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PSE Tech 100 Index Portfolio
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ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1998
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PRINCIPAL PRESERVATION PORTFOLIOS, INC.
PRESIDENT'S LETTER/MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT TO SHAREHOLDERS
DECEMBER 31, 1998
February 25, 1999
Dear Shareholders:
I am pleased to present the December 31, 1998 annual report to the Principal
Preservation Portfolios, Inc. shareholders. The overall assets for the fund
family increased from $463,000,000 at December 31, 1997 to $602,000,000 at
December 31, 1998. The portfolios contained in this report increased in size
from approximately $282,000,000 to $390,000,000 during the same period. Roughly
half of the asset growth came from investments made by either new or existing
shareholders.
During 1998, the economy continued at a consistently strong pace, with
extended low unemployment and interest rates. In light of slowing economic
growth in the first half of 1998, Chairman Alan Greenspan of the Federal Reserve
lead the Fed on a stable course. However, with the onset of the Asian and other
foreign market turmoil during the third quarter, the Fed, concerned about
possible inflation signals, instituted a series of three 0.25% reductions in the
target Fed Funds rate from the end of September through mid November. In
anticipation of these actions, yields on taxable fixed income securities
declined approximately 0.50%. Tax-exempt bonds, due to large supplies of
municipals in the market, did not respond in the same fashion, and yields
remained relatively flat.
The stock market indices, which pushed to record levels in the first six
months, fell precipitously in response to the foreign market problems, only to
rebound in the last two months of 1998. However, the market rallies centered
specifically in the technology and financial sectors and large capitalized
companies. Small and mid capitalization companies were clearly out of favor.
Small cap indices such as the Russell 2000 (which produced a -2.55% return for
the year) drastically lagged the returns generated by the large cap indices,
such as the S&P 500 with a return of 28.6%.
This report discusses the factors and decisions of the portfolio managers
that influenced the performance of the portfolios.
We sincerely thank you for your continued trust with us at Principal
Preservation.
Sincerely,
/s/Robert J. Tuszynski
Robert J. Tuszynski
President and CEO
This report was prepared for shareholders and prospective investors who have
previously received a prospectus of Principal Preservation. This report does
not constitute an offer to sell. A prospective investor should obtain a
prospectus that includes a discussion of the investment objective and all sales
charges, expenses and risks of the relevant portfolio(s).
MANAGEMENT DISCUSSION AND ANALYSIS
FIXED INCOME ANALYSIS
The bond markets began the year with most bond fund managers buying high
yield and asset backed securities to increase the yield of their portfolios. As
summer approached, investor worries over the struggling Asian economies and
developing problems in Latin America permeated the bond markets. Russia added to
the negative investor perception when it devalued its currency in August. Panic
began to spread throughout the global bond markets. These escalating concerns
sparked a so-called flight to safety. Therefore the average return for the
taxable bond fund category as measured by Lipper was approximately 5.2% compared
to the U.S. Government Bond fund average of 7.2%.
Because of increased supply in the marketplace of municipal bonds, the return
of the average tax-exempt bond fund was approximately 4.9%. However, as the
summer crisis hit, municipals held up in price on a comparative basis. In
addition, credit and liquidity did not present an issue for the municipal
market. The municipal bonds are currently trading in a comparable after-tax
yield to U.S. Treasury securities. This trading range is at an historical high
and may make investments in municipal bonds an attractive alternative.
GENERAL STOCK MARKET ANALYSIS
During 1998, the bull market continued for stock mutual fund investors. As
the major market indices reached new highs, investors gravitated towards larger
companies with stronger domestic operations over concerns with the continuing
economic crisis in the Far East. The S&P 100 returned 33.2% for the year,
compared to the S&P 500 return of 28.6% and the Russell 2000 return of -2.55%.
Stock mutual fund inflows continued at a strong pace for much of the year, but
began to slow in June of 1998. The negative effects of the Asian market crisis
were partially offset by domestic trends of low unemployment, moderate growth
and very little inflation. The second half of 1998 was more volatile as many
investors engaged in heavy selling. In this environment, disappointing earnings
announcements by some companies resulted in declines in the prices of their
common stocks.
TAX-EXEMPT PORTFOLIO
Shown below is a comparison of the change in value of a $10,000 investment in
Principal Preservation Tax-Exempt Portfolio and the Lehman 20-Year Municipal
Bond Index. The graph reflects a deduction from the amount invested for the
applicable sales charge.
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 5-YEAR 10-YEAR
Tax-Exempt:
Full Sales Charge 0.61% 4.76% 7.17%
Net Asset Value 4.26% 5.51% 7.55%
Principal Preservation Lehman 20-Year
Date Tax-Exempt Portfolio Municipal Bond Index
12/31/88 $9,650 $10,000
1/31/89 $9,790 $10,207
2/28/89 $9,749 $10,091
3/31/89 $9,708 $10,067
4/28/89 $9,886 $10,306
5/31/89 $10,053 $10,520
6/30/89 $10,171 $10,663
7/31/89 $10,265 $10,808
8/31/89 $10,223 $10,702
9/30/89 $10,230 $10,670
10/31/89 $10,339 $10,800
11/30/89 $10,421 $10,989
12/31/89 $10,542 $11,079
1/31/90 $10,523 $11,027
2/28/90 $10,568 $11,125
3/31/90 $10,613 $11,128
4/30/90 $10,516 $11,048
5/31/90 $10,666 $11,289
6/30/90 $10,749 $11,388
7/31/90 $10,782 $11,555
8/31/90 $10,756 $11,387
9/30/90 $10,760 $11,394
10/31/90 $10,917 $11,600
11/30/90 $11,111 $11,833
12/31/90 $11,198 $11,885
1/31/91 $11,327 $12,044
2/28/91 $11,456 $12,149
3/31/91 $11,475 $12,154
4/30/91 $11,550 $12,316
5/31/91 $11,626 $12,426
6/30/91 $11,688 $12,414
7/31/91 $11,764 $12,565
8/31/91 $11,911 $12,731
9/30/91 $12,017 $12,897
10/31/91 $12,137 $13,013
11/30/91 $12,171 $13,049
12/31/91 $12,320 $13,330
1/31/92 $12,397 $13,361
2/29/92 $12,387 $13,365
3/31/92 $12,434 $13,370
4/30/92 $12,570 $13,489
5/31/92 $12,720 $13,648
6/30/92 $12,886 $13,877
7/31/92 $13,352 $14,293
8/31/92 $13,158 $14,153
9/30/92 $13,190 $14,245
10/30/92 $12,993 $14,105
11/30/92 $13,287 $14,357
12/31/92 $13,382 $14,503
1/31/93 $13,632 $14,671
2/28/93 $14,192 $15,202
3/31/93 $14,053 $15,041
4/30/93 $14,211 $15,193
5/31/93 $14,292 $15,278
6/30/93 $14,528 $15,533
7/31/93 $14,559 $15,553
8/31/93 $14,876 $15,877
9/30/93 $15,082 $16,058
10/30/93 $15,111 $16,089
11/30/93 $14,962 $15,947
12/31/93 $15,299 $16,283
1/31/94 $15,491 $16,488
2/28/94 $15,047 $15,995
3/31/94 $14,355 $15,152
4/30/94 $14,483 $15,276
5/31/94 $14,612 $15,456
6/30/94 $14,507 $15,301
7/31/94 $14,802 $15,651
8/31/94 $14,831 $15,695
9/30/94 $14,592 $15,381
10/31/94 $14,268 $14,975
11/30/94 $13,959 $14,625
12/31/94 $14,317 $15,084
1/31/95 $14,812 $15,674
2/28/95 $15,274 $16,243
3/31/95 $15,443 $16,428
4/30/95 $15,455 $16,425
5/31/95 $16,007 $17,044
6/30/95 $15,775 $16,782
7/31/95 $15,857 $16,869
8/31/95 $16,079 $17,100
9/30/95 $16,179 $17,235
10/31/95 $16,457 $17,602
11/30/95 $16,718 $17,991
12/31/95 $16,901 $18,243
1/31/96 $16,982 $18,336
2/29/96 $16,848 $18,127
3/31/96 $16,622 $17,837
4/30/96 $16,559 $17,766
5/31/96 $16,554 $17,787
6/30/96 $16,766 $18,038
7/31/96 $16,886 $18,215
8/31/96 $16,840 $18,186
9/30/96 $17,147 $18,553
10/31/96 $17,325 $18,776
11/30/96 $17,653 $19,168
12/31/96 $17,536 $19,055
1/31/97 $17,509 $19,036
2/28/97 $17,652 $19,240
3/31/97 $17,301 $18,938
4/30/97 $17,501 $19,148
5/31/97 $17,796 $19,493
6/30/97 $17,997 $19,739
7/31/97 $18,680 $20,402
8/31/97 $18,318 $20,151
9/30/97 $18,596 $20,429
10/31/97 $18,719 $20,578
11/30/97 $18,842 $20,745
12/31/97 $19,185 $21,123
1/31/98 $19,371 $21,360
2/28/98 $19,274 $21,375
3/31/98 $19,195 $21,405
4/30/98 $19,032 $21,296
5/31/98 $19,463 $21,681
6/30/98 $19,487 $21,779
7/31/98 $19,488 $21,825
8/31/98 $19,881 $22,203
9/30/98 $20,133 $22,516
10/31/98 $19,967 $22,444
11/30/98 $20,028 $22,547
12/31/98 $20,002 $22,597
Past performance is not predictive of future performance.
LEHMAN 20-YEAR MUNICIPAL BOND INDEX
The Lehman 20-Year Municipal Bond Index is a broad based index containing
over 22,000 issues with maturities ranging from return 2-30 years. The issues
comprising the index are those completed within the last five years with a total
issue size of $50 million or more. The average quality rating is "AA." The
performance of the Index does not include sales charges or other fees you would
pay if you attempted to replicate the index.
TAX-EXEMPT PORTFOLIO
The Tax-Exempt Portfolio's 1998 total return was 4.26%, compared to the
Lipper General Municipal Debt Funds of 5.32% and the Lehman 20-year Municipal
Bond Index return of 6.97%. The municipal bond market did not enjoy as strong
of a rally as the US Treasury market. The 20-year AAA municipal bond yield began
the year at 4.94%, and finished at roughly 4.8% at the close of 1998. The year
was marked by over $280 billion of new issues with stable but smaller demand
causing the prices of the municipal bond market to remain soft. The new issue
market for municipal bonds was up over 29% from 1997 and was the second highest
new issue total since 1993. As a result, the total return of the Tax -Exempt
Portfolio was derived principally from the interest income earned on its
securities. Since the portfolio focused on high credit quality bonds, (those
bonds with A or better credit ratings by independent rating agencies), the fund
under-performed high yield municipal bond funds in the relatively stable
interest rate environment.
During the first half of 1998, the Portfolio Manager was selling out of
higher coupon defensive positions into lower coupon securities. In addition, the
Portfolio Manager positioned the portfolio almost evenly between bonds with a
premium and bonds that were trading at a discount, focusing on states that issue
bonds infrequently such as Kansas and Alabama.
During the second half of the year, the yield curve remained relatively flat
and AAA municipal bonds traded at yields comparable to treasuries. The Portfolio
Manager continued to shift away from the power and healthcare industry, due to
his concern about the continuing uncertainty surrounding deregulation in the
power industry and surrounding possible proposals by the administration and
congress to address Medicare problems. The manager's moves caused a slight under
performance in the second half of 1998 compared to higher coupon callable bonds.
However, the manager has positioned the portfolio to take advantage of what he
believes will be a return to a more normal yield spread relationship between
U.S. Treasuries and municipal bonds in 1999.
GOVERNMENT PORTFOLIO
Shown below is a graphic depiction of the Government Portfolio versus the
Lehman Intermediate Government Bond Index. The graph reflects a deduction from
the amount invested for the applicable sales charge.
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 5-YEAR 10-YEAR
Government:
Full Sales Charge 5.28% 5.07% 7.72%
Net Asset Value 9.10% 5.83% 8.10%
Principal Preservation Lehman Intermediate
date Government Portfolio Government Bond Index
12/31/88 $9,650 $10,000
1/31/89 $9,730 $10,100
2/28/89 $9,636 $10,057
3/31/89 $9,685 $10,104
4/28/89 $9,834 $10,308
5/31/89 $10,058 $10,507
6/30/89 $10,341 $10,775
7/31/89 $10,535 $10,994
8/31/89 $10,354 $11,142
9/30/89 $10,389 $11,195
10/31/89 $10,635 $11,430
11/30/89 $10,730 $11,543
12/31/89 $10,756 $11,576
1/31/90 $10,640 $11,504
2/28/90 $10,666 $11,547
3/31/90 $10,658 $11,561
4/30/90 $10,565 $11,523
5/31/90 $10,824 $11,770
6/30/90 $10,974 $11,925
7/31/90 $11,126 $12,092
8/31/90 $11,007 $12,048
9/30/90 $11,112 $12,155
10/31/90 $11,279 $12,324
11/30/90 $11,524 $12,510
12/31/90 $11,693 $12,683
1/31/91 $11,787 $12,814
2/28/91 $11,853 $12,892
3/31/91 $11,893 $12,963
4/30/91 $12,013 $13,097
5/31/91 $12,067 $13,170
6/30/91 $12,015 $13,181
7/31/91 $12,150 $13,323
8/31/91 $12,461 $13,576
9/30/91 $12,719 $13,807
10/31/91 $12,855 $13,964
11/30/91 $13,007 $14,127
12/31/91 $13,463 $14,470
1/31/92 $13,184 $14,331
2/29/92 $13,224 $14,375
3/31/92 $13,105 $14,317
4/30/92 $13,197 $14,446
5/31/92 $13,461 $14,661
6/30/92 $13,698 $14,872
7/31/92 $14,094 $15,158
8/31/92 $14,245 $15,313
9/30/92 $14,499 $15,524
10/30/92 $14,241 $15,338
11/30/92 $14,146 $15,275
12/31/92 $14,378 $15,472
1/31/93 $14,730 $15,760
2/28/93 $15,052 $15,992
3/31/93 $15,105 $16,051
4/30/93 $15,231 $16,176
5/31/93 $15,188 $16,132
6/30/93 $15,545 $16,366
7/31/93 $15,567 $16,399
8/31/93 $15,898 $16,643
9/30/93 $15,979 $16,711
10/30/93 $16,012 $16,751
11/30/93 $15,793 $16,669
12/31/93 $15,860 $16,737
1/31/94 $16,070 $16,903
2/28/94 $15,685 $16,671
3/31/94 $15,269 $16,428
4/30/94 $15,124 $16,321
5/31/94 $15,110 $16,332
6/30/94 $15,062 $16,335
7/31/94 $15,310 $16,549
8/31/94 $15,345 $16,597
9/30/94 $15,097 $16,459
10/31/94 $15,081 $16,462
11/30/94 $14,981 $16,390
12/31/94 $15,001 $16,444
1/31/95 $15,259 $16,712
2/28/95 $15,613 $17,035
3/31/95 $15,685 $17,129
4/30/95 $15,878 $17,328
5/31/95 $16,437 $17,817
6/30/95 $16,540 $17,931
7/31/95 $16,521 $17,940
8/31/95 $16,695 $18,087
9/30/95 $16,820 $18,208
10/31/95 $17,035 $18,406
11/30/95 $17,267 $18,631
12/31/95 $17,452 $18,815
1/31/96 $17,550 $18,973
2/29/96 $17,279 $18,772
3/31/96 $17,140 $18,686
4/30/96 $17,055 $18,632
5/31/96 $17,006 $18,623
6/30/96 $17,199 $18,813
7/31/96 $17,224 $18,871
8/31/96 $17,195 $18,892
9/30/96 $17,449 $19,136
10/31/96 $17,780 $19,450
11/30/96 $18,074 $19,685
12/31/96 $17,849 $19,579
1/31/97 $17,875 $19,653
2/28/97 $17,901 $19,684
3/31/97 $17,651 $19,572
4/30/97 $17,894 $19,794
5/31/97 $18,021 $19,948
6/30/97 $18,209 $20,120
7/31/97 $18,719 $20,490
8/31/97 $18,503 $20,412
9/30/97 $18,773 $20,634
10/31/97 $19,063 $20,875
11/30/97 $19,086 $20,921
12/31/97 $19,295 $21,090
1/31/98 $19,605 $21,364
2/28/98 $19,504 $21,340
3/31/98 $19,538 $21,406
4/30/98 $19,614 $21,509
5/31/98 $19,777 $21,657
6/30/98 $19,916 $21,802
7/31/98 $19,953 $21,885
8/31/98 $20,484 $22,299
9/30/98 $21,166 $22,819
10/31/98 $21,071 $22,858
11/30/98 $20,995 $22,787
12/31/98 $21,050 $22,876
Past performance is not predictive of future performance.
LEHMAN INTERMEDIATE GOVERNMENT BOND INDEX
The Lehman Intermediate Government Bond Index represents a total return on
U.S. Government bonds ranging in maturity from 2-10 years. The average duration
of bonds in the Index is approximately four years. The index does not contain
any sales charge, expenses or other fees that you would incur if you attempted
to replicate the Index.
GOVERNMENT PORTFOLIO
The 1998 total return for Principal Preservation Government Portfolio was
9.10%, compared to the Lehman Intermediate Government Index of 8.47%. The total
assets of the Portfolio remained relatively unchanged at approximately
$40,000,000.
Similar to the municipal bond market, for the first six months of 1998 the
U.S. Treasury market traded in a narrow band. At the conclusion of the first
quarter the yield spread between two-year and ten-year U.S. Treasury Bonds was
only 8 basis points, compared to an historical average of 72 basis points over
the last 20 years.
As the second quarter progressed, a Reid Thundberg Survey indicated that
managers were lengthening their portfolios to 109% of their duration benchmarks.
The modified duration of the Government Portfolio is 4.3 years, with an
average maturity of 5.95 years. Since the yield curve between the two and ten
year U.S. Treasury notes flattened, the management team invested in shorter
maturity bonds and reduced the maturity and duration in the second half of 1998.
The team believes that when rates move, they likely will decline due to slower
economic growth and continued subdued inflation. The shorter maturities served
the portfolio well in the fourth quarter, as the longer end of the U.S. Treasury
curve fell in price greater than the short end of the curve.
S&P 100 PLUS PORTFOLIO
Shown below is a comparison of a $10,000 investment in the S&P 100 Plus
Portfolio Class A Shares versus the S&P 100 Index. The graph reflects a
deduction from the amount invested for the applicable sales charge. Class B
Shares of the S&P 100 Plus Portfolio began on July 27, 1998 and its results are
not presented in the line graph.
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 5-YEAR 10-YEAR
S&P 100 Plus:
Full Sales Charge 25.37% 21.88% 16.89%
Net Asset Value 32.31% 23.20% 17.52%
Principal Preservation
Date S&P 100 Plus Portfolio S&P 100 Index
12/31/88 $9,475 $10,000
1/31/89 $10,094 $10,814
2/28/89 $9,850 $10,448
3/31/89 $9,897 $10,571
4/28/89 $10,283 $11,142
5/31/89 $10,566 $11,478
6/30/89 $10,461 $11,371
7/31/89 $11,362 $12,408
8/31/89 $11,608 $12,687
9/30/89 $11,549 $12,635
10/31/89 $11,311 $12,376
11/30/89 $11,521 $12,606
12/31/89 $11,774 $12,890
1/31/90 $11,026 $12,069
2/28/90 $11,227 $12,307
3/31/90 $11,484 $12,628
4/30/90 $11,282 $12,417
5/31/90 $12,324 $13,600
6/30/90 $12,245 $13,512
7/31/90 $12,225 $13,486
8/31/90 $11,139 $12,253
9/30/90 $10,642 $11,680
10/31/90 $10,583 $11,619
11/30/90 $11,189 $12,314
12/31/90 $11,401 $12,544
1/31/91 $11,991 $13,186
2/28/91 $12,856 $14,149
3/31/91 $13,169 $14,476
4/30/91 $13,198 $14,496
5/31/91 $13,791 $15,163
6/30/91 $13,157 $14,499
7/31/91 $13,792 $15,215
8/31/91 $13,941 $15,420
9/30/91 $13,612 $15,062
10/31/91 $13,741 $15,249
11/30/91 $13,153 $14,639
12/31/91 $14,566 $16,081
1/31/92 $14,351 $15,870
2/29/92 $14,576 $16,129
3/31/92 $14,323 $15,866
4/30/92 $14,766 $16,378
5/31/92 $14,858 $16,494
6/30/92 $14,603 $16,245
7/31/92 $15,099 $16,766
8/31/92 $14,696 $16,349
9/30/92 $14,750 $16,383
10/30/92 $14,698 $16,327
11/30/92 $15,165 $16,830
12/31/92 $15,320 $17,034
1/31/93 $15,505 $17,264
2/28/93 $15,779 $17,587
3/31/93 $16,065 $17,923
4/30/93 $15,758 $17,622
5/31/93 $16,197 $18,138
6/30/93 $16,181 $18,145
7/31/93 $16,059 $18,058
8/31/93 $16,665 $18,728
9/30/93 $16,446 $18,481
10/30/93 $16,711 $18,782
11/30/93 $16,634 $18,741
12/31/93 $16,806 $19,054
1/31/94 $17,443 $19,795
2/28/94 $17,007 $19,330
3/31/94 $16,164 $18,420
4/30/94 $16,287 $18,558
5/31/94 $16,657 $19,018
6/30/94 $16,160 $18,457
7/31/94 $16,724 $19,142
8/31/94 $17,242 $19,768
9/30/94 $16,915 $19,386
10/31/94 $17,289 $19,847
11/30/94 $16,700 $19,178
12/31/94 $16,993 $19,552
1/31/95 $17,300 $19,937
2/28/95 $18,062 $20,868
3/31/95 $18,607 $21,559
4/30/95 $19,292 $22,411
5/31/95 $20,068 $23,386
6/30/95 $20,494 $23,926
7/31/95 $21,113 $24,720
8/31/95 $20,998 $24,591
9/30/95 $22,000 $25,821
10/31/95 $22,000 $25,839
11/30/95 $22,873 $26,911
12/31/95 $23,231 $27,363
1/31/96 $24,147 $28,518
2/29/96 $24,445 $28,920
3/31/96 $24,686 $29,215
4/30/96 $24,985 $29,633
5/31/96 $25,593 $30,439
6/30/96 $25,632 $30,558
7/31/96 $24,364 $29,131
8/31/96 $24,914 $29,830
9/30/96 $26,189 $31,414
10/31/96 $26,849 $32,350
11/30/96 $28,937 $34,928
12/31/96 $28,439 $34,355
1/31/97 $30,178 $36,856
2/28/97 $30,088 $36,775
3/31/97 $28,974 $35,341
4/30/97 $30,692 $37,702
5/31/97 $32,320 $39,745
6/30/97 $33,682 $41,456
7/31/97 $36,454 $44,835
8/31/97 $34,084 $41,961
9/30/97 $35,839 $44,193
10/31/97 $34,255 $42,284
11/30/97 $36,020 $44,521
12/31/97 $36,054 $44,672
1/31/98 $36,801 $45,560
2/28/98 $39,428 $48,854
3/31/98 $41,508 $51,551
4/30/98 $42,122 $52,326
5/31/98 $41,521 $51,675
6/30/98 $43,578 $54,232
7/31/98 $43,324 $53,930
8/31/98 $37,024 $46,191
9/30/98 $38,870 $48,416
10/31/98 $42,273 $52,761
11/30/98 $45,529 $56,788
12/31/98 $47,705 $59,505
Past performance is not predictive of future performance.
S&P 100 INDEX
The S&P 100 Index is a broad based stock index made up of the largest 100
securities in the United States based upon market capitalization. The Index
results do not include any sales charges or any other fees you would incur if
you attempted to replicate the Index.
S&P 100 PLUS PORTFOLIO
The total return on the S&P 100 Plus Portfolio's net asset value for the year
ended December 31, 1998 was 32.31%, compared to the S&P Index return of 33.21%.
Large cap securities dominated the market. The S&P 100 Index outperformed the
S&P 500 Index by approximately 4.5% and also outperformed the Russell 2000 by
35%. The Portfolio's total assets increased from approximately $105,000,000 to
over $166,000,000 by year-end.
During the first half of 1998, cash flows into stock mutual funds
accelerated. Additionally, many huge mergers occurred. These factors helped to
drive equity indices to record highs by the end of June. In light of Chairman
Alan Greenspan's view of the economy, the Federal Reserve did not proactively
change the overall Fed Funds rate. This somewhat counterbalanced Asia's
inability to adequately address economic turmoil that affected the U.S.
economies and markets.
As the second half of 1998 ensued, investors began to react to increasing
foreign market problems. A perception that inflationary trends were on the
horizon caused a downturn in the stock markets. However, spurred in part by a
series of reductions in the fed funds rate by the Fed, investor confidence was
restored and pushed the indices even higher by year-end.
During the year, the Manager equitized cash with S&P 500 futures. The S&P 500
Index futures lagged both the S&P 100 and 500 indices. This drag offset the
value the manager created in his under and over weighting selections.
Looking ahead to 1999, the Portfolio Manager anticipates increased volatility
and believes that the returns will not be as strong as recent years. The manager
remains positive on the market's prospects and plans to employ his over and
under weighting strategy in that manner.
DIVIDEND ACHIEVERS PORTFOLIO
Shown below is a graphic comparison between a $10,000 investment made in
Dividend Achievers Portfolio Class A Shares versus the S&P 500 Index. The graph
reflects a deduction from the amount invested for the applicable sales charge.
Class B Shares of the Dividend Achievers Portfolio began on July 27, 1998 and
its results are not presented in the line graph.
AVERAGE ANNUAL TOTAL RETURN
1-YEAR 5-YEAR 10-YEAR
Dividend Achievers:
Full Sales Charge 13.13% 18.62% 14.39%
Net Asset Value 19.40% 19.90% 15.01%
Principal Preservation
Date Dividend Achievers Portfolio S&P 100 Index
12/31/88 $9,475 $10,000
1/31/89 $9,854 $10,732
2/28/89 $9,721 $10,465
3/31/89 $9,927 $10,709
4/28/89 $10,214 $11,265
5/31/89 $10,624 $11,721
6/30/89 $10,570 $11,654
7/31/89 $11,367 $12,706
8/31/89 $11,377 $12,955
9/30/89 $11,332 $12,902
10/31/89 $10,897 $12,603
11/30/89 $11,052 $12,860
12/31/89 $11,322 $13,169
1/31/90 $10,652 $12,285
2/28/90 $10,690 $12,443
3/31/90 $10,865 $12,773
4/30/90 $10,582 $12,455
5/31/90 $11,461 $13,669
6/30/90 $11,588 $13,577
7/31/90 $11,520 $13,534
8/31/90 $10,597 $12,311
9/30/90 $10,184 $11,711
10/31/90 $10,204 $11,661
11/30/90 $10,925 $12,414
12/31/90 $11,433 $12,760
1/31/91 $11,900 $13,316
2/28/91 $12,725 $14,268
3/31/91 $13,411 $14,613
4/30/91 $13,371 $14,648
5/31/91 $14,020 $15,279
6/30/91 $13,391 $14,579
7/31/91 $13,943 $15,258
8/31/91 $14,264 $15,620
9/30/91 $13,948 $15,359
10/31/91 $14,411 $15,565
11/30/91 $13,907 $14,938
12/31/91 $15,831 $16,647
1/31/92 $15,330 $16,337
2/29/92 $15,244 $16,549
3/31/92 $14,988 $16,226
4/30/92 $15,042 $16,703
5/31/92 $14,999 $16,785
6/30/92 $14,528 $16,535
7/31/92 $15,236 $17,211
8/31/92 $15,182 $16,858
9/30/92 $15,214 $17,057
10/30/92 $15,687 $17,117
11/30/92 $16,289 $17,701
12/31/92 $16,324 $17,919
1/31/93 $15,969 $18,070
2/28/93 $15,808 $18,319
3/31/93 $16,215 $18,706
4/30/93 $15,446 $18,253
5/31/93 $15,572 $18,742
6/30/93 $15,514 $18,796
7/31/93 $15,273 $18,721
8/31/93 $15,653 $19,431
9/30/93 $15,539 $19,281
10/30/93 $15,839 $19,680
11/30/93 $15,342 $19,493
12/31/93 $15,505 $19,729
1/31/94 $15,852 $20,400
2/28/94 $15,598 $19,847
3/31/94 $14,895 $18,982
4/30/94 $15,162 $19,196
5/31/94 $15,487 $19,511
6/30/94 $15,226 $19,033
7/31/94 $15,633 $19,657
8/31/94 $16,006 $20,463
9/30/94 $15,522 $19,962
10/31/94 $15,802 $20,411
11/30/94 $15,452 $19,668
12/31/94 $15,696 $19,959
1/31/95 $15,779 $20,476
2/28/95 $16,206 $21,273
3/31/95 $16,539 $21,901
4/30/95 $17,229 $22,545
5/31/95 $17,681 $23,445
6/30/95 $17,905 $23,989
7/31/95 $18,430 $24,783
8/31/95 $18,334 $24,845
9/30/95 $19,060 $25,893
10/31/95 $19,575 $25,800
11/30/95 $20,317 $26,933
12/31/95 $20,669 $27,453
1/31/96 $21,632 $28,386
2/29/96 $21,839 $28,650
3/31/96 $21,835 $28,925
4/30/96 $22,152 $29,350
5/31/96 $22,530 $30,107
6/30/96 $22,937 $30,221
7/31/96 $22,203 $28,885
8/31/96 $22,399 $29,494
9/30/96 $23,859 $31,155
10/31/96 $24,104 $32,015
11/30/96 $25,745 $34,435
12/31/96 $25,168 $33,753
1/31/97 $26,765 $35,859
2/28/97 $27,180 $36,142
3/31/97 $25,789 $34,660
4/30/97 $27,352 $36,726
5/31/97 $28,322 $38,961
6/30/97 $29,607 $40,706
7/31/97 $31,296 $43,942
8/31/97 $28,876 $41,486
9/30/97 $30,375 $43,753
10/31/97 $29,959 $42,296
11/30/97 $31,512 $44,250
12/31/97 $32,181 $45,009
1/31/98 $32,885 $45,506
2/28/98 $35,152 $48,786
3/31/98 $36,164 $51,282
4/30/98 $36,317 $51,798
5/31/98 $35,087 $50,909
6/30/98 $35,959 $52,975
7/31/98 $35,241 $52,412
8/31/98 $30,113 $44,844
9/30/98 $32,228 $47,717
10/31/98 $34,743 $51,445
11/30/98 $37,027 $54,562
12/31/98 $38,424 $57,704
Past performance is not predictive of future performance.
S&P 500 INDEX
The S&P 500 Index is a broad based stock index representing, based upon
market capitalization, the 500 largest companies in the United States. The Index
does not adjust for any sales charges or other fees and expenses which you would
incur if you attempted to replicate the Index.
DIVIDEND ACHIEVERS PORTFOLIO
The 1998 total return on the net assets of the Dividend Achievers Portfolio
was 19.40%, compared to the S&P 500 of 28.58% and the Lipper Analytical Growth
and Income Funds Average of 15.61%. As was the case in 1997, managed equity
portfolios had a difficult time beating the major market indices.
The Dividend Achievers Portfolio got off to a strong start in the first half
of 1998, but faded due primarily to two factors (1) a weakness in the fund's
technology holdings and (2) a handful of significant stock declines such as
Compaq and Intel, who informed investors that they expected earnings growth
rates to slow. During the second quarter, the communications, energies and
utilities sectors provided positive returns while consumer cyclicals, financial
and technology trailed the benchmark sector performance.
During the second half of 1998, especially in the fourth quarter, the market
was dominated by the recoveries of technology stocks. While the portfolio held
positions in stocks such as Texas Instruments, Xerox and Intel, the nature of
the investment objective and investment program limited how much it could invest
in this sector. The portfolio was also hurt by investments in Mattel, Newell and
3M. Mattel continued to experience softness in sales of its major toy lines,
Newell's weakness can be attributed to concerns about its ability to integrate
the Rubbermaid acquisition. 3M's results were affected by the strong dollar and
economic weakness in some overseas markets. The manager's took gains on both
General Electric and Federal National Mortgage Association, in order to keep
each of the positions at or below 5% of the portfolio.
The managers intend to maintain their investment style of buying companies
with above average dividend and earnings growth relative to the S&P 500 and with
strong balance sheets. As a result, they believe that, while the portfolio may
under perform in up markets, the stocks with the above average growth rates will
perform better in a slower market.
SELECT VALUE PORTFOLIO
Shown below is a comparison of a $10,000 investment in the Select Value
Portfolio Class A Shares versus the Russell 2000 Index. The graph reflects a
deduction from the amount invested for the applicable sales charge. Class B
Shares of the Select Value Portfolio began on July 27, 1998 and its results are
not presented in the line graph.
AVERAGE ANNUAL TOTAL RETURN
1-YEAR SINCE INCEPTION 8/23/94
Select Value:
Full Sales Charge (11.30)% 12.03%
Net Asset Value (6.38)% 13.42%
Principal Preservation Russell 2000
Date Select Value Portfolio Index
8/23/94*<F25> $9,475 $10,000
8/31/94 $9,474 $10,232
9/30/94 $9,365 $10,184
10/31/94 $9,157 $10,141
11/30/94 $8,800 $9,712
12/31/94 $9,005 $9,956
1/31/95 $8,755 $9,816
2/28/95 $9,044 $10,203
3/31/95 $9,220 $10,370
4/30/95 $9,210 $10,585
5/31/95 $9,360 $10,746
6/30/95 $9,613 $11,279
7/31/95 $10,247 $11,920
8/31/95 $10,408 $12,142
9/30/95 $10,704 $12,344
10/31/95 $10,401 $11,782
11/30/95 $10,764 $12,272
12/31/95 $10,878 $12,565
1/31/96 $11,102 $12,542
2/29/96 $11,421 $12,922
3/31/96 $11,452 $13,078
4/30/96 $12,209 $13,477
5/31/96 $12,551 $13,659
6/30/96 $12,232 $13,455
7/31/96 $11,453 $12,547
8/31/96 $12,114 $13,271
9/30/96 $12,521 $13,850
10/31/96 $12,799 $13,891
11/30/96 $13,472 $14,672
12/31/96 $13,777 $14,688
1/31/97 $13,928 $15,239
2/28/97 $13,676 $15,114
3/31/97 $13,162 $14,472
4/30/97 $13,400 $14,847
5/31/97 $14,656 $16,145
6/30/97 $15,774 $16,599
7/31/97 $16,590 $18,241
8/31/97 $16,866 $18,219
9/30/97 $18,152 $19,266
10/31/97 $17,396 $18,428
11/30/97 $17,371 $18,701
12/31/97 $17,526 $19,426
1/31/98 $17,511 $19,130
2/28/98 $19,021 $20,564
3/31/98 $19,733 $21,428
4/30/98 $19,951 $21,546
5/31/98 $19,094 $20,390
6/30/98 $18,615 $20,448
7/31/98 $17,613 $18,778
8/31/98 $14,419 $15,137
9/30/98 $15,333 $16,308
10/31/98 $15,333 $16,977
11/30/98 $16,292 $17,873
12/31/98 $16,408 $18,989
*<F25> August 23, 1994 inception date.
Past performance is not predictive of future performance.
RUSSELL 2000 INDEX
Russell 2000 Index is a broad stock index made up of 2000 small market
capitalization companies. The Index tracks the general stock market performance
of 2000 small market capitalization companies. The Index results do not include
any sales charges or any other fees you would incur if you attempted to
replicate the Index.
SELECT VALUE PORTFOLIO
The 1998 total return on the net asset value of the Select Value Portfolio
was -6.4%, compared to the Russell 2000 return of -2.6%.
As measured by the Russell 2000 Index and the S&P 500 Index, small company
stocks under performed large company stocks during the year. While the Russell
2000 Index ended the year nearly unchanged, there was enormous volatility during
the year. Small stocks began the year with a nice advance, only to fall nearly
40% from their peak in April to their trough in October. The reductions in the
short term interest rates by the Fed helped the Russell 2000 Index recover to
near even at year end. Within the small cap market, growth stock investors
experienced better returns and were helped by technology, health care and
consumer stocks. Financial, energy and economically sensitive stocks hurt value
investors. In general, the slowdown of the economic growth that occurred in 1998
caused problems for value investors.
After a strong first quarter, the portfolio's performance slipped relative to
its benchmark during the second quarter. In addition to sharp declines in small
company stocks generally, deterioration of corporate fundamentals in some of the
companies selected by the Advisors caused underperformance relative to the
Russell 2000 in the second quarter. In the third quarter, weakening corporate
profits combined with fears regarding economic meltdowns around the world led
investors to run from small cap stocks. Nonetheless, performance results for the
portfolio were slightly better than key benchmarks in the very difficult third
period. In the fourth quarter stocks came roaring back, but small cap value
names generally did not keep pace, causing the portfolio to rise moderately but
lag the Russell 2000 Index for both the final quarter and the year.
Consumer discretionary and financial services stocks were the most heavily
weighted sectors in the portfolio for both the fourth quarter and for the year.
The Advisors increased holdings in consumer-related stocks, during the course of
the year, as consumer spending trends appeared solid and the Advisors discovered
numerous companies that possessed the combination of good growth prospects and
low valuation. The portfolio's performance in this important sector was
positive, but only modestly for the quarter, and saw single digit declines over
the 12-month period. Investor fears regarding possible weak holiday shopping
held back the performance of many retail and apparel stocks. In addition,
clouded corporate announcements regarding near-term profit outlook hurt several
of the portfolio's consumer stocks in the fourth quarter. Thus both the heavy
stock weighting and sub-par stock selection held back performance. The Advisors
remain confident that the consumer discretionary sector is healthy and that the
portfolio's stocks hold exciting prospects.
Financial service stocks accounted for over 25% of the portfolio at year-end.
The combination of solid profit growth outlooks and very reasonable valuations
were plentiful in this sector. Returns, however, for this area in the fourth
quarter were also only modestly positive and over the 12-month period produced
single digit declines. This was surprising considering the low levels of
inflation, reasonable loan demand, and a backdrop of multiple interest rate cuts
by the Federal Reserve. Based on good growth outlooks and low valuations, the
Advisors remain optimistic over the prospects these stocks offer.
Technology issues represented about 15% of the portfolio at the end of the
quarter and were strong performers in the quarter, with the portfolio's holdings
returning over 25%. A number of these stocks rebounded strongly from deep drops
in the third quarter. Generally, technology firms saw business strengthen
modestly after being weak for much of the year.
PSE TECH 100 INDEX PORTFOLIO
Shown below is a comparison of a $10,000 investment in the PSE Tech 100 Index
Portfolio Class A Shares versus the Pacific Stock Exchange Technology Stock
Index. The graph reflects a deduction from the amount invested for the
applicable sales charge. Class B Shares of the PSE Tech 100 Index Portfolio
began on July 27, 1998 and its results are not presented in the line graph.
AVERAGE ANNUAL TOTAL RETURN
SINCE INCEPTION
1-YEAR 6/10/96
PSE Tech 100 Index:
Full Sales Charge 45.90% 29.22%
Net Asset Value 53.98% 31.97%
Principal Preservation PSE Pacific Stock Exchange
Date Tech 100 Index Portfolio Technology Stock Index
6/10/96*<F26> $9,479 $10,000
6/30/96 $8,976 $9,506
7/31/96 $8,303 $8,775
8/31/96 $8,825 $9,315
9/30/96 $9,626 $10,157
10/31/96 $9,483 $10,005
11/30/96 $10,755 $11,362
12/31/96 $10,492 $11,095
1/31/97 $11,584 $12,267
2/28/97 $11,096 $11,750
3/31/97 $10,476 $11,096
4/30/97 $10,828 $11,477
5/31/97 $12,136 $12,865
6/30/97 $12,208 $12,956
7/31/97 $14,075 $14,956
8/31/97 $14,056 $14,937
9/30/97 $14,529 $15,444
10/31/97 $12,993 $13,858
11/30/97 $13,032 $13,897
12/31/97 $12,522 $13,361
1/31/98 $13,038 $13,908
2/28/98 $14,625 $15,615
3/31/98 $14,877 $15,923
4/30/98 $15,453 $16,544
5/31/98 $14,230 $16,236
6/30/98 $14,877 $15,936
7/31/98 $14,837 $15,896
8/31/98 $12,056 $12,917
9/30/98 $13,745 $14,745
10/31/98 $15,292 $16,418
11/30/98 $16,981 $18,241
12/31/98 $19,282 $20,727
*<F26> June 10, 1996 inception date.
Past performance is not predictive of future performance.
PACIFIC STOCK EXCHANGE TECHNOLOGY STOCK INDEX
The Pacific Stock Exchange Technology Stock Index consists of 100 common
stocks of companies in 15 different industries. The Index results do not include
any sales charges or any other fees you would incur if you attempted to
replicate the Index.
PSE TECH 100 INDEX PORTFOLIO
The 1998 total return on the net asset value of the PSE Tech 100 Index
Portfolio was 54.10%, compared to the PSE Index return of 55.12%. The 1998
total return continued to out perform the S&P 500 Index return of 28.21%. The
net assets increased from approximately $27,100,000 at December 31, 1997 to
$72,700,000 at December 31, 1998.
During the course of the year, the technology portfolio enjoyed strong
performance relative to the S&P 500 return. For most of the year, investors
favored larger well-capitalized technology companies over small start-up
technology issues. However, towards the close of the first quarter, volatility
increased in the technology sector. Following Intel's cautionary earnings
outlook in March, other technology companies also announced concerns regarding
their near-term outlook for both revenue growth and earnings. At the end of
April, the Department of Justice along with 11 states Attorney Generals filed
suit against Microsoft alleging anticompetitive market behavior and violation of
U.S. antitrust laws.
For most of the third quarter, technology suffered from worldwide
developments that began in the summer months. International and political
implosions acted as catalysts for the general sell-off in U.S. common stocks
(especially those outside of the largest companies) and the flight to quality
found in the domestic government bond markets. Technology's image as a higher
risk sector did not bode well for the performance of most companies, even the
larger blue chip companies in the PSE Tech 100 Index. Although some companies
like Dell showed strong earnings growth rates, continued downgrades by many Wall
Street analysts overwhelmed any possibility of reversal for the sector.
During the fourth quarter, technology stocks rebounded dramatically. Fueled
by the reduction in interest rates and companies such as Intel handily beating
analysts' earnings expectations, the sector enjoyed four consecutive double
digit monthly gains to close the year. Consumer demand for personal computers
exploded during the fourth quarter, causing stock prices of manufacturers of
PC's and peripheral equipment to jump significantly in price. America Online
ascended during the last quarter as it reported blockbuster earnings and was
added to the S&P 500 Index. Internet "concept" stocks took center stage in
December as many IPO's of this type of company were bought up in a matter of
days, if not hours.
The Portfolio Manager believes the strong U.S. domestic economy along with
the need for continued European technology spending should buffer the sector
against any performance free fall. The variance of the portfolio's performance
compared to the index is due to fund expenses and a slight underperformance of
the portfolio's PSE futures contracts.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
FINANCIAL HIGHLIGHTS
The table below presents information for a share of capital stock of each of
six portfolios of Principal Preservation Portfolios, Inc. outstanding for the
periods indicated. This information should be read in conjunction with the
financial statements and related notes:
<TABLE>
TAX-EXEMPT PORTFOLIO
-------------------------------------------------------------------
For the years ended December 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD..................... $9.52 $9.30 $ 9.39 $ 8.36 $ 9.41
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................... .37 .41 .43 .45 .45
Net realized and unrealized gains
(losses) on investments........................... .03 .44 (.09) 1.03 (1.05)
----- ----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS.................... .40 .85 .34 1.48 (.60)
----- ----- ----- ----- -----
LESS DISTRIBUTIONS:
Dividends from net investment income................ (.37) (.41) (.43) (.45) (.45)
Distributions from net realized
gains on investments.............................. (.31) (.22) -- -- --
----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS................................. (.68) (.63) (.43) (.45) (.45)
----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD........................... $ 9.24 $ 9.52 $ 9.30 $ 9.39 $ 8.36
----- ----- ----- ----- -----
----- ----- ----- ----- -----
TOTAL RETURN*<F1>........................................ 4.3% 9.4% 3.8% 18.1% (6.4)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (to nearest thousand).......... $54,914 $60,252 $66,310 $56,443 $55,492
Ratio of net expenses to average net assets.............. 1.1% 1.1% 1.1%+<F2> 1.0%+<F2> 1.0%
Ratio of net investment income to average net assets.... 3.9% 4.4% 4.7%+<F2> 4.9%+<F2> 5.2%
Portfolio turnover rate.................................. 236.7% 209.2% 163.1% 105.9% 36.1%
- ----------------------
*<F1> The Fund's sales charge is not reflected in total return as set forth in the table.
+<F2> Reflects a voluntary reimbursement of fund expenses of 0.1% in 1996 and 0.01% in 1995, respectively.
</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..................... $9.28 $9.20 $ 9.64 $ 8.84 $ 9.98
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................... .55 .63 .64 .61 .61
Net realized and unrealized gains
(losses) on investments........................... .27 .08 (.44) .80 (1.14)
----- ----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS................... .82 .71 .20 1.41 (.53)
----- ----- ----- ----- -----
LESS DISTRIBUTIONS:
Dividends from net investment income............... (.55) (.63) (.64) (.61) (.61)
Distributions from net realized gains on investments -- -- -- -- --
----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS................................. (.55) (.63) (.64) (.61) (.61)
----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD........................... $ 9.55 $ 9.28 $ 9.20 $ 9.64 $ 8.84
----- ----- ----- ----- -----
----- ----- ----- ----- -----
TOTAL RETURN*<F3>........................................ 9.1% 8.1% 2.3% 16.3% (5.4)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (to nearest thousand).......... $40,088 $40,683 $44,920 $49,319 $47,324
Ratio of net expenses to average net assets.............. 1.2% 1.1%+<F4> 1.1%+<F4> 1.1%+<F4> 1.1%
Ratio of net investment income to average net assets..... 5.9% 7.0%+<F4> 7.0%+<F4> 6.5%+<F4> 6.6%
Portfolio turnover rate.................................. 87.7% 78.6% 36.9% 68.2% 106.1%
- ------------------------
*<F3> The Fund's sales charge is not reflected in total return as set forth in the table.
+<F4> Reflects a voluntary reimbursement of fund expenses of 0.04% in 1997, 0.04% in 1996 and 0.02% in 1995, respectively.
</TABLE>
<TABLE>
S&P 100 PLUS PORTFOLIO
-------------------------------------------------------------------------------
For the
period from
July 27, 1998
(commencement For the years ended December 31,
of operations) to --------------------------------------------------------
December 31, 1998 1998 1997 1996 1995 1994
---------------- ------- ------- ------- ------- -------
Class B Class A
Shares Shares
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD............................... $33.13 $27.04 $22.08 $19.53 $14.95 $15.04
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income .......................... .01 .20 .26 .29 .25 .25
Net realized and unrealized gains
(losses) on investments ...................... 2.43 8.51 5.63 4.07 5.21 (.09)
----- ----- ----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS .............. 2.44 8.71 5.89 4.36 5.46 .16
----- ----- ----- ----- ----- -----
LESS DISTRIBUTIONS:
Dividends from net investment income ........... (.01) (.20) (.26) (.29) (.25) (.25)
Distributions from net realized
gains on investments ......................... (.59) (.59) (.65) (1.52) (.63) --
Distributions in excess of net realized gains .. (.06) (.06) (.02) -- -- --
----- ----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS ............................ (.66) (.85) (.93) (1.81) (.88) (.25)
----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD...................... $34.91 $34.90 $27.04 $22.08 $19.53 $14.95
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
TOTAL RETURN**<F6>.................................. 7.4% 32.3% 26.8% 22.4% 36.7% 1.1%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (to nearest thousand)..... $6,123 $160,190 $105,738 $77,517 $57,062 $40,034
Ratio of net expenses to average net assets......... 1.3%*<F5>+<F7> 0.9%+<F7> 0.9%+<F7> 1.0%+<F7> 1.2% 1.2%
Ratio of net investment
income to average net assets...................... --*<F5> 0.6%+<F7> 1.0%+<F7> 1.4%+<F7> 1.4% 1.7%
Portfolio turnover rate............................. 10.2% 10.2% 17.0% 8.0% 3.5% 1.0%
- ---------------------
*<F5> Annualized.
**<F6> The Fund's sales charge is not reflected in total return as set forth in the table.
+<F7> Reflects a voluntary reimbursement of fund expenses of 0.03% in Class B Shares and 0.07% in Class A Shares in 1998, 0.11%
in 1997 and 0.01% in 1996, respectively.
</TABLE>
<TABLE>
DIVIDEND ACHIEVERS PORTFOLIO
-------------------------------------------------------------------------------
For the
period from
July 27, 1998
(commencement For the years ended December 31,
of operations) to --------------------------------------------------------
December 31, 1998 1998 1997 1996 1995 1994
---------------- ------- ------- ------- ------- -------
Class B Class A
Shares Shares
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD............................... $28.48 $25.13 $20.01 $16.97 $13.24 $13.40
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income .......................... .01 .07 .13 .14 .18 .18
Net realized and unrealized gains
(losses) on investments ..................... 1.39 4.80 5.43 3.54 3.99 (.02)
----- ----- ----- ----- ----- -----
TOTAL FROM INVESTMENT OPERATIONS ............... 1.40 4.87 5.56 3.68 4.17 .16
----- ----- ----- ----- ----- -----
LESS DISTRIBUTIONS:
Dividends from net investment income ........... (.01) (.07) (.13) (.14) (.18) (.18)
Distributions from net realized
gains on investments ......................... (2.01) (2.01) (.31) (.50) (.26) (.14)
----- ----- ----- ----- ----- -----
TOTAL DISTRIBUTIONS ............................ (2.02) (2.08) (.44) (.64) (.44) (.32)
----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD...................... $27.86 $27.92 $25.13 $20.01 $16.97 $13.24
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
TOTAL RETURN**<F9>.................................. 4.9% 19.4% 27.9% 21.8% 31.7% 1.2%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (to nearest thousand)..... $338 $44,219 $39,565 $30,504 $25,393 $20,231
Ratio of net expenses to average net assets......... 1.7%*<F8>+<F10> 1.3%+<F10> 1.2%+<F10> 1.2%+<F10> 1.3%+<F10> 1.5%
Ratio of net investment income to average net assets --*<F8> 0.2%+<F10> 0.6%+<F10> 0.8%+<F10> 1.2%+<F10> 1.3%
Portfolio turnover rate............................. 11.9% 11.9% 11.9% 13.1% 28.2% 36.5%
- ---------------------------
*<F8> Annualized.
**<F9> The Fund's sales charge is not reflected in total return as set forth in the table.
+<F10> Reflects a voluntary reimbursement of fund expenses of 0.06% in Class B Shares and 0.02% in Class A Shares in 1998, 0.1%
in 1997, 0.1% in 1996 and 0.2% in 1995, respectively.
</TABLE>
<TABLE>
SELECT VALUE PORTFOLIO
-----------------------------------------------------------------------------------------------
For the For the
period from period from
July 27, 1998 August 23, 1994
(commencement For the years ended December 31, (commencement
of operations) to ---------------------------------------------------- of operations) to
December 31, 1998 1998 1997 1996 1995 December 31, 1994
---------------- ------- ------- ------- ------- ----------------
Class B Class A
Shares Shares
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE,
BEGINNING OF PERIOD......... $12.32 $12.07 $10.97 $10.21 $ 9.03 $ 9.55
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income ...... -- -- .01 .04 .14 .04
net realized and unrealized
gains (losses)
on investments ........... (1.05) (.77) 2.93 2.68 1.73 (.51)
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT
OPERATIONS ............... (1.05) (.77) 2.94 2.72 1.87 (.47)
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
DIVIDENDS FROM NET
Investment income ........ -- -- (.01) (.04) (.14) (.03)
distributions from net realized
gains on investments ..... -- -- (1.83) (1.92) (.43) (.01)
distributions in excess of net
realized gains on investments -- -- -- -- (.12) --
book return of capital ..... -- -- -- -- -- (.01)
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS ........ -- -- (1.84) (1.96) (.69) (.05)
------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD............... $11.27 $11.30 $12.07 $10.97 $10.21 $ 9.03
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
TOTAL RETURN**<F12>........... (8.5)% (6.4)% 27.2% 26.7% 20.8% (5.0)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(to nearest thousand)....... $1,012 $10,520 $8,497 $4,829 $3,445 $1,935
Ratio of net expenses to
average net assets.......... 1.7%*<F11>+<F13> 1.3%+<F13> 1.1%+<F13> 1.0%+<F13> 0.8%+<F13> 0.8%*<F11>+<F13>
Ratio of net investment
income to average net assets --*<F11> -- 0.1%+<F13> 0.3%+<F13> 1.4%+<F13> 1.1%*<F11>+<F13>
Portfolio turnover rate....... 110.0% 110.0% 82.5% 122.2% 124.3% 20.2%
- --------------------
*<F11> Annualized.
**<F12> The Fund's sales charge is not reflected in total return as set forth in the table.
+<F13> Reflects a voluntary reimbursement of fund expenses of 0.5% in Class B Shares and 0.5% in Class a Shares in 1998, 1.0% in
1997, 1.4% in 1996, 2.5% in 1995 and 0.4% in 1994, respectively.
</TABLE>
<TABLE>
PSE TECH 100 INDEX PORTFOLIO
------------------------------------------------------------------------------
For the period from For the period from
July 27, 1998 June 10, 1996
(commencement For the years ended (commencement
of operations) to ----------------------- of operations) to
December 31, 1998 1998 1997 December 31, 1996
---------------- ------ ----- -----------------
Class B Class A
Shares Shares
<S> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD............. $14.94 $12.39 $10.76 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .......................... .01 .01 .04 .03
Net realized and unrealized gains
on investments ............................... 4.07 6.68 2.04 1.03
------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS ............... 4.08 6.69 2.08 1.06
------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income ........... (.01) (.01) (.04) (.03)
Distributions from net realized gains
on investments ............................... (.60) (.60) (.38) (.24)
Distributions in excess of net realized gains .. (.02) (.02) (.03) (.03)
------ ------ ------ ------
TOTAL DISTRIBUTIONS ............................ (.63) (.63) (.45) (.30)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD................... $18.39 $18.45 $12.39 $10.76
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN**<F15>................................... 27.2% 54.0% 19.4% 10.7%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (to nearest thousand).. $6,559 $72,724 $27,144 $6,004
Ratio of net expenses to average net assets...... 1.2%*<F14>+<F16> 0.6% 0.2%+<F16> --*<F14>+<F16>
Ratio of net investment income to average
net assets..................................... --*<F14> -- 0.3%+<F16> 0.7%*<F14>+<F16>
Portfolio turnover rate.......................... 25.4% 25.4% 22.0% 3.0%
- --------------------
*<F14> Annualized.
**<F15> The Fund's sales charge is not reflected in total return as set forth in the table.
+<F16> Reflects a voluntary reimbursement of fund expenses of 0.3% in Class B Shares and 0.5% in Class A Shares in 1998, 1.1% in
1997 and 3.3% in 1996.
</TABLE>
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
BALANCE SHEETS
DECEMBER 31, 1998
<TABLE>
S&P 100 DIVIDEND SELECT PSE TECH 100
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX
----------- ----------- ---------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments:
Cost basis of investments .... $54,967,076 $38,758,756 $ 85,701,563 $20,454,352 $ 10,837,547 $52,423,185
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Long-term investments
in securities .............. $54,478,100 $39,276,104 $164,154,291 $42,738,893 $ 10,881,495 $70,625,030
Short-term investments ....... 523,000 230,000 1,963,000 2,094,000 623,000 1,116,000
---------- ---------- ---------- ---------- ---------- ----------
Total investments (See
Schedule of Investments). 55,001,100 39,506,104 166,117,291 44,832,893 11,504,495 71,741,030
Cash ........................ 973 865 715 689 563 160
Receivables:
Capital shares sold .......... -- 3,692 761,430 12,658 44,629 765,062
Dividends and interest ....... 736,759 718,120 190,547 55,491 9,939 26,595
Investments sold ............. -- -- 1,987,560 -- 77,658 569,170
Margin variation ............ -- -- 5,950 -- -- 6,000
---------- ---------- ---------- ---------- ---------- ----------
Total receivables.......... 736,759 721,812 2,945,487 68,149 132,226 1,366,827
Other assets.................... 4,626 3,136 10,451 3,433 2,625 11,652
---------- ---------- ---------- ---------- ---------- ----------
Total assets............... $55,743,458 $40,231,917 $169,073,944 $44,905,164 $11,639,909 $73,119,669
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
LIABILITIES:
Payables:
Capital shares redeemed ...... $ 180,084 $ 9,304 $ 25,238 $ 4,592 $ 1,124 $ 26,599
Distributions to shareholders 562,407 64,093 247,792 273,800 -- 323,201
Management fees .............. 26,932 20,373 54,376 27,128 7,104 24,728
Other accrued expenses ....... 58,624 50,463 115,892 42,828 15,145 21,228
Investments purchased ........ -- -- 2,317,535 -- 84,673 --
Other liabilities ............ 1,198 -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities.......... 829,245 144,233 2,760,833 348,348 108,046 395,756
---------- ---------- ---------- ---------- ---------- ----------
NET ASSETS:
Capital stock................... 54,867,277 41,456,751 86,254,963 20,177,837 11,298,662 53,583,406
Undistributed net investment income -- 4,329 9,452 392 -- --
Undistributed net realized gains
(losses) on investments....... 12,912 (2,120,744) -- 46 (433,747) --
Accumulated distributions
in excess of net realized
gains on investments.......... -- -- (367,032) -- -- (177,338)
Net unrealized appreciation
on investments................ 34,024 747,348 80,415,728 24,378,541 666,948 19,317,845
---------- ---------- ---------- ---------- ---------- ----------
Total net assets........... 54,914,213 40,087,684 166,313,111 44,556,816 11,531,863 72,723,913
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities and
net assets.............. $55,743,458 $40,231,917 $169,073,944 $44,905,164 $11,639,909 $73,119,669
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE............... $ 9.24 $ 9.55
---------- ----------
MAXIMUM OFFERING PRICE PER SHARE $ 9.58 $ 9.90
---------- ----------
---------- ----------
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PROCEEDS PER SHARE
Class A:
Net asset value .............. ........................... $160,190,405 $44,218,449 $10,519,884 $66,164,547
Shares outstanding ........... ........................... 4,589,364 1,583,829 931,156 3,586,552
Redemption price per share ... ........................... $ 34.90 $ 27.92 $ 11.30 $ 18.45
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Maximum offering price per share ......................... $ 36.83 $ 29.47 $ 11.93 $ 19.47
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Class B:
Net asset value .............. ........................... $6,122,706 $ 338,367 $1,011,979 $ 6,559,366
Shares outstanding ........... ........................... 175,393 12,145 89,822 356,643
Offering and redemption price per share .................. $ 34.91 $ 27.86 $ 11.27 $ 18.39
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
The accompanying notes to financial statements are an integral part of these statements.
</TABLE>
<TABLE>
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
S&P 100 DIVIDEND SELECT PSE TECH 100
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX
----------- ----------- ---------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends....................... $ -- $ -- $1,815,291 $ 577,486 $ 76,614 $ 168,906
Interest........................ 2,936,646 2,814,147 136,113 60,609 52,671 52,822
Miscellaneous income............ -- -- -- -- -- 36,009
---------- ---------- ---------- ---------- ---------- ----------
Total investment
income................... 2,936,646 2,814,147 1,951,404 638,095 129,285 257,737
---------- ---------- ---------- ---------- ---------- ----------
EXPENSES:
Investment advisory fees........ 341,777 240,128 558,044 312,503 78,515 216,619
Custodian fees.................. 15,895 13,110 30,455 10,356 5,675 20,477
Transfer agent fees............. 45,300 43,800 100,581 35,120 13,800 65,675
Broker service fees............. 146,151 100,036 326,772 104,227 26,114 109,902
Distribution Fees - Class B..... -- -- 8,588 668 1,677 9,031
Professional fees............... 52,522 42,529 93,059 40,613 32,081 43,471
Registration.................... 12,220 14,600 29,634 22,580 26,455 31,369
Communication................... 7,666 6,884 28,977 6,950 2,113 16,078
Director fees................... 9,987 6,600 20,797 6,577 1,348 5,924
Pricing of investments.......... 6,977 2,920 8,945 4,345 4,475 7,300
Deferred organization expense... -- -- -- -- 2,723 3,380
Other (income) expense.......... 9,913 4,306 4,979 1,611 115 (24)
---------- ---------- ---------- ---------- ---------- ----------
Total expenses............. 648,408 474,913 1,210,831 545,550 195,091 529,202
Less expenses absorbed
by advisor.................... -- (1,102) (87,812) (6,452) (57,264) (257,074)
---------- ---------- ---------- ---------- ---------- ----------
Net expenses............... 648,408 473,811 1,123,019 539,098 137,827 272,128
---------- ---------- ---------- ---------- ---------- ----------
NET INVESTMENT INCOME (LOSS).... 2,288,238 2,340,336 828,385 98,997 (8,542) (14,391)
---------- ---------- ---------- ---------- ---------- ----------
NET REALIZED GAINS (LOSSES)
ON INVESTMENTS................ 1,767,224 514,545 2,791,207 3,014,952 (434,802) 2,256,382
NET UNREALIZED APPRECIATION
(DEPRECIATION) ON INVESTMENTS. (1,583,100) 622,997 33,392,322 4,410,903 (251,854) 19,319,500
---------- ---------- ---------- ---------- ---------- ----------
Net gains (losses)
on investments........... 184,124 1,137,542 36,183,529 7,425,855 (686,656) 21,575,882
---------- ---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS .............. $2,472,362 $3,477,878 $37,011,914 $7,524,852 $ (695,198) $21,561,491
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
The accompanying notes to financial statements are an integral part of these statements.
</TABLE>
<TABLE>
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
S&P 100 DIVIDEND SELECT PSE TECH 100
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX
----------- ----------- ---------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).... $2,288,238 $2,340,336 $ 828,385 $ 98,997 $ (8,542) $ (14,391)
Net realized gains (losses)
on investments................ 1,767,224 514,545 2,791,207 3,014,952 (434,802) 2,256,382
Change in unrealized
appreciation (depreciation) on
investments for the year...... (1,583,100) 622,997 33,392,322 4,410,903 (251,854) 19,319,500
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease)
in net assets resulting
from operations.......... 2,472,362 3,477,877 37,011,914 7,524,852 (695,198) 21,561,491
---------- ---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income........... (2,290,497) (2,345,276) (827,779) (99,223) -- (29,881)
Distributions in excess of net
realized gains on investments -- -- (281,681) -- -- (89,874)
Net realized gains on
investments................... (1,766,795) -- (2,791,208) (3,014,906) -- (2,256,382)
---------- ---------- ---------- ---------- ---------- ----------
Total distributions........ (4,057,292) (2,345,276) (3,900,668) (3,114,129) -- (2,376,137)
---------- ---------- ---------- ---------- ---------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued..... 1,817,590 1,780,198 35,767,268 3,386,784 6,252,009 31,213,981
Net asset value of shares
issued in distributions....... 2,719,842 1,499,635 3,606,285 2,836,202 1,490 2,051,744
Cost of shares redeemed......... (8,289,995) (5,007,964) (11,909,578) (5,641,880) (2,523,817) (6,871,469)
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease)
in net assets from
capital share transactions (3,752,563) (1,728,131) 27,463,975 581,106 3,729,682 26,394,256
---------- ---------- ---------- ---------- ---------- ----------
Total increase
(decrease)............... (5,337,493) (595,529) 60,575,221 4,991,829 3,034,484 45,579,610
NET ASSETS:
Balance at beginning of period.. 60,251,706 40,683,213 105,737,890 39,564,987 8,497,379 27,144,303
---------- ---------- ---------- ---------- ---------- ----------
Balance at end of period........ $54,914,213 $40,087,684 $166,313,111 $44,556,816 $11,531,863 $72,723,913
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
The accompanying notes to financial statements are an integral part of these statements.
</TABLE>
<TABLE>
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
S&P 100 DIVIDEND SELECT PSE TECH 100
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX
----------- ----------- ---------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income........... $ 2,712,915 $ 2,896,981$ 964,232 $ 206,159 $ 5,761 $ 47,169
Net realized gains (losses)
on investments................ 1,579,674 (109,653) 2,481,302 482,030 1,114,765 788,765
Change in unrealized
appreciation (depreciation) on
investments for the year...... 1,245,199 409,277 17,819,182 7,845,885 382,946 (558,697)
---------- ---------- ---------- ---------- ---------- ----------
Net increase
in net assets resulting
from operations.......... 5,537,788 3,196,605 21,264,716 8,534,074 1,503,472 277,237
---------- ---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income........... (2,714,833) (2,894,367) (958,870) (205,541) (6,066) (48,726)
Net realized gains on
investments................... (1,378,906) -- (2,481,302) (482,087) (1,133,908) (788,766)
Distributions in excess of net
realized gains on investments. -- -- (70,840) -- -- (72,790)
---------- ---------- ---------- ---------- ---------- ----------
Total distributions........ (4,093,739) (2,894,367) (3,511,012) (687,628) (1,139,974) (910,282)
---------- ---------- ---------- ---------- ---------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued..... 1,020,616 1,103,575 14,155,839 2,376,217 2,635,024 21,947,857
Net asset value of shares
issued in distributions....... 2,620,844 1,780,243 3,288,624 658,099 1,138,276 765,288
Cost of shares redeemed......... (11,143,760) (7,423,139) (6,977,054) (1,819,551) (468,420) (939,753)
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease)
in net assets from
capital share transactions (7,502,300) (4,539,321) 10,467,409 1,214,765 3,304,880 21,773,392
---------- ---------- ---------- ---------- ---------- ----------
Total increase
(decrease)............... (6,058,251) (4,237,083) 28,221,113 9,061,211 3,668,378 21,140,347
NET ASSETS:
Balance at beginning of period.. 66,309,957 44,920,296 77,516,777 30,503,776 4,829,001 6,003,956
---------- ---------- ---------- ---------- ---------- ----------
Balance at end of period........ $60,251,706 $40,683,213 $105,737,890 $39,564,987 $8,497,379 $27,144,303
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES --
Principal Preservation Portfolios, Inc. (the "Fund"), registered under the
Investment Company Act of 1940 as an open-end management investment company, is
a series company with nine portfolios: Tax-Exempt Portfolio, Government
Portfolio, S&P100 Plus Portfolio, Dividend Achievers Portfolio, Select Value
Portfolio, PSE Tech 100 Index Portfolio, Wisconsin Tax-Exempt Portfolio, Cash
Reserve Portfolio and the Managed Growth Portfolio (which commenced operations
on January 1, 1999). This report contains the information of all portfolios,
except for the Managed Growth Portfolio, the Cash Reserve Portfolio and the
Wisconsin Tax-Exempt Portfolio information with respect to the latter two
portfolios is contained in separate reports. The assets and liabilities of each
portfolio are segregated and a shareholder's interest is limited to the
portfolio in which the shareholder owns shares.
The S&P 100 Plus Portfolio, Dividend Achievers Portfolio, Select Value
Portfolio, PSE Tech 100 Index Portfolio and Managed Growth Portfolio each offer
two classes of shares - Class A Shares and Class B Shares. Both classes
represent interests in the same portfolio of investments of each Portfolio and
are substantially the same in all respects except that the classes are subject
to different sales load structures and 12b-1 fees and certain other expenses.
The following is a summary of the significant accounting policies of the Fund.
(a) Long-Term Securities and Short-Term Investments
The long-term tax-exempt securities are valued at market or fair value
using quotations by an independent pricing service (the "Service").
When in the judgment of the Service, quoted bid prices for securities
are readily available and are representative of the bid side of the
market, these investments are valued at the mean between quoted bid
prices (as obtained by the Service from dealers in such securities)
and ask prices (as calculated by the Service based upon its evaluation
of the market for such securities). Securities for which, in the
judgment of the Service, there are no readily obtainable market
quotations (which may constitute a majority of the portfolio's
securities) are carried at fair value as determined by the Service,
based on methods which include consideration of yields or prices of
municipal securities of comparable quality, coupon, maturity, type,
indications as to values from dealers, and general market conditions.
Long-term taxable fixed income securities are valued at market using
quotations provided by an independent pricing service.
Common and preferred stocks are valued at the last sales price
reported by the New York Stock Exchange, other appropriate exchanges,
or NASDAQ, on the date of valuation. Common and preferred stocks not
traded on that date are valued at the last bid price.
Short-term investments are valued at amortized cost, which
approximates market value.
Through the year, investment transactions are recorded on the next
date after trade date. However, the year-end financial statements are
adjusted to reflect trade date, which adjustment does not materially
impact the Funds financial results.
Premiums on long-term tax-exempt securities are amortized to the
shorter of call date or maturity. The fund does not amortize premiums
on taxable long-term securities. The fund amortizes all discounts on
taxable securities and on original issue discount tax-exempt
securities.
(b) Option Transactions
For hedging purposes, the S&P 100 Plus Portfolio and the PSE Tech 100
Index Portfolio may buy and sell put and call options, write covered
call options on portfolio securities, write cash-secured puts, and
write call options that are not covered for cross-hedging purposes.
The risk in writing a call option is that a fund gives up the
opportunity for profit if the market price of the security increases.
The risk in writing a put option is that a fund may incur a loss if
the market price of the security decreases and the option is
exercised. The risk in buying an option is that a fund pays a premium
whether or not the option is exercised. A fund also has the additional
risk of not being able to enter into a closing transaction if a liquid
secondary market does not exist. The S&P 100 Plus Portfolio also may
write over-the-counter options where the completion of the obligation
is dependent upon the credit standing of another party.
Option contracts are valued daily, and unrealized appreciation or
depreciation is recorded. A fund will realize a gain or loss upon
expiration or closing of the option transaction. When an option is
exercised, the proceeds on sales for a written call option, the
purchase cost for a written put option, or the cost of a security for
a purchased put or call option is adjusted by the amount of premium
received or paid.
(c) Futures Contracts
The S&P 100 Plus and PSE Tech 100 Index Portfolios may utilize futures
contracts to a limited extent. The primary risks associated with the
use of futures contracts include an imperfect correlation between the
change in market value of the securities held by the Fund and the
prices of futures contracts and the possibility of an illiquid market.
Futures contracts are based upon their quoted daily settlement prices.
Upon entering into a futures contract, the Fund is required to deposit
either cash or securities in an amount (initial margin) equal to a
certain percentage of the contract value. Subsequent payments
(variation margin) are made or received by the Fund each day. The
variation margin payments are equal to the daily changes in the
contract value and are recorded as unrealized appreciation
(depreciation) until the contracts are terminated at which time
realized gains and losses are recognized.
(d) Net Realized Gains and Losses and Investment Income
Net realized gains and losses on securities sales (including options)
are computed on the identified cost basis. Dividend income is recorded
on the ex-dividend date. Interest income is recorded on an accrual
basis. Total net realized gains on investments for the year ended
December 31, 1998, were comprised of the following:
<TABLE>
S&P 100 DIVIDEND SELECT PSE TECH 100
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX
----------- ----------- ---------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net realized gains (losses)
on investments .............. $1,767,224 $514,545 $2,769,914 $3,014,952 $ (434,802) $1,951,972
Net realized gains
on options and futures ...... -- -- 21,293 -- -- 304,410
---------- ---------- ---------- ---------- ---------- ----------
Total net realized gains
(losses) on investments ..... $1,767,224 $514,545 $2,791,207 $3,014,952 $ (434,802) $2,256,382
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
(e) Federal Income Taxes
Provision has not been made for Federal income taxes since each
portfolio has elected to be taxed as a "regulated investment company"
and intends to distribute substantially all income to its shareholders
and otherwise comply with the provisions of the Internal Revenue Code
applicable to regulated investment companies. As of December 31, 1998,
the Government Portfolio has capital loss carryforwards of $1,963,517
and $151,408 expiring in 2002 and 2005, respectively. It is
management's intention to make no distribution of any future realized
capital gains until the Federal income tax capital loss carryforwards
are exhausted.
Distributions in excess of net realized gains on investments in the
PSE Tech 100 Index Portfolio of $89,874 and $72,790, for the years
ended December 31, 1998 and 1997, are the result of losses on wash
sales which are currently recognized for book purposes but are
deferred for tax purposes and the reversal of Section 1256 mark to
market losses utilized in 1997. This distribution does not represent a
tax return of capital.
Distributions in excess of net realized gains on investments in the
S&P 100 Plus Portfolio of $1,281,681 and $70,840, for the years ended
December 31, 1998 and 1997 are as a result of current year Section
1256 mark to market gains and the reversal of Section 1256 mark to
market losses utilized in 1997. This distribution does not represent a
tax return of capital.
The character of distributions made during the year from net
investment income or net realized gains may differ from the
characterization for federal income tax purposes due to differences in
the recognition of income, expense or gain items for financial
statement and tax purposes. Where appropriate, reclassifications
between net asset accounts are made for such differences that are
permanent in nature. Accordingly, at December 31, 1998,
reclassifications were recorded to increase undistributed net
investment income by $2,259, $8,542 and $44,272, and decrease capital
stock by $2,259, $8,542 and $44,272 in the Tax-Exempt, Select Value
and PSETech 100 Portfolios.
(f) Expenses
Fund expenses associated with a specific portfolio are charged to that
portfolio as they are incurred. Common expenses incurred by the Fund
are allocated, as incurred, between the portfolios based upon the
ratio of the net assets of each portfolio to the combined net assets
of the Fund.
(g) Distributions to Shareholders
Dividends to shareholders are recorded on the ex-dividend date.
(h) Deferred Organization Costs
Costs incurred with the organization, initial registration and public
offering of shares aggregating $13,627 for the Select Value Portfolio
and $16,900 for the PSETech 100 Index Portfolio have been paid by the
Fund and are being amortized over a five year period.
(i) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH RELATED PARTIES --
The Fund has Investment Advisory Agreements ("the Agreements") with Ziegler
Asset Management, Inc. ("ZAMI"), (with whom certain officers and directors
of the Fund are affiliated) to serve as Investment Advisor (the "Advisor").
Pursuant to the Agreement, ZAMI manages the Tax-Exempt Portfolio, Government
Portfolio, S&P 100 Plus Portfolio, Dividend Achievers Portfolio and PSE Tech
100 Index Portfolio. Under the Agreement, the Tax-Exempt and Government
Portfolios pay ZAMI a monthly fee based upon the average daily net assets of
each portfolio at the rate of .60% of the first $50,000,000 of each
portfolio's average daily net assets, reducing to .50% on the next
$200,000,000 of each portfolio's average daily net assets and .40% of each
portfolio's average daily net assets in excess of $250,000,000.
Under its Agreement, the Dividend Achievers Portfolio pays ZAMI a monthly fee
based upon the Dividend Achievers average daily net assets at the rate of
.75% of the first $250,000,000 of average daily net assets, reducing to .70%
on the next $250,000,000 and .65% on the average daily net assets of over
$500,000,000.
Under its Agreement, the PSETech 100 Index Portfolio pays ZAMI a monthly fee
based upon the PSE Tech 100 average daily net assets at the rate of .50% of
the first $50,000,000 of average daily net assets, .30% of the next
$200,000,000 of average daily net assets, .25% of the next $250,000,000 of
average daily net assets and .20% of average daily net assets in excess of
$500,000,000.
Pursuant to the Agreement, ZAMI has retained Skyline Asset Management, Inc.
("Skyline") to manage the Select Value Portfolio. Under the Agreement, the
Select Value Portfolio pays ZAMI a monthly fee based on the average daily
net assets of the Portfolio at the rate of .75% of the first $250,000,000 of
the Portfolio's average daily net assets, and .65% on average daily net
assets exceeding $250,000,000. ZAMI pays Skyline 50% of the fee paid by the
Select Value Portfolio.
The Advisor voluntarily reimbursed the Government Portfolio $1,102, S&P 100
Plus Portfolio $87,812, the Dividend Achievers Portfolio $6,452, the Select
Value Portfolio $57,264 and the PSE Tech 100 Index Portfolio $257,074 in
1998. The Advisor is not obligated to continue the voluntary reimbursement
in the future.
Ziegler has an Accounting and Pricing Agreement with the Fund to perform
accounting and pricing services and a Transfer and Dividend Disbursing and
Shareholder Services Agency Agreement with the Fund to provide Transfer
Agent Services. In addition, each Portfolio pays Ziegler commissions on
sales of Portfolio shares. Prior to May 1, 1998, Ziegler also performed the
depositing function. The transfer agent fees, commissions, accounting and
pricing fees and depository fees paid to Ziegler for the year ended December
31, 1998, were as follows for each Portfolio:
<TABLE>
ACCOUNTING
TRANSFER COMMISSIONS AND PRICING DEPOSITORY 12B-1
AGENT FEES ON PORTFOLIO SHARES FEES FEES FEES
---------- ------------------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Tax-Exempt Portfolio.............$ 46,146 $ 43,412 $ 27,814 $ 7,043 $ 95,095
Government Portfolio............. 45,221 23,795 22,022 5,736 76,610
S&P 100 Plus Portfolio............ 105,748 476,872 45,253 9,777 249,278
Dividend Achievers Portfolio..... 36,877 64,342 22,405 5,285 90,463
Select Value Portfolio........... 15,072 141,410 19,000 2,007 14,577
PSE Tech 100 Index Portfolio..... 65,793 276,176 22,397 4,340 47,704
-------- -------- -------- -------- --------
TOTAL........$ 314,857 $1,026,007 $ 158,891 $ 34,188 $ 573,727
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
During the year ended December 31 1998, an affiliate of Ziegler received
$8,821, $9,835 and $1,114 representing commissions from the purchases and
sales of investments of the S&P 100 Plus Portfolio, Dividend Achievers
Portfolio and PSE Tech 100 Portfolio, respectively.
3. INVESTMENT TRANSACTIONS --
Purchases and proceeds from sales of securities, excluding short-term
investments, for the year ended December 31, 1998 aggregated:
PURCHASES PROCEEDS FROM SALES
------------ ------------------
Tax-Exempt Portfolio ..................... $137,705,219 $153,100,860
Government Portfolio ..................... 34,627,838 36,493,593
S&P 100 Plus Portfolio .................... 38,022,391 13,049,796
Dividend Achievers Portfolio ............. 4,800,124 8,437,807
Select Value Portfolio ................... 13,897,917 10,420,238
PSE Tech 100 Index Portfolio ............. 34,275,576 10,991,003
Net tax basis unrealized appreciation (depreciation) on investments as of
December 31, 1998, included:
<TABLE>
S&P 100 DIVIDEND SELECT PSE TECH 100
TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX
----------- ----------- ---------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Gross unrealized appreciation . $ 373,400 $1,181,458 $81,052,643 $24,687,164 $ 1,133,302 $22,224,552
Gross unrealized (depreciation) (339,376) (434,110) (636,915) (308,623) (466,354) (2,906,707)
---------- ---------- ---------- ---------- ---------- ----------
Net unrealized appreciation
(depreciation) .............. $ 34,024 $ 747,348 $80,415,728 $24,378,541 $ 666,948 $19,317,845
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Tax basis cost of investments . $54,967,076 $38,758,756 $85,701,563 $20,454,352 $10,837,547 $52,423,185
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
4. LINE OF CREDIT --
The Fund has an available line of credit of $3,000,000. However, each
Portfolio's borrowings, by investment restriction, cannot exceed 10% of the
total net assets not including the borrowings. Interest expense incurred in
connection with such borrowings was not material during the year. Borrowings
under this arrangement bear interest approximating the then current Prime
Rate. All borrowings under this line of credit are guaranteed by Ziegler.
Each Portfolio's policies allow borrowings for temporary or emergency
purposes.
5. CAPITAL SHARE TRANSACTIONS --
(a) The Fund has authorized capital of 1,000,000,000 shares at $.001 par
value per share. The Fund's shares are divided into nine separate
portfolios: Wisconsin Tax-Exempt Portfolio, Government Portfolio, Tax-
Exempt Portfolio, S&P 100 Plus Portfolio, Dividend Achievers Portfolio,
Select Value Portfolio, PSE Tech 100 Index Portfolio, Managed Growth
Portfolio (which commenced operations on January 1, 1999), and Cash
Reserve Portfolio, consisting of 50,000,000 shares in each of the first
eight portfolios and 400,000,000 in the Cash Reserve Portfolio. Each
portfolio (other than the Cash Reserve Portfolio) has designated Class
A (front-end load) shares. In addition, the S&P 100 Plus, Dividend
Achievers, Select Value, PSE Tech 100 Index and Managed Growth
Portfolio also have designated Class B (contingent deferred sales
charge) shares. The shares of the Cash Reserve Portfolio have been
subdivided into 200,000,000 shares of Class X (Retail Shares) and
200,000,000 shares of Class Y (Institutional Shares). The remaining
200,000,000 authorized shares of common stock of the Fund may be
allocated to any of the above portfolios or to new portfolios as
determined by the Board of Directors. The shares of each portfolio have
equal rights and privileges with all other shares of that portfolio.
(b) Capital share activity during the years ended December 31, 1997 and
December 31, 1998, were as follows:
<TABLE>
S&P 100 DIVIDEND SELECT PSE TECH 100
CLASS A SHARES TAX-EXEMPT GOVERNMENT PLUS ACHIEVERS VALUE INDEX
--------------- ----------- ----------- ---------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
SHARES OUTSTANDING
AT DECEMBER 31, 1996............ 7,133,382 4,881,592 3,510,921 1,524,240 440,156 557,743
Shares issued.................. 108,140 120,669 547,072 103,755 206,442 1,641,640
Shares issued in distributions. 277,993 194,941 123,433 26,807 94,057 61,666
Shares redeemed................ (1,189,129) (814,205) (271,193) (80,563) (36,482) (70,874)
---------- ---------- ---------- ---------- ---------- ----------
SHARES OUTSTANDING
AT DECEMBER 31, 1997........... 6,330,386 4,382,997 3,910,233 1,574,239 704,173 2,190,175
Shares issued.................. 190,850 187,980 955,644 111,801 448,577 1,719,208
Shares issued in distributions. 290,135 159,302 102,379 100,863 124 100,656
Shares redeemed................ (870,402) (534,125) (378,892) (203,074) (221,718) (423,487)
---------- ---------- ---------- ---------- ---------- ----------
SHARES OUTSTANDING
At December 31, 1998........... 5,940,969 4,196,154 4,589,364 1,583,829 931,156 3,586,552
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
S&P 100 DIVIDEND SELECT PSE TECH 100
CLASS B SHARES PLUS ACHIEVERS VALUE INDEX
--------------- ---------- --------- --------- ------------
SHARES OUTSTANDING
AT July 27, 1998.......................................... -- -- -- --
Shares issued............................................. 174,934 11,323 90,380 387,176
Shares issued in distributions............................ 3,157 822 -- 11,012
Shares redeemed........................................... (2,698) -- (558) (41,545)
---------- ---------- ---------- ----------
SHARES OUTSTANDING
AT DECEMBER 31, 1998....................................... 175,393 12,145 89,822 356,643
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
*Amounts shown for the Class B Shares are from its commencement of operations.
</TABLE>
(c) For the S&P 100 Plus Portfolio, the Dividend Achievers Portfolio, the
Select Value Portfolio and the PSE Tech 100 Index Portfolio, the maximum
offering price per Class A Share is computed based on a maximum sales
charge of 5.25% of the offering price or 5.54% of the net asset value.
For the purpose of this computation, the price per share is derived from
multiplying the net asset value and redemption price per share by 100
and then dividing the product by 94.75.
For the Tax-Exempt and Government Portfolios, the maximum offering price
per share is computed based on a maximum sales charge of 3.5% of the
offering price or 3.62% of the net asset value. For these portfolios the
price per share is derived from multiplying the net asset value and
redemption price per share by 100 and then dividing the product by 96.5.
6. FUTURES CONTRACTS WRITTEN --
An analysis of the futures contracts written for the year ended December 31,
1998, in the S&P 100 Plus and PSE Tech 100 Index Portfolios, respectively,
were as follows:
AGGREGATE FACE
NUMBER OF CONTRACTS VALUE OF CONTRACTS
------------------- ------------------
S&P 100 PLUS PORTFOLIO:
Outstanding at December 31, 1997 . 8 $ 1,888,032
Contracts opened ................. 28 7,408,749
Contracts closed ................. (29) (7,469,975)
---- ------------
Outstanding at December 31, 1998 . 7 $ 1,826,806
---- ------------
---- ------------
AGGREGATE FACE
NUMBER OF CONTRACTS VALUE OF CONTRACTS
------------------- ------------------
PSE TECH 100 INDEX PORTFOLIO:
Outstanding at December 31, 1997 . 7 $ 1,014,456
Contracts opened ................. 103 7,540,419
Contracts closed ................. (70) (6,879,180)
---- ------------
Outstanding at December 31, 1998 . 40 $ 1,675,695
---- ------------
---- ------------
The number of financial futures contracts and the gross unrealized
appreciation, as of December 31, 1998, for each Portfolio were as follows:
UNREALIZED
NUMBER OF CONTRACTS APPRECIATION
------------------- ------------
S&P 100 PLUS PORTFOLIO:
S&P 500 Index Futures Contract
expiration date March 1999 ...... 7 $352,819
PSE TECH 100 INDEX PORTFOLIO:
PSE Technology 100 Index Futures
Contract expiration
date March 1998 ................ 40 $126,305
7. DISTRIBUTIONS --
The amount of dividends paid during the fiscal year ended December 31, 1998
qualifying for the dividend received deduction available to corporate
shareholders were as follows:
S&P 100 Plus Portfolio.................... 93%
Dividend Acheivers Portfolio.............. 91%
PSE Tech 100 Index Portfolio.............. 23%
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
TAX-EXEMPT PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL S&P MOODY'S
AMOUNT DESCRIPTION RATING RATING VALUE
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG-TERM TAX-EXEMPT SECURITIES -- 99.2%
ALABAMA -- 3.9%
$1,190,000 The Board of Trustees of Alabama Agricultural and Mechanical AAA Aaa $ 1,187,025
University Revenue Bonds, Series 1998, 5.00%, due 11-01-2016
1,000,000 The Huntsville-Madison County Airport Authority Airport Revenue AAA Aaa 981,250
Bonds, Series 1998, 5.00%, due 07-01-2018
ARIZONA -- 1.8%
1,000,000 Gilbert Unified School District No. 41 of Maricopa County, Arizona AAA Aaa 998,750
School Improvement Bonds, Project of 1993, Series G, 5.00%,
due 07-01-2018
ARKANSAS -- 4.1%
2,180,000 City of Conway, Arkansas, Sales and Use Tax Capital Improvement AAA NR 2,278,100
Bonds, Series 1997A, 5.35%, due 12-01-2017
DISTRICT OF COLUMBIA -- 2.3%
1,175,000 District of Columbia Water and Sewer Authority Public Utility Revenue AAA Aaa 1,286,625
Bonds, 5.50%, due 10-01-2028
GEORGIA -- 4.0%
1,250,000 The Atlanta Development Authority Revenue Bonds, (Student AAA Aa 1,207,813
Recreation Center Project at Georgia State University), Series 1998,
4.750%, due 10-01-2018
1,000,000 City of Atlanta, Georgia, General Obligation Refunding Bonds, Series AAA Aaa 988,750
1998, 5.00%, due 12-01-2023
ILLINOIS -- 10.2%
1,000,000 Public Building Commission of Chicago Building Revenue Bonds, Series AAA Aaa 1,265,000
A of 1990, (Board of Education of the City of Chicago), 7.00%, due 01-01-2020
1,000,000 State of Illinois Build Illinois Bonds (Sales Tax Revenue Bonds), Series AAA Aa2 1,196,250
P, 6.50%, due 06-15-2022
1,000,000 Community Unit School District #220 (Barrington) Lake, Cook, Kane AAA Aaa 1,163,750
and McHenry Counties, Illinois, General Obligation School Bonds,
Series 1998, 6.30%, due 12-01-2017
1,800,000 Metropolitan Pier and Exposition Authority (Illinois) McCormick Place AAA Aaa 1,959,750
Expansion Project Refunding Bonds, Series 1998A, 5.50%,
due 12-15-2023
INDIANA -- 6.8%
1,500,000 Indiana State Office Building Commission Capitol Complex Revenue AAA Aaa 1,925,625
Bonds, Series 1990A (Senate Avenue Parking Facility), 7.40%,
due 07-01-2015
1,500,000 The Indianapolis Local Public Improvement Bond Bank, Series 1992D AA NR 1,828,125
Bonds, 6.750%, due 02-01-2014
KANSAS -- 3.6%
2,000,000 City of Topeka, Kansas, Water and Water Pollution Control Utility NR Aaa 2,002,500
Revenue Bonds, Series 1998B, 5.05%, due 08-01-2018
LOUISIANA -- 1.8%
1,000,000 Parishwide School District of the Parish of Orleans, State of Louisiana, AAA Aaa 996,250
General Obligation School Bonds, Series 1998A, 5.125%,
due 09-01-2022
MASSACHUSETTS -- 1.8%
1,000,000 City of Springfield, Massachusetts, General Obligation State Qualified AAA Aaa 995,000
Municipal Purpose Loan of 1998 Bonds, 5.00%, due 11-15-2018
MICHIGAN -- 1.9%
1,000,000 Board of Control of Northern Michigan University, General Revenue AAA Aaa 1,001,250
Bonds, Series 1997, 5.125%, due 12-01-2020
MINNESOTA -- 1.8%
1,000,000 Minnesota Public Facilities Authority Water Pollution Control AAA Aaa 975,000
Revenue Bonds, Series 1998A, 4.750%, due 03-01-2019
MISSISSIPPI -- 6.2%
1,250,000 Mississippi Business Finance Corporation Revenue Refunding Bonds, AAA Aaa 1,235,938
Series 1998A, (Millsap College Project), 5.00%, due 11-01-2019
1,000,000 Certificates of Participation (East Mississippi Correctional Facility AAA Aaa 991,250
Project), Series 1997, Payments under Lease/Purchase Agreement,
5.125%, due 01-01-2018
1,130,000 Mississippi State University Educational Building Corporation Revenue NR Aaa 1,179,437
Bonds, Series 1998, 5.25%, due 08-01-2017
MISSOURI -- 1.8%
1,000,000 State Environmental Improvement and Energy Resources Authority, NR Aa1 997,500
(State of Missouri) Water Pollution Control Revenue Bonds (State
Revolving Federal Program-MasterTr), Series 1997F, 5.125%,
due 01-01-2019
NEVADA -- 1.9%
1,000,000 Clark County, Nevada, Las Vegas Conventions Center General AA- Aa3 983,750
Obligation Bonds, Series A, 5.00%, due 07-01-2024
NEW MEXICO -- 1.9%
1,000,000 Bernalillo County, New Mexico, Gross Receipts Tax Refunding AA Aa3 1,042,500
Revenue Bonds, Series 1998, 5.25%, due 04-01-2027
NEW YORK -- 2.5%
1,200,000 County of Monroe, New York General Obligation Bonds Public AA Aa2 1,365,000
Improvement Refunding Bonds-1996, Series A, 6.00%, due 03-01-2019
OHIO -- 4.1%
1,000,000 Franklin County, Ohio, Convention Facility Authority Tax and Lease AAA Aaa 1,003,750
Revenue Anticipation Bonds, 5.00%, due 12-01-2017
1,210,000 Ohio State Water Development Authority Pollution Control Facility AAA Aaa 1,222,100
Revenue Bonds, Water Control Loan Fund, Water Quality Series,
5.125%, due 06-01-2019
OKLAHOMA -- 2.1%
1,000,000 Tulsa Industrial Authority Revenue and Refunding Bonds, (The AAA Aaa 1,143,750
University of Tulsa) Series 1996A, 6.00%, due 10-01-2016
PENNSYLVANIA -- 4.7%
1,000,000 Delaware Valley Regional Finance Authority (Bucks, Chester, AAA Aaa 1,107,500
Delaware and Montgomery Counties, Pennsylvania) Local Government
Revenue Bonds, 1997 Series B, 5.70%, due 07-01-2027
1,500,000 Nazareth Area School District Northampton County, Pennsylvania, AAA Aaa 1,494,375
General Obligation Bonds Improvement, Series of 1998, 5.00%,
due 08-15-2017
SOUTH CAROLINA -- 1.8%
1,000,000 City of Spartanburg, South Carolina, Water System Refunding Revenue AAA Aaa 1,003,750
Bonds, Series 1997, 5.00%, due 06-01-2019
TENNESSEE -- 9.0%
1,000,000 Harpeth Valley Utilities District of Davidson and Williamson Counties, AAA Aaa 986,250
Tennessee, Utilities Improvement Revenue Bonds, Series 1998, 5.05%,
due 09-01-2020
2,000,000 Knox County, Tennessee General Obligation Public Improvement AA Aa2 1,957,500
Bonds, Series 1998, 4.75%, due 04-10-2018
1,000,000 City of Knoxville, Tennessee, Gas System Revenue Refunding and AA Aa3 996,250
Improvement Bonds, Series H-1998, 5.00%, due 03-01-2018
1,000,000 City of Knoxville, Tennessee, Gas System Revenue Refunding and AA Aa3 996,250
Improvement Bonds, Series H-1998, 5.100%, due 03-01-2024
TEXAS -- 3.7%
2,000,000 Austin Independent School District, (Travis County, Texas), Unlimited AA Aaa 2,042,500
Tax Refunding Bonds, Series 1998, 5.00%, due 08-01-2016
VIRGINIA -- 5.8%
2,000,000 Chesapeake Bay Bridge and Tunnel District, General Resolution AAA Aaa 2,167,500
Revenue Bonds, Refunding Series 1998, 5.50%, due 07-01-2025
1,000,000 Commonwealth Transportation Board, Commonwealth of Virginia, AA Aa2 1,003,750
Revenue Refunding Bonds, Series 1997C, (U.S. Route 58 Corridor
Development Program), 5.125%, due 05-15-2019
WASHINGTON -- 3.6%
2,000,000 Washington Higher Education Facilities Authority Revenue and AAA Aaa 1,990,000
Refunding Revenue Bonds (Gonzaga University Project), Series 1998,
5.00%, due 04-01-2017
WISCONSIN -- 6.1%
1,200,000 Southeast Wisconsin Professional Baseball Park District Sales Tax AAA Aaa 1,288,500
Revenue Refunding Bonds, Series A, 5.50%, due 12-15-2020
1,000,000 School District of Waupun, Dodge and Fond du Lac Counties, NR Aaa 965,000
Wisconsin, General Obligation Refunding Bonds, 4.75%,
due 04-01-2018
1,125,000 Wisconsin State Transportation Revenue Refunding Bonds, Series B, AAA Aaa 1,077,187
4.75%, due 07-01-2019 ------------
Total Municipal Bonds (Cost $54,444,076)...................................................................... 54,478,100
SHORT-TERM TAX-EXEMPT SECURITIES -- 1.0%
MONEY MARKET
$ 523,000 Firstar Tax-Exempt Money Market Fund .......................................................... 523,000
Total Investments ............................................................................................ $55,001,100
------------
------------
</TABLE>
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
GOVERNMENT PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
- ------------------------------------------------------------------------------------------------
PRINCIPAL INTEREST MARKET
AMOUNT DESCRIPTION RATE MATURITY VALUE
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 98.0%
U.S. GOVERNMENT OBLIGATIONS -- 77.7%
$ 500,000 U.S. Treasury Note ................ 7.125% 02-29-2000 $ 513,750
3,000,000 U.S. Treasury Note ................ 5.750% 11-30-2002 3,111,561
6,000,000 U.S. Treasury Note ................ 11.125% 08-15-2003 7,571,250
5,875,000 U.S. Treasury Note ................ 7.875% 11-15-2004 6,807,656
4,000,000 U.S. Treasury Bond ................ 10.750% 08-15-2005 5,333,748
7,130,000 U.S. Treasury Note ................ 6.250% 02-15-2007 7,822,944
-----------
Total U.S. Government Obligations ................................................ 31,160,909
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION POOLS -- 20.3%
449,230 Pool #407884 ...................... 7.000% 09-15-2025 460,038
415,324 Pool #420853 ...................... 7.000% 01-15-2026 425,316
625,538 Pool #422688 ...................... 7.000% 05-15-2026 640,588
479,842 Pool #451586 ...................... 7.000% 08-15-2027 491,387
1,876,708 Pool #456741 ...................... 7.000% 03-15-2028 1,921,860
982,147 Pool #457779 ...................... 7.000% 07-15-2028 1,005,776
2,115,329 Pool #22617 ....................... 7.500% 07-20-2028 2,169,534
977,186 Pool #433945 ...................... 7.000% 08-15-2028 1,000,696
-----------
Total Agency Obligations ......................................................... 8,115,195
-----------
Total U.S. Government and Agency Obligations (Cost $38,528,756)................... 39,276,104
-----------
SHORT-TERM INVESTMENTS -- 0.6%
MONEY MARKET
$ 230,000 Firstar U.S. Government Money Market Fund ......................... 230,000
-----------
Total Short-Term Investments ..................................................... 230,000
-----------
Total Investments................................................................. $39,506,104
-----------
-----------
</TABLE>
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
S&P 100 PLUS PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
- -------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
OR PAR VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS -- 98.7%
BASIC INDUSTRIES -- 3.3%
Aluminum Company of America ................. 6,000 $ 447,375
*<F18> Bethlehem Steel Corporation ................. 4,100 34,338
Boise Cascade Corporation ................... 1,566 48,546
Champion International ...................... 3,000 121,500
Dow Chemical Company ........................ 7,750 704,766
Homestake Mining Company .................... 7,600 69,825
International Paper Company ................. 10,600 475,012
Monsanto Company ............................ 21,300 1,011,750
Weyerhaeuser Company ........................ 6,900 350,606
DuPont (E.I.) de Nemours
and Company ................................ 40,000 2,122,500
-----------
5,386,218
-----------
CONSUMER STAPLES -- 0.5%
Campbell Soup Company ....................... 15,600 858,000
-----------
858,000
-----------
CONSUMER DURABLES -- 2.5%
Black &Decker Corporation ................... 3,000 168,188
Brunswick Corporation ....................... 3,100 76,725
Ford Motor Company .......................... 43,400 2,547,037
General Motors Corporation .................. 18,700 1,338,219
-----------
4,130,169
-----------
CONSUMER NONDURABLES -- 9.5%
Avon Products, Inc. ........................ 9,100 402,675
Coca-Cola Company ........................... 88,800 5,938,500
Colgate-Palmolive Company ................... 10,300 956,612
Eastman Kodak Company ....................... 11,100 799,200
Heinz (H.J.) Company ........................ 12,200 690,825
International Flavors & Fragrances Inc. 3,450 152,447
PepsiCo, Inc. .............................. 52,800 2,161,500
Polaroid Corporation ........................ 1,500 28,031
Procter & Gamble Company .................... 47,900 4,373,869
Ralston Purina Group ........................ 10,500 339,938
-----------
15,843,597
-----------
CONSUMER SERVICE -- 7.7%
*<F18> CBS Corporation ............................. 25,000 818,750
Walt Disney Company ......................... 68,000 2,040,000
*<F18> Harrah's Entertainment, Inc. ............... 3,250 50,984
*<F18> Kmart Corporation ........................... 17,000 260,313
Limited (The), Inc. ........................ 8,039 234,136
May Department Stores Company ............... 7,800 470,925
McDonald's Corporation ...................... 19,600 1,501,850
Sears, Roebuck &Co. ........................ 13,500 573,750
Tandy Corporation ........................... 3,200 131,800
*<F18> Toys "R" Us, Inc. ........................... 9,725 164,109
Wal-Mart Stores, Inc. ...................... 81,200 6,612,725
-----------
12,859,342
-----------
CAPITAL GOODS -- 9.9%
Allegheny Teledyne Inc. ..................... 6,592 134,724
The Boeing Company .......................... 35,712 1,165,104
Fluor Corporation ........................... 2,700 114,919
General Dynamics Corporation ................ 4,000 234,500
General Electric Company .................... 118,800 12,125,025
Minnesota Mining &
Manufacturing Company ..................... 13,900 988,637
Raytheon Company, Class B Shares ............ 11,700 623,025
Rockwell International Corporation .......... 6,500 315,656
United Technologies Corporation ............. 7,600 826,500
-----------
16,528,090
-----------
ENERGY -- 7.2%
+<F19> Atlantic Richfield Company .................. 11,200 730,800
Baker Hughes Incorporated ................... 10,860 192,086
Coastal Corporation ......................... 7,200 251,550
Exxon Corporation ........................... 87,900 6,427,688
Halliburton Company ......................... 15,200 450,300
Mobil Corporation ........................... 27,400 2,387,225
Occidental Petroleum Corporation ............. 12,600 212,625
Schlumberger Limited ........................ 19,200 885,600
Williams Companies, Inc. .................... 14,700 458,456
-----------
11,996,330
-----------
FINANCIAL -- 13.0%
American International Group, Inc. ......... 37,396 3,613,387
American Express Company .................... 16,100 1,646,225
American General Corporation ................ 8,500 663,000
Bank One Corporation ........................ 42,044 2,146,872
BankAmerica Corporation ..................... 67,790 4,075,874
CIGNA Corporation ........................... 7,100 548,919
Citigroup Inc. .............................. 88,750 4,393,125
Hartford Financial Services Group ............ 8,000 439,000
Merrill Lynch &Co., Inc. ................... 13,000 867,750
U.S. Bankcorp .............................. 26,000 923,000
Wells Fargo Company ........................ 58,000 2,317,535
-----------
21,634,688
-----------
HEALTH CARE -- 10.9%
Baxter International Inc. .................. 9,700 623,831
Bristol-Myers Squibb Company ................. 35,320 4,726,258
Columbia/HCA Healthcare Corporation .......... 22,400 554,400
Johnson &Johnson ............................ 48,300 4,051,163
Mallinckrodt, Inc. .......................... 2,400 73,950
Merck &Co., Inc. ........................... 47,900 7,074,231
Pharmacia & Upjohn, Inc. ................... 17,760 1,005,660
-----------
18,109,493
-----------
TECHNOLOGY -- 26.3%
AMP Incorporated ............................ 7,050 367,041
*<F18> Ceridian Corporation ........................ 2,200 153,587
*<F18> Cisco Systems, Inc. ........................ 63,225 5,868,070
Computer Sciences Corporation ............... 5,300 341,519
*<F18> FDX Corporation ............................. 4,700 418,300
Harris Corporation .......................... 2,500 91,563
Hewlett-Packard Company ..................... 38,000 2,595,875
Honeywell Inc. ............................. 4,100 308,781
International Business Machines
Corporation ............................... 40,100 7,408,475
Intel Corporation .......................... 67,300 7,979,256
*<F18> Microsoft Corporation ...................... 90,300 12,523,481
*<F18> National Semiconductor Corporation .......... 5,500 74,250
Northern Telecom Limited ................... 23,200 1,162,900
*<F18> Oracle Corporation ........................... 34,525 1,488,891
Tektronix, Inc. ............................ 1,600 48,100
Texas Instruments Inc. ..................... 13,600 1,163,650
*<F18> Unisys Corporation .......................... 8,800 303,050
Xerox Corporation ........................... 11,391 1,344,138
-----------
43,640,927
TRANSPORTATION -- 0.7%
Burlington Northern
Santa Fe Corporation ..................... 16,200 546,750
Delta Air Lines, Inc. ...................... 5,100 265,200
Norfolk Southern Corporation ................ 12,900 408,769
-----------
1,220,719
-----------
UTILITIES -- 7.2%
AT&T Corp. .................................. 65,492 4,928,273
American Electric Power Company, Inc. ...... 6,400 301,200
Ameritech Corporation ....................... 39,600 2,509,650
Bell Atlantic Corporation ................... 55,582 2,945,846
Entergy Corporation ......................... 8,400 261,450
Southern Company ............................ 24,600 714,937
Unicom Corporation ........................... 7,400 285,363
-----------
11,946,719
-----------
Total Common Stocks
(cost $84,091,382) ........................... 164,154,291
-----------
SHORT-TERM INVESTMENTS -- 1.2%
MONEY MARKET
Firstar Institutional Money
Market Fund ................................1,963,000 1,963,000
-----------
Total Short-Term Investments ......................... 1,963,000
-----------
Total Security Holdings ............................. $166,117,291
-----------
-----------
FUTURES CONTRACTS -- 0%
FUTURES
*<F18> S&P 500 Index Future expires
March, 1999 ............................... 7 2,179,625
-----------
Total Futures Contracts
(cost $1,826,806) .......................... 2,179,625
-----------
*<F18> Non-income producing
+<F19> Segregated as collateral against futures
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
DIVIDEND ACHIEVERS PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
- -------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
OR PAR VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS -- 95.9%
CONSUMER DISCRETIONARY -- 1.4%
Newell Company .............................. 15,500 $ 639,375
CONSUMER NONDURABLES -- 12.7%
Gillette Company ............................ 35,200 1,700,600
Kimberly-Clark Corporation .................. 21,600 1,177,200
Mattel, Inc. ................................ 15,000 342,188
PepsiCo, Inc. .............................. 37,000 1,514,687
Sherwin-Williams Company .................... 31,400 922,375
-----------
5,657,050
-----------
CONSUMER SERVICE -- 11.9%
Walt Disney Company ......................... 30,000 900,000
McDonald's Corporation ...................... 21,600 1,655,100
McGraw-Hill Companies, Inc. ................ 8,500 865,938
Walgreen Company ............................. 32,000 1,874,000
-----------
5,295,038
-----------
CONSUMER NONCYCLICAL -- 3.4%
Becton, Dickinson &Company .................. 36,000 1,536,750
-----------
1,536,750
-----------
CAPITAL GOODS -- 9.2%
Avery-Dennison Corporation .................. 28,400 1,279,775
General Electric Company .................... 24,000 2,449,500
Minnesota Mining &
Manufacturing Company ...................... 5,000 355,625
-----------
4,084,900
-----------
ENERGY -- 9.2%
Mobil Corporation ........................... 14,400 1,254,600
Royal Dutch Petroleum Company ............... 24,000 1,149,000
Williams Companies, Inc. ................... 54,000 1,684,125
-----------
4,087,725
-----------
FINANCIAL -- 15.4%
Bank One Corporation ........................ 11,000 561,687
BankAmerica Corporation ..................... 22,632 1,360,749
Federal Home Loan Mortgage
Corporation ................................ 16,000 1,031,000
Federal National Mortgage
Association ............................... 30,000 2,220,000
Jefferson-Pilot Corporation ................. 22,500 1,687,500
-----------
6,860,936
-----------
HEALTH CARE -- 11.7%
Johnson &Johnson ............................ 21,600 1,811,700
Merck & Co., Inc. ........................... 12,000 1,772,250
Pfizer,Inc. ................................ 13,000 1,630,688
-----------
5,214,638
-----------
INDUSTRIAL -- 2.6%
Illinois Tool Works, Inc. .................. 20,000 1,160,000
-----------
1,160,000
-----------
TECHNOLOGY -- 13.0%
Automatic Data Processing, Inc. ............ 6,300 505,180
Hewlett-Packard Company ...................... 20,000 1,366,250
Intel Corporation ............................ 16,200 1,920,713
Johnson Controls, Inc. ...................... 9,000 531,000
Texas Instruments Inc. ...................... 7,400 633,163
Xerox Corporation ............................ 7,000 826,000
-----------
5,782,306
-----------
UTILITIES -- 5.4%
SBC Communications, Inc. .................... 21,600 1,158,300
Sprint Corporation .......................... 15,000 1,261,875
-----------
2,420,175
-----------
Total Common Stocks
(cost $18,360,352) .......................... 42,738,893
-----------
SHORT-TERM DEBT -- 4.7%
DEMAND NOTE -- 1.1%
Pitney-Bowes Credit Corp. ...................$ 500,000 500,000
-----------
500,000
MONEY MARKET -- 3.6%
Firstar Institutional Money
Market Fund ............................... 1,594,000 1,594,000
-----------
1,594,000
-----------
Total Short-Term Debt. .............................. 2,094,000
-----------
Total Investments ................................... $44,832,893
-----------
-----------
*<F20> Non-income producing
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
SELECT VALUE PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
- -------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
OR PAR VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS -- 94.4%
AUTOS & TRANSPORTATION -- 3.1%
*<F20> Covenant Transport, Inc., Class A .......... 9,500 $ 169,813
*<F20> Dura Automotive Systems, Inc. .............. 5,500 187,687
-----------
357,500
-----------
CONSUMERS DISCRETIONARY -- 29.7%
Claire's Stores, Inc. ...................... 12,800 262,400
*<F20> Department 56, Inc. ....................... 3,100 116,444
*<F20> Elder-Beerman Stores Corp. .................. 16,300 188,469
*<F20> Gildan Activeware, Inc. Class A
Subordinate Voting Shares ................. 14,400 120,600
Kellwood Co ................................ 7,900 197,500
*<F20> Kenneth Cole Productions, Inc. .............. 14,800 277,500
*<F20> Michael Stores, Inc. ........................ 8,000 144,749
Midas, Inc. ................................. 11,200 348,600
*<F20> Nautica Enterprises, Inc. ................... 11,500 172,500
Pier I Imports, Inc. ........................ 15,600 151,125
*<F20> Safety-Kleen Corporation ..................... 18,675 263,784
*<F20> United Stationers ............................ 9,400 244,400
*<F20> Weslex Jessen VisionCare, Inc. .............. 13,300 369,075
*<F20> World Color Press, Inc. .................... 8,500 258,719
*<F20> Zale Corporation ........................... 9,500 306,375
-----------
3,422,240
-----------
CONSUMER STAPLES -- 3.0%
*<F20> International Home Foods, Inc. ............. 8,900 150,187
International Multifoods Corporation ........ 7,500 193,594
-----------
343,781
-----------
CONSUMER SERVICE -- 1.1%
*<F20> RemedyTemp, Inc. ............................ 8,800 133,100
-----------
133,100
-----------
ENERGY -- 2.1%
*<F20> Newfield Exploration Company ............... 11,600 242,150
-----------
242,150
-----------
FINANCIAL -- 26.4%
ARM Financial Group, Inc. .................. 8,100 179,719
American Capital Strategies, Ltd. ........... 6,500 112,125
American Heritage Life Investment
Corporation ............................... 6,800 166,175
CMACInvestment Corporation .................. 7,200 330,750
CNASurety Corporation ....................... 16,100 253,575
Enhance Financial Services Group Inc. ........ 12,300 369,000
Fremont General Corporation .................. 11,400 282,150
HCC Insurance Holdings, Inc. ................ 13,100 230,888
Heller Financial, Inc. ...................... 8,500 249,688
Horace Mann Educators Corporation ............ 2,900 82,650
Parkway Properties, Inc. ................... 6,100 190,625
Peoples Heritage Financial Group, Inc. ....... 14,100 282,000
Prentiss Properties Trust ................... 7,300 162,881
Raymond James Financial, Inc. .............. 7,100 149,987
-----------
3,042,213
-----------
HEALTH CARE -- 8.5%
*<F20> ADAC Laboratories ........................... 10,500 209,671
Arrow International, Inc. .................. 7,100 222,763
DENTSPLY International, Inc. ............... 11,200 288,400
*<F20> Trigon Healthcare, Inc. .................... 6,900 257,456
-----------
978,290
-----------
MATERIALS & PROCESSING -- 0.8%
Interface, Inc. ............................ 10,300 95,596
-----------
95,596
-----------
PRODUCER DURABLES -- 4.8%
General Cable Corp. ......................... 5,100 104,550
Pentair Inc. ............................... 7,500 298,594
TriStar Aerospace Co. ...................... 21,300 149,100
-----------
552,244
-----------
TECHNOLOGY -- 14.9%
*<F20> Anixter International, Inc. ................ 19,100$ 387,969
*<F20> Artesyn Technologies, Inc. ................. 11,800 165,200
*<F20> Black Box Corporation ....................... 6,500 246,187
*<F20> CACI International, Inc. ................... 9,000 151,875
*<F20> DII Group, Inc. ............................ 13,100 301,300
*<F20> Hypercom Corporation ........................ 12,800 126,400
*<F20> The Learning Company, Inc. ................. 5,800 150,437
*<F20> National Data Corporation ................... 3,800 185,013
-----------
1,714,381
-----------
Total Common Stocks
(cost $10,214,547) .......................... 10,881,495
-----------
SHORT-TERM DEBT -- 5.4%
DEMAND NOTE -- 2.6%
General Mills, Inc. ........................ $300,000 300,000
-----------
300,000
-----------
MONEY MARKET -- 2.8%
Firstar Institutional Money
Market Fund ............................... 323,000 323,000
-----------
323,000
-----------
Total Short-Term Debt .............................. 623,000
-----------
Total Security Holdings ............................. $11,504,495
-----------
-----------
*<F20>Non-income producing
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
PSE TECH 100 INDEX PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
- -------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS -- 97.1%
BIOTECHNOLOGY --9.1%
*<F21> Amgen, Inc. ................................. 14,200 $ 1,484,788
*<F21> Biogen, Inc. ................................ 14,200 1,178,600
*<F21> Centocor, Inc. .............................. 14,200 640,775
*<F21> Chiron Corporation .......................... 14,200 371,862
*<F21> Genentech, Inc. ............................. 14,200 1,131,563
*<F21> Immunex Corporation ......................... 14,200 1,786,537
-----------
6,594,125
-----------
CAD/CAM -- 2.5%
Autodesk, Inc. .............................. 14,200 606,163
*<F21> Evans &Sutherland Computer
Corporation ............................... 14,200 250,275
*<F21> Intergraph Corporation ...................... 14,200 81,650
*<F21> Mentor Graphics Corporation ................. 14,200 120,700
*<F21> Synopsys, Inc. .............................. 14,200 770,350
-----------
1,829,138
-----------
DATA COMMUNICATIONS -- 13.1%
*<F21> 3Com Corporation ............................. 14,200 636,337
*<F21> Adaptec, Inc. ............................... 14,200 249,388
*<F21> ADC Telecommunications, Inc. ................ 14,200 493,450
*<F21> Ascend Communications ....................... 14,200 933,650
*<F21> Cabletron Systems, Inc. .................... 14,200 118,925
*<F21> Cisco Systems, Inc. ......................... 14,200 1,317,937
Lucent Technologies ......................... 14,200 1,562,000
*<F21> Newbridge Networks Corporation .............. 14,200 431,325
Northern Telecom ............................ 14,200 711,775
*<F21> QUALCOMM Inc. .............................. 14,200 735,738
Scientific - Atlanta, Inc. .................. 14,200 323,937
*<F21> Standard Microsystems Corporation ............ 14,200 110,938
Symbol Technologies, Inc. ................... 14,200 907,912
*<F21> Tellabs, Inc. .............................. 14,200 973,588
-----------
9,506,900
-----------
DATA STORAGE AND PROCESSING -- 1.8%
*<F21> Exabyte Corporation ......................... 14,200 78,100
*<F21> Quantum Corporation ......................... 14,200 301,750
*<F21> Seagate Technology, Inc. ................... 14,200 429,550
*<F21> Storage Technology Corporation .............. 14,200 504,987
-----------
1,314,387
-----------
ELECTRONIC EQUIPMENT -- 3.8%
AMP Incorporated ............................ 14,200 739,288
Linear Technologies .......................... 14,200 1,271,787
Sensormatic Electronics Corporation .......... 14,200 98,513
*<F21> Vitesse Semiconductors ....................... 14,200 647,875
-----------
2,757,463
-----------
INFORMATION PROCESSING -- 12.8%
America Online, Inc. ........................ 14,200 2,272,000
Automatic Data Processing, Inc. ............. 7,100 569,331
*<F21> Ceridian Corporation ........................ 14,200 991,337
Computer Sciences Corporation ............... 14,200 915,013
Comsat Corporation .......................... 14,200 511,200
Electronic Data Systems ..................... 14,200 713,550
*<F21> Yahoo!, Inc. ............................... 14,200 3,364,512
-----------
9,336,943
-----------
LARGE DIVERSIFIED COMPUTER
MANUFACTURING -- 4.3%
+<F22> International Business
Machines Corporation ...................... 14,200 2,623,450
*<F21> Unisys Corporation .......................... 14,200 489,012
-----------
3,112,462
-----------
MEDICAL TECHNOLOGY -- 6.3%
*<F21> Acuson Corporation .......................... 14,200 211,225
Biomet, Inc. ................................ 14,200 571,550
*<F21> Boston Scientific Corporation ............... 14,200 380,738
*<F21> Coherent, Inc. .............................. 14,200 176,612
*<F21> Genzyme Corporation ......................... 14,200 706,450
HBO & Company ............................... 14,200 407,363
Medtronic, Inc. ............................. 14,200 1,054,350
Shared Medical Systems Corporation .......... 14,200 708,225
*<F21> St. Jude Medical, Inc. ...................... 14,200 393,162
-----------
4,609,675
-----------
MICRO COMPUTER MANUFACTURERS -- 6.4%
*<F21> Apple Computer, Inc. ........................ 14,200 581,313
Compaq Computer Corporation ................. 14,200 595,512
*<F21> Data General Corporation .................... 14,200 233,413
*<F21> Dell Computer Corporation ................... 14,200 1,039,262
*<F21> Gateway 2000, Inc. .......................... 14,200 726,863
*<F21> Micron Electronics, Inc. ................... 14,200 245,837
*<F21> Sun Microsystems, Inc. ...................... 14,200 1,215,875
-----------
4,638,075
-----------
MINI AND MAINFRAME COMPUTER
MANUFACTURERS -- 3.2%
*<F21> EMC Corporation ............................. 14,200 1,207,000
Hewlett-Packard Company ..................... 14,200 970,038
*<F21> Silicon Graphics, Inc. ...................... 14,200 182,825
-----------
2,359,863
-----------
OFFICE AUTOMATION EQUIPMENT -- 3.0%
Harris Corporation .......................... 14,200 520,075
Xerox Corporation ........................... 14,200 1,675,600
-----------
2,195,675
-----------
SEMICONDUCTOR CAPITAL EQUIPMENT
MANUFACTURERS -- 4.0%
*<F21> Analog Devices, Inc. ........................ 14,200 445,525
*<F21> Applied Materials, Inc. .................... 14,200 606,163
*<F21> KLA Instruments Corporation ................. 14,200 615,925
*<F21> Kulicke &Soffa Industries, Inc. ............. 14,200 252,050
*<F21> Lam Research Corporation .................... 14,200 252,937
*<F21> Novellus Systems, Inc. ...................... 14,200 702,900
-----------
2,875,500
-----------
SEMICONDUCTOR MANUFACTURERS -- 8.4%
*<F21> Advanced Micro Devices, Inc. ................ 14,200 410,913
*<F21> Cypress Semiconductor Corporation ............ 14,200 118,037
Intel Corporation ........................... 14,200 1,683,588
*<F21> Micron Technology, Inc. ..................... 14,200 717,987
Motorola, Inc. .............................. 14,200 867,088
*<F21> National Semiconductor Corporation .......... 14,200 191,700
Texas Instruments Inc. ..................... 14,200 1,214,987
*<F21> Xilinx, Inc. ............................... 14,200 924,775
-----------
6,129,075
-----------
SOFTWARE PRODUCTS -- 12.0%
Adobe Systems, Inc. ......................... 14,200 663,850
*<F21> BMC Software, Inc. ......................... 14,200 632,788
*<F21> Cadence Design Systems, Inc. ............... 14,200 422,450
Computer Associates
International, Inc. ...................... 14,200 605,275
*<F21> Compuware Corp. ............................ 14,200 1,109,375
*<F21> Informix Corporation ........................ 14,200 140,225
*<F21> Imprise Corporation ......................... 14,200 78,100
*<F21> Microsoft Corporation ....................... 14,200 1,969,362
*<F21> Network Associates .......................... 14,200 940,750
*<F21> Novell, Inc. ................................ 14,200 257,375
*<F21> Oracle Corporation .......................... 14,200 612,375
*<F21> PeopleSoft, Inc. ............................ 14,200 268,913
SAP AG ...................................... 14,200 512,087
*<F21> Sybase, Inc. ............................... 14,200 105,168
*<F21> Symantec Corporation ........................ 14,200 308,850
*<F21> System Software Associates, Inc. ........... 14,200 99,843
-----------
8,726,786
-----------
TEST, ANALYSIS, AND INSTRUMENTATION
EQUIPMENT -- 6.4%
Honeywell Inc. ............................. 14,200 1,069,438
Millipore Corporation ....................... 14,200 403,812
Perkin-Elmer Corporation .................... 14,200 1,385,388
Tektronix, Inc. ............................. 14,200 426,887
*<F21> Teradyne, Inc. .............................. 14,200 601,725
*<F21> Thermo Instrument Systems, Inc. ............. 14,200 213,888
Varian Associates, Inc. ..................... 14,200 537,825
-----------
4,638,963
-----------
Total Common Stocks
(Cost $51,433,490) ................................ 70,625,030
-----------
SHORT-TERM INVESTMENTS -- 1.5%
MONEY MARKET
Firstar Institutional Money
Market Fund ...............................1,116,000 1,116,000
-----------
Total Short-Term Investments ......................... 1,116,000
-----------
TOTAL INVESTMENTS $71,741,030
-----------
-----------
FUTURES CONTRACTS
FUTURES
*<F21> PSE Technology 100 Index,
Expiring March 1999 ........................ 40 1,802,000
-----------
Total Futures Contracts
(Cost $1,675,695) .................................. 1,802,000
-----------
*<F21>Non-income producing
+<F22>Segregated as collateral against futures
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Principal Preservation Portfolios, Inc. and
the Shareholders of the Tax-Exempt,
Government, S&P 100 Plus, Dividend Achievers,
Select Value and PSETech 100 Index Portfolios:
We have audited the accompanying balance sheets, including the schedules of
investments, of the PRINCIPAL PRESERVATION PORTFOLIOS, INC. (a Maryland
corporation) Tax-Exempt, Government, S&P 100 Plus, Dividend Achievers, Select
Value and PSE Tech 100 Index Portfolios as of December 31, 1998, and the related
statements of operations for the year then ended and the statements of changes
in net assets for each of the two years in the period then ended and the
financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Principal Preservation Portfolios, Inc. Tax-Exempt, Government, S&P 100 Plus,
Dividend Achievers, Select Value and PSE Tech 100 Index Portfolios as of
December 31, 1998, the results of their operations for the year then ended and
the changes in their net assets for each of the two years in the period then
ended and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
January 15, 1999.
PRINCIPAL PRESERVATION
PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
OFFICERS AND DIRECTORS
Richard H. Aster, M.D., Director
Augustine J. English, Director
Ralph J. Eckert, Director
Richard J. Glaisner, Director
Robert J. Tuszynski, President, Director
Frank Ciano, Chief Financial Officer and Treasurer
John Lauderdale, Vice President of Marketing
S. Charles O'Meara, Secretary
Marc Dion, Vice President
INVESTMENT ADVISORS
Ziegler Asset Management, Inc.
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
DISTRIBUTOR, TRANSFER AND DIVIDEND
DISBURSING AGENT AND FUND ACCOUNTANT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
CUSTODIAN
Firstar Trust Company
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
COUNSEL
Quarles &Brady LLP
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
AUDITOR
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
"Standard & Poor's," "Standard & Poor's 100," "S&P," "100" are trademarks of
Standard & Poor's Corporation and have been licensed for use by B.C. Ziegler
and Company.
PSE is the service mark of the Pacific Stock Exchange Incorporated and has been
licensed for use by B.C. Ziegler and Company.
This report was prepared for the information of shareholders of Principal
Preservation Portfolios, Inc., and may not be used in connection with the
offering of securities unless preceded or accompanied by a current Prospectus.
PP 343-2/99
