(PRINCIPAL PRESERVATION LOGO)
WISCONSIN
TAX-EXEMPT
PORTFOLIO
------------
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1997
------------
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
WISCONSIN TAX-EXEMPT PORTFOLIO
PRESIDENT'S LETTER/MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT TO SHAREHOLDERS
DECEMBER 31, 1997
February 23, 1998
Dear Wisconsin Shareholder:
I am pleased to present the annual report to shareholders for the Wisconsin
Tax-Exempt Portfolio of Principal Preservation Portfolios, Inc. Since December
31, 1996, the portfolio has increased in net assets from approximately
$25,800,000 to $33,000,000. Total assets of the mutual fund family have grown
from $411,000,000 at December 31, 1996 to a current level in excess of
$500,000,000 of net assets as of the date of this letter.
We have contacted each of our vendors with respect to year 2000 compliance
issues. As a result, we have received assurances that compliance will be
achieved. Each of the vendors have begun system modifications and are executing
testing phases of the implementation program. To our knowledge the year 2000
should not have an impact on any vendor's ability to continue providing its
service to Principal Preservation.
We are grateful for your continued trust with us and look forward to the
years to come.
Sincerely,
/s/ Robert J. Tuszynski
Robert J. Tuszynski
President and CEO
The accompanying report is intended for the existing shareholders of Principal
Preservation. It does not constitute an offer to sell. Any investor wishing to
receive more information about the portfolios should obtain a prospectus which
includes a discussion of each investment objective and all sales charges and
expenses of the relevant portfolio(s).
MANAGEMENT DISCUSSION AND ANALYSIS
WISCONSIN TAX-EXEMPT PORTFOLIO
Shown below is a comparison of the change in value of a $10,000 investment in
Principal Preservation Wisconsin Tax-Exempt Portfolio and the Lehman 20-Year
Municipal Bond Index.
Date Principal Preservation Lehman 20-Year
Wisconsin Tax-Exempt Portfolio Municipal Bond Index
6/13/94*<F1> $9,750 $10,000
6/30/94 $9,452 $9,900
7/31/94 $9,543 $10,127
8/31/94 $9,543 $10,155
9/30/94 $9,446 $9,952
10/31/94 $9,179 $9,689
11/30/94 $8,862 $9,462
12/31/94 $9,112 $9,759
1/31/95 $9,403 $10,141
2/28/95 $9,687 $10,509
3/31/95 $9,780 $10,629
4/30/95 $9,803 $10,627
5/31/95 $10,081 $11,028
6/30/95 $9,992 $10,858
7/31/95 $10,026 $10,914
8/31/95 $10,112 $11,064
9/30/95 $10,166 $11,151
10/31/95 $10,303 $11,389
11/30/95 $10,493 $11,641
12/31/95 $10,599 $11,804
1/31/96 $10,652 $11,864
2/29/96 $10,546 $11,729
3/31/96 $10,408 $11,541
4/30/96 $10,322 $11,495
5/31/96 $10,388 $11,509
6/30/96 $10,465 $11,671
7/31/96 $10,575 $11,785
8/31/96 $10,554 $11,766
9/30/96 $10,708 $12,004
10/31/96 $10,797 $12,148
11/30/96 $10,996 $12,402
12/31/96 $10,943 $12,329
1/31/97 $10,944 $12,317
2/28/97 $11,057 $12,449
3/31/97 $10,901 $12,254
4/30/97 $11,004 $12,390
5/31/97 $11,174 $12,613
6/30/97 $11,288 $12,772
7/31/97 $11,551 $13,201
8/31/97 $11,449 $13,039
9/30/97 $11,588 $13,219
10/31/97 $11,648 $13,315
11/30/97 $11,718 $13,423
12/31/97 $11,895 $13,667
AVERAGE ANNUAL TOTAL RETURN
(includes the effect of the sales charge)
SINCE INCEPTION
1-YEAR 6/13/94
------ --------------
Wisconsin Tax-Exempt:
Full Sales Charge 5.98% 5.01%
Net Asset Value 8.69% 5.76%
*<F1>June 13, 1994 inception date.
Past performance is not predictive of future performance.
LEHMAN 20-YEAR MUNICIPAL BOND INDEX
The Lehman 20-Year Municipal Bond Index is a broad based index containing
over 22,000 issues with maturities ranging from 2-30 years. The issues
comprising the index are generated from the issues completed within the last
five years with total issue size of $50,000,000 and larger. The average quality
rating is "AA." The index performance shown above does not include sales charges
or other fees which would have been incurred had an investor attempted to
replicate the index.
WISCONSIN TAX-EXEMPT PORTFOLIO
The Wisconsin Tax-Exempt Portfolio's performance is presented from June 13,
1994, commencement of operations, through December 31, 1997. It is based upon a
$10,000 investment at the Portfolio's public offering price then in effect,
which included a 2.5% sales charge. It represents the actual total returns for
each of the years ended December 31, net of any fees and expenses charged to the
Portfolio during those periods.
DISCUSSION AND ANALYSIS
The total return of the Wisconsin Tax-Exempt Portfolio for the 12 months
ended December 31, 1997 was 8.69% compared to the Lehman 20-Year Municipal Bond
Index return of 10.85% for the same period.
During the course of the year, broad based stock and bond market rallies kept
investor focus in longer term securities. As a result of a stable economy, and
the perception that little to no inflation was occurring, the yield on the 30
year U.S. Treasury Bond proceeded to fall from 6.8% at December 31, 1996 to
5.92% on December 31, 1997. Municipal yields for the 30 year AAA general
obligation bond fell from 5.39% at December 31, 1996 to 4.99% on December 31,
1997. Yields for the A general obligation bonds fell from 5.68% to 5.22% during
the same period, thereby tightening the yield curve between those bonds with a
higher credit quality to those with less. Similar to taxable short term interest
rates, the short end of the municipal bond market remained fairly constant
declining in yield by only 0.08%. The Federal Reserve Board did not change the
Federal Funds rate during the last nine months of 1997. The rapid decline of the
long term interest rates, coupled with stable short rates, caused a flattening
of the yield curve. While the severe downturn in the Asian financial markets
fueled a downturn in the equity markets, the credit markets showed optimism
about domestic inflation remaining under control. Therefore, the bond market did
not experience the same impact. However, we did witness increased investor
demand in higher quality municipal securities.
Due to the factors of the flattening yield curve, the tightened yield
differential between AAA and A securities, and some future uncertainty the Asian
financial markets will have on the U.S. financial markets, the portfolio manager
continued his focus on high credit quality issues. Since this portfolio is
limited to those issues that are recognized as being dually exempt on both the
federal and state levels, two points were evident. First, the portfolio manager
did not add any issues that had the potential of causing any alternative minimum
tax considerations and second, the supply of bonds to choose from were limited.
However, the portfolio manager was able to increase the percentage of the
portfolio of municipal bonds issued by a municipality from the state of
Wisconsin from 41% to 57% and reduce the territorial and housing percentages
from 18% to 12% and 41% to 31%, respectively. Since the portfolio manager
focused on high credit with higher yielding coupons and the broad based
municipal market fared better than single state issues, the portfolio lagged the
Lehman 20 year benchmark during 1997.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
WISCONSIN TAX-EXEMPT PORTFOLIO
FINANCIAL HIGHLIGHTS
The following presents information relating to a share of capital stock of
Principal Preservation Portfolios, Inc. Wisconsin Tax-Exempt Portfolio
outstanding for the following period presented, which should be read in
conjunction with the financial statements and related notes:
<TABLE>
<CAPTION>
WISCONSIN
TAX-EXEMPT PORTFOLIO
-------------------------------------------------------
For the
period from
June 13, 1994
(commencement of
For the years ended December 31, operations)to
-------------------------
1997 1996 1995 December 31, 1994
------ ------ ------ -----------------
<S> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD $9.87 $10.05 $9.10 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .49 .49 .50 .25
Net realized and unrealized gains (losses)
on investments .34 (.18) .95 (.90)
------- ------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS .83 .31 1.45 (.65)
------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income (.49) (.49) (.50) (.25)
------- ------- ------- -------
TOTAL DISTRIBUTIONS (.49) (.49) (.50) (.25)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $10.21 $9.87 $10.05 $9.10
======= ====== ====== =======
TOTAL RETURN **<F2> 8.7% 3.3% 16.3% (6.5)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (to nearest thousand) $32,852 $25,750 $18,986 $8,116
Ratio of expenses to average net assets 0.5%+<F3> 0.5%+<F3> 0.4%+<F3> 0.2%*<F1>+<F3>
Ratio of net investment income to average net assets 4.9%+<F3> 4.9%+<F3> 5.0%+<F3> 4.4%*<F1>+<F3>
Portfolio turnover rate 16.9% 16.0% 9.7% 23.4%
*<F1>Annualized.
**<F2>The Fund's sales charge is not reflected in total return as set forth in
the table.
+<F3>Reflects a voluntary reimbursement of fund expenses of 0.6% in 1997, 0.6%
in 1996, 0.8% in 1995 and 1.4% in 1994, respectively.
</TABLE>
BALANCE SHEET
DECEMBER 31, 1997
WISCONSIN
TAX-EXEMPT PORTFOLIO
--------------------
ASSETS:
Investments:
Cost basis of investments $30,473,689
===========
Long-term investments in securities $32,007,718
Cash 315,985
Receivables:
Capital shares sold 110,482
Interest 481,659
----------
Total receivables 592,141
Other assets 6,274
----------
Total assets $32,922,118
===========
LIABILITIES:
Payables:
Distributions to shareholders $39,346
Management fees 13,566
Other accrued expenses 17,525
----------
Total liabilities 70,437
----------
NET ASSETS:
Capital stock 31,322,036
Undistributed net investment income 1,804
Undistributed net realized losses on investments (6,188)
Net unrealized appreciation on investments 1,534,029
----------
Total net assets 32,851,681
----------
Total liabilities and net assets $32,922,118
===========
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE $10.21
=======
MAXIMUM OFFERING PRICE PER SHARE $10.47
=======
The accompanying notes to financial statements are an integral part of this
statement.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
WISCONSIN
TAX-EXEMPT PORTFOLIO
-------------------
INVESTMENT INCOME:
Interest $1,551,746
----------
Total investment income 1,551,746
----------
EXPENSES:
Investment advisory fees 142,200
Custodian fees 11,690
Transfer agent fees 22,608
Broker service fees 71,489
Professional fees 43,188
Registration 3,924
Communication 5,424
Director fees 6,064
Pricing of investments 8,350
Deferred organization expense 2,599
Other 3,298
----------
Total expenses 320,834
Less expenses absorbed by advisor (178,916)
----------
Net expenses 141,918
----------
NET INVESTMENT INCOME 1,409,828
----------
NET REALIZED LOSSES ON INVESTMENTS (3,012)
CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS FOR THE YEAR 1,014,603
----------
Net gain on investments 1,011,591
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,421,419
==========
The accompanying notes to financial statements are an integral part of this
statement.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
WISCONSIN
TAX-EXEMPT PORTFOLIO
--------------------
OPERATIONS:
Net investment income $1,409,828
Net realized losses on investments (3,012)
Change in unrealized appreciation on investments for the year 1,014,603
----------
Net increase in net assets resulting from operations 2,421,419
----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income ($0.49 per share) (1,408,836)
----------
Total distributions (1,408,836)
----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued 8,494,645
Net asset value of shares issued in distributions 972,957
Cost of shares redeemed (3,378,102)
----------
Net increase in net assets from capital share transactions 6,089,500
----------
Total increase 7,102,083
NET ASSETS:
Balance at beginning of year 25,749,598
----------
Balance at end of year $32,851,681
===========
The accompanying notes to financial statements are an integral part of this
statement.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
WISCONSIN
TAX-EXEMPT PORTFOLIO
--------------------
OPERATIONS:
Net investment income $1,123,311
Net realized gains on investments 55,980
Change in unrealized appreciation on investments for the year (322,111)
----------
Net increase in net assets resulting from operations 857,180
----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income ($0.49 per share) (1,128,342)
----------
Total distributions (1,128,342)
----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued 8,406,005
Net asset value of shares issued in distributions 781,624
Cost of shares redeemed (2,153,115)
----------
Net increase in net assets from capital share transactions 7,034,514
----------
Total increase 6,763,352
NET ASSETS:
Balance at beginning of year 18,986,246
----------
Balance at end of year $25,749,598
===========
The accompanying notes to financial statements are an integral part of this
statement.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES --
Principal Preservation Portfolios, Inc. (the "Fund"), registered under the
Investment Company Act of 1940 as an open-end management investment company, is
a series company with eight portfolios: Tax-Exempt Portfolio, Government
Portfolio, S&P 100 Plus Portfolio, Dividend Achievers Portfolio, PSE Tech 100
Index Portfolio, Cash Reserve Portfolio, Wisconsin Tax-Exempt Portfolio and the
Select Value Portfolio. This report presents information only for the Wisconsin
Tax-Exempt Portfolio (the "Portfolio"). Information regarding the other
portfolios is presented in separate reports. The assets and liabilities of each
portfolio are segregated and a shareholder's interest is limited to the
portfolio in which the shareholder owns shares.
The following is a summary of the significant accounting policies of the Fund.
(a) Long-Term Securities
The long-term tax-exempt securities are valued at market or fair value using
quotations by an independent pricing service (the "Service"). When, in the
judgment of the Service, quoted bid prices for securities are readily
available and are representative of the bid side of the market, these
investments are valued at the mean between quoted bid prices (as obtained by
the Service from dealers in such securities) and ask prices (as calculated
by the Service based upon its evaluation of the market for such securities).
Securities for which, in the judgment of the Service, there are no readily
obtainable market quotations (which may constitute a majority of the
portfolio's securities) are carried at fair value as determined by the
Service in accordance with procedures approved by the Fund's Board of
Directors. Among other factors, these procedures include consideration of
yields or prices of municipal securities of comparable quality, coupon,
maturity, type, indications as to values from dealers, and general market
conditions.
Investment transactions are recorded on the trade date.
Premiums on long-term tax-exempt securities are amortized to the shorter of
call date or maturity. The fund does not amortize premiums on taxable long-
term securities. The fund amortizes all discounts on taxable securities and
on original issue discount tax-exempt securities.
(b) Net Realized Gains and Losses and Investment Income
Net realized gains and losses on securities sales are computed on the
identified cost basis. Dividend income is recorded on the ex-dividend date.
Interest income is recorded on an accrual basis.
(c) Federal Income Taxes
Provision has not been made for Federal income taxes, because the Portfolio
has elected to be taxed as a "regulated investment company" and intends to
distribute substantially all income to its shareholders and otherwise to
comply with the provisions of the Internal Revenue Code applicable to
regulated investment companies. As of December 31, 1997, the Portfolio had
Federal income tax capital loss carryforwards of $3,176 expiring in 2003 and
$3,012 expiring in 2004. It is management's intention to make no
distribution of any future realized capital gains until the Federal income
tax capital loss carryforward is exhausted.
The character of distributions made during the year from net investment
income or net realized gains may differ from the characterization for
federal income tax purposes due to differences in the recognition of income,
expense or gain items for financial statement and tax purposes. Where
appropriate, reclassifications between net asset accounts are made for such
differences that are permanent in nature. Accordingly, at December 31, 1997,
reclassifications were recorded to increase undistributed net investment
income by $3,201 and decrease capital stock by $3,201.
(d) Expenses
Fund expenses associated with a specific portfolio are charged to that
portfolio as they are incurred. Common expenses incurred by the Fund are
allocated, as incurred, between the portfolios based upon the ratio of the
net assets of each portfolio to the combined net assets of the Fund.
(e) Distributions to Shareholders
Dividends to shareholders are recorded on the ex-dividend date.
(f) Deferred Organization Costs
Costs incurred with the organization, initial registration and public
offering of shares aggregating $13,000 for the Portfolio have been paid by
the Fund and are being amortized over a five year period.
(g) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(h) Reclassifications
Certain reclassifications have been made to the 1996 financial statements to
conform with 1997 presentation.
2.INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH RELATED PARTIES --
The Fund has an Investment Advisory Agreement (the "Agreement") with Ziegler
Asset Management, Inc. ("ZAMI") (with whom certain officers and directors of the
Fund are affiliated), to serve as the Investment Advisor. ZAMI is a wholly owned
subsidiary of The Ziegler Companies, Inc. Under the Agreement, the Portfolio
pays ZAMI a monthly fee based upon the average daily net assets of the Portfolio
at the rate of .50% of the first $250,000,000 of the Portfolio's average daily
net assets, reducing to .40% of the Portfolio's average daily net assets in
excess of $250,000,000.
For the year ended December 31, 1997, ZAMI voluntarily reimbursed expenses to
the Portfolio totaling $178,916. ZAMI is not obligated to continue the voluntary
reimbursement in the future.
On May 17, 1991, the Fund's shareholders approved a Distribution Agreement
under Rule 12b-1. According to this agreement the Fund pays a distribution fee
of up to 0.25% to Ziegler, as the distributor, which is passed through to the
broker/dealer as a service fee. This fee is calculated on the average daily net
assets and is shown as broker service fees in the Statement of Operations.
Ziegler has an Accounting and Pricing Agreement with the Fund to perform
accounting and pricing services, a Depository Agreement with the Fund to serve
as depository for all investment securities and cash, and a Transfer and
Dividend Disbursing and Shareholder Servicing Agreement with the Fund to provide
Transfer Agent Services. In addition, the Portfolio pays Ziegler commissions on
sales of Portfolio shares and 12b-1 distribution fees. The transfer agent fees,
commissions, accounting and pricing fees, depository and 12b-1 fees paid to
Ziegler by the Portfolio for the year ended December 31, 1997 were as follows:
<TABLE>
<CAPTION>
ACCOUNTING
TRANSFER COMMISSIONS AND PRICING DEPOSITORY
AGENT FEES ON PORTFOLIO SHARES FEES FEES 12B-1 FEES
----------- -------------------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Wisconsin Tax-Exempt Portfolio $21,770 $91,256 $19,068 $11,447 $44,850
</TABLE>
3. INVESTMENT TRANSACTIONS --
Purchases and proceeds from sales of securities, excluding short-term
investments, for the year ended December 31, 1997, consisted of purchases of
$10,398,495 and $4,749,938 in proceeds from the sale of securities.
Net tax basis unrealized appreciation (depreciation) on investments as of
December 31, 1997, included:
WISCONSIN
TAX-EXEMPT
----------
Gross unrealized appreciation $1,534,981
Gross unrealized (depreciation) (952)
----------
Net unrealized appreciation $1,534,029
==========
The tax basis cost of investments at December 31, 1997 was $30,473,689.
4. LINE OF CREDIT --
The Fund has an available line of credit of $3,000,000. However, each
portfolio's borrowings, by investment restriction, cannot exceed 10% of the
total net assets not including the borrowings. Interest expense incurred in
connection with such borrowings was not material during the year. Borrowings
under this arrangement bear interest approximating the then current Prime Rate.
All borrowings under this line of credit are guaranteed by Ziegler. Each
portfolio's policies allow borrowings for temporary or emergency purposes.
5. CAPITAL SHARE TRANSACTIONS --
(a) The Fund has authorized capital of 1,000,000,000 shares at $.001 par value
per share. The Fund's shares are divided into eight separate portfolios:
Wisconsin Tax-Exempt Portfolio, Government Portfolio, Tax-Exempt Portfolio,
S&P 100 Plus Portfolio, Dividend Achievers Portfolio, Select Value
Portfolio, PSE Tech 100 Index Portfolio and Cash Reserve Portfolio,
consisting of 50,000,000 shares in each of the first seven portfolios and
400,000,000 in the Cash Reserve Portfolio. The shares of the Cash Reserve
Portfolio have been subdivided into 200,000,000 shares of Class X (Retail
Shares) and 200,000,000 shares of Class Y (Institutional Shares). The
remaining 250,000,000 authorized shares of common stock of the Fund may be
allocated to any of the above portfolios or to new portfolios as determined
by the Board of Directors. The shares of each portfolio have equal rights
and privileges with all other shares of that portfolio.
(b) Capital share activity during the years ended December 31, 1996 and
December 31, 1997, respectively, were as follows:
WISCONSIN
TAX-EXEMPT
----------
SHARES OUTSTANDING AT DECEMBER 31, 1995 1,888,903
==========
Shares issued 860,313
Shares issued in distributions 79,825
Shares redeemed (219,263)
---------
SHARES OUTSTANDING AT DECEMBER 31, 1996 2,609,778
=========
Shares issued 851,162
Shares issued in distributions 97,574
Shares redeemed (339,806)
---------
SHARES OUTSTANDING AT DECEMBER 31, 1997 3,218,708
=========
(c) Maximum offering price per share is computed based on a maximum sales
charge of 2.5% of the offering price or 2.56% of the net asset value. For
purpose of this computation, the price per share is derived from multiplying
the net asset value and redemption price per share by 100 and then dividing
the product by 97.5.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL S&P MOODY'S
AMOUNT DESCRIPTION RATING RATING VALUE
(UNAUDITED)
--------- ----------- ----------------------- --------
<S> <C> <C> <C> <C>
LONG-TERM TAX-EXEMPT SECURITIES -- 97.4%
ALABAMA -- 0.4%
$125,000 Birmingham, Alabama, New Public Housing Authority, 5.25%, AAA Aaa $128,028
due 05-01-2010
GEORGIA -- 1.8%
325,000 Atlanta, Georgia, New Public Housing Authority, 5.00%, AAA Aaa 332,384
due 05-01-2007
250,000 Newnan, Georgia, New Public Housing Authority, 5.00%, AAA Aaa 255,265
due 04-01-2012
GUAM -- 5.4%
650,000 Guam Government Limited Obligation Highway Bonds, AAA Aaa 704,437
Series A, 6.30%, due 05-01-2012
500,000 Guam Government Limited Obligation Revenue Bonds AAA Aaa 498,125
Infrastructure Improvement Series A, 5.00%, due 11-01-2017
515,000 Guam Power Authority Revenue Bonds, Series A, 6.375%, AAA Aaa 565,213
due 10-01-2008
ILLINOIS -- 1.5%
200,000 Cook County, Illinois, New Public Housing Authority, 5.25%, AAA Aaa 204,316
due 04-01-2010
300,000 Peoria, Illinois, New Public Housing Authority, 5.00%, AAA Aaa 306,435
due 06-01-2012
MASSACHUSETTS -- 3.0%
670,000 Massachusetts State Housing Finance Agency, Multi-Family Housing AAA A1 818,238
Bonds, First Issue, 1979 Series A, 7.00%, due 04-01-2021
165,000 Worcester, Massachusetts, New Public Housing Authority, 5.25%, AAA Aaa 168,430
due 08-01-2006
NEVADA -- 0.8%
255,000 Las Vegas, Nevada, New Public Housing Authority, 5.00%, AAA Aaa 260,567
due 01-01-2012
NEW JERSEY -- 2.1%
435,000 Newark, New Jersey, New Public Housing Authority, 5.25%, AAA Aaa 440,242
due 04-01-2009
250,000 Newark, New Jersey, New Public Housing Authority, 4.50%, AAA Aaa 251,250
due 04-01-2008
NEW YORK -- 1.9%
200,000 New York, New York, New Public Housing Authority, 5.125%, AAA Aaa 202,838
due 01-01-2008
200,000 New York, New York, New Public Housing Authority, 5.375%, AAA Aaa 204,840
due 01-01-2012
200,000 New York, New York, New Public Housing Authority, 5.00%, AAA Aaa 204,318
due 01-01-2012
NORTH CAROLINA -- 1.7%
400,000 Durham, North Carolina, New Public Housing Authority, 5.00%, AAA Aaa 408,092
due 02-01-2012
165,000 Durham, North Carolina, New Public Housing Authority, 5.25%, AAA Aaa 168,600
due 12-01-2009
NORTH DAKOTA -- 1.2%
200,000 Burleigh County, North Dakota, New Public Housing Authority, AAA Aaa 204,414
4.875%, due 01-01-2009
185,000 Burleigh County, North Dakota, New Public Housing Authority, AAA Aaa 189,109
4.875%, due 01-01-2010
OHIO -- 3.9%
300,000 Youngstown, Ohio, New Public Housing Authority, 5.00%, AAA Aaa 306,933
due 05-01-2012
200,000 Youngstown, Ohio, New Public Housing Authority, 4.875%, AAA Aaa 204,174
due 05-01-2010
250,000 Youngstown, Ohio, New Public Housing Authority, 4.875%, AAA Aaa 255,378
due 05-01-2009
500,000 Youngstown, Ohio, New Public Housing Authority, 5.00%, AAA Aaa 511,475
due 05-01-2011
PENNSYLVANIA -- 1.5%
270,000 Allentown, Pennsylvania, New Public Housing Authority, 4.875%, AAA Aaa 275,608
due 05-01-2011
200,000 Clinton County, Pennsylvania, New Public Housing Authority, AAA Aaa 204,504
5.25%, due 11-01-2007
PUERTO RICO -- 12.6%
750,000 Puerto Rico Commonwealth Highway &Transportation Authority, A Baa1 763,125
Revenue Bonds, Series Y, 5.50%, due 07-01-2026
100,000 Puerto Rico Commonwealth Highway &Transportation, 6.625%, A Baa1 111,250
due 07-01-2012
350,000 Puerto Rico Commonwealth Highway & Transportation Authority, A Aaa 390,250
Highway Revenue Unrefunded Balance, Series T, 6.625%,
due 07-01-2018
325,000 Puerto Rico Commonwealth, Refunding Bonds, Series A, 6.00%, A Baa1 340,844
due 07-01-2014
350,000 Puerto Rico Commonwealth, General Obligation Bonds, 6.00%, A Baa1 363,125
due 07-01-2022
400,000 Puerto Rico Commonwealth Electric &Power Authority, Series Z, AAA Aaa 403,500
5.25%, due 07-01-2021
180,000 Puerto Rico Commonwealth Electric &Power Authority, Series R, AAA Aaa 193,950
6.25%, due 07-01-2017
200,000 Puerto Rico Municipal Finance Agency, 1997 Series A Bonds, 5.50%, AAA Aaa 208,000
due 07-01-2017
800,000 Puerto Rico Public Buildings Authority, Guaranteed Public Education A Baa1 828,000
&Health Facilities, Refunding Series M, 5.75%, due 07-01-2015
150,000 Puerto Rico Telephone Authority, Series L, 5.75%, due 01-01-2011 A+ A2 159,187
350,000 Puerto Rico Telephone Authority, Series L, 6.125%, due 01-01-2022 A+ A2 371,875
SOUTH CAROLINA -- 0.6%
200,000 Marion, South Carolina, New Public Housing Authority, 4.875%, AAA Aaa 204,104
due 09-01-2010
TENNESSEE -- 0.6%
190,000 Nashville, Tennessee, New Public Housing Authority, 5.00%, AAA Aaa 192,375
due 08-01-2010
TEXAS -- 4.1%
300,000 El Paso, Texas, New Public Housing Authority, 5.00%, AAA Aaa 306,768
due 07-01-2005
160,000 Galveston, Texas, New Public Housing Authority, 5.25%, AAA Aaa 163,627
due 10-01-2008
180,000 Sherman, Texas, New Public Housing Authority, 5.25%, AAA Aaa 184,320
due 07-01-2009
150,000 Sherman, Texas, New Public Housing Authority, 5.00%, AAA Aaa 153,143
due 06-01-2010
340,000 Waco, Texas, New Public Housing Authority, 4.875%, AAA Aaa 348,122
due 12-01-2009
200,000 Waco, Texas, New Public Housing Authority, 4.875%, AAA Aaa 204,272
due 12-01-2012
WISCONSIN -- 54.3%
200,000 Brown County (Wisconsin) Housing Authority, Student Housing NR NR 202,500
Revenue Bonds, Series 1997B, (University Village Housing, Inc.,
Project), 5.400%, due 04-01-2017
150,000 Housing Authority of the City of Green Bay, Wisconsin, Student NR NR 156,750
Housing Refunding Revenue Bonds, Series 1997, (University Village
Housing, Inc.), 6.00%, due 04-01-2017
200,000 City of Hartford Community Development Authority, Dodge and NR NR 213,750
Washington Counties, Wisconsin, Community Development Lease
Revenue Bonds, 5.90%, due 12-01-2006
500,000 Community Development Authority of the Village of Little Chute, NR NR 520,000
Wisconsin, Community Development Lease Revenue Bonds,
5.625%, due 03-01-2019
300,000 Community Development Authority of the City of Madison, NR NR 307,875
Wisconsin, Multifamily Housing Revenue Bonds, Series 1995
(Dempsey Manor Project), 6.65%, due 10-01-2025
500,000 Community Development Authority of the City of Madison, Wisconsin, NR NR 541,875
Redevelopment Revenue Bonds, Series 1995,(Meriter Retirement
Services, Inc.), 6.125%, due 12-01-2019
1,000,000 Madison, Wisconsin, Community Development Authority, Lease NR Aa2 1,086,250
Revenue Bonds, Monona Terrace Community & Convention Center
Project, 6.10%, due 03-01-2010
WISCONSIN -- 54.3% (Continued)
270,000 Community Development Authority of the City of Madison, NR NR 287,212
Wisconsin, Project Revenue Bonds, (Series 1986), 5.875%,
due 07-01-2016
500,000 Redevelopment Authority of the City of Milwaukee, Wisconsin, NR A1 526,250
Development Revenue Bonds (Goodwill Industries of Southeastern
Wisconsin Project), 6.35%, due 10-01-2009
1,000,000 Housing Authority of the City of Oak Creek, Wisconsin, Multifamily NR NR 1,071,250
Housing Refunding Revenue Bonds, Series 1994A, (Country Oaks II
Project), 6.30%, due 08-01-2028
75,000 Housing Authority of the City of Oak Creek, Wisconsin, Multifamily AAA NR 76,219
Housing Refunding Revenue Bonds, Series 1993, (Wood Creek
Project), 5.625%, due 07-20-2029
1,275,000 Housing Authority of the City of Oshkosh, Wisconsin, GNMA AAA Aaa 1,302,094
Collateralized Multifamily Housing Revenue Bonds, Series 1997,
(VNA Assisted Living, Inc. Project), 5.75%, due 09-20-2038
125,000 Housing Authority of the City of Oshkosh, Wisconsin, GNMA AAA Aaa 127,813
Collateralized Multifamily Housing Revenue Bonds, Series 1997,
(VNA Assisted Living, Inc. Project), 5.45%, due 09-20-2017
2,260,000 Southeast Wisconsin Professional Baseball Park District Sales AAA Aaa 2,378,650
Tax Revenue Bonds, Series 1996, 5.750%, due 12-15-2021
600,000 Redevelopment Authority of the Village of Slinger, Wisconsin, NR NR 621,000
Redevelopment Lease Revenue Bonds, Series 1995-A, 6.25%,
due 09-01-2017
155,000 Redevelopment Authority of the City of Superior, Wisconsin, NR Aa2 163,331
Revenue Bonds, Series 1994 (Superior Memorial Hospital, Inc.),
5.60%, due 05-01-2007
100,000 Redevelopment Authority of the City of Superior, Wisconsin, NR Aa2 105,125
Revenue Bonds, Series 1994 (Superior Memorial Hospital, Inc.),
5.80%, due 05-01-2010
150,000 Redevelopment Authority of the City of Superior, Wisconsin, NR Aa2 158,250
Revenue Bonds, Series 1994 (Superior Memorial Hospital, Inc.),
5.65%, due 11-01-2008
600,000 Housing Authority of the City of Superior, Wisconsin, Housing NR NR 622,500
Revenue Refunding Bonds, Series 1996, (GNMA Collateralized-
St. Francis Home, Inc. Project), 6.15%, due 07-20-2031
600,000 Community Development Authority of the Village of Sussex, NR NR 629,250
Wisconsin, Community Development Revenue Bonds, Series 1995,
6.10%, due 04-01-2015
445,000 Community Development Lease Revenue Bonds, Series 1997A, NR NR 457,794
Community Development Authority of the City of Verona, Wisconsin,
5.50%, due 06-01-2017
3,000,000 Wisconsin Center District, Junior Dedicated Tax Revenue Bonds, A NR 3,112,500
Series 1996B, 5.75%, due 12-15-2027
485,000 Wisconsin Housing Finance Authority Revenue Bonds, Prerefunded AAA Aaa 532,893
12-01-2017 at Par, Escrowed by U.S. Government Security, 6.10%,
due 06-01-2021
460,000 Walworth County (Wisconsin) Housing Authority, Housing Revenue NR NR 469,200
Bonds, Series 1997, (FHA Insured Mortgage Loan-Kiwanis Herigage,
Inc. Senior Apartment Project), 5.70%, due 03-01-2039
1,000,000 Wauwatosa, Wisconsin, Redevelopment Authority, Milwaukee County, AAA Aaa 1,048,750
Wisconsin, Redevelopment Authority Lease Revenue Bonds,
Series 1997, 5.65%, due 10-01-2015
250,000 Housing Authority of Winnebago County, Wisconsin, Multifamily NR NR 255,625
Housing Refunding Revenue Bonds (Neenah-Menasha Ecumenical
Retirement Community, Inc. Project), 5.50%, due 10-01-2015
855,000 Housing Authority of Winnebago County, Wisconsin, Multifamily NR NR 869,962
Housing Refunding Revenue Bonds (Neenah-Menasha Ecumenical
Retirement Community, Inc. Project), 5.60%, due 10-01-2020
Total Long-Term Tax-Exempt Securities (Cost $30,473,689) 32,007,718
------------
Total Investments $32,007,718
===========
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
</TABLE>
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
WISCONSIN TAX-EXEMPT PORTFOLIO
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Principal Preservation Portfolios, Inc. and the
Shareholders of the Wisconsin Tax-Exempt Portfolio:
We have audited the accompanying balance sheets, including the schedule of
investments, of the Wisconsin Tax-Exempt Portfolio of Principal Preservation
Portfolios, Inc. (a Maryland corporation) as of December 31, 1997, and the
related statement of operations for the year then ended and the statements of
changes in net assets for each of the two years in the period then ended and the
financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the depositories, banks and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Wisconsin Tax-Exempt Portfolio of Principal Preservation Portfolios, Inc. as of
December 31, 1997, the results of its operations for the year then ended and the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
January 16, 1998.
PRINCIPAL PRESERVATION
PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
OFFICERS AND DIRECTORS
R.D. Ziegler, Chairman, Director
Richard H. Aster, M.D., Director
Augustine J. English, Director
Ralph J. Eckert, Director
Robert J. Tuszynski, President, Director
Frank Ciano, Chief Financial Officer and Treasurer
John Lauderdale, Vice President of Marketing
S. Charles O'Meara, Secretary
Marc Dion, Vice President
INVESTMENT ADVISOR
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
DISTRIBUTOR, DEPOSITORY, TRANSFER AND DIVIDEND
DISBURSING ACCOUNTING/PRICING AGENT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
COUNSEL
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
This report has been prepared for the information of shareholders of Principal
Preservation Portfolios, Inc. Wisconsin Tax-Exempt Portfolio, and may not be
used in connection with the offering of securities unless preceded or
accompanied by a current Prospectus.
PP842-2/98
