SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. __)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
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permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
(Name of Registrant as Specified in Its Charter)
Not Applicable
------------------------
(Name of Person(s) Filing Proxy Statement if other than the
Registrant)
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[X] No fee required.
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PRINCIPAL PRESERVATION PORTFOLIOS, INC.
SELECT VALUE PORTFOLIO
215 North Main Street
West Bend, Wisconsin 53095-3317
(414) 334-5521
June 3, 1998
Dear Select Value Portfolio Shareholder:
Enclosed is a notice of a Special Meeting of
Shareholders of the Select Value Portfolio (the "Fund") of
Principal Preservation Portfolios, Inc. ("Principal Preservation")
to be held on Thursday, July 16, 1998, together with a Proxy
Statement and Form of Proxy relating to the business to be
transacted at the meeting.
The Special Meeting of Shareholders is being called for
the purpose of approving a new Sub-Advisory Agreement (the "New
Sub-Advisory Agreement") among Principal Preservation (on behalf
of the Fund), Ziegler Asset Management, Inc. ("ZAMI") and Skyline
Asset Management, L.P. ("Skyline"). Approval of the New Sub-
Advisory Agreement is necessary because the existing Sub-Advisory
Agreement with Skyline potentially could terminate automatically
due to a possible technical assignment of that Agreement. The
assignment of the existing Sub-Advisory Agreement may result from
a number of possible transactions involving an indirect change of
control of Skyline, as described in the Proxy Statement.
Provisions of federal securities laws provide for the automatic
termination of advisory contracts upon their assignment. New
contracts can be entered into only with shareholder approval.
We regret having to seek your approval of a New Sub-
Advisory Agreement so soon after holding a special shareholders
meeting on other matters, but these matters are outside of our
control. We have only recently become aware of possible
developments that could result in an indirect change of control of
Skyline.
THE TERMS OF THE NEW SUB-ADVISORY AGREEMENT, INCLUDING
SUB-ADVISORY FEES, ARE IDENTICAL TO THOSE OF THE CURRENT SUB-
ADVISORY AGREEMENT. IF THE NEW SUB-ADVISORY AGREEMENT IS
APPROVED, SKYLINE WOULD CONTINUE TO MANAGE THE ASSETS OF THE
SELECT VALUE PORTFOLIO PURSUANT TO THE SAME INVESTMENT OBJECTIVES
AND POLICIES PRESENTLY IN EFFECT FOR THE FUND, AND THE TEAM OF
INVESTMENT PROFESSIONALS AND ANALYSTS AT SKYLINE HEADED BY THE
CURRENT PORTFOLIO MANAGER WOULD CONTINUE TO BE RESPONSIBLE FOR
MAKING INVESTMENT DECISIONS FOR THE FUND.
The Board of Directors, has unanimously approved the
New Sub-Advisory Agreement and recommends that the shareholders of
the Select Value Portfolio approve the New Sub-Advisory Agreement
to replace the current Sub-Advisory Agreement in the event it
terminates automatically as a result of an indirect change of
control of Skyline. Affiliates of Skyline will bear all costs of
this proxy solicitation and any costs related to the Special
Meeting of Shareholders. The Fund will not be responsible for any
of these costs.
Thank you for your continued confidence in Principal
Preservation Portfolios, Inc. Your cooperation and participation
in completing and returning the enclosed proxy will ensure that
your vote is counted.
Very truly yours,
PRINCIPAL PRESERVATION
PORTFOLIOS, INC.
/s/ Robert J. Tuszynski
Robert J. Tuszynski
President
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
SELECT VALUE PORTFOLIO
215 North Main Street
West Bend, Wisconsin 53095-3317
(414) 334-5521
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
ON JULY 16, 1998
TO SHAREHOLDERS OF THE SELECT VALUE PORTFOLIO:
A Special Meeting of Shareholders of the Select Value
Portfolio (the "Fund") of the Principal Preservation Portfolios,
Inc. will be held on Thursday, July 16, 1998 at 3:00 p.m., local
time, at the West Bend Inn, 2520 West Washington Street, West
Bend, Wisconsin, for the following purposes:
1. To approve, with respect to the Fund, a new Sub-
Advisory Agreement by and among Principal Preservation Portfolios,
Inc., on behalf of the Fund, Ziegler Asset Management, Inc. and
Skyline Asset Management, L.P. ("Skyline"), pursuant to which
Skyline will continue to serve as sub-adviser with respect to the
assets of the Fund. The new Sub-Advisory Agreement requires
shareholder approval because the existing Sub-Advisory Agreement
with Skyline may be deemed to terminate automatically due to its
technical assignment resulting from any one or a combination of a
number of possible transactions indirectly affecting Skyline.
The new Sub-Advisory Agreement is identical to the existing Sub-
Advisory Agreement (other than with respect to commencement and
termination dates), and does not change the fees paid to Skyline,
the Fund's investment objective, policies and strategies or the
composition of Skyline's portfolio management team responsible for
making investment decisions for the Fund. A copy of the new Sub-
Advisory Agreement is attached as Appendix A to the enclosed Proxy
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Statement; and
2. To transact such other business as properly may
come before the meeting or an adjournment thereof.
The Board of Directors has fixed the close of business
on June 1, 1998 as the record date for determining shareholders
entitled to notice of, and to vote at, the Special Meeting and any
adjournment thereof. Only shareholders of record at the close of
business on that date will be entitled to vote.
Your attention is invited to the Proxy Statement
accompanying this notice for more complete information regarding
the matters to be acted upon at the Special Meeting.
By Order of the Board of
Directors
/s/ S. Charles O'Meara
S. CHARLES O'MEARA
Secretary
West Bend, Wisconsin
June 3, 1998
YOUR VOTE IS IMPORTANT. IN ORDER TO AVOID THE ADDITIONAL EXPENSE
OF A SECOND SOLICITATION, PLEASE COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
PROXY STATEMENT
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
SELECT VALUE PORTFOLIO
215 North Main Street
West Bend, Wisconsin 53095-3317
(414) 334-5521
SOLICITATION, PURPOSE AND VOTING
SOLICITATION
The enclosed Proxy is being solicited by the Board of
Directors of the Principal Preservation Portfolios, Inc.
("Principal Preservation") in connection with the Special Meeting
of Shareholders of the Select Value Portfolio (the "Fund") to be
held on Thursday, July 16, 1998, at 3:00 p.m., local time, at the
West Bend Inn, 2520 West Washington Street, West Bend, Wisconsin,
or any adjournment thereof (the "Special Meeting"). You are
encouraged to read carefully this Proxy Statement and mark and
return the accompanying proxy.
PURPOSE
The purpose of the Special Meeting is to consider and
vote upon a proposal to approve a new Sub-Advisory Agreement (the
"New Sub-Advisory Agreement") between Principal Preservation (on
behalf of the Fund), Ziegler Asset Management, Inc. ("ZAMI" or the
"Adviser"), as the investment adviser of the Fund, and Skyline
Asset Management, L.P., a Delaware limited partnership and sub-
adviser for the Fund ("Skyline"). It is anticipated that in the
next several months one or more of a number of transactions may
occur resulting in an indirect change of control of Skyline's
general partner, Affiliated Managers Group, Inc. Approval by the
Fund shareholders of the New Sub-Advisory Agreement is required
because such a change of control could be deemed to be a technical
assignment of the current Sub-Advisory Agreement resulting in its
automatic termination. Under provisions of the Investment Company
Act of 1940 (the "1940 Act"), advisory contracts terminate
automatically if assigned, and new advisory contracts require
shareholder approval. A change in control of an adviser is deemed
an assignment of the adviser's advisory contracts.
Under the New Sub-Advisory Agreement, Skyline would
continue to serve as Sub-Adviser to the Fund on terms and
conditions identical to those of the Current Sub-Advisory
Agreement pursuant to which Skyline provides sub-advisory services
to the Fund. See "Proposal 1 - Approval of New Sub-Advisory
Agreement" below.
QUORUM AND VOTING
Shares represented by properly executed proxies
received by Principal Preservation will be voted at the Special
Meeting and any adjournment thereof in accordance with the terms
of such proxies. However, if no instructions are specified,
shares will be voted "FOR" approval of the New Sub-Advisory
Agreement under Proposal 1, and in the discretion of the persons
named in the proxy on Proposal 2. A shareholder may revoke his or
her proxy at any time prior to the voting thereof by filing a
written notice of revocation with the Secretary of Principal
Preservation, by delivering a duly executed proxy bearing a later
date, or by attending the Special Meeting and voting his or her
shares in person.
The presence at the meeting, in person or by proxy, of
shareholders representing one-third of all shares of the Fund
outstanding and entitled to vote on a matter constitutes a quorum
for the transaction of business. In tabulating votes on any
matter, abstentions and broker non-votes (i.e., proxies from
brokers or nominees indicating that such persons have not received
instructions from the beneficial owners or other persons entitled
to vote shares as to a matter with respect to which the brokers or
nominees do not have discretionary power to vote) will be treated
as present for purposes of determining the presence or absence of
a quorum.
Approval of the New Sub-Advisory Agreement (Proposal 1)
requires the affirmative vote of "a majority of the outstanding
voting securities" of the Fund, which is defined under the 1940
Act to mean at least a majority of the outstanding voting shares
of the Fund or, if less, 67% of the voting shares represented at a
meeting at which the holders of 50% or more of the outstanding
voting shares of the Fund are present or represented by proxy.
Accordingly, abstentions and broker non-votes will have the same
effect as votes cast against approval of the New Sub-Advisory
Agreement.
Shareholders of record of the Select Value Portfolio at
the close of business on June 1, 1998 will be entitled to one vote
on each matter presented for each share so held. At that date,
there were ------- shares of the Fund outstanding.
UPON REQUEST AND AT NO COST TO A REQUESTING
SHAREHOLDER, THE FUND WILL MAIL, BY FIRST-CLASS MAIL, COPIES OF
ITS ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED DECEMBER 31,
1997. REQUESTS SHOULD BE DIRECTED TO THE ATTENTION OF MR. ROBERT
J. TUSZYNSKI, PRESIDENT OF PRINCIPAL PRESERVATION PORTFOLIOS,
INC., 215 NORTH MAIN STREET, WEST BEND, WISCONSIN 53095,
TELEPHONE: 1-800-826-4600.
This proxy material is being mailed to shareholders on or about
June 3, 1998.
PROPOSAL 1 - APPROVAL OF NEW SUB-ADVISORY AGREEMENT
BACKGROUND
The Special Meeting has been called for the purpose of
considering the adoption of the New Sub-Advisory Agreement for the
Fund. It is expected that a technical assignment of the existing
Sub-Advisory Agreement among Principal Preservation, on behalf of
the Fund, the Adviser and Skyline, dated August 30, 1995 (the
"Current Sub-Advisory Agreement"), may occur in connection with
any one or a combination of a number of possible transactions
resulting in an indirect change in control of Skyline, as
described below (the "Transaction"). Under provisions of the 1940
Act, the Current Sub-Advisory Agreement will terminate
automatically in connection with any such change in control that
is deemed to be an assignment of such agreement. See "Description
of the Transaction."
In order to eliminate any uncertainty about Skyline's
ability to continue to provide advisory services to the Fund
following the Transactions, it is necessary for Principal
Preservation, on behalf of the Fund, the Adviser and Skyline to
enter into a new sub-advisory agreement (the "New Sub-Advisory
Agreement"). The New Sub-Advisory Agreement will have terms and
conditions (including the rate of compensation to be paid to
Skyline thereunder) identical to those of the Current Sub-Advisory
Agreement (except with respect to effective and termination
dates). Provisions of the 1940 Act require that the New Sub-
Advisory Agreement must be approved by the shareholders of the
Fund. Accordingly, shareholders are being asked to approve the
New Sub-Advisory Agreement. The New Sub-Advisory Agreement will
take effect only if a change-in-control Transaction occurs. A
copy of the New Sub-Advisory Agreement is attached as Appendix A
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to this Proxy Statement.
DESCRIPTION OF CURRENT SUB-ADVISORY AGREEMENT
Ziegler Asset Management, Inc., 215 North Main Street,
West Bend, Wisconsin 53095, is the investment adviser for the
Fund, as well as the other seven portfolios of Principal
Preservation. The Investment Advisory Agreement between the
Adviser and Principal Preservation, dated December 29, 1995 (the
"Advisory Agreement"), will not be affected by the Transactions
and will remain in full force and effect regardless of whether the
New Sub-Advisory Agreement is approved and regardless of whether
the Transactions are consummated. Under the terms of the Advisory
Agreement, the fee payable by the Fund to the Adviser, which is
calculated daily and paid monthly, is at the annual rate of 0.75
of 1% of the Fund's average daily net assets up to $250 million,
and at the annual rate of 0.65 of 1% of the Fund's net assets in
excess of $250 million.
The Adviser and Principal Preservation (acting on
behalf of the Fund) have retained Skyline to serve as the Sub-
Adviser to the Fund under the terms of the Current Sub-Advisory
Agreement. The shareholders of the Fund approved the Current Sub-
Advisory Agreement on August 30, 1995. Under the Current Sub-
Advisory Agreement, Skyline, subject to the direction and control
of the Adviser and the Board of Directors of Principal
Preservation, determines the securities that will be purchased or
sold by the Fund, arranges for their purchase and sale and renders
other assistance to the Adviser in formulating and implementing
the investment program of the Fund. Skyline furnishes or pays for
all facilities, equipment and supplies required for it to carry
out its duties under the Current Sub-Advisory Agreement,
including, but not limited to, office space, office equipment,
furnishings and personnel. Under the Current Sub-Advisory
Agreement, Skyline receives a fee, which is calculated daily and
paid monthly out of the fee paid to the Adviser under the Advisory
Agreement, at an annual rate of 0.375 of 1% of the Fund's average
daily net assets up to $250 million, 0.350 of 1% of the next $250
million of the Fund's average daily net assets, and 0.325 of 1% of
average daily net assets in excess of $500 million.
Unless earlier terminated as described below, the
Current Sub-Advisory Agreement provides that it will remain in
effect from year to year only so long as such continuance is
specifically approved at least annually in the manner required
under the 1940 Act. The 1940 Act provides that the requisite
approval shall be deemed to have been obtained only if the Current
Sub-Advisory Agreement is specifically approved at least annually:
(i) by the vote of a majority of the Directors who are not parties
to the Current Sub-Advisory Agreement or "interested persons" (as
defined in the 1940 Act) of any such party cast in person at a
meeting called for the purpose of voting on such approval; and
(ii) either by the vote of a majority of the entire Board of
Directors or by the vote of the holders of a "majority" (as
defined in the 1940 Act) of the outstanding voting securities of
the Fund.
The Current Sub-Advisory Agreement may be terminated by
the Sub-Adviser at any time without penalty upon giving Principal
Preservation and the Adviser sixty (60) days written notice, and
may be terminated by Principal Preservation or the Adviser at any
time without penalty upon giving the Sub-Adviser sixty (60) days
written notice, provided that such termination by Principal
Preservation must be directed or approved by the vote of a
majority of all of its Directors in office at the time or by the
vote of the holders of a "majority" (as defined in the 1940 Act)
of the voting securities of the Fund. In addition, the Current
Sub-Advisory Agreement automatically terminates in the event of
its "assignment" (as defined in the 1940 Act to include assignment
in connection with certain transactions affecting Skyline, which
may include the Transaction) and in the event that the Advisory
Agreement is terminated. If the Current Sub-Advisory Agreement is
terminated, the approval of the shareholders of the Fund is
required to enter into a new agreement with respect to the Fund.
DESCRIPTION OF NEW SUB-ADVISORY AGREEMENT
The New Sub-Advisory Agreement differs from the Current
Sub-Advisory Agreement only with respect to the effective date and
termination date. In all other respects, the New Sub-Advisory
Agreement and the Current Sub-Advisory Agreement are identical.
The effective date is described under "Consequences of the
Transaction" below. The New Sub-Advisory Agreement will expire
two years after its effective date, unless approved for annual
continuance prior to that time in accordance with the procedures
described above for the Current Sub-Advisory Agreement.
The New Sub-Advisory Agreement, like the Current Sub-
Advisory Agreement, provides that Skyline (and its officers,
directors, agents, employees, controlling persons, shareholders
and any other person or entity affiliated with the Skyline) shall
not be liable to Principal Preservation or its shareholders for
any loss suffered as a consequence of any act or omission of
Skyline or any of the foregoing related parties or entities in
connection with the New Sub-Advisory Agreement except by reason of
its willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of reckless disregard of
its obligations under the New Sub-Advisory Agreement.
APPROVAL REQUIRED
In order to be approved, the New Sub-Advisory Agreement
must receive the affirmative vote of at least a majority of the
outstanding shares of the Fund, or if less, 67% of the shares
represented at a meeting of shareholders at which the holders of
50% or more of the outstanding shares of the Fund are present or
represented by proxy.
Approval of the New Sub-Advisory Agreement by the
shareholders of the Fund will remain valid for a period of two
years following the Special Meeting. If no Transaction occurs
within that time, shareholder approval of the New Sub-Advisory
Agreement would have to be resolicited in order for Skyline to
continue providing sub-advisory services to the Fund pursuant to
the New Sub-Advisory Agreement following a change-in-control
transaction occurring after that time.
DESCRIPTION OF THE TRANSACTION
Skyline is controlled by its general partner,
Affiliated Managers Group, Inc. ("AMG"). AMG is a public company,
more than 25% of the outstanding voting common stock of which is
currently owned by a number of private equity funds ultimately
managed by TA Associates, Inc. ("TA"). As a result, TA presently
may be deemed to control AMG and Skyline for purposes of the 1940
Act.
In the next several months, it is anticipated that one
or more of the following transactions will occur, the result of
which will be to reduce the percentage of voting stock of AMG
beneficially owned by TA so that TA will no longer be deemed to
control AMG (the "Transaction"): TA may seek to cause the funds it
manages to distribute AMG voting stock to their respective
investors or to sell AMG stock in public or private transactions;
other investors holding nonvoting stock of AMG may convert (upon a
public or private sale or otherwise) their stock in a manner that
dilutes the percentage of AMG voting stock held by the funds
managed by TA; or AMG may issue additional shares of voting stock
in public market or private transactions.
CONSEQUENCES OF THE TRANSACTION
The Current Sub-Advisory Agreement automatically
terminates in the event of its "assignment," as defined in the
1940 Act. An assignment includes any direct or indirect transfer
of a controlling interest in the assigning party's outstanding
voting securities. The Transaction would lead to an indirect
change of control of Skyline, which may be deemed to constitute an
assignment of the Current Sub-Advisory Agreement under the 1940
Act, resulting in its automatic termination. In order for Skyline
to continue providing sub-advisory services to the Fund following
any such assignment, the Adviser, Skyline and the Fund must enter
into the New Sub-Advisory Agreement. The 1940 Act prohibits any
person from providing advisory or sub-advisory services to an
investment company for a fee, except pursuant to a written
agreement approved by shareholders of the fund.
It is anticipated that the Transaction will be effected
(a) after shareholder approval of the New Sub-Advisory Agreement
is obtained, in which event the New Sub-Advisory Agreement will
become effective simultaneously with the Transaction, or (b) prior
to such shareholder approval, in which event the New Sub-Advisory
Agreement could become effective simultaneously with the
Transaction, subject to compliance with the provisions of Rule
15a-4 under the 1940 Act or in accordance with an appropriate
exemptive order from the Securities and Exchange Commission (the
"SEC"). Rule 15a-4 provides that, when an investment advisory (or
sub-advisory) contract terminates automatically by reason of a
change-in-control transaction affecting the adviser (or sub-
adviser) under specified circumstances, the adviser (or sub-
adviser) and investment company may enter into a new contract and
the adviser (or sub-adviser) may provide investment advisory
services under the new contract for a period of up to 120 days
pending approval of the new contract by the shareholders of the
investment company. If Rule 15a-4 is not available for the
Transaction, an exemptive order might be obtained from the SEC to
enable Skyline to provide sub-advisory services to the Fund
pursuant to the New Sub-Advisory Agreement pending approval of
that Agreement by the shareholders of the Fund.
If the New Sub-Advisory Agreement is not approved by
the shareholders of the Fund, but the Transaction is nonetheless
consummated and results in an assignment, the Current Sub-Advisory
Agreement will terminate automatically. The Directors would then
consider what course of action to pursue with respect to the Fund.
Such course of action could involve seeking to engage Skyline to
provide investment management services on an interim basis
(subject to any required regulatory action) during the period
required to obtain approval by shareholders of the New Sub-
Advisory Agreement or another sub-advisory agreement with Skyline,
having the Adviser assume responsibilities for the management of
the assets of the Fund pursuant to the Advisory Agreement, or
seeking to make other arrangements for obtaining such services
from another source, as the Directors consider appropriate. If
the Transaction is not consummated for any reason, then the
Current Sub-Advisory Agreement will continue in full force and
effect unless and until terminated in accordance with its terms,
as described above.
COMPLIANCE WITH SECTION 15(F) OF THE 1940 ACT
Section 15(f) of the 1940 Act permits Skyline or any of
its affiliates to receive any compensation or benefit in
connection with a change-in-control transaction, provided two
conditions are satisfied.
First, no unfair burden may be imposed on the Fund as a
result of the transaction or any expressed or implied terms,
conditions or understandings, applicable thereto. The term
"unfair burden," as defined in the 1940 Act, includes any
arrangement during the two-year period after the transaction
whereby Skyline (or any predecessor or successor sub-adviser), or
any interested person of Skyline or of such predecessor or
successor sub-adviser, receives or is entitled to receive any
compensation, directly or indirectly from the Fund or its security
holders (other than fees for bona fide sub-advisory or other
services) or from any person in connection with the purchase or
sale of securities or any property to, from, or on behalf of the
Fund (other than fees for bona fide principal underwriting
services). No such compensation arrangements are contemplated in
connection with any Transaction that might occur.
The second condition is that, during the three-year
period immediately following consummation of the Transaction, at
least 75% of Principal Preservation's Board of Directors must not
be "interested persons" (as that term is defined in the 1940 Act)
of Skyline. None of the members of Principal Preservation's Board
of Directors presently are "interested persons" with respect to
Skyline, nor are they expected to be following any Transaction.
Accordingly, it is contemplated that the conditions of Section
15(f) of the 1940 Act will be met in connection with any
Transaction.
INFORMATION CONCERNING SKYLINE
Skyline Asset Management, L.P., 311 South Wacker Drive,
Suite 4500, Chicago, Illinois 60606, is the sub-adviser for the
Fund. Skyline is a Delaware limited partnership and registered
with the SEC as an investment adviser.
Skyline's general partner is Affiliated Managers Group,
Inc. See "Information concerning AMG" below. The limited
partners of Skyline are corporations wholly owned by five Skyline
officers, William M. Dutton, Kenneth S. Kailin, Stephen F.
Kendall, Geoffrey P. Lutz and Michael Maloney.
The officers of Skyline manage its day-to-day
operations and investment advisory business. AMG does not manage
the day-to-day operations of Skyline, nor does it participate in
the investment process. Neither AMG nor TA has the power or
authority to participate in the day-to-day management or
operations of Skyline under Skyline's organizational documents.
Skyline has advised the Fund that a Transaction would have no
effect on the management or operations of Skyline.
William M. Dutton has been Chief Executive Officer and
Chief Investment Officer of Skyline since September 1995. Mr.
Dutton serves as a member of the Skyline team responsible for
managing the Fund's assets. He was Executive Vice President of
Mesirow Asset Management, Inc. from April 1984 to August 1995.
Mr. Dutton is also President and a Trustee of Skyline Funds, a
registered investment company. Mr. Dutton is the portfolio
manager for the Skyline Funds' Special Equities Portfolio, having
served in such capacity since 1987, and manages the portfolio of a
private investment partnership and separately managed accounts.
Mr. Dutton, who is a certified public accountant, received an
undergraduate degree in English Literature from Princeton
University, and a master's degree in accounting from the
University of Illinois.
Kenneth S. Kailin is Portfolio Manager of Skyline,
having served in such capacity since September 1995. Mr. Kailin,
as portfolio manager for the Fund, heads up the team that manages
the Fund's assets. Mr. Kailin is also an Executive Vice President
of Skyline Funds and portfolio manager of the Skyline Small Cap
Value Plus Portfolio. He was Senior Vice President of Mesirow
Asset Management, Inc. from April 1987 to August 1995. Prior to
his work in the investment field, Mr. Kailin was employed in the
banking industry. Mr. Kailin received his Bachelor of Science
degree in Finance from Indiana University and his M.B.A. degree
from the University of Chicago. In addition, he is a Chartered
Financial Analyst.
Stephen F. Kendall is Chief Operating Officer of
Skyline. Mr. Kendall has served in such capacity since January
1998. Mr. Kendall is also an Executive Vice President of Skyline
Funds. He was Regional Vice President, Metro Region of Nabisco
Biscuit Company from January 1996 to January 1998, and held
various other positions with Nabisco from 1983 to 1996. Mr.
Kendall received a Bachelor of Arts degree from Miami University
of Ohio.
Geoffrey P. Lutz has been Director of Institutional
Marketing of Skyline since September 1995. He is also an
Executive Vice President of Skyline Funds. Mr. Lutz formerly was
Vice President of Mesirow Asset Management, Inc. from May 1992 to
August 1995. Prior thereto, he was a Registered Representative
for Mesirow Financial, Inc. and Mesirow Investment Services, Inc.,
registered broker-dealers and investment advisers. Mr. Lutz holds
a Bachelor of Arts degree from Loyola University.
Michael Maloney has been Senior Securities Analyst of
Skyline since September 1995. He is a Senior Vice President of
Skyline Funds. Mr. Maloney was Securities Analyst for Mesirow
Asset Management, Inc. from February 1993 to August 1995.
Previously, Mr. Maloney was a vice president and investment
analyst at Baker, Fentress & Company, a closed-end management
investment company. Mr. Maloney earned his Bachelor of Arts
degree from DePaul University and his M.B.A. in Finance from the
University of Wisconsin- Madison. He is a Chartered Financial
Analyst.
Skyline serves as investment adviser to Skyline Funds'
three portfolios. Each of these portfolios has as its investment
objective to seek maximum capital appreciation primarily through
investment in common stocks that Skyline considers undervalued.
Skyline Special Equities Portfolio (closed to new investors)
emphasizes investments in small companies whose outstanding shares
have an aggregate market value of less than $1 million. Skyline
Small Cap Contrarian Portfolio emphasizes investments in small
companies whose outstanding shares have an aggregate market value
of $50 million to $2 billion. Skyline Small Cap Value Plus
Portfolio emphasizes investments in small companies whose
outstanding shares have an aggregate market value under $2
billion.
The table below presents the net assets and advisory
fee compensation schedule for these three Skyline portfolios:
RATE OF COMPENSATION
NET ASSETS (EXPRESSED AS A PERCENTAGE
SKYLINE PORTFOLIO AT 12/31/97 OF AVERAGE NET ASSETS)
----------------- ----------- -------------------------
Skyline Special $467,069,690 1.50% of first $200 million;
Equities Portfolio 1.45% of next $200 million;
1.40% of next $200 million; and
1.35% of average daily
net assets in excess of
$600 million.
Skyline Small Cap $4,752,517 1.50% of first $200 million;
Contrarian Portfolio 1.45% of next $200 million;
1.40% of next $200 million; and
1.35% of average daily net
assets in excess of $600
million.
Skyline Small Cap $165,686,772 1.50% of first $200 million;
Value Plus Portfolio 1.45% of next $200 million;
1.40% of next $200 million; and
1.35% of average daily net
assets IN excess of $600 million.
The compensation to Skyline with respect to each of
these portfolios is a comprehensive fee for management and
advisory services and for the assumption of ordinary operating
expenses of the portfolios. Skyline has agreed to reimburse each
of these portfolios to the extent that, in any fiscal year, the
Portfolio's aggregate expenses (including advisory fees and
reimbursement of organizational expenses but excluding
extraordinary costs), exceed an annual rate of 1.75%, 1.75% and
2.00% for the Skyline Special Equities Portfolios, the Skyline
Small Cap Contrarian Portfolio and the Skyline Small Cap Value
Plus Portfolio, respectively.
INFORMATION CONCERNING AMG
Affiliated Managers Group, Inc., a Delaware
corporation, is the general partner of Skyline. AMG, a publicly
traded company on the New York Stock Exchange, is an asset
management holding company that acquires interests in investment
management firms. Since its founding in December 1993, AMG has
grown to 10 investment management firms with over $40 billion in
assets under management. The executive offices of AMG are located
at Two International Place, 23rd Floor, Boston, Massachusetts
02110.
A group of private investment funds ultimately managed
by TA collectively own over 25% of the outstanding common stock of
AMG. TA, a Boston-based private equity investment firm, co-
founded AMG. As a result, TA may be deemed to "control" AMG for
purposes of the 1940 Act and thus may be deemed to control
Skyline. TA's address is High Street Tower, Suite 2500, 125 High
Street, Boston, Massachusetts 02110.
DIRECTORS' CONSIDERATIONS AND RECOMMENDATION
In considering the New Sub-Advisory Agreement, the
Board of Directors carefully evaluated a number of relevant
factors, including but not limited to: (1) a comparison of the
fees and expense ratios (including advisory fees) of the Fund to
those of other similar mutual funds; (2) the historical
performance of the Fund, including the Fund's performance during
the time Skyline has served as its sub-adviser ; (3) the nature
and quality of the services that have been rendered and are
expected to be rendered to the Fund by Skyline; (4) the distinct
investment objectives and policies of the Fund; (5) the fact that
the compensation payable to Skyline under the New Sub-Advisory
Agreement will be at the same rate as the compensation payable to
Skyline under the Current Sub-Advisory Agreement; (6) the fact
that the terms of the New Sub-Advisory Agreement will be identical
to those of the Current Sub-Advisory Agreement; (7) the history,
reputation, qualification and background of Skyline and AMG, as
well as the qualifications of their personnel and their respective
operations and financial condition; (8) the portfolio manager's
investment performance record; (9) the benefits resulting from
Skyline's affiliation with AMG; (10) the absence of any special or
inappropriate benefits that would be obtained by Skyline and its
affiliates from the relationship, including a consideration of
soft dollar arrangements; (11) the consequences of the Transaction
on Skyline's management and operations; and (12) other factors
deemed relevant by the Board. The Board of Directors has been
advised that the Transaction would have no effect on the
management, operations or personnel of Skyline or the services
rendered to the Fund.
Based upon these considerations, the Board has
determined that it would be in the best interests of the Fund to
have Skyline continue to serve as the Fund's sub-adviser following
the Transaction. The Board of Directors has further determined
that the terms of the New Sub-Advisory Agreement are fair to, and
in the best interests of, the Fund and its shareholders.
ACCORDINGLY, THE BOARD OF DIRECTORS, NONE OF WHOM IS AN
"INTERESTED PERSON" OF SKYLINE OR AMG, UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS OF THE FUND VOTE "FOR" APPROVAL OF THE NEW SUB-
ADVISORY AGREEMENT.
OTHER BUSINESS
Management of Principal Preservation is not aware of
any other matters that will come before the Special Meeting.
However, if any other business should come before the Special
Meeting, your proxy, if signed and returned, will give
discretionary authority to the persons designated in it to vote
according to their best judgment on such matters.
ADDITIONAL INFORMATION
ADMINISTRATOR AND DISTRIBUTOR
B.C. Ziegler and Company ("B.C. Ziegler") serves as the
distributor for the shares of each portfolio of Principal
Preservation, including the Fund, and also serves as the
depository, accounting/pricing agent and transfer and dividend
disbursing agent for each Portfolio. B.C. Ziegler is registered
with the SEC as a securities broker-dealer and is a member of the
National Association of Securities Dealers. B.C. Ziegler has been
engaged in the underwriting of debt securities for more than 75
years. The Adviser and B.C. Ziegler are each wholly owned
subsidiaries of The Ziegler Companies, Inc. The principal address
of B.C. Ziegler, the Adviser and The Ziegler Companies, Inc. is
215 North Main Street, West Bend, Wisconsin 53095.
AUDITORS
The firm of Arthur Andersen LLP has served Principal
Preservation as independent accountants and auditors since its
inception in 1985, and has served as independent accountants and
auditors to the Fund since its commencement of operations on
August 23, 1994. Arthur Andersen LLP has no direct or indirect
financial interest in Principal Preservation or the Fund except as
auditors and independent public accountants. No representative of
Arthur Andersen LLP is expected to be present at the Special
Meeting.
PRINCIPAL SHAREHOLDERS AND CERTAIN BENEFICIAL OWNERS
As of June 1, 1998, no person was known to own of
record or beneficially five percent (5%) or more of the
outstanding shares of the Fund, except that Ziegler Growth
Retirement Plan, 215 North Main Street, West Bend, Wisconsin,
owned of record --------- shares, or approximately -----% of the
Fund and B.C. Ziegler, 215 North Main Street, West Bend,
Wisconsin, owned ----------- shares, or approximately ---% of the
Fund. Information as to beneficial ownership was obtained from
information on file with the SEC or furnished by the specified
person or the Fund's transfer agent.
The following table shows shares of the Fund
beneficially owned by each Director, and the group consisting of
all Directors and officers of Principal Preservation, at June 1,
1998.
NAME AND POSITION(S) NUMBER OF SHARES OF
WITH PRINCIPAL PRESERVATION THE FUND(1)<F1>
--------------------------- --------------------
Robert J. Tuszynski; President and Director(2)(3) ------
<F2><F3>
Richard H. Aster, M.D.; Director ------
Augustine J. English; Director 0
Ralph J. Eckert; Director 0
Richard J. Glaisner; Director(2)<F2> 0
All directors and officers as a group (9 persons) -----
----------
(1)<F1> These figures are based on information furnished by the
respective individuals and by B.C. Ziegler, the Fund's transfer
agent. Certain of the individuals listed share voting and
investment power with his spouse with respect to some or all of
the shares listed opposite his name. Each individual Director or
executive officer beneficially owns less than 1% of the shares of
the Fund.
(2)<F2> Is an "interested person" (as defined in the 1940 Act)
of Principal Preservation as a result of his affiliation(s) with
Ziegler and/or the Adviser.
(3) <F3> Includes shares held in the Ziegler Growth Retirement
Plan for the account of the named person. The terms of that Plan
allow the named person to direct the disposition of shares held in
his account.
COST OF SOLICITATION
In addition to this solicitation of proxies by mail,
proxies may be solicited by officers of Principal Preservation and
by officers and employees of B.C. Ziegler or the Adviser,
personally or by telephone or telegraph, without special
compensation. Proxies may also be solicited by a professional
proxy solicitation service should management of Principal
Preservation determine that solicitation by such means is
advisable. The cost of preparing and mailing proxy materials, of
the Special Meeting, and of soliciting proxies will be borne by
AMG and its affiliates. No such costs will be borne by the Fund.
ADJOURNMENT
In the event that sufficient votes in favor of the
proposal set forth in the Notice of Special Meeting which
accompanies this Proxy Statement are not received by the time
scheduled for the Special Meeting, the persons named as proxies
may propose one or more adjournments of the Special meeting to
permit further solicitation of proxies with respect to such
proposal. Any such adjournment will require the affirmative vote
of a majority of the votes cast on the question in person or by
proxy at the session of the Special Meeting to be adjourned. The
persons named as proxy will vote in favor of such adjournment
those proxies which they are entitled to vote in favor of such
proposal. They will vote against any such adjournment those
proxies required to be voted against any such proposal. The costs
of any such additional solicitation and of any adjourned session
will be borne by Skyline, the Adviser or an affiliate of the
Adviser, or some combination of the foregoing.
SHAREHOLDER MEETINGS
Principal Preservation is organized as a Maryland
corporation, and as such is not required to hold annual meetings
of shareholders. Principal Preservation's Bylaws provide that
Principal Preservation is not required to hold annual meetings of
shareholders in any year in which the election of Directors,
approval of an investment advisory agreement (or any sub-advisory
agreement) or ratification of the selection of independent public
accountants is not required to be acted upon by shareholders of
Principal Preservation or of any of is portfolio series, including
the Fund, under the 1940 Act. Meetings of shareholders of the
Fund will be held when and as determined necessary by the Board of
Directors of Principal Preservation and in accordance with the
1940 Act. However, shareholders of any portfolio series wishing
to submit proposals for inclusion in a proxy statement for any
future shareholder meetings should send their written proposals to
the Secretary of Principal Preservation at 215 North Main Street,
West Bend, Wisconsin 53095.
By Order of the Board of
Directors
/s/ S. Charles O'Meara
S. CHARLES O'MEARA
Secretary
West Bend, Wisconsin
June 3, 1998
EXHIBIT A
SUB-ADVISORY AGREEMENT
AGREEMENT made as of the ----- day of -----, 1998, by
and among PRINCIPAL PRESERVATION PORTFOLIOS, INC., a Maryland
corporation (the "Fund"), ZIEGLER ASSET MANAGEMENT, INC., a
Wisconsin corporation (the "Adviser"), and SKYLINE ASSET
MANAGEMENT, L.P., a Delaware limited partnership (the "Sub-
Adviser").
W I T N E S S E T H
For good and valuable consideration, the receipt of
which is hereby acknowledged, it is hereby agreed by and among the
parties hereto as follows:
1. IN GENERAL
The Sub-Adviser agrees, as more fully set forth herein,
to act as Sub-Adviser to the Fund with respect to the investment
and reinvestment of the assets of the Select Value Portfolio and
of any other series of common stock of the Fund as the parties may
mutually agree and specify from time to time on Exhibit A hereto.
---------
The Select Value Portfolio and each other such series is referred
to herein as a "Portfolio." The Sub-Adviser agrees to supervise
and arrange the purchase of securities and the sale of securities
held in the investment portfolios of each Portfolio specified on
Exhibit A. It is understood that the Fund may create one or more
---------
additional series of shares and that, if it does so, this
Agreement may be amended by the mutual written consent of the
parties to include such additional series under the terms of this
Agreement.
2. DUTIES AND OBLIGATIONS OF THE SUB-ADVISER WITH
RESPECT TO INVESTMENTS OF ASSETS OF THE PORTFOLIOS
(a) Subject to the succeeding provisions of this
section and subject to the oversight and review of the Adviser and
the direction and control of the Board of Directors of the Fund,
the Sub-Adviser shall:
(i) Determine what securities shall be purchased or
sold by each Portfolio specified on Exhibit A;
---------
(ii) Arrange for the purchase and the sale of
securities held in each Portfolio specified on Exhibit A; and
(iii) Provide the Adviser and the Directors with
such reports as may reasonably be requested in connection with the
discharge of the foregoing responsibilities and the discharge of
the Adviser's responsibilities under its Investment Advisory
Agreement with the Fund and those of B.C. Ziegler and Company (the
"Distributor") under its Distribution Agreement with the Fund.
(b) Any investment purchases or sales made by the Sub-
Adviser under this section shall at all times conform to, and be
in accordance with, any requirements imposed by: (1) the
provisions of the Investment Company Act of 1940 (the "Act") and
of any rules or regulations in force thereunder; and (2) the
provisions of the Articles of Incorporation and By-Laws of the
Fund as amended from time to time; (3) any policies and
determinations of the Board of Directors of the Fund; and (4) the
fundamental policies of the Fund, as reflected in its registration
statement under the Act, or as amended by the shareholders of the
Fund; provided that copies of the items referred to in clauses
(2), (3) and (4) shall have been furnished to the Sub-Adviser.
(c) The Sub-Adviser shall give the Fund the benefit of
its best judgment and effort in rendering services hereunder. In
the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations or duties ("disabling
conduct") hereunder on the part of the Sub-Adviser (and its
officers, directors, agents, employees, controlling persons,
shareholders and any other person or entity affiliated with the
Sub-Adviser) the Sub-Adviser shall not be subject to liability to
the Fund or to any shareholder of the Fund for any act or omission
in the course of, or connected with, rendering services hereunder,
including without limitation any error of judgment or mistake of
law or for any loss suffered by any of them in connection with the
matters to which this Agreement relates, except to the extent
specified in Section 36(b) of the Act concerning loss resulting
from a breach of fiduciary duty with respect to the receipt of
compensation for services. Except for such disabling conduct, the
Fund shall indemnify the Sub-Adviser (and its officers, directors,
agents, employees, controlling persons, shareholders and any other
person or entity affiliated with the Sub-Adviser) against any
liability arising from the Sub-Adviser's conduct under this
Agreement to the extent permitted by the Fund's Articles of
Incorporation, By-Laws and applicable law.
(d) Nothing in this Agreement shall prevent the Sub-
Adviser or any affiliated person (as defined in the Act) of the
Sub-Adviser from acting as investment advisor or manager for any
other person, firm or corporation and shall not in any way limit
or restrict the Sub-Adviser or any such affiliated person from
buying, selling or trading any securities for its or their own
accounts or for the accounts of others for whom it or they may be
acting, provided, however, that the Sub-Adviser expressly
represents that it will undertake no activities which, in its
judgment, will adversely affect the performance of its obligations
to the Fund under this Agreement or under the Act. It is agreed
that the Sub-Adviser shall have no responsibility or liability for
the accuracy or completeness of the Fund's Registration Statement
under the Act and the Securities Act of 1933, except for
information supplied by the Sub-Adviser for inclusion therein.
The Sub-Adviser shall be deemed to be an independent contractor
and, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Fund in any way or otherwise
be deemed an agent of the Fund.
(e) In connection with its duties to arrange for the
purchase and sale of each Portfolio's portfolio securities, the
Sub-Adviser shall follow the principles set forth in any
investment advisory agreement in effect from time to time between
the Fund and the Adviser, provided that a copy of any such
agreement shall have been provided to the Sub-Adviser. The Sub-
Adviser will promptly communicate to the Adviser and to the
officers and the Directors of the Fund such information relating
to portfolio transactions as they may reasonably request.
3. ALLOCATION OF EXPENSES
The Sub-Adviser agrees that it will furnish the Fund,
at the Sub-Adviser's expense, with all office space and
facilities, equipment and clerical personnel necessary for
carrying out the Sub-Adviser's duties under this Agreement. The
Sub-Adviser will also pay all compensation of those of the Fund's
officers and employees, if any, and of those Directors, if any,
who in each case are affiliated persons of the Sub-Adviser.
4. CERTAIN RECORDS
Any records required to be maintained and preserved
pursuant to the provisions of Rule 31a-1 and Rule 31a-2 under the
Act which are prepared or maintained by the Sub-Adviser on behalf
of the Fund are the property of the Fund and will be surrendered
promptly to the Fund or the Adviser on request.
5. REFERENCE TO THE SUB-ADVISER
Neither the Fund nor the Adviser or any affiliate or
agent thereof shall make reference to or use the name of the Sub-
Adviser or any of its affiliates in any advertising or promotional
materials without the prior approval of the Sub-Adviser, which
approval shall not be unreasonably withheld.
6. COMPENSATION OF THE SUB-ADVISER
The Adviser agrees to pay the Sub-Adviser, and the Sub-
Adviser agrees to accept as full compensation for all services
rendered by the Sub-Adviser as such, a management fee as specified
on Exhibit A.
7. DURATION AND TERMINATION
(a) This Agreement shall go into effect with respect
to the Select Value Portfolio on the date hereof, subject to
compliance with the shareholder approval requirements of Section
15(a) of the Act and the rules of the Securities and Exchange
Commission (the "SEC") promulgated thereunder or, alternatively
subject to compliance with an appropriate SEC exemptive order
therefrom. In the event the parties hereto mutually agree that
one or more series of the Fund should be included as additional
"Portfolio(s)" hereunder, this Agreement shall become effective
with respect to each such additional Portfolio on the date
specified on Exhibit A hereto. Once effective with respect to any
Portfolio(s), this Agreement shall, unless terminated as
hereinafter provided, continue in effect for a period of two years
with respect to such Portfolio, and thereafter from year to year,
but only so long as such continuance is specifically approved at
least annually by a majority of the Fund's Board of Directors, or
by the vote of the holders of a "majority" (as defined in the Act)
of the outstanding voting securities of the relevant Portfolio(s),
and, in either case, a majority of the Directors who are not
parties to this Agreement or "interested persons" (as defined in
the Act) of any such party cast in person at a meeting called for
the purpose of voting on such approval.
(b) This Agreement may be terminated by the Sub-
Adviser in its entirety or with respect to any one or more
specifically identified Portfolios at any time without penalty
upon giving the Fund and the Adviser sixty (60) days' written
notice (which notice may be waived by the Fund and the Adviser)
and may be terminated by the Fund or the Adviser in its entirety
or with respect to any one or more specifically identified
Portfolios at any time without penalty upon giving the Sub-Adviser
sixty (60) days' written notice (which notice may be waived by the
Sub-Adviser), provided that such termination by the Fund shall be
directed or approved by the vote of a majority of all of its
Directors in office at the time or by the vote of the holders of a
"majority" (as defined in the Act) of the voting securities of
each Portfolio with respect which the Agreement is to be
terminated. This Agreement shall automatically terminate in the
event of its "assignment" (as defined in the Act). This Agreement
will also automatically terminate in the event that the Investment
Advisory Agreement by and between the Fund and the Adviser is
terminated for any reason.
IN WITNESS WHEREOF, the parties hereto have caused the
foregoing instrument to be executed by their duly authorized
officers and their seals to be hereto affixed, all as of the day
and year first above written.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
/s/ Robert J. Tuszynski
By: ----------------------------------
Robert J. Tuszynski, President
ZIEGLER ASSET MANAGEMENT, INC.
/s/ Geoffrey G. McClay, Jr.
By:----------------------------------
Geoffrey G. McClay, Jr.,
President and Chief Executive Officer
SKYLINE ASSET MANAGEMENT, L.P.
By: AFFILIATED MANAGERS GROUP, INC.
Its General Partner
By:---------------------------
Its: -------------------------
EXHIBIT A
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
SKYLINE ASSET MANAGEMENT, L.P.
SUB-ADVISORY AGREEMENT
1. Select Value Portfolio.
a. Determined pursuant to Section 7(a) of this Agreement.
b. Management Fee: computed daily and paid monthly at the
annual rate of 0.375 of one percent on the Select Value
Portfolio's first $250 million of average daily net assets,
reducing 0.025 of one percent on each $250 million thereafter,
down to an annual rate of 0.325 of one percent on average daily
net assets over $500 million.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
SELECT VALUE PORTFOLIO
REVOCABLE PROXY FOR 1998 SPECIAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert J. Tuszynski, S. Charles
O'Meara and Franklin P. Ciano, and each of them, Proxy, with full
power of substitution, to represent and vote, as designated below,
all shares of stock of the Select Value Portfolio of Principal
Preservation Portfolios, Inc. that the undersigned is entitled to
vote at the Special Meeting of Shareholders of Principal
Preservation Portfolios, Inc. to be held at the West Bend Inn,
2520 West Washington Street, West Bend, Wisconsin at 3:00 P.M., on
Thursday, July 16, 1998, or at any adjournment thereof, with
respect to the matters set forth on the reverse side and described
in the accompanying Notice of Special Meeting and Proxy Statement,
receipt of which is hereby acknowledged.
DATE:--------------------, 1998
(If this account is owned by more than one person, all owners
should sign. Persons signing as executors, administrators,
trustees or in similar capacities should so indicate.)
(Please sign exactly as name appears at left)
Please place an "X" in the desired box for each item.
Shares represented by this Proxy will be voted as directed by the
shareholder.
IF NO DIRECTION IS SUPPLIED, THE PROXY WILL BE VOTED FOR PROPOSAL
1.
1. Proposal to approve the New Sub-Advisory
Agreement by and among Principal Preservation Portfolios, Inc.
(on the behalf of the Select Value Portfolio), Ziegler Asset
Management, Inc. and Skyline Asset Management, L.P., a copy of
which is attached as Appendix A to the accompanying Proxy
Statement.
--- FOR --- AGAINST --- ABSTAIN
2. In their discretion on such other matters as
may properly come before the meeting or any adjournment thereof.
