As filed with the Securities and Exchange Commission on May 1, 1998.
1933 Act Registration No. 33-12
1940 Act File No. 811-4401
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 42 x
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 44 x
(Check appropriate box or boxes)
----------------
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
(Exact name of registrant as specified in charter)
215 NORTH MAIN STREET
WEST BEND, WISCONSIN 53095
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (414) 334-5521
ROBERT J. TUSZYNSKI
President and Director
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 NORTH MAIN STREET
WEST BEND, WISCONSIN 53095
(Name and Address of Agent for Service)
Copy to:
CONRAD G. GOODKIND, ESQ.
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Approximate Date of Proposed Public Offerings: As soon as practicable
following the effective date of this amendment to the registration statement.
It is proposed that this filing will become effective
X immediately upon filing pursuant to paragraph (b)
on May 1, 1998 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on (date) pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2) of rule
485.
If appropriate, check the following:
this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment
----------------------
Registrant has elected to register an indefinite number of shares of Common
Stock, $0.001 par value, pursuant to Rule 24f-2 under The Investment Company Act
of 1940. The Registrant's Rule 24f-2 Notice for the year ended December 31,
1997 was filed on February 26, 1998.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
FORM N-1A
CROSS REFERENCE SHEET
-------------------------------------------
Wisconsin Tax-Exempt
Form N-1A Portfolio
Item No. Prospectus Heading
- ---------- ----------------------
PART A
1. Cover Page Cover Page
2. Synopsis Questions and Answers;
Expenses
3. Condensed Financial
Information Financial Highlights
4. General Description of
Registrant Questions and Answers;
Investment Objective and Policies;
Description of Shares
5. Management of the Fund Management;
Determination of Net Asset Value
Per Share; Portfolio Transactions
and Brokerage; Other Information
5A Management's Discussion of
Fund Performance Not Applicable. See Annual Reports
6. Capital Stock and Other
Securities Redemptions; Tax Status;
Description of Shares
7. Purchase of Securities Being Purchase of Shares;
Offered Determination of Net Asset Value
Per Share; Redemptions;
Distribution Expenses
8. Redemption or Repurchase Redemptions
9. Legal Proceedings None
PART B
10.Cover Page Cover Page
11.Table of Contents Table of Contents
12.General Information and History Not Applicable
13.Investment Objectives and
Policies Investment Program;
Investment Restrictions
14.Management of the Fund Management of Principal
Preservation
15.Control Persons and Principal
Holders of Securities Control Persons and Principal
Holders of Securities
16.Investment Advisory and
Other Services Management of Principal
Preservation
17.Brokerage Allocation
and Other Practices 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
22.Calculation of Performance
Data Performance Information;
Portfolio Ratings
23.Financial Statements Financial Statements
(PPP LOGO)
WISCONSIN
TAX-EXEMPT
PORTFOLIO
MAY 1, 1998
PROSPECTUS
PRINCIPAL PRESERVATION
PORTFOLIOS, INC.
WISCONSIN TAX-EXEMPT PORTFOLIO
The Wisconsin Tax-Exempt Portfolio (the "Portfolio") of the Principal
Preservation Portfolios, Inc. ("Principal Preservation") family of mutual funds
is offered by this Prospectus. The Portfolio's investment objective is to
provide investors with a high level of current income that is exempt from
federal income tax and Wisconsin personal income tax.
The risks and special characteristics of investing in the Portfolio are
highlighted in the sections of this Prospectus titled "Questions and Answers"
and "Special Considerations." The Portfolio is managed by Ziegler Asset
Management, Inc. ("Ziegler Asset Management" or the "Advisor"). Shareholder
inquiries should be directed to Principal Preservation at 215 North Main Street,
West Bend, WI 53095; telephone 800-826-4600.
This Prospectus sets forth concisely the information that an investor should
know before investing in shares of the Portfolio. Investors should read and
retain this Prospectus for future reference. A Statement of Additional
Information dated May 1, 1998, containing additional information about Principal
Preservation and the Portfolio has been filed with the Securities and Exchange
Commission and is incorporated by reference into this Prospectus. A copy of the
Statement of Additional Information can be obtained without charge upon request
to the Portfolio's Distributor, B.C. Ziegler and Company ("Ziegler"), 215 North
Main Street, West Bend, WI 53095 (telephone 800-826-4600) or from Selected
Dealers that have agreements with respect to the distribution of shares of the
Portfolios.
SHARES OF THE PORTFOLIO ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF, OR
ENDORSED OR GUARANTEED BY, ANY BANKING INSTITUTION, ARE NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"), THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY AND INVOLVE RISK, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1998
QUESTIONS AND ANSWERS
WHAT ARE THE PRINCIPAL PRESERVATION PORTFOLIOS?
Principal Preservation is a Maryland corporation organized in 1984 as an
open-end, management investment company. Principal Preservation is a series
company, which means that its Board of Directors may establish additional
portfolios at any time. Presently seven other series of Principal Preservation
are offered by separate prospectuses.
WHAT ARE THE BENEFITS FROM INVESTING IN THE PORTFOLIO?
Economy of Size. The Portfolio is designed to provide investors with an
opportunity to pool their money to achieve economies of size and
diversification. This permits investors, whose own securities portfolios may
not be large enough to obtain individual investment management services on a
cost-effective basis, to take advantage of the professional investment
management expertise of the Advisor.
Professional Management. The Portfolio provides professional management of
your investment. Maintaining records of your investments is made timely and
convenient with detailed statements of your investment activity and account
status.
Pooled Investing. The Portfolio combines the funds of many investors to
obtain a portfolio of numerous different issues of investment securities, the
income on which is exempt from federal and Wisconsin personal income tax. This
pooled investing strategy permits an investor to spread his or her risk over a
greater number of issues of investment securities, as compared to the number of
issues in which the investor may be able to invest individually. However,
investors should bear in mind that the Portfolio is a non-diversified mutual
fund, meaning that a significant portion of its assets may be invested from time
to time in securities of issuers associated with particular industries.
Moreover, the Portfolio's investments likely will be heavily concentrated in
Wisconsin and, in the event of an insufficient supply of Wisconsin issues, may
also or instead be concentrated in Puerto Rico. See "Investment Program --
Other Investment Practices and Associated Risks" and "Special Considerations."
Liquidity. Shares of the Portfolio may be redeemed at any time at their
current net asset value. See "Redemptions."
WHAT ARE THE PORTFOLIO'S INVESTMENT OBJECTIVES, POLICIES AND PROGRAMS?
The Portfolio's investment objective is to provide investors with a high
level of current income that is exempt from federal income tax and Wisconsin
personal income tax. There can be no assurance that the Portfolio's investment
objective will be achieved. See "Investment Objective and Policies."
Under normal market conditions, the Portfolio will invest primarily in "Tax
Exempt Obligations" (as defined under "Investment Program -- Tax Exempt
Obligations") issued by the State of Wisconsin, its municipalities, other
political subdivisions and public authorities of Wisconsin and obligations of
other entities (including territories and possessions of the United States and
political subdivisions and public authorities thereof) the interest on which is
exempt from federal income tax and from Wisconsin personal income tax. As a
matter of fundamental policy, the Portfolio will seek to invest at least 80% of
its assets so that the income earned thereon will be exempt from federal and
Wisconsin personal income taxes, and also will be exempt from federal and
applicable state alternative minimum tax ("AMT"). However, at any particular
time, up to 20% of the securities owned by the Portfolio may generate interest
that is an item of tax preference for purposes of federal and/or applicable
state AMT's. See "Dividends, Capital Gains Distributions and Reinvestments" and
"Tax Status." The Portfolio anticipates that substantially all of its
distributions to its shareholders will be otherwise exempt from federal income
tax and from Wisconsin personal income tax.
Shares of the Portfolio do not represent a complete investment program. The
Portfolio may not have the benefits of geographic diversification and may be
subject to the risks of concentrating its investments in certain economic
sectors or industries. While the Portfolio intends to invest primarily in Tax
Exempt Obligations issued in Wisconsin, only limited categories of municipal
securities are exempt from Wisconsin personal income tax, and it therefore is
possible that the Portfolio may invest a significant portion of its assets in
Tax Exempt Obligations issued by territories and possessions of the United
States, the District of Columbia, and their agencies or instrumentalities. As a
result, the Portfolio may invest up to 100% of its assets in Tax Exempt
Obligations of issuers outside of Wisconsin if such securities bear interest
which is exempt from federal and Wisconsin personal income taxes. Such outside
investments likely would include a significant number of Tax Exempt Obligations
of issuers in Puerto Rico. Generally, the value of an investment portfolio
consisting primarily of Tax Exempt Obligations will fluctuate inversely with the
general level of interest rates. The Portfolio may invest in floating and
variable rate demand notes, purchase securities on a "when issued" basis and
enter into repurchase agreements. Such investment practices may involve certain
special risks. See "Investment Program -- Other Investment Practices and
Associated Risks" and "Special Considerations."
The Portfolio may invest, without percentage limitation, in "investment
grade" securities (see "Investment Program -- Overview"). Securities included
in the lowest investment grade category have speculative characteristics. Up to
20% of the Portfolio's net assets may be invested in Tax Exempt Obligations
which are rated lower than investment grade; however, all Tax Exempt Obligations
in which the Portfolio invests will be rated B or higher by Moody's Investors
Service, Inc. ("Moody's") or Standard & Poor's Ratings Services ("S&P") or will
be judged by the Advisor to be of comparable quality. Such bonds are regarded
by S&P as having the ability, at the time they are rated, to meet scheduled
interest and principal payments; however, Moody's states that the assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small. See "Investment Program -- Overview"
and, for a more detailed description of S&P's and Moody's securities ratings,
see Appendix A to the Statement of Additional Information.
The Portfolio may invest more than 25% of its total assets in public agency
revenue bonds. However, it will not invest 25% or more of its total assets in
revenue bonds payable only from revenues derived from facilities or projects
within a single industry, except that the Portfolio may, in circumstances in
which other appropriate available investments may be in limited supply, invest
without limitation in housing, health care and/or utility obligations of public
bodies. See "Investment Program -- Other Investment Practices and Associated
Risks."
ARE THERE ANY RISKS TO CONSIDER?
Certain securities in which the Portfolio may invest and activities in which
it may engage involve special considerations and risks. For example, changes in
interest rates and average maturities may affect the value of debt securities,
and changes in general economic conditions and in the financial positions and
credit ratings of issuers may affect the value of all types of securities in
which the Portfolio invests. The Portfolio's policy of investing primarily in
securities exempt from federal and Wisconsin personal income taxes may result in
a significant portion of the Portfolio's assets being invested in securities of
issuers located in Wisconsin and/or Puerto Rico, exposing the Portfolio to
special risks associated with geographic concentration. Also, as noted below,
the Portfolio may reinvest, from time to time, 25% or more of its total assets
in obligations of public bodies, including state and municipal housing
authorities, issued to finance projects in any one of three specified economic
sectors or industries, exposing the Portfolio to special risks associated with
industry concentration. See "Investment Program -- Other Investment Practices
and Associated Risks" and "Special Considerations."
HOW DOES THE PORTFOLIO DISTRIBUTE INCOME?
Dividends will be declared daily and paid monthly. Any net realized capital
gains will be declared and paid annually. Investors may receive their income
dividends and capital gain distributions in additional shares of the Portfolio,
in additional shares in another Principal Preservation portfolio, or in cash.
See "Dividends, Capital Gains Distributions and Reinvestments."
WHO MANAGES THE PORTFOLIO?
Ziegler Asset Management is the investment advisor for the Portfolio.
Ziegler Asset Management's principal office is located at 215 North Main Street,
West Bend, WI 53095; its telephone number is 800-826-4600. See "Management."
HOW CAN SHARES BE PURCHASED?
Shares may be purchased at the public offering price next determined after
receipt of an order to purchase. The offering price is the net asset value per
share plus a sales charge. Shares may be purchased from Ziegler in its capacity
as distributor of the Portfolio's shares (the "Distributor"), or from broker-
dealers, banks and other financial institutions or firms that have entered into
selling agreements with the Distributor with respect to their assistance in
distributing shares of the Portfolio ("Selected Dealers"). See "Purchase of
Shares."
The minimum initial investment in the Portfolio is $1,000. The minimum
subsequent investment is $50.
HOW CAN SHARES BE REDEEMED OR EXCHANGED?
Shares may be redeemed by mail or telephone. The redemption values of the
shares is the net asset value per share as of the close of business on the day
the redemption request is received in proper form. Subject to a service charge
(currently $5.00), shares of the Portfolio may be exchanged for shares of any
other Principal Preservation portfolio on the basis of their relative net asset
value after the shares to be exchanged have been held for more than six months.
See "Redemptions" and "Shareholder Services." Information as to Principal
Preservation portfolios other than the Portfolio is provided through separate
prospectuses, copies of which can be obtained from the Distributor.
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)(1)<F1> 2.5%
Maximum Sales Load Imposed on Reinvested Dividends 0%
Deferred Sales Load 0%
Redemption Fees (2)<F2> 0%
Exchange Fee $5.00
ANNUAL FUND OPERATING EXPENSES -- AFTER REIMBURSEMENT
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.50%
Rule 12b-1 Distribution Fees (3)<F3> 0.25%
Other Expenses (after reimbursement) (4)<F4> 0.05%
-----
Total Fund Operating Expenses 0.80%
-----
-----
(1)<F1>Investors may be able to qualify for a lower sales load. See "Purchase
of Shares" and "Shareholder Services."
(2)<F2>Ziegler, in its capacity as transfer agent, charges a fee (presently
$12.00) for redemptions by wire transfer.
(3)<F3>Because the Rule 12b-1 distribution fee is paid annually rather than as a
one-time fee, long-term shareholders may pay more than the economic equivalent
of the maximum front-end sale charge permitted by the National Association of
Securities Dealers, Inc. ("NASD"), which is generally 6.25% of new sales plus an
interest factor.
(4)<F4>The Advisor has committed to reimburse expenses so that, for the year
ending December 31, 1998, the Portfolio's Total Fund Operating Expenses will
not exceed 0.80%. During 1997, the Advisor reimbursed all operating expenses
in excess of 0.50%. Without giving effect to this expense reimbursement,
"Other Expenses" and "Total Fund Operating Expenses" for the year
ended December 31, 1997 would have been 0.38% and 1.13%, respectively.
EXAMPLE
You would pay the following expenses on a $1,000 investment in the Portfolio,
assuming 5% annual return and redemption at the end of each time period:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$33 $50 $68 $122
The purpose of the table is to assist investors in understanding the various
costs and expenses they will bear directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Management," "Purchase of
Shares," Redemptions" and "Shareholder Serves." THE ABOVE EXAMPLES SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN SHOWN.
FINANCIAL HIGHLIGHTS
The following Financial Highlights table presents information relating to a
share of capital stock of the Portfolio outstanding for the period presented.
This information should be read in conjunction with the financial statements and
related notes thereto contained in the Portfolio's 1997 Annual Report to
Shareholders, which financial statements are incorporated herein by reference.
The information has been audited by Arthur Andersen LLP, independent public
accountants, whose report thereon is contained in the Portfolio's 1997 Annual
Report to Shareholders. Copies of the Annual Report are available without
charge from Ziegler.
<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.
</TABLE>
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio's investment objective is to provide investors with a high
level of current income that is exempt from federal income tax and Wisconsin
personal income tax. The following is a brief description of the investment
policies of the Portfolio. Certain instruments and techniques discussed in this
summary are described in greater detail under "Investment Program" in this
Prospectus and in the Statement of Additional Information. There can be no
assurance that the investment objective of the Portfolio will be achieved.
The Portfolio is subject to a number of investment restrictions which are
described in the section of the Statement of Additional Information entitled
"Investment Restrictions." Among these restrictions are that the Portfolio may
not borrow money or property except for temporary or emergency purposes. If the
Portfolio borrows money it will only borrow from banks and in an amount not
exceeding 10% of the market value of its total assets (not including the amount
borrowed). The Portfolio will not pledge more than 15% of its net assets to
secure such borrowings. In the event the Portfolio's borrowing exceeds 5% of
the market value of its total assets, the Portfolio will not invest in any
securities until its borrowings are reduced to less than 5% of total assets.
For purposes of these restrictions, collateral arrangements for premium and
margin payments in connection with the hedging activities of the Portfolio are
not deemed to be a pledge of assets.
The Statement of Additional Information contains specific investment
restrictions which govern the investments of the Portfolio. Certain of these
restrictions and the Portfolio's investment objective are fundamental policies,
which means that they may not be changed without a majority vote of shareholders
of the Portfolio. All other investment policies and practices may be changed
without shareholder approval.
INVESTMENT PROGRAM
OVERVIEW
This section contains a general description of the investment program and
other investment practices of the Portfolio. Further information is contained
in the Statement of Additional Information. Shareholders will be notified prior
to implementation of any material change in the Portfolio's investment program.
It is a fundamental policy of the Portfolio that, in normal market
conditions, at least 80% of its income distributions to its shareholders will be
exempt from federal and Wisconsin personal income taxes, and also will be exempt
from federal and applicable state AMT's. However, at any particular time, up to
20% of the Portfolio's total assets may be invested in securities that generate
interest which is an item of tax preference for purposes of federal and/or
applicable state AMT's. See "Tax Status." During times of adverse market
conditions when a defensive investment posture is warranted, the Portfolio may
temporarily select investments without regard to the foregoing policy.
In normal market conditions, the Portfolio will invest primarily in Tax
Exempt Obligations that are exempt from federal income tax and Wisconsin
personal income tax. While the Portfolio intends to invest primarily in Tax
Exempt Obligations issued in Wisconsin, only limited categories of Wisconsin
issues of municipal securities are exempt from Wisconsin personal income taxes.
These include higher education bonds issued by the State of Wisconsin, public
housing authority bonds issued by Wisconsin municipalities, redevelopment
authority bonds issued by Wisconsin municipalities, certain bonds issued by the
Wisconsin Housing and Economic Development Authority and Wisconsin Housing
Finance Authority bonds. Due to the limited availability of such Wisconsin
issues, it is possible that the Portfolio may invest a significant portion of
its assets in obligations issued outside of Wisconsin. Categories of bonds
issued outside of Wisconsin which are exempt from Wisconsin personal income tax
include certain general obligation bonds issued by Puerto Rico, Guam and the
Virgin Islands, and certain public housing agency bonds issued by agencies
located outside of Wisconsin. The Portfolio may invest up to 100% of its assets
in tax exempt securities of issuers outside of Wisconsin if such securities bear
interest which is exempt from federal income tax and Wisconsin personal income
tax. The Advisor anticipates that, when other available investments that meet
the Portfolio's investment criteria are in limited supply, the Portfolio may
invest more than 25% of its assets in securities of Puerto Rico, its
municipalities, and other political subdivisions and public authorities. See
"Special Considerations -- Geographic Concentrations."
The Portfolio may invest, without percentage limitation, in securities rated
at the time of purchase within the four highest grades assigned by either
Moody's or S&P or, if unrated, that are judged by the Advisor, at the time of
purchase, to be of comparable quality. These are considered "investment grade"
securities. Bonds included in the lowest investment grade category have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to adversely affect the capacity of the obligor to
make principal and interest payments than is the case with higher rated bonds.
Up to 20% of the Tax Exempt Obligations purchased by the Portfolio may be rated
lower than investment grade; however, all Tax Exempt Obligations in which the
Portfolio invests must be rated B or higher by Moody's or S&P or, if unrated,
that are judged by the Advisor, at the time of purchase, to be of comparable
quality to securities rated B or higher. Bonds rated B are non-investment
grade, have a greater vulnerability to default than higher grade bonds and face
major ongoing uncertainties or exposure to adverse business, financial, or
economic conditions which likely would impair the capacity or willingness of the
issuers of such bonds to make scheduled payments of interest and principal.
Such bonds are regarded by S&P as having the ability, at the time they are
rated, to meet scheduled interest and principal payments; however, Moody's notes
that the assurance of interest and principal payments or of maintenance of other
terms of the contract over any long period of time may be small. Additionally,
periods of economic uncertainty and change likely will increase the volatility
of the market price of such bonds and, therefore, the net asset value of the
Portfolio.
The foregoing policies as to credit quality of portfolio investments will
apply only at the time of the purchase of a security. Subsequent to the
purchase of an issue by the Portfolio, Moody's or S&P may downgrade its
assessment of the credit characteristics of the issuer or, in the case of
unrated securities, the Advisors may reassess their view with respect to the
credit quality of the issuer. While the Advisor will consider such an event in
their determination of whether the Portfolio should continue to hold the
particular security in its investment portfolio, no such event will
automatically require the Advisor to dispose of the security. In no event,
however, will more than 5% of the Portfolio's total assets consist of securities
that have been downgraded to a rating lower than the minimum rating in which the
Portfolio is permitted to invest or, in the case of unrated securities, that
have been determined by the Advisor to be of a quality lower than such minimum
rating.
Rated as well as unrated Tax Exempt Obligations will be analyzed by the
Advisor on the basis of available information as to creditworthiness and with a
view to various qualitative factors and trends affecting Tax Exempt Obligations
generally. It should be noted, however, that the amount of information about
the financial condition of an issuer of Tax Exempt Obligations or an obligor
thereon may not be as extensive or as readily available as information regarding
securities that are more actively traded.
For temporary or liquidity purposes the Portfolio may invest in taxable
obligations, provided that, in normal market conditions, no more than 20% of the
Portfolio's income distributions during any year will be includable in gross
income for purposes of federal income tax or Wisconsin personal income tax. The
Portfolio may invest without limitation in taxable obligations on a temporary,
defensive basis under unusual or special market conditions. Such taxable
obligations, whether purchased for liquidity purposes or on a temporary,
defensive basis, may include: obligations of the U.S. government, its agencies
or instrumentalities; other debt securities rated within the two highest grades
by either Moody's or S&P; commercial paper rated in the highest grade by either
of such rating services; certificates of deposit and bankers' acceptances of
domestic banks which have capital, surplus and undivided profits of over $100
million; high-grade taxable municipal bonds; and repurchase agreements with
respect to any of the foregoing investments. The Portfolio also may hold its
assets in cash and, in accordance with limitations established in the
Portfolio's investment restrictions (see "Investment Restrictions" in the
Statement of Additional Information), in securities of tax-exempt money market
mutual funds. An investment by the Portfolio in securities of tax-exempt money
market mutual funds may cause the Portfolio to incur increased administration
and distribution costs.
TAX EXEMPT OBLIGATIONS
As used in this Prospectus, the term "Tax Exempt Obligations" refers to debt
obligations issued by or on behalf of a state or territory or its agencies,
instrumentalities, municipalities and political subdivisions, the interest
payable on which is, in the opinion of bond counsel, excludable from gross
income for purposes of federal income tax and from Wisconsin personal income
tax. In certain instances the interest on such obligations may be an item of
tax preference includable in alternative minimum taxable income depending upon
the shareholder's tax status. See "Tax Status." Tax Exempt Obligations include
primarily debt obligations issued to obtain funds for various public purposes
such as constructing public facilities and making loans to public institutions.
The two principal classifications of Tax Exempt Obligations are general
obligation bonds and revenue bonds. General obligation bonds are generally
secured by the full faith and credit of an issuer possessing general taxing
power and are payable from the issuer's general unrestricted revenues and not
from any particular fund or revenue source. Revenue bonds are payable only from
the revenues derived from a particular source or facility, such as a tax on
particular property or revenues derived from, for example, a municipal water or
sewer utility or an airport. Tax Exempt Obligations that benefit private
parties in a manner different than members of the public generally (so-called
private activity bonds or industrial development bonds)are in most cases revenue
bonds, payable solely from specific revenues of the project to be financed. The
credit quality of private activity bonds is usually directly related to the
creditworthiness of the user of the facilities (or the creditworthiness of a
third-party guarantor or other credit enhancement participant, if any).
Additionally, Tax Exempt Obligations may consist of short term notes sold by the
issuing municipality in anticipation of a bond sale, collection of taxes or
receipt of other revenue. There are, of course, variations in the quality of
Tax Exempt Obligations, both within a particular classification and between
classifications, depending on various factors.
The Portfolio also may purchase floating and variable rate demand notes from
municipal issuers. These notes normally have a stated maturity in excess of one
year, but permit the holder to demand payment of principal plus accrued interest
upon a specified number of days' notice. Frequently, such obligations are
secured by letters of credit or other credit support arrangements provided by
banks.
The yields on Tax Exempt Obligations are dependent on a variety of factors,
including general money market conditions, the financial condition of the
issuer, general market conditions, the size of a particular offering, the
maturity of the obligation and the rating of the issue. Generally, Tax Exempt
Obligations of longer maturity produce higher current yields than municipal
securities with shorter maturities but are subject to greater price fluctuation
due to changes in interest rates, tax laws and other general market factors.
Lower-rated Tax Exempt Obligations generally produce a higher yield than higher-
rated Tax Exempt Obligations due to the perception of a greater degree of risk
as to the payment of principal and interest. While the Portfolio may invest in
securities of any maturity, the weighted average maturity of the Portfolio's
investment portfolio is expected to range between approximately 15 to 25 years.
PORTFOLIO TURNOVER AND MATURITY
While it is not a policy of the Portfolio to trade actively for short-term
profits, the Portfolio will dispose of securities without regard to the time
they have been held when such action appears advisable to the Advisor. Frequent
trades of investment portfolio securities generally will result in higher
transaction and other costs. The portfolio turnover rate for the Portfolio is
not expected to exceed 100%.
LENDING OF PORTFOLIO SECURITIES
The Portfolio may lend its portfolio securities to brokers, dealers and other
institutional investors, provided the Portfolio receives cash collateral which
at all times is maintained in an amount equal to at least 100% of the current
market value of the securities loaned. For the purposes of this policy, the
Portfolio considers collateral consisting of U.S. Government Securities or
irrevocable letters of credit issued by banks whose securities meet the
standards for investment by the Portfolio to be the equivalent of cash. During
the term of the loan, the Portfolio is entitled to receive interest and other
distributions paid on the loaned securities, as well as any appreciation in the
market value. The Portfolio is also entitled to receive interest from the
institutional borrower based on the value of the securities loaned. The
Portfolio seeks to increase its income by investing the cash collateral received
on the loan in short term, money market type instruments. From time to time, a
Portfolio may return to the borrower, and/or a third party which is unaffiliated
with Principal Preservation and which is acting as a "placing broker," a part of
the interest earned from the investment of the collateral received for
securities loaned.
The Portfolio does not have the right to vote the securities loaned during
the existence of the loan, but can call the loan to permit voting of the
securities, if, in the Advisor's judgment, a material event requiring a
shareholder vote would otherwise occur before the loan is repaid. In the event
of bankruptcy or other default of the borrowing institution, the Portfolio could
experience delays in liquidating the loan collateral or recovering the loaned
securities, and incur risk of loss including: (1) possible decline in the value
of the collateral or in the value of the securities loaned during the period
while the Portfolio seeks to enforce its rights thereto; (2) possible subnormal
levels of income and lack of access to income during this period; and (3)
expenses of enforcing its rights. To minimize these risks, the Advisor
evaluates and continually monitors the creditworthiness of the institutional
borrowers to which the Portfolio lends its securities.
To minimize the foregoing risks, the Portfolio's securities lending practices
are subject to the following conditions and restrictions: (1) the Portfolio
will not make such loans in excess of 33% of the value of its total assets; (2)
the Portfolio must receive cash collateral in an amount at least equal to 100%
of the value of the securities loaned; (3) the institutional borrower must be
required to increase the amount of the cash collateral whenever the market value
of the loaned securities rises above the amount of the collateral; (4) the
Portfolio must have the right to terminate the loan at any time; (5) the
Portfolio must receive reasonable interest on the loan, as well as any interest
or other distributions on the loaned securities and any increase in the market
value of the loaned securities; and (6) the Portfolio may not pay any more than
reasonable custodian fees in connection with the loan.
OTHER INVESTMENT PRACTICES AND ASSOCIATED RISKS
To earn income, the Portfolio may enter into forward commitments, and may
make short sales of already owned securities.
Forward Commitments. The Portfolio may purchase securities for future
delivery, which may increase the Portfolio's overall investment exposure. If
the value of the securities declines prior to the scheduled delivery date, the
Portfolio's net asset value per share would decline correspondingly. The
Portfolio does not intend to engage in forward commitment transactions if, after
such purchase, more than 5% of the Portfolio's net assets would consist of such
securities. See "When-Issued and Delayed Delivery Transactions" in the
Statement of Additional Information.
Short Sales "Against-the-Box." The Portfolio may make short sales of
securities or maintain a short position, provided that at all times when a short
position is open the Portfolio owns an equal amount of securities of the same
issue as, and equal in amount to, the securities sold short, and that not more
than 10% of the Portfolio's net assets (determined at the time of short sale)
may be segregated as collateral for such sales. It is the present intention of
management to make such sales only to defer realization of gain or loss for
federal income tax purposes.
Repurchase Agreements. The Portfolio may enter into repurchase agreements
with respect to not more than 10% of its total assets (taken at current value),
except when investing for defensive purposes during times of adverse market
conditions. The Portfolio may enter into repurchase agreements with respect to
any securities which it may acquire (except for below investment grade bonds)
consistent with its investment policies and restrictions.
A repurchase agreement involves the purchase by the Portfolio of securities
with the condition that, after a stated period of time, the original seller (a
member bank of the Federal Reserve System or a recognized securities dealer)
will buy back the same securities ("collateral") at a predetermined price or
yield. Repurchase agreements involve certain risks not associated with direct
investments in securities. In the event the original seller defaults on its
obligation to repurchase, as a result of its bankruptcy or otherwise, the
Portfolio will seek to sell the collateral, which action could involve costs or
delays. In such case, the Portfolio's ability to dispose of the collateral to
recover such investment may be restricted or delayed. While collateral will at
all times be maintained in an amount equal to the repurchase price under the
agreement (including accrued interest due thereunder), to the extent proceeds
from the sale of collateral are less than the repurchase price, the Portfolio
could suffer a loss. Additional information regarding repurchase agreements is
set forth in the Statement of Additional Information.
State or Municipal Lease Obligations. The Portfolio is permitted to invest
up to 10% of the value of its net assets in state or municipal leases.
Municipal leases are obligations issued by Wisconsin and its local governments
or authorities to finance the acquisition of equipment and facilities.
Municipal leases may take the form of a lease, an installment purchase contract
or a participation certificate in any of the above. In determining leases in
which the Portfolio will invest, the Advisor will evaluate the credit rating of
the lessee and the terms of the lease. Additionally, the Advisor may require
that certain municipal leases be secured by a letter of credit or put
arrangement with an independent financial institution. Additional information
regarding municipal leases is set forth in the Statement of Additional
Information.
Concentration Policy. Although the Portfolio may invest 25% or more of its
total assets in limited obligation bonds, the Portfolio will not invest 25% or
more of its total assets in limited obligation bonds payable only from revenues
derived from facilities or projects within a single industry, except that the
Portfolio may invest without limitation, in circumstances in which other
appropriate available investments may be in limited supply, in housing, health
care and/or utility obligations. In such circumstances, economic, business,
political and other changes affecting one bond might also affect other bonds in
the same segment, thereby potentially increasing market or credit risk.
Appropriate available investments may be in limited supply, from time to time in
the opinion of the Advisor, due to, among other things, the Portfolio's
investment policy of investing primarily in obligations of Wisconsin (and
municipalities, other political subdivisions and public authorities thereof) and
of investing primarily in investment grade securities.
Housing Obligations. The Portfolio may invest, from time to time, 25% or
more of its total assets in obligations of public bodies, including state and
municipal housing authorities, issued to finance the purchase of single-family
mortgage loans or the construction of multifamily housing projects. Since
housing authority obligations, which are not general obligations of Wisconsin,
are generally supported to a large extent by Federal housing subsidy programs,
the failure of a housing authority to meet the qualifications required for
coverage under the Federal programs, or any legal or administrative
determination that the coverage of such Federal programs is not available to a
housing authority, could result in a decrease or elimination of subsidies
available for payment of principal and interest on such housing authority's
obligations. Weaknesses in Federal housing subsidy programs and their
administration also could result in a decrease of subsidies available for
payment of principal and interest on housing authority bonds. Repayment of
housing loans and home improvement loans in a timely manner is dependent on
factors affecting the housing market generally and upon the underwriting and
management ability of the individual agencies (i.e., the initial soundness of
the loan and the effective use of available remedies should there be a default
in loan payments). Economic developments, including fluctuations in interest
rates, failure or inability to increase rentals and increasing construction and
operating costs, may also adversely impact upon revenues of housing authorities.
Furthermore, adverse economic conditions may result in an increasing rate of
default of mortgagors on the underlying mortgage loans. In the case of some
housing authorities, inability to obtain additional financing also could reduce
revenues available to pay existing obligations. Single-family mortgage revenue
bonds are subject to extraordinary mandatory redemption at par at any time in
whole or in part from the proceeds derived from prepayments of underlying
mortgage loans and also from the unused proceeds of the issue within a stated
period which may be within a year from the date of issue.
Health Care Obligations. The Portfolio may invest, from time to time, 25% or
more of its total assets in obligations issued by public bodies, including state
and municipal authorities, to finance hospital or health care facilities or
equipment. The ability of any subject health care entity or hospital to make
payments in amounts sufficient to pay maturing principal and interest
obligations is dependent, among other things, upon the revenues, costs and
occupancy levels of the subject health care entity or hospital. Revenues and
expenses of hospitals and health care facilities will be affected by future
events and conditions relating generally to, among other things, demand for
health care services at the particular type of facility, increasing costs of
medical technology, utilization practices of physicians, the ability of the
facilities to provide the services required by patients, employee strikes and
other adverse labor actions, economic developments in the service area,
demographic changes, greater longevity and the higher medical expenses of
treating the elderly, increased competition from other health care providers and
rates that can be charged for the services provided. Additionally, a major
portion of hospital revenues typically is derived from federal or state programs
such as Medicare and Medicaid and from other insurers. The future solvency of
the Medicare trust fund is periodically subject to question. Changes in the
compensation and reimbursement formulas of these governmental programs or in the
rates of insurers may reduce revenues available for the payment of principal of
or interest on hospital revenue bonds. Governmental legislation or regulations
and other factors, such as the inability to obtain sufficient malpractice
insurance, may also adversely impact upon the revenues or costs of hospitals.
Future actions by the federal government with respect to Medicare and by the
federal and state governments with respect to Medicaid, reducing the total
amount of funds available for either or both of these programs or changing the
reimbursement regulations or their interpretation, could adversely affect the
amount of reimbursement available to hospital facilities. A number of
additional legislative proposals concerning health care are typically under
review by the United States Congress at any given time. These proposals span a
wide range of topics, including cost controls, national health insurance,
incentives for competition in the provision of health care services, tax
incentives and penalties related to health care insurance premiums and promotion
of prepaid health care plans. It is impossible to predict what legislative
reforms may be made in the future in the health care area and what effect, if
any, they may have on the health care industry generally or on the
creditworthiness of health care issuers of specific securities in which the
Portfolio may invest from time to time.
Utility Obligations. The Portfolio may invest, from time to time, 25% or
more of its total assets in obligations issued by public bodies, including state
and municipal utility authorities, to finance the operation or expansion of
utilities. Various future economic and other conditions may adversely impact
utility entities, including inflation, increases in financing requirements,
increases in raw material, construction and other operating costs, changes in
the demand for services and the effects of environmental and other governmental
regulations.
Other Risks. The exclusion from gross income for purposes of federal income
taxes and Wisconsin personal income taxes for certain housing, health care and
utility bonds depends on compliance with relevant provisions of the Internal
Revenue Code of 1986, as amended (the "Code"). The failure to comply with these
provisions could cause the interest on the bonds to become includable in gross
income, possibly retroactively to the date of issuance, thereby reducing the
value of the bonds, subjecting shareholders to unanticipated tax liabilities and
possibly requiring the Portfolio to sell the bonds at the reduced value.
Furthermore, such a failure to meet these ongoing requirements may not enable
the holder to accelerate payment of the bond or require the issuer to redeem the
bond. In any event, where a mortgage securing housing bonds is insured by the
Federal Housing Administration ("FHA") or other issuer, the consent of the FHA
or other issuer may be required before insurance proceeds would become payable
to redeem the bonds.
SPECIAL CONSIDERATIONS
ECONOMIC SECTOR AND INDUSTRY CONCENTRATION
As discussed above (See "Investment Program -- Other Investment Practices and
Associated Risks"), the Portfolio may, under certain circumstances, invest more
than 25% of its total assets in limited obligation bonds payable from revenues
of issuers involved in any one or more of the housing, utilities or health care
industries and economic sectors. There may be economic, business or political
developments or changes that affect all securities of a similar type, such as
proposed legislation affecting the financing of certain projects, shortages or
price increases of necessary materials, or declining market needs for certain
projects. As a result of the possible industry concentration of the Portfolio's
investment portfolio, developments affecting a single issuer or industry, or
securities financing similar types of projects, could have a significant effect
on the Portfolio's performance.
GEOGRAPHIC CONCENTRATIONS
Because, under normal market conditions, the Portfolio will invest primarily
in securities, the interest on which is exempt from federal income tax and from
Wisconsin personal income tax, it is likely that the Portfolio's investments
will be concentrated in securities issued by issuers located in Wisconsin.
Also, at times when the supply of Wisconsin issues is inadequate to meet the
investment needs of the Portfolio, a significant portion of the Portfolio's
assets will be invested in Tax Exempt Obligations originating from Puerto Rico.
This geographic concentration may expose the Portfolio to greater credit risks
than would be the case for an investment company investing in a nationally
diversified portfolio of municipal securities. The value of the Portfolio's
investments may be closely tied to local, political and economic conditions and
developments within the State of Wisconsin and/or the territory of Puerto Rico.
Other risks include possible tax changes, environmental concerns and differing
levels of supply and demand for debt obligations exempt from federal and
Wisconsin personal income taxes. The Portfolio's policies and programs seek to
minimize this geographic concentration risk in a number of ways. First, the
Portfolio intends to comply with the provisions of Subchapter M of the Code
which, in part, require that, at the close of each quarter of the taxable year,
those issues which represent more than 5% of the Portfolio's total assets must
be limited in the aggregate to 50% of the Portfolio's total assets, and that no
single issue may exceed 25% of the Portfolio's total assets. Moreover,
geographic concentration is reduced since the Portfolio's policies and programs
permit it to purchase securities issued by territories and possessions of the
United States outside of Wisconsin, including Puerto Rico, the Virgin Islands,
Guam and the District of Columbia, which are exempt from federal and Wisconsin
personal income taxes.
Wisconsin's economy, although fairly diverse, is primarily concentrated in
the services industry (accounting for approximately 25% of its total non-farm
employment) and secondarily in manufacturing and retail. Wisconsin's economy
has continued to outperform the national economy. The State's unemployment rate
has been below the national average for the past ten years, and its state
government has also maintained a balanced budget during that same period. As a
result, revenues and assets necessary to support and collateralized interest and
principal payments on bonds issued by Wisconsin public and private issuers in
which the Portfolio may invest remain relatively strong.
Since the early 1970s, manufacturing has been the primary force in Puerto
Rican development. Other major sectors of Puerto Rico's economy include
government, trade and services. Puerto Rico's unemployment rate remains
relatively high at approximately 13.4%, and per capita income is less than
half of the average in the United States. Debt ratios for Puerto Rico are high
as it assumes much of the responsibility for financing improvements in the local
infrastructure. Puerto Rico's economic base remains centered around tax
advantages offered to U.S. manufacturing firms. Legislation passed in 1996
reduced these tax incentives. While the long-term effects of these reductions
cannot be predicted, it is possible that they could give rise to economic
instability and volatility in the market for municipal securities issued by or
on behalf of Puerto Rico, its agencies or instrumentalities, including those in
which the Portfolio invests.
For a more detailed description of the economies and financial conditions of
Wisconsin and Puerto Rico, see "Geographic Concentration Factors" in the
Statement of Additional Information.
DEBT OR OTHER FIXED INCOME SECURITIES
The total return earned on a Portfolio's debt or other fixed income
securities will consist of the change in the net asset value per share of the
Portfolio attributable to changes in the market value of such securities,
together with the per share income generated by those securities. The net asset
value of fixed income securities will be affected primarily by changes in
interest rates, average maturities and the investment and credit quality of the
securities in the Portfolio.
A bond's yield reflects the fixed annual interest as a percent of its current
price (the same concept is true for other debt and fixed income securities).
This price (the bond's market value) must increase or decrease in order to
adjust the bond's yield to current interest rate levels. Therefore, bond prices
generally move in the opposite direction of interest rates. As a result,
interest rate fluctuations will affect the net asset value of the fixed income
securities held by the Portfolio, but will not affect the income received by the
Portfolio from its existing fixed income securities. However, changes in
prevailing interest rates will affect the yield on shares subsequently issued by
the Portfolio. In addition, such fluctuations would affect the income received
on any variable rate demand notes or other variable rate securities held by the
Portfolio.
Movements in interest rates typically have a greater effect on the prices of
longer term bonds than those with shorter maturities. The following table
illustrates the effect of a 1% change in interest rates on a $1,000 bond with a
7% coupon.
PRINCIPAL VALUE IF RATES:
----------------------------
MATURITY INCREASE 1% DECREASE 1%
-------- ----------- -----------
Intermediate Bonds 5 years $959 $1,043
Long-Term Bonds 20 years $901 $1,116
The Advisor will manage the debt securities in the Portfolio according to
their assessment of the interest rate outlook. During periods of rising
interest rates, the Advisor will likely attempt to shorten the average maturity
of the Portfolio to cushion the effect of falling bond prices on the Portfolio's
share prices. When interest rates are falling and bond prices are increasing,
on the other hand, the Advisor will likely seek to lengthen the average
maturity.
MANAGEMENT
DIRECTORS AND OFFICERS
The Board of Directors of Principal Preservation is responsible for
management of Principal Preservation and provides broad supervision over its
affairs. The Advisor is responsible for the Portfolio's investment management,
and Principal Preservation's officers are responsible for the Portfolio and
Principal Preservation's overall operations.
THE ADVISOR
The Portfolio is managed by Ziegler Asset Management, as investment advisor,
pursuant to the terms of the Investment Advisory Agreement.
Ziegler Asset Management is registered with the Securities and Exchange
Commission as an investment advisor. On December 31, 1997, Ziegler Asset
Management had approximately $1 billion under discretionary management.
Ziegler Asset Management is a wholly-owned subsidiary of The Ziegler
Companies, Inc.
The Advisor provides the Portfolio with overall investment advisory and
administrative services. Subject to such policies as the Board of Directors may
determine, the Advisor makes investment decisions on behalf of the Portfolio,
makes available research and statistical data in connection therewith, and
supervises the acquisition and disposition of investments by the Portfolio,
including the selection of broker-dealers to carry out portfolio transactions.
The Advisor bears all of its own expenses of providing services under the
Advisory Agreement and pays all salaries, fees and expenses of the officers and
Directors of Principal Preservation who are affiliated with Ziegler Asset
Management. The Portfolio bears all other expenses including, but not limited
to, necessary office space, telephone and other communications facilities and
personnel competent to perform administrative, clerical and shareholder
relations functions; salary, fees and expenses (including legal fees) of those
Directors, officers and employees of Principal Preservation who are not
officers, directors or employees of the Advisor; interest expenses; fees and
expenses of the Distributor, Transfer Agent and Dividend Disbursing
Agent; administrative expenses; taxes and governmental fees; brokerage
commissions and other expenses incurred in acquiring or disposing of portfolio
securities, expenses of registering and qualifying shares for sale with the
Securities and Exchange Commission and with various state securities
commissions; accounting and legal costs; insurance premiums; expenses of
maintaining Principal Preservation's legal existence and of shareholders'
meetings; expenses of preparation and distribution to existing shareholders of
reports, proxies and prospectuses; and fees and expenses of membership in
industry organizations.
Under the Advisory Agreement, the Portfolio pays Ziegler Asset Management an
annual fee, in monthly installments, based on the average daily net assets of
the Portfolio. The fee is at an annual rate of 0.50% on average daily net
assets up to $250 million, and 0.40% on average daily net assets in excess
of $250 million.
THE DISTRIBUTOR, TRANSFER AND DIVIDEND DISBURSING AGENT, ACCOUNTING
PRICING AGENT AND SHAREHOLDER SERVICING AGENT
Ziegler, another wholly-owned subsidiary of The Ziegler Companies, Inc., also
serves as the Distributor of the shares of the Portfolio pursuant to a
Distribution Agreement; provides accounting and other administrative services,
including daily valuation of the shares of the Portfolio, pursuant to an
Accounting/Pricing Agreement; provides transfer agent services pursuant to a
Transfer and Dividend Disbursing Agency Agreement; and provides services to
shareholders with respect to shareholder accounts opened and maintained through
Ziegler by its customers.
The Distribution Agreement provides that Ziegler is entitled to receive a
commission on its sales of the shares of the Portfolio at the rate disclosed in
Principal Preservation's current Prospectus (see "Purchase of Shares"). Out of
these commissions, Ziegler allows Selected Dealer Discounts (which are alike for
all Selected Dealers) from the applicable public offering price. The
Distribution Agreement continues from year to year if it is approved annually by
Principal Preservation's Board of Directors, including a majority of those
Directors who are not interested persons of Principal Preservation, or by a vote
of the holders of a majority of the outstanding shares. The Distribution
Agreement may be terminated at any time by either party on sixty days' written
notice and will automatically terminate if assigned. Principal Preservation
also reimburses Ziegler for certain expenditures incurred by it in connection
with the distribution of Principal Preservation's shares pursuant to a
Distribution Plan adopted under Rule 12b-1 of the 1940 Act. (see "Distribution
Expenses").
The Accounting/Pricing Agreement provides that Ziegler is entitled to receive
a fee for accounting services provided thereunder at an annual rate of 0.03%
of the Portfolio's total assets of $30 million but less than $100 million,
0.02% of the Portfolio's total assets of $100 million but less than $250
million, and 0.01% of the Portfolio's total assets of $250 million or more,
with a minimum fee of $19,000 per Portfolio per year, plus expenses.
Ziegler presently serves as, and other brokers and financial institutions may
in the future serve as, shareholder servicing Agents for shareholder accounts
opened and maintained through them by their customers. Such agents provide
shareholder services to the Portfolio with respect to these accounts pursuant to
separate shareholder servicing agreements with Principal Preservation. The
services include among others, (a) providing transfer agent and subtransfer
agent services for the Agent's customers who purchase and hold shares of the
Portfolio through the Agent; (b) aggregating and processing purchase and
redemption orders in shares of the Portfolio for the benefit of the Agent's
customers and transmitting and receiving funds in connection therewith,
including arranging for the wiring of funds; (c) preparing and distributing
statements showing share ownership information with respect to the Agent's
customers who purchase and hold shares of the Portfolio through the Agent; (d)
processing dividend payments and other distributions paid or made on shares of
the Portfolio which are owned beneficially by the Agent's customers; (e)
providing subaccounting services with respect to shares of the Portfolio
purchased and held by the Agent's customers through the Agent; (f) forwarding
shareholder communications, such as proxies, shareholder reports, dividend and
tax notices and updated prospectuses relating to shares of the Portfolio owned
beneficially by the Agent's customers; (g) receiving, tabulating and
transmitting proxies executed with respect to shares of the Portfolio owned
beneficially by customers of the Agent; (h) providing necessary personnel and
facilities to establish and maintain the shareholder services contemplated by
the shareholders servicing agreement; (i) verifying and guaranteeing signatures
of the Agent's customers in connection with redemption orders and transfers
among and changes in customer-designated accounts holding shares of the
Portfolio; (j) furnishing, on behalf of Ziegler as the Distributor (either
separately or on an integrated basis with other reports sent by the Agent to its
customers) all immediate, monthly and annual statements and confirmations of all
purchases and redemptions of shares of the Portfolio in the customer's
account(s) required by applicable federal or state laws; (k) providing reports
requested by Ziegler as Distributor which contain state-by-state listing of the
principal residences of the Agent's customers who purchase and hold shares of
the Portfolio through the Agent; and (l) providing such other related services
as Principal Preservation or a customer of the Agent reasonably may request.
Under Ziegler's Shareholder Servicing Agreement with Principal Preservation,
Ziegler receives a fee for providing these services at an annual rate of up to
0.15% of the Portfolio's average daily net assets representing shares owned by
Ziegler's customers and held in accounts serviced by Ziegler. The Portfolio
also reimburses Ziegler for certain out-of-pocket expenses it incurs in
providing these services. Ziegler also is entitled to reimbursement from the
Portfolio for out-of-pocket expenses (as opposed to overhead and other internal
expenses of Ziegler) that it incurs in connection with providing the services
contemplated by the Shareholder Servicing Agreement, including without
limitation, fees and expenses that Ziegler pays to third parties in connection
with the processing and mailing of proxies and other shareholder communications
to its customers with respect to shares of the Portfolio purchased and held by
such customers through Ziegler.
Pursuant to the terms of a Transfer and Dividend Disbursing Agency Agreement
by and between Ziegler and Principal Preservation, Ziegler provides transfer and
dividend disbursing agent and other shareholder account services with respect to
all shareholder accounts that are not serviced separately by Ziegler or another
shareholder servicing agent pursuant to the terms of a shareholder servicing
agreement. The Transfer and Dividend Disbursing Agency Agreement provides that
Ziegler is entitled to receive compensation deemed reasonable by the Board of
Directors of Principal Preservation for services provided thereunder. The rate
of compensation is currently at $13.50 per account for the Portfolio. Principal
Preservation also reimburses Ziegler for all out-of-pocket expenses incurred in
providing such services.
CUSTODIAN
Firstar Trust Company serves as the Custodian of the Fund's assets, pursuant
to a Custodian Servicing Agreement. The Custodian Servicing Agreement provides
that Firstar Trust Company is entitled to receive an annual fee of 0.02% of the
first $500 million of the Fund's net asset value and 0.015% of the assets in
excess of $500 million.
THE PORTFOLIO MANAGER
Mr. Thomas P. Sancomb has managed the investment of the assets of the
Portfolio since its inception in 1994. Mr. Sancomb has served
with Ziegler and Ziegler Asset Management in various capacities
since March, 1975. He has served on Ziegler's Investment Committee
since July, 1984. He is a Vice President of both Ziegler and Ziegler Asset
Management. Mr. Sancomb also serves as manager of the bond portfolios for
several other of the Principal Preservation portfolios.
DETERMINATION OF NET ASSET VALUE PER SHARE
Net asset value per share of each portfolio is determined by subtracting the
Portfolio's liabilities (including accrued expenses and dividends payable) from
the Portfolio's total assets (the value of the securities the Portfolio holds
plus cash or other assets, including interest accrued but not yet received) and
dividing the result by the total number of shares outstanding. The net asset
value per share will be calculated every week day, Monday through Friday, except
on customary national business holidays which result in closing of the New York
Stock Exchange (the "Exchange"). The calculation is as of 2:30 p.m. New York
time, for the Portfolio.
PURCHASE OF SHARES
Shares of the Portfolios may be purchased through Ziegler or Selected Dealers.
Shares also may be purchased in connection with a program of services offered or
administered by a broker-dealer, investment advisor, financial institution or
other service provider, provided the program meets certain standards established
from time to time by Ziegler. You also may purchase shares directly be sending
a check payable to Principal Preservation Portfolios, Inc., 215 North Main
Street, West Bend, Wisconsin 53095, along with a completed account application.
None of the Portfolios will issue shares for consideration other than cash,
except in the case of a bona fide reorganization or statutory merger or in
certain other acquisitions of portfolio securities which meet the requirements
of applicable state securities laws. See "Purchase of Shares" in the Statement
of Additional Information. Orders for the purchase of shares received prior to
the close of business on the Exchange will be invested at the net asset value
computed on that day. Orders received after the close of trading on the
Exchange will be invested at the net asset value determined as of the close of
trading on the Exchange on the next business day.
Except as described below, the minimum initial investment is $1,000, and the
minimum additional investment is $50. Exchanges between the Portfolio and
another Principal Preservation portfolio, reinvestments of distributions from
any Principal Preservation portfolio or from various unit investment trusts
sponsored by Ziegler, reinvestments of interest and/or principal payments on
bonds issued by Ziegler Mortgage Securities, Inc. II and reinvestments of
interest payments on bonds underwritten by Ziegler are not subject to the
minimum additional investment requirement. An initial investment of $100 is
permitted if made pursuant to an automatic investment plan providing for
subsequent automatic investments of at least $100. See "Shareholder Services --
Systematic Purchase Plan."
Shares may be purchased by investors at net asset value plus a sales charge
as follows:
PUBLIC OFFERING NET AMOUNT
SIZE OF INVESTMENT PRICE*<F8> INVESTED
------------------ --------------- ----------
Less than $50,000 2.50% 2.56%
$50,000 but less than $100,000 2.00% 2.04%
$100,000 but less than $250,000 1.50% 1.52%
$250,000 but less than $500,000 1.25% 1.26%
$500,000 but less than $1,000,000 1.00% 1.01%
$1,000,000 or more 0% 0%
*<F8>The sales charge reallowed by the Distributor to participating dealers and
the commissions paid by the Distributor to participating financial
institutions acting as agent for their customers are: (1) 0.50% for
purchases of less than $250,000; (2) 0.40% for purchases of $250,000 or
more, but less than $500,000; and (3) 0.30% for purchases of $500,000 or
more, but less than $1 million. No reallowance or commission will be paid in
connection with purchases of $1 million or more. The Distributor may offer
additional compensation in the form of trips, merchandise or entertainment as
sales incentives to Selected Dealers. The Distributor's sales
representatives may not qualify to participate in some of these incentive
compensation programs and the Distributor may offer similar incentive
compensation programs in which only its own sales representatives qualify to
participate. In addition to the amount paid to Selected Dealers, the
Distributor may from time to time pay an additional concession or commission
to a Selected Dealer which employs a registered representative who sells,
during a specific period, a minimum dollar amount of shares, or may pay an
additional concession to Selected Dealers on such terms and conditions as the
Distributor determines. In no event will such additional concession or
commission paid by the Distributor to the Selected Dealer exceed the
difference between the sales charge and the Selected Dealer's allowance or
commission in respect of shares sold by the qualifying registered
representatives of the Selected Dealer. A Selected Dealer who receives such
an additional concession may be deemed to be "underwriter" in connection with
sales by it of such shares and in that capacity the Selected Dealer may be
subject to the applicable provisions of the Securities Act of
1933.
Banks, acting as agents for their customers and not for the Portfolio or the
Distributor, from time to time may purchase Portfolio shares for the accounts of
such customers. Generally, the Glass-Steagall Act prohibits banks from engaging
in the business of underwriting, selling or distributing securities. Should the
activities of any bank, acting as agent for its customers in connection with the
purchase of any Portfolio's shares, be deemed to violate the Glass-Steagall Act,
management will take whatever action, if any, is appropriate in order to provide
efficient services for the Portfolio. Management does not believe that a
termination in the relationship with a bank would result in any material adverse
consequences to the Portfolio. In addition, state securities laws on this issue
may differ and banks and financial institutions may be required to register as
dealers pursuant to state law. The Portfolio shares are not deposits or
obligations of, or guaranteed or endorsed by, any bank or other financial
institution, are not insured or guaranteed by the U.S. Government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other federal
agency, and involve a risk of possible loss, including loss of principal.
Reduced Sales Charges. There are several ways to pay a lower sales charge.
One is to increase the initial investment to reach a higher discount level. The
above scale is applicable to initial purchases of Principal Preservation shares
by any "purchaser." The term "purchaser" includes (1) an individual, (2) an
individual, his or her spouse and their children under the age of 21 purchasing
shares for his or her own accounts, (3) a trustee or other fiduciary purchasing
shares for a single trust estate or single fiduciary account, or (4) any other
organized group of persons, whether incorporated or not, provided the
organization has been in existence for at least six months and has some purpose
other than the purchase of redeemable securities of a registered investment
company at a discount.
Another way to pay a lower sales charge is for a "purchaser" to add to his
investment so that the current value of his shares, plus the offering price of
the new shares, reach a higher discount level. For example, if the current
value of the shares held by a shareholder in the Portfolio equals $100,000, the
shareholder will pay a reduced sales charge on additional purchases of shares.
If the shareholder invested an additional $100,000, the sales charge would be
1.5% on that additional investment. A shareholder's holdings in all Principal
Preservation portfolios which have a sales charge will be aggregated in
determining the break-point at which he is entitled to purchase in the Portfolio
or in any other Principal Preservation portfolio.
A third way is for a "purchaser" to sign a non-binding letter of intent
to invest $25,000 or more over a 13-month period in any one or combination of
Principal Preservation portfolios which have a sales charge. If the purchases
are completed during that period, each purchase will be at a sales charge
applicable to the aggregate of the shareholder's intended purchases. Under
terms set forth in the letter of intent, shares valued at 5% of the amount
of intended purchase are escrowed and will be redeemed to cover the additional
sales charge payable if the Letter of Intent is not completed. Any remaining
shares held in escrow will be released to the purchaser. A purchaser will
continue to earn dividends and capital gains distributions declared by a
portfolio with respect to shares held in escrow.
Group Purchases. A reduced sales charge is also available to members of a
qualified group. The sales charge for such persons is calculated by taking into
account the aggregate dollar value of shares of all Principal Preservation
shares sold subject to a sales charge being purchased or currently held by all
members of the group. Further information on group purchases is contained in
"Purchase of Shares" in the Statement of Additional Information.
To receive the benefit of the reduced sales charge, the shareholder must
inform Principal Preservation or Ziegler, his shareholder servicing agent or
Selected Dealer that the shareholder qualifies for such a discount.
PURCHASES AT NET ASSET VALUE
Shares may be purchased at net asset value (that is, without a sales charge)
by a purchaser purchasing at least $1 million of shares or the value of whose
account at the time of purchase is at least $1 million if the purchase is made
through a Selected Dealer who has executed a selling agreement with the
Distributor. The term "purchaser" has the meaning described in "Reduced Sales
Charges" above. The Distributor may make a payment or payments, out of its own
funds, to the Selected Dealer in an amount not to exceed 0.75% of the
amount invested. All or a part of such payment may be conditioned on the monies
remaining invested with Principal Preservation for a minimum period of time.
Shares may also be purchased at net asset value when payment for those shares
represents the proceeds from the redemption of shares of another mutual fund
which charges a front end sales charge and which is not part of Principal
Preservation. This load-free privilege is also available with respect to
redemption proceeds received from a no load fund if the shares redeemed were
acquired by the holder in exchange for shares of a load fund in connection with
a merger or other business combination transaction between the predecessor load
fund and the successor no load fund. A purchase of shares of the Portfolio may
be made at net asset value under this provision regardless of whether the sales
charge was paid on the shares redeemed in the unrelated fund, but the redemptio
of those shares must have occurred no more than 90 days prior to the purchase of
shares of the Portfolio. The Distributor may make a payment or payments, out of
its own funds, to Selected Dealers effecting such exchanges, in an amount not to
exceed 0.50 of 1% of the amount invested. All or a part of such payment may be
conditioned upon the monies remaining invested with Principal Preservation for a
minimum period of time. Shares of Principal Preservation in addition to those
qualifying for purchase at net asset value under this provision may be purchased
at net asset value plus the normal sales charge.
Shares may also be purchased at net asset value by: Directors and officers
of Principal Preservation (including shares purchased jointly with or
individually by any such person's spouse and shares purchased by any such
person's children or grandchildren under age 21); employees of Ziegler, Selected
Dealers, Skyline Asset Management, L.P. (which serves as sub-advisor to the
Select Value Portfolio) or Ziegler Asset Management, and the trustee or
custodian under any pension or profit-sharing plan established for the benefit
of their employees. The term "employee" includes an employee's spouse
(including the surviving spouse of a deceased employee), parents (including
step-parents and in-laws), children, grandchildren under age 21 and siblings,
and retired employees. Shares may also be purchased with a reduced sales charge
of 0.50% by directors of The Ziegler Companies, Inc. who are not also
employees of Ziegler.
Shares may also be purchased without a sales charge upon the reinvestment of
distributions from the Portfolio or any other Principal Preservation portfolio,
or investment of distributions from various unit investment trusts sponsored by
Ziegler; the reinvestment of principal or interest payments on bonds issued by
Ziegler Mortgage Securities, Inc. II; or the reinvestment of interest payments
on bonds underwritten by Ziegler.
Shares may also be purchased without a sales charge through a program of
services offered or administered by a broker-dealer, investment advisor,
financial institution or other service provider, provided the program meets
certain standards established from time to time by Ziegler. You should read
the program materials provided by the service provider, including information
relating to fees, in conjunction with this Prospectus. Certain features of a
Portfolio may not be available or may be modified in connection with the program
of services provided. When shares are purchased this way, the service provider,
rather than its customer, may be the shareholder of record of the shares. The
service provider may charge fees of its own in connection with the investor's
participation in the program of services. Certain service providers may receive
compensation from Principal Preservation and/or Ziegler for providing such
services.
REDEMPTIONS
You may have any or all of your shares redeemed as described below on any day
Principal Preservation is open for business at the net asset value next
determined. See "Determination of net Asset Value Per Share." If the order is
received prior to the close of the Exchange the redemption will be at the net
asset value calculated that day. If not, you will receive the net asset value
calculated as of the close of trading on the next business day.
By Telephone. If you have completed the Telephone Redemption Authorization
and signature guarantee sections of the account application, you may redeem
shares by calling Ziegler at 800-826-4600 or your shareholder servicing agent.
This authorization must be on file at least five days prior to the first
telephone redemption. This authorization requires a signature guarantee. At
your request, redemption will be made by wire to the bank account designated on
the account application or a check will be sent to you at the registered address
for your account on the business day following the redemption. See "Redemptions
- -- Sending Redemption Proceeds -- By Wire."
You cannot redeem shares by telephone if you hold stock certificates for
those shares. Additionally, shares paid for by personal, corporate, or
government check cannot normally be redeemed before the 15th day after the
purchase date or until the check clears, whichever occurs first.
By establishing the telephone redemption service, you authorize Ziegler or
your shareholder servicing Agent to: (1) act upon the instruction of any person
by telephone to redeem shares from the account for which such services have been
authorized; and (2) honor any written instructions for a change of address if
accompanied by a signature guarantee. The shareholder assumes some risks for
unauthorized transactions by establishing the telephone redemption service.
Ziegler has implemented, and will require that each shareholder servicing agent
also implements, procedures designed to reasonably assure that telephone
instructions are genuine. These procedures include recording telephone
conversations, requesting verification of various pieces of personal information
and providing written confirmation of such transactions. If Ziegler, a
shareholder servicing agent, Principal Preservation, Ziegler Asset Management or
any of their employees fails to abide by these procedures, Principal
Preservation may be liable to a shareholder for losses he suffers from any
resulting unauthorized transaction(s). However, none of Ziegler, any
shareholder servicing agent, Ziegler Asset Management, Principal Preservation or
any of their employees will be liable for losses suffered by a shareholder which
result from following telephone instructions reasonably believed to be genuine
after verification pursuant to these procedures. This service may be changed,
modified or terminated at any time. There is currently no charge for telephone
redemptions, although a charge may be imposed in the future.
By Mail. To redeem shares by mail, send the following information to Ziegler
or your shareholder servicing Agent: (1) a written request for redemption
signed by the registered owner(s) of the shares, exactly as the account is
registered, together with the shareholder's account number; (2) the stock
certificates for the shares being redeemed, if the certificates are held by the
shareholders; (3) any required signature guarantees (see "Signature Guarantees"
below); and (4) any additional documents which might be required for redemptions
by corporations, executors, administrators, trustees, guardians, or other
similar entities.
Ziegler or your shareholder servicing Agent will redeem shares when it has
received all necessary documents. You will be notified promptly by Ziegler or
your shareholder servicing agent if your redemption request cannot be accepted.
Neither Ziegler nor your shareholder servicing Agent may accept redemption
requests which specify a particular date for redemption or which specify any
special conditions. Questions concerning redemption procedures should be
directed to Ziegler at 800-826-4600 or to your shareholder servicing agent.
Signature Guarantees. To protect you, Ziegler or your shareholder servicing
Agent and Principal Preservation from fraud, signature guarantees are required
for certain redemptions. Signature guarantees enable Ziegler or your
shareholder servicing Agent to be sure that you are the person who has
authorized a redemption from your account. Signature guarantees are required
for: (1) any redemptions by mail if the proceeds are to be paid to someone else
or are to be sent to an address other than your address as shown on Principal
Preservation's records; (2) any redemptions by mail which request that the
proceeds be wired to a bank, unless you designated the bank as an authorized
recipient of the wire on your account application or subsequent authorization
form and such application or authorization includes a signature guarantee; (3)
any redemptions by mail if the proceeds are to be sent to an address for the
shareholder that has changed within the past thirty (30) days; (4)
authorizations to redeem by telephone; and (5) requests to transfer the
registration of shares to another owner. These requirements may be waived by
Principal Preservation in certain instances.
Ziegler or your shareholder servicing Agent will accept signature guarantees
from all institutions which are eligible to provide them under federal or state
law. Institutions which typically are eligible to provide signature guarantees
include commercial banks, trust companies, brokers, dealers, national securities
exchanges, savings and loan associations and credit unions. A signature
guarantee is not the same as a notarized signature.
Sending Redemption Proceeds. Redemption proceeds will not be sent until all
payments for the shares being redeemed have cleared, which may take up to 15
days from the purchase date of the shares.
By Mail. Checks for redemption proceeds typically are mailed within one or
two days, but not later than seven days, after it receives the request and all
necessary documents.
By Wire. Wire redemption proceeds normally will be wired to your bank the
next business day after Ziegler or the shareholder servicing agent receives the
redemption request and all necessary documents. The signatures on any written
request for a wire redemption must be guaranteed. Ziegler currently deducts a
$12.00 wire charge from the redemption proceeds. This charge is subject to
change. You will be responsible for any charges which your bank may make for
receiving wires.
Redemption through Securities Brokers. Shares can also be redeemed through a
securities dealer, who may charge a fee.
Conditions on Redemptions. If, due to redemption, your account in the
Portfolio drops below $500 for three months or more, Principal Preservation has
the right to redeem your account, after giving 60 days' written notice, unless
you make additional investments to bring the account value to $1,000 or more.
Principal Preservation may suspend the right to redeem shares in the
Portfolio for any period during which: (1) the Exchange is closed or the
Securities and Exchange Commission determines that trading on the Exchange is
restricted; (2) there is an emergency as a result of which it is not reasonably
practical for the Portfolio to sell its securities or to calculate the fair
value of its net assets; or (3) the Securities and Exchange Commission may
permit for the protection of the Portfolio's shareholders.
It is possible that conditions may arise in the future which would, in the
opinion of the Board of Directors of Principal Preservation, make it undesirable
for the Portfolio to pay for all redemptions in cash. In such cases, the Board
may authorize payment to be made in securities or other property of the
Portfolio. However, the Portfolio has obligated itself under the 1940 Act to
redeem for cash all shares presented for redemption by any one shareholder up to
$250,000 (or 1% of the Portfolio's net assets if that is less) in any 90-day
period. Securities delivered in payment of redemptions would be valued at the
same value assigned to them in computing the net asset value per share. Persons
receiving such securities would incur brokerage costs when these securities are
sold.
SHAREHOLDER SERVICES
Principal Preservation offers a number of shareholder services designed to
facilitate investment in Portfolio shares. Full details of each of the
services, copies of the various plans described below and instructions as to how
to participate in the various services or plans can be obtained from Principal
Preservation, or Ziegler. Some of the services described below may not be
available from all shareholder servicing Agents. Shareholders and prospective
investors should check with their shareholder servicing Agent to determine if it
makes all of these services available.
Systematic Purchase Plan. A systematic purchase plan may be established at
any time. The minimum initial investment to participate in the systematic
purchase plan is $100 ($50 if the shareholder account is valued at more than
$1,000). Minimum subsequent monthly deposits are $100. By participating in
the systematic purchase plan, you may automatically make purchases of shares
in the Portfolio on a regular, convenient basis. Under the systematic purchase
plan, your bank or other financial institution honors preauthorized debits of a
selected amount drawn on your account each month and applied to the purchase of
the Portfolio shares. The systematic purchase plan can be implemented with any
financial institution that will accept the debits. There is no service fee for
participating in the systematic purchase plan. An application and instructions
on establishing the systematic purchase plan are available from your shareholder
servicing Agent, Ziegler or Principal Preservation.
Periodic Withdrawal Plan. You may establish a periodic withdrawal plan if
you own or purchase shares having a current offering price value of at least
$10,000 in the Portfolio. The periodic withdrawal plan involves the planned
redemption of shares on a periodic basis by receiving either fixed or variable
amounts at periodic intervals. The minimum amount you may receive under a
periodic withdrawal plan is $150 per month. Normally, you would not make
regular investments at the same time you are receiving periodic withdrawal
payments because it is not in your interest to pay a sales charge on new
investments when, in effect, a portion of your new investments is soon
withdrawn. The minimum investment accepted while a withdrawal plan is in effect
is $1,000. The periodic withdrawal plan may be terminated at any time by
written notice.
Reinvestment Privilege. If you redeem shares in the Portfolio, you may
reinvest all or part of the redemption processed in the Portfolio, without a
sales charge, if you send written notice to Principal Preservation, Ziegler or
your shareholder servicing Agent not more than 90 days after the shares are
redeemed. Your redemption proceeds will be reinvested on the basis of net asset
value of the shares in effect immediately after receipt of the written request.
You may exercise this reinvestment privilege only once upon redemption of your
shares. Any capital gains tax you incur on the redemption of your shares is not
altered by your subsequent exercise of this privilege. If the redemption
resulted in a loss and reinvestment is made in shares, the loss will not be
recognized.
Exchange Privilege. Subject to compliance with applicable minimum investment
requirements, shares of any Principal Preservation portfolio may be exchanged
for shares of any other Principal Preservation portfolio in any state where the
exchange may legally be made. The standard sales commission applicable to
purchases of shares of the Principal Preservation portfolio into which the
exchange is being made (as disclosed in the then current prospectus for that
Principal Preservation portfolio) will be charged in connection with the
exchange, less any sales commission previously paid by the shareholder with
respect to the shares being exchanged. However, if a front-end sales
commission was previously paid with respect to the shares being exchanged and
the investment represented by such shares has been held in one or more Principal
Preservation portfolios continuously for at least one year prior to the proposed
exchange, then no additional sales commission will be charged in connection with
the exchange. Before engaging in any such exchange, a shareholder should obtain
from Ziegler and carefully read the current prospectus relating to the Principal
Preservation portfolio into which he or she intends to exchange. Such exchanges
may be subject to a service charge by Ziegler (currently $5.00) or the
shareholder servicing Agent.
In order to effect an exchange on a particular business day, Ziegler must
receive a completed exchange authorization form or other written instructions,
signed by all account owners, no later than 3:00 p.m. Eastern time. Exchange
authorization forms may be obtained from, and should be returned to, Ziegler at
215 North Main Street, West Bend, Wisconsin 53095. Ziegler may accept
instructions from selected dealers or shareholder servicing Agents, subject to
certain conditions and requirements, for the exchange of shares held in an
investor's account. Principal Preservation may amend, suspend or revoke this
exchange privilege at any time, but will provide shareholders at least 60 days
prior notice of any change that adversely affects their rights under this
exchange privilege. All exchanges are subject to the conditions described above
under "Redemptions."
An exchange of shares is considered a sale for tax purposes and you will
realize a gain or loss for federal income tax purposes.
An excessive number of exchanges may be disadvantageous to Principal
Preservation. Therefore, Principal Preservation, in addition to its right to
reject any exchange, reserves the right to terminate the exchange privilege of
any shareholder who makes more than three exchanges of shares in 12 months or
more than one exchange per calendar quarter.
Reinvestment of Distributions or Interest Payments. Unit holders of Ziegler
sponsored unit investment trusts, holders of Ziegler Mortgage Securities, Inc.
II bonds and holders of bonds underwritten by Ziegler may purchase shares of the
Portfolio by automatically reinvesting distributions from their unit investment
trust, reinvesting principal or interest from their Ziegler Mortgage Securities,
Inc. II bonds, or reinvesting interest from the bonds underwritten by Ziegler,
as the case may be. Unit holders and bondholders desiring to participate in
this plan should contact Ziegler or their shareholder servicing Agent for
further information.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND REINVESTMENTS
Dividends from net investment income will be declared daily and paid monthly
in the Portfolio. Dividends may be taken in cash or additional shares at net
asset value (without a sales charge). You may also direct Ziegler or your
shareholder servicing agent to invest the dividends in shares of any other
Principal Preservation portfolio for which you have an account. The investment
occurs on the same day as the dividend distribution date. Unless you have
elected in writing to Ziegler or your shareholder servicing Agent to receive
dividends and capital gain distributions in cash, they will be automatically
reinvested in additional shares of the Portfolio.
Capital gains distributions, if any, in the portfolios will be declared
annually and normally will be paid within 45 days after the end of the fiscal
year.
TAX STATUS
The Portfolio is treated as a separate entity for federal income tax
purposes. The Portfolio intends to qualify as a "regulated investment company"
under Subchapter M of the Code and to take all other action required to ensure
that no federal income taxes will be payable by the Portfolio and that the
Portfolio can pay exempt-interest dividends.
Federal Income Taxation. Distributions of net interest income from Tax
Exempt Obligations that are designated by the Portfolio as exempt-interest
dividends are excludable from the gross income of the Portfolio's shareholders.
The Portfolio's present policy is to designate exempt-interest dividends at each
daily distribution of net interest income. Shareholders are required for
information purposes to report exempt-interest dividends and other tax-exempt
interest on their tax returns.
Distributions paid from other interest income and from any net realized
short-term capital gains will be taxable to shareholders as ordinary income,
whether received in cash or in additional shares. Since none of the Portfolio's
income will consist of dividends from domestic corporations, the dividends
received deduction for corporations will not be applicable to taxable
distributions by the Portfolio. Distributions paid from long-term capital gains
(and designated as such) are taxable as long-term capital gains for federal
income tax purposes, whether received in cash or shares, regardless of how long
a shareholder has held shares in the Portfolio. Under a special provision of
the Revenue Reconciliation Act of 1993 (the "1993 Act"), if the Portfolio
purchases a bond with market discount and later sells or otherwise disposes of
the bond at a gain, it must recognize the gain as ordinary income (and not
capital gain), to the extent of the market discount. The amount of this gain
must also be treated as ordinary income by shareholders when distributed to
them. Under the 1993 Act, long-term capital gains of individuals are taxed at a
maximum rate of 28%, while the highest marginal regular tax rates on ordinary
income for individuals for 1993 and subsequent years are 36% (applicable to
taxable income in excess of $140,000 for married couples filing joint returns),
and 39.6% (for both individuals filing single returns and married couples filing
joint returns with taxable income in excess of $250,000). Shareholders not
subject to federal income taxation will not be taxed on distributions by the
Portfolio.
For federal income tax purposes, an AMT is imposed on taxpayers to the extent
that such tax, if any, exceeds a taxpayer's regular income tax liability (with
certain adjustments). Liability for AMT will depend on each shareholder's
individual tax situation.
Exempt-interest dividends attributable to interest income on certain Tax
Exempt Obligations issued after August 7, 1986 to finance certain private
activities will be treated as an item of tax preference that is included in
alternative minimum taxable income for purposes of computing the federal AMT for
all taxpayers and the federal environmental tax on corporations. The Portfolio
may invest up to 20% of its total assets in obligations, the interest on which
is treated as an item of tax preference. Also, a portion of all other tax-exempt
interest received by a corporation, including exempt-interest dividends, will be
included in adjusted current earnings and in earnings and profits for purposes
of determining the federal corporate AMT, the environmental tax imposed on
corporations by Section 59A of the Code, and the branch profits tax imposed on
foreign corporations under Section 884 of the Code. Each shareholder is advised
to consult his or her tax adviser with respect to the possible effects of such
tax preference items.
Gain or loss realized on the sale or exchange of shares in the Portfolio will
be treated as capital gain or loss, provided that the shares represented a
capital asset in the hands of the shareholder. Such gain or loss will be long-
term gain or loss if the shares were held for more than one year. Furthermore,
any loss on the sale or exchange of shares held for six months or less (although
regulations may reduce this time to 31 days) will be disallowed for federal
income tax purposes to the extent of the amount of any exempt-interest dividends
received with respect to such shares.
Any loss on the sale or exchange of shares of the Portfolio generally will be
disallowed to the extent that a shareholder acquires or contracts to acquire
shares of the Portfolio within 30 days before or after such sale or exchange.
In addition, if a shareholder disposes of shares within 90 days of acquiring
such shares and purchases other shares of affiliated mutual funds managed by the
Advisor at a reduced sales charge, the shareholder's tax cost for determining
gain or loss on the shares which are disposed of is reduced by the lesser of the
amount of the sales charge that was paid when the shares disposed of were
acquired or the taxable income, with certain adjustments.
There is a possibility that shareholders may lose the tax-exempt status on
the accrued income of a Tax Exempt Obligation if they redeem their shares in the
Portfolio before a dividend has been declared. The redemption may convert the
tax-exempt income characterization of accrued dividends to a taxable capital
gain characterization to the shareholder. Shareholders should carefully
consider and consult with their own tax advisers regarding the tax effects on
them of such timing issues.
Wisconsin State Taxation. Dividends paid by the Wisconsin Portfolio that are
attributable to (1) interest earned on certain higher education bonds issued by
the State of Wisconsin, certain bonds issued by the Wisconsin Housing and
Economic Development Authority, Wisconsin Housing Finance Authority bonds, and
public housing authority bonds and redevelopment authority bonds issued by
Wisconsin municipalities, the interest on which is exempt from taxation by
Wisconsin statute, and (2) interest earned on obligations of the U.S. government
or its territories and possessions, will not be included in the income of the
Portfolio shareholders subject to the Wisconsin personal income tax. All other
dividends paid by the Portfolio will be subject to the Wisconsin personal income
tax. Capital gain dividends qualifying as long-term capital gains for federal
tax purposes will be treated as long-term capital gains for Wisconsin income tax
purposes. Wisconsin taxes long-term capital gains at the same rates as ordinary
income, while imposing limitations on the deductibility of capital losses
similar to those under federal law.
Wisconsin imposes an alternative minimum tax on individuals, trusts, and
estates to the extent that such tax exceeds a taxpayer's regular tax liability.
Wisconsin AMT is based on federal alternative minimum taxable income, with
certain adjustments. Dividends paid by the Portfolio that are attributable to
interest paid on, (1) obligations issued by the State of Wisconsin or its
agencies, the interest on which is exempt from Wisconsin personal income tax
under Wisconsin statute, or (2) obligations of U.S. territories and possessions,
when received by shareholders subject to the Wisconsin personal income tax, will
be excluded from the Wisconsin alternative taxable income of those shareholders.
Buying a Dividend. On the record date for a distribution from capital gains
by the Portfolio, its share price is reduced by the amount of the distribution.
If you buy shares just before the record date ("buying a dividend"), you will
pay the full price for the shares, and then receive a portion of the price back
as a taxable distribution.
Other Tax Information. Under federal tax law, some investors may be subject
to a 31% withholding tax on reportable dividends, capital gains distributions
and redemption payments ("backup withholding"). Generally, investors subject
to backup withholding will be those for whom a taxpayer identification number
is not on file with Principal Preservation or who, to Principal Preservation's
knowledge, have furnished an incorrect number. In order to avoid this
withholding requirement, an investor must certify on the account application
that the taxpayer identification number provided is correct and that the
investment is not subject to backup withholding, or is exempt from backup
withholding.
The foregoing is only a summary of some of the important tax considerations
generally affecting the Portfolio and their shareholders. This discussion is
not intended as a substitute for careful tax planning. You are urged to consult
your tax adviser with specific reference to your own tax situation.
DESCRIPTION OF SHARES
The authorized common stock of Principal Preservation consists of one billion
shares, par value of $0.001 per share. The shares of Principal Preservation are
presently divided into eight series: Wisconsin Tax-Exempt Portfolio, Government
Portfolio, Tax-Exempt Portfolio, S&P 100 Plus Portfolio, Select Value Portfolio,
Dividend Achievers Portfolio, the PSE Tech 100 Index Portfolio and Cash
Reserve Portfolio, consisting of 50 million shares in each of the first seven
series and 400 million in the Cash Reserve Portfolio. Effective June 1, 1998,
it is anticipated that shares of the S&P 100 Plus, Dividend Achievers, Select
Value and PSE Tech 100 Index Portfolios will be divided into Class A and Class B
shares. Shares of the Cash Reserve Portfolio are also divided into two separate
classes, Class X Common Stock (the Retail Class) and Class Y Common Stock
(the Institutional Class), consisting of 200 million shares each. The Board of
Directors of Principal Preservation may authorize the issuance of additional
series and, within each series, individual classes, and may increase or decrease
the number of shares in each series or class.
Each share of Principal Preservation has one vote, and when issued and paid
for in accordance with the terms of the offering will be fully paid and
nonassessable. Each share of a series is entitled to participate pro rata in
dividends or other distributions declared by the Board of Directors of Principal
Preservation with respect to that series, and all shares of a series have equal
rights in the event of liquidation of that series. Shares of stock are
redeemable at net asset value, at the option of the shareholder. Shares have no
preemptive, subscription or conversion rights and are freely transferable.
Shares can be issued as full shares or fractions of shares. A fraction of a
share has the same kind of rights and privileges as a full share.
Each share of each series of Principal Preservation (including each share of
the Portfolio) is entitled to one vote on each matter presented to shareholders
of that series. As a Maryland corporation, Principal Preservation is not
required to hold, and in the future does not plan to hold, annual shareholder
meetings unless required by law or otherwise deemed appropriate by the Board of
Directors. Special meetings may be called for purposes such as electing or
removing Directors, changing fundamental policies or approving an investment
advisory contract. On matters affecting an individual series (such as approval
of advisory or sub-advisory contracts and changes in fundamental policies of a
series) a separate vote of the shares of that series is required. Shares of a
series are not entitled to vote on any matter not affecting that series. All
shares of each series vote together in the election of Directors. Shares do not
have cumulative voting rights.
As used in the Prospectus, the phrase "majority vote" of the outstanding
shares of the Portfolio (or of Principal Preservation) means the vote of the
lesser of: (1) 67% of the shares of the Portfolio (or Principal Preservation)
present at the meeting if the holders of more than 50% of the outstanding shares
are present in person or by proxy; or (2) more than 50% of the outstanding
shares of the Portfolio (or Principal Preservation).
PORTFOLIO TRANSACTIONS AND BROKERAGE
Purchase and sale orders for portfolio securities may be effected through
brokers, although it is expected that transactions in debt securities will
generally be conducted with dealers acting as principals. Purchases and sales
of securities on a stock exchange are effected through brokers or dealers.
Brokerage commissions on securities and options are subject to negotiation
between Principal Preservation and the broker.
Principal Preservation will not deal with Ziegler or its affiliates in any
transaction in which they act as a principal, but to the extent and in the
manner permitted by the 1940 Act may effect brokerage transactions through them.
The Advisors may utilize the services of Ziegler or an affiliate as a broker if
the commissions, fees or other remuneration received by them are reasonable and
fair compared to the commissions, fees and other remuneration paid to other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time. See "Portfolio Transactions and Brokerage" in the Statement of Additional
Information.
Allocation of transactions, including their frequency, to various dealers is
determined by the Advisors in their best judgment and in a manner deemed fair
and reasonable to shareholders. The primary consideration is prompt and
efficient execution of orders in an effective manner at the most favorable
price. Principal Preservation may also consider sales of shares of its
portfolios as a factor in the selection of broker-dealers, subject to the policy
of obtaining best price and execution.
DISTRIBUTION EXPENSES
In addition to the sales charge deducted at the time of purchase, the
Portfolio is authorized under a Distribution Plan (the "Plan") pursuant to Rule
12b-1 under the 1940 Act to use a portion of its assets to finance certain
activities relating to the distribution of its shares to investors. The Plan
permits payments to be made by the Portfolio to the Distributor to reimburse it
for expenditures incurred by it in connection with the distribution of the
Portfolio's shares to investors. These payments include, but are not limited
to, the payments to selling representatives or brokers as a service fee,
advertising, preparation and distribution of sales literature and prospectuses
to prospective investors, implementing and operating the Plan and performing
other promotional or administrative activities on behalf of the Portfolio. Plan
payments may also be made to reimburse the Distributor for its overhead expenses
related to distribution of the Portfolio's shares. No reimbursement may be made
under the Plan for expenses of the past fiscal years or in contemplation of
expenses for future fiscal years.
Under the Plan, the payments may not exceed an amount computed at an annual
rate of 0.25% of the average daily net assets of the Portfolio. The
Distribution Plan continues in effect, if not sooner terminated, for successive
one-year periods, provided that its continuance is specifically approved by the
vote of the Directors, including a majority of the Directors who are not
interested persons of any of the Advisors. For further information regarding
the Distribution Plan, see "Distribution Plan" in the Statement of Additional
Information.
OTHER INFORMATION
Transfer and Dividend Disbursing Agent. B.C. Ziegler and Company, 215 North
Main Street, West Bend, Wisconsin 53095, acts as Transfer and Dividend
Disbursing Agent.
Shareholder Statements and Reports. Shareholders receive confirmation at
least quarterly regarding their transactions and reports at least semiannually
setting forth various financial and other information related to the Portfolio.
Shareholder Inquiries. Shareholder inquiries may be directed to Principal
Preservation at 215 North Main Street, West Bend, Wisconsin 53095; or by
telephone at (800) 826-4600.
Performance Information. From time to time the Portfolio may advertise its
"yield" and "total return." Yield is based on historical earnings and total
return is based on historical distributions; neither is intended to indicate
future performance. The "yield" of the Portfolio refers to the income generated
by an investment in the Portfolio over a one month period (which period will be
stated in the advertisement). This income is then "annualized." That is, the
amount of income generated by the investment during the month is assumed to be
generated each month over a 12-month period and is shown as a percentage of the
investment. "Total return" of the Portfolio refers to the average annual total
return for one, five and ten year periods (or so much thereof as the Portfolio
has been in existence). Total return is the change in redemption value of
shares purchased with an initial $1,000 investment, assuming the reinvestment of
dividends and capital gains distributions, after giving effect to the maximum
applicable sales charge. In addition, the Portfolio may advertise its "tax
equivalent yield," which is computed by dividing that portion of the Portfolio's
yield which is tax-exempt by one minus a stated income tax rate and adding the
product to that portion, if any, of the yield of the Portfolio which is not tax-
exempt. Performance information should be considered in light of the
Portfolio's investment objective and policies, characteristics and quality of
the Portfolio and the market conditions during the time period, and should not
be considered as a representation of what may be achieved in the future.
Further information is contained in the Statement of Additional Information.
Portfolio Rating. From time to time the Portfolio may obtain and use a
rating from a nationally recognized statistical rating organization. For a
description of such ratings, see "Portfolio Ratings" in the Statement of
Additional Information.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
TERMS AND CONDITIONS OF GENERAL APPLICATION FORM
ADDITIONAL INVESTMENTS
After a Shareholder account is established, additional investments in the
amount of $50 or more may be made to that existing account at any time.
Additional investments of $100 or more may be made to existing accounts for
investments made pursuant to a Systematic Purchase Plan. Such additional
investments will be applied to the purchase of full and fractional shares of the
specified Portfolio at the public offering price. These investments should be
accompanied by an investment transmittal stub (attached to any previously
received shareholder confirmation) and mailed directly to B.C. Ziegler and
Company, 215 North Main Street, West Bend, Wisconsin 53095 (the Transfer Agent).
Additional investments can also be made through your dealer.
INFORMATION PERTAINING TO THE
LETTER OF INTENT
Subject to conditions specified below, each purchase during the 13-month
period subsequent to the effective date of this application will be made at the
public offering price applicable to a single transaction of the dollar amount
indicated, as described in the then effective prospectus. The offering price may
be further reduced under the Combined Purchase and Cumulative Investment
Privilege if the Transfer Agent is advised of any shares previously purchased
and still owned. You understand that you may, at any time during the period,
revise upward your stated intention by submitting a written request to that
effect. Such revision shall provide for the escrowing of additional shares. The
original period of the Letter of Intent, however, shall remain unchanged. Each
separate purchase made pursuant to the Letter of Intent is subject to the terms
and conditions contained in the prospectus in effect at the time of that
particular purchase. It is understood that you make no commitment to purchase
shares, but that if purchases so made within 13 months from this date do not
aggregate the amount specified, you will pay the increased amounts of sales
charge prescribed in the terms of escrow. You or your dealer must refer to this
Letter of Intent in placing each future order for shares while this Letter of
Intent is in effect. It is understood that when remitting funds directly to the
Transfer Agent for investment in your account, specific reference must be made
to this Letter of Intent. This cancels and supersedes any previous instructions
which you may have given inconsistent with the above. You have received a copy
of the current prospectus to which this application relates.
Terms of Escrow to the Letter of Intent
1. To assure compliance with provisions of the Investment Company Act of 1940,
out of the initial purchase (or subsequent purchase if necessary) 5% of the
dollar amount indicated on the reverse side hereof will be held in escrow in the
form of shares (computed to the nearest full share at the applicable public
offering price) registered in your name. These shares will be held at the Fund's
Transfer Agent and be subject to the terms of escrow.
2. If total purchases pursuant to this Letter of Intent equal the amount of the
specified expected aggregate purchase, escrow shares will be released from
restriction and be deposited to your account.
3. If the total purchases pursuant to this Letter of Intent are less than the
amount specified, you shall remit to the Dealer an amount equal to the
difference between the dollar amount of sales charge actually paid and the
amount of sales charge which would have been paid on the total purchases if all
such purchases had been made at a single time. If the Distributor or the dealer,
within 10 business days after request, does not receive this amount, they will
instruct the Fund's Transfer Agent to redeem an appropriate number of escrow
shares to realize such difference. If the proceeds from this redemption are
inadequate, you will be liable to the Distributor or the dealer for the
difference. The remaining shares after the redemption will be deposited to your
account unless otherwise instructed.
4. You hereby irrevocably constitute and appoint the Fund's Transfer Agent as
attorney to surrender for redemption any or all shares on the books of the Fund,
under the conditions previously outlined, with full power of substitutions in
the premises.
5. Any dividends and capital gain distributions declared by the Fund with
respect to escrowed shares will be added to the escrow account.
COMBINED PURCHASE AND
CUMULATIVE INVESTMENT PRIVILEGE
Shares may be purchased at the offering price applicable to the total of (a)
dollar amount then being purchased plus (b) an amount equal to the value of the
combined holdings of all Portfolios that have a sales charge of (1) an
individual; (2) an individual, his spouse and their children under the age of 21
purchasing securities for his or their own account; (3) a trustee or other
fiduciary purchasing for a single trust, estate or single fiduciary account; (4)
a pension, profit sharing or other employee benefit plan qualified or non-
qualified under Section 401 of the Internal Revenue Code (the "Code"); (5) tax-
exempt organizations enumerated in Section 501(c)(3) or (13) of the Code; (6)
employee benefit plans qualified under Section 401 of the Code of a single
employer or of employers who are "affiliated persons" of each other within the
meaning of Section 2(a)(3)(c) of the Securities Act of 1933, as amended; or (7)
any other organized group of persons, whether incorporated or not, provided the
organization has been in existence for at least six months and has some purpose
other than the purchase of redeemable securities of a registered investment
company at a discount. In order for this cumulative quantity discount to be made
available, the shareholder or his securities dealer must notify B.C. Ziegler and
Company or the Distributor of the total holdings in all Portfolios each time an
order is placed.
TELEPHONE REDEMPTIONS
If you elect to redeem by telephone, a signature guarantee must be included
with the application. This authorizes and directs the Funds' and the Transfer
Agent, acting as your attorneys-in-fact, to redeem any or all shares of the
Funds' pursuant to instructions received by telephone from you or any other
person and to wire the proceeds to the bank account designated in your
application. You agree that any telephone instructions may be recorded.
DEALER AUTHORIZATION
The dealer, in signing the Authorization, authorizes B.C. Ziegler and Company
as its agent and on its behalf, to purchase from time to time Fund shares
necessary for the shareholder who has signed the Authorization. B.C. Ziegler and
Company is authorized and directed where necessary to cause the shares to be
transferred to the name of the shareholder on the books of the Fund to retain
and to account to the dealer for the dealer's sales charge due on each purchase,
to confirm each direct sale to the shareholder on behalf of the dealer, and to
transmit to the shareholder each new prospectus of the Fund or supplement
thereto delivered to it for that purpose. The dealer guarantees the genuineness
of the signature(s) on the Authorization and represents that each person who has
signed the Authorization is of legal age and not under legal disability. The
dealer also represents that it is a duly licensed and registered dealer and that
it may lawfully sell the specified securities in the state designated as the
investor's mailing address. It further represents, if the sale has been made
within the United States, that it is a member of the NASD and has entered into a
soliciting dealer agreement with B.C. Ziegler and Company with respect to such
shares.
TERMS AND CONDITIONS FOR ESTABLISHING SYSTEMATIC PURCHASE PLAN
1. OPENING A SYSTEMATIC PURCHASE PLAN ("SPP"). A SPP may be established at any
time by submitting the information requested above to the Agent. Depending on
the date you elect to have automatic investments made, the SPP may take up to
30 days to commence after receipt of the SPP request by the Agent. There is a
minimum initial investment of $100.00 for accounts opened under the SPP, and
for subsequent investments until your account balance reaches $1,000, after
which investments can be made in increments of $50 or more.
2. INVESTMENTS. The Portfolio shall collect the amount specified from your
account at the designated financial institution as hereby authorized, debiting
such account to its own order. Other than the sales charge, there are no
service fees for participation in the SPP. The Portfolio shall treat each
deposit as if it were made by you directly.
3. TERMINATION. The privilege of making deposits under this service may be
revoked by the Portfolio without prior notice if any debit is not paid upon
presentation. The Portfolio shall be under no obligation to notify you of the
non-payment and the Portfolio shall have no liability whatsoever with respect
thereto. You may discontinue the SPP by written notice to the Agent which is
received at least ten business days prior to the collection date or the SPP
may be discontinued at any time by the Portfolio upon 30 days written notice
prior to any collection date.
4. CHANGES IN ACCOUNT. In order to continue participation in the SPP, you must
notify the Agent in writing of changes in your account. A "Voided" check
reflecting the change of account must be attached to the written notification.
5. AVAILABILITY. The SPP is available only through financial institutions that
have agreed to participate in such plans and may not be available to residents
of certain states.
PRINCIPAL PRESERVATION PORTFOLIOS, INC. (the "Fund")
ACCOUNT APPLICATION FORM
MAKE CHECK OR
MONEY ORDER PAYABLE TO: Principal Preservation Portfolios
MAIL TO: Principal Preservation
215 North Main Street
West Bend, WI 53095
- ------------------------------------------------------------------------------
ACCOUNT REGISTRATION
__Individual
--------------------------------------------------------------------
First Name Middle Initial Last Name Social Security Number
Joint Owner
- -- -------------------------------------------------------------------
First Name Middle Initial Last Name Social Security Number
(In case of joint registration, a joint tenancy with right of survivorship will
be presumed, unless otherwise indicated.)
Uniform Gift To Minor as custodian for
- -- -------------------,
Custodian's Name
----------------------
Minor's Name (only one)
- ---------------------------------------------------------------------------
Minor's State of Residence Minor's Social Security Number
- ------------------------
Minor's Birth Date
Corporation, Trust or Other
- -- -----------------------------------------------------
Name of corporation, other organization or fiduci-
ary; if trust, state trustee, maker and date of trust
- -----------------------------------------------------
Social Security or Taxpayer I.D. Number
- ------------------------------------------------------------------------------
Print -- Street Address (Area code) Telephone No. (optional)
- ------------------------------------------------------------------------------
City State Zip Code
Citizen of: ___United States ___Other____________________________________
(please specify)
- ------------------------------------------------------------------------------
PORTFOLIO SELECTION
Indicate the amount you wish to invest in the Wisconsin Tax-Exempt Portfolio.
Minimum initial investment $1,000 ($500 for Custodial Accounts under the
Uniform Gifts/Transfers to Minors Act.)
___Wisconsin Tax-Exempt Portfolio__________________________
(minimum $1,000)
___I'm interested in any or all of the Principal Preservation Government, Tax-
Exempt, S&P 100 Plus, Select Value, PSE Tech 100 Index and/or Dividend
Achievers. Please send me the combined Prospectus for these Portfolios.
___I'm interested in the Cash Reserve Portfolio. Please send me a Prospectus.
- ------------------------------------------------------------------------------
METHOD OF PAYMENT
Shares purchased by personal or corporate check may not be redeemed by telephone
or otherwise until 15 days after invest ment date or until the check clears.
_____Personal Check or ______Other_______________________________
(specify)
- ------------------------------------------------------------------------------
DIVIDEND AND DISTRIBUTION OPTIONS
Until I advise you to the contrary, I elect to:
___Reinvest all dividends and capital gain distributions.
(If no box is checked, all dividends and capital gain distributions will be
reinvested in additional shares.)
___Receive dividends in cash and reinvest capital gains.
___Receive all distributions in cash.
- ------------------------------------------------------------------------------
LETTER OF INTENT
Effective Date________________________________________
(Not more than 90 days prior to date of signature)
The investor intends, but shall be under no obligation, to invest over a 13-
month period from the date of purchase an aggregate amount in any of the
Principal Preservations portfolios having a sales charge equal to at least:
___$50,000-$99,999 ___$500,000-$999,999
___$100,000-$249,999 ___$1,000,000 or more
___$250,000-$499,999
Each purchase will be made at the public offering price applicable to a single
purchase of the dollar amount designated above,as described in the prospectus
(see "PURCHASE OF SHARES").
- ------------------------------------------------------------------------------
RIGHTS OF ACCUMULATION
I qualify for Rights of Accumulation as described in a Principal Preservation
Prospectus. Listed below are all the accounts from the different portfolios of
Principal Preservation sold subject to a sales charge which should be credited
toward the reduced sales charge.
- ------------------------------------------------------------------------------
Account Number Account Number
- ------------------------------------------------------------------------------
Account Number Account Number
- ------------------------------------------------------------------------------
TELEPHONE EXCHANGE
____I authorize telephone exchange privileges.
- ------------------------------------------------------------------------------
SYSTEMATIC PURCHASE PLAN
If you select this option please review the terms and conditions in the
Prospectus. New accounts please fill in information in account registration. I
hereby authorize the Portfolio to withdraw from my checking account:
$_______________(see Terms and Conditions) on or about the ____5th or _____20th
of each month.
An account must be previously established or a check in the amount of at least
$100 must accompany application to be used to purchase shares of the
Wisconsin Tax-Exempt Portfolio through the financial institution as follows:
ACH through the following institution:
- ------------------------------------------------------------------------------
Name of Financial Institution Branch Name and Number
- ------------------------------------------------------------------------------
Street Address of Financial Institution
Please attach an unsigned and voided check from the checking account you wish to
use for the Systematic Purchase Plan. Write "Void" across the face of the check.
Your check must be imprinted with all name(s) on your bank account and carry
your financial institution's magnetic ink coding numbers across the bottom.
- ------------------------------------------------------------------------------
Signature Signature Date
SIGNATURE GUARANTEE REQUIRED (BELOW)
- ------------------------------------------------------------------------------
TELEPHONE REDEMPTIONS - ___By wire to: or ____By mail to registered owner's
address of record.
- ------------------------------------------------------------------------------
Bank Name and Your Bank ABA Routing Number
- ------------------------------------------------------------------------------
Bank Address - Street Name of Bank Account
- ------------------------------------------------------------------------------
City State Zip Your Bank Account Number
SIGNATURE GUARANTEE REQUIRED (BELOW)
- ------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PAYMENT
Beginning _____________, 19___ please send checks in the amount of
$_________________________
($150 minimum)
Monthly________________ Quarterly______________________
Please allow 30 days to start a program. Checks will be sent on the 26th day of
each month (the next business day if a holiday).
___Payment to be made to registered owner's address of record.
___Payment to be made to other than registered shareholders, identified at
right:
- ------------------------------------------------------------------------------
Bank or Payee's Name
- ------------------------------------------------------------------------------
Account Number
- ------------------------------------------------------------------------------
Name
- ------------------------------------------------------------------------------
Street Address
- ------------------------------------------------------------------------------
City State Zip
SIGNATURE GUARANTEE REQUIRED (BELOW)
- ------------------------------------------------------------------------------
SIGNATURE (This section must be filled out by new accounts.)
By the execution of this Application the investor represents and warrants that
he has full right, power and authority, and, if a natural person is of legal age
in his state of residence, to make the investment applied for pursuant to this
Application, and the person or persons, if any, signing on behalf of the
investor represent and warrant that they are duly authorized to sign this
Application, and to purchase or redeem shares of Principal Preservation on
behalf of the investor. The investor hereby affirms that he has received a
current Prospectus.
"Under penalties of perjury, I certify (1) that the number shown on this form is
my correct taxpayer identification number and (2) that I am not subject to
backup withholding either because I have not been notified that I am subject to
backup withholding as a result of a failure to report all interest or dividends,
or the Internal Revenue Service has notified me that I am no longer subject to
backup withholding."
1. ONLY INDIVIDUALS FILL IN
X____________________________________ X____________________________________
Signature of Applicant Date Signature of Joint Registrant, if any
- --------------------------------------------------------------------------------
Social Security Number Print Name of Taxpayer Whose Number Appears at Left
2. or ONLY CORPORATIONS, PARTNERSHIPS, TRUSTS INSTITUTIONS FILL IN
- ------------------------------------------------------------------------------
Firm Name
- ------------------------------------------------------------------------------
Date Signature and Title
- ------------------------------------------------------------------------------
Taxpayer Identification Number Date Signature and Title
- -------------------------------------------------------------------------------
SIGNATURE GUARANTEE (Required for Telephone Redemptions or Systematic Withdrawal
Payment options, if chosen above.) Signature(s) Guaranteed by commercial bank,
trust company, savings and loan association, credit union or member firm of a
national stock exchange.
By:___________________________________________________________________________
(Authorized Signature) Name of bank, association or firm
- ------------------------------------------------------------------------------
DEALER IDENTIFICATION
B.C. Ziegler and Company (the "Distributor"), acts as agent in all purchases by
the investor of shares of Principal Preservation. The Distributor and the
authorized dealer, if any, named below each authorizes and appoints B.C. Ziegler
and Company to act as its agent to execute the purchase of shares of Principal
Preservation by the investor, whether the payment is received from the
Distributor, the authorized dealer or directly from the investor, and to confirm
such purchases on their behalf.
- ------------------------------------------------------------------------------
Dealer's Name
- ------------------------------------------------------------------------------
Home Office Address City State Zip Code
By____________________________________________________________________________
Authorized Signature of Dealer Address of Office Servicing Account
- ------------------------------------------------------------------------------
Branch No. Salesman's No. Salesman's Last Name Dealer No.
TABLE OF CONTENTS
Page
----
Questions and Answers 2
Expenses 4
Financial Highlights 5
Investment Objective and Policies 6
Investment Program 6
Special Considerations 11
Management 13
Determination of Net Asset Value Per Share 15
Purchase of Shares 15
Redemptions 18
Shareholder Services 20
Dividends, Capital Gains Distributions
and Reinvestments 21
Tax Status 21
Description of Shares 23
Portfolio Transactions and Brokerage 23
Distribution Expenses 24
Other Information 24
PRINCIPAL PRESERVATION
PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
INVESTMENT ADVISOR
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
DISTRIBUTOR, ACCOUNTING/PRICING AGENT AND
TRANSFER AND DIVIDEND DISBURSING AGENT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
CUSTODIAN
Firstar Trust Company
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
COUNSEL
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
AUDITOR
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
PP895-5/98
STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 1998
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
WISCONSIN TAX-EXEMPT PORTFOLIO
215 North Main Street
West Bend, Wisconsin 53095
800-826-4600
This Statement of Additional Information and the Prospectus to which it
relates describe the Principal Preservation Wisconsin Tax-Exempt Portfolio (the
"Portfolio"). Principal Preservation Portfolios, Inc. ("Principal
Preservation") offers other mutual funds by separate prospectuses and statements
of additional information.
The objective of the Portfolio is to provide investors with a high level of
current income that is exempt from federal income tax and Wisconsin personal
income tax. There can be no assurance that this investment objective will be
achieved.
- ------------------------------------------------------------------------------
Statement of Additional Information
- ------------------------------------------------------------------------------
Shares may be purchased, and a Prospectus may be obtained, directly from
the Distributor, 215 North Main Street, West Bend, Wisconsin 53095, telephone
800-826-4600, or from Selected Dealers (see the Prospectus dated May 1, 1998 for
more complete information, including an account application.) This Statement of
Additional Information is not a Prospectus, and should be read in conjunction
with the Prospectus. Capitalized terms not otherwise defined in this Statement
of Additional Information have the meanings ascribed thereto in the Prospectus.
TABLE OF CONTENTS
PAGE
----
STATEMENT OF ADDITIONAL INFORMATION........................... 1
INVESTMENT PROGRAM............................................ 2
INVESTMENT RESTRICTIONS....................................... 9
GEOGRAPHIC CONCENTRATION FACTORS.............................. 11
MANAGEMENT OF PRINCIPAL PRESERVATION.......................... 14
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES........... 21
PERFORMANCE INFORMATION....................................... 21
DETERMINATION OF NET ASSET VALUE PER SHARE.................... 23
PURCHASE OF SHARES............................................ 24
TAX STATUS.................................................... 24
PORTFOLIO TRANSACTIONS AND BROKERAGE.......................... 25
DISTRIBUTION EXPENSES......................................... 25
CUSTODIAN..................................................... 27
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS.................... 28
PORTFOLIO RATINGS............................................. 28
FINANCIAL STATEMENTS.......................................... 28
DESCRIPTION OF RATINGS OF CERTAIN FIXED INCOME
SECURITIES..................................................A-1
INVESTMENT PROGRAM
The Prospectus describes the investment objective and policies of the
Portfolio. Certain instruments and techniques discussed in the Prospectus are
described in greater detail below.
Tax Exempt Obligations
- ----------------------
As used in this Statement of Additional Information, the term "Tax Exempt
Obligations" refers to debt obligations issued by or on behalf of a state or
territory of the United States or its agencies, instrumentalities,
municipalities and political subdivisions, the interest payable on which is, in
the opinion of bond counsel, excludable from gross income for purposes of
federal income tax (except, in certain instances, the alternative minimum tax,
depending upon the shareholder's tax status) and from the Wisconsin personal
income tax.
Tax Exempt Obligations are generally issued to obtain funds for various
public purposes, including the construction of a wide range of public facilities
such as airports, bridges, highways, housing, hospitals, mass transportation,
schools, streets, water and sewer works, and gas and electric utilities. Tax
Exempt Obligations may also be issued in connection with the refunding of
similar outstanding obligations, or obtaining funds to lend to other public
institutions, or for general operating expenses. In addition, Tax Exempt
Obligations may be issued by or on behalf of public authorities to obtain funds
to provide various privately-operated facilities for business and manufacturing,
housing, sports, pollution control, and for airport, mass transit, port, and
parking facilities.
The two principal classifications of Tax Exempt Obligations are "general
obligation bonds" and "revenue bonds." General obligation bonds are generally
secured by the full faith and credit of an issuer possessing general taxing
power and are payable from the issuer's general unrestricted revenues and not
from any particular fund or revenue source. Revenue bonds are payable only from
the revenues derived from a particular source or facility, such as a tax on
particular property or revenues derived from, for example, a municipal water or
sewer utility or an airport. Tax Exempt Obligations that benefit private
parties in a manner different than members of the public generally (so-called
private activity bonds or industrial development bonds) are in most cases
revenue bonds, payable solely from specific revenues of the project to be
financed. The credit quality of private activity bonds is usually directly
related to the credit worthiness of the user of the facilities (or the credit
worthiness of a third-party guarantor or other credit enhancement participant,
if any). Payment of principal and interest on private activity bonds generally
depends on the ability of such user to meet its financial obligations, or, in
case of default, upon the amount realizable upon the disposition of property
pledged as security for payment of the user's obligation.
Tax Exempt Obligations in which the Portfolio may invest may also include
short-term obligations such as municipal notes, which are generally used to
provide short-term working capital needs and typically have maturities of one
year or less. Such obligations may include Project Notes, Tax Anticipation
Notes, Bond Anticipation Notes and Tax-Exempt Commercial Paper, and other
similar short-term obligations.
The yields on Tax Exempt Obligations are on dependent on a variety of
factors, including the financial condition of the issuer or other obligor
thereon or the revenue source from which debt service is payable, general
economic and monetary conditions, conditions in the relevant market, the size of
a particular issue, maturity of the obligation and the rating, if any, of the
issue.
Obligations of issuers of Tax Exempt Obligations are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Reform Act of 1978. In
addition, the obligations of such issuers may become subject to laws enacted in
the future by Congress, state legislatures, or referenda extending the time for
payment of principal and/or interest, or imposing other constraints upon
enforcement of such obligations or upon the issuer's ability to generate tax
revenues. There is also the possibility that, as a result of litigation or
other conditions, the authority or ability of an issuer to pay, when due, the
principal of and interest on its Tax Exempt Obligations may be materially
affected.
From time to time, legislation has been introduced in Congress for the
purpose of restricting the availability of or eliminating the federal income tax
exemption for interest on Tax Exempt Obligations, some of which have been
enacted. Additional proposals may be introduced in the future which, if
enacted, could affect the availability of Tax Exempt Obligations for investment
by the Portfolio and the value of securities held by the Portfolio. In such
event, management of each Portfolio may discontinue the issuance of shares to
new investors and may re-evaluate the Portfolio's investment objective and
policies and adopt and implement possible changes to them and the investment
program of the Portfolio.
Non-Investment Grade Bonds
- --------------------------
The Portfolio may invest up to 20% of its assets in non-investment grade
bonds (those rated below the four highest categories by Moody's or S&P or judged
by the Advisor to be of comparable quality), provided that the Portfolio may not
invest in bonds rated below B at the time of purchase. These so-called "junk
bonds" are regarded, on balance, as predominantly speculative with respect to
the capacity of the issuer to pay interest and repay principal in accordance
with the terms of the obligation. While such bonds typically offer higher rates
of return than investment grade bonds, they also involve greater risk, including
greater risk of default. An economic downturn could severely disrupt the market
for such high yield bonds and adversely affect their value and the ability of
the issuers to repay principal and interest. The rate of incidence of default
on junk bonds is likely to increase during times of economic downturns and
extended periods of increasing interest rates. Yields on junk bonds will
fluctuate over time, and are generally more volatile than yields on investment
grade bonds.
The secondary trading market for junk bonds may be less well established
than for investment grade bonds, and such bonds may therefore be only thinly
traded. As a result, there may be no readily ascertainable market value of such
securities, in which case it will be more difficult for the Board of Directors
of the Portfolio to accurately value the securities, and consequently the
investment portfolio. Under such circumstances, the Board's subjective judgment
will play a greater role in the valuation. Additionally, adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may decrease
the values and liquidity of junk bonds, especially in a thinly traded market.
To the extent such securities are or become "illiquid" in the judgment of the
Board of Directors, the Portfolio's ability to purchase and hold such securities
will be subject to its investment restriction limiting its investment in
illiquid securities. See "Investment Restrictions."
As noted above, the Portfolio will not invest in junk bonds that are rated
below the sixth rating categories by Moody's or S&P (B for Moody's and for S&P)
or judged comparable by the Advisor. Bonds rated in the fifth category (Ba for
Moody's and BB for S&P) have less near-term vulnerability to default than other
speculative issues, however they face major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. However,
business and financial alternatives available to obligors of such bonds can
generally be identified which could assist them in satisfying their debt service
requirements. Bonds rated in the sixth category are considered highly
speculative. While the issuers of such bonds must be currently meeting debt
service requirements in order to achieve this rating, adverse business,
financial or economic conditions could likely impair the issuer's capacity or
willingness to pay interest and repay principal. A detailed description of the
characteristics associated with the various debt credit ratings established by
S&P and Moody's is set forth in Appendix A to this Statement of Additional
Information.
While rating categories help identify credit risks associated with bonds,
they do not evaluate the market value risk of junk bonds. Additionally, the
credit rating agencies may fail to promptly change the credit ratings to reflect
subsequent events. Accordingly, Principal Preservation's Board of Directors and
the Advisor continuously monitor the issuers of junk bonds held by the Portfolio
to assess and determine whether the issuers will have sufficient cash flow to
meet required principal and interest payments, and to assure the continued
liquidity of such bonds so that the Portfolio can meet redemption requests.
State or Municipal Lease Obligations
- ------------------------------------
The Portfolio may invest up to 10% of its net assets in state or municipal
leases and participation interests therein. The leases may take the form of a
lease, an installment purchase or a conditional sales contract or a
participation certificate in any of the above. Such leases may be entered into
by state and local governments and authorities to purchase or lease a wide array
of equipment such as fire, sanitation or police vehicles or telecommunications
equipment, buildings or other capital assets. State or municipal lease
obligations frequently have the special risks described below which are not
associated with general obligation or revenue bonds issued by public bodies.
The constitution and statutes of many states contain requirements with
which the state and municipalities must comply whenever incurring debt.
Depending on the circumstances, these requirements may include approving voter
referenda, debt limits, interest rate limits and public sale requirements.
Leases have evolved as a means for public bodies to acquire property and
equipment without needing to comply with all of the constitutional and statutory
requirements for the issuance of debt. The debt-issuance limitations may be
inapplicable for one or more of the following reasons: (i) the inclusion in
many leases or contracts of "nonappropriation" clauses that provide that the
public body has no obligation to make future payments under the lease or
contract unless money is appropriated for such purpose by the appropriate
legislative body on a yearly or other periodic basis (the "nonappropriation"
clause); (ii) the exclusion of a lease or conditional sales contract from the
definition of indebtedness under relevant state law; or (iii) a provision in the
lease for termination at the option of the public body at the end of each fiscal
year for any reason or, in some cases, automatically if not affirmatively
renewed.
An investment in municipal lease obligations is generally less liquid than
an investment in comparable tax-exempt bonds because there is a limited
secondary trading market for such obligations. Furthermore, if the lease is
terminated by the public body for nonappropriation or other reason not
constituting a default under the lease, the lessor, or holder of a participation
interest in the lease, is limited solely to repossession of the leased property
without any recourse to the general credit of the public body. The disposition
of the leased property by the lessor in the event of termination of the lease
might, in many cases, prove difficult or result in loss. Accordingly, municipal
lease obligations will be characterized by the Portfolio as illiquid for
purposes of determining whether it complies with its investment limitation with
respect to illiquid securities, except where Principal Preservation's Board of
Directors expressly determines such a municipal lease obligation is not
illiquid.
Government Securities
- ---------------------
As set forth in the Prospectus, under certain circumstances and subject to
certain limitations, the Portfolio may invest in obligations and instruments,
the interest on which is includable in gross income for purposes of federal and
state income taxation, including obligations of the U.S. government, its
agencies or instrumentalities. Direct obligations issued by the U.S. Treasury
include bills, notes and bonds which differ from each other only as to interest
rate, maturity and time of issuance. Treasury Bills have a maturity of one year
or less, Treasury Notes have maturities of one to ten years and Treasury Bonds
generally have maturities of greater than ten years.
Some obligations issued or guaranteed by U.S. government agencies and
instrumentalities are supported by the full faith and credit of the U.S.
Treasury, other obligations are secured by the right of the issuer to borrow
from the Treasury or are supported by the discretionary authority of the U.S.
government to purchase certain obligations of the agency or instrumentality, and
other obligations are supported only by the credit of the instrumentality
itself. Although the U.S. government provides financial support to such U.S.
government-sponsored agencies or instrumentalities, no assurance can be given
that it will always do so, since it is not so obligated by law. The Portfolio
will invest in such securities only when the Advisor is satisfied that the
credit risk with respect to the issuer is appropriate for the Portfolio.
Repurchase Agreements
- ---------------------
The Portfolio may from time to time enter into repurchase agreements in
accordance with the limits set forth in the Prospectus. Repurchase agreements
involve the purchase by the Portfolio of securities with the condition that,
after a stated period of time, the original seller (a member bank of the Federal
Reserve System or a recognized securities dealer) will buy back the same
securities ("collateral") at a predetermined price or yield. The Portfolio may
invest in repurchase agreements of a duration of 7 days or less subject to the
limits on such investments stated in the Prospectus. The Portfolio's ability to
invest in repurchase agreements that mature in more than 7 days is subject to
the limits stated in the Prospectus as well as its investment restriction
limiting investment in "illiquid" securities.
The Portfolio's depository will hold the securities underlying any
repurchase agreement as collateral or such securities will be part of the
Federal Reserve Book Entry System. The market value of the collateral
underlying the repurchase agreement will be determined on each business day. If
at any time the market value of the collateral falls below the repurchase price
of the repurchase agreement (including any accrued interest), the obligor under
the agreement will promptly furnish additional collateral to the depository so
that the total collateral is an amount at least equal to the repurchase price
plus accrued interest. The difference between the amount the Portfolio pays for
the securities and the amount it receives upon resale is accrued as interest and
reflected in its net income.
In determining whether to enter into a repurchase agreement, the Advisor
will take into account the creditworthiness of the original seller. In the
event the seller of the repurchase agreement becomes the subject of a bankruptcy
or insolvency proceeding, or in the event of the failure of the seller to
repurchase the underlying security as agreed, the Portfolio could experience
losses that include: (1) possible decline in the value of the collateral during
the period that the Portfolio seeks to enforce its rights with respect thereto,
and possible delay in the enforcement of such rights; (2) possible loss of all
or a part of the income or proceeds of the repurchase; (3) additional expenses
to the Portfolio in connection with enforcing those rights; and (4) possible
delay in the disposition of the underlying security pending court action or
possible loss of rights in such securities.
When-Issued and Delayed Delivery Transactions
- ---------------------------------------------
The Portfolio may purchase or sell securities in when-issued or delayed
delivery transactions subject to the limitations stated in the Prospectus. In
such transactions, instruments are bought or sold with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous yield or price to the Portfolio at the time of entering into the
transactions. The payment obligations and the interest rate are fixed at the
time the buyer enters into the commitment, although no interest accrues to the
purchaser prior to settlement of the transaction. Consistent with the
requirements of the 1940 Act, securities purchased on a when-issued basis are
recorded as an asset (with the purchase price being recorded as a liability) and
are subject to changes in value based upon changes in the general level of
interest rates. At the time of delivery of the security, the value may be more
or less than the transaction price. At the time the Portfolio enters into a
binding obligation to purchase securities on a when-issued basis, liquid assets
of the Portfolio having a value at least as great as the purchase price of the
securities to be purchased are identified on the books of the Portfolio and held
by the Portfolio's depository throughout the period of the obligation. The use
of these investment strategies may increase net asset value fluctuations.
The Portfolio will only make commitments to purchase securities on a when-
issued basis with the intention of actually acquiring the securities, and not
for the purpose of investment leverage, but the Portfolio reserves the right to
sell the securities before the settlement date if it is deemed advisable. When
payment is made for when-issued securities, the Portfolio will meet its
obligation from its then available cashflow, sale of securities held in the
separate account, sale of other securities or, although it normally would not
expect to do so, from sale of the when-issued securities themselves (which may
have a market value greater or lesser than the Portfolio's obligation). The
sale of securities to meet such obligations may involve a greater potential for
the realization of capital gains, which could cause the Portfolio to realize
income not exempt from federal income tax and Wisconsin personal income tax.
Investments in Other Investment Companies
- -----------------------------------------
An investment by the Portfolio in another investment company may cause the
Portfolio to incur increased administration and distribution expenses. Such
investments are limited by the Portfolio's investment restrictions. See
"Investment Restrictions" in this Statement of Additional Information.
Diversification
- ---------------
The number of issues of securities which meet the Portfolio's investment
objective and criteria may be somewhat limited. As a result, a relatively high
percentage of the Portfolio's assets may be invested from time to time in the
obligations of a limited number of issuers, some of which may be subject to the
same economic trends and/or be located in the same geographic area. Securities
held by the Portfolio may therefore be more susceptible to any single economic,
political or regulatory occurrence than the portfolio securities of diversified
investment companies.
The Portfolio will operate as a non-diversified management investment
company under the 1940 Act, but intends to comply with the diversification
requirements contained in the Internal Revenue Code of 1986. These provisions
of the Internal Revenue Code presently require that, at the end of each quarter
of the Portfolio's taxable year: (i) at least 50% of the market value of the
Portfolio's assets must be invested in cash, government securities, the
securities of other regulated investment companies and other securities, with
such other securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of the Portfolio's
total assets; and (ii) not more than 25% of the value of the Portfolio's total
assets can be invested in the securities of any one issuer (other than
government securities or the securities of other regulated investment
companies).
For purposes of such diversification, the identification of the issuer of
Tax Exempt Obligations depends on the terms and conditions of the security. If
a state or territory of the United States or the District of Columbia or a
political subdivision of any of them, as the case may be, pledges its full faith
and credit to payment of a security, such entity is deemed the sole issuer of
the security. If the assets and revenues of an agency, authority or
instrumentality of a state or territory of the United States or the District of
Columbia, or a political subdivision of any of them, are separate from those of
the state, territory, District or political subdivision, and the security is
backed only by the assets and revenues of the agency, authority or instru-
mentality, such agency, authority or instrumentality is deemed to be the sole
issuer of the security. Moreover, if the security is backed only by revenues of
an enterprise or specific projects of the state, territory or District, or a
political subdivision or agency, authority or instrumentality thereof, such as
utility revenue bonds, and the full faith and credit of the governmental unit is
not pledged to the payment of principal and interest on the obligation, such
enterprise or specific project is deemed the sole issuer. Similarly, in the
case of an industrial development bond, if that bond is backed only by certain
revenues to be received from the non-governmental user of the project financed
by the bond, then such non-governmental user is deemed to be the sole issuer.
If, however, in any of the above cases, a state, territory or the District, or a
political subdivision of any of them, or some other entity, guarantees a
security and the value of all securities issued or guaranteed by the guarantor
and owned by the Portfolio exceeds 10% of the value of the Portfolio's total
assets, the guarantee is considered a separate security and is treated as an
issue of the guarantor.
Portfolio Turnover
- ------------------
Principal Preservation has not established a limit to its portfolio turn-
over rates, nor will it attempt to achieve or be limited to predetermined rates
of portfolio turnover. Although Principal Preservation cannot predict its
portfolio turnover rates, the Portfolio's portfolio turnover rate is not
expected to exceed 100%. For the year ended December 31, 1997, the Portfolio's
turnover rate was 16.9%.
INVESTMENT RESTRICTIONS
The Portfolio has adopted the following fundamental investment restrictions
and policies which cannot be changed without the approval of the holders of the
lesser of (i) a majority of the outstanding shares of the Portfolio or (ii) 67%
of the shares represented at a meeting of shareholders at which the holders of
50% or more of the outstanding shares of the Portfolio are represented.
Policies that are not "fundamental policies" are subject to change by the Board
of Directors without shareholder approval. Any investment restriction which
involves a maximum percentage of securities or assets will not be considered to
be violated unless an excess over the percentage occurs immediately after, and
is caused by, an acquisition of securities or assets of, or borrowing by, the
Portfolio. The Portfolio may not:
(1) Purchase more than 10% of the outstanding voting securities of an
issuer, or invest in a company to get control or manage it.
(2) Invest 25% or more of its total assets, based on current market value
at the time of purchase, in securities of issuers in any single industry (except
that it may invest without limitation, in circumstances in which other
appropriate available instruments may be in limited supply, in housing, health
care and/or utility obligations); provided that there shall be no limitation on
the purchase of Tax Exempt Obligations and securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities.
(3) Borrow money or property except for temporary or emergency purposes.
If the Portfolio ever should borrow money it would only borrow from banks and in
an amount not exceeding 10% of the market value of its total assets (not
including the amount borrowed). The Portfolio will not pledge more than 15% of
its net assets to secure such borrowings. In the event the Portfolio's
borrowing exceeds 5% of the market value of its total assets the Portfolio will
not invest in any portfolio securities until its borrowings are reduced to below
5% of its total assets. For purposes of these restrictions, collateral arrange-
ments for premium and margin payments in connection with hedging activities, if
any, are not to be deemed to be a pledge of assets.
(4) Make loans, except that it may lend its portfolio securities, subject
to the conditions and limitations established in the Prospectus. For the
purposes of this restriction, investments in publicly-traded debt securities or
debt securities of the type customarily purchased by institutional investors and
investments in repurchase agreements are not considered loans.
(5) Underwrite the securities of other issuers, except where it might
technically be deemed to be an underwriter for purposes of the Securities Act of
1933 upon the disposition of certain securities.
(6) Issue senior securities.
(7) Purchase a security if, as a result, more than 10% of the value of the
Portfolio's net assets would be invested in: (i) securities with legal or
contractual restrictions on resale (other than investments and repurchase
agreements); (ii) securities for which market quotations are not readily
available; and (iii) repurchase agreements which do not provide for payment
within 7 days.
(8) Invest in commodities, but the Portfolio may invest in futures
contracts, options on futures, and options.
In accordance with the following non-fundamental policies, which may be
changed without shareholder approval, the Portfolio may not:
(1) Invest more than 5% of its total assets in securities of companies
which, including any predecessors, have a record of less than 3 years of
continuous operations.
(2) Buy or sell real estate, real estate investment trusts, real estate
limited partnerships, or oil and gas interests or leases, but this shall not
prevent the Portfolio from investing in Tax Exempt Obligations secured by real
estate or interests therein or in securities of companies whose business
involves the purchase or sale of real estate.
(3) Purchase warrants, except that the Portfolio may purchase warrants
which, when valued at lower of cost or market, do not exceed 5% of the value of
the Portfolio's net assets; included within the 5%, but not to exceed 2% of the
Portfolio's net assets, may be warrants which are not listed on the New York or
American Stock Exchange.
(4) Purchase or retain the securities of an issuer if those officers or
Directors of Principal Preservation or the Advisor (as defined under the caption
"Management of Principal Preservation -- The Investment Advisor" in this
Statement of Additional Information) who individually own beneficially more than
0.5 of 1% of the outstanding securities of such issuer together own beneficially
more than 5% of such outstanding securities; provided that no officer or
director shall be deemed to own beneficially securities held in other accounts
managed by such person or held in employee or similar plans for which such
person acts as trustee.
(5) Purchase securities on margin or effect short sales of securities,
except that the Portfolio may sell securities short where it holds a long
position in the same security which equals or exceeds the number of shares sold
short; provided that the Portfolio may not effect any such short sale of
securities if, as a result thereof, more than 10% of the Portfolio's net assets
would be held as collateral for such short positions.
(6) Purchase securities of other investment companies if the purchase
would cause more than 10% of the value of the total assets of the Portfolio to
be invested in investment company securities, provided that: (i) no investment
will be made in the securities of any single investment company if, immediately
after such investment, more than 3% of the outstanding voting securities of such
investment company would be owned by the Portfolio or more than 5% of the value
of the total assets of the Portfolio would be invested in such investment
company; and (ii) no such restrictions shall apply to a purchase of investment
company securities as a part of a merger, consolidation, reorganization or
acquisition of assets.
(7) Engage in futures and options transactions, other than as described in
its current Prospectus and Statement of Additional Information.
GEOGRAPHIC CONCENTRATION FACTORS
As discussed in the Portfolio's Prospectus (see "Special Considerations --
Geographic Concentrations" in the Prospectus), a significant portion of the
Portfolio's investments will consist of Wisconsin and/or Puerto Rican issues,
which exposes the Portfolio to risks associated with economic conditions in
those geographic areas. The following information is a brief summary of factors
affecting Wisconsin and Puerto Rico and does not purport to be a complete
description of such factors. The information is based primarily upon
information derived from public documents relating to securities offerings of
governmental and agency issuers in Wisconsin and Puerto Rico and other
historically reliable sources, but has not been independently verified by
Principal Preservation. The market value of the shares of the Portfolio may
fluctuate due to factors such as changes in interest rates, matters affecting
either or both of these geographic areas or for other reasons.
Factors Affecting Wisconsin
- ---------------------------
Wisconsin's economy, although fairly diverse, is primarily concentrated in
the services industry (accounting for approximately 25% of its non-farm
employment) and secondarily in the manufacture of durable goods and retail.
Federal, state and local government in Wisconsin is also a major employer. The
top five products made in Wisconsin are dairy products, motor vehicles, paper,
meat products and small engines.
Wisconsin continues to outperform the national economy. Wisconsin's
unemployment rate has been below the national average for the past ten years.
The State's unemployment rate was 3.4%, compared to a national
unemployment rate of approximately 4.6%. The State is highly ranked in terms of
job creation, especially in the creation of manufacturing jobs. Manufacturing
employment grew by 3.1%, dramatically better than the 1.3% growth rate
nationally. Since 1987, the State's personal income tax rate has been reduced
from 7.9% to 6.93%, and the current Governor, Tommy G. Thompson, has expressed
his desire to implement further reductions. At the same time, state spending
has been controlled, with balanced budgets experienced in each of the last nine
fiscal years. Personal incomes in Wisconsin continue to increase at a rate
above that of the national average.
Wisconsin has an extremely diverse revenue-raising structure. In excess of
one-third of its total revenue is derived from the various taxes levied by the
State. The remainder comes from the federal government and from various kinds
of fees, licenses, permits and service charges paid by users of specific
services, privileges or facilities. Wisconsin's tax structure has a diverse
underlying base consisting of income, general and special product sales,
transfer of wealth and property value. About one-third of all taxes collected
by the State of Wisconsin is returned to local units of government. The
remaining funds are used for state operations and aid to individuals and
organizations. The combined operations of three state agencies (Department of
Health and Family Services, Department of Public Instruction and the University
of Wisconsin System) account for more than 50% of the total state
expenditures.
Wisconsin has the authority to increase appropriations from or reduce taxes
below levels established in its budget. In recent years, Wisconsin has adopted
appropriation measures subsequent to passage of its budget act. However, it has
been the State's policy that supplemental appropriations adopted by the State
Legislature must be within revenue projections for the relevant fiscal period or
balanced by reductions in other appropriations. The spending from additional
appropriations historically has been matched by reduced disbursements, increased
revenues or a combination of the two.
Wisconsin has experienced and anticipates it will continue to experience
certain periods when its general fund is in a negative cash position. State
statutes provide certain administrative remedies to deal with these periods.
The Secretary of Administration may temporarily reallocate up to $400 million of
available cash in other funds to the general fund. The Secretary of
Administration may set priorities for payments from the general fund as well as
pro rate certain payments. State statutes mandate that all payments must be in
accordance with the following order of preference: (a) all direct and indirect
payments of principal and interest on Wisconsin general obligation debt must
have first priority and may not be pro rated or reduced; (b) all direct and
indirect payments of principal and interest on operating notes must take second
priority and may not be pro rated or reduced; (c) all Wisconsin employee
payrolls must take third priority, but may be pro rated or reduced; and (d) all
other payments are paid in a priority determined by the Secretary of
Administration and may be pro rated or reduced.
Due to certain government initiatives, December 1996 property tax bills
decreased statewide by 6.8%. Governor Thompson's 97-99 budget indicates that
additional initiatives, including a continued commitment to fund two-thirds of
school costs for grades K-12, will provide furthur property tax relief. It is
not clear what effect, if any, such property tax relief will have on the
Portfolio's investments or prospects in the long-term.
Factors Affecting Puerto Rico
- -----------------------------
The Portfolio may invest in obligations of the Commonwealth of Puerto Rico
and its political subdivisions, agencies and instrumentalities, that qualify as
Tax Exempt Obligations. The majority of Puerto Rico's debt is issued by 10 of
the major public agencies that are responsible for many of its public functions,
such as water, wastewater, highways, telecommunications, education and public
construction.
The Puerto Rico economy generally parallels the economic cycles of the
United States, as most goods are imported from the U.S. Interest rates also
generally mirror those of the United States. The Puerto Rico economy over the
past few decades has been dominated by capital-intensive manufacturing
industries such as pharmaceuticals and chemicals, instruments, electronics,
apparel, food products and machinery. Additional major economic sectors include
government, trade and services. High-tech economic sectors have shown steady
growth, while labor-intensive industries are generally declining. The
unemployment rate for 1997 was approximately 13.4%.
The Puerto Rico economy remains vulnerable to changes in world oil prices
(98% of Puerto Rico's oil needs are supplied by imports), American trade,
foreign policy and levels of federal assistance. Per capita income levels,
while the highest in the Caribbean at slightly more than $8,200, lag far behind
the United States.
Puerto Rico's real gross national product surpassed 3% for the third
consecutive year. Economic expansion during the early 1990's had been dampened
by uncertainty over Section 936 tax credits and the plebescite regarding
statehood, as well as a sluggish U.S. economy. The economic activity index
showed an increase of four points in 1997, reaching 163.5 -- 13 points above
1992. Strong growth in tourism, car sales and shopping center development has
been offset by weakness in the manufacturing, insurance and government sectors.
Construction activity has grown in recent years, as the government has increased
its spending on public works and infrastructure improvements.
Puerto Rico's central government budget was approximately $5 billion for
1996. Future spending will be limited by a lack of new revenue sources, but
budgetary demands are expected to increase due to a poor infrastructure,
especially in power generation, waste disposal, roads and water and facilities.
Debt ratios for Puerto Rico are high as it assumes much of the responsibility
for the local infrastructure. The Commonwealth's consititution limits the
amount of general obligation debt service in any future year to 15% of the
average general revenues for the past two years. Debt policy has sought to keep
the rate of growth of debt at or below that of the gross domestic product,
although recent substantial borrowings and general economic conditions mark a
departure from this policy. The per capita guaranteed debt burden is high at
over $1,000, of which guaranteed and tax-supported debt likely will exceed
$2,000. Debt service is more manageable relative to total expenditures at
roughly 12% of combined general and debt service fund expenditures.
The Small Business Job Protection Act of 1996 (the "Act") partially
repealed Section 936 of the Internal Revenue Code. Under prior law, domestic
corporations with a substantial amount of their business operations in Puerto
Rico could elect to claim a tax credit under Section 936 that effectively
eliminated their U.S. income tax on income from business operations conducted in
Puerto Rico. The Act permits existing corporations to continue to claim a
partial credit for ten years against the tax on active business income, with a
cap imposed on the amount of income that qualifies for the tax credit, beginning
in either 1998 or 2002 (depending on the limitation method used by the
corporation). The tax credit under Section 936 is not available to any new
businesses, and even existing businesses may lose their right to the credit
altogether if they add a substantial new line of business. It is impossible
to predict with certainty whether, or to what extent, the termination of Section
936 credit will result in a decrease in the business operations of U.S.
corporations in Puerto Rico. However, eliminations of the Section 936 tax
benefits may erode Puerto Rico's competitve advantage. The North American Free
Trade Agreement may also cause companies to transfer their operations from
Puerto Rico to Mexico with its lower wages and transportation costs.
In August 1983, the United States enacted legislation widely known as the
Caribbean Basin Initiative ("CBI"). CBI, which is designed to encourage
economic development in the Caribbean and Central America, provides for: (a)
unilateral, duty-free access to a United States market for Caribbean Basin
products, except for a few selected commodities, for a period of 12 years; (b)
tax deductions for conventions held in the Caribbean; and (c) direct economic
assistance payments by the United States. CBI contains a number of measures
designed to maintain the competitive position of Puerto Rico and U.S. insular
possessions. Such measures include, among others, the inclusion in free trade
benefits of products that are processed in part in Puerto Rico, rebates to
Puerto Rico of excise taxes collected on rum imports and the exclusion of
processed tuna from duty-free treatment. The government of Puerto Rico strongly
supports the island's involvement in the CBI, particularly in relation to the
development of twin plants, or complementary projects. Under this program, the
labor-intensive phase of production generally occurs in a Caribbean or Central
American country, while the more sophisticated, higher technology phases take
place in Puerto Rico.
Puerto Rico has been a commonwealth of the United States since 1952. In a
plebiscite held in November 1993, 48% of Puerto Rico voters confirmed their
preference for commonwealth status, narrowly defeating the 46% who voted for
statehood. Only 4% voted for independence. In March of 1998 The U.S. House of
Representatives narrowly approved a bill, H.R. 856, that, if approved by the
Senate and signed by President Clinton, would allow the citizens of Puerto Rico
to vote for either statehood or independence, or for retention of commonwealth
status. The bill is not expected to go before the full Senate this year. The
effects of a future decision to grant statehood or independence to Puerto Rico
are uncertain, although such a decision could result in economic instability,
volatility in the price and market for securities.
MANAGEMENT OF PRINCIPAL PRESERVATION
Directors and Officers
- ----------------------
Under applicable law, the Board of Directors is responsible for management
of Principal Preservation, and provides broad supervision over its affairs. The
Advisor is responsible for the Portfolio's investment management, and the
Principal Preservation's officers are responsible for the Portfolio's
operations.
The Directors and officers of Principal Preservation and their principal
occupations during the past five years are set below. Their titles may have
varied during that period. Asterisks indicate those Directors who are
"interested persons" (as defined in the 1940 Act) of Principal Preservation.
Unless otherwise indicated, the address of each Director and officer of
Principal Preservation is 215 North Main Street, West Bend, Wisconsin 53095.
POSITION WITH PRINCIPAL
PRINCIPAL OCCUPATION DURING
NAME, AGE AND ADDRESS PRESERVATION PAST FIVE YEARS
- --------------------- ------------ ---------------
R. D. Ziegler,* Chairman and Director Chairman, Director and
71 Vice President, Ziegler Asset
Management, Inc.; from 1973
to 1997, Chairman and
Director and, prior to
1990, Chief Executive
Officer, and prior to 1986,
President, The Ziegler
Companies, Inc. and B.C.
Ziegler and Company;
Director, Johnson
Controls, Inc.
(manufacturing).
Robert J. Tuszynski,* President and Director Senior Vice President, B.C.
39 Ziegler and Company, since
1996; prior thereto, Vice
President, Director of Mutual
Funds, B.C. Ziegler and
Company from 1987 to 1996;
Trustee, Chairman of
the Board and President,
Prospect Hill Trust and The
Prime Portfolios
(registered investment com-
panies) from 1994 to 1996.
Richard H. Aster, M.D., 67 Director Since June, 1996, Senior
8727 W. Watertown Plank Rd. Investigator and Professor of
Milwaukee, WI 53226 Medicine, Medical College of
Wisconsin; prior thereto,
President and Director of
Research, The Blood Center
of Southeastern Wisconsin,
Inc.
Augustine J. English, 68 Director Retired; President,
1724 Lake Roberts Court Tupperware North America
Windermere, FL 34786 from 1990 to 1994 (manufac-
turing); prior to 1990,
President, The West Bend
Company (manufacturing), a
division of Dart
Industries, a subsidiary of
Premark International,
Inc., of which Mr. English
was a Group Vice President.
Ralph J. Eckert, 69 Director Chairman, Emeritus and
2059 Keystone Ranch Road Director, Trustmark Insurance
Dillon, CO 80435 Cos. (Mutual Life Insurance
Company) since April, 1997;
from 1991 to 1997 Chairman,
Trustmark Insurance Cos.; prior
to 1991, Chairman,
President and Chief
Executive Officer Trustmark
Insurance Cos. since 1971;
Trustee of the Board of
Pensions of the Evangelical
Lutheran Church in America
from 1991 to 1997, and Chairman
of the Board from 1993 to 1997;
Trustee of the Board of
Pensions for the Lutheran
Church of America
from 1987-1989; and Trustee
of The Prime Portfolios
(registered investment
company) from 1993-1996.
John H. Lauderdale, 32 Vice President - Wholesaler, B.C. Ziegler
Director of Marketing and Company since 1991;
prior thereto, Marketing
Account Executive, The
Patten Company.
Franklin P. Ciano, 46 Chief Financial Manager of Principal
Officer and Treasurer Preservation Operations,
B.C. Ziegler and Company
since 1996; prior thereto,
Vice President, Fixed
Income Department, Firstar
Bank.
Marc J. Dion, 40 Vice President Vice President - Portfolio
Manager and Chief
Investment Officer, Ziegler
Asset Management, Inc.
since 1993; prior thereto,
Vice President, Ziegler
Asset Management, Inc.
S. Charles O'Meara, 48 Secretary Senior Vice President and
General Counsel, B.C.
Ziegler and Company since
1993; prior thereto,
Partner, O'Meara, Eckert,
Pourus & Gonring (law
firm).
Principal Preservation pays the compensation of the three Directors who are
not officers, directors or employees of the Advisor. Principal Preservation
will pay each of these Directors an annual fee of $12,000 and an additional $450
for each Board or committee meeting he attends. Principal Preservation may also
retain consultants, who will be paid a fee, to provide the Board with advice and
research on investment matters.
The table below shows fees paid to Directors of Principal Preservation for
the year ended December 31, 1997. Each series of Principal Preservation,
including the Portfolio, pays a proportionate share of these expenses based on
the ratio such series' total assets bear to the aggregate of the total assets of
all eight series of Principal Preservation. Principal Preservation made no
payments to its officers or directors who are affiliated with any investment
advisor to Principal Preservation.
PENSION OR
RETIREMENT TOTAL
BENEFITS COMPENSATION
ACCRUED FROM PRINCIPAL
NAME OF PERSON AND AGGREGATE AS PART OF ESTIMATED PRESERVATION
POSITION WITH COMPENSATION PRINCIPAL ANNUAL BENEFITS AND FUND
PRINCIPAL FROM PRINCIPAL PRESERVATION'S UPON COMPLEX PAID TO
PRESERVATION PRESERVATION EXPENSES RETIREMENT DIRECTORS
------------ ------------ -------- ---------- ---------
R. D. Ziegler, -0- -0- -0- -0-
Chairman and
Director
Robert J. Tuszynski, -0- -0- -0- -0-
President and
Director
Richard H. Aster, M.D. 14,700 -0- -0- 14,700
Director
Augustine J. English, 14,700 -0- -0- 14,700
Director
Ralph J. Eckert 14,700 -0- -0- 14,700
Director
The executive officers and Directors as a group (nine persons) owned
beneficially, as of April 24, 1998, shares of the Wisconsin Tax-Exempt
Portfolio representing less than 1% of all outstanding shares. This management
group's beneficial ownership of shares of Principal Preservation as a whole also
amounted to less than 1% of the outstanding shares. See also "Control Persons
and Principal Holders of Securities."
The Investment Advisor
- ----------------------
Basic information about the Advisor and the Advisory Agreement (the
"Agreement") is set forth in the Prospectus under "Management."
Under the Agreement, Ziegler Asset Management's fee will be reduced, or
Ziegler Asset Management will reimburse the Portfolio (up to the amount of its
fee), by an amount necessary to prevent the total expenses of the Portfolio
(excluding taxes, interest, brokerage commissions or transaction costs,
distribution fees and extraordinary expenses) from exceeding limits applicable
to the Portfolio in any state in which its shares are then qualified for sale.
The shares of the Portfolio are qualified for sale only in Wisconsin, which has
no such expense limitation.
For the years ended December 31, 1995, 1996 and 1997, the Portfolio accrued
fees under the Advisory Agreement totaling $69,551, $112,522, and $142,200,
respectively.
Administrative Services
- -----------------------
Ziegler provides certain administrative, accounting and pricing services to
Principal Preservation, including calculating daily net asset value per share;
maintaining original entry documents and books of record and general ledgers;
posting cash receipts and disbursements; reconciling bank account balances
monthly; recording purchases and sales based upon portfolio manager
communications; and preparing monthly and annual summaries to assist in the
preparation of financial statements of, and regulatory reports for, Principal
Preservation. Ziegler has agreed to provide these services pursuant to the
terms of an Accounting/Pricing Agreement (the "Accounting/Pricing Agreement") at
rates found by the Board of Directors to be fair and reasonable in light of the
usual and customary charges made by unaffiliated vendors for similar services.
The current rate of payment for these services per year is .03 of 1% of the
Portfolio's total assets of $30 million but less than $100 million, .02 of 1% of
the Portfolio's total assets of $100 million but less than $250 million and .01
of 1% of the Portfolio's total assets of $250 million or more, with a minimum
fee of $19,000 per Portfolio per year, plus expenses. The Accounting/Pricing
Agreement will continue in effect from year to year, as long as it is approved
at least annually by Principal Preservation's Board of Directors or by a vote of
the outstanding voting securities of Principal Preservation and in either case
by a majority of the Directors who are not parties to the Accounting/Pricing
Agreement or interested persons of any such party. The Accounting/Pricing
Agreement terminates automatically if assigned and may be terminated without
penalty by either party on 60 days notice. The Accounting/Pricing Agreement
provides that neither Ziegler nor their personnel shall be liable for any error
of judgment or mistake of law or for any loss arising out of any act or omission
in the execution and the discharge of its obligations under the
Accounting/Pricing Agreement, except for willful misfeasance, bad faith or gross
negligence in the performance of their duties or by reason of reckless disregard
of their obligations and duties under the Accounting/Pricing Agreement, and in
no case shall their liability exceed one year's fee income received by them
under such Agreement.
Custodian Services
- -------------------
Firstar Trust Company serves as the Custodian of the Fund's assets,
pursuant to a Custodian Servicing Agreement. The Custodian Servicing Agreement
provides that Firstar Trust Company is entitled to receive an annual fee of
$0.02% on the first $500 million of the Fund's net asset value and 0.015%
of assets in excess of $500 million.
Shareholder Services
- --------------------
Ziegler has, and certain other brokers and financial institutions in the
future may, enter into shareholder servicing agreements with Principal
Preservation pursuant to which they provide shareholder services to the
Portfolio. Under such agreements, the shareholder servicing Agents maintain
shareholder accounts for the Portfolio and perform the functions of transfer and
dividend paying agents, among other services, with respect to such accounts.
For providing these services, each Agent receives a fee at an annual rate of up
to 0.15 of 1% of that portion of the Portfolio's average daily net assets
allocated to shares owned by the customers of such Agent and held in the
shareholder accounts maintained by the Agent. An Agent may impose additional
service charges and fees on its customer's accounts. The Agent must invoice
those charges and fees directly to the customer and may not deduct them from the
customer's holdings in the Portfolio. Each shareholder servicing agreement
continues in effect until terminated, and may be terminated by either party
without cause on not less than 30 days nor more than 60 days prior notice. Each
shareholder servicing agreement provides that the Agent thereunder shall be
indemnified by Principal Preservation for any action taken or omitted by the
Agent under the agreement except for, (a) the bad faith or negligence of the
Agent, its officers, employees or agents, or (b) any breach of applicable law by
the Agent, its officers, employees or agents, or (c) any action of the Agent,
its officers, employees or agents which exceeds the legal authority of the Agent
or its authority under its shareholder servicing agreement, or (d) any error or
omission of the Agent, its officers, employees or agents with respect to the
purchase, redemption and transfer of Portfolio shares held in accounts serviced
by the Agent or the Agent's verification or guarantee of any signature of a
shareholder owning shares in such account.
For those shareholder accounts that are not separately serviced by an Agent
pursuant to the terms of a shareholder servicing agreement, Ziegler provides
transfer agent and dividend disbursing services pursuant to the terms of a
Transfer and Dividend Disbursing Agency Agreement (the "Agency Agreement").
Under the terms of the Agency Agreement, Ziegler is entitled to reasonable
compensation for its services and expenses as agreed upon from time to time
between it and the Board of Directors of Principal Preservation. The rate of
compensation agreed upon for these services is currently $13.50 per account for
the Portfolio. The Portfolio also reimburses Ziegler for all out of pocket
expenses incurred in providing such services. Ziegler also has the right to
retain certain service charges as described from time to time in the current
Prospectus. The Agency Agreement will continue in effect until terminated, and
may be terminated by either party without cause on 90 days prior written notice.
The Agency Agreement provides that Ziegler shall be indemnified by and not be
liable to Principal Preservation for any action taken or omitted by it under
such agreement, except for liability for breach of its obligation to maintain
all Principal Preservation records in absolute confidence.
Other Services
- --------------
In addition to the foregoing, Ziegler also serves as the principal
Distributor of the Portfolio's shares and receives commissions on sales of
Portfolio shares. See "Purchase of Shares." Ziegler also receives
reimbursement from the Portfolio for certain expenses Ziegler incurs in
connection with distributing the Portfolio's shares pursuant to the Distribution
Plan adopted by the Portfolio under Rule 12b-1 of the 1940 Act. See
"Distribution Expenses."
Fees paid to Ziegler Asset Management or Ziegler by the Portfolio for
services provided in all of these capacities for the year ended December 31,
1997, are reflected in the table below:
DESCRIPTION OF FEE FOR THE YEARS ENDED DECEMBER 31,
-----------------
----------------------------------------
1997 1996 1995
---- ---- ----
Commissions on Portfolio $136,106 $132,863 $152,234
Shares and Rule 12b-1
Distribution Fees
Accounting/Pricing Fees $ 19,068 $ 19,000 $19,000
Depository Fees(1)<F1> $11,447 $ 8,188 $ 6,570
Transfer and Dividend $21,770 $ 17,484 $12,390
Disbursing Agent Fee
Shareholder Servicing $ 0 $ 0 $ 0
Fees
Investment Advisory Fees $142,200 $112,522 $ 69,551
(1)<F1> Prior to March 31, 1998, Principal Preservation served as its own
custodian. The securities of each Portfolio were held by Ziegler, an
affiliated person of Principal Preservation, as Depository. In addition,
Ziegler performed certain administrative, clearing and recordkeeping
functions for each Portfolio. For such services Ziegler was compensated at
the rate of .055 of 1% of the first $10 million of each Portfolio's assets,
.03 of 1% of the next $40 million of assets, .016 of 1% of the next $200
million of assets, and 0.015 of 1% of assets in excess of $250 million.
The aggregate underwriting commissions received and the amount of
commissions retained by Ziegler for the three years ended December 31, 1997
were as follows:
YEAR END AGGREGATE COMMISSIONS RETAINED COMMISSIONS
- -------- --------------------- --------------------
December 31, 1995 $117,027 $73,000
December 31, 1996 $ 83,525 $50,000
December 31, 1997 $129,117 $91,000
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of April 24, 1998, no person was known to Principal Preservation to be
the "beneficial owner" (determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934) of more than 5% of the outstanding shares of
Principal Preservation's common stock or of the outstanding shares of the
Portfolio. Information as to beneficial ownership was obtained from information
on file with the Securities and Exchange Commission or furnished by the
specified person or the transfer agent.
PERFORMANCE INFORMATION
From time to time the Portfolio may advertise its "yield" and "total
return." Yield is based on historical earnings and total return is based on
------------------------------------------------------------------
historical distributions; neither is intended to indicate future performance.
- ----------------------------------------------------------------------------
The "yield" of the Portfolio refers to the income generated by an investment in
the Portfolio over a one-month period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of
income generated by the investment during the month is assumed to be generated
each month over a 12-month period and is shown as a percentage of the
investment. "Total return" of the Portfolio refers to the average annual total
return for one, five and ten year periods (or so much thereof as the Portfolio
has been in existence). Total return is the change in redemption value of
shares purchased with an initial $1,000 investment, assuming the reinvestment of
dividends and capital gain distributions, after giving effect to the maximum
applicable sales charge. In addition, the Portfolio may advertise its "tax
equivalent yield," which is computed by dividing that portion of the Portfolio's
yield which is tax-exempt by one minus a stated income tax rate and adding the
product to that portion, if any, of the yield of the Portfolio which is not tax-
exempt. Performance information should be considered in light of the
Portfolio's investment objectives and policies, characteristics and quality of
its portfolio securities and the market conditions during the time period, and
should not be considered as a representation of what may be achieved in the
future. Investors should consider these factors and possible differences in the
methods used in calculating performance information when comparing the
Portfolio's performance to performance figures published for other investment
vehicles.
Average annual total return is computed by finding the average annual
compounded rates of return over the 1, 5, and 10 year periods (or so much
thereof as the Portfolio has been in existence) ended on the date of the balance
sheet that would equate the initial amount invested to the ending redeemable
value, according to the following formula:
n
P(1+T) =ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1, 5, or 10 year periods at the end of the
1, 5, or 10 year periods (or fractional portion thereof).
In some circumstances the Portfolio may advertise its total return for a 1,
2 or 3-year period, or the total return since the Portfolio commenced
operations. In such circumstances the Portfolio will adjust the values used in
computing return to correspond to the time period for which the information is
provided.
Yield quotations are based on a 30-day (or one-month) period, and are
computed by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
a-b 6
Yield = 2[(------ +1) -1]
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
The total return for the Portfolio for the year ended December 31, 1997
was -5.69%. The yield for the Portfolio for the month ended December 31, 1997
was 4.54%. When advertising yield, the Portfolio will not advertise a one-month
or 30-day period which ends more than 45 days before the date the advertisement
is published.
A tax equivalent yield is based on a 30-day (or one-month) period, and is
computed by dividing that portion of the yield of the Portfolio (as computed in
accordance with the description above) by one minus a stated income tax rate and
adding the products to that portion, if any, of the yield of the Portfolio that
is not tax-exempt. For the month ended December 31, 1997, the Portfolio's
taxable equivalent yield, based upon a 33% federal income tax rate, was 6.78%.
Performance information for the Portfolios may be compared to various
unmanaged indices as well as indices of similar mutual funds. The Portfolio's
advertising may also quote rankings published by other recognized statistical
services or publishers such as Lipper Analytical Services, Inc., or Weisenberger
Investment Companies Service.
An illustration may be used comparing the growth in value of an initial
investment in the Portfolio compared to a fixed rate of return compounded on a
monthly basis. This illustration will reflect the effect of the Portfolio's
sales charge and fluctuations in net asset value, and will assume all income and
capital gain distributions are reinvested. The fixed rate of return will be
clearly stated and presented as a monthly compounded figure, and therefore will
not reflect any market fluctuation. The Portfolio may also use illustrations
comparing tax-free yields to equivalent taxable yields based on maximum marginal
tax rates at varying income levels, as well as illustrations showing the effects
of compounding on a tax-free investment as compared with a taxable investment
offering the same hypothetical yield.
The Portfolio may from time to time include its ranking as published by
other comparable national services which rank mutual funds, in advertisements or
in information presented to prospective shareholders.
DETERMINATION OF NET ASSET VALUE PER SHARE
Shares are sold at their net asset value per share plus the applicable
sales charge. See "Purchase of Shares." Net asset value per share of the
Portfolio is determined by subtracting the Portfolio's liabilities (including
accrued expenses and dividends payable) from the Portfolio's total assets (the
value of the securities the portfolio holds plus cash or other assets, including
interest accrued but not yet received) and dividing the result by the total
number of shares outstanding.
The net asset value per share will be calculated as of 2:30 p.m. New York
time at least once every weekday, Monday through Friday, except on customary
national business holidays which result in the closing of the New York Stock
Exchange (the "Exchange") (including New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day).
Hedging instruments will be valued at their last sale price prior to the
close of the Exchange, unless there have been no trades on that day and the last
sale price is below the bid, or above the asked, price. If the last prior sale
price is below the bid, instruments will be valued at the bid price at the close
of the Exchange; if the last prior sale price is above the asked, the instrument
will be valued at the asked price at the close of the Exchange. Tax Exempt
Obligations in which the Portfolio will invest are traded primarily in the over-
the-counter market. Securities for which market quotations are readily
available will be valued in the same manner as for hedging instruments. Securi-
ties and other assets for which quotations are not readily available will be
valued at their fair value on a consistent basis using valuation methods
determined by the Board of Directors. The Portfolio intends to determine fair
value for such securities based in part upon the information supplied by pricing
services approved by the Board of Directors. Valuations of portfolio securities
furnished by the pricing service will be based upon a computerized matrix system
and/or appraisals by the pricing service in each case in reliance upon
information concerning market transactions and quotations from recognized
securities dealers.
PURCHASE OF SHARES
Ziegler acts as the principal Distributor for the Portfolio. Ziegler will
allow Selected Dealer discounts or pay selling commissions to Selected Dealers
(which are alike for all Selected Dealers) from the applicable public offering
price. Neither Ziegler nor Selected Dealers are permitted to withhold placing
orders to benefit themselves by a price change. The Distribution Agreement
between Principal Preservation and Ziegler will continue from year to year if it
is approved annually by Principal Preservation's Board of Directors, including a
majority of those Directors who are not interested persons, or by a vote of the
holders of a majority of the outstanding shares. The Agreement may be
terminated at any time by either party on 60 days notice and will automatically
terminate if assigned.
Shares of the Portfolio may be purchased by certain classes of persons
without a sales charge, or a reduced sales charge, as described in the
Prospectus. The Board of Directors believes this is appropriate because of
the minimal sales effort needed to accommodate these classes of persons.
Because sales to members of qualified groups result in economies of sales
efforts and sales related expenses, the Distributor is able to offer a reduced
sales charge to such persons. A "qualified group" is one which: (1) has been
in existence for more than six months; (2) has a purpose other than acquiring
shares at a discount; and (3) has more than ten members, is available to arrange
for group meetings between representatives of the Distributor or Selected
Dealers distributing shares of the Portfolio, and agrees to include sales and
other materials related to Principal Preservation in its mailings to members at
reduced or no cost to the Distributor or Selected Dealers. See "Purchase of
Shares -- Group Purchases" in the Prospectus.
TAX STATUS
Each series of a series company, such as Principal Preservation, is treated
as a single entity for Federal income tax purposes so that the net realized
capital gains and losses of the various portfolios in one fund are not combined.
The Portfolio intends to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986 (the "Code"). In order to qualify as a
regulated investment company, the Portfolio must satisfy a number of
requirements. Among such requirements is the requirement that at least 90
percent of the Portfolio's gross income must be derived from dividends, interest
and gains from the sale or other disposition of stock or other securities.
Another requirement is that less than 30 percent of the Portfolio's gross income
be derived from the sale or other disposition of securities (net of losses on
designated hedges) held for less than three months. In determining these gross
income requirements, a loss from the sale or other disposition of securities
does not enter into the computation.
Gain or loss on the sale of U.S. government securities held by the
Portfolio for more than six months will generally be long-term capital gain or
loss. Gain or loss on the sale of U.S. government securities held for six
months or less will be short-term capital gain or loss. Gain or loss on the
sale, exchange, lapse, or termination of an option on securities will generally
be treated as a gain or loss from the sale of securities.
Dividends and other distributions paid to individuals and other non-exempt
payees are subject to a 31% backup Federal withholding tax if the Agent is not
provided with the shareholder's correct taxpayer identification number or
certification that the shareholder is not subject to such backup withholding or
if the Portfolio is notified that the shareholder has underreported income in
the past. In addition, such backup withholding tax will apply to the proceeds
of redemption or repurchase of shares from a shareholder account for which the
correct taxpayer identification number has not been furnished. For most
individual taxpayers, the taxpayer identification number is the social security
number. An investor may furnish the Agent with such number and the required
certifications by completing and sending the Agent either the Account
Application form attached to the Prospectus or IRS Form W-9.
Interest on indebtedness incurred (directly or indirectly) by shareholders
to purchase or carry shares will not be deductible for Federal income tax
purposes. Further, persons who are "substantial users" (or persons related
thereto) of facilities financed by industrial development bonds should consult
their own tax advisor before purchasing the Portfolio's shares.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Basic information with respect to portfolio transactions and brokerage is
set forth in the Prospectus under "Portfolio Transactions and Brokerage." In
addition to the conditions and limitations there described, in the event Ziegler
is utilized as a broker by Principal Preservation and other Ziegler clients are
considering the same types of transactions simultaneously, Ziegler will allocate
the transactions and securities in which they are made in a manner deemed by
Ziegler to be equitable, taking into account size, timing and amounts. This may
affect the price and availability of securities to the Portfolio.
DISTRIBUTION EXPENSES
Principal Preservation's Distribution Plan (the "Plan") is its written plan
contemplated by Rule 12b-1 (the "Rule") under the 1940 Act.
The Plan authorizes the Distributor to make certain payments to any
qualified recipient, as defined in the Plan, that has rendered assistance in the
distribution of Principal Preservation's shares (such as sale or placement of
Principal Preservation's shares, or administrative assistance, such as
maintenance of sub-accounting or other records). Qualified recipients include
banks and other financial institutions. The Plan also authorizes the
Distributor to purchase advertising for shares of the Portfolios, to pay for
sales literature and other promotional material, and to make payments to its
sales personnel. Any such payments to qualified recipients or expenses will be
reimbursed or paid by Principal Preservation, up to a limit of 0.25 of 1% of the
average net assets of the Portfolio. The Distributor bears its expenses of
distribution above the foregoing amounts. No reimbursement or payment may be
made for expenses of past fiscal years or in contemplation of expenses for
future fiscal years under the Plan.
The Plan states that if and to the extent that any of the payments by
Principal Preservation listed below are considered to be "primarily intended to
result in the sale of shares" issued by a portfolio within the meaning of the
Rule, such payments by Principal Preservation are authorized without limit under
the Plan and shall not be included in the limitations contained in the Plan:
(1) the costs of the preparation, printing and mailing of all required reports
and notices to shareholders, irrespective of whether such reports or notices
contain or are accompanied by material intended to result in the sale of shares
of Principal Preservation or other funds or other investments; (2) the costs of
preparing, printing and mailing of all prospectuses to shareholders; (3) the
costs of preparing, printing and mailing of any proxy statements and proxies,
irrespective of whether any such proxy statement includes any item relating to,
or directed toward, the sale of Principal Preservation's shares; (4) all legal
and accounting fees relating to the preparation of any such reports, prospec-
tuses, proxies and proxy statements; (5) all fees and expenses relating to the
qualification of Principal Preservation and or their shares under the securities
or "Blue Sky" laws of any jurisdiction; (6) all fees under the 1940 Act and the
Securities Act of 1933, including fees in connection with any application for
exemption relating to or directed toward the sale of Principal Preservation's
shares; (7) all fees and assessments of the Investment Company Institute or any
successor organization or industry association irrespective of whether some of
its activities are designed to provide sales assistance; (8) all costs of
preparing and mailing confirmations of shares sold or redeemed or share
certificates and reports of share balances; and (9) all costs of responding to
telephone or mail inquiries of shareholders.
The Plan also states that it is recognized that the costs of distribution
of Principal Preservation's shares are expected to exceed the sum of permitted
payments, permitted expenses, and the portion of the sales charge retained by
the Distributor, and that the profits, if any, of the Advisor are dependent
primarily on the advisory fees paid by Principal Preservation to Ziegler. If
and to the extent that any investment advisory fees paid by Principal
Preservation might, in view of any excess distribution costs, be considered as
indirectly financing any activity which is primarily intended to result in the
sale of shares issued by Principal Preservation, the payment of such fees is
nonetheless authorized under the Plan. The Plan states that in taking any
action contemplated by Section 15 of the 1940 Act as to any investment advisory
contract to which Principal Preservation is a party, the Board of Directors
including its Directors who are not "interested persons" as defined in the 1940
Act, and who have no direct or indirect financial interest in the operation of
the Plan or any agreements related to the Plan ("Qualified Directors"), shall,
in acting on the terms of any such contract, apply the "fiduciary duty" standard
contained in Sections 36(a) and (b) of the 1940 Act.
Under the Plan, Principal Preservation is obligated to pay distribution
fees only to the extent of expenses actually incurred by the Distributor for the
current year, and thus there will be no carry-over expenses from the previous
years. The Plan permits the Distributor to pay a portion of the distribution
fee to authorized broker dealers, which may include banks or other financial
institutions, and to make payments to such persons based on either or both of
the following: (1) as reimbursement for direct expenses incurred in the course
of distributing Principal Preservation's shares or providing administrative
assistance to Principal Preservation or its shareholders, including, but not
limited to, advertising, printing and mailing promotional material, telephone
calls and lines, computer terminals and personnel (including commissions and
other compensation paid to such personnel); and/or (2) at a specified percentage
of the average value of certain qualifying accounts of customers of such
persons.
The Plan requires that while it is in effect the Distributor shall report
in writing at least quarterly to the Directors, and the Directors shall review,
the following: (1) the amounts of all payments, the identity of recipients of
each such payment, the basis on which each such recipient was chosen and the
basis on which the amount of the payment was made; (2) the amounts of expenses
and the purpose of each such expense; and (3) all costs of the other payments
specified in the Plan (making estimates of such costs where necessary or
desirable) in each case during the preceding calendar or fiscal quarter.
The Plan will continue in effect from year to year only so long as such
continuance is specifically approved at least annually by the Board of Directors
and its Qualified Directors cast in person at a meeting called for the purpose
of voting on such continuance. The Plan may be terminated any time without
penalty by a vote of a majority of the Qualified Directors or by the vote of the
holders of a majority of the outstanding voting securities of Principal
Preservation (or with respect to any Portfolio, by the vote of a majority of the
outstanding shares of such Portfolio). The Plan may not be amended to increase
materially the amount of payments to be made without shareholder approval.
While the Plan is in effect, the selection and nomination of those Directors who
are not interested persons of Principal Preservation is committed to the
discretion of such disinterested Directors. Nothing in the Plan will prevent
the involvement of others in such selection and nomination if the final decision
on any such selection and nomination is approved by a majority of such
disinterested Directors.
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
Quarles & Brady, as counsel to Principal Preservation, has rendered its
opinion as to certain legal matters regarding the due authorization and valid
issuance of the shares of common stock being sold pursuant to the Prospectus.
Arthur Andersen LLP, independent public accountants, are the auditors of
Principal Preservation.
PORTFOLIO RATINGS
The Portfolio may obtain and use a rating from a nationally recognized
statistical rating organization. A rating on the shares of an investment
company is a current assessment of creditworthiness with respect to the
investments held by such fund. This assessment takes into consideration the
financial capacity of the issuers and of any guarantors, insurers, lessees, or
mortgagors with respect to such investments. The assessment, however, does not
take into account the extent to which the Portfolio's expenses or portfolio
asset sales for less than the Portfolio's purchase price will reduce yield or
return. In addition, the rating is not a recommendation to purchase, sell, or
hold units, inasmuch as the rating does not comment as to market price of the
shares or suitability for a particular investor.
FINANCIAL STATEMENTS
The following audited financial statements and footnotes thereto of the
Principal Preservation Wisconsin Tax-Exempt Portfolio and the Report of the
Independent Public Accountants thereon are incorporated herein by reference from
the Principal Preservation Wisconsin Tax-Exempt Portfolio's 1997 Annual Report
to Shareholders.
1. Balance Sheet of the Portfolio dated December 31, 1997.
2. Statements of Changes in Net Assets of the Portfolio for the
years ended December 31, 1996 and December 31, 1997.
3. Statement of Operations of the Portfolio for the year ended
December 31, 1997.
A copy of the Principal Preservation Wisconsin Tax-Exempt Portfolio's 1997
Annual Report to Shareholders may be obtained free of charge by writing to
Principal Preservation, 215 North Main Street, West Bend, Wisconsin 53095.
APPENDIX A
SECURITIES RATINGS
As set forth in the Prospectus under the caption "Investment Program,"
generally, the Portfolio will limit its investment in debt securities to those
which are rated in one of certain specified categories by Moody's or S&P. The
following is a brief description of the rating systems used by these
organizations.
FIXED INCOME SECURITIES
Standard & Poor's Ratings Services.
- -----------------------------------
An S&P debt rating is a current assessment of the creditworthiness of an
obligor with respect to a specific obligation. This assessment may take into
consideration obligors such as guarantors, insurers or lessees.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default - capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
II. Nature of and provisions of the obligation; and
III.Protection afforded by, and relative position of the obligation
in the event of bankruptcy, reorganization or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.
S&P's six highest rating categories are as follows:
AAA.Debt rated AAA has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small
degree.
A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in the
higher rated categories.
BBB.Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protective parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt
in higher-rated categories.
BB. Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which
could lead to inadequate capacity to meet timely interest and
principal payments. The BB rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BBB-
rating.
B. Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions will likely impair
capacity or willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied BB or BB- rating.
Moody's Investors Service, Inc.
- -------------------------------
The purpose of Moody's Ratings is to provide investors with a simple system
of gradation by which the relative investment qualities of bonds may be noted.
Moody's six highest rating categories are as follows:
Aaa.Bonds which are rated Aaa are judged to be the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa. Bonds which are Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude, or
there may be other elements present which make the long term risks
appear somewhat larger than in Aaa securities.
A. Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa.Bonds which are rated Baa are considered as medium grade
obligations: i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba. Bonds which are Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not
well safeguarded during other good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B. Bonds which are B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of contract over any long period of time
may be small.
General
- -------
S&P ratings, other than "AAA", may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
The letter "p" following an S&P rating indicates the rating is provisional.
A provisional rating assumes the successful completion of the project being
financed by the issuance of the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion. Accordingly, the
investor should exercise his or her own judgment with respect to such likelihood
and risk.
Moody's security rating symbols may contain numerical modifiers to the "Aa"
through "B" rating classification. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
The symbol "Con" in a rating by Moody's indicates a provisional rating
given to bonds for which the security depends upon the completion of some act of
the fulfillment of some condition. These are bonds secured by: (1) earnings of
projects under construction; (2) earnings of projects unseasoned in operating
experience; (3) rentals which begin when facilities are completed; or (4)
payments to which some other limiting condition attaches. A parenthetical
rating denotes probable credit stature upon completion of construction or
elimination of basis of condition.
MUNICIPAL NOTE RATINGS
Moody's Investors Service, Inc.
- -------------------------------
MIG 1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable
strength of the preceding grades. Liquidity and cash flow
protection may be narrow and market access for refinancing is
likely to be less well established.
MIG 4. This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and
although not distinctly or predominantly speculative, there is
specific risk.
Standard & Poor's Ratings Services
- ----------------------------------
SP-1. Notes rated SP-1 have very strong or strong capacity to pay
principal and interest. Those issues determined to possess
overwhelming safety characteristics are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and
interest.
Notes due in three years or less normally receive a note rating. Notes
maturing beyond three years normally receive a bond rating, although the
following criteria are used in making that assessment:
-Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue will be rated as a note.)
-Source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be rated as a note.)
The ratings of S&P and Moody's represent their opinions as to the quality
of the instruments rated by them. It should be emphasized that such ratings,
which are subject to revision or withdrawal, are general and are not absolute
standards of quality.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
INVESTMENT ADVISOR
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
DISTRIBUTOR, ACCOUNTING/PRICING
AGENT, SHAREHOLDER SERVICING AGENT AND
TRANSFER AND DIVIDEND DISBURSING AGENT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
CUSTODIAN
Firstar Trust Company
777 East Wisconsin Avenue
Milwaukee, WI 53202
LEGAL COUNSEL
Quarles & Brady
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INDEPENDENT AUDITORS
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
WISCONSIN TAX-EXEMPT PORTFOLIO
MAY 1, 1998
STATEMENT OF ADDITIONAL INFORMATION
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
Part C. Other Information
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements of the Registrant included or
incorporated by reference into Part B for each series:
(1) Balance Sheet
(2) Statement of Changes in Net Assets
(3) Statement of Operations
(4) Schedule of Investments
(5) Report of Independent Public Accountants
(b) Exhibits:
See Exhibit Index following Signature Page, which Exhibit Index
is incorporated herein by this reference.
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
Not applicable.
Item 26. Number of Holders of Securities
-------------------------------
At March 30, 1998, the number of record holders of each class of
securities of Registrant or its predecessors, as the case may be, was:
NUMBER OF HOLDERS OF RECORD OF
PORTFOLIO SHARES OF COMMON STOCK
- --------- ----------------------
Tax-Exempt Portfolio 2,063
Government Portfolio 1,927
S&P 100 Plus Portfolio 5,955
Dividend Achievers Portfolio 2,179
Select Value Portfolio 709
PSE Tech 100 Index 3,386
Wisconsin Tax-Exempt Portfolio 1,105
Cash Reserve Portfolio
Class X Common Stock 52
Class Y Common Stock 68
Item 27. Indemnification
---------------
Reference is made to Article IX of the Registrant's Bylaws filed as
Exhibit No. 2 to its Registration Statement with respect to the
indemnification of Registrant's directors and officers, which is set
forth below:
Section 9.1. Indemnification of Officers, Directors, Employees and
----------- -----------------------------------------------------
Agents. The Corporation shall indemnify each person who was or is a
-------
party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative ("Proceeding"), by reason of the fact
that he is or was a Director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as
a Director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against all
expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in
connection with such Proceeding to the fullest extent permitted by
law; provided that:
--------
(a) whether or not there is an adjudication of liability in such
Proceeding, the Corporation shall not indemnify any person for any
liability arising by reason of such person's willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved
in the conduct of his office or under any contract or agreement with
the Corporation ("disabling conduct"); and
(b) the Corporation shall not indemnify any person unless:
(1) the court or other body before which the Proceeding was
brought (i) dismisses the Proceeding for insufficiency of
evidence of any disabling conduct, or (ii) reaches a final
decision on the merits that such person was not liable by
reason of disabling conduct; or
(2) absent such a decision, a reasonable determination is
made, based upon a review of the facts, by (i) the vote of a
majority of a quorum of the Directors of the Corporation who
are neither interested persons of the Corporation as defined
in the Investment Company Act of 1940 nor parties to the
Proceeding, or (ii) if such quorum is not obtainable, or
even if obtainable, if a majority of a quorum of Directors
described in paragraph (b)(2)(i) above so directs, by
independent legal counsel in a written opinion, that such
person was not liable by reason of disabling conduct.
Expenses (including attorneys' fees) incurred in defending a Proceeding
will be paid by the Corporation in advance of the final disposition thereof upon
an undertaking by such person to repay such expenses (unless it is ultimately
determined that he is entitled to indemnification), if:
(1) such person shall provide adequately security for his
undertaking;
(2) the Corporation shall be insured against losses arising by reason
of such advance; or
(3) a majority of a quorum of the Directors of the Corporation who
are neither interested persons of the Corporation as defined in the Investment
Company Act of 1940 nor parties to the Proceeding, or independent legal counsel
in a written opinion, shall determine, based on a review of readily available
facts, that there is reason to believe that such person will be found to be
entitled to indemnification.
Section 9.2 Insurance of Officers, Directors, Employees and Agents. The
------------------------------------------------------------------
Corporation may purchase and maintain insurance on behalf of any person who is
or was a Director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a Director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in or
arising out of his position. However, in no event will the Corporation purchase
insurance to indemnify any such person for any act for which the Corporation
itself is not permitted to indemnify him.
Registrant undertakes that insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
(a) Ziegler Asset Management, Inc.
Ziegler Asset Management, Inc. is a wholly owned subsidiary of The
Ziegler Companies, Inc. It serves as investment advisor to all of the
Registrant's Portfolios.
Set forth below is a list of the officers and directors of Ziegler
Asset Management, Inc. as of December 31, 1997, together with information
as to any other business, profession, vocation or employment of a
substantial nature of those officers and directors during the past two
years:
POSITION WITH
ZIEGLER ASSET
NAME MANAGEMENT OTHER AFFILIATIONS(1)<F2>
- ---- ---------- ------------------
P. D. Ziegler Chairman and Director Chairman of the Board,
President, Chief Executive
Officer and Director, B.C.
Ziegler and Company; Chairman,
Ziegler Securities; Director,
West Bend Mutual Insurance
Company, 1900 S. 18th Avenue,
West Bend, WI 53095 (insurance
company)
Geoffrey G. Maclay, President and Chief President and Chief Executive
Jr. Executive Officer Officer, Ziegler Asset
Management, Inc.
R. D. Ziegler Senior Vice President Chairman and Director, Principal
and Director Preservation Portfolios, Inc.,
Director, Johnson Controls,
Inc., 5757 N. Green Bay Avenue,
Milwaukee, WI 53201
(manufacturing)
Robert J. Tuszynski Vice President Senior Vice President, B.C.
Ziegler and Company; President,
Chief Executive Officer and
Director of Principal
Preservation Portfolios, Inc.
M. J. Dion Vice President - None
Portfolio Manager and
Chief Investment Officer
R. F. Patek Vice President - None
Portfolio Manager
D. R. Wyatt Vice President - None
Retirement Plan Services
J. R. Yovanovich Corporate Secretary Corporate Secretary, B.C.
Ziegler and Company
J. C. Vredenbregt Treasurer Vice President - Treasurer and
Controller, B.C. Ziegler and
Company; Assistant Treasures;
Ziegler Securities
D. L. Lauterbach Vice President None
W. E. Hansen Vice President None
J. R. Wyatt Vice President None
Jay Ferrara, Jr. Vice President - None
Portfolio Manager and
Analyst
(1)<F2>Certain of the indicated persons are officers or directors, or both, of
B.C. Ziegler and Company's parent, The Ziegler Companies, Inc., and of
other subsidiaries of its parent. Other than these affiliations, and
except as otherwise indicated on the table, the response is none.
(b) Skyline Asset Management, L.P.
Skyline Asset Management, L.P. ("Skyline") is a limited partnership
whose general partner is Affiliated Managers Group, Inc. ("AMG") and whose
limited partners consist of corporations owned by four former management
employees of Skyline's predecessor in interest, namely Messrs. Dutton,
Kailin, Lutz and Maloney. AMG may be deemed to be controlled by Advent
VII, L.P., by virtue of the fact that Advent VII, L.P. owns more than 50%
of the voting stock of AMG. Advent VII, L.P. in turn may be deemed to be
controlled by its sole general partner, TA Associates VII, L.P., a limited
partnership, which in turn may be deemed to be controlled by its sole
general partner, TA Associates, Inc. Skyline's principal executive offices
are located at 311 South Wacker Drive, Suite 4500, Chicago, Illinois 60606.
AMG's principal executive offices are located at One International Place,
Boston, Massachusetts 02110. The address of each of Advent VII, L.P., TA
Associates VII, L.P. and TA Associates, Inc. is c/o TA Associates, Inc.,
High Street Tower, Suite 2500, 125 High Street, Boston, Massachusetts
02110.
Set forth below is a list of the officers and directors of Skyline
Asset Management, L.P. as of December 31, 1996, together with information
as to any other business, profession, vocation or employment of a
substantial nature of those officers and directors during the past two
years (the business address of all such persons is c/o Skyline Asset
Management, L.P., 311 South Wacker Drive, Suite 4500, Chicago, Illinois
60606):
POSITION WITH SKYLINE
NAME ASSET MANAGEMENT, L.P. PRINCIPAL OCCUPATION
- ---- ---------------------- --------------------
William M. Dutton Chief Investment Chief Investment Officer of
Officer and Limited Skyline Asset Management, L.P.
Partner since June, 1995; Executive Vice
President, Mesirow Asset
Management, Inc., from April,
1984 through August, 1995;
President, Skyline Fund
(registered investment company)
William L. Achenbach Trustee President, W.L. Achenbach &
Associates, Inc., a financial
counseling firm, since Jul
1992.
Paul J. Finnegan Trustee Vice President, Madison Dearborn
Partners, Inc., a venture
capital firm, since January
1993.
David A. Martin Trustee Attorney and Principal,
Righeimer, Martin & Cinquino.
Richard K. Pearson Trustee Retired; Director, Citizens
Savings Bank (Anamosa, Iowa),
and Director, First Community
Bank (Milton, Wisconsin).
Previously, Director and
President, LaSalle Bank,
Westmont, (Westmont, Illinois),
from 1994 to 1997, and Director,
Chief Executive Officer, and
President, LaSalle Bank,
Northbrook (Northbrook,
Illinois), from 1986 to 1994.
Stephen F. Kendall President President, Skyline Asset
Management, L.P., since January
1998. Previously, Regional Vice
President, Metro Region, Nabisco
Biscuit Company.
Kenneth S. Kailin Principal - Portfolio Principal - Portfolio Manager,
Manager and Limited Skyline Asset Management, L.P.
Partner since June, 1995; Senior Vice
President, Mesirow Asset
Management, Inc., from April,
1987 through August, 1995;
Executive Vice President,
Skyline Fund
(registered investment company)
Geoffrey P. Lutz Principal - Principal - Institutional
Institutional Marketing Marketing, Skyline Asset
and Limited Partner Management, L.P. since June,
1995; Vice President, Mesirow
Asset Management, Inc., May,
1992 through August, 1995; prior
thereto, Registered
Representative, Mesirow Finan-
cial, Inc. and Mesirow Invest-
ment Services, Inc. (registered
brokers-dealers/ investment
advisers); Executive Vice
President, Skyline Fund
(registered investment company)
Michael Maloney Principal - Securities Principal - Securities Analyst,
Analyst and Limited Skyline Asset Management, L.P.,
Partner since June, 1995; Investment
Analyst, Mesirow Asset
Management,Inc. from February,
1993 through August, 1995; prior
thereto Investment Analyst,
Baker Fentress & Co.
(investment manager); Senior
Vice President, Skyline Fund
(registered investment company)
Daren C. Heitman Portfolio Manager Portfolio Manager, Skyline Asset
Management, L.P., since August
1997; Securities Analyst Skyline
Asset Management, L.P. from
September 1995 to August 1997;
Securities Analyst with Mesirow
Asset Management, Inc. from May
1994 to August 1995, and
Securities Analyst with Mesirow
Financial, Inc. from January
1993 to May 1994.
Scott C. Blim Chief Financial Officer Chief Financial Officer, Skyline
Asset Management, L.P. since
September, 1995; Vice President,
Director and Chief Administra-
tive Officer, Murray Johnstone
International Ltd. (investment
firm) from 1989 to 1994; Secre-
tary and Treasurer, Skyline Fund
(registered investment company)
Michelle M. Brennan Director of Fund Director of Fund Marketing,
Marketing Skyline Asset Management, since
August 1996; previously Regional
Marketing Associate, Strong
Capital Management
Item 29. Principal Underwriters
----------------------
(a)
OTHER INVESTMENT COMPANIES FOR WHICH
UNDERWRITER ACTS AS UNDERWRITER,
UNDERWRITER DEPOSITOR OR INVESTMENT ADVISER
- ----------- -------------------------------
B.C. Ziegler and Company An underwriter for American Tax-Exempt
Bond Trust, Series 1 (and subsequent
series); Ziegler U.S. Government
Securities Trust, Series 1 (and
subsequent series); American Income
Trust, Series 1 (and subsequent
series); Ziegler Money Market Trust;
The Insured American Tax-Exempt Bond
Trust, Series 1 (and subsequent
series); and principal underwriter for
Portico Funds.
(b) Set forth below is a list of the officers and directors of B.C.
Ziegler and Company as of December 31, 1997, together with
information as to any other business, profession, vocation or
employment of a substantial nature of those officers and directors
during the past two years. None of the persons identified serves as
an officer or director of the Registrant, except that Robert J.
Tuszynski serves as President, Chief Executive Officer and a
Director of the Registrant, and S. Charles O'Meara serves as
Secretary of the Registrant. The address of each officer and
director of B.C. Ziegler and Company is 215 North Main Street, West
Bend, Wisconsin 53095, Phone (414) 334-5521.
POSITION WITH POSITION WITH
NAME B.C. ZIEGLER AND COMPANY(1)<F3> PRINCIPAL PRESERVATION
---- ------------------------------ ----------------------
Peter D. Ziegler Chairman of the Board,
President, Chief Executive
Officer and Director
S. Charles O'Meara Senior Vice President and Secretary
General Counsel and Director
D.A. Wallstead Senior Vice President - Chief
Financial Officer
John C. Wagner Senior Vice President -
Ziegler Investment Division
Retail Sales and Director
Ronald N. Spears Senior Vice President -
Ziegler Investment Division
Donald A. Carlson, Jr. Senior Vice President
Neil L. Fuerbringer Senior Vice President -
Administration
Michael P. Doyle Senior Vice President -
Ziegler Investment Division
Retail Operations
Robert J. Tuszynski Senior Vice President - President,
Ziegler Investment Division Chief Executive
Officer and Director
Richard J. Glaisner President and Chief Executive
Officer - Ziegler
Investment Division
R. R. Poggenburg Senior Vice President -
Ziegler Investment Division
D. A. Carlson, Jr. President, Chief Executive
Officer and Treasurer -
Ziegler Securities
J. M. Annett Senior Vice President and
National Director of Senior
Living Finance - Ziegler
Securities
S. R. Arnold Senior Vice President -
TFI Institutional Sales -
Ziegler Securities
T. L. DiGaloma Senior Vice President -
TFI Institutional Sales and
Trading - Ziegler Securities
C. W. Kearns Senior Vice President -
Co-Manager of TFI - Ziegler
Securities
L. A. Lekai Senior Vice President -
TFI Institutional Sales and
Trading - Ziegler Securities
M. P. McDaniel Senior Vice President and
Director of Tax-Exempt Sales
and Trading - Ziegler Securities
T. R. Paprocki Senior Vice President and
Director of Capital Markets -
Ziegler Securities
P. C. Staaf Senior Vice President -
Co-Manager of TFI - Ziegler
Securities
J. B. Sterns Senior Vice President and
National Director of
Healthcare Finance -
Ziegler Securities
M. A. Baumgartner Senior Vice President -
Ziegler Securities
D. J. Hermann Senior Vice President -
Ziegler Securities
J. J. O'Keefe Senior Vice President -
Ziegler Securities
D. M. Rognerud Senior Vice President -
Ziegler Securities
(1)<F3> Ziegler Investment Division and Ziegler Securities are divisions of
B. C. Ziegler and Company
Item 30. Location of Accounts and Records
--------------------------------
(a)B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
General ledger, including subsidiary ledgers; corporate records
and contracts; Portfolio ledger; and shareholder documents,
including IRA documents.
(b)Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
Transaction journals and confirmations for portfolio trades for
all of the Portfolios of the Registrant, except for the Select
Value Portfolio.
(c)Skyline Asset Management, L.P.
311 South Wacker Drive
Suite 4500
Chicago, Illinois 60606
Transaction journals and confirmations for portfolio trades for
the Select Value Portfolio.
Item 31. Management Services
-------------------
Not applicable
Item 32. Undertakings
------------
Registrant undertakes that, at the request of the shareholders holding
10% or more of the outstanding shares of the Registrant, the
Registrant will hold a special meeting for the purpose of considering
the removal of a director from office, and the Registrant will
cooperate with and assist shareholders of record who notify the
Registrant that they wish to communicate with the other shareholders
for the purpose of obtaining signatures to request such a meeting, all
pursuant to and in accordance with Section 16(c) of the Investment
Company Act of 1940, as amended.
Registrant undertakes to furnish a copy of the Registrant's latest
Annual Report to Shareholders, upon request and without charge, to
each person to whom a Prospectus is delivered.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets the
requirements of Rule 485(b) for effectiveness of this Post-Effective Amendment
to its Registration Statement, and the Registrant has caused this Post-
Effective Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, all in the City of West Bend,
State of Wisconsin on this 27th day of April, 1998.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
/s/ Robert J. Tuszynski
By:---------------------------------
Robert J. Tuszynski, President
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment to its Registration Statement on Form N-1A has been signed
on this 27th day of April, 1998, by the following persons in the capacities
indicated.
SIGNATURE TITLE
R. D. Ziegler*
- ------------------------
R. D. Ziegler Director and Chairman of the Board
/s/ Robert J. Tuszynski
- ------------------------
Robert J. Tuszynski Director and President (Chief
Executive Officer)
/s/ Franklin P. Ciano
- ------------------------
Franklin P. Ciano Chief Financial Officer and
Treasurer (Chief Financial and
Accounting Officer)
Richard H. Aster*
- ------------------------
Richard H. Aster Director
August J. English*
- ------------------------
August J. English Director
Ralph J. Eckert*
- ------------------------
Ralph J. Eckert Director
/s/ Robert J. Tuszynski
*By:--------------------------
Robert J. Tuszynski pursuant to
a Power of Attorney dated January
19, 1996 filed herewith
(see following page)
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints R. D. Ziegler, Robert J. Tuszynski and S.
Charles O'Meara, or any of them, with full power of substitution, as his true
and lawful attorneys and agents, to execute in his name and on his behalf, in
any and all capacities, Principal Preservation Portfolios, Inc.'s Registration
Statement on Form N-1A (Registration No. 811-4401 under the Securities Act of
1933; File No. 33-12 under the Investment Company Act of 1940) filed with the
Securities and Exchange Commission under both the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, together with any
and all other instruments which such attorneys and agents, or any of them,
deem necessary or advisable to enable Principal Preservation Portfolios, Inc.
to comply with such Acts and the rules, regulations and requirements of the
Securities and Exchange Commission and the securities or Blue Sky laws of any
state or other jurisdiction, and the undersigned hereby ratifies and confirms
as his own act and deed any and all actions that such attorneys and agents, or
any of them, shall do or cause to be done by virtue hereof. Any of such
attorneys and agents have, and may exercise, all of the powers conferred
herein.
IN WITNESS WHEREOF, each of the undersigned directors of Principal
Preservation Portfolios, Inc. has hereunto set his hand as of this 19th day of
January, 1996.
/s/ R. D. Ziegler /s/ Richard H. Aster
- ----------------------- ---------------------
R. D. Ziegler Richard H. Aster
/s/ Robert J. Tuszynski /s/ August J. English
- ----------------------- ---------------------
Robert J. Tuszynski August J. English
/s/ Ralph J. Eckert
---------------------
Ralph J. Eckert
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
1(a) Restated and Amended Articles of Incorporation(8)<F12>
1(b) December 29, 1995 Articles Supplementary(1)<F5>
1(c) Articles Supplementary for PSE Tech 100 Index Portfolio filed
June 12, 1996(5)<F9>
2 By-Laws, as amended through January 20, 1995(8)<F12>
3 N/A
4 The Registrant's Amended and Restated Operating Plan(9)<F13>
5(a) Investment Advisory Agreement pertaining to assets of Dividend
Achievers Portfolio(4)<F8>
5(b) Investment Advisory Agreement pertaining to the assets of Tax-
Exempt, S&P 100 Plus, Government, Wisconsin Tax-Exempt, Select
Value, and PSE Tech 100 Index Portfolios(5)<F9>
5(c) Sub-Advisory Agreement with Skyline Asset Management, L.P.(4)<F8>
5(d) Investment Advisory Agreement with Ziegler Asset Management,
Inc. with respect to the Cash Reserve Portfolio(3)<F7>
6(a) Distribution Agreement(5)<F9>
6(b) Form of Selected Dealers Agreement(5)<F9>
7 N/A
9(a) Transfer and Dividend Disbursing Agent Agreement(5)<F9>
9(b) License Agreement with Standard & Poor's Corporation*<F4>
9(c) Accounting/Pricing Agreement between Registrant and B.C.
Ziegler and Company(5)<F9>
9(d) Shareholder Servicing Agreement by and between B.C. Ziegler
and Company and the Registrant, as amended, relating to Class
X Shares of the Cash Reserve Portfolio(6)<F10>
9(e) Administrative Services Agreement with Ziegler Asset
Management, Inc. with respect to the Cash Reserve
Portfolio(1)<F5>
9(f) License Agreement with Pacific Stock Exchange
Incorporated(7)<F11>
10 Opinion of Counsel(8)<F12>
11(a) Consent of Independent Public Accountants
11(b) Consent of Counsel (contained in Exhibit 10)
12 N/A
14 Model Retirement Plan*<F4>
15 Rule 12b-1 Distribution Plan, as amended(9)<F13>
16 Schedule for Computation of Performance Quotations*<F4>
17 Financial Data Schedules (Included as Exhibit 27)
18 Plan and Agreements Pursuant to Rule 18f-3 (contained
in Exhibit 4)
27 Financial Data Schedules
*<F4>Denotes previously filed as part of Registrant's Registration Statement on
Form N-1A or an amendment thereto, and incorporated herein by reference.
(1)<F5>Previously filed as part of Registrant's Registration Statement on Form
N-14 (Reg. No. 33-99010) filed with the Commission on November 3, 1995.
(2)<F6>Previously filed as part of Registrant's Registration Statement on Form
N-14 (Reg. No. 333-01123) filed with the Commission on February 20, 1996.
(3)<F7>Previously filed as part of Post-Effective Amendment No. 31 to this
Registration Statement filed with the Commission on December 29, 1995.
(4)<F8>Previously filed as part of Post-Effective Amendment No. 32 to this
Registration Statement filed with the Commission on March 1, 1996.
(5)<F9>Previously filed as part of Post-Effective Amendment No. 33 to this
Registration Statement filed with the Commission on March 27, 1996.
(6)<F10>Previously filed as part of Post-Effective Amendment No. 36 to this
Registration Statement filed with the Commission on December 10, 1996.
(7)<F11>Previously filed as part of Post-Effective Amendment No. 37 to this
Registration Statement filed with the Commission on February 28, 1997.
(8)<F12>Previously filed as part of Post-Effective Amendment No. 38 to this
Registration Statement filed with the Commission on April 30, 1997.
(9)<F13>Previously filed as part of Post-Effective Amendment No. 41 to this
Registration Statement filed with the Commission on April 2, 1998.
EXHIBIT 11(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and the
Statement of Additional Information constituting parts of this Post-Effective
Amendment (the "Amendment") to the Registration Statement on Form N-1A of our
report dated January 16, 1998 relating to the financial statements and financial
highlights of the series of Principal Preservation Portfolios, Inc. known as the
Wisconsin Tax-Exempt Portfolio, which financial statements and financial
highlights also are incorporated by reference into the Amendment from the
Wisconsin Tax-Exempt Portfolio's 1997 Annual Report to Shareholders. We also
consent to the references to our firm under the heading "Financial Highlights"
in the Prospectus and under the heading "Counsel and Independent Public
Accountants" in the Statement of Additional Information.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
April 28, 1998
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<NAME> WISCONSIN TAX-EXEMPT PORTFOLIO
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<NUMBER-OF-SHARES-REDEEMED> (340)
<SHARES-REINVESTED> 48
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<ACCUMULATED-NII-PRIOR> (2)
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<PER-SHARE-NII> .49
<PER-SHARE-GAIN-APPREC> .34
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<PER-SHARE-NAV-END> 10.21
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