(Principal Preservation Logo)
Cash Reserve Portfolio
Class X Shares
(Retail Shares)
------------
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1998
------------
(Pricipal Preservation Logo)
Cash Reserve Portfolio
Class Y Shares
(Institutional Shares)
------------
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1998
------------
(B.C. Zeigler and Company Logo)
Cash Reserve Portfolio
Class X Shares
(Retail Shares)
------------
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1998
------------
CASH RESERVE PORTFOLIO
CLASS X SHARES (RETAIL SHARES)
ANNUAL REPORT TO SHAREHOLDERS
February 25, 1999
Dear Shareholder:
I am pleased to provide you with this annual report for the retail shares
(Class X) of Principal Preservation Portfolios, Inc.' s Cash Reserve Portfolio.
Since December 31, 1997, the Cash Reserve Portfolio's assets grew from
approximately $156,000,000 to $167,300,000. Total assets of the Principal
Preservation Mutual Fund Family grew from $472,000,000 at December 31, 1997 to
$602,000,000 at December 31, 1998. During the year, investors remained focused
on the broad-based stock market.
Short-term interest rates, as measured by the 90-day U.S. Treasury Bill, fell
from 5.3% at December 31, 1997, to 4.50% at December 31, 1998. From late
September 1998 through mid November, the Federal Reserve Board reduced the
target Federal Funds rate in a series of three moves of one quarter of a percent
(0.25%) each. As a result, bond prices increased strongly during the last two
months of the year. Although many domestic economic indicators have been
positive, the portfolio manager does not anticipate any dramatic movement in
short and long term interest rates for the near term.
The portfolio manager increased the percentage of the Portfolio's assets
invested in commercial paper during the year. However, he reduced the
Portfolio's exposure to A1/P1 rated commercial paper from 80% at June 30, 1998
to approximately 74% at year end. Overnight repurchase agreements constituted
13% of net assets, which was unchanged from last year. The remaining 13% of the
Portfolio's net assets was invested in U.S. Government and Agency obligations.
The manager increased his U.S. Government and Agency holdings, because those
securities offered superior yields as compared to commercial paper. The seven-
day annualized yield at December 31, 1998 for the Cash Reserve Portfolio's
retail shares was 4.31%, as compared to Donaghue's first tier average money
market yield of 4.52%.
We sincerely thank you for your continued trust with us at Principal
Preservation.
Sincerely,
/s/ Robert J. Tuszynski
Robert J. Tuszynski
President and CEO
The accompanying report was prepared for shareholders who own retail shares of
the Cash Reserve Portfolio. It does not constitute an offer to sell. Any
investor wishing to receive more information about the Cash Reserve Portfolio or
any of Principal Preservation's other portfolios should obtain a prospectus.
The prospectus includes a discussion of the investment objective, all sales
charges and expenses, and investment risks of the relevant portfolio(s).
CASH RESERVE PORTFOLIO
CLASS Y SHARES (INSTITUTIONAL SHARES)
ANNUAL REPORT TO SHAREHOLDERS
February 25, 1999
Dear Shareholder:
I am pleased to provide you with this annual report for the institutional
shares (Class Y) of Principal Preservation Portfolios, Inc.' s Cash Reserve
Portfolio. Since December 31, 1997, the Cash Reserve Portfolio's assets grew
from approximately $156,000,000 to $167,300,000. Total assets of the Principal
Preservation Mutual Fund Family grew from $472,000,000 at December 31, 1997 to
$602,000,000 at December 31, 1998. During the year, investors remained focused
on the broad-based stock market.
Short-term interest rates, as measured by the 90-day U.S. Treasury Bill, fell
from 5.3% at December 31, 1997, to 4.50% at December 31, 1998. From late
September 1998 through mid November, the Federal Reserve Board reduced the
target Federal Funds rate in a series of three moves of one quarter of a percent
(0.25%) each. As a result, bond prices increased strongly during the last two
months of the year. Although many domestic economic indicators have been
positive, the portfolio manager does not anticipate any dramatic movement in
short and long term interest rates for the near term.
The portfolio manager increased the percentage of the Portfolio's assets
invested in commercial paper during the year. However, he reduced the
Portfolio's exposure to A1/P1 rated commercial paper from 80% at June 30, 1998
to approximately 74% at year end. Overnight repurchase agreements constituted
13% of net assets, which was unchanged from last year. The remaining 13% of the
Portfolio's net assets was invested in U.S. Government and Agency obligations.
The manager increased his U.S. Government and Agency holdings, because those
securities offered superior yields as compared to commercial paper. The seven-
day annualized yield at December 31, 1998 for the Cash Reserve Portfolio's
institutional shares was 4.67%, as compared to Donaghue's institutional average
money market yield of 4.68%.
We sincerely thank you for your continued trust with us at Principal
Preservation.
Sincerely,
/s/ Robert J. Tuszynski
Robert J. Tuszynski
President and CEO
The accompanying report was prepared for shareholders who own institutional
shares of the Cash Reserve Portfolio. It does not constitute an offer to sell.
Any investor wishing to receive more information about the Cash Reserve
Portfolio or any of Principal Preservation's other portfolios should obtain a
prospectus. The prospectus includes a discussion of the investment objective,
all sales charges and expenses, and investment risks of the relevant
portfolio(s).
CASH RESERVE PORTFOLIO
CLASS X SHARES (RETAIL SHARES)
FINANCIAL HIGHLIGHTS
<TABLE>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
(Selected data for each retail share of the Fund
outstanding throughout the periods)
Net asset value, beginning of period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
Income from investment operations:
Net investment income ......................... 0.05 0.05 0.05 0.05 0.04
Less distributions:
Dividends from net investment income .......... (0.05) (0.05) (0.05) (0.05) (0.04)
------- ------- ------- ------- -------
Net asset value, end of period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Total investment return (a)<F1>................... 4.77% 4.80% 4.78% 5.32% 3.64%
Ratios/Supplemental Data:
Net assets, end of period (nearest thousand) .. $147,995 $122,710 $89,946 $86,590 $52,593
Ratio of expenses to
average net assets (b)<F2> .................. 0.89% 0.86% 0.78% 0.79% 1.05%
Capital contributions (c)<F3> ................. -- 0.13% -- 0.06% --
Ratio of net investment income
to average net assets (b)<F2> ............... 4.65% 4.71% 4.73% 5.23% 3.62%
</TABLE>
Prior to 1996, the assets of the Cash Reserve Portfolio were invested in the
Prime Money Market Portfolio ("Prime") of The Prime Portfolios. At the opening
of business on January 1, 1996, the assets of Prime were liquidated and
transferred to the Principal Preservation Cash Reserve Portfolio ("Fund"). At
that time, Classes were established for the Cash Reserve Portfolio, Class X
(Retail) and Class Y (Institutional). Assets of Prime which previously were
attributed to the Fund were allocated to the Fund's Class X(Retail) shares.
Information as of and results for periods ended prior to January 1, 1996 reflect
the Fund's investments in Prime. Results for the year ended December 31, 1996
and later periods reflect the new dual class structure.
(a)<F1>In 1997, 1995 and 1994, the advisers to Prime and their predecessors
made capital contributions to offset losses in securities. Without those
capital contributions, the adjusted total returns would have been 4.67%,
5.26% and 1.91% for 1997, 1995 and 1994, respectively.
(b)<F2>Prior to 1996, the ratio reflects the Fund's share of Prime's expenses
as well as voluntary waivers of fees and expense reimbursements by
Prime's adviser. For the years ended December 31, 1998, 1997 and 1996,
the Fund's adviser and administrator voluntarily waived a portion of
their fees. Without these voluntary waivers and expense reimbursements,
the ratios of net investment income and expenses to average net assets
would have been as follows:
<TABLE>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Ratio of expenses to average net assets ....... 0.96% 0.94% 0.99% 1.16% 1.32%
Ratio of net investment income
to average net assets ....................... 4.58% 4.63% 4.63% 4.86% 3.35%
</TABLE>
(c)<F3>For the year ended December 31, 1995, the manner in which capital
contributions are presented changed from the prior year as a result of a
Securities and Exchange Commission Division of Investment Management
letter clarifying the presentation of capital contributions. For the
year ended December 31, 1995, capital contributions were presented in
the financial statements of both the Fund and Prime. Prior to that time,
they were shown only in Prime's financial statements.
The accompanying notes are an integral part of the financial statements.
CASH RESERVE PORTFOLIO
CLASS Y SHARES (INSTITUTIONAL SHARES)
FINANCIAL HIGHLIGHTS
<TABLE>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
(Selected data for each institutional share of the Fund
outstanding throughout the periods)
Net asset value, beginning of period............................. $ 1.00 $ 1.00 $ 1.00
------- ------- -------
Income from investment operations:
Net investment income .......................................... 0.05 0.05 0.05
Less distributions:
Dividends from net investment income ........................... (0.05) (0.05) (0.05)
------- ------- -------
Net asset value, end of period................................... $ 1.00 $ 1.00 $ 1.00
------- ------- -------
------- ------- -------
Total investment return (b)<F5>.................................. 5.15% 5.21% 5.20%
Ratios/Supplemental Data:
Net assets, end of period (nearest thousand) ................... $19,889 $33,057 $35,120
Ratio of expenses to average net assets (a)<F4> ................ 0.48% 0.45% 0.34%
Capital contribution ........................................... -- 0.17% --
Ratio of net investment income to average net assets (a)<F4> ... 5.06% 5.10% 4.95%
</TABLE>
(a)<F4> For the years ended December 31, 1998, 1997 and 1996, respectively,
the adviser and administrator voluntarily waived a portion of their
fees. Without these voluntary waivers, the annualized ratios would
have been as follows:
<TABLE>
<S> <C> <C> <C>
Ratio of expenses to average net assets........................ 0.55% 0.54% 0.54%
Ratio of net investment income to average net assets........... 4.99% 5.01% 4.75%
</TABLE>
(b)<F5> During 1997, the adviser made capital contributions to offset losses
in securities. Had the adviser not made capital contributions, the
adjusted total return would have been 5.04%.
- -------------------------
The accompanying notes are an integral part of the financial statements.
CASH RESERVE PORTFOLIO
BALANCE SHEET
DECEMBER 31, 1998
ASSETS:
Investments in Securities, at amortized cost and value:
U.S. Government and Agency Obligations....................... $22,075,717
Investments in Repurchase Agreements......................... 20,242,937
Short-term investments....................................... 125,744,465
Interest receivable............................................ 41,584
Other assets................................................... 8,803
------------
Total Assets................................................. 168,113,506
LIABILITIES:
Dividends payable (Institutional Class Y).......... $72,305
Management fees.................................... 29,218
Accrued expenses................................... 127,696
-------
Total Liabilities............................................ 229,219
------------
NET ASSETS....................................................... $167,884,287
------------
------------
NET ASSETS CONSIST OF:
Capital stock.................................................. $167,882,211
Undistributed net investment income............................ 1,380
Undistributed accumulated net realized gain.................... 696
------------
Net Assets................................................... $167,884,287
------------
------------
INSTITUTIONAL CLASS Y
Net Assets (in 000's).......................................... $ 19,889
Shares Authorized (in 000's)................................... 200,000
Shares Issued and Outstanding (in 000's)....................... 19,888
Net asset value and redemption price per share................. $1.00
RETAIL CLASS X
Net Assets (in 000's).......................................... $ 147,995
Shares Authorized (in 000's)................................... 200,000
Shares Issued and Outstanding (in 000's)....................... 147,994
Net asset value and redemption price per share................. $1.00
The accompanying notes are an integral part of the financial statements.
CASH RESERVE PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
INVESTMENT INCOME:
Interest........................................................ $9,102,646
---------
Total investment income......................................... 9,102,646
---------
EXPENSES:
Investment advisory fees............................. 329,759
Administration fees.................................. 247,327
Shareholder servicing fees Class X................... 347,848
Distribution fees Class X............................ 208,719
Professional fees.................................... 120,918
Depository fees...................................... 51,501
Proxy expenses....................................... 29,236
Directors fees....................................... 22,107
Registration fees.................................... 27,070
Transfer agent fees Class X.......................... 4,426
Transfer agent fees Class Y.......................... 3,354
Pricing.............................................. 2,889
Printing and postage fees Class X.................... 25,531
Printing and postage fees Class Y.................... 2,487
Deferred organization expense........................ 8,215
Miscellaneous expenses............................... 2,152
---------
Total expenses................................... 1,433,539
Less: Waiver by the Adviser/Administrator.......... (102,246)
---------
Net expenses.................................................... 1,331,293
---------
NET INVESTMENT INCOME............................................. 7,771,353
NET INVESTMENT GAIN FROM PORTFOLIO SALES.......................... 696
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. $7,772,049
---------
---------
The accompanying notes are an integral part of the financial statements.
CASH RESERVE PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income ..................... $ 7,771,353 $ 6,696,865
Net realized gain ......................... 696 --
------------ ------------
Net increase in net assets
resulting from operations ........... 7,772,049 6,696,865
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued ............... 617,229,087 426,546,772
Net asset value of shares issued
in distributions ........................ 6,716,763 5,339,583
Cost of shares redeemed ................... (611,830,421) (401,383,135)
------------ ------------
Net increase in net assets
from capital share transactions ..... 12,115,429 30,503,220
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Class X Shares ............................ (6,464,559) (4,796,186)
Class Y Shares ............................ (1,306,467) (1,901,526)
------------ ------------
Total distributions ................... (7,771,026) (6,697,712)
CAPITAL CONTRIBUTIONS........................ -- 196,962
------------ ------------
Total increase in net assets .......... 12,116,452 30,699,335
NETASSETS:
Balance at beginning of period ............ 155,767,835 125,068,500
------------ ------------
Balance at end of period .................. $167,884,287 $155,767,835
------------ ------------
------------ ------------
The accompanying notes are an integral part of the financial statements.
CASH RESERVE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - ORGANIZATION
Principal Preservation Portfolios, Inc. (the "Company"), registered under the
Investment Company Act of 1940 as an open-end management investment company, is
a series company with nine portfolios: Tax-Exempt Portfolio, Government
Portfolio, S&P100 Plus Portfolio, Dividend Achievers Portfolio, PSE Tech 100
Index Portfolio, Cash Reserve Portfolio, Wisconsin Tax-Exempt Portfolio, Select
Value Portfolio and Managed Growth Portfolio (which commenced operations on
January 1, 1999). This report presents information only for the Cash Reserve
Portfolio (the "Fund"). Information regarding the other portfolios is presented
in separate reports. The assets and liabilities of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which the
shareholder owns shares.
The Fund is a separate series of the Company, a Maryland corporation organized
in 1984. The Fund's investment objective is a high level of current income
consistent with stability of principal and the maintenance of liquidity. The
Fund commenced operations on April 5, 1993. Institutionalshares were first
offered on January 1, 1996.
Through December 31, 1995, the Fund sought to achieve its investment objective
by investing all the investable assets in the Prime Money Market Portfolio (the
"Portfolio") a separate series of The Prime Portfolios, an open-end, diversified
management investment company. Prime had the same investment objectives as the
Fund.
Effective January 1, 1996, pursuant to an Agreement and Plan of Reorganization
and Liquidation dated December 8, 1995, this master/feeder fund structure was
unwound, and the Fund withdrew its investment in the Portfolio. The Fund was
restructured to increase its authorized capital from 300 million to 400 million
shares of the Company's common stock, which were subdivided into two separate
classes of 200 million shares each: Class X Common Stock (Retail Shares) and
Class Y Common Stock (Institutional Shares). All shares of the Fund outstanding
immediately prior to this restructuring were redesignated (without otherwise
affecting their rights and preferences) as Retail Shares. Financial highlights
presented herein as of and for periods ended prior to January 1, 1996 reflect
the performance of the Fund's investments through Prime.
Each class of shares has identical rights and privileges, except with respect to
service organization fees and distribution fees paid by Retail Shares, voting
rights on matters affecting a single Class of shares and the exchange privileges
of each Class of shares.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies of the Fund:
a) VALUATION OF INVESTMENTS - Money market instruments are valued at amortized
cost, which the Directors have determined in good faith constitutes fair
value. The Fund's use of amortized cost is subject to the Fund's compliance
with certain conditions as specified under Rule 2a-7 of the Investment
Company Act of 1940.
b) INTEREST INCOME - Interest income consists of interest accrued and discount
earned (including both original issue and market discount) on the
investments of the Fund, accrued ratably to the date of expected maturity.
Premiums are amortized on the investments of the Fund, accrued ratably to
the date of expected maturity.
c) FEDERAL INCOME TAXES - The Fund intends to distribute substantially all of
its taxable income to its shareholders and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies. Accordingly, no provision for federal income or excise taxes is
necessary. As of December 31, 1998 the Fund has Federal income tax capital
loss carryforwards of $553,333 and $139,400 expiring in 2003 and 2002,
respectively. Management does not intend to make any distributions of
future realized capital gains until its Federal income tax capital loss
carry forward is exhausted.
d) DEFERRED ORGANIZATION EXPENSES - Expenses incurred by Retail Shares in
connection with its organization and the initial public offering of its
shares are being amortized by the Fund over the period of benefit, but not
to exceed five years from the commencement of operations. These expenses
were advanced by B.C. Ziegler and Company ("BCZ"), a wholly-owned
subsidiary of The Ziegler Companies, Inc., who was reimbursed by the Fund.
e) EXPENSE ALLOCATION - The Fund bears all costs of its operations other than
expenses specifically assumed by BCZ. Expenses incurred by the Company with
respect to any two or more funds in the series are allocated in proportion
to the average net assets of each fund, except where allocations of direct
expenses in each fund can otherwise be made fairly. Net investment income,
including expenses, other than class specific expenses and realized and
unrealized gains and losses are allocated daily to each class of shares
based upon the relative net asset value of outstanding shares of each class
of shares at the beginning of the day.
f) USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
g) OTHER - Investment transactions are accounted for on the date the security
is purchased or sold. The Fund has investments in repurchase agreements,
which are securities purchased from another party who agrees to repurchase
the security within a specified time period at a specified price. It is the
policy of the Fund to require the custodian bank to have legally segregated
within the Federal Reserve/Treasury book-entry system, all securities held
as collateral in support of the repurchase agreements. Procedures have been
established by the Fund to monitor the market value of the collateral to
ensure the existence of a proper level of collateral.
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive
less than the repurchase price on the sale of the collateral securities.
NOTE 3 - TRANSACTIONS WITH AFFILIATES
a) ADMINISTRATION FEES - Pursuant to an Administrative Services Agreement,
Ziegler Asset Management, Inc. ("ZAMI"), a wholly-owned subsidiary of The
Ziegler Companies, Inc., provides the Fund general office facilities and
supervises the overall administration of the Fund. For these services, ZAMI
receives a fee computed daily and payable monthly totalling 0.15% of
average daily net assets up to $200 million, and 0.10% of such assets over
$200 million. For the year ended December 31, 1998, the Fund incurred
administration fees of $247,327. ZAMI voluntarily waived $102,246 of its
collective advisory and administrative fees during the year ended December
31, 1998. This waiver may be discontinued at any time by ZAMI.
b) INVESTMENT ADVISORY FEES - ZAMI is also the Investment Adviser to the Fund.
For its services under the Investment Advisory Agreement, the advisor
receives from the Fund a fee accrued daily and paid monthly at an annual
rate equal to 0.20% of the Portfolio's average daily net assets. For the
year ended December 31, 1998, the Fund incurred total Advisory fees of
$329,759.
c) DISTRIBUTION FEES - The Class X Retail Shares of the Fund has adopted a
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940. The Plan authorizes the Fund to make payments to BCZ
to reimburse BCZ for expenditures incurred in connection with the
distribution of Retail Shares to investors. Under the Plan, payments made
by the Fund may not exceed 0.15% of average daily net assets of Retail
Shares. For the year ended December 31, 1998, the Fund incurred
distribution fees aggregating $208,719.
d) SHAREHOLDER SERVICING FEES - BCZ and certain other brokers and financial
institutions serve as shareholder servicing agents for shareholder accounts
opened and maintained through them by their customers in the Class X Retail
Shares. Under this agreement, BCZ receives a fee of up to 0.25% of the
average daily net assets attributable to Retail Shares owned by BCZ's
customers and held in accounts serviced by BCZ. BCZ also serves as transfer
and dividend disbursing agent for all shareholder accounts holding Retail
Shares which are not serviced separately by a shareholder servicing agent
and for all shareholder accounts holding Institutional Shares. Fees
currently charged by BCZ to each class of shares for this service are $16
per shareholder account. For the year ended December 31, 1998, the Fund
incurred shareholder servicing fees aggregating $347,848.
e) DEPOSITORY FEES - Prior to May 1, 1998, BCZ provided the Fund with
depository services. For these services, the Fund paid BCZ a fee based on
average daily net assets, computed monthly, at an annual rate of 0.055% on
the first $50 million of net assets, 0.035% on the next $150 million of
such assets, 0.030% on the next $300 million and 0.025% on amounts over
$500 million of such assets. For the year ended December 31, 1998, the Fund
paid depository fees of $6,981 to BCZ.
f) FUND ACCOUNTING FEES - The Fund has entered into an agreement with BCZ to
provide the Fund with Accounting/Pricing services. For these services, the
Fund currently pays BCZ a base fee of $15,000 and a fee based on average
daily net assets, computed monthly at an annual rate of 0.04% on net assets
between $50 million and $100 million, 0.03% on the next $100 million of
such assets, and 0.01% on amounts over $200 million of such assets. For the
year ended December 31, 1998, the Fund incurred total fund accounting fees
of $54,625.
NOTE 4 - CAPITAL CONTRIBUTION
During the year ended December 31, 1997, the Ziegler Companies, Inc. contributed
capital to the Cash Reserve Portfolio to offset 1996 realized losses of $53,333
and 1995 realized losses of $140,095. Neither the Ziegler Companies, Inc. nor
any of its affiliates received any shares of common stock or any other
consideration in exchange for this contribution which further increased the
assets of the Fund.
NOTE 5 - CAPITAL SHARE TRANSACTIONS
(a) The Company has authorized capital of 1,000,000,000 shares at $.001 par
value per share. The Company's shares are divided into nine separate
portfolios: Wisconsin Tax-Exempt Portfolio, Government Portfolio, Tax-
Exempt Portfolio, S&P 100 Plus Portfolio, Dividend Achievers Portfolio,
Select Value Portfolio, PSE Tech 100 Index Portfolio, Managed Growth
Portfolio (which commenced operations on January 1, 1999), and Cash Reserve
Portfolio, consisting of 50,000,000 shares in each of the first eight
portfolios and 400,000,000 in the Cash Reserve Portfolio. Each portfolio
(other than the Cash Reserve Portfolio) has designated Class A (front-end
load) shares. In addition, the S&P 100 Plus, Dividend Achievers, Select
Value, PSE Tech 100 Index and Managed Growth Portfolio also have designated
Class B (contingent deferred sales charge) shares. The shares of the Cash
Reserve Portfolio have been subdivided into 200,000,000 shares of Class X
(Retail Shares) and 200,000,000 shares of Class Y (Institutional Shares).
The remaining 200,000,000 authorized shares of common stock of the Company
may be allocated to any of the above portfolios or to new portfolios as
determined by the Board of Directors. The shares of each portfolio have
equal rights and privileges with all other shares of that portfolio.
(b) Capital share activity during the years ended December 31, 1997 and December
31, 1998, respectively, were as follows:
CLASS X CLASS Y
------- -------
SHARES OUTSTANDING
AT DECEMBER 31, 1996 .............. 90,079 35,184
Shares sold ........................ 134,735 291,812
Shares reinvested ................. 4,795 545
Shares redeemed .................... (106,899) (294,484)
--------- ---------
SHARES OUTSTANDING
AT DECEMBER 31, 1997 .............. 122,710 33,057
Shares sold ........................ 431,149 186,080
Shares reinvested ................. 6,464 253
Shares redeemed .................... (412,329) (199,501)
--------- ---------
SHARES OUTSTANDING AT
AT DECEMBER 31, 1998 ............... 147,994 19,889
--------- ---------
--------- ---------
CASH RESERVE PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
PRINCIPAL MATURITY INTEREST VALUE
AMOUNT DATE RATE (NOTE 2A)
----------- ------ ----- --------
<S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 13.2%
FEDERAL FARM CREDIT BANK ("FFCB")
$ 2,000,000 FFCB Note ................................................................ 2/1/99 4.850% $ 1,999,559
------------
Total Federal Farm Credit Bank ........................................... 1,999,559
------------
FEDERAL HOME LOAN BANK ("FHLB")
5,000,000 FHLB Note ................................................................ 1/22/99 4.980 4,985,213
------------
Total Federal Home Loan Bank ............................................. 4,985,213
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION ("FHLMC")
5,000,000 FHLMC Note ............................................................... 1/14/99 5.100 4,990,846
5,000,000 FHLMC Note ............................................................... 1/6/99 5.070 4,996,479
592,199 FHLMC Pool #G50157 ....................................................... 5/1/99 5.000 591,136
590,165 FHLMC Pool #G50163 ....................................................... 5/1/99 5.000 588,650
668,570 FHLMC Pool #L90195 ....................................................... 4/1/99 6.000 668,570
------------
Total Federal Home Loan Mortgage Corporation ............................. 11,835,681
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FNMA")
1,250,000 FNMA Note ................................................................ 6/03/99 6.310 1,255,613
------------
Total Federal National Mortgage Association .............................. 1,255,613
------------
STUDENT LOAN MARKETING ASSOCIATION ("SLMA")
2,000,000 SLMA Note ............................................................... 12/2/99 5.288(a)<F6> 1,999,651
------------
Total Student Loan Marketing Association ................................. 1,999,651
------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS .............................................. 22,075,717
------------
Short Term -- 87.0%
COMMERCIAL PAPER
4,000,000 American General Finance Corporation ..................................... 1/19/99 5.320% 3,989,360
3,000,000 American General Finance Corporation ..................................... 1/11/99 5.350 2,995,542
5,500,000 American Express Credit Corporation ...................................... 1/11/99 5.500 5,491,597
2,500,000 American Express Credit Corporation ...................................... 1/7/99 5.000 2,497,917
4,000,000 Associates Corporation ................................................... 1/11/99 5.150 3,994,278
3,000,000 Associates Corporation ................................................... 1/7/99 5.330 2,997,335
3,000,000 The CITGroup Holdings Corporation ........................................ 1/28/99 5.330 2,988,008
5,000,000 The CITGroup Holdings Corporation ........................................ 1/22/99 5.350 4,984,396
3,500,000 Commercial Credit Corporation ............................................ 1/11/99 5.300 3,494,847
3,500,000 Commercial Credit Corporation ............................................ 1/6/99 5.350 3,497,399
7,000,000 E.I. du Pont de Nemours and Company ...................................... 1/15/99 5.120 6,986,008
2,000,000 Ford Motor Credit Corporation ............................................ 1/22/99 5.160 1,993,980
1,000,000 Ford Motor Credit Corporation ............................................ 1/8/99 5.350 998,960
5,000,000 Ford Motor Credit Corporation ............................................ 1/6/99 5.140 4,996,431
3,000,000 General Electric Capital Corporation ..................................... 2/11/99 5.150 2,982,404
5,000,000 General Electric Capital Corporation ..................................... 1/13/99 5.140 4,991,433
4,000,000 General Motors Acceptance Corporation .................................... 1/27/99 5.160 3,985,093
4,000,000 General Motors Acceptance Corporation .................................... 1/13/99 5.360 3,992,853
3,500,000 Household Finance Corporation ............................................ 1/14/99 5.330 3,493,263
3,500,000 Household Finance Corporation ............................................ 1/4/99 5.150 3,498,498
3,000,000 IBM Credit Corporation ................................................... 1/12/99 5.030 2,995,389
4,000,000 IBM Credit Corporation ................................................... 1/5/99 5.310 3,997,640
4,000,000 John Deere Capital Corporation ........................................... 1/20/99 5.070 3,989,296
4,000,000 John Deere Capital Corporation ........................................... 1/15/99 5.250 3,991,833
7,000,000 Marshall &Ilsley Corporation ............................................ 1/12/99 5.140 6,989,006
4,000,000 Merrill Lynch ........................................................... 1/29/99 5.330 3,983,418
3,500,000 Merrill Lynch ........................................................... 1/14/99 5.090 3,493,567
5,000,000 Norwest Financial Corporation ............................................ 2/4/99 5.320 4,974,878
2,500,000 Norwest Financial Corporation ............................................ 1/8/99 5.030 2,497,555
3,500,000 Prudential Funding Corporation ........................................... 1/8/99 5.390 3,496,332
3,500,000 Prudential Funding Corporation ........................................... 1/5/99 5.350 3,497,919
3,000,000 Toyota Motor Credit Corporation .......................................... 1/21/99 5.130 2,991,450
4,000,000 Toyota Motor Credit Corporation .......................................... 1/7/99 5.130 3,996,580
------------
Total Commercial Paper ................................................... 125,744,465
Repurchase Agreement
20,242,937 First Boston Corporation ................................................. 1/4/99 4.750 20,242,937
------------
(Agreement dated 12/31/98, collateralized by
$20,475,000 U.S. Treasury Notes, at 5.625%,
due 11/30/99, $20,753,841 market value)
TOTAL SHORT TERM ......................................................................... 145,987,402
------------
Total Investments, at Amortized Cost....................................................... $ 168,063,119
------------
------------
NOTES TO SCHEDULE OF INVESTMENTS
(a)<F6> The security has a floating/variable rate coupon payment tied to the 3 month T-Bill rate.
</TABLE>
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
CASH RESERVE PORTFOLIO
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Principal Preservation Portfolios, Inc. and the
Shareholders of the Cash Reserve Portfolio:
We have audited the accompanying balance sheet, including the schedule of
investments, of the PRINCIPAL PRESERVATION PORTFOLIOS, INC. (a Maryland
corporation) Cash Reserve Portfolio as of December 31, 1998, and the related
statement of operations for the year then ended, and the statements of changes
in net assets for each of the two years in the period then ended and the
financial highlights for each of the three years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The financial
highlights for the year ended December 31, 1995 and all prior periods presented
were audited by other auditors whose report dated February 26, 1996 expressed an
unqualified opinion.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Principal Preservation Portfolios, Inc. Cash Reserve Portfolio as of December
31, 1998, the results of its operations for the year then ended and the changes
in its net assets for each of the two years in the period then ended and the
financial highlights for each of the three years in the period then ended, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
January 15, 1999
PRINCIPAL PRESERVATION
PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
OFFICERS AND DIRECTORS
Richard H. Aster, M.D., Director
Augustine J. English, Director
Ralph J. Eckert, Director
Richard J. Glaisner, Director
Robert J. Tuszynski, President, Director
Frank Ciano, Chief Financial Officer and Treasurer
John Lauderdale, Vice President of Marketing
S. Charles O'Meara, Secretary
Marc Dion, Vice President
INVESTMENT ADVISOR
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
DISTRIBUTOR, ADMINISTRATOR, TRANSFER AND DIVIDEND
DISBURSING AGENT, ACCOUNTING/PRICING AGENT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
COUNSEL
Quarles & Brady LLP
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
This report was prepared for shareholders who own Retail Shares of Principal
Preservation Portfolios, Inc.' s Cash Reserve Portfolio. It may not be used in
connection with the offering of securities unless preceded or accompanied by a
current Prospectus.
PP 178-2/99
PPP 809-2/99
BCZ 172-2/99
