Microsoft Corporation
and Merck & Co., Inc. are five of the largest components of the Index. A
complete list of the stocks comprising the S&P 100 Index at December 31, 1997 is
included as Appendix A to this Prospectus.
The S&P 100 Index was designed to track closely the S&P 500 Index,
which is in turn designed to be representative of the stock market as a whole.
There have been some significant variances in the correlation between the S&P
100 and S&P 500 Indices, and between the S&P 500 Index and the broad market for
large capitalization common stocks. There can be no assurance that any index
will correlate precisely to the stock market as a whole over any specific period
of time, or that the S&P 100 Plus Portfolio's performance will parallel that of
either of these indices or the stock market generally.
The S&P 100 Plus Portfolio is not sponsored, endorsed, sold or promoted
by Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"). S&P
makes no representation or warranty, implied or expressed, to the shareholders
of the Portfolio, or any member of the public regarding the advisability of
investing in index funds generally, or in this Portfolio in particular, or the
ability of the S&P 100 Index to track general stock market performance. S&P's
only relationship to this Portfolio is the licensing of the S&P trademarks and
the S&P 100 Index which is determined, composed and calculated by S&P without
regard to this Portfolio. "Standard & Poor's," "Standard & Poor's 100," "S&P,"
"S&P 100" and "100" in connection with the S&P 100 are trademarks of S&P.
PSE Technology Index. The PSE Technology Index consists of 100 common
stocks, which are chosen by Bridge Data Corporation based on its assessment
that the issuer is a company which has, or likely will develop, products,
processes, or services that will provide or will benefit significantly from
technological advances and improvements. The PSE Technology Index offers a
broad basket of stocks spanning the full spectrum of high tech industry groups.
Diversity within the Index ranges from biotechnology firms to semiconductor
capital equipment manufacturers and includes a cross-section of U.S. companies
that are leaders in 15 technology subsectors, including biotechnology, CAD/CAM,
data communications, data storage and processing, diversified computer
manufacturing, electronic equipment, information processing medical technology,
micro-computer manufacturers, semi-conductor manufacturers, software products,
test, analysis and instrumentation equipment, mini and mainframe computer
manufacturing, office automation equipment and semi-conductor capital equipment
manufacturing. A full listing of the companies included in the PSE Technology
Index as of December 31, 1997 is attached as Appendix B to this Prospectus. Of
those 100 stocks, 53 were listed on the Nasdaq Stock Market, 46 on the New York
Stock Exchange, and one on the American Stock Exchange.
Similar to the Dow Jones Industrial Average, the PSE Technology Index
is price weighted, meaning the component stocks are given a percentage weighting
based on their price. Although this indexing method allows the PSE Technology
Index to accurately measure a broad representation of technology stocks without
being dominated by a few large
38
<PAGE> 42
companies, it results in smaller- and mid-sized companies representing a more
significant portion of the Index than is the case for indices such as the S&P
100 Index, which are weighted by the market value of the companies represented
on the index. See "Additional Investment Practices and Risks - Investments in
Small to Mid-Sized Companies."
The PSE Tech 100 Index Portfolio is not sponsored, endorsed, sold, or
promoted by the PSE Technology Index (PSE(SM), Pacific Stock Exchange(SM), PSE
Technology Index(SM), and PSE Tech 100(SM) are service marks of the Pacific
Stock Exchange Incorporated) or Bridge Data Corporation.
INDUSTRY CONCENTRATIONS
A significant portion of the PSE Tech 100 Index Portfolio's investments
will consist of technology-based issues, which exposes the Portfolio to risks
associated with economic conditions in that market sector. Due to competition, a
less diversified product line, and other factors, companies that develop and/or
rely on technology could become increasingly sensitive to downswings in the
economy. However, the companies whose common stocks are included in the PSE
Technology Index comprise a fairly broad range of industries. This broad
industry representation likely will soften volatility associated with economic
and political developments that disproportionately affect specific industries
represented within the Index. Nonetheless, the PSE Tech 100 Index Portfolio
intends to maintain a complete replication investment philosophy even during
periods when one or more industries may be over-represented on the PSE
Technology Index, which may expose the Portfolio during such periods to risks
associated with industry concentration. See "Industry Concentration Factors" in
the Statement of Additional Information.
INVESTMENTS IN SMALL TO MID-SIZED COMPANIES
The investment program and strategies of the Select Value Portfolio and
PSE Tech 100 Index Portfolio may cause those Portfolios to invest a greater
portion of their assets in small to mid-sized companies. These companies may
have relatively lower revenues, limited product lines, less management depth and
a lower share of the market for their products or services as compared to larger
companies. Historically, small and mid-sized capitalization stocks have
experienced more price volatility than large capitalization stocks. Some factors
contributing to this greater volatility include: (a) less certain growth
prospects of small and mid-sized companies, as compared to larger companies; (b)
less liquidity in the trading markets for their stocks, in part because of fewer
shares trading in the market and in part because of a low public profile which
reduces the interest level of financial analysts and the investing public; and
(c) greater sensitivity to changing economic conditions. For these reasons, the
net asset value of the Select Value and PSE Tech 100 Index Portfolios may
increase and decrease substantially more than the stock market in general, as
measured by broad-based indices such as the S&P 500 Index.
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<PAGE> 43
VALUE INVESTING
The value-oriented style of investing used by the Select Value
Portfolio emphasizes companies with relatively low price/earnings ratios,
reasonable financial strength and strong cash flows. These companies tend to be
out of favor with investors. As a group, value stocks tend to go through cycles
of relative under performance and outperformance in comparison to common stocks
generally. Although value investing has been less favored in the recent past,
the Advisors believe that the advantage of value-oriented stocks over
growth-oriented stocks is greater than usual during periods of economic
recovery. During periods of economic weakness, growth-oriented stocks may
provide solid earnings growth despite the difficult economic environment, but as
the economy improves, many investors are reluctant to pay a premium for
high-priced growth stocks when lower-priced stocks are available that also are
showing good earnings growth. The performance of the Select Value Portfolio is
dependent on the ability of the Advisors successfully to select stocks that
outperform the market.
OPTIONS AND FUTURES ACTIVITIES
General. The S&P 100 Plus and PSE Tech 100 Index Portfolios may use
exchange-traded index futures contracts and options on stock indices for the
following purposes: (1) to equitize their cash and other liquid investments so
as to more nearly simulate full investment in stocks; (2) to make it easier to
trade; and (3) to reduce costs by buying futures instead of actual stocks when
futures are cheaper. The S&P 100 Plus and Dividend Achievers Portfolios may also
use options on individual stocks, but the Advisor has no plans to do so at this
time.
Index Futures and Options. The S&P 100 Plus and PSE Tech 100 Index
Portfolios may write (sell) and purchase covered call options and put options on
stock indices. Put and call options for various stock indices are traded on
registered securities exchanges. The S&P 100 Plus Portfolio will generally use
futures contracts on the S&P 500 Index and index options on the S&P 100 Index or
the S&P 500 Index, but may use other index options if the exchange on which the
S&P options are traded is closed, there is insufficient liquidity in the
options, or if the Portfolio or the Advisor reaches exchange position limits.
The PSE Tech 100 Index Portfolio plans to use options and futures on both the
PSE Technology Index and the S&P 500 Index.
Put and call options on a securities index are similar to options on an
individual stock. The principal difference is that an option on a securities
index is settled only in cash. The exercising holder of an index option, instead
of receiving a security, receives the difference between the closing price of
the securities index and the exercise price of the option times a specified
multiple ($100 in the case of the S&P 100 Index).
An index futures contract is a contract to buy or sell units of a
particular index at an agreed price on a specified future date. Depending on the
change in value of the index between the time a Portfolio enters into and
terminates an index futures transaction, the Portfolio may realize a gain or a
loss.
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<PAGE> 44
Risks Associated with Options and Futures. Losses involving index
futures contracts and index options can sometimes be substantial, in part
because a relatively small price movement in an index option or an index futures
contract may result in an immediate and substantial loss or gain for a
Portfolio. The Portfolios will not use futures and options contracts for
speculative purposes or as leveraged investments that magnify the gains or
losses on an investment. Rather, each relevant Portfolio will keep separate cash
or cash-equivalent securities in the amount of the obligation underlying the
futures contract. Only a limited percentage of a Portfolio's assets - up to 5%
if required for deposit and no more than 20% of total assets - may be committed
to such contracts.
Additional risks associated with the intended use by the S&P 100 Plus
and PSE Tech 100 Index Portfolios of index futures contracts and index options
include the following:
(1) An imperfect correlation between movements in prices
of options and futures contracts and movements in the
value of the stock index that the instrument is
designed to simulate;
(2) An imperfect correlation between the price movement
in the index underlying the futures contract or
option agreement and the price movement in the index
which the relevant Portfolio seeks to match; and
(3) The possibility of no liquid secondary market for a
futures contract or option and the resulting
inability to close a position prior to its maturity
date.
A Portfolio will seek to minimize the risk of imperfect correlation by investing
only in those futures contracts and options whose behavior is expected to
resemble that of the Portfolio's underlying securities. A Portfolio will also
seek to reduce the risk of being unable to close out a futures position by
entering into such transactions on registered securities exchanges with an
active and liquid secondary market.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, each Portfolio may lend its
portfolio securities to brokers, dealers and other institutional investors,
provided the Portfolio receives cash collateral which at all times is maintained
in an amount equal to at least 100% of the current market value of the
securities loaned. By reinvesting the collateral it receives in these
transactions, a Portfolio could magnify any gain or loss it realizes on the
underlying investment. If the borrower fails to return the securities and the
collateral is insufficient to cover the loss, the Portfolio could lose money.
For the purposes of this policy, a Portfolio considers collateral consisting of
U.S. Government Securities or irrevocable letters of credit issued by banks
whose securities meet the standards for investment by the Portfolio to be the
equivalent of cash. During the term of the loan, the Portfolio is entitled to
receive interest and other distributions paid on the loaned securities, as well
as any appreciation in the market
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<PAGE> 45
value. The Portfolio is also entitled to receive interest from the institutional
borrower based on the value of the securities loaned. From time to time, a
Portfolio may return to the borrower, and/or a third party which is unaffiliated
with Principal Preservation and which is acting as a "placing broker," a part of
the interest earned from the investment of the collateral received for
securities loaned.
A lending Portfolio does not have the right to vote the securities
loaned during the existence of the loan, but can call the loan to permit voting
of the securities if, in the Advisors' judgment, a material event requiring a
shareholder vote would otherwise occur before the loan is repaid. In the event
of bankruptcy or other default of the borrowing institution, the lending
Portfolio could experience delays in liquidating the loan collateral or
recovering the loaned securities, and incur risk of loss including: (1) possible
decline in the value of the collateral or in the value of the securities loaned
during the period while the lending Portfolio seeks to enforce its rights
thereto; (2) possible subnormal levels of income and lack of access to income
during this period; and (3) expenses of enforcing its rights. To minimize these
risks, the Advisors evaluate and continually monitor the creditworthiness of the
institutional borrowers to which the lending Portfolio lends its securities.
To minimize the foregoing risks, each Portfolio's securities lending
practices are subject to the following conditions and restrictions: (1) no
Portfolio may make such loans in excess of 33% of the value of its total assets;
(2) the lending Portfolio must receive cash collateral in an amount at least
equal to 100% of the value of the securities loaned; (3) the institutional
borrower must be required to increase the amount of the cash collateral whenever
the market value of the loaned securities rises above the amount of the
collateral; (4) the lending Portfolio must have the right to terminate the loan
at any time; (5) the lending Portfolio must receive reasonable interest on the
loan, as well as any interest or other distributions on the loaned securities
and any increase in the market value of the loaned securities; and (6) the
lending Portfolio may not pay any more than reasonable custodian fees in
connection with the loan.
FOREIGN SECURITIES
The Select Value Portfolio may invest a portion of its assets in
securities of foreign issuers not publicly traded in the United States, as well
as ADRs and securities of Canadian issuers. Foreign securities are more volatile
than their domestic counterparts, in part because of higher political and
economic risks, lack of reliable information, and fluctuations in currency
exchange rates. These risks are usually higher in less developed countries.
Currency fluctuations will affect the net asset value of foreign securities held
by the Select Value Portfolio regardless of the performance of the underlying
asset or investment.
OTHER INVESTMENT PRACTICES
In addition to the investment policies and programs described above,
any of the Portfolios may make short sales of already owned securities, the
Select Value and PSE Tech 100 Index Portfolios may invest temporarily in
short-term, fixed-income securities, the Tax-
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<PAGE> 46
Exempt and Government Portfolios may enter into forward commitments, and the
Select Value Portfolio may enter into repurchase agreements.
Short Sales "Against-the-Box." The Portfolios may make short sales of
securities or maintain a short position, provided that at all times when a short
position is open the Portfolio owns an equal amount of such securities of the
same issue as, and equal in amount to, the securities sold short, and that not
more than 10% of the Portfolio's net assets (determined at the time of short
sale) may be held as collateral for such sales. A Portfolio may make such short
sales "against-the-box", for example, to defer the realization of a gain for
federal income tax purposes.
Short-Term Investments. Each Portfolio may have uncommitted cash
positions which result from: (1) the temporary holding of proceeds from sales of
Portfolio shares pending investment; (2) maintaining liquidity for anticipated
redemptions; or (3) temporary defensive strategies, such as when the securities
markets or economic conditions are expected to enter a period of decline. Under
normal conditions, a Portfolio's liquid assets will be limited to 5% of the
Portfolio's total assets, although the Advisors have discretion to increase a
Portfolio's cash position without limit for temporary defensive purposes.
The Portfolios will invest such uncommitted cash in short-term, money
market instruments, including U.S. Treasury bills or other U.S. Government
Securities; certificates of deposit; banker's acceptances and time deposits;
high quality commercial paper, variable rate demand notes, repurchase agreements
and other short-term high grade corporate obligations; and shares of money
market mutual funds.
A variable rate demand note is issued pursuant to a written agreement
between the issuer and the holder. Its amount may from time to time be increased
by the holder (subject to an agreed maximum), or decreased by the holder or the
issuer. The rate of interest payable on the security varies with an agreed
formula and the security is typically rated by a rating agency. Transfer of such
notes is usually restricted by the issuer, and there is no secondary trading
market for such notes. A Portfolio will not purchase such a variable rate demand
note unless, at the time of purchase, the issuer has unsecured debt securities
outstanding that are ranked within the two highest categories by a Nationally
Recognized Statistical Rating Organization or, if the note is itself rated, its
ratings fall within such category(ies).
To the extent a Portfolio invests in shares of money market mutual
funds, investment management and administrative fees, distribution costs and
other operating expenses incurred by those funds would be duplicative of those
incurred by the Portfolio, and would reduce the return received by the Portfolio
on assets so invested. No Portfolio may invest more than 10% of its total assets
in securities of other investment companies. See "Investment Program -
Investments in Other Investment Companies" in the Statement of Additional
Information.
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<PAGE> 47
Repurchase Agreements. Each Portfolio may buy securities with the
understanding that the seller will buy them back with interest at a later date.
The Advisors do not intend to invest more than 5% of the total assets of any
Portfolio in such instruments. A repurchase agreement is an agreement between a
seller and a buyer, whereby the seller agrees to repurchase the security sold at
an agreed upon price and, usually, at a stated time.
Repurchase agreements carry several risks. For instance, if the seller
is unable to repurchase the securities as promised, the Portfolio may experience
a loss when trying to sell the securities itself. Or, if the seller becomes
insolvent, a bankruptcy court may determine that the securities do not belong to
the Portfolio and order the securities to be sold to pay off the seller's debts.
To minimize the risk of loss, a Portfolio will segregate as collateral readily
marketable securities (generally cash or U.S. Government Securities) with a
market value equal to, or in excess of, the market value of the securities which
are subject to the repurchase agreement.
Forward Commitments. The Tax-Exempt and Government Portfolios may
purchase securities for future delivery, which may increase the Portfolios'
overall investment exposure and involves a risk of loss if the value of the
securities declines prior to the settlement date. The Portfolios do not plan to
engage in forward commitment transactions if, after such purchase, more than 5%
of the Portfolio's net assets would consist of such securities. See "When-Issued
and Delayed Delivery Transactions" in the Statement of Additional Information.
PORTFOLIO TURNOVER
In general, the greater the volume of buying and selling by a mutual
fund, the greater the impact that brokerage commissions and other transaction
costs will have on its return. A mutual fund with turnover in excess of 100%
engages in a high volume of buying and selling, and likely will pay more
brokerage commissions and realize more taxable gains than a mutual fund with
less turnover.
High portfolio turnover rates also may result in the realization of
substantial net short-term gains, and any distributions resulting from such
gains will be ordinary income for federal income tax purposes. All of the
Portfolios are expected to have portfolio turnover rates below 100%, except that
the turnover rates for the Government and Select Value Portfolios are expected
to be between 100% and 200%. The portfolio turnover rates for each Portfolio are
included in its Financial Highlights Table in this prospectus.
The portfolio turnover rates for the S&P 100 Plus and PSE Tech 100
Index Portfolios are expected to be under 50%, because of their passive
investment management approach. However, because the PSE Technology Index is
"price weighted," higher turnover and brokerage expenses may occur than if the
Index's component stocks were not given a percentage weighting based on price.
Ordinarily, the S&P 100 Plus and PSE Tech 100 Index Portfolios will sell
securities only to reflect certain administrative changes in their respective
Indices (including mergers or changes in the composition of the Index) or to
accommodate
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<PAGE> 48
cash flows into and out of the Portfolio while maintaining the similarity of the
Portfolio to their respective Indices. Upon notice of a change in the
composition of respective Indices, each Portfolio intends to adjust its
investments as soon as reasonably practicable to more closely replicate its
Index. The S&P 100 Plus Portfolio also anticipates some trading activity related
to its over/underweighting strategies, separate and apart from changes in the
Indices.
INVESTMENT RESTRICTIONS
GENERAL
In attempting to achieve its individual investment objective, each
Portfolio follows an investment program, practices and strategies which are
subject to numerous limitations and restrictions. Each Portfolio's investment
objective is fundamental, meaning it cannot be changed unless the Portfolio's
shareholders approve the change. However, except as expressly denoted as
fundamental, a Portfolio's investment program and its limitations and
restrictions are nonfundamental, meaning they can be altered or eliminated by
Principal Preservation's Board of Directors without shareholder approval.
SPECIFIC RESTRICTIONS
In addition to the limitations and restrictions that apply to each
Portfolio's investment program described in this Prospectus, each Portfolio also
is subject to a number of additional fundamental investment restrictions which
are described in the Statement of Additional Information under the Section
titled "Investment Restrictions." Among these restrictions is a prohibition on
purchasing a security, other than a U.S. Government Security (and, in the case
of the S&P 100 Plus and PSE Tech 100 Index Portfolios, a security necessary to
approximate the composition of an index), if, as a result, more than 5% of the
total assets of the Portfolio would be invested in the securities of the issuer,
or if the Portfolio would own more than 10% of the outstanding voting securities
of the issuer.
Another fundamental restriction provides that no Portfolio may borrow
money or property except for temporary or emergency purposes. If a Portfolio
borrows money it will only borrow from banks and in an amount not exceeding 10%
of the market value of its total assets (not including the amount borrowed). No
Portfolio may pledge more than 15% of its net assets to secure such borrowings.
In the event a Portfolio's borrowing exceeds 5% of the market value of its total
assets, the Portfolio will not invest in any additional securities until its
borrowings are reduced to less than 5% of total assets. For purposes of these
restrictions, collateral arrangements for premium and margin payments in
connection with the hedging activities of a Portfolio are not deemed to be a
pledge of assets.
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OTHER CONSIDERATIONS
In order to help finance its payment of commissions on sales of Class B
shares, Ziegler has entered into an agreement pursuant to which it sells, to a
third party, its right to receive contingent deferred sales charges, the 0.75 of
1% Rule 12b-1 distribution fee and, for the initial one-year period, the 0.25 of
1% Rule 12b-1 service fee applicable to Class B shares. Pursuant to that
agreement, Ziegler has made certain covenants designed to maintain the status
quo of the Portfolios, and thereby reduce the risk that the payment stream
purchased by the third party will be reduced or discontinued in the near future.
These covenants potentially could affect recommendations that Ziegler otherwise
might make to Principal Preservation's Board of Directors with respect to the
operations and policies of a particular Portfolio.
MANAGEMENT
DIRECTORS AND OFFICERS
The Board of Directors of Principal Preservation is responsible for
management of Principal Preservation and provides broad supervision over its
affairs. The Advisors are responsible for each Portfolio's investment
management, and Principal Preservation's officers are responsible for each
Portfolio's and Principal Preservation's overall operations.
THE ADVISORS
Each Portfolio is managed by Ziegler Asset Management pursuant to the
terms of one of two Investment Advisory Agreements (together the "Advisory
Agreements"). One Advisory Agreement relates to the Government, Tax-Exempt, S&P
100 Plus, Select Value and PSE Tech 100 Index Portfolios, and the other relates
to the Dividend Achievers Portfolio. Skyline assists, as sub-advisor, with the
management of the Select Value Portfolio pursuant to the terms of a sub-advisory
agreement (the "Sub-Advisory Agreement") by and among Principal Preservation,
Ziegler Asset Management and Skyline.
Ziegler Asset Management had approximately $1.2 billion under
discretionary management as of December 31, 1997. Ziegler Asset Management
serves as investment advisor to all eight mutual funds included in the Principal
Preservation family of funds, and privately manages numerous customer advisory
accounts. Ziegler Asset Management is a wholly-owned subsidiary of The Ziegler
Companies, Inc., a publicly-owned financial services holding company.
Skyline is a Delaware limited partnership. Skyline's general partner is
Affiliated Managers Group, Inc. ("AMG") and its limited partners are
corporations owned by four individuals, Messrs. Dutton, Kailin, Lutz and
Maloney. AMG is a Boston-based private holding company that makes equity
investments in investment management firms.
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AMG is a Delaware corporation with principal executive offices located
at One International Place, Boston, Massachusetts 02110. AMG may be deemed to be
controlled by Advent VII, L.P., a Delaware limited partnership, because Advent
VII, L.P. owns more than fifty percent (50%) of the voting stock of AMG. Advent
VII, L.P. in turn may be deemed to be controlled by its sole general partner, TA
Associates VII, L.P., a Delaware limited partnership, which in turn may be
deemed to be controlled by its sole general partner, TA Associates, Inc., a
Delaware corporation. The address of each Advent VII, L.P., TA Associates VII,
L.P. and TA Associates, Inc., is c/o TA Associates, Inc., High Street Tower,
Suite 2500, 125 High Street, Boston, Massachusetts 02110.
Pursuant to the terms of the Advisory Agreements, the Advisors provide
the Portfolios with overall investment advisory and administrative services.
Subject to such policies as the Board of Directors may determine, the Advisors
make investment decisions on behalf of each Portfolio, make available research
and statistical data in connection therewith, and supervise the acquisition and
disposition of investments by each Portfolio, including the selection of
broker-dealers to carry out portfolio transactions. The Advisors bear all of
their own expenses of providing services under the Advisory Agreement and
Sub-Advisory Agreement and pays all salaries, fees and expenses of the officers
and Directors of Principal Preservation who are affiliated with them. The
Portfolios bear all other expenses including, but not limited to, necessary
office space, telephone and other communications facilities and personnel
competent to perform administrative, clerical and shareholder relations
functions; salary, fees and expenses (including legal fees) of those Directors,
officers and employees of Principal Preservation who are not officers, directors
or employees of the Advisors; interest expenses; fees and expenses of the
Distributor, Custodian, Transfer Agent and Dividend Disbursing Agent;
administrative expenses; taxes and governmental fees; brokerage commissions and
other expenses incurred in acquiring or disposing of portfolio securities,
expenses of registering and qualifying shares for sale with the SEC and with
various state securities commissions; accounting and legal costs; insurance
premiums; expenses of maintaining Principal Preservation's legal existence and
of shareholders' meetings; expenses of preparation and distribution to existing
shareholders of reports, proxies and Prospectuses; and fees and expenses of
membership in industry organizations. Fees common to more than one Portfolio are
prorated among them based on their total assets.
Under the Advisory Agreements, each Portfolio pays Ziegler Asset
Management an annual fee, in monthly installments, based on the average daily
net assets of the Portfolio. Pursuant to the terms of the Sub-Advisory
Agreement, Ziegler Asset Management pays Skyline a portion of the advisory fee
it receives from the Select Value Portfolio. The Select Value Portfolio is not
responsible for making any payments to Skyline. While the advisory fees of the
Select Value and Dividend Achievers Portfolios are higher than the fees paid by
most mutual funds, Principal Preservation's Board of Directors believes they are
consistent with the fees paid by funds with investment characteristics and
objectives similar to those Portfolios.
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THE DISTRIBUTOR, CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
B.C. Ziegler and Company ("Ziegler") serves as the Distributor of the
shares of each Portfolio pursuant to a Distribution Agreement; provides
accounting and other administrative services, including daily valuation of the
shares of each Portfolio, pursuant to an Accounting/Pricing Agreement; and
provides transfer agent services pursuant to a Transfer and Dividend Disbursing
Agency Agreement. Ziegler is registered with the SEC as a securities
broker-dealer and is a member of the National Association of Securities Dealers.
Ziegler has been engaged in the underwriting of debt securities for more than 75
years. Like Ziegler Asset Management, Ziegler is a wholly-owned subsidiary of
The Ziegler Companies, Inc., and its principal executive offices are located at
215 North Main Street, West Bend, Wisconsin 53095. Ziegler Thrift Trading, Inc.,
another affiliate of Ziegler Asset Management which is a registered
broker-dealer, may effect portfolio securities transactions as agent for the
Portfolios and in that capacity receives brokerage commissions from the
Portfolio. See "Portfolio Transactions and Brokerage."
The Distribution Agreement appointing Ziegler as Principal
Preservation's Distributor provides that Ziegler is entitled to receive a
commission on its sales of the shares of each Portfolio at the rate disclosed in
Principal Preservation's current Prospectus (see "Purchase of Shares"). When
Ziegler sells Class A shares, it is entitled to a commission equal to the amount
of the front-end sales charge, if any, paid by the investor. When Ziegler sells
Class B shares, Ziegler receives no commission at the time of the sale. However,
if the investor redeems the Class B shares at a time when they remain subject to
a contingent redeferred sales charge, Ziegler is entitled to receive the
contingent deferred sales charge. If an investor purchases shares of a Portfolio
through a Selected Dealer that has entered into a selling agreement with
Ziegler, Ziegler will pay a commission to the Selected Dealer. See "Purchasing
Shares." Principal Preservation also reimburses Ziegler for certain expenditures
incurred by it in connection with the distribution of Principal Preservation's
shares pursuant to a Distribution Plan adopted under Rule 12b-1 of the 1940 Act.
See "Distribution Expenses."
The Distribution Agreement continues from year to year if it is
approved annually by Principal Preservation's Board of Directors, including a
majority of those Directors who are not interested persons of Principal
Preservation, or by a vote of the holders of a majority of the outstanding
shares. The Distribution Agreement may be terminated at any time by either party
on 60 days written notice and will automatically terminate if assigned.
The Accounting/Pricing Agreement provides that Ziegler is entitled to
receive a fee for its accounting services at an annual rate of .03 of 1% of a
Portfolio's total assets of $30 million but less than $100 million, .02 of 1% of
a Portfolio's total assets of $100 million but less than $250 million and .01 of
1% of a Portfolio's total assets of $250 million or more, with a minimum fee of
$19,000 per Portfolio per year, plus expenses. The Transfer and Dividend
Disbursing Agency Agreement provides that Ziegler is entitled to receive
compensation deemed reasonable by the Board of Directors of Principal
Preservation for services provided thereunder. The rate of compensation is
currently set at $13.50 per account for the
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Tax-Exempt, Government and PSE Tech 100 Index Portfolios and $8.50 per account
for the S&P 100 Plus, Select Value and Dividend Achievers Portfolios. Principal
Preservation also reimburses Ziegler for all out-of-pocket expenses incurred in
providing such services. As Transfer and Dividend Disbursing Agent, Ziegler may
also collect certain fees from shareholders as disclosed in this Prospectus.
Firstar Trust Company serves as the custodian of each Portfolio's
assets, pursuant to a Custodian Servicing Agreement. The Custodian Serving
Agreement provides that Firstar Trust Company is entitled to receive an annual
fee set at 1% of the first $500 million of Principal Preservation=s assets and
0.75 of 1% of assets in excess of $500 million.
PURCHASING SHARES
GENERAL
You may buy Class A shares of any of the Portfolios and Class B shares
of the S&P 100 Plus, Dividend Achievers, Select Value and PSE Tech 100 Index
Portfolios through Ziegler and Selected Dealers. You also may purchase shares in
connection with asset allocation programs, wrap free programs and other programs
of services offered or administered by broker-dealers, investment advisors,
financial institutions and certain other service providers, provided the program
meets certain standards established from time to time by Ziegler.
Banks, acting as agents for their customers and not for any Portfolio
or the Distributor, from time to time may purchase Portfolio shares for the
accounts of such customers. Generally, the Glass-Steagall Act prohibits banks
from engaging in the business of underwriting, selling or distributing
securities. Should the activities of any bank, acting as agent for its customers
in connection with the purchase of the shares of any Portfolio, be deemed to
violate the Glass-Steagall Act, management will take whatever action, if any, is
appropriate in order to provide efficient services for the Portfolio. Management
does not believe that a termination in the relationship with a bank would result
in any material adverse consequences to the Portfolio. In addition, state
securities laws on this issue may differ, and banks and financial institutions
may be required to register as dealers pursuant to state law. Investors should
be aware that the shares of the Portfolios are not deposits or obligations of,
or guaranteed or endorsed by, any bank, and are not insured or guaranteed by the
U.S. Government, the Federal Deposit Insurance Corporation, the Federal Reserve
Board, or any other federal agency.
Principal Preservation will issue share certificates only if you so
request in writing, and then only for full shares. You must make a new written
request for a share certificate each time you purchase shares. Principal
Preservation does not charge a fee to issue a share certificate. You cannot use
certain shareholder services, including telephone redemptions and exchanges and
any systematic withdrawal, for certificated shares. Before you can redeem,
transfer or exchange shares held in certificate form, you must deliver the share
certificate to
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the Transfer Agent in negotiable form (with a signature guarantee). Share
certificates may not be available for some retirement accounts.
MINIMUM PURCHASE AMOUNTS
The Portfolios have established minimum amounts that a person must
invest to open an account initially, and to add to the account at later times.
The Portfolios have established these minimum investment amounts in order to
help control their operating expenses. Each Portfolio incurs certain fixed costs
with the opening and maintaining of every account and the acceptance of every
additional investment, regardless of the amount of the investment involved.
Accordingly, the acceptance and maintenance of small shareholder accounts and
small additional investments increases a Portfolio's operating expense ratio,
and adversely affects its total return. The table below shows the minimum
initial investment amounts and additional investment amounts currently in effect
for each of the Portfolios for various types of investors.
<TABLE>
<CAPTION>
MINIMUM INITIAL MINIMUM ADDITIONAL
TYPE OF INVESTOR INVESTMENT AMOUNT INVESTMENT AMOUNT(1)
- ---------------- ----------------- --------------------
<S> <C> <C>
All investors, except special investors listed $1,000 $50
below
IRAs, Keogh plans, self-directed retirement $500 $25
accounts and custodial accounts under the Uniform
Gifts/Transfers to Minors Act (see "Shareholder
Services")
Purchases through Systematic Purchase Plans (see $100 $100(2)
"Shareholder Services - Systematic Purchase Plan")
</TABLE>
- ---------------------------
(1) There is no minimum additional investment requirement for purchases of
shares of any of the Portfolios if: (i) the purchase is made in
connection with an exchange from another mutual fund within the
Principal Preservation family of funds (see "Redeeming and Exchanging
Shares - Exchanging Shares"); (ii) reinvestment of distributions
received from another mutual fund within the Principal Preservation
family of funds or from various unit investment trusts sponsored by
Ziegler; (iii) the reinvestment of interest and/or principal payments
on bonds issued by Ziegler Mortgage Securities, Inc. II; and (iv)
reinvestments of interest payments on bonds underwritten by Ziegler.
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(2) The minimum subsequent monthly investment under a Systematic Purchase
Plan is reduced to $50 for IRAs, Keogh plans, self-directed retirement
plan accounts and custodial accounts under the Uniform Gifts/Transfers
to Minors Act until the account balance reaches $500, after which the
minimum additional investment amount is reduced to $25. The minimum
subsequent investment amount also is reduced to $50 for all other
accounts with balances of $1,000 or more.
PURCHASING CLASS A SHARES
Front-End Sales Charge. You may purchase Class A shares of each
Portfolio at net asset value plus a maximum front-end sales charge of 3.50% of
the public offering price for the Tax-Exempt and Government Portfolios, and
5.25% of the public offering price for the S&P 100 Plus, Dividend Achievers,
Select Value and PSE 100 Index Portfolios. The front-end sales charge is reduced
or eliminated on certain purchases, as described below.
The table below shows the front-end sales charges (expressed as a
percentage of the public offering price and of the net amount invested) and
dealer concessions in effect for sales of Class A shares of each of the
Portfolios. None of the Portfolios will issue shares for consideration other
than cash, except in the case of a bonafide reorganization or statutory merger
or in certain other acquisitions of portfolio securities which meet the
requirements of applicable state securities laws. See "Purchase of Shares" in
the Statement of Additional Information.
<TABLE>
<CAPTION>
PUBLIC OFFERING NET AMOUNT SELECTED DEALER
SIZE OF INVESTMENT PRICE INVESTED REALLOWANCE(1)
------------------ ----- -------- --------------
<S> <C> <C> <C>
TAX-EXEMPT AND GOVERNMENT PORTFOLIOS:
Less than $25,000 3.50% 3.63% 3.00%
$25,000 but less than $50,000 3.00% 3.09% 2.75%
$50,000 but less than $100,000 2.50% 2.56% 2.25%
$100,000 but less than $250,000 2.00% 2.04% 1.75%
$250,000 but less than $500,000 1.50% 1.52% 1.25%
$500,000 but less than $1,000,000 1.00% 1.01% 1.00%
$1,000,000 or more None None None
</TABLE>
51
<PAGE> 55
<TABLE>
<CAPTION>
SHAREHOLDERS AS OF CLOSE OF BUSINESS ON
SEPTEMBER 5, 1997(2) OTHER INVESTORS
------------------------------------------- -------------------------------------------
S&P 100 PLUS, SELECT PERCENT OF
VALUE, DIVIDEND PUBLIC PERCENT OF SELECTED PUBLIC NET SELECTED
ACHIEVERS AND PSE TECH OFFERING NET AMOUNT DEALER OFFERING AMOUNT DEALER
100 INDEX PORTFOLIOS PRICE INVESTED REALLOWANCE(1) PRICE INVESTED REALLOWANCE(1)
- -------------------------- ------------- ------------- --------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Less than $25,000 4.50% 4.71% 4.00% 5.25% 5.54% 4.50%
- -------------------------- ------------- ------------- --------------- ------------- ------------ ---------------
$25,000, but less than 4.50% 4.71% 4.00% 5.00% 5.26% 4.25%
$50,000
- -------------------------- ------------- ------------- --------------- ------------- ------------ ---------------
$50,000, but less than 4.00% 4.17% 3.50% 4.75% 4.98% 4.25%
$100,000
- -------------------------- ------------- ------------- --------------- ------------- ------------ ---------------
$100,000, but less than 3.50% 3.63% 3.00% 3.75% 3.40% 3.25%
$250,000
- -------------------------- ------------- ------------- --------------- ------------- ------------ ---------------
$250,000, but less than 3.00% 3.09% 2.60% 3.00% 3.09% 2.50%
$500,000
- -------------------------- ------------- ------------- --------------- ------------- ------------ ---------------
$500,000, but less than 2.00% 2.04% 1.80% 2.00% 2.04% 1.80%
$1,000,000
- -------------------------- ------------- ------------- --------------- ------------- ------------ ---------------
$1,000,000 or more None None 0.50% None None 0.50%
- -------------------------- ------------- ------------- --------------- ------------- ------------ ---------------
</TABLE>
- -----------------
(1) In addition to the Selected Dealer Reallowance shown above, the
Distributor may pay an additional commission to participating dealers
and other participating financial institutions acting as agent for
their customers in an amount up to the difference between the sales
charge and the Selected Dealer Reallowance in respect of the shares
sold. The Distributor may offer additional compensation in the form of
trips, merchandise or entertainment as sales incentives to Selected
Dealers. The Distributor's sales representatives may not qualify to
participate in some of these incentive compensation programs and the
Distributor may offer similar incentive compensation programs in which
only its own sales representatives qualify to participate. In addition
to the Selected Dealers Reallowances reflected in the table, the
Distributor may from time to time pay an additional concession to a
Selected Dealer which employs a registered representative who sells,
during a specific period, a minimum dollar amount of shares, or may pay
an additional concession to Selected Dealers on such terms and
conditions as the Distributor determines. In no event will such
additional concession paid by the Distributor to the Selected Dealer
exceed the difference between the sales charge and the Selected Dealer
Reallowance in respect of shares sold by the qualifying registered
representatives of the Selected Dealer. Selected Dealers who receive a
concession may be deemed to be "underwriters" in connection with sales
by them of such shares and in that capacity they may be subject to the
applicable provisions of the Securities Act of 1933.
(2) Persons who held shares in any of the S&P 100 Plus, Dividend Achievers,
Select Value or PSE Tech 100 Index Portfolios as of the close of
business on September 5, 1997 may
52
<PAGE> 56
purchase Class A shares of the Portfolio(s) in which they held such
shares at these reduced front-end sales charges through December 31,
1998. After that date, these shareholders will pay the same front-end
sales charges for Class A shares as other investors.
Reduced Front-End Sales Charges. There are several ways to pay a lower
sales charge. One is to increase the initial investment to reach a higher
discount level. The scale in the table above is applicable to initial purchases
of Principal Preservation shares by any "purchaser." The term "purchaser"
includes (1) an individual, (2) an individual, his or her spouse and their
children under the age of 21 purchasing shares for his or her own accounts, (3)
a trustee or other fiduciary purchasing shares for a single trust estate or
single fiduciary account, (4) a pension, profit-sharing, or other employee
benefit plan qualified or non-qualified under Section 401 of the Internal
Revenue Code, (5) tax-exempt organizations enumerated in Section 501(c)(3) or
(13) of the Code, (6) employee benefit plans qualified under Section 401 of the
Code of a single employer or employers who are "affiliated persons" of each
other within the meaning of Section 2(a)(3)(c) of the Act, or (7) any other
organized group of persons, whether incorporated or not, provided the
organization has been in existence for at least six months and has some purpose
other than the purchase of redeemable securities of a registered investment
company at a discount.
Another way to pay a lower sales charge is for a "purchaser" to add to
his investment so that the current offering price value of his shares, plus the
new investment, reach a higher discount level. For example, if the current
offering price value of the shares held by a shareholder in the Portfolios
equals $100,000, the shareholder will pay a reduced sales charge on additional
purchases of shares. If the shareholder invested an additional $100,000, the
sales charge would be 2.00% in the Government and Tax-Exempt Portfolios on that
additional investment and 3.75% in the S&P 100 Plus, Dividend Achievers, Select
Value and PSE Tech 100 Index Portfolios. Your holdings of Class A and Class B
shares in all Portfolios which have a sales charge will be aggregated in
determining the break-point at which you are entitled to purchase in any
Portfolio.
A third way is for a "purchaser" to sign a non-binding statement of
intention to invest $25,000 or more over a 13 month period in any one or
combination of Principal Preservation Portfolios which have a sales charge. If
the purchases are completed during that period, each purchase will be at a sales
charge applicable to the aggregate of the shareholder's intended purchases.
Under terms set forth in the statement of intention, shares valued at 5% of the
amount of intended purchase are escrowed and will be redeemed to cover the
additional sales charge payable if the statement is not completed. Any remaining
shares held in escrow will be released to the purchaser. A purchaser will
continue to earn dividends and capital gains distributions declared by a
Portfolio with respect to shares held in escrow.
A reduced front-end sales charge is also available on the purchase of
Class A shares by members of a qualified group. The sales charge for such
persons is calculated by taking into account the aggregate dollar value of
shares of all Principal Preservation shares sold subject
53
<PAGE> 57
to a sales charge being purchased or currently held by all members of the group.
Further information on group purchases is contained in "Purchase of Shares" in
the Statement of Additional Information.
Finally, Class A shares may be purchased with a reduced sales charge of
0.50 of 1% by directors of The Ziegler Companies, Inc. who are not also
employees of Ziegler.
To receive the benefit of the reduced sales charge, the shareholder
must inform Principal Preservation, Ziegler or the Selected Dealer that the
shareholder qualifies for such a discount.
Purchases Without a Front-End Sales Charge. Class A shares of the
Portfolios may be purchased at net asset value (that is, without a front-end
sales charge) by various types of purchasers as described below.
$1.0 Million Purchases Class A shares may be purchased at net asset
value by a purchaser purchasing at least
$1.0 million of shares or the value of whose
account at the time of purchase is at least
$1.0 million, provided if the purchase is
made through a Selected Dealer who has
executed a dealer agreement with Ziegler.
The term "purchaser" has the meaning
described in "Reduced Front-End Sales
Charges," above. The Distributor may make a
payment or payments, out of its own funds,
to the Selected Dealer in an amount not to
exceed 0.75 of 1% of the amount invested.
All or a part of such payment may be
conditioned on the monies remaining invested
with Principal Preservation for a minimum
period of time.
Employee Benefit Plans Any pension, profit sharing or other
employee benefit plan qualified under
Section 401 of the Internal Revenue Code may
purchase Class A shares at net asset value.
If such a plan purchases shares of any of
the Portfolios through a Selected Dealer,
the Distributor may make a payment or
payments, out of its own funds, to the
Selected Dealer in an amount not to exceed
0.75 of 1% of the amount invested.
54
<PAGE> 58
State and Municipal Governments Class A shares of the Portfolios also may be
and Charities purchased at net asset value a without a
sales charge by any state, county or city,
or any instrumentality, department,
authority or agency thereof, and by any
nonprofit organization operated for
religious, charitable, scientific, literary,
educational or other benevolent purpose
which is exempt from federal income tax
pursuant to Section 501(c)(3) of the
Internal Revenue Code; provided that any
such purchaser must purchase at least
$500,000 of Class A shares, or the value of
such purchaser's account at the time of
purchase must be at least $500,000.
Investors Transferring From Class A shares may also be purchased at net
Unrelated Load Funds asset value when payment for those shares
represents the proceeds from the redemption
of shares of another mutual fund which
charges a sales charge and which is not part
of Principal Preservation. A purchase of
shares of Principal Preservation may be made
at net asset value under this provision
regardless of whether the sales charge was
paid on the shares redeemed in the unrelated
fund. However, the redemption of those
shares must have occurred no more than 90
days prior to the purchase of shares of
Principal Preservation. The Distributor may
make a payment or payments, out of its own
funds, to Selected Dealers effecting such
exchanges, in an amount not to exceed 0.50
of 1% of the amount invested. All or a part
of such payment may be conditioned upon the
monies remaining invested with Principal
Preservation for a minimum period of time.
Persons Associated with Class A shares may be purchased at net
Principal Preservation and Its asset value by: Directors and officers of
Service Providers Principal Preservation (including shares
purchased jointly with or individually by
any such person's spouse and shares
purchased by any such person's children or
grandchildren under age 21); employees of
Ziegler, Selected Dealers and Skyline, and
the trustee or custodian under any pension
or profit-sharing plan established for the
benefit of the employees of any of the
foregoing. The term "employee" includes an
employee's spouse (including the surviving
spouse of a deceased employee), parents
(including step-parents and in-laws),
children, grandchildren under age 21,
siblings, and retired employees.
55
<PAGE> 59
Reinvestments of Distributions Class A shares may be purchased without a
From Principal Preservation sales charge upon the reinvestment of
Mutual Funds and Other Investment distributions from any Principal Preservation
Vehicles Sponsored by Ziegler mutual fund, or investment of distributions
from various unit investment trusts sponsored
by Ziegler; the reinvestment of principal or
interest payments on bonds issued by Ziegler
Mortgage Securities, Inc. II; or the
reinvestment of interest payments on bonds
underwritten by Ziegler.
Purchases Through Certain Class A shares may be purchased without a
Investment Programs sales charge through an asset allocation
program, wrap fee program or similar program
of services offered or administered by a
broker-dealer, investment advisor, financial
institution or other service provider,
provided the program meets certain standards
established from time to time by Ziegler. You
should read the program materials provided by
the service provider, including information
related to fees, in conjunction with this
Prospectus. Certain features of a Portfolio
may not be available or may be modified in
connection with the program of services. When
shares are purchased this way, the service
provider, rather than you as the service
provider=s customer, may be the shareholder
of record for the shares. The service
provider may charge fees of its own in
connection with your participation in the
program of services. Certain service
providers may receive compensation from
Principal Preservation and/or Ziegler for
providing such services.
Reinvestment Privilege If you redeem Class A shares, you may
reinvest all or part of the redemption
proceeds in Class A shares of the same
Portfolio, without a front-end sales charge,
if you send written notice to Principal
Preservation or the Transfer Agent not more
than 90 days after the shares are redeemed.
Your redemption proceeds will be reinvested
on the basis of net asset value of the shares
in effect immediately after receipt of the
written request. You may exercise this
reinvestment privilege only once upon
redemption of your shares. Any capital gains
tax you incur on the redemption of your
shares is not altered by your subsequent
exercise of this privilege. If the redemption
resulted in a loss and reinvestment is made
in shares, the loss will not be recognized.
56
<PAGE> 60
PURCHASING CLASS B SHARES
General. You may purchase Class B Shares of any of the S&P 100 Plus,
Dividend Achievers, Select Value and PSE Tech 100 Index Portfolios at net asset
value with no front-end sales charge. However, you pay a contingent deferred
sales charge (expressed as a percent of the lessor of the current net asset
value or original cost) if you redeem your Class B shares within six years after
purchase. No contingent deferred sales charge is imposed on any shares that you
acquire through the reinvestment of dividends and capital gains distributions
paid by the Portfolio on your Class B shares. To reduce your cost, when you
redeem shares in a Portfolio, you will redeem either shares that are not subject
to a contingent deferred sales charge (i.e., those purchased through the
reinvestment of dividends and capital gains), if any, or shares with the lowest
contingent deferred sales charge. The contingent deferred sales charge is waived
upon redemption of shares following the death or disability of a shareholder or
for mandatory or hardship distributions from retirement plans, IRAs and 403(b)
plans or to meet certain retirement plan requirements.
Contingent Deferred Sales Charge. The table below shows the contingent
deferred sales charge applicable to Class B shares of the S&P 100 Plus, Dividend
Achievers, Select Value and PSE Tech 100 Index Portfolios based on how long you
hold the shares before redeeming them. The percentages reflected in the table
are based on the lessor of the net asset value of your Class B shares at the
time of purchase or at the time of redemption.
<TABLE>
<CAPTION>
HOLDING CONTINGENT DEFERRED SALES CHARGE
- ------- --------------------------------
<S> <C>
1 Year or less 5.00%
More than 1 Year, but less than 3 Years 4.00%
3 Years, but less than 4 Years 3.00%
4 Years, but less than 5 Years 2.00%
5 Years, but less than 6 Years 1.00%
6 Years or More(1) None
</TABLE>
- -------------------------
(1) Class B shares convert to Class A shares automatically after eight
years.
Selected Dealers who sell Class B shares of a Portfolio receive a
commission from Ziegler in an amount equal to 4.00% of the net asset value of
the shares sold.
57
<PAGE> 61
METHODS FOR PURCHASING SHARES
All purchases must be in U.S. dollars and your check must be drawn on a
U.S. bank. Principal Preservation will not accept cash or traveler's checks. If
your check does not clear, your purchase will be canceled and you will be
responsible for any losses and any applicable fees. When you buy shares by any
type of check, wire transfer or automatic investment purchase, you may not be
able to redeem the shares for fifteen days or until your check has cleared,
whichever is later. This does not limit your right to redeem shares. Rather, it
operates to make sure that payment for the shares redeemed has been received by
Principal Preservation.
Your order for the purchase of shares will be deemed to have been
received when it is physically received by the Transfer Agent, the Distributor,
a Selected Dealer or certain other financial services firms that have entered
into an agreement with Principal Preservation appointing the firm as an agent of
Principal Preservation for the purpose of accepting share purchase and
redemption orders. Such financial services firms are authorized under this
agreement to designate other intermediaries to accept share purchase and
redemption orders on their behalf. If your purchase order is received prior to
the close of trading on the New York Stock Exchange, it will be invested at the
net asset value computed for the relevant Portfolio on that day. If your order
is received after the close of trading on the New York Stock Exchange, it will
be invested at the net asset value determined for the relevant Portfolio as of
the close of trading on the New York Stock Exchange on the next business day.
The following describes the different ways in which you may purchase
shares and the procedures you must follow in doing so.
58
<PAGE> 62
<TABLE>
<CAPTION>
TO ADD TO
METHOD OF PURCHASE TO OPEN A NEW ACCOUNT AN EXISTING ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BY MAIL OR PERSONAL 1. Complete the Account Application 1. Complete the Additional
DELIVERY included in this prospectus. Investment form included with
your account statement.
Personally deliver or 2. Make your check or money order Alternatively, you may write a
send by First Class or payable to: "Principal Preservation." note indicating your account
Express Mail or Private number.
Delivery Service to: Note: The amount of your purchase
must meet the applicable minimum 2. Make your check payable to
Principal Preservation initial investment account. See "Principal Preservation."
215 N. Main Street "Purchasing Shares - Minimum
West Bend WI 53095 Purchase Amounts." 3. Personally deliver or mail the
Additional Investment Form (or
3. Personally deliver or mail the note) and your check or money
completed Account Application and order.
your check or money order.
- ---------------------------------------------------------------------------------------------------------------------
AUTOMATICALLY Not Applicable USE ONE OF PRINCIPAL PRESERVATION'S
AUTOMATIC INVESTMENT PROGRAMS. Sign up
for these services when you open your
account, or call 1-800-826-4600 for
instructions on how to add them to your
existing account.
SYSTEMATIC PURCHASE PLAN. Make
regular, systematic investments into
your Principal Preservation account(s)
from your bank checking or NOW
account. See "Shareholder Services -
Systematic Purchase Plan."
AUTOMATIC DIVIDEND REINVESTMENT.
Unless you choose otherwise, all of
your dividends and capital gain
distributions automatically will be
reinvested in additional Portfolio
shares. You also may elect to have
your dividends and capital gain
distributions automatically invested in
shares of another Principal
Preservation mutual fund.
- ---------------------------------------------------------------------------------------------------------------------
TELEPHONE BY EXCHANGE BY EXCHANGE
1-800-926-4600 Call to establish a new account by exchanging Add to an account by exchanging funds
funds from an existing Principal Preservation from another Principal Preservation
account. See "Redeeming and Exchanging account. See "Redeeming and Exchanging
Shares - Exchanging Shares." Shares - Exchanging Shares."
====================================================================================================================
</TABLE>
59
<PAGE> 63
<TABLE>
<CAPTION>
TO ADD TO
METHOD OF PURCHASE TO OPEN A NEW ACCOUNT AN EXISTING ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL SERVICES You may purchase shares in a Portfolio You may purchase additional shares in a
FIRMS through a broker-dealer or other financial Portfolio through a broker-dealer or
service firm that may charge a transaction other financial services firm that may
fee. charge a transaction fee.
Principal Preservation may accept requests to Principal Preservation may accept
purchase shares into a broker-dealer street requests to purchase additional shares
name account only from the broker-dealer. into a broker-dealer street name
account only from the broker-dealer.
====================================================================================================================
</TABLE>
REDEEMING AND EXCHANGING SHARES
GENERAL
You may have any or all of your shares redeemed as described below on
any day Principal Preservation is open for business. Class A shares will be
redeemed at net asset value. Class B shares will be redeemed at net asset value,
less the amount of the remaining contingent deferred sales charge, if any,
depending on how long you have held the shares. If your redemption order is
received prior to the close of the New York Stock Exchange, the redemption will
be at the net asset value calculated that day. If not, you will receive the net
asset value calculated as of the close of trading on the next New York Stock
Exchange trading day.
REDEMPTIONS
The following table describes different ways that you may redeem your
shares, and the steps you should follow.
<TABLE>
<CAPTION>
METHOD STEPS TO FOLLOW
- ------ ---------------
<S> <C>
BY TELEPHONE If you have completed the Telephone
1-800-862-4600 Redemption Authorization and signature
guarantee sections of the Account
Application, you may redeem shares by
calling Principal Preservation. If you did
not sign up for telephone redemptions when
you opened your account and would like to do
so, call, write or stop into Principal
Preservation=s offices and request,
complete, sign and return a Telephone
Redemption Authorization Form.
</TABLE>
60
<PAGE> 64
<TABLE>
<CAPTION>
METHOD STEPS TO FOLLOW
- ------ ---------------
<S> <C>
Please note: You may not redeem shares by
telephone if you hold stock certificates for
those shares. Additionally, shares paid for
by personal, corporate, or government check
cannot normally be redeemed before the 15th
day after the purchase date or until the
check clears.
BY MAIL To redeem shares by mail, send the following
information to the Transfer Agent:
Address to:
- ----------
Principal Preservation - A written request for redemption
215 N. Main Street signed by the registered
West Bend WI 53095 owner(s) of the shares, exactly as
the account is registered,
together with the shareholder's
account number;
- The certificates for the shares
being redeemed, if any;
- Any required signature guarantees
(see "Other Information about
Redemptions" below); and
- Any additional documents which might
be required for redemptions by
corporations, executors,
administrators, trustees, guardians,
or other similar entities.
The Transfer Agent will redeem shares when it
has received all necessary documents. You
will be notified promptly by the Transfer
Agent if your redemption request cannot be
accepted. The Transfer Agent cannot accept
redemption requests which specify a
particular date for redemption or which
specify any special conditions.
SYSTEMATIC WITHDRAWAL PLAN You can set up an automatic systematic
withdrawal plan from any of your Principal
Preservation accounts. To establish
the systematic withdrawal plan, complete the
appropriate section of the Account
Application or call, write or stop by
Principal Preservation and request a
Systematic Withdrawal Plan Application Form
and complete, sign and return the Form to
Principal Preservation. See "Shareholder
Services - Systematic Withdrawal Plan."
</TABLE>
61
<PAGE> 65
<TABLE>
<CAPTION>
METHOD STEPS TO FOLLOW
- ------ ---------------
<S> <C>
FINANCIAL SERVICES FIRMS You also may redeem shares through
broker-dealers, financial advisory
firms and other financial institutions, which
may charge a commission or other transaction
fee in connection with the redemption.
</TABLE>
RECEIVING REDEMPTION PROCEEDS
You may request to receive your redemption proceeds by mail or wire.
Follow the steps outlined below. The Transfer Agent will not send redemption
proceeds until all payments for the shares being redeemed have cleared, which
may take up to 15 days from the purchase date of the shares.
<TABLE>
<CATPION>
METHOD STEPS TO FOLLOW
- ------ ---------------
<S> <C>
BY MAIL The Transfer Agent mails checks for
redemption proceeds typically within one or
two days, but not later than seven days,
after it receives the request and all
necessary documents. There is no charge for
this service.
BY WIRE The Transfer Agent will normally wire
redemption proceeds to your bank the next
business day after receiving the redemption
request and all necessary documents. The
signatures on any written request for a wire
redemption must be guaranteed. The Transfer
Agent currently deducts a $7.50 wire charge
from the redemption proceeds. This charge
is subject to change. You will be
responsible for any charges which your bank
may make for receiving wires.
</TABLE>
OTHER INFORMATION ABOUT REDEMPTIONS
Telephone Redemptions. By establishing the telephone redemption
service, you authorize Ziegler, as Principal Preservation's transfer agent (the
"Transfer Agent"), to: (1) act upon the instruction of any person by telephone
to redeem shares from the account for which such services have been authorized;
and (2) honor any written instructions for a change of address if accompanied by
a signature guarantee. You assume some risk for unauthorized transactions by
establishing the telephone redemption services. The Transfer Agent has
implemented procedures designed to reasonably assure that telephone instructions
are genuine. These procedures include recording telephone conversations,
requesting verification of various pieces of personal information and providing
written confirmation of such transactions. If the Transfer Agent, Principal
Preservation, or any of their employees fails to abide by these procedures,
Principal Preservation may be liable to a shareholder for losses the shareholder
suffers from any resulting unauthorized transaction(s). However, none of the
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<PAGE> 66
Transfer Agent, Principal Preservation or any of their employees will be liable
for losses suffered by a shareholder which result from following telephone
instructions reasonably believed to be genuine after verification pursuant to
these procedures. This service may be changed, modified or terminated at any
time. There is currently no charge for telephone redemptions, although a charge
may be imposed in the future.
Signature Guarantees. To protect you, the Transfer Agent and Principal
Preservation from fraud, signature guarantees are required for certain
redemptions. Signature guarantees enable the Transfer Agent to be sure that you
are the person who has authorized a redemption from your account. Signature
guarantees are required for: (1) any redemptions by mail if the proceeds are to
be paid to someone else or are to be sent to an address other than your address
as shown on Principal Preservation's records; (2) any redemptions by mail which
request that the proceeds be wired to a bank, unless you designated the bank as
an authorized recipient of the wire on your account application or subsequent
authorization form and such application or authorization includes a signature
guarantee; (3) any redemptions by mail if the proceeds are to be sent to an
address for the shareholder that has been changed within the past thirty (30)
days; (4) authorizations to redeem by telephone; and (5) requests to transfer
the registration of shares to another owner. These requirements may be waived by
Principal Preservation in certain instances.
The Transfer Agent will accept signature guarantees from all
institutions which are eligible to provide them under federal or state law.
Institutions which typically are eligible to provide signature guarantees
include commercial banks, trust companies, brokers, dealers, national securities
exchanges, savings and loan associations and credit unions. A signature
guarantee is not the same as a notarized signature.
Closing Small Accounts. If, due to redemption, your account in a
Portfolio drops below $500 for three months or more, the Portfolio has the right
to redeem your account, after giving 60 days' written notice, unless you make
additional investments to bring the account value to $1,000 or more.
Suspension of Redemptions. Principal Preservation may suspend the right
to redeem shares of one or more of the Portfolios for any period during which:
(1) the Exchange is closed or the Securities and Exchange Commission determines
that trading on the Exchange is restricted; (2) there is an emergency as a
result of which it is not reasonably practical for the Portfolio(s) to sell its
securities or to calculate the fair value of its net assets; or (3) the
Securities and Exchange Commission may permit for the protection of the
shareholders of the Portfolio(s).
Redemptions In Other Than Cash. It is possible that conditions may
arise in the future which would, in the opinion of the Board of Directors of
Principal Preservation, make it undesirable for a Portfolio to pay for all
redemptions in cash. In such cases, the Board may authorize payment to be made
in securities or other property of a Portfolio. However, the Portfolios have
obligated themselves under the 1940 Act to redeem for cash all shares
63
<PAGE> 67
presented for redemption by any one shareholder up to $250,000 (or 1% of a
Portfolio's net assets if that is less) in any 90-day period. Securities
delivered in payment of redemptions would be valued at the same value assigned
to them in computing the net asset value per share. Persons receiving such
securities would incur brokerage costs when these securities are sold.
EXCHANGING SHARES
General Information. Subject to compliance with applicable minimum
investment requirements, shares of any Principal Preservation mutual fund
(including any of the Portfolios) may be exchanged for shares of the same Class
of any other Principal Preservation mutual fund in any state where the exchange
legally may be made. Additionally, Class A shares of any Principal Preservation
mutual fund (including any of the Portfolios) may be exchanged for Class X
(Retail Class) shares of the Cash Reserve Portfolio, and vice versa. Before
engaging in any exchange, you should obtain from Principal Preservation and read
the current prospectus for the mutual fund into which you intend to exchange.
Principal Preservation charges a $5.00 administrative fee for all exchanges.
An exchange of shares is considered a redemption of the shares of the
Principal Preservation mutual fund from which you are exchanging, and a purchase
of shares of the Principal Preservation mutual fund into which you are
exchanging. Accordingly, you must comply with all of the conditions on
redemptions for the shares being exchanged, and with all of the conditions on
purchases for the shares you receive in the exchange. Moreover, for tax purposes
you will be considered to have sold the shares exchanged, and you will realize a
gain or loss for federal income tax purposes on that sale.
Sales Charges Applicable to Exchanges. If the exchange involves Class A
shares, the standard front-end sales charge applicable to purchases of Class A
shares of the Principal Preservation mutual fund into which the exchange is
being made (as disclosed in the then current prospectus for that Principal
Preservation mutual fund) will be charged in connection with the exchange, less
any front-end sales charge previously paid by the shareholder with respect to
the shares being exchanged, if any. For example, if you were exchanging Class A
shares of the Tax-Exempt Portfolio for Class A shares of the S&P 100 Plus
Portfolio, you would pay a front-end sales charge on the exchange in an amount
equal to the difference between: (a) the front-end sales charge you paid when
you purchased your S&P 100 Plus Portfolio shares (a maximum of 5.25%); minus (b)
the front-end sales charge applicable to your purchase of Class A shares of the
Tax-Exempt Portfolio (a maximum of 3.50%), or a maximum of 1.75%. However, if
the shares you are exchanging represent an investment held for at least six
months in any one or more Principal Preservation mutual funds (other than the
Cash Reserve Portfolio), then Principal Preservation will not charge any
additional front-end sales charge in connection with the exchange.
You may exchange Class B shares in a Portfolio only for Class B shares
of another Portfolio. You will not pay a contingent deferred sales charge on any
such exchange.
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However, the new Class B shares you receive in the exchange will remain subject
to a contingent deferred sales charge based on the period of time for which you
held the Class B shares you are exchanging.
Rules and Requirements for Exchanges. In order to effect an exchange on
a particular business day, Principal Preservation must receive an exchange order
in good form no later than 3:00 p.m. Eastern Time. Principal Preservation may
amend, suspend or revoke this exchange privilege at any time, but will provide
shareholders at least 60 days, prior notice of any change at adversely affects
their rights under this exchange privilege.
An excessive number of exchanges may be disadvantageous to Principal
Preservation. Therefore, Principal Preservation reserves the right to terminate
the exchange privilege of any shareholder who makes more than three exchanges in
any twelve consecutive month period or who makes more than one exchange during
any calendar quarter.
The following additional rules and requirements apply to all exchanges:
- The shares you receive in the exchange must be of the same
Class as the shares you are exchanging, except that Class A
shares of any Portfolio may be exchanged for Class X shares of
the Cash Reserve Portfolio and vice versa.
- The account into which you wish to exchange must be identical
to the account from which you are exchanging (meaning the
account into which you are exchanging must be of the same type
as the account from which you are exchanging, and the
registered owner(s) of the account into which you are
exchanging must have the same name(s), address and taxpayer
identification or social security number as the registered
owner(s) on the account from which you are exchanging).
- The amount of your exchange must meet the minimum initial or
minimum additional investment amount of the Principal
Preservation mutual fund into which you are exchanging.
- If the shares being exchanged are represented by a share
certificate, you must sign the certificate(s), have your
signature guaranteed and return the certificate(s) with your
Exchange Authorization Form.
Methods for Exchanging Shares. Set forth below is a description of the
different ways you can exchange shares of Principal Preservation mutual funds
and procedures you should follow when doing so.
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<TABLE>
<CAPTION>
METHOD STEPS TO FOLLOW
- ------ ---------------
<S> <C>
BY MAIL OR PERSONAL DELIVERY Complete, sign and deliver to Principal
Preservation an Exchange Authorization Form
Personally deliver or send by to Principal Preservation. You may request a
first class or express mail or form from Principal Preservation by calling
private delivery addressed to: us at 1-800-826-4600, by mail or by stopping
in at the address shown at the left.
Please Note: Principal Preservation must
receive your exchange order no later than
3:00 p.m. in order to effect an exchange on
Principal Preservation, 215 N. that business day.
Main Street, West Bend, WI
53095
BY TELEPHONE Sign up for telephone exchange services when
you open your account. To add the telephone
1-800-826-4600 exchange option to your account, call for a
Telephone Exchange Authorization form.
Call Principal Preservation to order the
desired exchange and, if required, to
establish a new account for the Principal
Preservation mutual fund into which you wish
to exchange.
Telephone exchanges are not available if you
have certificated shares.
FINANCIAL SERVICES FIRMS You may exchange shares through a
broker-dealer or other financial services
firm, which may charge a transaction fee.
</TABLE>
SHAREHOLDER SERVICES
Principal Preservation offers a number of shareholder services designed
to facilitate investment in Portfolio shares. Full details of each of the
services, copies of the various plans described below and instructions as to how
to participate in the various services or plans can be obtained by calling
Principal Preservation at 1-800-826-4600.
Systematic Purchase Plan. A Systematic Purchase Plan ("SPP") may be
established at any time with a minimum initial investment of $100 and minimum
subsequent monthly investments of $100. The minimum subsequent monthly
investment is reduced to $50 for IRAs, Keogh plans, self-directed retirement
plan accounts and custodial accounts under the Uniform Gifts/Transfers to Minors
Act until your account balance reaches $500, after which the minimum is further
reduced to $25. The minimum subsequent investment is also reduced to $50 for all
other accounts with balances of $1,000 or more. By participating in the SPP, you
may automatically make purchases of Principal Preservation shares on a regular,
convenient basis. Under the SPP, your bank or other financial institution honors
pre-
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authorized debits of a selected amount drawn on your account each month and
applied to the purchase of Principal Preservation shares. The SPP can be
implemented with any financial institution that will accept the debits. There is
no service fee for participating in the SPP. An application and instructions on
establishing the SPP are available from your registered representative, the
Distributor or Principal Preservation.
Systematic Withdrawal Plan. You may establish a systematic withdrawal
plan if you own or purchase shares having a current offering price value of at
least $10,000 in a single Portfolio (except no such minimum applies for
distributions from an IRA). The systematic withdrawal plan involves the planned
redemption of shares on a periodic basis by receiving either fixed or variable
amounts at periodic intervals. The minimum amount you may receive under a
systematic withdrawal plan is $150 per month. Normally, you would not make
regular investments at the same time you are receiving systematic withdrawal
payments because it is not in your interest to pay a sales charge on new
investments when, in effect, a portion of your new investment is soon withdrawn.
The minimum investment accepted while a withdrawal plan is in effect is $1,000.
You may terminate your systematic withdrawal plan at any time by written notice
to Principal Preservation or the Transfer Agent.
Reinvestment of Distributions or Interest Payments. Unit holders of
Ziegler-sponsored unit investment trusts, holders of Ziegler Mortgage
Securities, Inc. II bonds and holders of bonds underwritten by Ziegler may
purchase shares of Principal Preservation by automatically reinvesting
distributions from their unit investment trust, reinvesting principal or
interest from their Ziegler Mortgage Securities, Inc. II bonds, or reinvesting
interest from the bonds underwritten by Ziegler, as the case may be. Unit
holders and bondholders desiring to participate in this plan should contact the
Distributor for further information.
Tax-Sheltered Retirement Plans. Shares of the Portfolios are available
for purchase in connection with the following tax-sheltered plans: (1)
Individual Retirement Accounts (including Education IRAs, Roth IRAs, Simplified
Employee Pension Plan Accounts (SEP-IRAs) and Savings Incentive Match Plan for
Employees Accounts (SIMPLE-IRAs)); (2) Keogh plans; (3) 401(k) Plans; and (4)
403(b) Plans for employees of most nonprofit organizations. Detailed information
concerning these plans and prototypes of these plans and other information are
available from the Distributor. They should be carefully reviewed and considered
with your tax or financial adviser. IRA investors do not receive the benefits of
long-term capital gains treatment when funds are distributed from their account.
For further information regarding plan administration, custodial fees
and other details, investors should contact the Distributor.
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DETERMINATION OF NET ASSET VALUE PER SHARE
Net asset value per share of each Portfolio is determined by adding up
the total value of the Portfolio's investments and other assets and subtracting
any of its liabilities, or debts, and then dividing by the number of outstanding
shares of the Portfolio. The net asset value per share is calculated each
business day, Monday through Friday, except on customary national business
holidays which result in closing of the New York Stock Exchange (the
"Exchange"). The calculation is as of the close of regular trading on the
Exchange (4:00 p.m. Eastern time) for the S&P 100 Plus, Dividend Achievers,
Select Value and PSE Tech 100 Index Portfolios, 2:30 p.m. Eastern time for the
Tax-Exempt Portfolio, and 3:00 p.m. Eastern time for the Government Portfolio.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND REINVESTMENTS
Dividends from net investment income will be declared daily and paid
monthly in the Government and Tax-Exempt Portfolios, and will be declared and
paid quarterly in the S&P 100 Plus, Select Value, Dividend Achievers and PSE
Tech 100 Index Portfolios. Dividends may be taken in cash or additional shares
at net asset value (without a sales charge). You may also direct the Transfer
Agent to invest the dividends in shares of any other Principal Preservation
portfolio for which you have an account. The investment occurs on the same day
as the dividend distribution date. Unless you have elected in writing to the
Transfer Agent to receive dividends and capital gain distributions in cash, they
will be automatically reinvested in additional shares of the relevant Portfolio.
Capital gains distributions, if any, in all Portfolios will be declared
annually and normally will be paid within 45 days after the end of the fiscal
year.
TAX STATUS
Each Portfolio intends to qualify as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986 (the "Code"). In order
to so qualify, each Portfolio must satisfy a number of requirements, including
the requirement that at least 90% of the Portfolio's gross income be derived
from dividends, interest and gains from the sale or other disposition of stock
or other securities. In determining these gross income requirements, a loss from
the sale or other disposition of securities does not enter into the computation.
Each Portfolio will distribute substantially all of its net income and
capital gains. Regulated investment companies, in most instances, pay a
nondeductible four percent excise tax on the amount, if any, by which actual
distributions of investment income and capital gains are less than distributions
required by the Code. Principal Preservation intends to make distributions in a
manner which will avoid the excise tax. The federal income tax status of all
distributions will be reported to shareholders annually. That part of the
Tax-Exempt Portfolio's
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net investment income which is attributable to interest from tax-exempt
securities and which is distributed to shareholders will be designated as an
"exempt-interest dividend" under the Code. A Portfolio's distributions are
taxable when they are paid, whether a shareholder takes them in cash or
reinvests them in additional shares, except that distributions declared in
December and paid in January each year are taxable as if paid on December 31 of
the earlier year.
The exemption of exempt-interest dividends for federal income tax
purposes does not necessarily result in exemption under the tax laws of any
state or local taxing authority which vary with respect to the taxation of such
dividend income. It is possible that some states will exempt from tax that
portion of the exempt-interest dividend which represents interest received by
the Tax-Exempt Portfolio on that state's securities. Therefore, the Tax-Exempt
Portfolio will report annually to its shareholders the percentage of interest
income received on a state-by-state basis. You should consult with your tax
adviser regarding the extent, if any, to which exempt-interest dividends are
exempt under state laws applicable to your dividend distributions.
A portion of the net investment income of the Government, S&P 100 Plus,
Dividend Achievers and PSE Tech 100 Index Portfolios will qualify for the 70%
dividends received deduction for corporations.
Each series of a series company, such as Principal Preservation, is
treated as a separate entity for federal income tax purposes so that the net
realized capital gains and losses of Principal Preservation's separate
portfolios are not combined.
The foregoing is only a summary of some of the more important tax
considerations generally affecting the Portfolios and their shareholders. This
discussion is not intended as a substitute for careful tax planning. You are
urged to consult your tax advisor with specific reference to your own tax
situation.
DESCRIPTION OF SHARES
The authorized common stock of Principal Preservation consists of one
billion shares, par value of $0.001 per share. The shares of Principal
Preservation are presently divided into eight series: Tax-Exempt Portfolio,
Government Portfolio, S&P 100 Plus Portfolio, Dividend Achievers Portfolio,
Select Value Portfolio, PSE Tech 100 Index Portfolio, Wisconsin Tax-Exempt
Portfolio and Cash Reserve Portfolio, consisting of 50 million shares in each of
the first six Portfolios and 400 million in the Cash Reserve Portfolio. The
Tax-Exempt and Government Portfolios offer only Class A shares. Shares of the
S&P 100 Plus, Dividend Achievers, Select Value and PSE Tech 100 Index Portfolios
are divided into Class A shares and Class B shares. Shares of the Cash Reserve
Portfolio also are divided into two separate classes, Class X Common Stock (the
Retail Class) and Class Y Common Stock (the Institutional Class), consisting of
200 million shares each. The Board of Directors of Principal Preservation may
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authorize the issuance of additional series and, within each series, individual
classes, and may increase or decrease the number of shares in each series or
class.
Each Portfolio's Classes of shares represent interests in the assets of
the Portfolio and have identical dividend, liquidation and other rights. The
separate share Classes have the same terms and conditions, except each Class
within a Portfolio bears its separate distribution and shareholder servicing
expenses. At the discretion of Principal Preservation's Board of Directors, each
class may pay a different share of other expenses, not including advisory or
custodial fees or other expenses related to the management of the Portfolio=s
assets, if each class incurs the expenses in different amounts, or if a class
receives services of a different kind or to a different degree than the other
class within the relevant Portfolio. Each Portfolio allocates all other expenses
to each class of its shares on the basis of the net asset value of that class in
relation to the net asst value of the particular Portfolio.
Each share of Principal Preservation, when issued and paid for in
accordance with the terms of the offering, will be fully paid and nonassessable.
Shares of stock are redeemable at net asset value, at the option of the
shareholder. Shares have no preemptive, subscription or conversion rights and
are freely transferable. Shares can be issued as full shares or fractions of
shares. A fraction of a share has the same kind of rights and privileges as a
full share.
Each share of Principal Preservation has one vote on each matter
presented to shareholders. All shares of Principal Preservation vote together on
matters that affect all shareholders uniformly, such as in the election of
directors. On matters affecting an individual series (such as approval of
advisory or sub-advisory contracts and changes in fundamental policies of a
series) a separate vote of the shares of that series is required. On matters
that uniquely affect a particular class of shares (such as an increase in 12b-1
fees for that Class), a separate vote by the shareholders of that Class of
shares is required. Shares of a series or class are not entitled to vote on any
matter not that does not affect it.
As used in the Prospectus, the phrase "majority vote" of the
outstanding shares of a Class, Portfolio or Principal Preservation means the
vote of the lesser of: (1) 67% of the shares of the Class, Portfolio or
Principal Preservation, as the case may be, present at the meeting if the
holders of more than 50% of the outstanding shares are present in person or by
proxy; or (2) more than 50% of the outstanding shares of the Class, Portfolio or
Principal Preservation, as the case may be.
As a Maryland corporation, Principal Preservation is not required to
hold, and in the future does not plan to hold, annual shareholder meetings
unless required by law or deemed appropriate by the Board of Directors. However,
special meetings may be called for purposes such as electing or removing
Directors, changing fundamental policies or approving an investment advisory
contract.
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PORTFOLIO TRANSACTIONS AND BROKERAGE
Purchase and sale orders for portfolio securities may be effected
through brokers, although it is expected that transactions in debt securities
will generally be conducted with dealers acting as principals. Purchases and
sales of securities on a stock exchange are effected through brokers who charge
a commission for their services. Purchases and sales of securities traded
over-the-counter may be effected through brokers or dealers. Brokerage
commissions on securities and options are subject to negotiation between
Principal Preservation and the broker.
Allocation of transactions, including their frequency, to various
dealers is determined by the Advisors in their best judgment and in a manner
deemed fair and reasonable to shareholders. The primary consideration is prompt
and efficient execution of orders in an effective manner at the most favorable
price. Principal Preservation may also consider sales of shares of its various
series as a factor in the selection of broker-dealers, subject to the policy of
obtaining best price and execution.
DISTRIBUTION EXPENSES
In addition to the front-end or contingent deferred sales charges that
apply to the purchase of shares, each Portfolio is authorized under a
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act to use
a portion of its assets to finance certain activities relating to the
distribution of its shares to investors. The Plan permits payments to be made by
each Portfolio to the Distributor to reimburse it for expenditures incurred by
it in connection with the distribution of each Portfolio's shares to investors.
These payments include, but are not limited to, payments to selling
representatives or brokers as a service fee, advertising, preparation and
distribution of sales literature and prospectuses to prospective investors,
implementing and operating the Plan and performing other promotional or
administrative activities on behalf of each of the Portfolios. Plan payments may
also be made to reimburse the Distributor for its overhead expenses related to
distribution of the Portfolio's shares. No reimbursement may be made under the
Plan for expenses of the past fiscal years or in contemplation of expenses for
future fiscal years.
Under the Plan, each Portfolio assesses a service fee of up to 0.25 of
1% of the Portfolio's average daily net assets for both Class A and Class B
shares. This shareholder servicing fee is used to compensate the Distributor for
certain shareholder services. In addition, the Portfolios that offer Class B
shares assess a distribution fee of 0.75 of 1% of the portion of the Portfolio=s
average daily net assets represented by its Class B shares. This distribution
fee may not be reduced unless the 0.25 of 1% service fee on Class B shares is
first eliminated. Class B shares automatically convert to Class A shares eight
years after purchase, after which time the shares no longer are subject to this
distribution fee but, like all other Class A shares, remain subject to the
service fee.
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The Plan continues in effect, if not sooner terminated, for successive
one-year periods, provided that its continuance is specifically approved by the
vote of the Directors, including a majority of the Directors who are not
interested persons of any of the Advisors. For further information regarding the
Plan, see "Distribution Expenses" in the Statement of Additional Information.
OTHER INFORMATION
Transfer and Dividend Disbursing Agent. B.C. Ziegler and Company,
215 North Main Street, West Bend, Wisconsin 53095, acts as Transfer and
Dividend Disbursing Agent.
Shareholder Statements and Reports. Shareholders receive confirmations
at least quarterly regarding their transactions and reports at least
semiannually setting forth various financial and other information related to
the Portfolios.
Shareholder Inquiries. Shareholder inquiries may be directed to
Principal Preservation at 215 North Main Street, West Bend, Wisconsin 53095;
or by telephone at (800) 826-4600.
Performance Information. From time to time the Portfolios may advertise
their "yield" and "total return." Yield is based on historical earnings and
total return is based on historical distributions; neither is intended to
indicate future performance. The "yield" of a Portfolio refers to the income
generated by an investment in that Portfolio over a one month period (which
period will be stated in the advertisement). This income is then "annualized."
That is, the amount of income generated by the investment during the month is
assumed to be generated each month over a 12-month period and is shown as a
percentage of the investment. "Total return" of a Portfolio refers to the
average annual total return for one, five and ten year periods (or so much
thereof as a Portfolio has been in existence). Total return is the change in
redemption value of shares purchased with an initial $10,000 investment,
assuming the reinvestment of dividends and capital gains distributions, after
giving effect to the maximum applicable sales charge. In addition, the
Tax-Exempt Portfolio may advertise its "tax equivalent yield," which is
computed by dividing that portion of the Portfolio's yield which is tax-exempt
by one minus a stated income tax rate and adding the product to that portion,
if any, of the yield of the Portfolio which is not tax-exempt. Performance
information should be considered in light of the Portfolios' investment
objectives and policies, characteristics and quality of the Portfolios and the
market conditions during the time period, and should not be considered as a
representation of what may be achieved in the future. Further information is
contained in the Statement of Additional Information.
Portfolio Rating. From time to time the Portfolios may obtain and use a
rating from a nationally recognized statistical rating organization. For a
description of such ratings, see "Portfolio Ratings" in the Statement of
Additional Information.
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PRINCIPAL PRESERVATION PORTFOLIOS, INC.
TERMS AND CONDITIONS OF GENERAL APPLICATION FORM
ADDITIONAL INVESTMENTS
After a Shareholder account is established, additional investments in
the amount of $50 or more ($25 or more for IRAs, Keogh Plans, Self-Directed
Retirement Plan Accounts, and Custodial Accounts under the Uniform
Gifts/Transfers to Minors Act) may be made to that existing account at any time.
Additional investments will be applied to the purchase of full and fractional
shares of the specified Portfolio at the public offering price. These
investments should be accompanied by an investment transmittal stub (attached to
any previously received shareholder confirmation) and mailed directly to B.C.
Ziegler and Company, 215 North Main Street, West Bend, Wisconsin 53095 (the
Transfer Agent). Additional investments can also be made through your dealer.
INFORMATION PERTAINING TO THE STATEMENT OF INTENTION
Subject to conditions specified below, each purchase during the
13-month period subsequent to the effective date of this application will be
made at the public offering price applicable to a single transaction of the
dollar amount indicated, as described in the then effective Prospectus. The
offering price may be further reduced under the Combined Purchase and Cumulative
Investment Privilege if the Transfer Agent is advised of any shares previously
purchased and still owned. You understand that you may, at any time during the
period, revise upward your stated intention by submitting a written request to
that effect. Such revision shall provide for the escrowing of additional shares.
The original period of the Statement, however, shall remain unchanged. Each
separate purchase made pursuant to the Statement is subject to the terms and
conditions contained in the Prospectus in effect at the time of that particular
purchase. It is understood that you make no commitment to purchase shares, but
that if purchases so made within 13 months from this date do not aggregate the
amount specified, you will pay the increased amounts of sales charge prescribed
in the terms of escrow. You or your dealer must refer to this Statement of
Intention in placing each future order for shares while this Statement is in
effect. It is understood that when remitting funds directly to the Transfer
Agent for investment in your account, specific reference must be made to this
Statement. This cancels and supersedes any previous instructions which you may
have given inconsistent with the above. You have received a copy of the current
Prospectus to which this application relates.
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TERMS OF ESCROW TO THE STATEMENT OF INTENTION
1. To assure compliance with provisions of the Investment Company Act
of 1940, out of the initial purchase (or subsequent purchase if necessary) 5% of
the dollar amount indicated on the reverse side hereof will be held in escrow in
the form of shares (computed to the nearest full share at the applicable public
offering price) registered in your name. These shares will be held by the
Transfer Agent and be subject to the terms of escrow.
2. If total purchases pursuant to this Statement equal the amount of
the specified expected aggregate purchase, escrow shares will be released from
restriction and be deposited to your account.
3. If the total purchases pursuant to this Statement are less than
the amount specified, you shall remit to the Dealer an amount equal to the
difference between the dollar amount of sales charge actually paid and the
amount of sales charge which would have been paid on the total purchases if all
such purchases had been made at a single time. If the Distributor or the dealer,
within 10 business days after request, does not receive this amount, they will
instruct the Transfer Agent to redeem an appropriate number of escrow shares to
realize such difference. If the proceeds from this redemption are inadequate,
you will be liable to the Distributor or the dealer for the difference. The
remaining shares after the redemption will be deposited to your account unless
otherwise instructed.
4. You hereby irrevocably constitute and appoint the Transfer Agent
as attorney to surrender for redemption any or all shares on the books of
Principal Preservation, under the conditions previously outlined, with full
power of substitutions in the premises.
5. Any dividends and capital gain distributions declared by Principal
Preservation with respect to escrowed shares will be added to the escrow
account.
COMBINED PURCHASE AND CUMULATIVE INVESTMENT PRIVILEGE
Shares may be purchased at the offering price applicable to the total
of (a) dollar amount then being purchased plus (b) an amount equal to the value
of the combined holdings of all series of Principal Preservation that have a
sales charge of (1) an individual; (2) an individual, his spouse and their
children under the age of 21 purchasing securities for his or their own account;
(3) a trustee or other fiduciary purchasing for a single trust, estate or single
fiduciary account; (4) a pension, profit sharing or other employee benefit plan
qualified or non-qualified under Section 401 of the Internal Revenue Code (the
"Code"); (5) tax-exempt organizations enumerated in Section 501(c)(3) or (13) of
the Code; (6) employee benefit plans qualified under Section 401 of the Code of
a single employer or of employers who are "affiliated persons" of each other
within the meaning of Section 2(a)(3)(c) of the Securities Act of 1933, as
amended; or (7) any other organized group of persons, whether incorporated or
not, provided the organization has been in existence for at least six months and
has some
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purpose other than the purchase of redeemable securities of a registered
investment company at a discount. In order for this cumulative quantity discount
to be made available, the shareholder or his securities dealer must notify B.C.
Ziegler and Company of the total holdings in all series of Principal
Preservation each time an order is placed.
TELEPHONE REDEMPTIONS
If you elect to redeem by telephone, a signature guarantee must be
included with the application. This authorizes and directs Principal
Preservation and the Transfer Agent, acting as your attorneys-in-fact, to redeem
any or all shares of Principal Preservation pursuant to instructions received by
telephone from you or any other person and to wire the proceeds to the bank
account designated in your application. You agree that any telephone
instructions may be recorded.
DEALER AUTHORIZATION
The dealer, in signing the Authorization, authorizes B.C. Ziegler and
Company, as its agent and on its behalf, to purchase from time to time shares of
Principal Preservation necessary for the shareholder who has signed the
Authorization. B.C. Ziegler and Company is authorized and directed where
necessary to cause the shares to be transferred to the name of the shareholder
on the books of Principal Preservation to retain and to account to the dealer
for the dealer's sales charge due on each purchase, to confirm each direct sale
to the shareholder on behalf of the dealer, and to transmit to the shareholder
each new Prospectus of Principal Preservation or supplement thereto delivered to
it for that purpose. The dealer guarantees the genuineness of the signature(s)
on the Authorization and represents that each person who has signed the
Authorization is of legal age and not under legal disability. The dealer also
represents that it is a duly licensed and registered dealer and that it may
lawfully sell the specified securities in the state designated as the investor's
mailing address. It further represents, if the sale has been made within the
United States, that it is a member of the NASD and has entered into a soliciting
dealer agreement with B.C. Ziegler and Company with respect to such shares.
TERMS AND CONDITIONS FOR ESTABLISHING SYSTEMATIC PURCHASE PLAN
1. OPENING A SYSTEMATIC PURCHASE PLAN ("SPP"). An SPP may be
established at any time by submitting the information requested above to the
Transfer Agent. Depending on the date you elect to have automatic investments
made, the SPP may take up to 30 days to commence after receipt of the SPP
request by the Transfer Agent. There is a minimum initial investment of $100.00
for accounts opened under the SPP, and for subsequent investments ($50 or more
for IRAs, Keogh Plans, Self-Directed Retirement Plan Accounts, and Custodial
Accounts under the Uniform Gifts/Transfers to Minors Act, until your account
balance reaches
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$500, after which investments can be made in increments of $25 or more). The
additional investment amount drops to $50 for SPP participants whose accounts
exceed $1,000.
2. INVESTMENTS. Principal Preservation shall collect the amount
specified from your account at the designated financial institution as hereby
authorized, debiting such account to its own order. Other than the sales charge,
there are no service fees for participation in the SPP. Principal Preservation
shall treat each deposit as if it were made by you directly.
3. TERMINATION. The privilege of making deposits under this service
may be revoked by Principal Preservation without prior notice if any debit is
not paid upon presentation. Principal Preservation shall be under no obligation
to notify you of the non-payment and Principal Preservation shall have no
liability whatsoever with respect thereto. You may discontinue the SPP by
written notice to the Transfer Agent which is received at least ten business
days prior to the collection date or the SPP may be discontinued at any time by
Principal Preservation upon 30 days written notice prior to any collection date.
4. CHANGES IN ACCOUNT. In order to continue participation in the SPP,
you must notify the Transfer Agent in writing of changes in your account. A
"Voided" check reflecting the change of account must be attached to the written
notification.
5. AVAILABILITY. The SPP is available only through financial
institutions that have agreed to participate in such plans and may not be
available to residents of certain states.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COVER PAGE................................................................ 1
OVERVIEW ................................................................. 4
TAX-EXEMPT PORTFOLIO...................................................... 8
GOVERNMENT PORTFOLIO...................................................... 12
S&P 100 PLUS PORTFOLIO.................................................... 16
DIVIDEND ACHIEVERS PORTFOLIO.............................................. 21
SELECT VALUE PORTFOLIO.................................................... 26
PSE TECH 100 INDEX PORTFOLIO.............................................. 31
ADDITIONAL INVESTMENT PRACTICES AND RISKS................................. 36
INVESTMENT RESTRICTIONS................................................... 45
MANAGEMENT................................................................ 46
PURCHASING SHARES......................................................... 49
REDEEMING AND EXCHANGING SHARES........................................... 60
SHAREHOLDER SERVICES...................................................... 66
DETERMINATION OF NET ASSET VALUE PER SHARE................................ 68
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND REINVESTMENTS.................. 68
TAX STATUS................................................................ 68
DESCRIPTION OF SHARES..................................................... 69
PORTFOLIO TRANSACTIONS AND BROKERAGE...................................... 71
DISTRIBUTION EXPENSES..................................................... 71
OTHER INFORMATION......................................................... 72
</TABLE>
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
INVESTMENT ADVISORS
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
Skyline Asset Management, L.P.
(Sub-Advisor to Select Value Portfolio)
311 South Wacker Drive
Suite 4500
Chicago, Illinois 60606
DISTRIBUTOR, ACCOUNTING/PRICING AGENT, AND
TRANSFER AND DIVIDEND DISBURSING AGENT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
CUSTODIAN
Firstar Trust Company
777 East Wisconsin Avenue
Milwaukee, WI 53202
COUNSEL
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
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APPENDIX A
COMPOSITION OF THE S&P 100 INDEX*
(As of December 31, 1998)
[to be provided]
<PAGE> 82
APPENDIX B
COMPOSITION OF THE PSE TECHNOLOGY INDEX
(As of December 31, 1998)
<PAGE> 83
STATEMENT OF ADDITIONAL INFORMATION
DATED JUNE 1, 1998
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
800-826-4600
Six portfolios (the "Portfolios") of the Principal Preservation
Portfolios, Inc. ("Principal Preservation") family of funds are described in
this Statement of Additional Information and the Prospectus to which it relates:
the Tax-Exempt Portfolio, Government Portfolio, S&P 100 Plus Portfolio, Divided
Achievers Portfolio, Select Value Portfolio, and PSE Tech 100 Index Portfolio.
Class A shares are available for all six of the Portfolios. Class B
shares are available for all Portfolios, except the Tax-Exempt and Government
Portfolios. Each Portfolio has distinct investment objectives and policies, and
there can be no assurance that these investment objectives will be achieved.
Each shareholder's interest is limited to the particular Portfolio in which
their shares are owned.
-----------------------------------
Statement of Additional Information
-----------------------------------
Shares may be purchased, and a prospectus may be obtained, directly
from the Distributor, 215 North Main Street, West Bend, Wisconsin 53095,
telephone 800-826-4600, or from Selected Dealers (see the Prospectus dated June
1, 1998 for more complete information, including an account application.) This
Statement of Additional Information is not a prospectus, and should be read in
conjunction with the Prospectus. Capitalized terms not otherwise defined in this
Statement of Additional Information have the meanings ascribed thereto in the
Prospectus.
TABLE OF CONTENTS
PAGE
----
STATEMENT OF ADDITIONAL INFORMATION ................................... 1
INVESTMENT PROGRAM .................................................... 2
INVESTMENT RESTRICTIONS ............................................... 16
INDUSTRY CONCENTRATION FACTORS ........................................ 23
PERFORMANCE INFORMATION .............................................. 30
<PAGE> 84
PAGE
----
DETERMINATION OF NET ASSET VALUE PER SHARE ........................... 35
PURCHASE OF SHARES ................................................... 36
TAX STATUS ........................................................... 37
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES................... 39
PORTFOLIO TRANSACTIONS AND BROKERAGE ................................. 39
DISTRIBUTION EXPENSES ................................................ 40
CUSTODIAN ............................................................ 43
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS ........................... 43
EXPERTS .............................................................. 43
PORTFOLIO RATINGS .................................................... 43
DESCRIPTION OF RATINGS OF CERTAIN SECURITIES ......................... 44
FINANCIAL STATEMENTS ................................................. 51
INVESTMENT PROGRAM
The Prospectus describes the investment objectives and policies of each
Portfolio. Certain instruments and techniques discussed in the Prospectus are
described in greater detail below.
Information Regarding Tax-Exempt Investments
Before investing in a particular Portfolio, an investor may wish to
determine which investment -- tax-free or taxable -- will provide a higher
after-tax return. To make such a comparison, the yields should be viewed on a
comparable basis. The table below illustrates, at the tax brackets provided in
the Internal Revenue Code of 1986, as amended, the yield an investor would have
to obtain from taxable investments to equal tax-free yields ranging from 6% to
9%. An investor can determine from the following table the taxable return
necessary to match the yield from a tax-free investment by locating the tax
bracket applicable to the investor, and then reading across to the yield column
which is closest to the yield applicable
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<PAGE> 85
to the investor's investment. This presentation illustrates current tax rates,
and will be modified to reflect any changes in such tax rates.
TAX-FREE V. TAXABLE INCOME
<TABLE>
<CAPTION>
Assumed Tax-Free Yields
Taxable Income 6.00% 6.50% 7.00% 7.50% 8.00%
- -------------------------------------------- ----------- ------------ ------------- ------------- ------------
Federal Tax
Single Return Joint Return Rate Equivalent Taxable Yields*
- ----------------------- -------------------- ------------- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Up to $22,100 Up to $38,000 15.00% 7.06% 7.65% 8.24% 8.82% 9.41%
$22,100-55,100 $38,000-91,850 28.00% 8.33% 9.03% 9.72% 10.42% 11.11%
$55,100-115,000 $91,850-140,000 31.00% 8.70% 9.42% 10.14% 10.87% 11.59%
$115,000-250,000 $140,000-250,000 36.00% 9.38% 10.16% 10.94% 11.72% 12.50%
over $250,000 over $250,000 39.60% 9.93% 10.76% 11.59% 12.42% 13.25%
======================= ==================== ============= =========== ============ ============= ============= ============
</TABLE>
* The Equivalent taxable yields are calculated based on the maximum
marginal tax rate at each tax bracket. These rates and brackets are
subject to change. The table is based on tax rates in effect as of
December 31, 1997. You should consult your tax advisor regarding more
recent tax legislation and how tax laws affect your personal financial
circumstances.
The Tax-Exempt Portfolio seeks to attain its objective by investing
primarily in municipal securities, such as general obligation, revenue and
industrial development bonds, rated at the time of purchase in an "A" category
or higher by Moody's Investors Service, Inc., Standard & Poor's Ratings Services
or by Fitch Investors Service, Inc. This Portfolio may also invest in certain
temporary short-term investments, money market fund investments, U.S. Government
Securities, or securities collateralized by U.S. Government Securities. A
description of the ratings is included in this Statement of Additional
Information under the caption "Description of Ratings of Certain Fixed Income
Securities."
For illustrative purposes, the Tax-Exempt Portfolio may include in its
supplemental sales literature from time to time a Bond Buyer Index line graph
which shows the yield obtained on twenty (20) long-term municipal bonds from
December 1980 through December 1997. The presentation consists of a line graph
with yield (presented as a percentage) reflected along a vertical axis and the
relevant time of inquiry reflected along a horizontal axis. This line graph is
for illustrative purposes only and is not meant to be indicative of any
Portfolio's total return. Information as to actual yield and total return is set
forth under "Performance Information."
The Tax-Exempt Portfolio also sometimes presents in supplemental sales
literature a line graph that displays the difference in the growth in $10,000
placed in a tax-free investment as compared to the growth of the same amount
placed in a taxable investment. This graph assumes $10,000 of principal is
invested at a nominal annual rate of 6% compounded
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<PAGE> 86
monthly (6.17% equivalent effective yield). The value of the investment is shown
on the vertical axis with the time period (0-20 years) over which the investment
has been held being reflected along the horizontal axis. This graph is for
illustrative purposes only and is not meant to be indicative of the Tax-Exempt
Portfolio's actual return. An investor is assumed to pay annual federal income
tax at a 33% rate on the total amount of interest credited to the account. The
presentation illustrates current tax rates, and will be modified to reflect any
changes in such tax rates.
Municipal Securities
Municipal securities include obligations issued by or on behalf of
states, territories, and possessions of the United States and the District of
Columbia, and their political subdivisions, agencies, and instrumentalities, the
interest of which is exempt from Federal income tax. The tax-exempt status of
the municipal security is determined under Federal tax laws and is usually
opined upon by the issuer's bond counsel at the time of the issuance of the
security.
The two principal classifications of municipal securities are notes and
bonds. Municipal notes are generally used to provide short-term working capital
needs and typically have maturities of one year or less. Municipal notes include
Project Notes, Tax Anticipation Notes, Bond Anticipation Notes and Tax-Exempt
Commercial Paper, and other similar short-term obligations.
Municipal bonds are issued to obtain funds for various public purposes,
including the construction of a wide range of public facilities such as
airports, bridges, highways, housing, hospitals, mass transportation, schools,
streets, water and sewer works, and gas and electric utilities. Municipal bonds
may also be issued in connection with the refunding of similar outstanding
obligations, or obtaining funds to lend to other public institutions, or for
general operating expenses. Industrial development bonds, which are considered
municipal bonds if the interest paid thereon is exempt from Federal income tax,
are issued by or on behalf of public authorities to obtain funds to provide
various privately-operated facilities for business and manufacturing, housing,
sports, pollution control, and for airport, mass transit, port, and parking
facilities.
The two principal classifications of municipal bonds are "general
obligation" and "revenue." General obligation bonds are secured by the issuer's
pledge of its full faith, credit, and taxing power for the payment of principal
and interest. Revenue bonds are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases from the proceeds
of a special tax or other specific revenue source. Although industrial
development bonds are issued by municipal authorities, they are generally
secured by specific facilities financed by the proceeds and, payable only from
the revenues derived from the industrial user of those facilities. Payment of
principal and interest on industrial revenue bonds generally depends on the
ability of such user to meet its financial obligations, or, in case of default,
upon the amount realizable upon the disposition of property pledged as security
for payment of the user's obligation.
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<PAGE> 87
Obligations of issuers of municipal securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Reform Act of 1978. In
addition, the obligations of such issuers may become subject to laws enacted in
the future by Congress, state legislatures, or referenda extending the time for
payment of principal and/or interest, or imposing other constraints upon
enforcement of such obligations or upon the issuer's ability to generate tax
revenues. There is also the possibility that, as a result of litigation or other
conditions, the authority or ability of an issuer to pay, when due, the
principal of and interest on its municipal securities may be materially
affected.
Government Securities
Direct obligations issued by the U.S. Treasury include bills, notes and
bonds which differ from each other only as to interest rate, maturity and time
of issuance. Treasury Bills have a maturity of one year or less, Treasury Notes
have maturities of one to ten years and Treasury Bonds generally have maturities
of greater than ten years.
In addition to direct obligations issued by the U.S. Treasury, the
Portfolios may also invest in obligations issued by agencies or
instrumentalities of the U.S. Government; provided that with respect to the
Government Portfolio, such obligations are backed by the unconditional full
faith and credit of the U.S. government, its agencies or instrumentalities.
Options
To the extent consistent with their investment objectives, the S&P 100
Plus and PSE Tech 100 Index Portfolios will employ options strategies designed
to hedge protectively against any anticipated adverse movements in the market
values of its portfolio securities or securities it intends to purchase and to
enhance return.
Listed options are traded on each of the stocks in the S&P 100 Index,
and the S&P 100 Plus Portfolio may write (sell) covered call options and put
options, and may purchase call options and put options on individual stocks as
well as on stock indices (including the S&P 500 Index and S&P 100 Index) for the
purposes and subject to the limitations stated herein and as outlined in "S&P
100 Plus Portfolio--Investment Policies and Program" in the Prospectus. The S&P
100 Plus Portfolio may seek to enhance its return by writing covered call
options for purchasing put options with respect to some or all of the individual
stocks held in its portfolio. Through the purchase of call and put options with
respect to individual stocks, the Portfolio may at times protectively hedge
against an increase in the price of securities which the Portfolio plans to
purchase or against a decline in the value of securities owned by the Portfolio.
Whenever the Portfolio does not own securities underlying an open option
position sufficient to cover the position, the Portfolio will maintain in a
segregated account with its depository cash or cash equivalents sufficient to
cover the market value of the open position. The S&P 100 Plus Portfolio may also
engage in option transactions on securities indices as a strategy to hedge
against anticipated declines in the S&P 100 Index (and thereby to hedge
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<PAGE> 88
against a similar decline in its portfolio) and to enhance the Portfolio's
return through premium income.
The PSE Tech 100 Index Portfolio may write (sell) covered call options
and put options, and may purchase call options and put options on stock indices
for the purposes and subject to the limitations outlined in "PSE Tech 100 Index
Portfolio--Investment Policies" in the Prospectus. See generally "Additional
Investment Practices and Risks -- Options and Futures Activities" in the
Prospectus.
Options on individual stocks may also be utilized by the Dividend
Achievers Portfolio to enhance income and for hedging purposes, but the Advisor
has no plans to do so at this time.
A call option on a security gives the purchaser of the option the right
to buy, and the writer (seller) of the option the obligation to sell, the
underlying security at the exercise price at any time during the option period.
The premium paid to the writer is the consideration for undertaking the
obligations under the option contract. A call option written (sold) by a
Portfolio exposes the Portfolio during the term of the option to possible loss
of an opportunity to realize appreciation in the market price of the related
portfolio security, or to possible continued holding of a security which might
otherwise have been sold to protect against depreciation in the market price of
the security.
A call option is considered to be covered if: (i) the writer (seller)
thereof owns the security underlying the call or has an absolute and immediate
right to acquire that security without payment of additional cash consideration
(or for additional cash consideration held in a segregated account by its
custodian or depository) upon conversion or exchange of other securities; (ii)
the writer holds on a unit-for-unit basis a call on the same security as the
call written, and the exercise price of the call purchased is equal to or less
than the exercise price of the call written, or greater than the exercise price
of the call written if the difference is maintained by the Portfolio in cash or
cash equivalents in a segregated account with its custodian or depository; or
(iii) the writer maintains in a segregated account with its custodian or
depository cash or cash equivalents sufficient to cover the market value of the
open position.
An option on an index is a contract that gives the holder of the
option, in return for payment of a premium, the right to demand from the seller
(call) delivery of cash in an amount equal to the value of the index at a
specified exercise price at any time during the term of the option. Upon
exercise, the writer of an option on an index is obligated to pay the difference
between the cash value of the index and the exercise price multiplied by the
specified multiplier for the index option. A call option on an index is
considered to be covered if the writer (seller) maintains with its custodian or
depository cash or cash equivalents equal to the contract value. A call option
is also covered if the writer holds a call on the same index as the call written
where the exercise price of the call purchased is equal to or less than the
exercise price of the call written.
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<PAGE> 89
A put option on a security gives the purchaser of the option the right
to sell, and the writer (seller) of the option the obligation to buy, the
underlying security at the exercise price at any time during the option period.
A put option on a securities index gives the purchaser of the option the right
to sell, and the writer (seller) of the option the obligation buy, the cash
value of the index at any time during the option.
A put option on an index is covered if a writer holds a put on the same
index as the put written where the exercise price of the put held is (i) equal
to or greater than the exercise price of the put written, or (ii) less than the
exercise price of the put written provided the difference is maintained by the
writer in cash or cash equivalents in a segregated account with its custodian or
depository.
A Portfolio will only purchase put options on individual securities
held by the Portfolio, or, in the case of the S&P 100 Plus Portfolio and the PSE
Tech 100 Index Portfolio, on securities indices which, in the opinion of the
Advisor, have investment characteristics similar to those of securities in the
Portfolio or an index on the securities.
Whenever a Portfolio does not own securities underlying an open option
position sufficient to cover the position, or whenever a Portfolio has written
(sold) a put, the Portfolio will maintain in a segregated account with its
Depository cash or cash equivalents sufficient to cover the exercise price or,
with respect to index options, the market value of the open position. The
purchase of a put option may be intended to protect the Portfolio from the risk
of a decline in the value of a security below the exercise price of the option.
The Portfolio may ultimately sell the option in a closing sale transaction,
exercise it or permit it to expire.
Futures
The S&P 100 Plus Portfolio and PSE Tech 100 Index Portfolio may
purchase and sell exchange-traded index futures contracts on the S&P 500 Index
(and on the PSE Technology Index, in the case of the PSE Tech 100 Index
Portfolio) for the purposes and strategies described in the Prospectus. A
futures contract on an index is an agreement by which one party agrees to accept
delivery of, and the other party agrees to make delivery of, an amount of cash
equal to the difference between the value of the underlying index at the close
of the last trading day of the futures contract and the price at which the
contract originally was written. Although the value of an index might be a
function of the value of certain specified securities, no physical delivery of
those securities is made.
Futures contracts covering the S&P 500 Index and PSE Technology Index
presently are traded on the Chicago Mercantile Exchange and the New York Futures
Exchange, respectively. The S&P 100 Plus Portfolio and PSE Tech 100 Index
Portfolio also may engage in transactions involving futures contracts on other
indices presently traded or in the future created and traded on national stock
exchanges if, in the opinion of the Board of Directors of Principal
Preservation, such futures contracts are appropriate instruments to help the
Advisor achieve the respective Portfolio's objective.
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<PAGE> 90
Each of the S&P 100 Plus and PSE Tech 100 Index Portfolios generally
will limit its use of futures contracts to hedging transactions. For example,
the S&P 100 Plus Portfolio or PSE Tech 100 Index Portfolio might use futures
contracts to equitize uncommitted cash or to hedge against anticipated declines
in the cash value of the S&P 100 Index or the PSE Technology Index, as the case
may be. Each such Portfolio also may sell futures contracts to hedge against
anticipated declines in common stocks presently owned and may purchase futures
contracts to hedge against anticipated increases in common stocks the Portfolio
intends to purchase. The success of any hedging technique depends on the ability
of the Advisor correctly to predict changes in the level and direction of
movement in the underlying index. Should these predictions prove incorrect, each
such Portfolio's return might have been better had hedging not been attempted;
however, in the absence of the ability to hedge, the Advisor might have taken
portfolio actions in anticipation of the same market movements with similar
investment results but, presumably, at greater transaction costs. The Portfolios
will only enter into futures contracts which are standardized and traded on a
U.S. exchange, board of trade, or similar entity, or quoted on an automated
quotation system.
When a purchase or sale of a futures contract is made by a Portfolio,
the Portfolio is required to deposit with the Depository (or broker, if legally
permitted) a specified amount of cash or U.S. Government Securities ("initial
margin"). The margin required for a futures contract is set by the exchange on
which the contract is traded and may be modified during the term of the
contract. The initial margin is in the nature of a performance bond or good
faith deposit on the futures contract which is returned to the Portfolio upon
termination of the contract, assuming all contractual obligations have been
satisfied. Each of the S&P 100 Plus Portfolio and PSE Tech 100 Index Portfolio
expects to earn interest income on its initial margin deposits. A futures
contract held by the Portfolio is valued daily at the official settlement price
of the exchange on which it is traded. Each day the Portfolio pays or receives
cash, called "variation margin," equal to the daily change in value of the
futures contract. This process is known as "marking to market." Variation margin
does not represent a borrowing or loan by the Portfolio, but is instead a
settlement between the Portfolio and the broker of the amount one would owe the
other if the futures contract expired. In computing daily net asset value, each
of the S&P 100 Plus Portfolio and PSE Tech 100 Index Portfolio will mark to
market all of its open futures positions.
While a Portfolio maintains an open futures position, the Portfolio
must maintain with the Depository, in a segregated account, assets with a market
value sufficient to cover the Portfolio's exposure on the position (less the
amount of the margin deposit associated with the position). A Portfolio's
exposure on a futures contract is equal to the amount paid for the contract by
the Portfolio.
Index futures contracts in which the S&P 100 Plus Portfolio or PSE Tech
100 Index Portfolio will invest are closed out prior to delivery by offsetting
purchases or sales of matching futures contracts (same exchange, underlying
index, and delivery month), or in cash. If an offsetting purchase price is less
than the original sale price, the Portfolio would realize a capital gain, or if
it is more, the Portfolio would realize a capital loss. Conversely, if an
offsetting sale price is more than the original purchase price, the Portfolio
would realize a
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<PAGE> 91
capital gain, or if it is less, the Portfolio would realize a capital loss. The
transaction costs must also be included in these calculations.
There are several risks associated with the use of futures contracts in
the manner intended by the S&P 100 Plus Portfolio and PSE Tech 100 Index
Portfolio. A purchase or sale of a futures contract may result in losses in
excess of the amount invested in the futures contract. There can be no guarantee
that there will be a correlation between the price movements in the underlying
index and in the portfolio securities being hedged or the index being simulated,
as the case may be. In addition, there are significant differences between the
securities and futures markets that could result in an imperfect correlation
between the markets, causing a given strategy not to achieve its objective. The
degree of imperfection of correlation depends on circumstances such as:
variations in speculative market demand for futures and differences between the
financial instruments being hedged or replicated and the instruments underlying
the standard contracts available for trading.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of the futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day,
and therefore does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example, futures prices
have occasionally moved to the daily limit for several consecutive trading days
with little or no trading, thereby preventing prompt liquidation of positions
and subjecting some holders of futures contracts to substantial losses. There
can be no assurance that a liquid market will exist at a time when a Portfolio
seeks to close out a futures position and the Portfolio would continue to be
required to meet margin requirements until the position is closed.
To minimize such risks, neither the S&P 100 Plus Portfolio nor the PSE
Tech 100 Index Portfolio will enter into a futures contract if, immediately
after such transaction, the initial margin deposits for futures contracts held
by the Portfolio would exceed 5% of the Portfolio's total assets. Additionally,
the Portfolio may not maintain open short positions in futures contracts or call
options written on indices if, in the aggregate, the market value of all such
open positions exceeds the current value of the securities in the Portfolio's
investment portfolio, plus or minus unrealized gains and losses on the open
positions, adjusted for the historical relative volatility of the relationship
between the portfolio and the positions. For this purpose, to the extent a
Portfolio has written call options on specific securities in its investment
portfolio, the value of those securities will be deducted from the current
market value of the securities portfolio.
Taxation of Options and Futures
If a Portfolio exercises a call or put option it owns, the premium paid
for the option is added to the cost of the security purchased (call) or deducted
from the proceeds of the sale
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(put). For cash settlement options, the difference between the cash received at
exercise and the premium paid is a capital gain or loss. If a call or put option
written by a Portfolio is exercised, the premium is included in the proceeds of
the sale of the underlying security (call) or reduces the cost of the security
purchased (put). For cash settlement options, the difference between the cash
paid at exercise and the premium received is a capital gain or loss. Entry into
a closing purchase transaction will result in capital gain or loss. If an option
was "in the money" at the time it was written and the security covering the
option was held for more than one year prior to the writing of the option, any
loss realized as a result of a closing purchase transaction will be long-term
for federal tax purposes. The holding period of the securities covering an "in
the money" option will not include the period of time the option was
outstanding.
A futures contract held until delivery results in capital gain or loss
equal to the difference between the price at which the futures contract was
entered into and the settlement price on the earlier of the delivery notice date
or the expiration date. Should a Portfolio ever deliver securities under a
futures contract (which is not expected to occur), the Portfolio will realize a
capital gain or loss on those securities.
For federal income tax purposes, a Portfolio generally is required to
recognize as income for each taxable year its net unrealized gains and losses as
of the end of the year on options and futures positions ("year-end mark to
market"). Generally any gain or loss recognized with respect to such positions
(either by year-end mark to market or by actually closing of the positions) is
considered to be 60% long term and 40% short term, without regard to the holding
periods of the contracts. However, in the case of positions classified as part
of a "mixed straddle," the recognition of losses on certain positions (including
options and futures positions, the related securities positions and certain
successor positions thereto) may be deferred to a later taxable year. Sales of
futures contracts or writing of call options or buying put options which are
intended to hedge against a change in the value of securities held by a
Portfolio may affect the holding period of the hedged securities.
Each Portfolio distributes to shareholders annually any net capital
gains which have been recognized for federal income tax purposes (including
year-end mark to market gains) on options and futures transactions. Such
distributions are combined with distributions of capital gains realized on the
Portfolio's other investments and shareholders are advised of the nature of the
payments.
S&P 100 Index and PSE Technology Index
For illustrative purposes, the S&P 100 Plus Portfolio and the PSE Tech
100 Index Portfolio sometimes includes in their supplemental sales literature a
line graph showing the similarity of the price patterns of the S&P 100 and the
S&P 500 stock indices (in the case of the S&P 100 Plus Portfolio), and the PSE
Technology Index (in the case of the PSE Tech 100 Index Portfolio), over the
past decade. The presentation displays superimposed line graphs of annual prices
of the S&P 100 and the S&P 500 stock indices or the PSE Technology Index,
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as the case may be, over approximately a 10-year period, with prices reflected
on the vertical axis and years reflected on the horizontal axis.
The S&P 100 Index is based upon stocks which are all listed on the NYSE
and all have equity options trading on the CBOE. The S&P 100 Index was also the
first stock index listed for options trading. The S&P 100 Index was designed to
track closely the S&P 500 Index, which is designed to be representative of the
stock market as a whole. The S&P 100 stocks are all included in the S&P 500
Index. The graph indicates that there have been some modest discrepancies
between the stock prices in the S&P 100 Index and the S&P 500 Index in recent
years, as compared to the very high price correlation observed between those
indices in earlier years. Historical prices are not necessarily indicative of
the future prices of either of these indices, or of the performance of the S&P
100 Plus Portfolio or the ability of that Portfolio to match the performance of
either of those indices or of the broad stock market generally.
The S&P 100 Plus Portfolio also sometimes presents in its supplemental
sales materials charts that compare the growth in value of a share of the S&P
100 Plus Portfolio from commencement of its operations through December 31, 1997
to the growth of the S&P 100 Index over the same period. One chart presents the
comparison on a total yield basis, and another on a gross dollar basis. Each
presentation assumes the reinvestment of all dividends.
Historical prices are not necessarily indicative of the future prices
of an index, or of the performance of a Portfolio or the ability of a Portfolio
to match the performance of an index or of the stock market generally.
The S&P 100 Plus Portfolio is not sponsored, endorsed, sold or promoted
by Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"). S&P
makes no representation or warranty, implied or expressed, to the purchasers of
the Portfolio or any member of the public regarding the advisability of
investing in index funds generally, or in this Portfolio particularly, or the
ability of the S&P Index to track general stock market performance. S&P's only
relationship to this Portfolio is the licensing of the S&P trademarks and S&P
100 which is determined, composed and calculated by S&P without regard to this
Portfolio. "Standard & Poor's", "Standard & Poor's 100", "S&P", "S&P 100" and
"100" in connection with the S&P 100 are trademarks of S&P.
The PSE Tech 100 Index Portfolio is not sponsored, endorsed, sold or
promoted by the Pacific Stock Exchange Incorporated. The Pacific Stock Exchange
Incorporated makes no representation or warranty, implied or expressed to the
purchasers of the PSE Tech 100 Index Portfolio or any member of the public
regarding the advisability of investing in index funds generally, or in that
Portfolio particularly, or the ability of the PSE Technology Index to track
stock market performance.
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Repurchase Agreements
Each Portfolio may from time to time enter into repurchase agreements.
Repurchase agreements involve the sale of securities to the purchasing Portfolio
with the concurrent agreement of the seller to repurchase the securities at the
same price plus an amount equal to an agreed upon interest rate within a
specified time, usually less than one week, but on occasion for a longer period.
Each Portfolio may enter into repurchase agreements with broker-dealers and with
banks. At the time a Portfolio enters into a repurchase agreement, the value of
the underlying security, including accrued interest, will be equal to or exceed
the value of the repurchase agreement and, in the case of repurchase agreements
exceeding one day, the seller will agree that the value of the underlying
security, including accrued interest, will at all times be equal to or exceed
the value of the repurchase agreement. The Portfolio will require continual
maintenance of cash or cash equivalents held by its depository in an amount
equal to, or in excess of, the market value of the securities which are subject
to the agreement.
In the event the seller of the repurchase agreement becomes the subject
of a bankruptcy or insolvency proceeding, or in the event of the failure of the
seller to repurchase the underlying security as agreed, the Portfolio could
experience losses that include: (1) possible decline in the value of the
underlying security during the period that the Portfolio seeks to enforce its
rights with respect thereto, and possible delay in the enforcement of such
rights; (2) possible loss of all or a part of the income or proceeds of the
repurchase; (3) additional expenses to the Portfolio in connection with
enforcing those rights; and (4) possible delay in the disposition of the
underlying security pending court action or possible loss of rights in such
securities. The Advisors intend to cause a Portfolio to invest in repurchase
agreements only when they determine that the Portfolio should invest in
short-term money market instruments and that the rates available on repurchase
agreements are favorable as compared to the rates available on other short-term
money market instruments or money market mutual funds. The Advisors do not
currently intend to invest the assets of any Portfolio in repurchase agreements
if, after doing so, more than 5% of the Portfolio's net assets would be invested
in repurchase agreements.
When-Issued and Delayed Delivery Transactions
The Tax-Exempt Portfolio and the Government Portfolio may purchase or
sell securities in when-issued or delayed delivery transactions. In such
transactions, instruments are bought or sold with payment and delivery taking
place in the future in order to secure what is considered to be an advantageous
yield or price to the purchasing Portfolio at the time of entering into the
transactions. The payment obligations and the interest rate are fixed at the
time the buyer enters into the commitment, although no interest accrues to the
purchaser prior to settlement of the transaction. Consistent with the
requirements of the 1940 Act, securities purchased on a when-issued basis are
recorded as an asset (with the purchase price being recorded as a liability) and
are subject to changes in value based upon changes in the general level of
interest rates. At the time of delivery of the security, the value may be more
or less than the transaction price. At the time a purchasing Portfolio enters
into a binding obligation to purchase securities on a when-issued basis, liquid
assets of the Portfolio having a value at
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least as great as the purchase price of the securities to be purchased are
identified on the books of the Portfolio and held by the Portfolio's depository
throughout the period of the obligation. The use of these investment strategies
may increase net asset value fluctuations.
The purchasing Portfolio will only make commitments to purchase
securities on a when-issued basis with the intention of actually acquiring the
securities, and not for the purpose of investment leverage, but the Portfolio
reserves the right to sell the securities before the settlement date if it is
deemed advisable. Any gains from such sales will be subject to federal income
tax to the extent not offset by losses on other transactions. The above
Portfolios do not currently intend to purchase securities in when-issued
transactions if, after such purchase, more than 5% of the Portfolio's net assets
would consist of when-issued securities.
Short-Term Investments
The Portfolios may invest in any of the following securities and
instruments in management of cash receipts, for liquidity for anticipated
redemptions, to meet cash flow needs to enable each such Portfolio to take
advantage of buying opportunities, during periods when attractive investments
are unavailable and for temporary defensive purposes.
BANK CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS.
Each Portfolio may acquire certificates of deposit, bankers' acceptances and
time deposits. Certificates of deposit are negotiable certificates issued
against funds deposited in a commercial bank for a definite period of time and
earn a specified return. Bankers' acceptances are negotiable drafts or bills of
exchange normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers' acceptances acquired by the Portfolio will
be dollar-denominated obligations of domestic banks or financial institutions
which at the time of purchase have capital, surplus and undivided profits in
excess of $100 million, based on latest published reports, or less than $100
million if the principal amount of such bank obligations are fully insured by
the U.S. Government.
In addition to purchasing certificates of deposit and bankers'
acceptances, to the extent permitted under its investment objective and
policies, each such Portfolio may make interest-bearing time or other
interest-bearing deposits in commercial or savings banks. Time deposits are
non-negotiable deposits maintained at a banking institution for a specified
period of time at a specified interest rate.
SAVINGS ASSOCIATION OBLIGATIONS. Each Portfolio may invest in
certificates of deposit (interest-bearing time deposits) issued by savings banks
or savings and loan associations that have capital and undivided profits in
excess of $100 million, based on latest published reports, or less than $100
million if the principal amount of such obligations is fully insured by the U.S.
Government.
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COMMERCIAL PAPER, SHORT-TERM NOTES, VARIABLE RATE DEMAND NOTES,
REPURCHASE AGREEMENTS AND OTHER CORPORATE OBLIGATIONS. Each Portfolio may invest
a portion of its assets in commercial paper and short-term notes, including
variable rate demand notes. Commercial paper consists of unsecured promissory
notes issued by corporations. Issues of commercial paper and short-term notes
will normally have maturities of less than nine months and fixed rates of
return, although such instruments may have maturities of up to one year.
Commercial paper and short-term notes will consist of issues rated at
the time of purchase "A-2" or higher by S&P, "Prime-1" or "Prime-2" by Moody's,
or similarly rated by another organization or, if unrated, will be determined by
the Advisors to be of comparable quality. These rating symbols are described
below under "Description of Ratings of Certain Securities."
Corporate obligations include bonds and notes issued by corporations to
finance longer-term credit needs than supported by commercial paper. While such
obligations generally have maturities of ten years or more, each such Portfolio
may purchase corporate obligations which have remaining maturities of one year
or less from the date of purchase and which are rated "AA" or higher by S&P or
"Aa" or higher by Moody's.
Each Portfolio also may purchase corporate obligations known as
variable rate demand notes. Variable rate demand notes are unsecured instruments
that permit the indebtedness thereunder to vary and provide for periodic
adjustments in the interest rate. Although the notes are not normally traded and
there may be no secondary market in the notes, the Portfolio may demand payment
of principal and accrued interest at any time. The investment policies of the
Select Value Portfolio permit the purchase of variable rate demand notes only
if, at the time of purchase, the notes are rated in the two highest rating
categories by a Nationally Recognized Statistical Rating Organization, or, if
unrated, the issuer has unsecured debt securities outstanding of an equivalent
rating.
Each Portfolio also may invest in repurchase agreements as short-term
instruments. See "Investment Program - Repurchase Agreements" above.
Investments in Other Investment Companies
An investment by a Portfolio in another investment company may cause
the investing Portfolio to incur duplicate and/or increased administration and
distribution expenses. Such investments are limited under the 1940 Act and by
applicable investment restrictions. See "Investment Restrictions" in this
Statement of Additional Information.
Foreign Investments
The Select Value Portfolio may invest up to 5% of its assets in
securities of foreign issuers that are not publicly traded in the United States,
excluding American Depository Receipts ("ADRs") in which the Portfolio also may
invest. ADRs are receipts issued by an American bank or trust company evidencing
ownership of underlying securities issued by a
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foreign issuer. ADRs may be listed on a national securities exchange or may
trade in the over-the-counter market. ADR prices are denominated in United
States dollars; the underlying security may be denominated in a foreign
currency, although the underlying security may be subject to foreign government
taxes which would reduce the yield on such securities.
RISKS OF INVESTING IN FOREIGN SECURITIES. Investments in foreign
securities involve certain inherent risks, including the following:
Political and Economic Factors. Individual foreign economies of certain
countries may differ favorably or unfavorably from the United States' economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, diversification and balance of payments
position. Governments in certain foreign countries also continue to participate
to a significant degree, through ownership interest or regulation, in their
respective economies. Action by these governments could include restrictions on
foreign investment, nationalization, expropriation of goods or imposition of
taxes, and could have a significant effect on market prices of securities and
payment of interest. The economies of many foreign countries are heavily
dependent upon international trade and are accordingly affected by the trade
policies and economic conditions of their trading partners. Enactment by these
trading partners of protectionist trade legislation could have a significant
adverse effect upon the securities markets of such countries.
Currency Fluctuations. The Select Value Portfolio may invest in
securities denominated in foreign currencies. Accordingly, a change in the value
of any such currency against the U.S. dollar will result in a corresponding
change in the U.S. dollar value of the Portfolio's assets denominated in that
foreign currency. The value of the Portfolio's assets may also be affected
significantly by currency restrictions and exchange control regulations enacted
from time to time.
Market Characteristics. The Advisors expect that most foreign
securities in which the Select Value Portfolio may invest will be purchased in
over-the-counter markets or on exchanges located in the countries in which the
principal offices of the issuers of the various securities are located, if that
is the best available market. Foreign exchanges and markets may be more volatile
than those in the United States, and foreign securities may be less liquid than
domestic securities. Moreover, settlement practices for transactions in foreign
markets may differ from those in United States markets, and may include delays
beyond periods customary in the United States.
Legal and Regulatory Matters. Certain foreign countries may have less
supervision of securities markets, brokers and issuers of securities, and less
financial information available to issuers, than is available in the United
States.
Taxes. Dividends and interest payable on the Select Value Portfolio's
foreign portfolio securities may be subject to foreign withholding taxes, thus
reducing the net amount of income available for distribution to the Portfolio's
shareholders.
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In considering whether to invest in the securities of a foreign
company, the Advisors consider such factors as the characteristics of the
particular company, differences between economic trends and the performance of
securities markets within the U.S. and those within other countries, and also
factors relating to the general economic, governmental and social conditions of
the country or countries where the company is located. The extent to which the
Select Value Portfolio will be invested in foreign companies and countries and
ADRs will fluctuate from time to time within the limitations imposed above,
depending on the Advisors' assessment of prevailing market, economic and other
conditions.
Industry Concentration
There may be periods of time during which the issuers represented in
the PSE Technology Index are concentrated in one or more industries.
Notwithstanding the occurrence of such industry concentrations, the PSE Tech 100
Index Portfolio intends to maintain its investments so as to replicate that
Index. As a result, a relatively high percentage of the Portfolio's assets may
be concentrated from time to time in stocks of issuers within a single industry.
Such issuers may be subject to the same economic trends. Securities held by the
Portfolio may therefore be more susceptible to any single economic, political,
or regulatory occurrence than the portfolio securities of many other investment
companies.
Portfolio Turnover
Principal Preservation has not established a limit to its portfolio
turnover rates, nor will it attempt to achieve or be limited to predetermined
rates of portfolio turnover. The portfolio turnover rates of the various
Portfolios are presented in the tables included in the sections of the
Portfolios' combined Prospectus captioned "Financial Highlights."
INVESTMENT RESTRICTIONS
Restrictions for All Portfolios Other Than Select Value and PSE Tech 100 Index
Portfolios
Each Portfolio, other than the Select Value Portfolio and PSE Tech 100
Index Portfolio, has adopted the following fundamental investment restrictions
and policies which cannot be changed without a majority vote of shareholders of
that Portfolio, except that the restriction set forth in paragraph 16 is not
fundamental. Policies that are not "fundamental policies" are subject to change
by the Board of Directors without shareholder approval. A Portfolio may not:
(1) Invest more than 5% of the fair market value of its assets in
securities of any one issuer, except for U.S. Government Securities, which may
be purchased without limitation; and, with respect to the S&P 100 Plus
Portfolio, except as necessary to parallel the composition of the S&P 100 Stock
Index. For the purposes of this limitation, the Tax-Exempt Portfolio will regard
the entity which has the ultimate responsibility for payment of principal and
interest as the issuer.
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(2) Purchase more than 10% of the outstanding voting securities of an
issuer, or invest in a company to get control or manage it.
(3) Invest 25% or more of its total assets, based on current market
value at the time of purchase, in securities of issuers in any single industry;
provided that there shall be no limitation on the purchase of U.S. Government
securities or on municipal securities.
(4) Invest more than 5% of its total assets in securities of companies
which, including any predecessors, have a record of less than three years of
continuous operations.
(5) Invest in securities of other investment companies, except by
purchases as a result of which not more than 10% of the Portfolio's total assets
(taken at current value) would be invested in such securities, or except as they
may be acquired as part of a merger, consolidation, reorganization or
acquisition of assets.
(6) Buy or sell real estate, real estate investment trusts, interests
in real estate limited partnerships, oil, gas and mineral interests, or oil, gas
and mineral leases, but this shall not prevent the Tax-Exempt Portfolio from
investing in municipal securities secured by real estate or interests therein.
(7) Borrow money or property except for temporary or emergency
purposes. If a Portfolio ever should borrow money it would only borrow from
banks and in an amount not exceeding 10% of the market value of its total assets
(not including the amount borrowed). The Portfolio will not pledge more than 15%
of its net assets to secure such borrowings. In the event a Portfolio's
borrowing exceeds 5% of the market value of its total assets the Portfolio will
not invest in any additional portfolio securities until its borrowings are
reduced to below 5% of its total assets. For purposes of these restrictions,
collateral arrangements for premium and margin payments in connection with a
Portfolio's hedging activities are not to be deemed to be a pledge of assets.
(8) Make loans, except that a Portfolio may lend its portfolio
securities, subject to the conditions and limitations established in the
Prospectus. See "Additional Investment Practices And Risks -- Lending of
Portfolio Securities" in the Prospectus. For the purposes of this restriction,
investments in publicly-traded debt securities or debt securities of the type
customarily purchased by institutional investors and investments in repurchase
agreements are not considered loans.
(9) Underwrite the securities of other issuers, except that the
Tax-Exempt Portfolio may bid, separately or as part of a group, for the purchase
of municipal securities directly from an issuer for its own portfolio in order
to take advantage of the lower purchase price available.
(10) Purchase securities with legal or contractual restrictions on
resale.
(11) Issue senior securities.
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(12) Purchase securities on margin, make short sales or write or
purchase put and call options, except for the purposes and subject to the
conditions and limitations described in the Prospectus. See the Portfolios
"Investment Policies" and "Additional Investment Practices And Risks" in the
Prospectus.
(13) Buy or sell commodities or commodity contracts.
(14) Invest in illiquid securities.
(15) Purchase warrants, valued at lower of cost or market, in excess of
5% of the value of the Portfolio's net assets; included within the 5%, but not
to exceed 2% of the Portfolio's net assets, may be warrants which are not listed
on the New York or American Stock Exchange.
(16) Purchase or retain the securities of an issuer if those officers
or Directors of Principal Preservation or the Advisors (as defined under the
caption "Management of Principal Preservation -- The Investment Advisors" in
this Statement of Additional Information) who individually own beneficially more
than 0.5 of 1% of the outstanding securities of such issuer together own
beneficially more than 5% of such outstanding securities.
In addition to the investment restrictions above, the Tax-Exempt
Portfolio also is subject to a fundamental investment restriction that it will
invest at least 90% of its total assets in tax-exempt municipal securities,
under normal circumstances.
Each Portfolio also is subject to certain nonfundamental investment
restrictions described below. See "Investment Restrictions - Nonfundamental
Investment Restrictions Common to All Portfolios" below.
Restrictions for Select Value Portfolio
The Select Value Portfolio has adopted the following fundamental
investment restrictions:
(1) Invest more than 5% of the fair market value of its assets in
securities of any one issuer, except for U.S. Government securities or bank
certificates of deposit and bankers' acceptances, which may be purchased without
such limitation.
(2) Acquire securities of any one issuer which at the time of
investment (i) represent more than 10% of the outstanding voting securities of
such issuer, or (ii) have a value greater than 10% of the value of the
outstanding voting securities of such issuer.
(3) Invest 25% or more of its total assets, based on current market
value at the time of purchase, in securities of issuers in any single industry;
provided that there shall be no limitation on the purchase of securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities.
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(4) Invest more than 5% of its total assets in securities of companies
which, including any predecessors, have a record of less than three years of
continuous operations.
(5) Purchase securities on margin or effect short sales of securities
(but the Portfolio may obtain such short-term credits as may be necessary for
the clearance of transactions and may make margin payments in connection with
transactions in options, futures and options on futures).
(6) Buy or sell real estate (although it may purchase securities
secured by real estate or interests therein, or securities issued by companies
which invest in real estate or interests therein, except that it may not invest
over 10% of the value of its assets in real estate investment trusts).
(7) Borrow money or property except for temporary or emergency purposes
and in connection with transactions in options, futures or futures options. If
the Portfolio ever should borrow money it would only borrow from banks and in an
amount not exceeding 10% of the market value of its total assets (not including
the amount borrowed). The Portfolio will not pledge more than 15% of its net
assets to secure such borrowings. In the event the Portfolio's borrowing exceeds
5% of the market value of its total assets, the Portfolio will not invest in any
portfolio securities until its borrowings are reduced to below 5% of its total
assets.
(8) Make loans to other persons. For the purposes of this restriction,
investments in publicly-traded debt securities or debt securities of the type
customarily purchased by institutional investors and investments in repurchase
agreements are not considered loans.
(9) Underwrite the securities of other issuers except where it might
technically be deemed to be an underwriter for purposes of the Securities Act of
1933 upon the disposition of certain securities.
(10) Issue senior securities (other than the borrowings permitted
above).
In accordance with the following non-fundamental policies, which may be
changed without shareholder approval, the Select Value Portfolio may not:
(A) Invest in companies for the purpose of exercising control or
management.
(B) Invest in securities of other open-end investment companies (other
than money market funds which are subject to restrictions described below. See
"Investment Restrictions - Non-fundamental Investment Restrictions Common to All
Portfolios").
(C) Mortgage, hypothecate, or in any manner transfer as security for
any indebtedness, any securities owned or held by the Portfolio, except that
this restriction does not apply to borrowings permitted above.
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(D) Purchase or retain the securities of an issuer if those officers or
Directors of Principal Preservation or the Advisors (as defined under the
caption "Management of Principal Preservation --The Investment Advisors" in this
Statement of Additional Information) who individually own beneficially more than
0.5 of 1% of the outstanding securities of such issuer together own beneficially
more than 5% of such outstanding securities.
(E) Invest more than 5% of its assets (valued at the time of
investment) in restricted securities or securities which are not readily
marketable, including (i) securities subject to legal or contractual
restrictions on resale; (ii) securities for which market quotations are not
readily available; or (iii) repurchase agreements which expire in excess of
seven days.
(F) Purchase warrants, valued at lower of cost or market, in excess of
5% of the value of the Portfolio's net assets. Included within the 5%, but not
to exceed 2% of the Portfolio's net assets, may be warrants which are not listed
on the New York or American Stock Exchange, or on the Nasdaq National Market.
Warrants acquired by the Portfolio in units or attached to securities shall be
deemed to be without value for the purposes of this restriction.
(G) Buy or sell commodities or commodity contracts or invest in
financial futures, options or options on financial futures.
(H) Invest less than 65% of its total assets in common stocks.
(I) Invest over 5% of its total assets in repurchase agreements.
(K) Invest in oil, gas or other mineral exploration or development
programs, except that the Portfolio may invest in marketable securities of
enterprises engaged in oil, gas or mineral exploration.
Restrictions for PSE Tech 100 Index Portfolio
The PSE Tech 100 Index Portfolio has adopted the following fundamental
investment restrictions:
(1) Purchase more than 10% of the outstanding voting securities of an
issuer or invest in a company to get control or manage it.
(2) Borrow money or property except for temporary or emergency
purposes. If the Portfolio ever should borrow money it would only borrow from
banks and in an amount not exceeding 10% of the market value of its total assets
(not including the amount borrowed). The Portfolio will not pledge more than 15%
of its net assets to secure such borrowings. In the event the Portfolio's
borrowing exceeds 5% of the market value of its total assets, the Portfolio will
not invest in any portfolio securities until its borrowings are reduced to below
5% of its total assets. For purposes of these restrictions, collateral
arrangements for premium
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and margin payments in connection with hedging activities, if any, are not to be
deemed to be a pledge of assets.
(3) Make loans, except that it may lend its portfolio securities. For
the purposes of this restriction, investments in publicly-traded debt securities
or debt securities of the type customarily purchased by institutional investors
and investments in repurchase agreements are not considered loans.
(4) Underwrite the securities of other issuers, except where it might
technically be deemed to be an underwriter for purposes of the Securities Act of
1933 upon the disposition of certain securities.
(5) Issue senior securities.
(6) Purchase a security if, as a result, more than 10% of the value of
the Portfolio's net assets would be invested in: (i) securities with legal or
contractual restrictions on resale (other than investments and repurchase
agreements); (ii) securities for which market quotations are not readily
available; and (iii) repurchase agreements which do not provide for payment
within 7 days.
(7) Invest in commodities, but the Portfolio may invest in futures
contracts and options.
(8) Purchase securities on margin or effect short sales of securities,
except short sales "against the box" (but the Portfolio may obtain such
short-term credits as may be necessary for the clearance of transactions and may
make margin payments in connection with transactions in options and futures
transactions).
(9) Buy or sell real estate, real estate investment trusts, real estate
limited partnerships, or oil and gas interests or leases.
In accordance with the following non-fundamental policies, which may be
changed without shareholder approval, the PSE Tech 100 Index Portfolio may not:
(A) Invest more than 5% of its total assets in securities of companies
which, including any predecessors, have a record of less than three years of
continuous operations.
(B) Purchase warrants, except that the Portfolio may purchase warrants
which, when valued at lower of cost or market, do not exceed 5% of the value of
the Portfolio's net assets; included within the 5%, but not to exceed 2% of the
Portfolio's net assets, may be warrants which are not listed on the New York or
American Stock Exchange.
(C) Purchase or retain the securities of an issuer if those officers or
Directors of Principal Preservation or the Advisor (as defined under the caption
"Management of Principal Preservation-The Investment Advisors" in this Statement
of Additional Information) who
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individually own beneficially more than 0.5 of 1% of the outstanding securities
of such issuer together own beneficially more than 5% of such outstanding
securities; provided that no officer or director shall be deemed to own
beneficially securities held in other accounts managed by such person or held in
employee or similar plans for which such person acts as trustee.
(D) Purchase securities of other investment companies if the purchase
would cause more than 10% of the value of the total assets of the Portfolio to
be invested in investment company securities, provided that: (i) no investment
will be made in the securities of any single investment company if, immediately
after such investment, more than 3% of the outstanding voting securities of such
investment company would be owned by the Portfolio or more than 5% of the value
of the total assets of the Portfolio would be invested in such investment
company; and (ii) no such restrictions shall apply to a purchase of investment
company securities as a part of a merger, consolidation, reorganization or
acquisition of assets.
With respect to fundamental investment restriction (6) above for the
PSE Tech 100 Index Portfolio, portfolio securities are classified by the Advisor
as liquid or illiquid under the supervision of, and pursuant to guidelines
established by, the Board of Directors of Principal Preservation. It is possible
that the 10% limitation on illiquid securities could be exceeded as a result of
a security which, although liquid at the time of purchase, later is classified
by the Advisor as illiquid as a result of market conditions or developments with
respect to the issuer. Under such circumstances the Board of Directors would
investigate and consider all of the surrounding circumstances, would evaluate
all available alternatives to bring the PSE Tech 100 Index Portfolio back into
compliance with the 10% limitation as soon as reasonably practicable, and would
take appropriate action. However, the Portfolio would not necessarily be
required immediately to dispose of illiquid securities until the 10% limitation
is met if, in the judgment of the Board of Directors, it would not be in the
best interests of the shareholders to do so. Disposing of illiquid investments
potentially may involve time-consuming negotiation and legal expenses, and it
may be difficult or impossible for the Portfolio to sell an illiquid security
promptly at an acceptable price. The absence of a trading market can make it
difficult to ascertain the market value for illiquid investments, and could
require the Portfolio to employ special pricing procedures. Because the stocks
included in the PSE Technology Index are listed on the Nasdaq Stock Market, the
New York Stock Exchange or the American Stock Exchange, the Portfolio does not
anticipate any difficulty in maintaining adequate liquidity under normal market
conditions. See "PSE Tech 100 Index -- Investment Policies" in the Prospectus.
Non-Fundamental Investment Restrictions Common to All Portfolios
Also, the 1940 Act currently places further restrictions on certain of
each Portfolio's investments, including: (i) subject to certain exceptions, the
1940 Act currently prohibits a Portfolio from investing more than 5% of its
total assets in securities of another investment company or purchasing more than
3% of the total outstanding voting stock of another investment company, except
that this restriction does not apply to a purchase of investment company
securities as a part of a merger, consolidation, reorganization or acquisition
of assets;
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and (ii) the 1940 Act's limit on aggregate holdings of illiquid securities or
securities with restrictions on resale is 15% of a Portfolio's net assets.
A fundamental investment restriction or policy cannot be changed
without a majority vote of shareholders of the affected Portfolio, which means
the approval of the holders of the lesser of (i) a majority of the outstanding
shares of the Portfolio or (ii) 67% of the shares represented at a meeting of
shareholders at which the holders of 50% or more of the outstanding shares of
the Portfolio are represented. Policies that are not "fundamental policies" are
subject to change by the Board of Directors without shareholder approval. Any
investment restriction which involves a maximum of securities or assets will not
be considered to be violated unless an excess over the percentage occurs
immediately after, and is caused by, an acquisition of securities or assets of,
or borrowing by, a Portfolio.
Certain Other Influences
In order to help finance its payment of commissions on sales of Class B
shares, Ziegler has entered into an agreement pursuant to which it sells, to a
third party, its right to receive contingent deferred sales charges, the 0.75 of
1% Rule 12b-1 distribution fee and, for the initial one-year period, the 0.25 of
1% Rule 12b-1 service fee applicable to Class B shares. Pursuant to that
agreement, Ziegler has made certain covenants designed to reduce the risk that
such payments may be reduced or discontinued in the near future. Among other
covenants, Ziegler has agreed, with respect to the Portfolios that offer Class B
shares, to: (a) use commercially reasonable efforts to discourage, and to not
initiate without the consent of the third party, any changes in a Portfolio's
fundamental investment objectives, restrictions and investment policies that
would result in significantly increasing the authority of such Portfolio to
invest in certain derivative securities (puts, calls, straddles or spread
options, etc.) or which would authorize the Portfolio to invest above specified
limits in emerging market, non-OECD (Bermuda, Chile, Hong Kong and Singapore)
securities; (b) not cancel, terminate, amend, modify or waive any material term
or condition of the Rule 12b-1 Distribution Plan or the Distribution Agreement
or initiate any change in the commission structure for Class B shares or
payments under the Rule 12b-1 Distribution Plan for Class B shares which would
reduce payments; and (c) not continue serving as an advisor or permit any
affiliate to serve as advisor to any Portfolio with respect to which Ziegler or
an affiliate no longer serves as Distributor. These covenants potentially could
affect recommendations that Ziegler otherwise might make to Principal
Preservation's Board of Directors with respect to the operations and policies of
a particular Portfolio.
INDUSTRY CONCENTRATION FACTORS
As discussed in the Prospectus (see "Additional Investment Practices
And Risks - Industry Concentrations" in the Prospectus), a significant portion
of the PSE Tech 100 Index Portfolio's investments will consist of
technology-based issues, which exposes the Portfolio to risks associated with
economic conditions in that industry.
23
<PAGE> 106
Due to competition, a more concentrated and interrelated product line,
and other factors, companies that develop and/or rely on technology could become
increasingly sensitive to down swings in the economy and competitive factors.
However, the companies whose common stocks are included in the PSE Technology
Index comprise a fairly broad range of industries. This broad industry
representation likely will soften volatility associated with economic political
developments that disproportionately affect specific industries. The PSE Tech
100 Index Portfolio intends to maintain its investments in a manner designed to
replicate the PSE Technology Index even during periods of industry concentration
in the Index, should they occur.
MANAGEMENT OF PRINCIPAL PRESERVATION
Directors and Officers
Under applicable law, the Board of Directors is responsible for
management of Principal Preservation, and provides broad supervision over its
affairs. The Advisors are responsible for each Portfolio's investment
management, and Principal Preservation's officers are responsible for each
Portfolio's operations.
The directors and officers of Principal Preservation and their
principal occupations during the past five years are set forth below. Their
titles may have varied during that period. Unless otherwise indicated, the
address of each director and officer of Principal Preservation is 215 North Main
Street, West Bend, Wisconsin, 53095. Asterisks indicate those Directors of
Principal Preservation who are "interested persons" (as defined in the 1940 Act)
of any of the Advisors or an affiliate of any of the Advisors.
24
<PAGE> 107
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL
PRINCIPAL OCCUPATION DURING
NAME, AGE AND ADDRESS PRESERVATION PAST FIVE YEARS
- --------------------- ------------ ---------------
<S> <C> <C>
Richard J. Glaisner,* 55 Director President and Chief Executive Officer
of GS2 Securities, Inc., a subsidiary
of The Ziegler Companies, Inc., since
July 1997; from 1993 to 1997, President
and Chief Executive Officer of Glaisner,
Schilffarth, Grande & Schnoll, Ltd., an
investment management and investment
banking firm acquired by The Ziegler
Companies, Inc. in 1997; prior thereto,
Managing Director, Kidder Peabody and
Company in New York (investment
banking), and prior to that, Executive
Vice resident, Kemper Securities Group
(securities brokerage and investment
banking).
Robert J. Tuszynski,* 39 President and Director Senior Vice President, B.C. Ziegler
and Company, since 1996; prior
thereto, Vice President, Director of
Mutual Funds, B.C. Ziegler and
Company from 1987 to 1996; Trustee,
Chairman of the Board and President,
Prospect Hill Trust and The Prime
Portfolios (registered investment
companies) from 1994 to 1996.
Richard H. Aster, M.D., 67 Director Since June 1996, Senior Investigator
8727 W. Watertown Plank Rd. and Professor of Medicine, Medical
Milwaukee, WI 53226 College of Wisconsin; prior thereto,
President and Director of Research,
The Blood Center of Southeastern
Wisconsin, Inc.
</TABLE>
25
<PAGE> 108
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL
PRINCIPAL OCCUPATION DURING
NAME, AGE AND ADDRESS PRESERVATION PAST FIVE YEARS
- --------------------- ------------ ---------------
<S> <C> <C>
Augustine J. English, 68 Director Retired; President, Tupperware North
1724 Lake Roberts Court America from 1990 to 1994
Windermere, FL 34786 (manufacturing); prior to 1990,
President, The West Bend Company
(manufacturing), a division of Dart
Industries, a subsidiary of Premark
International, Inc., of which Mr.
English was a Group Vice President.
Ralph J. Eckert, 69 Director Chairman Emeritus and Director,
2059 Keystone Ranch Road Trustmark Insurance Cos. (Mutual Life
Dillon, CO 80435 Insurance Company) since April, 1997;
from 1991 to 1997, Chairman, Trustmark
Insurance Cos; prior to 1991, Chairman,
President and Chief Executive Officer,
Trustmark Insurance Cos; Trustee of
the Board of Pensions of the Evangelical
Lutheran Church of America since 1989;
Trustee of the Board of Pensions for
the Lutheran Church of America from
1987 to 1989; and Trustee of The Prime
Portfolios (registered investment company)
from 1993 to 1996.
John H. Lauderdale, 32 Vice President - Director of Wholesaler, B.C. Ziegler and Company
Marketing since 1991; prior thereto, Marketing
Account Executive, The Patten Company.
</TABLE>
26
<PAGE> 109
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL
PRINCIPAL OCCUPATION DURING
NAME, AGE AND ADDRESS PRESERVATION PAST FIVE YEARS
- --------------------- ------------ ---------------
<S> <C> <C>
Franklin P. Ciano, 46 Chief Financial Officer and Manager of Principal Preservation
Treasurer Operations, B.C. Ziegler and Company
since 1996; prior thereto, Vice
President, Fixed Income Department,
Firstar Bank.
Marc J. Dion, 40 Vice President Vice President - Portfolio Manager
and Chief Investment Officer, Ziegler
Asset Management, Inc. since 1993;
prior thereto, Vice President,
Ziegler Asset Management, Inc.
S. Charles O'Meara, 47 Secretary Senior Vice President and General
Counsel, B.C. Ziegler and Company since
1993; prior thereto, Partner, O'Meara,
Eckert, Pourus & Gonring (law firm).
</TABLE>
Principal Preservation pays the compensation of the three Directors who
are not officers, directors or employees of the Advisors. Principal Preservation
will pay each of these Directors an annual fee of $12,000 and an additional $450
for each Board or committee meeting he attends. Principal Preservation may also
retain consultants, who will be paid a fee, to provide the Board with advice and
research on investment matters. Each Portfolio, together with Principal
Preservation's other series, pays a proportionate amount of these expenses based
on its total assets.
The table below shows fees paid to Directors of Principal Preservation
for the year ended December 31, 1997. Each series of Principal Preservation pays
a proportionate share of these expenses based on the ratio such series' total
assets bear to the aggregate of the total assets of all nine series of Principal
Preservation. Principal Preservation made no payments to its officers or
directors who are affiliated with any investment advisor to Principal
Preservation.
27
<PAGE> 110
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL
BENEFITS ACCRUED COMPENSATION
NAME OF PERSON AND AGGREGATE AS PART OF FROM PRINCIPAL
POSITION WITH COMPENSATION PRINCIPAL ESTIMATED ANNUAL PRESERVATION AND
PRINCIPAL FROM PRINCIPAL PRESERVATION'S BENEFITS UPON FUND COMPLEX
PRESERVATION PRESERVATION EXPENSES RETIREMENT PAID TO DIRECTORS
------------ ------------ -------- ---------- -----------------
<S> <C> <C> <C> <C>
R. D. Ziegler, -0- -0- -0- -0-
President and Director (1)
Richard J. Glaisner (2) -0- -0- -0- -0-
Robert J. Tuszynski, -0- -0- -0- -0-
President and Director
Richard H. Aster, 14,700 -0- -0- 14,700
Director
Augustine J. English, 14,700 -0- -0- 14,700
Director
Ralph J. Eckert 14,700 -0- -0- 14,700
Director
</TABLE>
- -----------------
(1) Mr. Ziegler retired from his position as Director effective June 1,
1998.
(2) At a special meeting held on May 15, 1998, Mr. Glaisner was elected
by shareholders as a Director to fill the vacancy created by Mr.
Ziegler's retirement.
The executive officers and Directors as a group (9 persons) owned
beneficially, as of March 27, 1998, a total of 66,647 shares of the Dividend
Achievers Portfolio, representing 4.21% of the total outstanding shares of that
Portfolio. This management group's beneficial ownership of shares of each of the
remaining Portfolio's and of Principal Preservation as a whole amounted to 0.63%
of the outstanding shares. See also "Control Persons and Principal Holders of
Securities."
The Investment Advisors
Basic information as to Ziegler Asset Management, Inc. and Skyline
Asset Management, L.P. and the Advisory and Sub-Advisory Agreements (the
"Agreements") is set forth in the Prospectus under "Management."
For the years ended December 31, 1997, 1996 and 1995, Principal
Preservation made the following payments under the Agreements:
<TABLE>
<CAPTION>
FEES PAID PURSUANT TO ADVISORY AGREEMENTS
-----------------------------------------
PORTFOLIO 1997 1996 1995
- --------- ---- ---- ----
<S> <C> <C> <C>
Tax-Exempt 359,288 365,939(2) 332,888(2)
</TABLE>
28
<PAGE> 111
<TABLE>
<CAPTION>
FEES PAID PURSUANT TO ADVISORY AGREEMENTS
-----------------------------------------
PORTFOLIO 1997 1996 1995
- --------- ---- ---- ----
<S> <C> <C> <C>
Government 248,936 $275,693(2) $295,379(2)
S&P 100 Plus(1) 424,699 335,560(2) 292,466
Dividend Achievers 265,344 206,154(2) 168,713
Select Value 50,294 31,295(2) 21,143(2)
PSE Tech 100 Index 76,584 11,180(2)(3) ---
</TABLE>
29
<PAGE> 112
(1) Effective May 1, 1996, the advisory fees for the S&P 100 Plus
Portfolio were reduced from 0.75 of 1% to 0.575 of 1% on the first
$20 million in average daily net assets, and from 0.50 of 1% to
0.45 of 1% on the next $30 million in average daily net assets.
Advisory fees for net assets over $50 million remained unchanged.
(2) Does not reflect Ziegler's reimbursements (a) to the Select Value
Portfolio in the amounts of $65,968, $57,688 and $72,971 for the
years ended December 31, 1997, 1996 and 1995, respectively; (b) to
the Dividend Achievers Portfolio in the amounts of $34,811, $34,553
and $49,439 for the years ended December 31, 1997, 1996 and 1995,
respectively; (c) to the Tax-Exempt Portfolio in the amounts of $0,
$3,708 and $3,699 for the years ended December 31, 1997, 1996 and
1995; (d) to the Government Portfolio in the amounts of $17,630,
$19,260 and $10,105 for the years ended December 31, 1997, 1996 and
1995, respectively; (e) to the S&P 100 Plus Portfolio in the
amounts of $98,729 and $10,411 for the years ended December 31,
1997 and 1996; or (f) to PSE Tech 100 Index Portfolio in the amount
of $179,273 for the year ended December 31, 1997 and $77,978 for
the period from June 10, 1996 (commencement of operations through
December 31, 1996).
(3) Reflects fees for the period from June 10, 1996 (commencement of
operations) through December 31, 1996.
Administrative Services
B.C. Ziegler and Company ("Ziegler") provides certain administrative,
accounting and pricing services to Principal Preservation, including calculating
daily net asset value per share; maintaining original entry documents and books
of record and general ledgers; posting cash receipts and disbursements;
reconciling bank account balances monthly; recording purchases and sales based
upon portfolio manager communications; and preparing monthly and annual
summaries to assist in the preparation of financial statements of, and
regulatory reports for, Principal Preservation. Ziegler has agreed to provide
these services pursuant to the terms of an Accounting/Pricing Agreement (the
"Accounting/Pricing Agreement") at rates found by the Board of Directors to be
fair and reasonable in light of the usual and customary charges made by
unaffiliated vendors for similar services. The current rate of payment for these
services per Portfolio per year is .03 of 1% of a Portfolio's total assets of
$30 million but less than $100 million, .02 of 1% of a Portfolio's total assets
of $100 million but less than $250 million and .01 of 1% of a Portfolio's total
assets of $250 million or more, with a minimum fee of $19,000 per portfolio per
year, plus expenses. The Accounting/Pricing Agreement will continue in effect
from year to year, as long as it is approved at least annually by Principal
Preservation's Board of Directors or by a vote of the outstanding voting
securities of Principal Preservation and in either case by a majority of the
Directors who are not parties to the Accounting/Pricing Agreement or interested
persons of any such party. The Accounting/Pricing Agreement terminates
automatically if assigned and may be terminated without penalty by either party
on 60 days notice. The Accounting/Pricing Agreement provides that neither
Ziegler nor their personnel shall
30
<PAGE> 113
be liable for any error of judgment or mistake of law or for any loss arising
out of any act or omission in the execution and the discharge of its obligations
under the Accounting/Pricing Agreement, except for willful misfeasance, bad
faith or gross negligence in the performance of their duties or by reason of
reckless disregard of their obligations and duties under the Accounting/Pricing
Agreement, and in no case shall their liability exceed one year's fee income
received by them under such Agreement.
Custodian Services
Firstar Trust Company serves as the custodian of each Portfolio's
assets, pursuant to a Custodian Servicing Agreement. The Custodian Servicing
Agreement provides that Firstar Trust Company is entitled to receive an annual
fee set at 1% of the first $500 million of Principal Preservation's assets and
0.75 of 1% of assets in excess of $500 million.
Transfer Agent Services
Ziegler provides transfer agent and dividend disbursing services to
each Portfolio pursuant to the terms of a Transfer and Dividend Disbursing
Agency Agreement. Under the terms of the Transfer and Dividend Disbursing Agency
Agreement, Ziegler is entitled to reasonable compensation for its services and
expenses as agreed upon from time to time between it and the Board of Directors
of Principal Preservation. The annual rate of compensation agreed upon for these
services is $13.50 per account for the Government, Tax-Exempt and PSE Tech 100
Index Portfolios and $8.50 per account for the S&P 100 Plus, Select Value, and
Dividend Achievers Portfolios. Ziegler is also entitled to reimbursement for all
out of pocket expenses incurred in providing such services. Ziegler also has the
right to retain certain service charges as described from time to time in the
current Prospectus of the Portfolios. The Transfer and Dividend Disbursing
Agency Agreement will continue in effect until terminated, and may be terminated
by either party without cause on thirty (30) days' prior written notice. The
Transfer and Dividend Disbursing Agency Agreement provides that Ziegler shall be
indemnified by and not be liable to Principal Preservation or any Portfolio for
any action taken or omitted by Ziegler under such agreement, except for
liability for breach of Ziegler's obligation to maintain all Principal
Preservation records in absolute confidence.
31
<PAGE> 114
Other Services
In addition to the foregoing, Ziegler also serves as the principal
Distributor of each Portfolio's shares and receives commissions on sales of
Portfolio shares. See "Purchase of Shares." Ziegler also receives reimbursement
from each Portfolio for certain expenses Ziegler incurs in connection with
distributing the Portfolio's shares pursuant to the Distribution Plan adopted by
each Portfolio under Rule 12b-1 of the 1940 Act. See "Distribution Expenses."
Fees paid to Ziegler for services provided in all of these capacities for the
year (or portion thereof during which the particular Portfolio engaged in
operations) ended December 31, 1997 are shown in the following table.
<TABLE>
<CAPTION>
COMMISSIONS ON
PORTFOLIO SHARES TRANSFER AND
AND RULE 12B-1 ACCOUNTING/ DIVIDEND
DISTRIBUTION PRICING FEES(1) DEPOSITORY DISBURSING AGENT
FEES(1) FEES(2) FEES(1)
------- --------------- ------- -------
<S> <C> <C> <C> <C>
Tax-Exempt 125,754 28,797 22,148 43,961
Government 100,754 22,601 17,621 44,404
S&P 100 Plus 498,361 37,391 27,051 74,974
Dividend Achievers 115,710 20,418 13,935 30,430
Select Value 60,863 19,000 4,282 5,978
PSE Tech 100 Index 98,129 19,000 7,897 19,782
------- ------ ----- ------
TOTAL 999,571 147,207 92,934 219,529
</TABLE>
(1) The amounts shown are for Class A shares only. Class B shares were
first offered to investors June 1, 1998.
(2) Prior to March 31, 1998, Principal Preservation served as its own
custodian. The securities of each Portfolio were held by Ziegler, an affiliated
person of Principal Preservation, as Depository. In addition, Ziegler performed
certain administrative, clearing and recordkeeping functions for each Portfolio.
For such services Ziegler was compensated at the rate of .055 of 1% of the first
$10 million of each Portfolio's assets, .03 of 1% of the next $40 million of
assets, .016 of 1% of the next $200 million of assets, and 0.015 of 1% of assets
in excess of $250 million.
PERFORMANCE INFORMATION
From time to time the Portfolios may advertise their "yield" and "total
return." Yield is based on historical earnings and total return is based on
historical distributions; neither is intended to indicate future performance.
The "yield" of a Portfolio refers to the income generated by an investment in
that Portfolio over a one-month period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of income
generated by the investment during the month is assumed to be generated each
month over a 12-month period and is shown as a percentage of the investment.
"Total return" of the Portfolio refers to the
32
<PAGE> 115
average annual total return for one, five and ten year periods (or so much
thereof as a Portfolio has been in existence). Total return is the change in
redemption value of shares purchased with an initial $1,000 investment, assuming
the reinvestment of dividends and capital gain distributions, after giving
effect to the maximum applicable sales charge. In addition, the Tax-Exempt
Portfolio may advertise its "tax equivalent yield," which is computed by
dividing that portion of the Portfolio's yield which is tax-exempt by one minus
a stated income tax rate and adding the product to that portion, if any, of the
yield of the Portfolio which is not tax-exempt. Performance information should
be considered in light of the Portfolio's investment objectives and policies,
characteristics and quality of the portfolios and the market conditions during
the time period, and should not be considered as a representation of what may be
achieved in the future. Investors should consider these factors and possible
differences in the methods used in calculating performance information when
comparing a Portfolio's performance to performance figures published for other
investment vehicles.
Average annual total return is computed by finding the average annual
compounded rates of return over the 1, 5, and 10 year periods (or so much
thereof as a Portfolio has been in existence) ended on the date of the balance
sheet of the respective Portfolio, each of which has been incorporated by
reference into this Statement of Additional Information, that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
n
P(1 + T) =ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5, or 10 year
periods at the end of the 1, 5, or 10 year periods
(or fractional portion thereof).
In some circumstances a Portfolio may advertise its total return for a
1, 2 or 3-year period, or the total return since the Portfolio commenced
operations. In such circumstances the Portfolio will adjust the values used in
computing return to correspond to the time period for which the information is
provided.
The average annual total returns for the Class A shares of each
Portfolio for the 1, 5 and 10-year periods ended December 31, 1997 are set forth
in the table below. The total returns for the Government and Tax-Exempt
Portfolios have been restated to reflect the May 1, 1995 reduction in the
maximum sales loads for those Portfolios from 4.5% to 3.5%. The total returns
for the S&P 100 Plus, Dividend Achievers, Select Value and PSE Tech 100 Index
Portfolios have been restated to reflect the September 8, 1997 increase in the
maximum sales loads for those Portfolios from 4.50% to 5.25%.
33
<PAGE> 116
<TABLE>
<CAPTION>
FROM COMMENCEMENT OF
1 YEAR 5 YEAR 10 YEAR OPERATION
------ ------ ------- --------------------
<S> <C> <C> <C> <C>
Tax-Exempt Portfolio 5.57% 6.71% 7.35%
Government Portfolio 4.32% 5.31% 7.46%
S&P 100 Plus Portfolio 20.12% 17.40% 15.48%
Dividend Achievers Portfolio 21.15% 13.31% 13.97%
Select Value Portfolio 20.53% NA NA 18.19%
PSE Tech 100 Index Portfolio 13.09% NA NA 15.51%
</TABLE>
For illustrative purposes, each Portfolio may include in its
supplemental sales literature from time to time a mountain graph that advertises
the Portfolio's total return by depicting the growth in the value of an initial
investment of $10,000 that a shareholder would have experienced in the relevant
Portfolio since the commencement of the Portfolio's operations to the present.
The presentation consists of a line graph shaded underneath with the value of
the amount invested reflected along a vertical axis and the time period from the
commencement of the Portfolio's operations through December 31, 1997 reflected
along a horizontal axis.
In some circumstances a Portfolio may advertise its total return for a
1, 2 or 3-year period, or the total return since the Portfolio commenced
operations. In such circumstances, the Portfolio will adjust the values used in
computing return to correspond to the time period for which the information is
provided.
Yield quotations are based on a 30-day (or one-month) period, and are
computed by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
6
Yield = 2[( a-b divided by cd + 1) - 1]
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
34
<PAGE> 117
The yields for certain of the Portfolios for the month ended December
31, 1997 were: 4.20% for the Tax-Exempt Portfolio, and 4.97% for the Government
Portfolio. When advertising yield, a Portfolio will not advertise a one-month or
30-day period which ends more than 45 days before the date the advertisement is
published.
A tax equivalent yield is based on a 30-day (or one-month) period, and
is computed by dividing that portion of the yield of the Tax-Exempt Portfolio
(as computed in accordance with the description above) by one minus a stated
income tax rate and adding the products to that portion, if any, of the yield of
the Portfolio that is not tax-exempt.
The tax equivalent yield, assuming a 33% marginal tax rate, for the
month ended December 31, 1997 was 6.27% for the Tax-Exempt Portfolio.
Performance information for the Portfolios may be compared to various
unmanaged indices, such as the S&P 500 (or in the case of the PSE Tech 100 Index
Portfolio, the PSE Technology Index), as well as indices of similar mutual
funds. The Portfolio's advertising may also quote rankings published by other
recognized statistical services or publishers such as Lipper Analytical
Services, Inc., or Weisenberger Investment Companies Service.
An illustration may be used comparing the growth in value of an initial
investment in a Portfolio compared to a fixed rate of return compounded on a
monthly basis. This illustration will reflect the effect of the Portfolio's
sales charge and fluctuations in net asset value, and will assume all income and
capital gain distributions are reinvested. The fixed rate of return will be
clearly stated and presented as a monthly compounded figure, and therefore will
not reflect any market fluctuation.
In advertising and sales literature, the performance of a Portfolio may
be compared with that of other mutual funds, indexes or averages of other mutual
funds, indexes of related financial assets or data (and in particular the PSE
Technology Index and the S&P 100 Stock Index for the PSE Tech 100 Index
Portfolio and S&P 100 Plus Portfolio, respectively), and other competing
investment and deposit products available from or through other financial
institutions. The composition of these indexes, averages or accounts differs
from that of a Portfolio. Comparison of a Portfolio to an alternative investment
will consider differences in features and expected performance.
All of the indexes and averages noted below will be obtained from the
indicated sources or reporting services, which Principal Preservation generally
believes to be accurate. A Portfolio may also note its mention (including
performance or other comparative rankings) in newspapers, magazines, or other
media from time to time. However, Principal Preservation assumes no
responsibility for the accuracy of such data. Newspapers and magazines which
might mention a Portfolio or Principal Preservation include, but are not limited
to, the following:
35
<PAGE> 118
The Business Journal Milwaukee Journal Sentinel
Business Week Money
Changing Times Mutual Fund Letter
Chicago Tribune Mutual Fund Values
Chicago Sun-Times (Morningstar)
Crain's Chicago Newsweek
Business The New York Times
Consumer Reports Pension and Investments
Consumer Digest Personal Investor
Financial World Stanger Reports
Forbes Time
Fortune USA Today
Investor's Daily U.S. News and World Reports
Los Angeles Times The Wall Street Journal
When a newspaper, magazine or other publication mentions Principal
Preservation or a Portfolio, such mention may include: (i) listings of some or
all of the Portfolio's holdings; (ii) descriptions of characteristics of some or
all of the securities held by the Portfolio, including price-earnings ratios,
earnings, growth rates and other statistical information, and comparisons of
that information or similar statistics for the securities comprising any of the
indexes or averages listed above; and (iii) descriptions of Principal
Preservation or the Portfolio manager's economic and market outlook, general and
for the Portfolio.
A Portfolio may compare its performance to the Consumer Price Index
(All Urban), a widely recognized measure of inflation.
The performance of the Select Value Portfolio may be compared to any or
all of the following indexes or averages:
<TABLE>
<S> <C>
Dow-Jones Industrial Average New York Stock Exchange Composite Index
Russell 2000 Small Stock Index American Stock Exchange Composite Index
Russell Mid-Cap Stock Index NASDAQ Composite
Russell 2500 Index NASDAQ Industrials
Standard & Poor's 500 Stock Index (These indexes generally reflect the performance of
Standard & Poor's 400 Industrials stock traded in the indicated markets.)
Standard & Poor's Mid-Cap 400 Index
Wilshire 5000
Wilshire 4500
Wilshire 4000
(These indexes are widely recognized indicators
of general U.S. stock market results.)
</TABLE>
The performance of the Select Value Portfolio may also be compared to
the following mutual fund industry indexes or averages: Value Line Index; Lipper
Capital Appreciation Fund Average; Lipper Growth Funds Average; Lipper Small
Company Growth Funds Average; Lipper General Equity Funds Average; Lipper Equity
Funds Average; Lipper Small Company Growth Fund Index; Morningstar Growth
Average; Morningstar Aggressive Growth Average; Morningstar
36
<PAGE> 119
U.S. Diversified Average; Morningstar Equity Fund Average; Morningstar Hybrid
Average; Morningstar All Equity Funds Average; and Morningstar General Equity
Average.
Lipper Small Growth Fund Index reflects the net asset value weighted
total return of the largest thirty growth funds as calculated and published by
Lipper Analytical Services, Inc. ("Lipper"), an independent service that
monitors the performance of more than 1,000 funds.
The Lipper and Morningstar averages are unweighted averages of total
return performance of mutual funds as classified, calculated and published by
Lipper and by Morningstar, Inc. ("Morningstar"), respectively. The Select Value
Portfolio may also use comparative performance as computed in a ranking by
Lipper or category averages and rankings provided by another independent
service. Should Lipper or another service reclassify the Select Value Portfolio
to a different category or develop (and place the Portfolio into) a new
category, the Portfolio may compare its performance or ranking against other
funds in the newly assigned category, as published by the service. Moreover, the
Select Portfolio may compare its performance or ranking against all funds
tracked by Lipper or another independent service, and may cite its rating,
recognition or other mention by Morningstar or any other entity. Morningstar's
rating system is based on risk-adjusted total return performance and is
expressed in a star-rating format. The risk-adjusted number is computed by
subtracting the Portfolio's risk score (which is a function of the Portfolio's
monthly returns less the 3-month Treasury bill return) from the Portfolio's
load-adjusted total return score. This numerical score is then translated into
rating categories, with the top 10% labeled five star, the next 22.5% labeled
four star, the next 35% labeled three star, the next 22.5% labeled two star and
the bottom 10% one star. A high rating reflects either above-average returns or
below-average risks, or both.
To illustrate the historical returns on various types of financial
assets, the Select Value Portfolio may use historical data provided by Ibbotson
Associates, Inc. ("Ibbotson"), a Chicago-based investment firm. Ibbotson
constructs (or obtains) very long-term (since 1926) total return data
(including, for example, total return indexes, total return percentages, average
annual total returns and standard deviations of such returns) for the following
asset types: common stocks, small company stocks, long-term corporate bonds,
long-term government bonds, intermediate-term government bonds, U.S. Treasury
bills and Consumer Price Index. The Portfolio may also use historical data
compiled by Prudential Securities, Inc., or by other similar sources believed by
Principal Preservation to be accurate, illustrating the past performance of
small-capitalization stocks, large-capitalization stocks, common stocks, equity
securities, growth stocks (small-capitalization, large-capitalization, or both)
and value stock (small-capitalization, large-capitalization, or both).
DETERMINATION OF NET ASSET VALUE PER SHARE
Shares are sold at their net asset value per share plus the applicable
sales charge, if any. See "Purchase of Shares." Net asset value per share of
each Portfolio is determined by subtracting the Portfolio's liabilities
(including accrued expenses and dividends payable) from the Portfolio's total
assets (the value of the securities the portfolio holds plus cash or other
assets, including
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interest accrued but not yet received) and dividing the result by the total
number of shares outstanding.
The net asset value per share will be calculated as of the close of
trading on the New York Stock Exchange (the "Exchange") at least once every
weekday, Monday through Friday, except on customary national business holidays
which result in the closing of the Exchange (including New Year's Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day). The calculation is as of the close of
trading on the Exchange for the S&P 100 Plus, Select Value, Dividend Achievers
and PSE Tech 100 Index Portfolios, 2:30 p.m. New York time for the Tax-Exempt
Portfolio, and 3:00 p.m. New York time for the Government Portfolio.
Hedging instruments will be valued at their last sale price prior to
the close of the Exchange, unless there have been no trades on that day and the
last sale price is below the bid, or above the asked, price. If the last prior
sale price is below the bid, instruments will be valued at the bid price at the
close of the Exchange; if the last prior sale price is above the asked, the
instrument will be valued at the asked price at the close of the Exchange. The
municipal securities in which the Portfolios will invest are traded primarily in
the over-the-counter market. Securities for which market quotations are readily
available will be valued in the same manner as for hedging instruments.
Securities and other assets for which quotations are not readily available will
be valued at their fair value on a consistent basis using valuation methods
determined by the Board of Directors. Each Portfolio intends to determine fair
value for such securities based in part upon the information supplied by pricing
services approved by the Board of Directors. Valuations of portfolio securities
furnished by the pricing service will be based upon a computerized matrix system
and/or appraisals by the pricing service in each case in reliance upon
information concerning market transactions and quotations from recognized
securities dealers.
PURCHASE OF SHARES
Ziegler acts as the principal Distributor for each of the Portfolios.
Ziegler will allow Selected Dealer discounts (which are alike for all Selected
Dealers) from the applicable public offering price. Neither Ziegler nor Selected
Dealers are permitted to withhold placing orders to benefit themselves by a
price change. The Distribution Agreement between Principal Preservation and
Ziegler will continue from year to year if it is approved annually by Principal
Preservation's Board of Directors, including a majority of those Directors who
are not interested persons, or by a vote of the holders of a majority of the
outstanding shares. The Agreement may be terminated at any time by either party
on 60 days notice and will automatically terminate if assigned.
Class A Shares
The public offering price of a Portfolio's Class A shares is the net
asset value plus a maximum front-end sales charge of 3.50% for the Tax-exempt
and Government Portfolios, and
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5.25% for the S&P 100 Plus, Dividend Achievers, Select Value and PSE Tech 100
Index Portfolios.
For the fiscal years ended December 31, 1997, 1996 and 1995 (or the
portion of such year during which the relevant Portfolio was in operation),
commissions earned on sales of Class A shares of all of the Portfolios
aggregated $1,350,229, $575,000 and $503,000, respectively.
<TABLE>
<CAPTION>
Commissions and Rule 12b-1 Fees Earned by Ziegler on Sales of
Portfolio Class A Shares for Year Ended December 31,
--------------------------------------------------------------
Portfolio 1997 1996 1995
- --------- ---- ---- ----
<S> <C> <C> <C>
Tax-Exempt 125,754 116,620 46,341
Government $100,754 $117,555 $ 76,633
S&P 100 Plus 498,361 338,856 177,540
Dividend Achievers 115,710 86,901 35,089
Select Value 60,863 17,964 18,676
PSE Tech 100 Index 98,129 9,435(1) --
---------- -------- --------
TOTAL $ 999,571 $687,331 $354,279
========== ======== ========
</TABLE>
- ----------------------
(1) Reflects commissions earned on sales of Class A shares of the PSE Tech
100 Index Portfolio for the period from June 10, 1996 (commencement of
operations) through December 31, 1996.
Class A shares of a Portfolio may be purchased by certain classes of
persons without a sales charge, or a reduced sales charge, as described in the
Prospectus. The Board of Directors believes this is appropriate because of the
minimal sales effort needed to accommodate these classes of persons.
Because sales to members of qualified groups result in economies of
sales efforts and sales related expenses, the Distributor is able to offer a
reduced sales charge to such persons. A "qualified group" is one which: (1) has
been in existence for more than six months; (2) has a purpose other than
acquiring shares of one or more of the Portfolios at a discount; and (3) has
more than ten members, is available to arrange for group meetings between
representatives of the Distributor or Selected Dealers distributing shares of
the Portfolios, and agrees to include sales and other materials related to
Principal Preservation in its mailings to members at reduced or no cost to the
Distributor or Selected Dealers. See "Purchasing Shares -- Reduced Front-end
Sales Charge" in the Prospectus.
Class B Shares
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You may purchase Class B shares of the S&P 100 Plus, Dividend
Achievers, Select Value and PSE Tech 100 Index Portfolios. The public offering
price of Class B shares is net asset value with no front-end sales charge.
However, you pay a contingent deferred sales charge (expressed as a percent of
the lesser of the current net asset value or original cost) if the Class B
shares are redeemed within six years after purchase (See "Purchasing Shares" in
the Prospectus). The Portfolios began offering Class B shares June 1, 1998.
TAX STATUS
Each series of a series company, such as Principal Preservation, is
treated as a single entity for Federal income tax purposes so that the net
realized capital gains and losses of the various portfolios in one fund are not
combined.
Each Portfolio intends to qualify as a "regulated investment company"
under the Internal Revenue Code of 1986 (the "Code"). In order to qualify as a
regulated investment company, each Portfolio must satisfy a number of
requirements. Among such requirements is the requirement that less than 30
percent of a Portfolio's gross income be derived from the sale or other
disposition of securities (net of losses on designated hedges) held for less
than three months. In determining this gross income requirement, a loss from the
sale or other disposition of securities does not enter into the computation.
Gain or loss on the sale of U.S. Government securities held by a
Portfolio for more than six months will generally be long-term capital gain or
loss. Gain or loss on the sale of U.S. Government securities held for six months
or less will be short-term capital gain or loss. Gain or loss on the sale,
exchange, lapse, or termination of an option on securities will generally be
treated as a gain or loss from the sale of securities.
For information on federal taxation of options and futures, see
"Investment Program Federal Taxation of Options and Futures."
A portion of each Portfolio's (other than the Tax-Exempt Portfolio) net
investment income will qualify for the 70% dividends received deduction for
corporations. The aggregate amount eligible for the dividends received deduction
may not exceed the aggregate qualifying dividends received by the Portfolio for
the year. If less than 100% of the Portfolio's gross income constitutes dividend
income, then only a portion of distributions by the Portfolio will be treated as
dividend income for purposes of computing the dividends received deduction for
corporations.
Dividends and other distributions paid to individuals and other
non-exempt payees are subject to a 31% backup Federal withholding tax if the
Transfer Agent is not provided with the shareholder's correct taxpayer
identification number or certification that the shareholder is not subject to
such backup withholding or if one of the Portfolios is notified that the
shareholder has underreported income in the past. In addition, such backup
withholding tax will apply to the proceeds of redemption or repurchase of shares
from a shareholder account for which the correct taxpayer identification number
has not been furnished. For most individual taxpayers, the
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<PAGE> 123
taxpayer identification number is the social security number. An investor
may furnish the Transfer Agent with such number and the required certifications
by completing and sending the Transfer Agent either the Account Application form
attached to the Prospectus or IRS Form W-9.
Interest on indebtedness incurred (directly or indirectly) by
shareholders to purchase or carry shares will not be deductible for Federal
income tax purposes. Further, persons who are "substantial users" (or persons
related thereto) of facilities financed by industrial development bonds should
consult their own tax advisor before purchasing a Portfolio's shares.
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<PAGE> 124
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of March 27, 1998, no person was known to the Fund to be the
"beneficial owner" (determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934) of more than 5% of the outstanding shares of
the Fund's common stock, or of any of the Portfolios, except that: (i) Ottawa
County, #28, P.O. Box 705, 414 Washington, Grand Haven, Michigan owned
beneficially 422,354 shares of the Government Portfolio, or approximately 9.76%
of all outstanding shares of that Portfolio; (ii) Washtenah Community College,
P.O. Box D1, Ann Arbor, Michigan owned beneficially 241,164 shares of the
Government Portfolio, or approximately 5.57% of all outstanding shares of that
Portfolio; (iii) Barbara Wilson, 700 San Antonio Street, Ojai, California owned
beneficially 132,521 shares of the Dividend Achievers Portfolio, or
approximately 8.37% of all outstanding shares of that Portfolio; (iv) Ziegler
Growth Retirement Plan, 215 North Main Street, West Bend, Wisconsin owned
beneficially 195,050 shares of the Select Value Portfolio, or approximately
24.57% of all outstanding shares of that Portfolio; (v) B. C. Ziegler and
Company, 215 North Main Street, West Bend, Wisconsin owned beneficially 60,538
shares of the Select Value Portfolio, or approximately 7.63% of all outstanding
shares of that Portfolio; and (vi) Hamac & Co., P.O. Box 26246, Richmond,
Virginia owns beneficially 171,421 shares of the PSE Tech 100 Index Portfolio,
or approximately 6.53% of all outstanding shares of that Portfolio. Information
as to beneficial ownership was obtained from information on file with the
Securities and Exchange Commission or furnished by the specified person or the
transfer agent.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Basic information with respect to portfolio transactions and brokerage
is set forth in the Prospectus under "Portfolio Transactions and Brokerage." In
addition to the conditions and limitations there described, in the event Ziegler
or another affiliate of an Advisor is utilized as a broker by Principal
Preservation, and other clients of such Advisor are considering the same types
of transactions simultaneously, the Advisor will allocate the transactions and
securities in which they are made in a manner deemed by it to be equitable,
taking into account size, timing and amounts. This may affect the price and
availability of securities to a Portfolio.
During the fiscal years ended December 31, 1997, 1996 and 1995 (or the
portion of such year during which the relevant Portfolio was in operation), the
aggregate brokerage commissions paid by each Portfolio to Ziegler or an
affiliate of Ziegler were as follows:
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<PAGE> 125
<TABLE>
<CAPTION>
BROKERAGE COMMISSIONS PAID TO ZIEGLER OR ITS AFFILIATES
FOR YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
PORTFOLIO 1997 1996 1995
- --------- ---- ---- ----
<S> <C> <C> <C>
Government $ -- $ -0- $ -0-
Tax-Exempt -- -0- -0-
S&P 100 Plus -- -0- -0-
Select Value -- -0- --
Dividend Achievers 9,685 10,458 17,596
PSE Tech 100 Index -- -0- -0-
------ ------- -------
TOTAL $9,685 $10,458 $17,596
====== ======= =======
</TABLE>
The amount received by Ziegler or other affiliates of an Advisor during
the year ended December 31, 1997 constituted 11.07% of the aggregate brokerage
commissions paid by Principal Preservation during that year, and the brokerage
commissions earned by Ziegler or other affiliates of an Advisor during that year
were earned on approximately 7.10% of the total dollar amount of portfolio
transactions of Principal Preservation which involved the payment of
commissions. The difference in these percentages is attributable to the fact
that commissions on equity and index options in which the S&P 100 Plus Portfolio
and PSE Tech 100 Index Portfolio invest, the trading of which is not directed to
an affiliate of any Advisor, are based upon the number of contracts rather than
the underlying value of the contracts. Therefore, there is an artificial
difference between the percentage of brokerage commissions paid to such
affiliates compared to the percentage of aggregate dollar amount of portfolio
transactions.
DISTRIBUTION EXPENSES
Principal Preservation's Distribution Plan (the "Plan") is its written
plan contemplated by Rule 12b-1 (the "Rule") under the 1940 Act.
The Plan authorizes the Distributor to make certain payments to any
qualified recipient, as defined in the Plan, that has rendered assistance in the
distribution of Principal Preservation's shares (such as sale or placement of
Principal Preservation's shares, or administrative assistance, such as
maintenance of sub-accounting or other records). Qualified recipients include
banks and other financial institutions. The Plan also authorizes the Distributor
to purchase advertising for shares of the Portfolios, to pay for sales
literature and other promotional material, and to make payments to its sales
personnel. The Plan also entitles the Distributor to receive a fee of .25 of 1%
on an annual basis of the average daily net assets of Portfolio shares that are
owned of record by the Distributor as nominee for the Distributor's customers or
which are owned by those customers of the Distributor whose records, as
maintained by Principal Preservation or its agent, designate the Distributor as
the customer's dealer of record. Any such payments to qualified reci-
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<PAGE> 126
pients or expenses will be reimbursed or paid by Principal Preservation, up to
maximum annual amounts established under the terms of the Plan.
Class A Shares
The maximum amount of fees payable under the Plan during any calendar
year with respect to Class A Shares of the Tax-Exempt, Government, S&P 100 Plus,
Dividend Achievers, Select Value or PSE Tech 100 Index Portfolios may not exceed
an amount equal to 0.25 of 1% of the average daily net assets of any such
Portfolio over the relevant year.
Class B Shares
The maximum amount of fees payable under the Plan during any calendar
year by the S&P 100 Plus, Dividend Achievers, Select Value or PSE Tech 100 Index
Portfolios may not exceed an amount equal to 1.00 of 1% of the average daily net
assets of any such Portfolio over the relevant year as a 12b-1 distribution fee.
A part of the distribution fee equal to 0.75 of 1% of the average daily net
assets of the Portfolios will be paid to reimburse the Distributor for assuming
the costs of brokers' commissions in connection with the sale of the Class B
shares.
The Distributor bears its expenses of distribution above the foregoing
amounts. No reimbursement or payment may be made for expenses of past fiscal
years or in contemplation of expenses for future fiscal years under the Plan.
Payments under the Plan to the Distributor for the year ended December 31, 1997
for each Portfolio are shown in the table under "Management of Principal
Preservation -- Other Services" above.
The Plan states that if and to the extent that any of the payments by
Principal Preservation listed below are considered to be "primarily intended to
result in the sale of shares" issued by a Portfolio within the meaning of the
Rule, such payments by Principal Preservation are authorized without limit under
the Plan and shall not be included in the limitations contained in the Plan: (1)
the costs of the preparation, printing and mailing of all required reports and
notices to shareholders, irrespective of whether such reports or notices contain
or are accompanied by material intended to result in the sale of shares of
Principal Preservation or other funds or other investments; (2) the costs of
preparing, printing and mailing of all prospectuses to shareholders; (3) the
costs of preparing, printing and mailing of any proxy statements and proxies,
irrespective of whether any such proxy statement includes any item relating to,
or directed toward, the sale of Principal Preservation's shares; (4) all legal
and accounting fees relating to the preparation of any such reports,
prospectuses, proxies and proxy statements; (5) all fees and expenses relating
to the qualification of Principal Preservation and or their shares under the
securities or "Blue Sky" laws of any jurisdiction; (6) all fees under the 1940
Act and the Securities Act of 1933, including fees in connection with any
application for exemption relating to or directed toward the sale of Principal
Preservation's shares; (7) all fees and assessments of the Investment Company
Institute or any successor organization or industry association irrespective of
whether some of its activities are designed to provide sales assistance; (8) all
costs of preparing and mailing confirmations of shares sold or redeemed or share
certificates and reports of share balances; and (9) all costs of responding to
telephone or mail inquiries of shareholders.
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The Plan also states that it is recognized that the costs of
distribution of Principal Preservation's shares are expected to exceed the sum
of permitted payments, permitted expenses, and the portion of the sales charge
retained by the Distributor, and that the profits, if any, of the Advisors are
dependent primarily on the advisory fees paid by Principal Preservation to
Ziegler. If and to the extent that any investment advisory fees paid by
Principal Preservation might, in view of any excess distribution costs, be
considered as indirectly financing any activity which is primarily intended to
result in the sale of shares issued by Principal Preservation, the payment of
such fees is nonetheless authorized under the Plan. The Plan states that in
taking any action contemplated by Section 15 of the 1940 Act as to any
investment advisory contract to which Principal Preservation is a party, the
Board of Directors including its Directors who are not "interested persons" as
defined in the 1940 Act, and who have no direct or indirect financial interest
in the operation of the Plan or any agreements related to the Plan ("Qualified
Directors"), shall, in acting on the terms of any such contract, apply the
"fiduciary duty" standard contained in Sections 36(a) and (b) of the 1940 Act.
Under the Plan, Principal Preservation is obligated to pay distribution
fees only to the extent of expenses actually incurred by the Distributor for the
current year, and thus there will be no carry-over expenses from the previous
years. The Plan permits the Distributor to pay a portion of the distribution fee
to authorized broker dealers, which may include banks or other financial
institutions, and to make payments to such persons based on either or both of
the following: (1) as reimbursement for direct expenses incurred in the course
of distributing Principal Preservation's shares or providing administrative
assistance to Principal Preservation or its shareholders, including, but not
limited to, advertising, printing and mailing promotional material, telephone
calls and lines, computer terminals and personnel (including commissions and
other compensation paid to such personnel); and/or (2) at a specified percentage
of the average value of certain qualifying accounts of customers of such
persons.
The Plan requires that while it is in effect the Distributor shall
report in writing at least quarterly to the Directors, and the Directors shall
review, the following: (1) the amounts of all payments, the identity of
recipients of each such payment, the basis on which each such recipient was
chosen and the basis on which the amount of the payment was made; (2) the
amounts of expenses and the purpose of each such expense; and (3) all costs of
the other payments specified in the Plan (making estimates of such costs where
necessary or desirable) in each case during the preceding calendar or fiscal
quarter.
The Plan will continue in effect from year to year only so long as such
continuance is specifically approved at least annually by the Board of Directors
and its Qualified Directors cast in person at a meeting called for the purpose
of voting on such continuance. The Plan may be terminated any time without
penalty by a vote of a majority of the Qualified Directors or by the vote of the
holders of a majority of the outstanding voting securities of Principal
Preservation (or with respect to any Portfolio, by the vote of a majority of the
outstanding shares of such Portfolio). The Plan may not be amended to increase
materially the amount of payments to be made without shareholder approval. While
the Plan is in effect, the selection and nomination of those Directors who are
not interested persons of Principal Preservation is committed to the discretion
of such disinterested Directors. Nothing in the Plan will prevent the
involvement of
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others in such selection and nomination if the final decision on any such
selection and nomination is approved by a majority of such disinterested
Directors.
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
Quarles & Brady, as counsel to Principal Preservation, has rendered its
opinion as to certain legal matters regarding the due authorization and valid
issuance of the shares of common stock being sold pursuant to the Prospectus.
Arthur Andersen LLP, independent public accountants, are the auditors of
Principal Preservation.
EXPERTS
The audited financial statements of the Portfolios incorporated by
reference into the Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto and incorporated by reference into the Prospectus in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
report.
PORTFOLIO RATINGS
A Portfolio may obtain and use a rating from a nationally recognized
statistical rating organization. A rating on the shares of an investment company
is a current assessment of creditworthiness with respect to the investments held
by such fund. This assessment takes into consideration the financial capacity of
the issuers and of any guarantors, insurers, lessees, or mortgagors with respect
to such investments. The assessment, however, does not take into account the
extent to which a Portfolio's expenses or portfolio asset sales for less than
the Portfolio's purchase price will reduce yield or return. In addition, the
rating is not a recommendation to purchase, sell, or hold units, inasmuch as the
rating does not comment as to market price of the shares or suitability for a
particular investor.
DESCRIPTION OF RATINGS OF CERTAIN SECURITIES
As set forth in the Prospectus under the captions "Investment
Objectives" and "Additional Investment Practices And Risks," generally, each
Portfolio will limit its investment in debt securities to those which are rated
in one of certain specified categories by a Nationally Recognized Statistical
Rating Organization or are U.S. Government Securities. The following is a brief
description of the rating systems used by three of these organizations.
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<PAGE> 129
CORPORATE AND MUNICIPAL BOND RATINGS
Standard & Poor's Ratings Services
An S&P corporate debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligers such as guarantors, insurers or
lessees.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness of the
obligor as to the timely payment of interest and repayment of
principal in accordance with the terms of the obligation;
II. Nature of and provisions of the obligation; and
III. Protection afforded by, and relative position of the
obligation in the event of bankruptcy, reorganization or other
arrangement under the laws of bankruptcy and other laws
affecting creditors' rights.
S&P's four highest rating categories are as follows:
AAA. Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.
AA. Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only
in small degree.
A. Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in the higher rated categories.
BBB. Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally
exhibit adequate protective parameters, adverse economic
conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in the higher-rated
categories.
Moody's Investors Service, Inc.
The purpose of Moody's Ratings is to provide investors with a simple
system of gradation by which the relative investment qualities of bonds may be
noted. Moody's four highest rating categories are as follows:
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<PAGE> 130
Aaa. Bonds which are rated Aaa are judged to be the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa. Bonds which are Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude, or there may be other
elements present which make the long term risks appear
somewhat larger than in Aaa securities.
A. Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa. Bonds which are rated Baa are considered as medium grade
obligations: i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Fitch Investors Service, Inc.
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner. Fitch's four highest
rating categories are:
AAA. Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is unlikely
to be affected by reasonably foreseeable events.
AA. Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and
repay principal is very strong, although not quite as strong
as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is
generally rated F-1+.
A. Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be
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more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB. Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes
in economic conditions and circumstances, however, are more
likely to have adverse impact on these bonds and therefore
impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than
for bonds with higher ratings.
General
The S&P and Fitch "AA", "A" and "BBB" ratings may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
The letter "p" following an S&P rating indicates the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the issuance of the bonds being rated and indicates
that payment of debt service requirements is largely or entirely dependent upon
the successful and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion.
Accordingly, the investor should exercise his or her own judgment with respect
to such likelihood and risk.
The word "Conditional" following a Fitch rating indicates the rating is
conditional and is premised on the successful completion of a project or the
occurrence of a specific event.
Moody's security rating symbols may contain numerical modifiers of a
generic rating classification. The modifier 1 indicates that the security ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
The symbol "Con" in a rating by Moody's indicates a provisional rating
given to bonds for which the security depends upon the completion of some act of
the fulfillment of some condition. These are bonds secured by: (1) earnings of
projects under construction; (2) earnings of projects unseasoned in operating
experience; (3) rentals which begin when facilities are completed; or (4)
payments to which some other limiting condition attaches. A parenthetical rating
denotes probable credit stature upon completion of construction or elimination
of basis of condition.
MUNICIPAL NOTE RATINGS
Moody's Investors Service, Inc.
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<PAGE> 132
MIG 1. This designation denotes best quality. There is present
strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the
market for refinancing.
MIG 2. This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding
group.
MIG 3. This designation denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable
strength of the preceding grades. Liquidity and cash flow
protection may be narrow and market access for refinancing is
likely to be less well established.
MIG 4. This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is
present and although not distinctly or predominantly
speculative, there is specific risk.
Standard & Poor's Ratings Services
SP-1. Notes rated SP-1 have very strong or strong capacity to pay
principal and interest. Those issues determined to possess
overwhelming safety characteristics are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal
and interest.
Notes due in three years or less normally receive a note rating. Notes
maturing beyond three years normally receive a bond rating, although the
following criteria are used in making that assessment:
-Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue will be rated as a note.)
-Source of payment (the more dependent the issue is on the market for
its refinancing, the more likely it will be rated as a note.)
Fitch Investors Service, Inc.
Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
F-1+. Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of
assurance for timely payment.
F-1. Very Strong Credit Quality. Issues assigned this rating
reflect an assurance of timely payment only slightly less in
degree than issues rated "F-1+."
50
<PAGE> 133
F-2. Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as for issues assigned "F-1+"
and "F-1" ratings.
F-3. Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for
timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment
grade.
Fitch also uses the symbol "LOC" which indicates that the rating is
based on a letter of credit issued by a commercial bank.
RATINGS OF COMMERCIAL PAPER
Standard & Poor's Ratings Services
S&P ratings are a current assessment of the likelihood of timely
payment of debt having an original maturity of no more than 365 days. The
ratings are based on current information furnished to S&P by the issuer and
obtained by S&P from other sources it considers reliable. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2, and 3 to indicate the relative degree of safety, as follows:
A-1. This designation indicates the degree of safety regarding
timely payment is overwhelming or very strong. Those issuers
determined to possess overwhelming safety characteristics are
denoted with a "plus" (+) designation.
A-2. Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as
overwhelming as for issues designated A-1.
A-3. Issues carrying this designation have a satisfactory capacity
for timely payment. They are, however, somewhat more
vulnerable to the adverse effects of changes in circumstances
than obligations carrying the higher designations.
B. Issues rated "B" are regarded as having only an adequate
capacity for timely payment. However, such capacity may be
damaged by changing conditions or short-term adversities.
C. Issues rated "C" are regarded as having a doubtful capacity
for payment.
D. Issues rated "D" are in payment default.
51
<PAGE> 134
Moody's Investors Service, Inc.
Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually their promissory obligations not having an original maturity
in excess of nine months. Moody's employs the following designations, all judged
to be investment grade, to indicate the relative repayment capacity of rated
issuers:
Prime-1. Issuers (or related supporting institutions) rated Prime-1
have a superior capacity for repayment or short-term
promissory obligations. Prime-1 repayment capacity will
normally be evidenced by the following characteristics: (a)
leading market positions in well-established industries; (b)
high rates of return on funds employed; (c) conservative
capitalization structures with moderate reliance on debt and
ample asset protection; (d) broad margins in earnings coverage
of fixed financial charges and high internal cash generation;
and (e) well-established access to a range of financial
markets and assured sources of alternate liquidity.
Prime-2. Issuers (or related supporting institutions) rated Prime-2
have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the
characteristics cited above in the Prime-1 category but to a
lesser degree. Earning trends and coverage ratios, while
sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected
by external conditions. Ample alternate liquidity is
maintained.
Prime-3. Issuers (or related supporting institutions) rated Prime-3
have an acceptable capacity for repayment of short-term
promissory obligations. The effect of industry characteristics
and market composition may be more pronounced. Variability in
earnings and profitability may result in changes in the level
of debt protection measurements and the requirement for
relatively high financial leverage. Adequate alternate
liquidity is maintained.
The ratings of S&P, Moody's and Fitch represent their opinions as to
the quality of the instruments rated by them. It should be emphasized that such
ratings, which are subject to revision or withdrawal, are general and are not
absolute standards of quality.
52
<PAGE> 135
FINANCIAL STATEMENTS
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
The following audited financial statements and footnotes thereto of
Principal Preservation Portfolios, Inc., including the Government, Tax-Exempt,
S&P 100 Plus, Select Value, Dividend Achievers and PSE Tech 100 Index
Portfolios, and the Report of the Independent Public Accountants thereon, are
incorporated herein by reference from Principal Preservation's 1997 Annual
Report to Shareholders.
(1) Balance Sheets of each Portfolio dated December 31, 1997.
(2) Statements of Changes in Net Assets of each Portfolio for the
years ended December 31, 1997 and 1996 (except that this
Statement for the PSE Tech 100 Index Portfolio covers the year
ended December 31, 1997 and the period from June 10, 1996
(commencement of operations) through December 31, 1996)
(3) Statements of Operations of each Portfolio for the year ended
December 31, 1997.
A copy of the Annual Report may be obtained free of charge by writing
or calling Principal Preservation, 215 North Main Street, West Bend, Wisconsin
53095, Telephone, 1-800-826-4600.
53
<PAGE> 136
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
INVESTMENT ADVISORS
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
Skyline Asset Management, Inc.
(Sub-Advisor to Select Value Portfolio)
311 South Wacker Drive
Suite 4500
Chicago, Illinois 60606
DISTRIBUTOR, ACCOUNTING/PRICING AGENT
AND TRANSFER AND DIVIDEND DISBURSING AGENT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
CUSTODIAN
Firstar Trust Company
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
LEGAL COUNSEL
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
54
<PAGE> 137
55
<PAGE> 138
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
---------------------------------------
JUNE 1, 1998
STATEMENT OF ADDITIONAL INFORMATION
---------------------------------------
56
<PAGE> 139
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
Part C. Other Information
Item 24. Financial Statements and Exhibits
(a) Financial Statements of the Registrant included or
incorporated by reference into Part B for each series:
(1) Balance Sheet
(2) Statement of Changes in Net Assets
(3) Statement of Operations
(4) Schedule of Investments
(5) Report of Independent Public Accountants
(b) Exhibits:
See Exhibit Index following Signature Page, which
Exhibit Index is incorporated herein by this
reference.
Item 25. Persons Controlled by or under Common Control with Registrant
Not applicable.
Item 26. Number of Holders of Securities
As of March 30, 1998, the number of record holders of each
class of securities of Registrant or its predecessors, as the
case may be, was:
<TABLE>
<CAPTION>
NUMBER OF HOLDERS OF RECORD OF
PORTFOLIO SHARES OF COMMON STOCK
- --------- ----------------------
<S> <C>
Tax-Exempt Portfolio 2063
Government Portfolio 1927
S&P 100 Plus Portfolio 5955
Dividend Achievers Portfolio 2179
Select Value Portfolio 709
PSE Tech 100 Index 3386
Wisconsin Tax-Exempt Portfolio 1105
Cash Reserve Portfolio
Class X Common Stock 52
Class Y Common Stock 68
</TABLE>
Item 27. Indemnification
Reference is made to Article IX of the Registrant's Bylaws
filed as Exhibit No. 2 to its Registration Statement with
respect to the indemnification of Registrant's directors and
officers, which is set forth below:
C-1
<PAGE> 140
Section 9.1. Indemnification of Officers, Directors, Employees
and Agents. The Corporation shall indemnify each person who
was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative
("Proceeding"), by reason of the fact that he is or was a
Director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a
Director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against
all expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by
him in connection with such Proceeding to the fullest extent
permitted by law; provided that:
(a) whether or not there is an adjudication of
liability in such Proceeding, the Corporation shall not
indemnify any person for any liability arising by reason of
such person's willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in
the conduct of his office or under any contract or agreement
with the Corporation ("disabling conduct"); and
(b) the Corporation shall not indemnify any person
unless:
(1) the court or other body before which the
Proceeding was brought (i) dismisses the
Proceeding for insufficiency of evidence of
any disabling conduct, or (ii) reaches a
final decision on the merits that such
person was not liable by reason of disabling
conduct; or
(2) absent such a decision, a reasonable
determination is made, based upon a review
of the facts, by (i) the vote of a majority
of a quorum of the Directors of the
Corporation who are neither interested
persons of the Corporation as defined in the
Investment Company Act of 1940 nor parties
to the Proceeding, or (ii) if such quorum is
not obtainable, or even if obtainable, if a
majority of a quorum of Directors described
in paragraph (b)(2)(i) above so directs, by
independent legal counsel in a written
opinion, that such person was not liable by
reason of disabling conduct.
C-2
<PAGE> 141
Expenses (including attorneys' fees) incurred in defending a Proceeding
will be paid by the Corporation in advance of the final disposition thereof upon
an undertaking by such person to repay such expenses (unless it is ultimately
determined that he is entitled to indemnification), if:
(1) such person shall provide adequately security for his
undertaking;
(2) the Corporation shall be insured against losses
arising by reason of such advance; or
(3) a majority of a quorum of the Directors of the Corporation
who are neither interested persons of the Corporation as defined in the
Investment Company Act of 1940 nor parties to the Proceeding, or independent
legal counsel in a written opinion, shall determine, based on a review of
readily available facts, that there is reason to believe that such person will
be found to be entitled to indemnification.
Section 9.2 Insurance of Officers, Directors, Employees and Agents. The
Corporation may purchase and maintain insurance on behalf of any person who is
or was a Director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a Director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in or
arising out of his position. However, in no event will the Corporation purchase
insurance to indemnify any such person for any act for which the Corporation
itself is not permitted to indemnify him.
Registrant undertakes that insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
(a) Ziegler Asset Management, Inc.
Ziegler Asset Management, Inc. is a wholly owned subsidiary
of The Ziegler Companies, Inc. It serves as investment advisor to
all of the Registrant's Portfolios.
Set forth below is a list of the officers and directors of
Ziegler Asset Management, Inc. as of December 31, 1997, together with
information as to any other business, profession, vocation or
employment of a substantial nature of those officers and directors
during the past two years:
C-3
<PAGE> 142
<TABLE>
<CAPTION>
POSITION WITH
ZIEGLER ASSET
NAME MANAGEMENT OTHER AFFILIATIONS(1)
- ---- ---------- ---------------------
<S> <C> <C>
P. D. Ziegler Chairman and Director Chairman of the Board, President, Chief
Executive Officer and Director, B.C. Ziegler
and Company; Chairman, Ziegler Securi-
ties; Director, West Bend Mutual Insurance
Company, 1900 S. 18th Avenue, West
Bend, WI 53095 (insurance company)
Geoffrey G. Maclay, Jr. President and Chief Executive President and Chief Executive Officer,
Officer Ziegler Asset Management, Inc.
R. D. Ziegler Senior Vice President and Di- Chairman and Director, Principal Preserva-
rector tion Portfolios, Inc., Director, Johnson
Controls, Inc., 5757 N. Green Bay Avenue,
Milwaukee, WI 53201 (manufacturing)
Robert J. Tuszynski Vice President Senior Vice President, B.C. Ziegler and
Company; President, Chief Executive Offi-
cer and Director of Principal Preservation
Portfolios, Inc.
M. J. Dion Vice President - Portfolio None
Manager and Chief Investment
Officer
R. F. Patek Vice President - Portfolio None
Manager
D. R. Wyatt Vice President - Retirement Plan None
Services
J. R. Yovanovich Corporate Secretary Corporate Secretary, B.C. Ziegler and Com-
pany
J. C. Vredenbregt Treasurer Vice President - Treasurer and Controller,
B.C. Ziegler and Company; Assistant
Treasures; Ziegler Securities
D.L. Lauterbach Vice President None
W.E. Hansen Vice President None
J.R. Wyatt Vice President None
Jay Ferrara, Jr. Vice President - Portfolio None
Manager and Analyst
</TABLE>
- -------------------------
(1) Certain of the indicated persons are officers or directors, or both, of
B.C. Ziegler and Company's parent, The Ziegler Companies, Inc., and of
other subsidiaries of its parent. Other than these affiliations, and
except as otherwise indicated on the table, the response is none.
C-4
<PAGE> 143
(b) Skyline Asset Management, L.P.
Skyline Asset Management, L.P. ("Skyline") is a limited
partnership whose general partner is Affiliated Managers Group, Inc.
("AMG") and whose limited partners consist of corporations owned by
four former management employees of Skyline's predecessor in interest,
namely Messrs. Dutton, Kailin, Lutz and Maloney. AMG may be deemed to
be controlled by Advent VII, L.P., by virtue of the fact that Advent
VII, L.P. owns more than 50% of the voting stock of AMG. Advent VII,
L.P. in turn may be deemed to be controlled by its sole general
partner, TA Associates VII, L.P., a limited partnership, which in turn
may be deemed to be controlled by its sole general partner, TA
Associates, Inc. Skyline's principal executive offices are located at
311 South Wacker Drive, Suite 4500, Chicago, Illinois 60606. AMG's
principal executive offices are located at One International Place,
Boston, Massachusetts 02110. The address of each of Advent VII, L.P.,
TA Associates VII, L.P. and TA Associates, Inc. is c/o TA Associates,
Inc., High Street Tower, Suite 2500, 125 High Street, Boston,
Massachusetts 02110.
Set forth below is a list of the officers and directors of
Skyline Asset Manage ment, L.P. as of December 31, 1997, together with
information as to any other business, profession, vocation or
employment of a substantial nature of those officers and directors
during the past two years (the business address of all such persons is
c/o Skyline Asset Management, L.P., 311 South Wacker Drive, Suite 4500,
Chicago, Illinois 60606):
<TABLE>
<CAPTION>
POSITION WITH SKYLINE ASSET
NAME MANAGEMENT, L.P. PRINCIPAL OCCUPATION
- ---- ---------------- --------------------
<S> <C> <C>
William M. Dutton Chief Investment Officer and Chief Investment Officer of Skyline Asset
Limited Partner Management, L.P. since June, 1995; Executive
Vice President, Mesirow Asset Management,
Inc., from April, 1984 through August, 1995;
President, Skyline Fund (registered investment
company)
William L. Achenbach Trustee President, W.L. Achenbach & Associates, Inc.,
a financial counseling firm, since July 1992.
Paul J. Finnegan Trustee Vice President, Madison Dearborn Partners,
Inc., a venture capital firm, since January 1993.
David A. Martin Trustee Attorney and Principal, Righeimer, Martin &
Cinquino.
Richard K. Pearson Trustee Retired; Director, Citizens Savings Bank
(Anamosa, Iowa), and Director, First Commu
nity Bank (Milton, Wisconsin). Previously,
Director and President, LaSalle Bank,
Westmont, (Westmont, Illinois), from 1994 to
1997, and Director, Chief Executive Officer,
and President, LaSalle Bank, Northbrook
(Northbrook, Illinois), from 1986 to 1994.
Stephen F. Kendall President President, Skyline Asset Management, L.P.,
since January 1998. Previously, Regional Vice
President, Metro Region, Nabisco Biscuit
Company.
</TABLE>
C-5
<PAGE> 144
<TABLE>
<CAPTION>
POSITION WITH SKYLINE ASSET
NAME MANAGEMENT, L.P. PRINCIPAL OCCUPATION
- ---- ---------------- --------------------
<S> <C> <C>
Kenneth S. Kailin Principal - Portfolio Manager Principal - Portfolio Manager, Skyline Asset
and Limited Partner Management, L.P. since June, 1995; Senior
Vice President, Mesirow Asset Management,
Inc., from April, 1987 through August, 1995;
Executive Vice President, Skyline Fund (regis-
tered investment company)
Geoffrey P. Lutz Principal - Institutional Mar- Principal - Institutional Marketing, Skyline Asset
keting and Limited Partner Management, L.P. since June, 1995; Vice
President, Mesirow Asset Management, Inc.,
May, 1992 through August, 1995; prior there-
to, Registered Representative, Mesirow
Financial, Inc. and Mesirow Investment
Services, Inc. (registered brokers-dealers/ invest-
ment advisers); Executive Vice President, Sky-
line Fund (registered investment company)
Michael Maloney Principal - Securities Analyst Principal - Securities Analyst, Skyline Asset
and Limited Partner Management, L.P., since June, 1995; Invest-
ment Analyst, Mesirow Asset Management, Inc.
from February, 1993 through August, 1995;
prior thereto Investment Analyst, Baker Fentress
& Co. (investment manager); Senior Vice Presi-
dent, Skyline Fund (registered investment com-
pany)
Daren C. Heitman Portfolio Manager Portfolio Manager, Skyline Asset Management,
L.P., since August 1997; Securities Analyst
Skyline Asset Management, L.P. from Septem-
ber 1995 to August 1997; Securities Analyst
with Mesirow Asset Management, Inc. from
May 1994 to August 1995, and Securities
Analyst with Mesirow Financial, Inc. from
January 1993 to May 1994.
Stephen F. Kendall President President of Skyline Asset Management since
January 1998; Regional Vice President, Metro
Region, Nabisco Biscuit Company.
Scott C. Blim Chief Financial Officer Chief Financial Officer, Skyline Asset
Management, L.P. since September, 1995; Vice
President, Director and Chief Administrative
Officer, Murray Johnstone International Ltd.
(investment firm) from 1989 to 1994; Secretary
and Treasurer, Skyline Fund (registered invest-
ment company)
Michelle M. Brennan Director of Fund Director of Fund Marketing, Skyline Asset
Marketing Management, since August 1996; previously
Regional Marketing Associate, Strong Capital
Management
</TABLE>
Item 29. Principal Underwriters
(a)
C-6
<PAGE> 145
<TABLE>
<CAPTION>
OTHER INVESTMENT COMPANIES FOR WHICH
UNDERWRITER ACTS AS UNDERWRITER, DEPOSI-
UNDERWRITER TOR OR INVESTMENT ADVISER
- ----------- -------------------------
<S> <C>
B.C. Ziegler and Company An underwriter for American Tax-Exempt
Bond Trust, Series 1 (and
subsequent series); Ziegler
U.S. Government Securities
Trust, Series 1 (and
subsequent series); American
Income Trust, Series 1 (and
subsequent series); Ziegler
Money Market Trust; The
Insured American Tax-Exempt
Bond Trust, Series 1 (and
subsequent series); and
principal underwriter for
Portico Funds.
</TABLE>
(b) Set forth below is a list of the officers and directors of
B.C. Ziegler and Company as of December 31, 1997,
together with information as to any other business,
profession, vocation or employment of a substantial nature of
those officers and directors during the past two years. None
of the persons identified serves as an officer or director of
the Registrant, except that Robert J. Tuszynski serves as
President, Chief Executive Officer and a Director of the
Registrant, and S. Charles O'Meara serves as Secretary of the
Registrant. The address of each officer and director of B.C.
Ziegler and Company is 215 North Main Street, West Bend,
Wisconsin 53095, Phone (414) 334-5521.
<TABLE>
<CAPTION>
POSITION WITH(1) POSITION WITH
NAME B.C. ZIEGLER AND COMPANY PRINCIPAL PRESERVATION
---- ------------------------ ----------------------
<S> <C> <C>
Peter D. Ziegler Chairman of the Board,
President, Chief Executive
Officer and Director
S. Charles O'Meara Senior Vice President and Secretary
General Counsel and Director
D.A. Wallstead Senior Vice President -Chief
Financial Officer
John C. Wagner Senior Vice President - Ziegler
Investment Division
Retail Sales and Director
Ronald N. Spears Senior Vice President - Ziegler
Investment Division
Donald A. Carlson, Jr. Senior Vice President
Neil L. Fuerbringer Senior Vice President -
Administration
Michael P. Doyle Senior Vice President - Ziegler
Investment Division
Retail Operations
</TABLE>
(1)Ziegler Investment Division and Ziegler Securities are divisions of B. C.
Ziegler and Company
C-7
<PAGE> 146
<TABLE>
<CAPTION>
POSITION WITH(1) POSITION WITH
NAME B.C. ZIEGLER AND COMPANY PRINCIPAL PRESERVATION
---- ------------------------ ----------------------
<S> <C> <C>
Robert J. Tuszynski Senior Vice President - Ziegler President, Chief Executive
Investment Division Officer and Director
Richard J. Glaisher President and Chief Executive
Officer - Ziegler Investment
Division
R. R. Poggenburg Senior Vice President - Ziegler
Investment Division
D. A. Carlson, Jr. President, Chief Executive
Officer and Treasurer - Ziegler
Securities
J. M. Annett Senior Vice President and
National Director of Senior
Living Finance - Ziegler
Securities
S. R. Arnold Senior Vice President - TFI
Institutional Sales - Ziegler
Securities
T. L. DiGaloma Senior Vice President - TFI
Institutional Sales and Trading
- Ziegler Securities
C. W. Kearns Senior Vice President - Co-
Manager of TFI - Ziegler
Securities
L. A. Lekai Senior Vice President - TFI
Institutional Sales and Trading
- Ziegler Securities
M. P. McDaniel Senior Vice President and
Director of Tax-Exempt Sales
and Trading - Ziegler
Securities
T. R. Paprocki Senior Vice President and
Director of Capital Markets -
Ziegler Securities
P. C. Staaf Senior Vice President - Co-
Manager of TFI - Ziegler
Securities
J. B. Sterns Senior Vice President and
National Director of
Healthcare Finance - Ziegler
Securities
</TABLE>
1Ziegler Investment Division and Ziegler Securities are divisions of B. C.
Ziegler and Company
C-8
<PAGE> 147
<TABLE>
<CAPTION>
POSITION WITH(1) POSITION WITH
NAME B.C. ZIEGLER AND COMPANY PRINCIPAL PRESERVATION
---- ------------------------ ----------------------
<S> <C> <C>
M. A. Baumgartner Senior Vice President - Ziegler
Securities
D. J. Hermann Senior Vice President - Ziegler
Securities
J. J. O'Keefe Senior Vice President - Ziegler
Securities
D. M. Rognerud Senior Vice President - Ziegler
Securities
</TABLE>
(1)Ziegler Investment Division and Ziegler Securities are divisions of B. C.
Ziegler and Company
C-9
<PAGE> 148
Item 30. Location of Accounts and Records
--------------------------------
(a) B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
General ledger, including subsidiary ledgers;
corporate records and contracts; Portfolio ledger;
and shareholder documents, including IRA documents.
(b) Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
Transaction journals and confirmations for portfolio
trades for all of the Portfolios of the Registrant,
except for the Select Value Portfolio.
(c) Skyline Asset Management, L.P.
311 South Wacker Drive
Suite 4500
Chicago, Illinois 60606
Transaction journals and confirmations for portfolio
trades for the Select Value Portfolio.
C-10
<PAGE> 149
Item 31. Management Services
Not applicable
Item 32. Undertakings
Registrant undertakes that, at the request of the shareholders
holding 10% or more of the outstanding shares of the
Registrant, the Registrant will hold a special meeting for the
purpose of considering the removal of a director from office,
and the Registrant will cooperate with and assist shareholders
of record who notify the Registrant that they wish to
communicate with the other shareholders for the purpose of
obtaining signatures to request such a meeting, all pursuant
to and in accordance with Section 16(c) of the Investment
Company Act of 1940, as amended.
Registrant undertakes to furnish a copy of the Registrant's
latest Annual Report to Shareholders, upon request and without
charge, to each person to whom a Prospectus is delivered.
C-11
<PAGE> 150
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has caused this Post-Effective
Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of West Bend, State of
Wisconsin on this 31st day of March, 1998.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
/s/ Robert J. Tuszynski
By:------------------------------------
Robert J. Tuszynski, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to its Registration Statement on Form N-1A has been
signed on this 31st day of March, 1998, by the following persons in the
capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ R. D. Ziegler Director and Chairman of the Board
- -------------------------------
R. D. Ziegler
/s/ Robert J. Tuszynski Director and President (Chief Executive
- ------------------------------- Officer)
Robert J. Tuszynski
/s/ Franklin P. Ciano Chief Financial Officer and Treasurer
- ------------------------------- (Chief Financial and Accounting
Franklin P. Ciano Officer)
Richard H. Aster* Director
- -------------------------------
Richard H. Aster
August J. English* Director
- -------------------------------
August J. English
Ralph J. Eckert* Director
- -------------------------------
Ralph J. Eckert
</TABLE>
*By: /s/ Robert J. Tuszynski
--------------------------------------------
Robert J. Tuszynski pursuant to a Power of
Attorney dated January 19, 1996 filed
herewith (see following page)
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<PAGE> 151
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints R. D. Ziegler, Robert J. Tuszynski and S. Charles
O'Meara, or any of them, with full power of substitution, as his true and lawful
attorneys and agents, to execute in his name and on his behalf, in any and all
capacities, Principal Preservation Portfolios, Inc.'s Registration Statement on
Form N-1A (Registration No. 811-4401 under the Securities Act of 1933; File No.
33-12 under the Investment Company Act of 1940) filed with the Securities and
Exchange Commission under both the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, together with any and all other
instru ments which such attorneys and agents, or any of them, deem necessary or
advisable to enable Principal Preservation Portfolios, Inc. to comply with such
Acts and the rules, regulations and requirements of the Securities and Exchange
Commission and the securities or Blue Sky laws of any state or other
jurisdiction, and the undersigned hereby ratifies and confirms as his own act
and deed any and all actions that such attorneys and agents, or any of them,
shall do or cause to be done by virtue hereof. Any of such attorneys and agents
have, and may exercise, all of the powers conferred herein.
IN WITNESS WHEREOF, each of the undersigned directors of Principal
Preservation Portfolios, Inc. has hereunto set his hand as of this 19th day of
January, 1996.
<TABLE>
<S> <C>
/s/ R. D. Ziegler /s/ Richard H. Aster
- ------------------------------ ---------------------------
R. D. Ziegler Richard H. Aster
/s/ Robert J. Tuszynski /s/ August J. English
- ------------------------------ ---------------------------
Robert J. Tuszynski August J. English
/s/ Ralph J. Eckert
---------------------------
Ralph J. Eckert
</TABLE>
C-13
<PAGE> 152
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
1(a) Restated and Amended Articles of Incorporation(8)
1(b) December 29, 1995 Articles Supplementary(1)
1(c) Articles Supplementary for PSE Tech 100 Index Portfolio filed June 12,
1996(5)
2 By-Laws, as amended through January 20, 1995(8)
3 N/A
4 The Registrant's Amended and Restated Operating Plan
5(a) Investment Advisory Agreement pertaining to assets of Dividend
Achievers Portfolio(4)
5(b) Investment Advisory Agreement pertaining to the assets of Tax-Exempt,
S&P 100 Plus, Government, Wisconsin Tax-Exempt, Select Value, and
PSE Tech 100 Index Portfolios(5)
5(c) Sub-Advisory Agreement with Skyline Asset Management, L.P.(4)
5(d) Investment Advisory Agreement with Ziegler Asset Management, Inc.
with respect to the Cash Reserve Portfolio(3)
6(a) Distribution Agreement(5)
6(b) Form of Selected Dealers Agreement(5)
7 N/A
9(a) Transfer and Dividend Disbursing Agent Agreement(5)
9(b) License Agreement with Standard & Poor's Corporation(*)
9(c) Accounting/Pricing Agreement between Registrant and B.C. Ziegler and
Company(5)
9(d) Shareholder Servicing Agreement by and between B.C.
Ziegler and Company and the Registrant, as amended,
relating to Class X Shares of the Cash Reserve
Portfolio(6)
9(e) Administrative Services Agreement with Ziegler Asset Management,
Inc. with respect to the Cash Reserve Portfolio(1)
9(f) License Agreement with Pacific Stock Exchange Incorporated(7)
10 Opinion of Counsel(8)
11(a) Consent of Independent Public Accountants
11(b) Consent of Counsel (contained in Exhibit 10)
12 N/A
14 Model Retirement Plan*
15 Rule 12b-1 Distribution Plan, as amended
</TABLE>
i
<PAGE> 153
<TABLE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
16 Schedule for Computation of Performance Quotations*
17 Financial Data Schedules (Included as Exhibit 27)
18 See Exhibit 4
27 Financial Data Schedules
</TABLE>
- ---------------------
* Denotes previously filed as part of Registrant's Registration Statement
on Form N-1A or an amendment thereto, and incorporated herein by
reference.
(1) Previously filed as part of Registrant's Registration Statement on
Form N-14 (Reg. No.333-99010) filed with the Commission on
November 3, 1995.
(2) Previously filed as part of Registrant's Registration Statement on Form
N-14 (Reg. No. 333-01123) filed with the Commission on February 20,
1996.
(3) Previously filed as part of Post-Effective Amendment No. 31 to this
Registration Statement filed with the Commission on December 29, 1995.
(4) Previously filed as part of Post-Effective Amendment No. 32 to this
Registration Statement filed with the Commission on March 1, 1996.
(5) Previously filed as part of Post-Effective Amendment No. 33 to this
Registration Statement filed with the Commission on March 27, 1996.
(6) Previously filed as part of Post-Effective Amendment No. 36 to this
Registration Statement filed with the Commission on December 10, 1996.
(7) Previously filed as part of Post-Effective Amendment No. 37 to this
Registration Statement filed with the Commission on February 28, 1997.
(8) Previously filed as part of Post-Effective Amendment No. 38 to this
Registration Statement filed with the Commission on April 30, 1997.
ii
<PAGE> 1
EXHIBIT 4
AMENDED AND RESTATED OPERATING PLAN
iii
<PAGE> 2
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
AMENDED AND RESTATED
MULTIPLE CLASS OPERATING PLAN
(PURSUANT TO RULE 18F-3)
MAY 5, 1998
WHEREAS, the Board of Directors of Principal Preservation Portfolios,
Inc. ("Principal Preservation") has considered the addition of Class B Shares
for all Portfolios other than the Cash Reserve Portfolio to the multi-class plan
("Plan"), under which Principal Preservation presently may offer Class X (Retail
Shares) and Class Y (Institutional Shares) of the Cash Reserve Portfolio
pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended (the
"1940 Act"), such Plan originally having been adopted by a vote of the Board of
Directors of Principal Preservation on November 3, 1995; and
WHEREAS, a majority of the Directors of Principal Preservation and a
majority of a Directors who are not interested persons of Principal Preservation
have found the Plan, as amended and restated and set forth herein, to be in the
best interests of the shareholders of Principal Preservation;
NOW, THEREFORE, Principal Preservation hereby approves and adopts the
addition of Class B Shares to the Plan for each Portfolio other than the Cash
Reserve Portfolio as set forth below pursuant to Rule 18f-3 of the 1940 Act.
ARTICLE I
MULTIPLE CLASSES FOR ALL PORTFOLIOS
OTHER THAN CASH RESERVE PORTFOLIO
All currently-designated series of Principal Preservation and any and
all series of Principal Preservation designated in the future (the
"Portfolios"), other than the Cash Reserve Portfolio, may, from time to time,
issue one or more of the following classes of shares:
Class A Shares
Class B Shares
Each class is subject to such investment minimums and other conditions
as set forth in Principal Preservation's prospectuses and statements of
additional information as from time to time are in effect. Differences and
expenses among Classes, the conversion from one Class to another Class, and
exchange features are subject to the terms and conditions of this Plan.
iv
<PAGE> 3
A. INITIAL SALES CHARGE
Class A Shares of the Portfolios are offered at a public offering price
that is equal to their net asset value ("NAV") plus a sales charge of up to a
maximum percentage of the public offering price, as established for each
Portfolio from time to time in the relevant prospectuses of Principal
Preservation. The maximum sales charges on Class A Shares of any Portfolio may
be reduced or waived as permitted under Rule 22d-1 of the 1940 Act and as
described in Principal Preservation's prospectus for the relevant Portfolio as
in effect from time to time. For example, sales charges may be reduced or
eliminated for investments at various levels (breakpoints), as well as for
certain classes of investors such as employees of the advisor, sub- advisor,
distributor, etc.
Class B Shares have no initial sales charge and no sales charge is
imposed when Class B Shares are automatically converted to Class A Shares.
B. CONTINGENT DEFERRED SALES CHARGE
A Contingent Deferred Sales Charge ("CDSC") is imposed on Class B
Shares under certain circumstances. Principal Preservation imposes a CDSC if the
investor redeems shares that have been owned less than eight years according to
the following schedule:
<TABLE>
<CAPTION>
HOLDING PERIOD: CDSC
- -------------- ----
<C> <C>
1 Year or Less 5%
More Than 1 Year, But Less than 3 Years 4%
3 Years, But Less than 4 Years 3%
4 Years, But Less than 5 Years 2%
5 Years, But Less than 6 Years 1%
6 Years or More* 0%
- --------------------
</TABLE>
* Convert to Class A Shares after 8 years.
The amount of the CDSC is based upon the lesser of the NAV of the Class
B Shares at the time of redemption or at the time of purchase, and is gradually
reduced over a period of six years. Consistent with the requirements of Rule
6c-10 of the 1940 Act, the CDSC will not be imposed under certain circumstances
as described in Principal Preservation's prospectuses. For example, the CDSC
will not be imposed on shares acquired through the reinvestment of dividends or
capital gains or upon certain redemptions from retirement plans. In determining
whether an amount is available for redemption without a CDSC as well as to
compute the amount of the CDSC, it is assumed that shares acquired through the
reinvestment of dividends and capital gains distributions are redeemed first,
then shares are redeemed in the order purchased, from last to first.
Class A Shares and Class B Shares are aggregated for purposes of Rights
of Ac cumulations and Letters of Intent as described in Principal Preservation's
prospectuses.
v
<PAGE> 4
C. SEPARATE ARRANGEMENTS AND EXPENSE ALLOCATIONS OF EACH CLASS
Class A Shares and Class B Shares pay the expenses associated with
their different distribution and servicing arrangements. Each Class may, at the
Directors' discretion, also pay a different share of other expenses, not
including advisory or custodial fees or other expenses related to the management
of Principal Preservation's assets, if those expenses actually are incurred in a
different amount by the Class, or if the Class receives services of a different
kind or to a different degree than the other Class. All other expenses will be
allocated to each Class on the basis of the net asset value of the Shares.
Class A Shares and Class B Shares pay fees for services rendered and
borne in connection with personal services rendered to the shareholders of the
respective Classes and the maintenance of shareholder accounts. In addition,
Class A Shares and Class B Shares pay service fees at an annual rate of
twenty-five basis points (0.25%) of net assets computed on a daily basis, and
Class B Shares also pay a separate Rule 12b-1 distribution fee at an annual rate
of seventy-five basis points (0.75%) of net assets computed on a daily basis, as
described in Principal Preservation's prospectuses.
D. CONVERSION FEATURES
Class B Shares of each Portfolio automatically convert to Class A
Shares of the same Portfolio after they have been held for eight years, and
thereafter are subject to lower fees charged to Class A Shares. In this regard,
if there are any material changes in payments authorized under the Rule 12b-1
Plan applicable to Class A Shares without the approval of the Class B
shareholders, Principal Preservation will establish a new class of shares into
which Class B Shares would convert, on the same terms as those applied to Class
A shares before such increase.
E. EXCHANGE FEATURES
A shareholder may exchange Class A Shares and Class B Shares of any
Portfolio at net asset value for the same Class of Shares of any other Portfolio
provided the registration will be identical and the other Portfolio offers the
particular Class of Shares. If less than all of a Class B Share investment is
exchanged, any portion of the investment attributable to dividends, capital
gains and/or capital appreciation will be exchanged first, and thereafter any
portions exchanged will be in the order purchased, from first to last.
F. DIVIDENDS AND OTHER DISTRIBUTIONS
Each Portfolio pays out as dividends substantially all of its net
investment income (which comes from dividends and interest it receives from its
investments) and net realized short-term capital gains. All dividends and
distributions will be paid in the form of additional shares of the same Class of
the same Portfolio that generated the dividend or distribution, unless the
shareholder has elected another option. Dividends paid by each Portfolio with
respect to each Class are calculated in the same manner and at the same time.
G. VOTING RIGHTS
Each Share of a Portfolio entitles the shareholder of record to one
vote. Each Portfolio votes separately on matters relating solely to that
Portfolio. Each Class shall have exclusive voting rights on any matter than
affects that Class individually, and shall have separate voting rights on any
matters submitted to shareholders in which interests of the separate Classes
differ. All shareholders will have equal voting rights on any matter that
affects all shareholders
vi
<PAGE> 5
of all Classes equally, and all shareholders within a separate Class will have
equal voting rights with all other shareholders of that Class on any matter that
affects that Class individually. Because of the automatic conversion feature of
the Class B Shares, Class B shareholders may be asked to vote separately on any
material increase in payments under the Rule 12b-1 Plan, even if the increase
affects only the Class A Shares.
H. LIQUIDATION RIGHTS
Class A Shares and Class B Shares shall have equal rights in connection
with voluntary or involuntary redemptions and any liquidation of any Portfolio,
all in accordance with the conditions and policies and procedures established
from time to time in the current Prospectus and Statement of Additional
Information relating to the relevant Portfolio.
ARTICLE II
OPERATING PLAN FOR CASH RESERVE PORTFOLIO
The Cash Reserve Portfolio may, from time to time, issue one or more of
the following Classes of shares:
Class X Shares (Retail Shares)
Class Y Shares (Institutional Shares)
Each Class is subject to such investment minimums and other conditions
as set forth in Principal Preservation's prospectuses as from time to time are
in effect. The relative rights and preferences of the Classes, including the
differences in allocation of expenses among the Classes, are set forth below.
A. OWNERSHIP RIGHTS
Each Class X Share and Class Y Share represents a pro rata ownership
interest in the net assets of the Cash Reserve Portfolio, taking all outstanding
Class X Shares and Class Y Shares together without regard to Class.
B. VOTING RIGHTS
1. Class X Shares shall have exclusive voting rights on any matter
submitted to shareholders of the Cash Reserve Portfolio that affects only Class
X Shares (e.g., amendments to Principal Preservation's Rule 12b-1 Plan as it
relates to the Cash Reserve Portfolio), and Class Y Shares shall have exclusive
voting rights on any matter submitted to shareholders of the Cash Reserve
Portfolio that affects only Class Y Shares.
2. Class X Shares and Class Y Shares shall vote separately by Class on
any matter submitted to shareholders of the Cash Reserve Portfolio with respect
to which the two Classes of shares have interests different from each other, and
approval of any such matter with respect to either Class shall require the
affirmative vote of shareholders holding the requisite majority of shares of
such Class.
3. Class X Shares and Class Y Shares shall vote together and shall have
equal voting rights (one vote for each Share and a proportional vote for each
fractional share) with respect to all other matters submitted to shareholders of
the Cash Reserve Portfolio.
vii
<PAGE> 6
C. DIVIDEND AND LIQUIDATION RIGHTS
1. Class X Shares and Class Y Shares shall be entitled to participate
equally on a pro rata basis in all dividends as and when declared and paid by
the Cash Reserve Portfolio from time to time pursuant to the direction of
Principal Preservation's Board of Directors and the dividend policy disclosed in
the Cash Reserve Portfolio's current prospectuses and statements of additional
information relating to its X and Class Y Shares, respectively.
2. Class X Shares and Class Y Shares shall have equal rights in
connection with voluntary or involuntary redemptions and any liquidation of the
Cash Reserve Portfolio, all in accordance with the conditions and the policies
and procedures established from time to time in the current prospectuses and
statements of additional information relating to the Cash Reserve Portfolio's
Class X Shares and Class Y Shares, respectively.
D. INCOME AND EXPENSE ALLOCATIONS
1. Except as described in this Article II, Section D of this Plan, all
income and capital gains and all expenses and capital losses earned or incurred
by the Cash Reserve Portfolio shall be allocated equally to each outstanding
share of common stock of the Cash Reserve Portfolio, without regard to Class.
2. In general, Class A Shares and Class B Shares shall pay the expenses
associated with their different distribution and servicing arrangements. Costs
and expenses incurred by the Cash Reserve Portfolio exclusively for the benefit
of either Class X Shares or Class Y Shares (e.g., state securities qualification
fees; costs and expenses incurred in connection with a shareholder meeting in
which only holders of one or the other of the two Classes will participate;
costs incurred for preparation, printing and mailing of marketing materials,
relating to only one of the two Classes; etc.) shall be allocated entirely to
the Class for whose benefit such costs and expenses are incurred. Any such
disproportionate allocations will be made at the discretion of the Board of
Directors of Principal Preservation, taking into account such factors as whether
the expenses actually are incurred in a different amount by one Class as opposed
to the other, or if one Class receives services of a different kind or to a
different degree that the other Class. All other expenses, including without
limitation advisory and custodial fees and other expenses related to the
management of the Cash Reserve Portfolio's assets, shall be allocated to each
Share regardless of Class, or based on relative net assets (e.g., settled
shares), as permitted by the provisions of Rule 18f-3 under the 1940 Act.
3. Fees under Principal Preservation's Rule 12b-1 Distribution Plan
shall accrue only with respect to that portion of the Cash Reserve Portfolio's
average daily net assets represented by the outstanding Class X Shares, and the
entire expense incurred by the Cash Reserve Portfolio with respect to such fees
shall be allocated entirely to the outstanding Class X Shares.
4. Fees payable pursuant to any shareholder servicing agent agreements
entered into by Principal Preservation Portfolios, Inc. (on behalf of the Cash
Reserve Portfolio) shall be payable only with respect to the Class of shares
held pursuant to such agreement(s) (and each shareholder servicing agent
agreement shall so provide), and any such fees incurred by the Cash Reserve
Portfolio shall be allocated entirely to the outstanding Class X Shares.
5. This Plan is subject to amendment in accordance with the provisions
of Principal Preservation's Articles of Incorporation and Bylaws and in
accordance with the provisions of applicable law. This Plan shall be construed
and interpreted in compliance with the requirements of Rule 18f-3 of the 1940
Act.
viii
<PAGE> 1
EXHIBIT 11(A)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE> 2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
and the Statement of Additional Information constituting parts of this
Post-Effective Amendment to the Registration Statement on Form N-1A (the
"Registration Statement") of Principal Preservation Portfolios, Inc. ("Principal
Preservation") of our report, dated January 16, 1998, relating to the financial
statements and financial highlights of the series of Principal Preservation
known as the Tax-Exempt Portfolio, Government Portfolio, S&P 100 Plus Portfolio,
Dividend Achievers Portfolio, Select Value Portfolio and PSE Tech 100 Index
Portfolio, which financial statements and financial highlights also are
incorporated by reference into the Amendment from Principal Preservation's 1997
Annual Report to Shareholders. We also consent to the references to us under the
heading "Financial Highlights" in the Prospectus and under the headings "Counsel
and Independent Public Accountants" and "Experts" in the Statement of
Additional Information.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
March 30, 1998
<PAGE> 1
EXHIBIT 15
RULE 12B-1 DISTRIBUTION PLAN
<PAGE> 2
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
AMENDED AND RESTATED DISTRIBUTION PLAN
PURSUANT TO RULE 12b-1
MAY 5, 1998
This Amended and Restated Distribution Plan (the "Plan") is adopted by
a vote of the Board of Directors and of the Qualified Directors (as those terms
are defined herein) of Principal Preservation Portfolios, Inc. (the "Fund") on
May 5, 1998, to redescribe the shares originally detailed in the Plan as "Class
A" shares ("Class X" with respect to the Cash Reserve Portfolio), and to add
"Class B" shares to the Plan as follows:
1. The Plan. This Plan is the written plan of the Fund contemplated by
Rule 12b-1 (the "Rule") under the Investment Company Act of 1940 (the "Act").
2. Definitions. As used in this Plan, the following terms shall
have the following meanings:
(a) "Portfolio" shall mean any separate series or mutual
fund portfolio of the Fund.
(b) "Qualified Recipient" shall mean any broker-dealer or
other "person" (as that term is defined in the Act) which (i) has entered into a
written agreement that complies with the Rule (a "related agreement") with the
Fund's Distributor and (ii) has rendered distribution assistance (whether
direct, administrative or both) in the distribution of the Fund's Class A (or
Class X) or Class B shares.
(c) "Qualified Holdings" shall mean all Class A (or Class X)
or Class B shares of the Fund beneficially owned by (i) a Qualified Recipient,
(ii) the customers (brokerage or other) of a Qualified Recipient, (iii) the
clients (investment advisory or other) of a Qualified Recipient, (iv) the
accounts as to which a Qualified Recipient has a fiduciary or custodial
relationship, and (v) the members of a Qualified Recipient, if such Qualified
Recipient is an association or union; provided that the Qualified Recipient
shall have been instrumental in the purchase of such shares by, or shall have
provided administrative assistance to, such customers, clients, accounts or
members in relation thereto. The Distributor may make final and binding
decisions as to all matters relating to Qualified Holdings and Qualified
Recipients, including but not limited to (i) the identity of Qualified
Recipients; (ii) whether or not any shares are to be considered as Qualified
Holdings of any particular Qualified Recipient; and (iii) what shares, if any,
are to be attributed to a particular Qualified Recipient, to a different
Qualified Recipient or to no Qualified Recipient.
(d) "Qualified Directors" shall mean the Directors of the Fund
who are not interested persons as defined in the Act of the Fund and who have no
direct or indirect financial interest in the operation of this Plan or any
agreement related to this Plan. While this Plan is in effect, the selection and
nomination of Qualified Directors shall be committed to the discretion of the
Directors who are not interested persons of the Fund. Nothing herein shall
prevent the involvement of others in such selection and nomination if the final
decision on any such selection and nomination is approved by a majority of such
disinterested Directors.
(e) "Permitted Payments" shall mean payments by the
Distributor to Qualified Recipients as permitted by this Plan.
<PAGE> 3
(f) "Permitted Expenses" shall mean expenses incurred by the
Distributor in connection with the distribution of Class A (or Class X) or Class
B shares of the Fund as defined below in Section 4.
(g) Permitted Payments and Permitted Expenses shall not
include any expenses listed in Section 5 below.
3. Payments Authorized
(a) Class A (or Class X) Shares. The Distributor is
authorized, pursuant to this Plan, to make Permitted Payments to any Qualified
Recipient under a related agreement on either or both of the following bases for
Class A (or Class X) shares:
(i) As reimbursement for direct expenses
incurred in the course of distributing Fund shares or providing administrative
assistance to the Fund or its shareholders, including, but not limited to,
advertising, printing and mailing promotional material, telephone calls and
lines, computer terminals and personnel (including commissions and other
compensation paid to such personnel); and/or
(ii) At a rate specified in the related
agreement with the Qualified Recipient in question based on the average value
of the Qualified Holdings of such Qualified Recipient.
The Distributor may make Permitted Payments in any amount to
any Qualified Recipient, provided that: (A) the total amount of all Permitted
Payments made during a fiscal year of the Fund to all Qualified Recipients
(whether made under (i) and/or (ii) above) do not exceed, in that fiscal year of
the Fund, the amounts for each Portfolio's Class A (or Class X) shares as set
forth in Exhibit A attached hereto; and (B) a majority of the Fund's Qualified
Directors may at any time decrease or limit the aggregate amount of all
Permitted Payments or decrease or limit the amount payable to any Qualified
Recipient. Each Portfolio will reimburse the Distributor for such Permitted
Payments within such limit, but the Distributor shall bear any Permitted
Payments beyond such limits.
(b) Class B Shares. The Distributor is authorized, pursuant to
this Plan, to make Permitted Payments to any Qualified Recipient under a related
agreement on either or both of the following bases for Class B Shares:
(i) As reimbursement for direct expenses
incurred in the course of distributing Fund shares or providing administrative
assistance to the Fund or its shareholders, including, but not limited to,
advertising, printing and mailing promotional material, telephone calls and
lines, computer terminals and personnel (including commissions and other
compensation paid to such personnel); and/or
(ii) At a rate specified in the related
agreement with the Qualified Recipient in question based on the average value
of the Qualified Holdings of such Qualified Recipient.
The Distributor may make Permitted Payments in any amount to
any Qualified Recipient, provided that: (A) the total amount of all Permitted
Payments made during a fiscal year of the Fund to all Qualified Recipients
(whether made under (i) and/or (ii) above) do not exceed, in that fiscal year of
the Fund, the amounts for each Portfolio's Class B shares, if any, as set forth
in Exhibit B attached hereto; and (B) a majority of the Fund's Qualified
Directors may at any time decrease or limit the aggregate amount of all
Permitted Payments or decrease or limit the amount payable to any Qualified
Recipient for Class B shares, provided that no
<PAGE> 4
such decrease may be made to the distribution fee portion of Permitted Expenses
payable with respect to the Class B shares unless and until the service fee
portion of said Permitted Expenses has been eliminated. Each Portfolio will
reimburse the Distributor for such Permitted Payments for Class B shares, if
any, within such limit, but the Distributor shall bear any Permitted Payments
beyond such limits.
(c) Payment to Distributor. Distributor is entitled to receive
from each Portfolio of the Fund the payment of Permitted Expenses on an annual
basis at the rate specified in Exhibit A or Exhibit B, as the case may be, with
respect to Class A (or Class X) or Class B shares which are owned of record by
the Distributor as nominee for the Distributor's customers or which are owned by
those customers of the Distributor whose records, as maintained by the Fund or
its agent, designate the Distributor as the customer's dealer of record, and
said fee shall be considered a Permitted Expense; provided, however, that in no
event shall Permitted Expenses and Permitted Payments, in the aggregate, in that
fiscal year of the Fund, exceed the amounts set forth in Exhibit A or Exhibit B
for the relevant Class of shares and the relevant Portfolio, as the case may be,
and the Distributor shall bear any such expenses beyond such limit.
Said fee shall be calculated and paid quarterly. The
Distributor shall furnish the Fund with such information as shall be reasonably
requested by the Fund with respect to the fees paid to the Distributor.
4. Expenses Authorized. The Distributor is authorized, pursuant to this
Plan, to purchase advertising for Class A (or Class X) or Class B shares of the
Fund, to pay for sales literature and other promotional material, and to make
payments to sales personnel affiliated with it, in the form of commissions or
other compensation. Any such advertising and sales material may include
references to other open-end investment companies or other investments and any
salesmen so paid are not required to devote their time solely to the sale of
Fund shares. Any such expenses ("Permitted Expenses") made during a fiscal year
of any Portfolio shall be reimbursed or paid by the Portfolio, except that the
combined amount of reimbursement or payment of Permitted Expenses together with
the Permitted Payments made pursuant to Section 3 of this Plan by a Portfolio
shall not, in the aggregate, in that fiscal year of the Portfolio, exceed the
amounts set forth in Exhibit A or Exhibit B attached hereto, as applicable. The
Distributor shall bear any expenses beyond such limit. No such reimbursement
may be made for Permitted Expenses or Permitted Payments for fiscal years prior
to the fiscal year in question or in contemplation of future Permitted Expenses
or Permitted Payments.
5. Certain Other Payments Authorized. If and to the extent that any of
the payments by the Fund listed below are considered to be "primarily intended
to result in the sale of shares" issued by the Fund within the meaning of the
Rule, such payments by the Fund are authorized without limit under this Plan and
shall not be included in the limitations contained in this Plan: (i) the costs
of the preparation, printing and mailing of all required reports and notices to
shareholders, irrespective of whether such reports or notices contain or are
accompanied by material intended to result in the sale of shares of the Fund or
other funds or other investments; (ii) the costs of preparing, printing and
mailing of all prospectuses to shareholders; (iii) the costs of preparing,
printing and mailing of any proxy statements and proxies, irrespective of
whether any such proxy statement includes any item relating to, or directed
toward, the sale of the Fund's shares; (iv) all legal and accounting fees
relating to the preparation of any such reports, prospectuses, proxies and proxy
statements; (v) all fees and expenses relating to the qualification of the Fund,
the Portfolios and/or their shares under the securities or "Blue Sky" law of any
jurisdiction; (vi) all fees under the Act and the Securities Act of 1933,
including fees in connection with any application for exemption relating to or
directed toward the sale of the Fund's shares; (vii) all fees and assessments of
the Investment
<PAGE> 5
Company Institute or any successor organization, irrespective of whether some of
its activities are designed to provide sales assistance; (viii) all costs of
preparing and mailing confirmations of shares sold or redeemed or share
certificates, and reports of share balances; and (ix) all costs of responding to
telephone or mail inquiries of shareholders.
6. Investment Advisory Fees. It is recognized that the costs of
distribution of the Fund's Class A (or Class X) and Class B shares are expected
to exceed the sum of Permitted Payments and Permitted Expenses ("Excess
Distribution Costs") and that the profits, if any, of the Fund's Advisor are
dependent primarily on the advisory fees paid by the Fund to the Advisor. If and
to the extent that any investment advisory fees paid by the Fund might, in view
of any Excess Distribution Costs, be considered as indirectly financing any
activity which is primarily intended to result in the sale of shares issued by
the Fund, the payment of such fees is authorized under this Plan. In taking any
action contemplated by Section 15 of the Act as to any investment advisory
contract to which the Fund is a party, the Fund's Board of Directors, including
its Directors who are not "interested persons," as defined in the Act, shall, in
acting on the terms of any such contract, apply its "fiduciary duty" standard
contained in Sections 36(a) and 36(b) of the Act.
7. Reports. While this Plan is in effect, the Distributor shall report
in writing at least quarterly to the Fund's Board of Directors, and the Board
shall review the following: (i) the amounts of all Permitted Payments for Class
A (or Class X) and Class B shares, the identity of the recipients of each such
Payment; the basis on which each such recipient was chosen as a Qualified
Recipient and the basis on which the amount of the Permitted Payment to such
Qualified Recipient was made; (ii) the amounts of Permitted Expenses and the
purpose of each such Expense; and (iii) all costs of each item specified in
Section 5 of the Plan (making estimates of such costs where necessary or
desirable), in each case during the preceding calendar or fiscal quarter.
8. Effectiveness, Continuation, Termination and Amendment
(a) Class A (or Class X) Shares. This Plan, as applied to
Class A (or Class X) shares, has been approved by a vote of a majority of the
Board of Directors of the Fund and of a majority of the Qualified Directors,
cast in person at a meeting called for the purpose of voting on this Plan. This
Plan shall, unless terminated as hereinafter provided, continue in effect with
respect to Class A (or Class X) shares from year to year only so long as such
continuance is specifically approved at least annually by a majority of the
Fund's Board of Directors and a majority of its Qualified Directors cast in
person at a meeting called for the purpose of voting on such continuance. This
Plan may be terminated with respect to Class A (or Class X) shares at any time
as to any Portfolio by a vote of a majority of the Qualified Directors or by the
vote of the holders of a "majority" (as defined in the Act) of all outstanding
voting securities of any Portfolio. This Plan may not be amended to increase
materially the amount of payments to be made by any Portfolio with respect to
Class A (or Class X) shares except by the vote of the holders of a "majority"
(as defined in the Act) of the outstanding voting securities of that Portfolio,
and all amendments must be approved by a vote of a majority of the Board of
Directors of the Fund and of a majority of the Qualified Directors, cast in
person at a meeting called for the purpose of voting on this Plan. In the event
of a termination of this Plan with respect to Class A (or Class X) shares of any
Portfolio, the Distributor shall be reimbursed only for Permitted Payments and
Permitted Expenses for Class A (or Class X) shares of the relevant Portfolio
incurred to the date of termination and within the limits set forth in Section 4
above.
(b) Class B Shares. This Plan, as applied to Class B shares,
has been approved by a vote of the Board of Directors of the Fund and of the
Qualified Directors, cast in person at a meeting called for the purpose of
voting on this Plan. This Plan, as applied to
<PAGE> 6
Class B shares, shall, unless terminated as hereinafter provided, continue in
effect until June 1, 2000, and thereafter from year to year only so long as such
continuance is specifically approved at least annually by the Fund's Board of
Directors and its Qualified Directors cast in person at a meeting called for the
purpose of voting on such continuance for Class B shares. This Plan, as applied
to Class B shares, may be terminated at any time with respect to any Portfolio
by a vote of a majority of the Qualified Directors or by the vote of the holders
of a "majority" (as defined in the Act) of the outstanding Class B shares of
that Portfolio. This Plan may not be amended to increase materially the amount
of payments to be made for Class B shares of any Portfolio except by a vote of
holders of least a "majority" (as defined in the Act) of the outstanding voting
securities of Class B shares of the relevant Portfolio, and all amendments must
be approved by a vote of the Board of Directors of the Fund and of the Qualified
Directors, cast in person at a meeting called for the purpose of voting on Class
B shares of this Plan. In the event of termination of this Plan for Class B
shares with respect to any Portfolio, the Distributor shall be reimbursed only
for Permitted Payments and Permitted Expenses for Class B shares of the relevant
Portfolio incurred to the date of termination and within the limit set forth in
Section 4 above.
<PAGE> 7
EXHIBIT A
CLASS A (OR CLASS X) SHARES
Rule 12b-1 service fees are expressed as a percentage of the relevant
Portfolio's average daily net assets.
1. Tax-Exempt Portfolio (Class A)
Service Fee: 0.25 of 1%
2. Government Portfolio (Class A)
Service Fee: 0.25 of 1%
3. S&P 100 Plus Portfolio (Class A)
Service Fee: 0.25 of 1%
4. Dividend Achievers Portfolio (Class A)
Service Fee: 0.25 of 1%
5. Select Value Portfolio (Class A)
Service Fee: 0.25 of 1%
6. PSE Tech 100 Index Portfolio (Class A)
Service Fee: 0.25 of 1%
7. Cash Reserve Portfolio (Class X)
Service Fee: 0.15 of 1%
8. Wisconsin Tax-Exempt Portfolio (Class A)
Service Fee: 0.25 of 1%
<PAGE> 8
CLASS B SHARES
Rule 12b-1 service and distribution fees are expressed as a percentage
of the relevant Portfolio's average daily net assets.
1. S&P 100 Plus Portfolio (Class B)
Service Fee: 0.25 of 1%
Distribution Fee: 0.75 of 1%
2. Dividend Achievers Portfolio (Class B)
Service Fee: 0.25 of 1%
Distribution Fee: 0.75 of 1%
3. Select Value Portfolio (Class B)
Service Fee: 0.25 of 1%
Distribution Fee: 0.75 of 1%
4. PSE Tech 100 Index Portfolio (Class B)
Service Fee: 0.25 of 1%
Distribution Fee: 0.75 of 1%
<PAGE> 9
'PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 NORTH MAIN STREET
WEST BEND, WISCONSIN 53095
DISTRIBUTION AGREEMENT
(UNDER RULE 12B-1)
_____________, 19__
Dear Sirs:
This letter will confirm our understanding and agreement with respect
to payments to be made to you pursuant to a plan of distribution adopted by
Principal Preservation Portfolios, Inc. (the "Fund") pursuant to Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940 (the "Act"). The Plan and this
related agreement have been approved by a majority of the Directors of the Fund
including a majority of the Directors who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operation of the
Plan or any related agreements (the "Qualified Directors"), cast in person at a
meeting called for the purpose of voting thereon. Such approval included a
determination that in the exercise of reasonable business judgment and in light
of their fiduciary duties, there is a reasonable likelihood that the Plan will
benefit the Fund and its shareholders. This Agreement shall apply to additional
Portfolios of the Fund which approve the Plan in the manner required by the Act
and rules thereunder.
1. To the extent you provide distribution and marketing services in the
promotion of the Fund's Class A (or Class X with respect to the Cash Reserve
Portfolio) or Class B shares, including furnishing services and assistance to
your customers who invest in and own Fund shares, including, but not limited to,
answering routine inquires regarding the Fund, assisting in changing
distribution options, account designations and addresses, and/or administrative
services, we shall pay you a fee at the maximum rate for the relevant Portfolio
set forth in attached Exhibit A (for Class A or Class X shares) or Exhibit B
(for Class B shares), as the case may be, based upon the average daily net asset
value of the shares of that Portfolio which are owned of record by your firm as
nominee for your customers or which are owned by those customers of your firm
whose records, as maintained by the Fund or its Agent, designate your firm as
the Customer's dealer of record; except that no fee shall be payable with
respect to Class B shares during the initial one-year period following their
sale to an investor. The fee will be calculated and paid quarterly. No such
quarterly fee will be paid to you with respect to shares purchased by you and
redeemed or repurchased by the Fund or by us as Agent within seven (7) business
days after the date of our confirmation of such purchase. No such quarterly fee
will be paid to you with respect to any of your customers if the amount of such
fee based upon the value of such customer's Fund shares will be less than $1.00.
We reserve the right to increase, decrease or discontinue the fee at any time in
our sole discretion upon written notice to you.
Payment of such quarterly fee shall be made within 45 days after the
close of each quarter for which such fee is payable.
2. You shall furnish us and the Fund with such information as shall
reasonably be requested by the Directors of the Fund with respect to the fees
paid to you pursuant to this Agreement.
3. We shall furnish to the Directors of the Fund, for their review, on
a quarterly basis a written report of the amounts expended under the Plan by us
and the purposes for which such expenditures were made.
<PAGE> 10
4. This Agreement may be terminated for Class A (or Class X) or Class B
shares of any Portfolio by the vote of a majority of the Qualified Directors of
the Fund or by a vote of majority of the Fund's outstanding shares on sixty (60)
days' written notice, without payment of any penalty. It will be terminated by
any act which terminates either the Distribution Agreement between the Fund and
us or the Dealer Agreement between your firm and us and shall terminate
immediately in the event of its assignment as that term is defined in the Act.
5. The provisions of the Distribution Agreement between the Fund and
us, insofar as they relate to the Plan, are incorporated herein by reference.
This Agreement shall become effective as of the date hereof on the effective
date of said Distribution Agreement and shall continue in full force and effect
so long as the continuance of the Distribution Agreement and the Plan and this
Agreement are approved at least annually by a vote of a majority of the Fund's
Directors and a majority of the Qualified Directors, cast in person at a meeting
called for the purpose of voting thereon. All communications to us should be
sent to the above address. Any notice to you shall be given if marked or
telegraphed to you at the address specified by you below. This agreement shall
be effective when accepted by you below and shall be construed under the laws of
the State of Wisconsin.
B.C. ZIEGLER AND COMPANY
By:
------------------------------
(Authorized Signature)
Accepted:
- ------------------------------------
(Dealer's Name)
- ------------------------------------
(Street Address)
- ------------------------------------
(City) (State) (Zip)
By:
--------------------------------
(Authorized Signature of Dealer)
.
QBMKE\2298249.4
<PAGE> 11
EXHIBIT A
MAXIMUM FEES FOR CLASS A (OR CLASS X) SHARES
1. Tax-Exempt Portfolio (Class A)
0.25 of 1% of average daily net assets
2. Government Portfolio (Class A)
0.25 of 1% of average daily net assets
3. S&P 100 Plus Portfolio (Class A)
0.25 of 1% of average daily net assets
4. Dividend Achievers Portfolio
0.25 of 1% of average daily net assets
5. Select Value Portfolio (Class A)
0.25 of 1% of average daily net assets
6. PSE Tech 100 Index Portfolio (Class A)
0.25 of 1% of average daily net assets
7. Cash Reserve Portfolio (Class X)
0.15 of 1% of average daily net assets
8. Wisconsin Tax-Exempt Portfolio (Class A)
0.25 of 1% of average daily net assets
<PAGE> 12
EXHIBIT B
MAXIMUM FEES FOR CLASS B SHARES
The fees for Class B shares are not payable during the initial one-year
period following the sale of the shares to an investor.
1. S&P 100 Plus Portfolio
0.25 of 1% of average daily net assets
2. Dividend Achievers Portfolio
0.25 of 1% of average daily net assets
3. Select Value Portfolio
0.25 of 1% of average daily net assets
4. PSE Tech 100 Index Portfolio
0.25 of 1% of average daily net assets
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> TAX EXEMPT PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 58404
<INVESTMENTS-AT-VALUE> 60021
<RECEIVABLES> 829
<ASSETS-OTHER> 6
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 60856
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 604
<TOTAL-LIABILITIES> 604
<SENIOR-EQUITY> 58622
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 6330
<SHARES-COMMON-PRIOR> 7133
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1617
<NET-ASSETS> 60252
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3393
<OTHER-INCOME> 0
<EXPENSES-NET> 680
<NET-INVESTMENT-INCOME> 2713
<REALIZED-GAINS-CURRENT> 1580
<APPREC-INCREASE-CURRENT> 1245
<NET-CHANGE-FROM-OPS> 5538
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2715)
<DISTRIBUTIONS-OF-GAINS> (1379)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1021
<NUMBER-OF-SHARES-REDEEMED> (11144)
<SHARES-REINVESTED> 2621
<NET-CHANGE-IN-ASSETS> (7502)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (188)
<OVERDISTRIB-NII-PRIOR> (31)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 359
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 680
<AVERAGE-NET-ASSETS> 61784
<PER-SHARE-NAV-BEGIN> 9.30
<PER-SHARE-NII> 0.41
<PER-SHARE-GAIN-APPREC> 0.44
<PER-SHARE-DIVIDEND> (0.41)
<PER-SHARE-DISTRIBUTIONS> (0.22)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.52
<EXPENSE-RATIO> 1.1
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> GOVERNMENT PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 39,972
<INVESTMENTS-AT-VALUE> 40,096
<RECEIVABLES> 773
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 40,874
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 191
<TOTAL-LIABILITIES> 191
<SENIOR-EQUITY> 43,185
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 4,383
<SHARES-COMMON-PRIOR> 4,882
<ACCUMULATED-NII-CURRENT> 9
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,635)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 124
<NET-ASSETS> 40,683
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,370
<OTHER-INCOME> 0
<EXPENSES-NET> 473
<NET-INVESTMENT-INCOME> 2,897
<REALIZED-GAINS-CURRENT> (110)
<APPREC-INCREASE-CURRENT> 409
<NET-CHANGE-FROM-OPS> 3,196
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,894)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,104
<NUMBER-OF-SHARES-REDEEMED> (7,423)
<SHARES-REINVESTED> 1,780
<NET-CHANGE-IN-ASSETS> (4,237)
<ACCUMULATED-NII-PRIOR> 7
<ACCUMULATED-GAINS-PRIOR> (2,526)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 249
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 491
<AVERAGE-NET-ASSETS> 41,412
<PER-SHARE-NAV-BEGIN> 9.20
<PER-SHARE-NII> 0.63
<PER-SHARE-GAIN-APPREC> 0.08
<PER-SHARE-DIVIDEND> (0.63)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.28
<EXPENSE-RATIO> 1.1
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> S&P 100 PLUS PORTFOLIO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 58,264
<INVESTMENTS-AT-VALUE> 105,287
<RECEIVABLES> 738
<ASSETS-OTHER> 9
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 106,034
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 296
<TOTAL-LIABILITIES> 296
<SENIOR-EQUITY> 58,791
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 3,910
<SHARES-COMMON-PRIOR> 3,511
<ACCUMULATED-NII-CURRENT> 9
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (85)
<ACCUM-APPREC-OR-DEPREC> 47,023
<NET-ASSETS> 105,738
<DIVIDEND-INCOME> 1,568
<INTEREST-INCOME> 195
<OTHER-INCOME> 0
<EXPENSES-NET> 799
<NET-INVESTMENT-INCOME> 964
<REALIZED-GAINS-CURRENT> 2,482
<APPREC-INCREASE-CURRENT> 17,819
<NET-CHANGE-FROM-OPS> 21,265
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (959)
<DISTRIBUTIONS-OF-GAINS> (2,481)
<DISTRIBUTIONS-OTHER> (71)
<NUMBER-OF-SHARES-SOLD> 14,156
<NUMBER-OF-SHARES-REDEEMED> (6,977)
<SHARES-REINVESTED> 3,288
<NET-CHANGE-IN-ASSETS> 28,221
<ACCUMULATED-NII-PRIOR> 3
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (15)
<GROSS-ADVISORY-FEES> 425
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 898
<AVERAGE-NET-ASSETS> 94,018
<PER-SHARE-NAV-BEGIN> 22.08
<PER-SHARE-NII> 0.26
<PER-SHARE-GAIN-APPREC> 5.63
<PER-SHARE-DIVIDEND> (0.26)
<PER-SHARE-DISTRIBUTIONS> (0.65)
<RETURNS-OF-CAPITAL> (0.02)
<PER-SHARE-NAV-END> 27.04
<EXPENSE-RATIO> 0.9
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> DIVIDEND ACHIEVED
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 19,614
<INVESTMENTS-AT-VALUE> 39,582
<RECEIVABLES> 92
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 39,678
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 113
<TOTAL-LIABILITIES> 113
<SENIOR-EQUITY> 19,596
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,574
<SHARES-COMMON-PRIOR> 1,524
<ACCUMULATED-NII-CURRENT> 1
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19,968
<NET-ASSETS> 39,565
<DIVIDEND-INCOME> 603
<INTEREST-INCOME> 41
<OTHER-INCOME> 0
<EXPENSES-NET> 438
<NET-INVESTMENT-INCOME> 206
<REALIZED-GAINS-CURRENT> 482
<APPREC-INCREASE-CURRENT> 7,846
<NET-CHANGE-FROM-OPS> 8,534
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (205)
<DISTRIBUTIONS-OF-GAINS> (482)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,376
<NUMBER-OF-SHARES-REDEEMED> (1,820)
<SHARES-REINVESTED> 658
<NET-CHANGE-IN-ASSETS> 9,061
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 265
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 472
<AVERAGE-NET-ASSETS> 35,553
<PER-SHARE-NAV-BEGIN> 20.01
<PER-SHARE-NII> 0.13
<PER-SHARE-GAIN-APPREC> 5.43
<PER-SHARE-DIVIDEND> (0.13)
<PER-SHARE-DISTRIBUTIONS> (0.31)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 25.13
<EXPENSE-RATIO> 1.2
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> SELECT VALUE
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 7610
<INVESTMENTS-AT-VALUE> 8529
<RECEIVABLES> 80
<ASSETS-OTHER> 5
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 8615
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 117
<TOTAL-LIABILITIES> 117
<SENIOR-EQUITY> 7577
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 704
<SHARES-COMMON-PRIOR> 440
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 919
<NET-ASSETS> 8615
<DIVIDEND-INCOME> 54
<INTEREST-INCOME> 23
<OTHER-INCOME> 0
<EXPENSES-NET> 71
<NET-INVESTMENT-INCOME> 6
<REALIZED-GAINS-CURRENT> 1115
<APPREC-INCREASE-CURRENT> 383
<NET-CHANGE-FROM-OPS> 1504
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6)
<DISTRIBUTIONS-OF-GAINS> (1134)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2635
<NUMBER-OF-SHARES-REDEEMED> (469)
<SHARES-REINVESTED> 1138
<NET-CHANGE-IN-ASSETS> 3668
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 20
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 50
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 137
<AVERAGE-NET-ASSETS> 6452
<PER-SHARE-NAV-BEGIN> 10.97
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> 2.93
<PER-SHARE-DIVIDEND> (0.01)
<PER-SHARE-DISTRIBUTIONS> (1.83)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.07
<EXPENSE-RATIO> 1.1
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> PSE TECH 100
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 26,810
<INVESTMENTS-AT-VALUE> 26,808
<RECEIVABLES> 481
<ASSETS-OTHER> 13
<OTHER-ITEMS-ASSETS> 1
<TOTAL-ASSETS> 27,303
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 158
<TOTAL-LIABILITIES> 158
<SENIOR-EQUITY> 27,233
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 2,190
<SHARES-COMMON-PRIOR> 558
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
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<DISTRIBUTIONS-OF-GAINS> (789)
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</TABLE>
