As filed with the Securities and Exchange Commission on May 1, 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
Pre-Effective Amendment No.
Post-Effective Amendment No. 43 x
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 45 x
(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
X immediately upon filing pursuant to paragraph (b)
on May 1, 1998 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on (date) 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 as filed on February 26, 1998.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
CLASS X SHARES
(RETAIL CLASS)
FORM N-1A
CROSS REFERENCE SHEET
CASH RESERVE PORTFOLIO
FORM N-1A RETAIL CLASS
ITEM NO. PROSPECTUS HEADING
- --------- ------------------
PART A
1. Cover Page Cover Page
2. Synopsis Questions and Answers; Expenses
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Questions and Answers; Description of
Shares
5. Management of the Fund Management; Determination of Net Asset
Value Per Share; Other Information
6. Capital Stock and Other Description of Shares; Tax Status;
Securities Redemptions; Dividends, Capital Gains
Distributions and Reinvestments
7. Purchase of Securities Being Determination of Net Asset Value Per
Offered Share; Purchase of Shares; Shareholder
Services; Distribution Plan;
Redemptions
8. Redemption or Repurchase Redemptions
9. Pending Legal Proceedings None
PART B
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Not Applicable
Information
13. Investment Objectives and Investment Program; Investment
Policies Restrictions
14. Management of the Fund Management of Principal Preservation
15. Control Persons and Principal Management of Principal Preservation
Holders of Securities
16. Investment Advisory and Other Management of Principal Preservation
Services
17. Brokerage Allocation and Portfolio Transactions and Brokerage
Brokerage
18. Capital Stock and Other Determination of Net Asset Value Per
Securities Share; Valuation of Securities; Redemp-
tion in Kind; Tax Status
19. Purchase, Redemption and Pricing Determination of Net Asset Value Per
of Securities Being Offered Share; Valuation of Securities; Redemp-
tion in Kind; Purchase of Shares
20. Tax Status Tax Status
21. Underwriters Distribution Expenses; Purchase of
Shares
22. Calculation of Performance Data Performance Information; Portfolio
Ratings
23. Financial Statements Financial Statements
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
CLASS Y SHARES
(INSTITUTIONAL CLASS)
FORM N-1A
CROSS REFERENCE SHEET
CASH RESERVE PORTFOLIO
FORM N-1A INSTITUTIONAL CLASS
ITEM NO. PROSPECTUS HEADING
- --------- ------------------
PART A
1. Cover Page Cover Page
2. Synopsis Questions and Answers; Expenses
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Questions and Answers; Investment
Objective and Policies
5. Management of the Fund Management; Determination of Net Asset
Value Per Share; Other Information
6. Capital Stock and Other Description of Shares; Tax Status;
Securities Redemptions; Dividends, Capital Gains
Distributions and Reinvestments
7. Purchase of Securities Offered Determination of Net Asset Value Per
Share; Purchase of Shares
8. Redemption or Repurchase Redemptions
9. Pending Legal Proceedings None
PART B
10. Cover Page Cover Page
11. Table of Contents Cover Page
12. General Information and History The Fund
13. Investment Objectives and Investment Program; Investment
Policies Restrictions
14. Management of the Fund Management of Principal Preservation
15. Control Persons and Principal Management of Principal Preservation
Holders of Securities
16. Investment Advisory and Other Management of Principal Preservation
Services
17. Brokerage Allocation and Portfolio Transactions and Brokerage
Brokerage Practices
18. Capital Stock and Other Determination of Net Asset Value;
Securities Valuation of Securities; Redemption in
Kind; Tax Status
19. Purchase, Redemption and Pricing Determination of Net Asset Value;
of Securities Being Offered Valuation of Securities; Redemption in
Kind; Purchase of Shares
20. Tax Status Tax Status
21. Underwriters Portfolio Transactions and Brokerage
Practices; Management of Principal
Preservation
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
(Principal Preservation Portfolio Logo)
Cash Reserve Portfolio
Class X Shares
(Retail Class)
MAY 1, 1998
PROSPECTUS
------------
PRINCIPAL PRESERVATION
PORTFOLIOS, INC.
CASH RESERVE PORTFOLIO
CLASS X COMMON STOCK (RETAIL CLASS)
MINIMUM INITIAL INVESTMENT: $1,000
The Principal Preservation Cash Reserve Portfolio (the "Portfolio") is one of
a series of separate mutual fund portfolios within the Principal Preservation
Portfolios, Inc. ("Principal Preservation") family of funds. The Portfolio, a
money market fund, seeks to provide high current income consistent with
stability of principal and the maintenance of liquidity. The Portfolio invests
in domestic and foreign U.S. dollar-denominated money market obligations with
maturities of 397 days or less. The Portfolio's investment advisor (the
"Advisor") is Ziegler Asset Management, Inc.
The Portfolio offers two classes of authorized shares of Principal
Preservation common stock, the Class X Common Stock (the "Class X Shares" or
"Retail Class") and the Class Y Common Stock (the "Class Y Shares" or
"Institutional Class") (collectively referred to as the "Classes"). The two
Classes have in place varying fee schedules--the Institutional Class may be
purchased at net asset value with no sales charge. For additional information
regarding the Institutional Class, investors may call B.C. Ziegler and Company
at 800-826-4600. For additional information regarding the salient features of
the two Classes, see "Description of Shares" in this Prospectus.
This Prospectus sets forth concisely the information that an investor should
know before investing in shares of the Retail Class. Investors should read and
retain this Prospectus for future reference. A Statement of Additional
Information dated May 1, 1998, containing additional information about the
Portfolio, has been filed with the Securities and Exchange Commission and is
incorporated by reference into this Prospectus. A copy of the Statement of
Additional Information can be obtained without charge by telephone or written
request to B.C. Ziegler and Company (the "Distributor"), 215 North Main Street,
West Bend, WI 53095 (Telephone 800-826-4600) or from Selected Dealers (as that
term is defined herein) that have agreements with respect to distribution of
shares of the Portfolio. Shareholder inquiries should be directed to Principal
Preservation at 215 North Main Street, West Bend, WI 53095; (Telephone 800-826-
4600).
THE SHARES OF THE PORTFOLIO OFFERED HEREBY ARE NEITHER INSURED NOR GUARANTEED
BY THE U.S. GOVERNMENT. WHILE PRINCIPAL PRESERVATION SEEKS TO MAINTAIN A STABLE
NET ASSET VALUE OF $1.00 PER SHARE OF THE PORTFOLIO, THERE CAN BE NO ASSURANCE
THAT IT WILL BE ABLE TO DO SO ON A CONTINUING BASIS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is May 1, 1998.
QUESTIONS AND ANSWERS
WHAT ARE THE PRINCIPAL PRESERVATION PORTFOLIOS?
Principal Preservation is a Maryland corporation organized in 1984 as an
open-end, diversified investment company. Principal Preservation is a series
company, which means that its Board of Directors may establish additional
portfolios at any time. The Portfolio was established in 1993 with a single
class of common stock and operated as a retail spoke of a two-tiered,
master/feeder fund structure through December 31, 1995. Effective January 1,
1996, the Portfolio was recapitalized with its present two Classes, and each
outstanding share of Cash Reserve Portfolio's original class of common stock was
redesignated (without otherwise affecting the rights and privileges appertaining
thereto) as a share of the Retail Class (the "Reorganization"). Shares of the
Portfolio's Institutional Class and other portfolios of Principal Preservation
are offered by separate prospectuses.
WHAT ARE THE BENEFITS FROM INVESTING IN THE PORTFOLIO?
Economies of Size. The Portfolio is designed to provide investors with an
opportunity pool their money to achieve economies of size and diversification.
This permits investors whose own securities portfolios may not be large enough
to obtain economically priced individual investment management service to take
advantage of the professional investment management expertise of the Advisor.
Professional Management. The Portfolio provides professional management of
your investment.
Portfolio Diversification. The Portfolio combines the investment of many
investors to obtain a diversified portfolio of high quality, short-term money
market instruments. The burden of selecting securities is eased and the high
costs investors would otherwise incur through smaller purchases is trimmed.
Liquidity. The Portfolio is designed to maintain a $1.00 share price. Many
investors select money market fund investments for the daily liquidity and
stability of principal they provide. Shares of the Portfolio may be redeemed at
any time.
Retirement Plans. An investment in the Portfolio may also be made by a tax-
qualified retirement plan. You can invest through an IRA. Principal
Preservation makes certain prototype plans available to investors (see
"Shareholder Services - Tax Sheltered Retirement Plans").
WHAT IS THE PORTFOLIO'S INVESTMENT OBJECTIVE?
The Portfolio seeks to provide investors with a high level of current income
consistent with stability of principal and the maintenance of liquidity. For
detailed descriptions of the Portfolio's investment objective and policies, see
"Investment Objective and Policies" below. There can be no assurance that the
Portfolio's investment objective will be achieved.
HOW IS INCOME DISTRIBUTED?
Dividends will be declared daily and paid monthly. Any net realized capital
gains will be declared and paid annually. Investors may receive their income
dividends and capital gain distributions in additional shares of the Retail
Class, in additional shares in another Principal Preservation portfolio
(investors should obtain a current prospectus and read it carefully before
investing in any of the other Principal Preservation Portfolios) or in cash (see
"Dividends, Capital Gains Distributions and Reinvestments").
WHO MANAGES THE PORTFOLIO?
Ziegler Asset Management, Inc. ("ZAMI") is the investment adviser for the
Portfolio, and also serves as Administrator to the Portfolio. The Advisor is an
affiliate of B.C. Ziegler and Company ("Ziegler"). Ziegler currently serves as
Distributor, Transfer and Dividend Disbursement Agent and Shareholder Servicing
Agent for the Portfolio. See "Management."
HOW CAN SHARES BE PURCHASED?
Shares may be purchased from the Distributor or from registered broker-
dealers and other financial institutions ("Selected Dealers") who have entered
into agreements with the Distributor (see "Purchase Of Shares"). There is no
sales charge.
The minimum initial investment is $1,000. The minimum subsequent investment
is $50. Registered broker-dealers and certain other financial institutions that
have entered into shareholder servicing agreements with the Portfolio ("Agents")
may set higher initial and subsequent minimum investment amounts for persons who
purchase Portfolio shares through them, and may change those minimums from time
to time in their sole discretion (see "Purchase of Shares").
HOW CAN YOU REDEEM OR EXCHANGE YOUR SHARES?
Investors may redeem all or a portion of their shares on any business day.
Redemptions may be made by mail, telephone or check (see "Redemptions").
HOW CAN I LEARN MORE ABOUT THE PORTFOLIO'S INSTITUTIONAL CLASS?
As noted above, in addition to its Retail Class of shares, the Portfolio also
offers an Institutional Class of shares. Shares of the Institutional Class may
be purchased by investors at net asset value with no sales charge through the
Distributor. The minimum initial investment in the Institutional Class is
$50,000. The difference in the expense structure between the Retail Class and
the Institutional Class may result in variances in performance between the two
Classes. The Institutional Class is offered through a separate prospectus which
may be obtained without charge by telephone or written request to B.C. Ziegler
and Company, 215 North Main Street, West Bend, Wisconsin 53095 (telephone 800-
826-4600), or from Selected Dealers that have entered into agreements with
respect to the distribution of shares of that Class.
EXPENSES
The following table provides (i) a summary of estimated expenses relating to
purchases and sales of shares of the Retail Class, and the aggregate annual
operating expenses for the Retail Class, as a percentage of average net assets
of the Portfolio, and (ii) an example illustrating the dollar cost of such
estimated expenses on a $1,000 investment in the Portfolio.
SHAREHOLDER TRANSACTION EXPENSES
Redemption fee(1)<F1> None
Exchange fee None
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
Investment Advisory Fees 0.20%
Rule 12b-1 Distribution Fees(2)<F2> 0.15%
Other Operating Expenses: 0.56%
-----
Shareholder Servicing Agent Fees(3)<F3> 0.25%
Administrative Fees 0.15%
Other Expenses(4)<F4> 0.16%
Total Operating Expenses(4)<F4> 0.91%
-----
-----
(1)<F1>Investors are charged a wire redemption fee, which is currently $10.00
per wire. Also, redemptions of less than $250 made by check are subject to a
$10.00 service fee. See "Redemptions."
(2)<F2> The service fees paid pursuant to the Portfolio's Rule 12b-1 Plan are
described in more detail in the section of this Prospectus captioned
"Distribution Plan."
(3) <F3>Class X Shares not maintained in a shareholder account serviced by a
shareholder servicing Agent (and therefore are not charged a shareholder
servicing fee) are held in accounts maintained on the books of the Portfolio and
serviced by Ziegler pursuant to the terms of a Transfer and Dividend Disbursing
Agent Agreement. Ziegler receives a fee for providing such services, which is
currently $16.00 per account. See "Management Shareholder Servicing Agents."
(4)<F4>For the year ended December 31, 1997, the Adviser voluntarily reimbursed
certain expenses to the Portfolio. Giving effect to this expense reimbursement,
the Portfolio's "Other Expenses" and "Total Operating Exenses"
amounted to 0.11% and 0.86%, respectively, of the Portfolio's average net
assets.
EXAMPLE
You would pay the following expenses on a $1,000 investment in the Portfolio,
assuming 5% annual return and redemption at the end of each time period:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$9 $29 $50 $112
THE PURPOSE OF THE TABLE IS TO ASSIST THE INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES AN INVESTOR WILL BEAR DIRECTLY OR INDIRECTLY. FOR
MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "MANAGEMENT,"
"PURCHASE OF SHARES," "REDEMPTIONS" AND "SHAREHOLDER SERVICES." THE ABOVE
EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN SHOWN.
FINANCIAL HIGHLIGHTS
The following Financial Highlights table presents information relating to a
share of the Portfolio outstanding for the periods presented. This information
should be read in conjunction with the audited financial statements and related
notes contained in the Portfolio's 1997 Annual Report to Shareholders, which
financial statements are incorporated herein by reference. The information
presented in the table as of and for the year ended December 31, 1997
has been audited by Arthur Andersen LLP, independent public
accountants, whose report is contained in the Portfolio's 1997 Annual
Report to Shareholders. You may obtain copies of the Annual Report without
charge from the Distributor.
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 5, 1993
(COMMENCEMENT
FOR THE YEARS ENDED DECEMBER 31, OF OPERATIONS)
--------------------------------------- TO DECEMBER 31,
1997 1996 1995 1994 1993
------- ------ ------ ------ --------------
<S> <C> <C> <C> <C> <C>
(Selected data for each share of the Fund
outstanding throughout the periods)
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.05 0.05 0.05 0.04 0.02
Less distributions:
Dividends from net investment income (0.05) (0.05) (0.05) (0.04) (0.02)
------- ------- ------- ------- -------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
======== ======= ======= ======= =======
Total investment return (b)<F2> 4.80% 4.78% 5.32% 3.64% 2.99% (a)
Ratios/Supplemental Data:
Net assets, end of period (nearest thousand) $122,710 $89,946 $86,590 $52,593 $47,768
Ratio of expenses to average net assets (c)<F3> 0.86% 0.78% 0.79% 1.05% 1.03% (a)<F1>
Capital contributions (d)<F4> 0.13% -- 0.06% -- --
Ratio of net investment income
to average net assets (c)<F3> 4.71% 4.73% 5.23% 3.62% 2.73% (a)<F1>
</TABLE>
Prior to 1996, the assets of the Cash Reserve Portfolio were invested in the
Prime Money Market Portfolio ("Prime") of The Prime Portfolios. At the opening
of business on January 1, 1996, the assets of Prime were liquidated and
transferred to the Principal Preservation Cash Reserve Portfolio ("Fund"). At
that time, Classes were established for the Cash Reserve Portfolio, Class X
(Retail) and Class Y (Institutional). Assets of Prime which previously were
attributed to the Fund were allocated to the Fund's Class X(Retail) shares.
Information as of and results for periods ended prior to January 1, 1996 reflect
the Fund's investments in Prime. Results for the year ended December 31, 1996
and later periods reflect the new dual class structure.
(a)<F1>Annualized.
(b)<F2>In 1997 and prior to 1996, the Adviser and its predecessor made capital
contributions to offset losses in securities. Without those capital
contributions, the adjusted annualized total returns would have been 4.67%,
5.26% and 1.91% for 1997, 1995 and 1994, respectively.
(c)<F3>Prior to 1996, the ratio reflects the Fund's share of Prime's expenses as
well as voluntary waivers of fees and expense reimbursements by Prime's adviser.
For the years ended December 31, 1997 and 1996, the Fund's adviser and
administrator voluntarily waived a portion of their fees. Without these
voluntary waivers and expense reimbursements, the annualized ratios of net
investment income and expenses to average net assets would have been as follows:
<TABLE>
<CAPTION> FOR THE PERIOD
APRIL 5, 1993
(COMMENCEMENT
FOR THE YEARS ENDED DECEMBER 31, OF OPERATIONS)
-------------------------------------- TO DECEMBER 31,
1997 1996 1995 1994 1993
------- ------- ------ ------ --------------
<S> <C> <C> <C> <C> <C>
Ratio of expenses to average net assets 0.94% 0.99% 1.16% 1.32% 1.32%
Ratio of net investment income
to average net assets 4.63% 4.63% 4.86% 3.35% 2.44%
</TABLE>
(d)<F4>For the year ended December 31, 1995, the manner in which capital
contributions are presented changed from the prior year as a result of a
Securities and Exchange Commission Division of Investment Management letter
clarifying the presentation of capital contributions. For the year ended
December 31, 1995, capital contributions were presented in the financial
statements of both the Fund and Prime, whereas in 1994 capital contributions
were presented only in Prime's financial statements.
INVESTMENT OBJECTIVE AND POLICIES
INTRODUCTION
Principal Preservation is a Maryland corporation organized in 1984 as an
open-end, diversified investment company. Principal Preservation is a series
company, which means that its Board of Directors may establish additional
portfolios at any time. The Portfolio was established in 1993 and the Retail
Class was established in 1995. The Portfolio seeks to obtain high current
income consistent with stability of principal and the maintenance of liquidity.
The Portfolio is not intended to constitute a balanced investment program and is
not designed for investors seeking capital gains or maximum income irrespective
of fluctuations in principal. Ziegler Asset Management, Inc. is the Advisor to
the Portfolio. The Advisor manages the investments of the Portfolio from day to
day in accordance with the Portfolio's investment objective and policies.
INVESTMENT OBJECTIVE
The Portfolio seeks to obtain a high level of current income to the extent
consistent with stability of principal and the maintenance of liquidity. The
Portfolio invests in high quality short-term money market instruments consistent
with its specific investment objective. Principal Preservation seeks to
maintain a net asset value of $1.00 per share of the Portfolio. There can be no
assurance that the investment objective of the Portfolio will be achieved or
that Principal Preservation will be able to maintain a per share net asset value
of $1.00. Securities in which the Portfolio invests may not earn as high a
level of current income as long-term or lower quality securities which generally
have less liquidity, greater market risk and more fluctuation in market value.
The investment objective of the Portfolio may not be changed without the vote
of the holders of a majority of the Portfolio's outstanding voting securities.
The following is a discussion of the various investments of and techniques
employed by the Portfolio. Additional information about the investment policies
of the Portfolio appears in the Statement of Additional Information.
INVESTMENT POLICIES
To achieve its investment objective, the Portfolio invests in U.S. dollar-
denominated short-term money market obligations, including securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
certificates of deposit, time deposits, bankers' acceptances and other short-
term obligations issued by domestic banks and domestic branches and subsidiaries
of foreign banks, repurchase agreements and high quality domestic commercial
paper and other short-term corporate obligations, including those with floating
or variable rates of interest. In addition, the Portfolio may lend portfolio
securities, enter into reverse repurchase agreements and, to a limited extent,
invest in securities issued by foreign banks and corporations outside the United
States. The Portfolio reserves the right to concentrate 25% or more of its
total assets in obligations of domestic branches of domestic banks.
Principal Preservation seeks to maintain a net asset value of $1.00 per share
of the Portfolio for purchases and redemptions. To permit this, the Portfolio
uses the amortized cost method of valuing its securities pursuant to Rule 2a-7
under the Investment Company Act of 1940, as amended (the "1940 Act"), certain
requirements of which are summarized below. For further information regarding
the amortized cost method of valuing securities, see "Determination of Net Asset
Value" in the Statement of Additional Information.
In accordance with Rule 2a-7, the Portfolio will maintain a dollar-weighted
average portfolio maturity of 90 days or less, purchase only instruments having
remaining maturities of 397 days or less and invest only in U.S. dollar-
denominated securities determined in accordance with procedures established by
the Board of Directors of Principal Preservation (the "Board of Directors") to
present minimal credit risks and which are rated in one of the two highest
rating categories for debt obligations by at least two nationally recognized
statistical rating organizations (an "NRSRO") (or one NRSRO if the instrument
was rated by only one such organization) or, if unrated, are of comparable
quality as determined in accordance with procedures established by the Board of
Directors (collectively, "Eligible Securities").
Eligible Securities include "First Tier Securities" and "Second Tier
Securities." First Tier Securities include those that possess a rating in the
highest category in the case of a single-rated security or at least two ratings
in the highest rating category in the case of multiple-rated securities or, if
the securities do not possess a rating, are determined to be of comparable
quality by the Advisor pursuant to the guidelines adopted by the Board of
Directors. Second Tier Securities are all other Eligible Securities. The
Portfolio will invest at least 95% of its total assets in First Tier Securities.
The NRSROs currently rating instruments of the type the Portfolio may
purchase are Moody's Investors Service, Inc., Standard & Poor's Corporation,
Duff & Phelps, Inc., Fitch Investors Service, Inc., IBCA Limited and IBCA Inc.,
and Thomson BankWatch, Inc., and their rating criteria are described in the
Appendix to the Statement of Additional Information. The Statement of
Additional Information contains further information concerning the rating
criteria and other requirements governing the Portfolio's investments, including
information relating to the treatment of securities subject to a tender or
demand feature and securities deemed to possess a rating based on comparable
rated securities of the same issuer.
In addition, the Portfolio will not invest more than 5% of its total assets
in the securities (including the securities collateralizing a repurchase
agreement) of, or subject to puts (including letters of credit, guarantees or
other credit support) issued by, a single issuer, except that (i) the Portfolio
may invest more than 5% of its total assets in a single issuer for a period of
up to three business days in certain limited circumstances, (ii) the Portfolio
may invest in obligations issued or guaranteed by the U.S. Government (including
those collateralizing repurchase agreements) without any such limitation, and
(iii) the limitation with respect to puts does not apply to unconditional puts
if no more than 10% of the Portfolio's total assets is invested in securities
issued or guaranteed by the issuer of the unconditional put. Investments in
rated securities not rated in the highest category by at least two rating
organizations (or one rating organization if the instrument was rated by only
one such organization), and unrated securities not determined by the Advisor, in
accordance with guidelines and procedures established by the Board of Directors,
to be comparable to those rated in the highest category, will be limited to 5%
of the Portfolio's total assets, with the investment in any one such issuer
being limited to no more than the greater of 1% of the Portfolio's total assets
or $1,000,000. As to each security, these percentages are measured at the time
the Portfolio purchases the security.
Bank Obligations. The Portfolio may invest in U.S. dollar-denominated
certificates of deposit, time deposits, bankers' acceptances and other short-
term obligations issued by domestic banks and domestic branches and subsidiaries
of foreign banks. Certificates of deposit are certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time. Such instruments include Yankee Certificates of Deposit ("Yankee Cds"),
which are certificates of deposit denominated in U.S. dollars and issued in the
United States by the domestic branch of a foreign bank. Time deposits are non-
negotiable deposits maintained in a banking institution for a specified period
of time at a stated interest rate. Time deposits that may be held by the
Portfolio are not insured by the Federal Deposit Insurance Corporation or any
other agency of the U.S. Government. The Portfolio will not invest more than
10% of the value of its net assets in time deposits maturing in longer than
seven days and other instruments which are illiquid or not readily marketable.
The Portfolio may also invest to a limited extent in certificates of deposit and
time deposits issued by foreign banks outside the United States. The
Portfolio's investments in such foreign bank obligations may not exceed 5% of
the Portfolio's assets.
The Portfolio may also invest in bankers' acceptances and other short-term
obligations. Bankers' acceptances are credit instruments evidencing the
obligation of a bank to pay a draft drawn on it by a customer. These instruments
reflect the obligation both of the bank and of the drawer to pay the face amount
of the instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations which have either fixed, floating or variable
interest rates.
To the extent the Portfolio's investments are concentrated in the banking
industry, the Portfolio will have correspondingly greater exposure to the risk
factors which are characteristic of such investments. Sustained increases in
interest rates can adversely affect the availability or liquidity and cost of
capital funds for a bank's lending activities, and a deterioration in general
economic conditions could increase the exposure to credit losses. In addition,
the value of and the investment return on the Portfolio's shares could be
affected by economic or regulatory developments in or related to the banking
industry, which industry also is subject to the effects of the concentration of
loan portfolios in leveraged transactions and in particular businesses, and
competition within the banking industry, as well as with other types of
financial institutions. The Portfolio, however, will seek to minimize its
exposure to such risks by investing only in debt securities which are determined
by the Advisor to be of high quality.
U.S. Government and Agency Securities. Securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities, which differ only in their interest rates, maturities and times of
issuance. Treasury Bills have initial maturities of one year or less; Treasury
Notes have initial maturities of one to ten years; and Treasury Bonds generally
have initial maturities of greater than ten years. U.S. Government agency
securities in which the Portfolio commonly invests include securities issued by
Federal Home Loan Banks, Federal National Market Association, Federal Farm
Credit Bank Agency, Federal Home Loan Mortgage Corporation, Student Loan
Mortgage Association, Farmer's Home Administration, as well as others. Some
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, for example, Government National Mortgage Association pass-
through certificates, are supported by the full faith and credit of the U.S.
Treasury; others, such as those of the Federal Home Loan Banks, by the right of
the issuer to borrow from the Treasury; others, such as those issued by the
Federal National Mortgage Association, by discretionary authority of the U.S.
Government to purchase certain obligations of the agency or instrumentality; and
others, such as those issued by the Student Loan Marketing Association, only by
the credit of the agency or instrumentality. While the U.S. Government provides
financial support to such U.S. Government-sponsored agencies or
instrumentalities, no assurance can be given that it will always do so, since it
is not so obligated by law. The Portfolio will invest in such securities only
when the Advisor is satisfied that the credit risk with respect to the issuer is
minimal.
U.S. Government and agency securities in which the Portfolio may invest
include variable rate securities with maturities that may extend beyond 13
months from the date of purchase. However, under Rule 2a-7, the Portfolio may
purchase such agency securities only if the interest rate adjusts not less
frequently than every 762 days and at each interest rate adjustment date the
security reasonably can be expected to have a market value that approximates its
par value. However, the Advisor has expressed its intention not to invest the
Portfolio's assets in certain categories of securities with final maturities in
excess of 397 days from the date of purchase, including but not limited to
structured U.S. Government agency securities such as dual index floaters,
inverse floaters, leveraged floaters, capped floaters, range floaters, floating
rate securities tied to the cost of funds of the 11th District Federal Home Loan
Bank and securities with interest rates tied to 10-year constant maturity U.S.
Treasury securities.
Commercial Paper. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by the Portfolio will consist only of U.S. dollar-denominated
direct obligations issued by domestic and, subject to the 5% limit discussed
below (see "Foreign Securities"), foreign entities. The other corporate
obligations in which the Portfolio may invest consist of high quality, U.S.
dollar-denominated short-term bonds and notes (including variable rate and
amount master demand notes) issued by domestic corporations.
Restricted Securities. The Portfolio may invest in securities that are
subject to legal or contractual restrictions on resale. These securities may be
illiquid and, thus, the Portfolio may not purchase them to the extent that more
than 10% of the value of its net assets would be invested in illiquid
securities. However, if a substantial market of qualified institutional buyers
develops pursuant to Rule 144A under the Securities Act of 1933, as amended, for
such securities held by the Portfolio, the Portfolio intends to treat such
securities as liquid securities in accordance with procedures approved by the
Board of Directors. To the extent that for a period of time, qualified
institutional buyers cease purchasing such restricted securities pursuant to
Rule 144A, the Portfolio's investing in such securities may have the effect of
increasing the level of illiquidity in the Portfolio during such period.
Securities Lending. The Portfolio may seek to increase its income by lending
securities from its portfolio to banks, brokers or dealers and other recognized
institutional investors needing to borrow securities. Such loans may not exceed
33 1/3% of the value of the Portfolio's total assets. In connection with such
loans, the Portfolio will receive collateral consisting of cash, U.S. Government
and other high quality securities or irrevocable letters of credit. Such
collateral will be maintained at all times in an amount equal to at least 100%
of the current market value of the loaned securities. The Portfolio can
increase its income through the investment of such collateral. The Portfolio
continues to be entitled to payments in amounts equal to the interest payable on
the loaned security, and receives interest on the amount of the loan. Such
loans will be terminable at any time upon specified notice. The Portfolio might
experience risk of loss if the institution with which it has engaged in a
portfolio loan transaction breaches its agreement with the Portfolio.
Repurchase Agreements and Reverse Repurchase Agreements. Repurchase
agreements involve the acquisition by the Portfolio of an underlying debt
instrument, subject to an obligation of the seller to repurchase, and the
Portfolio to resell, the instrument at a fixed price, usually not more than one
week after its purchase. The Portfolio or a sub-custodian will have custody of
securities acquired by the Portfolio under a repurchase agreement.
The Portfolio may enter into repurchase agreements with banks or broker-
dealers with respect to government securities or other high quality securities
regardless of their remaining maturities, and will require that additional
securities be deposited with it if the value of the securities purchased should
decrease below the resale price. The Advisor will monitor on an ongoing basis
the value of the collateral in accordance with the terms of the repurchase
agreement. Certain costs may be incurred by the Portfolio in connection with
the sale of the securities if the seller does not repurchase them in accordance
with the repurchase agreement. In addition, if bankruptcy proceedings are
commenced with respect to the seller of the securities, realization on the
securities by the Portfolio may be delayed or limited. The Portfolio will
consider on an ongoing basis the creditworthiness of the institutions with which
it enters into repurchase agreements. Repurchase agreements are considered
collateralized loans under the 1940 Act.
The Portfolio also may enter into repurchase agreements with entities that
are neither banks nor broker-dealers, provided that, in accordance with the
Portfolio's policies with respect to repurchase agreements, the Board of
Directors approves or ratifies the transaction upon the determination by the
Board, or by the Advisor on its behalf, that entering into a repurchase
agreement with such entity presents minimal credit risk, that the entity
presents no serious risk of becoming involved in bankruptcy proceedings within
the time frame contemplated by the repurchase agreement, and that the repurchase
agreement is otherwise an eligible security for purchase by the Portfolio. Such
entities are not subject to the types and kinds of regulations or governmental
supervision to which banks and broker-dealers are subject, and there may not be
available the same types of financial information about such entities as is
available with respect to banks and broker-dealers.
The Portfolio may borrow funds for temporary or emergency purposes, such as
meeting larger than anticipated redemption requests, and not for leverage, in an
amount of up to one-third of the value of the Portfolio's total assets
(including the amount borrowed) less its total liabilities (not including the
amount borrowed). The Portfolio also may enter in agreements to sell portfolio
securities to financial institutions such as banks and broker-dealers and to
repurchase them at a mutually agreed date and price (a "reverse repurchase
agreement"). At the time the Portfolio enters into a reverse repurchase
agreement it will place in a segregated custodial account cash, U.S. Government
securities or high-grade debt obligations having a value equal to the repurchase
price, including accrued interest. Reverse repurchase agreements involve the
risk that the market value of the securities sold by the Portfolio may decline
below the repurchase price of those securities. Reverse repurchase agreements
are considered to be borrowings by the Portfolio.
Foreign Securities. Except for Yankee CDs, the Portfolio may invest no more
than 5% of its total assets in U.S. dollar-denominated foreign securities issued
outside the United States, such as obligations of foreign branches and
subsidiaries of domestic banks and foreign banks, including Eurodollar
certificates of deposit, Eurodollar time deposits and Canadian time deposits,
commercial paper of Canadian and other foreign issuers, and U.S. dollar-
denominated obligations issued or guaranteed by one or more foreign governments
or any of their agencies or instrumentalities. For a complete description of
foreign securities the Portfolio may purchase, see "Investment Program" in the
Statement of Additional Information.
Guaranteed Investment Contracts. The Portfolio may invest in guaranteed
investment contracts ("GICs") issued by insurance companies. Pursuant to such
contracts, the Portfolio makes cash contributions to a deposit fund of the
insurance company's general account. The insurance company then credits to the
Portfolio guaranteed interest. The GICs provide that this guaranteed interest
will not be less than a certain minimum rate. The insurance company may assess
periodic charges against a GIC for expenses and service costs allocable to it,
and the charges will be deducted from the value of the deposit fund. Because
the Portfolio may not receive the principal amount of a GIC from the insurance
company on seven days' notice or less, the GIC is considered an illiquid
investment and, together with other instruments in the Portfolio which are not
readily marketable, will not exceed 10% of the Portfolio's total assets. The
term of a GIC will be thirteen months or less. In determining average weighted
portfolio maturity, a GIC will be deemed to have a maturity equal to the longer
of the period of time remaining until the next readjustment of the guaranteed
interest rate or the period of time remaining until the principal amount can be
recovered from the issuer through demand.
When-issued and Forward Commitment Securities. The Portfolio may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis in order to hedge against anticipated changes in
interest rates and prices. When such transactions are negotiated, the price,
which is generally expressed in yield terms, is fixed at the time the commitment
is made, but delivery and payment for the securities take place at a later date.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Portfolio will enter into when-issued and forward
commitments only with the intention of actually receiving or delivering the
securities, as the case may be. At the time the Portfolio enters into a
transaction on a when-issued or forward commitment basis, a segregated account
consisting of cash or high grade liquid debt securities equal to the value of
the when-issued or forward commitment securities will be established and
maintained. There is a risk that the securities may not be delivered and that
the Portfolio may incur a loss.
Zero Coupon Obligations. The Portfolio may acquire zero coupon obligations
when consistent with its investment objective and policies. Such obligations
have greater price volatility than coupon obligations and will not result in
payment of interest until maturity. Since dividend income is accrued throughout
the term of the zero coupon obligation, but is not actually received until
maturity, the Portfolio may have to sell other securities to pay the accrued
dividends prior to maturity of the zero coupon obligation.
Investments in Other Investment Companies. The Portfolio occasionally may
invest in securities of other investment companies, subject to certain
limitations and restrictions described in the Statement of Additional
Information. See Investment Restriction No. 13 in the section of the Statement
of Additional Information captioned "Investment Restrictions." Such securities
are purchased by the Portfolio primarily on an overnight basis with cash
received by the Portfolio too late in the business day to be invested that same
day in securities in which the Portfolio invests. However, subject to complying
with the limitations and restrictions set forth in the Statement of Additional
Information, the Advisor has the authority to make and retain investments in
other investment companies for an indefinite period of time, and may do so in
response to presently unforeseen market or economic conditions or other
circumstances. An investment by the Portfolio in other investment companies may
cause the Portfolio to incur increased administration and distribution costs.
Certain Other Obligations. In order to allow for investments in new
instruments that may be created in the future, upon Principal Preservation
supplementing this Prospectus, the Portfolio may invest in obligations other
than those listed previously, provided such investments are consistent with the
Portfolio's investment objective, policies and restrictions.
See "Investment Program" in the Statement of Additional Information for more
information about these and other types of instruments in which the Portfolio
may invest, including variable rate and floating rate securities, unsecured
promissory notes and participation interests.
FUNDAMENTAL INVESTMENT RESTRICTIONS
The Portfolio is subject to certain investment restrictions which constitute
fundamental policies. Fundamental policies cannot be changed without the
approval of the holders of a majority of the outstanding voting securities of
the Portfolio, as defined in the 1940 Act. See "Investment Restrictions" in the
Statement of Additional Information.
The Portfolio may: (i) borrow money, but only from banks or through reverse
repurchase agreements for temporary or emergency (not leveraging) purposes, in
an amount of up to 33 1/3% of the value of the Portfolio's total assets
(including the amount borrowed) less liabilities (not including the amount
borrowed) at the time the borrowing is made (borrowings repaid within 60 days
and not renewed or extended are presumed to be for temporary purposes). While
borrowings exceed 5% of the value of the Portfolio's total assets, the Portfolio
will not make any additional investments; (ii) pledge, hypothecate, mortgage or
otherwise encumber its assets, but only, (a) to secure borrowings for temporary
or emergency purposes, or (b) in connection with entering into reverse
repurchase agreements; (iii) invest up to 5% of its total assets in the
obligations of any single issuer, provided that up to 25% of the value of the
Portfolio's total assets may be invested (subject to the provisions of Rule 2a-
7) without regard to any such limitation, and provided further that obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
may also be purchased without regard to any such 5% limitation; (iv) concentrate
25% or more of its total assets in bank obligations and invest up to 25% of its
total assets in the securities of issuers in any other industry, provided that
there is no limitation on investments and obligations issued or guaranteed by
the U.S. government, its agencies or instrumentalities; (v) invest up to 10% of
its net assets in repurchase agreements providing for settlement in more than
seven days after notice and in securities that are not readily marketable (which
securities could include participation and variable rate demand obligations as
to which the Portfolio cannot exercise a related demand feature and as to which
there is no secondary trading market). See "Investment Restrictions" in the
Statement of Additional Information.
CERTAIN INVESTMENT CONSIDERATIONS
The Portfolio attempts to increase yields by trading to take advantage of
short-term market variations. This policy should not adversely affect the
Retail Class, since the Portfolio usually does not pay brokerage commissions
when it purchases short-term debt obligations, although the prices at which such
instruments are traded generally reflect a premium or discount as compared to
their face or par values. The value of the portfolio securities held by the
Portfolio will vary inversely to changes in prevailing interest rates. Thus, if
interest rates have increased from the time a security was purchased, such
security, if sold, might be sold at a price less than its purchase cost.
Similarly, if interest rates have declined from the time a security was
purchased, such security, if sold, might be sold at a price greater than its
purchase cost. In either instance, if the security was purchased at face value
and held to maturity, no gain or loss would be realized.
MANAGEMENT
DIRECTORS AND OFFICERS
The Board of Directors of Principal Preservation is responsible for the
management of Principal Preservation and provides broad supervision over its
affairs. Principal Preservation's officers are responsible for the Portfolio's
operations. For more information with respect to the Directors of the
Portfolio, see "Management of Principal Preservation" in the Statement of
Additional Information.
INVESTMENT ADVISOR
Since August 1, 1994, Ziegler Asset Management, Inc. ("ZAMI") has served as
the Advisor to the Portfolio. The Advisor is registered with the Securities and
Exchange Commission as an investment adviser. In addition to the Portfolio, the
Advisor serves as investment advisor to seven other mutual fund series of
Principal Preservation and privately manages numerous customer advisory
accounts. On December 31, 1997, the Advisor had approximately $1.1 billion
under discretionary management. The address of the Advisor is 215 North Main
Street, West Bend, Wisconsin 53095.
The Advisor is an affiliate of B.C. Ziegler and Company ("Ziegler"). Ziegler
currently serves as Accounting/Pricing Agent, Distributor, Transfer and Dividend
Disbursement Agent and Shareholder Servicing Agent for the Portfolio. Ziegler
is registered with the Securities and Exchange Commission as an investment
advisor and securities broker/dealer and is a member of the National Association
of Securities Dealers, Inc. Ziegler has been engaged in the underwriting of
debt securities for more than 78 years. Ziegler and the Advisor are ultimately
controlled by The Ziegler Companies, Inc., a publicly-owned financial services
holding company.
The Advisor manages the assets of the Portfolio pursuant to an investment
advisory agreement dated December 29, 1995 (the "Advisory Agreement"). On
November 29, 1994, prior to the Reorganization, shareholders of the Portfolio
approved a substantively identical agreement with the Advisor relating to the
management of the Portfolio's assets. That agreement was replaced by the
current Advisory Agreement in the Reorganization. For services provided under
the Advisory Agreement, the Advisor receives from the Portfolio a fee, accrued
daily and paid monthly, at an annual rate equal to 0.20% of the Portfolio's
average daily net assets.
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, ZAMI, as administrator of
the Portfolio, provides the Portfolio with general office facilities and
provides or supervises the overall administration of the Portfolio including,
among other responsibilities, the negotiation of contracts and fees with, and
the monitoring of performance and billings of, the independent contractors and
agents of the Portfolio; the preparation and filing of all documents required
for compliance by the Portfolio with applicable laws and regulations; providing
equipment and clerical personnel necessary for maintaining the organization of
the Portfolio; preparation of certain documents in connection with meetings of
the Board of Directors; and the maintenance of books and records of the
Portfolio.
The Administrative Services Agreement with respect to the Portfolio provides
that ZAMI is entitled to receive an annual fee from the Portfolio accrued daily
and paid monthly at an annual rate of 0.15% of the Portfolio's average daily net
assets up to $200 million, and 0.10% of such assets over $200 million. This fee
is approved each year by the directors of Principal Preservation, including a
majority of the Independent Directors.
DISTRIBUTOR
Ziegler serves as the distributor of shares of the Portfolio and of other
Principal Preservation portfolios pursuant to a Distribution Agreement. 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 Independent Directors, 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 written notice and will
automatically terminate if assigned by the Distributor. Principal Preservation
reimburses Ziegler for expenses incurred by it in connection with the
distribution of the Portfolio's shares through the Distribution Plan. See
"Distribution Plan."
SHAREHOLDER SERVICING AGENTS
Ziegler presently serves as, and other brokers and financial institutions may
in the future serve as, shareholder servicing agents ("Agents") with respect to
Class X Shares for shareholder accounts opened and maintained through them by
their customers. Such Agents provide shareholder services to the Portfolio with
respect to these accounts pursuant to separate shareholder servicing agreements
with Principal Preservation. The services include, among others, (a) providing
transfer agent and subtransfer agent services for the Agent's customers who
purchase and hold Class X Shares through the Agent; (b) aggregating and
processing purchase and redemption orders in Class X Shares for the benefit of
the Agent's customers and transmitting and receiving funds in connection
therewith, including arranging for the wiring of funds; (c) preparing and
distributing statements showing Class X Share ownership information with respect
to the Agent's customers who purchase and hold Class X Shares through the Agent;
(d) processing dividend payments and other distributions paid or made on Class X
Shares which are owned beneficially by the Agent's customers; (e) providing
subaccounting services with respect to Class X Shares purchased and held by the
Agent's customers through the Agent; (f) communications, such as proxies,
shareholder reports, dividend and tax notices and updated prospectuses relating
to Class X Shares owned beneficially by the Agent's customers; (g) receiving,
tabulating and transmitting proxies executed with respect to Class X Shares
owned beneficially by customers of the Agent; (h) providing necessary personnel
and facilities to establish and maintain the shareholder services contemplated
by the Shareholder Servicing Agreement; (i) verifying and guaranteeing
signatures of the Agent's customers in connection with redemption orders and
transfers among and changes in customer-designated accounts holding Class X
Shares; (j) furnishing, on behalf of the Distributor (either separately or on an
integrated basis with other reports sent by an Agent to its customers) all
immediate, monthly and annual statements and confirmations of all purchases and
redemptions of Class X Shares in the customer's account(s) required by
applicable federal or state law; (k) providing reports requested by the
Distributor containing state-by-state listing of the principal residences of the
Agent's customers who purchase and hold shares of the Portfolio through the
Agent; and (l) providing such other related services as Principal Preservation
or a customer of the Agent reasonably may request.
Under the Shareholder Servicing Agreement, the Agent receives a fee for
providing these services at an annual rate of up to 0.25% of the Portfolio's
average daily net assets representing the Class X Shares purchased and held
through the Agent by the Agent's customers. The Agent also is entitled to
reimbursement from the Portfolio for out-of-pocket expenses (as opposed to
overhead and other internal expenses of the Agent) that the Agent incurs in
connection with providing the services contemplated by the Shareholder Servicing
Agreement, including without limitation fees and expenses that the Agent pays to
third parties in connection with the processing and mailing of proxies and other
shareholder communications to its customers with respect to Portfolio shares
they purchase and hold through the Agent.
Ziegler provides transfer and dividend disbursing agent and other shareholder
account services with respect to all Institutional Class accounts and those
Retail Class accounts that are not serviced separately by an Agent. Ziegler
provides these services pursuant to the terms of its Transfer and Dividend
Disbursing Agent Agreement with Principal Preservation and receives compensation
from the Portfolio deemed reasonable by the Board of Directors of Principal
Preservation. The annual rate of compensation is currently $16.00 per
shareholder account, which is allocated among the accounts serviced by Ziegler
in this capacity. In addition to this compensation, the Transfer and Dividend
Disbursing Agent Agreement provides that Ziegler also is entitled to
reimbursement from the Portfolio for any out-of-pocket expenses that Ziegler
incurs in connection with providing services under the Agreement, including but
not limited to expenses for stationary, postage, telephone and telegraph line
toll charges, data communication lines and modems and reasonable travel and
living expenses.
CUSTODIAN
Firstar Trust Company serves as the Custodian of the Fund's assets pursuant to
a Custodian Servicing Agreement. The Custodian Servicing Agreement provides
that Firstar Trust Company is entitled to receive an annual fee of 0.02% of
the first $500 million of the Fund's average daily net assets and 0.015% of
assets in excess of $500 million.
ACCOUNTING/PRICING AGENT
Under the Accounting/Pricing Agreement, Ziegler is entitled to receive
compensation from the Portfolio for accounting and pricing services it provides
on an annualized basis as follows: 0.04% of the Portfolio's average daily net
assets for assets between $50 million and $100 million; 0.03% on assets between
$100 million and $200 million; and 0.01% of any assets over $200 million, with
an annual compensation minimum of $15,000 and a maximum of $125,000.
EXPENSES
The Advisor bears all of its expenses for providing services under the
Advisory Agreement.
The respective expenses of the Portfolio include the compensation of the
respective officers and Directors of Principal Preservation who are not
affiliated with the Advisor or Ziegler; governmental fees; interest charges;
taxes; fees and expenses if any, of independent accountants and legal counsel;
and insurance premiums.
Expenses of the Portfolio also include all fees allocable to the Portfolio
under Principal Preservation's administrative services, distribution,
shareholder servicing and transfer and dividend disbursement agreements with
Ziegler; expenses of distributing and redeeming shares and servicing shareholder
accounts; expenses of preparing, printing and mailing prospectuses, reports,
notices, proxy statements and reports to shareholders and to governmental
officers and commissions; its allocated share, together with other portfolios of
Principal Preservation, of expenses associated with annual and special
shareholder meetings and Director's meetings; expenses relating to the issuance,
registration and qualification of shares of the Portfolio and the preparation,
printing and mailing of prospectuses for such purposes; and membership dues in
the Investment Company Institute allocable to the Portfolio. See "Distribution
Expenses" below. Fees common to more than one of the Principal Preservation
portfolios are pro rated among them based on total assets. Fees of the
Portfolio are allocated equally on a per share basis without regard to class,
except for certain expenses which are incurred for the benefit of one of the
Classes and not the other (e.g., Rule 12b-1 fees which are incurred exclusively
to reimburse the Distributor for expenses it incurs in distributing Class X
Shares). These latter expenses are allocated entirely to the class they are
intended to benefit.
DETERMINATION OF NET ASSET VALUE PER SHARE
Shares are sold at their net asset value per share. There is no sales charge
(see "Purchase Of Shares"). The net asset value of the shares of the Portfolio
is determined and the shares of the Portfolio are priced as of 12:00 noon (New
York time) on each Business Day of the Portfolio. A "Business Day" is a day on
which the New York Stock Exchange (the "Exchange") is open for trading and any
other day (other than a day on which no shares of the Portfolio are tendered for
redemption and no order to purchase any shares is received) during which there
is sufficient trading in money market instruments that the Portfolio's net asset
value might be materially affected. Net asset value per share is calculated by
dividing the value of the Portfolio's net assets by the number of shares of the
Portfolio outstanding at the time the determination is made.
Although Principal Preservation seeks to maintain the net asset value per
share of the Portfolio at $1.00, there can be no assurance the net asset value
will not vary. The valuation of the Portfolio's securities is based on their
amortized cost. For more information concerning the amortized cost method of
valuation, see "Determination of Net Asset Value" in the Statement of Additional
Information.
PURCHASE OF SHARES
Shares of the Retail Class may be purchased by investors at net asset value
with no sales charge through Ziegler, Selected Dealers or Agents. The minimum
initial investment in the Retail Class is $1,000. The subsequent minimum
investment in the Retail Class, as provided below, is $50. Shares of the
Portfolio may be purchased in only those states where they may be lawfully sold.
The Portfolio will not issue shares for consideration other than cash except in
the case of a bona fide reorganization or statutory merger or in certain other
acquisitions of portfolio securities which meet certain criteria in accordance
with state securities laws (see "Purchase of Shares" in the Statement of
Additional Information). Shares may be purchased by sending a check payable to
Principal Preservation Portfolios, Inc., 215 North Main Street, West Bend,
Wisconsin 53095.
You may also purchase shares by wire provided you advise Principal
Preservation in advance by calling 800-826-4600. Please wire funds to M&I First
National Bank, West Bend, Wisconsin (ABA #075909576), for credit to the account
of Principal Preservation, account number 692-343-7. Wire purchase instructions
must include the name of the Portfolio, Principal Preservation Cash Reserve
Portfolio, and the investor's account number. Wire purchases received by
Ziegler prior to 12:00 noon (New York time) on a Business Day are normally
effective that day. Wire purchases received after 12:00 noon (New York time)
are invested on the next Business Day.
Orders received by Ziegler or a securities dealer who has entered into a
dealer or agency agreement with the Distributor relating to the sale of shares
of the Portfolio (a "Selected Dealer"), or by an Agent, prior to 12:00 noon (New
York time) will be invested at the net asset value computed at 12:00 noon (New
York time). Purchases will therefore be effected on the same day the purchase
order is received provided such order is received prior to 12:00 noon (New York
time) on any Business Day. Shares purchased earn dividends from and including
the day the purchase is effected. The Selected Dealer or Agent must promptly
forward the order to Ziegler for the investor to receive the next net asset
value. It is anticipated that the net asset value of $1.00 per share of the
Portfolio will remain constant. Although there can be no assurance that a $1.00
net asset value can be maintained on a continual basis, specific investment
policies and procedures will be employed to accomplish this result.
The minimum initial investment is $1,000, and the minimum additional
investment is $50 (except for exchanges, the reinvestment of distributions from
a Principal Preservation portfolio, the reinvestment of distributions from
various unit investment trusts sponsored by Ziegler, contributions for various
retirement plans, or the reinvestment of interest and/or principal payments on
bonds issued by Ziegler Mortgage Securities, Inc. II, or the reinvestment of
interest payments on bonds underwritten by Ziegler). Agents may establish higher
minimums for persons who purchase shares of the Portfolio through them, and may
change those minimums from time to time in their discretion.
A complete application must accompany the placement of an order for an
initial purchase. No account application is required for subsequent purchases.
Completed applications may be sent to Ziegler, the Portfolio's transfer agent,
at the address indicated above. The application may also be sent by facsimile.
Please contact the Portfolio at 1-800-826-4600.
REDEMPTIONS
You may have any or all of your shares redeemed as described below on any
Business Day at the net asset value next determined (see "Determination Of Net
Asset Value Per Share").
By Telephone. If you have completed the Telephone Redemption Authorization
and signature guarantee sections of the account application, you may redeem
shares by calling Principal Preservation at 800-826-4600. This authorization
must be on file at least five days prior to the first telephone redemption.
This authorization requires a signature guarantee. Redemption will be made by
wire to the bank account designated on the account application or a check will
be sent to you at the registered address for your account on the business day
following the redemption.
You cannot 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 establishing the telephone redemption service, you authorize Ziegler or
the Portfolio, as the case may be, 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 should bear in mind that,
by establishing the telephone redemption service, you assume some risks for
unauthorized transactions. Ziegler and the Portfolio have implemented, and any
other Agents will be required to implement, 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 either of Ziegler or the Portfolio or any of their employees fail to abide by
these procedures, the Portfolio may be liable to a shareholder for losses he or
she suffers from any resulting unauthorized transaction(s). However, neither
Ziegler, the Portfolio, Principal Preservation, nor any of their employees will
be liable for losses suffered by you 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.
By Mail. To redeem shares by mail, send the following information to the
Portfolio: (1) a written request for redemption signed by the registered
owner(s) of the shares, exactly as the account is registered, together with the
shareholder's account number; (2) the stock certificates for the shares being
redeemed, if the certificates are held by the shareholder; (3) any required
signature guarantees (see "Signature Guarantees" below); and (4) any additional
documents which might be required for redemptions by corporations, executors,
administrators, trustees, guardians, or other similar entities.
The Portfolio will redeem shares when it has received all necessary
documents. You will be notified promptly if your redemption request cannot be
accepted. The Portfolio cannot accept redemption requests that specify a
particular date for redemption or which specify any special conditions.
Questions concerning redemption procedures should be directed to the Portfolio
or your Agent (if Ziegler is your Agent, please call 800-826-4600).
Signature Guarantees. To protect you, your Agent and the Portfolio from
fraud, signature guarantees are required for certain redemptions. Signature
guarantees enable the Portfolio to be sure that you are the person who has
authorized a redemption from their 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; (3) authorizations to redeem by telephone; and (4)
requests to transfer the registration of shares to another owner. These
requirements may be waived by Principal Preservation in certain instances.
The Portfolio will accept signature guarantees from all institutions which
are eligible to provide them under federal or state law, provided the individual
giving the signature guarantee is authorized to do so. 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.
Sending Redemption Proceeds. The Portfolio will not send redemption proceeds
until all payments for the shares being redeemed have cleared, which normally
takes 15 days from the receipt of payment for the shares.
By Mail. The Portfolio 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.
By Wire. The Portfolio 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. Ziegler currently deducts a $12.00 wire charge from the redemption
proceeds. The Portfolio will advise you of any wire charges it imposes. These
charges are subject to change. You will be responsible for any charges which
your bank may make for receiving wires.
Checkwriting. Upon request, investors will be provided with checks to be
drawn on the Portfolio ("Redemption Checks"). Redemption Checks may be written
for amounts not exceeding $500,000. Investors who write Redemption Checks for
amounts under $100 will be charged a $10.00 service fee per check. When a
Redemption Check is presented for payment, a sufficient number of full and
fractional shares in the investor's account will be redeemed as of the next
determined net asset value to cover any amounts paid. Investors continue
earning income dividends until Redemption Checks are presented for payment.
Investors wishing to use this method of redemption must complete and return the
Account Information Form, which is available from the Portfolio. Redemption
Checks should not be used to close your account. The Portfolio reserves the
right to modify or terminate this privilege at any time. Redemption Checks may
not be available through Agents other than Ziegler. In addition, these Agents
may impose other fees and minimum balance requirements as a condition to
checkwriting privileges. With the Portfolio's approval, minimum amount
requirements for Redemption Checks may also vary.
Unless otherwise authorized on the Account Information Form, Redemption
Checks must be signed by all account owners. If the Portfolio receives written
notice from any owner revoking another owner's authority to sign individually,
the signatures of all account owners will be required for payment on any
Redemption Check. Shares purchased by check may not be redeemed via Redemption
Check until 15 days after receipt of funds for said shares. Investors may not
use checkwriting to redeem shares held in certificated form.
Your Agent or the Portfolio may refuse to honor Redemption Checks whenever
the right of redemption has been suspended, or if the account is otherwise
impaired. A $10.00 service fee per check will be charged if (a) a Redemption
Check for less than $250 is presented for payment, (b) the amount of a
Redemption Check presented for payment exceeds the value of the investor's
account, (c) a Redemption Check is presented that may not be cleared because it
would require redemption of shares purchased by check within 15 days, or (d) a
stop payment is requested.
Redemption through Securities Brokers. Shares can also be redeemed through a
securities dealer, who may charge a fee.
Conditions on Redemptions. For accounts opened prior to May 1, 1995, if, due
to redemption, your account in the Portfolio drops below $500 for three months
or more, the Portfolio has the right to redeem your account, after giving 60
days notice, unless you make additional investments to bring the account value
to $1,000 or more.
The Portfolio may suspend the right to redeem shares for any period during
which (a) the Exchange is closed or the Securities and Exchange Commission
determines that trading on the Exchange is restricted; (b) there is an emergency
as a result of which it is not reasonably practical for the Portfolio to sell
its securities or to calculate the fair value of its net assets; or (c) the
Securities and Exchange Commission may permit for the protection of the
Portfolio's shareholders, Principal Preservation's Board of Directors may
determine that it may not be reasonably practical for the Portfolio to calculate
the fair value of its net assets, and therefore it is possible that the
Portfolio will suspend the right to redeem shares.
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 the 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 the
Portfolio.
SHAREHOLDER SERVICES
Principal Preservation offers a number of shareholder services designed to
facilitate investment in shares of the Portfolio. 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 from Principal
Preservation or Ziegler. Some of the services described below may not be
available from all Agents. Shareholders and prospective investors should check
with their Agent to determine if the Agent makes all of these services
available.
Systematic Purchase Plan. A systematic purchase plan may be established at
any time. The minimum initial investment to participate in the systematic
purchase plan is $100 ($50 if your account is valued at more than $1,000).
Minimum subsequent monthly deposits are $100. By participating in the
systematic purchase plan, you may automatically make purchases of Portfolio
shares on a regular, convenient basis. Under the systematic purchase plan, your
bank or other financial institution honors preauthorized debits of a selected
amount drawn on your account each month and applied to the purchase of shares.
The systematic purchase plan can be implemented with any financial institutions
that will accept the debits. There is no service fee for participating in the
systematic purchase plan. An application and instructions on establishing an
systematic purchase plan are available from your Agent or Principal
Preservation.
Periodic Withdrawal Plan. You may establish a periodic withdrawal plan if
you own or purchase shares having a current offering price value of at least
$10,000 in the Portfolio (except for distributions from an IRA). The periodic
withdrawal plan involves the planned redemption of shares on a periodic basis by
receiving either fixed or variable amounts at periodic intervals. The minimum
periodic withdrawal plan amount is $150 per month. Normally, you would not make
regular investments at the same time you are receiving periodic withdrawal
payments because it is not in your interest to pay a sales charge on new
investments when, in effect, a portion of that new investment is soon withdrawn.
The minimum investment accepted while a withdrawal plan is in effect is $1,000.
The periodic withdrawal plan may be terminated at any time by written notice.
Reinvestment of Distributions or Interest Payments. Unitholders of Ziegler
sponsored unit investment trusts, bondholders of Ziegler Mortgage Securities,
Inc. II bonds and purchasers of bonds underwritten by Ziegler may purchase
shares of the Portfolio by automatically reinvesting distributions from their
unit investment trust, reinvesting principal or interest from their Ziegler
Mortgage Securities, Inc. II bonds, or reinvesting interest payments on their
bonds underwritten by Ziegler. Unitholders and bondholders desiring to
participate in this plan should contact Ziegler for further information.
Tax Sheltered Retirement Plans. Shares of the Portfolio are available for
purchase in connection with the following tax-sheltered plans. Forms of plans
are available for (a) Individual Retirement Accounts, (b) 401(k) Plans, (c)
Simplified Employee Pensions (SEPs) and (d) 403(b) Plans for employees of most
nonprofit organizations. Copies of the 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 Ziegler.
Exchange Privilege. Provided the minimum investment requirement applicable
to the Portfolio is met, shares of the Portfolio may be exchanged for shares of
any other Principal Preservation portfolio in any state where the exchange may
legally be made. The standard sales commission applicable to purchases of shares
of the other Principal Preservation portfolio (as disclosed in the then current
prospectus for that Principal Preservation portfolio) will be charged in
connection with the exchange. However, if the shares of the Portfolio being
exchanged were initially acquired by exchange of shares from another Principal
Preservation portfolio on which a sales commission was paid, the previously-paid
sales commission will be credited against the amount of any sales commission
applicable to the exchange; provided, if a front-end sales commission was
previously paid with respect to the shares of the Portfolio being exchanged and
the investment represented by such shares has been held in one or more Principal
Preservation portfolios continuously for at least six months prior to the
proposed exchange, then no additional sales commission will be charged in
connection with the exchange. Before engaging in any such exchange, a
shareholder should obtain from Ziegler and carefully read the current prospectus
relating to the Principal Preservation portfolio into which he or she intends to
exchange.
In order to effect an exchange on a particular Business Day, Ziegler must
receive a completed exchange authorization form or other written instructions,
signed by all account owners, no later than 3:00 p.m. New York time. Exchange
authorization forms may be obtained from, and should be returned to, Ziegler at
215 North Main Street, West Bend, Wisconsin 53095. Ziegler may accept
instructions from Selected Dealers or Agents, subject to certain conditions and
requirements, for the exchange of shares held in an investor's account.
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 that adversely affects their rights under this exchange privilege. All
exchanges are subject to the conditions described above under "Redemptions."
An exchange of shares is considered a sale for tax purposes and a shareholder
in the Portfolio will realize a gain or loss for federal income tax purposes on
the related redemption of his or her shares in the Portfolio.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND REINVESTMENTS
The Portfolio determines its net income and realized capital gains, if any,
on each Business Day and allocates all such income and gain pro rata among the
Portfolio at the time of such determination. Principal Preservation declares
dividends from the Portfolio's income on each Business Day and pays cash
dividends for the preceding month within the first five Business Days of each
month. The Portfolio reserves the right to include realized short-term gains,
if any, in any such daily dividends. Distributions of the Portfolio's net
realized long-term capital gains, if any, and any undistributed net realized
short-term capital gains are normally declared and paid annually at the end of
the fiscal year in which they were earned to the extent they are not offset by
any capital loss carryovers. Since the Portfolio is subject to a 4%
nondeductible excise tax on certain undistributed amounts of ordinary income and
capital gains, Principal Preservation expects to make such other distributions
as are necessary to avoid the application of this tax. Unless a shareholder
instructs Principal Preservation to pay dividends or capital gains distributions
in cash, dividends and distributions will automatically be reinvested at net
asset value in additional shares of the Portfolio.
TAX STATUS
Principal Preservation intends to qualify the Portfolio as a regulated
investment company, as defined in the Internal Revenue Code of 1986, as amended
(the "Code"). Provided the Portfolio meets the requirements imposed by the
Code, the Portfolio will not pay any federal income or excise taxes. Dividends
paid by the Portfolio from its taxable net investment income and distributions
by the Portfolio of its net realized short-term capital gains are taxable to
shareholders as ordinary income, whether received in cash or reinvested in
additional shares of the Portfolio. Principal Preservation does not expect that
the Portfolio will realize long-term capital gains and thus does not contemplate
paying distributions taxable to shareholders as long-term capital gains. The
Portfolio's dividends and distributions will not qualify for the dividends-
received deduction for corporations.
Statements as to the tax status of each shareholder's dividends and
distributions, if any, are mailed annually. Each shareholder will also receive,
if appropriate, various written notices after the end of the Portfolio's prior
taxable year as to the federal income tax status of his or her dividends and
distributions which were received from the Portfolio during that year.
Shareholders should consult their tax advisers to assess the consequences of
investing in the Portfolio under state and local laws generally and to determine
whether dividends paid by the Portfolio that represent interest derived from
U.S. Government securities are exempt from any applicable state or local income
taxes.
DESCRIPTION OF SHARES
The authorized common stock of Principal Preservation consists of one billion
shares, par value $0.001 per share. The shares of Principal Preservation
presently are divided into eight series: Wisconsin Tax-Exempt Portfolio,
Government Portfolio, Tax-Exempt Portfolio, S&P 100 Plus Portfolio, Select
Value Portfolio, Dividend Achievers Portfolio, PSE Tech 100 Index Portfolio and
the Cash Reserve Portfolio, consisting of 50 million shares in each of the
first seven series and 400 million in the Cash Reserve Portfolio. Shares of
the Cash Reserve Portfolio are divided into two classes of common stock, the
Institutional Class and the Retail Class. Each class is presently allocated
200 million shares of Principal Preservation's authorized common stock.
Effective June 1, 1998, it is anticipated that shares of the S&P 100 Plus,
Dividend Achievers, Select Value and PSE Tech 100 Index Portfolios will be
divided into Class A and Class B shares. The Board of Directors of Principal
Preservation may authorize the issuance of additional series of common stock
(portfolios), and/or additional classes within any such series, and may
increase or decrease the number of such shares in each series and/or any such
class(es).
Each share of each series of Principal Preservation (including each share of
the Classes) is entitled to one vote on each matter presented to shareholders of
that series. For matters that affect both Classes similarly (such as election
of directors, ratification of accountants, etc), holders of the separate Classes
of shares will vote together. On matters that affect the rights and privileges
appertaining to the shares of one class of Cash Reserve differently from the
rights and privileges appertaining to the other class, the shareholders of each
class will vote separately and, in order to be approved with respect to the
affected class, the requisite approval must be obtained from the holders of
shares within that class. Each share of Cash Reserve (including both Classes)
is entitled to participate pro rata in any dividends or other distributions
declared by the Board of Directors of Principal Preservation with respect to
Cash Reserve, and all shares of Cash Reserve have equal rights in the event of a
liquidation of Cash Reserve. Shares of both Classes of Cash Reserve 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 within the class as full shares
in that class. Shares do not have cumulative voting rights.
As a Maryland corporation, Principal Preservation is not required 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 investment policies or
approving an investment advisory contract. On matters affecting an individual
series (including Cash Reserve), such as approval of advisory or sub-advisory
contracts and changes in fundamental investment policies of that series, a
separate vote of the shares of that series is required. Shares of a series are
not entitled to vote on any matter not affecting that series. All shares of
each series vote together in the election of Directors.
As defined in the 1940 Act and as used in this Prospectus, the phrase
"majority vote of the outstanding voting securities" means the vote of the
lesser of: (1) 67% of the voting securities present at a meeting if the holders
of more than 50% of the outstanding voting securities are present in person or
by proxy; or (2) more than 50% of the outstanding voting securities.
DISTRIBUTION PLAN
The Portfolio is authorized under a Distribution Plan (the "Plan") pursuant
to Rule 12b-1 under the Act to use a portion of its assets to finance certain
activities relating to the distribution of its Class X Shares to investors. The
Plan permits payments to be made by the Portfolio to Ziegler to reimburse it for
expenditures incurred by it in connection with the distribution of shares to
investors. These payments include, but are not limited to, the payment of trail
commissions to Ziegler and Selected Dealers, advertising, preparation and
distribution of sales literature and prospectuses to prospective investors,
implementing and operating the Plan and performing other promotional or
administrative activities. Plan payments may also be made to reimburse Ziegler
for its overhead expenses related to distribution of 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. Currently, Principal
Preservation expects that all of the Portfolio's payments under the Plan will be
used to pay trail commissions. These commissions are accrued daily and paid
quarterly to Ziegler or to Selected Dealers and are equal on an annual basis to
0.15% of the average daily net assets of the Portfolio.
Under the Plan, the payments as to the Portfolio may not exceed an amount
computed at an annual rate of 0.15% of the average daily net assets. The
Plan continues in effect, if not sooner terminated in accordance with its terms,
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 the Advisor. For further information regarding the
Plan, see 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 for the Portfolio pursuant to an agreement with Principal Preservation.
For its services provided thereunder, Ziegler may collect certain fees, based on
the number of accounts, as agreed upon from time to time between Ziegler and
Principal Preservation (currently $16.00 per account). See "Management-
Shareholder Servicing Agents."
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 Portfolio.
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 Portfolio may provide yield,
effective yield, and/or total rate of return quotations and may also quote fund
rankings in the relevant fund category from various sources, such as Lipper
Analytical Services, Inc. and IBC/Donoghue's Money Fund Report. The current
yield for the Portfolio will be calculated by dividend net investment income per
share during a recent 7-day period by the net asset value per share on the last
day of the period and annualizing the resulting quotient. The effective yield
takes into account the effects of compounding over the same 7-day period. Total
rate of return quotations will reflect the average annual percentage change
overstated periods in the value of an investment in the Portfolio. Yield
reflects only net portfolio income as of a stated time, while total rate of
return reflects all components of investment return over a stated period of
time. The Portfolio's quotations may from time to time be used in
advertisements, shareholder reports or other communications to shareholders.
For a discussion of the manner in which the Portfolio will calculate its yield,
effective yield, and total rate of return, see the Statement of Additional
Information.
Investors should note that the investment results of the Portfolio will
fluctuate over time, and any presentation of the Portfolio's current yield,
effective yield, or total return for any prior period should not be considered a
representation of what an investment may earn or what an investor's yield or
total return may be in any future period.
TABLE OF CONTENTS
PAGE
----
Questions and Answers 2
Expenses 3
Financial Highlights 4
Investment Objective and Policies 5
Management 11
Determination of Net Asset Value Per Share 13
Purchase of Shares 13
Redemptions 14
Shareholder Services 16
Dividends, Capital Gains Distributions and Reinvestments 17
Tax Status 18
Description of Shares 18
Distribution Plan 19
Other Information 19
PRINCIPAL PRESERVATION
PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
INVESTMENT ADVISER & ADMINISTRATOR
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
DISTRIBUTOR, TRANSFER
AND DIVIDEND DISBURSING AGENT,
SHAREHOLDER SERVICING AGENT,
AND ACCOUNTING 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
COUNSEL
Quarles &Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
PP 880-5/98
PRINCIPAL PRESERVATION CASH RESERVE PORTFOLIO (THE "PORTFOLIO") CLASS X COMMON
STOCK (RETAIL CLASS)
ACCOUNT APPLICATION FORM
MAKE CHECK OR MONEY ORDER PAYABLE TO:
Principal Preservation Cash Reserve Portfolio Class X Common Stock
MAIL TO:
Principal Preservation
215 North Main Street
West Bend, WI 53095
- ------------------------------------------------------------------------------
ACCOUNT REGISTRATION
Individual
- ------------------------------------------------------------------------------
First Middle Initial Last Name
Joint Owner
- ------------------------------------------------------------------------------
First Middle Initial Last Name
(In case of joint registration, a joint tenancy with right of survivorship will
be presumed, unless otherwise indicated.)
Uniform Gift To Minor
- ------------------------------------------------------------------------------
Custodian's Name
Other
- ------------------------------------------------------------------------------
Name of corporation, other organization or fiduciary; if trust, state trustee,
maker and date of trust
- ------------------------------------------------------------------------------
Print -- Street Address (Area code) Telephone No.
(optional)
- ------------------------------------------------------------------------------
City State Zip Code
Citizen of: United States Other
(please specify)
- ------------------------------------------------------------------------------
INVESTMENT
The amount I wish to invdst in Principal Preservation Cash Reserve Portfolio
Class X shares is $_______________ (minimum $1,000)
- ------------------------------------------------------------------------------
REQUEST FOR INFORMATION
I am interested in one or more of the following Portfolios.
Please send me a prospectus:
____ Government, S&P 100 Plus, Tax-Exempt, Select Value, PSE Tech 100 Index
and/or Dividend Achievers Portfolios
____ Wisconsin Tax-Exempt Portfolio
- ------------------------------------------------------------------------------
METHOD OF PAYMENT
Shares purchased by personal or corporate check may not be redeemed by telephone
or otherwise until 15 days after investment date.
_____ Personal Check or ____ Other _______________________________
(specify)
- ------------------------------------------------------------------------------
DIVIDEND AND DISTRIBUTION OPTIONS
Until I advise you to the contrary, I elect to:
___ Reinvest all dividends and capital gain distributions.
(If no box is checked, all dividends and capital gain distributions will be
reinvested in additional Class X shares.)
___ Receive dividends in cash and reinvest capital gains.
___ Receive all distributions in cash.
- ------------------------------------------------------------------------------
SYSTEMATIC PURCHASE PLAN
If you select this option please review the terms and conditions in the
Prospectus. I hereby authorize the Portfolio to withdraw from my checking
account: $______________ ($100 minimum) on or about the ___ 5th or ___ 20th of
each month.
An account must be previously established or a check in the amount of at least
$100 must accompany application to be used to purchase Class X shares.
Through the financial institution as follows:
- ------------------------------------------------------------------------------
Name of Financial Institution Branch Name and Number
- ------------------------------------------------------------------------------
Address of Financial Institution
Please attach an unsigned and voided check or deposit slip from the checking
account you wish to use for the Automatic Investment Plan. Write "Void" across
the face of the check. Your check must be imprinted with all name(s) on your
bank account and carry your financial institution's magnetic ink coding numbers
across the bottom. Please provide us with your financial institution's street
address.
Signature Signature Date
- -----------------------------------------------------------------------------
(If your checking account is held by more than one person, all account holders
must sign this application.)
THIS FORM MUST BE ACCOMPANIED BY A PROSPECTUS.
- ------------------------------------------------------------------------------
TELEPHONE REDEMPTIONS - By wire to:
- ------------------------------------------------------------------------------
Bank Name and Your Bank ABA Routing Number
- ------------------------------------------------------------------------------
Bank Address - Street Name of Bank Account
- ------------------------------------------------------------------------------
City State Zip Your Bank Account Number
SIGNATURE GUARANTEE REQUIRED (BELOW).
- ------------------------------------------------------------------------------
PERIODIC WITHDRAWAL PAYMENT
Beginning _____________, 19___ please send checks in the amount of
$_________________.
($250 minimum)
Monthly____________ Quarterly________________
Please allow 30 days to start a program. Checks will be sent on the 26th day of
each month (the next business day if a holiday).
___ Payment to be made to registered owner's address of record.
___ Payment to be made to other than registered shareholders, identified at
right:
- ------------------------------------------------------------------------------
Bank or Payee's Name
- ------------------------------------------------------------------------------
Account Number
- ------------------------------------------------------------------------------
Name
- ------------------------------------------------------------------------------
Street Address
- ------------------------------------------------------------------------------
City State Zip
SIGNATURE GUARANTEE REQUIRED (BELOW).
- ------------------------------------------------------------------------------
SIGNATURE (This section must be filled out by new accounts.)
By the execution of this Application the investor represents and warrants that
he has full right, power and authority, and, if a natural person, is of legal
age in his state of residence, to make the investment applied for pursuant to
this Application, and the person or persons, if any, signing on behalf of the
investor represent and warrant that they are duly authorized to sign this
Application, and to purchase or redeem shares of the Fund on behalf of the
investor. The investor hereby affirms that he has received a current Prospectus.
"Under penalties of perjury, I certify (1) that the number shown on this form is
my correct taxpayer identification number and (2) that I am not subject to
backup withholding either because I have not been notified that I am subject to
backup withholding as a result of a failure to report all interest or dividends,
or the Internal Revenue Service has notified me that I am no longer subject to
backup withholding."
X X
- ------------------------------------------------------------------------------
Signature of Applicant Date Signature of Joint Registrant, if any
1. ONLY INDIVIDUALS FILL IN
- ------------------------------------------------------------------------------
Social Security Number Print Name of Taxpayer Whose Number Appears at Left
OR ONLY CORPORATIONS, PARTNERSHIPS, TRUSTS INSTITUTIONS FILL IN
- ------------------------------------------------------------------------------
Firm Name
- ------------------------------------------------------------------------------
Date Signature and Title
- ------------------------------------------------------------------------------
Taxpayer Identification Number Date Signature and Title
- ------------------------------------------------------------------------------
SIGNATURE GUARANTEE
(Required for Telephone Redemptions and Periodic Withdrawal
Payment options, if chosen above.) Signature(s) Guaranteed by commercial bank or
trust company or member firm of a national stock exchange.
By:
- ------------------------------------------------------------------------------
(Authorized Signature) Name of Bank or Firm
- ------------------------------------------------------------------------------
DEALER IDENTIFICATION
B.C. Ziegler and Company (the "Distributor"), acts as agent in all purchases by
the investor of the Portfolio's Class X shares. The Distributor and the
authorized dealer, if any, named below each authorizes and appoints B.C. Ziegler
and Company to act as its agent to execute the purchase of Class X shares by the
investor, whether the payment is received from the Distributor, the authorized
dealer or directly from the investor, and to confirm such purchases on their
behalf.
- ------------------------------------------------------------------------------
Dealer's Name
- ------------------------------------------------------------------------------
Home Office Address City State Zip Code
By
- ------------------------------------------------------------------------------
Authorized Signature of Dealer Address of Office Servicing Account
- ------------------------------------------------------------------------------
Branch No. Salesman's No. Salesman's Last Name Dealer No.
(Principal Preservation Logo)
Cash Reserve Portfolio
Class Y Shares
(Institutional Class)
May 1, 1998
PROSPECTUS
PRINCIPAL PRESERVATION
PORTFOLIOS, INC.
CASH RESERVE PORTFOLIO
CLASS Y COMMON STOCK (INSTITUTIONAL CLASS)
MINIMUM INITIAL INVESTMENT: $50,000
The Class Y Common Stock (the ''Class Y Shares'' or ''Institutional Class'')
of the Cash Reserve Portfolio (the ''Fund''), a money market series of Principal
Preservation Portfolios, Inc. (''Principal Preservation''), is one class of a
series of separate mutual fund portfolios within the Principal Preservation
family of funds. The Fund seeks to provide high current income consistent with
stability of principal and the maintenance of liquidity. The Fund invests in
domestic and foreign U.S. dollar-denominated money market obligations with
maturities of 397 days or less. The Fund's investment adviser (the ''Adviser'')
is Ziegler Asset Management, Inc. Shares of the Institutional Class are
continuously sold primarily to institutional investors, although sales are open
to the general public.
This Prospectus sets forth concisely the information that an investor should
know before investing in shares of the Fund. Investors should read and retain
this prospectus for future reference. A Statement of Additional Information
dated May 1, 1998, containing additional information about the Fund, has
been filed with the Securities and Exchange Commission and is incorporated by
reference into this Prospectus. A copy of the Statement of Additional
Information can be obtained without charge by telephone or written request to
B.C. Ziegler and Company (the ''Distributor''), 215 North Main Street, West
Bend, WI 53095 (Telephone 800-826-4600) or from Selected Dealers that have
agreements with respect to distribution of shares of the Fund. Shareholder
inquiries should be directed to Principal Preservation at 215 North Main Street,
West Bend, WI 53095; (Telephone 800-826-4600).
THE SHARES OF THE FUND OFFERED HEREBY ARE NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT. WHILE PRINCIPAL PRESERVATION SEEKS TO MAINTAIN A STABLE
NET ASSET VALUE OF $1.00 PER SHARE OF THE FUND, THERE CAN BE NO ASSURANCE THAT
IT WILL BE ABLE TO DO SO ON A CONTINUING BASIS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is May 1, 1998.
QUESTIONS AND ANSWERS
WHAT ARE THE PRINCIPAL PRESERVATION PORTFOLIOS?
Principal Preservation is a Maryland corporation organized in 1984 as an
open-end, diversified investment company. Principal Preservation is a series
company, which means that its Board of Directors may establish additional
portfolios at any time. The Fund was established in 1993 and the Institutional
Class was established in 1995. Prior to January 1, 1996 the Institutional Class
operated as a series of a separate investment company in a two-tiered
master/feeder fund structure under the name Prospect Hill Prime Money Market
Fund, a series of Prospect Hill Trust. Effective December 31, 1995, that two-
tiered structure was collapsed in a tax-free reorganization transaction (the
''Reorganization'') into the present dual class structure within the Fund.
Shares of Prospect Hill Prime Money Market Fund were converted in the
Reorganization into shares of the Fund's Institutional Class. Other portfolios
of Principal Preservation and a second class (the ''Retail Class'') of shares of
the Fund are offered by separate prospectuses.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund seeks to provide investors with a high level of current income
consistent with stability of principal and the maintenance of liquidity. For
detailed descriptions of the Fund's investment objective and policies, see
''Investment Objective and Policies'' below. There can be no assurance that the
Fund's investment objective will be achieved.
HOW IS INCOME DISTRIBUTED?
Dividends will be declared daily and paid monthly. Any net realized capital
gains will be declared and paid annually. Investors may receive their income
dividends and capital gain distributions in additional shares of the
Institutional Class, in additional shares in another Principal Preservation
portfolio (investors should obtain a current prospectus and read it carefully
before investing in any of the other Principal Preservation Portfolios) or in
cash (see ''Dividends, Capital Gains Distributions and Reinvestments'').
WHO MANAGES THE PORTFOLIO?
Ziegler Asset Management, Inc. is the investment adviser for the Fund, and
also serves as Administrator to the Fund. The Adviser is a wholly-owned
subsidiary of The Ziegler Companies, Inc. B.C. Ziegler and Company
(''Ziegler''), another wholly-owned subsidiary of The Ziegler Companies, Inc.,
currently serves as Distributor, Transfer and Dividend Disbursement Agent and
Shareholder Servicing Agent for the Fund. See ''Management.''
HOW CAN SHARES BE PURCHASED?
Shares are offered continuously and may be purchased by institutional and
non-institutional purchasers from the Distributor. There is no sales charge.
The minimum initial investment is $50,000. The minimum subsequent investment is
$100 (see ''Purchase of Shares'').
HOW CAN YOU REDEEM OR EXCHANGE YOUR SHARES?
Investors may redeem all or a portion of their shares on any business day.
Redemptions may be made by mail, telephone or check (see ''Redemptions'').
HOW CAN I LEARN MORE ABOUT THE FUND'S RETAIL CLASS?
As noted above, in addition to its Institutional Class of shares, the Fund
also offers a Retail Class of shares. The Retail Class is distributed through a
retail broker/dealer network, has a low ($1,000) minimum investment amount, and
carries a Rule 12b-1 distribution fee. The difference in the expense structure
between the Retail Class and the Institutional Class may result in variances in
performance between the two classes. The Retail Class is offered through a
separate prospectus which may be obtained without charge by telephone or written
request to B.C. Ziegler and Company, 215 North Main Street, West Bend, Wisconsin
53095 (telephone 800-826-4600), or from Selected Dealers that have entered into
agreements with respect to the distribution of shares of the Fund or any other
person offering shares of the Institutional Class described in this Prospectus.
EXPENSES
The following table provides (i) a summary of expenses relating to
purchases and sales of shares of the Institutional Class, and the aggregate
annual operating expenses for the Institutional Class, as a percentage of
average net assets of the Institutional Class, and (ii) an example illustrating
the dollar cost of such estimated expenses on a $1,000 investment in the
Institutional Class.
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
Investment management fees 0.20%
Distribution (Rule 12b-1) fees None
Administrative service fees 0.15%
Other expenses (1)<F1> 0.17%
-----
Total operating expenses(1)<F1> 0.52%
-----
-----
(1)<F1>For the year ended December 31, 1997, the Adviser voluntarily waived
administrative fees and reimbursed certain expenses to the Fund. Giving effect
to these fee waivers and expense reimbursements, the Fund's "Other Expenses"
and "Total Operating Expenses" amounted to 0.10% and 0.45%, respectively, of the
Fund's average net assets.
EXAMPLE
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
A holder of shares of the Fund's Institutional
Class would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of
each time period $5 $17 $29 $65
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RETURNS MAY BE GREATER OR LESS
THAN THOSE SHOWN. The purpose of the table is to assist investors in
understanding the various costs and expenses that shareholders of the
Institutional Class will bear directly or indirectly. For more information with
respect to the expenses of the Institutional Class, see ''Management''.
FINANCIAL HIGHLIGHTS
The following Financial Highlights table presents information relating to a
share of the Fund outstanding for the periods presented. This information should
be read in conjunction with the audited financial statements and related notes
contained in the Fund's 1997 Annual Report to Shareholders, which financial
statements are incorporated herein by reference. The information presented in
the table has been audited by Arthur Andersen LLP, independent public
accountants, whose report is contained in the Fund's Annual Report to
Shareholders. You may obtain copies of the 1997 Annual Report without charge
from the Distributor.
FOR THE YEARS ENDED DECEMBER 31,
----------------------------
1997 1996
------ ------
(Selected data for each share of the Fund
outstanding throughout the periods)
Net asset value, beginning of period $1.00 $1.00
------- -------
Income from investment operations:
Net investment income 0.05 0.05
Less distributions:
Dividends from net investment income (0.05) (0.05)
------- -------
Net asset value, end of period $1.00 $1.00
======= =======
Total investment return (b)<F2> 5.21% 5.20%
Ratios/Supplemental Data:
Net assets, end of period (nearest thousand) $33,057 $35,120
Ratio of expenses to average net assets (a)<F1> 0.45% 0.34%
Capital contribution 0.17% --
Ratio of net investment income to average
net assets (a)<F1> 5.10% 4.95%
(a)<F1>For the years ended December 31, 1997 and 1996, respectively, the adviser
and administrator voluntarily waived a portion of their fees. Without these
voluntary waivers, the annualized ratios would have been as follows:
Ratio of expenses to average net assets 0.54% 0.54%
Ratio of net investment income to average
net assets 5.01% 4.75%
(b)<F2>During 1997, the adviser made capital contributions to offset losses in
securities. Had the adviser not made capital contributions, the adjusted
annualized total return would have been 5.04%.
INVESTMENT OBJECTIVE AND POLICIES
INTRODUCTION
Principal Preservation is a Maryland corporation organized in 1984 as an
open-end, diversified investment company. Principal Preservation is a series
company, which means that its Board of Directors may establish additional
portfolios at any time. The Fund seeks to obtain high current income consistent
with stability of principal and the maintenance of liquidity. The Fund is not
intended to constitute a balanced investment program and is not designed for
investors seeking capital gains or maximum income irrespective of fluctuations
in principal. Ziegler Asset Management, Inc. is the Adviser to the Fund. The
Adviser manages the investments of the Fund from day to day in accordance with
the Fund's investment objective and policies. The selection of investments for
the Fund and the way they are managed depend on the condition and trends in the
economy and the financial marketplaces.
INVESTMENT OBJECTIVE
The Fund seeks to obtain a high level of current income to the extent
consistent with stability of principal and the maintenance of liquidity. The
Fund invests in high quality short-term money market instruments consistent with
its specific investment objective. Principal Preservation seeks to maintain a
net asset value of $1.00 per share of the Fund. There can be no assurance that
the investment objective of the Fund will be achieved or that Principal
Preservation will be able to maintain a per share net asset value of $1.00.
Securities in which the Fund invests may not earn as high a level of current
income as long-term or lower quality securities which generally have less
liquidity, greater market risk and more fluctuation in market value.
The investment objective of the Fund may not be changed without the vote of
the holders of a majority of the Fund's outstanding voting securities, including
all classes voting together.
The following is a discussion of the various investments of and techniques
employed by the Fund. Additional information about the investment policies of
the Fund appears in the Statement of Additional Information.
INVESTMENT POLICIES
To achieve its investment objective, the Fund invests in U.S. dollar-
denominated short-term money market obligations, including securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
certificates of deposit, time deposits, bankers' acceptances and other short-
term obligations issued by domestic banks and domestic branches and subsidiaries
of foreign banks, repurchase agreements and high quality domestic commercial
paper and other short-term corporate obligations, including those with floating
or variable rates of interest. In addition, the Fund may lend portfolio
securities, enter into reverse repurchase agreements and, to a limited extent,
invest in securities issued by foreign banks and corporations outside the United
States. The Fund reserves the right to concentrate 25% or more of its total
assets in obligations of domestic branches of domestic banks.
Principal Preservation seeks to maintain a net asset value of $1.00 per share
of the Fund for purchases and redemptions. To permit this, the Fund uses the
amortized cost method of valuing its securities pursuant to Rule 2a-7 under the
Investment Company Act of 1940, as amended (the ''1940 Act''), certain
requirements of which are summarized below. For further information regarding
the amortized cost method of valuing securities, see ''Determination of Net
Asset Value''in the Statement of Additional Information.
In accordance with Rule 2a-7, the Fund will maintain a dollar-weighted
average portfolio maturity of 90 days or less, purchase only instruments having
remaining maturities of 397 days or less and invest only in U.S. dollar-
denominated securities determined in accordance with procedures established by
the Board of Directors of the Fund (the ''Board of Directors'') to present
minimal credit risks and which are rated in one of the two highest rating
categories for debt obligations by at least two nationally recognized
statistical rating organizations (an ''NRSRO'') (or one NRSRO if the instrument
was rated by only one such organization) or, if unrated, are of comparable
quality as determined in accordance with procedures established by the Board of
Directors (collectively, ''Eligible Securities'').
Eligible Securities include ''First Tier Securities'' and ''Second Tier
Securities.'' First Tier Securities include those that possess a rating in the
highest category in the case of a single-rated security or at least two ratings
in the highest rating category in the case of multiple-rated securities or, if
the securities do not possess a rating, are determined to be of comparable
quality by the Adviser pursuant to the guidelines adopted by the Board of
Directors. Second Tier Securities are all other Eligible Securities. The Fund
will invest at least 95% of its total assets in First Tier Securities.
The NRSROs currently rating instruments of the type the Fund may purchase are
Moody's Investors Service, Inc., Standard & Poor's Corporation, Duff & Phelps,
Inc., Fitch Investors Service, Inc., IBCA Limited and IBCA Inc. and Thomson
BankWatch, Inc., and their rating criteria are described in the Appendix to the
Statement of Additional Information. The Statement of Additional Information
contains further information concerning the rating criteria and other
requirements governing the Fund's investments, including information relating to
the treatment of securities subject to a tender or demand feature and securities
deemed to possess a rating based on comparable rated securities of the same
issuer.
In addition, the Fund will not invest more than 5% of its total assets in the
securities (including the securities collateralizing a repurchase agreement) of,
or subject to puts (including letters of credit, guarantees or other credit
support) issued by, a single issuer, except that (i) the Fund may invest more
than 5% of its total assets in a single issuer for a period of up to three
business days in certain limited circumstances, (ii) the Fund may invest in
obligations issued or guaranteed by the U.S. Government (including those
collateralizing repurchase agreements) without any such limitation, and (iii)
the limitation with respect to puts does not apply to unconditional puts if no
more than 10% of the Fund's total assets is invested in securities issued or
guaranteed by the issuer of the unconditional put. Investments in rated
securities not rated in the highest category by at least two rating
organizations (or one rating organization if the instrument was rated by only
one such organization), and unrated securities not determined by the Adviser, in
accordance with guidelines and procedures established by the Board of Directors,
to be comparable to those rated in the highest category, will be limited to 5%
of the Fund's total assets, with the investment in any one such issuer being
limited to no more than the greater of 1% of the Fund's total assets or
$1,000,000. As to each security, these percentages are measured at the time the
Fund purchases the security.
Bank Obligations. The Fund may invest in U.S. dollar-denominated
certificates of deposit, time deposits, bankers' acceptances and other short-
term obligations issued by domestic banks and domestic branches and subsidiaries
of foreign banks. Certificates of deposit are certificates evidencing the
obligation of a bank to repay funds deposited with it for a specified period of
time. Such instruments include Yankee Certificates of Deposit (''Yankee CDs''),
which are certificates of deposit denominated in U.S. dollars and issued in the
United States by the domestic branch of a foreign bank. Time deposits are non-
negotiable deposits maintained in a banking institution for a specified period
of time at a stated interest rate. Time deposits which may be held by the Fund
are not insured by the Federal Deposit Insurance Corporation or any other agency
of the U.S. Government. The Fund will not invest more than 10% of the value of
its net assets in time deposits maturing in longer than seven days and other
instruments which are illiquid or not readily marketable. The Fund may also
invest to a limited extent in certificates of deposit and time deposits issued
by foreign banks outside the United States. The Fund's investments in such
foreign bank obligations may not exceed 5% of the Fund's assets.
The Fund may also invest in bankers' acceptances and other short-term
obligations. Bankers' acceptances are credit instruments evidencing the
obligation of a bank to pay a draft drawn on it by a customer. These instruments
reflect the obligation both of the bank and of the drawer to pay the face amount
of the instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations which have either fixed, floating or variable
interest rates.
To the extent the Fund's investments are concentrated in the banking
industry, the Fund will have correspondingly greater exposure to the risk
factors which are characteristic of such investments. Sustained increases in
interest rates can adversely affect the availability or liquidity and cost of
capital funds for a bank's lending activities, and a deterioration in general
economic conditions could increase the exposure to credit losses. In addition,
the value of and the investment return on the Fund's shares could be affected by
economic or regulatory developments in or related to the banking industry, which
industry also is subject to the effects of the concentration of loan portfolios
in leveraged transactions and in particular businesses, and competition within
the banking industry, as well as with other types of financial institutions.
The Fund, however, will seek to minimize its exposure to such risks by investing
only in debt securities which are determined by the Adviser to be of high
quality.
U.S. Government and Agency Securities. Securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities include U.S. Treasury
securities, which differ only in their interest rates, maturities and times of
issuance. Treasury Bills have initial maturities of one year or less; Treasury
Notes have initial maturities of one to ten years; and Treasury Bonds generally
have initial maturities of greater than ten years. U.S. Government agency
securities in which the Fund commonly invests include securities issued by
Federal Home Loan Banks, Federal National Market Association, Federal Farm
Credit Bank Agency, Federal Home Loan Mortgage Corporation, Student Loan
Mortgage Association, Farmer's Home Administration, as well as others. Some
obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, for example, Government National Mortgage Association pass-
through certificates, are supported by the full faith and credit of the U.S.
Treasury; others, such as those of the Federal Home Loan Banks, by the right of
the issuer to borrow from the Treasury; others, such as those issued by the
Federal National Mortgage Association, by discretionary authority of the U.S.
Government to purchase certain obligations of the agency or instrumentality; and
others, such as those issued by the Student Loan Marketing Association, only by
the credit of the agency or instrumentality. While the U.S. Government provides
financial support to such U.S. Government-sponsored agencies or
instrumentalities, no assurance can be given that it will always do so, since it
is not so obligated by law. The Fund will invest in such securities only when
the Adviser is satisfied that the credit risk with respect to the issuer is
minimal.
U.S. Government and agency securities in which the Fund may invest include
variable and floating rate securities with maturities that may extend beyond 13
months from the date of purchase. However, under Rule 2a-7, the Fund may
purchase such agency securities only if the interest rate adjusts not less
frequently than every 762 days and at each interest rate adjustment date the
security reasonably can be expected to have a market value that approximates its
par value. However, the Adviser has expressed its intention not to invest the
Fund's assets in certain categories of securities with final maturities in
excess of 397 days from the date of purchase, including but not limited to
structured U.S. Government agency securities such as dual index floaters,
inverse floaters, leveraged floaters, capped floaters, range floaters, floating
rate securities tied to the cost of funds of the 11th District Federal Home Loan
Bank and securities with interest rates tied to 10-year constant maturity U.S.
Treasury securities.
Commercial Paper. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by the Fund will consist only of U.S. dollar-denominated direct
obligations issued by domestic and, subject to the 5% limit discussed below (see
''Foreign Securities''), foreign entities. The other corporate obligations in
which the Fund may invest consist of high quality, U.S. dollar-denominated
short-term bonds and notes (including variable rate and amount master demand
notes) issued by domestic corporations.
Restricted Securities. The Fund may invest in securities that are subject to
legal or contractual restrictions on resale. These securities may be illiquid
and, thus, the Fund may not purchase them to the extent that more than 10% of
the value of its net assets would be invested in illiquid securities. However,
if a substantial market of qualified institutional buyers develops pursuant to
Rule 144A under the Securities Act of 1933, as amended, for such securities held
by the Fund, the Fund intends to treat such securities as liquid securities in
accordance with procedures approved by the Board of Directors. To the extent
that for a period of time, qualified institutional buyers cease purchasing such
restricted securities pursuant to Rule 144A, the Fund's investing in such
securities may have the effect of increasing the level of illiquidity in the
Portfolio during such period.
Securities Lending. The Fund may seek to increase its income by lending
securities from its portfolio to banks, brokers or dealers and other recognized
institutional investors needing to borrow securities. Such loans may not exceed
33 1/3% of the value of the Fund's total assets. In connection with such loans,
the Fund will receive collateral consisting of cash, U.S. Government and other
high quality securities or irrevocable letters of credit. Such collateral will
be maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. The Fund can increase its income through
the investment of such collateral. The Fund continues to be entitled to
payments in amounts equal to the interest payable on the loaned security, and
receives interest on the amount of the loan. Such loans will be terminable at
any time upon specified notice. The Fund might experience risk of loss if the
institution with which it has engaged in a portfolio loan transaction breaches
its agreement with the Fund.
Repurchase Agreements and Reverse Repurchase Agreements. Repurchase
agreements involve the acquisition by the Fund of an underlying debt instrument,
subject to an obligation of the seller to repurchase, and the Fund to resell,
the instrument at a fixed price, usually not more than one week after its
purchase. The Fund or a sub-custodian will have custody of securities acquired
by the Fund under a repurchase agreement.
The Fund may enter into repurchase agreements with banks or broker-dealers
with respect to government securities or other high quality securities
regardless of their remaining maturities, and will require that additional
securities be deposited with it if the value of the securities purchased should
decrease below the resale price. The Adviser will monitor on an ongoing basis
the value of the collateral in accordance with the terms of the repurchase
agreement. Certain costs may be incurred by the Fund in connection with the
sale of the securities if the seller does not repurchase them in accordance with
the repurchase agreement. In addition, if bankruptcy proceedings are commenced
with respect to the seller of the securities, realization on the securities by
the Fund may be delayed or limited. The Fund will consider on an ongoing basis
the creditworthiness of the institutions with which it enters into repurchase
agreements. Repurchase agreements are considered collateralized loans under the
1940 Act.
The Fund also may enter into repurchase agreements with entities that are
neither banks nor broker-dealers, provided that, in accordance with the Fund's
policies with respect to repurchase agreements, the Board of Directors of the
Fund approves or ratifies the transaction upon the determination by the Board,
or by the Adviser on its behalf, that entering into a repurchase agreement with
such entity presents minimal credit risk, that the entity presents no serious
risk of becoming involved in bankruptcy proceedings within the time frame
contemplated by the repurchase agreement, and that the repurchase agreement is
otherwise an eligible security for purchase by the Fund. Such entities are not
subject to the types and kinds of regulations or governmental supervision to
which banks and broker-dealers are subject, and there may not be available the
same types of financial information about such entities as is available with
respect to banks and broker-dealers.
The Fund may borrow funds for temporary or emergency purposes, such as
meeting larger than anticipated redemption requests, and not for leverage, in an
amount of up to one-third of the value of the Fund's total assets (including the
amount borrowed) less its total liabilities (not including the amount borrowed).
The Fund also may enter in agreements to sell portfolio securities to financial
institutions such as banks and broker-dealers and to repurchase them at a
mutually agreed date and price (a ''reverse repurchase agreement''). At the
time the Fund enters into a reverse repurchase agreement it will place in a
segregated custodial account cash, U.S. Government securities or high-grade debt
obligations having a value equal to the repurchase price, including accrued
interest. Reverse repurchase agreements involve the risk that the market value
of the securities sold by the Fund may decline below the repurchase price of
those securities. Reverse repurchase agreements are considered to be borrowings
by the Fund.
Foreign securities. Except for Yankee CDs, the Fund may invest no more than
5% of its total assets in U.S. dollar-denominated foreign securities issued
outside the United States, such as obligations of foreign branches and
subsidiaries of domestic banks and foreign banks, including Eurodollar
certificates of deposit, Eurodollar time deposits and Canadian time deposits,
commercial paper of Canadian and other foreign issuers, and U.S. dollar-
denominated obligations issued or guaranteed by one or more foreign governments
or any of their agencies or instrumentalities. For a complete description of
foreign securities the Fund may purchase, see ''Investment Program'' in the
Statement of Additional Information.
Guaranteed Investment Contracts. The Fund may invest in guaranteed
investment contracts (''GICs'') issued by insurance companies. Pursuant to such
contracts, the Fund makes cash contributions to a deposit fund of the insurance
company's general account. The insurance company then credits to the fund
guaranteed interest. The GICs provide that this guaranteed interest will not be
less than a certain minimum rate. The insurance company may assess periodic
charges against a GIC for expenses and service costs allocable to it, and the
charges will be deducted from the value of the deposit fund. Because the Fund
may not receive the principal amount of a GIC from the insurance company on
seven days' notice or less, the GIC is considered an illiquid investment and,
together with other instruments in the Fund which are not readily marketable,
will not exceed 10% of the Fund's total assets. The term of a GIC will be
thirteen months or less. In determining average weighted portfolio maturity, a
GIC will be deemed to have a maturity equal to the longer of the period of time
remaining until the next readjustment of the guaranteed interest rate or the
period of time remaining until the principal amount can be recovered from the
issuer through demand.
When-issued and Forward Commitment Securities. The Fund may purchase
securities on a ''when-issued'' basis and may purchase or sell securities on a
''forward commitment'' basis in order to hedge against anticipated changes in
interest rates and prices. When such transactions are negotiated, the price,
which is generally expressed in yield terms, is fixed at the time the commitment
is made, but delivery and payment for the securities take place at a later date.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Fund will enter into when-issued and forward
commitments only with the intention of actually receiving or delivering the
securities, as the case may be. At the time the Fund enters into a transaction
on a when-issued or forward commitment basis, a segregated account consisting of
cash or high grade liquid debt securities equal to the value of the when-issued
or forward commitment securities will be established and maintained. There is a
risk that the securities may not be delivered and that the Fund may incur a
loss.
Zero Coupon Obligations. The Fund may acquire zero coupon obligations when
consistent with its investment objective and policies. Such obligations have
greater price volatility than coupon obligations and will not result in payment
of interest until maturity. Since dividend income is accrued throughout the
term of the zero coupon obligation, but is not actually received until maturity,
the Fund may have to sell other securities to pay the accrued dividends prior to
maturity of the zero coupon obligation.
Investments in Other Investment Companies. The Fund occasionally may invest
in securities of other investment companies, subject to certain limitations and
restrictions described in the Statement of Additional Information. See
Investment Restriction No. 13 in the section of the Statement of Additional
Information captioned ''Investment Restrictions.'' Such securities are
purchased by the Fund primarily on an overnight basis with cash received by the
Fund too late in the business day to be invested that same day in securities in
which the Fund invests. However, subject to complying with the limitations and
restrictions set forth in the Statement of Additional Information, the Adviser
has the authority to make and retain investments in other investment companies
for an indefinite period of time, and may do so in response to presently
unforeseen market or economic conditions or other circumstances. An investment
by the Fund in other investment companies may cause the Fund to incur increased
administration and distribution costs.
Certain Other Obligations. In order to allow for investments in new
instruments that may be created in the future, upon Principal Preservation
supplementing this Prospectus, the Fund may invest in obligations other than
those listed previously, provided such investments are consistent with the
Fund's investment objective, policies and restrictions.
See ''Investment Program'' in the Statement of Additional Information for more
information about these and other types of instruments in which the Fund may
invest, including variable rate and floating rate securities, unsecured
promissory notes and participation interests.
FUNDAMENTAL INVESTMENT RESTRICTIONS
The Fund is subject to certain investment restrictions which constitute
fundamental policies. Fundamental policies cannot be changed without the
approval of the holders of a majority of the outstanding voting securities of
the Fund, as defined in the 1940 Act. See ''Investment Restrictions'' in the
Statement of Additional Information.
The Fund may: (i) borrow money, but only from banks or through reverse
repurchase agreements for temporary or emergency (not leveraging) purposes, in
an amount of up to 33 1/3% of the value of the Fund's total assets (including
the amount borrowed) less liabilities (not including the amount borrowed) at the
time the borrowing is made (borrowings repaid within 60 days and not renewed or
extended are presumed to be for temporary purposes). While borrowings exceed 5%
of the value of the Fund's total assets, the Fund will not make any additional
investments; (ii) pledge, hypothecate, mortgage or otherwise encumber its
assets, but only, (a) to secure borrowings for temporary or emergency purposes,
or (b) in connection with entering into reverse repurchase agreements; (iii)
invest up to 5% of its total assets in the obligations of any single issuer,
provided that up to 25% of the value of the Fund's total assets may be invested
(subject to the provisions of Rule 2a-7) without regard to any such limitation,
and provided further that obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities may also be purchased without
regard to any such 5% limitation; (iv) concentrate 25% or more of its total
assets in bank obligations and invest up to 25% of its total assets in the
securities of issuers in any other industry, provided that there is no
limitation on investments and obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities; (v) invest up to 10% of its net
assets in repurchase agreements providing for settlement in more than seven days
after notice and in securities that are not readily marketable (which securities
could include participation and variable rate demand obligations as to which the
Portfolio cannot exercise a related demand feature and as to which there is no
secondary trading market). See ''Investment Restrictions'' in the Statement of
Additional Information.
CERTAIN INVESTMENT CONSIDERATONS
The Fund attempts to increase yields by trading to take advantage of short-
term market variations. This policy should not adversely affect the
Institutional Class, since the Fund usually does not pay brokerage commissions
when it purchases short-term debt obligations, although the prices at which such
instruments are traded generally reflect a premium or discount as compared to
their face or par values. The value of the portfolio securities held by the
Fund will vary inversely to changes in prevailing interest rates. Thus, if
interest rates have increased from the time a security was purchased, such
security, if sold, might be sold at a price less than its purchase cost.
Similarly, if interest rates have declined from the time a security was
purchased, such security, if sold, might be sold at a price greater than its
purchase cost. In either instance, if the security was purchased at face value
and held to maturity, no gain or loss would be realized.
MANAGEMENT
DIRECTORS AND OFFICERS
The Board of Directors of Principal Preservation is responsible for the
management of Principal Preservation and provides broad supervision over its
affairs. Principal Preservation's officers are responsible for the Fund's
operations. For more information with respect to the Directors of the Fund, see
''Management of Principal Preservation'' in the Statement of Additional
Information.
INVESTMENT ADVISER
Since August 1, 1994, Ziegler Asset Management, Inc. has served as the
Adviser to the Fund and, prior to the Reorganization, to the Fund's predecessors
in interest. The Adviser also serves as Administrator to the Fund. The Adviser
is registered with the Securities and Exchange Commission as an investment
adviser. In addition to the Fund, the Adviser serves as investment adviser to
seven other mutual fund series of Principal Preservation and privately manages
numerous customer advisory accounts. On December 31, 1997, the Adviser
approximately $1.1 billion under discretionary management.
The address of the Adviser is 215 North Main Street, West Bend, Wisconsin
53095.
The Adviser is a wholly-owned subsidiary of The Ziegler Companies, Inc.
Ziegler, another wholly-owned subsidiary of The Ziegler Companies, Inc.,
currently serves as Distributor, Transfer and Dividend Disbursement Agent and
Shareholder Servicing Agent for the Fund. Ziegler is registered with the
Securities and Exchange Commission as an investment adviser and securities
broker/dealer and is a member of the National Association of Securities Dealers,
Inc. Ziegler has been engaged in the underwriting of debt securities for more
than 78 years. The Ziegler Companies, Inc. is a publicly-owned financial
services holding company.
The Adviser manages the assets of the Fund pursuant to an investment advisory
agreement dated December 29, 1995 (the ''Advisory Agreement''). On November 29,
1994, prior to the Reorganization, shareholders of the Fund's predecessors in
interest approved a substantively identical investment advisory agreement, dated
August 1, 1994. For services provided under the Advisory Agreement, the Adviser
receives from the Fund a fee, accrued daily and paid monthly, at an annual rate
equal to 0.20% of the Fund's average daily net assets.
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, Ziegler Asset Management,
Inc., as administrator of the Fund, provides the Fund with general office
facilities and provides or supervises the overall administration of the Fund
including, among other responsibilities, the negotiation of contracts and fees
with, and the monitoring of performance and billings of, the independent
contractors and agents of the Fund; the preparation and filing of all documents
required for compliance by the Fund with applicable laws and regulations;
providing equipment and clerical personnel necessary for maintaining the
organization of the Fund; preparation of certain documents in connection with
meetings of the Board of Directors of the Fund; and the maintenance of books and
records of the Fund.
The Administrative Services Agreement with respect to the Fund provides that
Ziegler Asset Management, Inc. is entitled to receive an annual fee from the
Fund accrued daily and paid monthly at an annual rate of 0.15% of the Fund's
average daily net assets up to $200 million, and 0.10% of such assets over $200
million. This fee is approved each year by the Directors of Principal
Preservation, including a majority of the independent directors.
DISTRIBUTOR
Ziegler serves as the distributor of shares of the Fund's Institutional Class
and of other Principal Preservation portfolios pursuant to a Distribution
Agreement. 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 Independent
Directors, 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 written
notice and will automatically terminate if assigned by the Distributor. Ziegler
receives no compensation for distributing shares of the Fund's Institutional
Class.
CUSTODIAN
Firstar Trust Company serves as the Custodian of the Fund's assets pursuant to
a Custodian Servicing Agreement. The Custodian Servicing Agreement provides
that Firstar Trust Company is entitled to receive an annual fee of 2% of the
first $500 million of the Cash Reserve's average daily net assets and 0.015%
of assets in excess of $500 million.
ACCOUNTING/PRICING AGENT
Ziegler provides accounting services to the Fund, including daily valuation
of shares, pursuant to an Accounting/Pricing Agreement. Under the Accounting/
Pricing Agreement, Ziegler is entitled to receive compensation from the Fund for
accounting and pricing services it provides on an annualized basis as follows:
0.04% of the Fund's average daily net assets for assets between $50 million and
$100 million; 0.03% on assets between $100 million and $200 million; and 0.01%
of any assets over $200 million, with an annual compensation minimum of $15,000
and a maximum of $125,000.
TRANSFER AND DIVIDEND DISBURSING AGENT
Ziegler provides Transfer and Dividend Disbursing Agent and other shareholder
account services to all shareholder accounts maintained in the Fund. Ziegler
provides these services pursuant to the terms of its Transfer Agent and Dividend
Disbursement Agreement with the Fund, and receives compensation from the Fund
deemed reasonable by the Board of Directors. The annual rate of compensation
presently is $16.00 per shareholder account (subject to a monthly minimum fee of
$200). Ziegler also is entitled to reimbursement for out-of-pocket expenses
including, without limitation, bank wire fees, statement mailing expenses,
supplies such as checks, envelopes and shareholder statements, telephone
expenses, data processing charges, etc.
EXPENSES
The Adviser bears all of its expenses for providing services under the
Advisory Agreement.
The expenses of the Fund include the compensation of the officers and
Directors of Principal Preservation who are not affiliated with the Adviser or
Ziegler; governmental fees; interest charges; taxes; fees and expenses if any,
of independent accountants, legal counsel; and insurance premiums.
Expenses of the Fund also include all fees of the Fund under Principal
Preservation's administrative services, distribution and transfer and dividend
disbursement agreements with Ziegler or the Adviser, as the case may be;
expenses of distributing and redeeming shares and servicing shareholder
accounts; expenses of preparing, printing and mailing prospectuses, reports,
notices, proxy statements and reports to shareholders and to governmental
officers and commissions; its allocated share, together with other portfolios of
Principal Preservation, of expenses associated with annual and special
shareholder meetings and Director's meetings; expenses relating to the issuance,
registration and qualification of shares of the Fund and the preparation,
printing and mailing of prospectuses for such purposes; and membership dues in
the Investment Company Institute allocable to the Fund. Fees common to more
than one of the Principal Preservation portfolios are pro rated among them based
on total assets, and fees of the Fund common to both Classes of the Fund's
shares are pro rated based on the number of shares of each Class outstanding.
DETERMINATION OF NET ASSET VALUE PER SHARE
Shares of the Fund are sold at their net asset value per share determined in
compliance with Rule 2a-7 under the 1940 Act. There is no sales charge (see
''Purchase Of Shares''). The net asset value of the shares of the Fund is
determined and the shares of the Fund are priced as of 12:00 noon (New York
time) on each Business Day of the Fund. A ''Business Day'' is a day on which
the New York Stock Exchange (the ''Exchange'') is open for trading and any other
day (other than a day on which no shares of the Fund are tendered for redemption
and no order to purchase any shares is received) during which there is
sufficient trading in money market instruments that the Fund's net asset value
might be materially affected. Net asset value per share is calculated by
dividing the value of the Fund's net assets by the number of shares of the Fund
outstanding at the time the determination is made.
Although Principal Preservation seeks to maintain the net asset value per
share of the Fund's Institutional Class at $1.00, there can be no assurance the
net asset value will not vary. The valuation of the Fund's securities is based
on their amortized cost. For more information concerning the amortized cost
method of valuation, see ''Determination of Net Asset Value'' in the Statement
of Additional Information.
PURCHASE OF SHARES
Shares of the Institutional Class may be purchased by investors at net asset
value with no sales charge through Ziegler. The minimum initial investment in
the Institutional Class is $50,000. The subsequent minimum investment in the
Institutional Class is $100. Shares of the Fund may be purchased in only those
states where they may be lawfully sold. The Fund will not issue shares for
consideration other than cash except in the case of a bona fide reorganization
or statutory merger or in certain other acquisitions of portfolio securities
which meet certain criteria in accordance with state securities laws (see
''Purchase of Shares'' in the Statement of Additional Information). Shares may
be purchased by sending a check payable to Principal Preservation Portfolios,
Inc., 215 North Main Street, West Bend, Wisconsin 53095.
You may also purchase shares by wire provided you advise Principal
Preservation in advance by calling 800-826-4600. Please wire funds to M&I First
National Bank, West Bend, Wisconsin (ABA #075909576), for credit to the account
of Principal Preservation, account number 692-343-7. Wire purchase instructions
must include the name of the Fund (Principal Preservation Cash Reserve
Portfolio), identification of the Class (Institutional Class), and the
investor's account number. Wire purchases received by Ziegler prior to 12:00
noon (New York time) on a Business Day are normally effective that day. Wire
purchases received after 12:00 noon (New York time) are invested on the next
Business Day.
Orders received by Ziegler prior to 12:00 noon (New York time) will be
invested at the net asset value computed at 12:00 noon (New York time).
Purchases will therefore be effected on the same day the purchase order is
received provided such order is received prior to 12:00 noon (New York time) on
any Business Day. Shares purchased earn dividends from and including the day
the purchase is effected. It is anticipated that the net asset value of $1.00
per share of the Fund's Institutional Class will remain constant. Although
there can be no assurance that a $1.00 net asset value can be maintained on a
continual basis, specific investment policies and procedures will be employed to
accomplish this result.
A complete application must accompany the placement of an order for an
initial purchase. No account application is required for subsequent purchases.
Completed applications may be sent to Ziegler, the Fund's transfer agent, at the
address indicated above. The application may also be sent by facsimile. Please
contact the Fund at 1-800-826-4600.
REDEMPTIONS
You may have any or all of your shares redeemed as described below on any
Business Day at the net asset value next determined (see ''Determination Of Net
Asset Value Per Share'').
By Telephone. If you have completed the Telephone Redemption Authorization
and signature guarantee sections of the account application, you may redeem
shares by calling Principal Preservation at 800-826-4600. This authorization
must be on file at least five days prior to the first telephone redemption.
This authorization requires a signature guarantee. Redemption will be made by
wire to the bank account designated on the account application or a check will
be sent to you at the registered address for your account on the business day
following the redemption.
You cannot 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 establishing the telephone redemption service, you authorize Ziegler or
the Fund, as the case may be, 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 should bear in mind that, by
establishing the telephone redemption service, you assume some risks for
unauthorized transactions. Ziegler and the Fund have 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 either Ziegler or the Fund or any of their employees fail
to abide by these procedures, the Fund may be liable to a shareholder for losses
he or she suffers from any resulting unauthorized transaction(s). However,
neither Ziegler nor the Fund nor any of their employees will be liable for
losses suffered by you 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.
By Mail. To redeem shares by mail, send the following information to the
Fund: (1) a written request for redemption signed by the registered owner(s) of
the shares, exactly as the account is registered, together with the
shareholder's account number; (2) the stock certificates for the shares being
redeemed, if the certificates are held by the shareholder; (3) any required
signature guarantees (see ''Signature Guarantees'' below); and (4) any
additional documents which might be required for redemptions by corporations,
executors, administrators, trustees, guardians, or other similar entities.
The Fund will redeem shares when it has received all necessary documents.
You will be notified promptly if your redemption request cannot be accepted.
The Fund cannot accept redemption requests which specify a particular date for
redemption or which specify any special conditions. Questions concerning
redemption procedures should be directed to the Fund at 800-826-4600.
Signature Guarantees. To protect you and the Fund from fraud, signature
guarantees are required for certain redemptions. Signature guarantees enable
the Fund to be sure that you are the person who has authorized a redemption from
their 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;
(3) authorizations to redeem by telephone; and (4) requests to transfer the
registration of shares to another owner. These requirements may be waived by
Principal Preservation in certain instances.
The Fund will accept signature guarantees from all institutions which are
eligible to provide them under federal or state law, provided the individual
giving the signature guarantee is authorized to do so. 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.
Sending Redemption Proceeds. The Fund will not send redemption proceeds
until all payments for the shares being redeemed have cleared, which normally
takes 15 days from the receipt of payment for the shares.
By Mail. The Fund 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.
By Wire. The Fund 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 Fund will advise you of any wire charges it imposes. These
charges are subject to change. You will be responsible for any charges which
your bank may make for receiving wires.
Checkwriting. Upon request, investors will be provided with checks to be drawn
on the Fund (''Redemption Checks''). Redemption Checks may be written for
amounts not exceeding $500,000. Investors who write Redemption Checks for
amounts under $100 will be charged a $10.00 service fee per check. When a
Redemption Check is presented for payment, a sufficient number of full and
fractional shares in the investor's account will be redeemed as of the next
determined net asset value to cover any amounts paid. Investors continue
earning income dividends until Redemption Checks are presented for payment.
Investors wishing to use this method of redemption must complete and return the
Account Information Form, which is available from the Fund. Redemption Checks
should not be used to close your account. The Fund reserves the right to
modify or terminate this privilege at any time.
Unless otherwise authorized on the Account Information Form, Redemption
Checks must be signed by all account owners. If the Fund receives written
notice from any owner revoking another owner's authority to sign individually,
the signatures of all account owners will be required for payment on any
Redemption Check. Shares purchased by check may not be redeemed via Redemption
Check until 15 days after receipt of funds for said shares. Investors may not
use checkwriting to redeem shares held in certificated form.
The Fund may refuse to honor Redemption Checks whenever the right of
redemption has been suspended, or if the account is otherwise impaired. A
$10.00 service fee per check will be charged if (a) a Redemption Check for less
than $100 is presented for payment, (b) the amount of a Redemption Check
presented for payment exceeds the value of the investor's account, (c) a
Redemption Check is presented that may not be cleared because it would require
redemption of shares purchased by check within 15 days, or (d) a stop payment is
requested which would require closing your current account and opening a new
one.
Conditions on Redemptions. For accounts opened in Prospect Hill Prime Money
Market Fund prior to May 1, 1995 and transferred to the Fund in the
Reorganization, if, due to redemption, your account in the Fund drops below $500
for three months or more, the Fund has the right to redeem your account, after
giving 60 days notice, unless you make additional investments to bring the
account value to $1,000 or more. For accounts opened on or after May 1, 1995,
if your account balance drops below $25,000 for three months or more, the Fund
has the right to redeem your account, after giving 60 days notice, unless you
make additional investments to bring the account value to $50,000 or more.
The Fund may suspend the right to redeem shares for any period during which
(a) the Exchange is closed or the Securities and Exchange Commission determines
that trading on the Exchange is restricted; (b) there is an emergency as a
result of which it is not reasonably practical for the Fund to sell its
securities or to calculate the fair value of its net assets; or (c) the
Securities and Exchange Commission may permit for the protection of the Fund's
shareholders, Principal Preservation's Board of Directors may determine that it
may not be reasonably practical for the Fund to calculate the fair value of its
net assets, and therefore it is possible that the Fund will suspend the right to
redeem shares.
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 the Fund to pay for all redemptions in cash. In such cases, the Board may
authorize payment to be made in securities or other property of the Fund.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND REINVESTMENTS
The Fund determines its net income and realized capital gains, if any, on
each Business Day and allocates all such income and gain pro rata among the Fund
at the time of such determination. Principal Preservation declares dividends
from the Fund's income on each Business Day and pays cash dividends for the
preceding month within the first five Business Days of each month. The Fund
reserves the right to include realized short-term gains, if any, in any such
daily dividends. Since the Fund is subject to a 4% nondeductible excise tax on
certain undistributed amounts of ordinary income and capital gains, Principal
Preservation expects to make such other distributions as are necessary to avoid
the application of this tax. Unless a shareholder instructs Principal
Preservation to pay dividends or capital gains distributions in cash, dividends
and distributions will automatically be reinvested at net asset value in
additional shares of the Fund.
TAX STATUS
Principal Preservation intends to qualify the Fund as a regulated investment
company, as defined in the Internal Revenue Code of 1986, as amended (the
''Code''). Provided the Fund meets the requirements imposed by the Code, the
Fund will not pay any federal income or excise taxes. Dividends paid by the
Fund from its taxable net investment income and distributions by the Fund of its
net realized short-term capital gains are taxable to shareholders as ordinary
income, whether received in cash or reinvested in additional shares of the Fund.
Principal Preservation does not expect that the Fund will realize long-term
capital gains and thus does not contemplate paying distributions taxable to
shareholders as long-term capital gains. The Fund's dividends and distributions
will not qualify for the dividends-received deduction for corporations.
Statements as to the tax status of each shareholder's dividends and
distributions, if any, are mailed annually. Each shareholder will also receive,
if appropriate, various written notices after the end of the Fund's prior
taxable year as to the federal income tax status of his or her dividends and
distributions which were received from the Fund during that year. Shareholders
should consult their tax advisers to assess the consequences of investing in the
Fund under state and local laws generally and to determine whether dividends
paid by the Fund that represent interest derived from U.S. Government securities
are exempt from any applicable state or local income taxes.
DESCRIPTION OF SHARES
PRINCIPAL PRESERVATION
The authorized common stock of Principal Preservation consists of one billion
shares, par value $0.001 per share. The shares of Principal Preservation are
presently divided into eight series: Wisconsin Tax-Exempt Portfolio,
Government Portfolio, Tax-Exempt Portfolio, S&P 100 Plus Portfolio, Select
Value Portfolio, Dividend Achievers Portfolio, PSE Tech 100 Index Portfolio and
the Cash Reserve Portfolio, consisting of 50 million shares in each of the
first seven series and 400 million in the Cash Reserve Portfolio. Shares of
the Cash Reserve series are divided into two classes of common stock, the
Institutional Class and Retail Class. Each class is presently allocated 200
million shares of Principal Preservation authorized common stock. Effective
June 1, 1998, it is anticipated that shares of the S&P 100 Plus, Select Value,
Dividend Achievers, and PSE Tech 100 Index Portfolios will be divided into
Class A and Class B shares. The Board of Directors of Principal Preservation
may authorize the issuance of additional series of common stock (portfolios),
and/or additional classes within any such series, and may increase or decrease
the number of such shares in each series and/or any such class(es).
Each share of each series of Principal Preservation (including each share of
each Class of the Fund) is entitled to one vote on each matter presented to
shareholders of that series, and when issued and paid for in accordance with the
terms of the offering will be fully paid and nonassessable. For matters that
affect both Classes of the Fund's shares similarly (such as election of
directors, ratification of accountants, etc.), holders of the separate classes
of shares will vote together. On matters that affect the rights and privileges
appertaining to the shares of one Class of the Fund differently than the rights
and privileges appertaining to the other Class, the shareholders of each Class
will vote separately and, in order to be approved with respect to the affected
Class, the requisite approval must be obtained from holders of shares within
that Class. Each share of the Fund (including both Classes) is entitled to
participate pro rata in any dividends or other distributions declared by the
Board of Directors of Principal Preservation with respect to the Fund, and all
shares of the Fund have equal rights in the event of a liquidation of the Fund.
Shares of both Classes 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
full shares. Shares do not have cumulative voting rights.
As a Maryland corporation, Principal Preservation is not required 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 investment policies or
approving an investment advisory contract. On matters affecting an individual
series (such as approval of advisory or sub-advisory contracts and changes in
fundamental investment policies of a series) a separate vote of the shares of
that series is required. Shares of a series are not entitled to vote on any
matter not affecting that series. All shares of each series vote together in
the election of Directors. Shares do not have cumulative voting rights.
As defined in the 1940 Act and as used in this Prospectus, the phrase
''majority vote of the outstanding voting securities'' means the vote of the
lesser of: (1) 67% of the voting securities present at a meeting if the holders
of more than 50% of the outstanding voting securities are present in person or
by proxy; or (2) more than 50% of the outstanding voting securities.
OTHER INFORMATION
Transfer and Dividend Disbursing Agent. Ziegler, 215 North Main Street, West
Bend, Wisconsin 53095 acts as transfer and dividend disbursing agent for the
Fund pursuant to an agreement with Principal Preservation. For its services
provided thereunder, Ziegler may collect certain fees, based on the number of
accounts, as agreed upon from time to time between Ziegler and Principal
Preservation (currently $16.00 per account). See ''Management-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 Fund.
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 Fund may provide yield,
effective yield, and/or total rate of return quotations and may also quote fund
rankings in the relevant fund category from various sources, such as Lipper
Analytical Services, Inc. and IBC/Donoghue's Money Fund Report. The current
yield for the Fund will be calculated by dividend net investment income per
share during a recent 7-day period by the net asset value per share on the last
day of the period and annualizing the resulting quotient. The effective yield
takes into account the effects of compounding over the same 7-day period. Total
rate of return quotations will reflect the average annual percentage change
overstated periods in the value of an investment in the Fund. Yield reflects
only net portfolio income as of a stated time, while total rate of return
reflects all components of investment return over a stated period of time. The
Fund's quotations may from time to time be used in advertisements, shareholder
reports or other communications to shareholders. For a discussion of the manner
in which the Fund will calculate its yield, effective yield, and total rate of
return, see the Statement of Additional Information.
Investors should note that the investment results of the Fund will fluctuate
over time, and any presentation of the Fund's current yield, effective yield, or
total return for any prior period should not be considered a representation of
what an investment may earn or what an investor's yield or total return may be
in any future period.
PRINCIPAL PRESERVATION CASH RESERVE PORTFOLIO
PURCHASE APPLICATION FORM
Class Y Common Stock
(Institutional Class)
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MAIL COMPLETED FOR ADDITIONAL
APPLICATION TO: PRINCIPAL PRESERVATION INFORMATION CALL
215 NORTH MAIN STREET 1-800-826-4600
WEST BEND, WI 53095
- ------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
Name Line 1
-------------------------------------------------------------
Name Line 2
-------------------------------------------------------------
Name Line 3
-------------------------------------------------------------
Address Line 1
----------------------------------------------------------
Address Line 2
----------------------------------------------------------
City State Zip
------------------------------------------ --------- -------
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2. TAX I.D. # or SOCIAL SECURITY #
--------------------------- -------------
- ------------------------------------------------------------------------------
3. TELEPHONE ( ) - Ext.
---- -------- ---------------------------- ---------------
- ------------------------------------------------------------------------------
4. INITIAL INVESTMENT - Minimum $50,000
For Purchase of Class Y Common Stock of Cash Reserve Portfolio
Amount $
-----------
Investment by: Check Bank Wire (if by wire, Date)
-------------------
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5. DISTRIBUTION OPTION
1. Dividends (Check One) 2.Capital Gains (Check One)
Dividends reinvested in shares or Capital Gains reinvested in
shares or
Dividends in Cash Capital Gains in Cash
(If no option is selected, income and capital gain distributions will be
automatically reinvested in additional shares of the Fund.)
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6. ACCOUNT CLASS
Individual Investor OR
Financial Institution
A. Type (check one)
Bank Savings and Loan Association Insurance Company
Trust (per Rule 506(b)(2)(ii) of Regulation D) Yes No
B. Is applicant acting in a Fiduciary Capacity? Yes No
OR Other Institution
A. Type (check one)
Corporation Partnership Business Trust
Sole Proprietorship Business Development Company Credit Union
Employee Benefit Plan:
B. Is applicant acting in a Fiduciary Capacity? Yes No
C. Is applicant IRS Section 501 (c)(3) Qualified? Yes No
D. Total Asset Size in Excess of: (check one)
$500,000 $1,000,000 $5,000,000 $10,000,000 $14,000,000
E. Incorporated/Formed/Associated on (date)
---------------------
In State/Commonwealth of
------------------------------------
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7. TELEPHONE REDEMPTION OPTION Signature Guarantee Required (Below)
I authorize redemptions by telephone for my account. I understand that the
Fund is authorized to act upon instructions from me or any person claiming to be
me and that the monies will be sent by check to the address of record or
credited to the bank account which is designated below in this section.
I understand that this option is subject to the terms and conditions set forth
in the Prospectus, and that all telephone transaction calls may be recorded. I
herby ratify any telephone redemption instructions given on this account and I
agree to indemnify and hold harmless the fund and any of its agents involved in
this transaction against any claim, loss, expense or damage, including but not
limited to legal fees, in connection with any telephone redemption transaction
effected on my account. I further understand that I bear the risk of loss as a
result of the Fund acting upon any instructions believed by it to be genuine.
BANK ACCOUNT INFORMATION
Bank
-----------------------------------------------------------------
Address
--------------------------------------------------------------
ABA #
----------------------------------------------------------------
Account #
------------------------------------------------------------
Name(s) on account
---------------------------------------------------
I do NOT with to authorize redemptions by telephone for my account. I
understand that any redemption transaction on my account will only be effected
upon receipt of written instructions by me.
- ------------------------------------------------------------------------------
8. BUSINESS CERTIFICATION (This section must be completed in order to
process the Application.)
The following named persons, none of whom is less than eighteen years of
age, are currently all the officers/executors/trustees/general parties or other
authorized signatories of Applicant, and any one of them (the ''Authorized
Person'') is currently under the applicable governing document to purchase and
redeem and otherwise deal in shares of the Fund and deliver any instrument
necessary to effectuate the authority hereby confer.
Name of Authorized Person Title Signature
(Please Print or Type) (Must be included)
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------------------------------------------------------------------------
------------------------------------------------------------------------
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The fund may, without inquiry, act upon the instruction of any person
purporting to be the Authorized Person named in the certification form last
received by the Fund. The fund shall not be liable for any claims, expenses
(including but not limited to legal fees) or losses resulting from the Fund
having acted upon any instruction reasonably believed by it to be genuine.
- ------------------------------------------------------------------------------
A. FOR PARTNERSHIPS ONLY
We,
--------------------------------------------------------------------
(fill in names of general partners)
individually as general partners of Applicant, represent and warrant that
despite any dissolution or termination of Applicant or any modification or
termination of authority of any partner, the Fund may act hereunder and rely
hereon until written notice to the contrary shall be received by the Fund and
the Fund shall have had sufficient time to act thereon; each above named
Authorized Person, acting singly, is authorized to effect for Applicant
securities transactions in the Fund.
In witness whereof we have this day subscribed our names.
- ------------------------------------------------------------------------------
General Partner General Partner General Partner
- ------------------------------------------------------------------------------
B. FOR CORPORATIONS AND UNINCORPORATED ASSOCIATIONS ONLY
I, , Secretary of Applicant, do hereby
---------------------------------
certify that at a meeting on at which a quorum was
---------------------------
present throughout, the board of directors of the corporation/the membership,
board of trustees or directors of the association duly adopted a resolution,
which is in full force and effect and in accordance with Applicant's charter and
by-laws, which resolution did the following:
1. Empowered each above named Authorized
Person in Section 7, acting singly, to
effect for Applicant securities transactions
in the Prospect Hill Prime Money Market Fund
(the ''Fund'');
2. Authorized the Secretary to certify from
time to time the names and titles of the
officers of Applicant and to notify the
Fund;
3. Authorized the Secretary to certify that
such a resolution has been duly adopted and
will remain in full force and effect until
the Fund receives a subsequent revoking
certification.
(CORPORATE SEAL)
(Required for Application Processing)
In witness whereof I have this day subscribed my name and, if a corporation,
affixed the seal of the corporation.
The undersigned officer (other than the Secretary) hereby certifies that the
foregoing instrument has been signed by the Secretary of the
corporation/association.
- -------------------------------------------------------------------------------
Secretary Certifying Officer of the Corporation or Unincorporated
Association
- ------------------------------------------------------------------------------
C. FOR ALL OTHER INSTITUTIONAL INVESTORS (INCLUDING TRUSTS AND ESTATES)
We certify that each above named authorized Person, acting singly, is
authorized to effect securities transactions for Applicant on the terms
described above. All trustees must sign. Please include copy of living trust
document or certified copy of Letters of Testamentary/Trusteeship.
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Certifying Executors/Trustees/Others Certifying Executors/Trustees/Others
- ------------------------------------------------------------------------------
9. TAX CERTIFICATION AND SHAREHOLDER AUTHORIZATION
Under penalties of perjury, I (we) certify (1) that the number(s) shown on
this application is my (our) correct Tax Identification Number(s) (Social
Security Number(s)) and (2) that I (we) am (are) not subject to backup
withholding either because I(we) have not been notified that I (we) am (are)
subject to backup withholding as a result of a failure to report all interest or
dividends, or the Internal Revenue Service has notified me (us) that I (we) am
(are) no longer subject to backup withholding. (If you have been notified by the
Internal Revenue Service that you are currently subject to backup withholding,
strike out clause (2).)
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10. CUSTOMER ACCEPTANCE
Under penalties of perjury, I (we) certify that the information in items1
through 9 above is true, correct and complete. I (We) understand that the
Principal Preservation Cash Reserve Portfolio account is not a bank deposit
account or FDIC insured. I (We) am (are) of legal age. I (We) have received and
read a current Fund Prospectus and understand the terms and conditions.
-----------------------------------------------------------------
Individual (or Custodian) Date
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Joint Tenant (if any) Date
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Corporate Officer or Trustee Date
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Title of Corporate Officer or Trustee Date
- ------------------------------------------------------------------------------
SIGNATURE GUARANTEE
(Required for Telephone redemption option.)
The signature guarantee must be provided by a commercial bank, trust company,
member of a national securities exchange, savings and loan or a credit union. A
signature guarantee is not the same as a notarized signature.
TABLE OF CONTENTS
PAGE
Questions and Answers.......... 2
Expenses....................... 3
Investment Objective and Policies 4
Management..................... 9
Determination of Net Asset Value Per Share 11
Purchase of Shares............. 11
Redemptions.................... 12
Dividends, Capital Gains Distributions and Reinvestments 14
Tax Status..................... 14
Description of Shares.......... 14
Other Information.............. 15
PRINCIPAL PRESERVATION
PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
INVESTMENT ADVISER & ADMINISTRATOR
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
DISTRIBUTOR, TRANSFER
AND DIVIDEND DISBURSING AGENT,
SHAREHOLDER SERVICING AGENT AND
ACCOUNTING 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
COUNSEL
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
PP 207-5/98
STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 1998
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
CASH RESERVE PORTFOLIO
CLASS X COMMON STOCK (RETAIL CLASS)
215 North Main Street
West Bend, Wisconsin 53095
800-826-4600
This Statement of Additional Information and the prospectus to which it
relates describe the Class X Common Stock ("Class X Shares" or "Retail Class")
of the Principal Preservation Cash Reserve Portfolio (the "Portfolio"), one of
several separate mutual fund portfolios within the Principal Preservation
Portfolios, Inc. ("Principal Preservation") family of funds. Terms not
otherwise defined herein have the same meaning as in the Prospectus.
The Portfolio seeks to obtain high current income consistent with stability
of principal and the maintenance of liquidity.
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, from Selected Dealers who have entered into Selected Dealer
Agreements with the Distributor, or from shareholder servicing Agents who have
entered into Shareholder Servicing Agreements with Principal Preservation (see
the Prospectus dated May 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.
TABLE OF CONTENTS
PAGE
STATEMENT OF ADDITIONAL INFORMATION........................... 1
THE PORTFOLIO................................................. 2
INVESTMENT PROGRAM............................................ 2
INVESTMENT RESTRICTIONS....................................... 8
PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES................ 10
MANAGEMENT OF PRINCIPAL PRESERVATION.......................... 11
PERFORMANCE INFORMATION....................................... 18
DETERMINATION OF NET ASSET VALUE PER SHARE; VALUATION OF SECURITIES;
REDEMPTION IN KIND....................................... 19
PURCHASE OF SHARES............................................ 20
TAX STATUS.................................................... 21
DISTRIBUTION EXPENSES......................................... 22
COUNSEL AND INDEPENDENT ACCOUNTANTS........................... 24
EXPERTS....................................................... 25
FINANCIAL STATEMENTS.......................................... 25
APPENDIX.................................................... A-1
THE PORTFOLIO
The Portfolio was established in 1993 with a single class of common stock
and operated as a retail spoke of a two-tiered, master/feeder fund structure
through December 31, 1995. Effective January 1, 1996, the Portfolio was
recapitalized with two classes of stock, the Class X Shares and Class Y Common
Stock (the "Institutional Class" or "Class Y Shares"). At that time each
outstanding share of Cash Reserve Portfolio's original class of common stock was
redesignated (without otherwise affecting the rights and privileges appertaining
thereto) as a share of the Retail Class, and shares of the Institutional Class
were issued in exchange for the outstanding shares of an institutional money
market fund that operated within the same master/feeder fund structure.
INVESTMENT PROGRAM
As described above and in the Portfolio's Prospectus, Class X Shares of the
Portfolio are designed to provide investors with current income. The Portfolio
is not intended to constitute a balanced investment program and is not designed
for investors seeking capital gains or maximum income irrespective of
fluctuations in principal.
The following information supplements and should be read in conjunction
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with the section in the Prospectus entitled "Investment Objective and Policies."
- ------------------------------------------------------------------------------
Bank Obligations. Domestic commercial banks organized under Federal law
are supervised and examined by the Comptroller of the Currency and are required
to be members of the Federal Reserve System. Domestic banks organized under
state law are supervised and examined by state banking authorities and are
members of the Federal Reserve System only if they elect to join. In addition,
state banks are subject to Federal examination and to a substantial body of
Federal law and regulation. As a result of Federal or state laws and
regulations, domestic banks, among other things, generally are required to
maintain specified levels of reserves, are limited in the amounts which they can
loan to a single borrower, and are subject to other regulations designed to
promote financial soundness. However, not all of such laws and regulations
apply to the foreign branches of domestic banks.
Obligations of foreign branches and subsidiaries of domestic banks and
domestic and foreign branches of foreign banks, such as CDs and time deposits
("TDs"), may be general obligations of the parent banks in addition to the
issuing branch, or may be limited by the terms of a specific obligation and
governmental regulation. Such obligations are subject to different risks than
are those of domestic banks. These risks include foreign economic and political
developments, foreign governmental restrictions that may adversely affect
payment of principal and interest on the obligations, foreign exchange controls
and foreign withholding and other taxes on interest income. These foreign
branches and subsidiaries are not necessarily subject to the same or similar
regulatory requirements that apply to domestic banks, such as mandatory reserve
requirements, loan limitations, and accounting, auditing and financial
recordkeeping requirements. In addition, less information may be publicly
available about a foreign branch of a domestic bank or about a foreign bank than
about a domestic bank.
Obligations of United States branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by Federal or state regulation
as well as governmental action in the country in which the foreign bank has its
head office. A domestic branch of a foreign bank with assets in excess of $1
billion may be subject to reserve requirements imposed by the Federal Reserve
System or by the state in which the branch is located if the branch is licensed
in that state.
In addition, branches licensed by the Comptroller of the Currency and
branches licensed by certain states may be required to: (1) pledge to the
regulator, by depositing assets with a designated bank within the state, a
certain percentage of their assets as fixed from time to time by the appropriate
regulatory authority; and (2) maintain assets within the state in an amount
equal to a specified percentage of the aggregate amount of liabilities of the
foreign bank payable at or through all of its agencies or branches within the
state.
In view of the foregoing factors associated with the purchase of CDs and
TDs issued by foreign branches of domestic banks, by foreign subsidiaries of
domestic banks, by foreign branches of foreign banks or by domestic branches of
foreign banks, the Advisor carefully evaluates such investments on a case-by-
case basis.
Commercial Paper. The Portfolio may invest in commercial paper issued by
major corporations in reliance on the exemption from registration afforded by
Section 3(a)(3) under the Securities Act of 1933, as amended (the "1933 Act").
Such commercial paper may be issued only to finance current transactions and
must mature in nine months or less. Trading of such commercial paper is
conducted primarily by institutional investors through investment dealers, and
individual investor participation in the commercial paper market is very
limited. Such commercial paper generally can be readily traded in secondary
trading markets among qualified institutional buyers without registration
pursuant to the conditions of Rule 144A under the 1933 Act. The Portfolio also
may invest in commercial paper in reliance on the so-called "private placement"
exemption from registration which is afforded by Section 4(2) of the 1933 Act
("Section 4(2) paper"). Section4(2) paper is restricted as to disposition under
the 1933 Act and generally is sold to institutional investors who agree that
they are purchasing the paper for investment and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) paper normally is resold to other institutional investors through
or with the assistance of the issuer or investment dealers who make a market in
the paper, thus providing liquidity.
The Advisor considers the legally restricted but readily saleable Section
4(2) and Rule 144A paper to be liquid. However, pursuant to procedures approved
by the Board of Directors of Principal Preservation, if a particular investment
in Section 4(2) or Rule 144A paper is not determined to be liquid, that
investment will be included within the 10% limitation on illiquid securities.
The Advisor monitors the liquidity of the Portfolio's investments in Section
4(2) and Rule 144A paper on a continuous basis.
Variable Rate and Floating Rate Demand Securities. The Portfolio may
purchase floating and variable rate demand notes and bonds, which are
obligations ordinarily having stated maturities in excess of 397 days, but which
permit the holder to demand payment of principal at any time, or at specified
intervals not exceeding 397 days, in each case upon not more than 30 days'
notice. Variable rate demand notes include master demand notes which are
obligations that permit the Portfolio to invest fluctuating amounts, which may
change daily without penalty, pursuant to direct arrangements between the
Portfolio, as lender, and the borrower. The interest rates on these notes
fluctuate from time to time. The issuer of such obligations normally has a
corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus accrued interest upon a
specified number of days' notice to the holders of such obligations. The
interest rate on a floating rate demand obligation is based on a known lending
rate, such as a bank's prime rate, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable rate demand obligation is
adjusted automatically at specified intervals. Frequently, such obligations are
secured by letters of credit or other credit support arrangements provided by
banks. Because these obligations are direct lending arrangements between the
lender and borrower, it is not contemplated that such instruments generally will
be traded, and there generally is no established secondary market for these
obligations, although they are redeemable at face value. Accordingly, where
these obligations are not secured by letters of credit or other credit support
arrangements, the Portfolio's right to redeem is dependent on the ability of the
borrower to pay principal and interest on demand.
Such obligations frequently are not rated by credit rating agencies and the
Portfolio may invest in obligations which are not so rated only if the Advisor
determines that at the time of investment the obligations are of comparable
quality to the other obligations in which the Portfolio may invest. The
Advisor, on behalf of the Portfolio, will consider on an ongoing basis the
creditworthiness of the issuers of the floating and variable rate demand
obligations held by the Portfolio. The Portfolio will not invest more than 10%
of the value of its net assets in floating or variable rate demand obligations
as to which it cannot exercise the demand feature on not more than seven days'
notice if there is no secondary market available for these obligations, and in
other securities that are not readily marketable. See "Investment Restrictions"
below.
Unsecured Promissory Notes. The Portfolio also may purchase unsecured
promissory notes ("Notes") which are not readily marketable and have not been
registered under the 1933 Act, provided such investments are consistent with the
Portfolio's investment objective. The Notes purchased by the Portfolio will
have remaining maturities of 13 months or less, must be deemed under policies
adopted by the Board of Directors of Principal Preservation to present minimal
credit risks and will meet the quality criteria set forth in the Prospectus
under "Investment Policies." The Portfolio will invest no more than 10% of its
net assets in such Notes and in other securities that are not readily marketable
(which securities would include floating and variable rate demand obligations as
to which the Portfolio cannot exercise the demand feature described above and as
to which there is no secondary market). See "Investment Restrictions" below.
Participation Interests. The Portfolio may purchase from financial
institutions participation interests in securities in which the Portfolio may
invest. A participation interest gives the Portfolio an undivided interest in
the security in the proportion that the Portfolio's participation interest bears
to the total principal amount of the security. These instruments may have
fixed, floating or variable rates of interest, with remaining maturities of 13
months or less. If the participation interest is unrated, or has been given a
rating below that which is permissible for purchase by the Portfolio, the
participation interest will be backed by an irrevocable letter of credit or
guarantee of a bank, or the payment obligation otherwise will be collateralized
by U.S. Government securities, or, in the case of unrated participation
interests, the Advisor must have determined that the instrument is of comparable
quality to those instruments in which the Portfolio may invest. For certain
participation interests, the Portfolio will have the right to demand payment, on
not more than seven days' notice, for all or any part of the Portfolio's
participation interest in the security, plus accrued interest. As to these
instruments, the Portfolio intends to exercise its right to demand payment only
upon a default under the terms of the security, as needed to provide liquidity
to meet redemptions, or to maintain or improve the quality of its investment
portfolio. The Portfolio will not invest more than 10% of its net assets in
participation interests that do not have this demand feature, and in other
securities that are not readily marketable. See "Investment Restrictions"
below.
Lending of Portfolio Securities. To a limited extent, the Portfolio may
lend its portfolio securities to brokers, dealers and other institutional
investors, provided it 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 lending its portfolio securities, the Portfolio can
increase its income through the investment of the cash collateral. For the
purposes of this policy, the 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. Such loans may not exceed 33 1/3% of the value of the
Portfolio's total assets. From time to time, the Portfolio may return to the
borrower and/or a third party which is unaffiliated with the Portfolio, and
which is acting as a "placing broker," a part of the interest earned from the
investment of collateral received for securities loaned.
The Securities and Exchange Commission (the "SEC") currently requires that
the following conditions must be met whenever portfolio securities are loaned:
(1) the Portfolio must receive at least 100% cash collateral from the borrower;
(2) the borrower must increase such collateral whenever the market value of the
securities rises above the level of such collateral; (3) the Portfolio must be
able to terminate the loan at any time; (4) the Portfolio must receive
reasonable interest on the loan, as well as any interest or other distributions
on the loaned securities, and any increase in market value; and (5) the
Portfolio may pay only reasonable custodian fees in connection with the loan.
These conditions may be subject to future modification.
Foreign Securities. The Portfolio may invest no more than 5% of its total
assets in foreign securities, including U.S. dollar-denominated obligations of
foreign branches and subsidiaries of domestic banks and foreign banks, such as
Eurodollar certificates of deposit, which are U.S. dollar-denominated
certificates of deposit issued by branches of foreign and domestic banks located
outside the United States, and Yankee CDs, which are certificates of deposit
issued by a U.S. branch of a foreign bank denominated in U.S. dollars and held
in the United States; Eurodollar time deposits ("ETDs"), which are U.S. dollar-
denominated deposits in a foreign branch of a foreign or domestic bank, and
Canadian time deposits, which are essentially the same as ETDs except they are
issued by branches of major Canadian banks; high quality, U.S. dollar-
denominated short-term bonds and notes (including variable amount master demand
notes) issued by foreign corporations, including Canadian commercial paper,
which is commercial paper issued by a Canadian corporation or a Canadian
counterpart of a U.S. corporation, and Europaper, which is U.S. dollar-
denominated commercial paper of a foreign issuer; and U.S. dollar-denominated
obligations issued or guaranteed by one or more foreign governments or any of
their political subdivisions, agencies or instrumentalities that are determined
by the Advisor to be of comparable quality to the other obligations in which the
Portfolio may invest. Such securities also include debt obligations of
supranational entities. Supranational entities include international
organizations designated or supported by governmental entities to promote
economic reconstruction or development and international banking institutions
and related government agencies. Examples include the International Bank for
Reconstruction and Development (the World Bank), the European Coal and Steel
Community, the Asian Development Bank and the InterAmerican Development Bank.
The Portfolio may be subject to investment risks with respect to foreign
securities that are different in some respects from those incurred by a fund
which invests only in debt obligations of U.S. domestic issuers, although such
obligations may be higher yielding when compared to the securities of U.S.
domestic issuers. In making foreign investments, therefore, the Portfolio will
give appropriate consideration to the following factors, among others.
Foreign securities markets generally are not as developed or efficient as
those in the United States. Securities of some foreign issuers are less liquid
and more volatile than securities of comparable U.S. issuers. Similarly, volume
and liquidity in most foreign securities markets are less than in the United
States and, at times, volatility of price can be greater than in the United
States. The issuers of some of these securities, such as bank obligations, may
be subject to less stringent or different regulation than are U.S. issuers. In
addition, there may be less publicly available information about a non-U.S.
issuer, and non-U.S. issuers generally are not subject to uniform accounting and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. issuers.
Because evidences of ownership of such securities usually are held outside
the United States, the Portfolio will be subject to additional risks which
include possible adverse political and economic developments, possible seizure
or nationalization of foreign deposits and possible adoption of governmental
restrictions which might adversely affect the payment of principal and interest
on the foreign securities or might restrict the payment of principal and
interest to investors located outside the country of the issuer, whether from
currency blockage or otherwise.
Furthermore, some of these securities are subject to brokerage taxes levied
by foreign governments, which have the effect of increasing the cost of such
investment and reducing the realized gain or increasing the realized loss on
such securities at the time of sale. Income earned or received by the Portfolio
from sources within foreign countries may be reduced by withholding and other
taxes imposed by such countries. Tax conventions between certain countries and
the United States, however, may reduce or eliminate such taxes. All such taxes
paid by the Portfolio will reduce its net income available for distribution to
its investors (e.g., the Retail Class). In selecting foreign securities, the
---
Advisor will consider available yields, and any applicable taxes. All such
investments will be U.S. dollar denominated.
Investments In Other Investment Companies. An investment by the Portfolio
in other investment companies -- which is limited by fundamental investment
restriction (13) below -- may cause the Portfolio to incur increased costs of
administration and distribution expenses.
Securities Rating Criteria. A description of the characteristics and
criteria of the various securities ratings used by several nationally recognized
securities rating organizations is included in Appendix A attached to this
Statement of Additional Information.
INVESTMENT RESTRICTIONS
The following restrictions, which are a matter of "fundamental policy," may
not be changed with respect to the Portfolio without the approval of a "majority
of the outstanding voting securities" of the Portfolio, which, under the
Investment Company Act of 1940 (the "1940 Act") and the rules thereunder and as
used in this Statement of Additional Information and the Prospectus, means, with
respect to the Portfolio, the lesser of (i) 67% or more of the outstanding
voting securities of the Portfolio present at a meeting, if the holders of more
than 50% of the outstanding voting securities of the Portfolio are present or
represented by proxy, or (ii) more than 50% of the outstanding voting securities
of the Portfolio.
As a matter of fundamental policy, the Portfolio may not:
1. Issue senior securities.
2. Borrow money, except from banks or through repurchase agreements for
temporary or emergency (not leveraging) purposes in an amount up to 33 1/3% of
the value of the Portfolio's total assets (including the amount borrowed), less
liabilities (not including the amount borrowed) at the time the borrowing is
made. While borrowings exceed 5% of the value of the Portfolio's total assets,
the Portfolio will not make any additional investments.
3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except
(I) to secure borrowings for temporary or emergency purposes and (ii) in
connection with the purchase of securities on a forward commitment basis and the
entry into reverse repurchase agreements or for similar transactions.
4. Invest in puts, calls, straddles, spreads or any combination thereof
if, by reason of such investment, the value of the Portfolio's investments in
all such classes of securities would exceed 5% of the Portfolio's total assets.
5. Sell securities short or purchase securities on margin.
6. Act as underwriter of securities of other issuers, except insofar as
the Portfolio may be deemed an underwriter in connection with the disposition of
a portfolio security.
7. Enter into repurchase agreements providing for settlement in more than
seven days after notice or purchase securities which are not readily marketable
(which securities would include participation interests that are not subject to
the demand feature described in the then-current Prospectus and floating and
variable rate demand obligations as to which no secondary market exists and the
Portfolio cannot exercise the demand feature described in the then-current
Prospectus on not more than seven days' notice), if, in the aggregate, more than
10% of its net assets would be so invested. The Portfolio may not invest in
time deposits maturing in more than seven days.
8. Purchase or sell real estate, real estate investment trust securities,
commodities, or oil and gas interests, except for any of the foregoing acquired
as a result of ownership of another portfolio or security.
9. Make short-term loans to others, except through the purchase of debt
obligations and through repurchase agreements referred to in the Prospectus, and
except that the Portfolio may lend its portfolio securities in an amount not to
exceed 33 % of the value of its total assets. Any loans of portfolio securities
will be made according to guidelines established by the SEC and the Board of
Directors.
10. Invest more than 5% of its assets in the obligations of any other
issuer, except that up to 25% of the value of the Portfolio's total assets may
be invested without regard to any such limitations. Notwithstanding the
foregoing, to the extent required by the rules of the SEC, the Portfolio will
not invest more than 5% of its assets in the obligations of any one bank.
11. Invest more than 25% of its assets in the securities of issuers in any
industry other than banking, provided that there shall be no limitation on the
purchase of obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
12. Invest in companies for the purpose of exercising control.
13. Purchase securities of other investment companies if the purchase
would cause more than 10% of the value of the total assets of the Portfolio, as
the case may be, to be invested in investment company securities, provided that:
(i) the Portfolio will not make any investment 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 by the Portfolio of investment company securities as a
part of a merger, consolidation, acquisition of assets or reorganization.
14. Purchase securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, or
purchase equity securities of issuers which are not readily marketable if, by
reason thereof, the value of the Portfolio's aggregate investment in all classes
of such securities will exceed 5% of its total assets.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values or
assets will not constitute a violation of that restriction.
Principal Preservation may make commitments more restrictive than the
restrictions listed above so as to permit the sale of Portfolio shares in
certain states. In the event that, once such a commitment is made, the state
restrictions with respect to which the commitment was made are modified or
repealed, Principal Preservation reserves the right to correspondingly modify or
revoke the commitment; provided no such action on the part of Principal
Preservation may result in an investment restriction that is less restrictive
than restrictions 1-14 above. Should Principal Preservation determine that,
once made, any such commitment is no longer in the best interests of Portfolio
and its shareholders, Principal Preservation reserves the right to revoke the
commitment by terminating the sale of Portfolio shares in the state involved.
PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES
Subject to the general supervision of the Directors, the Advisor is
responsible for decisions to buy and sell securities for the Portfolio, the
selection of brokers and dealers to effect the transactions, and the negotiation
of brokerage commissions, if any. Purchases and sales of securities on a stock
exchange are effected through brokers who charge a commission for their
services. In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a profit
to the dealer. The Portfolio also expects that securities will be purchased at
times in underwritten offerings where the price includes a fixed amount of
compensation, generally referred to as the underwriter's concession or discount.
On occasion, the Portfolio may also purchase certain money market instruments
directly from an issuer, in which case no commission or discounts are paid.
The Advisor currently serves as investment manager to a number of clients,
and may in the future act as investment manager or advisor to others, including
other registered investment companies. It is the practice of the Advisor to
cause purchase and sale transactions to be allocated among the Portfolio and
others whose assets it manages in such manner as it deems equitable. In making
such allocation among the Portfolio and other client accounts, the main factors
considered are the respective investment objectives, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held and
opinions of the persons responsible for managing the Portfolio and other client
accounts.
The policy of the Portfolio regarding purchases and sales of securities is
that primary consideration will be given to obtaining the most favorable prices
and efficient executions of transactions. Consistent with this policy, when
securities transactions are effected on a stock exchange, the Portfolio's policy
is to pay commissions which are considered fair and reasonable without
necessarily determining that the lowest possible commissions are paid in all
circumstances. The Portfolio believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the Portfolio and the Advisor from obtaining high quality execution and
research services. In seeking to determine the reasonableness of brokerage
commissions paid in any transactions, the Advisor relies upon its experience and
knowledge regarding commissions generally charged by various brokers and on its
judgment in evaluating the brokerage and research services received from the
broker effecting the transaction. Such determinations are necessarily
subjective and imprecise, as in most cases an exact dollar value for the
services is not ascertainable. In transactions effected with a dealer, acting
as principal, who furnishes research services to the Portfolio, the Portfolio
will not purchase securities at a higher price, or sell securities at a lower
price, than would be the case if the dealer had not furnished such services.
In seeking to implement the Portfolio's policies, the Advisor effects
transactions with those brokers and dealers whom the Advisor believes provide
the most favorable prices and are capable of providing efficient executions. If
the Advisor believes such prices and executions are obtainable from more than
one broker or dealer, it may give consideration to placing portfolio
transactions with those brokers and dealers who also furnish research and other
services to the Portfolio or the Advisor. Such services include, but are not
limited to, information as to the availability of securities for purchase or
sale, statistical or factual information or opinions pertaining to investment,
wire services, and appraisals or evaluation of portfolio securities.
The information and services received by the Advisor from brokers and
dealers may be of benefit to the Advisor in the management of accounts of some
of its other clients and may not in all cases benefit the Portfolio directly.
While the receipt of such information and services is useful in varying degrees
and would generally reduce the amount of research or services otherwise
performed by the Advisor and thereby reduce its expenses, it is of
indeterminable value and the Portfolio does not reduce the management fee it
pays to the Advisor by any amount that may be attributable to the value of such
services.
MANAGEMENT OF PRINCIPAL PRESERVATION
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. Asterisks indicate those Directors of Principal
Preservation who are "interested persons" (as defined in the 1940 Act) of
Principal Preservation. Unless otherwise indicated, the address of each
Director and officer of Principal Preservation is 215 North Main Street, West
Bend, Wisconsin 53095.
POSITION WITH PRINCIPAL
PRINCIPAL OCCUPATION DURING
NAME, AGE AND ADDRESS PRESERVATION PAST FIVE YEARS
- --------------------- ------------ ---------------
R. D. Ziegler,* Chairman and Director Chairman, Director and
71 Vice President, Ziegler Asset
Management, Inc.; from 1973
to 1997, Chairman and
Director and, prior to
1990, Chief Executive
Officer, and prior to 1986,
President, The Ziegler
Companies, Inc. and B.C.
Ziegler and Company;
Director, Johnson
Controls, Inc.
(manufacturing).
Robert J. Tuszynski,* President and Director Senior Vice President, B.C.
39 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 com-
panies) from 1994 to 1996.
Richard H. Aster, M.D., 67 Director Since June, 1996, Senior
8727 W. Watertown Plank Rd. Investigator and Professor of
Milwaukee, WI 53226 Medicine, Medical College of
Wisconsin; prior thereto,
President and Director of
Research, The Blood Center
of Southeastern Wisconsin,
Inc.
Augustine J. English, 68 Director Retired; President,
1724 Lake Roberts Court Tupperware North America
Windermere, FL 34786 from 1990 to 1994 (manufac-
turing); 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
2059 Keystone Ranch Road Director, Trustmark Insurance
Dillon, CO 80435 Cos. (Mutual Life 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. since 1971;
Trustee of the Board of
Pensions of the Evangelical
Lutheran Church in
America from 1991
to 1997, and Chairman
of the Board from 1993 to
1997; Trustee of the
Board of Pensions for the
Lutheran Church of America
from 1987-1989; and Trustee
of The Prime Portfolios
(registered investment
company) from 1993-1996.
John H. Lauderdale, 32 Vice President - Wholesaler, B.C. Ziegler
Director of Marketing and Company since 1991;
prior thereto, Marketing
Account Executive, The
Patten Company.
Franklin P. Ciano, 46 Chief Financial Manager of Principal
Officer and Treasurer Preservation 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, 48 Secretary Senior Vice President and
General Counsel, B.C.
Ziegler and Company since
1993; prior thereto,
Partner, O'Meara, Eckert,
Pourus & Gonring (law
firm).
Principal Preservation pays the compensation of the three Principal
Preservation Directors who are not officers, directors or employees of Ziegler.
They receive an annual fee of $12,000 and an additional $450 for each Board or
Committee meeting attended. The Portfolio pays a pro rata portion of these
fees. Principal Preservation may also retain consultants, who will be paid a
fee, to provide the Board with advice and research on investment matters.
The table below shows fees paid to Directors of Principal Preservation for
the year ended December 31, 1997. Each series of Principal Preservation,
including the Portfolio, 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.
PENSION OR
RETIREMENT
BENEFITS
ACCRUED
NAME OF PERSON AND AGGREGATE AS PART OF ESTIMATED TOTAL
POSITION WITH COMPENSATION PRINCIPAL ANNUAL BENEFITS COMPENSATION
PRINCIPAL FROM PRINCIPAL PRESERVATION'S UPON FROM PRINCIPAL
PRESERVATION PRESERVATION EXPENSES RETIREMENT PRESERVATION
------------ ------------ -------- ---------- ------------
R. D. Ziegler, -0- -0- -0- -0-
President and
Director
Robert J. Tuszynski, -0- -0- -0- -0-
Vice President and
Director
Richard H. Aster,M.D. $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
The executive officers and Directors as a group (nine persons) owned
beneficially, as of April 24, 1998, less than 1% of all outstanding shares.
This management group's beneficial ownership of shares of Principal Preservation
as a whole also amounted to less than 1% of the outstanding shares. See also
"Control Persons and Principal Holders of Securities."
INVESTMENT ADVISOR
The Advisor, Ziegler Asset Management, Inc. ("ZAMI"), manages the assets of
the Portfolio pursuant to an Investment Advisory Agreement (the "Advisory
Agreement") and the investment policies described herein. Subject to such
further policies as the Board of Directors may determine, the Advisor makes
investment decisions for the Portfolio. The Advisor furnishes at its own
expense all services, facilities and personnel necessary in connection with
managing the Portfolio's investments and effecting securities transactions for
the Portfolio.
The Advisory Agreement provides that the Advisor may render services to
others. The Advisory Agreement is terminable without penalty on not more than
60 days' nor less than 30 days' written notice by the Portfolio when authorized
either by majority vote of the investors in the Portfolio (with the vote of each
being in proportion to the amount of their investment) or by a vote of a
majority of the Board of Directors, or by the Advisor on not more than 60 days
nor less than 30 days written notice, and will automatically terminate in the
event of its assignment. The Advisory Agreement provides that neither the
Advisor nor its personnel shall be liable for any error of judgment or mistake
of law or for any loss arising out of any investment or for any act or omission
in the execution of security transactions for the Portfolio, except for willful
misfeasance, bad faith, gross negligence or reckless disregard of its or their
obligations and duties under the Advisory Agreement.
For its services under the Advisory Agreement, the Advisor receives from the
Portfolio a fee accrued daily and paid monthly at an annual rate equal to 0.20%
of the Portfolio's average daily net assets. Pursuant to the Advisory
Agreement, for the years ended December 31, 1995, 1996, and 1997, the Portfolio
accrued investment advisory fees of $232,297, $256,191 and $278,005,
respectively, of which $174,070, $169,288 and $77,504, respectively, was
waived voluntarily. Prior to January 1, 1996, the two classes of the
Portfolio's Common Stock operated through separate investment companies in a
Hub and Spoke structure, and the advisory fees were incurred at the Hub level.
ADMINISTRATIVE SERVICES
Portfolio Administrative Services. ZAMI provides certain administrative
---------------------------------
services to Principal Preservation, on behalf of the Portfolio, including: (a)
providing office space, equipment and clerical personnel necessary for
maintaining the organization of Principal Preservation; (b) providing personnel
to serve as directors, officers and employees of Principal Preservation to the
extent requested by Principal Preservation and as permitted and appropriate
under applicable laws and regulations; (c) supervising the overall
administration of Principal Preservation, including negotiation of contracts and
fees with, and the monitoring of performance and billings of, Principal
Preservation's independent contractors or agents; (c) preparing and, if
applicable, filing all documents required for compliance by Principal
Preservation with applicable laws and regulations; (e) preparing agendas and
supporting documents for and minutes of meetings of the Board of Directors of
Principal Preservation and committees thereof and shareholders of the Portfolio;
and (f) maintaining other books and records of Principal Preservation. ZAMI has
agreed to provide these services pursuant to an Administrative Services
Agreement.
The Administrative Services Agreement provides that it will continue in
effect from year to year, as long as approved at least annually by Principal
Preservation's Board of Directors or by a vote of the outstanding voting
securities of the Portfolio and in either case by a majority of the Directors
who are not parties to the relevant Agreement or interested persons of any such
party. The Agreement terminates automatically if assigned and may be terminated
without penalty by either party on 60 days notice. The Agreement provides that
neither Ziegler nor its personnel shall 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 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 Agreement.
For providing the services contemplated by the Administrative Services
Agreement, ZAMI is entitled to receive a fee, computed daily and paid monthly,
at the annual rate of 0.15 of 1% of the Portfolio's average daily net assets.
Prior to January 1, 1996, Ziegler provided administrative services to the
Portfolio under the terms of an administrative services agreement with terms
substantively identical to those of the ZAMI Administrative Services Agreement.
For the years ended December 31, 1995, 1996, and 1997, the Portfolio accrued
administrative fees aggregating $223,254, $192,145 and $208,504, respectively.
For those years, Ziegler reimbursed $169,048, $95,339 and $38,757,
respectively, of this fee to the Portfolio.
Accounting/Pricing Agreement. Pursuant to the terms of an Accounting/Pricing
-----------------------------
Agreement between Ziegler and Principal Preservation, Ziegler provides fund
accounting and net asset value calculation services to the Portfolio. Under
this Accounting/Pricing Agreement, Ziegler is entitled to compensation at a rate
approved annually by the Board of Directors, plus reimbursement for reasonable
out-of-pocket expenses. The Portfolio currently pays Ziegler a monthly fee at
an annual rate of 0.04 of 1% on average daily net assets between $50 million and
$100 million, 0.03 of 1% on the next $100 million, and 0.01 of 1% on average
daily net assets in excess of $200 million, subject to a minimum annual fee of
$15,000 and a maximum annual fee of $125,000. For the years ended December 31,
1995, 1996 and 1997, the Portfolio accrued fees under the Accounting/Pricing
Agreement aggregating $48,142, $43,596 and $45,625, respectively.
The services provided by Ziegler to the Portfolio under the
Accounting/Pricing Agreement include daily calculation of net asset value per
share, maintenance of original entry documents and books of record and general
ledgers of the Portfolio, posting of cash receipts and disbursements,
reconciliation of bank account balances on a monthly basis, recording purchases
and sales based upon communications from the Portfolio's portfolio managers, and
preparing monthly and annual summaries to assist in the preparation of financial
statements of, and regulatory reports for, the Portfolio. The
Accounting/Pricing Agreement provides that Ziegler may render fund accounting
and pricing services to others, continues in effect from year to year if
approved by a majority of the Board of Directors, terminates automatically if it
is assigned, and may be terminated without penalty by a majority vote of the
shareholders of the Portfolio. The Accounting/Pricing Agreement also provides
that neither Ziegler nor its personnel shall be liable for any error of judgment
or mistake of law or for any loss suffered by the Portfolio in connection with
the matters to which the Accounting/Pricing Agreement relates, except for loss
resulting from willful misfeasance, bad faith or gross negligence in the
performance of its or their duties on behalf of the Portfolio or from reckless
disregard by Ziegler or any of its personnel of the duties of Ziegler under the
Accounting/Pricing Agreement. Ziegler's liability under the Accounting/ Pricing
Agreement is limited in all events to one-year's fees received by Ziegler under
the Accounting/Pricing Agreement.
CUSTODIAN SERVICES
Firstar Trust Company serves as the Custodian of the Fund's assets, pursuant
to a Custodian Servicing Agreement. The Custodian Servicing Agreement provides
that Firstar Trust Company is entitled to receive an annual fee of 0.02% on the
first $500 million of the net asset value and 0.015% of assets in excess of 500
million.
Prior to March 31, 1998, the Fund served as custodian of its own assets
(i.e., cash and securities). Pursuant to a Depository Contract, Ziegler, a
registered broker-dealer and registered investment adviser, acted as Depository
of the Fund's assets. For providing services as Depository to Cash Reserve,
Ziegler was entitled to compensation at an annual rate of 0.055% on the first
$50 million of Chase Reserve's average daily net assets, 0.035% on the next
$150 million, 0.030% on the next $300 million, and 0.025% on average daily net
assets in excess of $500 million, subject to a minimum annual fee of $15,000.
For the years ended December 31, 1995, 1996 and 1997, the Portfolio incurred
fees of $54,956, $62,415 and $68,281, respectively under the Depository
Contract.
SHAREHOLDER SERVICES
Ziegler has, and certain other brokers and financial institutions in the
future may, enter into shareholder servicing agreements with Principal
Preservation pursuant to which they provide shareholder services to the
Portfolio. Under such agreements, the shareholder servicing Agents maintain
shareholder accounts for Class X Shares of the Portfolio and perform the
functions of transfer and dividend paying agents, among other services, with
respect to such accounts. For providing these services, each Agent receives a
fee at an annual rate of up to 0.25 of 1% of that portion of the Portfolio's
average daily net assets allocated to Class X Shares owned by the customers of
such Agent and held in the shareholder accounts maintained by the Agent. An
Agent may impose additional service charges and fees on its customer's accounts.
The Agent must invoice those charges and fees directly to the customer and may
not deduct them from the customer's holdings in the Portfolio. Each shareholder
servicing agreement continues in effect until terminated, and may be terminated
by either party without cause on not less than 30 days nor more than 60 days
prior notice. Each shareholder servicing agreement provides that the Agent
thereunder shall be indemnified by Principal Preservation for any action taken
or omitted by the Agent under the agreement except for, (a) the bad faith or
negligence of the Agent, its officers, employees or agents, or (b) any breach of
applicable law by the Agent, its officers, employees or agents, or (c) any
action of the Agent, its officers, employees or agents which exceeds the legal
authority of the Agent or its authority under its shareholder servicing
agreement, or (d) any error or omission of the Agent, its officers, employees or
agents with respect to the purchase, redemption and transfer of Shares of the
Portfolio held in accounts serviced by the Agent or the Agent's verification or
guarantee of any signature of a shareholder owning Class X Shares in such
account.
For those shareholder accounts that are not separately serviced by an Agent
pursuant to the terms of a shareholder servicing agreement, Ziegler provides
transfer agent and dividend disbursing services pursuant to the terms of a
Transfer and Dividend Disbursing Agency Agreement (the "Agency Agreement").
Under the terms of the 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 rate of
compensation agreed upon for these services is currently $16.00 per account for
the Portfolio. The Portfolio also reimburses Ziegler 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 Principal Preservation. The Agency Agreement will continue in
effect until terminated, and may be terminated by either party without cause on
90 days prior written notice. The Agency Agreement provides that Ziegler shall
be indemnified by and not be liable to Principal Preservation for any action
taken or omitted by it under such agreement, except for liability for breach of
its obligation to maintain all Principal Preservation records in absolute
confidence.
For the years ended December 31, 1995, 1996 and 1997, fees received by
Ziegler with respect to the Retail Class of shares pursuant to the Shareholder
Servicing Agreement totalled $174,627, $223,602 and $252,921, respectively,
while fees pursuant to the Agency Agreement totalled $7,156, $1,460 and
$1,218, respectively.
PERFORMANCE INFORMATION
Yield on Class X Shares is computed in accordance with a standardized method
which involves determining the net change in the value of a hypothetical pre-
existing Portfolio account having a balance of one Class X Share at the
beginning of a seven calendar day period for which yield is to be quoted,
dividing the net change computed at the end of the period by the value of the
account at the beginning of the period to obtain the base period return, and
analyzing the results (i.e., multiplying the base period return by 365/7). The
net change in the value of the account reflects the value of additional Class X
Shares purchased with dividends declared on the original Class X Share and any
such additional Class X Shares and fees that may be charged to shareholder
accounts, in proportion to the length of the base period and the Portfolio's
average account size, but does not include realized gains and losses or
unrealized appreciation and depreciation. Effective annualized yield is
computed by adding 1 to the base period return (calculated as described above),
raising that sum to a power equal to 365 divided by 7, and subtracting 1 from
the result. The yield and the effective yield for the Portfolio based on the
seven days ended December 31, 1997 was 4.92% and 5.04%, respectively.
Yields on Class X Shares will fluctuate and are not necessarily
representative of future results. The investor should remember that yield is a
function of the type and quality of the instruments held by the Portfolio,
portfolio maturity and operating expenses. An investor's principal in the
Portfolio is not guaranteed. See "Determination of Net Asset Value" for a
discussion of the manner in which the Portfolio's price per share is determined.
From time to time, the Portfolio in its advertising and sales literature may
refer to the growth of assets managed or administered by the Advisor over
certain time periods.
Comparative performance information may be used from time to time in
advertising or marketing the Portfolio's Class X Shares, including data from
Lipper Analytical Services, Inc., IBC/Donoghue's Money Portfolio Report and
other publications.
DETERMINATION OF NET ASSET VALUE PER SHARE; VALUATION OF SECURITIES; REDEMPTION
IN KIND
The Prospectus discusses when the net asset value of the Portfolio is
determined for purposes of sales and redemptions. The net asset value per share
of the Portfolio is determined by subtracting the Portfolio's liabilities from
the Portfolio's total assets and dividing the result by the total number of
shares outstanding. The following is a description of the procedures used by
the Portfolio in valuing its assets.
The valuation of the Portfolio's securities is based on their amortized cost,
which does not take into account unrealized capital gains or losses. Amortized
cost valuation involves initially valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, generally without regard to the impact of fluctuating interest rates on
the market value of the instrument. Although this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price the Portfolio would receive if
it sold the instrument.
The Portfolio's use of the amortized cost method of valuing their securities
is permitted by a rule adopted by the SEC. The Portfolio will also maintain a
dollar-weighted average portfolio maturity of 90 days or less, purchase only
instruments having remaining maturities of 13 months or less and invest only in
securities determined by or under the supervision of the Board of Directors to
be of high quality with minimal credit risks.
Pursuant to the rule, the Board of Directors also has established procedures
designed to allow the Portfolio to stabilize, to the extent reasonably possible,
the Portfolio's price per share as computed for the purpose of sales and
redemptions at $1.00. These procedures include review of the Portfolio's
holdings by the Board of Directors, at such intervals as it deems appropriate,
to determine whether the value of the Portfolio's assets calculated by using
available market quotations or market equivalents deviates from such valuation
based on amortized cost.
The rule also provides that the extent of any deviation between the value of
the Portfolio's assets based on available market quotations (or an appropriate
substitute which reflects current market conditions) and such valuation based on
amortized cost must be examined by the Board of Directors. In the event the
Board of Directors determines that a deviation exists that may result in
material dilution or other unfair results to new or existing investors or
existing shareholders, pursuant to the rule, the Board of Directors must cause
the Portfolio to take such corrective action as the Board of Directors regards
as necessary and appropriate, including: selling portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity; or valuing the Portfolio's assets by using available market
quotations.
For the purpose of determining the deviation between the value of the
Portfolio's assets based on available market quotations and such valuation based
on amortized cost, if market quotations are not readily available, or if the
securities are illiquid, the value of such portfolio securities will be
determined in good faith by the Directors based upon calculations and findings
made by the Advisor, and reviewed by the Directors. The Directors may consider
that certain securities are securities for which market quotations are not
readily available if the validity of the quotations received with respect to
such securities appears to be questionable. Factors which the Directors might
consider as indicating that the validity of market quotes is questionable
include an inordinately large spread between bid and ask prices, or an in-
ordinately small number of quotations indicating that there is only a thin
market in the securities.
Principal Preservation, on behalf of the Portfolio, reserves the right, if
conditions exist which make cash payments undesirable, to honor any request for
redemption or repurchase order by making payment in whole or in part in readily
marketable securities chosen by Principal Preservation and valued as they are
for purposes of computing the Portfolio's net asset value (a redemption in
kind). If payment is made in securities, an investor may incur transaction
expenses in converting these securities into cash.
The Portfolio has elected, however, to be governed by Rule 18f-1 under the
1940 Act, as a result of which the Portfolio is obligated to redeem shares with
respect to any one investor during any 90-day period, solely in cash up to the
lesser of $250,000 or 1% of the net asset value of the Portfolio at the
beginning of the period.
Each investor in the Portfolio may add to or reduce its investment in the
Portfolio on each Business Day of the Portfolio. A "Business Day" is any day on
which the New York Stock Exchange is open for trading and any other day (other
than a day on which no shares of the Portfolio are tendered for redemption and
no order to purchase shares of the Portfolio is received) during which there is
sufficient trading in money market instruments that the Portfolio's net asset
value might be materially affected. As of 12:00 noon (New York time) on each
such Business Day, net asset value for the Classes of shares will be computed by
dividing the value of the Portfolio's total net assets by the total number of
shares outstanding, including both Classes.
PURCHASE OF SHARES
The Portfolio will not issue shares for consideration other than cash except
in the case of a bona fide reorganization, statutory merger, or in certain other
acquisition of securities in accordance with state securities laws, which: (1)
meet the investment objectives and policies of the Portfolio; (2) are acquired
for investment and not for resale; (3) are not restricted securities; and (4)
have a value which is readily ascertainable.
TAX STATUS
The following is only a summary of certain tax considerations generally
affecting the Portfolio and its shareholders, and is not intended as a
substitute for careful tax planning. Shareholders are urged to consult their
tax advisers with specific reference to their own tax situations.
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 series in one fund are not combined.
However, Class X Shares and Class Y Shares are treated as the same for tax
purposes.
The 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, the Portfolio must satisfy a number of
requirements. Among such requirements is the requirement that less than 30
percent of the Portfolio's gross income be derived from the sale or other
disposition of securities held for less than three months. In determining
these gross income requirements, a loss from the sale or other disposition of
securities does not enter into the computation.
The Portfolio will distribute substantially all of its net income and capital
gains so as to avoid any federal income tax to it. Although Principal
Preservation expects the Portfolio to be relieved of all or substantially all
federal income taxes, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located or in which it is otherwise deemed to be
conducting business, that portion of the Portfolio's income which is treated as
earned in any such state or locality could be subject to state and local tax.
Any such taxes paid by the Portfolio would reduce the amount of income and gains
available for distribution to its shareholders.
While the Portfolio does not expect to realize net long-term capital gains,
any such gains realized will be distributed annually as described in the
Portfolio's Prospectus. Such distributions ("capital gain dividends"), if any,
will be taxable to shareholders as long-term capital gains, regardless of how
long a shareholder has held Portfolio shares, and will be designated as capital
gain dividends in a written notice mailed by the Portfolio to shareholders after
the close of the Portfolio's prior taxable year.
Dividends and other distributions paid to individuals and other non-exempt
payees are subject to a 31% backup federal withholding tax if the 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 the Portfolio is notified that the shareholder has under-reported 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 indi-
vidual taxpayers, the taxpayer identification number is the social security
number. An investor may furnish the Agent with such number and the required
certifications by completing and sending the 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.
If a shareholder exchanges shares of one Principal Preservation portfolio for
shares of another, the shareholder will recognize gain or loss for federal
income tax purposes. That gain or loss will be measured by the difference
between the shareholder's basis in the shares exchanged and the value of the
shares acquired.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As if April 24, 1998, no person was known 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 Portfolio, except the
following:
NAME AND ADDRESS PERCENT OF
OF SHAREHOLDER NUMBER OF SHARES OUTSTANDING SHARES
-------------- ---------------- ------------------
Class X Class Y
M&I First National Bank 23,534,049 14.1%
321 North Main Street
P.O. Box 1980
West Bend, WI 53095
B.C. Ziegler and Co. 125,550,655 75.3%
215 N. Main Street
West Bend, WI 539095
DISTRIBUTION EXPENSES
Principal Preservation's Distribution Plan (the "Plan") is its written plan
contemplated by Rule 12b-1 (the "Rule") under the Act.
The Plan authorizes Ziegler, as the "Distributor" of the Portfolio's Class X
Shares, to make certain payments to any qualified recipient, as defined in the
Plan, that has rendered assistance in the distribution of the Portfolio's Class
X Shares (such as sale or placement of the Portfolio's Class X Shares, or
administrative assistance, such as maintenance of sub-accounting or other
records). Qualified recipients may include Selected Dealers, banks and other
financial institutions. The Plan also authorizes the Distributor to purchase
advertising for Class X Shares of the Portfolio, to pay for sales literature and
other promotional material, and to make payments to its sales personnel. Any
such payments to qualified recipients or expenses will be reimbursed or paid by
the Portfolio, up to a limit of 0.15 of 1% of the average net assets allocated
to its Class X 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.
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 Principal Preservation 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: (a) 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; (b) the costs of preparing, printing and mailing of all prospec-
tuses to shareholders; (c) 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; (d) all legal and accounting fees relating to the
preparation of any such reports, prospectuses, proxies and proxy statements; (e)
all fees and expenses relating to the qualification of the funds and or their
shares under the securities or "Blue Sky" laws of any jurisdiction; (f) 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
Principal Preservation's shares; (g) 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; (h) all costs of preparing and mailing confirmations of shares sold
or redeemed or share certificates and reports of share balances; and (i) all
costs of responding to telephone or mail inquiries of shareholders.
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 Principal Preservation's
investment advisors are dependent primarily on the advisory fees paid to them.
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
authorized under the Plan. The Plan states that in taking any action
contemplated by Section 15 of the 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 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 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 carryover 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: (a) as reimbursement for direct expenses incurred in the course
of distributing Principal Preservation 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 (b) 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: (a) 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; (b) the amounts of expenses and the
purpose of each such expense; and (c) 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 by a majority of those Directors who are not interested persons of Principal
Preservation cast in person at a meeting called for the purpose of voting on
such continuance. The Plan may be terminated at any time without penalty by a
vote of a majority of those Directors who are not interested persons of
Principal Preservation or by the vote of the holders of a majority of the
outstanding voting securities of Principal Preservation, and, with respect to
any Principal Preservation portfolio or with respect to the Portfolio's Class X
Shares, by the vote of a majority of the outstanding shares of such portfolio or
of the outstanding Class X Shares, as the case may be. 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 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.
The table below reflects distribution fees paid by the Portfolio pursuant to
the Plan and the amount retained by the Distributor for the periods indicated:
RULE 12B-1 DISTRIBUTION FEES
PERIOD TOTAL FEE PAID TO AMOUNT RETAINED BY
DISTRIBUTOR DISTRIBUTOR
- ----- ----------- -----------
Fiscal year ended $107,180 $105,693
December 31, 1995
Fiscal year ended $134,161 $133,525
December 31, 1996
Fiscal year ended $155,053 $154,048
December 31, 1997
COUNSEL AND INDEPENDENT ACCOUNTANTS
Quarles & Brady, as counsel for 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 accountants, are the auditors of the Portfolio.
EXPERTS
The audited financial statements of the Portfolio incorporated by reference
into the Portfolio's Prospectus and this Statement of Additional Information
have been so incorporated in reliance on the report of Arthur Andersen LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing in giving said report.
FINANCIAL STATEMENTS
The following audited financial statements and footnotes thereto of Principal
Preservation Cash Reserve Portfolio, together with the Report of the Independent
Accountants thereon, are incorporated herein by reference from the Portfolio's
1997 Annual Report to Shareholders.
(1) Statement of Assets and Liabilities for the Portfolio as of December 31,
1997.
(2) Statement of Operations for the Portfolio for the year ended December 31,
1997.
(3) Statements of Changes in Net Assets for the Portfolio for the years ended
December 31, 1996 and 1997.
(4) Schedule of Investments of the Portfolio as of December 31, 1997.
(5) Notes to Financial Statements.
A copy of the Portfolio's 1997 Annual Report to Shareholders may be obtained
free of charge from Ziegler upon request.
APPENDIX
A description of the two highest commercial paper, bond and other short- and
long-term rating categories assigned by Standard & Poor's Corporation ("S&P"),
Moody's Investors Service, Inc. ("Moody's"), Fitch Investors Service, Inc.
("Fitch"), Duff & Phelps, Inc. ("Duff"), IBCA Limited and IBCA Inc. ("IBCA") and
Thomson BankWatch, Inc. ("BankWatch") now follows.
COMMERCIAL PAPER AND SHORT-TERM RATINGS
The designation A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation. Capacity
for timely payment on issues with an A-2 designation is satisfactory. However,
the relative degree of safety is not as high as for issues designated A-1.
The rating Prime-1 (P-1) is the highest commercial paper rating assigned by
Moody's. Issuers of P-1 paper must have a superior ability for repayment of
senior short-term debt obligations, and Prime-1 repayment ability will often be
evidenced by leading market positions in well established industries, high rates
of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and well
established access to a range of financial markets and assured sources of
alternate liquidity. Issues rated Prime-2 (P-2) have a strong ability for
repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
The rating F-1+ (Exceptionally Strong Credit Quality) is the highest
commercial paper rating assigned by Fitch. Paper rated F-1+ is regarded as
having the strongest degree of assurance for timely payment. The rating F-2
(Very Strong Credit Quality) is the second highest commercial paper rating
assigned by Fitch which reflects an assurance of timely payment only slightly
less in degree than issues rated F-1+.
The rating Duff 1+ is the highest commercial paper rating assigned by Duff.
Paper rated Duff 1+ is regarded as having the highest certainty of timely
payment. Short-term liquidity, including internal operating factors and/or
access to alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations. Paper rated Duff 1 is regarded
as having a very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors
are minor.
The designation A1 by IBCA indicates that the obligation is supported by a
strong capacity for timely repayment. Those obligations rated Al+ are supported
by the highest capacity for timely repayment. Obligations rated A2 are
supported by a satisfactory capacity for timely repayment, although such
capacity may be susceptible to adverse changes in business, economic or
financial conditions.
The rating TBW-1 is the highest short-term obligation rating assigned by
BankWatch. A rating of TBW-1 indicates a very high likelihood that principal
and interest will be paid on a timely basis. Obligations rated TBW-2 are in the
second-highest category, indicating that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated TBW-1.
BOND AND LONG-TERM RATINGS
Bonds rated AAA have the highest rating assigned by S&P and possess an
extremely strong capacity to pay principal and interest. Bonds rated AA by S&P
are judged by S&P to have a very strong capacity to pay principal and interest,
and differ from the higher rated issues only in small degree. Bonds rated AA
may be modified by the addition of a plus or minus sign to show relative
standing in the category.
Bonds rated Aaa are judged by Moody's to be of the best quality. Bonds rated
Aa by Moody's are judged by Moody's to be of high quality by all standards and,
together with the Aaa group, they comprise what are generally known as high-
grade bonds. Bonds rated Aa are rated lower than Aaa bonds because margins of
protection may not be as large or fluctuations 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. Moody's applies
numerical modifiers 1, 2 and 3 in the Aa rating category. The modifier 1
indicates a ranking for the security in the higher end of this rating category,
the modifier 2 indicates a mid-range ranking, and the modifier 3 indicates a
ranking in the lower end of the rating category.
Bonds rated AAA by Fitch are 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. Bonds rated AA by Fitch are 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+. Bonds rated AA may be modified by the addition of a
plus or minus sign to show relative standing in the category.
Bonds rated AAA by Duff are considered to be of the highest credit quality.
The risk factors are negligible, being only slightly more than for risk-free
U.S. Treasury debt. Bonds rated AA+, AA and AA- are considered by Duff to be of
high credit quality with strong protection factors. Risk is modest but may vary
slightly from time to time because of economic conditions.
Obligations rated AAA by IBCA have the lowest expectation of investment risk.
Capacity for timely repayment of principal and interest is substantial. Adverse
changes in business, economic or financial conditions are unlikely to increase
investment risk significantly. Obligations rated AA by IBCA have a very low
expectation of investment risk. Capacity for timely repayment of principal and
interest is substantial. Adverse changes in business, economic or financial
conditions may increase investment risk albeit not very significantly. A plus
or minus may be appended to a rating to denote relative status within major
rating categories.
IBCA also assigns a rating to certain international and U.S. banks. An IBCA
bank rating represents IBCA's current assessment of the strength of the bank and
whether such bank would receive support should it experience difficulties. In
its assessment of a bank, IBCA uses a dual rating system comprised of Legal
Ratings and Individual Ratings. In addition, IBCA assigns banks Long- and
Short-Term Ratings as used in the corporate ratings discussed above. Legal
Ratings, which range in gradation from 1 through 5, address the question of
whether the bank would receive support provided by central banks or shareholders
if it experienced difficulties, and such ratings are considered by IBCA to be a
prime factor in its assessment of credit risk. Individual Ratings, which range
in gradations from A through E, address the question of how the bank would be
viewed if it were entirely independent and could not rely on support from state
authorities or its owners.
In addition to its ratings of short-term obligations, BankWatch assigns a
rating to each issuer it rates, in gradations of A through E. BankWatch
examines all segments of the organization, including, where applicable, the
holding company and operating subsidiaries. Long-term debt obligations rated in
AAA, the highest category, indicate that the ability to repay principal and
interest on a timely basis is very high. A rating of AA, BankWatch's second-
highest category, indicates a superior ability to repay principal and interest
on a timely basis, with limited incremental risk compared to issues rated in the
highest category. BankWatch also assigns, in the case of foreign banks, a
country rating ranging from I through V, which represents an assessment of the
overall political and economic stability of the country in which the bank is
domiciled.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
INVESTMENT ADVISOR
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
PORTFOLIO ADMINISTRATOR
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
DISTRIBUTOR, ACCOUNTING/PRICING
AGENT, SHAREHOLDER SERVICING 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 ACCOUNTANTS
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
CASH RESERVE PORTFOLIO
CLASS X COMMON STOCK (RETAIL CLASS)
MAY 1, 1998
STATEMENT OF ADDITIONAL INFORMATION
STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 1998
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
CASH RESERVE PORTFOLIO - CLASS Y COMMON STOCK (INSTITUTIONAL CLASS)
215 North Main Street
West Bend, Wisconsin 53095
800-826-4600
This Statement of Additional Information and the Prospectus to which it
relates describe the Class Y Common Stock ("Class Y Shares" or "Institutional
Class") of the Principal Preservation Cash Reserve Portfolio (the "Fund").
Terms not otherwise defined herein have the same meaning as in the Prospectus.
Principal Preservation Portfolios, Inc. ("Principal Preservation") offers other
mutual funds by separate prospectuses and statements of additional information.
The Fund seeks to obtain high current income consistent with stability of
principal and the maintenance of liquidity.
Statement of Additional Information
Shares may be purchased, and a prospectus may be obtained, directly from
the Distributor, B.C. Ziegler and Company, Inc., 215 North Main Street, West
Bend, Wisconsin 53095, telephone 800-826-4600 (see the Prospectus dated May 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.
TABLE OF CONTENTS
PAGE
----
STATEMENT OF ADDITIONAL INFORMATION........................... 1
THE FUND...................................................... 2
INVESTMENT PROGRAM............................................ 3
INVESTMENT RESTRICTIONS....................................... 8
PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES................ 10
MANAGEMENT OF PRINCIPAL PRESERVATION.......................... 12
TRANSFER AND DIVIDEND DISBURSING AGENT SERVICES............... 18
PERFORMANCE INFORMATION....................................... 19
DETERMINATION OF NET ASSET VALUE; VALUATION OF SECURITIES;
REDEMPTION IN KIND......................................... 20
PURCHASE OF SHARES............................................ 21
TAX STATUS.................................................... 22
COUNSEL AND INDEPENDENT ACCOUNTANTS........................... 23
EXPERTS....................................................... 23
FINANCIAL STATEMENTS.......................................... 23
APPENDIX......................................................A-1
THE FUND
Principal Preservation is a Maryland corporation organized in 1984 as an
open-end, diversified investment company. Principal Preservation is a series
company, which means that its Board of Directors may establish additional
portfolios at any time. The Fund was established in 1993 and the Institutional
Class was established on January 1, 1996.
Prior to January 1, 1996 the Institutional Class was operated as a separate
series of Prospect Hill Trust, a series open-end management investment company
organized as a Massachusetts business trust. Prospect Hill Trust consisted of a
single institutional money market fund known as the Prospect Hill Prime Money
Market Fund. Prospect Hill Prime Money Market Fund and the Cash Reserve
Portfolio comprised the two spokes of a Hub and Spoke(R) money market fund
complex. In this structure, the Cash Reserve Portfolio and the Prospect Hill
Prime Money Market Fund invested all of their investable assets in the Prime
Money Market Portfolio, a series of The Prime Portfolios. Ziegler Asset
Management, Inc. managed the investment and reinvestment of the assets held in
the Prime Money Market Portfolio.
Effective December 31, 1995, this two-tiered, Hub and Spoke structure was
collapsed into a dual class capital structure within the Fund. In that
reorganization transaction, all outstanding shares of the Fund's original,
single class of common stock were converted on a one-for-one basis into shares
of the Fund's newly-designated Class X Common Stock, and all outstanding shares
of the Prospect Hill Prime Money Market Fund were converted on a one-for-one
basis into shares of the Fund's newly-designated Class Y Common Stock.
INVESTMENT PROGRAM
As described above and in the Prospectus for the Institutional Class, the
Fund is designed to provide investors with current income. The Fund is not
intended to constitute a balanced investment program and is not designed for
investors seeking capital gains or maximum income irrespective of fluctuations
in principal.
The following is a discussion of the various investments of and techniques
employed by the Fund. The following information supplements and should be read
--------------------------------------------------------
in conjunction with the section in the Prospectus entitled "Investment Objective
- --------------------------------------------------------------------------------
and Policies."
- -------------
Bank Obligations. Domestic commercial banks organized under Federal law
are supervised and examined by the Comptroller of the Currency and are required
to be members of the Federal Reserve System. Domestic banks organized under
state law are supervised and examined by state banking authorities and are
members of the Federal Reserve System only if they elect to join. In addition,
state banks are subject to Federal examination and to a substantial body of
Federal law and regulation. As a result of Federal or state laws and
regulations, domestic banks, among other things, generally are required to
maintain specified levels of reserves, are limited in the amounts which they can
loan to a single borrower, and are subject to other regulations designed to
promote financial soundness. However, not all of such laws and regulations
apply to the foreign branches of domestic banks.
Obligations of foreign branches and subsidiaries of domestic banks and
domestic and foreign branches of foreign banks, such as CDs and time deposits
("TDs"), may be general obligations of the parent banks in addition to the
issuing branch, or may be limited by the terms of a specific obligation and
governmental regulation. Such obligations are subject to different risks than
are those of domestic banks. These risks include foreign economic and political
developments, foreign governmental restrictions that may adversely affect
payment of principal and interest on the obligations, foreign exchange controls
and foreign withholding and other taxes on interest income. These foreign
branches and subsidiaries are not necessarily subject to the same or similar
regulatory requirements that apply to domestic banks, such as mandatory reserve
requirements, loan limitations, and accounting, auditing and financial
recordkeeping requirements. In addition, less information may be publicly
available about a foreign branch of a domestic bank or about a foreign bank than
about a domestic bank.
Obligations of United States branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by Federal or state regulation
as well as governmental action in the country in which the foreign bank has its
head office. A domestic branch of a foreign bank with assets in excess of $1
billion may be subject to reserve requirements imposed by the Federal Reserve
System or by the state in which the branch is located if the branch is licensed
in that state.
In addition, branches licensed by the Comptroller of the Currency and
branches licensed by certain states may be required to: (1) pledge to the
regulator, by depositing assets with a designated bank within the state, a
certain percentage of their assets as fixed from time to time by the appropriate
regulatory authority; and (2) maintain assets within the state in an amount
equal to a specified percentage of the aggregate amount of liabilities of the
foreign bank payable at or through all of its agencies or branches within the
state.
In view of the foregoing factors associated with the purchase of CDs and
TDs issued by foreign branches of domestic banks, by foreign subsidiaries of
domestic banks, by foreign branches of foreign banks or by domestic branches of
foreign banks, the Adviser carefully evaluates such investments on a case-by-
case basis.
Commercial Paper. The Fund may invest in commercial paper issued by major
corporations in reliance on the exemption from registration afforded by Section
3(a)(3) under the Securities Act of 1933, as amended (the "1933 Act"). Such
commercial paper may be issued only to finance current transactions and must
mature in nine months or less. Trading of such commercial paper is conducted
primarily by institutional investors through investment dealers, and individual
investor participation in the commercial paper market is very limited. Such
commercial paper generally can be readily traded in secondary trading markets
among qualified institutional buyers without registration pursuant to the con-
ditions of Rule 144A under the 1933 Act.
The Fund also may invest in commercial paper in reliance on the so-called
"private placement" exemption from registration which is afforded by Section
4(2) of the 1933 Act ("Section 4(2) paper"). Section 4(2) paper is restricted
as to disposition under the 1933 Act and generally is sold to institutional
investors such as the Fund who agree that they are purchasing the paper for
investment and not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) paper normally is
resold to other institutional investors like the Fund through or with the
assistance of the issuer or investment dealers who make a market in the paper,
thus providing liquidity.
The Adviser considers the legally restricted but readily saleable Section
4(2) and Rule 144A paper to be liquid. However, pursuant to procedures approved
by the Board of Directors of the Fund if a particular investment in Section 4(2)
or Rule 144A paper is not determined to be liquid, that investment will be
included within the 10% limitation on illiquid securities. The Adviser monitors
the liquidity of the Fund's investments in Section 4(2) and Rule 144A paper on a
continuous basis.
Variable Rate and Floating Rate Demand Securities. The Fund may purchase
floating and variable rate demand notes and bonds, which are obligations
ordinarily having stated maturities in excess of 397 days, but which permit the
holder to demand payment of principal at any time, or at specified intervals not
exceeding 397 days, in each case upon not more than 30 days' notice. Variable
rate demand notes include master demand notes which are obligations that permit
the Fund to invest fluctuating amounts, which may change daily without penalty,
pursuant to direct arrangements between the Fund, as lender, and the borrower.
The interest rates on these notes fluctuate from time to time. The issuer of
such obligations normally has a corresponding right, after a given period, to
prepay in its discretion the outstanding principal amount of the obligations
plus accrued interest upon a specified number of days' notice to the holders of
such obligations. The interest rate on a floating rate demand obligation is
based on a known lending rate, such as a bank's prime rate, and is adjusted
automatically each time such rate is adjusted. The interest rate on a variable
rate demand obligation is adjusted automatically at specified intervals.
Frequently, such obligations are secured by letters of credit or other credit
support arrangements provided by banks. Because these obligations are direct
lending arrangements between the lender and borrower, it is not contemplated
that such instruments generally will be traded, and there generally is no
established secondary market for these obligations, although they are redeemable
at face value. Accordingly, where these obligations are not secured by letters
of credit or other credit support arrangements, the Fund's right to redeem is
dependent on the ability of the borrower to pay principal and interest on
demand.
Such obligations frequently are not rated by credit rating agencies and the
Fund may invest in obligations which are not so rated only if the Adviser
determines that at the time of investment the obligations are of comparable
quality to the other obligations in which the Fund may invest. The Adviser, on
behalf of the Fund, will consider on an ongoing basis the creditworthiness of
the issuers of the floating and variable rate demand obligations held by the
Fund. The Fund will not invest more than 10% of the value of its net assets in
floating or variable rate demand obligations as to which it cannot exercise the
demand feature on not more than seven days' notice if there is no secondary
market available for these obligations, and in other securities that are not
readily marketable. See "Investment Restrictions" below.
Unsecured Promissory Notes. The Fund also may purchase unsecured
promissory notes ("Notes") which are not readily marketable and have not been
registered under the 1933 Act, provided such investments are consistent with the
Fund's investment objective. The Notes purchased by the Fund will have
remaining maturities of 13 months or less, must be deemed under policies adopted
by the Board of Trustees of the Fund to present minimal credit risks and will
meet the quality criteria set forth in the Prospectus under "Investment
Policies." The Fund will invest no more than 10% of its net assets in such Notes
and in other securities that are not readily marketable (which securities would
include floating and variable rate demand obligations as to which the Fund
cannot exercise the demand feature described above and as to which there is no
secondary market). See "Investment Restrictions" below.
Participation Interests. The Fund may purchase from financial institutions
participation interests in securities in which the Fund may invest. A
participation interest gives the Fund an undivided interest in the security in
the proportion that the Fund's participation interest bears to the total
principal amount of the security. These instruments may have fixed, floating or
variable rates of interest, with remaining maturities of 13 months or less. If
the participation interest is unrated, or has been given a rating below that
which is permissible for purchase by the Fund, the participation interest will
be backed by an irrevocable letter of credit or guarantee of a bank, or the
payment obligation otherwise will be collateralized by U.S. Government
securities, or, in the case of unrated participation interests, the Adviser must
have determined that the instrument is of comparable quality to those
instruments in which the Fund may invest. For certain participation interests,
the Fund will have the right to demand payment, on not more than seven days'
notice, for all or any part of the Fund's participation interest in the
security, plus accrued interest. As to these instruments, the Fund intends to
exercise its right to demand payment only upon a default under the terms of the
security, as needed to provide liquidity to meet redemptions, or to maintain or
improve the quality of its investment portfolio. The Fund will not invest more
than 10% of its net assets in participation interests that do not have this
demand feature, and in other securities that are not readily marketable. See
"Investment Restrictions" below.
Lending of Portfolio Securities. To a limited extent, the Fund may lend
its portfolio securities to brokers, dealers and other institutional investors,
provided it 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 lending its portfolio securities, the Fund can increase its income
through the investment of the cash collateral. For the purposes of this policy,
the Fund 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 Fund to be the equivalent of cash. Such loans
may not exceed 33 1/3% of the value of the Fund's total assets. From time to
time, the Fund may return to the borrower and/or a third party which is
unaffiliated with the Fund and which is acting as a "placing broker," a part of
the interest earned from the investment of collateral received for securities
loaned.
The Securities and Exchange Commission (the "SEC") currently requires that
the following conditions must be met whenever portfolio securities are loaned:
(1) the Fund must receive at least 100% cash collateral from the borrower; (2)
the borrower must increase such collateral whenever the market value of the
securities rises above the level of such collateral; (3) the Fund must be able
to terminate the loan at any time; (4) the Fund must receive reasonable interest
on the loan, as well as any interest or other distributions on the loaned
securities, and any increase in market value; and (5) the Fund may pay only
reasonable custodian fees in connection with the loan. These conditions may be
subject to future modification.
Foreign Securities. The Fund may invest no more than 5% of its total
assets in foreign securities, including U.S. dollar-denominated obligations of
foreign branches and subsidiaries of domestic banks and foreign banks, such as
Eurodollar certificates of deposit, which are U.S. dollar-denominated
certificates of deposit issued by branches of foreign and domestic banks located
outside the United States, and Yankee CDs, which are certificates of deposit
issued by a U.S. branch of a foreign bank denominated in U.S. dollars and held
in the United States; Eurodollar time deposits ("ETDs"), which are U.S. dollar-
denominated deposits in a foreign branch of a foreign or domestic bank, and
Canadian time deposits, which are essentially the same as ETDs except they are
issued by branches of major Canadian banks; high quality, U.S. dollar-
denominated short-term bonds and notes (including variable amount master demand
notes) issued by foreign corporations, including Canadian commercial paper,
which is commercial paper issued by a Canadian corporation or a Canadian
counterpart of a U.S. corporation, and Europaper, which is U.S. dollar-
denominated commercial paper of a foreign issuer; and U.S. dollar-denominated
obligations issued or guaranteed by one or more foreign governments or any of
their political subdivisions, agencies or instrumentalities that are determined
by the Adviser to be of comparable quality to the other obligations in which the
Fund may invest. Such securities also include debt obligations of supranational
entities. Supranational entities include international organizations designated
or supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the Asian
Development Bank and the InterAmerican Development Bank.
The Fund may be subject to investment risks with respect to foreign
securities that are different in some respects from those incurred by a fund
which invests only in debt obligations of U.S. domestic issuers, although such
obligations may be higher yielding when compared to the securities of U.S.
domestic issuers. In making foreign investments, therefore, the Fund will give
appropriate consideration to the following factors, among others.
Foreign securities markets generally are not as developed or efficient as
those in the United States. Securities of some foreign issuers are less liquid
and more volatile than securities of comparable U.S. issuers. Similarly, volume
and liquidity in most foreign securities markets are less than in the United
States and, at times, volatility of price can be greater than in the United
States. The issuers of some of these securities, such as bank obligations, may
be subject to less stringent or different regulation than are U.S. issuers. In
addition, there may be less publicly available information about a non-U.S.
issuer, and non-U.S. issuers generally are not subject to uniform accounting and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. issuers.
Because evidences of ownership of such securities usually are held outside
the United States, the Fund will be subject to additional risks which include
possible adverse political and economic developments, possible seizure or
nationalization of foreign deposits and possible adoption of governmental
restrictions which might adversely affect the payment of principal and interest
on the foreign securities or might restrict the payment of principal and
interest to investors located outside the country of the issuer, whether from
currency blockage or otherwise.
Furthermore, some of these securities are subject to brokerage taxes levied
by foreign governments, which have the effect of increasing the cost of such
investment and reducing the realized gain or increasing the realized loss on
such securities at the time of sale. Income earned or received by the Fund from
sources within foreign countries may be reduced by withholding and other taxes
imposed by such countries. Tax conventions between certain countries and the
United States, however, may reduce or eliminate such taxes. All such taxes paid
by the Fund will reduce its net income available for distribution to its
investors (e.g., the Fund). In selecting foreign securities, the Adviser will
----
consider available yields, and any applicable taxes. All such investments will
be U.S. dollar denominated.
Investments In Other Investment Companies. An investment by the Fund in
other investment companies -- which is limited by fundamental investment
restriction (13) below -- may cause the Fund to incur increased costs of
administration and distribution expenses.
Securities Rating Criteria. A description of the characteristics and
criteria of the various securities ratings used by several nationally recognized
securities rating organizations is included in Appendix A attached to this
Statement of Additional Information.
INVESTMENT RESTRICTIONS
The following restrictions, which are a matter of "fundamental policy," may
not be changed with respect to the Fund without the approval of a "majority of
the outstanding voting securities" of the Fund, which, under the Investment
Company Act of 1940 (the "1940 Act") and the rules thereunder and as used in
this Statement of Additional Information and the Prospectus, means, with respect
to the Fund, the lesser of (i) 67% or more of the outstanding voting securities
of the Fund present at a meeting, if the holders of more than 50% of the
outstanding voting securities of the Fund are present or represented by proxy,
or (ii) more than 50% of the outstanding voting securities of the Fund.
Whenever Principal Preservation is requested to vote on a fundamental policy of
the Fund, Principal Preservation will hold a meeting of Fund shareholders and
will cast its vote as instructed by Fund shareholders.
As a matter of fundamental policy, the Fund may not:
1. Issue senior securities.
2. Borrow money, except from banks or through repurchase agreements for
temporary or emergency (not leveraging) purposes in an amount up to 33 1/3% of
the value of the Fund's total assets (including the amount borrowed), less
liabilities (not including the amount borrowed) at the time the borrowing is
made. While borrowings exceed 5% of the value of the Fund's total assets, the
Fund will not make any additional investments.
3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except
(I) to secure borrowings for temporary or emergency purposes and (ii) in
connection with the purchase of securities on a forward commitment basis and the
entry into reverse repurchase agreements or for similar transactions.
4. Invest in puts, calls, straddles, spreads or any combination thereof
if, by reason of such investment, the value of the Fund's investments in all
such classes of securities would exceed 5% of the Fund's total assets.
5. Sell securities short or purchase securities on margin.
6. Act as underwriter of securities of other issuers, except insofar as
the Fund may be deemed an underwriter in connection with the disposition of a
portfolio security.
7. Enter into repurchase agreements providing for settlement in more than
seven days after notice or purchase securities which are not readily marketable
(which securities would include participation interests that are not subject to
the demand feature described in the then-current Prospectus and floating and
variable rate demand obligations as to which no secondary market exists and the
Fund cannot exercise the demand feature described in the then-current Prospectus
on not more than seven days' notice), if, in the aggregate, more than 10% of its
net assets would be so invested. The Fund may not invest in time deposits
maturing in more than seven days.
8. Purchase or sell real estate, real estate investment trust securities,
commodities, or oil and gas interests, except for any of the foregoing acquired
as a result of ownership of another portfolio or security.
9. Make short term loans to others, except through the purchase of debt
obligations and through repurchase agreements referred to in the Prospectus, and
except that the Fund may lend its portfolio securities in an amount not to
exceed 33 % of the value of its total assets. Any loans of portfolio securities
will be made according to guidelines established by the SEC and the Fund's Board
of Directors.
10. Invest more than 5% of its assets in the obligations of any other
issuer, except that up to 25% of the value of the Fund's total assets may be
invested without regard to any such limitations. Notwithstanding the foregoing,
to the extent required by the rules of the SEC, the Fund will not invest more
than 5% of its assets in the obligations of any one bank.
11. Invest more than 25% of its assets in the securities of issuers in any
industry other than banking, provided that there shall be no limitation on the
purchase of obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
12. Invest in companies for the purpose of exercising control.
13. Purchase securities of other investment companies if the purchase
would cause more than 10% of the value of the total assets of the Fund to be
invested in investment company securities, provided that: (i) the Fund will not
make any investment 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 Fund or more than 5%
of the value of the total assets of the Fund would be invested in such
investment company; and (ii) no such restrictions shall apply to a purchase by
the Fund of investment company securities as a part of a merger, consolidation,
acquisition of assets or reorganization.
14. Purchase securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, or
purchase equity securities of issuers which are not readily marketable if, by
reason thereof, the value of the Fund's aggregate investment in all classes of
such securities will exceed 5% of its total assets.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values or
assets will not constitute a violation of that restriction.
Principal Preservation and the Fund may make commitments more restrictive
than the restrictions listed above so as to permit the sale of shares of the
Institutional Class in certain states. In the event that, once such a
commitment is made, the state restrictions with respect to which the commitment
was made are modified or repealed, Principal Preservation reserves the right to
correspondingly modify or revoke the commitment; provided no such action on the
part of Principal Preservation may result in an investment restriction that is
less restrictive than restrictions 1-14 above. Should Principal Preservation
determine that, once made, any such commitment is no longer in the best
interests of Fund and its shareholders, Principal Preservation reserves the
right to revoke the commitment by terminating the sale of shares in the state
involved.
PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES
Subject to the general supervision of the Directors, the Adviser is
responsible for decisions to buy and sell securities for the Fund, the selection
of brokers and dealers to effect the transactions, and the negotiation of
brokerage commissions, if any. Purchases and sales of securities on a stock
exchange are effected through brokers who charge a commission for their
services. In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a profit
to the dealer. The Fund also expects that securities will be purchased at times
in underwritten offerings where the price includes a fixed amount of
compensation, generally referred to as the underwriter's concession or discount.
On occasion, the Fund may also purchase certain money market instruments
directly from an issuer, in which case no commission or discounts are paid.
The Adviser currently serves as investment manager to a number of clients,
and may in the future act as investment manager or adviser to others, including
other registered investment companies. It is the practice of the Adviser to
cause purchase and sale transactions to be allocated among the Fund and others
whose assets it manages in such manner as it deems equitable. In making such
allocation among the Fund and other client accounts, the main factors considered
are the respective investment objectives, the relative size of portfolio
holdings of the same or comparable securities, the availability of cash for
investment, the size of investment commitments generally held and opinions of
the persons responsible for managing the Fund and other client accounts.
The policy of the Fund regarding purchases and sales of securities is that
primary consideration will be given to obtaining the most favorable prices and
efficient executions of transactions. Consistent with this policy, when
securities transactions are effected on a stock exchange, the Fund's policy is
to pay commissions which are considered fair and reasonable without necessarily
determining that the lowest possible commissions are paid in all circumstances.
The Fund believes that a requirement always to seek the lowest possible
commission cost could impede effective portfolio management and preclude the
Fund and the Adviser from obtaining high quality execution and research
services. In seeking to determine the reasonableness of brokerage commissions
paid in any transactions, the Adviser relies upon its experience and knowledge
regarding commissions generally charged by various brokers and on its judgment
in evaluating the brokerage and research services received from the broker
effecting the transaction. Such determinations are necessarily subjective and
imprecise, as in most cases an exact dollar value for the services is not
ascertainable. In transactions effected with a dealer, acting as principal, who
furnishes research services to the Fund, the Fund will not purchase securities
at a higher price, or sell securities at a lower price, than would be the case
if the dealer had not furnished such services.
In seeking to implement the Fund's policies, the Adviser effects
transacthons with those brokers and dealers whom the Adviser believes provide
the most favorable prices and are capable of providing efficient executions. If
the Adviser believes such prices and executions are obtainable from more than
one broker or dealer, it may give consideration to placing portfolio
transactions with those brokers and dealers who also furnish research and other
services to the Fund or the Adviser. Such services include, but are not limited
to, information as to the availability of securities for purchase or sale,
statistical or factual information or opinions pertaining to investment, wire
services, and appraisals or evaluation of portfolio securities.
The information and services received by the Adviser from brokers and
dealers may be of benefit to the Adviser in the management of accounts of some
of its other clients and may not in all cases benefit the Fund directly. While
the receipt of such information and services is useful in varying degrees and
would generally reduce the amount of research or services otherwise performed by
the Adviser and thereby reduce its expenses, it is of indeterminable value and
the Fund does not reduce the management fee it pays to the Adviser by any amount
that may be attributable to the value of such services.
MANAGEMENT OF PRINCIPAL PRESERVATION
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. Asterisks indicate those Directors of Principal
Preservation who are "interested persons" (as defined in the 1940 Act) of
Principal Preservation. Unless otherwise indicated, the address of each
Director and officer of Principal Preservation is 215 North Main Street, West
Bend, Wisconsin 53095.
POSITION WITH PRINCIPAL
PRINCIPAL OCCUPATION DURING
NAME, AGE AND ADDRESS PRESERVATION PAST FIVE YEARS
- --------------------- ------------ ---------------
R. D. Ziegler,* Chairman and Director Chairman, Director and
71 Vice President, Ziegler Asset
Management, Inc.; from 1973
to 1997, Chairman and
Director and, prior to
1990, Chief Executive
Officer, and prior to 1986,
President, The Ziegler
Companies, Inc. and B.C.
Ziegler and Company;
Prior to 1997, Director,
Johnson Controls, Inc.
(manufacturing).
Robert J. Tuszynski,* President and Director Senior Vice President, B.C.
39 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 com-
panies) from 1994 to 1996.
Richard H. Aster, M.D., 67 Director Since June, 1996, Senior
8727 W. Watertown Plank Rd. Investigator and Professor of
Milwaukee, WI 53226 Medicine, Medical College of
Wisconsin; prior thereto,
President and Director of
Research, The Blood Center
of Southeastern Wisconsin,
Inc.
Augustine J. English, 68 Director Retired; President,
1724 Lake Roberts Court Tupperware North America
Windermere, FL 34786 from 1990 to 1994 (manufac-
turing); 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, Trustmark
2059 Keystone Ranch Road Insurance Cos. (Mutual Life
Dillon, CO 80435 Insurance Company); Prior
to 1991, Chairman,
President and Chief
Executive Officer Trustmark
Insurance Cos. since 1971;
Trustee of the Board of
Pensions of the Evangelical
Lutheran Church in America
from 1991 to 1997, and
Chairman of the Board from
1993 to 1997; Trustee of the
Board of Pensions for the
Lutheran Church of America
from 1987-1989; and Trustee
of The Prime Portfolios
(registered investment
company) from 1993-1996.
John H. Lauderdale, 32 Vice President - Wholesaler, B.C. Ziegler
Director of Marketing and Company since 1991;
prior thereto, Marketing
Account Executive, The
Patten Company.
Franklin P. Ciano, 46 Chief Financial Manager of Principal
Officer and Treasurer Preservation 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, 48 Secretary Senior Vice President and
General Counsel, B.C.
Ziegler and Company since
1993; prior thereto,
Partner, O'Meara, Eckert,
Pourus & Gonring (law
firm).
Principal Preservation pays the compensation of the three Principal
Preservation Directors who are not officers, directors or employees of Ziegler.
They receive an annual fee of $12,000 and an additional $450 for each Board or
Committee meeting attended. The Fund pays a pro rata portion of these fees.
Principal Preservation may also retain consultants, who will be paid a fee, to
provide the Board with advice and research on investment matters.
The table below shows fees paid to Directors of Principal Preservation for
the year ended December 31, 1997. Each series of Principal Preservation,
including the Fund, 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.
PENSION OR
RETIREMENT
BENEFITS
ACCRUED
NAME OF PERSON AND AGGREGATE AS PART OF ESTIMATED TOTAL
POSITION WITH COMPENSATION PRINCIPAL ANNUAL BENEFITS COMPENSATION
PRINCIPAL FROM PRINCIPAL PRESERVATION'S UPON FROM PRINCIPAL
PRESERVATION PRESERVATION EXPENSES RETIREMENT PRESERVATION
------------ ------------ -------- ----------- ------------
R. D. Ziegler, -0- -0- -0- -0-
President and
Director
Robert J. Tuszynski, -0- -0- -0- -0-
Vice President and
Director
Richard H. Aster, M.D. $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
The executive officers and Directors as a group (nine persons) owned
beneficially, as of April 24, 1998, less than 1.00% of all outstanding shares.
This management group's beneficial ownership of shares of Principal Perservation
as a whole also amounted to less than 1.00% of the outstanding shares. See
also "Control Persons and Principal Holders of Securities."
INVESTMENT ADVISER
Ziegler Asset Management, Inc. (the "Adviser") manages the assets of the
Fund pursuant to an Investment Advisory Agreement (the "Advisory Agreement") and
the investment policies described herein. Subject to such further policies as
the Board of Directors may determine, the Adviser makes investment decisions for
the Fund. The Adviser furnishes at its own expense all services, facilities and
personnel necessary in connection with managing the Fund's investments and
effecting securities transactions for the Fund.
The Advisory Agreement provides that the Adviser may render services to
others. The Advisory Agreement is terminable without penalty on not more than
60 days' nor less than 30 days' written notice by the Fund when authorized
either by majority vote of the investors in the Fund (with the vote of each
being in proportion to the amount of their investment) or by a vote of a
majority of the Board of Directors, or by the Adviser on not more than 60 days
nor less than 30 days written notice, and will automatically terminate in the
event of its assignment. The Advisory Agreement provides that neither the
Adviser nor its personnel shall be liable for any error of judgment or mistake
of law or for any loss arising out of any investment or for any act or omission
in the execution of security transactions for the Fund, for willful misfeasance,
bad faith, gross negligence or reckless disregard of its or their obligations
and duties under the Advisory Agreement.
For its services under the Advisory Agreement, the Adviser receives from
the Fund a fee accrued daily and paid monthly at an annual rate equal to 0.20%
of the Fund's average daily net assets.
The Adviser serves as the Fund's administrative services agent. In
addition, the Adviser's affiliate, B.C. Ziegler & Company ("Ziegler"), serves as
the Fund's Accounting/Pricing Agent and Transfer and Dividend Disbursing
Agent. The table below reflects all fees accrued and payable to the Adviser and
Ziegler for these services during the years ended December 31, 1997 and 1996:
ADVISORY AND OTHER SERVICE FEES
DESCRIPTION OF FEES 1997 1996
- ------------------- ------ ------
Investment Advisory Fees $278,005(1)<F3> $256,191(1)<F3>
Administrative Services Fees 208,504(1)<F3> 192,145(1)<F3>
Accounting/Pricing Fees 46,625 43,596
Depository Fees(2) <F4> 68,281 62,415
Transfer and Dividend Disbursing Agent 1,133 1,460
Fees
- ---------------------------
(1)<F3>The Adviser voluntarily waived $116,261, and $264,627 of its advisory
and administrative fees for the years ended December 31, 1997 and 1996,
respectively.
(2)<F4>Prior to March 31, 1998, the Fund served as custodian of its own assets
(i.e., cash and securities). Pursuant to a Depository Contract, Ziegler, a
registered broker-dealer and registered investment adviser, acted as
Depository of the Fund's assets. For providing services as Depository to Cash
Reserve, Ziegler was entitled to compensation at an annual rate of 0.055% on
the first $50 million of Cash Reserve's average daily net assets, 0.035% on
the next $150 million, 0.030% on the next $300 million, and 0.025% on average
daily net assets in excess of $500 million, subject to a minimum annual fee of
$15,000.
ADMINISTRATIVE SERVICES
Fund Administrative Services. The Adviser provides certain administrative
----------------------------
services to Principal Preservation, including: (a) providing office space,
equipment and clerical personnel necessary for maintaining the organization of
Principal Preservation; (b) providing personnel to serve as directors, officers
and employees of Principal Preservation to the extent requested by Principal
Preservation and as permitted and appropriate under applicable laws and
regulations; (c) supervising the overall administration of Principal
Preservation, including negotiation of contracts and fees with, and the
monitoring of performance and billings of, Principal Preservation's independent
contractors or agents; (d) preparing and, if applicable, filing all documents
required for compliance by Principal Preservation with applicable laws and
regulations; (e) preparing agendas and supporting documents for and minutes of
meetings of the Board of Directors of Principal Preservation and committees
thereof and shareholders of the Fund; and (f) maintaining certain other books
and records of Principal Preservation.
Ziegler provides certain accounting and pricing services to the Fund,
including: (a) posting cash receipts and disbursements for the Fund; (b)
reconciling bank account balances monthly for the Fund; (c) recording purchases
and sales based upon the Fund's portfolio manager communications; (d) preparing
monthly and annual summaries to assist in the preparation of financial
statements of, and regulatory reports for, the Fund; and (e) computing the
Fund's daily net asset value. Ziegler has agreed to provide these services
pursuant to an Accounting/Pricing Agreement.
The Administrative Services and Accounting/Pricing Agreements each provide
that they will continue in effect from year to year, as long as approved at
least annually by Principal Preservation's Board of Directors or by a vote of
the outstanding voting securities of the Fund and in either case by a majority
of the Directors who are not parties to the relevant Agreement or interested
persons of any such party. Each Agreement terminates automatically if assigned
and may be terminated without penalty by either party on 60 days notice. Each
Agreement provides that neither the Adviser nor Ziegler, as the case may be, nor
their respective personnel, shall 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 Agreements, 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
Agreements.
For providing the services contemplated by the Administrative Services
Agreement, the Adviser is entitled to receive a fee, computed daily and paid
monthly, at the annual rate of 0.15% of the Fund's average daily net assets up
to $200 million, and 0.10% of such assets over $200 million.
For providing the services contemplated by the Accounting/Pricing
Agreement, Ziegler is entitled to compensation at a rate approved annually by
the Directors of Principal Preservation, plus reimbursement for reasonable out-
of-pocket expenses. Under the presently approved fee structure, the Fund pays
Ziegler a monthly fee at an annual rate of 0.04% on average daily net assets
between $50 million and $100 million, 0.03% on the next $100 million, and 0.01%
on average daily net assets in excess of $200 million, subject to a minimum
annual fee of $15,000 and a maximum annual fee of $125,000. Fees paid by the
Fund pursuant to the Administrative Services Agreement and the
Accounting/Pricing Agreement for recent periods are shown in the table included
in this Statement of Additional Information under the caption "Management
of Principal Preservation - Investment Adviser."
CUSTODIAN SERVICES
Firstar Trust Company serves as the Custodian of the Fund's assets,
pursuant to a Custodian Servicing Agreement. The Custodian Servicing Agreement
provides that Firstar Trust Company is entitled to receive an annual fee of
0.02% on the first $500 million of the Cash Reserve's net asset value and
0.015% of assets in excess of $500 million.
TRANSFER AND DIVIDEND DISBURSING AGENT SERVICES
Ziegler provides transfer agent and dividend disbursing services with
respect to Class Y Shares pursuant to the terms of a Transfer and Dividend
Disbursing Agency Agreement (the "Agency Agreement"). Under the terms of the
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 rate of compensation agreed upon
for these services is currently $16.00 per account for the Fund. The Fund also
reimburses Ziegler 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 Principal Preservation.
The Agency Agreement will continue in effect until terminated, and may be
terminated by either party without cause on 90 days prior written notice. The
Agency Agreement provides that Ziegler shall be indemnified by and not be liable
to Principal Preservation for any action taken or omitted by it under such
agreement, except for liability for breach of its obligation to maintain all
Principal Preservation records in absolute confidence. Fees paid by the Fund
pursuant to the Agency Agreement for recent periods are shown in the table
included in this Statement of Additional Information under the caption
"Management - Investment Adviser."
PERFORMANCE INFORMATION
Yield is computed in accordance with a standardized method which involves
determining the net change in the value of a hypothetical pre-existing Fund
account having a balance of one Class Y Share at the beginning of a seven
calendar day period for which yield is to be quoted, dividing the net change
computed at the end of the period by the value of the account at the beginning
of the period to obtain the base period return, and analyzing the results (i.e.,
multiplying the base period return by 365/7). The net change in the value of
the account reflects the value of additional Class Y Shares purchased with
dividends declared on the original Class Y Share and any such additional shares
and fees that may be charged to shareholder accounts, in proportion to the
length of the base period and the Fund's average account size, but does not
include realized gains and losses or unrealized appreciation and depreciation.
Effective annualized yield is computed by adding 1 to the base period return
(calculated as described above), raising that sum to a power equal to 365
divided by 7, and subtracting 1 from the result. The yield and the effective
yield for the Fund's Institutional Class of shares for the seven days ended
December 31, 1997 was 5.30% and 5.44%, respectively.
Yields will fluctuate and are not necessarily representative of future
results. The investor should remember that yield is a function of the type and
quality of the instruments held by the Fund, portfolio maturity and operating
expenses. An investor's principal in the Fund is not guaranteed. See
"Determination of Net Asset Value" for a discussion of the manner in which the
Fund's price per share is determined.
From time to time, the Fund, in its advertising and sales literature, may
refer to the growth of assets managed or administered by the Adviser over
certain time periods.
Comparative performance information may be used from time to time in
advertising or marketing the Fund's Institutional Class of shares, including
data from Lipper Analytical Services, Inc., IBC/Donoghue's Money Fund Report and
other publications.
DETERMINATION OF NET ASSET VALUE; VALUATION OF SECURITIES; REDEMPTION IN KIND
The Prospectus discusses when the net asset value of the Fund is determined
for purposes of sales and redemptions. The following is a description of the
procedures used by the Fund in valuing its assets.
The valuation of the Fund's securities is based on their amortized cost,
which does not take into account unrealized capital gains or losses. Amortized
cost valuation involves initially valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, generally without regard to the impact of fluctuating interest rates on
the market value of the instrument. Although this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price the Fund would receive if it
sold the instrument.
The Fund's use of the amortized cost method of valuing their securities is
permitted by a rule adopted by the SEC. The Fund will also maintain a dollar-
weighted average portfolio maturity of 90 days or less, purchase only
instruments having remaining maturities of 13 months or less and invest only in
securities determined by or under the supervision of the Board of Directors to
be of high quality with minimal credit risks.
Pursuant to the Rule, the Board of Directors also has established
procedures designed to allow the Fund to stabilize, to the extent reasonably
possible, the Fund's price per share as computed for the purpose of sales and
redemptions at $1.00. These procedures include review of the Fund's holdings by
the Board of Directors, at such intervals as it deems appropriate, to determine
whether the value of the Fund's assets calculated by using available market
quotations or market equivalents deviates from such valuation based on amortized
cost.
The rule also provides that the extent of any deviation between the value
of the Fund's assets based on available market quotations (or an appropriate
substitute which reflects current market conditions) and such valuation based on
amortized cost must be examined by the Fund's Board of Directors. In the event
the Board of Directors determines that a deviation exists that may result in
material dilution or other unfair results to new or existing investors or
existing shareholders, pursuant to the rule, the Board of Directors must cause
the Fund to take such corrective action as the Board of Directors regards as
necessary and appropriate, including: selling portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity; or valuing the Fund's assets by using available market quotations.
For the purpose of determining the deviation between the value of the
Fund's assets based on available market quotations and such valuation based on
amortized cost, if market quotations are not readily available, or if the
securities are illiquid, the value of such portfolio securities will be
determined in good faith by the Directors based upon calculations and findings
made by the Adviser, and reviewed by the Directors. The Directors may consider
that certain securities are securities for which market quotations are not
readily available if the validity of the quotations received with respect to
such securities appears to be questionable. Factors which the Directors might
consider as indicating that the validity of market quotes is questionable
include an inordinately large spread between bid and ask prices, or an in-
ordinately small number of quotations indicating that there is only a thin
market in the securities.
Principal Preservation, on behalf of the Fund, reserves the right, if
conditions exist which make cash payments undesirable, to honor any request for
redemption or repurchase order by making payment in whole or in part in readily
marketable securities chosen by Principal Preservation or the Fund, as the case
may be, and valued as they are for purposes of computing the Fund's or the
Institutional Class net asset value, as the case may be (a redemption in kind).
If payment is made in securities, an investor may incur transaction expenses in
converting these securities into cash.
The Fund has elected, however, to be governed by Rule 18f-1 under the 1940
Act, as a result of which the Fund is obligated to redeem beneficial interests
with respect to any one investor during any 90-day period, solely in cash up to
the lesser of $250,000 or 1% of the net asset value of the Fund at the beginning
of the period.
Each investor in the Fund may add to or reduce its investment in the Fund
on each Business Day of the Fund. A "Business Day" is any day on which the New
York Stock Exchange is open for trading and any other day (other than a day on
which no shares of the Fund are tendered for redemption and no order to purchase
shares of the Fund is received) during which there is sufficient trading in
money market instruments that the Fund's net asset value might be materially
affected. As of 12:00 noon (New York time) on each such Business Day, the net
asset value of outstanding shares will be computed by dividing the value of the
Fund's total net assets by the total number of shares outstanding, including
both Classes of shares.
PURCHASE OF SHARES
The Fund will not issue shares for consideration other than cash except in
the case of a bona fide reorganization, statutory merger, or in certain other
acquisition of securities in accordance with state securities laws, which: (1)
meet the investment objectives and policies of the Fund; (2) are acquired for
investment and not for resale; (3) are not restricted securities; and (4) have a
value which is readily ascertainable.
TAX STATUS
The following is only a summary of certain tax considerations generally
affecting the Fund and its shareholders, and is not intended as a substitute for
careful tax planning. Shareholders are urged to consult their tax advisers with
specific reference to their own tax situations.
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 series in one fund are not combined.
However, separate classes of a single series, such as the Class X and Class Y
Shares of the Fund, are taxed commonly as shares of a single tax entity.
The Fund 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, the Fund must satisfy a number of requirements. Among such
requirements is the requirement that at least 90 percent of its gross income
must be derived from dividends, interest and gains from the sale or other
disposition of stock or other securities. Another requirement of current law is
that less than 30 percent of the Fund's gross income be derived from the sale or
other disposition of securities held for less than three months. In determining
these gross income requirements, a loss from the sale or other disposition of
securities does not enter into the computation.
The Fund will distribute substantially all of its net income and capital
gains so as to avoid any federal income tax to it. Although Principal
Preservation expects the Fund to be relieved of all or substantially all federal
income taxes, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located or in which it is otherwise deemed to be
conducting business, that portion of the Fund's income which is treated as
earned in any such state or locality could be subject to state and local tax.
Any such taxes paid by the Fund would reduce the amount of income and gains
available for distribution to its shareholders.
While the Fund does not expect to realize net long-term capital gains, any
such gains realized will be distributed annually as described in the Fund's
Prospectus. Such distributions ("capital gain dividends"), if any, will be
taxable to shareholders as long-term capital gains, regardless of how long a
shareholder has held Fund shares, and will be designated as capital gain
dividends in a written notice mailed by the Fund to shareholders after the close
of the Fund's prior taxable year.
Dividends and other distributions paid to individuals and other non-exempt
payees are subject to a 31% backup federal withholding tax if the 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 the Fund is notified that the shareholder has under-reported 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 indi-
vidual taxpayers, the taxpayer identification number is the social security
number. An investor may furnish the Agent with such number and the required
certifications by completing and sending the 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.
If a shareholder exchanges shares of one Principal Preservation portfolio
for shares of another, the shareholder will recognize gain or loss for federal
income tax purposes. That gain or loss will be measured by the difference
between the shareholder's basis in the shares exchanged and the value of the
shares acquired.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As if April 24, 1998, no person was known 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 Portfolio, except the
following:
NAME AND ADDRESS PERCENT OF
OF SHAREHOLDER NUMBER OF SHARES OUTSTANDING SHARES
--------------- ---------------- ------------------
Class X Class Y
------- -------
M&I First National Bank 23,654,049 14.1%
321 North Main Street
P.O. Box 1980
West Bend, WI 53095
B.C. Ziegler and Co.(1)<F5> 125,550,655 75.3%
215 N. Main Street
West Bend, WI 539095
(1)<F5>Owned of record as nominee holder. B.C. Ziegler and Company disclaims
beneficial ownership with respect to these shares.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Quarles & Brady, as counsel for 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 accountants, are the auditors of the Fund.
EXPERTS
The audited financial statements of the Fund incorporated by reference into
the Fund's Prospectus and this Statement of Additional Information have been so
incorporated in reliance on the report of Arthur Andersen LLP, independent
accountants, given on the authority of said firm as experts in accounting and
auditing in giving said report.
FINANCIAL STATEMENTS
The following audited financial statements and footnotes thereto of
Principal Preservation Cash Reserve Portfolio, together with the Report of the
Independent Accountants thereon, are incorporated herein by reference from the
Fund's 1997 Annual Report to Shareholders.
1. Statement of Assets and Liabilities for the Fund as of December 31,
1997.
2. Statement of Operations for the Fund for the year ended December 31,
1997.
3. Statement of Changes in Net Assets for the Fund for the years ended
December 31, 1997 and 1996.
4. Schedule of Investments of the Fund as of December 31, 1997.
5. Notes to Financial Statements.
A copy of the Fund's 1997 Annual Report to Shareholders may be obtained
free of charge from Ziegler upon request.
APPENDIX
A description of the two highest commercial paper, bond and other short-
and long-term rating categories assigned by Standard & Poor's Corporation
("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch Investors Service,
Inc. ("Fitch"), Duff & Phelps, Inc. ("Duff"), IBCA Limited and IBCA Inc.
("IBCA") and Thomson BankWatch, Inc. ("BankWatch") now follows.
COMMERCIAL PAPER AND SHORT-TERM RATINGS
The designation A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation. Capacity
for timely payment on issues with an A-2 designation is satisfactory. However,
the relative degree of safety is not as high as for issues designated A-1.
The rating Prime-1 (P-1) is the highest commercial paper rating assigned by
Moody's. Issuers of P-1 paper must have a superior ability for repayment of
senior short-term debt obligations, and Prime-1 repayment ability will often be
evidenced by leading market positions in well established industries, high rates
of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and well
established access to a range of financial markets and assured sources of
alternate liquidity. Issues rated Prime-2 (P-2) have a strong ability for
repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
The rating F-1+ (Exceptionally Strong Credit Quality) is the highest
commercial paper rating assigned by Fitch. Paper rated F-1+ is regarded as
having the strongest degree of assurance for timely payment. The rating F-2
(Very Strong Credit Quality) is the second highest commercial paper rating
assigned by Fitch which reflects an assurance of timely payment only slightly
less in degree than issues rated F-1+.
The rating Duff 1+ is the highest commercial paper rating assigned by Duff.
Paper rated Duff 1+ is regarded as having the highest certainty of timely
payment. Short-term liquidity, including internal operating factors and/or
access to alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations. Paper rated Duff 1 is regarded
as having a very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors
are minor.
The designation A1 by IBCA indicates that the obligation is supported by a
strong capacity for timely repayment. Those obligations rated Al+ are supported
by the highest capacity for timely repayment. Obligations rated A2 are
supported by a satisfactory capacity for timely repayment, although such
capacity may be susceptible to adverse changes in business, economic or
financial conditions.
The rating TBW-1 is the highest short-term obligation rating assigned by
BankWatch. A rating of TBW-1 indicates a very high likelihood that principal
and interest will be paid on a timely basis. Obligations rated TBW-2 are in the
second-highest category, indicating that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated TBW-1.
BOND AND LONG-TERM RATINGS
Bonds rated AAA have the highest rating assigned by S&P and possess an
extremely strong capacity to pay principal and interest. Bonds rated AA by S&P
are judged by S&P to have a very strong capacity to pay principal and interest,
and differ from the higher rated issues only in small degree. Bonds rated AA
may be modified by the addition of a plus or minus sign to show relative
standing in the category.
Bonds rated Aaa are judged by Moody's to be of the best quality. Bonds
rated Aa by Moody's are judged by Moody's to be of high quality by all standards
and, together with the Aaa group, they comprise what are generally known as
high-grade bonds. Bonds rated Aa are rated lower than Aaa bonds because margins
of protection may not be as large or fluctuations 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. Moody's applies
numerical modifiers 1, 2 and 3 in the Aa rating category. The modifier 1
indicates a ranking for the security in the higher end of this rating category,
the modifier 2 indicates a mid-range ranking, and the modifier 3 indicates a
ranking in the lower end of the rating category.
Bonds rated AAA by Fitch are 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. Bonds rated AA by Fitch are 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+. Bonds rated AA may be modified by the addition of a
plus or minus sign to show relative standing in the category.
Bonds rated AAA by Duff are considered to be of the highest credit quality.
The risk factors are negligible, being only slightly more than for risk-free
U.S. Treasury debt. Bonds rated AA+, AA and AA- are considered by Duff to be of
high credit quality with strong protection factors. Risk is modest but may vary
slightly from time to time because of economic conditions.
Obligations rated AAA by IBCA have the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial.
Adverse changes in business, economic or financial conditions are unlikely to
increase investment risk significantly. Obligations rated AA by IBCA have a
very low expectation of investment risk. Capacity for timely repayment of
principal and interest is substantial. Adverse changes in business, economic or
financial conditions may increase investment risk albeit not very significantly.
A plus or minus may be appended to a rating to denote relative status within
major rating categories.
IBCA also assigns a rating to certain international and U.S. banks. An
IBCA bank rating represents IBCA's current assessment of the strength of the
bank and whether such bank would receive support should it experience
difficulties. In its assessment of a bank, IBCA uses a dual rating system
comprised of Legal Ratings and Individual Ratings. In addition, IBCA assigns
banks Long- and Short-Term Ratings as used in the corporate ratings discussed
above. Legal Ratings, which range in gradation from 1 through 5, address the
question of whether the bank would receive support provided by central banks or
shareholders if it experienced difficulties, and such ratings are considered by
IBCA to be a prime factor in its assessment of credit risk. Individual Ratings,
which range in gradations from A through E, address the question of how the bank
would be viewed if it were entirely independent and could not rely on support
from state authorities or its owners.
In addition to its ratings of short-term obligations, BankWatch assigns a
rating to each issuer it rates, in gradations of A through E. BankWatch examines
all segments of the organization, including, where applicable, the holding
company and operating subsidiaries. Long-term debt obligations rated in AAA,
the highest category, indicate that the ability to repay principal and interest
on a timely basis is very high. A rating of AA, BankWatch's second-highest
category, indicates a superior ability to repay principal and interest on a
timely basis, with limited incremental risk compared to issues rated in the
highest category. BankWatch also assigns, in the case of foreign banks, a
country rating ranging from I through V, which represents an assessment of the
overall political and economic stability of the country in which the bank is
domiciled.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
INVESTMENT ADVISOR AND ADMINISTRATOR
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
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 AUDITORS
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
CASH RESERVE PORTFOLIO
CLASS Y COMMON STOCK (INSTITUTIONAL CLASS)
MAY 1, 1998
STATEMENT OF ADDITIONAL INFORMATION
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) Custodian Agreement
(6) 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:
NUMBER OF HOLDERS OF RECORD OF
PORTFOLIO SHARES OF COMMON STOCK
- --------- ----------------------
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
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:
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.
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:
POSITION WITH
ZIEGLER ASSET
NAME MANAGEMENT OTHER AFFILIATIONS(1)<F6>
- ---- ---------- ---------------------
P. D. Ziegler Chairman and Director Chairman of the Board,
President, Chief Executive
Officer and Director, B.C.
Ziegler and Company; Chairman,
Ziegler Securities; Director,
West Bend Mutual Insurance
Company, 1900 S. 18th Avenue,
West Bend, WI 53095 (insurance
company)
Geoffrey G. Maclay, President and Chief President and Chief Executive
Jr. Executive Officer Officer, Ziegler Asset
Management, Inc.
R. D. Ziegler Senior Vice President Chairman and Director, Principal
and Director Preservation 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 Officer and
Director of Principal
Preservation Portfolios, Inc.
M. J. Dion Vice President - None
Portfolio Manager and
Chief Investment Officer
R. F. Patek Vice President - None
Portfolio Manager
D. R. Wyatt Vice President - None
Retirement Plan Services
J. R. Yovanovich Corporate Secretary Corporate Secretary, B.C.
Ziegler and Company
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 - None
Portfolio Manager and
Analyst
- -----------------------
(1)<F6>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.
(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 Management, 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):
POSITION WITH SKYLINE
NAME ASSET MANAGEMENT, L.P. PRINCIPAL OCCUPATION
- ---- ---------------------- --------------------
William M. Dutton Chief Investment Chief Investment Officer of
Officer and Limited Skyline Asset Management, L.P.
Partner 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 Jul
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 Community
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.
Kenneth S. Kailin Principal - Portfolio Principal - Portfolio Manager,
Manager and Limited Skyline Asset Management, L.P.
Partner since June, 1995; Senior Vice
President, Mesirow Asset
Management, Inc., from April,
1987 through August, 1995;
Executive Vice President,
Skyline Fund
(registered investment company)
Geoffrey P. Lutz Principal - Principal - Institutional
Institutional Marketing Marketing, Skyline Asset
and Limited Partner Management, L.P. since June,
1995; Vice President, Mesirow
Asset Management, Inc., May,
1992 through August, 1995; prior
thereto, Registered
Representative, Mesirow Finan-
cial, Inc. and Mesirow Invest-
ment Services, Inc. (registered
brokers-dealers/ investment
advisers); Executive Vice
President, Skyline Fund
(registered investment company)
Michael Maloney Principal - Securities Principal - Securities Analyst,
Analyst and Limited Skyline Asset Management, L.P.,
Partner since June, 1995; Investment
Analyst, Mesirow Asset
Management,Inc. from February,
1993 through August, 1995; prior
thereto Investment Analyst,
Baker Fentress & Co.
(investment manager); Senior
Vice President, Skyline Fund
(registered investment company)
Daren C. Heitman Portfolio Manager Portfolio Manager, Skyline Asset
Management, L.P., since August
1997; Securities Analyst Skyline
Asset Management, L.P. from
September 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.
Scott C. Blim Chief Financial Officer Chief Financial Officer, Skyline
Asset Management, L.P. since
September, 1995; Vice President,
Director and Chief Administra-
tive Officer, Murray Johnstone
International Ltd. (investment
firm) from 1989 to 1994; Secre-
tary and Treasurer, Skyline Fund
(registered investment company)
Michelle M. Brennan Director of Fund Director of Fund Marketing,
Marketing Skyline Asset Management, since
August 1996; previously Regional
Marketing Associate, Strong
Capital Management
Item 29. Principal Underwriters
----------------------
(a)
OTHER INVESTMENT COMPANIES FOR WHICH
UNDERWRITER ACTS AS UNDERWRITER,
UNDERWRITER DEPOSITOR OR INVESTMENT ADVISER
- ----------- -------------------------------
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.
(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.
POSITION WITH POSITION WITH
NAME B.C. ZIEGLER AND COMPANY(1)<F7> PRINCIPAL PRESERVATION
- ---- --------------------------- ----------------------
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
Robert J. Tuszynski Senior Vice President - President,
Ziegler Investment Division Chief Executive
Officer and Director
Richard J. Glaisner 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
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
(1)<F7>Ziegler Investment Division and Ziegler Securities are divisions of
B. C. Ziegler and Company
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.
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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets the
requirements of Rule 485(b) for effectiveness of this Post-Effective Amendment
to its Registration Statement, and 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 27th day of April, 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 27th day of April, 1998, by the following persons in the capacities
indicated.
SIGNATURE TITLE
R. D. Ziegler*<F8>
- ------------------------
R. D. Ziegler Director and Chairman of the Board
/s/ Robert J. Tuszynski
- ------------------------
Robert J. Tuszynski Director and President (Chief
Executive Officer)
/s/ Franklin P. Ciano
- ------------------------
Franklin P. Ciano Chief Financial Officer and
Treasurer (Chief Financial and
Accounting Officer)
Richard H. Aster*<F8>
- ------------------------
Richard H. Aster Director
August J. English*<F8>
- ------------------------
August J. English Director
Ralph J. Eckert*<F8>
- ------------------------
Ralph J. Eckert Director
/s/ Robert J. Tuszynski
*<F8>By:--------------------------
Robert J. Tuszynski pursuant to
a Power of Attorney dated January
19, 1996 filed herewith
(see following page)
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 instruments 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.
/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
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
1(a) Restated and Amended Articles of Incorporation(8)<F19>
1(b) December 29, 1995 Articles Supplementary(1)<F10>
1(c) Articles Supplementary for PSE Tech 100 Index Portfolio filed
June 12, 1996(5)<F14>
2 By-Laws, as amended through January 20, 1995(8)<F17>
3 N/A
4 The Registrant's Amended and Restated Operating Plan(9)<F18>
5(a) Investment Advisory Agreement pertaining to assets of Dividend
Achievers Portfolio(4)<F13>
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)<F14>
5(c) Sub-Advisory Agreement with Skyline Asset Management, L.P.(4)
<F13>
5(d) Investment Advisory Agreement with Ziegler Asset Management,
Inc. with respect to the Cash Reserve Portfolio(3)
6(a) Distribution Agreement(5)<F14>
6(b) Form of Selected Dealers Agreement(5)<F14>
7 N/A
8 Custodian Agreement with Firstar Trust Company
9(a) Transfer and Dividend Disbursing Agent Agreement(5)<F14>
9(b) License Agreement with Standard & Poor's Corporation*<F9>
9(c) Accounting/Pricing Agreement between Registrant and B.C.
Ziegler and Company(5)<F14>
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)<F15>
9(e) Administrative Services Agreement with Ziegler Asset
Management, Inc. with respect to the Cash Reserve Portfolio
(1)<F10>
9(f) License Agreement with Pacific Stock Exchange Incorporated
(7)<F16>
10 Opinion of Counsel(8)<F17>
11(a) Consent of Independent Public Accountants
11(b) Consent of Counsel (contained in Exhibit 10)
12 N/A
14 Model Retirement Plan*<F9>
15 Rule 12b-1 Distribution Plan, as amended(9)<F18>
16 Schedule for Computation of Performance Quotations*<F9>
17 Financial Data Schedules (Included as Exhibit 27)
18 Plan and Agreements Pursuant to Rule 18f-3 (contained in
Exhibit 4)
27 Financial Data Schedules
*<F9>Denotes previously filed as part of Registrant's Registration Statement
on Form N-1A or an amendment thereto, and incorporated herein by
reference.
(1)<F10>Previously filed as part of Registrant's Registration Statement on Form
N-14 (Reg. No. 33-99010) filed with the Commission on November 3, 1995.
(2)<F11>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)<F12>Previously filed as part of Post-Effective Amendment No. 31 to this
Registration Statement filed with the Commission on December 29, 1995.
(4)<F13>Previously filed as part of Post-Effective Amendment No. 32 to this
Registration Statement filed with the Commission on March 1, 1996.
(5)<F14>Previously filed as part of Post-Effective Amendment No. 33 to this
Registration Statement filed with the Commission on March 27, 1996.
(6)<F15>Previously filed as part of Post-Effective Amendment No. 36 to this
Registration Statement filed with the Commission on December 10, 1996.
(7)<F16>Previously filed as part of Post-Effective Amendment No. 37 to this
Registration Statement filed with the Commission on February 28, 1997.
(8)<F17>Previously filed as part of Post-Effective Amendment No. 38 to this
Registration Statement filed with the Commission on April 30, 1997.
(9)<F18>Previously filed as part of Post-Effective Amendment No. 41 to this
Registration Statement filed with the Commission on April 2, 1998.
EXHIBIT 8
CUSTODIAN SERVICING AGREEMENT
THIS AGREEMENT made and entered into as of March 27, 1998, between
Principal Preservation Portfolios, Inc., a Maryland corporation (hereinafter
called the "Company"), and Firstar Trust Company, a corporation organized under
the laws of the State of Wisconsin (hereinafter called "Custodian").
WHEREAS, the Company is an open-end management investment company
which is registered under the Investment Company Act of 1940, as amended (the
"1940 Act");
WHEREAS, the Company is authorized to create separate series, each
with its own separate investment portfolio; and
WHEREAS, the Company desires that the securities and cash of the
Principal Preservation Portfolios, Inc. (the "Fund") and each additional series
of the Company listed on Exhibit A attached hereto, as may be amended from time
to time, shall be hereafter held and administered by Custodian pursuant to the
terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements herein
made, the Company and Custodian agree as follows:
1. DEFINITIONS
The word "securities" as used herein includes stocks, shares, bonds,
debentures, notes, mortgages or other obligations, and any certificates,
receipts, warrants or other instruments representing rights to receive, purchase
or subscribe for the same, or evidencing or representing any other rights or
interests therein, or in any property or assets.
The words "officers' certificate" shall mean a request or direction or
certification in writing signed in the name of the Company by any two of the
President, a Vice President, the Secretary and the Treasurer of the Company, or
any other persons duly authorized to sign by the Board of Directors.
The word "Board" shall mean Board of Directors of the Principal
Preservation Portfolios, Inc.
2. NAMES, TITLES, AND SIGNATURES OF THE COMPANY'S OFFICERS
An officer of the Company will certify to Custodian the names and
signatures of those persons authorized to sign the officers' certificates
described in Section 1 hereof, and the names of the members of the Board of
Directors, together with any changes which may occur from time to time.
3. RECEIPT AND DISBURSEMENT OF MONEY
A. Custodian shall open and maintain a separate account or accounts
in the name of the Company, subject only to draft or order by Custodian acting
pursuant to the terms of this Agreement. Custodian shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it from or
for the account of the Company. Custodian shall make payments of cash to, or
for the account of, the Company from such cash only:
(a) for the purchase of securities for the portfolio of the Fund upon
the delivery of such securities to Custodian, registered in the
name of the Company or of the nominee of Custodian referred to in
Section 7 or in proper form for transfer;
(b) for the purchase or redemption of shares of the common stock of
the Fund upon delivery thereof to Custodian, or upon proper
instructions from the Company;
(c) for the payment of interest, dividends, taxes, investment
adviser's fees or operating expenses (including, without limitation
thereto, fees for legal, accounting, auditing and custodian
services and expenses for printing and postage);
(d) for payments in connection with the conversion, exchange or
surrender of securities owned or subscribed to by the Fund held by
or to be delivered to Custodian; or
(e) for other proper corporate purposes certified by resolution of
the Board of Directors of the Company.
Before making any such payment, Custodian shall receive (and may rely
upon) an officers' certificate requesting such payment and stating that it is
for a purpose permitted under the terms of items (a), (b), (c), or (d) of this
Subsection A, and also, in respect of item (e), upon receipt of an officers'
certificate specifying the amount of such payment, setting forth the purpose for
which such payment is to be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom such payment is to
be made, provided, however, that an officers' certificate need not precede the
disbursement of cash for the purpose of purchasing a money market instrument, or
any other security with same or next-day settlement, if the President, a Vice
President, the Secretary or the Treasurer of the Company issues appropriate oral
or facsimile instructions to Custodian and an appropriate officers' certificate
is received by Custodian within two business days thereafter.
B. Custodian is hereby authorized to endorse and collect all checks,
drafts or other orders for the payment of money received by Custodian for the
account of the Company.
C. Custodian shall, upon receipt of proper instructions, make
federal funds available to the Company as of specified times agreed upon from
time to time by the Company and the Custodian in the amount of checks received
in payment for shares of the Fund which are deposited into the Fund's account.
D. If so directed by the Company, Custodian will invest any and all
available cash in overnight cash-equivalent investments as specified by the
investment manager.
4. SEGREGATED ACCOUNTS
Upon receipt of proper instructions, the Custodian shall establish and
maintain a segregated account(s) for and on behalf of the Fund, into which
account(s) may be transferred cash and/or securities.
5. TRANSFER, EXCHANGE, REDELIVERY, ETC. OF SECURITIES
Custodian shall have sole power to release or deliver any securities
of the Company held by it pursuant to this Agreement. Custodian agrees to
transfer, exchange or deliver securities held by it hereunder only:
(a) for sales of such securities for the account of the Fund upon
receipt by Custodian of payment therefore;
(b) when such securities are called, redeemed or retired or otherwise
become payable;
(c) for examination by any broker selling any such securities in
accordance with "street delivery" custom;
(d) in exchange for, or upon conversion into, other securities alone
or other securities and cash whether pursuant to any plan of
merger, consolidation, reorganization, recapitalization or
readjustment, or otherwise;
(e) upon conversion of such securities pursuant to their terms into
other securities;
(f) upon exercise of subscription, purchase or other similar rights
represented by such securities;
(g) for the purpose of exchanging interim receipts or temporary
securities for definitive securities;
(h) for the purpose of redeeming in kind shares of common stock of
the Fund upon delivery thereof to Custodian; or
(i) for other proper corporate purposes.
As to any deliveries made by Custodian pursuant to items (a), (b),
(d), (e), (f), and (g), securities or cash receivable in exchange therefor shall
be deliverable to Custodian.
Before making any such transfer, exchange or delivery, Custodian shall
receive (and may rely upon) an officers' certificate requesting such transfer,
exchange or delivery, and stating that it is for a purpose permitted under the
terms of items (a), (b), (c), (d), (e), (f), (g), or (h) of this Section 5 and
also, in respect of item (i), upon receipt of an officers' certificate
specifying the securities to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made, provided, however, that an officers' certificate need not precede
any such transfer, exchange or delivery of a money market instrument, or any
other security with same or next-day settlement, if the President, a Vice
President, the Secretary or the Treasurer of the Company issues appropriate oral
or facsimile instructions to Custodian and an appropriate officers' certificate
is received by Custodian within two business days thereafter.
6. CUSTODIAN'S ACTS WITHOUT INSTRUCTIONS
Unless and until Custodian receives an officers' certificate to the
contrary, Custodian shall: (a) present for payment all coupons and other income
items held by it for the account of the Fund, which call for payment upon
presentation and hold the cash received by it upon such payment for the account
of the Fund; (b) collect interest and cash dividends received, with notice to
the Company, for the account of the Fund; (c) hold for the account of the Fund
hereunder all stock dividends, rights and similar securities issued with respect
to any securities held by it hereunder; and (d) execute, as agent on behalf of
the Company, all necessary ownership certificates required by the Internal
Revenue Code of 1986, as amended (the "Code") or the Income Tax Regulations (the
"Regulations") of the United States Treasury Department (the "Treasury
Department") or under the laws of any state now or hereafter in effect,
inserting the Company's name on such certificates as the owner of the securities
covered thereby, to the extent it may lawfully do so.
7. REGISTRATION OF SECURITIES
Except as otherwise directed by an officers' certificate, Custodian
shall register all securities, except such as are in bearer form, in the name of
a registered nominee of Custodian as defined in the Internal Revenue Code and
any Regulations of the Treasury Department issued thereunder or in any provision
of any subsequent federal tax law exempting such transaction from liability for
stock transfer taxes, and shall execute and deliver all such certificates in
connection therewith as may be required by such laws or regulations or under the
laws of any state. All securities held by Custodian hereunder shall be at all
times identifiable in its records held in an account or accounts of Custodian
containing only the assets of the Company.
The Company shall from time to time furnish to Custodian appropriate
instruments to enable Custodian to hold or deliver in proper form for transfer,
or to register in the name of its registered nominee, any securities which it
may hold for the account of the Company and which may from time to time be
registered in the name of the Company.
8. VOTING AND OTHER ACTION
Neither Custodian nor any nominee of Custodian shall vote any of the
securities held hereunder by or for the account of the Fund, except in
accordance with the instructions contained in an officers' certificate.
Custodian shall deliver, or cause to be executed and delivered, to the Company
all notices, proxies and proxy soliciting materials with respect to such
securities, such proxies to be executed by the registered holder of such
securities (if registered otherwise than in the name of the Company), but
without indicating the manner in which such proxies are to be voted.
9. TRANSFER TAX AND OTHER DISBURSEMENTS
The Company shall pay or reimburse Custodian from time to time for any
transfer taxes payable upon transfers of securities made hereunder, and for all
other necessary and proper disbursements and expenses made or incurred by
Custodian in the performance of this Agreement.
Custodian shall execute and deliver such certificates in connection
with securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any state, to exempt
from taxation any exempt transfers and/or deliveries of any such securities.
10. CONCERNING CUSTODIAN
Custodian shall be paid as compensation for its services pursuant to
this Agreement such compensation as may from time to time be agreed upon in
writing between the two parties. Until modified in writing, such compensation
shall be as set forth in Exhibit A attached hereto.
Custodian shall not be liable for any action taken in good faith upon
any certificate herein described or certified copy of any resolution of the
Board, and may rely on the genuineness of any such document which it may in good
faith believe to have been validly executed.
The Company agrees to indemnify and hold harmless Custodian and its
nominee from all taxes, charges, expenses, assessments, claims and liabilities
(including reasonable counsel fees) incurred or assessed against it or by its
nominee in connection with the performance of this Agreement, except such as may
arise from its or its nominee's own bad faith, negligent action, negligent
failure to act or willful misconduct. Custodian is authorized to charge any
account of the Fund for such items. In the event of any advance of
cash for any purpose made by Custodian resulting from orders or instructions of
the Company, or in the event that Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Agreement, except such as may arise from
its or its nominee's own bad faith, negligent action, negligent failure to act
or willful misconduct, any property at any time held for the account of the
Company shall be security therefor.
Custodian agrees to indemnify and hold harmless the Company from all charges,
expenses, assessments, and claims/liabilities (including reasonable counsel
fees) incurred or assessed against it in connection with the performance of
this Agreement, except such as may arise from the Fund's own bad faith,
negligent action, negligent failure to act, or willful misconduct.
11. SUBCUSTODIANS
Custodian is hereby authorized to engage another bank or trust company
as a subcustodian for all or any part of the Company's assets, so long as any
such bank or trust company is itself qualified under the 1940 Act and the rules
and regulations thereunder and provided further that, if the Custodian utilizes
the services of a subcustodian, the Custodian shall remain fully liable and
responsible for any losses caused to the Company by the subcustodian as fully as
if the Custodian was directly responsible for any such losses under the terms of
this Agreement.
Notwithstanding anything contained herein, if the Company requires the
Custodian to engage specific subcustodians for the safekeeping and/or clearing
of assets, the Company agrees to indemnify and hold harmless Custodian from all
claims, expenses and liabilities incurred or assessed against it in connection
with the use of such subcustodian in regard to the Company's assets, except as
may arise from Custodian's own bad faith, negligent action, negligent failure to
act or willful misconduct.
12. REPORTS BY CUSTODIAN
Custodian shall furnish the Company periodically as agreed upon with a
statement summarizing all transactions and entries for the account of Company.
Custodian shall furnish to the Company, at the end of every month, a list of the
portfolio securities for the Fund showing the aggregate cost of each issue. The
books and records of Custodian pertaining to its actions under this Agreement
shall be open to inspection and audit at reasonable times by officers of, and by
auditors employed by, the Company.
13. TERMINATION OR ASSIGNMENT
This Agreement may be terminated by the Company, or by Custodian, on
ninety (90) days notice, given in writing and sent by registered mail to:
Firstar Trust Company
Attn.: Mutual Fund Services
615 East Michigan Street
Milwaukee, WI 53202
or to the Company at:
Principal Preservation Portfolios, Inc.
215 North Main Street
West Bend, WI 53095
as the case may be. Upon any termination of this Agreement, pending appointment
of a successor to Custodian or a vote of the shareholders of the Fund to
dissolve or to function without a custodian of its cash, securities and other
property, Custodian shall not deliver cash, securities or other property of the
Fund to the Company, but may deliver them to a bank or trust company of its own
selection that meets the requirements of the 1940 Act as a Custodian for the
Company to be held under terms similar to those of this Agreement, provided,
however, that Custodian shall not be required to make any such delivery or
payment until full payment shall have been made by the Company of all
liabilities constituting a charge on or against the properties then held by
Custodian or on or against Custodian, and until full payment shall have been
made to Custodian of all its fees, compensation, costs and expenses, subject to
the provisions of Section 10 of this Agreement.
This Agreement may not be assigned by Custodian without the consent of
the Company, authorized or approved by a resolution of its Board of Directors.
14. DEPOSITS OF SECURITIES IN SECURITIES DEPOSITORIES
No provision of this Agreement shall be deemed to prevent the use by
Custodian of a central securities clearing agency or securities depository,
provided, however, that Custodian and the central securities clearing agency or
securities depository meet all applicable federal and state laws and
regulations, including all applicable provisions of Rule 17f-4 under the 1940
Act, and the Board of Directors of the Company approves by resolution the use of
such central securities clearing agency or securities depository.
15. RECORDS
Custodian shall keep records relating to its services to be performed
hereunder, in the form and manner, and for such period, as it may deem advisable
and is agreeable to the Company but not inconsistent with the rules and
regulations of appropriate government authorities, in particular Section 31 of
the 1940 Act and the rules thereunder. Custodian agrees that all such records
prepared or maintained by the Custodian relating to the services performed by
Custodian hereunder are the property of the Company and will be preserved,
maintained, and made available in accordance with such section and rules of the
1940 Act and will be promptly surrendered to the Company on and in accordance
with its request.
16. GOVERNING LAW
This Agreement shall be governed by Wisconsin law. However, nothing
herein shall be construed in a manner inconsistent with the 1940 Act or any rule
or regulation promulgated by the Securities and Exchange Commission thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by a duly authorized officer or one or more counterparts as of the
day and year first written above.
PRINCIPAL PRESERVATION FIRSTAR TRUST COMPANY
PORTFOLIOS, INC.
By:------------------- By:---------------------
Attest:--------------- Attest:-----------------
CUSTODY SERVICES
ANNUAL FEE SCHEDULE - DOMESTIC FUNDS
EXHIBIT A
Separate Series of Principal Preservation Portfolios, Inc.
NAME OF SERIES DATE ADDED
Government Fund March 27, 1998
Tax-Exempt Fund "
Wisconsin Tax-Exempt Fund "
Cash Reserve Fund "
Class X "
Class Y "
S&P 100 Fund "
PSE Tech 100 "
Dividend Achievers Fund "
Select Value Fund "
Annual fee based upon market value
2 basis point per year on the first $500 million of fund group assets
1.5 basis points per year on the balance of fund group assets
Investment transactions (purchase, sale, exchange, tender, redemption, maturity,
receipt, delivery):
$ 3.00 per book entry DTC security
$ 9.00 per book entry Federal Reserve security
$25.00 per definitive security (physical)
$25.00 per mutual fund trade
$75.00 per Euroclear
$ 8.00 per principal reduction on pass-through certificates
$35.00 per option/futures contract
$15.00 per variation margin
$15.00 per Fed wire deposit or withdrawal
Variable Amount Demand Notes: Used as a short-term investment, variable amount
notes offer safety and prevailing high interest rates. Our charge, which is 1/4
of 1%, is deducted from the variable amount note income at the time it is
credited to your account.
Plus out-of-pocket expenses, and extraordinary expenses based upon complexity.
Fees and out-of-pocket expenses are billed to the fund monthly, based upon
market value at the beginning of the month.
EXHIBIT 11(A)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
and the Statements of Additional Information constituting parts of this Post-
Effective Amendment (the "Amendemt") to this Registration Statement on Form N-1A
of our report, dated January 16, 1998, relating to the financial statements and
financial highlights of the series of Principal Preservation known as the Cash
Reserve Portfolio, which financial statements and financial highlights also are
incorporated by reference into the Amendment from the Cash Reserve's Portfolio
1997 Annual Report to Shareholders. We also consent to the references to us
under the heading "Financial Highlights" in each Prospectus and under the
headings "Counsel and Independent Public Accountants" and "Experts" in each
Statement of Additional Information.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
April 28, 1998
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