As filed with the Securities and Exchange Commission on February 12, 1999
1933 Act Registration No. 33-12
1940 Act File No. 811-4401
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 x
Post-Effective Amendment No. 48
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 x
Amendment No. 50
--
(Check appropriate box or boxes)
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
(Exact name of registrant as specified in charter)
215 NORTH MAIN STREET
WEST BEND, WISCONSIN 53095
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (414) 334-5521
ROBERT J. TUSZYNSKI
President and Director
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 NORTH MAIN STREET
WEST BEND, WISCONSIN 53095
(Name and Address of Agent for Service)
Copy to:
CONRAD G. GOODKIND, ESQ.
Quarles & Brady LLP
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Approximate Date of Proposed Public Offerings: As soon as practicable
following the effective date of this amendment to the registration statement.
It is proposed that this filing will become effective
--- immediately upon filing pursuant to paragraph (b)
--- on (Date) pursuant to paragraph (b)
--- 60 days after filing pursuant to paragraph (a)(1)
-X- on May 1, 1999 pursuant to paragraph (a)(1)
--- 75 days after filing pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following:
--- this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
This Prospectus has information you should know before you decide to
invest. Please read it carefully and keep it with your investment records.
There is a Table of Contents on the next page which allows you to quickly find
information about investment risks and strategies, Portfolio managers, buying
and selling shares and other information about the Portfolios.
Principal Preservation Portfolios, Inc. ("Principal Preservation") is a
family of mutual funds contained within a single investment company organized in
1984 as a Maryland corporation. This Prospectus describes Class A shares for
all seven of the mutual funds (the "Portfolios") of Principal Preservation
listed below, and also describes Class B shares for the stock Portfolios.
Class B shares presently are not available for the bond Portfolios:
BOND PORTFOLIOS:
- ---------------
TAX-EXEMPT PORTFOLIO
GOVERNMENT PORTFOLIO
STOCK PORTFOLIOS:
- -----------------
S&P 100 PLUS PORTFOLIO
DIVIDEND ACHIEVERS PORTFOLIO
SELECT VALUE PORTFOLIO
PSE TECH 100 INDEX PORTFOLIO
MANAGED GROWTH PORTFOLIO
B.C. Ziegler and Company ("Ziegler") serves as investment advisor to all
of the Portfolios. Ziegler and Principal Preservation have retained sub-
advisors to manage the day-to-day selection of each of the stock Portfolio's
investments. Ziegler's affiliate, Ziegler Asset Management, Inc., is the
sub-advisor for the S&P 100 Plus, Dividend Achievers and PSE Tech 100 Index
Portfolios. Skyline Asset Management, L.P. is the sub-advisor for the Select
Value Portfolio, and Geneva Capital Management Ltd. is the sub-advisor for the
Managed Growth Portfolio. We sometimes refer to Ziegler and/or any or all of
the sub-advisors together as the "Advisors" or individually as an or the
"Advisor."
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. IF
ANYONE TELLS YOU OTHERWISE THEY ARE COMMITTING A CRIME.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1999.
QUICK REFERENCE
RISK/RETURN INFORMATION:
Investment objectives and risks associated
with the Portfolios page
Specific investment objectives, strategies, risks,
expenses and performance information for:
Tax-Exempt Portfolio pages
Government Portfolio pages
S&P 100 Plus Portfolio pages
Dividend Achievers Portfolio pages
Select Value Portfolio pages
PSE Tech 100 Index Portfolio pages
Managed Growth Portfolio pages
Additional risks associated with investment securities
purchased by the Portfolios pages
ACCOUNT INFORMATION, SHAREHOLDER SERVICES AND HOW TO BUY OR SELL SHARES:
How to buy Portfolio shares (including sales
charges and combined purchase programs) pages
How to redeem Portfolio shares pages
How to exchange between Portfolios pages
How to begin an automatic investment plan pages
How to begin an automatic withdrawal plan pages
IRA and other retirement plan programs pages
PRINCIPAL PRESERVATION PORTFOLIOS' MANAGEMENT:
Investment Advisor page
Sub-Advisors page
Portfolio Managers page
RISK/RETURN INFORMATION; INVESTMENT OBJECTIVES AND STRATEGIES
THE PORTFOLIOS
Principal Preservation offers investors nine distinct mutual funds
choices. This prospectus describes the seven Portfolios described below. Two
additional mutual funds of Principal Preservation, the Cash Reserve Portfolio
and the Wisconsin Tax-Exempt Portfolio, are offered by separate prospectuses
that can be obtained by calling Ziegler.
<TABLE>
PORTFOLIO INVESTMENT OBJECTIVES(1)<F1> PRIMARY INVESTMENTS
- --------- ----------------------- -------------------
<S> <C> <C>
Tax-Exempt Portfolio Highest total return, High quality municipal bonds
consistent with
preservation of principal
Government Portfolio Highest total return, Bonds and notes issued by the U.S. Treasury, or which are
consistent with preservation backed by the unconditional full faith and credit of the
of principal United States Government, its agencies or instrumentalities
S&P 100 Plus Portfolio Total return from dividends and A portfolio of common stocks that approximately parallels the
capital gains which, before composition of the S&P 100 Index
operating expenses, exceeds the
total return of the S&P 100 Index
Dividend Achievers Portfolio Capital growth and current income Common stocks of companies that have achieved a superior record of
dividend growth
Select Value Portfolio Long-term capital growth Common stocks of smaller to medium-sized companies that the
Advisors consider to be undervalued relative to earnings, book
value or potential earnings growth
PSE Tech 100 Index Portfolio Total return, before operating The common stocks of all 100 companies included in the PSE
expenses, that replicates total Technology Index in approximately the same proportions as those
return of PSE Technology Index. stocks are represented on the Index
Managed Growth Portfolio Long-term capital ap preciation Publicly traded common stocks selected based upon their growth
characteristics
- -----------------------
</TABLE>
(1)<F1> There can be no assurance that any of the Portfolios will achieve its
objective.
GENERAL RISKS
Certain securities in which the Portfolios invest and strategies in which
they engage involve special considerations and risks. The table below describes
some of the general risks associated with bonds and common stocks in which the
Portfolios commonly invest.
<TABLE>
BONDS COMMON STOCKS
- ----- -------------
<C> <C>
Interest Rate Risk - The value of bonds typically moves Market Risk - Common stock prices overall will rise and fall over short
in the opposite direction of interest rates. Bonds of and even extended periods. The stock markets tend to move in cycles,
longer maturities are affected to a greater degree by and a Portfolio's net asset value will fluctuate with these market
changes in interest rates than bonds of shorter maturities. changes.
Credit Risk - The creditworthiness of issuers of bonds Objective Risk - Objective risk is the risk that a Portfolio's common
could deteriorate because of:(1) general economic stocks may not fluctuate in the same manner as the stock markets.
conditions; (2) developments affecting the industry in This is because each of the stock Portfolios selects common stocks
which the borrower of the bond proceeds operates; or (3) using defined objectives and policies. A Portfolio may focus on one or
developments affecting the borrower uniquely. Such a more of the following characteristics when selecting common stocks:
deterioration causes a higher risk of default on interest (1) companies of specified sizes; (2) companies included on certain
and principal payments, and likely would cause the stock indices; (3) companies in certain industries or market sectors;
Portfolio's bonds to decline in value. or (4) companies meeting other specified criteria. Because of this
selection process, a Portfolio may hold common stocks that are not
representative of the overall market.
</TABLE>
Other risks specific to each Portfolio are discussed in the following
information about the individual Portfolios. Risks associated with special
investment strategies and techniques used by some of the Portfolios are
discussed below under the subheading "Additional Investment Practices and
Risks."
Money you invest in the Portfolios is not a deposit of a bank. Your
investment is not insured or guaranteed by the Federal Deposit Insurance
Corporation (FDIC) or any other governmental agency. By investing in the
Portfolios, you assume risk, and you could lose money.
COSTS
Costs are an important consideration in choosing a mutual fund. That's
because you, as a shareholder, pay the costs of operating a fund, plus any
transaction costs associated with buying, selling, or exchanging shares.
Shareholder transaction expenses are charges you pay when you buy, sell or
exchange shares. In the case of purchases and exchanges, shareholder
transaction expenses reduce the amount of your payment that is invested in
shares of the mutual fund. In the case of sales, shareholder transaction
expenses reduce the amount of the sale proceeds returned to you.
Annual fund operating expenses, on the other hand, are expenses that a
mutual fund pays to conduct its business, including investment advisory fees and
the costs of maintaining shareholder accounts, administering the fund, providing
shareholder services, and other activities of the mutual fund. Annual fund
operating expenses are deducted from a mutual fund's assets, and therefore
reduce its total return.
TAX-EXEMPT PORTFOLIO
INVESTMENT OBJECTIVE. The Portfolio seeks to provide the highest total
return, consistent with preserving principal, by investing in high quality
municipal bonds.
INVESTMENT STRATEGY AND PROGRAM. Under normal market conditions, the
Portfolio invests at least 90% of its total assets in tax-exempt municipal
securities. This investment policy is fundamental, which means it cannot be
changed unless a majority of the Portfolio's shareholders vote to do so. The
Portfolio will invest primarily in municipal securities rated at the time of
purchase in an "A" category or higher by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Services ("S&P"), or Fitch Investors
Service, Inc. For a description of such ratings, see the Statement of
Additional Information.
INVESTMENT RISKS. In addition to interest rate risk and credit risk, this
Portfolio is subject to the risk of changes in tax rates. Changes in federal
income tax rates may affect the net asset value of the Portfolio and may reduce
the benefit of tax-exempt interest to you.
PERFORMANCE INFORMATION. The bar chart and table below provide you with
information regarding the Portfolio's annual return. You should bear in mind
that past performance is not an indication of future results.
The bar chart demonstrates the variability of the annual total returns of
the Portfolio's Class A shares for the past ten calendar years. Front end sales
loads that you pay when you purchase Class A shares of the Portfolio are not
reflected in the bar chart. If those sales loads were reflected, the returns
shown in the bar chart would be lower. Also, the Advisor reimbursed expenses
and/or waived fees that the Portfolio otherwise would have paid for certain of
the years presented. If the Advisor had not taken those actions, the returns
for the relevant years would have been lower.
TAX-EXEMPT PORTFOLIO
Year Average Annual Total Return* <F2>
1989 9.20%
1990 6.20%
1991 10.00%
1992 8.60%
1993 14.30%
1994 -6.40%
1995 18.10%
1996 3.80%
1997 9.40%
1998
- -----------------------------
*<F2> As a percent of Average Net Assets
The Portfolio's highest and lowest quarterly returns during the periods
presented in the bar chart were:
Highest: % ( quarter of 19 )
Lowest: % ( quarter of 19 )
The following table compares the average annual return on Class A shares
of the Portfolio with that of a broad measure of market performance over the
periods indicated [MAY ALSO INCLUDE YIELD AND TAX-EQUIVALENT YIELD CALCULATED
UNDER ITEM 21, IF INVESTORS ARE PROVIDED A TOLL-FREE (OR COLLECT) TELEPHONE
NUMBER TO USE FOR OBTAINING CURRENT YIELD INFORMATION].
AVERAGE ANNUAL TOTAL
RETURN (FOR THE PERIODS
ENDING DECEMBER 31, 1998) PAST ONE YEAR PAST FIVE YEARS PAST TEN YEARS
- ------------------------ ------------- -------------- --------------
Lehman 20-Year Municipal
Bond Index*<F3>
Tax-Exempt Portfolio
- -----------------------------
*<F3> The Lehman 20-Year Municipal Bond Index is a broad based index containing
over 22,000 issues with maturities ranging from two to thirty years. The
bonds included in the Index were issued in offerings of $50 million or more
completed within the past five years. The average quality rating of
municipal bonds included in the Index is "AA."
FEES AND EXPENSES. The following table describes the fees and expenses
that you may pay if you buy, hold, sell or exchange Class A shares of the
Portfolio.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A
SHARES
--------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) (1)<F4> 3.5%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
Contingent Deferred Sales Charge (Load) None
Redemption Fees ($12.00 for each wire redemption) None
Exchange Fee $5.00
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO
ASSETS)(2)<F5>
CLASS A
SHARES
--------
Management Fees
Distribution (12b-1) Fees
Other Expenses:
Custodian Fees
Transfer Agent Fees
Other Fees
Total Other Expenses
Annual Fund Operating Expenses
- -----------------------------
(1)<F4> To determine if you qualify for a lower sales charge, see "Purchasing
Shares" and "Shareholder Services."
(2)<F5> The percentages expressing annual operating expenses are based on
amounts actually incurred during the year ended December 31, 1998.
[ANY REIMBURSEMENT TO DESCRIBE?]
The following example is intended to help you compare the cost of
investing in the Portfolio with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. The example if for
comparison purposes only. Actual returns and costs may be higher or lower.
AFTER 1 YEAR AFTER 3 YEARS AFTER 5 YEARS AFTER 10 YEARS
- ------------ ------------- ------------- --------------
$ $ $ $
If you wish to review historical financial information about the
Portfolio, please refer to the section of this Prospectus captioned "Financial
Highlights."
GOVERNMENT PORTFOLIO
INVESTMENT OBJECTIVE. The Government Portfolio seeks to obtain the
highest total return, consistent with preserving principal, by investing in a
portfolio of instruments and obligations issued by the U.S. Treasury or which
are backed by the unconditional full faith and credit of the United States
government, its agencies or instrumentalities ("U.S. Government Securities").
INVESTMENT STRATEGY AND PROGRAM. Under normal market conditions, the
Portfolio will have at least 65% of its total assets invested in U.S.
Government Securities. These securities are issued with original
maturities of from a few days to 30 years or more, and have varying coupon
rates. Although the Portfolio is not limited as to the average maturity of
its bonds, the Advisor believes that an average maturity of five to ten years
is most consistent with the Portfolio's investment objective, and intends to
maintain the Portfolio's average maturity in this range unless and until
market conditions warrant a change.
INVESTMENT RISKS. The Portfolio is subject to interest rate risk. Because
the Portfolio's investments are concentrated in U.S. Government Securities,
credit risk is not a significant consideration for this Portfolio.
PERFORMANCE INFORMATION. The bar chart and table below provide you with
information regarding the Portfolio's annual return. You should bear in mind
that past performance is not an indication of future results.
The bar chart demonstrates the variability of the annual total returns of
the Portfolio's Class A shares for the past ten calendar years. Front end sales
loads that you pay when you purchase Class A shares of the Portfolio are not
reflected in the bar chart. If those sales loads were reflected, the returns
shown in the bar chart would be lower. Also, the Advisor reimbursed expenses
and/or waived fees that the Portfolio otherwise would have paid for certain of
the years presented. If the Advisor had not taken those actions, the returns
for the relevant years would have been lower.
GOVERNMENT PORTFOLIO
Year Average Annual Total Return*<F6>
1989 11.50%
1990 8.70%
1991 15.10%
1992 6.80%
1993 10.30%
1994 -5.40%
1995 16.30%
1996 2.30%
1997 8.10%
1998
- --------------------------------
*<F6>a percent of Average Net Assets
The Portfolio's highest and lowest quarterly returns during the periods
presented in the bar chart were:
Highest: % ( quarter of 19 )
Lowest: % ( quarter of 19 )
The following table compares the average annual return on Class A shares
of the Portfolio with that of a broad measure of market performance over the
periods indicated.
AVERAGE ANNUAL TOTAL
RETURN (FOR THE PERIODS
ENDING DECEMBER 31, 1998) PAST ONE YEAR PAST FIVE YEARS PAST TEN YEARS
- ------------------------ ------------- -------------- --------------
Lehman Intermediate
Government Bond Index*<F7>
Government Portfolio
- -----------------------
*<F7> The Lehman Intermediate Government Bond Index represents a total return
of U.S. Government bonds with maturities ranging from 2 to 10 years.
The average duration of the underlying Index is approximately four
years.
FEES AND EXPENSES. The following table describes the fees and expenses
that you may pay if you buy, hold, sell or exchange Class A shares of the
Portfolio.
SHAREHOLDER FEES EXPENSES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A
SHARES
-------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) (1)<F8> 3.5%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
Contingent Deferred Sales Charge (Load) None
Redemption Fees ($12.00 for each wire redemption) None
Exchange Fee $5.00
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO
ASSETS)(2)<F9>
CLASS A
SHARES
-------
Management Fees
Distribution (12b-1) Fees
Other Expenses:
Custodian Fees
Transfer Agent Fees
Other Fees
Total Other Expenses
Annual Fund Operating Expenses
- ----------------------
(1)<F8> To determine if you qualify for a lower sales charge, see "Purchasing
Shares" and "Shareholder Services"
(2)<F9> The percentages expressing annual operating expenses are based on
amounts actually incurred during the year ended December 31, 1998. [ANY
REIMBURSEMENT TO DESCRIBE?]
The following example is intended to help you compare the cost of
investing in the Portfolio with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Portfolio for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that the Portfolio's operating expenses remain the same. The example if for
comparison purposes only. Actual returns and costs may be higher or lower.
AFTER 1 YEAR AFTER 3 YEARS AFTER 5 YEARS AFTER 10 YEARS
- ------------ ------------- ------------- --------------
$ $ $ $
If you wish to review historical financial information about the
Portfolio, please refer to the section of this Prospectus captioned "Financial
Highlights."
S&P 100 PLUS PORTFOLIO
INVESTMENT OBJECTIVE. The S&P 100 Plus Portfolio seeks to obtain a total
return from dividends and capital gains which, before deducting the Portfolio's
operating expenses, exceeds the total return of the S&P 100 Index. The
Portfolio attempts to achieve its objective by investing in a portfolio of
common stocks that approximately parallels the composition of the S&P 100 Index,
but it does not intend to replicate the Index at all times.
S&P 100 INDEX. The S&P 100 Index is designed to be representative of the
stock market as a whole. It consists of 100 of the common stocks from the S&P
500 Index selected to closely track the S&P 500 Index, which in turn is designed
to represent the stock markets as a whole. The corporations whose stocks are
included in the S&P100 Index are some of the largest U.S. companies based on
market capitalization. These companies span a broad spectrum of industries.
INVESTMENT STRATEGY AND PROGRAM. The S&P 100 Plus Portfolio invests in
the common stocks which make up the S&P 100 Index, in approximately the same
proportion as they are held in the Index. Whenever the Advisor receives
notification of a change in the composition of the Index, the Advisor will make
a corresponding change in the composition of the Portfolio as soon as
practicable. At times, the Advisor may underweight or overweight the
Portfolio's investments in certain stocks that it believes will under perform or
outperform the Index. The Advisor will limit these overweighting/underweighting
strategies to not more than 10% of the Portfolio's total assets. Under normal
market conditions, at least 65% of this Portfolio's total assets will be
invested in the common stocks which make up the Index.
At times, the Portfolio will hold uncommitted cash, which will be invested
in short-term, money market instruments. In order to achieve a return on such
uncommitted cash which approximates the investment performance of the S&P 100
Index, the Advisor may elect to invest such cash in exchange-traded futures
contracts and options on the S&P 500 Index and/or the S&P 100 Index. This
practice is commonly referred to as "equitizing cash." For a discussion of
these options and futures instruments and the risks associated with their use by
the Portfolios, see "Additional Investment Practices and Risks - Options and
Futures Activities."
INVESTMENT RISKS
Market and Objective Risks. The Portfolio is subject to market risk. The
objective risk is that large capitalization stocks included in the S&P 100
Plus Index may trail returns from the overall stock market for short or
extended periods.
Overweighting/Underweighting Strategies. Overweighting/underweighting
strategies involve the risk that the Advisor will incorrectly identify those
stocks that will either under perform or outperform the Index. If the Advisor's
judgment proves correct, the Portfolio's performance will improve relative to
the S&P 100 Index. Conversely, if the Advisor's judgment proves incorrect, the
Portfolio's performance will decline relative to the Index.
Imperfect Correlation. The Portfolio's performance will not precisely
track that of the S&P 100 Plus Portfolio. In addition to the effects of the
Advisor's overweighting/ underweighting strategies, instruments used by the
Advisor to equitize cash may not perform the same as the Index. Unlike the
Index, the Portfolio incurs transaction costs (e.g., brokerage commissions,
etc.) in order to maintain a portfolio of securities that closely mirrors
the composition of the Index, and also incurs other fees and operating
expenses.
PERFORMANCE INFORMATION. The bar chart and table below provide you with
information regarding the Portfolio's annual return. You should bear in mind
that past performance is not an indication of future results.
The bar chart demonstrates the variability of the annual total returns of
the Portfolio's Class A shares for the past ten calendar years. Front end sales
loads that you pay when you purchase Class A shares of the Portfolio are not
reflected in the bar chart. If those sales loads were reflected, the returns
shown in the bar chart would be lower. Also, the Advisor reimbursed expenses
and/or waived fees that the Portfolio otherwise would have paid for certain of
the years presented. If the Advisor had not taken those actions, the returns
for the relevant years would have been lower.
S&P 100 PLUS PORTFOLIO
Year Average Annual Total Return*<F10>
1989 24.30%
1990 -3.20%
1991 27.80%
1992 5.20%
1993 9.70%
1994 1.10%
1995 36.70%
1996 22.40%
1997 26.80%
1998
- ------------------------------
*<F10> As a percent of Average Net Assets
The Portfolio's highest and lowest quarterly returns during the periods
presented in the bar chart were:
Highest: % ( quarter of 19 )
Lowest: % ( quarter of 19 )
The following table compares the average annual return on Class A shares
of the Portfolio with that of a broad measure of market performance over the
periods indicated. We have not included any total return information in the
table for the Portfolio's Class B shares, because those shares have been
available for less than one year.
AVERAGE ANNUAL TOTAL
RETURN (FOR THE PERIODS
ENDING DECEMBER 31, 1998) PAST ONE YEAR PAST FIVE YEARS PAST TEN YEARS
- ------------------------ ------------- --------------- --------------
S&P 100 Index*<F11>
S&P 100 Plus Portfolio
*<F11> The S&P 100 Index is a broad based stock index comprised of 100 common
stocks of some of the largest U.S. companies based on market
capitalization. The Index is constructed to closely track the S&P 500
Index, which in turn is designed to be representative of the stock
market as a whole.
FEES AND EXPENSES. The following table describes the fees and expenses
that you may pay if you buy, hold, sell or exchange Class A or Class B shares
of the Portfolio.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A SHARES CLASS B SHARES
-------------- ---------------
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of
offering price)(1)<F12> 5.25% None
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends None None
Contingent Deferred Sales Charge
(Load) (as a percentage of original
purchase price or redemption proceeds,
whichever is less)(2)<F13> None 5.00%
Redemption Fees ($12.00 charge
for each wire redemption) None None
Exchange Fee $5.00 $5.00
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM
PORTFOLIO ASSETS)(3)<F14> CLASS A SHARES CLASS B SHARES
-------------- ---------------
Management Fees
Distribution (12b-1) Fees
Other Expenses
Custodian Fees
Transfer Agent Fees
Other Fees
Total Other Expenses
Annual Fund Operating Expenses
- ----------------------
(1)<F12>You may qualify for a lower front-end sales charge on your purchases of
Class A shares. See "Purchasing Shares" and "Shareholder Services."
(2)<F13>The contingent deferred sales charge is reduced for each year that you
hold Class B shares and is eliminated after six years. See "Purchasing
Shares" and "Shareholder Services."
(3)<F14>The percentages expressing annual operating expenses are based on
amounts actually incurred during the year ended December 31, 1998.
[ANY REIMBURSEMENT TO DESCRIBE?]
The following example is intended to help you compare the cost of
investing in the Portfolio with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Portfolio for the time
periods indicated, and then redeem all of your shares at the end of those
periods (other than the last column, which assumes you do not redeem your Class
B Shares). The example also assumes that your investment has a 5% return each
year, and that the Portfolio's operating expenses remain the same. The example
is for comparison purposes only. Actual returns and costs may be higher or
lower.
CLASS B SHARES*<F15> CLASS B SHARES*<F15>
CLASS A SHARES (WITH REDEMPTION) (WITHOUT REDEMPTION)
-------------- ------------------ --------------------
After 1 Year
After 3 Years
After 5 Years
After 10 Years
- ---------------------
*<F15> Class B shares automatically convert to Class A shares after eight
years.
If you wish to review historical financial information about the
Portfolio, please refer to the section of this Prospectus captioned "Financial
Highlights."
DIVIDEND ACHIEVERS PORTFOLIO
INVESTMENT OBJECTIVE. The Dividend Achievers Portfolio seeks to obtain
capital appreciation and income by investing in a portfolio of common stocks of
companies that have achieved a superior record of dividend growth.
INVESTMENT STRATEGY AND PROGRAM. The Portfolio invests primarily in
common stocks of companies which: (a) have market capitalizations in excess of
$2 billion; (b) have increased their payment of cash dividends annually for at
least four of the past five calendar years; and (c) have a five-year average
dividend growth rate which exceeds that of the S&P 500 Index by at least 20%.
As of December 31, 1998, approximately companies traded on the New York or
American Stock Exchange or listed on the Nasdaq Stock Market met these criteria.
Such companies typically have strong balance sheets. In addition to providing
an income stream from dividend payments, the Advisor believes that the market
values of these stocks will increase over time, because anticipated future
dividend growth typically is reflected in increased market prices.
INVESTMENT RISKS
Market and Objective Risks. The Portfolio is subject to market risk. The
objective risk is that the returns from mid to large capitalization stocks, and
those within the Portfolio's universe, may trail returns as compared to the
overall stock market.
Stock Selection Risk. The Portfolio will not hold all of the stocks that
meet its investment criteria. Rather, the Advisor will select from that
universe the stocks that it believes will best help the Portfolio to reach its
objective. Accordingly, the Portfolio's performance may be better or worse than
the performance of the universe of stocks.
PERFORMANCE INFORMATION. The bar chart and table below provide you with
information regarding the Portfolio's annual return. You should bear in mind
that past performance is not an indication of future results.
The bar chart demonstrates the variability of the annual total returns of
the Portfolio's Class A shares for the past ten calendar years. Front end sales
loads that you pay when you purchase Class A shares of the Portfolio are not
reflected in the bar chart. If those sales loads were reflected, the returns
shown in the bar chart would be lower. Also, the Advisor reimbursed expenses
and/or waived fees that the Portfolio otherwise would have paid for certain of
the years presented. If the Advisor had not taken those actions, the returns
for the relevant years would have been lower.
DIVIDEND ACHIEVERS PORTFOLIO
Year Annual Average Total Return*<F16>
1989 19.50%
1990 1.00%
1991 38.50%
1992 3.10%
1993 -5.00%
1994 1.20%
1995 31.70%
1996 21.80%
1997 27.90%
1998
- -------------------------------
*<F16> As a percent of Average Net Assets
The Portfolio's highest and lowest quarterly returns during the periods
presented in the bar chart were:
Highest: % ( quarter of 19 )
Lowest: % ( quarter of 19 )
The following table compares the average annual return on Class A shares
of the Portfolio with that of a broad measure of market performance over the
periods indicated. We have not included any total return information in the
table for the Portfolio's Class B shares, because those shares have been
available for less than one year.
AVERAGE ANNUAL TOTAL
RETURN (FOR THE PERIODS
ENDING DECEMBER 31, 1998) PAST ONE YEAR PAST FIVE YEARS PAST TEN YEARS
- ------------------------ ------------- --------------- ---------------
S&P 500 Index*<F17>
Dividend Achievers Portfolio
- -----------------------
*<F17> The S&P 500 Index is an unmanaged index of 500 U.S. stocks chosen for
market size, liquidity and industry group representation, and is a
widely used benchmark of U.S. equity performance.
FEES AND EXPENSES. The following table describes the fees and expenses
that you may pay if you buy, hold, sell or exchange Class A or Class B shares
of the Portfolio.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A SHARES CLASS B SHARES
-------------- ---------------
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage
of offering price)(1)<F18> 5.25% None
Maximum Sales Charge (Load") Imposed
on Reinvested Dividends None None
Contingent Deferred Sales Charge
(Load) (as a percentage of original
purchase price or redemption proceeds,
whichever is less)(2)<F19> None 5.00%
Redemption Fees ($12.00 charge
for each wire redemption) None None
Exchange Fee $5.00 $5.00
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED
FROM PORTFOLIO ASSETS)(3)<F20> CLASS A SHARES CLASS B SHARES
-------------- ---------------
Management Fees
Distribution (12b-1) Fees
Other Expenses
Custodian Fees
Transfer Agent Fees
Other Fees
Total Other Expenses
Annual Fund Operating Expenses
- -----------------------
(1)<F18>You may qualify for a lower front-end sales charge on your purchases of
Class A shares. See "Purchasing Shares" and "Shareholder Services."
(2)<F19>The contingent deferred sales charge is reduced for each year that you
hold Class B shares and is eliminated after six years. See "Purchasing
Shares" and "Shareholder Services."
(3)<F20>The percentages expressing annual operating expenses are based on
amounts actually incurred during the year ended December 31, 1998. [ANY
REIMBURSEMENT TO DESCRIBE?]
The following example is intended to help you compare the cost of
investing in the Portfolio with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Portfolio for the time
periods indicated, and then redeem all of your shares at the end of those
periods (other than the last column, which assumes you do not redeem your Class
B Shares). The example also assumes that your investment has a 5% return each
year, and that the Portfolio's operating expenses remain the same. The example
is for comparison purposes only. Actual returns and costs may be higher or
lower.
CLASS B SHARES*<F21> CLASS B SHARES*<F21>
CLASS A SHARES (WITH REDEMPTION) (WITHOUT REDEMPTION)
-------------- ----------------- --------------------
After 1 Year
After 3 Years
After 5 Years
After 10 Years
- ---------------------
*<F21> Class B shares automatically convert to Class A shares after eight
years.
If you wish to review historical financial information about the
Portfolio, please refer to the section of this Prospectus captioned "Financial
Highlights."
SELECT VALUE PORTFOLIO
INVESTMENT OBJECTIVE. The Portfolio seeks to obtain maximum capital
appreciation by investing primarily in common stocks that the Advisors consider
undervalued relative to earnings, book value, or potential earnings growth.
INVESTMENT STRATEGY AND PROGRAM. The Portfolio pursues its investment
objective generally by investing in smaller-sized companies having market
capitalizations less than $2 billion, although the Portfolio is not restricted
to investments in companies of any particular size. Under normal market
conditions, at least 65% of the Portfolio's total assets will be invested in
common stocks of domestic issuers. The Portfolio uses a value-oriented style of
investing, emphasizing companies with relatively low price/earnings ratios,
reasonable financial strength and strong cash flows. These companies tend to be
out of favor with investors.
The Portfolio may invest up to 35% of its total assets in high-quality,
fixed-income securities and short-term investments. High-quality, fixed-income
securities in which the Portfolio may invest are limited to those securities
which are rated at the time of purchase within the two highest rating categories
assigned by Moody's or S&P, or securities which are unrated, provided that such
securities are judged by the Advisors, at the time of purchase, to be of
comparable quality to securities rated within such two highest categories.
The Portfolio may also invest up to 5% of its total assets directly in
securities of foreign issuers not publicly traded in the United States, and may
invest without regard to this restriction in securities of foreign issuers
represented by American Depository Receipts (ADRs). ADRs are receipts issued by
an American bank or trust company and traded on national securities exchange
evidencing ownership of the underlying foreign securities, and equity securities
issued by Canadian issuers.
INVESTMENT RISKS
Market and Objective Risk. The Portfolio is subject to market risk. The
objective risk is that the returns of the Portfolio from attractively priced or
"value" stocks may trail returns from the overall stock market. As a group,
value stocks tend to go through cycles of either relative under or over
performance in comparison to the stock market. Also, the Portfolio's common
stocks of smaller to medium sized companies historically have experienced more
price volatility than larger capitalization stocks. The value of the
Portfolio's investments therefore may tend to increase and decrease
substantially more than the broad based indices such as the S&P 500 Index.
Stock Selection Risk. The value-oriented style of investing used by the
Portfolio depends on the ability of the Advisors to select stocks that perform
well. The Advisors' stock selections may not achieve the desired appreciation
in value, or may even decline in value.
WHO SHOULD INVEST IN THE PORTFOLIO. The Select Value Portfolio is
designed for long-term investors who characterize their investment temperament
as "moderately aggressive," and is not appropriate for market timers or other
short-term investors. Value funds generally emphasize companies that -
considering their assets and earnings history - have relatively low stock
prices. Such funds are appropriate for investors who want the potential for
capital gains but are less tolerant of the share price fluctuations found in
more aggressive investments, for example, growth funds.
PERFORMANCE INFORMATION. The bar chart and table below provide you with
information regarding the Portfolio's annual return. You should bear in mind
that past performance is not an indication of future results.
The bar chart demonstrates the variability of the annual total returns of
the Portfolio's Class A shares for the past four calendar years and for the
period from August 23, 1994 (when the Portfolio commenced operations) through
the end of that year. Front end sales loads that you pay when you purchase Class
A shares of the Portfolio are not reflected in the bar chart. If those sales
loads were reflected, the returns shown in the bar chart would be lower. Also,
the Advisor reimbursed expenses and/or waived fees that the Portfolio otherwise
would have paid for certain of the years presented. If the Advisor had not
taken those actions, the returns for the relevant years would have been lower.
SELECT VALUE PORTFOLIO
Year Average Annual Total Return(1)<F23>
1994 -5.00%(2)<F24>
1995 20.80%
1996 26.70%
1997 27.20%
1998
- ------------------------------
(1)<F23> As a percent of Average Net Assets
(2)<F24> For the period from August 23, 1994 (commencement of operations)
through December 31, 1994 (not annualized).
The Portfolio's highest and lowest quarterly returns during the periods
presented in the bar chart were:
Highest: % ( quarter of 19 )
Lowest: % ( quarter of 19 )
The following table compares the average annual return on Class A shares
of the Portfolio with that of a broad measure of market performance over the
periods indicated. We have not included any total return information in the
table for the Portfolio's Class B shares, because those shares have been
available for less than one year.
PERIOD FROM AUGUST 23, 1994
AVERAGE ANNUAL YEAR ENDED (COMMENCEMENT OF OPERATIONS)
TOTAL RETURN DECEMBER 31, 1998 THROUGH DECEMBER 31, 1998
- ----------- ---------------- ----------------------------
S&P Mid-Cap Index*<F24>
Select Value Portfolio
- ----------------------
*<F24> The S&P Mid-Cap Index is an unmanaged index of 400 stocks generally
considered representative of the mid-cap market.
FEES AND EXPENSES. The following table describes the fees and expenses
that you may pay if you buy, hold, sell or exchange Class A or Class B shares
of the Portfolio.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A SHARES CLASS B SHARES
-------------- ---------------
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage
of offering price)(1)<F25> 5.25% None
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends None None
Contingent Deferred Sales Charge
(Load) (as a percentage of original
purchase price or redemption proceeds,
whichever is less)(2)<F26> None 5.00%
Redemption Fees ($12.00 charge
for each wire redemption) None None
Exchange Fee $5.00 $5.00
ANNUAL FUND OPERATING EXPENSES
(EXPENSES ARE DEDUCTED FROM
PORTFOLIO ASSETS)(3)<F27> CLASS A SHARES CLASS B SHARES
-------------- ---------------
Management Fees
Distribution (12b-1) Fees
Other Expenses
Custodian Fees
Transfer Agent Fees
Other Fees
Total Other Expenses
Annual Fund Operating Expenses
- ------------------------
(1)<F25> You may qualify for a lower front-end sales charge on your purchases
of Class A shares. See "Purchasing Shares" and "Shareholder
Services."
(2)<F26> The contingent deferred sales charge is reduced for each year that you
hold Class B shares and is eliminated after six years. See
"Purchasing Shares" and "Shareholder Services."
(3)<F27> The percentages expressing annual operating expenses are based on
amounts actually incurred during the year ended December 31, 1998.
[ANY REIMBURSEMENT TO DESCRIBE?]
The following example is intended to help you compare the cost of
investing in the Portfolio with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Portfolio for the time
periods indicated, and then redeem all of your shares at the end of those
periods (other than the last column, which assumes you do not redeem your Class
B Shares). The example also assumes that your investment has a 5% return each
year, and that the Portfolio's operating expenses remain the same. The example
is for comparison purposes only. Actual returns and costs may be higher or
lower.
CLASS B SHARES*<F28> CLASS B SHARES*<F28>
CLASS A SHARES (WITH REDEMPTION) (WITHOUT REDEMPTION)
-------------- ----------------- --------------------
After 1 Year
After 3 Years
After 5 Years
After 10 Years
- ---------------------
*<F28> Class B shares automatically convert to Class A shares after eight
years.
If you wish to review historical financial information about the
Portfolio, please refer to the section of this Prospectus captioned "Financial
Highlights."
PSE TECH 100 INDEX PORTFOLIO
Investment Objective. The PSE Tech 100 Index Portfolio seeks to obtain a
total return, before operating expenses of the Portfolio are deducted, that
replicates the total return of the Pacific Stock Exchange Technology Stock Index
(the "PSE Technology Index"). The PSE Technology Index, which consists of
common stocks of 100 technology companies, is widely recognized as a benchmark
for the technology sector of the United States stock market.
INVESTMENT STRATEGY AND PROGRAM. The Portfolio seeks to achieve its
objective by investing in all 100 common stocks included in the PSE Technology
Index in approximately the same proportions as they are represented in the
Index. The Portfolio attempts to remain fully invested in common stocks. Under
normal market conditions, the Portfolio will invest at least 95% of its assets
in the common stocks included in the PSE Technology Index and futures contracts
and options. The Portfolio will maintain at least 90% of its assets in common
stocks traded on the PSE Technology Index, except that the percentage of its
assets so invested temporarily (and in any event for a period of not more than
five trading days) may fall below the 90% mark if the Portfolio receives cash
inflows that it cannot invest immediately in units of common stocks that
replicate the Index.
From time to time up to 5% of the Portfolio's assets may be held in cash,
cash equivalents or certain short-term, fixed-income securities. These
investments will not perform the same as the PSE Technology Index. In order to
help the performance of the Portfolio more closely replicate the performance of
the PSE Technology Index, the Portfolio may equitize its cash position by
investing up to 20% of its assets in exchange-traded index futures contracts and
index options. For a more detailed explanation of these instruments and certain
risks associated with their use, see "Additional Investment Practices and Risks
- - Options and Futures Activities."
INVESTMENT RISKS
Market and Objective Risk. The PSE Technology Index is subject to market
risk. Also, the technology market sector increases and decreases in favor with
the investing public relative to the overall stock market. As a result, the
Portfolio's share price is subject to volatility. Moreover, because the PSE
Technology Index is price-weighted, the performance of the Portfolio, will be
more sensitive to price movements in higher-priced stocks than in lower-priced
stocks. Additionally, the PSE Technology Index incudes common stocks of many
small to medium sized companies, which historically have been more volatile
and less liquid than stocks of larger companies. For these reasons, the
Portfolio may experience more volatility and greater price swings as compared to
the stock market generally. See "Additional Investment Practices and Risks."
Correlation Risk. Although the Advisor will attempt to replicate the
performance of the PSE Technology Index, there can be no assurance that it will
be able to do so in all market conditions. For example, the index options and
futures used by the Advisor to equitize the Portfolio's cash positions and
short-term investments may not precisely track the performance of the PSE
Technology Index. Also, the Portfolio will incur brokerage commissions and
other transaction costs in order to maintain investments that mirror the PSE
Technology Index, and will incur advisory and other service fees and operating
costs and expenses that will reduce the total return of the Portfolio as
compared to that of the PSE Technology Index.
PERFORMANCE INFORMATION. The bar chart and table below provide you with
information regarding the Portfolio's annual return. You should bear in mind
that past performance is not an indication of future results.
The bar chart demonstrates the variability of the annual total returns of
the Portfolio's Class A shares for the past two calendar years and for the
period from June 10, 1996 (when the Portfolio commenced operations) through the
end of that year. Front end sales loads that you pay when you purchase Class A
shares of the Portfolio are not reflected in the bar chart. If those sales
loads were reflected, the returns shown in the bar chart would be lower. Also,
the Advisor reimbursed expenses and/or waived fees that the Portfolio otherwise
would have paid for certain of the years presented. If the Advisor had not
taken those actions, the returns for the relevant years would have been lower.
PSE TECH 100 INDEX PORTFOLIO
Year Average Annual Total Return(1)<F29>
1996 10.70%(2)<F30>
1997 19.40%
1998
- -----------------------------
(1)<F29>As a percent of Average Net Assets
(2)<F30>For the period from June 10, 1996 (commencement of operations) through
December 31, 1996 (not annualized).
The Portfolio's highest and lowest quarterly returns during the periods
presented in the bar chart were:
Highest: % ( quarter of 19 )
Lowest: % ( quarter of 19 )
The following table compares the average annual return on Class A shares
of the Portfolio with that of a broad measure of market performance over the
periods indicated. We have not included any total return information in the
table for the Portfolio's Class B shares, because those shares have been
available for less than one year.
FOR THE PERIOD FROM JUNE 10, 1996
AVERAGE ANNUAL FOR THE YEAR ENDED (COMMENCEMENT OF OPERATIONS)
TOTAL RETURN DECEMBER 31, 1998 THROUGH DECEMBER 31, 1998
- ------------- ------------------ -------------------------
PSE Technology
Stock Index*<F31>
PSE Tech 100 Index Portfolio
- -----------------------
*<F31>The Pacific Stock Exchange Technology Stock Index consists of 100 common
stocks of companies in 15 different industries. The Index is widely
recognized as a benchmark for the technology sector of the United Stated
stock market.
FEES AND EXPENSES. The following table describes the fees and expenses
that you may pay if you buy, hold, sell or exchange Class A or Class B shares
of the Portfolio.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A SHARES CLASS B SHARES
-------------- ---------------
Maximum Sales Charge (Load) Imposed
ON Purchases (as a percentage of
offering price)(1)<F32> 5.25% None
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends None None
Contingent Deferred Sales Charge (Load)
(as a percentage of original purchase
price or redemption proceeds,
whichever is less)(2)<F33> None 5.00%
Redemption Fees ($12.00 charge
for each wire redemption) None None
Exchange Fee $5.00 $5.00
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED
FROM PORTFOLIO ASSETS)(3)<F34>
CLASS A SHARES CLASS B SHARES
-------------- ---------------
Management Fees
Distribution (12b-1) Fees
Other Expenses
Custodian Fees
Transfer Agent Fees
Other Fees
Total Other Expenses
Annual Fund Operating Expenses
- -----------------------
(1)<F32> You may qualify for a lower front-end sales charge on your purchases
of Class A shares. See "Purchasing Shares" and "Shareholder
Services."
(2)<F33> The contingent deferred sales charge is reduced for each year that you
hold Class B shares and is eliminated after six years. See
"Purchasing Shares" and "Shareholder Services."
(3)<F34> The percentages expressing annual operating expenses are based on
amounts actually incurred during the year ended December 31, 1998.
[ANY REIMBURSEMENT TO DESCRIBE?]
The following example is intended to help you compare the cost of
investing in the Portfolio with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Portfolio for the time
periods indicated, and then redeem all of your shares at the end of those
periods (other than the last column, which assumes you do not redeem your Class
B Shares). The example also assumes that your investment has a 5% return each
year, and that the Portfolio's operating expenses remain the same. The example
is for comparison purposes only. Actual returns and costs may be higher or
lower.
CLASS B SHARES*<F99> CLASS B SHARES*<F99>
CLASS A SHARES (WITH REDEMPTION) (WITHOUT REDEMPTION)
------------- ---------------- --------------------
After 1 Year
After 3 Years
After 5 Years
After 10 Years
- ----------------------
*<F99> Class B shares automatically convert to Class A shares after eight
years.
If you wish to review historical financial information about the
Portfolio, please refer to the section of this Prospectus captioned "Financial
Highlights."
MANAGED GROWTH PORTFOLIO
INVESTMENT OBJECTIVE. The Managed Growth Portfolio's investment objective
is long- term capital appreciation. It pursues its goal by investing in
publicly traded common stocks that the Advisor believes demonstrates strong
growth characteristics.
INVESTMENT STRATEGY AND PROGRAM. The Advisor selects stocks for the
Portfolio based on the Advisor's assessment of their growth characteristics.
The Portfolio's investment focus is on U.S. companies whose market values are
within the market capitalization range of the companies that make up the S&P
Midcap 400 Index (approximately $500 million to $20 billion, although the
Portfolio may invest in companies outside this range). The Advisor believes
that these middle market capitalization (mid-cap) stocks provide better long-
term returns than large company stocks and, at the same time, offer lower risk
than small company stocks.
In selecting growth stocks for the Portfolio, the Advisor emphasizes a
"bottom-up" fundamental analysis (i.e., developing an understanding of the
specific company through research, meetings with management and analysis of its
financial statements and public disclosures). The Advisor's "bottom-up"
approach is supplemented by "top down" considerations (i.e., reviewing general
economic conditions in analyzing their effect on various industries). The
Advisor also screens out high risk ideas such as securities that are not traded
on U.S. exchanges, turnaround stories, initial public offerings and companies
that have less than three years of operating history or do not have earnings.
The Advisor then focuses on companies that it believes are outperforming or
growing faster than others in their industry, and applies a proprietary
valuation model to determine their values compared to the broader securities
markets. Stocks that meet the above criteria are reviewed and approved by the
portfolio management team before they are purchased for the Portfolio. The
Advisor also seeks industry diversification in its investment approach, and
invests in companies that have leading positions in industries that offer growth
potential.
The Advisor buys stocks for the Portfolio with the intent of holding them
for the long term. It does not generally engage in market-timing or short-term
trading strategies. However, the Advisor generally will sell some or all of a
company's stock if: (a) the Advisor perceives a major change in the long-term
outlook for the company or its industry, (b) the stock becomes extremely
overvalued based on the Advisor's proprietary valuation model, (c) the market
value of the particular holding represents more than 5% of the Portfolio's total
assets or (d) more than 15% of the Portfolio's total assets are invested in a
single industry.
INVESTMENT RISKS
Market and Objective Risk. The Portfolio is subject to market risk.
Also, because the Advisor selects stocks for the Portfolio according to defined
objectives and strategies (which will focus on mid-cap stocks), the common
stocks held by the Portfolio at any given time likely will not represent the
stock market generally. Mid-cap stocks involve greater risk and price
volatility than large company stocks, especially at the lower end of the
Advisor's capitalization range (i.e., under $1.0 billion). As a result, the
value of the Portfolio's investments may tend to increase and decrease
substantially more than the stock market in general, as measured by broad based
indices such as the S&P 500 Index.
Stock Selection Risk. The Advisor's strategy for selecting common stocks
for purchase depends on the ability of the Advisor to select stocks that
demonstrate growth (and thus capital appreciation) over time. The Portfolio is
subject to the risk that the Advisor's stock selections may not achieve the
desired capital appreciation, or may even decline in value.
Change in Investment Objective. Principal Preservation's Board of
Directors may change the Portfolio's investment objective may be changed in the
future without shareholder approval, although the Board presently has no plans
to do so.
PERFORMANCE INFORMATION. The Portfolio first commenced operations in
January, 1998. Therefore, it has no performance history or historic financial
information.
FEES AND EXPENSES. The following table describes the fees and expenses
that you may pay if you buy, hold, sell or exchange Class A or Class B shares of
the Portfolio.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A SHARES CLASS B SHARES
-------------- ---------------
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage
of offering price)(1)<F35> 5.25% None
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends None None
Contingent Deferred Sales Charge (Load)
(as a percentage of original purchase
price or redemption proceeds,
whichever is less)(2)<F36> None 5.00%
Redemption Fees ($12.00 charge for
each wire redemption) None None
Exchange Fee $5.00 $5.00
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED
FROM PORTFOLIO ASSETS)
CLASS A SHARES CLASS B SHARES
-------------- ---------------
Management Fees(3)<F37> 0.75% 0.75%
Distribution (12b-1) Fees 0.25% 1.00%
Other Expenses(4)<F38>
Custodian Fees 0.07% 0.07%
Transfer Agent Fees 0.03% 0.03%
Other Fees 0.65% 0.65%
Total Other Expenses 0.75% 0.75%
------ -------
Annual Fund Operating Expenses(3)<F37> 1.75% 2.50%
- ---------------------------
(1)<F35>You may qualify for a lower front-end sales charge on your purchases of
Class A shares. See "Purchasing Shares" and "Shareholder Services."
(2)<F36>The contingent deferred sales charge is reduced for each year that the
Class B shares are owned, and is eliminated after six years. See
"Purchasing Shares" and "Shareholder Services."
(3)<F37>The Advisor has committed to waive management fees for 1999 so that the
total operating expenses for the Class A and Class B shares of the
Portfolio will not exceed 1.25% and 2.00%, respectively, of the
Portfolio's average daily net assets.
(4)<F38>Other Expenses are based on estimated amounts for the current fiscal
year, before applicable fee waivers and expense reimbursements. See
note (3).
The following example is intended to help you compare the cost of
investing in the Portfolio with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Portfolio for the time
periods indicated and then redeemed all of your shares at the end of those
periods (other than the last column which assumes you do not redeem your
shares). The example also assumes that your investment has a 5% return each
year and that the Portfolio's operating expenses remain the same. The example
is for comparison purposes only, because actual returns and costs may be
different.
CLASS B SHARES CLASS B SHARES
CLASS A SHARES (WITH REDEMPTION)(WITHOUT REDEMPTION)
-------------- ---------------- -------------------
After 1 Year $ 646 $ 703 $203
After 3 Years $1,003 $1,128 $734
ADDITIONAL INVESTMENT PRACTICES AND RISKS
DEBT AND OTHER FIXED INCOME SECURITIES. A bond's yield reflects the fixed
annual interest as a percent of its current price. This price (the bond's
market value) must increase or decrease in order to adjust the bond's yield to
current interest rate levels. Therefore, bond prices generally move in the
opposite direction of interest rates. As a result, interest rate fluctuations
will affect the net asset value of the fixed income securities held by a
Portfolio, but will not affect the income received by the Portfolio from its
existing fixed income securities. However, changes in prevailing interest rates
will affect the yield on shares subsequently issued by the Portfolio. In
addition, such fluctuations would affect the income received on any variable
rate demand notes or other variable rate securities held by the Portfolio.
Movements in interest rates typically have a greater effect on the prices
of longer-term bonds than those with shorter maturities. The following table
illustrates the effect of a 1% change in interest rates on a $1,000 bond with a
7% coupon.
PRINCIPAL VALUE IF RATES:
-----------------------------------------
MATURITY INCREASE 1% DECREASE 1%
-------- ---------- -----------
Intermediate Bond 5 years $959 $1,043
Long-Term Bond 20 years $901 $1,116
The Advisors will manage the debt securities in the Tax-Exempt and
Government Portfolios according to their assessment of the interest rate
outlook. During periods of rising interest rates, the Advisors will likely
attempt to shorten the average maturity of the Portfolio to cushion the effect
of falling bond prices on the Portfolio's share prices. When interest rates are
falling and bond prices are increasing, on the other hand, the Advisors will
likely seek to lengthen the average maturity.
STOCK INDEXING. Index funds, such as the S&P 100 Plus and PSE Tech 100
Index Portfolios, are "passively managed," meaning they try to match, as closely
as possible, the performance of a target securities index by holding each stock
found in the index in roughly the same proportion as represented in the index
itself. For example, if 5% of the S&P 100 Index were made up of the assets of a
specific company, the S&P 100 Plus Portfolio would invest 5% of its assets in
that company.
Indexing appeals to many investors for a number of reasons, including its
simplicity (indexing is a straightforward marketing-matching strategy);
diversification (indices generally cover a wide variety of companies and
industries); relative performance predictability (an index fund is expected to
move in the same direction - up or down - as its target index); and
comparatively low cost (index funds do not have many of the expenses of an
actively-managed mutual fund, such as research and company visits). Also,
assuming the composition of the relevant index remains fairly stable, index
funds may experience lower portfolio turnover rates, which would result in
reduced transaction costs (brokerage commissions, etc.) and capital gains. With
respect to the PSE Tech 100 Index Portfolio, investors should bear in mind that
this latter benefit may not hold true. The PSE Technology Index has experienced
rather rapid changeover at times, as a result of the volatility of the
technology industry generally and of specific companies included in the Index
from time to time.
The performance of an index fund generally will trail the performance of
the index it attempts to replicate. This is because the mutual fund and its
investors incur operating costs and expenses that are not shared by an index.
For example, investors may pay sales charges which result in less than all of
the price they pay for their mutual fund shares being invested in common stocks
of companies included in the index. With respect to the S&P 100 Index and PSE
Tech 100 Index Portfolios, investors pay a front-end sales charge for Class A
shares at the time of purchase, and a contingent deferred sales charge for Class
B shares at the time of redemption (if redeemed less than six years after the
date of purchase). These sales charges reduce the total return on the
shareholder's mutual fund shares, as compared to a direct investment in stocks.
Additionally, when a mutual fund invests the cash proceeds it receives from
investors in common stocks of companies included in the index, the mutual fund
must pay brokerage commissions, which further reduce the amount invested. As
the composition of the index changes, the mutual fund must make corresponding
adjustments in its holdings, which gives rise to additional brokerage
commissions. Finally, mutual funds incur other operating expenses, including
investment management fees, custodial and transfer agent fees, legal and
accounting fees and possibly 12b-1 service and distribution fees, all of which
reduce the mutual fund's total return. No such fees affect the total return of
the index.
Finally, because of liquidity needs and other constraints under which
mutual funds operate, index funds generally cannot invest their assets so that
they correlate 100% at all times with the common stocks of the index. Although
many index funds attempt to use options and futures strategies to generate
returns on these assets which replicate the return on the index, these
strategies are imperfect and give rise to additional transaction costs.
For these reasons, investors should expect that the performance of an index
mutual fund will lag that of the index it attempts to replicate. In recognition
of this disparity, the S&P 100 Plus and PSE Tech 100 Index Portfolios compare
their gross returns (returns before deducting the Portfolios' operating
expenses) to their respective benchmark indices.
S&P 100 Index. The S&P 100 Index was created by the Chicago Board Options
Exchange (CBOE) in 1983 with stocks selected from the optionable equities traded
on that exchange. The 100 stocks on the Index include many large U.S.
corporations. [GENERAL ELECTRIC COMPANY, EXXON CORPORATION, COCA-COLA COMPANY,
MICROSOFT CORPORATION AND MERCK & CO., INC.?] are five of the largest components
of the Index. A complete list of the stocks comprising the S&P 100 Index at
December 31, 1998 is included as Appendix A to this Prospectus.
----------
The S&P 100 Index was designed to track closely the S&P 500 Index, which is
in turn designed to be representative of the stock market as a whole. There
have been some significant variances in the correlation between the S&P 100 and
S&P 500 Indices, and between the S&P 500 Index and the broad market for large
capitalization common stocks. There can be no assurance that any index will
correlate precisely to the stock market as a whole over any specific period of
time, or that the S&P 100 Plus Portfolio's performance will parallel that of
either of these indices or the stock market generally.
The S&P 100 Plus Portfolio is not sponsored, endorsed, sold or promoted by
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"). S&P
makes no representation or warranty, implied or expressed, to the shareholders
of the Portfolio, or any member of the public regarding the advisability of
investing in index funds generally, or in this Portfolio in particular, or the
ability of the S&P 100 Index to track general stock market performance. S&P's
only relationship to this Portfolio is the licensing of the S&P trademarks and
the S&P 100 Index which is determined, composed and calculated by S&P without
regard to this Portfolio. "Standard & Poor's," "Standard & Poor's 100," "S&P,"
"S&P 100" and "100" in connection with the S&P 100 are trademarks of The McGraw-
Hill Companies, Inc.
PSE Technology Index. The PSE Technology Index consists of 100 common
stocks, which are chosen by Pacific Exchange Incorporated based on its
assessment that the issuer is a company which has, or likely will develop,
products, processes, or services that will provide or will benefit significantly
from technological advances and improvements. The PSE Technology Index offers a
broad basket of stocks spanning the full spectrum of high tech industry groups.
Diversity within the Index ranges from biotechnology firms to semiconductor
capital equipment manufacturers and includes a cross-section of U.S. companies
that are leaders in 15 technology subsectors, including biotechnology, CAD/CAM,
data communications, data storage and processing, diversified computer
manufacturing, electronic equipment, information processing medical technology,
micro-computer manufacturers, semi-conductor manufacturers, software products,
test, analysis and instrumentation equipment, mini and mainframe computer
manufacturing, office automation equipment and semi-conductor capital equipment
manufacturing. A full listing of the companies included in the PSE Technology
Index as of December 31, 1998 is attached as Appendix B to this Prospectus. Of
----------
those 100 stocks, were listed on the Nasdaq Stock Market and
on the New York Stock Exchange.
Similar to the Dow Jones Industrial Average, the PSE Technology Index is
price weighted, meaning the component stocks are given a percentage weighting
based on their price. Although this indexing method allows the PSE Technology
Index to accurately measure a broad representation of technology stocks without
being dominated by a few large companies, it results in smaller- and mid-sized
companies representing a more significant portion of the Index than is the case
for indices such as the S&P 100 Index, which are weighted by the market value of
the companies represented on the index.
The PSE Tech 100 Index Portfolio is not sponsored, endorsed, sold, or
promoted by the PSE Technology Index (PSESM, Pacific Stock ExchangeSM, PSE
Technology IndexSM, and PSE Tech 100SM are service marks of the Pacific Exchange
Incorporated).
INDUSTRY CONCENTRATIONS. A significant portion of the PSE Tech 100 Index
Portfolio's investments will consist of technology-based issues, which exposes
the Portfolio to risks associated with economic conditions in that market
sector. Due to competition, a less diversified product line, and other factors,
companies that develop and/or rely on technology could become increasingly
sensitive to downswings in the economy. However, the companies whose common
stocks are included in the PSE Technology Index comprise a fairly broad range of
industries. This broad industry representation likely will soften volatility
associated with economic and political developments that disproportionately
affect specific industries represented within the Index. Nonetheless, the PSE
Tech 100 Index Portfolio intends to maintain a complete replication investment
philosophy even during periods when one or more industries may be over-
represented on the PSE Technology Index, which may expose the Portfolio during
such periods to risks associated with industry concentration. See "Industry
Concentration Factors" in the Statement of Additional Information.
INVESTMENTS IN SMALL TO MID-SIZED COMPANIES. The investment program and
strategies of the Select Value Portfolio, PSE Tech 100 Index Portfolio and the
Managed Growth Portfolio may cause those Portfolios to invest a greater portion
of their assets in small to mid-sized companies. These companies may have
relatively lower revenues, limited product lines, less management depth and a
lower share of the market for their products or services as compared to larger
companies. Historically, small and mid-sized capitalization stocks have
experienced more price volatility than large capitalization stocks. Some
factors contributing to this greater volatility include: (a) less certain
growth prospects of small and mid-sized companies, as compared to larger
companies (this loss of certainty may be offset in part by the opportunity for
small and mid-sized companies to demonstrate greater percentage growth relative
to their size, as compared to larger companies); (b) less liquidity in the
trading markets for their stocks, in part because of fewer shares trading in the
market and in part because of a low public profile which reduces the interest
level of financial analysts and the investing public; and (c) greater
sensitivity to changing economic conditions. For these reasons, the net asset
value of the Select Value, PSE Tech 100 Index and Managed Growth Portfolios may
increase and decrease substantially more than the stock market in general, as
measured by broad-based indices such as the S&P 500 Index.
VALUE INVESTING. The value-oriented style of investing used by the Select
Value Portfolio emphasizes companies with relatively low price/earnings ratios,
reasonable financial strength and strong cash flows. These companies tend to be
out of favor with investors. As a group, value stocks tend to go through cycles
of relative under performance and outperformance in comparison to common stocks
generally. Although value investing has been less favored in the recent past,
the Advisors believe that the advantage of value-oriented stocks over growth-
oriented stocks is greater than usual during periods of economic recovery.
During periods of economic weakness, growth-oriented stocks may provide solid
earnings growth despite the difficult economic environment, but as the economy
improves, many investors are reluctant to pay a premium for high-priced growth
stocks when lower-priced stocks are available that also are showing good
earnings growth. The performance of the Select Value Portfolio is dependent on
the ability of the Advisors successfully to select stocks that outperform the
market.
INDEX OPTIONS AND FUTURES. The S&P 100 Plus and PSE Tech 100 Index
Portfolios may use exchange-traded index futures contracts and options on stock
indices for the following purposes: (1) to equitize their cash and other liquid
investments so as to more nearly simulate full investment in stocks; (2) to make
it easier to trade; and (3) to reduce costs by buying futures instead of actual
stocks when futures are cheaper. The S&P 100 Plus and Dividend Achievers
Portfolios may also use options on individual stocks, but the Advisor has no
plans to do so at this time.
Index Futures and Options. The S&P 100 Plus and PSE Tech 100 Index
Portfolios may write (sell) and purchase covered call options and put options on
stock indices. Put and call options for various stock indices are traded on
registered securities exchanges. The S&P 100 Plus Portfolio will generally use
futures contracts on the S&P 500 Index and index options on the S&P 100 Index or
the S&P 500 Index, but may use other index options if the exchange on which the
S&P options are traded is closed, there is insufficient liquidity in the
options, or if the Portfolio or the Advisor reaches exchange position limits.
The PSE Tech 100 Index Portfolio plans to use options and futures on both the
PSE Technology Index and the S&P 500 Index.
Put and call options on a securities index are similar to options on an
individual stock. The principal difference is that an option on a securities
index is settled only in cash. The exercising holder of an index option,
instead of receiving a security, receives the difference between the closing
price of the securities index and the exercise price of the option times a
specified multiple ($100 in the case of the S&P 100 Index).
An index futures contract is a contract to buy or sell units of a
particular index at an agreed price on a specified future date. Depending on
the change in value of the index between the time a Portfolio enters into and
terminates an index futures transaction, the Portfolio may realize a gain or a
loss.
Risks Associated with Options and Futures. Losses involving index futures
contracts and index options can sometimes be substantial, in part because a
relatively small price movement in an index option or an index futures contract
may result in an immediate and substantial loss or gain for a Portfolio. The
Portfolios will not use futures and options contracts for speculative purposes
or as leveraged investments that magnify the gains or losses on an investment.
Rather, each relevant Portfolio will keep separate cash or cash-equivalent
securities in the amount of the obligation underlying the futures contract.
Only a limited percentage of a Portfolio's assets - up to 5% if required for
deposit and no more than 20% of total assets - may be committed to such
contracts.
Additional risks associated with the intended use by the S&P 100 Plus and
PSE Tech 100 Index Portfolios of index futures contracts and index options
include the following:
(1) An imperfect correlation between movements in prices of options
and futures contracts and movements in the value of the stock
index that the instrument is designed to simulate;
(2) An imperfect correlation between the price movement in the index
underlying the futures contract or option agreement and the price
movement in the index which the relevant Portfolio seeks to
match; and
(3) The possibility of no liquid secondary market for a futures
contract or option and the resulting inability to close a
position prior to its maturity date.
A Portfolio will seek to minimize the risk of imperfect correlation by investing
only in those futures contracts and options whose behavior is expected to
resemble that of the Portfolio's underlying securities. A Portfolio will also
seek to reduce the risk of being unable to close out a futures position by
entering into such transactions on registered securities exchanges with an
active and liquid secondary market.
MANAGEMENT
INVESTMENT ADVISOR
Ziegler is the investment advisor of each of the Portfolios. In addition
to the Portfolios, Ziegler privately manages numerous customer advisory
accounts. On January 1, 1999, Ziegler managed approximately $ billion in
assets on a discretionary basis. Ziegler also serves as distributor,
accounting/pricing agent and transfer and dividend disbursing agent for each of
the Portfolios. Ziegler is a wholly-owned subsidiary of The Ziegler Companies,
Inc., a publicly-owned financial services holding company. Ziegler's address is
215 North Main Street, West Bend, Wisconsin 53095.
Under the terms of the advisory agreement pursuant to which Ziegler serves
as investment advisor to the Portfolios, Ziegler provides each Portfolio with
overall investment advisory and administrative services. The table below shows
the fees that each of the Portfolios (other than the Managed Growth Portfolio)
paid to Ziegler for investment advisory services during 1998. The fees are
expressed as a percentage of the relevant Portfolio's average net assets for
1998. The investment advisory agreement under which Ziegler serves as
investment advisor to the Managed Growth Portfolios provides that Ziegler is
entitled to receive an annual advisory fee, payable in monthly installments,
equal to 0.75% on the first $250 million of the Portfolio's average daily net
assets, 0.70% on the next $250 million and 0.65% on average daily net assets in
excess of $500 million.
FEES WAIVED
PORTFOLIO FEES PAID FOR 1998 DURING CALENDAR 1998
--------- ------------------ --------------------
Tax-Exempt Portfolio % %
Government Portfolio % %
S&P 100 Plus Portfolio % %
Dividend Achievers Portfolio % %
Select Value Portfolio % %
PSE Tech 100 Index Portfolio % %
SUB-ADVISORS
ZIEGLER ASSET MANAGEMENT. Ziegler Asset Management serves as the sub-
advisor for each of the S&P 100 Plus, Dividend Achievers and PSE Tech 100 Index
Portfolios. In this capacity, Ziegler Asset Management (subject to Ziegler's
oversight) makes investment decisions for each of those Portfolios and
supervises the acquisition and disposition of their investments. On January 1,
1999, Ziegler Asset Management managed approximately $ million in assets on
a discretionary basis. Ziegler Asset Management receives a sub-advisory fee
which is paid by Ziegler (and not by any of the Portfolios) out of Ziegler's
advisory fee.
Like Ziegler, Ziegler Asset Management is a wholly-owned subsidiary of The
Ziegler Companies, Inc., and Ziegler Asset Management's address is 215 North
Main Street, West Bend, Wisconsin 53095.
SKYLINE ASSET MANAGEMENT, L.P. Skyline Asset Management, L.P. ("Skyline")
serves as sub-advisor to the Select Value Portfolio, and in this capacity is
responsible for managing the Portfolio's assets (subject to Ziegler's
oversight). Skyline makes investment decisions for the Portfolio and supervises
the acquisition and disposition of the Portfolio's investments. Skyline is a
Delaware limited partnership. Its general partner is Affiliated Managers Group,
Inc. ("AMG") and its limited partners are corporations owned by five Skyline
officers, William M. Dutton, Kenneth S. Kailin, Stephen F. Kendall, Geoffrey F.
Lutz and Michael Maloney. AMG is a Boston-based private holding company that
makes equity investments in investment management firms.
AMG is a Delaware corporation which is publicly traded on the New York
Stock Exchange. It is an asset management holding company that acquires
interests in investment management firms. Since its founding in December, 1993,
AMG has grown to ten investment management firms with over $ billion in
assets under management. The executive offices of AMG are located at Two
International Place, 23rd Floor, Boston, Massachusetts 02110.
GENEVA CAPITAL MANAGEMENT LTD. Geneva Capital Management Ltd. ("Geneva")
serves as sub-advisor to the Managed Growth Portfolio, and in this capacity is
responsible for managing the Portfolio's assets (subject to Ziegler's
oversight). Geneva makes investment decisions for the Portfolio and supervises
the acquisition and disposition of the Portfolio's investments. For these
services, Ziegler (and not the Managed Growth Portfolio) pays a sub-advisory fee
to Geneva out of Ziegler's advisory fee.
In addition to managing the Managed Growth Portfolio, Geneva manages
numerous customer accounts as an investment advisor. On January 1, 1999, Geneva
managed approximately $369 million in assets on a discretionary basis. Geneva's
investment team focuses primarily on mid-cap growth stocks. Its portfolio
managers average almost 20 years in the investment business. Geneva's address
is 250 East Wisconsin Avenue, Suite 1050, Milwaukee, Wisconsin 53202.
PORTFOLIO MANAGERS
TAX-EXEMPT PORTFOLIO. Mr. Thomas P. Sancomb has served as portfolio
manager for the Tax-Exempt Portfolio since April, 1996. Mr. Sancomb has served
with Ziegler and Ziegler Asset Management in various capacities since March
1975. He has served on Ziegler's Investment Committee since July, 1984. He is
a Vice President of both Ziegler and Ziegler Asset Management.
GOVERNMENT PORTFOLIO. An investment team consisting of advisory personnel
of Ziegler has been responsible for managing the assets of the Government
Portfolio since April 1996. Mr. Thomas P. Sancomb (who also manages the Tax
Exempt Portfolio) has been the team leader since August, 1998. His investment
team includes Mr. Marc Dion and Mr. Thomas R. Paprocki. Mr. Dion is a chartered
financial analyst, [VICE PRESIDENT OF ZIEGLER?] and Vice President and Chief
Investment Officer of Ziegler Asset Management. He has over years of
investment experience. In addition to the Government Portfolio, Mr. Dion also
participates in the management of the Dividend Achievers and S&P 100 Plus
Portfolios. Mr. Paprocki is Vice President OF ZIEGLER AND of Ziegler Asset
Management. He has over years of capital markets experience, including
portfolio management, trading research and sales and training management. Prior
to joining Ziegler, Mr. Paprocki served as President of The Huntington Capital
Corp., a subsidiary of Huntington Bancshares, Columbus, Ohio. In that position
he managed all capital markets activities, including institutional securities,
sales and trading, investment banking and retail brokerage services. Prior to
that, Mr. Paprocki served as Senior Vice President and head bond trader for
Robert W. Baird & Co. Incorporated in Milwaukee, Wisconsin.
S&P 100 PLUS PORTFOLIO. An investment team lead by Jay Ferrara manages
the assets of the S&P 100 Plus Portfolio. Mr. Ferrara is Vice President -
Portfolio Manager and Analyst for Ziegler Asset Management and Assistant Vice
President of Ziegler. He has more than years of experience in the mutual
fund industry. Prior to joining Principal Preservation, Mr. Ferrara served as
Senior Portfolio Accountant for Wells Fargo Nikko Investment Advisors and, from
1993 to 1994, as Controller of the California Investment Trust. Mr. Ferrara's
investment team for the S&P 100 Plus Portfolio includes Marc Dion (who also
participates in the management of the Government and Dividend Achievers
Portfolios), and Mr. Ralph Patek. Mr. Patek is a chartered financial analyst
and Vice President of Ziegler Asset Management with more than years of
investment experience.
DIVIDEND ACHIEVERS PORTFOLIO. Since May 1, 1998, the Portfolio has been
managed jointly by Jay Ferrara and Marc Dion, each of whom also participates in
the management of the S&P 100 Plus Portfolio. Mr. Ferrara also manages the PSE
Tech 100 Index Portfolio, and Mr. Dion also assists with the management of the
Government Portfolio.
SELECT VALUE PORTFOLIO. Investment decisions for the Select Value
Portfolio are made by a team of investment professionals and analysts. The team
is headed by Mr. Kenneth S. Kailin. Mr. Kailin is an officer of Skyline who
joined the firm's predecessor in 1987. Mr. Kailin also serves as portfolio
manager for another registered investment company which has an investment
objective, policies and restrictions similar to those of the Select Value
Portfolio. Mr. Kailin's investment team includes Mr. William M. Dutton,
President and Chief Executive Officer of Skyline.
PSE TECH 100 INDEX PORTFOLIO. Mr. Jay Ferrara has been the portfolio
manager for the PSE Tech 100 Index Portfolio since its inception June, 1996.
For information about Mr. Ferrara, see "S&P 100 Plus Portfolio" above.
MANAGED GROWTH PORTFOLIO. An investment team, consisting of William A.
Priebe, Amy S. Croen and John J. O'Hare II, all of whom are officers of Geneva
and chartered financial analysts (CFAs), is primarily responsible for the day-
to-day management of the Managed Growth Portfolio's investments. The team
selects securities for investment after thorough discussion and approval by its
members. No stock may be bought or sold without prior team approval.
Mr. Priebe has been Principal and President of Geneva since 1987 after
having managed assets for First Wisconsin Trust Co. Mr. Priebe received an MBA
from the University of Chicago in 1977, an MA in Finance from Northern Illinois
University in 1968 and a BA from Northern Illinois University in 1965. Ms.
Croen has been Principal and Executive Vice President of Geneva since 1987,
after serving as a securities analyst for First Wisconsin Trust Co. for six
years. Ms. Croen received an MBA from Columbia University in 1979 and a BA from
Princeton University in 1975. Mr. O'Hare has been Vice President of Geneva
since 1997. From 1992 to 1997, he was a senior analyst at The Nicholas Funds.
Before then he was a securities analyst for Barrington Research and Kemper
Securities. Mr. O'Hare received a BA from the University of Wisconsin-
Whitewater in 1981.
PURCHASING SHARES
GENERAL INFORMATION
You may buy Class A shares of any of the Portfolios and Class B shares of
the S&P 100 Plus, Dividend Achievers, Select Value, PSE Tech 100 Index and
Managed Growth Portfolios through Ziegler and Selected Dealers. You also may
purchase shares in connection with asset allocation programs, wrap free programs
and other programs of services offered or administered by broker-dealers,
investment advisors, financial institutions and certain other service providers,
provided the program meets certain standards established from time to time by
Ziegler.
Principal Preservation will issue share certificates only if you so
request in writing, and then only for full shares. You must make a new written
request for a share certificate each time you purchase shares. Principal
Preservation does not charge a fee to issue a share certificate. You cannot use
certain shareholder services, including telephone redemptions and exchanges and
any systematic withdrawal, for certificated shares. Before you can redeem,
transfer or exchange shares held in certificate form, you must deliver the share
certificate to the Transfer Agent in negotiable form (with a signature
guarantee). Share certificates may not be available for some retirement
accounts.
TWO CLASSES OF SHARES
This prospectus describes two classes of shares, Class A shares for all
seven Portfolios and Class B shares for the S&P 100 Plus, Dividend Achievers,
Select Value, PSE Tech 100 Index and Managed Growth Portfolios. You pay a sales
charge immediately when you purchase Class A shares (front-end sales charge).
You pay a sales charge when you redeem Class B shares held for less than six
years (contingent deferred sales charge). In addition, you pay higher "12b-1
fees" for Class B shares than Class A shares. See Other Information --
"Distribution and Distribution Expenses."
Whether you should purchase Class A or Class B shares depends on how long
you intend to hold the shares and the size of your investment. If you intend to
own shares for more than six years and have a smaller investment, you should
consider Class B shares. If you plan to redeem shares in less than six years or
have a larger investment, you should consider Class A shares. The following
table shows some of the differences between Class A and Class B shares:
CLASS A SHARES CLASS B SHARES
- -------------- --------------
Maximum 5.25% front-end sales charge No front-end sales charge
No contingent deferred sales charge Maximum 5.0% contingent deferred sales
charge (reducing each year you own your
shares, and going to zero after six
years)
Lower annual expenses, including the Higher annual expenses, including the
12b-1 fee, than Class B shares 12b-1 fee, than Class A shares
No conversion to Class B shares Automatic conversion to Class A shares
after eight years
You should bear in mind that exchanges of shares among the various mutual
funds included in the Principal Preservation family can be made only for shares
of the same Class, except that Class A shares of any Principal Preservation
mutual fund may be exchanged for Class X (Retail Class) shares of the Cash
Reserve Portfolio, and vice versa. As a result, Class B shares can be exchanged
only for shares of the other Portfolios that offer Class B shares.
MINIMUM PURCHASE AMOUNTS
The Portfolios have established minimum amounts that a person must invest
to open an account initially, and to add to the account at later times. The
Portfolios have established these minimum investment amounts in order to help
control their operating expenses. Each Portfolio incurs certain fixed costs
with the opening and maintaining of every account and the acceptance of every
additional investment, regardless of the amount of the investment involved.
Accordingly, the acceptance and maintenance of small shareholder accounts and
small additional investments increases a Portfolio's operating expense ratio,
and adversely affects its total return. The table below shows the minimum
initial investment amounts and additional investment amounts currently in effect
for each of the Portfolios for various types of investors.
MINIMUM INITIAL MINIMUM ADDITIONAL
TYPE OF INVESTOR INVESTMENT AMOUNT INVESTMENT AMOUNT(1)<F39>
- ---------------- ----------------- --------------------------
All investors, except special
investors listed below $1,000 $50
IRAs, Keogh plans, self-directed
retirement accounts and custodial
accounts under the Uniform Gifts/
Transfers to Minors Act (see
"Shareholder Services") $500 $25
Purchases through Systematic
Purchase Plans (see "Shareholder
Services - Systematic Purchase Plan") $100 $100(2)<F40>
- ---------------------------
(1)<F39> There is no minimum additional investment requirement for purchases of
shares of any of the Portfolios if: (i) the purchase is made in
connection with an exchange from another mutual fund within the
Principal Preservation family of funds (see "Redeeming and Exchanging
Shares - Exchanging Shares"); (ii) reinvestment of distributions
received from another mutual fund within the Principal Preservation
family of funds or from various unit investment trusts sponsored by
Ziegler; (iii) the reinvestment of interest and/or principal payments
on bonds issued by Ziegler Mortgage Securities, Inc. II; and (iv)
reinvestments of interest payments on bonds underwritten by Ziegler.
(2)<F40> The minimum subsequent monthly investment under a Systematic Purchase
Plan is $50 for IRAs, Keogh plans, self-directed retirement plan
accounts and custodial accounts under the Uniform Gifts/Transfers to
Minors Act until the account balance reaches $500, after which the
minimum additional investment amount is reduced to $25. The minimum
subsequent investment amount also is reduced to $50 for all other
accounts with balances of $1,000 or more.
PURCHASING CLASS A SHARES
FRONT-END SALES CHARGE. You may purchase Class A shares of each Portfolio
at net asset value plus a maximum front-end sales charge of 3.50% of the public
offering price for the Tax-Exempt and Government Portfolios, and 5.25% of the
public offering price for the S&P 100 Plus, Dividend Achievers, Select Value and
PSE 100 Index Portfolios. The front-end sales charge is reduced or eliminated
on certain purchases, as described below.
The table below shows the front-end sales charges (expressed as a
percentage of the public offering price and of the net amount invested) in
effect for sales of Class A shares of each of the Portfolios. None of the
Portfolios will issue shares for consideration other than cash, except in the
case of a bonafide reorganization or statutory merger or in certain other
acquisitions of portfolio securities which meet the requirements of applicable
state securities laws.
PUBLIC OFFERING NET AMOUNT
SIZE OF INVESTMENT PRICE INVESTED
- ------------------ -------------- -----------
TAX-EXEMPT AND GOVERNMENT PORTFOLIOS:
Less than $25,000 3.50% 3.63%
$25,000 but less than $50,000 3.00% 3.09%
$50,000 but less than $100,000 2.50% 2.56%
$100,000 but less than $250,000 2.00% 2.04%
$250,000 but less than $500,000 1.50% 1.52%
$500,000 but less than $1,000,000 1.00% 1.01%
$1,000,000 or more None None
S&P 100 PLUS, DIVIDEND ACHIEVERS,
SELECT VALUE, PSE TECH 100 INDEX
AND MANAGED GROWTH PORTFOLIOS:
Less than $25,000 5.25% 5.54%
$25,000 but less than $50,000 5.00% 5.26%
$50,000 but less than $100,000 4.75% 4.98%
$100,000 but less than $250,000 3.75% 3.40%
$250,000 but less than $500,000 3.00% 3.09%
$500,000 but less than $1,000,000 2.00% 2.04%
$1,000,000 or more None None
REDUCED FRONT-END SALES CHARGES. There are several ways to pay a lower
sales charge. One is to increase the initial investment to reach a higher
discount level. The scale in the table above is applicable to initial purchases
of Principal Preservation shares by any "purchaser." The term "purchaser"
includes (1) an individual, (2) an individual, his or her spouse and their
children under the age of 21 purchasing shares for his or her own accounts, (3)
a trustee or other fiduciary purchasing shares for a single trust estate or
single fiduciary account, (4) a pension, profit-sharing, or other employee
benefit plan qualified or non- qualified under Section 401 of the Internal
Revenue Code, (5) tax-exempt organizations enumerated in Section 501(c)(3) or
(13) of the Code, (6) employee benefit plans qualified under Section 401 of the
Code of a single employer or employers who are "affiliated persons" of each
other within the meaning of Section 2(a)(3)(c) of the Act, or (7) any other
organized group of persons, whether incorporated or not, provided the
organization has been in existence for at least six months and has some purpose
other than the purchase of redeemable securities of a registered investment
company at a discount.
Another way to pay a lower sales charge is for a "purchaser" to add to his
investment so that the current offering price value of his shares, plus the new
investment, reach a higher discount level. For example, if the current offering
price value of the shares held by a shareholder in the Portfolios equals
$100,000, the shareholder will pay a reduced sales charge on additional
purchases of shares. If the shareholder invested an additional $100,000, the
sales charge would be 2.00% in the Government and Tax-Exempt Portfolios on that
additional investment and 3.75% in the S&P 100 Plus, Dividend Achievers, Select
Value and PSE Tech 100 Index Portfolios. Your holdings of Class A and Class B
shares in all Portfolios which have a sales charge will be aggregated in
determining the break-point at which you are entitled to purchase in any
Portfolio.
A third way is for a "purchaser" to sign a non-binding statement of
intention to invest $25,000 or more over a 13 month period in any one or
combination of Principal Preservation Portfolios which have a sales charge. If
the purchases are completed during that period, each purchase will be at a sales
charge applicable to the aggregate of the shareholder's intended purchases.
Under terms set forth in the statement of intention, shares valued at 5% of the
amount of intended purchase are escrowed and will be redeemed to cover the
additional sales charge payable if the statement is not completed. Any
remaining shares held in escrow will be released to the purchaser. A purchaser
will continue to earn dividends and capital gains distributions declared by a
Portfolio with respect to shares held in escrow.
A reduced front-end sales charge is also available on the purchase of
Class A shares by members of a qualified group. The sales charge for such
persons is calculated by taking into account the aggregate dollar value of
shares of all Principal Preservation shares sold subject to a sales charge being
purchased or currently held by all members of the group. Further information on
group purchases is contained in "Purchase of Shares" in the Statement of
Additional Information.
Finally, Class A shares may be purchased with a reduced sales charge of
0.50 of 1% by directors of The Ziegler Companies, Inc. who are not also
employees of Ziegler.
To receive the benefit of the reduced sales charge, the shareholder must
inform Principal Preservation, Ziegler or the Selected Dealer that the
shareholder qualifies for such a discount.
PURCHASES WITHOUT A FRONT-END SALES CHARGE. Class A shares of the
Portfolios may be purchased at net asset value (that is, without a front-end
sales charge) by various types of purchasers as described below.
$1.0 Million Purchases Class A shares may be purchased at net asset value
by a purchaser purchasing at least $1.0 million of
shares or the value of whose account at the time
of purchase is at least $1.0 million, provided if
the purchase is made through a Selected Dealer who
has executed a dealer agreement with Ziegler. The
term "purchaser" has the meaning described in
"Reduced Front-End Sales Charges," above. The
Distributor may make a payment or payments, out of
its own funds, to the Selected Dealer in an amount
not to exceed 0.75 of 1% of the amount invested.
All or a part of such payment may be conditioned
on the monies remaining invested with Principal
Preservation for a minimum period of time.
Employee Benefit Plans Any pension, profit sharing or other employee
benefit plan qualified under Section 401 of the
Internal Revenue Code that purchased shares prior
to July 1, 1998 may continue to purchase Class A
shares at net asset value. If such a plan
purchases shares of any of the Portfolios through
a Selected Dealer, the Distributor may make a
payment or payments, out of its own funds, to the
Selected Dealer in an amount not to exceed 0.75 of
1% of the amount invested.
State and Municipal Class A shares of the Portfolios also may be
Governments and Charities purchased at net asset value without a sales
charge by any state, county or city, or any
instrumentality, department, authority or agency
thereof, and by any nonprofit organization
operated for religious, charitable, scientific,
literary, educational or other benevolent purpose
which is exempt from federal income tax pursuant
to Section 501(c)(3) of the Internal Revenue Code;
provided that any such purchaser must purchase at
least $500,000 of Class A shares, or the value of
such purchaser's account at the time of purchase
must be at least $500,000.
Investors Transferring Class A shares may also be purchased at net asset
From Unrelated Load Funds value when payment for those shares represents the
proceeds from the redemption of shares of another
mutual fund which charges a sales charge and which
is not part of Principal Preservation. A purchase
of shares of Principal Preservation may be made at
net asset value under this provision regardless of
whether the sales charge was paid on the shares
redeemed in the unrelated fund. However, the
redemption of those shares must have occurred no
more than 90 days prior to the purchase of shares
of Principal Preservation. The Distributor may
make a payment or payments, out of its own funds,
to Selected Dealers effecting such exchanges, in
an amount not to exceed 0.50 of 1% of the amount
invested. All or a part of such payment may be
conditioned upon the monies remaining invested
with Principal Preservation for a minimum period
of time.
Persons Associated with Class A shares may be purchased at net asset value
Principal Preservation and by: Directors and officers of Principal
Its Service Providers Preservation (including shares purchased jointly
with or individually by any such person's spouse
and shares purchased by any such person's children
or grandchildren under age 21); employees of
Ziegler, Selected Dealers and Skyline, and the
trustee or custodian under any pension or profit-
sharing plan established for the benefit of the
employees of any of the foregoing. The term
"employee" includes an employee's spouse
(including the surviving spouse of a deceased
employee), parents (including step-parents and in-
laws), children, grandchildren under age 21,
siblings, and retired employees.
Reinvestments of Class A shares may be purchased without a sales
Distributions From charge upon the reinvestment of distributions from
Principal Preservation any Principal Preservation mutual fund, or
Mutual Funds and Other investment of distributions from various unit
Investment Vehicles investment trusts sponsored by Ziegler; the
Sponsored by Ziegler reinvestment of principal or interest payments on
bonds issued by Ziegler Mortgage Securities, Inc.
II; or the reinvestment of interest payments on
bonds underwritten by Ziegler.
Purchases Through Certain Class A shares may be purchased without a sales
Investment Programs charge through an asset allocation program, wrap
fee program or similar program of services offered
or administered by a broker-dealer, investment
advisor, financial institution or other service
provider, provided the program meets certain
standards established from time to time by
Ziegler. You should read the program materials
provided by the service provider, including
information related to fees, in conjunction with
this Prospectus. Certain features of a Portfolio
may not be available or may be modified in
connection with the program of services. When
shares are purchased this way, the service
provider, rather than you as the service
provider's customer, may be the shareholder of
record for the shares. The service provider may
charge fees of its own in connection with your
participation in the program of services. Certain
service providers may receive compensation from
Principal Preservation and/or Ziegler for
providing such services.
Reinvestment Privilege If you redeem Class A shares, you may reinvest all
or part of the redemption proceeds in Class A
shares of the same Portfolio, without a front-end
sales charge, if you send written notice to
Principal Preservation or the Transfer Agent not
more than 90 days after the shares are redeemed.
Your redemption proceeds will be reinvested on the
basis of net asset value of the shares in effect
immediately after receipt of the written request.
You may exercise this reinvestment privilege only
once upon redemption of your shares. Any capital
gains tax you incur on the redemption of your
shares is not altered by your subsequent exercise
of this privilege. If the redemption resulted in
a loss and reinvestment is made in shares, the
loss will not be recognized.
PURCHASING CLASS B SHARES
You may purchase Class B Shares of any of the S&P 100 Plus, Dividend
Achievers, Select Value, PSE Tech 100 Index and Managed Growth Portfolios at net
asset value with no front-end sales charge. However, you pay a contingent
deferred sales charge (expressed as a percent of the lessor of the current net
asset value or original cost) if you redeem your Class B shares within six years
after purchase. No contingent deferred sales charge is imposed on any shares
that you acquire through the reinvestment of dividends and capital gains
distributions paid by the Portfolio on your Class B shares. To reduce your
cost, when you redeem shares in a Portfolio, you will redeem either shares that
are not subject to a contingent deferred sales charge (i.e., those purchased
through the reinvestment of dividends and capital gains), if any, or shares with
the lowest contingent deferred sales charge. The contingent deferred sales
charge is waived upon redemption of shares following the death or disability of
a shareholder, for mandatory or hardship distributions from retirement plans,
IRAs and 403(b) plans, to meet certain retirement plan requirements, or for
systematic withdrawal plans not to exceed 10% annually.
CONTINGENT DEFERRED SALES CHARGE. The table below shows the contingent
deferred sales charge applicable to Class B shares of the S&P 100 Plus, Dividend
Achievers, Select Value and PSE Tech 100 Index Portfolios based on how long you
hold the shares before redeeming them. The percentages reflected in the table
are based on the lessor of the net asset value of your Class B shares at the
time of purchase or at the time of redemption.
HOLDING CONTINGENT DEFERRED SALES CHARGE
- ------- --------------------------------
1 Year or less 5.00%
More than 1 Year, but less than 3 Years 4.00%
3 Years, but less than 4 Years 3.00%
4 Years, but less than 5 Years 2.00%
5 Years, but less than 6 Years 1.00%
6 Years or More(1)<F41> None
- -------------------------
(1)<F41> Class B shares convert to Class A shares automatically after eight
years.
Selected Dealers who sell Class B shares of a Portfolio receive a
commission from Ziegler in an amount equal to 4.00% of the net asset value of
the shares sold.
METHODS FOR PURCHASING SHARES
All purchases must be in U.S. dollars and your check must be drawn on a
U.S. bank. Principal Preservation will not accept cash or traveler's checks. If
your check does not clear, your purchase will be canceled and you will be
responsible for any losses and any applicable fees. When you buy shares by any
type of check, wire transfer or automatic investment purchase, you may not be
able to redeem the shares for fifteen days or until your check has cleared,
whichever is later. This does not limit your right to redeem shares. Rather,
it operates to make sure that payment for the shares redeemed has been received
by Principal Preservation.
Your order for the purchase of shares will be deemed to have been received
when it is physically received by the Transfer Agent, the Distributor, a
Selected Dealer or certain other financial services firms that have entered into
an agreement with Principal Preservation appointing the firm as an agent of
Principal Preservation for the purpose of accepting share purchase and
redemption orders. Such financial services firms are authorized under this
agreement to designate other intermediaries to accept share purchase and
redemption orders on their behalf. If your purchase order is received prior to
the close of trading on the New York Stock Exchange, it will be invested at the
net asset value computed for the relevant Portfolio on that day. If your order
is received after the close of trading on the New York Stock Exchange, it will
be invested at the net asset value determined for the relevant Portfolio as of
the close of trading on the New York Stock Exchange on the next business day.
The following describes the different ways in which you may purchase
shares and the procedures you must follow in doing so.
<TABLE>
METHOD TO OPEN A NEW ACCOUNT TO ADD TO AN EXISTING ACCOUNT
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<S> <C> <C>
BY MAIL OR PERSONAL 1. Complete the Account Application 1. Complete the Additional In vestment form included
DELIVERY included in this prospectus. with your account statement. Alternatively, you may
write a note indicating your account number.
Personally deliver or send 2. Make your check or money order
by First Class or Express payable to: "Principal Preservation." 2. Make your check payable to "Principal Preservation."
Mail or Private Delivery
Service to: Note: The amount of your purchase 3. Personally deliver or mail the Additional Investment
----- Form (or note) and your check or money order.
must meet the applicable minimum
Principal Preservation initial investment acoutn. See
215 N. Main Street "Purchasing Shares - Minimum Purchase
West Bend WI 53095 Amounts."
3. Personally deliver or mail the
com pleted Account Application and
your check or money order.
- ------------------------------------------------------------------------------------------------------------------------------------
AUTOMATICALLY Not Applicable USE ONE OF PRINCIPAL PRESERVATION'S AUTOMATIC INVESTMENT
PROGRAMS. Sign up for these services when you open your
account, or call 1-800-826-4600 for instructions on how
to add them to your existing account.
SYSTEMATIC PURCHASE PLAN. Make regular, systematic
investments into your Principal Preservation account(s)
from your bank checking or NOW account. See "Shareholder
Services - Systematic Purchase Plan."
AUTOMATIC DIVIDEND REINVESTMENT. Unless you choose
otherwise, all of your dividends and capital gain
distributions automatically will be reinvested in
additional Portfolio shares. You also may elect to have
your dividends and capital gain distributions
automatically invested in shares of another Principal
Preservation mutual fund.
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TELEPHONE BY EXCHANGE BY EXCHANGE
1-800-826-4600 Call to establish a new account by ex Add to an account by exchanging funds from another
changing funds from an existing Principal Principal Preservation account. See "Redeeming and
Preservation account. See "Redeeming and Exchanging Shares - Exchanging Shares."
Exchanging Shares - Exchanging Shares."
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FINANCIAL SERVICES FIRMS You may purchase shares in a Portfolio You may purchase additional shares in a Portfolio through
through a broker-dealer or other financial a broker-dealer or other financial services firm that may
service firm that may charge a transaction charge a transaction fee.
fee.
Principal Preservation may accept requests to purchase
Principal Preservation may accept requests additional shares into a broker-dealer street name
to purchase shares into a broker-dealer account only from the broker-dealer.
street name account only from the broker-
dealer.
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</TABLE>
DISTRIBUTION AND DISTRIBUTION EXPENSES
In addition to the front-end or contingent deferred sales charges that
apply to the purchase of shares, each Portfolio is authorized under a
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act to use
a portion of its assets to finance certain activities relating to the
distribution of its shares to investors, the maintenance of shareholder accounts
and the provision of other shareholder services. Because each Portfolio pays
these fees out of its own assets on an ongoing basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
The Plan permits payments to be made by each Portfolio to the Distributor
to reimburse it for expenditures incurred by it in connection with the
distribution of each Portfolio's shares to investors, and to provide
compensation to the Distributor in connection with sales of Class B shares. The
reimbursement payments include, but are not limited to, payments made by the
Distributor to selling representatives or brokers as a service fee, and costs
and expenses incurred by the Distributor for advertising, preparation and
distribution of sales literature and prospectuses to prospective investors,
implementing and operating the Plan and performing other promotional or
administrative activities on behalf of each of the Portfolios. Plan payments
may also be made to reimburse the Distributor for its overhead expenses related
to distribution of the Portfolio's shares. No reimbursement may be made under
the Plan for expenses of the past fiscal years or in contemplation of expenses
for future fiscal years.
Under the Plan, each Portfolio assesses a service fee of up to 0.25 of 1%
of the Portfolio's average daily net assets for both Class A and Class B shares.
This shareholder servicing fee is used to reimburse the Distributor for certain
shareholder services as described above. In addition, the Portfolios that offer
Class B shares assess a distribution fee of 0.75 of 1% of the portion of the
Portfolio's average daily net assets represented by its Class B shares. This
distribution fee is compensatory in nature, meaning the Distributor is entitled
to receive the fee regardless of whether its costs and expenses equal or exceed
the fee. Class B shares automatically convert to Class A shares eight years
after purchase, after which time the shares no longer are subject to this
distribution fee but, like all other Class A shares, remain subject to the
service fee.
The Plan continues in effect, if not sooner terminated, for successive
one-year periods, provided that its continuance is specifically approved by the
vote of the Directors, including a majority of the Directors who are not
interested persons of any of the Advisors.
REDEEMING SHARES
GENERAL INFORMATION
You may have any or all of your shares redeemed as described below on any
day Principal Preservation is open for business. Class A shares will be
redeemed at net asset value. Class B shares will be redeemed at net asset
value, less the amount of the remaining contingent deferred sales charge, if
any, depending on how long you have held the shares. If your redemption order
is received prior to the close of the New York Stock Exchange, the redemption
will be at the net asset value calculated that day. If not, you will receive
the net asset value calculated as of the close of trading on the next New York
Stock Exchange trading day.
REDEMPTIONS
The following table describes different ways that you may redeem your
shares, and the steps you should follow.
<TABLE>
METHOD STEPS TO FOLLOW
- ------ ---------------
<S> <C>
BY TELEPHONE If you have completed the Telephone Redemption Authorization and signature guarantee sections of the
1-800-826-4600 Account Application, you may redeem shares by calling Principal Preservation. If you did not sign up
for telephone redemptions when you opened your account and would like to do so, call, write or stop
into Principal Preservation's offices and request, complete, sign and return a Telephone Redemption
Authorization Form.
Please note: You may not redeem shares by telephone if you hold stock certificates for those shares.
-----------
Additionally, shares paid for by personal, corporate, or government check cannot normally be redeemed
before the 15th day after the purchase date or until the check clears.
BY MAIL To redeem shares by mail, send the following information to the Transfer Agent:
Address to: o A written request for redemption signed by the registered owner(s) of the shares, exactly as the
Principal Preservation account is registered, together with the shareholder's account number;
215 N. Main Street
West Bend WI 53095 o The certificates for the shares being redeemed, if any;
o Any required signature guarantees (see "Other In formation About Redemptions" below); and
o Any additional documents which might be re quired for redemptions by corporations, executors,
administrators, trustees, guardians, or other similar entities.
The Transfer Agent will redeem shares when it has received all necessary documents. You will be
notified promptly by the Transfer Agent if your redemption request cannot be accepted. The Transfer
Agent cannot accept redemption requests which specify a particular date for redemption or which
specify any special conditions.
SYSTEMATIC WITHDRAWAL PLAN You can set up an automatic systematic withdrawal plan from any of your Principal Preservation
accounts. To establish the systematic withdrawal plan, complete the appropriate section of the
Account Application or call, write or stop by Principal Preservation and request a Systematic
Withdrawal Plan Application Form and complete, sign and return the Form to Principal Preservation.
See "Shareholder Services - Systematic Withdrawal Plan."
FINANCIAL SERVICES FIRMS You also may redeem shares through broker-dealers, financial advisory firms and other financial
institutions, which may charge a commission or other transaction fee in connection with the
redemption.
</TABLE>
RECEIVING REDEMPTION PROCEEDS
You may request to receive your redemption proceeds by mail or wire. Follow the
steps outlined below. The Transfer Agent will not send redemption proceeds
until all payments for the shares being redeemed have cleared, which may take up
to 15 days from the purchase date of the shares.
METHOD STEPS TO FOLLOW
- ----- ---------------
BY MAIL The Transfer Agent mails checks for redemption proceeds
typically within one or two days, but not later than
seven days, after it receives the request and all
necessary documents. There is no charge for this
service.
BY WIRE The Transfer Agent will normally wire redemption
proceeds to your bank the next business day after
receiving the redemption request and all necessary
documents. The signatures on any written request for a
wire redemption must be guaranteed. The Transfer Agent
currently deducts a $12.00 wire charge from the
redemption proceeds. This charge is subject to change.
You will be responsible for any charges which your bank
may make for receiving wires.
OTHER INFORMATION ABOUT REDEMPTIONS
TELEPHONE REDEMPTIONS. By establishing the telephone redemption service,
you authorize Ziegler, as Principal Preservation's transfer agent (the "Transfer
Agent"), to: (1) act upon the instruction of any person by telephone to redeem
shares from the account for which such services have been authorized; and (2)
honor any written instructions for a change of address if accompanied by a
signature guarantee. You assume some risk for unauthorized transactions by
establishing the telephone redemption services. The Transfer Agent has
implemented procedures designed to reasonably assure that telephone instructions
are genuine. These procedures include recording telephone conversations,
requesting verification of various pieces of personal information and providing
written confirmation of such transactions. If the Transfer Agent, Principal
Preservation, or any of their employees fails to abide by these procedures,
Principal Preservation may be liable to a shareholder for losses the shareholder
suffers from any resulting unauthorized transaction(s). However, none of the
Transfer Agent, Principal Preservation or any of their employees will be liable
for losses suffered by a shareholder which result from following telephone
instructions reasonably believed to be genuine after verification pursuant to
these procedures. This service may be changed, modified or terminated at any
time. There is currently no charge for telephone redemptions, although a charge
may be imposed in the future.
SIGNATURE GUARANTEES. To protect you, the Transfer Agent and Principal
Preservation from fraud, signature guarantees are required for certain
redemptions. Signature guarantees enable the Transfer Agent to be sure that you
are the person who has authorized a redemption from your account. Signature
guarantees are required for: (1) any redemptions by mail if the proceeds are to
be paid to someone else or are to be sent to an address other than your address
as shown on Principal Preservation's records; (2) any redemptions by mail which
request that the proceeds be wired to a bank, unless you designated the bank as
an authorized recipient of the wire on your account application or subsequent
authorization form and such application or authorization includes a signature
guarantee; (3) any redemptions by mail if the proceeds are to be sent to an
address for the shareholder that has been changed within the past thirty (30)
days; (4) authorizations to redeem by telephone; and (5) requests to transfer
the registration of shares to another owner. These requirements may be waived
by Principal Preservation in certain instances.
The Transfer Agent will accept signature guarantees from all institutions which
are eligible to provide them under federal or state law. Institutions which
typically are eligible to provide signature guarantees include commercial banks,
trust companies, brokers, dealers, national securities exchanges, savings and
loan associations and credit unions. A signature guarantee is not the same as a
notarized signature.
CLOSING SMALL ACCOUNTS. If, due to redemption, your account in a Portfolio
drops below $500 for three months or more, the Portfolio has the right to redeem
your account, after giving 60 days' written notice, unless you make additional
investments to bring the account value to $1,000 or more.
SUSPENSION OF REDEMPTIONS. Principal Preservation may suspend the right to
redeem shares of one or more of the Portfolios for any period during which: (1)
the Exchange is closed or the Securities and Exchange Commission determines that
trading on the Exchange is restricted; (2) there is an emergency as a result of
which it is not reasonably practical for the Portfolio(s) to sell its securities
or to calculate the fair value of its net assets; or (3) the Securities and
Exchange Commission may permit for the protection of the shareholders of the
Portfolio(s).
REDEMPTIONS IN OTHER THAN CASH. It is possible that conditions may arise
in the future which would, in the opinion of the Board of Directors of Principal
Preservation, make it undesirable for a Portfolio to pay for all redemptions in
cash. In such cases, the Board may authorize payment to be made in securities
or other property of a Portfolio. However, the Portfolios have obligated
themselves under the 1940 Act to redeem for cash all shares presented for
redemption by any one shareholder up to $250,000 (or 1% of a Portfolio's net
assets if that is less) in any 90-day period. Securities delivered in payment
of redemptions would be valued at the same value assigned to them in computing
the net asset value per share. Persons receiving such securities would incur
brokerage costs when these securities are sold.
EXCHANGING SHARES
GENERAL INFORMATION
Subject to compliance with applicable minimum investment requirements, shares of
any Principal Preservation mutual fund (including any of the Portfolios) may be
exchanged for shares of the same Class of any other Principal Preservation
mutual fund in any state where the exchange legally may be made. Additionally,
Class A shares of any Principal Preservation mutual fund (including any of the
Portfolios) may be exchanged for Class X (Retail Class) shares of the Cash
Reserve Portfolio, and vice versa. Before engaging in any exchange, you should
obtain from Principal Preservation and read the current prospectus for the
mutual fund into which you intend to exchange. Principal Preservation charges a
$5.00 administrative fee for all exchanges.
An exchange of shares is considered a redemption of the shares of the Principal
Preservation mutual fund from which you are exchanging, and a purchase of shares
----------
of the Principal Preservation mutual fund into which you are exchanging.
----------
Accordingly, you must comply with all of the conditions on redemptions for the
shares being exchanged, and with all of the conditions on purchases for the
shares you receive in the exchange. Moreover, for tax purposes you will be
considered to have sold the shares exchanged, and you will realize a gain or
loss for federal income tax purposes on that sale.
SALES CHARGES APPLICABLE TO EXCHANGES
EXCHANGING CLASS A SHARES. If the exchange involves Class A shares, the
standard front- end sales charge applicable to purchases of Class A shares of
the Principal Preservation mutual fund into which the exchange is being made (as
disclosed in the then current prospectus for that Principal Preservation mutual
fund) will be charged in connection with the exchange, less any front-end sales
charge previously paid by the shareholder with respect to the shares being
exchanged, if any. For example, if you were exchanging Class A shares of the
Tax-Exempt Portfolio for Class A shares of the S&P 100 Plus Portfolio, you would
pay a front-end sales charge on the exchange in an amount equal to the
difference between: (a) the front-end sales charge you paid when you purchased
your S&P 100 Plus Portfolio shares (a maximum of 5.25%); minus (b) the front-end
sales charge applicable to your purchase of Class A shares of the Tax-Exempt
Portfolio (a maximum of 3.50%), or a maximum of 1.75%. However, if the shares
you are exchanging represent an investment held for at least six months in any
one or more Principal Preservation mutual funds (other than the Cash Reserve
Portfolio), then Principal Preservation will not charge any additional front-end
sales charge in connection with the exchange.
EXCHANGING CLASS B SHARES. You may exchange Class B shares in a Portfolio
only for Class B shares of another Portfolio. You will not pay a contingent
deferred sales charge on any such exchange. However, the new Class B shares you
receive in the exchange will remain subject to a contingent deferred sales
charge based on the period of time for which you held the Class B shares you are
exchanging.
RULES AND REQUIREMENTS FOR EXCHANGES
GENERAL. In order to effect an exchange on a particular business day,
Principal Preservation must receive an exchange order in good form no later than
3:00 p.m. Eastern Time. Principal Preservation may amend, suspend or revoke
this exchange privilege at any time, but will provide shareholders at least 60
days' prior notice of any change at adversely affects their rights under this
exchange privilege.
An excessive number of exchanges may be disadvantageous to Principal
Preservation. Therefore, Principal Preservation reserves the right to terminate
the exchange privilege of any shareholder who makes more than three exchanges in
any twelve consecutive month period or who makes more than one exchange during
any calendar quarter.
The following additional rules and requirements apply to all exchanges:
o The shares you receive in the exchange must be of the same Class
as the shares you are exchanging, except that Class A shares of
any Portfolio may be exchanged for Class X shares of the Cash
Reserve Portfolio and vice versa.
o The account into which you wish to exchange must be identical to
the account from which you are exchanging (meaning the account
into which you are exchanging must be of the same type as the
account from which you are exchanging, and the registered
owner(s) of the account into which you are exchanging must have
the same name(s), address and taxpayer identification or social
security number as the registered owner(s) on the account from
which you are exchanging).
o The amount of your exchange must meet the minimum initial or
minimum additional investment amount of the Principal
Preservation mutual fund into which you are exchanging.
o If the shares being exchanged are represented by a share
certificate, you must sign the certificate(s), have your
signature guaranteed and return the certificate(s) with your
Exchange Authorization Form.
METHODS FOR EXCHANGING SHARES. Set forth below is a description of the
different ways you can exchange shares of Principal Preservation mutual funds
and procedures you should follow when doing so.
<TABLE>
METHOD STEPS TO FOLLOW
- ----- ---------------
<S> <C>
BY MAIL OR PERSONAL DE LIVERY Mail your exchange order to Principal Preservation.
Personally deliver or send by Please Note: Principal Preservation must receive your exchange order no later than 3:00 p.m.
first class or express mail or -----------
private delivery addressed to: Eastern Time in order to effect an exchange on that business day.
Principal Preservation,
215 N. Main Street,
West Bend, WI 53095
BY TELEPHONE You receive telephone exchange privileges when you open your account. To decline the telephone
exchange privilege, you must check the appropriate box on the Application Form when you open your
1-800-826-4600 account.
Call Principal Preservation to order the desired exchange and, if required, to establish a new
account for the Principal Preservation mutual fund into which you wish to exchange.
Telephone exchanges are not available if you have certificated shares.
FINANCIAL SERVICES FIRMS You may exchange shares through your broker-dealer or other financial services firm, which may
charge a transaction fee.
</TABLE>
SHAREHOLDER SERVICES
Principal Preservation offers a number of shareholder services designed to
facilitate investment in Portfolio shares. Full details of each of the
services, copies of the various plans described below and instructions as to how
to participate in the various services or plans can be obtained by calling
Principal Preservation at 1-800-826-4600.
SYSTEMATIC PURCHASE PLAN. A Systematic Purchase Plan ("SPP") may be
established at any time with a minimum initial investment of $100 and minimum
subsequent monthly investments of $100. The minimum subsequent monthly
investment is reduced to $50 for IRAs, Keogh plans, self-directed retirement
plan accounts and custodial accounts under the Uniform Gifts/Transfers to Minors
Act until your account balance reaches $500, after which the minimum is further
reduced to $25. The minimum subsequent investment is also reduced to $50 for
all other accounts with balances of $1,000 or more. By participating in the
SPP, you may automatically make purchases of Principal Preservation shares on a
regular, convenient basis. Under the SPP, your bank or other financial
institution honors preauthorized debits of a selected amount drawn on your
account each month and applied to the purchase of Principal Preservation shares.
The SPP can be implemented with any financial institution that will accept the
debits. There is no service fee for participating in the SPP. An application
and instructions on establishing the SPP are available from your registered
representative, the Distributor or Principal Preservation.
SYSTEMATIC WITHDRAWAL PLAN. You may establish a systematic withdrawal plan
if you own or purchase shares having a current offering price value of at least
$10,000 in a single Portfolio (except no such minimum applies for distributions
from an IRA). The systematic withdrawal plan involves the planned redemption of
shares on a periodic basis by receiving either fixed or variable amounts at
periodic intervals. The minimum amount you may receive under a systematic
withdrawal plan is $150 per month. Normally, you would not make regular
investments at the same time you are receiving systematic withdrawal payments
because it is not in your interest to pay a sales charge on new investments
when, in effect, a portion of your new investment is soon withdrawn. The
minimum investment accepted while a withdrawal plan is in effect is $1,000. You
may terminate your systematic withdrawal plan at any time by written notice to
Principal Preservation or the Transfer Agent.
REINVESTMENT OF DISTRIBUTIONS OR INTEREST PAYMENTS. Unit holders of
Ziegler-sponsored unit investment trusts, holders of Ziegler Mortgage
Securities, Inc. II bonds and holders of bonds underwritten by Ziegler may
purchase shares of Principal Preservation by automatically reinvesting
distributions from their unit investment trust, reinvesting principal or
interest from their Ziegler Mortgage Securities, Inc. II bonds, or reinvesting
interest from the bonds underwritten by Ziegler, as the case may be. Unit
holders and bondholders desiring to participate in this plan should contact the
Distributor for further information.
TAX-SHELTERED RETIREMENT PLANS. Shares of the Portfolios are available for
purchase in connection with the following tax-sheltered plans: (1) Individual
Retirement Accounts (including Education IRAs, Roth IRAs, Simplified Employee
Pension Plan Accounts (SEP-IRAs) and Savings Incentive Match Plan for Employees
Accounts (SIMPLE-IRAs)); (2) Keogh plans; (3) 401(k) Plans; and (4) 403(b) Plans
for employees of most nonprofit organizations. Detailed information concerning
these plans and prototypes of these plans and other information are available
from the Distributor. They should be carefully reviewed and considered with
your tax or financial adviser. Conventional IRA investors do not receive the
benefits of long-term capital gains treatment when funds are distributed from
their account.
OTHER INFORMATION
DETERMINATION OF NET ASSET VALUE PER SHARE
We determine the net asset value per share of each Portfolio daily by adding up
the total value of the Portfolio's investments and other assets and subtracting
any of its liabilities, or debts, and then dividing by the number of outstanding
shares of the Portfolio. For this purpose, we value each Portfolio's
investments at the closing price listed for the relevant security on the
securities exchange on which it trades, unless no closing price is available.
The net asset value per share is calculated each business day, Monday through
Friday, except on customary national business holidays which result in closing
of the New York Stock Exchange (the "Exchange"). The calculation is as of the
close of regular trading on the Exchange (4:00 p.m. Eastern time) for the S&P
100 Plus, Dividend Achievers, Select Value, PSE Tech 100 Index and Managed
Growth Portfolios, 2:30 p.m. Eastern time for the Tax-Exempt Portfolio, and 3:00
p.m. Eastern time for the Government Portfolio.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND REINVESTMENTS
Dividends from net investment income will be declared daily and paid monthly in
the Government and Tax-Exempt Portfolios, and will be declared and paid
quarterly in the S&P 100 Plus, Select Value, Dividend Achievers, PSE Tech 100
Index and Managed Growth Portfolios. Dividends may be taken in cash or
additional shares at net asset value (without a sales charge). You may also
direct the Transfer Agent to invest the dividends in shares of any other
Principal Preservation portfolio for which you have an account. The investment
occurs on the same day as the dividend distribution date. Unless you have
elected in writing to the Transfer Agent to receive dividends and capital gain
distributions in cash, they will be automatically reinvested in additional
shares of the relevant Portfolio.
Capital gains distributions, if any, in all Portfolios will be declared annually
and normally will be paid within 45 days after the end of the fiscal year.
TAX STATUS
Each Portfolio distributes substantially all of its net income and capital
gains. The federal income tax status of all distributions will be reported to
shareholders annually. A Portfolio's distributions (other than exempt-interest
dividends distributed by the Tax-Exempt Portfolio) are taxable when they are
paid, whether a shareholder takes them in cash or reinvests them in additional
shares, except that distributions declared in December and paid in January each
year are taxable as if paid on December 31 of the earlier year.
With the exemption of exempt-interest dividends distributed by the Tax-Exempt
Portfolio, distributions will be taxable as ordinary income or capital gains.
Capital gains may be taxed at different rates, depending on how long the
Portfolio holds its assets.
That part of the Tax-Exempt Portfolio's net investment income which is
attributable to interest from tax-exempt securities and which is distributed to
shareholders will be designated as an "exempt-interest dividend" under the Code.
The exemption of exempt-interest dividends for federal income tax purposes does
not necessarily result in exemption under the tax laws of any state or local
taxing authority which vary with respect to the taxation of such dividend
income. It is possible that some states will exempt from tax that portion of
the exempt-interest dividend which represents interest received by the Tax-
Exempt Portfolio on that state's securities. Therefore, the Tax-Exempt
Portfolio will report annually to its shareholders the percentage of interest
income received on a state-by-state basis. You should consult with your tax
adviser regarding the extent, if any, to which exempt-interest dividends are
exempt under state laws applicable to your dividend distributions.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products used by
businesses worldwide will need to be upgraded to accept four digit entries to
distinguish 21st century dates from 20th century dates. Significant uncertainty
exists concerning the potential costs and effectiveness of efforts to achieve
"Year 2000" compliance, and the possible consequences of failure.
Year 2000 issues potentially could affect the Portfolios in a number of ways.
For example, the Portfolios rely on service providers for such critical daily
operations as pricing, custody, selection of portfolio securities, tracking of
purchases and sales of portfolio securities in automated systems, transfer agent
functions (including purchases and redemptions of Portfolio shares, opening and
closing of shareholder accounts, calculating and recording automatic investments
and dividend and capital gain reinvestments, etc.), and the like. The Year 2000
problem in an automated system used to provide these services could disrupt the
service or corrupt the integrity of the information generated and the
transactions recorded. Also, trading prices reported by the stock exchanges
could be affected by Year 2000 problems in the systems used by the stock
exchanges for this purpose. Such developments could materially impair the
ability of the Portfolios to conduct day-to-day operations.
Also, issuers whose securities are owned by the Portfolios face Year 2000 risks.
They could experience disruptions or failures of their own internal automated
systems or those of the customers and vendors on which their business operations
rely. These developments could adversely affect the price of such an issuer's
securities or the ability of the issuer to make interest and principal or
dividend payments on its securities. If a significant number of issuers of
securities held by a Portfolio were to experience such difficulties, the value
of the Portfolio's shares could decline. Rules and regulations of the
Securities and Exchange Commission require issuers to disclose in their public
statements and reports information apprising the public of their Year 2000
exposure and steps they have taken to minimize that exposure.
Principal Preservation is assessing its exposure with regard to Year 2000
issues. Ziegler and Firstar Trust Company have assured Principal Preservation
that they have taken reasonable steps designed to assure that the pricing,
custodial and transfer agent services they provide to the Portfolios will not be
disrupted or otherwise affected by Year 2000 issues. These steps include
extensive diagnosis of systems to identify Year 2000 problems, the correction
and upgrading of the systems to eliminate those problems, and the testing of the
corrections and upgrades to verify resolution of the problem. While those firms
are incurring costs in these efforts, they have advised Principal Preservation
that they do not anticipate that they will find it necessary to increase fees
for their services solely to recover these.
The Advisors have established committees and/or taken other appropriate steps to
consider how Year 2000 issues will affect their abilities to render investment
advisory and administrative services to the Portfolios, and to resolve those
issues. Based on periodic reports that the Advisors make to Principal
Preservation's Board of Directors, the Board of Directors believes that the
Advisors will achieve Year 2000 compliance sufficient to enable them to provide
uninterrupted investment management and administrative services to the
Portfolios through December 31, 1999 and beyond. The Advisors also have
reported that they are considering Year 2000 readiness as a factor in
determining which securities to purchase and sell for the Portfolios. In this
regard, the Advisors rely on public disclosures made by the issuers of
securities.
Principal Preservation will continue to monitor this situation, and will
continue to receive periodic reports and updates on the progress being made by
the Advisors and the Portfolios' other service providers. Despite the
precautions being taken by the Board of Directors and the service providers of
each Portfolio, because of the inherent uncertainty of the scope of the Year
2000 readiness issue worldwide and the various levels of severity and
catastrophe that have been predicted by numerous "experts" and commentators,
there can be no absolute assurance that Principal Preservation and its service
providers will be able to identify all Year 2000 compliance risks faced by the
Portfolios, or that the measures they are taking to resolve those issues and the
contingency plans they have put in place successfully will enable the Portfolios
to continue to conduct day-to-day operations across the change to the Year 2000,
or to protect the Portfolios from potential economic losses (and resulting
decline in stock prices) suffered by issuers as a result of Year 2000 problems.
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
Portfolios' financial performance for the past 5 years (or such shorter period
as the particular Portfolio has been in operation). Certain information
reflects financial results for a single share of a Portfolio. The total returns
in the tables represent the rate that an investor would have earned on an
investment in the Portfolios (assuming reinvestment of all dividends and
distributions). This information has been audited by Arthur Andersen LLP, whose
report, along with the Portfolios' financial statements, is included in the
Annual Report to Shareholders. The Annual Report is available upon request.
<TABLE>
TAX-EXEMPT PORTFOLIO
---------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA;
NET ASSET VALUE, BEGINNING OF PERIOD $9.30 $9.39 $ 8.36 $ 9.41
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .41 .43 .45 .45
Net realized and unrealized gains
(losses) on investments .44 (.09) 1.03 (1.05)
------ ------ ------ -------
TOTAL FROM INVESTMENT OPERATIONS .85 .34 1.48 (.60)
------ ------ ------ -------
LESS DISTRIBUTIONS:
Dividends from net investment income (.41) (.43) (.45) (.45)
Distributions from net realized
gains on investments (.22) -- -- --
----- ----- ----- ------
TOTAL DISTRIBUTIONS (.63) (.43) (.45) (.45)
----- ----- ----- ------
NET ASSET VALUE, END OF PERIOD $9.52 $9.30 $9.39 $8.36
----- ----- ----- ------
----- ----- ----- ------
TOTAL RETURN*<F42> 9.4% 3.8% 18.1% (6.4)%
RATIOS/ SUPPLEMENTAL DATA:
Net assets, end of period (to nearest thousand) $60,252 $66,310 $56,443 $55,492
Ratio of net expenses to average net assets 1.1% 1.1%+<F43> 1.0%+<F43> 1.0%
Ratio of net investment income
to average net assets 4.4% 4.7%+<F43> 4.9%+<F43> 5.2%
Portfolio turnover rate 209.2% 163.1% 105.9% 36.1%
</TABLE
- --------------------
*<F42>The front-end sales charge for Class A shares is not reflected in total
return as set forth in the table.
+<F43>Reflects a voluntary reimbursement of expenses of % in 1998, 0.1% in
1996 and 0.01% in 1995.
</TABLE>
<TABLE>
GOVERNMENT PORTFOLIO
---------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA;
NET ASSET VALUE, BEGINNING OF PERIOD $9.20 $9.64 $ 8.84 $ 9.98
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .63 .64 .61 .61
Net realized and unrealized gains
(losses) on investments .08 (.44) .80 (1.14)
------ ------ ------ -------
TOTAL FROM INVESTMENT OPERATIONS .71 .20 1.41 (.53)
------ ------ ------ -------
LESS DISTRIBUTIONS:
Dividends from net investment income (.63) (.64) (.61) (.61)
Distributions from net realized
gains on investments (.22) -- -- --
----- ----- ----- ------
TOTAL DISTRIBUTIONS (.63) (.64) (.61) (.61)
----- ----- ----- ------
NET ASSET VALUE, END OF PERIOD $9.28 $9.20 $9.64 $8.84
----- ----- ----- ------
----- ----- ----- ------
TOTAL RETURN*<F44> 8.1% 2.3% 16.3% (5.4)%
RATIOS/ SUPPLEMENTAL DATA:
Net assets, end of period (to nearest thousand) $40,683 $44,920 $49,319 $47,324
Ratio of net expenses to average net assets 1.1%+<F45> 1.1%+<F45> 1.1%+<F45> 1.1%
Ratio of net investment income
to average net assets 7.0%+<F45> 7.0%+<F45> 6.5%+<F45> 6.6%
Portfolio turnover rate 78.6% 36.9% 68.2% 106.1%
</TABLE
- --------------------
*<F44> The front-end sales charge for Class A shares is not reflected in total
return as set forth in the table.
+<F45> Reflects a voluntary reimbursement of expenses of % in 1998, 0.04%
in each of 1997 and 1996 and 0.02% in 1995
</TABLE>
<TABLE>
S&P 100 PLUS PORTFOLIO
---------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA;
NET ASSET VALUE, BEGINNING OF PERIOD $22.08 $19.53 $14.95 $15.04
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .26 .29 .25 .25
Net realized and unrealized gains
(losses) on investments 5.63 4.07 5.21 (.09)
------ ------ ------ -------
TOTAL FROM INVESTMENT OPERATIONS 5.89 4.36 5.46 .16
------ ------ ------ -------
LESS DISTRIBUTIONS:
Dividends from net investment income (.26) (.29) (.25) (.25)
Distributions from net realized
gains on investments (.65) -- -- --
------ ------ ------ -------
TOTAL DISTRIBUTIONS (.93) (1.81) (.88) (.25)
------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $27.04 $22.08 $19.53 $14.95
------ ------ ------ -------
------ ------ ------ -------
TOTAL RETURN*<F46> 26.8% 22.4% 36.7% 1.1%
RATIOS/ SUPPLEMENTAL DATA:
Net assets, end of period
(to nearest thousand) $105,738 $77,517 $57,062 $40,034
Ratio of net expenses to average net assets 0.9%+<F47> 1.0%+<F47> 1.2% 1.2%
Ratio of net investment
income to average net assets 1.0%+<F47> 1.4%+<F47> 1.4% 1.7%
Portfolio turnover rate 17.0% 8.0% 3.5% 1.0%
- --------------------
*<F46> The front-end sales charge for Class A shares is not reflected in total
return as set forth in the table.
+<F47> Reflects a voluntary reimbursement of expenses of % in 1998, 0.11%
in 1997, and 0.01% in 1996.
</TABLE>
<TABLE>
DIVIDEND ACHIEVERS PORTFOLIO
---------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA;
NET ASSET VALUE, BEGINNING OF PERIOD $20.01 $16.97 $13.24 $13.40
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .13 .14 .18 .18
Net realized and unrealized gains
(losses) on investments 5.43 3.54 3.99 (.02)
------ ------ ------ -------
TOTAL FROM INVESTMENT OPERATIONS 5.56 3.68 4.17 .16
------ ------ ------ -------
LESS DISTRIBUTIONS:
Dividends from net investment income (.13) (.14) (.18) (.18)
Distributions from net realized
gains on investments (.31) (.50) (.26) (.14)
TOTAL DISTRIBUTIONS (.44) (.64) (.44) (.32)
NET ASSET VALUE, END OF PERIOD $25.13 $20.01 $16.97 $13.24
TOTAL RETURN*<F48> 27.9% 21.8% 31.7% 1.2%
RATIOS/ SUPPLEMENTAL DATA:
Net assets, end of period
(to nearest thousand) $39,565 $30,504 $25,393 $20,231
Ratio of net expenses to
average net assets 1.2%+<F49> 1.2%+<F49> 1.3%+<F49> 1.5%
Ratio of net investment income
to average net assets 0.6%+<F49> 0.8%+<F49> 1.2%+<F49> 1.3%
Portfolio turnover rate 11.9% 13.1% 28.2% 36.5%
</TABLE>
- ---------------------
*<F48> The front-end sales charge for Class A shares is not reflected in
total return as set forth in the table.
+<F49> Reflects voluntary reimbursements of expenses as shown below:
1998 - % 1996 - 0.1%
1997 - 0.1% 1995 - 0.2%
<TABLE>
SELECT VALUE PORTFOLIO
--------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
FOR THE YEARS ENDED DECEMBER 31, FOR THE PERIOD FROM
------------------------------------------------- AUGUST 23, 1994
(COMMENCEMENT OF OPERATIONS) TO
1998 1997 1996 1995 DECEMBER 31, 1994
----- ----- ----- ----- --------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD $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 2.93 2.68 1.73 (.51)
------- ------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS 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 $12.07 $10.97 $10.21 $ 9.03
------- ------- ------- -------
------- ------- ------- -------
TOTAL RETURN**<F51> 27.2% 26.7% 20.8% (5.0)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(to nearest thousand) $8,497 $4,829 $3,445 $1,935
Ratio of net expenses to average net assets 1.1%+<F52> 1.0%+<F52> 0.8%+<F52> 0.8%*<F50>+<F52>
Ratio of net investment income to average
net assets 0.1%+<F52> 0.3%+<F52> 1.4%+<F52> 1.1%*<F50>+<F52>
Portfolio turnover rate 82.5% 122.2% 124.3% 20.2%
</TABLE>
- --------------------
*<F50> Annualized.
**<F51> The front-end sales charge for Class A shares is not reflected in total
return as set forth in the table.
+<F52>Reflects a voluntary reimbursement of expenses of % in 1998, 1.0% in
1997, 1.4% in 1996, 2.5% in 1995 and 0.4% in 1994.
<TABLE>
PSE TECH 100 INDEX PORTFOLIO
-------------------------------------------------------------
FOR THE YEARS FOR THE PERIOD FROM
ENDED DECEMBER 31, JUNE 10, 1996
------------------------ (COMMENCEMENT OF OPERATIONS) TO
1998 1997 DECEMBER 31, 1996
----- ----- --------------------------------
<S> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD $10.76 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment Income .04 .03
Net realized and unrealized gains on investments 2.04 1.03
------- -------
TOTAL FROM INVESTMENT OPERATIONS 2.08 1.06
------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income (.04) (.03)
Distributions from net realized gains on investments (.38) (.24)
Distributions in excess of net realized gains (.03) (.03)
------- -------
TOTAL DISTRIBUTIONS (.45) (.30)
------- -------
NET ASSET VALUE, END OF PERIOD $12.39 $10.76
------- -------
------- -------
TOTAL RETURN**<F54> 19.4% 10.7%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (to nearest thousand) $27,144 $6,004
Ratio of net expenses to average net asset 0.2%+<F55> 0.0%+<F55>
Ratio of net investment income to average net assets 0.3%+<F55> 0.7%+<F55>
Portfolio turnover rate 22.0% 3.0%
</TABLE
- -----------------------------------
*<F53> Annualized.
**<F54> The front-end sales charge for Class A shares is not reflected in total
return as set forth in the table.
+<F55> Reflects a voluntary reimbursement of expenses of % in 1998,
1.1% in 1997 and 3.3% in 1996.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
INVESTMENT ADVISOR
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
SUB-ADVISORS
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, ACCOUNTING/PRICING AGENT, AND
TRANSFER AND DIVIDEND DISBURSING AGENT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
CUSTODIAN
Firstar Trust Company
777 East Wisconsin Avenue
Milwaukee, WI 53202
COUNSEL
Quarles & Brady LLP
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
If you have any questions about any of the Portfolios or would like more
information, including a free copy of the Portfolios' Statement of Additional
Information ("SAI"), or their Annual or Semi-Annual Reports, you may call or
write Principal Preservation at:
Principal Preservation Portfolios, Inc.
215 North Main Street
West Bend, Wisconsin 53095
(800) 826-4600
The SAI, which contains more information on the Portfolios, has been filed
with the Securities and Exchange Commission ("SEC"), and is legally a part of
this prospectus. The Annual and Semi-Annual Reports, also filed with the SEC,
discuss market conditions and investment strategies that affected each
Portfolio's performance during the prior fiscal year and six-month fiscal
period, respectively.
To view these documents, along with other related documents, you can visit
the SEC's Internet website (http://www.sec.gov) or the SEC's Public Reference
Room in Washington, D.C. Information on the operation of the Public Reference
Room can be obtained by calling 1.800.SEC.0330. Additionally, copies of this
information can be obtained, for a duplicating fee, by writing the Public
Reference Section of the SEC, Washington, D.C. 20549-6009.
Investment Company Act File No. 811-4401.
APPENDIX A
COMPOSITION OF THE S&P 100 INDEX
(As of December 31, 1998)
[to be provided]
APPENDIX B
COMPOSITION OF THE PSE TECHNOLOGY INDEX
(As of December 31, 1998)
[To be provided]
STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 1999
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
Seven portfolios (each a "Portfolio") of the Principal Preservation
Portfolios, Inc. ("Principal Preservation") family of funds are described in
this Statement of Additional Information and the Prospectus to which it relates:
the Tax-Exempt Portfolio, Government Portfolio, S&P 100 Plus Portfolio, Dividend
Achievers Portfolio, Select Value Portfolio, PSE Tech 100 Index Portfolio and
Managed Growth Portfolio.
Class A shares are available for all seven of the Portfolios. Class B
shares are available for all of the Portfolios, except for the Tax-Exempt and
Government Portfolios. Each Portfolio has a distinct investment objective and
distinct investment policies, and there can be no assurance that any Portfolio
will achieve its investment objective. Each shareholder's interest is limited
to the particular Portfolio in which his/her shares are owned.
You may obtain a Prospectus and purchase shares of each Portfolio from
B.C. Ziegler and Company ("Ziegler" or the "Distributor"), 215 North Main
Street, West Bend, Wisconsin 53095, telephone 800-826-4600, or from Selected
Dealers (see the Prospectus dated May 1, 1999 for more complete information,
including an account application.) This Statement of Additional Information is
not a prospectus, and should be read in conjunction with the Prospectus. This
Statement of Additional Information provides details about each Portfolio that
are not required to be included in the Prospectus, and should be viewed as a
supplement to, and not as a substitute for, the Prospectus. Capitalized terms
not otherwise defined in this Statement of Additional Information have the
meanings ascribed to them in the Prospectus.
TABLE OF CONTENTS
PAGE
----
STATEMENT OF ADDITIONAL INFORMATION 1
FUND HISTORY AND CAPITAL STOCK 2
INVESTMENT PROGRAM 3
INVESTMENT RESTRICTIONS 19
MANAGEMENT OF PRINCIPAL PRESERVATION 28
PURCHASE OF SHARES 37
DISTRIBUTION EXPENSES 40
DETERMINATION OF NET ASSET VALUE PER SHARE 43
PERFORMANCE INFORMATION 44
TAX STATUS 49
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES 50
PORTFOLIO TRANSACTIONS AND BROKERAGE 51
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS 52
FINANCIAL STATEMENTS 53
DESCRIPTION OF RATINGS OF CERTAIN SECURITIES 53
FUND HISTORY AND CAPITAL STOCK
Principal Preservation is a diversified, open-end, management investment
company. It was organized in 1984 as a Maryland corporation.
The authorized common stock of Principal Preservation consists of one
billion shares, with a par value of $.001 per share. Shares of Principal
Preservation are divided into nine mutual fund series, each with distinct
investment objectives, policies and strategies. In addition to the Portfolios
described in this Statement of Additional Information, Principal Preservation
also offers shares of the Wisconsin Tax-Exempt Portfolio and the Cash Reserve
Portfolio through separate prospectuses. Each portfolio consists of 50 million
shares, except for the Cash Reserve Portfolio, which consists of 400 million
shares. The Tax-Exempt, Government and Wisconsin Tax-Exempt Portfolios offer
only Class A shares. Shares of the S&P 100 Plus, Dividend Achievers, Select
Value, PSE Tech 100 Index and Managed Growth Portfolios are divided into two
separate classes of 25 million shares each; namely, Class A shares and Class B
shares. Shares of the Cash Reserve Portfolio also are divided into two separate
classes of 200 million shares each; namely, Class X (Retail Class) shares and
Class Y (Institutional Class) shares.
Separate classes of shares within a Portfolio have identical dividend,
liquidation and other rights. However, each class bears its separate
distribution and shareholder servicing expenses and may have its own sales load
structure. At the discretion of Principal Preservation's Board of Directors,
each class may pay a different share of other expenses (not including advisory
or custodial fees or other expenses related to the management of the Portfolio's
assets) if the separate classes incur those expenses in different amounts, or if
one class receives services of a different kind or to a different degree than
another class within the same portfolio. Each portfolio allocates all other
expenses to each class of its shares on the basis of the net asset value of that
class in relation to the net asset value of the particular fund.
The Board of Directors of Principal Preservation may authorize the issuance
of additional series and, within each series, individual classes, and may
increase or decrease the number of shares in each series or class.
Each share of Principal Preservation, when issued and paid for in
accordance with the terms of the offering, will be fully paid and nonassessable.
Shares of stock are redeemable at net asset value, at the option of the
shareholder. Shares have no preemptive, subscription or conversion rights and
are freely transferable. Shares can be issued as full shares or fractions of
shares. A fraction of a share has the same kind of rights and privileges as a
full share.
Each share of Principal Preservation has one vote on each matter presented
to shareholders. All shares of Principal Preservation vote together on matters
that affect all shareholders uniformly, such as in the election of directors.
On matters affecting an individual portfolio (such as approval of advisory or
sub-advisory contracts and changes in fundamental policies of a series) a
separate vote of the shares of that series is required. On matters that
uniquely affect a particular class of shares (such as an increase in 12b-1 fees
for that class), a separate vote by the shareholders of that class of shares is
required. Shares of a portfolio or class are not entitled to vote on any matter
that does not affect it.
As used in the Prospectus, the phrase "majority vote" of the outstanding
shares of a class, Portfolio or Principal Preservation means the vote of the
lesser of: (1) 67% of the shares of the class, Portfolio or Principal
Preservation, as the case may be, present at the meeting if the holders of more
than 50% of the outstanding shares are present in person or by proxy; or (2)
more than 50% of the outstanding shares of the class, Portfolio or Principal
Preservation, as the case may be.
As a Maryland corporation, Principal Preservation is not required to hold,
and in the future does not plan to hold, annual shareholder meetings unless
required by law or deemed appropriate by the Board of Directors. However,
special meetings may be called for purposes such as electing or removing
Directors, changing fundamental policies or approving an investment advisory
contract.
INVESTMENT PROGRAM
The Prospectus describes the investment objective and principal investment
strategies of each of the Portfolios. Certain other investment strategies and
policies of each Portfolio are described in greater detail below.
INFORMATION REGARDING TAX-EXEMPT INVESTMENTS
Before investing in a particular Portfolio, an investor may wish to
determine which investment -- tax-free or taxable -- will provide a higher
after-tax return. To make such a comparison, the yields should be viewed on a
comparable basis. The table below illustrates, at the tax brackets provided in
the Internal Revenue Code of 1986, as amended, the yield an investor would have
to obtain from taxable investments to equal tax-free yields ranging from 6% to
9%. An investor can determine from the following table the taxable return
necessary to match the yield from a tax-free investment by locating the tax
bracket applicable to the investor, and then reading across to the yield column
which is closest to the yield applicable to the investor's investment. This
presentation illustrates current tax rates, and will be modified to reflect any
changes in such tax rates.
</TABLE>
<TABLE>
TAX-FREE V. TAXABLE INCOME
ASSUMED TAX-FREE YIELDS
<S> <C> <C> <C> <C> <C>
TAXABLE INCOME 6.00% 6.50% 7.00% 7.50% 8.00%
- --------------- ---------------------------------------------
FEDERAL TAX
SINGLE RETURN JOINT RETURN RATE EQUIVALENT TAXABLE YIELDS*<F58>
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Up to $22,100 Up to $38,000 15.00% 7.06% 7.65% 8.24% 8.82% 9.41%
$22,100-55,100 $38,000-91,850 28.00% 8.33% 9.03% 9.72% 10.42% 11.11%
$55,100-115,000 $91,850-140,000 31.00% 8.70% 9.42% 10.14% 10.87% 11.59%
$115,000-250,000 $140,000-250,000 36.00% 9.38% 10.16% 10.94% 11.72% 12.50%
over $250,000 over $250,000 39.60% 9.93% 10.76% 11.59% 12.42% 13.25%
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
*<F58> The Equivalent taxable yields are calculated based on the maximum
marginal tax rate at each tax bracket. These rates and brackets are
subject to change. The table is based on tax rates in effect as of
December 31, 1998. You should consult your tax advisor regarding more
recent tax legislation and how tax laws affect your personal financial
circumstances.
The Tax-Exempt Portfolio seeks to attain its objective by investing
primarily in municipal securities, such as general obligation, revenue and
industrial development bonds, rated at the time of purchase in an "A" category
or higher by Moody's Investors Service, Inc., Standard & Poor's Ratings Services
or by Fitch Investors Service, Inc. This Portfolio may also invest in certain
temporary short-term investments, money market fund investments, U.S. Government
Securities, or securities collateralized by U.S. Government Securities. A
description of the ratings is included in this Statement of Additional
Information under the caption "Description of Ratings of Certain Fixed Income
Securities."
For illustrative purposes, the Tax-Exempt Portfolio may include in its
supplemental sales literature from time to time a Bond Buyer Index line graph
which shows the yield obtained on twenty (20) long-term municipal bonds from
December 1980 through December 1998. The presentation consists of a line graph
with yield (presented as a percentage) reflected along a vertical axis and the
relevant time of inquiry reflected along a horizontal axis. This line graph is
for illustrative purposes only and is not meant to be indicative of any
Portfolio's total return. Information as to actual yield and total return is
set forth under "Performance Information."
The Tax-Exempt Portfolio also sometimes presents in supplemental sales
literature a line graph that displays the difference in the growth in $10,000
placed in a tax-free investment as compared to the growth of the same amount
placed in a taxable investment. This graph assumes $10,000 of principal is
invested at a nominal annual rate of 6% compounded monthly (6.17% equivalent
effective yield). The value of the investment is shown on the vertical axis
with the time period (0-20 years) over which the investment has been held being
reflected along the horizontal axis. This graph is for illustrative purposes
only and is not meant to be indicative of the Tax-Exempt Portfolio's actual
return. An investor is assumed to pay annual federal income tax at a 33% rate
on the total amount of interest credited to the account. The presentation
illustrates current tax rates, and will be modified to reflect any changes in
such tax rates.
MUNICIPAL SECURITIES
Municipal securities include obligations issued by or on behalf of states,
territories, and possessions of the United States and the District of Columbia,
and their political subdivisions, agencies, and instrumentalities, the interest
of which is exempt from Federal income tax. The tax-exempt status of the
municipal security is determined under Federal tax laws and is usually opined
upon by the issuer's bond counsel at the time of the issuance of the security.
The two principal classifications of municipal securities are notes and
bonds. Municipal notes are generally used to provide short-term working capital
needs and typically have maturities of one year or less. Municipal notes
include Project Notes, Tax Anticipation Notes, Bond Anticipation Notes and Tax-
Exempt Commercial Paper, and other similar short-term obligations.
Municipal bonds are issued to obtain funds for various public purposes,
including the construction of a wide range of public facilities such as
airports, bridges, highways, housing, hospitals, mass transportation, schools,
streets, water and sewer works, and gas and electric utilities. Municipal bonds
may also be issued in connection with the refunding of similar outstanding
obligations, or obtaining funds to lend to other public institutions, or for
general operating expenses. Industrial development bonds, which are considered
municipal bonds if the interest paid thereon is exempt from Federal income tax,
are issued by or on behalf of public authorities to obtain funds to provide
various privately- operated facilities for business and manufacturing, housing,
sports, pollution control, and for airport, mass transit, port, and parking
facilities.
The two principal classifications of municipal bonds are "general
obligation" and "revenue." General obligation bonds are secured by the issuer's
pledge of its full faith, credit, and taxing power for the payment of principal
and interest. Revenue bonds are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases from the proceeds
of a special tax or other specific revenue source. Although industrial
development bonds are issued by municipal authorities, they are generally
secured by specific facilities financed by the proceeds and, payable only from
the revenues derived from the industrial user of those facilities. Payment of
principal and interest on industrial revenue bonds generally depends on the
ability of such user to meet its financial obligations, or, in case of default,
upon the amount realizable upon the disposition of property pledged as security
for payment of the user's obligation.
Obligations of issuers of municipal securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Reform Act of 1978. In
addition, the obligations of such issuers may become subject to laws enacted in
the future by Congress, state legislatures, or referenda extending the time for
payment of principal and/or interest, or imposing other constraints upon
enforcement of such obligations or upon the issuer's ability to generate tax
revenues. There is also the possibility that, as a result of litigation or
other conditions, the authority or ability of an issuer to pay, when due, the
principal of and interest on its municipal securities may be materially
affected.
GOVERNMENT SECURITIES
Direct obligations issued by the U.S. Treasury include bills, notes and
bonds which differ from each other only as to interest rate, maturity and time
of issuance. Treasury Bills have a maturity of one year or less, Treasury Notes
have maturities of one to ten years and Treasury Bonds generally have maturities
of greater than ten years.
In addition to direct obligations issued by the U.S. Treasury, the
Portfolios may also invest in obligations issued by agencies or
instrumentalities of the U.S. Government; provided that with respect to the
Government Portfolio, such obligations are backed by the unconditional full
faith and credit of the U.S. government, its agencies or instrumentalities.
OPTIONS
To the extent consistent with their investment objectives, the S&P 100 Plus
and PSE Tech 100 Index Portfolios will employ options strategies designed to
hedge protectively against any anticipated adverse movements in the market
values of its portfolio securities or securities it intends to purchase and to
enhance return.
Listed options are traded on each of the stocks in the S&P 100 Index, and
the S&P 100 Plus Portfolio may write (sell) covered call options and put
options, and may purchase call options and put options on individual stocks as
well as on stock indices (including the S&P 500 Index and S&P 100 Index) for the
purposes and subject to the limitations stated herein and as outlined in
"Risk/Return Information; Investment Objectives and Strategies - S&P 100 Plus
Portfolio" in the Prospectus. The S&P 100 Plus Portfolio may seek to enhance
its return by writing covered call options for purchasing put options with
respect to some or all of the individual stocks held in its portfolio. Through
the purchase of call and put options with respect to individual stocks, the
Portfolio may at times protectively hedge against an increase in the price of
securities which the Portfolio plans to purchase or against a decline in the
value of securities owned by the Portfolio. Whenever the Portfolio does not own
securities underlying an open option position sufficient to cover the position,
the Portfolio will maintain in a segregated account with its depository cash or
cash equivalents sufficient to cover the market value of the open position. The
S&P 100 Plus Portfolio may also engage in option transactions on securities
indices as a strategy to hedge against anticipated declines in the S&P 100 Index
(and thereby to hedge against a similar decline in its portfolio) and to enhance
the Portfolio's return through premium income.
The PSE Tech 100 Index Portfolio may write (sell) covered call options and
put options, and may purchase call options and put options on stock indices for
the purposes and subject to the limitations outlined in "Risk/Return
Information; Investment Objectives and Strategies - PSE Tech 100 Index
Portfolio" in the Prospectus. See also "Risk/Return Information; Investment
Objectives and Strategies - Additional Investment Practices and Risks -- Index
Options and Futures" in the Prospectus.
Options on individual stocks may also be utilized by the Dividend Achievers
Portfolio to enhance income and for hedging purposes, but the Advisors has no
plans to do so at this time.
A call option on a security gives the purchaser of the option the right to
buy, and the writer (seller) of the option the obligation to sell, the
underlying security at the exercise price at any time during the option period.
The premium paid to the writer is the consideration for undertaking the
obligations under the option contract. A call option written (sold) by a
Portfolio exposes the Portfolio during the term of the option to possible loss
of an opportunity to realize appreciation in the market price of the related
portfolio security, or to possible continued holding of a security which might
otherwise have been sold to protect against depreciation in the market price of
the security.
A call option is considered to be covered if: (i) the writer (seller)
thereof owns the security underlying the call or has an absolute and immediate
right to acquire that security without payment of additional cash consideration
(or for additional cash consideration held in a segregated account by its
custodian or depository) upon conversion or exchange of other securities; (ii)
the writer holds on a unit-for-unit basis a call on the same security as the
call written, and the exercise price of the call purchased is equal to or less
than the exercise price of the call written, or greater than the exercise price
of the call written if the difference is maintained by the Portfolio in cash or
cash equivalents in a segregated account with its custodian or depository; or
(iii) the writer maintains in a segregated account with its custodian or
depository cash or cash equivalents sufficient to cover the market value of the
open position.
An option on an index is a contract that gives the holder of the option, in
return for payment of a premium, the right to demand from the seller (call)
delivery of cash in an amount equal to the value of the index at a specified
exercise price at any time during the term of the option. Upon exercise, the
writer of an option on an index is obligated to pay the difference between the
cash value of the index and the exercise price multiplied by the specified
multiplier for the index option. A call option on an index is considered to be
covered if the writer (seller) maintains with its custodian or depository cash
or cash equivalents equal to the contract value. A call option is also covered
if the writer holds a call on the same index as the call written where the
exercise price of the call purchased is equal to or less than the exercise price
of the call written.
A put option on a security gives the purchaser of the option the right to
sell, and the writer (seller) of the option the obligation to buy, the
underlying security at the exercise price at any time during the option period.
A put option on a securities index gives the purchaser of the option the right
to sell, and the writer (seller) of the option the obligation buy, the cash
value of the index at any time during the option.
A put option on an index is covered if a writer holds a put on the same
index as the put written where the exercise price of the put held is (i) equal
to or greater than the exercise price of the put written, or (ii) less than the
exercise price of the put written provided the difference is maintained by the
writer in cash or cash equivalents in a segregated account with its custodian or
depository.
A Portfolio will only purchase put options on individual securities held by
the Portfolio, or, in the case of the S&P 100 Plus Portfolio and the PSE Tech
100 Index Portfolio, on securities indices which, in the opinion of the
Advisors, have investment characteristics similar to those of securities in the
Portfolio or an index on the securities.
Whenever a Portfolio does not own securities underlying an open option
position sufficient to cover the position, or whenever a Portfolio has written
(sold) a put, the Portfolio will maintain in a segregated account with its
Custodian cash or cash equivalents sufficient to cover the exercise price or,
with respect to index options, the market value of the open position. The
purchase of a put option may be intended to protect the Portfolio from the risk
of a decline in the value of a security below the exercise price of the option.
The Portfolio may ultimately sell the option in a closing sale transaction,
exercise it or permit it to expire.
FUTURES
The S&P 100 Plus Portfolio and PSE Tech 100 Index Portfolio may purchase
and sell exchange-traded index futures contracts on the S&P 500 Index (and on
the PSE Technology Index, in the case of the PSE Tech 100 Index Portfolio) for
the purposes and strategies described in the Prospectus. A futures contract on
an index is an agreement by which one party agrees to accept delivery of, and
the other party agrees to make delivery of, an amount of cash equal to the
difference between the value of the underlying index at the close of the last
trading day of the futures contract and the price at which the contract
originally was written. Although the value of an index might be a function of
the value of certain specified securities, no physical delivery of those
securities is made.
Futures contracts covering the S&P 500 Index and PSE Technology Index
presently are traded on the Chicago Mercantile Exchange and the New York Futures
Exchange, respectively. The S&P 100 Plus Portfolio and PSE Tech 100 Index
Portfolio also may engage in transactions involving futures contracts on other
indices presently traded or in the future created and traded on national stock
exchanges if, in the opinion of the Board of Directors of Principal
Preservation, such futures contracts are appropriate instruments to help the
Advisors achieve the respective Portfolio's objective.
Each of the S&P 100 Plus and PSE Tech 100 Index Portfolios generally will
limit its use of futures contracts to hedging transactions. For example, the
S&P 100 Plus Portfolio or PSE Tech 100 Index Portfolio might use futures
contracts to equitize uncommitted cash or to hedge against anticipated declines
in the cash value of the S&P 100 Index or the PSE Technology Index, as the case
may be. Each such Portfolio also may sell futures contracts to hedge against
anticipated declines in common stocks presently owned and may purchase futures
contracts to hedge against anticipated increases in common stocks the Portfolio
intends to purchase. The success of any hedging technique depends on the
abilities of the Advisors correctly to predict changes in the level and
direction of movement in the underlying index. Should these predictions prove
incorrect, each such Portfolio's return might have been better had hedging not
been attempted; however, in the absence of the ability to hedge, the Advisors
might have taken portfolio actions in anticipation of the same market movements
with similar investment results but, presumably, at greater transaction costs.
The Portfolios will only enter into futures contracts which are standardized and
traded on a U.S. exchange, board of trade, or similar entity, or quoted on an
automated quotation system.
When a purchase or sale of a futures contract is made by a Portfolio, the
Portfolio is required to deposit with the Custodian (or broker, if legally
permitted) a specified amount of cash or U.S. Government Securities ("initial
margin"). The margin required for a futures contract is set by the exchange on
which the contract is traded and may be modified during the term of the
contract. The initial margin is in the nature of a performance bond or good
faith deposit on the futures contract which is returned to the Portfolio upon
termination of the contract, assuming all contractual obligations have been
satisfied. Each of the S&P 100 Plus Portfolio and PSE Tech 100 Index Portfolio
expects to earn interest income on its initial margin deposits. A futures
contract held by the Portfolio is valued daily at the official settlement price
of the exchange on which it is traded. Each day the Portfolio pays or receives
cash, called "variation margin," equal to the daily change in value of the
futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by the Portfolio, but is instead a
settlement between the Portfolio and the broker of the amount one would owe the
other if the futures contract expired. In computing daily net asset value, each
of the S&P 100 Plus Portfolio and PSE Tech 100 Index Portfolio will mark to
market all of its open futures positions.
While a Portfolio maintains an open futures position, the Portfolio must
maintain with the Custodian, in a segregated account, assets with a market value
sufficient to cover the Portfolio's exposure on the position (less the amount of
the margin deposit associated with the position). A Portfolio's exposure on a
futures contract is equal to the amount paid for the contract by the Portfolio.
Index futures contracts in which the S&P 100 Plus Portfolio or PSE Tech 100
Index Portfolio will invest are closed out prior to delivery by offsetting
purchases or sales of matching futures contracts (same exchange, underlying
index, and delivery month), or in cash. If an offsetting purchase price is less
than the original sale price, the Portfolio would realize a capital gain, or if
it is more, the Portfolio would realize a capital loss. Conversely, if an
offsetting sale price is more than the original purchase price, the Portfolio
would realize a capital gain, or if it is less, the Portfolio would realize a
capital loss. The transaction costs must also be included in these
calculations.
There are several risks associated with the use of futures contracts in the
manner intended by the S&P 100 Plus Portfolio and PSE Tech 100 Index Portfolio.
A purchase or sale of a futures contract may result in losses in excess of the
amount invested in the futures contract. There can be no guarantee that there
will be a correlation between the price movements in the underlying index and in
the portfolio securities being hedged or the index being simulated, as the case
may be. In addition, there are significant differences between the securities
and futures markets that could result in an imperfect correlation between the
markets, causing a given strategy not to achieve its objective. The degree of
imperfection of correlation depends on circumstances such as: variations in
speculative market demand for futures and differences between the financial
instruments being hedged or replicated and the instruments underlying the
standard contracts available for trading.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of the futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day,
and therefore does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example, futures prices
have occasionally moved to the daily limit for several consecutive trading days
with little or no trading, thereby preventing prompt liquidation of positions
and subjecting some holders of futures contracts to substantial losses. There
can be no assurance that a liquid market will exist at a time when a Portfolio
seeks to close out a futures position and the Portfolio would continue to be
required to meet margin requirements until the position is closed.
To minimize such risks, neither the S&P 100 Plus Portfolio nor the PSE Tech
100 Index Portfolio will enter into a futures contract if, immediately after
such transaction, the initial margin deposits for futures contracts held by the
Portfolio would exceed 5% of the Portfolio's total assets. Additionally, the
Portfolio may not maintain open short positions in futures contracts or call
options written on indices if, in the aggregate, the market value of all such
open positions exceeds the current value of the securities in the Portfolio's
investment portfolio, plus or minus unrealized gains and losses on the open
positions, adjusted for the historical relative volatility of the relationship
between the portfolio and the positions. For this purpose, to the extent a
Portfolio has written call options on specific securities in its investment
portfolio, the value of those securities will be deducted from the current
market value of the securities portfolio.
TAXATION OF OPTIONS AND FUTURES
If a Portfolio exercises a call or put option it owns, the premium paid for
the option is added to the cost of the security purchased (call) or deducted
from the proceeds of the sale (put). For cash settlement options, the
difference between the cash received at exercise and the premium paid is a
capital gain or loss. If a call or put option written by a Portfolio is
exercised, the premium is included in the proceeds of the sale of the underlying
security (call) or reduces the cost of the security purchased (put). For cash
settlement options, the difference between the cash paid at exercise and the
premium received is a capital gain or loss. Entry into a closing purchase
transaction will result in capital gain or loss. If an option was "in the
money" at the time it was written and the security covering the option was held
for more than one year prior to the writing of the option, any loss realized as
a result of a closing purchase transaction will be long-term for federal tax
purposes. The holding period of the securities covering an "in the money"
option will not include the period of time the option was outstanding.
A futures contract held until delivery results in capital gain or loss
equal to the difference between the price at which the futures contract was
entered into and the settlement price on the earlier of the delivery notice date
or the expiration date. Should a Portfolio ever deliver securities under a
futures contract (which is not expected to occur), the Portfolio will realize a
capital gain or loss on those securities.
For federal income tax purposes, a Portfolio generally is required to
recognize as income for each taxable year its net unrealized gains and losses as
of the end of the year on options and futures positions ("year-end mark to
market"). Generally any gain or loss recognized with respect to such positions
(either by year-end mark to market or by actually closing of the positions) is
considered to be 60% long term and 40% short term, without regard to the holding
periods of the contracts. However, in the case of positions classified as part
of a "mixed straddle," the recognition of losses on certain positions (including
options and futures positions, the related securities positions and certain
successor positions thereto) may be deferred to a later taxable year. Sales of
futures contracts or writing of call options or buying put options which are
intended to hedge against a change in the value of securities held by a
Portfolio may affect the holding period of the hedged securities.
Each Portfolio distributes to shareholders annually any net capital gains
which have been recognized for federal income tax purposes (including year-end
mark to market gains) on options and futures transactions. Such distributions
are combined with distributions of capital gains realized on the Portfolio's
other investments and shareholders are advised of the nature of the payments.
S&P 100 INDEX AND PSE TECHNOLOGY INDEX
For illustrative purposes, the S&P 100 Plus Portfolio and the PSE Tech 100
Index Portfolio sometimes includes in their supplemental sales literature a line
graph showing the similarity of the price patterns of the S&P 100 and the S&P
500 stock indices (in the case of the S&P 100 Plus Portfolio), and the PSE
Technology Index (in the case of the PSE Tech 100 Index Portfolio), over the
past decade. The presentation isplays superimposed line graphs of annual
prices of the S&P 100 and the S&P 500 stock indices or the PSE Technology Index,
as the case may be, over approximately a 10-year period, with prices reflected
on the vertical axis and years reflected on the horizontal axis.
The S&P 100 Index is based upon stocks which are all listed on the NYSE and
all have equity options trading on the CBOE. The S&P 100 Index was also the
first stock index listed for options trading. The S&P 100 Index was designed to
track closely the S&P 500 Index, which is designed to be representative of the
stock market as a whole. The S&P 100 stocks are all included in the S&P 500
Index. The graph indicates that there have been some modest discrepancies
between the stock prices in the S&P 100 Index and the S&P 500 Index in recent
years, as compared to the very high price correlation observed between those
indices in earlier years. Historical prices are not necessarily indicative of
the future prices of either of these indices, or of the performance of the S&P
100 Plus Portfolio or the ability of that Portfolio to match the performance of
either of those indices or of the broad stock market generally.
The S&P 100 Plus Portfolio also sometimes presents in its supplemental
sales materials charts that compare the growth in value of a share of the S&P
100 Plus Portfolio from commencement of its operations through December 31, 1998
to the growth of the S&P 100 Index over the same period. One chart presents the
comparison on a total yield basis, and another on a gross dollar basis. Each
presentation assumes the reinvestment of all dividends.
Historical prices are not necessarily indicative of the future prices of an
index, or of the performance of a Portfolio or the ability of a Portfolio to
match the performance of an index or of the stock market generally.
FOREIGN INVESTMENTS
The Select Value Portfolio and the Managed Growth Portfolio each may invest
in foreign securities. The Select Value Portfolio may invest up to 5% of its
assets in securities of foreign issuers that are not publicly traded in the
United States, excluding American Depository Receipts ("ADRs") in which the
Portfolio also may invest. The Managed Growth Portfolio will not invest in
foreign securities which are not publicly traded on U.S. exchanges. However, it
may invest up to 10% of its assets in ADRs and other securities of foreign
issuers that are traded on one of the three primary U.S. exchanges.
ADRs are receipts issued by an American bank or trust company evidencing
ownership of underlying securities issued by a foreign issuer. ADRs may be
listed on a national securities exchange or may trade on the Nasdaq Stock
Market. ADR prices are denominated in United States dollars, although the
underlying security may be denominated in a foreign currency.
RISKS OF INVESTING IN FOREIGN SECURITIES. Investments in securities of
foreign issuers (including ADRs) involve certain inherent risks, including the
following:
Political and Economic Factors. Individual foreign economies of certain
countries may differ favorably or unfavorably from the United States' economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, diversification and balance of payments
position. Governments in certain foreign countries also continue to participate
to a significant degree, through ownership interest or regulation, in their
respective economies. Action by these governments could include restrictions on
foreign investment, nationalization, expropriation of goods or imposition of
taxes, and could have a significant effect on market prices of securities and
payment of interest. The economies of many foreign countries are heavily
dependent upon international trade and are accordingly affected by the trade
policies and economic conditions of their trading partners. Enactment by these
trading partners of protectionist trade legislation could have a significant
adverse effect upon the securities markets of such countries.
Currency Fluctuations. A change in the value of a foreign currency against
the U.S. dollar may affect the value of the foreign securities held by the
Select Value and Managed Growth Portfolios. The value of the Portfolio's assets
invested in securities of foreign issuers may also be affected significantly by
currency restrictions and exchange control regulations enacted from time to
time.
Market Characteristics. The Advisors expect that most foreign securities
in which the Select Value and Managed Growth Portfolios may invest will be
purchased in over-the-counter markets or on exchanges located in the countries
in which the principal offices of the issuers of the various securities are
located, if that is the best available market. Foreign exchanges and markets
may be more volatile than those in the United States, and foreign securities may
be less liquid than domestic securities. Moreover, settlement practices for
transactions in foreign markets may differ from those in United States markets,
and may include delays beyond periods customary in the United States.
Legal and Regulatory Matters. Certain foreign countries may have less
supervision of securities markets, brokers and issuers of securities, and less
financial information available to issuers, than is available in the United
States.
Taxes. Dividends and interest payable on the Select Value and Managed
Growth Portfolios' foreign portfolio securities may be subject to foreign
withholding taxes, thus reducing the net amount of income available for
distribution to the relevant Portfolio's shareholders.
In considering whether to invest in the securities of a foreign company,
the Advisors consider such factors as the characteristics of the particular
company, differences between economic trends and the performance of securities
markets within the U.S. and those within other countries, and also factors
relating to the general economic, governmental and social conditions of the
country or countries where the company is located. The extent to which either
Portfolio will be invested in ADRs will fluctuate from time to time within the
limitations imposed above, depending on the Advisors' assessment of prevailing
market, economic and other conditions.
SHORT-TERM INVESTMENTS
Each Portfolio may invest in any of the following securities and
instruments in management of cash receipts, for liquidity for anticipated
redemptions, to meet cash flow needs to enable the Portfolio to take advantage
of buying opportunities, during periods when attractive investments are
unavailable and for temporary defensive purposes. Normally, a Portfolio will
invest less than 10% of its total assets in short-term investments, although the
Advisors have discretion to increase a Portfolio's cash position without limit
for temporary defensive purposes.
SHORT SALES "AGAINST-THE-BOX." Any of the Portfolios may make short sales
of securities or maintain a short position, provided that at all times when a
short position is open the Portfolio owns an equal amount of such securities of
the same issue as the securities sold short. A Portfolio may not engage in a
short sale if the transaction would result in more than 10% of the Portfolio's
net assets being held as collateral for such short sales. Short sales
structured in this fashion are referred to as short sales "against-the-box." A
Portfolio might use short sales against-the-box, for example, to defer the
realization of a capital gain for federal income tax purposes.
GOVERNMENT SECURITIES. Each Portfolio may acquire Government Securities.
A discussion of Government Securities is included under the caption "Investment
Program - Government Securities" above.
BANK CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS. Each
Portfolio may acquire certificates of deposit, bankers' acceptances and time
deposits. Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earn a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers' acceptances acquired by the Portfolio will
be dollar-denominated obligations of domestic banks or financial institutions
which at the time of purchase have capital, surplus and undivided profits in
excess of $100 million, based on latest published reports, or less than $100
million if the principal amount of such bank obligations are fully insured by
the U.S. Government.
In addition to purchasing certificates of deposit and bankers' acceptances,
to the extent permitted under its investment objective and policies, each
Portfolio may make interest-bearing time or other interest-bearing deposits in
commercial or savings banks. Time deposits are non-negotiable deposits
maintained at a banking institution for a specified period of time at a
specified interest rate.
SAVINGS ASSOCIATION OBLIGATIONS. Each Portfolio may invest in certificates
of deposit (interest-bearing time deposits) issued by savings banks or savings
and loan associations that have capital and undivided profits in excess of $100
million, based on latest published reports, or less than $100 million if the
principal amount of such obligations is fully insured by the U.S. Government.
COMMERCIAL PAPER, SHORT-TERM NOTES, VARIABLE RATE DEMAND NOTES, REPURCHASE
AGREEMENTS AND OTHER CORPORATE OBLIGATIONS. Each Portfolio may invest a portion
of its assets in high quality commercial paper and short-term notes, including
variable rate demand notes. Commercial paper consists of unsecured promissory
notes issued by corporations. Issues of commercial paper and short-term notes
will normally have maturities of less than nine months and fixed rates of
return, although such instruments may have maturities of up to one year.
Corporate obligations include bonds and notes issued by corporations to
finance longer-term credit needs than supported by commercial paper. While such
obligations generally have maturities of ten years or more, a Portfolio may
purchase high quality corporate obligations which have remaining maturities of
one year or less from the date of purchase.
Each Portfolio also may purchase corporate obligations known as variable
rate demand notes. Variable rate demand notes are unsecured instruments that
permit the indebtedness thereunder to vary and provide for periodic adjustments
in the interest rate. Although the notes are not normally traded and there may
be no secondary market in the notes, a Portfolio may demand payment of principal
and accrued interest at any time. The investment policies of each Portfolio
permit the purchase of variable rate demand notes only if, at the time of
purchase, the notes are rated in the two highest rating categories by a
Nationally Recognized Statistical Rating Organization, or, if unrated, the
issuer has unsecured debt securities outstanding of an equivalent rating.
Each Portfolio also may invest in repurchase agreements as short-term
instruments. See "Investment Program - Repurchase Agreements" below.
MONEY MARKET FUNDS. Each Portfolio may invest in money market mutual
funds. An investment by a Portfolio in a money market mutual fund may cause the
Portfolio to incur duplicate and/or increased administration and distribution
expenses. Such investments are limited under the 1940 Act and by applicable
investment restrictions. See "Investment Restrictions" in this Statement of
Additional Information.
REPURCHASE AGREEMENTS
Each Portfolio may from time to time enter into repurchase agreements.
Repurchase agreements involve the sale of securities to the purchasing Portfolio
with the concurrent agreement of the seller to repurchase the securities at the
same price plus an amount equal to an agreed upon interest rate within a
specified time, usually less than one week, but on occasion for a longer period.
Each Portfolio may enter into repurchase agreements with broker-dealers and with
banks. At the time a Portfolio enters into a repurchase agreement, the value of
the underlying security, including accrued interest, will be equal to or exceed
the value of the repurchase agreement and, in the case of repurchase agreements
exceeding one day, the seller will agree that the value of the underlying
security, including accrued interest, will at all times be equal to or exceed
the value of the repurchase agreement. Each Portfolio will require continual
maintenance of cash or cash equivalents held by its depository in an amount
equal to, or in excess of, the market value of the securities which are subject
to the agreement.
In the event the seller of the repurchase agreement becomes the subject of
a bankruptcy or insolvency proceeding, or in the event of the failure of the
seller to repurchase the underlying security as agreed, a Portfolio could
experience losses that include: (1) possible decline in the value of the
underlying security during the period that the Portfolio seeks to enforce its
rights with respect thereto, and possible delay in the enforcement of such
rights; (2) possible loss of all or a part of the income or proceeds of the
repurchase; (3) additional expenses to the Portfolio in connection with
enforcing those rights; and (4) possible delay in the disposition of the
underlying security pending court action or possible loss of rights in such
securities. The Advisors will invest in repurchase agreements only when they
determine that the Portfolio should invest in short-term money market
instruments and that the rates available on repurchase agreements are favorable
as compared to the rates available on other short-term money market instruments
or money market mutual funds. The Advisors do not currently intend to invest
the assets of any Portfolio in repurchase agreements if, after doing so, more
than 5% of the Portfolio's net assets would be invested in repurchase
agreements.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Tax-Exempt Portfolio and the Government Portfolio may purchase or sell
securities in when-issued or delayed delivery transactions. In such
transactions, instruments are bought or sold with payment and delivery taking
place in the future in order to secure what is considered to be an advantageous
yield or price to the purchasing Portfolio at the time of entering into the
transactions. The payment obligations and the interest rate are fixed at the
time the buyer enters into the commitment, although no interest accrues to the
purchaser prior to settlement of the transaction. Consistent with the
requirements of the 1940 Act, securities purchased on a when-issued basis are
recorded as an asset (with the purchase price being recorded as a liability) and
are subject to changes in value based upon changes in the general level of
interest rates. At the time of delivery of the security, the value may be more
or less than the transaction price. At the time a purchasing Portfolio enters
into a binding obligation to purchase securities on a when-issued basis, liquid
assets of the Portfolio having a value at least as great as the purchase price
of the securities to be purchased are identified on the books of the Portfolio
and held by the Portfolio's depository throughout the period of the obligation.
The use of these investment strategies may increase net asset value
fluctuations.
The purchasing Portfolio will only make commitments to purchase securities
on a when-issued basis with the intention of actually acquiring the securities,
and not for the purpose of investment leverage, but the Portfolio reserves the
right to sell the securities before the settlement date if it is deemed
advisable. Any gains from such sales will be subject to federal income tax to
the extent not offset by losses on other transactions. Neither Portfolio
currently intends to purchase securities in when-issued transactions if, after
such purchase, more than 5% of the Portfolio's net assets would consist of when-
issued securities.
LENDING OF PORTFOLIO SECURITIES
In order to generate income, each Portfolio may lend its portfolio
securities to brokers, dealers and other institutional investors, provided the
Portfolio receives cash collateral which at all times is maintained in an amount
equal to at least 100% of the current market value of the securities loaned. By
reinvesting the collateral it receives in these transactions, a Portfolio could
magnify any gain or loss it realizes on the underlying investment. If the
borrower fails to return the securities and the collateral is insufficient to
cover the loss, the Portfolio could lose money. For the purposes of this
policy, each Portfolio considers collateral consisting of U.S. Government
securities or irrevocable letters of credit issued by banks whose securities
meet the standards for investment by the Portfolio to be the equivalent of cash.
During the term of the loan, the Portfolio is entitled to receive interest and
other distributions paid on the loaned securities, as well as any appreciation
in the market value. The Portfolio also is entitled to receive interest from
the institutional borrower based on the value of the securities loaned. From
time to time, a Portfolio may return to the borrower, and/or a third party which
is unaffiliated with Principal Preservation and which is acting as a "placing
broker," a part of the interest earned from the investment of the collateral
received for securities loaned.
The lending Portfolio does not have the right to vote the securities loaned
during the existence of the loan, but can call the loan to permit voting of the
securities if, in the Advisors' judgment, a material event requiring a
shareholder vote would otherwise occur before the loan is repaid. In the event
of bankruptcy or other default of the borrowing institution, a Portfolio could
experience delays in liquidating the loan collateral or recovering the loan
securities, and incur risk of loss including: (1) possible decline in the value
of the collateral or in the value of the securities loaned during the period
while the Portfolio seeks to enforce its rights thereto; (2) possible subnormal
levels of income and lack of access to income during this period; and (3)
expenses of enforcing its rights. To minimize these risks, the Advisors
evaluate and continually monitor the creditworthiness of the institutional
borrowers to which a Portfolio lends its securities.
To minimize the foregoing risks, each Portfolio's securities lending
practices are subject to the following conditions and restrictions: (1) the
Portfolio may not make such loans in excess of 33% of the value of its total
assets; (2) the Portfolio must receive cash collateral in an amount at least
equal to 100% of the value of the securities loaned; (3) the institutional
borrower must be required to increase the amounts of the cash collateral
whenever the market value of the loaned securities rises above the amount of the
collateral; (4) the Portfolio must have the right to terminate the loan at any
time; (5) the Portfolio must receive reasonable interest on the loan, as well as
any interest or other distributions on the loaned securities and any increase in
the market value of the loaned securities; and (6) the Portfolio may not pay any
more than reasonable custodian fees in connection with the loan.
INDUSTRY CONCENTRATION
There may be periods of time during which the issuers represented in the
PSE Technology Index are concentrated in one or more industries.
Notwithstanding the occurrence of such industry concentrations, the PSE Tech 100
Index Portfolio intends to maintain its investments so as to replicate that
Index. As a result, a relatively high percentage of the Portfolio's assets may
be concentrated from time to time in stocks of issuers within a single industry.
Such issuers may be subject to the same economic trends. Securities held by the
Portfolio may therefore be more susceptible to any single economic, political,
or regulatory occurrence than the portfolio securities of many other investment
companies.
PORTFOLIO TURNOVER
In general, the greater the volume of buying and selling by a mutual fund,
the greater the impact that brokerage commissions and other transaction costs
will have on its return. A mutual fund with turnover in excess of 100% engages
in a high volume of buying and selling, and likely will pay brokerage
commissions and realize more taxable gains than a mutual fund with a lower
turnover rate. High portfolio turnover rates also may result in the realization
of substantial net short-term gains. Any such gains that you receive as a
shareholder will be taxed as ordinary income for federal income tax purposes.
The Government and Select Value Portfolios expect to have portfolio
turnover rates between 100% and 200%. All of the other Portfolios expect
portfolio turnover rates of less than 100%, given the fact that the Advisors for
those Portfolios make investments for their long-term growth potential, and do
not engage in market-timing and short-term trading strategies.
Because of their passive investment strategies, the S&P 100 Plus and PSE
Tech 100 Index Portfolios expect portfolio turnover rates of less than 50%.
However, because the PSE Technology Index is "price weighted," that Portfolio
may experience higher turnover and brokerage expenses than would be the case if
the Index's component stocks were weighted by market capitalization, rather than
by price. Ordinarily the S&P 100 Plus and PSE Tech 100 Index Portfolios will
sell securities only to reflect certain administrative changes in their
respective indices (including mergers or changes in the composition of the
Index) or to accommodate cash flows into and out of the Portfolio while
attempting to replicate the composition of the relevant Index on a continuing
basis. Upon notice of a change in the composition of their respective Indices,
each of these Portfolios intends to adjust its investments as soon as reasonably
practicable to more closely replicate its respective Index. The S&P 100 Plus
Portfolio also anticipates some trading activity related to its
over/underweighting strategies, separate and apart from changes in the S&P 100
Index.
INVESTMENT RESTRICTIONS
RESTRICTIONS FOR THE TAX-EXEMPT, GOVERNMENTAL, S&P 100 PLUS AND DIVIDEND
ACHIEVERS PORTFOLIOS
Each Portfolio, other than the Select Value, PSE Tech 100 Index and Managed
Growth Portfolios, has adopted the following fundamental investment restrictions
and policies which cannot be changed without a majority vote of shareholders of
that Portfolio, except that the restriction set forth in paragraph 16 is not
fundamental. Policies that are not "fundamental policies" are subject to change
by the Board of Directors without shareholder approval. A Portfolio may not:
(1) Invest more than 5% of the fair market value of its assets in
securities of any one issuer, except for U.S. Government Securities, which may
be purchased without limitation; and, with respect to the S&P 100 Plus
Portfolio, except as necessary to parallel the composition of the S&P 100 Stock
Index. For the purposes of this limitation, the Tax-Exempt Portfolio will
regard the entity which has the ultimate responsibility for payment of principal
and interest as the issuer.
(2) Purchase more than 10% of the outstanding voting securities of an
issuer, or invest in a company to get control or manage it.
(3) Invest 25% or more of its total assets, based on current market value
at the time of purchase, in securities of issuers in any single industry;
provided that there shall be no limitation on the purchase of U.S. Government
securities or on municipal securities.
(4) Invest more than 5% of its total assets in securities of companies
which, including any predecessors, have a record of less than three years of
continuous operations.
(5) Invest in securities of other investment companies, except by
purchases as a result of which not more than 10% of the Portfolio's total assets
(taken at current value) would be invested in such securities, or except as they
may be acquired as part of a merger, consolidation, reorganization or
acquisition of assets.
(6) Buy or sell real estate, real estate investment trusts, interests in
real estate limited partnerships, oil, gas and mineral interests, or oil, gas
and mineral leases, but this shall not prevent the Tax-Exempt Portfolio from
investing in municipal securities secured by real estate or interests therein.
(7) Borrow money or property except for temporary or emergency purposes.
If a Portfolio ever should borrow money it would only borrow from banks and in
an amount not exceeding 10% of the market value of its total assets (not
including the amount borrowed). The Portfolio will not pledge more than 15% of
its net assets to secure such borrowings. In the event a Portfolio's borrowing
exceeds 5% of the market value of its total assets the Portfolio will not invest
in any additional portfolio securities until its borrowings are reduced to below
5% of its total assets. For purposes of these restrictions, collateral
arrangements for premium and margin payments in connection with a Portfolio's
hedging activities are not to be deemed to be a pledge of assets.
(8) Make loans, except that a Portfolio may lend its portfolio securities,
subject to the conditions and limitations established in this Statement of
Additional Information. See "Investment Program - Lending of Portfolio
Securities" above. For the purposes of this restriction, investments in
publicly-traded debt securities or debt securities of the type customarily
purchased by institutional investors and investments in repurchase agreements
are not considered loans.
(9) Underwrite the securities of other issuers, except that the Tax-Exempt
Portfolio may bid, separately or as part of a group, for the purchase of
municipal securities directly from an issuer for its own portfolio in order to
take advantage of the lower purchase price available.
(10) Purchase securities with legal or contractual restrictions on resale.
(11) Issue senior securities.
(12) Purchase securities on margin, make short sales or write or purchase
put and call options, except for the purposes and subject to the conditions and
limitations described in the Prospectus.
(13) Buy or sell commodities or commodity contracts.
(14) Invest in illiquid securities.
(15) Purchase warrants, valued at lower of cost or market, in excess of 5%
of the value of the Portfolio's net assets; included within the 5%, but not to
exceed 2% of the Portfolio's net assets, may be warrants which are not listed on
the New York Stock Exchange or The NASDAQ Stock Market.
(16) Purchase or retain the securities of an issuer if those officers or
Directors of Principal Preservation or the Advisors (as defined under the
caption "Management of Principal Preservation - The Investment Advisors" in this
Statement of Additional Information) who individually own beneficially more than
0.5 of 1% of the outstanding securities of such issuer together own beneficially
more than 5% of such outstanding securities.
In addition to the investment restrictions above, the Tax-Exempt Portfolio
also is subject to a fundamental investment restriction that it will invest at
least 90% of its total assets in tax-exempt municipal securities, under normal
circumstances.
Each Portfolio also is subject to certain nonfundamental investment
restrictions described below. See "Investment Restrictions - Nonfundamental
Investment Restrictions Common to All Portfolios" below.
RESTRICTIONS FOR SELECT VALUE PORTFOLIO
The Select Value Portfolio has adopted the following fundamental investment
restrictions. The Portfolio may not:
(1) Invest more than 5% of the fair market value of its assets in
securities of any one issuer, except for U.S. Government securities or bank
certificates of deposit and bankers' acceptances, which may be purchased without
such limitation.
(2) Acquire securities of any one issuer which at the time of investment
(i) represent more than 10% of the outstanding voting securities of such issuer,
or (ii) have a value greater than 10% of the value of the outstanding voting
securities of such issuer.
(3) Invest 25% or more of its total assets, based on current market value
at the time of purchase, in securities of issuers in any single industry;
provided that there shall be no limitation on the purchase of securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities.
(4) Invest more than 5% of its total assets in securities of companies
which, including any predecessors, have a record of less than three years of
continuous operations.
(5) Purchase securities on margin or effect short sales of securities (but
the Portfolio may obtain such short-term credits as may be necessary for the
clearance of transactions and may make margin payments in connection with
transactions in options, futures and options on futures).
(6) Buy or sell real estate (although it may purchase securities secured
by real estate or interests therein, or securities issued by companies which
invest in real estate or interests therein, except that it may not invest over
10% of the value of its assets in real estate investment trusts).
(7) Borrow money or property except for temporary or emergency purposes
and in connection with transactions in options, futures or futures options. If
the Portfolio ever should borrow money it would only borrow from banks and in an
amount not exceeding 10% of the market value of its total assets (not including
the amount borrowed). The Portfolio will not pledge more than 15% of its net
assets to secure such borrowings. In the event the Portfolio's borrowing
exceeds 5% of the market value of its total assets, the Portfolio will not
invest in any portfolio securities until its borrowings are reduced to below 5%
of its total assets.
(8) Make loans to other persons. For the purposes of this restriction,
investments in publicly-traded debt securities or debt securities of the type
customarily purchased by institutional investors and investments in repurchase
agreements are not considered loans.
(9) Underwrite the securities of other issuers except where it might
technically be deemed to be an underwriter for purposes of the Securities Act of
1933 upon the disposition of certain securities.
(10) Issue senior securities (other than the borrowings permitted above).
In accordance with the following non-fundamental policies, which may be
changed without shareholder approval, the Select Value Portfolio may not:
(A) Invest in companies for the purpose of exercising control or
management.
(B) Invest in securities of other open-end investment companies (other
than money market funds which are subject to restrictions described below. See
"Investment Restrictions - Non-Fundamental Investment Restrictions Common to All
Portfolios").
(C) Mortgage, hypothecate, or in any manner transfer as security for any
indebtedness, any securities owned or held by the Portfolio, except that this
restriction does not apply to borrowings permitted above.
(D) Purchase or retain the securities of an issuer if those officers or
Directors of Principal Preservation or the Advisors (as defined under the
caption "Management of Principal Preservation --The Investment Advisors" in this
Statement of Additional Information) who individually own beneficially more than
0.5 of 1% of the outstanding securities of such issuer together own beneficially
more than 5% of such outstanding securities.
(E) Invest more than 5% of its assets (valued at the time of investment)
in restricted securities or securities which are not readily marketable,
including (i) securities subject to legal or contractual restrictions on resale;
(ii) securities for which market quotations are not readily available; or (iii)
repurchase agreements which expire in excess of seven days.
(F) Purchase warrants, valued at lower of cost or market, in excess of 5%
of the value of the Portfolio's net assets. Included within the 5%, but not to
exceed 2% of the Portfolio's net assets, may be warrants which are not listed on
the New York Stock Exchange or on the NASDAQ Stock Market. Warrants acquired
by the Portfolio in units or attached to securities shall be deemed to be
without value for the purposes of this restriction.
(G) Buy or sell commodities or commodity contracts or invest in financial
futures, options or options on financial futures.
(H) Invest less than 65% of its total assets in common stocks.
(I) Invest over 5% of its total assets in repurchase agreements.
(K) Invest in oil, gas or other mineral exploration or development
programs, except that the Portfolio may invest in marketable securities of
enterprises engaged in oil, gas or mineral exploration.
RESTRICTIONS FOR PSE TECH 100 INDEX PORTFOLIO
The PSE Tech 100 Index Portfolio has adopted the following fundamental
investment restrictions. The Portfolio may not:
(1) Purchase more than 10% of the outstanding voting securities of an
issuer or invest in a company to get control or manage it.
(2) Borrow money or property except for temporary or emergency purposes.
If the Portfolio ever should borrow money it would only borrow from banks and in
an amount not exceeding 10% of the market value of its total assets (not
including the amount borrowed). The Portfolio will not pledge more than 15% of
its net assets to secure such borrowings. In the event the Portfolio's
borrowing exceeds 5% of the market value of its total assets, the Portfolio will
not invest in any portfolio securities until its borrowings are reduced to below
5% of its total assets. For purposes of these restrictions, collateral
arrangements for premium and margin payments in connection with hedging
activities, if any, are not to be deemed to be a pledge of assets.
(3) Make loans, except that it may lend its portfolio securities. For the
purposes of this restriction, investments in publicly-traded debt securities or
debt securities of the type customarily purchased by institutional investors and
investments in repurchase agreements are not considered loans.
(4) Underwrite the securities of other issuers, except where it might
technically be deemed to be an underwriter for purposes of the Securities Act of
1933 upon the disposition of certain securities.
(5) Issue senior securities.
(6) Purchase a security if, as a result, more than 10% of the value of the
Portfolio's net assets would be invested in: (i) securities with legal or
contractual restrictions on resale (other than investments and repurchase
agreements); (ii) securities for which market quotations are not readily
available; and (iii) repurchase agreements which do not provide for payment
within 7 days.
(7) Invest in commodities, but the Portfolio may invest in futures
contracts and options.
(8) Purchase securities on margin or effect short sales of securities,
except short sales "against the box" (but the Portfolio may obtain such short-
term credits as may be necessary for the clearance of transactions and may make
margin payments in connection with transactions in options and futures
transactions).
(9) Buy or sell real estate, real estate investment trusts, real estate
limited partnerships, or oil and gas interests or leases.
In accordance with the following non-fundamental policies, which may be
changed without shareholder approval, the PSE Tech 100 Index Portfolio may not:
(A) Invest more than 5% of its total assets in securities of companies
which, including any predecessors, have a record of less than three years of
continuous operations.
(B) Purchase warrants, except that the Portfolio may purchase warrants
which, when valued at lower of cost or market, do not exceed 5% of the value of
the Portfolio's net assets; included within the 5%, but not to exceed 2% of the
Portfolio's net assets, may be warrants which are not listed on the New York
Stock Exchange or the NASDAQ Stock Market.
(C) Purchase or retain the securities of an issuer if those officers or
Directors of Principal Preservation or the Advisors (as defined under the
caption "Management of Principal Preservation-The Investment Advisors" in this
Statement of Additional Information) who individually own beneficially more than
0.5 of 1% of the outstanding securities of such issuer together own beneficially
more than 5% of such outstanding securities; provided that no officer or
director shall be deemed to own beneficially securities held in other accounts
managed by such person or held in employee or similar plans for which such
person acts as trustee.
(D) Purchase securities of other investment companies if the purchase
would cause more than 10% of the value of the total assets of the Portfolio to
be invested in investment company securities, provided that: (i) no investment
will be made in the securities of any single investment company if, immediately
after such investment, more than 3% of the outstanding voting securities of such
investment company would be owned by the Portfolio or more than 5% of the value
of the total assets of the Portfolio would be invested in such investment
company; and (ii) no such restrictions shall apply to a purchase of investment
company securities as a part of a merger, consolidation, reorganization or
acquisition of assets.
With respect to fundamental investment restriction (6) above for the PSE
Tech 100 Index Portfolio, portfolio securities are classified by the Advisors as
liquid or illiquid under the supervision of, and pursuant to guidelines
established by, the Board of Directors of Principal Preservation. It is
possible that the 10% limitation on illiquid securities could be exceeded as a
result of a security which, although liquid at the time of purchase, later is
classified by the Advisors as illiquid as a result of market conditions or
developments with respect to the issuer. Under such circumstances the Board of
Directors would investigate and consider all of the surrounding circumstances,
would evaluate all available alternatives to bring the PSE Tech 100 Index
Portfolio back into compliance with the 10% limitation as soon as reasonably
practicable, and would take appropriate action. However, the Portfolio would
not necessarily be required immediately to dispose of illiquid securities until
the 10% limitation is met if, in the judgment of the Board of Directors, it
would not be in the best interests of the shareholders to do so. Disposing of
illiquid investments potentially may involve time-consuming negotiation and
legal expenses, and it may be difficult or impossible for the Portfolio to sell
an illiquid security promptly at an acceptable price. The absence of a trading
market can make it difficult to ascertain the market value for illiquid
investments, and could require the Portfolio to employ special pricing
procedures. Because the stocks included in the PSE Technology Index are listed
on the NASDAQ Stock Market or the New York Stock Exchange, the Portfolio does
not anticipate any difficulty in maintaining adequate liquidity under normal
market conditions.
RESTRICTIONS FOR THE MANAGED GROWTH PORTFOLIO
The Managed Growth Portfolio has adopted the following fundamental
investment restrictions. The Portfolio may not:
(1) Invest more than 5% of the fair market value of its assets in
securities of any one issuer, except for U.S. Government securities or bank
certificates of deposit and bankers' acceptances, which may be purchased without
such limitation.
(2) Acquire securities of any one issuer which at the time of investment
(i) represent more than 10% of the outstanding voting securities of such issuer,
or (ii) have a value greater than 10% of the value of the outstanding voting
securities of such issuer.
(3) Invest 25% or more of its total assets, based on current market value
at the time of purchase, in securities of issuers in any single industry;
provided that there shall be no limitation on the purchase of securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities.
(4) Invest more than 5% of its total assets in securities of companies
which, including any predecessors, have a record of less than three years of
continuous operations.
(5) Buy or sell real estate (although it may purchase securities secured
by real estate or interests therein, or securities issued by companies which
invest in real estate or interests therein, except that it may not invest more
than 5% of the value of its assets in real estate investment trusts).
(6) Borrow money or property except for temporary or emergency purposes
and in connection with transactions in options, futures or futures options. If
the Portfolio ever should borrow money it would only borrow from banks and in an
amount not exceeding 10% of the market value of its total assets (not including
the amount borrowed). The Portfolio will not pledge more than 15% of its net
assets to secure such borrowings. In the event the Portfolio's borrowing
exceeds 5% of the market value of its total assets, the Portfolio will not
invest in any portfolio securities until its borrowings are reduced to below 5%
of its total assets.
(7) Make loans to other persons, except that the Portfolio may lend its
portfolio securities subject to the conditions and limitations set forth in this
Statement of Additional Information under "Investment Program - Lending of
Portfolio Securities." For the purposes of this restriction, investments in
publicly-traded debt securities or debt securities of the type customarily
purchased by institutional investors and investments in repurchase agreements
are not considered loans.
(8) Underwrite the securities of other issuers except where it might
technically be deemed to be an underwriter for purposes of the Securities Act of
1933 upon the disposition of certain securities.
(9) Issue senior securities (other than the borrowings permitted above).
(10) Buy or sell commodities (other than futures contracts and options
thereon).
(11) Invest more than 10% of its total assets in securities of other
investment companies, invest more than 5% of its total assets in securities of
any particular investment company or purchase more than 3% of the total
outstanding voting stock of another investment company, except that this
restriction does not apply to a purchase of investment company securities as
part of a merger, consolidation, reorganization or acquisition of assets.
In accordance with the following non-fundamental policies, which may be
changed without shareholder approval, the Portfolio may not:
(A) Invest in companies for the purpose of exercising control or
management.
(B) Invest in securities of other open-end investment companies (other
than money market mutual funds which are subject to restrictions described
above).
(C) Mortgage, hypothecate, or in any manner transfer as security for any
indebtedness, any securities owned or held by the Portfolio, except that this
restriction does not apply to borrowings permitted above.
(D) Purchase securities on margin, effect short sales of securities, write
or sell put or call options, or engage in futures transactions.
(E) Purchase or retain the securities of an issuer if those officers or
Directors of Principal Preservation or the Advisors (as defined under the
caption "Management of Principal Preservation - The Investment Advisors" in this
Statement of Additional Information) who individually own beneficially more than
0.5 of 1% of the outstanding securities of such issuer together own beneficially
more than 5% of such outstanding securities.
(F) Invest in restricted securities, securities which are not readily
marketable or other illiquid securities, including (i) securities subject to
legal or contractual restrictions on resale; (ii) securities for which market
quotations are not readily available; or (iii) repurchase agreements which
expire in excess of seven days.
(G) Purchase warrants.
(H) Invest less than 80% of its total assets in common stocks.
(I) Invest over 5% of its total assets in repurchase agreements.
(J) Invest in oil, gas or other mineral exploration or development
programs, except that the Portfolio may invest in marketable securities of
enterprises engaged in oil, gas or mineral exploration.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS COMMON TO ALL PORTFOLIOS
Also, the 1940 Act currently places further restrictions on certain
investments by each of the Portfolios, including: (a) subject to certain
exceptions, the 1940 Act currently prohibits each Portfolio from investing more
than 5% of its total assets in securities of another investment company or
purchasing more than 3% of the total outstanding voting stock of another
investment company, except that this restriction does not apply to a purchase of
investment company securities as a part of a merger, consolidation,
reorganization or acquisition of assets; and (b) the 1940 Act's limit on
aggregate holdings of illiquid securities or securities with restrictions on
resale is 15% of a Portfolio's net assets.
MANAGEMENT OF PRINCIPAL PRESERVATION
DIRECTORS AND OFFICERS
Under applicable law, the Board of Directors is responsible for management
of Principal Preservation, and provides broad supervision over its affairs. The
Advisors are responsible for the Portfolio's investment management, and
Principal Preservation's officers are responsible for the Portfolio's
operations.
The directors and officers of Principal Preservation and their principal
occupations during the past five years are set forth below. Their titles may
have varied during that period. Unless otherwise indicated, the address of each
director and officer of Principal Preservation is 215 North Main Street, West
Bend, Wisconsin, 53095. Asterisks indicate those Directors of Principal
Preservation who are "interested persons" (as defined in the 1940 Act) of any of
the Advisors or of any affiliate of any of the Advisors.
<TABLE>
POSITION WITH PRINCIPAL
PRINCIPAL OCCUPATION DURING
NAME, AGE AND ADDRESS PRESERVATION PAST FIVE YEARS
- --------------------- ------------- -----------------
<C> <C> <C>
Richard J. Glaisner,*__ Director Senior Managing Director - Ziegler Investment Division, B.C. Ziegler and
Company, since January 1999; President and Chief Executive Officer of GS2
Securities, Inc., a subsidiary of The Ziegler Companies, Inc., from July 1997
to December 1998; from 1993 to 1997, President and Chief Executive Officer of
Glaisner, Schilffarth, Grande & Schnoll, Ltd., an investment management and
investment banking firm acquired by The Ziegler Companies, Inc. in 1997;
prior thereto, Managing Director, Kidder Peabody and Company in New York
(investment banking), and prior to that, Executive Vice President, Kemper
Securities Group (securities brokerage and investment banking).
Robert J. Tuszynski,*__ President and Director Senior Vice President, B.C. Ziegler and Company, since 1996; prior thereto,
Vice President, Director of Mutual Funds, B.C. Ziegler and Company from 1987
to 1996; Trustee, Chairman of the Board and President, Prospect Hill Trust
and The Prime Portfolios (registered investment companies) from 1994 to 1996.
Richard H. Aster, M.D.,__ Director Since June 1996, Senior Investigator and Professor of Medicine, Medical
8727 W. Watertown Plank Rd. College of Wisconsin; prior thereto, President and Director of Research, The
Milwaukee, WI 53226 Blood Center of Southeastern Wisconsin, Inc.
Augustine J. English,__ Director Retired; President, Tupperware North America from 1990 to 1994
1724 Lake Roberts Court (manufacturing); prior to 1990, President, The West Bend Company
Windermere, FL 34786 (manufacturing), a division of Dart Industries, a subsidiary of Premark
International, Inc., of which Mr. English was a Group Vice President.
Ralph J. Eckert,__ Director Chairman Emeritus and Director, Trustmark Insurance Cos. (Mutual Life
2059 Keystone Ranch Road Insurance Company) since April 1997; from 1991 to 1997, Chairman, Trustmark
Dillon, CO 80435 Insurance Cos; prior to 1991, Chairman, President and Chief Executive
Officer, Trustmark Insurance Cos; Trustee of the Board of Pensions of the
Evangelical Lutheran Church in America from 1991 to 1997, and Chairman of the
Board from 1993 to 1997; Trustee of the Board of Pensions for the Lutheran
Church in America from 1987 to 1989; and Trustee of The Prime Portfolios
(registered investment company) from 1993 to 1996.
John H. Lauderdale,__ Vice President - Wholesaler, B.C. Ziegler and Company since 1991; prior thereto, Marketing
Director of Marketing Account Executive, The Patten Company.
Franklin P. Ciano,__ Chief Financial Officer Manager of Principal Preservation Operations, B.C. Ziegler and Company since
and Treasurer 1996; prior thereto, Vice President, Fixed Income Department, Firstar Bank.
Marc J. Dion,__ Vice President Vice President - Portfolio Manager and Chief Investment Officer, Ziegler
Asset Management, Inc.
S. Charles O'Meara,__ Secretary Senior Vice President, General Counsel and Corporate Secretary, B.C. Ziegler
and Company.
</TABLE>
Principal Preservation pays the compensation of the three Directors who
are not officers, directors or employees of Ziegler. Principal Preservation
pays each of these Directors an annual fee of $12,000 and an additional $450 for
each Board or committee meeting he attends. Principal Preservation may also
retain consultants, who will be paid a fee, to provide the Board with advice and
research on investment matters. Each Portfolio, together with Principal
Preservation's other series, pays a proportionate amount of these expenses based
on its total assets.
The table below shows fees paid to Directors of Principal Preservation for
the year ended December 31, 1998. Each series of Principal Preservation pays a
proportionate share of these expenses based on the ratio such series' total
assets bear to the aggregate of the total assets of all nine series of Principal
Preservation. Principal Preservation made no payments to its officers or
directors who are affiliated with any of the Advisors.
<TABLE>
PENSION OR
RETIREMENT
BENEFITS ACCRUED TOTAL COMPENSATION
NAME OF PERSON AND AGGREGATE AS PART OF FROM PRINCIPAL
POSITION WITH COMPENSATION PRINCIPAL ESTIMATED ANNUAL PRESERVATION AND
PRINCIPAL FROM PRINCIPAL PRESERVATION'S BENEFITS UPON FUND COMPLEX
PRESERVATION PRESERVATION EXPENSES RETIREMENT PAID TO DIRECTORS
------------ ------------ ------------- --------------- -------------------
<S> <C> <C> <C> <C>
R. D. Ziegler,
President and Director (1)<F59> -0- -0- -0- -0-
Richard J. Glaisner,
Director (2)<F60> -0- -0- -0- -0-
Robert J. Tuszynski,
President and Director -0- -0- -0- -0-
Richard H. Aster,
Director $14,250 -0- -0- $14,250
Augustine J. English,
Director $14,250 -0- -0- $14,250
Ralph J. Eckert
Director $14,250 -0- -0- $14,250
</TABLE>
(1)<F59> Mr. Ziegler retired from his position as Director effective May 15,
1998.
(2)<F60> At a special meeting held on May 15, 1998, Mr. Glaisner was elected by
shareholders as a Director to fill the vacancy created by Mr.
Ziegler's retirement.
ELIMINATION OF SALES LOADS FOR AFFILIATES
Class A shares of each Portfolio may be purchased at net asset value (that
is, without a front-end sales charge) by directors and officers of Principal
Preservation (including shares purchased by any such person's spouse, children
or grandchildren under age 21, and by employees of B.C. Ziegler and Company,
Ziegler Asset Management (the sub-advisor for all of the Portfolios except for
the Select Value and Managed Growth Portfolios), Geneva Capital Management Ltd.
(the sub-advisor for the Managed Growth Portfolio) and Skyline Asset Management,
L.P. (the sub-advisor for the Select Value Portfolio), and the trustee or
custodian under any pension or profit-sharing plan established for the benefit
of any such employees. The term "employees" includes an employee's spouse
(including the surviving spouse of a deceased employee), parents (including
step-parents and in-laws), children, grandchildren under age 21, siblings, and
retired employees. Principal Preservation permits such persons to purchase
Class A shares of each Portfolio without a sales charge because of the minimum
sales effort to accommodate these persons. The elimination of the sales load
for these affiliates also encourages them to invest in Principal Preservation
and rewards them for their services to Principal Preservation.
THE INVESTMENT ADVISORS
Pursuant to the terms of an Investment Advisory Agreement, Ziegler
provides each Portfolio with overall investment advisory and administrative
services. Subject to such policies as the Principal Preservation Board of
Directors may determine, Ziegler makes investment decisions on behalf of the
Portfolio, makes available research and statistical data in connection
therewith, and supervises the acquisition and disposition of investments by the
Portfolio. Principal Preservation and Ziegler have retained Ziegler Asset
Management, Skyline Asset Management, L.P. ("Skyline") and Geneva Capital
Management Ltd. ("Geneva Capital") to serve as sub-advisors to certain of the
Portfolios.
Ziegler Asset Management serves as sub-advisor to each of the S&P 100
Plus, Dividend Achievers and PSE Tech 100 Index Portfolios. Each of Ziegler and
Ziegler Asset Management is a wholly-owned subsidiary of The Ziegler Companies,
Inc., a publicly-held financial services holding company. As indicated in the
table above (see "Management of Principal Preservation - Directors and
Officers"), Richard J. Glaisner, a Director of Principal Preservation, Robert J.
Tuszynski, President and a Director of Principal Preservation, John H.
Lauderdale, Vice President - Director of Marketing of Principal Preservation,
Franklin P. Ciano, Chief Financial Officer and Treasurer of Principal
Preservation, Marc J. Dion, Vice President of Principal Preservation and S.
Charles O'Meara, Secretary of Principal Preservation, each also serve as
officers of either or both of Ziegler and Ziegler Asset Management. No other
officer or Director of Principal Preservation is an officer or director of any
of the Advisors or of any affiliate of any of the Advisors.
The advisory and sub-advisory agreements pursuant to which the Advisors
are retained by the Portfolios provide for compensation to the Advisors
(computed daily and paid monthly) at annual rates based on the relevant
Portfolio's average daily net assets as follows:
<TABLE>
ADVISORY FEE SUB-ADVISORY FEE PAID BY
PORTFOLIO PAID TO ZIEGLER ZIEGLER TO THE SUB-ADVISOR(1)<F61>
--------- ---------------- -----------------------------
<S> <C> <C>
TAX-EXEMPT AND GOVERNMENT PORTFOLIOS:
First $50 million in assets 0.60 of 1% None
Next $200 million in assets 0.50 of 1%
Assets over $250 million 0.40 of 1%
S&P 100 PLUS PORTFOLIO:
First $20 million in assets 0.575 of 1% One-Fourth of the
Next $30 million in assets 0.450 of 1% Advisory Fee
Next $50 million in assets 0.400 of 1%
Next $400 million in assets 0.350 of 1%
Assets over $500 million 0.300 of 1%
DIVIDEND ACHIEVERS PORTFOLIO:
First $250 million in assets 0.75 of 1% One-Fourth of the
Next $250 million in assets 0.70 of 1% Advisory Fee
Assets over $500 million 0.65 of 1%
SELECT VALUE PORTFOLIO:
First $250 million in assets 0.75 of 1% 0.375 of 1%
Next $250 million in assets 0.65 of 1% 0.350 of 1%
Assets over $500 million 0.65 of 1% 0.325 of 1%
PSE TECH 100 INDEX PORTFOLIO:
First $250 million in assets 0.50 of 1% One-Fourth of the
Next $200 million in assets 0.30 of 1% Advisory Fee
Next $250 million in assets 0.25 of 1%
Assets over $500 million 0.20 of 1%
MANAGED GROWTH PORTFOLIO:
First $250 million in assets 0.75 of 1% 0.375 of 1%
Next $250 million in assets 0.70 of 1% 0.350 of 1%
Assets over $500 million 0.65 of 1% 0.325 of 1%
</TABLE>
- -------------------------------------
(1)<F61> Ziegler (and not the Portfolios) pays fees to the sub-advisors out of
the advisory fees it receives from each Portfolio.
During the past three years, Ziegler paid (out of the advisory fee it
received from the Select Value Portfolio) to Skyline the following sub-advisory
fees: 1998 - $ ; 1997 - $ and 1996 - $ . Prior to May 1,
1999, the investment management services and administrative services for the S&P
100 Plus, Dividend Achievers and PSE Tech 100 Index Portfolios were provided
without a sub-advisor, so no sub-advisory fees were paid with respect to those
Portfolios prior to that date. Because the Managed Growth Portfolio first
commenced operations on January 1, 1999, no advisory or sub-advisory fees were
paid with respect to that Portfolio prior to that date.
The following table shows the fees paid to Ziegler by each Portfolio
during the past three years.
ADVISORY FEES PAID TO ZIEGLER
PORTFOLIO 1998 1997 1996
- --------- ---- ---- ----
Tax-Exempt(1)<F62> $ $359,288 $ 365,939
Government(1)<F62> 248,936 275,693
S&P 100 Plus(1)<F62>(2)<F63> 424,699 335,560(2)<F63>
Dividend Achievers(1)<F62> 265,344 206,154
Select Value(1)<F62> 50,294 31,295
PSE Tech 100 Index(1)<F62> 76,584 11,180(3)<F64>
(1)<F62> Does not reflect Ziegler's voluntary fee waivers and/or expense
reimbursements (a) to the Select Value Portfolio in the amounts of
$ , $65,968 and $57,688 for the years ended December 31,
1998, 1997 and 1996, respectively; (b) to the Dividend Achievers
Portfolio in the amounts of $ , $34,811 and $34,553 for the
years ended December 31, 1998, 1997 and 1996, respectively; (c) to the
Tax-Exempt Portfolio in the amount $3,708 for the year ended December
31, 1996; (d) to the Government Portfolio in the amounts of $ ,
$17,630 and $19,260 for the years ended December 31, 1998, 1997 and
1996, respectively; (e) to the S&P 100 Plus Portfolio in the amounts
of $ , $98,729 and $10,411 for the years ended December 31,
1998, 1997 and 1996; or (f) to the PSE Tech 100 Index Portfolio in the
amounts of $ and $179,273 for the years ended December 31,
1998 and 1997 and $77,978 for the period from June 10, 1996
(commencement of operations) through December 31, 1996.
(2)<F63> Effective May 1, 1996, the advisory fee for the S&P 100 Plus Portfolio
was reduced from 0.75 of 1% to 0.575 of 1% on the first $20 million in
average daily net assets, and from 0.50 of 1% to 0.45 of 1% on the
next $30 million in average daily net assets. Advisory fees for net
assets over $50 million remained unchanged.
(3)<F64> Reflects fees for the period from June 10, 1996 (commencement of
operations) through December 31, 1996.
ACCOUNTING/PRICING SERVICES
In addition to serving as investment advisor, Ziegler provides certain
administrative, accounting and pricing services to Principal Preservation,
including calculating daily net asset value per share; maintaining original
entry documents and books of record and general ledgers; posting cash receipts
and disbursements; reconciling bank account balances monthly; recording
purchases and sales based upon portfolio manager communications; and preparing
monthly and annual summaries to assist in the preparation of financial
statements of, and regulatory reports for, Principal Preservation. Ziegler has
agreed to provide these services pursuant to the terms of an Accounting/Pricing
Agreement at rates found by the Board of Directors to be fair and reasonable in
light of the usual and customary charges made by unaffiliated vendors for
similar services. The current rate of payment for these services per Portfolio
per year is .03 of 1% of the Portfolio's total assets of $30 million but less
than $100 million, .02 of 1% of the Portfolio's total assets of $100 million but
less than $250 million and .01 of 1% of the Portfolio's total assets of $250
million or more, with a minimum fee of $19,000 per portfolio per year, plus
expenses.
The Accounting/Pricing Agreement will continue in effect from year to
year, as long as it is approved at least annually by Principal Preservation's
Board of Directors or by a vote of the outstanding voting securities of
Principal Preservation and in either case by a majority of the Directors who are
not parties to the Accounting/Pricing Agreement or interested persons of any
such party. The Accounting/Pricing Agreement terminates automatically if
assigned and may be terminated without penalty by either party on 60 days
notice. The Accounting/Pricing Agreement provides that neither Ziegler nor
their personnel shall be liable for any error of judgment or mistake of law or
for any loss arising out of any act or omission in the execution and the
discharge of its obligations under the Accounting/Pricing Agreement, except for
willful misfeasance, bad faith or gross negligence in the performance of their
duties or by reason of reckless disregard of their obligations and duties under
the Accounting/Pricing Agreement, and in no case shall their liability exceed
one year's fee income received by them under such Agreement.
The table below shows the total compensation paid by each Portfolio to
Ziegler for its accounting/pricing services during each of the past three years.
No amounts are shown for the Managed Growth Portfolio, because it first
commenced operations on January 1, 1999.
ACCOUNTING/PRICING FEES
FOR THE YEAR ENDED DECEMBER 31
----------------------------------
PORTFOLIO 1998 1997 1996
- --------- ---- ---- ----
Tax-Exempt $ $28,797 $28,760
Government 22,601 23,920
STP 100 Plus 37,391 29,932
Dividend Achievers 20,418 19,014
Select Value 19,000 18,900
PSE Tech 100 Index 19,000 9,025
TRANSFER AGENT SERVICES
Ziegler provides transfer agent and dividend disbursing services to the
Portfolio pursuant to the terms of a Transfer and Dividend Disbursing Agency
Agreement. Under the terms of the Transfer and Dividend Disbursing Agency
Agreement, Ziegler is entitled to reasonable compensation for its services and
expenses as agreed upon from time to time between it and the Board of Directors
of Principal Preservation. The annual rate of compensation agreed upon for
these services is $11.00 per account for the Portfolio. Ziegler is also
entitled to reimbursement for all out of pocket expenses incurred in providing
such services. Ziegler also has the right to retain certain service charges as
described from time to time in the current Prospectus of the Portfolio.
The Transfer and Dividend Disbursing Agency Agreement will continue in
effect until terminated, and may be terminated by either party without cause on
thirty (30) days' prior written notice. The Transfer and Dividend Disbursing
Agency Agreement provides that Ziegler shall be indemnified by and not be liable
to Principal Preservation or the Portfolio for any action taken or omitted by
Ziegler under such agreement, except for liability for breach of Ziegler's
obligation to maintain all Principal Preservation records in absolute
confidence.
OTHER SERVICES PROVIDED BY ZIEGLER
Ziegler also serves as the principal Distributor of shares of the Portfolio
and receives commissions on sales of such shares. See "Purchase of Shares." In
addition Ziegler receives reimbursement from each Portfolio for certain expenses
Ziegler incurs in connection with distributing the Portfolio's shares pursuant
to the Distribution Plan adopted by each Portfolio under Rule 12b-1 of the 1940
Act. See "Distribution Expenses."
CUSTODIAN SERVICES
Firstar Bank Milwaukee, N.A., serves as the custodian of Principal
Preservation's assets, pursuant to a Custodian Servicing Agreement. The
Custodian Servicing Agreement provides that Firstar Bank Milwaukee, N.A., is
entitled to receive an annual fee set at 1% of the first $500 million of
Principal Preservation's assets and 0.75 of 1% of assets in excess of $500
million.
PURCHASE OF SHARES
As the principal Distributor for the Portfolio, Ziegler allows Selected
Dealer discounts (which are alike for all Selected Dealers) from the applicable
public offering price. Neither Ziegler nor Selected Dealers are permitted to
withhold placing orders to benefit themselves by a price change. The
Distribution Agreement between Principal Preservation and Ziegler continues from
year to year if it is approved annually by Principal Preservation's Board of
Directors, including a majority of those Directors who are not interested
persons, or by a vote of the holders of a majority of the outstanding shares.
The Distribution Agreement may be terminated at any time by either party on 60
days notice and will automatically terminate if assigned.
CLASS A SHARES
The public offering price of each Portfolio's Class A shares is the net
asset value plus a maximum front-end sales charge equal to a percentage of the
offering price. For the Income-Oriented Portfolios (Tax-Exempt and Government
Portfolios) the maximum front-end sales charge is 3.50% of the offering price.
For the Equity-Oriented Portfolios (S&P 100 Plus, Dividend Achievers, Select
Value, PSE Tech 100 Index and Managed Growth Portfolios) the maximum front-end
sales charge is 5.25% of the offering price.
Class A shares of each Portfolio may be purchased by certain classes of
persons without a sales charge, or a reduced sales charge, as described in the
Prospectus. The Board of Directors believes this is appropriate because of the
minimal sales effort needed to accommodate these classes of persons.
Because sales to members of qualified groups result in economies of sales
efforts and sales related expenses, the Distributor is able to offer a reduced
sales charge to such persons. A "qualified group" is one which: (1) has been
in existence for more than six months; (2) has a purpose other than acquiring
shares of one or more of the Portfolios at a discount; (3) has more than 10
members; (4) is available to arrange for group meetings between representatives
of the Distributor or Selected Dealers distributing shares of the relevant
Portfolios; and (5) agrees to include sales and other materials related to
Principal Preservation in its mailings to members at reduced or no cost to the
Distributor or Selected Dealers. See "Purchasing Shares - Reduced Front-End
Sales Charge" in the Prospectus.
CLASS B SHARES
You may purchase Class B shares of all of the Equity-Oriented Portfolios.
The public offering price of Class B shares is net asset value with no front-end
sales charge. However, you pay a contingent deferred sales charge (expressed as
a percent of the lesser of the current net asset value or original cost) if the
Class B shares are redeemed within six years after purchase (See "How to
Purchase Shares" in the Prospectus).
DEALER REALLOWANCES
The Distributor pays a reallowance to Selected Dealers out of the front-end
sales load it receives on sales of Class A shares of the Portfolio, which
reallowance is equal to the following percentage of the offering price of such
shares:
DEALER REALLOWANCE
---------------------------------------
INCOME-ORIENTED EQUITY-ORIENTED
SIZE OF INVESTMENT PORTFOLIOS(1)<F65> PORTFOLIOS(2)<F66>
- ----------------- ------------------ ------------------
Less than $25,000 3.00% 4.50%
$25,000 but less than $50,000 2.75% 4.25%
$50,000 but less than $100,000 2.25% 4.25%
$100,000 but less than $250,000 1.75% 3.25%
$250,000 but less than %500,000 1.25% 2.50%
$500,000 but less than $1,000,000 1.00% 1.80%
$1,000,000 or more None 0.50%
---------------------------------
(1)<F65> The Income-Oriented Portfolios include the Tax-Exempt and Government
Portfolios.
(2)<F66> The Equity-Oriented Portfolios include the S&P 100 Plus, Dividend
Achievers, Select Value, PSE Tech 100 Index and Managed Growth
Portfolios.
In addition, the Distributor may pay an additional commission to
participating dealers and participating financial institutions acting as agents
for their customers in an amount up to the difference between the sales charge
and the selected dealer reallowance in respect of the shares sold. The
Distributor may offer additional compensation in the form of trips, merchandise
or entertainment as sales incentives to Selected Dealers. The Distributor's
sales representatives may not qualify to participate in some of these incentive
compensation programs, and the Distributor may offer similar incentive
compensation programs in which only its own sales representatives qualify to
participate. In addition to the Selected Dealer Reallowances reflected in the
table, the Distributor may from time to time pay an additional concession to a
Selected Dealer which employs a registered representative who sells, during a
specific period, a minimum dollar amount of shares, or may pay an additional
concession to Selected Dealers on such terms and conditions as the Distributor
determines. In no event will such additional concession paid by the Distributor
to the Selected Dealer exceed the difference between the sales charge and the
Selected Dealer Reallowance in respect of shares sold by the qualifying
registered representatives of the Selected Dealer. Selected Dealers who receive
a concession may be deemed to be "underwriters" in connection with sales by them
of such shares and in that capacity they may be subject to the applicable
provisions of the Securities Act of 1933.
The Distributor will pay a commission to Selected Dealers who sell Class B
shares of the Portfolio in an amount equal to 4.00% of the net asset value of
the shares sold.
The Distributor may make the following payments, out of its own funds, to
Selected Dealers when Class A shares are purchased without a front-end sales
charge as follows:
o Up to 0.75% of the amount invested through the Selected Dealer when at
least $1 million of shares are purchased.
o Up to 0.75% of the amount invested through the Selected Dealer by a
pension, profit sharing or other employee benefit plan qualified under
Section 401 of the Internal Revenue that also purchased shares of a
Principal Preservation mutual fund prior to July 1, 1998.
o Up to 0.50% of the amount invested through the Selected Dealer when
the shares are purchased with the proceeds of a redemption, within the
past 90 days, of a mutual fund which is not related to Principal
Preservation and which imposes a sales charge. All or a part of such
payment may be conditioned upon the monies remaining invested with
Principal Preservation for a minimum period of time.
The table below shows commissions that Ziegler earned on sales of shares of
each Portfolio during the past three years. The Managed Growth Portfolio is not
included, because it first commenced operations on January 1, 1999.
COMMISSIONS EARNED BY ZIEGLER ON
SALES OF PORTFOLIO SHARES FOR YEAR ENDED DECEMBER 31,
-----------------------------------------------------
PORTFOLIO 1998 1997 1996
- --------- ---------------- ---- ----
CLASS A CLASS B(1)<F67>
------- -------
Tax-Exempt $ N/A $125,754 $116,620
Government N/A 100,754 117,555
S&P 100 Plus 498,361 338,856
Dividend Achievers 115,710 86,901
Select Value 60,863 17,964
PSE Tech 100 Index 98,129 9,435(2)<F68>
--------- ---------
TOTAL $999,571 $687,331
--------- ---------
--------- ---------
- -----------------------------
(1)<F67> Class B shares were first available for purchase by the public on July
27, 1998.
(2)<F68> Reflects commissions earned on sales of Class A shares of the PSE Tech
100 Index Portfolio for the period from June 10, 1996 (commencement of
operations) through December 31, 1996.
DISTRIBUTION EXPENSES
Principal Preservation's Distribution Plan (the "Plan") is its written plan
contemplated by Rule 12b-1 (the "Rule") under the 1940 Act.
The Plan authorizes the Distributor to make certain payments to any
qualified recipient, as defined in the Plan, that has rendered assistance in the
distribution of Principal Preservation's shares (such as sale or placement of
Principal Preservation's shares, or administrative assistance, such as
maintenance of sub-accounting or other records). Qualified recipients include
banks and other financial institutions. The Plan also authorizes the
Distributor to purchase advertising for shares of the Portfolio, to pay for
sales literature and other promotional material, and to make payments to its
sales personnel. The Plan also entitles the Distributor to receive a fee of .25
of 1% on an annual basis of the average daily net assets of Portfolio shares
that are owned of record by the Distributor as nominee for the Distributor's
customers or which are owned by those customers of the Distributor whose
records, as maintained by Principal Preservation or its agent, designate the
Distributor as the customer's dealer of record. Any such payments to qualified
recipients or expenses will be reimbursed or paid by Principal Preservation, up
to maximum annual amounts established under the terms of the Plan.
CLASS A SHARES
The maximum amount of fees payable under the Plan during any calendar year
with respect to Class A Shares of the Portfolio may not exceed an amount equal
to 0.25 of 1% of the average daily net assets of the Portfolio over the relevant
year.
CLASS B SHARES
The maximum amount of fees payable under the Plan during any calendar year
by the Portfolio may not exceed an amount equal to 1.00 of 1% of the average
daily net assets of any such Portfolio over the relevant year as a 12b-1
distribution fee. A part of the distribution fee equal to 0.75 of 1% of the
average daily net assets of the Portfolio will be paid to compensate the
Distributor for assuming the costs of brokers' commissions in connection with
the sale of the Class B shares.
The Distributor bears its expenses of distribution above the foregoing
amounts. No reimbursement or payment may be made for expenses of past fiscal
years or in contemplation of expenses for future fiscal years under the Plan.
The Plan states that if and to the extent that any of the payments by
Principal Preservation listed below are considered to be "primarily intended to
result in the sale of shares" issued by the Portfolio within the meaning of the
Rule, such payments by Principal Preservation are authorized without limit under
the Plan and shall not be included in the limitations contained in the Plan:
(1) the costs of the preparation, printing and mailing of all required reports
and notices to shareholders, irrespective of whether such reports or notices
contain or are accompanied by material intended to result in the sale of shares
of Principal Preservation or other funds or other investments; (2) the costs of
preparing, printing and mailing of all prospectuses to shareholders; (3) the
costs of preparing, printing and mailing of any proxy statements and proxies,
irrespective of whether any such proxy statement includes any item relating to,
or directed toward, the sale of Principal Preservation's shares; (4) all legal
and accounting fees relating to the preparation of any such reports,
prospectuses, proxies and proxy statements; (5) all fees and expenses relating
to the qualification of Principal Preservation and or their shares under the
securities or "Blue Sky" laws of any jurisdiction; (6) all fees under the 1940
Act and the Securities Act of 1933, including fees in connection with any
application for exemption relating to or directed toward the sale of Principal
Preservation's shares; (7) all fees and assessments of the Investment Company
Institute or any successor organization or industry association irrespective of
whether some of its activities are designed to provide sales assistance; (8) all
costs of preparing and mailing confirmations of shares sold or redeemed or share
certificates and reports of share balances; and (9) all costs of responding to
telephone or mail inquiries of shareholders.
The Plan also states that it is recognized that the costs of distribution of
Principal Preservation's shares are expected to exceed the sum of permitted
payments, permitted expenses, and the portion of the sales charge retained by
the Distributor, and that the profits, if any, of the Advisors are dependent
primarily on the advisory fees paid by Principal Preservation to Ziegler. If
and to the extent that any investment advisory fees paid by Principal
Preservation might, in view of any excess distribution costs, be considered as
indirectly financing any activity which is primarily intended to result in the
sale of shares issued by Principal Preservation, the payment of such fees is
nonetheless authorized under the Plan. The Plan states that in taking any
action contemplated by Section 15 of the 1940 Act as to any investment advisory
contract to which Principal Preservation is a party, the Board of Directors
including its Directors who are not "interested persons" as defined in the 1940
Act, and who have no direct or indirect financial interest in the operation of
the Plan or any agreements related to the Plan ("Qualified Directors"), shall,
in acting on the terms of any such contract, apply the "fiduciary duty" standard
contained in Sections 36(a) and (b) of the 1940 Act.
Under the Plan, Principal Preservation is obligated to pay distribution fees
only to the extent of expenses actually incurred by the Distributor for the
current year, and thus there will be no carry-over expenses from the previous
years. The Plan permits the Distributor to pay a portion of the distribution
fee to authorized broker dealers, which may include banks or other financial
institutions, and to make payments to such persons based on either or both of
the following: (1) as reimbursement for direct expenses incurred in the course
of distributing Principal Preservation's shares or providing administrative
assistance to Principal Preservation or its shareholders, including, but not
limited to, advertising, printing and mailing promotional material, telephone
calls and lines, computer terminals and personnel (including commissions and
other compensation paid to such personnel); and/or (2) at a specified percentage
of the average value of certain qualifying accounts of customers of such
persons.
The Plan requires that while it is in effect the Distributor shall report in
writing at least quarterly to the Directors, and the Directors shall review, the
following: (1) the amounts of all payments, the identity of recipients of each
such payment, the basis on which each such recipient was chosen and the basis on
which the amount of the payment was made; (2) the amounts of expenses and the
purpose of each such expense; and (3) all costs of the other payments specified
in the Plan (making estimates of such costs where necessary or desirable) in
each case during the preceding calendar or fiscal quarter.
The Plan will continue in effect from year to year only so long as such
continuance is specifically approved at least annually by the Board of Directors
and its Qualified Directors cast in person at a meeting called for the purpose
of voting on such continuance. The Plan may be terminated any time without
penalty by a vote of a majority of the Qualified Directors or by the vote of the
holders of a majority of the outstanding voting securities of Principal
Preservation (or with respect to any Portfolio, by the vote of a majority of the
outstanding shares of such Portfolio). The Plan may not be amended to increase
materially the amount of payments to be made without shareholder approval.
While the Plan is in effect, the selection and nomination of those Directors who
are not interested persons of Principal Preservation is committed to the
discretion of such disinterested Directors. Nothing in the Plan will prevent
the involvement of others in such selection and nomination if the final decision
on any such selection and nomination is approved by a majority of such
disinterested Directors.
The table below shows the total Rule 12b-1 fees that Ziegler earned during
the year ended December 31, 1998 with respect to Class A and Class B shares of
each Portfolio. No information is presented for the Managed Growth Portfolio,
because that Portfolio first began offering its shares to the public on January
1, 1999.
RULE 12B-1 FEES EARNED BY
ZIEGLER IN YEAR ENDED DECEMBER 31, 1998
---------------------------------------
PORTFOLIO CLASS A SHARES CLASS B SHARES(1)<F69>
--------- -------------- ---------------
Tax-Exempt $ N/A
Government N/A
S&P 100 Plus $
Dividend Achievers
Select Value
PSE Tech 100 Index
----------------------------
(1)<F69> Class B shares were first offered to the public on July 27, 1998, so
the fees presented were generated over the period from July 27, 1998
through July 31, 1998.
DETERMINATION OF NET ASSET VALUE PER SHARE
Shares are sold at their net asset value per share plus the applicable sales
charge, if any. See "Purchase of Shares." Net asset value per share of each
Portfolio is determined by subtracting the Portfolio's liabilities (including
accrued expenses and dividends payable) from the Portfolio's total assets (the
value of the securities the portfolio holds plus cash or other assets, including
interest accrued but not yet received) and dividing the result by the total
number of shares outstanding.
Each Portfolio will calculate its net asset value per share as of the close
of trading on the New York Stock Exchange (the "Exchange") at least once every
weekday, Monday through Friday, except on customary national business holidays
which result in the closing of the Exchange (including New Year's Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day).
Securities for which market quotations are readily available will be valued
at their last sale price prior to the close of the Exchange, unless there have
been no trades on that day and the last sale price is below the bid price or
above the ask price. If the last prior sale price is below the bid, instruments
will be valued at the bid price at the close of the Exchange; if the last prior
sale price is above the ask price, the instrument will be valued at the ask
price at the close of the Exchange. Securities and other assets for which
quotations are not readily available will be valued at their fair value on a
consistent basis using valuation methods determined by the Board of Directors.
The Portfolio intends to determine fair value for such securities based in part
upon the information supplied by pricing services approved by the Board of
Directors. Valuations of portfolio securities furnished by the pricing service
will be based upon a computerized matrix system and/or appraisals by the pricing
service in each case in reliance upon information concerning market transactions
and quotations from recognized securities dealers.
PERFORMANCE INFORMATION
From time to time the Portfolios may advertise their "yield" and "total
return." Yield is based on historical earnings and total return is based on
-------------------------------------------------------------------
historical distributions; neither is intended to indicate future performance.
- ----------------------------------------------------------------------------
The "yield" of a Portfolio refers to the income generated by an investment in
that Portfolio over a one-month period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of
income generated by the investment during the month is assumed to be generated
each month over a 12-month period and is shown as a percentage of the
investment. "Total return" of the Portfolio refers to the average annual total
return for one, five and ten year periods (or so much thereof as a Portfolio has
been in existence). Total return is the change in redemption value of shares
purchased with an initial $1,000 investment, assuming the reinvestment of
dividends and capital gain distributions, after giving effect to the maximum
applicable sales charge. In addition, the Tax-Exempt Portfolio may advertise
its "tax equivalent yield," which is computed by dividing that portion of the
Portfolio's yield which is tax-exempt by one minus a stated income tax rate and
adding the product to that portion, if any, of the yield of the Portfolio which
is not tax-exempt. Performance information should be considered in light of the
Portfolio's investment objectives and policies, characteristics and quality of
the portfolios and the market conditions during the time period, and should not
be considered as a representation of what may be achieved in the future.
Investors should consider these factors and possible differences in the methods
used in calculating performance information when comparing a Portfolio's
performance to performance figures published for other investment vehicles.
Average annual total return is computed by finding the average annual
compounded rates of return over the 1, 5, and 10 year periods (or so much
thereof as the Portfolio has been in existence) ended on the date of the balance
sheet of the respective Portfolio (each of which balance sheets are incorporated
by reference into this Statement of Additional Information - See "Financial
Statements") that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
N
P(1+T) =ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5, or 10 year periods at the end of the 1, 5, or
10 year periods (or fractional portion thereof).
In some circumstances the Portfolio may advertise its total return for a 1,
2 or 3-year period, or the total return since the Portfolio commenced
operations. In such circumstances the Portfolio will adjust the values used in
computing return to correspond to the time period for which the information is
provided.
The average annual total returns for the Class A shares of each Portfolio
for the 1, 5 and 10 year periods ended December 31, 1998, and the unannualized
total return information for Class B shares from July 27, 1998 (the date on
which Class B shares were first offered to the public) through December 31, 1998
are set forth in the table below. The total returns for the Government and Tax-
Exempt Portfolios have been restated to reflect the May 1, 1995 reduction in the
maximum sales loads for those Portfolios from 4.5% to 3.5% of the public
offering price. The total returns for Class A shares of the S&P 100 Plus,
Dividend Achievers, Select Value and PSE Tech 100 Index Portfolios have been
restated to reflect the September 8, 1997 increase in the maximum sales loads
for those Portfolios from 4.50% to 5.25% of the public offering price. Because
the Managed Growth Portfolio first commenced operations on January 1, 1999, no
performance information is presented for that Portfolio.
FROM COMMENCEMENT
OF OPERATIONS
-----------------
CLASS A CLASS B
PORTFOLIO 1 YEAR 5 YEAR 10 YEAR SHARES SHARES
- --------- ------ ------ ------- ------- --------
Tax-Exempt % % % % N/A
Government % % % % N/A
S&P 100 Plus % % % % %
Dividend Achievers % % % % %
Select Value % N/A N/A % %
PSE Tech 100 Index % N/A N/A % %
For illustrative purposes, the Portfolio may include in its supplemental
sales literature from time to time a mountain graph that advertises the
Portfolio's total return by depicting the growth in the value of an initial
investment of $10,000 that a shareholder would have experienced in the relevant
Portfolio since the commencement of the Portfolio's operations to the present.
The presentation consists of a line graph shaded underneath with the value of
the amount invested reflected along a vertical axis and the time period from the
commencement of the Portfolio's operations through a given date reflected along
a horizontal axis.
Yield quotations are based on a 30-day (or one-month) period, and are
computed by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
a - b 6
Yield = 2[(------- + 1) - 1]
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
The yields for certain of the Portfolios for the month ended December 31,
1998 were: % for the Tax-Exempt Portfolio, and % for the
Government Portfolio. When advertising yield, a Portfolio will not advertise a
one-month or 30-day period which ends more than 45 days before the date the
advertisement is published.
A tax equivalent yield is based on a 30-day (or one-month) period, and is
computed by dividing that portion of the yield of the Tax-Exempt Portfolio (as
computed in accordance with the description above) by one minus a stated income
tax rate and adding the products to that portion, if any, of the yield of the
Portfolio that is not tax-exempt.
The tax equivalent yield, assuming a 33% marginal tax rate, for the month
ended December 31, 1998 was % for the Tax-Exempt Portfolio.
Performance information for the Portfolios may be compared to various
unmanaged indices, such as the S&P 500 Stock Index or the S&P Midcap 400 Stock
Index, as well as indices of similar mutual funds. The Portfolio's advertising
may also quote rankings published by other recognized statistical services or
publishers such as Lipper Analytical Services, Inc. ("Lipper"), or Weisenberger
Investment Companies Service.
An illustration may be used comparing the growth in value of an initial
investment in a Portfolio compared to a fixed rate of return compounded on a
monthly basis. This illustration will reflect the effect of the Portfolio's
sales charge and fluctuations in net asset value, and will assume all income and
capital gain distributions are reinvested. The fixed rate of return will be
clearly stated and presented as a monthly compounded figure, and therefore will
not reflect any market fluctuation.
In advertising and sales literature, the performance of a Portfolio may be
compared with that of other mutual funds, indexes or averages of other mutual
funds, indexes of related financial assets or data and other competing
investment and deposit products available from or through other financial
institutions. The composition of these indexes, averages or accounts differs
from that of the Portfolio. Comparison of the Portfolio to an alternative
investment will consider differences in features and expected performance.
All of the indexes and averages noted below will be obtained from the
indicated sources or reporting services, which Principal Preservation generally
believes to be accurate. A Portfolio may also note its mention (including
performance or other comparative rankings) in newspapers, magazines, or other
media from time to time. However, Principal Preservation assumes no
responsibility for the accuracy of such data. Newspapers and magazines which
might mention a Portfolio or Principal Preservation include, but are not limited
to, the following:
The Business Journal
Business Week
Changing Times
Chicago Tribune
Chicago Sun-Times
Crain's Chicago
Business
Consumer Reports
Consumer Digest
Financial World
Forbes
Fortune
Investor's Daily
Los Angeles Times
Milwaukee Journal Sentinel
Money
Mutual Fund Letter
Mutual Fund Values
(Morningstar)
Newsweek
The New York Times
Pension and Investments
Personal Investor
Stanger Reports
Time
USA Today
U.S. News and World Reports
The Wall Street Journal
When a newspaper, magazine or other publication mentions Principal
Preservation or a Portfolio, such mention may include: (i) listings of some or
all of the Portfolio's holdings; (ii) descriptions of characteristics of some or
all of the securities held by the Portfolio, including price-earnings ratios,
earnings, growth rates and other statistical information, and comparisons of
that information or similar statistics for the securities comprising any of the
indexes or averages listed above; and (iii) descriptions of Principal
Preservation or a portfolio manager's economic and market outlook, in general
and for a Portfolio.
A Portfolio may compare its performance to the Consumer Price Index (All
Urban), a widely recognized measure of inflation.
The performance of a Portfolio may be compared to any or all of the
following indexes or averages:
Dow-Jones Industrial Average
Russell 2000 Small Stock Index
Russell Mid-Cap Stock Index
Russell 2500 Index
Standard & Poor's 500 Stock Index
Standard & Poor's 400 Industrials
Standard & Poor's Mid-Cap 400 Index
Wilshire 5000
Wilshire 4500
Wilshire 4000
(These indexes are widely recognized indicators of general U.S. stock market
results.)
New York Stock Exchange Composite Index
American Stock Exchange Composite Index
NASDAQ Composite
NASDAQ Industrials
(These indexes generally reflect the performance of stock traded in the
indicated markets.)
The performance of a Portfolio may also be compared to the following mutual
fund industry indexes or averages: Value Line Index; Lipper Capital
Appreciation Fund Average; Lipper Growth Funds Average; Lipper Mid-Cap Growth
Funds Average; Lipper General Equity Funds Average; Lipper Equity Funds Average;
Morningstar Growth Average; Morningstar Aggressive Growth Average; Morningstar
U.S. Diversified Average; Morningstar Equity Fund Average; Morningstar Hybrid
Average; Morningstar All Equity Funds Average; and Morningstar General Equity
Average.
Lipper Small Growth Fund Index reflects the net asset value weighted total
return of the largest thirty growth funds as calculated and published by Lipper.
Lipper is an independent service that monitors the performance of more than
1,000 funds.
The Lipper and Morningstar averages are unweighted averages of total return
performance of mutual funds as classified, calculated and published by Lipper
and by Morningstar, Inc. ("Morningstar"), respectively. The Portfolio may also
use comparative performance as computed in a ranking by Lipper or category
averages and rankings provided by another independent service. Should Lipper or
another service reclassify a Portfolio to a different category or develop (and
place the Portfolio into) a new category, the Portfolio may compare its
performance or ranking against other funds in the newly assigned category, as
published by the service. Moreover, a Portfolio may compare its performance or
ranking against all funds tracked by Lipper or another independent service, and
may cite its rating, recognition or other mention by Morningstar or any other
entity. Morningstar's rating system is based on risk-adjusted total return
performance and is expressed in a star-rating format. The risk-adjusted number
is computed by subtracting a Portfolio's risk score (which is a function of the
Portfolio's monthly returns less the 3-month Treasury bill return) from the
Portfolio's load-adjusted total return score. This numerical score is then
translated into rating categories, with the top 10% labeled five star, the next
22.5% labeled four star, the next 35% labeled three star, the next 22.5% labeled
two star and the bottom 10% one star. A high rating reflects either above-
average returns or below-average risks, or both.
To illustrate the historical returns on various types of financial assets, a
Portfolio may use historical data provided by Ibbotson Associates, Inc.
("Ibbotson"), a Chicago-based investment firm. Ibbotson constructs (or obtains)
very long-term (since 1926) total return data (including, for example, total
return indexes, total return percentages, average annual total returns and
standard deviations of such returns) for the following asset types: common
stocks, small company stocks, long-term corporate bonds, long-term government
bonds, intermediate-term government bonds, U.S. Treasury bills and Consumer
Price Index. A Portfolio may also use historical data compiled by Prudential
Securities, Inc., or by other similar sources believed by Principal Preservation
to be accurate, illustrating the past performance of small-capitalization
stocks, large-capitalization stocks, common stocks, equity securities, growth
stocks (small-capitalization, large-capitalization, or both) and value stock
(small-capitalization, large-capitalization, or both).
TAX STATUS
Each series of a series company, such as Principal Preservation, is treated
as a single entity for Federal income tax purposes so that the net realized
capital gains and losses of the various portfolios in one fund are not combined.
The Portfolio intends to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986 (the "Code"). In order to qualify as a
regulated investment company, the Portfolio must satisfy a number of
requirements. Among such requirements is the requirement that at least 90% of
the Portfolio's gross income is derived from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of stocks,
securities or foreign currencies, and other income (including but not limited to
gains from options, futures or forward contracts) derived with respect to the
Portfolio's business of investing in such stock, securities or currencies. In
addition, each Portfolio must distribute at least 90% of its taxable income
(including realized gains on the sale of securities in addition to interest,
dividend and other income) and, is subject to a 4% federal excise tax if it
fails to distribute at least 98% of its ordinary income and 98% of its net
capital gains earned or realized during a calendar year. Each Portfolio plans
to distribute its income and capital gains so as to avoid the excise tax.
Finally, each Portfolio is subject to the limitation that, with respect to 75%
of its assets, no more than 5% of its assets may be invested in the securities
of any one issuer.
A portion of each Portfolio's net investment income may qualify for the 70%
dividends received deduction for corporations. The aggregate amount eligible
for the dividends received deduction may not exceed the aggregate qualifying
dividends received by the Portfolio for the year. If less than 100% of the
Portfolio's gross income constitutes dividend income, then only a portion of
distributions by the Portfolio will be treated as dividend income for purposes
of computing the dividends received deduction for corporations.
Dividends and other distributions paid to individuals and other non-exempt
payees are subject to a 31% backup Federal withholding tax if the Transfer Agent
is not provided with the shareholder's correct taxpayer identification number or
certification that the shareholder is not subject to such backup withholding or
if one of the Portfolios is notified that the shareholder has under reported
income in the past. In addition, such backup withholding tax will apply to the
proceeds of redemption or repurchase of shares from a shareholder account for
which the correct taxpayer identification number has not been furnished. For
most individual taxpayers, the taxpayer identification number is the social
security number. An investor may furnish the Transfer Agent with such number
and the required certifications by completing and sending the Transfer Agent
either the Account Application form attached to the Prospectus or IRS Form W-9.
Interest on indebtedness incurred (directly or indirectly) by shareholders
to purchase or carry shares will not be deductible for Federal income tax
purposes.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
No person controls Principal Preservation or any Portfolio.
As of April 1, 1999, no person was known to Principal Preservation to be the
"beneficial owner" (determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934) of more than 5% of the outstanding shares of
Principal Preservation's common stock, or of any of the Portfolios, except that:
(i) Ottawa County, #28, P.O. Box 705, 414 Washington, Grand Haven, Michigan
owned beneficially shares of the Government Portfolio, or
approximately % of all outstanding shares of that Portfolio; (ii) Washtenah
Community College, P.O. Box D1, Ann Arbor, Michigan owned beneficially
shares of the Government Portfolio, or approximately % of all outstanding
shares of that Portfolio; (iii) Barbara Wilson, 700 San Antonio Street, Ojai,
California owned beneficially shares of the Dividend Achievers
Portfolio, or approximately % of all outstanding shares of that Portfolio;
(iv) Ziegler Growth Retirement Plan, 215 North Main Street, West Bend, Wisconsin
owned beneficially shares of the Select Value Portfolio, or
approximately % of all outstanding shares of that Portfolio; (v) B. C.
Ziegler and Company, 215 North Main Street, West Bend, Wisconsin owned
beneficially shares of the Select Value Portfolio, or approximately
% of all outstanding shares of that Portfolio; and (vi) Hamac & Co., P.O.
Box 26246, Richmond, Virginia owned beneficially shares of the PSE
Tech 100 Index Portfolio, or approximately % of all outstanding shares of
that Portfolio. Information as to beneficial ownership was obtained from
information on file with the Securities and Exchange Commission or furnished by
the specified person or the Transfer Agent.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Purchase and sale orders for portfolio securities may be effected through
brokers, although it is expected that transactions in debt securities will
generally be conducted with dealers acting as principals. Purchases and sales
of securities on a stock exchange are effected through brokers who charge a
commission for their services. Purchases and sales of securities traded over-
the-counter may be effected through brokers or dealers. Brokerage commissions
on securities and options are subject to negotiation between Principal
Preservation and the broker.
Allocation of transactions, including their frequency, to various dealers is
determined by the Advisors in their best judgment and in a manner deemed fair
and reasonable to shareholders. The primary consideration is prompt and
efficient execution of orders in an effective manner at the most favorable
price. Principal Preservation may also consider sales of shares of its various
series as a factor in the selection of broker-dealers, subject to the policy of
obtaining best price and execution. In addition, if Ziegler or another
affiliate of an Advisor is utilized as a broker by Principal Preservation, and
other clients of such Advisor are considering the same types of transactions
simultaneously, the Advisor will allocate the transactions and securities in
which they are made in a manner deemed by it to be equitable, taking into
account size, timing and amounts. This may affect the price and availability of
securities to the Portfolio.
The table below shows, for the last three fiscal years, the aggregate
brokerage commissions paid by each Portfolio on purchases and sales of portfolio
securities.
YEAR ENDED DECEMBER 31,
------------------------------------------
PORTFOLIO 1998 1997 1996
--------- ---- ---- ----
Tax-Exempt $ $ $
Government
S&P 100 Plus
Dividend Achievers
Select Value
PSE Tech 100 Index
During the fiscal years ended December 31, 1998, 1997 and 1996 (or the
portion of such year during which the relevant Portfolio was in operation), the
aggregate brokerage commissions paid by each Portfolio to Ziegler or an
affiliate of Ziegler were as follows:
BROKERAGE COMMISSIONS PAID TO ZIEGLER OR ITS
AFFILIATES FOR YEAR ENDED DECEMBER 31,
--------------------------------------------
PORTFOLIO 1998 1997 1996
--------- ---- ---- ----
Government $ -0- $ -0- $ -0-
Tax-Exempt -0- -0- -0-
S&P 100 Plus -0- -0- -0-
Select Value -0- -0- -0-
Dividend Achievers --- 9,685 10,458
PSE Tech 100 Index -0- -0- -0-
----- ------ -------
TOTAL $9,685 $10,458
----- ------ -------
----- ------ -------
The amount received by Ziegler or its affiliates during the year ended
December 31, 1998 constituted % of the aggregate brokerage commissions paid
by Principal Preservation during that year, and the brokerage commissions earned
by Ziegler and its affiliates during that year were earned on approximately
% of the total dollar amount of portfolio transactions of Principal
Preservation which involved the payment of commissions. The difference in these
percentages is attributable to the fact that commissions on equity and index
options in which the S&P 100 Plus Portfolio and PSE Tech 100 Index Portfolio
invest, the trading of which is not directed to an affiliate of any Advisor, are
based upon the number of contracts rather than the underlying value of the
contracts. Therefore, there is an artificial difference between the percentage
of brokerage commissions paid to such affiliates compared to the percentage of
aggregate dollar amount of portfolio transactions.
Except for commissions paid to Ziegler and its affiliates, none of the
Portfolios paid brokerage commission to any affiliate of any of the Advisors
during the periods presented.
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
The audited financial statements of each Portfolio incorporated by reference
into the Prospectus and this Statement of Additional Information have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto and incorporated by reference into the
Prospectus and this Statement of Additional Information and reliance upon the
authority of said firm as experts in accounting and auditing in giving said
report.
Quarles & Brady LLP, as counsel to Principal Preservation, has rendered its
opinion as to certain legal matters regarding the due authorization and valid
issuance of the shares of common stock being sold pursuant to the Prospectus.
FINANCIAL STATEMENTS
The following audited financial statements and related footnotes of each
Portfolio and the Report of the Independent Public Accountants thereon are
incorporated herein by reference from Principal Preservation's 1998 Annual
Report to shareholders of the Portfolios. No Financial Statements are
incorporated with respect to the Managed Growth Portfolio, because that
Portfolio first commenced operations on January 1, 1999.
1. Balance Sheets of each Portfolio dated December 31, 1998.
2. Statements of Changes in Net Assets of each Portfolio for the years
ended December 31, 1998 and 1997.
3. Statement of Operations of each Portfolio for the year ended December
31, 1998.
A copy of the 1998 Annual Report may be obtained free of charge by writing
or calling Principal Preservation, 215 North Main Street, West Bend, Wisconsin
53095, telephone: 1-800-826-4600.
DESCRIPTION OF RATINGS OF CERTAIN SECURITIES
Each Portfolio will limit its investment in debt securities to those which
are rated in one of certain specified categories by a Nationally Recognized
Statistical Rating Organization or are U.S. Government Securities. The
following is a brief description of the rating systems used by three of these
organizations.
CORPORATE AND MUNICIPAL BOND RATINGS
Standard & Poor's Ratings Services
- ----------------------------------
An S&P corporate debt rating is a current assessment of the creditworthiness
of an obligor with respect to a specific obligation. This assessment may take
into consideration obligers such as guarantors, insurers or lessees.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default - capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
II. Nature of and provisions of the obligation; and
III. Protection afforded by, and relative position of the obligation in the
event of bankruptcy, reorganization or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.
S&P's four highest rating categories are as follows:
AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small
degree.
A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in the
higher rated categories.
BBB. Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protective parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds
in the higher-rated categories.
Moody's Investors Service, Inc.
- -------------------------------
The purpose of Moody's Ratings is to provide investors with a simple system of
gradation by which the relative investment qualities of bonds may be noted.
Moody's four highest rating categories are as follows:
Aaa. Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa. Bonds which are Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude, or
there may be other elements present which make the long term risks
appear somewhat larger than in Aaa securities.
A. Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa. Bonds which are rated Baa are considered as medium grade obligations:
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Fitch Investors Service, Inc.
- ----------------------------
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner. Fitch's four highest
rating categories are:
AAA. Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA. Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly
vulnerable to foreseeable future developments, short-term debt of
these issuers is generally rated F-1+.
A. Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes
in economic conditions and circumstances than bonds with higher
ratings.
BBB. Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on
these bonds and therefore impair timely payment. The likelihood that
the ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
General
- -------
The S&P and Fitch "AA", "A" and "BBB" ratings may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
The letter "p" following an S&P rating indicates the rating is provisional.
A provisional rating assumes the successful completion of the project being
financed by the issuance of the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion. Accordingly, the
investor should exercise his or her own judgment with respect to such likelihood
and risk.
The word "Conditional" following a Fitch rating indicates the rating is
conditional and is premised on the successful completion of a project or the
occurrence of a specific event.
Moody's security rating symbols may contain numerical modifiers of a generic
rating classification. The modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
The symbol "Con" in a rating by Moody's indicates a provisional rating given
to bonds for which the security depends upon the completion of some act of the
fulfillment of some condition. These are bonds secured by: (1) earnings of
projects under construction; (2) earnings of projects unseasoned in operating
experience; (3) rentals which begin when facilities are completed; or (4)
payments to which some other limiting condition attaches. A parenthetical
rating denotes probable credit stature upon completion of construction or
elimination of basis of condition.
MUNICIPAL NOTE RATINGS
Moody's Investors Service, Inc.
- -------------------------------
MIG 1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow
and market access for refinancing is likely to be less well
established.
MIG 4. This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.
Standard & Poor's Ratings Services
- ----------------------------------
SP-1. Notes rated SP-1 have very strong or strong capacity to pay principal
and interest. Those issues determined to possess overwhelming safety
characteristics are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and
interest.
Notes due in three years or less normally receive a note rating. Notes
maturing beyond three years normally receive a bond rating, although the
following criteria are used in making that assessment:
-Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue will be rated as a note.)
-Source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be rated as a note.)
Fitch Investors Service, Inc.
- -----------------------------
Fitch short-term ratings apply to debt obligations that are payable on demand or
have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.
F-1+. Exceptionally Strong Credit Quality. Issues assigned this rating
-----------------------------------
are regarded as having the strongest degree of assurance for timely
payment.
F-1. Very Strong Credit Quality. Issues assigned this rating reflect an
--------------------------
assurance of timely payment only slightly less in degree than issues
rated "F-1+."
F-2. Good Credit Quality. Issues assigned this rating have a
-------------------
satisfactory degree of assurance for timely payment, but the margin
of safety is not as great as for issues assigned "F-1+" and "F-1"
ratings.
F-3. Fair Credit Quality. Issues assigned this rating have
-------------------
characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause
these securities to be rated below investment grade.
Fitch also uses the symbol "LOC" which indicates that the rating is based
on a letter of credit issued by a commercial bank.
RATINGS OF COMMERCIAL PAPER
Standard & Poor's Ratings Services
- ----------------------------------
S&P ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. The ratings are
based on current information furnished to S&P by the issuer and obtained by S&P
from other sources it considers reliable. Ratings are graded into four
categories, ranging from "A" for the highest quality obligations to "D" for the
lowest. Issues within the "A" category are delineated with the numbers 1, 2,
and 3 to indicate the relative degree of safety, as follows:
A-1. This designation indicates the degree of safety regarding timely
payment is overwhelming or very strong. Those issuers determined to
possess overwhelming safety characteristics are denoted with a
"plus" (+) designation.
A-2. Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as
overwhelming as for issues designated A-1.
A-3. Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the
adverse effects of changes in circumstances than obligations
carrying the higher designations.
B. Issues rated "B" are regarded as having only an adequate capacity
for timely payment. However, such capacity may be damaged by
changing conditions or short-term adversities.
C. Issues rated "C" are regarded as having a doubtful capacity for
payment.
D. Issues rated "D" are in payment default.
Moody's Investors Service, Inc.
- -------------------------------
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually their promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following designations, all judged
to be investment grade, to indicate the relative repayment capacity of rated
issuers:
Prime-1. Issuers (or related supporting institutions) rated Prime-1 have a
superior capacity for repayment or short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: (a) leading market positions in well-established
industries; (b) high rates of return on funds employed; (c)
conservative capitalization structures with moderate reliance on debt
and ample asset protection; (d) broad margins in earnings coverage of
fixed financial charges and high internal cash generation; and (e)
well-established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2. Issuers (or related supporting institutions) rated Prime-2 have a
strong capacity for repayment of short- term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above in the Prime-1 category but to a lesser degree. Earning trends
and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is
maintained.
Prime-3. Issuers (or related supporting institutions) rated Prime-3 have an
acceptable capacity for repayment of short-term promissory
obligations. The effect of industry characteristics and market
composition may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt protection
measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
The ratings of S&P, Moody's and Fitch represent their opinions as to the
quality of the instruments rated by them. It should be emphasized that such
ratings, which are subject to revision or withdrawal, are general and are not
absolute standards of quality.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
INVESTMENT ADVISOR
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
SUB-ADVISORS
Ziegler Asset Management, Inc.
(Sub-Advisor to the 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 the Select Value Portfolio)
311 South Wacker Drive
Suite 4500
Chicago, Illinois 60606
Geneva Capital Management, Ltd.
(Sub-Advisor to the Managed Growth Portfolio)
250 East Wisconsin Avenue
Suite 1050
Milwaukee, Wisconsin 53202
DISTRIBUTOR, ACCOUNTING/PRICING AGENT
AND TRANSFER AND DIVIDEND DISBURSING AGENT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
CUSTODIAN
Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
LEGAL COUNSEL
Quarles & Brady LLP
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
---------------------------------------
MAY 1, 1999
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
Part C. Other Information
Item 23. Exhibits
---------
See Exhibit Index following Signature Page, which Exhibit Index is
incorporated herein by this reference.
Item 24. Persons Controlled by or under Common Control with the Fund
-----------------------------------------------------------
Not applicable.
Item 25. Indemnification
---------------
Reference is made to Article IX of Principal Preservation's Bylaws
filed as Exhibit No. (A)(1) to its Registration Statement with respect
to the indemnification of Principal Preservation's directors and
officers, which is set forth below:
Section 9.1. Indemnification of Officers, Directors, Employees and
-------------------------------------------------------------------
Agents. The Corporation shall indemnify each person who was or is a
-------
party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative ("Proceeding"), by reason of the fact
that he is or was a Director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as
a Director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against all
expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in
connection with such Proceeding to the fullest extent permitted by
law; provided that:
--------
(a) whether or not there is an adjudication of liability in such
Proceeding, the Corporation shall not indemnify any person for any
liability arising by reason of such person's willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved
in the conduct of his office or under any contract or agreement with
the Corporation ("disabling conduct"); and
(b) the Corporation shall not indemnify any person unless:
(1) the court or other body before which the Proceeding was
brought (i) dismisses the Proceeding for insufficiency of
evidence of any disabling conduct, or (ii) reaches a final
decision on the merits that such person was not liable by
reason of disabling conduct; or
(2) absent such a decision, a reasonable determination is
made, based upon a review of the facts, by (i) the vote of a
majority of a quorum of the Directors of the Corporation who
are neither interested persons of the Corporation as defined
in the Investment Company Act of 1940 nor parties to the
Proceeding, or (ii) if such quorum is not obtainable, or even
if obtainable, if a majority of a quorum of Directors
described in paragraph (b)(2)(i) above so directs, by
independent legal counsel in a written opinion, that such
person was not liable by reason of disabling conduct.
Expenses (including attorneys' fees) incurred in defending a Proceeding
will be paid by the Corporation in advance of the final disposition thereof upon
an undertaking by such person to repay such expenses (unless it is ultimately
determined that he is entitled to indemnification), if:
(1) such person shall provide adequate security for his
undertaking;
(2) the Corporation shall be insured against losses arising by
reason of such advance; or
(3) a majority of a quorum of the Directors of the Corporation who
are neither interested persons of the Corporation as defined in the Investment
Company Act of 1940 nor parties to the Proceeding, or independent legal counsel
in a written opinion, shall determine, based on a review of readily available
facts, that there is reason to believe that such person will be found to be
entitled to indemnification.
Section 9.2 Insurance of Officers, Directors, Employees and Agents. The
-------------------------------------------------------------------
Corporation may purchase and maintain insurance on behalf of any person who is
or was a Director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a Director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in or
arising out of his position. However, in no event will the Corporation purchase
insurance to indemnify any such person for any act for which the Corporation
itself is not permitted to indemnify him.
Item 26. Business and Other Connections of Investment Advisor
----------------------------------------------------
(a) B.C. Ziegler and Company
B.C. Ziegler and Company is a wholly owned subsidiary of The Ziegler
Companies, Inc. It serves as investment advisor to all of the currently
designated series of Principal Preservation Portfolios, Inc. other than the
Cash Reserve Portfolio. Ziegler Asset Management, Inc., another subsidiary
of The Ziegler Companies, Inc., serves as investment advisor to the Cash
Reserve Portfolio.
Set forth below is a list of the officers and directors of B.C.
Ziegler and Company as of December 31, 1998, together with information as
to any other business, profession, vocation or employment of a substantial
nature of those officers and directors during the past two years:
<TABLE>
POSITION WITH
B.C. ZIEGLER
NAME AND COMPANY(1)<F70> OTHER AFFILIATIONS(2)<F71>
----- -------------------- ---------------------------
<S> <C> <C>
Peter D. Ziegler Chairman of the Board, President, Director of West Bend Mutual Insurance Company, 1900 S. 18th
Chief Executive Officer and Director; Avenue, West Bend, WI 53095 (insurance company); Director of
Chairman - Ziegler Securities Trustmark Insurance Cos. (mutual life insurance company)
S. Charles O'Meara Senior Vice President, General Counsel, Secretary of Principal Preservation Portfolios, Inc.
Corporate Secretary and Director
D.A. Wallstead Senior Vice President -
Chief Financial Officer
John C. Wagner Senior Vice President -
Ziegler Investment Division
Retail Sales and Director
Ronald N. Spears Senior Vice President - Ziegler
Investment Division
Donald A. Carlson, Jr. Senior Vice President
Michael P. Doyle Senior Vice President - Ziegler
Investment Division Retail Operations
Robert J. Tuszynski Senior Vice President - Ziegler President, Chief Executive Officer and Director of Principal
Investment Division Preservation Portfolios, Inc.
Richard J. Glaisner Senior Managing Director - Ziegler Director of Principal Preservation Portfolios, Inc.
Investment Division
R. R. Poggenburg Senior Vice President - Ziegler
Investment Division
D. A. Carlson, Jr. President, Chief Executive Officer
and Treasurer - Ziegler Securities
S. R. Arnold Senior Vice President - TFI Institutional
Sales - Ziegler Securities
M. P. McDaniel Senior Vice President and Director
of Tax-Exempt Sales and Trading -
Ziegler Securities
T. R. Paprocki Senior Vice President and Director of
Capital Markets - Ziegler Securities
M. A. Baumgartner Senior Vice President - Ziegler Securities
D. J. Hermann Senior Vice President - Ziegler Securities
J. C. Vredenbregt Vice President - Treasurer and Controller;
Assistant Treasurer - Ziegler Securities
</TABLE>
- ---------------------------------
(1)<F70> Ziegler Investment Division and Ziegler Securities are divisions of B.
C. Ziegler and Company.
(2)<F71> Certain of the indicated persons are officers or directors, or both,
of B.C. Ziegler and Company's parent, The Ziegler Companies, Inc., and
of other subsidiaries of its parent. Other than these affiliations,
and except as otherwise indicated on the table, the response is none.
(b) Ziegler Asset Management, Inc.
Ziegler Asset Management, Inc. is a wholly owned subsidiary of The
Ziegler Companies, Inc. It serves as sub-advisor to the S&P 100 Plus,
Dividend Achievers and PSE Tech 100 Index Portfolios and as investment
advisor to the Cash Reserve Portfolio.
Set forth below is a list of the officers and directors of Ziegler
Asset Management, Inc. as of December 31, 1998, together with information
as to any other business, profession, vocation or employment of a
substantial nature of those officers and directors during the past two
years:
<TABLE>
POSITION WITH
ZIEGLER ASSET
NAME MANAGEMENT OTHER AFFILIATIONS(1)<F72>
----- -------------------- ---------------------------
<S> <C> <C>
P. D. Ziegler Chairman and Director Chairman of the Board, President, Chief Executive Officer and
Director, B.C. Ziegler and Company; Chairman, Ziegler
Securities; Director, West Bend Mutual Insurance Company, 1900
S. 18th Avenue, West Bend, WI 53095 (insurance company)
Geoffrey G. Maclay, Jr. President and Chief Executive Officer President and Chief Executive Officer, Ziegler Asset
Management, Inc.
R. D. Ziegler Senior Vice President and Director Chairman and Director, Principal Preservation Portfolios,
Inc., Director, Johnson Controls, Inc., 5757 N. Green Bay
Avenue, Milwaukee, WI 53201 (manufacturing)
Robert J. Tuszynski Vice President Senior Vice President, B.C. Ziegler and Company; President,
Chief Executive Officer and Director of Principal Preservation
Portfolios, Inc.
M. J. Dion Vice President - Portfolio Manager None
and Chief Investment Officer
R. F. Patek Vice President - Portfolio Manager None
D. R. Wyatt Vice President - Retirement None
Plan Services
J. R. Yovanovich Corporate Secretary Corporate Secretary, B.C. Ziegler and Company
J. C. Vredenbregt Treasurer Vice President - Treasurer and Controller, B.C. Ziegler and
Company; Assistant Treasures; Ziegler Securities
D. L. Lauterbach Vice President None
W. E. Hansen Vice President None
J. R. Wyatt Vice President None
Jay Ferrara, Jr. Vice President - Portfolio Manager None
and Analyst
</TABLE>
- -------------------------
(1)<F72>Certain of the indicated persons are officers or directors, or both, of
Ziegler Asset Management, Inc.'s parent, The Ziegler Companies, Inc.,
and of other subsidiaries of its parent. Other than these
affiliations, and except as otherwise indicated on the table, the
response is none.
(c) Skyline Asset Management, L.P.
Skyline Asset Management, L.P. ("Skyline") serves as sub-advisor to
the Select Value Portfolio. Skyline is a Delaware limited partnership
whose general partner is Affiliated Managers Group, Inc. ("AMG") and whose
limited partners consist of five corporations owned separately by five
officers of Skyline, namely William M. Dutton, Kenneth S. Kailin, Stephen
F. Kendall, Geoffrey F. Lutz and Michael Maloney. AMG is a New York Stock
Exchange traded Delaware corporation which is an asset management holding
company that acquires interests in investment management firms. The
executive offices of AMG are located at Two International Place, 23rd
Floor, Boston, Massachusetts 02110.
Set forth below is a list of the officers and directors of Skyline
Asset Management, L.P. as of December 31, 1998, together with information
as to any other business, profession, vocation or employment of a
substantial nature of those officers and directors during the past two
years (the business address of all such persons is c/o Skyline Asset
Management, L.P., 311 South Wacker Drive, Suite 4500, Chicago, Illinois
60606):
<TABLE>
POSITION WITH SKYLINE
NAME ASSET MANAGEMENT, L.P. PRINCIPAL OCCUPATION
----- ---------------------- --------------------
<S> <C> <C>
William M. Dutton Chief Investment Officer and Limited Chief Investment Officer of Skyline Asset Management, L.P.
Partner since June, 1995; Executive Vice President, Mesirow Asset
Management, Inc., from April, 1984 through August, 1995;
President, Skyline Fund (registered investment company)
William L. Achenbach Trustee President, W.L. Achenbach & Associates, Inc., a financial
counseling firm, since July 1992.
Paul J. Finnegan Trustee Vice President, Madison Dearborn Partners, Inc., a venture
capital firm, since January 1993.
David A. Martin Trustee Attorney and Principal, Righeimer, Martin & Cinquino.
Richard K. Pearson Trustee Retired; Director, Citizens Savings Bank (Anamosa, Iowa), and
Director, First Community Bank (Milton, Wisconsin).
Previously, Director and President, LaSalle Bank, Westmont,
(Westmont, Illinois), from 1994 to 1997, and Director, Chief
Executive Officer, and President, LaSalle Bank, Northbrook
(Northbrook, Illinois), from 1986 to 1994.
Stephen F. Kendall President President, Skyline Asset Management, L.P., since January
1998. Previously, Regional Vice President, Metro Region,
Nabisco Biscuit Company.
Kenneth S. Kailin Principal - Portfolio Manager and Principal - Portfolio Manager, Skyline Asset Management, L.P.
Limited Partner since June, 1995; Senior Vice President, Mesirow Asset
Management, Inc., from April, 1987 through August, 1995;
Executive Vice President, Skyline Fund (registered investment
company)
Geoffrey P. Lutz Principal - Institutional Marketing Principal - Institutional Marketing, Skyline Asset Management,
and Limited Partner L.P. since June, 1995; Vice President, Mesirow Asset
Management, Inc., May, 1992 through August, 1995; prior
thereto, Registered Representative, Mesirow Financial, Inc.
and Mesirow Investment Services, Inc. (registered brokers-
dealers/ investment advisers); Executive Vice President,
Skyline Fund (registered investment company)
Michael Maloney Principal - Securities Analyst and Principal - Securities Analyst, Skyline Asset Management,
Limited Partner L.P., since June, 1995; Investment Analyst, Mesirow Asset
Management, Inc. from February, 1993 through August, 1995;
prior thereto Investment Analyst, Baker Fentress & Co.
(investment manager); Senior Vice President, Skyline Fund
(registered investment company)
Daren C. Heitman Portfolio Manager Portfolio Manager, Skyline Asset Management, L.P., since
August 1997; Securities Analyst Skyline Asset Management, L.P.
from September 1995 to August 1997; Securities Analyst with
Mesirow Asset Management, Inc. from May 1994 to August 1995,
and Securities Analyst with Mesirow Financial, Inc. from
January 1993 to May 1994.
Scott C. Blim Chief Financial Officer Director of Chief Financial Officer, Skyline Asset Management, L.P. since
Fund Marketing September, 1995; Vice President, Director and Chief
Administrative Officer, Murray Johnstone International Ltd.
(investment firm) from 1989 to 1994; Secretary and Treasurer,
Skyline Fund (registered investment company)
Michelle M. Brennan Director of Fund Marketing Director of Fund Marketing, Skyline Asset Management, since
August 1996; previously Regional Marketing Associate, Strong
Capital Management
</TABLE>
(d) Geneva Capital Management Ltd.
Geneva Capital Management Ltd. ("Geneva") serves as sub-advisor to
the Managed Growth Portfolio. Geneva is a privately owned Wisconsin
corporation. Set forth below is a list of the officers and directors of
Geneva as of December 31, 1998, together with information as to any other
business, profession, vocation or employment of a substantial nature of
those officers and directors during the past two years (the business
address of all such persons is c/o Geneva Capital Management L.P., 250 East
Wisconsin Avenue, Suite 1050, Milwaukee, Wisconsin 53202):
NAME POSITION WITH GENEVA OTHER AFFILIATIONS
- ---- -------------------- ------------------
William A. Priebe President and Director None
Amy S. Croen Executive Vice President None
and Director
John J. O'Hare II Vice President Senior Analyst, The
Nicholas Funds
(registered investment
company), from 1992 to
1997
William F. Schneider, M.D. Director Retired Surgeon
Item 27. Principal Underwriters
----------------------
(a)
OTHER INVESTMENT COMPANIES FOR WHICH
UNDERWRITER ACTS AS UNDERWRITER,
UNDERWRITER DEPOSITOR OR INVESTMENT ADVISOR
------------ ---------------------------------
B.C. Ziegler and Company An underwriter for all of the mutual fund series of
Principal Preservation; American Tax-Exempt Bond
Trust, Series 1 (and subsequent series); Ziegler U.S.
Government Securities Trust, Series 1 (and subsequent
series); American Income Trust, Series 1 (and
subsequent series); Ziegler Money Market Trust; The
Insured American Tax-Exempt Bond Trust, Series 1 (and
subsequent series); and principal underwriter for
Portico Funds.
(b) Set forth below is a list of the officers and directors of B.C.
Ziegler and Company as of December 31, 1998, together with information
as to their positions with B.C. Ziegler and Company and with Principal
Preservation. The address of each officer and director of B.C.
Ziegler and Company is 215 North Main Street, West Bend, Wisconsin
53095, Telephone (414) 334-5521.
<TABLE>
POSITION WITH POSITION WITH
NAME B.C. ZIEGLER AND COMPANY(1)<F73> PRINCIPAL PRESERVATION
----- --------------------------------- -----------------------
<S> <C> <C>
Peter D. Ziegler Chairman of the Board, President, Chief Executive
Officer and Director; Chairman - Ziegler Securities
S. Charles O'Meara Senior Vice President, General Counsel, Corporate Secretary
Secretary and Director
D.A. Wallstead Senior Vice President - Chief Financial Officer
John C. Wagner Senior Vice President - Ziegler Investment Division
Retail Sales and Director
Ronald N. Spears Senior Vice President - Ziegler Investment Division
Donald A. Carlson, Jr. Senior Vice President
J. C. Vredenbregt Vice President - Treasurer and Controller;
Assistant Treasurer - Ziegler Securities
Michael P. Doyle Senior Vice President - Ziegler Investment
Division Retail Operations
Robert J. Tuszynski Senior Vice President - Ziegler Investment President, Chief Executive Officer
Division and Director
Richard J. Glaisner Senior Managing Director - Ziegler Investment Director
Division
R. R. Poggenburg Senior Vice President - Ziegler Investment
Division
D. A. Carlson, Jr. President, Chief Executive Officer and
Treasurer - Ziegler Securities
S. R. Arnold Senior Vice President - TFI Institutional
Sales - Ziegler Securities
M. P. McDaniel Senior Vice President and Director of Tax-Exempt
Sales and Trading - Ziegler Securities
T. R. Paprocki Senior Vice President and Director of Capital
Markets - Ziegler Securities
M. A. Baumgartner Senior Vice President - Ziegler Securities
D. J. Hermann Senior Vice President - Ziegler Securities
</TABLE>
- -----------------------------
(1)<F73> Ziegler Investment Division and Ziegler Securities are divisions of
B.C. Ziegler and Company.
(c) Not applicable.
Item 28. Location of Accounts and Records
---------------------------------
(a) B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
General ledger, including subsidiary ledgers; corporate records
and contracts; Portfolio ledger; shareholder documents, including
IRA documents; and transaction journals and confirmations for
portfolio trades for the Tax-Exempt, Government and Wisconsin
Tax-Exempt Portfolios.
(b) Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
Transaction journals and confirmations for portfolio trades for
the S&P 100 Plus, Dividend Achievers, PSE Tech 100 Index and Cash
Reserve Portfolios.
(c) Skyline Asset Management, L.P.
311 South Wacker Drive
Suite 4500
Chicago, Illinois 60606
Transaction journals and confirmations for portfolio trades for
the Select Value Portfolio.
(d) Geneva Capital Management, Ltd.
250 East Wisconsin Avenue
Suite 1050
Milwaukee, Wisconsin 53202
Transaction journals and confirmations for portfolio trades for
the Managed Growth Portfolio.
Item 29. Management Services
-------------------
Not applicable.
Item 30. Undertakings
------------
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment
Company Act, the Registrant has caused this Post-Effective Amendment to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of West Bend and State of Wisconsin on this 12th day of February, 1999.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
/s/ Robert J. Tuszynski
By: -------------------------------
Robert J. Tuszynski, President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment to its Registration Statement on Form N-1A has been signed below on
this 12th day of February, 1999, by the following persons in the capacities
indicated.
SIGNATURE TITLE
--------- -------
/s/ Robert J. Tuszynski Director and President (Chief
------------------------------ Executive Officer)
Robert J. Tuszynski
/s/ Franklin P. Ciano Chief Financial Officer and
------------------------------ Treasurer (Chief Financial and
Franklin P. Ciano Accounting Officer)
Richard H. Aster*<F74> Director
- ------------------------------
Richard H. Aster
August J. English*<F74> Director
- ------------------------------
August J. English
Ralph J. Eckert*<F74> Director
- ------------------------------
Ralph J. Eckert
Richard J. Glaisner*<F74> Director
- ------------------------------
Richard J. Glaisner
*<F74>By: /s/ Robert J. Tuszynski
------------------------------
Robert J. Tuszynski, pursuant to
a Power of Attorney dated
May 15, 1998, a copy of which is
filed herewith (see following page)
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Robert J. Tuszynski, Franklin P. Ciano and S.
Charles O'Meara, or any of them, with full power of substitution, as his true
and lawful attorneys and agents, to execute in his name and on his behalf, in
any and all capacities, Principal Preservation Portfolios, Inc.'s Registration
Statement on Form N-1A (Registration No. 33-12 under the Securities Act of
1933; File No. 811-4401 under the Investment Company Act of 1940) filed with
the Securities and Exchange Commission under both the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended, together with
any and all other instruments which such attorneys and agents, or any of them,
deem necessary or advisable to enable Principal Preservation Portfolios, Inc.
to comply with such Acts and the rules, regulations and requirements of the
Securities and Exchange Commission and the securities or Blue Sky laws of any
state or other jurisdiction, and the undersigned hereby ratifies and confirms
as his own act and deed any and all actions that such attorneys and agents, or
any of them, shall do or cause to be done by virtue hereof. Any of such
attorneys and agents have, and may exercise, all of the powers conferred
herein.
IN WITNESS WHEREOF, each of the undersigned directors of Principal
Preservation Portfolios, Inc. has hereunto set his hand as of this 15th day of
May, 1998.
/s/ Robert J. Tuszynski
- ------------------------------
Robert J. Tuszynski
/s/ August J. English
- ------------------------------
August J. English
/s/ Richard J. Glaisner
- ------------------------------
Richard J. Glaisner
/s/ Ralph J. Eckert
- ------------------------------
Ralph J. Eckert
/s/ Richard H. Aster
- ------------------------------
Richard H. Aster
EXHIBIT INDEX
<TABLE>
PREVIOUSLY FILED AND INCORPORATED
BY REFERENCE FROM:
----------------------------------
1933 ACT
POST-EFFECTIVE
EXHIBIT AMENDMENT DATE FILED FILED
NUMBER DESCRIPTION NUMBER WITH SEC HEREWITH
------ ----------- ------- --------- ---------
<S> <C> <C> <C> <C>
(A)(1) Amended and Restated Articles of Incorporation 38 4/30/97
(A)(2) December 23, 1998 Articles Supplementary 47 12/31/98
(B) By-Laws 38 4/30/97
(C) Rule 18f-3 Operating Plan 41 4/2/98
(D)(1) Investment Advisory Agreement with B.C. X
Ziegler and Company
(D)(2) Investment Advisory Agreement with Ziegler 31 12/29/95
Asset Management for Cash Reserve Portfolio
(D)(3) Sub-Advisory Agreement with Ziegler Asset Management X
(D)(4) Sub-Advisory Agreement with Skyline Asset Management 32 3/27/96
(D)(5) Sub-Advisory Agreement with Geneva Capital Management 47 12/31/98
(E)(1) Distribution Agreement X
(E)(2) Form of Selected Dealer's Agreement X
(F) Not Applicable
(G) Custodian Agreement with Firstar Trust Company 43 5/1/98
(H)(1) Transfer and Dividend Disbursing Agent Agreement 33 3/27/96
(H)(2) Accounting/Pricing Agreement 46 10/15/98
(H)(3) Shareholder Servicing Agreement for Class X Shares 36 12/10/96
of the Cash Reserve Portfolio
(H)(4) Administrative Services Agreement for Cash Reserve Portfolio X
(H)(5) License Agreement with Pacific Stock Exchange Incorporated 37 2/28/97
(H)(6) License Agreement with Standard and Poor's Corporation (1)<F75>
(I) Opinion of Counsel 38 4/30/97
(J)(1) Consent of Independent Public Accountants (1)<F75>
(J)(2) Consent of Counsel X
(K) Not Applicable
(L) Not Applicable
(M) Amended and Restated Distribution Plan Pursuant to Rule 12b-1 46 10/15/98
(N) Financial Data Schedule (1)<F75>
(O) See Exhibit (C)
</TABLE>
- ------------------------
(1)<F75>To be filed by Amendment prior to effectiveness of this Amendment.
EXHIBIT (D)(1)
INVESTMENT ADVISORY AGREEMENT
------------------------------
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the 31st day of December, 1998, by and between
PRINCIPAL PRESERVATION PORTFOLIOS, INC., a Maryland corporation (the "Fund"),
and B.C. ZIEGLER AND COMPANY, a Wisconsin corporation (the "Advisor").
W I T N E S S E T H:
In consideration of the mutual promises and agreements herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, it is hereby agreed by and between the parties hereto as
follows:
1. IN GENERAL
The Fund hereby appoints the Advisor to act as investment advisor
with respect to each series of its common stock listed on Exhibit A attached
hereto. Each series is referred to herein as a "Portfolio," and collectively
as the "Portfolios." The Advisor agrees to provide professional investment
management with respect to the investment of the assets of each Portfolio and
to supervise and arrange the purchase and sale of securities held in the
portfolio of each Portfolio and generally administer the affairs of the Fund.
The advisor may engage, on behalf of the Fund or any Portfolio and with the
required consent of the shareholders thereof, the services of a Sub-Advisor,
subject to any limitations imposed by the Investment Company Act of 1940 (the
"Act"). It is understood that the Fund may create one or more additional
series of shares and that, if it does so, this Agreement may be amended to
include additional series under the terms of this Agreement.
2. DUTIES AND OBLIGATIONS OF THE ADVISOR WITH RESPECT TO MANAGEMENT OF
THE FUND
(a) Subject to the succeeding provisions of this section and
subject to the direction and control of the Board of Directors
of the Fund, the Advisor shall:
(i) Decide what securities shall be purchased or sold by each
Portfolio and when; and
(ii) Arrange for the purchase and the sale of securities held
in the portfolio of each Portfolio by placing purchase and
sale orders for each Portfolio.
(b) Any purchases or sales of portfolio securities on behalf of the
Portfolios shall at all times conform to, and be in accordance
with, any requirements imposed by: (1) the provisions of the
Act and of any rules or regulations in force thereunder; (2)
any other applicable provisions of law; (3) the provisions of
the Articles of Incorporation and By-Laws of the Fund as
amended from time to time; (4) any policies and determination s
of the Board of Directors of the fund; and (5) the fundamental
policies of the Fund, as reflected in its registration
statement under the Act, or as amended by the shareholders of
the Fund.
(c) The Advisor shall also administer the affairs of the Fund and,
in connection therewith, shall be responsible for (i)
maintaining the Fund's books and records, (other than financial
or accounting books and records maintained by any accounting
services agent and such records maintained by the Fund's
custodian or transfer agent); overseeing the Fund's insurance
relationships; (iii) preparing for the Fund (or assisting
counsel and/or auditors in the preparation of) all required tax
returns, proxy statements and reports to the Fund's
shareholders and Directors and reports to and other filings
with the Securities and Exchange Commission and other
governmental agency (the Fund agreeing to supply or cause to be
supplied to the Advisor all necessary financial and other
information in connection with the foregoing); (iv) preparing
such applications and reports as may be necessary to register
or maintain the Fund's registration and/or the registration of
the shares of the Portfolios under the securities or "blue sky"
laws of the various states selected by the Fund's Distributor
(a Portfolio or Portfolios agreeing to pay all filing fees or
other similar fees in connection therewith); (v) responding to
all inquiries or other communications of shareholders, if any,
which are directed to the Advisor, or if any such inquiry or
communication is more properly to be responded to by the Fund's
custodian, transfer agent or accounting services agent,
overseeing their response thereto; (vi) overseeing all
relationships between the Fund and its custodian(s), transfer
agent(s) and accounting services agent(s), including the
negotiation of agreements and the supervision of the
performance of such agreements; and (vii) authorizing and
directing any of the Advisor's directors, officers and
employees who may be elected as Directors or officers of the
Fund to serve in the capacities in which they are elected. All
services to be furnished by the Advisor under this Agreement
may be furnished through the medium of any such Directors,
officers or employees of the Advisor.
(d) The Advisor shall give the fund the benefit of its best
judgment and effort in rendering services hereunder. In the
absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of obligations or duties ("disabling
conduct") hereunder on the part of the Advisor (and its
officers, directors, agents, employees, controlling persons,
shareholders and any other person or entity affiliated with the
Advisor) the Advisor shall not be subject to liability to the
Fund or to any shareholder of the Fund for any act or omission
in the course of, or connected with rendering services
hereunder, including without limitation, any error of judgment
or mistake of law or for any loss suffered by any of them in
connection with the matters to which this Agreement related,
except to the extent specified in Section 36(b) of the Act
concerning loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services. Except
for such disabling conduct, the Fund shall indemnify the
Advisor (and its officers, directors, agents, employees,
controlling persons, shareholders and any other person or
entity affiliated with the Advisor) from any liability arising
from the Advisor's conduct under this Agreement to the extent
permitted by the Fund's Articles of Incorporation, By-Laws and
applicable law.
(e) Nothing in this Agreement shall prevent the Advisor or any
affiliated person (as defined in the Act) of the Advisor from
acting as investment advisor or manager and/or principal
underwriter for any other person, firm or corporation and shall
not in any way limit or restrict the advisor or any such
affiliated person from buying, selling or trading any
securities for its or their own accounts or the accounts of
others for whom it or they may be acting, provided, however,
that the Advisor expressly represents that it will undertake no
activities which, in its judgment, will adversely affect the
performance of its obligations to the Fund under this
Agreement.
(f) It is agreed that the Advisor shall have no responsibility or
liability for the accuracy or completeness of the Fund's
Registration Statement under the Act or the Securities Act of
1933 except for information supplied by the Advisor for
inclusion therein.
3. BROKER-DEALER RELATIONSHIPS
In connection with its duties set forth in Section 2(a)(ii) of this
Agreement to arrange for the purchase and the sale of securities held by each
Portfolio by placing purchase and sale orders for the Portfolio, the Advisor
and/or any Sub-Advisor shall select such broker-dealers ("brokers") as shall,
in the Advisor's or Sub-Advisor's judgment, implement the policy of the Fund
to achieve "best execution," i.e., prompt and efficient execution at the most
----
favorable securities price. In making such selection, the Advisor and/or Sub-
Advisor is also authorized to consider whether the broker provides brokerage
and/or research services to the Fund and/or other accounts of the Advisor or
Sub-Advisor. The commissions paid to such brokers may be higher than another
broker would have charged if a good faith determination is made by the Advisor
and/or Sub-Advisor that the commission is reasonable in relation to the
services provided, viewed in terms of either that particular transaction or
the Advisor's or the Sub-Advisor's overall responsibilities as to the accounts
as to which it exercises investment discretion. The Advisor and/or Sub-
Advisor shall use its judgment in determining that the amount of commissions
paid are reasonable in relation to the value of brokerage and research
services provided and need not place or attempt to place a specific dollar
value on such services or on the portion of commission rates reflecting such
services. To demonstrate that such determinations were in good faith, and to
show the overall reasonableness of commissions paid, the Advisor and/or Sub-
Advisor shall be prepared to show that commissions paid (i) were for purposes
contemplated by this Agreement; (ii) provide lawful and appropriate assistance
to the Advisor and/or Sub-Advisor in the performance of its decision-making
responsibilities; and (iii) were within a reasonable range as compared to the
rates charged by qualified brokers to other institutional investors as such
rates may become known from available information. The Fund recognizes that,
on any particular transaction, a higher than usual commission may be paid due
to the difficulty of the transaction in question. The Advisor and/or Sub-
Advisor is also authorized to consider sales of shares as a factor in the
selection of brokers to execute brokerage and principal transactions, subject
to the requirements of "best execution," as defined above.
4. ALLOCATION OF EXPENSES
The Advisor agrees that it will furnish the Fund, at the Advisor's
expense, with all office space and facilities, and equipment and clerical
personnel necessary for carrying out its duties under this Agreement. The
Advisor will also pay all compensation of all Directors, officers and
employees of the Fund who are affiliated persons of the Advisor. All costs
and expenses not expressly assumed by the Advisor under this Agreement shall
be paid by the Fund, including, but not limited to (i) interest and taxes;
(ii) brokerage commissions; (iii) insurance premiums; (iv) compensation and
expenses of its Directors other than those affiliated with the Advisor; (v)
legal and audit expenses; (vi) fees and expenses of the Fund's custodian,
shareholder servicing or transfer agent and accounting services agent; (vii)
expenses incident to the issuance of its shares, including stock certificates
and issuance of shares on the payment of, or reinvestment of, dividends;
(viii) fees and expenses incident to the registration under Federal or state
securities laws of the Fund or its shares; (ix) expenses of preparing,
printing and mailing reports and notices proxy material and prospectuses to
shareholders of the Fund; (x) all other expenses incidental to holding
meetings of the Fund's shareholders; (xi) dues or assessments of or
contributions to the Investment Company Institute or any successor or other
industry association; (xii) such non-recurring expenses as may arise,
including litigation affecting the Fund and the legal obligations which the
Fund may have to indemnify its officers and Directors with respect thereto;
and (xiii) all expenses which the Fund or a Portfolio agrees to bear in any
distribution agreement or in any plan adopted by the Fund and/or a Portfolio
pursuant to Rule 12b-1 under the Act.
5. COMPENSATION OF THE ADVISOR
(a) The Fund agrees to pay the Advisor and the Advisor agrees to
accept as full compensation for all services rendered by the
Advisor as such, an annual management fee, payable monthly and
computed on the value of the average daily net asset value of
the Portfolio as shown on Exhibit A attached hereto.
(b) In the event the expenses of a Portfolio (including the fees of
the Advisor and amortization of organization expenses but
excluding interest, taxes, brokerage commissions, extraordinary
expenses and sales charges and distribution fees) for any
fiscal year exceed the limits set by applicable regulations of
state securities commissions, the Advisor will reduce its fee
by the amount of such excess. Any such reductions are subject
to readjustment during the year. The payment of the management
fee at the end of any month will be reduced or postponed or, if
necessary, a refund will be made to a Portfolio so that at any
time will there be any accrued but unpaid liability under this
expense limitation.
6. DURATION AND TERMINATION
(a) This Agreement shall go into effect as to each Portfolio on the
date set forth on Exhibit A attached hereto and shall, unless
terminated as hereinafter provided, continue in effect until
December 31, 2000 and thereafter from year to year, but only so
long as such continuance is specifically approved at least
annually by: (i) the vote of a majority of the Directors who
are not parties to this Agreement or "interested persons" (as
defined in the Act) of any such party case in person at a
meeting called for the purpose of voting on such approval; and
(ii) either by a vote of a majority of the Board of Directors
or by the vote of the holders of a "majority" (as defined in
the Act) of the outstanding voting securities of the Fund (or
with respect to any Portfolio, by the vote of a majority of the
outstanding shares of such Portfolio).
(b) This Agreement may be terminated by the Advisor at any time
without penalty upon giving the Fund sixty (60) days' written
notice (which notice may be waived by the Fund) and may be
terminated by the Fund at any time without penalty upon giving
the Advisor sixty (60) days' written notice (which notice may
be waived by the Advisor), provided that such termination by
the Fund shall be directed or approved by the vote of a
majority of all of its Directors in office at the time or by
the vote of the holders of a majority (as defined in the Act)
of the voting securities of the Fund, or with respect to any
Portfolio by the vote of a majority of the outstanding shares
of such Portfolio. This Agreement shall automatically
terminate in the event of its assignment (as defined in the
Act).
IN WITNESS WHEREOF, the parties hereto have caused the foregoing
instrument to be executed by duly authorized persons and their seals to be
hereunto affixed, all as of the day and year first above written.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
/s/ Robert J. Tuszynski
By: ------------------------------
Robert J. Tuszynski, President
B.C. ZIEGLER AND COMPANY
/s/ Peter D. Ziegler
By: ------------------------------------
Peter D. Ziegler, President and Chief
Executive Officer
EXHIBIT A
---------
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
INVESTMENT ADVISORY AGREEMENT
1. TAX-EXEMPT PORTFOLIO.
a. Effective Date: May 1, 1999
b. Management Fee: The management fee for this Portfolio, calculated
in accordance with paragraph 5 of the Principal Preservation
Portfolios, Inc. Investment Advisory Agreement, shall be at an
annual rate of 0.60 of 1% of the average daily net assets of the
Portfolio up to $50 million, reducing to 0.50 of 1% for the next
$200 million of average daily net assets, and 0.40 of 1% of average
daily net assets in excess of $250 million.
2. GOVERNMENT PORTFOLIO.
a. Effective Date: May 1, 1999.
b. Management Fee: The management fee for this Portfolio, calculated
in accordance with paragraph 5 of the Principal Preservation
Portfolios, Inc. Investment Advisory Agreement, shall be at an
annual rate of 0.60 of 1% of the average daily net assets of the
Portfolio up to $50 million, reducing to 0.50 of 1% for the next
$200 million of average daily net assets, and 0.40 of 1% of average
daily net assets in excess of $250 million.
3. WISCONSIN TAX-EXEMPT PORTFOLIO.
a. Effective Date: May 1, 1999
b. Management Fee: The management fee for this Portfolio, calculated
in accordance with paragraph 5 of the Principal Preservation
Portfolios, Inc. Investment Advisory Agreement, shall be at an
annual rate of 0.50 of 1% of the first $250 million of the average
daily net assets of the Portfolio, and 0.40 of 1% on average daily
net assets in excess of $250 million.
4. S&P 100 PLUS PORTFOLIO.
a. Effective Date: May 1, 1999.
b. Management Fee: The management fee for this Portfolio, calculated
in accordance with paragraph 5 of the Principal Preservation
Portfolios, Inc. Investment Advisory Agreement, shall be at an
annual rate of 0.575 of 1% of the average daily net assets of the
Portfolio up to $20 million, 0.45 of 1% on the next $30 million,
0.40 of 1% on the next $50 million, 0.35 of 1% on the next $400
million and 0.30 of 1% on assets over $500 million.
5. DIVIDEND ACHIEVERS PORTFOLIO
a. Effective Date: May 1, 1999
b. Management Fee: The management fee for this Portfolio, calculated
in accordance with paragraph 5 of the Principal Preservation
Portfolios, Inc. Investment Advisory Agreement, shall be at an
annual rate of 0.75 of 1% of the first $250 million of the average
daily net assets of the Portfolio, 0.70 of 1% on the next $250
million in net assets, and 0.65 of 1% on net assets in excess of
$500 million.
6. SELECT VALUE PORTFOLIO.
a. Effective Date: May 1, 1999
b. Management Fee: The management fee for this Portfolio, calculated
in accordance with paragraph 5 of the Principal Preservation
Portfolios, Inc. Investment Advisory Agreement, shall be at an
annual rate of 0.75 of 1% of the first $250 million of the average
daily net assets of the Portfolio, and 0.65 of 1% on average daily
net assets in excess of $250 million.
7. PSE TECH 100 INDEX PORTFOLIO.
a. Effective Date: May 1, 1999
b. Management Fee: The management fee for this Portfolio, calculated
in accordance with paragraph 5 of the Principal Preservation
Portfolios, Inc. Investment Advisory Agreement, shall be at an
annual rate of 0.50 of 1% of the first $50 million of the average
daily net assets of the Portfolio, 0.30 of 1% of the next $200
million in net assets, 0.25 of 1% of the next $250 million in net
assets, and 0.20 of 1% of net assets in excess of $500 million.
8. MANAGED GROWTH PORTFOLIO.
a. Effective Date: January 1, 1999
b. Management Fee: The management fee for this Portfolio, calculated
in accordance with paragraph 5 of the Principal Preservation
Portfolios, Inc. Investment Advisory Agreement, shall be at an
annual rate of 0.75 of 1% of the first $250 million of the average
daily net assets of the Portfolio, and 0.65 of 1% on average daily
net assets in excess of $250 million.
EXHIBIT (D)(3)
SUB-ADVISORY AGREEMENT WITH ZIEGLER ASSET MANAGEMENT, INC.
-----------------------------------------------------------
SUB-ADVISORY AGREEMENT
THIS SUB-ADVISORY AGREEMENT (this "Agreement") is made as of the 1st day
of May, 1999, by and among PRINCIPAL PRESERVATION PORTFOLIOS, INC., a Maryland
corporation (the "Fund"), B.C. ZIEGLER AND COMPANY, a Wisconsin corporation
(the "Advisor"), and ZIEGLER ASSET MANAGEMENT, INC., a Wisconsin corporation
(the "Sub- Advisor").
W I T N E S S E T H
For good and valuable consideration, the receipt of which is hereby
acknowledged, it is hereby agreed by and among the parties hereto as follows:
1. IN GENERAL
The Sub-Advisor agrees, as more fully set forth herein, to act
as Sub-Advisor to the Fund with respect to the investment and
reinvestment of the assets of each Portfolio of the Fund identified
on Exhibit A attached hereto, as the same may be amended from time
---------
to time (individually a or the "Portfolio" and together the
"Portfolios"). The Sub-Advisor agrees to supervise and arrange the
purchase of securities and the sale of securities held in the
investment portfolio of each Portfolio.
2. DUTIES AND OBLIGATIONS OF THE SUB-ADVISOR WITH RESPECT TO
INVESTMENTS OF ASSETS OF EACH PORTFOLIO
(a) Subject to the succeeding provisions of this section and
subject to the oversight and review of the Advisor and the direction
and control of the Board of Directors of the Fund, the Sub-Advisor
shall:
(i) Determine what securities shall be purchased or sold
by each Portfolio;
(ii) Arrange for the purchase and the sale of securities
held in each Portfolio; and
(iii) Provide the Advisor and the Directors with such
reports as may reasonably be requested in connection with the
discharge of the foregoing responsibilities and the discharge
of the Advisor's responsibilities under its Investment Advisory
Agreement with the Fund and those of B.C. Ziegler and Company
(the "Distributor") under its Distribution Agreement with the
Fund.
(b) Any investment purchases or sales made by the Sub-Advisor
under this section shall at all times conform to, and be in
accordance with, any requirements imposed by: (1) the provisions of
the Investment Company Act of 1940 (the "Act") and of any rules or
regulations in force thereunder; and (2) the provisions of the
Articles of Incorporation and By-Laws of the Fund as amended from
time to time; (3) any policies and determinations of the Board of
Directors of the Fund; and (4) the fundamental policies of the
relevant Portfolio, as reflected in the Fund's registration
statement (or post-effective amendments thereto) under the Act and
the Securities Act of 1933 (including the relevant Portfolio's
current Prospectus and Statement of Additional Information), or as
amended by the shareholders of the relevant Portfolio; provided that
copies of the items referred to in clauses (2), (3) and (4) shall
have been furnished to the Sub-Advisor.
(c) The Sub-Advisor shall give the Fund the benefit of its
best judgment and effort in rendering services hereunder. In the
absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations or duties ("disabling
conduct") hereunder on the part of the Sub-Advisor (and its
officers, directors, agents, employees, controlling persons,
shareholders and any other person or entity affiliated with the Sub-
Advisor) the Sub-Advisor shall not be subject to liability to the
Fund or to any shareholder of the Fund for any act or omission in
the course of, or connected with, rendering services hereunder,
including without limitation any error of judgment or mistake of law
or for any loss suffered by any of them in connection with the
matters to which this Agreement relates, except to the extent
specified in Section 36(b) of the Act concerning loss resulting from
a breach of fiduciary duty with respect to the receipt of
compensation for services. Except for such disabling conduct, the
Fund shall indemnify the Sub-Advisor (and its officers, directors,
agents, employees, controlling persons, shareholders and any other
person or entity affiliated with the Sub-Advisor) against any
liability arising from the Sub-Advisor's conduct under this
Agreement to the extent permitted by the Fund's Articles of
Incorporation, By-Laws and applicable law.
(d) Nothing in this Agreement shall prevent the Sub-Advisor or
any affiliated person (as defined in the Act) of the Sub-Advisor
from acting as investment advisor or manager for any other person,
firm or corporation and shall not in any way limit or restrict the
Sub-Advisor or any such affiliated person from buying, selling or
trading any securities for its or their own accounts or for the
accounts of others for whom it or they may be acting, provided,
however, that the Sub-Advisor expressly represents that it will
undertake no activities which, in its judgment, will adversely
affect the performance of its obligations to the Fund under this
Agreement or under the Act. It is agreed that the Sub-Advisor shall
have no responsibility or liability for the accuracy or completeness
of the Fund's Registration Statement under the Act and the
Securities Act of 1933 (and will be indemnified by the Fund for
claims related thereto), except for information supplied by the Sub-
Advisor for inclusion therein. The Sub-Advisor shall be deemed to
be an independent contractor and, unless otherwise expressly
provided or authorized, have no authority to act for or represent
the Fund in any way or otherwise be deemed an agent of the Fund.
(e) In connection with its duties to arrange for the purchase
and sale of each Portfolio's portfolio securities, the Sub-Advisor
shall follow the principles set forth in any investment advisory
agreement in effect from time to time between the Fund and the
Advisor, provided that a copy of any such agreement shall have been
provided to the Sub-Advisor. The Sub-Advisor will promptly
communicate to the Advisor and to the officers and the Directors of
the Fund such information relating to portfolio transactions as they
may reasonably request.
3. ALLOCATION OF EXPENSES
The Sub-Advisor agrees that it will furnish the Fund, at the
Sub-Advisor's expense, with all office space and facilities,
equipment and clerical personnel that the Sub-Advisor reasonably
deems necessary for carrying out its duties under this Agreement.
Such office space, facilities, equipment and personnel may be used
by the Sub-Advisor for its services to other clients. The Sub-
Advisor will also pay all compensation of those of the Fund's
officers and employees, if any, and of those Directors, if any, who
in each case are affiliated persons of the Sub-Advisor.
4. CERTAIN RECORDS
Any records required to be maintained and preserved pursuant to
the provisions of Rule 31a-1 and Rule 31a-2 under the Act which are
prepared or maintained by the Sub-Advisor on behalf of the Fund are
the property of the Fund and will be surrendered promptly to the
Fund or the Advisor on request.
5. REFERENCE TO THE SUB-ADVISOR
Neither the Fund nor the Advisor or any affiliate or agent
thereof shall make reference to or use the name of the Sub-Advisor
or any of its affiliates in any advertising or promotional materials
without the prior approval of the Sub-Advisor, which approval shall
not be unreasonably withheld.
6. COMPENSATION OF THE SUB-ADVISOR
The Advisor agrees to pay the Sub-Advisor, and the Sub-Advisor
agrees to accept as full compensation for all services rendered by
the Sub-Advisor as such, a management fee for each Portfolio as
specified on Exhibit A attached hereto.
7. DURATION AND TERMINATION
(a) This Agreement shall go into effect with respect to each
Portfolio on the date set forth for such Portfolio on Exhibit A
attached hereto. This Agreement shall, unless terminated as
hereinafter provided, continue in effect with respect to each
Portfolio for a period of two years following the effective date for
such Portfolio, and thereafter from year to year, but only so long
as such continuance is specifically approved at least annually by a
majority of the Fund's Board of Directors, or by the vote of the
holders of a "majority" (as defined in the Act) of the outstanding
voting securities of the relevant Portfolio, and, in either case, a
majority of the Directors who are not parties to this Agreement or
"interested persons" (as defined in the Act) of any such party cast
in person at a meeting called for the purpose of voting on such
approval.
(b) This Agreement may be terminated (either in its entirety
or with respect to one or more Portfolios) by the Sub-Advisor at any
time without penalty upon giving the Fund and the Advisor sixty (60)
days' written notice (which notice may be waived by the Fund and the
Advisor) and may be terminated (either in its entirety or with
respect to one or more Portfolios) by the Fund or the Advisor at any
time without penalty upon giving the Sub-Advisor sixty (60) days'
written notice (which notice may be waived by the Sub-Advisor),
provided that such termination by the Fund shall be directed or
approved by the vote of a majority of all of its Directors in office
at the time or by the vote of the holders of a "majority" (as
defined in the Act) of the voting securities of the relevant
Portfolio(s). This Agreement shall automatically terminate in the
event of its "assignment" (as defined in the Act). This Agreement
will also automatically terminate in the event that the Investment
Advisory Agreement by and between the Fund and the Advisor is
terminated for any reason.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing
instrument to be executed by their duly authorized officers and their seals to
be hereto affixed, all as of the day and year first above written.
PRINCIPAL PRESERVATION
PORTFOLIOS, INC.
By: ------------------------------------------------
Robert J. Tuszynski, President
B.C. ZIEGLER AND COMPANY
By: -----------------------------------------------
Peter D. Ziegler, President and Chief Executive Officer
ZIEGLER ASSET MANAGEMENT, INC.
By: -------------------------------------------------
Geoffrey G. Maclay, Jr., President and Chief Executive Officer
EXHIBIT A
---------
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
ZIEGLER ASSET MANAGEMENT, INC.
SUB-ADVISORY AGREEMENT
1. S&P 100 PLUS PORTFOLIO
a. Effective Date: May 1, 1999
b. Sub-Advisory Fee: Computed daily and paid monthly in an amount
equal to one-fourth (1/4) of the investment advisory fee paid by the
Portfolio to the Advisor, without giving effect to any fee waivers
or expense reimbursements by the Advisor.
2. DIVIDEND ACHIEVERS PORTFOLIO
a. Effective Date: May 1, 1999
b. Sub-Advisory Fee: Computed daily and paid monthly in an amount
equal to one-fourth (1/4) of the investment advisory fee paid by the
Portfolio to the Advisor, without giving effect to any fee waivers
or expense reimbursements by the Advisor.
3. PSE TECH 100 INDEX PORTFOLIO
a. Effective Date: May 1, 1999
b. Sub-Advisory Fee: Computed daily and paid monthly in an amount
equal to one-fourth (1/4) of the investment advisory fee paid by the
Portfolio to the Advisor, without giving effect to any fee waivers
or expense reimbursements by the Advisor.
EXHIBIT (E)(1)
DISTRIBUTION AGREEMENT
-----------------------
AMENDED AND RESTATED
DISTRIBUTION AGREEMENT
-----------------------
AMENDED AND RESTATED DISTRIBUTION AGREEMENT made this 31st day of July,
1998, between PRINCIPAL PRESERVATION PORTFOLIOS, INC., a Maryland corporation
(the "Fund"), and B.C. ZIEGLER AND COMPANY, a Delaware corporation (the
"Distributor").
WITNESSETH:
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as a diversified open-end management investment
company and it is in the interest of the Fund to offer its share for sale
continuously;
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of the Fund's shares
of Common Stock, $.001 par value, which are issuable in series ("Common
Stock"), to commence after the effectiveness of its initial registration
statement filed pursuant to the Securities Act of 1933, as amended (the "1933
Act"), and the 1940 Act.
WHEREAS, two series of Common Stock, the Government Plus Portfolio and
the Blue Chip 100 Plus Portfolio are currently offered by the Fund, and
additional or different series may be offered from time to time, all of which
such series are referred to as the "Portfolios."
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor.
-------------------------------
The Fund hereby appoints the Distributor its exclusive agent to sell and
to arrange for the sale of the shares of Common Stock, including both issued
and treasury shares, on the terms and for the period set forth in this
Agreement and the Distributor hereby accepts such appointment and agrees to
act hereunder. It is also understood, however, that purchases of Common Stock
may be made directly through the Fund's transfer and dividend disbursing agent
in the manner set forth in the Prospectus.
Section 2. Services and Duties of the Distributor.
---------------------------------------
(a) The Distributor agrees to sell, as agent for the Fund, from
time to time during the term of this Agreement, Common Stock (whether unissued
or treasury shares, in the Fund's sole discretion) upon the terms described in
the Prospectus. As used in this Agreement, the term "Prospectus" shall mean
the prospectus included as part of the Fund's Registration Statement, as such
prospectus may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement most recently
filed from time to time by the Fund with the Securities and Exchange
Commission and effective under the 1933 Act and the 1940 Act, as such
Registration Statement as amended by any amendments thereto as the time in
effect.
(b) Upon commencement of the Fund's operations, the Distributor
will hold itself available to receive orders, satisfactory to the Distributor,
for the purchase of Common Stock and will accept such orders on behalf of the
Fund as of the time of receipt of such orders and will transmit such orders as
are so accepted to the Fund's transfer and dividend disbursing agent as
promptly as practicable. Purchase orders shall be deemed effective at the
time in the manner set forth in the Prospectus.
(c) The Distributor in its discretion may sell shares to such
registered and qualified retail dealers as it may select. In making
agreements with such dealers, the Distributor shall act only as principal and
not as agent for the Fund.
(d) The offering price of shares of each Portfolio of Common Stock
shall be the net asset value (as defined in the Articles of Incorporation of
the Fund and determined as set forth in the Prospectus) per share of such
Portfolio of the Common Stock next determined following receipt of an order,
plus in the case of Class A (and Class X shares) the applicable sales charge,
if any, determined as set forth in the Prospectus. The Fund shall furnish the
Distributor, with all possible promptness, an advice of each computation of
net asset value.
(e) The Distributor shall not be obligated to sell any certain
number of shares of Common Stock and nothing herein contained shall prevent
the Distributor from entering into like distribution arrangements with other
investment companies so long as the performance of its obligations hereunder
is not impaired thereby.
(f) The Distributor is authorized on behalf of the Fund to purchase
shares presented to it by dealers at the price determined in accordance with,
and in the manner set forth in, the Prospectus.
Section 3. Compensation of the Distributor.
--------------------------------
(a) Class A (and Class X Shares). The above-mentioned sales charge
-------
shall constitute the entire compensation of the Distributor. Out of such
sales charge, the Distributor may allow such concessions or reallowances to
dealers as it may from time to time determine.
(b) Class B Shares
(i) The Fund shall pay to the Distributor, or at its
direction, as compensation for acting as principal distributor in respect of
the Class B Shares of each Portfolio its "Allocable Portion" (as hereinafter
defined) of a fee (the "Distribution Fee") computed at the rate of 0.75% per
annum of such Portfolio's average daily net assets attributable to Class B
Shares, which Distribution Fee will accrue daily and be payable monthly.
(ii) The Fund shall pay to the Distributor, or at its
direction, as com pensation for providing shareholder services to the holders
of Class B Shares of each Portfolio its allocable portion of a fee (the
"Service Fee") computed at the rate of 0.25% per annum of such Portfolio's
average daily net assets attributable to Class B Shares, which Service Fee
will accrue daily and be payable monthly.
(iii) The Distributor may allow all or any portion of the
Service Fee to securities dealers in consideration of the provision by such
securities dealers of shareholder services to particular Class B Shares.
(iv) If, in lieu of allowing a portion of the Service Fee
relating to a particular Class B Share to a securities dealer in consideration
of such securities dealer providing shareholder services to such Class B Share
for the twelve month period following the issuance thereof, the Distributor
makes a payment to such securities dealer on the settlement date for the
issuance of such Class B Share in consideration of such security dealer's
commitment to provide such services for such twelve month period without
further compensation, the Distributor will be deemed to have earned the
Service Fee which accrues in respect of such Class B Share during such twelve
month period (the "Earned Service Fee") upon making such payment to such
securities dealer; and, in such case, all of the provisions of Section 3(b)
(v) through (x) hereof shall apply to such Earned Service Fee, in the same
manner as they apply to the Underwriter's Allocable Portion of the
Distribution Fee, and for this purpose references in Section 3 (b) (v) through
(x) hereof to Distribution Fees shall be deemed to include a reference to
Earned Service Fees and references in such section to the financing of
distribution services shall be deemed to include a reference to financing of
shareholder services.
(v) Notwithstanding anything to the contrary set forth in this
Distribution Agreement or (to the extent waiver thereof is permitted thereby)
applicable law, the Portfolio's obligation to pay the Distributor's Allocable
Portion of the Distribution Fees payable in respect of the Class B Shares of
any Portfolio shall not be terminated or modified in any manner (including,
without limitation, by change in the auto-conversion arrangements relating to
Class B Shares for which the "Date or Original Issuance" (as defined below)
occurs prior to such action) for any reason (including a termination of this
Distribution Agreement as it relates to Class B Shares), except to the extent
required by a change in the Investment Company Act of 1940 (the "Act") or the
Conduct Rules of the National Association of Securities Dealers, Inc., in
either case enacted or promulgated after the date of this Amended and Restated
Distribution Agreement (i.e., July 31, 1998), or in connection with a
"Complete Termination" (as hereinafter defined) of the Plan.
(vi) The Fund or the Portfolio will not take any action to
waive or change in any manner (including, without limitation, by change in the
auto-conversion arrangements relating to Class B Shares for which the "Date or
Original Issuance" (as defined below) occurs prior to such action) any CDSC in
respect of any Class B Shares of any Portfolio for which the Date of Original
Issuance occurs prior to such action, except as provided in the Portfolio's
prospectus or statement of additional information as in effect as of the date
of this Distribution Agreement, without the consent of the Distributor and its
Transferees (as hereinafter defined) of all or any portion of its right to its
Allocable Portion of the CDSCs.
(vii) Notwithstanding anything to the contrary set forth in
this Distribution Agreement, neither the termination of the Distributor's role
as principal distributor of the Class B Shares of a Portfolio, nor the
termination of this Distribution Agreement nor the termination of the Plan
will terminate such Distributor's right to its Allocable Portion of the CDSCs
in respect of the Class B Shares of any Portfolio.
(viii) Notwithstanding anything to the contrary in this
Distribution Agreement, the Distributor may assign, sell or pledge
(collectively, a "Transfer") its rights to its Allocable Portion of the
Distribution Fees and CDSCs earned by it (but not its obligations to the Fund
or the Portfolio under this Distribution Agreement) in respect of the Class B
Shares to raise funds to make the expenditures related to the distribution of
Class B Shares and in connection therewith upon receipt of notice of such
Transfer, the Fund on behalf of each Portfolio shall pay, or cause to be paid
to the assignee, purchaser or pledgee (collectively with their subsequent
transferees, "Transferees") such portion of the Distributor's Allocable
Portion of the Distribution Fees and CDSCs in respect of the Class B Shares of
such Portfolio so transferred. Except as provided in Section 3(v) above and
notwithstanding anything to the contrary set forth elsewhere in this
Distribution Agreement, to the extent the Distributor has made a Transfer of
its rights thereto to raise funds as aforesaid, the Fund's obligation to pay
the Distributor's Allocable Portion of the Distribution Fees and CDSCs payable
in respect of the Class B Shares shall be absolute and unconditional and shall
not be subject to dispute, offset, counterclaim or any defense whatsoever, at
law or equity, including without limitation, any of the foregoing based on the
insolvency or bankruptcy of the Distributor (it being understood that such
provision is not a waiver of the Fund's or the Portfolio's right to pursue
such Distributor and enforce such claims against the assets of the Distributor
other than the Distributor's right to the Distribution Fees and CDSCs, in
respect of the Class B Shares of the Portfolio or any other company,
portfolio, fund or trust, Distribution Fees and CDSCs in respect of the Class
B Shares of which have been so transferred in connection with such Transfer).
The Fund agrees, on behalf of each Portfolio, that each such Transferee is a
third party beneficiary of the provisions of this clause (viii) but only
insofar as those provisions relate to Distribution Fees and CDSCs transferred
to such Transferee.
(ix) For purposes of this Distribution Agreement, the term
Allocable Portion of Distribution Fees and CDSCs payable in respect of the
Class B Shares of any Portfolio shall mean the portion of such Distribution
Fees and CDSCs allocated to such Distributor in accordance with the Allocation
Schedule attached hereto as Schedule A and the term "Date of Original
Issuance" shall have the meaning defined in such Allocation Schedule.
(x) For purposes of this Distribution Agreement, the term
"Complete Termination" of the Plan in respect of any Portfolio means a
termination of the Plan involving the complete cessation of the payment of
Distribution Fees in respect of all Class B Shares of the Portfolio, and the
termination of the distribution plans and the complete cessation of the
payment of distribution fees pursuant to every other Distribution Plan
pursuant to Rule 12b-1 of the Act in respect of the Class B Shares of the
Portfolio, any other Portfolio and any successor company, portfolio, fund or
trust, or any company, portfolio, fund or trust acquiring a substantial
portion of the assets of the Portfolio or any other Portfolio and for every
future class of shares of the Portfolio or any other such company, portfolio,
fund or trust which has substantially similar characteristics to the Class B
Shares of the Portfolio including the manner of payment and amount of sales
charge, contingent deferred sales charge or other similar charges borne
directly or indirectly by the holders of such shares.
Section 4. Duties of the Fund.
------------------
(a) The Fund agrees to sell its shares so long as it has shares
available for sale; and to deliver certificates for, or cause the Fund's
transfer and dividend disbursing agent to issue non-negotiable share deposit
receipts evidencing, such shares registered in such names and amounts as the
Distributor has requested in writing, as promptly as practicable after receipt
by the Fund of the net asset value thereof and written request of the
Distributor therefor.
(b) The Fund shall keep the Distributor fully informed with regard
to its affairs and shall furnish to the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of shares of the Fund, and
this shall include one certified copy, upon request by the Distributor, of all
financial statements prepared for the Fund by independent accountants and such
reasonable number of copies of its most current Prospectus and annual and
interim reports as the Distributor may request and shall cooperate fully in
the efforts of the Distributor to sell and arrange for the sale of the Fund's
shares and in the performance of the Distributor under this Agreement.
(c) The Fund shall take, from time to time, all necessary action to
fix the number of authorized shares and such steps, including payment of the
related filing fee, as may be necessary to register the same under the 1933
Act to the end that there will be available for sale such number of shares as
the Distributor may be expected to sell. The Fund agrees to file from time to
time such amendments, reports and other documents as may be necessary in order
that there may be no untrue statement of a material fact in a Registration
Statement or Prospectus, or necessary in order that there may be no omission
to state a material fact in the Registration Statement or Prospectus which
omission would make the statements therein misleading.
(d) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its shares for sale under the
securities laws of such states as the Distributor and the Fund may approve,
and, if necessary or appropriate in connection therewith, to qualify and
maintain the qualification of the Fund as a broker or dealer in such states;
provided that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Common Stock
in any state from the terms set forth in its Registration Statement and
Prospectus, to qualify as a foreign corporation in any state or to consent to
service of process in any state other than with respect to claims arising out
of the offering of its Common Stock. The Distributor shall furnish such
information and other material relating to its affairs and activities as may
be required by the Fund in connection with such qualifications.
Section 5. Expenses.
---------
(a) The Fund shall bear all costs and expenses of the continuous
offering of its shares in connection with: (i) fees and disbursements of its
counsel and independent accountants, (ii) the preparation, filing and printing
of any registration statements and/or prospectuses required by and under the
federal securities laws, (iii) the preparation and mailing of annual and
interim reports, prospectuses and proxy materials to shareholders and (iv) the
qualifications of shares of Common Stock for sale and of the Fund as a broker
or dealer under the securities laws of such states or other jurisdictions as
shall be selected by the Fund and the Distributor pursuant to Section 4(d)
hereof and the cost and expenses payable to each such state for continuing
qualification therein.
(b) The Distributor shall bear (i) the costs and expenses of
preparing, printing and distributing any materials not prepared by the Fund
and other materials used by the Distributor in connection with its offering of
shares for sale to the public, including the additional cost of printing
copies of the Prospectus and of annual and interim reports to shareholders
other than copies thereof required for distribution to shareholders or for
filing with any federal securities authorities, (ii) any expenses of
advertising incurred by the Distributor in connection with such offering and
(iii) the expenses of the registration or qualification of the Distributor as
a dealer or broker under federal or state laws and the expenses of continuing
such registration or qualification.
Section 6. Indemnification.
----------------
The Fund agrees to indemnify, defend and hold the Distributor, its
officers and directors and any person who controls the Distributor within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expense (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Distributor, its officers,
directors or any such controlling person may incur under the 1933 Act, or
under common law or otherwise, arising out of or based upon any untrue
statement of a material fact contained in the Registration Statement or
Prospectus or arising out of or based upon any alleged omission to state a
material fact required to be stated in either thereof or necessary to make the
statements in either thereof not misleading, except insofar as such claims,
demands, liabilities or expenses arise out of or are based upon any such
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with information furnished in writing by the
Distributor to the Fund for use in the Registration Statement or Prospectus;
provided, however, that this indemnity agreement, to the extent that it might
require indemnity of any person who is also an officer or director of the Fund
or who controls the Fund within the meaning of Section 15 of the 1933 Act,
shall not inure to the benefit of such officer, director or controlling person
unless a court competent jurisdiction shall determine, or it shall have been
determined by controlling precedent, that such result would not be against
public policy as expressed in the 1933 Act; and further provided, that in no
event shall anything contained herein be so construed as to protect the
Distributor against any liability to the Fund or to its security holders to
which the Distributor would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties,
or by reason of its reckless disregard of its obligations under this
Agreement. The Fund's agreement to indemnify the Distributor, its officers
and directors and any such controlling person as aforesaid is expressly
conditioned upon the Fund's being promptly notified of any action brought
against the Distributor, its officers or directors, or any such controlling
person, such notification to be given by letter or telegram addressed to the
Fund at its principal business office. The Fund agrees promptly to notify the
Distributor of the commencement of any litigation or proceedings against it or
any of its officers or directors in connection with the issue and sale of any
shares of its capital stock.
The Distributor agrees to indemnify, defend and hold the Fund, its
officers and directors and any person who controls the Fund, if any, within
the meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Fund, its directors
or officers, or any such controlling person may incur under the 1933 Act or
under common law or otherwise, but only to the extent that such liability or
expense incurred by the Fund, its directors or officers or such controlling
person resulting from such claims or demands shall arise out of or be based
upon any alleged untrue statement of a material fact contained in information
furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus or shall arise out of or be based upon
any alleged omission to state a material fact in connection with such
information required to be stated in the Registration Statement or Prospectus
or necessary to make such information not misleading. The Distributor's
agreement to indemnify the Fund, its directors and officers, and any such
controlling person as aforesaid is expressly conditioned upon the Distributors
being promptly notified of any action brought against the Fund, its officers
or directors or any such controlling person, such notification being given to
the Distributor at its principal business office.
Section 7. Compliance with Securities Laws.
--------------------------------
The Fund represents that it is registered as a diversified open-end
management investment company under the 1940 Act, and agrees that it will
comply with all of the provisions of the 1940 Act and of the rules and
regulations thereunder. The Fund and the Distributor each agree to comply
with all of the applicable terms and provisions of the 1940 Act, the 1933 Act
and, subject to the provisions of Section 4(d), all applicable state "Blue
Sky" laws. The Distributor agrees to comply with all of the applicable terms
and provisions of the Securities Exchange Act of 1934.
Section 8. Term of Agreement; Termination.
-------------------------------
This Agreement shall commence on the first date set forth above. This
Agreement shall continue in effect for a period more than two years from the
date hereof only so long as such continuance is specifically approved at least
annually in conformity with requirements of the Investment Company Act of
1940.
This Agreement shall terminate automatically in the event of its
assignment (as defined by the 1940 Act). In addition, this Agreement may be
terminated by either party at any time, without penalty, on not more than
sixty days' nor less than thirty days' written notice to the other party.
Section 9. Notices.
--------
Any notice required to be given pursuant to this Agreement shall be
deemed duly given if delivered or mailed by registered mail, postage prepaid,
(1) to the Distributor at 215 North Main Street, West Bend, Wisconsin 53095,
Attention: Mutual Fund Department; or (2) to the Fund at 215 North Main
Street, West Bend, Wisconsin 53095, Attention: Administration.
Section 10. Governing Law.
--------------
This Agreement shall be governed and construed in accordance with the
laws of the State of Wisconsin.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
B.C. ZIEGLER AND COMPANY
/s/ Robert J. Tuszynski
By: ------------------------------------------
Robert J. Tuszynski, Senior Vice President
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
/s/ Robert J. Tuszynski
By: ------------------------------------------
Robert J. Tuszynski, President
SCHEDULE A
TO THE DISTRIBUTION AGREEMENT FOR
S&P 100 PLUS PORTFOLIO
DIVIDEND ACHIEVERS PORTFOLIO
SELECT VALUE PORTFOLIO
PSE TECH 100 INDEX PORTFOLIO
MANAGED GROWTH PORTFOLIO
(TOGETHER THE "PORTFOLIOS")
ALLOCATION PROCEDURES
The Distributor's Allocable Portion of Distribution Fees, Contingent
Deferred Sales Charges and Shareholder Servicing Fees in respect of Shares of
each Portfolio shall be 100% until such time as the Distributor shall cease to
serve as exclusive distributor of Shares of such Portfolio; thereafter
collections which constitute Contingent Deferred Sales Charges, Asset Based
Sales Charges and Shareholder Servicing Fees related to Shares of each
Portfolio shall be allocated among the Distributor and any successor
distributor ("Successor Distributor") in accordance with this Schedule A.
Defined terms used in this Schedule A and not otherwise defined herein
shall have the meaning assigned to them in the above referenced Distribution
Agreement. As used herein the following terms shall have the meanings
indicated:
"Commission Share" means in respect of any Portfolio, each Share of such
-----------------
Portfolio, which is issued under circumstances which would normally give rise
to an obligation of the holder of such Share to pay a Contingent Deferred
Sales Charge upon redemption of such Share (including, without limitation, any
Share of such Portfolio issued in connection with a permitted free exchange)
and any such Share shall continue to be a Commission Share of such Portfolio
prior to the redemption (including a redemption in connection with a permitted
free exchange) or conversion of such Share, even though the obligation to pay
the Contingent Deferred Sales Charge may have expired or conditions for
waivers thereof may exist.
"Date of Original Issuance" means in respect of any Commission Share, the
--------------------------
date with reference to which the amount of the Contingent Deferred Sales
Charge payable on redemption thereof, if any, is computed.
"Free Share" means, in respect of any Portfolio, each Share of such
------------
Portfolio, other than a Commission Share or Omnibus Share (including, without
limitation, any Share issued in connection with the reinvestment of dividends
or capital gains).
"Inception Date" means in respect of any Portfolio, the first date on
----------------
which such Portfolio issued Shares.
"Net Asset Value" means, (i) with respect to any Portfolio, as of the
------------------
date any determination thereof is made, the net asset value of such Portfolio
computed in the manner such value is required to be computed by such Portfolio
in its reports to its shareholders, and (ii) with respect to any Share of such
Portfolio as of any date, the quotient obtained by dividing: (A) the net
asset value of such Portfolio (as computed in accordance with clause (i)
above) allocated to Shares of such Portfolio (in accordance with the
constituent documents for such Portfolio) as of such date, by (B) the number
of Shares of such Portfolio outstanding on such date.
"Omnibus Share" means, in respect of any Portfolio, a commission share
--------------
sold by one of the Selling Agents listed on Exhibit I or related free share
issued in connection with the reinvestment of dividends or capital gains for
such share. If, subsequent to closing of the Program, the Distributor and its
Transferees reasonably determine that the Transfer Agent is able provide
information to track all commission shares sold by any of the Selling Agents
listed on Exhibit I (and related free shares in the same manner as Commission
Shares and Free Shares are currently tracked in respect of Selling Agents not
listed on Exhibit I, then Exhibit I shall be amended to delete such Selling
Agent from Exhibit I so that commission shares sold by such Selling Agent (and
related free shares) will no longer be treated as Omnibus Shares.
PART I: ATTRIBUTION OF SHARES
- ------------------------------
Shares of each Portfolio, which are outstanding from time to time, shall
be attributed to the Distributor and each Successor Distributor in accordance
with the following rules;
(1) Commission Shares:
-----------------
(a) Commission Shares which are not Omnibus Shares attributed to
the Distributor shall be Commission Shares which are not Omnibus Shares the
Date of Original Issuance of which occurred on or after the Inception Date of
such Portfolio and on or prior to the date the Distributor ceased to be the
exclusive distributor of Shares of such Portfolio.
(b) Commission Shares which are not Omnibus Shares attributable to
each successor Distributor shall be Commission Shares which are not Omnibus
Shares, the Date of Original Issuance of which occurs after the date such
Successor Distributor became the exclusive distributor of Shares of such
Portfolio and on or prior to the date such Successor Distributor ceased to be
the exclusive Distributor of Shares of the Fund.
(c) A Commission Share which is not an Omnibus Share of a
particular Portfolio (the "Issuing Portfolio") issued in consideration of the
-----------------
investment of proceeds of the redemption of a Commission Share which is not an
Omnibus Share of another Portfolio (the "Redeeming Portfolio") in connection
--------------------
with a permitted free exchange, is deemed to have a Date of Original Issuance
identical to the Date of Original Issuance of the Commission Share of the
Redeeming Portfolio and any such Commission Share will be attributed to the
Distributor or Successor Distributor based upon such Date of Original Issuance
in accordance with rules (a) and (b) above.
(d) A Commission Share which is not an Omnibus Share redeemed
(other than in connection with a permitted free exchange) or converted to a
Class A share is attributable to the Distributor or Successor Distributor
based upon the Date of Original Issuance in accordance with rule (a), (b) and
(c) above.
(2) Free Shares:
------------
Free Shares which are not Omnibus Shares of a Portfolio outstanding on
any date shall be attributed to the Distributor or Successor Distributor, as
the case may be, in the same proportion that the Commission Shares which are
not Omnibus Shares of such Portfolio outstanding on such date are attributed
to each on such date; provided that if the Distributor and its Transferees
--------
reasonably determine that the Transfer Agent is able to produce monthly
reports which track the Date of Original Issuance for such Free Shares, then
such Free Shares shall be allocated pursuant to clause 1(a), (b) and (c)
above.
(3) Omnibus Shares:
---------------
Omnibus Shares of a Portfolio outstanding on any date shall be
attributed to the Distributor or Successor Distributor, as the case may be, in
the same proportion that the Commission Shares which are not Omnibus Shares of
such Portfolio outstanding on such date are attributed to each on such date;
provided that if the Distributor and its Transferees reasonably determine that
- --------
the Transfer Agent is able to produce monthly reports which track the Date of
Original Issuance for the Omnibus Shares, then the Omnibus Shares shall be
allocated pursuant to clause 1(a), (b) and (c) above.
PART II: ALLOCATION OF CONTINGENT DEFERRED SALES CHARGES ("CDSCS")
- -------------------------------------------------------------------
(1) CDSCs Related to the Redemption of Commission Shares which are not
------------------------------------------------------------------
Omnibus Shares:
- ---------------
CDSCs in respect of the redemption of Commission Shares which are not
Omnibus Shares shall be allocated to the Distributor or a Successor
Distributor depending upon whether the related redeemed Commission Share is
attributable to the Distributor or such Successor Distributor, as the case may
be, in accordance with Part I above.
(2) CDSCs Related to the Redemption of Omnibus Shares:
---------------------------------------------------
CDSCs in respect of the redemption of Omnibus Shares shall be allocated
to the Distributor or a Successor Distributor in the same proportion that the
CDSCs related to the redemption of Commission Shares are allocated to each
thereof; provided that if the Distributor and its Transferees reasonably
-------
determine that the Transfer Agent is able to produce monthly reports which
track the Date of Original Issuance for the Omnibus Shares, then the CDSCs in
respect of the redemption of Omnibus Shares shall be allocated among the
Distributor and any Successor Distributors depending on whether the related
redeemed Omnibus Share is attributable to the Distributor or a Successor
Distributor, as the case may be, in accordance with Part I above.
PART III: ALLOCATION OF ASSET BASED SALES CHARGES
- --------------------------------------------------
Assuming that the Asset Based Sales Charge remains constant over time and
among Portfolios so that Part V hereof does not become operative:
(1) The portion of the aggregate Asset Based Sales Charges accrued in
respect of all Shares of all Portfolios during any calendar month allocable to
the Distributor or a Successor Distributor is determined by multiplying the
total of such Asset Based Sales Charges by the following fraction:
(A+C)/2
-------
(B+D)/2
where:
A = The aggregate Net Asset Value of all Shares of all Portfolios
attributed to the Distributor or such Successor Distributor, as
the case may be, and outstanding at the beginning of such
calendar month
B = The aggregate Net Asset Value of all Shares of all Portfolios
at the beginning of such calendar month
C = The aggregate Net Asset Value of all Shares of all Portfolios
attributed to the Distributor or such Successor Distributor, as
the case may be, and outstanding at the end of such calendar
month
D = The aggregate Net Asset Value of all Shares of all Portfolios
at the end of such calendar month
(2) If the Distributor and its Transferees reasonably determine
that the Transfer Agent is able to produce automated monthly reports which
allocate the average Net Asset Value of the Commission Shares (or all Shares
if available) of all Portfolios among the Distributor and any Successor
Distributors in a manner consistent with the methodology detailed in Part I
and Part III(1) above, the portion of the Asset Based Sales Charges accrued in
respect of all such Shares of all Portfolios during a particular calendar
month will be allocated to the Distributor or a Successor Distributor by
multiplying the total of such Asset Based Sales Charges by the following
fraction:
(A)/(B)
where:
A = Average Net Asset Value of all such Shares of all Portfolios
for such calendar month attributed to the Distributor or a
Successor Distributor, as the case may be
B = Total average Net Asset Value of all such Shares of all
Portfolios for such calendar month
PART IV: ALLOCATION OF SHAREHOLDER SERVICING FEES
--------------------------------------------------
Assuming that the Shareholder Servicing Fee for all Shares remains
constant over time and among Portfolios so that Part V hereof does not become
operative:
(1) Unless clause (2) below is applicable, the portion of the
aggregate Shareholder Servicing Fees which are accrued by or in respect of all
Portfolios during any calendar month allocated to the Distributor or a
Successor Distributor shall be determined by multiplying the total amount of
Shareholder Servicing Fees accruing during such calendar month by the
following fraction:
(A+C)/2
-------
(B+D)/2
where:
A = The aggregate Net Asset Value of all Commission Shares (or all
Shares if available) of all Portfolios, which are attributed to
the Distributor or such Successor Distributor and outstanding
at the beginning of such calendar month
B = The aggregate Net Asset Value of all Commission Shares (or all
Shares if available) of all Portfolios which are outstanding at
the beginning of such calendar month
C = The aggregate Net Asset Value of all Commission Shares (or all
Shares if available) of all Portfolios, which are attributed to
the Distributor or such Successor Distributor and outstanding
at the end of such calendar month
D = The aggregate Net Asset Value of all Commission Shares (or all
Shares if available) of all Portfolios, which are outstanding
at the end of such calendar month
(2) If the Distributor and its Transferees reasonably determine
that the Transfer Agent is able to produce automated monthly reports which
allocate the average Net Asset Value of the Shares of all Portfolios among the
Distributor and any Successor Distributor in a manner consistent with the
methodology detailed in Part I and Part III(1) above, the portion of the
Shareholder Servicing Fees accrued during a particular calendar month
allocated to the Distributor or a Successor Distributor shall be determined by
multiplying the total amount of Shareholder Servicing Fees accruing during
such calendar month by the following fraction:
(A)/(B)
where:
A = Average Net Asset Value of all Commission Shares (or all Shares
if available) of all Portfolios for such calendar month
attributed to the Distributor or a Successor Distributor, as
the case may be
B = Total average Net Asset Value of all Commission Shares (or all
Shares if available) of all Portfolios for such calendar month
PART V: ADJUSTMENT OF THE DISTRIBUTOR'S ALLOCABLE PORTION AND EACH SUCCESSOR
- ------------------------------------------------------------------------------
DISTRIBUTOR'S ALLOCABLE PORTION
- -------------------------------
The Parties to the Distribution Agreement recognize that, if the terms of
any distributor's contract, any distribution plan, any prospectus, the conduct
rules or any other applicable law change, which change disproportionately
reduces, in a manner inconsistent with the intent of this Distribution
Agreement, the amount of the Distributor's Allocable Portion or each Successor
Distributor's Allocable Portion had no such change occurred, the definitions
of the Distributor's Allocable Portion and/or the Successor Distributor's
Allocable Portion in respect of the Shares relating to such Portfolio shall be
adjusted by agreement among the Distributor, its Transferees, each Successor
Distributor and the Company; provided, however, if the Distributor, its
-------- --------
Transferees, each Successor Distributor and the Company cannot agree within
thirty (30) days after the date of any such change in applicable laws or in
any distributor's contract, distribution plan, prospectus or the conduct
rules, they shall submit the question to arbitration in accordance with the
commercial arbitration rules of the American Arbitration Association and the
decision reached by the arbitrator shall be final and binding on each of them.
Exhibit I to
Schedule A
to the
Distribution Agreement
SELLING AGENTS
--------------
EXHIBIT (E)(2)
FORM OF SELECTED DEALER'S AGREEMENT
------------------------------------
[B.C. ZIEGLER AND COMPANY LETTERHEAD]
Date:---------------------------
Re: LETTER AGREEMENT FOR CONTINUOUS OFFERING OF PRINCIPAL PRESERVATION
SHARES BY SELECTED DEALERS
Ladies and Gentlemen:
B.C. Ziegler and Company, Inc. (the "Company") desires to enter into an
agreement with you for making available to your customers and reselling to us
shares of each series of Principal Preservation Portfolios, Inc. ("Principal
Preservation") of which we are, or may become, Distributor (hereinafter
collectively referred to as the "Portfolios" and individually as a
"Portfolio") and whose shares are offered to the public at an offering price
which may or may not include a front-end sales charge or a contingent deferred
sales charge (hereinafter referred to as "Shares"). Upon acceptance of this
Agreement by you, you understand that you may offer Shares and act as
authorized agent for your customers' purchase of Shares from us, subject,
however, to all of the following terms and conditions, and to our right,
without notice, to suspend or terminate the sale of the Shares of any one or
more of the Portfolios:
1. Shares will be made available at the current offering price in
effect at the time the order of such Shares is confirmed and accepted by us at
our office in West Bend, Wisconsin. All purchase orders, resale orders and
applications of your customers submitted by you are subject to acceptance or
rejection in our sole discretion and, if accepted, each purchase will be
deemed to have been consummated at our office in West Bend, Wisconsin.
2. You agree to abide by the provisions of the Investment Company Act
of 1940, as amended (the "1940 Act"), the Securities Act of 1933, as amended,
and the Securities Exchange Act of 1934, as amended, and all applicable rules
and regulations of the Securities and Exchange Commission ("SEC") and the
NASD, including without limitation, the NASD Rules of Fair Practice, whether
or not you are a broker-dealer subject to the jurisdiction of the SEC and
NASD. You further agree to comply with all applicable state and Federal laws
and the rules and regulations of authorized regulatory agencies. You agree
that you will not offer Shares in any state or other jurisdiction unless we
have advised you in advance that such sale is exempt from the qualification
requirements of such state's securities laws.
3. You will make available to your customers Shares of any Portfolio
only in accordance with the terms and conditions of its then current
Prospectus and Statement of Additional Information (collectively referred to
as the "Prospectus") and you will make no representations about such Shares
not included in said Prospectus or in any authorized supplemental material
supplied or authorized by us. You will use reasonable efforts in the offer of
Shares and agree to be responsible for the proper instruction and training of
all brokerage personnel in this area employed by you, in order that the Shares
will be offered in accordance with the terms and conditions of this Agreement
and all applicable laws, rules and regulations. You agree to hold us harmless
and indemnify us, Principal Preservation and our and their respective
officers, directors and employees in the event that you or any of your current
or former employees or agents should violate any law, rule or regulation, or
any provision of this Agreement, which violation may result in any loss or
liability to us, our affiliates or any Portfolio. If we determine to refund
any amounts paid by an investor by reason of any such violation, you shall
promptly return to us on demand any agency commissions previously paid by us
to you with respect to the transaction for which the refund is made.
Furthermore, you agree to indemnify us, our affiliates and Principal
Preservation against any and all claims, demands, controversies, actions,
losses, damages, liabilities, expenses, arbitrations, complaints or
investigations, including without limitation, reasonable attorneys' fees and
court costs that are the result of or arise directly or indirectly, in whole
or in part, from us, our affiliates or Principal Preservation acting upon
instructions for the purchase, exchange or resale of uncertificated book
shares received through our manual or automated phone system or the Fund/SERV
program of National Securities Clearing Corporation; provided such loss,
liability or damages are not the result of the gross negligence, recklessness
or intentional misconduct of us, our affiliates or Principal Preservation.
All expenses which you incur in connection with your activities under this
Agreement shall be borne by you. In connection with all purchase or resale
orders, you are acting as agent for your customer and each transaction is for
the account of your customer and not for your own account. Termination or
cancellation of this Agreement shall not relieve you from the requirements of
this paragraph as to transactions or occurrences arising prior to such
termination.
4. You will be entitled to agency commissions from the Company on the
sale of Shares as described in the current Prospectus for the relevant
Portfolio at the time of the sale. The Company reserves the right to
increase, decrease or discontinue payment of agency commissions for sale of
Shares at any time in its sole discretion upon written notice to you and any
orders placed after the effective date of such change will be subject to the
rate(s) of agency commissions in effect at the time of receipt of the payment
by us.
5. Payments for purchases of Shares made by telephone or wire order
(including purchase orders received through our manual or automated phone
system, or via the Fund/SERV program of National Securities Clearing
Corporation), and all necessary account information required by us to
establish an account or to settle a resale order, including, without
limitation, the tax identification number of the purchaser, certified either
by the purchaser or by you, shall be provided to us and received by us within
three business days after our acceptance of your order or such shorter time as
may be required by law. If such payment or other settlement information are
not timely received by us, you understand that we reserve the right, without
notice, to cancel the purchase or resale order, or, at our option in the case
of a purchase order, to sell the Shares ordered by you back to the relevant
Portfolio, and in either case you may be held responsible for any loss,
including loss of profit, suffered by us or any relevant Portfolio resulting
from your failure to make the aforesaid timely payment or settlement. If
sales of any Portfolio's Shares are contingent upon the Portfolio's receipt of
Federal Funds in payment therefor, you will forward promptly to us any
purchase orders and/or payments received by you for such Shares from your
customers. With respect to purchase orders of uncertificated book shares
placed via Fund/SERV, you shall retain in your files all applications and
other documents required by us to establish an account or to settle a resale
order. You will provide us with the original of such documents at our
request.
6. You agree that you will act as agent with respect to Shares only if
they are purchased from us or repurchased by us from your customers. If
Shares are purchased from us by your customers, you warrant that such
purchases are only for investment. If Shares are purchased by you from your
customers for resale to us, you agree that such customers will be paid not
less than the applicable redemption or repurchase price then quoted by the
Portfolio.
7. We may consider any order you place for Portfolio Shares to be the
total holding of Shares by the investor, and we may assume that the investor
is not entitled to any reduction in sales price beyond that accorded to the
amount of that purchase order as determined by the schedule set forth in the
then current Prospectus, unless you advise us otherwise when you place the
order.
8. You may place resale orders with us for Shares owned by your
customers, but only in accordance with the terms of the applicable Prospectus.
You understand and agree that by placing a resale order with us by wire or
telephone (including resale orders for uncertificated book shares placed via
our manual or automated phone system or via the Fund/SERV program of National
Securities Clearing Corporation), you represent to us that a request for the
redemption of the Shares covered by the resale order has been delivered to you
by the registered owner(s) of such Shares, and that such request has been
executed in the manner and with the signature(s) of such registered owner(s)
guaranteed as required by the then current Prospectus of the applicable
Portfolio. Such resale orders shall be subject to the following additional
conditions:
(a) You shall furnish us with the exact registration and account number to
be redeemed at the time you place a resale order by wire or telephone.
Other than for resale orders of uncertificated book shares placed via
Fund/SERV, you shall tender to us, within three business days of your
placing such resale order: (i) a stock power or letter, duly signed
by the registered owner(s) of the Shares which are the subject of the
order, duly guaranteed, (ii) any Share certificates required for such
redemption, and (iii) any additional documents which may be required
by the applicable Portfolio or its transfer agent, in accordance with
the terms of the then current Prospectus of the applicable Portfolio
and the policies of the transfer agent. With respect to resale orders
of uncertificated book shares placed via Fund/SERV, you shall retain
in your files all documents required by us to effect such transaction.
You will provide us with the original of such documents at our
request.
(b) The resale price will be the next net asset value per share of the
Shares computed after our receipt, prior to the close of the New York
Stock Exchange ("NYSE"), of an order placed by you to resell such
Shares, except that orders placed by you after the close of the NYSE
on a business day will be based on the Portfolio's net asset value per
share determined that day, but only if such orders were received by
you from your customer prior to the close of business of the NYSE that
day and if you placed your resale order with us prior to our normal
close of business that day.
(c) In connection with a resale order you have placed, if you fail to make
delivery of all required certificates and documents in a timely
manner, as stated above (other than for resale orders placed via
Fund/SERV), or if the registered owner(s) of the Shares subject to the
resale order redeems such Shares prior to your settlement of the
order, we have the right to cancel your resale order. If any
cancellation of a resale order or if any error in the timing of the
acceptance of a resale order placed by you shall result in a loss to
us or the applicable Portfolio, you shall promptly reimburse us for
such loss.
9. If any Shares sold to your customers under the terms of this
Agreement are redeemed by any of the Portfolios (including without limitation
redemptions resulting from an exchange for Shares of another Portfolio) or are
repurchased by us as agent for the Portfolio or are tendered to a Portfolio
for redemption within seven business days after our confirmation to your
customers of your original purchase order for such Shares, you shall promptly
repay us the full amount of the agency commission (including any supplemental
commission) allowed to you on the original sale, provided we notify you of
such repurchase or redemption. Termination amendment or cancellation of this
Agreement shall not relieve you from the requirements of this paragraph.
10. You will comply with, and conform your practices to, any and all
written compliance standards and policies and procedures that we may from time
to time provide to you.
11. You understand and agree that we are in no way responsible for the
manner of your performance of, or for any of your acts or omissions in
connection with, the services you provide under this Agreement. Nothing in
this Agreement shall be construed to constitute you or any of your agents,
employees or representatives as the agent or employee of us or any of the
Portfolios.
12. You may terminate this Agreement by written notice to us, which
termination shall become effective ten days after the date of mailing such
notice to us. You agree that we have and reserve the right, in our sole
discretion without notice to you, to suspend sales of Shares of any of the
Portfolios, at any time, or to withdraw entirely the offering of Shares of any
of the Portfolios, at any time, or, in our sole discretion, to modify, amend
or cancel this Agreement upon written notice to you of such modification,
amendment or cancellation, which shall be effective on the date stated in such
notice. Without limiting the foregoing, we may terminate this Agreement if
you violate any of the provisions of this Agreement, said termination to
become effective on the date we mail such notice to you. Without limiting the
foregoing, and any provision hereof to the contrary notwithstanding, the
appointment of a trustee for all or substantially all of your business assets,
or your violation of applicable state or Federal laws or rules and regulations
of authorized regulatory agencies will terminate this Agreement effective upon
the date we mail notice to you of such termination. Our failure to terminate
this Agreement for a particular cause shall not constitute a waiver of our
right to terminate this Agreement at a later date for the same or any other
cause. All notices hereunder shall be to the respective parties at the
addresses listed hereon, unless such address is changed by written notice sent
to the last address of the other party provided under this Agreement.
13. This Agreement shall become effective as of the date when it is
executed and dated by you below and shall be in substitution of any prior
agreement between you and us covering any of the Portfolios. This Agreement
and all the rights and obligations of the parties hereunder shall be governed
by and construed under the laws of the State of Wisconsin applicable to
agreements to be performed in Wisconsin, without giving effect to choice of
law rules. This Agreement is not assignable or transferable, except that we
may without notice or consent from you, assign or transfer this Agreement to
any successor firm or corporation which becomes the Distributor or Sub-
Distributor of the Portfolios or assign any of our duties under this Agreement
to any entity under common control with us.
Sincerely,
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
Robert J. Tuszynski, President
Accepted:
- -----------------------------------------
(Name of Selected Dealer)
- -----------------------------------------
- -----------------------------------------
(Address)
By: -------------------------------------
(Authorized Signature of Selected Dealer)
- -----------------------------------------
(Name) (Title)
EXHIBIT (H)(4)
ADMINISTRATIVE SERVICES AGREEMENT FOR CASH RESERVE PORTFOLIO
-----------------------------------------------------------
ADMINISTRATIVE SERVICES AGREEMENT
ADMINISTRATIVE SERVICES AGREEMENT, dated as of May 1, 1999, by and between
Principal Preservation Portfolios, Inc., a Maryland corporation (the
"Corporation"), and B.C. Ziegler and Company,, a Wisconsin corporation (the
"Administrator").
W I T N E S S E T H:
WHEREAS, the Corporation is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940, as amended
(collectively with the rules and regulations promulgated thereunder, the "1940
Act");
WHEREAS, the authorized shares of Common Stock (par value $0.001 per share) of
the Corporation (the "Shares") are divided into separate series, including
those specified on Schedule A hereto (the "Series"); and
WHEREAS, the Corporation wishes to engage the Administrator to provide certain
administrative and management services, and the Administrator is willing to
provide such administrative and management services to the Corporation and the
Series, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements of the
parties hereto as herein set forth, the parties covenant and agree as follows:
1. Duties of the Administrator. Subject to the general direction and
----------------------------
control of the Board of Directors of the Corporation, the Administrator shall
perform such administrative and management services as may from time to time
be reasonably requested by the Corporation with respect to the Series
specified on Schedule A hereto, which shall include without limitation: (a)
providing office space, equipment and clerical personnel necessary for
maintaining the organization of the Corporation and for performing the
administrative and management functions herein set forth; (b) arranging, if
desired by the Corporation, for directors, officers and employees of the
Administrator to serve as directors, officers or agents of the Corporation if
duly elected or appointed to such positions and subject to their individual
consent and to any limitations imposed by law; (c) supervising the overall
administration of the Corporation, including negotiation of contracts and fees
with and the monitoring of performance and billings of the Corporation's
independent contractors or agents; (d) preparing and, if applicable, filing
all documents required for compliance by the Corporation with applicable laws
and regulations, including registration statements, registration fee filings,
prospectuses and statements of additional information, semi-annual and annual
reports to shareholders, proxy statements and tax returns; (e) preparation of
agendas and supporting documents for and minutes of meetings of the Board of
Directors, committees thereof and shareholders; and (f) maintaining books and
records of the Corporation. In the performance of its duties under this
Agreement, the Administrator will comply with the provisions of the Articles
of Incorporation and By-Laws of the Corporation and the stated investment
objective, policies and restrictions of the respective Series, and will use
its best efforts to safeguard and promote the welfare of the Corporation, and
to comply with other policies which the Board of Directors may from time to
time determine. Notwithstanding the foregoing, the Administrator shall not
be deemed to have assumed any duties with respect to, and shall not be
responsible for, the management of the Corporation's assets or the rendering
of investment advice and supervision with respect thereto or the distribution
of Shares of the Series, nor shall the Administrator be deemed to have assumed
or have any responsibility with respect to functions specifically assumed by
any transfer agent, custodian or shareholder servicing agent of the
Corporation, or for any service whatsoever to any series of the Corporation
other than those specified on Schedule A hereto.
2. Books and Records. In compliance with the requirements of Rule 31a-3
-----------------
under the 1940 Act, the Administrator hereby agrees that all records which it
maintains for the Corporation are the property of the Corporation and further
agrees to surrender promptly to the Corporation any such records upon the
Corporation's request.
3. Liaison with Accountants. The Administrator shall act as liaison with
------------------------
the Corporation's independent public accountants and shall provide, upon
request, account analyses, fiscal year summaries and other audit-related
schedules. The Administrator shall take all reasonable action in the
performance of its obligations under this Agreement to assure that the
necessary information is made available to such accountants for the expression
of their opinion, as such may be required by the Corporation from time to
time.
4. Allocation of Charges and Expenses. The Administrator shall pay the
----------------------------------
entire salaries and wages of all of the Corporation's directors, officers and
agents who devote part or all of their time to the affairs of the
Administrator or its affiliates, and the wages and salaries of such persons
shall not be deemed to be expenses incurred by the Corporation for purposes of
this Section 4. Except as provided in the foregoing sentence, the
Administrator shall not pay other expenses relating to the Corporation
including, without limitation, compensation of directors not affiliated with
the Administrator; governmental fees; interest charges; taxes; membership dues
in the Investment Company Institute allocable to the Corporation; fees and
expenses of the Corporation's independent auditors, of legal counsel and of
any transfer agent, distributor, shareholder servicing agent, registrar or
dividend disbursing agent of the Corporation; expenses of distributing and
redeeming Shares and servicing shareholder accounts; expenses of preparing,
printing and mailing prospectuses and statements of additional information,
reports, notices, proxy statements and reports to shareholders and
governmental officers and commissions; expenses of preparing and mailing
agendas and supporting documents for meetings of the Board of Directors and
committees thereof; expenses connected with the execution, recording and
settlement of portfolio security transactions; insurance premiums; fees and
expenses of the Corporation's custodian for all services to the Corporation,
including safekeeping of funds and securities and maintaining required books
and accounts; expenses of calculating the net asset value of Shares of the
Corporation; expenses of shareholder meetings; and expenses relating to the
issuance, registration and qualification of Shares of the Corporation.
5. Compensation of Administrator. For the services to be rendered and
-----------------------------
the facilities to be provided by the Administrator hereunder, the Corporation
shall pay to the Administrator an administrative fee for each Series as
specified on Schedule A hereto.
6. Limitation of Liability of the Administrator. The Administrator shall
--------------------------------------------
not be liable for any error of judgment or mistake of law or for any act or
omission in the administration or management of the Corporation or the
performance of its duties hereunder, except for willful misfeasance, bad faith
or gross negligence in the performance of its duties, or by reason of the
reckless disregard of its obligations and duties hereunder. As used in this
Section 6, the term "Administrator" shall include Ziegler Asset Management,
Inc. and/or any of its affiliates and the directors, officers and employees of
Ziegler Asset Management, Inc. and/or any of its affiliates.
7. Activities of the Administrator. The services of the Administrator to
-------------------------------
the Corporation are not to be deemed to be exclusive, the Administrator being
free to render administrative and/or other services to other parties. It is
understood that directors, officers, and shareholders of the Corporation are
or may become interested in the Administrator and/or any of its affiliates, as
directors, officers, employees, or otherwise, and that directors, officers and
employees of the Administrator and/or any of its affiliates are or may become
similarly interested in the Corporation and that the Administrator and/or any
of its affiliates may be or become interested in the Corporation as a
shareholder or otherwise.
8. Termination. This Agreement may be terminated at any time, without
-----------
the payment of any penalty, by either party, in each case on not more than 60
days' nor less than 30 days' written notice to the other party.
9. Subcontracting by the Administrator. The Administrator may
-----------------------------------
subcontract for the performance of its obligations hereunder with any one or
more persons; provided, however, that the Administrator shall not enter into
-------- --------
any such subcontract unless the Board of Directors of the Corporation shall
have approved such subcontract and found the subcontracting party to be
qualified to perform the obligations sought to be subcontracted and provided,
--------
further, that, unless the Corporation otherwise expressly agrees in writing,
- -------
the Administrator shall be as fully responsible to the Corporation for the
acts and omissions of any subcontractor as it would be for its own acts or
omissions.
10. Further Actions. Each party agrees to perform such further acts and
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execute such further documents as are necessary to effectuate the purposes
hereof.
11. Amendments. No provision of this Agreement may be changed, waived,
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discharged or terminated orally, but only by an instrument in writing signed
by the party against which enforcement of the change, waiver, discharge or
termination is sought and no material amendment of this Agreement shall be
effective until approved by vote of the holders of a majority of the
outstanding voting securities of the Corporation or the Series, as the case
may be.
12. Governing Law. This Agreement shall be construed and governed by the
-------------
laws of the State of Wisconsin.
13. Miscellaneous. This Agreement embodies the entire agreement and
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understanding between the parties hereto and supersedes all prior agreements
and understandings relating to the subject matter hereof. The captions in
this Agreement are included for convenience of reference only and in no way
define or delimit any of the provisions hereof or otherwise affect their
construction or effect. Should any part of this Agreement be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby. This Agreement shall be binding and
shall inure to the benefit of the parties hereto and their respective
successors, to the extent permitted by law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
By: ---------------------------------------
Robert J. Tuszynski, President
B.C. ZIEGLER AND COMPANY
By: ---------------------------------------
Robert J. Tuszynski, Senior Vice President
SCHEDULE A
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SERIES EFFECTIVE DATE COMPENSATION
------- -------------- ------------
1. Cash Reserve Portfolio May 1, 1999 At an annual rate of 0.15% of
average daily net assets up to
$200 million, and 0.10% of
such assets over $200 million,
to a flat rate of 0.15% of
average daily net assets.
EXHIBIT (J)(2)
CONSENT OF LEGAL COUNSEL
------------------------
CONSENT OF LEGAL COUNSEL
With regard to this Post-Effective Amendment to the Registration Statement on
Form N-1A of Principal Preservation Portfolios, Inc., we hereby consent to the
reference to our firm in the Prospectus and Statement of Additional Information
constituting parts of such Registration Statement and the incorporation by
reference of our legal opinion to such Registration Statement.
QUARLES & BRADY LLP
/s/ Quarles & Brady LLP
Milwaukee, Wisconsin
February 12, 1999
