[QUARLES & BRADY LETTERHEAD]
March 16, 1998
VIA EDGAR
Securities and Exchange Commission
Division of Investment Management
Judiciary Plaza
450 Fifth Street, N.W.
Washington DC 20549
Re: PRINCIPAL PRESERVATION PORTFOLIOS, INC. (THE "REGISTRANT")
1933 ACT REG. NO. 33-12; 1940 ACT FILE NO. 811-4401
CIK #0007775689
RULE 497(E) SUPPLEMENT DATED MARCH 16, 1998 TO PROSPECTUS DATED MARCH
9, 1998
Ladies and Gentlemen:
Enclosed for filing pursuant to Rule 497(e) is an electronically-formatted
copy of a Prospectus Supplement dated March 16, 1998 (the "Supplement") to the
above-named Registrant's current Prospectus, dated March 9, 1997 (the "Current
Prospectus"). The current Prospectus was included in Post-Effective Amendment
No. 40 to the Registrant's Registration Statement on Form N-1A, which was filed
on March 6, 1998 and automatically became effective on March 9, 1998 pursuant to
Rule 485(b).
The Supplement notifies prospective investors and existing shareholders of
the following:
1. A proposal to make the fundamental investment restrictions of
each of the Registrant's Portfolios non-fundamental;
2. The pending change in the Registrant's custodial arrangements;
3. Pending changes in the investment program of the Registrant's
Dividend Achievers Portfolio; and
4. A pending change in the portfolio managers for the Registrant's
Dividend Achievers Portfolio.
The Supplement is accompanied by a electronically-formatted copy of a
cross-reference sheet. It has been revised as compared to the cross-reference
sheet included in Post-Effective Amendment No. 40 to the Registrant's
Registration Statement, so as to reference the information in the Supplement
relevant to disclosures included in the Current Prospectus.
Please call me at (414) 277-5309 if you have any questions regarding this
filing.
Very truly yours,
QUARLES & BRADY
/s/ Fredrick G. Lautz
Fredrick G. Lautz
291:lrs
Enclosures
760314.40007
cc (w/enc): Mr. Robert J. Tuszynski
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
SUPPLEMENT DATED MARCH 16, 1998 TO
PROSPECTUS DATED MARCH 9, 1998
PROPOSAL TO MAKE FUNDAMENTAL INVESTMENT RESTRICTIONS OF ALL PORTFOLIOS
NONFUNDAMENTAL
Shareholders of each Portfolio of Principal Preservation Portfolios, Inc.
("Principal Preservation") will be asked to consider a proposal to change their
Portfolio's fundamental investment restrictions so that they would become
nonfundamental. Currently, virtually all of each Portfolio's investment
restrictions are fundamental, meaning they can be changed only with the approval
of the shareholders of the Portfolio. If these investment restrictions were
made nonfundamental, the Board of Directors would be able to modify or eliminate
any one or more of the investment restrictions without first obtaining approval
from the shareholders of the affected Portfolio.
The Board of Directors has no present intention to modify or eliminate any
of the investment restrictions of any of the Portfolios in the foreseeable
future. Rather, the proposal is designed to provide greater flexibility to the
Board of Directors to change or eliminate any of these investment restrictions
should presently unforeseen market or economic developments or changes in laws
and regulations make it desirable to do so, without having to incur costs and
delays associated with the calling and holding of special meetings to obtain
required shareholder approvals.
The Board of Directors has called a special meeting of the shareholders of
each Portfolio to consider and vote upon this proposal in mid May, 1998. Proxy
materials soliciting shareholder approval of this proposal are being prepared,
and it is anticipated those proxy materials will be mailed to shareholders in
early April, 1998. If shareholders of any Portfolio reject this proposal, the
Portfolio's investment restrictions will remain fundamental, meaning they could
not be changed or eliminated at a later date without approval by the
shareholders of the Portfolio.
FIRSTAR TRUST COMPANY TO SERVE AS CUSTODIAN
Principal Preservation has retained Firstar Trust Company to serve as
custodian of the assets of each Portfolio of Principal Preservation effective
March 30, 1998.
Principal Preservation presently serves as a self-custodian subject to
provisions of the Investment Company Act of 1940 (the "1940 Act") permitting
such an arrangement. Those provisions require, among other things, that a
mutual fund serving as a self-custodian must deposit its investment securities
and other assets in the safekeeping of a financial institution meeting specified
requirements. B.C. Ziegler and Company serves as Principal Preservation's
Depository.
The pending change was precipitated by B.C. Ziegler and Company's
announcement that, as a result of certain changes it is making in its business
operations, it will be unable to continue serving as Depository for Principal
Preservation. Principal Preservation's Board of Directors instructed management
to investigate alternatives available for the custody and safekeeping of each
Portfolio's assets. Management contacted and interviewed various qualified
custodians, and arranged for finalists to make presentations and submit
proposals to the Board of Directors. Based on the presentations, proposals and
other information provided to the Board of Directors, the Board of Directors
selected Firstar Trust Company from the finalists.
The fees that Principal Preservation negotiated with Firstar Trust Company
for its custodial services compare favorably to the fees that Principal
Preservation presently pays to B.C. Ziegler and Company in its capacity as
Depository. Accordingly, it is not expected that this change will have a
material effect on the total expenses or the operating expense ratios of the
Portfolios.
DIVIDEND ACHIEVERS PORTFOLIO - PENDING CHANGE IN INVESTMENT PROGRAM
The Board of Directors of Principal Preservation approved a change in the
investment program of the Dividend Achievers Portfolio which will take effect on
June 1, 1998. This pending change will redefine the investment criteria of the
Dividend Achievers Portfolio, so that the universe of stocks meeting the
criteria will more closely correlate with stocks that the Dividend Achievers
Portfolio considers appropriate to achieve its investment objective. That
objective is to obtain capital appreciation and income through investment in a
portfolio of common stocks of companies that have achieved a superior record of
dividend growth.
To achieve its objective, the Dividend Achievers Portfolio presently
limits its investments to the common stocks of companies that have increased
their payment of cash dividends annually for at least eight of the past ten
calendar years, and have a compounded annual dividend growth of at least 10%
per year over a five-year period. As of December 31, 1997, approximately 210
companies traded on the New York or American Stock Exchange or listed on the
NASDAQ Stock Market met these criteria. This universe of issuers includes a
significant number of companies with market capitalizations smaller than $2.0
billion. These smaller companies typically demonstrate greater price volatility
and tend to skew the performance of the universe overall. Because of the lack
of price stability and other risks associated with investments in smaller
companies, the Dividend Achievers Portfolio typically has not invested in stocks
of companies with market capitalizations less than $2.0 billion. The Board of
Directors therefore determined, on the advice of Ziegler Asset Management, Inc.
(the "Advisor"), to revise the investment criteria of the Dividend Achievers
Portfolio so as to generate a universe of stocks more appropriate to achieving
the Dividend Achievers Portfolio's investment objective.
Effective June 1, 1998, the Dividend Achievers Portfolio generally will
invest in stocks of companies that meet the following criteria: have market
capitalizations in excess of $2.0 billion; have increased dividends in at least
four of the past five years; and have demonstrated a five-year dividend growth
rate which exceeds the five-year average dividend growth rate of the S&P 500
Index by at least 20%. There were approximately 280 companies meeting these
criteria as of December 31, 1997. In making its decision to modify the Dividend
Achievers investment program, the Board of Directors noted that this new
universe of stocks outperformed the current universe in four of the past five
calendar years. Of course, past performance is no indication of future
performance. Moreover, the performance of the Dividend Achievers Portfolio will
continue to be dependent upon the ability of the Advisor to select stocks that
perform well relative to this new universe and the stock market generally.
DIVIDEND ACHIEVERS PORTFOLIO - PENDING CHANGE IN INVESTMENT ADVISOR
Mr. R. D. Ziegler, the present portfolio manager of the Dividend Achievers
Portfolio, has expressed his desire to retire from this position effective June
1, 1998. On and after that date, the Dividend Achievers Portfolio will be
managed by an investment committee of two, consisting of Mr. Jay Ferrara and Mr.
Marc Dion. Mr. Ferrara is Vice President - Portfolio Manager and Analyst for
the Advisor, and also serves as Assistant Vice President of B.C. Ziegler and
Company. Mr. Ferrara has more than 12 years of experience in the mutual fund
industry. Prior to joining Principal Preservation, he served as Senior
Portfolio Accountant for Wells Fargo Nikko Investment Advisors and, from 1993 to
1994, as Controller of the California Investment Trust. Mr. Dion is a certified
financial analyst and Vice President and Chief Investment Officer of the
Advisor. He has more than ten years of investment experience.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
FORM N1-A
CROSS-REFERENCE SHEET
-----------------------
FORM N-1A
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
Objectives; Investment Program;
Special Considerations; Description
of Shares; March 16, 1998
Prospectus Supplement
5. Management of the Fund..................Management; Determination of Net
Asset Value Per Share; Other
Information; March 16, 1998
Prospectus Supplement
5A. Management's Discussion of Fund
Performance............................Incorporated from Registrant's 1997
Annual Report to Shareholders
6. Capital Stock and Other
Securities.............................Redemptions; Dividends, Capital
Gains Distributions and
Reinvestments; Tax Status;
Description of Shares
7. Purchase of Securities Being
Offered................................Purchase of Shares; Determination
of Net Asset Value Per Share;
Redemptions; Distribution Expenses
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.........N/A
13. Investment Objectives and Policies......Investment Program; Investment
Restrictions; March 16, 1998
Prospectus Supplement
14. Management of the Fund..................Management of Principal
Preservation
15. Control Persons and Principal
Holders of Securities..................Control Persons and Principal
Holders of Securities
16. Investment Advisory and
Other Services.........................Management of Principal
Preservation; March 16, 1998
Prospectus Supplement
17. Brokerage Allocation and
Brokerage..............................Portfolio Transactions and
Brokerage
18. Capital Stock and Other
Securities.............................Determination of Net Asset Value
Per Share; Tax Status
19. Purchase, Redemption and Pricing
of Securities Being Offered............Determination of Net Asset Value
Per Share; Purchase of Shares;
Distribution Expenses
20. Tax Status..............................Tax Status
21. Underwriters............................Purchase of Shares; Distribution
Expenses; Management of Principal
Preservation
22. Calculation of Performance Data.........Performance Information; Portfolio
Ratings
23. Financial Statements....................Financial Statements
