(PRINCIPAL PRESERVATION LOGO)
Tax-Exempt Portfolio
Government Portfolio
S&P 100 Plus Portfolio
Dividend Achievers Portfolio
Select Value Portfolio
PSE Tech 100 Index Portfolio
Managed Growth Portfolio
------------
SEMIANNUAL REPORT
TO SHAREHOLDERS
(UNAUDITED)
June 30, 1999
-------------
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
PRESIDENT'S LETTER/MANAGEMENT DISCUSSION AND ANALYSIS
SEMIANNUAL REPORT TO SHAREHOLDERS
JUNE 30, 1999
August 26 1999
Dear Shareholder:
I am pleased to present the semiannual report to shareholders of Principal
Preservation Portfolios, Inc. for the six months ended June 30, 1999. The total
net assets of the portfolios in this report continued to grow, increasing from
approximately $390,000,000 as of December 31, 1998 to approximately $530,000,000
as of June 30, 1999.
The domestic economy continued to grow at a healthy pace during the first six
months of 1999. Higher income levels combined with a robust real estate market
and increasing stock prices fueled the consumer sector, which was the primary
driver of domestic growth. The federal reserve, concerned about inflation in
light of the strong economy, finally made good on its warnings with a 0.25%
increase in the overnight lending rate. During the first six months we added
our ninth portfolio of Principal Preservation Portfolios, Inc. The Managed
Growth Portfolio is a mid-cap growth fund managed by Geneva Capital Management.
From the beginning of the year to June 30, 1999, we accumulated approximately
$6,300,000 in this fund.
As you review each Portfolio's Statement of Operations included in this
Report, you may notice that the expense ratios appear lower than the ratios
shown in the Portfolio's Prospectus. As required under new SEC rules, the
Prospectus shows gross expenses, without reflecting any voluntary fee waivers or
expense reimbursements by the investment advisor. Each Portfolio's operating
expenses shown in its Statement of Operations in this Report, on the other hand,
have been adjusted to reflect reductions resulting from the investment advisor's
voluntary fee waivers and expense reimbursements. These effects are especially
pronounced in the PSE Tech 100 Index, Select Value and Managed Growth
Portfolios. Consistent with its past practice, the investment advisor absorbed
a greater percentage of expenses and waived a greater percentage of its fees for
these Portfolios, which have relatively fewer assets, so that the expense ratios
actually experienced by the shareholders would be more in line with industry
standards. While the investment advisor anticipates continuing to support these
Portfolios in this fashion as their assets grow to more competitive levels, you
should understand that all such fee waivers and expense reimbursements are
voluntary and may be discontinued at any time.
The accompanying report describes in more detail the factors that affected
the performance of your portfolio. We thank you for your continued support and
trust with us at Principal Preservation.
Sincerely,
/S/ Robert J. Tuszynski
Robert J. Tuszynski
President and CEO
This report contained herein is meant to be information to the existing
shareholders of Principal Preservation. This does not constitute an offer to
sell and should an investor wish to receive more information about the
portfolios, they should obtain a prospectus which includes a discussion of each
investment objective and all sales charges and expenses of the relevant
portfolio(s).
MANAGEMENT DISCUSSION AND ANALYSIS
STANDARDIZED PERFORMANCE
Returns on each Portfolio's net assets are presented throughout this report.
Such net asset returns do not reflect the front-end or back-end sales charges
investors may pay in connection with their investment. The following table
presents standardized average annual total returns, including maximum applicable
sales charges.
<TABLE>
PERIOD ENDED JUNE 30, 1999
----------------------------------------------------------
SINCE
ONE YEAR FIVE YEAR TEN YEAR INCEPTION
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Tax Exempt Portfolio -3.82% 5.25% 6.30%*<F1> --
Government Portfolio -.51% 5.64% 6.71%*<F1> --
S&P 100 Plus Portfolio Class A 21.08% 26.70% 17.55%*<F1> --
S&P 100 Plus Portfolio Class B -- -- -- 19.97%**<F2>
Dividend Achievers Portfolio Class A 10.82% 21.22% 14.18% --
Dividend Achievers Portfolio Class B -- -- -- 9.62%**<F2>
Select Value Portfolio Class A -13.38% -- -- 11.59%
Select Value Portfolio Class B -- -- -- -10.17%**<F2>
PSE Tech 100 Index Portfolio Class A 65.40% -- -- 36.18%
PSE Tech 100 Index Portfolio Class B -- -- -- 63.78%**<F2>
Managed Growth Portfolio Class A -- -- -- -4.21%
Managed Growth Portfolio Class B -- -- -- -4.00%**<F2>
</TABLE>
*<F1>NOTE:Total returns are not shown for periods in excess of 10 years.
**<F2>NOTE:Class B shares were first available beginning July 27, 1998.
FIXED INCOME ANALYSIS
The bond markets responded negatively to fears of inflation and the
possibility of increases in the Fed Funds rate. As a result, the first six
months of 1999 were mostly negative, and represented the second worst period in
the taxable bond market over the last thirteen years. U.S. Government bond
yields rose as measured by the 30-year treasury bonds from approximately 5.09%
at December 31, 1998 to 5.97% on June 30, 1999.
However, due to a stabilization of municipal bond issuances, the tax exempt
yields did not rise nearly as much. Therefore municipal bonds, on average,
performed better than the taxable bond market during the six months.
At the end of June, the Federal Reserve increased the discount rate as a pre-
emptive strike against inflationary fears. This move slowed the economy and
calmed the fixed income markets.
GENERAL STOCK MARKET ANALYSIS
Stock mutual fund investors were rewarded during the first six months of this
year by their focus on large cap growth securities and technology sectors of the
market. The S&P 100 Index return for the six-month period was 17.3% and the PSE
Tech 100 Index return was 33.7%. This compares to a 9.3% return of the Russell
2000, an index comprised of securities that have a small market capitalization,
and the S&P 500 Index return of 12.4%, an index which contains many mid
capitalization companies. Similar to 1998, investors continued to ignore the
small to mid cap stocks during the first quarter. However, during the second
quarter smaller cap stocks caused the Russell 2000 return to reach 15.5%.
Earnings disappointments continued to be met with heavy selling pressures by
investors, resulting in a decline in the prices of the stocks of companies
making those announcements.
TAX-EXEMPT PORTFOLIO
The six-month total return for the Tax-Exempt Portfolio was (2.91%), compared
to the Lipper General Municipal Debt Funds of (5.03%). At the end of 1998, long
term municipal bond yields were 101.28% of treasuries. In the first quarter of
1999, U.S. Treasury yields rose over 50 basis points, while long term high
quality municipal bond yields rose on average about 10 basis points. As a
result, long term municipal bond yields declined to an average of 89.9% of
treasury yields, which is closer to the nine year average percentage of 87.02%.
The volume of new issues of municipal bonds in the first quarter was average to
slightly above average as compared to 1998 issuances, which was the second
highest in ten years. The non-callable portion of the Portfolio (which
represents about 40%) outperformed the callable portion, as was expected.
Lehman Municipal Research reported that the 22 year plus non-callable index had
a one year total return of 10.32% compared to 6.26% for the similar callable
index and 6.58% for the 15 year callable index.
Sales of the portfolio securities were minimal. The Portfolio continues its
high quality posture, with 80% of its assets invested in AAA rated bonds and the
remaining 20% in AA rated bonds. The manager has not purchased energy bonds
because of uncertainty over deregulation of the industry, and also has avoided
healthcare bonds because of concerns over proposed Medicare reform.
After declining slightly during the first two weeks in April, municipal bond
yields generally increased during the second quarter of 1999. The yield on the
30-year, AAA bond started the period at 5.06% and fell to 4.99% on April 12,
1999, the only time it was below the 5.00% mark. The yield then rose to the
highest level in 20 months, peaking at 5.37% on June 24, 1999.
The low level of new issues compared to last year slowed the increase of
municipal bond yields. New issue volume totaled $57.6 billion during the second
quarter of 1999, down about 28% from the same period in 1998. Hence, the
relative value of municipal bonds compared to U.S. Treasuries stayed within a
range of 5% to 6%. Because of a widening spread between the bid and ask prices,
the manager chose to limit portfolio moves in the second quarter. Second
quarter performance lagged the benchmark because the duration of the Portfolio
was longer than the benchmark. The large percentage of non-callable bonds
lengthens the duration. Although, the non-callable bonds outperformed callable
bonds generally, in a weak market a short duration holds up better than a longer
one. As opportunities present themselves, the manager plans to reduce the
duration in order to bring the Portfolio closer to the benchmark.
GOVERNMENT PORTFOLIO
The Government Portfolio total return for the six months endedJune 30, 1999
was -2.45%, compared with -2.17% for the Morningstar Intermediate Government
group funds. You may recall that last year the financial crisis in the Far
East, Russia and South America caused a flight to quality and safety in the
United States Treasury market. During the first quarter of 1999 this trend
reversed. The relative stability that has returned at least to the Far East and
South American caused the U.S. Treasury market yield to rise from between 43 and
63 basis points in the two to ten year range. Notably, over the past 20 years,
the U.S. Treasury market generally has performed poorly during the first
quarter.
Inflation, as measured by the Consumer Price Index, has been fairly low so
far this year, averaging between 1.6% and 1.7% on a year-over-year basis. The
only commodity that is higher in price is oil. However, OPEC historically has
not demonstrated a keen ability to implement production cuts, so the increase in
price may not hold.
For the reasons discussed above, February was the weakest performing month in
the first quarter in 19 years. During that quarter, the spread between direct
government securities and mortgage securities continued to narrow, continuing
the trend that started in the fourth quarter of 1998. The spread narrowed from
200 basis points in mid-January to 148 by March 31, 1999. The Portfolio
contains 19.25% GNMA securities. Funds with a higher percentage of mortgage
securities outperformed the Portfolio in the first quarter.
The performance, although improved in the second quarter, mirrored the bear
market of 1994. However, unlike 1994 when the Federal Reserve Board raised
interest rates six times, this year, the Fed only raised rates once, and that
did not occur until the last day of the second quarter. This produced a mild
rally. The last time the Fed raised rates was in 1997. At that time, the 12
month change in the Consumer Price Index was 3% versus a 2% change in the 12
month period ended June 30, 1999; capacity utilization in 1998 was 82.6% versus
80.3% this year, and the Commodity Research Bureau Index was 243.53 versus
184.50 this year. The CRB Index is at a twenty-five year low.
The narrowing of the spread between direct government securities and mortgage
backed securities ceased after the first quarter. The best performing group of
funds in the second quarter were funds invested in U.S. Treasury bills which
were rolled over during the quarter.
The portfolio manager's only trades in the second quarter were the purchase
of $2,000,000 U.S. Treasury 9 1/8% bonds maturing on May 15, 2009, which are
callable in 2004 to yield over 6% to the call, and a related sale of U.S.
Treasury 5.75% bonds maturing on November 30, 2002 to yield 5.86%.
After raising the Fed Funds rate 0.25% on June 30, 1999, the Fed indicated
its stance had changed from a tightening mode to a neutral mode. However, on
August 24, 1999, under renewed signals of inflationary trends, the Federal
Reserve raised the Fed Funds rates another 0.25%. With the lack of any great
inflationary force it would seem unlikely the Fed would feel compelled to raise
rates again. Early in the third quarter there is a large supply of corporate
bonds, which brings pressure on the Treasury market. We expect these corporate
issues will be completed before the start of the fourth quarter. With the
supply out of the way the market will have room to improve.
S&P 100 PLUS PORTFOLIO
The S&P 100 Plus Portfolio net asset value total return for the six months
ended June 30, 1999 was 16.73%, compared to the S&P 100 Index return of 17.27%.
The second quarter continued a positive trend for the domestic equity markets,
although the ride was anything but smooth. As has been the case for the past
few years, large-cap equities were the investment of choice for many
participants, with "value" identified stocks beginning to make some headway as
compared to their "growth" counterparts. In this environment, the S&P 100 Plus
Portfolio again posted strong investment performance.
At second quarter end the portfolio manager maintained over-weighted
positions in technology and telecommunications (Cisco, Microsoft, Nortel and
AT&T) along with a regional bank (Wells Fargo & Co.). Underweightings were
focused in the consumer staples area, where the portfolio manager remained
disenchanted with growth prospects versus existing valuations. Cisco Systems
and Nortel Networks added a significant boost to the strategy, especially during
June, while the lighter position in Coca-Cola proved beneficial as well.
During the first half of 1999, the equity markets continued to be marked with
price volatility. The "goldilocks" environment which we have been operating in
for some time came under intense scrutiny, with many analysts and economists
voicing concerns that the best was behind us and that an extended period of
contraction and moderation lay ahead. As such, valuations in the large-cap
sector of the domestic market were deemed to be outrageous by some, and from a
historical perspective they were indeed correct.
The result was a relatively broad sell-off in some of the growth sectors such
as technology, health-care and telecommunications, and a shift into long-shunned
areas such as capital goods, energy and utilities. The end was near according
to some, with the Fed poised to raise interest rates and Y2K lurking in the not
too distant future. In fact, the Fed did raise the discount rate at the end of
June and again on August 24, 1999.
The portfolio manager believes that supply-demand dynamics are rewarding
superior companies in the large-cap market with relatively high valuations. The
portfolio manager remains optimistic about the domestic large-cap equity market
for the remainder of this year and into 2000. Price volatility likely will
continue, but in the end strong companies with bright prospects and continued
growth opportunities will be rewarded.
DIVIDEND ACHIEVERS PORTFOLIO
The Dividend Achievers Portfolio net asset value total return for the six
months ended June 30, 1999 was 9.46%, compared to the S&P 500 of 12.38% and the
Lipper Analytical Growth and Income Funds Average of 10.97%. The strong growth
of the economy, driven by the free-spending American consumer, helped to keep
investor enthusiasm high during the period. The strength of first quarter
earnings combined with the generally positive tenor of pre-announcement rumors
over second quarter earnings provided investors with the incentive to bid up the
prices of their favorite stocks. The rally in blue chip and technology stocks
also spilled over into the small capitalization sector, with the Russell 2000
significantly outperforming the S&P 500 for the quarter.
The willingness of investors to focus on earnings allowed them to ignore a
significant increase in long term interest rates, an unexpected spike in the
April inflation number and a Federal Reserve rate hike during the second
quarter. While April's CPI statistic could have been an anomaly, it is harder
to ignore the higher bond yields that confronted investors at mid-year.
Declining interest rates have been one of the catalysts of the current bull
market. Yet investors happily drove the stock market higher during the second
quarter, even in the face of increasing interest rates.
The sector allocation of Dividend Achievers Portfolio relative to the S&P 500
negatively impacted the Portfolio's performance for the first half of the year.
An overweighting in both consumer staples and healthcare, the two worst
performing sectors of the market, and an underweighting in basic materials and
technology, two of the better performing sectors in the market, were key
detractors from the Portfolio's relative performance.
However, stock selection probably played an even more significant role in the
Portfolio's relatively weak performance during the second quarter. On the
positive side, the stock selection in the technology sector was particularly
profitable for shareholders. The three best performing stocks in the Portfolio,
Hewlett-Packard, Texas Instruments and Nortel Networks (formerly Northern
Telecom) all are part of this sector. The Portfolio also experienced solid
returns from its two energy stocks, Royal Dutch Petroleum and Mobil Oil.
However, Dividend Achievers performance, both absolute and relative, was
particularly hurt by three stocks. Pfizer, Becton Dickinson and Gillette all
lost more than 20% of their market value during the second quarter. Each stock
experienced an immediate, severe decline after disseminating negative news and
failing to meet analysts' expectations. The Portfolio still holds two of these
three positions, because the managers view the companies and their future
potential growth favorably.
Portfolio turnover was very light during the second quarter. The managers
reduced the position in Williams Companies by 20% after it had grown to over 5%
of the Portfolio, increasing the cash position slightly. Despite the recent
strength in the market, we have continued to maintain a relatively conservative
stance in the Portfolio. Our objective with the Portfolio is to maintain
competitive returns when the market rises, while adding value when the market
declines. The Portfolio has generally followed this pattern. We intend to
continue to manage Dividend Achievers Portfolio to provide shareholders with
competitive returns from a conservatively managed portfolio.
SELECT VALUE PORTFOLIO
The net asset value total return for the six-month period ended June 30, 1999
for the Select Value Portfolio was 3.7% compared to the Russell 2000 return of
9.3%. The big news of the second quarter was the improved performance of small
cap stocks, with the Russell 2000 Index showing a gain of 15.6% compared to a
6.9% return for the S&P 500 Index. This turnaround started in mid-April, when
first quarter earnings reports were announced.
Investors noticed that profit growth was accelerating after a difficult
second half in 1998. At the same time, companies reported that results from
Asia were improving. This occurred at a time when relative valuations favored
small cap stocks. The combination of low valuations and good financial news
sparked a meaningful rally. In terms of investment styles, both small growth
and small value managers found something positive in the period as all major
industry sectors produced solid returns.
Value-oriented investment strategies saw improved results due largely to big
gains registered by cyclical sectors of the market. Investors reasoned that
improving worldwide economic news was positive for cyclical companies. At the
same time, the technology sector was very strong, helping growth stock managers.
Interestingly, consumer stocks were laggards during the period despite very
strong consumer spending trends. Compared to almost any measure, the Portfolio
performed well in the second quarter with an 18.6% return on net assets.
The combination of a strong economy and renewed interest in small company
stocks helped create positive returns. The outperformance largely stemmed from
strong stock selections. Sector returns relative to our benchmarks were mixed,
although more heavily weighted areas such as technology and consumer-related
stocks performed well. On an absolute basis, every industry sector showed
positive returns in the second quarter, but some were more robust than others.
Technology stocks were the stars in the second quarter after being a
difficult area for the Portfolio over the last year. In fact, these stocks were
up over 40% for the Portfolio and represented almost 20% of the holdings. Signs
improved for the profit outlook for many of these companies due to high sales
demand and big cost savings programs. This outlook combined with low
valuations, drove powerful moves in these stocks. We remain bullish on this
sector, although valuations are not quite so compelling. Another important
sector for the Portfolio was consumer-related stocks, which represented over 25%
of the holdings. These stocks were also generally strong performers for the
Portfolio, even though there were also a few weak positions. Low valuations
coupled with improving profit growth trends fueled solid stock selections in
this sector. The portfolio manager believes this area should continue to do
well as we approach this holiday season.
Financial stocks in the Portfolio performed similar to the financial stocks
within the Russell 2000 Index. However, the return of 11% was comparatively
weak versus other sectors. Rising interest rate fears caused other sectors to
appear more attractive. In response, we reduced the Portfolio's holdings in
this sector during the quarter.
After an extended period of outperformance by large cap stocks and growth-
oriented strategies, a shift occurred in April that favored small cap stocks and
value-oriented strategies. The portfolio manager believes this shift occurred
because of superior relative valuation, an improving worldwide economic
environment, and better corporate earnings growth. In terms of relative
valuation, small cap stocks have not been so attractively priced since the early
1970s. After trading near parity with large cap stocks for most of the past 20
years, small cap stocks are currently trading at a very large discount. A move
back to parity from current levels would provide an enormous performance
advantage for small cap stocks.
We believe the catalyst for such a move is the improving international
economic situation along with better corporate earnings growth. Recent
developments on the international front have been encouraging and corporate
earnings growth picked up in the second quarter, following a rather dismal
showing in the last half of 1998. Further improvement in these areas should
strongly help small cap valuations. The Portfolio remains inexpensively priced
relative to the market, trading at a 20% discount to the Russell 2000 Index and
a 30% discount compared to the S&P 500 Index. The expected earnings growth rate
for the companies within the Portfolio is considerably better than the average
company within the Russell 2000 Index or the S&P 500 Index. We are confident
that the move in small cap stocks in the second quarter is just the beginning of
a very long period of strong relative performance. While not many quarters will
likely be as robust as this past one, we believe the Portfolio is well
positioned to benefit from improving trends over the coming years.
PSE TECH 100 INDEX PORTFOLIO
The net asset value year-to-date total return for the PSE Tech 100 Index
Portfolio was 33.06% compared to the PSE Index return of 33.70%. There were
many stories to be told during the second quarter in technology. First and
foremost of course is the exhilarating ride of the Internet stocks. The rise
and subsequent pullback in prices for most Internet stocks made good copy for
the media, and created boom-bust scenarios for day-traders. A constant flow of
initial public offerings, almost on a daily basis, created a flood of new
opportunities for short-term traders to make and break the bank. No matter if
investors were successful in identifying the winners, the activity during the
period seemed to emphasize the legitimacy of the Internet as a vehicle for
commerce and a repository of information. Not to be outdone, many established
technology bellwethers also attracted attention, although not always as
spectacularly as the Internet stocks.
The beginning of the second quarter had Compaq Computers missing its
quarterly numbers and the subsequent dismissal of almost its entire management
team. Next was the continued battle in the semiconductor arena pitting Intel
against AMD, with consumers benefitting from the resulting price reductions for
PCs. Data networking remained the technology focus, as Cisco Systems, Lucent
Technologies and Nortel Networks all slugged it out in providing equipment for
the coming integration of data, video and voice. Microsoft and the antitrust
suit remained at the forefront of every television reporter's daily "things to
do list." Looking forward, the portfolio manager remains firmly optimistic on
the technology sector's investment prospects. Stock price volatility likely
will continue, especially in response to disappointing announcements of earnings
or growth in revenue.
The portfolio manager believes it is important in this market to maintain a
long-term investment horizon and not to get too emotionally involved with short-
term price corrections or volatility. To date, 1999 has been a strong year for
technology investors. The portfolio manager coined last year's 54% return a
"once in a decade" year, but with continued strong return for the first six
months, investors may need to temper their expectations.
MANAGED GROWTH PORTFOLIO
The net asset value total return for the six months ended June 30, 1999 was
1.10% compared to the S&P 400 mid cap index return of 6.87%. The stock market
rose sharply in the first six months of the year with a broad range of stocks
and sectors participating in the increase. We ordinarily would not expect this
performance in an increasing interest rate environment and at a time when most
stocks are fully priced or over priced based on our value analysis. Our
valuation model suggests the strong possibility of a 10-15% correction in the
second half of the year.
The reasons for the Portfolio's underperformance during the first half of
1999 is not immediately apparent on any rationale basis. Twenty-six of our
forty-nine holdings were below the benchmark in terms of performance, but in
most cases there was no indication of any new fundamental weaknesses.
Furthermore, only three of our companies, Metro Information Systems, HMA and
Incyte, had lingering investment concerns which might have affected the stock
prices in the second quarter. We believe that our group of high quality growth
stocks was temporarily out of favor, especially in April, our worst month of
underperformance. Over the past several months, the portfolio manager met
personally with management of over half of our portfolio companies at seminars
in New York, San Francisco and Chicago, and confirmed our analysis. Four
exciting new holdings have been added: Citrix Systems, DeVry, Electronic Arts,
and Hannaford Brothers. The managers are pleased with the composition of the
portfolio at this point and believe the portfolio is positioned for stronger
performance in the future.
Our stock selections over the last half of this year will focus on companies
offering reasonable price to earnings ratios and predictability in reported
earnings. The sharp sell-off (30-50%) experienced in the universe of internet
stocks over the April to May period is a warning to aggressive investors that
this mania may be approaching a terminal phase.
Our strategy in the technology sector is to focus on the more mature retail
and distribution participants along with leading players on the infrastructure
side, i.e. software, network, semi-conductor and IT outsourcing players. We
believe this is a lower risk strategy and eventually will prove more profitable
than chasing "dot com" companies with no earnings history.
The cyclical sector of the stock market has exhibited strong price momentum
over the last three months. Aside from the obvious need for an aggressive high
technology portfolio component, we believe focus on growth cyclicals operating
in rapidly expanding niche markets in the airline, trucking and industrial
machinery sectors should prove profitable, especially given their attractive
valuation characteristics in today's richly valued equity environment.
The secular bull market remains in force. The sharp sell off in internet
stocks, avoidance of an Asian meltdown, and the broadening of the market away
from strict focus on leading S&P 500 issues is an encouraging sign that
rationality is returning to the market.
While we expect a further correction period in the second half of 1999,
especially as fears of Y2K problems mount, we believe 2000 should none the less
be a strong year for equities as is generally the case in an election year.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
FINANCIAL HIGHLIGHTS
The table below presents information for a share of capital stock of each of
six portfolios of Principal Preservation Portfolios, Inc. outstanding for the
periods indicated. This information should be read in conjunction with the
financial statements and related notes:
<TABLE>
TAX-EXEMPT PORTFOLIO
-----------------------------------------------------------------
For the
period ending For the years ended December 31,
June 30, 1999 --------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.24 $ 9.52 $ 9.30 $ 9.39 $ 8.36 $ 9.41
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .18 .37 .41 .43 .45 .45
Net realized and unrealized gains
(losses) on investments (.44) .03 .44 (.09) 1.03 (1.05)
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS (.26) .40 .85 .34 1.48 (.60)
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income (.18) (.37) (.41) (.43) (.45) (.45)
Distributions from net realized
gains on investments -- (.31) (.22) -- -- --
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (.18) (.68) (.63) (.43) (.45) (.45)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 8.80 $ 9.24 $ 9.52 $ 9.30 $ 9.39 $ 8.36
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
TOTAL RETURN**<F4> (2.9)% 4.3% 9.4% 3.8% 18.1% (6.4)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(to nearest thousand) $48,884 $54,914 $60,252 $66,310 $56,443 $55,492
Ratio of net expenses
to average net assets 1.1%*<F3> 1.1% 1.1% 1.1%+<F5> 1.0%+<F5> 1.0%
Ratio of net investment income
to average net assets 3.9%*<F3> 3.9% 4.4% 4.7%+<F5> 4.9%+<F5> 5.2%
Portfolio turnover rate 14.3% 236.7% 209.2% 163.1% 105.9% 36.1%
</TABLE>
*<F3> Annualized
**<F4> The Fund's sales charge is not reflected in total return as set forth in
the table.
+<F5> Reflects a voluntary reimbursement of fund expenses of 0.1% in 1996 and
0.01% in 1995, respectively.
<TABLE>
GOVERNMENT PORTFOLIO
-----------------------------------------------------------------
For the
period ending For the years ended December 31,
June 30, 1999 --------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.55 $ 9.28 $ 9.20 $ 9.64 $ 8.84 $ 9.98
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .28 .55 .63 .64 .61 .61
Net realized and unrealized gains
(losses) on investments (.51) .27 .08 (.44) .80 (1.14)
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS (.23) .82 .71 .20 1.41 (.53)
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income (.28) (.55) (.63) (.64) (.61) (.61)
Distributions from net realized
gains on investments -- -- -- -- -- --
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (.28) (.55) (.63) (.64) (.61) (.61)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 9.04 $ 9.55 $ 9.28 $ 9.20 $ 9.64 $ 8.84
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
TOTAL RETURN**<F7> (2.5)% 9.1% 8.1% 2.3% 16.3% (5.4)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(to nearest thousand) $38,394 $40,088 $40,683 $44,920 $49,319 $47,324
Ratio of net expenses to
average net assets 1.1%*<F6> 1.2% 1.1%+<F8> 1.1%+<F8> 1.1%+<F8> 1.1%
Ratio of net investment income
to average net assets 6.0%*<F6> 5.9% 7.0%+<F8> 7.0%+<F8> 6.5%+<F8> 6.6%
Portfolio turnover rate 6.9% 87.7% 78.6% 36.9% 68.2% 106.1%
</TABLE>
*<F6> Annualized
**<F7> The Fund's sales charge is not reflected in total return as set forth
in the table.
+<F8> Reflects a voluntary reimbursement of fund expenses of 0.04% in 1997,
0.04% in 1996 and 0.02% in 1995, respectively.
<TABLE>
S&P 100 PLUS PORTFOLIO
-----------------------------------------------------------------------------------------------------
For the
period from
For the July 27, 1998
period ending (commencement For the years ended December 31,
June 30, 1999 of operations) to -----------------------------------------------------
(Unaudited) December 31, 1998 1998 1997 1996 1995 1994
-------------------- ------------------ ------- ------ ------ ------ -----
Class B Class A Class B Class A
Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $34.91 $34.90 $33.13 $27.04 $22.08 $19.53 $14.95 $15.04
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income -- .07 .01 .20 .26 .29 .25 .25
Net realized and
unrealized gains
(losses) on
investments 5.71 5.77 2.43 8.51 5.63 4.07 5.21 (.09)
------ ------ ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS 5.71 5.84 2.44 8.71 5.89 4.36 5.46 .16
------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income -- (.07) (.01) (.20) (.26) (.29) (.25) (.25)
Distributions from net
realized gains on
investments -- -- (.59) (.59) (.65) (1.52) (.63) --
Distributions in excess
of net realized gains -- -- (.06) (.06) (.02) -- -- --
------ ------ ------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS -- (.07) (.66) (.85) (.93) (1.81) (.88) (.25)
------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $40.62 $40.67 $34.91 $34.90 $27.04 $22.08 $19.53 $14.95
------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------
TOTAL RETURN**<F10> 16.3% 16.7% 7.4% 32.3% 26.8% 22.4% 36.7% 1.1%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(to nearest thousand) $24,006 $199,230 $6,123 $160,190 $105,738 $77,517 $57,062 $40,034
Ratio of net expenses to
average net assets 1.4%*<F9> 0.8%*<F9> 1.3%*<F9>+<F11> 0.9%+<F11> 0.9%+<F11> 1.0%+<F11> 1.2% 1.2%
Ratio of net investment
income to average net
assets -- 0.4%*<F9> --*<F9> 0.6%+<F11> 1.0%+<F11> 1.4%+<F11> 1.4% 1.7%
Portfolio turnover rate 3.9% 3.9% 10.2% 10.2% 17.0% 8.0% 3.5% 1.0%
</TABLE>
*<F9> Annualized.
**<F10> The Fund's sales charge is not reflected in total return as set forth
in the table.
+<F11> Reflects a voluntary reimbursement of fund expenses of 0.03% in Class
B Shares and 0.07% in Class A Shares in 1998, 0.11% in 1997 and 0.01%
in 1996, respectively.
<TABLE>
DIVIDEND ACHIEVERS PORTFOLIO
------------------------------------------------------------------------------------------------------
For the
For the period from
six month July 27, 1998
period ending (commencement For the years ended December 31,
June 30, 1999 of operations) to ------------------------------------------------------
(Unaudited) December 31, 1998 1998 1997 1996 1995 1994
-------------------- ------------------ ------- ------ ------ ------ ------
Class B Class A Class B Class A
Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $27.92 $27.92 $28.48 $25.13 $20.01 $16.97 $13.24 $13.40
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income -- .01 .01 .07 .13 .14 .18 .18
Net realized and
unrealized gains
(losses) on investments 2.51 2.63 1.39 4.80 5.43 3.54 3.99 (.02)
------ ------ ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS 2.51 2.64 1.40 4.87 5.56 3.68 4.17 .16
------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income -- (.01) (.01) (.07) (.13) (.14) (.18) (.18)
Distributions from net
realized gains on
investments -- -- (2.01) (2.01) (.31) (.50) (.26) (.14)
------ ------ ------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS -- (.01) (2.02) (2.08) (.44) (.64) (.44) (.32)
------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $30.43 $30.55 $27.86 $27.92 $25.13 $20.01 $16.97 $13.24
------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------
TOTAL RETURN**<F13> 9.2% 9.5% 4.9% 19.4% 27.9% 21.8% 31.7% 1.2%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(to nearest thousand) $709 $45,989 $338 $44,219 $39,565 $30,504 $25,393 $20,231
Ratio of net expenses to
average net assets 1.9%*<F12> 1.3%*<F12> 1.7%*<F12>+<F14> 1.3%+<F14> 1.2%+<F14> 1.2%+<F14> 1.3%+<F14> 1.5%
Ratio of net investment
income to average net
assets -- 0.1% --*<F12> 0.2%+<F14> 0.6%+<F14> 0.8%+<F14> 1.2%+<F14> 1.3%
Portfolio turnover rate 3.5% 3.5% 11.9% 11.9% 11.9% 13.1% 28.2% 36.5%
</TABLE>
*<F12> Annualized.
**<F13> The Fund's sales charge is not reflected in total return as set forth
in the table.
+<F14> Reflects a voluntary reimbursement of fund expenses of 0.02% in Class
B and Class A Shares in 1999, 0.06% in Class B Shares and 0.02% in
Class A Shares in 1998, 0.1% in 1997, 0.1% in 1996 and 0.2% in 1995,
respectively.
<TABLE>
SELECT VALUE PORTFOLIO
-----------------------------------------------------------------------------------------------------
For the For the
period from period from
For the July 27, 1998 August 23, 1994
period ending (commencement of For the years ended December 31, (commencement
June 30, 1999 operations) to --------------------------------------- of operations) to
(Unaudited) December 31, 1998 1998 1997 1996 1995 December 31, 1994
------------------ ----------------- ------ ------ ------ ------ -----------------
Class B Class A Class B Class A
Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $11.27 $11.30 $12.32 $12.07 $10.97 $10.21 $ 9.03 $ 9.55
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income -- -- -- -- .01 .04 .14 .04
Net realized and
unrealized gains
(losses) on
investments .40 .42 (1.05) (.77) 2.93 2.68 1.73 (.51)
------ ------ ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS .40 .42 (1.05) (.77) 2.94 2.72 1.87 (.47)
------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income -- -- -- -- (.01) (.04) (.14) (.03)
Distributions from net
realized gains on
investments -- -- -- -- (1.83) (1.92) (.43) (.01)
Distributions in excess
of net realized gains
on investments -- -- -- -- -- -- (.12) --
Book return of capital -- -- -- -- -- -- -- (.01)
------ ------ ------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS -- -- -- -- (1.84) (1.96) (.69) (.05)
------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $11.67 $11.72 $11.27 $11.30 $12.07 $10.97 $10.21 $ 9.03
------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------
TOTAL RETURN**<F16> 3.4% 3.7% (8.5)% (6.4)% 27.2% 26.7% 20.8% (5.0)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(to nearest thousand) $1,235 $10,575 $1,012 $10,520 $8,497 $4,829 $3,445 $1,935
Ratio of net expenses to
average net assets 1.9%*<F15> 1.3%*<F15> 1.7%*<F15>+<F17> 1.3%+<F17> 1.1%+<F17> 1.0%+<F17> 0.8%+<F17> 0.8%*<F15>+<F17>
Ratio of net investment
income to average
net assests -- -- --*<F15> -- 0.1%+<F17> 0.3%+<F17> 1.4%+<F17> 1.1%*<F15>+<F17>
Portfolio turnover rate 60.5% 60.5% 110.0% 110.0% 82.5% 122.2% 124.3% 20.2%
</TABLE>
*<F15> Annualized.
**<F16> The Fund's sales charge is not reflected in total return as set forth
in the table.
+<F17> Reflects a voluntary reimbursement of fund expenses of 0.7% in Class B
Shares and 0.7% in Class A Shares in 1999, 0.5% in Class B Shares and
0.5% in Class a Shares in 1998, 1.0% in 1997, 1.4% in 1996 and 2.5% in
1995, respectively.
<TABLE>
PSE TECH 100 INDEX PORTFOLIO
------------------------------------------------------------------------------------
For the period from For the period from
For the July 27, 1998 June 10, 1996
period ending (commencement of For the years ended (commencement of
June 30, 1999 operations) to --------------------- operations) to
(Unaudited) December 31, 1998 1998 1997 December 31, 1996
------------------- ------------------- ------ ------ -------------------
Class B Class A Class B Class A
Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $18.39 $18.45 $14.94 $12.39 $10.76 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income -- -- .01 .01 .04 .03
Net realized and unrealized gains
on investments 6.01 6.10 4.07 6.68 2.04 1.03
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 6.01 6.10 4.08 6.69 2.08 1.06
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income -- -- (.01) (.01) (.04) (.03)
Distributions from net realized gains
on investments -- -- (.60) (.60) (.38) (.24)
Distributions in excess of net
realized gains -- -- (.02) (.02) (.03) (.03)
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS -- -- (.63) (.63) (.45) (.30)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $24.40 $24.55 $18.39 $18.45 $12.39 $10.76
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
TOTAL RETURN**<F19> 32.7% 33.1% 27.2% 54.0% 19.4% 10.7%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(to nearest thousand) $32,459 $121,856 $6,559 $72,724 $27,144 $6,004
Ratio of net expenses to
average net assets 1.2%*+ 0.6%*+ 1.2%*+ 0.6% 0.2%+<F20> --*+
<F18><F20> <F18><F20> <F18><F20> <F18><F20>
Ratio of net investment income
to average net assets -- -- --* -- 0.3%+ 0.7%*+
<F18> <F20> <F18><F20>
Portfolio turnover rate 26.2% 26.2% 25.4% 25.4% 22.0% 3.0%
</TABLE>
*<F18> Annualized.
**<F19> The Fund's sales charge is not reflected in total return as set forth
in the table.
+<F20> Reflects a voluntary reimbursement of fund expenses of 0.1% in Class B
Shares and 0.2% in Class A Shares in 1999, 0.3% in Class B Shares and
0.5% in Class A Shares in 1998, 1.1% in 1997 and 3.3% in 1996.
MANAGED GROWTH PORTFOLIO
----------------------------
For the period from
January 4, 1999
(commencement of operations)
to June 30, 1999
----------------------------
Class B Class A
Shares Shares
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD $10.00 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income -- --
Net realized and unrealized
gains on investments .10 .11
------ ------
TOTAL FROM INVESTMENT OPERATIONS .10 .11
------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income -- --
Distributions from net realized
gains on investments -- --
Distributions in excess of
net realized gains -- --
------ ------
TOTAL DISTRIBUTIONS -- --
NET ASSET VALUE, END OF PERIOD $10.10 $10.11
------ ------
------ ------
TOTAL RETURN**<F22> 1.0% 1.1%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(to nearest thousand) -- --
Ratio of net expenses to
average net assets 0.01%*<F21>+<F23> 0.02%*<F21>+<F23>
Ratio of net investment
income to average net assets -- --
Portfolio turnover rate 12.4% 12.4%
*<F21> Annualized.
**<F22> The Fund's sales charge is not reflected in total return as set forth
in the table.
+<F23> Reflects a voluntary reimbursement of fund expenses of 0.10% in Class
B Shares and 0.10% in Class A Shares in 1999.
<TABLE>
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
BALANCE SHEETS
JUNE 30, 1999 (UNAUDITED)
S&P 100 DIVIDEND SELECT PSE TECH 100 MANAGED
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX GROWTH
---------- ---------- ------- --------- ------ ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments:
Cost basis
of investments $50,821,765 $39,186,295 $113,627,457 $19,819,731 $10,737,336 $114,505,120 $5,841,706
----------- ----------- ------------ ----------- ----------- ------------ ----------
----------- ----------- ------------ ----------- ----------- ------------ ----------
Long-term investments
in securities $48,503,112 $37,628,551 $221,018,264 $44,906,352 $11,098,034 $151,800,410 $6,110,285
Short-term investments 1,000 165,000 1,351,000 1,726,000 1,045,000 3,460,000 108,000
----------- ----------- ------------ ----------- ----------- ------------ ----------
Total investments
(See Schedule of
Investments) 48,504,112 37,793,551 222,369,264 46,632,352 12,143,0341 55,260,410 6,218,285
Cash 262 78 246 763 501 954 99
Receivables:
Capital shares sold 209 31,703 1,274,528 121,909 10,297 1,589,859 181,633
Dividends and interest 732,592 734,350 183,997 35,337 12,782 41,894 3,290
Investments sold 967,407 -- -- -- 24,663 25,346 --
Margin variation -- -- 31,250 -- -- 60,000 --
----------- ----------- ------------ ----------- ----------- ------------ ----------
Total receivables 1,700,208 766,053 1,489,775 157,246 47,742 1,717,099 184,923
Other assets 1,602 1,082 3,384 1,145 684 7,580 --
----------- ----------- ------------ ----------- ----------- ------------ ----------
Total assets $50,206,184 $38,560,764 $223,862,669 $46,791,506 $12,191,961 $156,986,043 $6,403,307
----------- ----------- ------------ ----------- ----------- ------------ ----------
----------- ----------- ------------ ----------- ----------- ------------ ----------
LIABILITIES:
Payables:
Capital shares
redeemed $ 3,329 $ 26,313 $ 64,411 $ 3,000 $ 62,000 $ 48,357 $ --
Distributions to
shareholders 52,942 70,006 11,206 538 -- -- --
Management fees 23,612 18,143 65,961 26,953 6,702 41,078 3,184
Other accrued expenses 56,203 51,978 160,569 63,355 28,266 61,666 (23,305)
Investments purchased 972,405 -- 324,715 -- 285,426 2,019,678 99,762
Other liabilities 113,996 -- -- -- -- 180 --
----------- ----------- ------------ ----------- ----------- ------------ ----------
Total liabilities 1,222,487 166,440 626,862 93,846 382,394 2,170,959 79,641
----------- ----------- ------------ ----------- ----------- ------------ ----------
NET ASSETS:
Capital stock 51,478,274 41,931,161 113,475,636 18,246,229 11,188,835 102,481,568 6,065,779
Undistributed net
investment income 8,743 2,396 7,764 2,788 (13,604) (249,463) 4,624
Undistributed net realized
gains (losses) on
investments (185,667) (2,146,489) 1,010,600 1,636,022 (771,362) 11,827,689 (123,316)
Net unrealized appreciation
on investments (2,317,653) (1,392,744) 108,741,807 26,812,621 1,405,698 40,755,290 376,579
----------- ----------- ------------ ----------- ----------- ------------ ----------
Total net assets 48,983,697 38,394,324 223,235,807 46,697,660 11,809,567 154,815,084 6,323,666
----------- ----------- ------------ ----------- ----------- ------------ ----------
Total liabilities and
net assets $50,206,184 $38,560,764 $223,862,669 $46,791,506 $12,191,961 $156,986,043 $6,403,307
----------- ----------- ------------ ----------- ----------- ------------ ----------
----------- ----------- ------------ ----------- ----------- ------------ ----------
NET ASSET VALUE AND
REDEMPTION PRICE
PER SHARE $ 8.80 $ 9.04
----------- ----------
----------- ----------
MAXIMUM OFFERING
PRICE PER SHARE $ 9.12 $ 9.37
----------- ----------
----------- ----------
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PROCEEDS
PER SHARE
Class A:
Net asset value $199,229,732 $45,988,509 $10,574,512 $121,855,804 $5,301,797
Shares outstanding 4,898,782 1,505,142 902,008 4,963,312 524,227
Redemption price per share $ 40.67 $ 30.55 $ 11.72 $ 24.55 $ 10.11
------------ ----------- ----------- ------------ ----------
------------ ----------- ----------- ------------ ----------
Maximum offering price per share $ 42.92 $ 32.24 $ 12.37 $ 25.91 $ 10.67
------------ ----------- ----------- ------------ ----------
------------ ----------- ----------- ------------ ----------
Class B:
Net asset value $ 24,006,074 $ 709,151 $ 1,235,055 $ 32,959,280 $1,021,869
Shares outstanding 591,025 23,304 105,856 1,350,912 101,167
Offering and redemption price per share $ 40.62 $ 30.43 $ 11.67 $ 24.40 $ 10.10
------------ ----------- ----------- ------------ ----------
------------ ----------- ----------- ------------ ----------
</TABLE>
<TABLE>
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
S&P 100 DIVIDEND SELECT PSE TECH 100 MANAGED
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX GROWTH
---------- ---------- ------- --------- ------ ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ -- $ -- $ 1,110,105 $ 280,803 $ 39,866 $ 133,650 $ 9,152
Interest 1,324,928 1,406,771 41,686 35,957 20,718 41,041 3,284
---------- ---------- ----------- ---------- -------- ----------- ---------
Total investment
income 1,324,928 1,406,771 1,151,791 316,760 60,584 174,691 12,436
---------- ---------- ----------- ---------- -------- ----------- ---------
EXPENSES:
Investment advisory fees 156,121 117,027 385,445 168,406 40,397 210,727 14,817
Custodian fees 7,710 5,094 17,896 4,220 2,520 14,369 2,896
Transfer agent fees 22,144 22,135 58,424 18,904 7,790 35,871 2,172
Broker service fees 69,484 51,708 279,969 60,077 16,283 178,624 6,138
Distribution Fees - Class B -- -- 16,449 557 1,117 21,123 616
Professional fees 17,012 13,333 41,529 25,984 14,111 27,909 18,394
Registration 6,490 3,622 13,173 10,051 11,383 11,371 5,430
Communication 9,202 7,890 20,429 8,391 12,196 11,298 6,810
Director fees 2,255 1,582 8,458 2,624 1,145 4,609 905
Pricing of investments 2,538 1,001 2,975 2,163 2,430 3,216 2,353
Deferred organization
expense -- -- -- -- 1,350 1,676 --
Other (income) expense 4,764 -- 4,579 1,849 989 4,257 6,905
---------- ---------- ----------- ---------- -------- ----------- ---------
Total expenses 297,720 223,392 849,326 303,226 111,711 525,050 67,436
Less expenses absorbed
by advisor -- -- (9,426) (3,994) (37,523) (100,896) (59,624)
---------- ---------- ----------- ---------- -------- ----------- ---------
Net expenses 297,720 223,392 839,900 299,232 74,188 424,154 7,812
---------- ---------- ----------- ---------- -------- ----------- ---------
NET INVESTMENT
INCOME (LOSS) 1,027,208 1,183,379 311,891 17,528 (13,604) (249,463) 4,624
---------- ---------- ----------- ---------- -------- ----------- ---------
NET REALIZED GAINS (LOSSES)
ON INVESTMENTS (198,579) (25,745) 1,377,632 1,635,976 (337,615) 12,005,027 (123,316)
NET UNREALIZED APPRECIATION
(DEPRECIATION) ON
INVESTMENTS (2,351,677) (2,140,092) 28,326,079 2,434,080 738,750 21,437,445 376,579
---------- ---------- ----------- ---------- -------- ----------- ---------
Net gains (losses)
on investments (2,550,256) (2,165,837) 29,703,711 4,070,056 401,135 33,442,472 253,263
---------- ---------- ----------- ---------- -------- ----------- ---------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS $(1,523,048) $ (982,458) $30,015,602 $4,087,584 $387,531 $33,193,009 $ 257,887
----------- ---------- ----------- ---------- -------- ----------- ---------
----------- ---------- ----------- ---------- -------- ----------- ---------
The accompanying notes to financial statements are an integral part of these statements.
</TABLE>
<TABLE>
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
S&P 100 DIVIDEND SELECT PSE TECH 100 MANAGED
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX GROWTH
---------- ---------- ------- --------- ------ ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 1,027,208 $ 1,183,379 $ 311,891 $ 17,528 $ (13,604) $ (249,463) $ 4,624
Net realized gains
(losses) on
investments (198,579) (25,745) 1,377,632 1,635,976 (337,615) 12,005,027 (123,316)
Change in unrealized
appreciation
(depreciation)
on investments
for the year (2,351,677) (2,140,092) 28,326,079 2,434,080 738,750 21,437,445 376,579
----------- ----------- ------------- ---------- ----------- ------------ ----------
Net increase
(decrease) in net
assets resulting
from operations (1,523,048) (982,458) 30,015,602 4,087,584 387,531 33,193,009 257,887
----------- ----------- ------------- ---------- ----------- ------------ ----------
DISTRIBUTIONS TO
SHAREHOLDERS:
Net investment income (1,018,465) (1,185,312) (313,579) (15,132) -- -- --
------------ ----------- ------------- ---------- ----------- ------------ ----------
Total distributions (1,018,465) (1,185,312) (313,579) (15,132) -- -- --
------------ ----------- ------------- ---------- ----------- ------------ ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from
shares issued 593,852 2,077,591 34,920,525 1,634,673 1,935,501 54,684,499 6,127,209
Net asset value of shares
issued in distributions 654,747 778,038 286,251 14,152 -- 931 --
Cost of shares redeemed (4,637,602) (2,381,219) (7,986,103) (3,580,433) (2,045,328) (5,787,268) (61,430)
------------ ----------- ------------- ---------- ----------- ------------ ----------
Net increase (decrease)
in net assets from
capital share
transactions (3,389,003) 474,410 27,220,673 (1,931,608) (109,827) 48,898,162 6,065,779
------------ ----------- ------------- ---------- ----------- ------------ ----------
Total increase
(decrease) (5,930,516) (1,693,360) 56,922,696 2,140,844 277,704 82,091,171 6,323,666
NET ASSETS:
Balance at beginning
of period 54,914,213 40,087,684 166,313,111 44,556,816 11,531,863 72,723,913 --
------------ ----------- ------------- ---------- ----------- ------------ ----------
Balance at end of period $48,983,697 $38,394,324 $223,235,807 $46,697,660 $11,809,567 $154,815,084 $6,323,666
------------ ----------- ------------- ---------- ----------- ------------ ----------
------------ ----------- ------------- ---------- ----------- ------------ ----------
</TABLE>
<TABLE>
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
S&P 100 DIVIDEND SELECT PSE TECH 100
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX
---------- ---------- ------- --------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ 2,288,238 $ 2,340,336 $ 828,385 $ 98,997 $ (8,542) $ (14,391)
Net realized gains (losses)
on investments 1,767,224 514,545 2,791,207 3,014,952 (434,802) 2,256,382
Change in unrealized
appreciation (depreciation) on
investments for the year (1,583,100) 622,997 33,392,322 4,410,903 (251,854) 19,319,500
----------- ----------- ------------ ----------- ----------- -----------
Net increase (decrease)
in net assets resulting
from operations 2,472,362 3,477,877 37,011,914 7,524,852 (695,198) 21,561,491
----------- ----------- ------------ ----------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (2,290,497) (2,345,276) (827,779) (99,223) -- (29,881)
Distributions in excess of net
realized gains on investments -- -- (281,681) -- -- (89,874)
Net realized gains on
investments (1,766,795) -- (2,791,208) (3,014,906) -- (2,256,382)
----------- ----------- ------------ ----------- ----------- -----------
Total distributions (4,057,292) (2,345,276) (3,900,668) (3,114,129) -- (2,376,137)
----------- ----------- ------------ ----------- ----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued 1,817,590 1,780,198 35,767,268 3,386,784 6,252,009 31,213,981
Net asset value of shares
issued in distributions 2,719,842 1,499,635 3,606,285 2,836,202 1,490 2,051,744
Cost of shares redeemed (8,289,995) (5,007,964) (11,909,578) (5,641,880) (2,523,817) (6,871,469)
----------- ----------- ------------ ----------- ----------- -----------
Net increase (decrease)
in net assets from
capital share transactions (3,752,563) (1,728,131) 27,463,975 581,106 3,729,682 26,394,256
----------- ----------- ------------ ----------- ----------- -----------
Total increase
(decrease) (5,337,493) (595,529) 60,575,221 4,991,829 3,034,484 45,579,610
NET ASSETS:
Balance at beginning of period 60,251,706 40,683,213 105,737,890 39,564,987 8,497,379 27,144,303
----------- ----------- ------------ ----------- ----------- -----------
Balance at end of period $54,914,213 $40,087,684 $166,313,111 $44,556,816 $11,531,863 $72,723,913
----------- ----------- ------------ ----------- ----------- -----------
----------- ----------- ------------ ----------- ----------- -----------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES --
Principal Preservation Portfolios, Inc. (the "Fund"), registered under the
Investment Company Act of 1940 as an open-end management investment company, is
a series company with nine portfolios: Tax-Exempt Portfolio, Government
Portfolio, S&P100 Plus Portfolio, Dividend Achievers Portfolio, Select Value
Portfolio, PSE Tech 100 Index Portfolio, Wisconsin Tax-Exempt Portfolio, Cash
Reserve Portfolio and the Managed Growth Portfolio. This report contains the
information of all portfolios, except for the Managed Growth Portfolio, the Cash
Reserve Portfolio and the Wisconsin Tax-Exempt Portfolio information with
respect to the latter two portfolios is contained 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 S&P 100 Plus Portfolio, Dividend Achievers Portfolio, Select Value
Portfolio, PSE Tech 100 Index Portfolio and Managed Growth Portfolio each offer
two classes of shares - Class A Shares and Class B Shares. Both classes
represent interests in the same portfolio of investments of each Portfolio and
are substantially the same in all respects except that the classes are subject
to different sales load structures and 12b-1 fees and certain other expenses.
The following is a summary of the significant accounting policies of the
Fund.
(a) Long-Term Securities and Short-Term Investments
The long-term tax-exempt securities are valued at market or fair value
using quotations by an independent pricing service (the "Service"). When
in the judgment of the Service, quoted bid prices for securities are
readily available and are representative of the bid side of the market,
these investments are valued at the mean between quoted bid prices (as
obtained by the Service from dealers in such securities) and ask prices
(as calculated by the Service based upon its evaluation of the market
for such securities). Securities for which, in the judgment of the
Service, there are no readily obtainable market quotations (which may
constitute a majority of the portfolio's securities) are carried at fair
value as determined by the Service, based on methods which include
consideration of yields or prices of municipal securities of comparable
quality, coupon, maturity, type, indications as to values from dealers,
and general market conditions.
Long-term taxable fixed income securities are valued at market using
quotations provided by an independent pricing service.
Common and preferred stocks are valued at the last sales price reported
by the New York Stock Exchange, other appropriate exchanges, or NASDAQ,
on the date of valuation. Common and preferred stocks not traded on that
date are valued at the last bid price.
Short-term investments are valued at amortized cost, which approximates
market value.
Through the year, investment transactions are recorded on the next date
after trade date. However, the year-end financial statements are adjusted
to reflect trade date, which adjustment does not materially impact the
Funds financial results.
Premiums on long-term tax-exempt securities are amortized to the shorter
of call date or maturity. The fund does not amortize premiums on taxable
long-term securities. The fund amortizes all discounts on taxable
securities and on original issue discount tax-exempt securities.
(b) Option Transactions
For hedging purposes, the S&P 100 Plus Portfolio and the PSE Tech 100
Index Portfolio may buy and sell put and call options, write covered call
options on portfolio securities, write cash-secured puts, and write call
options that are not covered for cross-hedging purposes. The risk in
writing a call option is that a fund gives up the opportunity for profit
if the market price of the security increases. The risk in writing a put
option is that a fund may incur a loss if the market price of the
security decreases and the option is exercised. The risk in buying an
option is that a fund pays a premium whether or not the option is
exercised. A fund also has the additional risk of not being able to
enter into a closing transaction if a liquid secondary market does not
exist. The S&P 100 Plus Portfolio also may write over-the-counter
options where the completion of the obligation is dependent upon the
credit standing of another party.
Option contracts are valued daily, and unrealized appreciation or
depreciation is recorded. A fund will realize a gain or loss upon
expiration or closing of the option transaction. When an option is
exercised, the proceeds on sales for a written call option, the purchase
cost for a written put option, or the cost of a security for a purchased
put or call option is adjusted by the amount of premium received or paid.
(c) Futures Contracts
The S&P 100 Plus and PSE Tech 100 Index Portfolios may utilize futures
contracts to a limited extent. The primary risks associated with the use
of futures contracts include an imperfect correlation between the change
in market value of the securities held by the Fund and the prices of
futures contracts and the possibility of an illiquid market. Futures
contracts are based upon their quoted daily settlement prices.
Upon entering into a futures contract, the Fund is required to deposit
either cash or securities in an amount (initial margin) equal to a
certain percentage of the contract value. Subsequent payments (variation
margin) are made or received by the Fund each day. The variation margin
payments are equal to the daily changes in the contract value and are
recorded as unrealized appreciation (depreciation) until the contracts
are terminated at which time realized gains and losses are recognized.
(d) Net Realized Gains and Losses and Investment Income
Net realized gains and losses on securities sales (including options) are
computed on the identified cost basis. Dividend income is recorded on the
ex-dividend date. Interest income is recorded on an accrual basis. Total
net realized gains on investments for the period ended June 30, 1999,
were comprised of the following:
<TABLE>
S&P 100 DIVIDEND SELECT PSE TECH 100 MANAGED
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX GROWTH
---------- ---------- ------- --------- ------ ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net realized gains
(losses) on
investments $(198,579) $(25,745) $985,686 $1,635,976 $(337,615) $11,509,167 $(123,316)
Net realized gains
on options and futures -- -- 391,946 -- -- 495,860 --
--------- -------- ---------- ---------- --------- ----------- ---------
Total net realized
gains (losses) on
investments $(198,579) $(25,745) $1,377,632 $1,635,976 $(337,615) $12,005,027 $(123,316)
--------- -------- ---------- ---------- --------- ----------- ---------
--------- -------- ---------- ---------- --------- ----------- ---------
</TABLE>
(e) Federal Income Taxes
Provision has not been made for Federal income taxes since each portfolio
has elected to be taxed as a "regulated investment company" and intends
to distribute substantially all income to its shareholders and otherwise
comply with the provisions of the Internal Revenue Code applicable to
regulated investment companies. As of December 31, 1998, the Government
Portfolio has capital loss carryforwards of $1,963,517 and $151,408
expiring in 2002 and 2005, respectively. It is management's intention to
make no distribution of any future realized capital gains until the
Federal income tax capital loss carryforwards are exhausted.
Distributions in excess of net realized gains on investments in the PSE
Tech 100 Index Portfolio of $89,874 and $72,790, for the years ended
December 31, 1998 and 1997, are the result of losses on wash sales which
are currently recognized for book purposes but are deferred for tax
purposes and the reversal of Section 1256 mark to market losses utilized
in 1997. This distribution does not represent a tax return of capital.
Distributions in excess of net realized gains on investments in the S&P
100 Plus Portfolio of $1,281,681 and $70,840, for the years ended
December 31, 1998 and 1997 are as a result of current year Section 1256
mark to market gains and the reversal of Section 1256 mark to market
losses utilized in 1997. This distribution does not represent a tax
return of capital.
The character of distributions made during the year from net investment
income or net realized gains may differ from the characterization for
federal income tax purposes due to differences in the recognition of
income, expense or gain items for financial statement and tax purposes.
Where appropriate, reclassifications between net asset accounts are made
for such differences that are permanent in nature. Accordingly, at
December 31, 1998, reclassifications were recorded to increase
undistributed net investment income by $2,259, $8,542 and $44,272, and
decrease capital stock by $2,259, $8,542 and $44,272 in the Tax-Exempt,
Select Value and PSETech 100 Portfolios.
(f) Expenses
Fund expenses associated with a specific portfolio are charged to that
portfolio as they are incurred. Common expenses incurred by the Fund are
allocated, as incurred, between the portfolios based upon the ratio of
the net assets of each portfolio to the combined net assets of the Fund.
(g) Distributions to Shareholders
Dividends to shareholders are recorded on the ex-dividend date.
(h) Deferred Organization Costs
Costs incurred with the organization, initial registration and public
offering of shares aggregating $13,627 for the Select Value Portfolio and
$16,900 for the PSETech 100 Index Portfolio have been paid by the Fund
and are being amortized over a five year period.
(i) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH RELATED PARTIES --
On May 1, 1999 the Fund assigned the Investment Advisory Agreement from
Ziegler Asset Management, Inc. ("ZAMI") to B.C. Ziegler and Company ("BCZ").
Both entities are wholly owned subsidiaries of The Ziegler Companies, Inc.
The Fund has Investment Advisory Agreements ("the Agreements") with Ziegler
Asset Management, Inc. ("ZAMI"), (with whom certain officers and directors of
the Fund are affiliated) to serve as Investment Advisor (the "Advisor").
Pursuant to the Agreement, BCZ manages the Tax-Exempt Portfolio, and
Government Portfolio. Under the Agreement, the Tax-Exempt and Government
Portfolios pay BCZ a monthly fee based upon the average daily net assets of
each portfolio at the rate of .60% of the first $50,000,000 of each
portfolio's average daily net assets, reducing to .50% on the next
$200,000,000 of each portfolio's average daily net assets and .40% of each
portfolio's average daily net assets in excess of $250,000,000.
Pursuant to the Agreement, the S&P 100 Plus Portfolio pays BCZ a monthly fee
based upon the S&P 100 Plus average daily net assets at the rate of 0.575% of
the first $20,000,000, .45% of the next $30,000,000, .40% of the next
$50,000,000, .35% of the next $400,000,000 and .30% of assets over
$500,000,000.
Pursuant to the Agreement, the Dividend Achievers Portfolio pays BCZ a
monthly fee based upon the Dividend Achievers average daily net assets at
the rate of .75% of the first $250,000,000 of average daily net assets,
reducing to .70% on the next $250,000,000 and .65% on the average daily net
assets of over $500,000,000.
Under its Agreement, the PSETech 100 Index Portfolio pays BCZ a monthly fee
based upon the PSE Tech 100 average daily net assets at the rate of .50% of
the first $50,000,000 of average daily net assets, .30% of the next
$200,000,000 of average daily net assets, .25% of the next $250,000,000 of
average daily net assets and .20% of average daily net assets in excess of
$500,000,000.
Pursuant to the Agreement, BCZ has retained Skyline Asset Management, Inc.
("Skyline") to manage the Select Value Portfolio. Under the Agreement, the
Select Value Portfolio pays BCZ a monthly fee based on the average daily net
assets of the Portfolio at the rate of .75% of the first $250,000,000 of the
Portfolio's average daily net assets, and .65% on average daily net assets
exceeding $250,000,000. ZAMI pays Skyline 50% of the fee paid by the Select
Value Portfolio.
Pursuant to the Agreement, BCZ has retained Geneva Capital Management
("Geneva") to manage the Managed Growth Portfolio. Under the Agreement, the
Managed Growth Portfolio pays BCZ a monthly fee based on the average daily
net assets of the Portfolio at the rate of .75% of the first $250,000,000 of
the Portfolio's average daily assets, and .65% on the average daily net
assets exceeding $250,000,000. BCZ pays Geneva 50% of the fee paid by the
Managed Growth Portfolio.
The Advisor voluntarily reimbursed the S&P 100 Plus Portfolio $9,426, the
Dividend Achievers Portfolio $3,994, the Select Value Portfolio $37,523, the
PSE Tech 100 Index Portfolio $100,896 and the Managed Growth Portfolio
$59,624 in 1999. The Advisor is not obligated to continue the voluntary
reimbursement in the future.
Ziegler has an Accounting and Pricing Agreement with the Fund to perform
accounting and pricing services and a Transfer and Dividend Disbursing and
Shareholder Services Agency Agreement with the Fund to provide Transfer Agent
Services. In addition, each Portfolio pays Ziegler commissions on sales of
Portfolio shares. The transfer agent fees, commissions, accounting and
pricing fees paid to Ziegler for the period ended June 30, 1999, were as
follows for each Portfolio:
<TABLE>
ACCOUNTING
TRANSFER COMMISSIONS AND PRICING 12B-1
AGENT FEES ON PORTFOLIO SHARES FEES FEES
---------- ------------------- ----------- -----
<S> <C> <C> <C> <C>
Tax-Exempt Portfolio $ 17,351 $ 9,746 $ 13,066 $ 43,999
Government Portfolio 16,684 23,992 10,970 37,191
S&P100 Plus Portfolio 51,530 538,315 28,474 158,032
Dividend Achievers Portfolio 14,422 22,641 11,743 48,164
Select Value Portfolio 9,122 36,328 9,500 7,794
PSE Tech 100 Index Portfolio 45,564 582,341 19,109 48,596
Managed Growth Portfolio 1,317 74,324 7,918 1,333
-------- ---------- -------- --------
TOTAL $155,990 $1,287,687 $100,780 $345,109
-------- ---------- -------- --------
-------- ---------- -------- --------
</TABLE>
During the period ended June 30, 1999, an affiliate of Ziegler received
$5,751, $1,926, $4,994 and $2,707 representing commissions from the purchases
and sales of investments of the S&P 100 Plus Portfolio, Dividend Achievers
Portfolio, PSE Tech 100 Portfolio and Managed Growth Portfolio, respectively.
3. INVESTMENT TRANSACTIONS --
Purchases and proceeds from sales of securities, excluding short-term
investments, for the period ended June 30, 1999 aggregated:
PURCHASES PROCEEDS FROM SALES
----------- -------------------
Tax-Exempt Portfolio $ 7,546,853 $11,140,251
Government Portfolio 3,988,801 2,676,036
S&P100 Plus Portfolio 35,721,377 7,472,406
Dividend Achievers Portfolio 1,547,373 1,813,993
Select Value Portfolio 6,264,346 6,786,557
PSE Tech 100 Index Portfolio 88,091,764 28,138,911
Managed Growth Portfolio 6,278,342 544,635
Net tax basis unrealized appreciation (depreciation) on investments as of
June 30, 1999, included:
<TABLE>
S&P 100 DIVIDEND SELECT PSE TECH 100 MANAGED
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX GROWTH
---------- ---------- ------- --------- ------ ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross unrealized
appreciation $ -- $ -- $109,231,753 $26,821,929 $1,772,178 $ 43,894,284 $ 533,739
Gross unrealized
(depreciation) (2,317,653) (1,392,744) (489,946) (9,308) (366,480) (3,138,994) (157,160)
----------- ----------- ------------ ----------- ---------- ------------ ----------
Net unrealized
appreciation
(depreciation) $(2,317,653) $(1,392,744) $108,741,807 $26,812,621 $1,405,698 $ 40,755,290 $ 376,579
----------- ----------- ------------ ----------- ---------- ------------ ----------
----------- ----------- ------------ ----------- ---------- ------------ ----------
Tax basis cost
of investments $50,821,765 $39,021,295 $114,003,581 $18,093,731 $9,692,337 $114,675,120 $5,733,706
----------- ----------- ------------ ----------- ---------- ------------ ----------
----------- ----------- ------------ ----------- ---------- ------------ ----------
</TABLE>
4. LINE OF CREDIT --
The Fund has an available line of credit of $3,000,000. However, each
Portfolio's borrowings, by investment restriction, cannot exceed 10% of the
total net assets not including the borrowings. Interest expense incurred in
connection with such borrowings was not material during the year. Borrowings
under this arrangement bear interest approximating the then current Prime
Rate. All borrowings under this line of credit are guaranteed by Ziegler.
Each Portfolio's policies allow borrowings for temporary or emergency
purposes.
5. CAPITAL SHARE TRANSACTIONS --
(a) The Fund has authorized capital of 1,000,000,000 shares at $.001 par
value per share. The Fund's shares are divided into 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 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 Fund may be
allocated to any of the above portfolios or to new portfolios as
determined by the Board of Directors. The shares of each portfolio have
equal rights and privileges with all other shares of that portfolio.
(b) Capital share activity during the years ended December 31, 1998 and
six months ended June 30, 1999, were as follows:
<TABLE>
S&P 100 DIVIDEND SELECT PSE TECH 100 MANAGED
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX GROWTH
---------- ---------- ------- --------- ------ ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES
--------------
SHARES OUTSTANDING
AT DECEMBER 31, 1997 6,330,386 4,382,997 3,910,233 1,574,239 704,173 2,190,175 --
Shares issued 190,850 187,980 955,644 111,801 448,577 1,719,208 --
Shares issued in
distributions 290,135 159,302 102,379 100,863 124 100,656 --
Shares redeemed (870,402) (534,125) (378,892) (203,074) (221,718) (423,487) --
--------- --------- --------- --------- -------- --------- ------
SHARES OUTSTANDING
AT DECEMBER 31, 1998 5,940,969 4,196,154 4,589,364 1,583,829 931,156 3,586,552 --
Shares issued 64,487 222,184 503,160 42,409 144,973 1,581,835 529,570
Shares issued in
distributions 71,789 84,031 7,434 474 -- 42 --
Shares redeemed (508,613) (257,087) (201,176) (121,570) (174,121) (205,117) (5,343)
--------- --------- --------- --------- -------- --------- -------
SHARES OUTSTANDING
AT JUNE 30, 1999 5,568,632 4,245,282 4,898,782 1,505,142 902,008 4,963,312 524,227
--------- --------- --------- --------- -------- --------- -------
--------- --------- --------- --------- -------- --------- -------
CLASS B SHARES
--------------
SHARES OUTSTANDING
AT JULY 27, 1998 (commencement of operations) -- -- -- -- --
Shares issued 174,934 11,323 90,380 387,176 --
Shares issued in distributions 3,157 822 -- 11,012 --
Shares redeemed (2,698) -- (558) (41,545) --
------- ------ ------- --------- -------
SHARES OUTSTANDING
AT DECEMBER31, 1998 175,393 12,145 89,822 356,643 --
Shares issued 425,832 12,857 37,599 1,066,733 102,201
Shares issued in distributions -- -- -- 9 --
Shares redeemed (10,200) (1,698) (21,565) (72,473) (1,034)
------- ------ ------- --------- -------
SHARES OUTSTANDING
AT JUNE 30, 1999 591,025 23,304 105,856 1,350,912 101,167
------- ------ ------- --------- -------
------- ------ ------- --------- -------
* Amounts shown for the Managed Growth are from its commencement of operations.
</TABLE>
(c) For the S&P 100 Plus Portfolio, the Dividend Achievers Portfolio, the
Select Value Portfolio, the PSE Tech 100 Index Portfolio and the Managed
Growth Portfolio, the maximum offering price per Class A Share is
computed based on a maximum sales charge of 5.25% of the offering price
or 5.54% of the net asset value. For the purpose of this computation, the
price per share is derived from multiplying the net asset value and
redemption price per share by 100 and then dividing the product by 94.75.
For the Tax-Exempt and Government Portfolios, the maximum offering price
per share is computed based on a maximum sales charge of 3.5% of the
offering price or 3.62% of the net asset value. For these portfolios the
price per share is derived from multiplying the net asset value and
redemption price per share by 100 and then dividing the product by 96.5.
6. FUTURES CONTRACTS WRITTEN --
An analysis of the futures contracts written for the period ended June 30,
1999, in the S&P 100 Plus and PSE Tech 100 Index Portfolios, respectively,
were as follows:
NUMBER OF AGGREGATE FACE
CONTRACTS VALUE OF CONTRACTS
--------- ------------------
S&P 100 PLUS PORTFOLIO:
Outstanding at December 31, 1998 7 $ 1,826,806
Contracts opened 17 5,628,674
Contracts closed (19) (5,792,252)
--- -----------
Outstanding at June 30, 1999 5 $ 1,663,228
--- -----------
--- -----------
NUMBER OF AGGREGATE FACE
CONTRACTS VALUE OF CONTRACTS
--------- ------------------
PSE TECH 100 INDEX PORTFOLIO:
Outstanding at December 31, 1998 40 $ 1,675,695
Contracts opened 110 5,751,380
Contracts closed (90) (4,138,295)
--- -----------
Outstanding at June 30, 1999 60 $ 3,288,780
--- -----------
--- -----------
The number of financial futures contracts and the gross unrealized
appreciation, as of June 30, 1999, for each Portfolio were as follows:
NUMBER OF UNREALIZED
CONTRACTS APPRECIATION
--------- ------------
S&P 100 PLUS PORTFOLIO:
S&P 500 Index Futures Contract
expiration date September 1999 5 $ 63,898
PSE TECH 100 INDEX PORTFOLIO:
PSE Technology 100 Index Futures
Contract expiration
date September 1999 60 $341,220
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
TAX-EXEMPT PORTFOLIO
SCHEDULE OF INVESTMENTS
JUNE 30, 1999 (UNAUDITED)
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL S&P MOODY'S
AMOUNT DESCRIPTION RATING RATING VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG-TERM TAX-EXEMPT SECURITIES -- 99.0%
ALABAMA -- 2.0%
$1,000,000 The Board of Trustees of Alabama Agricultural and Mechanical AAA Aaa $ 960,000
University Revenue Bonds, Series 1998, 5.00%, due 11-01-2016
ARIZONA -- 1.8%
1,000,000 Scottsdale Preserve Authority Excise Tax Revenue Bonds, AAA Aaa 877,500
Series 1998,4.50%, due 7-2-2024
ARKANSAS -- 3.5%
1,700,000 City of Conway, Arkansas, Sales and Use Tax Capital Improvement AAA NR 1,714,875
Bonds, Series 1997A, 5.35%, due 12-01-2017
COLORADO -- 2.0%
1,000,000 City of Colorado Springs, Colorado, Revenue Bonds (The Colorado AA- Aa3 962,500
College Project) Series 1999, 5.25%, due 06-01-2024
DISTRICT OF COLUMBIA -- 2.4%
+1,175,000 District of Columbia Water and Sewer Authority Public AAA Aaa 1,195,563
<F25> Utility Revenue Bonds, 5.50%, due 10-01-2028
GEORGIA -- 1.9%
1,000,000 The Atlanta Development Authority Revenue Bonds, (Student AAA Aaa 907,500
Recreation Center Project at Georgia State University),
Series 1998, 4.750%, due 10-01-2018
ILLINOIS -- 10.7%
1,000,000 Public Building Commission of Chicago Building Revenue Bonds, AAA Aaa 1,212,500
Series A of 1990, (Board of Education of the City of Chicago),
7.00%, due 01-01-2020
1,000,000 State of Illinois Build Illinois Bonds (Sales Tax Revenue Bonds), AAA Aa2 1,127,500
Series P, 6.50%, due 06-15-2022
1,000,000 Community Unit School District #220 (Barrington) Lake, Cook, Kane AAA Aaa 1,112,500
and McHenry Counties, Illinois, General Obligation School
Bonds, Series 1998, 6.30%, due 12-01-2017
1,800,000 Metropolitan Pier and Exposition Authority (Illinois) McCormick AAA Aaa 1,811,250
Place Expansion Project Refunding Bonds, Series 1998A, 5.50%,
due 12-15-2023
INDIANA -- 7.3%
1,500,000 Indiana State Office Building Commission Capitol Complex Revenue AAA Aaa 1,839,375
Bonds, Series 1990A (Senate Avenue Parking Facility), 7.40%,
due 07-01-2015
1,500,000 The Indianapolis Local Public Improvement Bond Bank, Series 1992D AA NR 1,732,500
Bonds, 6.750%, due 02-01-2014
KANSAS -- 3.5%
1,800,000 City of Topeka, Kansas, Water and Water Pollution Control Utility NR Aaa 1,716,750
Revenue Bonds, Series 1998B, 5.05%, due 08-01-2018
LOUISIANA -- 2.0%
1,000,000 Parishwide School District of the Parish of Orleans, State of NR Aaa 957,500
Louisiana,General Obligation School Bonds, Series 1998A, 5.125%,
due 09-10-2022
MASSACHUSETTS -- 1.9%
1,000,000 City of Springfield, Massachusetts, General Obligation State AAA Aaa 950,000
Qualified Municipal Purpose Loan of 1998 Bonds, 5.00%, due 11-15-2018
MICHIGAN -- 9.4%
2,250,000 Dexter Community Schools Counties of Washtenaw and Livingston, AAA Aaa 2,196,562
State of Michigan, 1998 School Building and Site Bonds,
(Unlimited Tax General Obligation), 5.10%, due 05-01-2018
1,000,000 Board of Control of Northern Michigan University, General AAA Aaa 956,250
Revenue Bonds, Series 1997, 5.125%, due 12-01-2020
1,500,000 Standish-Sterling Community Schools, State of Michigan, AAA Aaa 1,445,625
1998 SchoolBuilding and Site Bonds, (General Obligation -
Unlimited Tax), 5.10%, due 05-01-2018
MINNESOTA -- 1.9%
1,000,000 Minnesota Public Facilities Authority Water Pollution AAA Aaa 925,000
Control Revenue Bonds, Series 1998A, 4.750%, due 03-01-2019
MISSISSIPPI -- 6.1%
1,000,000 Mississippi Business Finance Corporation Revenue Refunding Bonds, AAA Aaa 940,000
Series 1998A, (Millsap College Project), 5.00%, due 11-01-2019
1,000,000 Certificates of Participation (East Mississippi Correctional AAA Aaa 943,750
Facility Project), Series 1997, Payments under Lease/Purchase
Agreement, 5.0%, due 01-01-2018
1,130,000 Mississippi State University Educational Building Corporation NR Aaa 1,120,112
Revenue Bonds, Series 1998, 5.25%, due 08-01-2017
NEVADA -- 1.9%
1,000,000 Clark County, Nevada, General Obligation (Limited Tax) AA- Aa3 945,000
Las Vegas Convention and Visitors Authority Refunding Bonds,
Series 1998A, 5.00%, due 07-01-2024
NEW MEXICO -- 2.0%
1,000,000 Bernalillo County, New Mexico, Gross Receipts Tax Refunding AA Aa3 972,500
Revenue Bonds, Series 1998, 5.25%, due 04-01-2027
NEW YORK -- 2.7%
1,200,000 County of Monroe, New York General Obligation Bonds Public AA Aa2 1,303,500
Improvement Refunding Bonds-1996, Series A, 6.00%, due 03-01-2019
OKLAHOMA -- 2.2%
1,000,000 Tulsa Industrial Authority Revenue and Refunding Bonds, (The AAA Aaa 1,086,250
University of Tulsa), Series 1996A, 6.00%, due 10-01-2016
PENNSYLVANIA -- 6.0%
1,000,000 Delaware Valley Regional Finance Authority, (Bucks, Chester, AAA Aaa 1,048,750
Delaware and Montgomery Counties, Pennsylvania), Local Government
Revenue Bonds, 1997 Series B, 5.70%, due 07-01-2027
1,000,000 Nazareth Area School District, Northampton County, Pennsylvania, AAA Aaa 953,750
General Obligation Bonds Improvement Series of 1998, 5.00%,
due 08-15-2017
1,000,000 Public Auditorium Authority of Pittsburgh and Allegheny County, AAA Aaa 948,750
Allegheny County, Pennsylvania), Hotel Room Excise Tax Revenue
Bonds, Series of 1999, 5.00%, due 02-01-2017
SOUTH CAROLINA -- 1.9%
1,000,000 City of Spartanburg, South Carolina, Water System Refunding AAA Aaa 952,500
Revenue Bonds, Series 1997, 5.00%, due 06-01-2019
TENNESSEE -- 5.7%
1,000,000 Harpeth Valley Utilities District of Davidson and Williamson AAA Aaa 951,250
Counties,Tennessee, Utilities Improvement Revenue Bonds,
Series 1998, 5.05%, due 09-01-2020
1,000,000 Knox County, Tennessee General Obligation Public Improvement AA Aa2 920,000
Bonds, Series 1998, 4.75%, due 04-10-2018
1,000,000 City of Knoxville, Tennessee, Gas System Revenue Refunding and AA Aa3 940,000
Improvement Bonds, Series H-1998, 5.100%, due 03-01-2024
TEXAS -- 3.7%
2,000,000 Austin Independent School District, (Travis County, Texas), AAA Aaa 1,920,000
Unlimited Tax Refunding Bonds, Series 1998, 5.00%, due 08-01-2016
VIRGINIA -- 6.2%
2,000,000 Chesapeake Bay Bridge and Tunnel District, General Resolution AAA Aaa 2,050,000
Revenue Bonds, Refunding Series 1998, 5.50%, due 07-01-2025
1,000,000 Commonwealth Transportation Board, Commonwealth of Virginia, AA Aa2 963,750
Revenue Refunding Bonds, Series 1997C, (U.S. Route 58
Corridor Development Program), 5.125%, due 05-15-2019
WASHINGTON -- 3.9%
2,000,000 Washington Higher Education Facilities Authority Revenue and AAA Aaa 1,897,500
Refunding Revenue Bonds (Gonzaga University Project), Series
1998, 5.00%, due 04-01-2017
WISCONSIN -- 6.2%
1,200,000 Southeast Wisconsin Professional Baseball Park District AAA Aaa 1,219,500
Sales Tax Revenue Refunding Bonds, Series 1998A, 5.50%,
due 12-15-2020
1,000,000 School District of Waupun, Dodge and Fond du Lac Counties, NR Aaa 915,000
Wisconsin, General Obligation Refunding Bonds, 4.75%,
due 04-01-2018
1,000,000 Wisconsin State Transportation Revenue Refunding Bonds, Series B, AAA Aaa 910,000
4.75%, due 07-01-2019 ---------
Total Municipal Bonds (Cost $50,820,765) 48,503,112
SHORT-TERM TAX-EXEMPT SECURITIES -- 0.0%
MONEY MARKET
$1,000 Firstar Tax-Exempt Money Market Fund 1,000
----------
Total Investments $48,391,112
-----------
-----------
</TABLE>
*<F24> Non-income producing
+<F25> Segregated as collateral against "when issued" purchase
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
GOVERNMENT PORTFOLIO
SCHEDULE OF INVESTMENTS
JUNE 30, 1999 (UNAUDITED)
<TABLE>
- ------------------------------------------------------------------------------------------------
PRINCIPAL INTEREST MARKET
AMOUNT DESCRIPTION RATE MATURITY VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 98.0%
U.S. GOVERNMENT OBLIGATIONS -- 79.6%
$1,000,000 U.S. Treasury Note 5.750% 11-30-2002 $ 1,001,562
6,000,000 U.S. Treasury Note 11.125% 08-15-2003 7,153,122
5,875,000 U.S. Treasury Note 7.875% 11-15-2004 6,416,599
4,400,000 U.S. Treasury Bond 10.750% 08-15-2005 5,472,500
7,000,000 U.S. Treasury Note 6.250% 02-15-2007 7,133,434
3,000,000 U.S. Treasury Note 9.125% 05-15-2009 3,382,500
-----------
Total U.S. Government Obligations 30,559,717
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION POOLS -- 18.4%
345,890 Pool #407884 7.000% 09-15-2025 342,230
349,089 Pool #420853 7.000% 01-15-2026 345,395
558,715 Pool #422688 7.000% 05-15-2026 552,803
404,759 Pool #451586 7.000% 08-15-2027 400,477
1,764,487 Pool #456741 7.000% 03-15-2028 1,745,817
936,533 Pool #457779 7.000% 07-15-2028 926,623
1,838,749 Pool #22617 7.500% 07-20-2028 1,851,271
913,888 Pool #433945 7.000% 08-15-2028 904,218
----------
Total Agency Obligations 7,068,834
----------
Total U.S. Government and Agency Obligations (Cost $39,021,295) 37,628,551
----------
SHORT-TERMINVESTMENTS -- 0.4%
MONEY MARKET
$ 165,000 Firstar Government Trust 165,000
-----------
Total Short-Term Investments 165,000
-----------
Total Investments $37,793,551
-----------
-----------
</TABLE>
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
S&P100 PLUS PORTFOLIO
SCHEDULE OF INVESTMENTS
JUNE 30, 1999 (UNAUDITED)
NUMBER
OF SHARES MARKET
OR PAR VALUE VALUE
------------ ------
COMMON STOCKS -- 99.0%
BASIC INDUSTRIES -- 3.0%
Alcoa Inc. 14,500 $ 897,188
*<F26> Bethlehem Steel Corporation 4,600 35,362
Boise Cascade Corporation 1,566 67,142
Champion International 3,000 143,625
Dow Chemical Company 8,250 1,046,719
Homestake Mining Company 9,600 78,600
International Paper Company 15,600 787,800
Weyerhaeuser Company 7,400 508,750
DuPont (E.I.) de Nemours
and Company 44,500 3,039,906
------------
6,605,092
------------
CONSUMER STAPLES -- 0.4%
Campbell Soup Company 17,100 793,013
------------
793,013
------------
CONSUMER DURABLES -- 2.1%
Black & Decker Corporation 3,000 189,375
Brunswick Corporation 3,100 86,412
Ford Motor Company 47,900 2,703,356
General Motors Corporation 25,700 1,696,200
------------
4,675,343
------------
CONSUMER NONDURABLES -- 7.4%
Avon Products, Inc. 9,600 532,800
Coca-Cola Company 91,300 5,706,250
Colgate-Palmolive Company 12,300 1,214,625
Eastman Kodak Company 12,100 819,775
Heinz (H.J.) Company 13,700 686,713
International Flavors &
Fragrances Inc. 3,450 153,094
PepsiCo, Inc. 59,800 2,313,512
Polaroid Corporation 1,500 41,438
Procter & Gamble Company 53,400 4,765,950
Ralston Purina Group 12,500 380,469
------------
16,614,626
------------
CONSUMER SERVICE -- 7.5%
*<F26> CBS Corporation 28,000 1,216,250
Walt Disney Company 75,000 2,310,937
*<F26> Harrah's Entertainment, Inc. 4,750 104,500
*<F26> Kmart Corporation 19,000 312,313
Limited (The), Inc. 8,539 387,457
May Department Stores Company 13,450 549,769
McDonald's Corporation 47,200 1,949,950
Sears, Roebuck &Co. 15,500 690,719
Tandy Corporation 7,400 361,675
*<F26> Toys "R" Us, Inc. 9,725 201,186
Wal-Mart Stores, Inc. 178,900 8,631,925
------------
16,716,681
------------
CAPITAL GOODS -- 9.5%
Allegheny Teledyne Inc. 7,092 160,456
The Boeing Company 38,712 1,710,587
Fluor Corporation 2,700 109,350
General Dynamics Corporation 4,500 308,250
General Electric Company 132,300 14,949,900
Minnesota Mining &
Manufacturing Company 15,900 1,382,306
Raytheon Company, Class B Shares 12,700 893,762
Rockwell International Corporation 7,000 425,250
United Technologies Corporation 19,200 1,376,400
------------
21,316,261
------------
ENERGY -- 6.9%
+<F27> Atlantic Richfield Company 12,700 1,061,244
Baker Hughes Incorporated 12,360 414,060
Coastal Corporation 7,700 308,000
Exxon Corporation 96,900 7,473,413
Halliburton Company 17,200 778,300
Mobil Corporation 30,900 3,059,100
Occidental Petroleum Corporation 13,100 276,737
Schlumberger Limited 21,700 1,382,019
Williams Companies, Inc. 17,200 732,075
------------
15,484,948
------------
FINANCIAL -- 13.3%
American International Group, Inc. 49,396 5,782,419
American Express Company 17,600 2,290,200
American General Corporation 9,500 716,063
Bank One Corporation 47,044 2,802,058
Bank of America Corporation 69,790 5,116,479
CIGNA Corporation 8,100 720,900
Citigroup Inc. 135,625 6,442,187
Hartford Financial Services Group 8,500 495,656
Merrill Lynch &Co., Inc. 14,500 1,159,094
U.S. Bankcorp 29,000 986,000
Wells Fargo Company 76,500 3,270,375
------------
29,781,431
------------
HEALTH CARE -- 9.1%
Baxter International Inc. 11,200 679,000
Bristol-Myers Squibb Company 79,140 5,574,424
Columbia/HCA Healthcare
Corporation 22,400 511,000
Johnson &Johnson 53,800 5,272,400
Mallinckrodt, Inc. 2,400 87,300
Merck &Co., Inc. 95,300 7,052,200
Pharmacia & Upjohn, Inc. 19,760 1,122,615
------------
20,298,939
------------
TECHNOLOGY -- 31.8%
*<F26> Ceridian Corporation 4,900 160,169
*<F26> Cisco Systems, Inc. 141,450 9,123,525
Computer Sciences Corporation 5,800 401,288
*<F26> FDX Corporation 11,400 618,450
Harris Corporation 2,500 97,969
Hewlett-Packard Company 42,000 4,221,000
Honeywell Inc. 4,600 533,025
International Business Machines
Corporation 74,200 9,590,350
Intel Corporation 134,100 7,978,950
Lucent Technologies, Inc. 123,000 8,294,812
*<F26> Microsoft Corporation 212,600 19,173,863
Monsanto Company 24,800 978,050
*<F26> National Semiconductor Corporation 6,000 151,875
Nortel Networks Corp. 33,700 2,925,581
*<F26> Oracle Corporation 58,287 2,163,905
Tektronix, Inc. 1,600 48,300
Texas Instruments Inc. 17,100 2,479,500
*<F26> Unisys Corporation 10,300 401,056
Xerox Corporation 26,782 1,581,812
------------
70,923,480
------------
TRANSPORTATION -- 0.6%
Burlington Northern
Santa Fe Corporation 18,200 564,200
Delta Air Lines, Inc. 5,100 293,887
Norfolk Southern Corporation 14,400 433,800
------------
1,291,887
------------
UTILITIES -- 7.4%
AT&T Corp. 136,738 7,631,690
American Electric Power
Company, Inc. 6,900 259,181
Ameritech Corporation 43,600 3,204,600
Bell Atlantic Corporation 62,582 4,091,298
Entergy Corporation 9,400 293,750
Southern Company 27,600 731,400
Unicom Corporation 7,900 304,644
------------
16,516,563
------------
Total Common Stocks
(Cost $112,340,355) 221,018,264
------------
SHORT-TERM INVESTMENTS -- 0.6%
MONEY MARKET
Firstar Institutional Money
Market Fund 1,351,000 1,351,000
------------
Total Short-Term Investments 1,351,000
------------
Total Security Holdings $222,369,264
------------
------------
FUTURES CONTRACTS -- 0.8%
FUTURES
S&P 500 Index Future expires
September, 1999 5 1,727,125
------------
Total Futures Contracts
(cost $1,663,227) 1,727,125
------------
*<F26> Non-income producing
+<F27> Segregated as collateral against futures
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
DIVIDEND ACHIEVERS PORTFOLIO
SCHEDULE OF INVESTMENTS
JUNE 30, 1999 (UNAUDITED)
NUMBER
OF SHARES MARKET
OR PAR VALUE VALUE
------------ ------
COMMON STOCKS -- 96.2%
CONSUMER DISCRETIONARY -- 1.5%
Newell Company 15,500 $ 720,750
------------
720,750
------------
CONSUMER NONDURABLES -- 10.4%
Gillette Company 32,000 1,312,000
Kimberly-Clark Corporation 21,600 1,231,200
PepsiCo, Inc. 37,000 1,431,438
Sherwin-Williams Company 31,400 871,350
------------
4,845,988
------------
CONSUMER SERVICE -- 9.9%
Walt Disney Company 30,000 924,375
McDonald's Corporation 33,200 1,371,575
McGraw-Hill Companies, Inc. 17,000 916,937
Walgreen Company 48,000 1,410,000
------------
4,622,887
------------
CONSUMER NONCYCLICAL -- 2.3%
Becton, Dickinson & Company 36,000 1,080,000
------------
1,080,000
------------
CAPITAL GOODS -- 9.0%
Avery-Dennison Corporation 28,400 1,714,650
General Electric Company 18,000 2,034,000
Minnesota Mining &
Manufacturing Company 5,000 434,688
------------
4,183,338
------------
ENERGY -- 9.8%
Mobil Corporation 14,400 1,425,600
Royal Dutch Petroleum Company 24,000 1,446,000
Williams Companies, Inc. 40,000 1,702,500
------------
4,574,100
------------
FINANCIAL -- 13.6%
Bank One Corporation 11,000 655,187
Bank of America Corporation 22,632 1,659,209
Federal Home Loan Mortgage
Corporation 16,000 928,000
Federal National Mortgage
Association 24,000 1,641,000
Jefferson-Pilot Corporation 22,500 1,489,219
------------
6,372,615
------------
HEALTH CARE -- 10.7%
Johnson &Johnson 21,600 2,116,800
Merck & Co., Inc. 24,000 1,776,000
Pfizer,Inc. 10,000 1,097,500
------------
4,990,300
------------
INDUSTRIAL -- 3.5%
Illinois Tool Works, Inc. 20,000 1,640,000
------------
1,640,000
------------
TECHNOLOGY -- 18.3%
Automatic Data Processing, Inc. 15,600 686,400
Hewlett-Packard Company 20,000 2,010,000
Intel Corporation 32,400 1,927,800
Johnson Controls, Inc. 9,000 623,812
Nortel Networks Corp. 16,000 1,389,000
Texas Instruments Inc. 7,400 1,073,000
Xerox Corporation 14,000 826,875
------------
8,536,887
------------
UTILITIES -- 7.2%
AT&T Corp. 9,000 502,312
SBC Communications, Inc. 21,600 1,252,800
Sprint Corporation 30,000 1,584,375
------------
3,339,487
------------
Total Common Stocks
(Cost $18,093,731) 44,906,352
------------
SHORT-TERM DEBT -- 3.7%
MONEY MARKET
Firstar Institutional Money
Market Fund 1,726,000 1,726,000
------------
Total Short-Term Debt. 1,726,000
------------
Total Investments $46,632,352
------------
------------
*<F28> Non-income producing
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
SELECT VALUE PORTFOLIO
SCHEDULE OF INVESTMENTS
JUNE 30, 1999 (UNAUDITED)
NUMBER
OF SHARES MARKET
OR PAR VALUE VALUE
------------ ------
COMMON STOCKS -- 94.0%
AUTOS & TRANSPORTATION -- 5.8%
*<F29> Covenant Transport, Inc., Class A 17,200 $ 270,900
*<F29> Dura Automotive Systems, Inc. 7,900 262,675
*<F29> Mesaba Holdings, Inc. 11,800 150,450
-----------
684,025
-----------
CONSUMERS DISCRETIONARY -- 22.1%
*<F29> CEC Entertainment, Inc. 3,400 143,650
*<F29> Department 56, Inc. 6,700 180,063
*<F29> Gadzooks, Inc. 5,500 88,000
*<F29> Gildan Activeware, Inc. Class A
Subordinate Voting Shares 14,300 241,312
*<F29> Heidrick & Struggles
International, Inc. 12,000 228,000
*<F29> Kenneth Cole Productions, Inc. 7,600 211,850
Midas, Inc. 7,500 212,813
*<F29> RemedyTemp, Inc. 15,900 214,650
*<F29> Safety-Kleen Corporation 19,075 345,734
*<F29> United Stationers 9,600 211,200
Warnaco Group, Inc. 7,500 200,625
*<F29> Whitehall Jewellers, Inc. 4,200 112,087
*<F29> World Color Press, Inc. 8,100 222,750
-----------
2,612,734
-----------
CONSUMER STAPLES -- 4.8%
*<F29> Del Monte Foods Company 18,900 316,575
*<F29> International Home Foods, Inc. 13,200 243,375
-----------
559,950
-----------
ENERGY -- 2.6%
*<F29> Newfield Exploration Company 10,700 304,281
-----------
304,281
-----------
FINANCIAL -- 17.4%
ARM Financial Group, Inc. 7,600 64,600
American Capital Strategies, Ltd. 9,500 173,375
CNA Surety Corporation 8,000 122,500
Fremont General Corporation 5,500 103,813
*<F29> Gabelli Asset Management, Inc. 15,100 238,769
HCC Insurance Holdings, Inc. 7,600 172,425
Heller Financial, Inc. 8,200 228,062
Peoples Heritage Financial
Group, Inc. 12,400 233,275
Prentiss Properties Trust 10,400 244,400
Radian Group Inc. 3,300 161,081
Raymond James Financial, Inc. 7,800 186,713
*<F29> StanCorp Financial Group, Inc. 4,200 126,000
-----------
2,055,013
-----------
HEALTH CARE -- 8.4%
Arrow International, Inc. 7,100 183,712
Cooper Companies, Inc. 8,100 201,994
DENTSPLY International, Inc. 7,500 210,000
*<F29> US Oncology, Inc. 8,600 103,200
*<F29> Wesley Jessen VisionCare, Inc. 9,100 294,613
-----------
993,519
-----------
MATERIALS & PROCESSING -- 5.3%
*<F29> Ivex Packaging Corporation 17,400 382,800
Spartech Corporation 7,700 243,513
-----------
626,313
-----------
PRODUCER DURABLES -- 8.7%
Applied Power, Inc. Class A 8,600 234,887
Belden Inc. 5,200 124,475
*<F29> Kellstrom Industries, Inc. 10,200 186,150
Pentair Inc. 5,800 265,350
*<F29> TriStar Aerospace Co. 26,400 217,800
-----------
1,028,662
-----------
TECHNOLOGY -- 18.9%
*<F29> Artesyn Technologies, Inc. 11,000 244,063
*<F29> Black Box Corporation 4,800 240,600
*<F29> CACI International, Inc. 12,400 279,000
CTS Corporation 3,200 224,000
*<F29> DII Group, Inc. 7,800 291,037
*<F29> Keane, Inc. 5,200 117,650
*<F29> Metro Information Services, Inc. 6,300 104,737
National Data Corporation 4,400 188,100
*<F29> SCI Systems, Inc. 3,600 171,000
*<F29> ScanSource, Inc. 6,600 142,725
*<F29> Zebra Technologies Corporation 6,000 230,625
-----------
2,233,537
-----------
Total Common Stocks
(cost $9,692,336) 11,098,034
-----------
SHORT-TERM DEBT -- 8.8%
DEMAND NOTE -- 6.7%
American Family Financial Services,
Inc. Demand Note 400,000 400,000
Pitney Bowes Capital Corporation,
Variable Demand Note 400,000 400,000
-----------
800,000
-----------
MONEY MARKET -- 2.1%
Firstar Institutional Money
Market Fund 245,000 245,000
-----------
245,000
-----------
Total Short-Term Debt 1,045,000
-----------
Total Security Holdings $12,143,034
-----------
-----------
*<F29>Non-income producing
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
PSE TECH 100 INDEX PORTFOLIO
SCHEDULE OF INVESTMENTS
JUNE 30, 1999 (UNAUDITED)
NUMBER
OF SHARES MARKET
OR PAR VALUE VALUE
------------ ------
COMMON STOCKS -- 98.1%
BIOTECHNOLOGY --6.9%
*<F30> Amgen, Inc. 29,700 $ 1,807,988
*<F30> Biogen, Inc. 29,700 1,910,081
*<F30> Centocor, Inc. 29,700 1,384,762
*<F30> Chiron Corporation 29,700 616,275
*<F30> Immunex Corporation 29,700 3,784,894
Monsanto Company 29,700 1,171,294
------------
10,675,294
------------
CAD/CAM -- 2.3%
Autodesk, Inc. 29,700 878,006
*<F30> Evans & Sutherland Computer
Corporation 29,700 387,956
*<F30> Intergraph Corporation 29,700 230,175
*<F30> Mentor Graphics Corporation 29,700 380,531
*<F30> Synopsys, Inc. 29,700 1,639,069
------------
3,515,737
------------
DATA COMMUNICATIONS -- 12.7%
*<F30> 3Com Corporation 29,700 792,619
*<F30> Adaptec, Inc. 29,700 1,048,781
*<F30> ADC Telecommunications, Inc. 29,700 1,353,206
*<F30> Cabletron Systems, Inc. 29,700 386,100
*<F30> Cisco Systems, Inc. 29,700 1,915,650
Lucent Technologies 29,700 2,002,894
*<F30> Newbridge Networks Corporation 29,700 853,875
Nortel Networks Corporation 29,700 2,578,331
*<F30> QUALCOMM Inc. 29,700 4,261,950
Scientific - Atlanta, Inc. 29,700 1,069,200
*<F30> Standard Microsystems Corporation 29,700 224,606
Symbol Technologies, Inc. 29,700 1,095,188
*<F30> Tellabs, Inc. 29,700 2,006,606
------------
19,589,006
------------
DATA STORAGE AND PROCESSING -- 1.4%
*<F30> Quantum Corporation 29,700 716,512
*<F30> Seagate Technology, Inc. 29,700 761,063
*<F30> Storage Technology Corporation 29,700 675,675
------------
2,153,250
------------
ELECTRONIC EQUIPMENT -- 5.4%
Linear Technologies 29,700 1,997,325
*<F30> Maxim Integrated Products, Inc. 29,700 1,975,050
*<F30> Sensormatic Electronics Corporation 29,700 413,944
*<F30> Soletron Corporation 29,700 1,980,619
*<F30> Vitesse Semiconductors 29,700 2,002,894
------------
8,369,832
------------
INFORMATION PROCESSING -- 12.7%
*<F30> America Online, Inc. 29,700 3,281,850
Automatic Data Processing, Inc. 29,700 1,306,800
*<F30> Ceridian Corporation 29,700 970,819
*<F30> Computer Sciences Corporation 29,700 2,054,869
Comsat Corporation 29,700 965,250
*<F30> DST System, Inc. 29,700 1,867,387
Electronic Data Systems 29,700 1,679,906
First Data Corporation 29,700 1,453,444
*<F30> SunGard Data Systems, Inc. 29,700 1,024,650
*<F30> Yahoo!, Inc. 29,700 5,115,825
------------
19,720,800
------------
LARGE DIVERSIFIED COMPUTER
MANUFACTURING -- 3.2%
+<F31> International Business
Machines Corporation 29,700 3,838,725
*<F30> Unisys Corporation 29,700 1,156,444
------------
4,995,169
------------
MEDICAL TECHNOLOGY -- 9.8%
*<F30> Acuson Corporation 29,700 510,469
Biomet, Inc. 29,700 1,180,575
*<F30> Boston Scientific Corporation 29,700 1,304,944
*<F30> Coherent, Inc. 29,700 553,163
*<F30> Genzyme Corporation 29,700 1,440,450
Medtronic, Inc. 29,700 2,312,887
Shared Medical Systems Corporation 29,700 1,937,925
*<F30> St. Jude Medical, Inc. 29,700 1,058,063
*<F30> Uniphase Corporation 29,700 4,930,200
------------
15,228,676
------------
MICRO COMPUTER MANUFACTURERS -- 5.0%
*<F30> Apple Computer, Inc. 29,700 1,375,481
Compaq Computer Corporation 29,700 703,519
*<F30> Data General Corporation 29,700 432,506
*<F30> Dell Computer Corporation 29,700 1,098,900
*<F30> Gateway, Inc. 29,700 1,752,300
*<F30> Micron Electronics, Inc. 29,700 298,856
*<F30> Sun Microsystems, Inc. 29,700 2,045,587
------------
7,707,149
------------
MINI AND MAINFRAME COMPUTER
MANUFACTURERS -- 3.3%
*<F30> EMC Corporation 29,700 1,633,500
Hewlett-Packard Company 29,700 2,984,850
*<F30> Silicon Graphics, Inc. 29,700 486,338
------------
5,104,688
------------
OFFICE AUTOMATION EQUIPMENT -- 1.9%
Harris Corporation 29,700 1,163,869
Xerox Corporation 29,700 1,754,156
------------
2,918,025
------------
SEMICONDUCTOR CAPITAL EQUIPMENT
MANUFACTURERS -- 6.3%
*<F30> Analog Devices, Inc. 29,700 1,490,569
*<F30> Applied Materials, Inc. 29,700 2,194,087
*<F30> KLA Instruments Corporation 29,700 1,926,788
*<F30> Kulicke &Soffa Industries, Inc. 29,700 796,331
*<F30> Lam Research Corporation 29,700 1,386,619
*<F30> Novellus Systems, Inc. 29,700 2,027,025
------------
9,821,419
------------
SEMICONDUCTOR MANUFACTURERS -- 8.8%
*<F30> Advanced Micro Devices, Inc. 29,700 536,456
*<F30> Cypress Semiconductor Corporation 29,700 490,050
Intel Corporation 29,700 1,767,150
*<F30> Micron Technology, Inc. 29,700 1,197,281
Motorola, Inc. 29,700 2,814,075
*<F30> National Semiconductor Corporation 29,700 751,781
Texas Instruments Inc. 29,700 4,306,500
*<F30> Xilinx, Inc. 29,700 1,700,325
------------
13,563,618
------------
SOFTWARE PRODUCTS -- 10.9%
Adobe Systems, Inc. 29,700 2,440,039
*<F30> BMC Software, Inc. 29,700 1,603,800
*<F30> Cadence Design Systems, Inc. 29,700 378,675
Computer Associates
International, Inc. 29,700 1,633,500
*<F30> Compuware Corp. 29,700 944,831
*<F30> Informix Corporation 29,700 253,377
*<F30> Microsoft Corporation 29,700 2,678,569
*<F30> Network Associates 29,700 436,219
*<F30> Novell, Inc. 29,700 787,050
*<F30> Oracle Corporation 29,700 1,102,612
*<F30> PeopleSoft, Inc. 29,700 512,325
SAP AG 29,700 1,028,363
*<F30> Siebel Systems, Inc. 29,700 1,971,337
*<F30> Sybase, Inc. 29,700 326,700
*<F30> Symantec Corporation 29,700 757,350
------------
16,854,747
------------
TEST, ANALYSIS, AND INSTRUMENTATION
EQUIPMENT -- 7.5%
Honeywell Inc. 29,700 3,441,488
Millipore Corporation 29,700 1,204,706
PE Biosystems Group 29,700 3,408,075
Tektronix, Inc. 29,700 896,569
*<F30> Teradyne, Inc. 29,700 2,130,975
*<F30> Thermo Instrument Systems, Inc. 29,700 501,187
------------
11,583,000
------------
Total Common Stocks
(Cost $111,386,340) 151,800,410
------------
SHORT-TERM INVESTMENTS -- 2.2%
MONEY MARKET
Firstar Institutional Money
Market Fund 3,460,000 3,460,000
------------
Total Short-Term Investments 3,460,000
------------
TOTAL INVESTMENTS $155,260,410
------------
------------
FUTURES CONTRACTS -- 2.3%
FUTURES
PSE Technology 100 Index,
expiring September, 1999 60 3,630,000
------------
Total Futures Contracts
(Cost $3,288,780) 3,630,000
------------
*<F30> Non-income producing
+<F31> Segregated as collateral against futures
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
MANAGED GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS
JUNE 30, 1999 (UNAUDITED)
NUMBER MARKET
OF SHARES VALUE
------------ ------
COMMON STOCKS -- 96.6%
BASIC INDUSTRIES --4.9%
Cintas Corporation 1,860 $ 124,969
*<F32> Dionex Corporation 3,010 121,905
Ingersoll-Rand Company 1,000 64,625
----------
311,499
----------
CONSUMERS DISCRETIONARY -- 2.5%
Newell Rubbermaid, Inc. 3,475 161,588
----------
161,588
----------
CONSUMER DURABLES -- 5.0%
Harley-Davidson, Inc. 2,850 154,969
Regal-Beloit Corporation 2,810 66,386
Snap-on Incorporated 2,570 93,002
----------
314,357
----------
CONSUMER NONDURABLES -- 2.2%
Valspar Corporation 3,700 140,600
----------
140,600
----------
CONSUMER SERVICE -- 30.5%
Central Parking Corporation 3,020 103,435
Ecolab Inc. 3,630 158,359
Fastenal Company 2,970 155,739
Hannaford Bros. Co. 1,000 53,500
The Home Depot, Inc. 2,640 170,115
*<F32> Interim Services Inc. 5,515 113,747
*<F32> Kohl's Corporation 2,590 199,916
*<F32> O'Reilly Automotive, Inc. 3,850 193,944
Omnicom Group Inc. 2,410 192,800
Paychex, Inc. 3,825 121,922
*<F32> Staples, Inc. 4,510 139,528
*<F32> Starbucks Corporation 4,890 183,680
Walgreen Co. 4,800 141,000
----------
1,927,685
----------
EDUCATION -- 1.0%
*<F32> DeVry, Inc. 2,700 60,412
----------
60,412
----------
FINANCIAL -- 9.9%
*<F32> Concord EFS, Inc. 4,540 192,099
Fifth Third Bancorp 2,330 155,091
MBIA, Inc. 1,760 113,960
Marshall & Ilsley Corporation 2,540 163,512
----------
624,662
----------
HEALTH CARE -- 4.5%
Cardinal Health, Inc. 2,150 137,869
*<F32> Patterson Dental Company 4,320 150,120
----------
287,989
----------
PRODUCER DURABLES -- 1.5%
Kaydon Corporation 2,860 96,167
----------
96,167
----------
TECHNOLOGY -- 29.3%
*<F32> Acxiom Corporation 5,740 143,141
*<F32> Biogen, Inc. 2,890 185,863
*<F32> Cisco Systems, Inc. 2,640 170,280
*<F32> Citrix Systems, Inc. 3,100 175,150
*<F32> Comverse Technology, Inc. 2,645 199,698
*<F32> Electronic Arts Inc. 1,900 103,075
*<F32> Fiserv, Inc. 4,840 151,552
Intel Corporation 2,200 130,900
*<F32> Keane, Inc. 2,460 55,658
*<F32> Legato Systems, Inc. 2,257 130,342
*<F32> Metro Information Services, Inc. 3,332 55,394
*<F32> Microsoft Corporation 1,510 136,183
*<F32> SunGard Data Systems, Inc. 4,190 144,555
*<F32> Zebra Technologies Corporation 1,800 69,188
----------
1,850,979
----------
TRANSPORTATION -- 5.3%
*<F32> Knight Transportation, Inc. 5,180 110,722
*<F32> Midwest Express Holdings, Inc. 2,000 68,000
Southwest Airlines Co. 5,000 155,625
----------
334,347
----------
Total Common Stocks
(Cost $5,733,706) 6,110,285
----------
SHORT-TERM DEBT -- 1.7%
MONEY MARKET
Firstar Institutional Money
Market Fund 108,000 108,000
----------
108,000
----------
Total Short-Term Debt 108,000
----------
Total Investments $6,218,285
----------
----------
*<F32> Non-income producing
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
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
James Brendemuehl, Senior Vice President of Sales
John Lauderdale, Senior Vice President of Marketing
Kathleen Cain, Secretary
INVESTMENT ADVISORS
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
Ziegler Asset Management, Inc.
(Sub-Advisor to S&P 100 Plus, Dividend Achievers and
PSE Tech 100 Index Portfolios)
215 North Main Street
West Bend, Wisconsin 53095
Skyline Asset Management, L.P.
(Sub-Advisor to Select Value Portfolio)
311 South Wacker Drive, Suite 4500
Chicago, Illinois 60606
Geneva Capital Management,Ltd.
(Sub-Advisor to Managed Growth Portfolio)
250 East Wisconsin Avenue
Suite 1050
Milwaukee, Wisconsin 53202
DISTRIBUTOR, TRANSFER AND DIVIDEND
DISBURSING AGENT, ACCOUNTING/PRICING AGENT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
CUSTODIAN
Firstar Bank Milwaukee, N.A.
615 East Michigan Street
Milwaukee, Wisconsin 53202
COUNSEL
Quarles &Brady LLP
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
AUDITOR
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
"Standard & Poor's," "Standard & Poor's 100," "S&P," "100" are trademarks of
Standard & Poor's Corporation and have been licensed for use by B.C. Ziegler and
Company.
PSE is the service mark of the Pacific Stock Exchange Incorporated and has been
licensed for use by B.C. Ziegler and Company.
This report was prepared for the information of shareholders of Principal
Preservation Portfolios, Inc., and may not be used in connection with the
offering of securities unless preceded or accompanied by a current Prospectus.
PP 344-8/99
