As filed with the Securities and Exchange Commission on March 2, 1999
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1933 Act Registration No. 33-12
1940 Act File No. 811-4401
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 x
Post-Effective Amendment No. 50
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 x
Amendment No. 52
---
(Check appropriate box or boxes)
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PRINCIPAL PRESERVATION PORTFOLIOS, INC.
(Exact name of registrant as specified in charter)
215 NORTH MAIN STREET
WEST BEND, WISCONSIN 53095
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (414) 334-5521
ROBERT J. TUSZYNSKI
President and Director
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 NORTH MAIN STREET
WEST BEND, WISCONSIN 53095
(Name and Address of Agent for Service)
Copy to:
CONRAD G. GOODKIND, ESQ.
Quarles & Brady LLP
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Approximate Date of Proposed Public Offerings: As soon as practicable
following the effective date of this amendment to the registration statement.
It is proposed that this filing will become effective
--- immediately upon filing pursuant to paragraph (b)
--- on (Date) pursuant to paragraph (b)
--- 60 days after filing pursuant to paragraph (a)(1)
-X- on May 1, 1999 pursuant to paragraph (a)(1)
--- 75 days after filing pursuant to paragraph (a)(2) of rule
485.
If appropriate, check the following:
--- this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
CASH RESERVE PORTFOLIO
CLASS X COMMON STOCK (RETAIL SHARES)
MINIMUM INITIAL INVESTMENT: $1,000
The Principal Preservation Cash Reserve Portfolio (the "Portfolio") is one
of a series of separate mutual fund portfolios within the Principal Preservation
Portfolios, Inc. ("Principal Preservation") family of funds. The Portfolio, a
money market fund, seeks to provide investors with a high level of current
income consistent with stability of principal and the maintenance of liquidity.
The Portfolio invests primarily in domestic money market securities with a
weighted average maturity of ninety days or less. The longest maturity will be
397 days. The Portfolio's investment advisor (the "Advisor") is Ziegler Asset
Management, Inc.
The Portfolio offers two classes of shares, Class X Common Stock (the
"Retail Shares") and the Class Y Common Stock (the "Institutional Shares")
(referred to together as the "Classes"). The Portfolio's Institutional Shares
are offered by a separate prospectus.
This Prospectus has information you should know before you decide to
purchase Retail Shares of the Portfolio. Please read it carefully and keep it
with your investment records. There is a Table of Contents on the next page
which allows you to quickly find information about investment strategies, buying
and selling shares and other information about the Portfolio.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. IF
ANYONE TELLS YOU OTHERWISE, THEY ARE COMMITTING A CRIME.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1999.
QUICK REFERENCE
INVESTMENTS, RISKS AND PERFORMANCE SUMMARY :
Investment objectives and risks associated
with the Portfolio page
Performance information page
Fees and expenses Page
ACCOUNT INFORMATION, SHAREHOLDER SERVICES AND HOW TO BUY OR SELL SHARES:
How to buy Portfolio shares (including sales
charges and combined purchase programs) pages
How to redeem Portfolio shares pages
How to exchange between Portfolios pages
How to begin an automatic investment plan pages
How to begin an automatic withdrawal plan pages
IRA and other retirement plan programs pages
PRINCIPAL PRESERVATION PORTFOLIOS' MANAGEMENT:
Investment Advisor page
INVESTMENTS, RISKS AND PERFORMANCE SUMMARY
INVESTMENT OBJECTIVE. The Cash Reserve Portfolio seeks to provide investors
with a high a level of current income consistent with the stability of
principal and the maintenance of liquidity.
PRINCIPAL INVESTMENT STRATEGIES. The Advisor's principal investment
strategies include:
o Investing in U.S. dollar-denominated money market securities,
including U.S. Government securities and repurchase agreements, and
entering into reverse repurchase agreements.
o Investing more than 25% of total assets in the financial services
industry.
o Investing in compliance with industry-standard requirements for
money market funds for the quality, maturity and diversification of
investments.
PRINCIPAL INVESTMENT RISKS. The Portfolio is subject to the following principal
investment risks:
o Interest Rate Changes. Interest rate increases can cause the price
of a money market security to decrease.
o Financial Services Exposure. Changes in government regulation or
economic downturns can have a significant negative affect on
issuers in the financial services sector. The Portfolio frequently
concentrates its investments in this sector.
o Issuer-Specific Changes. A decline in the credit quality of an
issuer or the provider of credit support or a maturity-shortening
structure for a security can cause the price of a money market
security to decrease.
An investment in the Portfolio is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the Portfolio seeks to preserve the value of your investment
at $1.00 per share, you could lose money by investing in the Portfolio.
GENERAL INFORMATION. The Portfolio was established in 1993 with a single class
of common stock. Initially the Portfolio operated as a retail spoke of a two-
tiered, master/feeder structure. Effective January 1, 1996, the Portfolio was
restructured with its present two Classes. Each outstanding share of the Cash
Reserve Portfolio's original class of common stock was redesignated (without
otherwise affecting the rights and privileges appertaining thereto) as a Retail
Share (the "Reorganization").
PERFORMANCE INFORMATION. The bar chart and table below provide you with
information regarding the Portfolio's annual return on its Retail Shares. You
should bear in mind that past performance is not an indication of future
results.
The bar chart demonstrates the variability of the annual total returns of the
Portfolio for the calendar years indicated. In 1997 and 1995, the Advisor made
capital contributions to the Portfolio to offset certain capital losses. The
Advisor also waived fees and/or reimbursed expenses to the Portfolio for certain
years. Without those contributions, waivers and reimbursements, the returns for
those years would have been lower.
CASH RESERVE PORTFOLIO
AVERAGE ANNUAL
YEAR TOTAL RETURN (1)<F1>
1993(2)<F2> 2.99%
1994 3.64
1995 5.32
1996 4.78
1997 4.80
1998 4.77
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(1)<F1>As a percent of average annual net assets.
(2)<F2>For the period from April 5, 1993 (when the Portfolio started
operations) through the end of that year (not annualized).
The Portfolio's highest and lowest quarterly returns during the periods
presented in the bar chart were:
Highest: 1.35% (Second quarter of 1995)
Lowest: 0.71% (First quarter of 1994)
The tables below compare the average annual return and yield on the Portfolio's
Retail Shares with those of a broad measure of market performance over the
periods indicated.
AVERAGE ANNUAL TOTAL PERIOD FROM
RETURN (FOR THE PERIODS PAST PAST APRIL 5, 1993 THROUGH
ENDED DECEMBER 31, 1998) ONE YEAR FIVE YEARS DECEMBER 31, 1993
- ----------------------- -------- ---------- ----------------------
90-Day U.S. Treasury Bill % % %
Cash Reserve Portfolio
(Retail Shares) 4.77% 4.67% 4.34%
YIELD FOR THE 30 DAYS ENDED DECEMBER 31, 1998 ANNUALIZED YIELD
- --------------------------------------------- ----------------
90-Day U.S. Treasury Bill %
Cash Reserve Portfolio (Retail Shares) %
For current yield information, please call 1-800-826.4600.
FEES AND EXPENSES. You should carefully consider fees and expenses when
choosing a money market fund. As a shareholder, you pay the costs of operating
a fund, plus any transaction costs associated with buying, selling and
exchanging shares.
Shareholder transaction expenses are charges you pay when you buy, sell or
exchange shares. In the case of purchases and exchanges, shareholder
transaction expenses reduce the amount of your payment that is invested in
shares of the money market fund. In the case of sales, shareholder transaction
expenses reduce the amount of the sale proceeds returned to you.
Annual fund operating expenses, on the other hand, are expenses that a
money market fund pays to conduct its business, including investment advisory
fees and the costs of maintaining shareholder accounts, administering the fund,
providing shareholder services and other activities of the money market fund.
Money market funds pay annual operating expenses out of their assets. Therefore
operating expenses reduce your total return.
The following table describes the fees and expenses that you may pay if
you buy, hold, sell or exchange Retail Shares of the Portfolio.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Sales Charge (Load) Imposed on Purchases
and reinvested distributions None
Redemption Fees(1)<F4> None
Exchange Fee $5.00
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO
ASSETS)(2)<F5>
Management Fee 0.20%
Distribution (12b-1) Fees 0.15%
Other Expenses: 0.61%
Shareholder Servicing Agent Fees 0.25%
Administrative Fees 0.15%
Other Fees 0.21%
Annual Fund Operating Expenses 0.96%
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(1)<F4>We charge investors a wire redemption fee, which is currently $12.00 per
wire. Also, there is a $10.00 service fee for redemptions of less than
$250 made by check.
(2)<F5>The percentages expressing annual operating expenses are based on
amounts actually incurred during the year ended December 31, 1998.
During the year, the Advisor waived administrative fees. Giving effect
to this waiver, "Administrative Fees," "Other Fees" and "Annual Fund
Operating Expenses" were 0.08%, 0.54% and 0.89%, respectively.
The following example is intended to help you compare the cost of
investing in the Portfolio with the cost of investing in other money market
funds.
The example assumes that you invest $10,000 in Retail Shares of Portfolio
for the time periods indicated and then redeem all of your shares at the end of
those periods. The example also assumes that your investment has a 5% return
each year and that the Portfolio's operating expenses remain the same. The
example if for comparison purposes only. Actual returns and costs may be higher
or lower.
AFTER 1 YEAR AFTER 3 YEARS AFTER 5 YEARS AFTER 10 YEARS
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$98 $306 $531 $1,178
If you wish to review historical financial information about the
Portfolio, please refer to the section of this Prospectus captioned "Financial
Highlights."
INVESTMENT OBJECTIVES AND STRATEGIES
INVESTMENT OBJECTIVE
The Portfolio seeks to provide investors with a high level of current
income consistent with the stability of principal and the maintenance of
liquidity.
INVESTMENT STRATEGIES
To achieve its investment objective, the Portfolio invests in U.S.
dollar-denominated short-term money market obligations, including securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, certificates of deposit, time deposits, bankers' acceptances
and other short-term obligations issued by domestic banks and domestic branches
and subsidiaries of foreign banks; repurchase agreements and high quality
domestic commercial paper an other short-term corporate obligations, including
those with floating or variable rates of interest. In addition, the Portfolio
may lend portfolio securities, enter into reverse repurchase agreements and, to
a limited extent, invest in securities issued by foreign banks and corporations
outside the United States.
The Portfolio may invest more than 25% of its total assets in obligations
of domestic branches of domestic banks.
In buying and selling securities for the Portfolio, the Advisor complies
with industry-standard requirements for money market funds regarding the
quality, maturity and diversification of the fund's investments. The Advisor
stresses maintaining a stable $1.00 share price, liquidity and income.
The Board of Directors of Principal Preservation has established minimum
credit standards governing the securities that the Portfolio may purchase.
Among other requirements, the Portfolio's securities must be rated in one of the
two highest rating categories for debt obligations by at least two nationally
recognized statistical rating organizations (unless the instrument is rated by
only one such rating agency, in which case a single rating is sufficient) or, if
unrated, are determined by the Advisor to be of comparable quality under the
Board of Directors' guidelines and procedures. The Portfolio will invest at
least 95% of its total assets in securities rated in the highest category or, if
unrated, determined by the Advisor to be of comparable quality. The rating
organizations that rate the money market instruments in which the Portfolio may
invest include Moody's Investors Service, Inc., Standard & Poor's Corporation,
Duff & Phelps, Inc., Fitch Investors Service, Inc., IBCA Limited and IBCA Inc.,
and Thomson Bank Watch, Inc.
DESCRIPTION OF PRINCIPAL SECURITY TYPES
Money Market securities are high quality, short-term debt securities that
pay a fixed, variable or floating interest rate. Securities are often
specifically structured so that they are eligible investments for a money market
fund. For example, in order to satisfy the maturity restrictions for a money
market fund, some money market securities have demand or put features which have
the effect of shortening the security's maturity. Taxable money market
securities include bank certificates of deposit, bank acceptances, bank time
deposits, notes, commercial papers and U.S. Government securities.
U.S. Government securities are high-quality securities issued or
guaranteed by the U.S. Treasury or by an agency or instrumentality of the U.S.
Government. U.S. Government Securities may be backed by the full faith and
credit of the U.S. Treasury, the right to borrow from the U.S. Treasury, or the
agency or instrumentality issuing or guaranteeing the security.
A repurchase agreement is an agreement to buy a security at one price and
a simultaneous agreement to sell it back at an agreed-upon price.
INVESTMENT RISKS
Many factors affect the Portfolio's performance. The Portfolio's yield
will change daily based on changes in interest rates and other market
conditions. Although the Advisor manages the Portfolio to maintain a stable
$1.00 share price, there is no guarantee that it will be successful. For
example, a major increase in short-term interest rates or a decrease in the
credit quality of the issuer of one of the Portfolio's investments could cause
the Portfolio's share price to decrease. It is important to note that neither
the Portfolio's share prices nor its yield are guaranteed by the U.S.
Government.
The following factors may significantly affect the Portfolio's
performance:
Interest Rate Changes. Money market securities have varying levels of
sensitivity to changes in interest rates. In general, the price of a money
market security will fall when interest rates rise and will rise when interest
rates fall. Securities with longer maturities and the securities of issuers in
the financial services industry tend to be more sensitive to interest rate
changes. Sometimes securities have new or novel features that are designed for
specific market environments. If the structure of the security does not
function as planned, the security could decline in value. Also, the behavior of
these securities under various and changing market environments is not always
well understood. Their values can decline unexpectedly.
Financial Services Exposure. Financial services companies are highly
dependent on the supply of short-term financing. The value of securities of
issuers in the financial services sector can be sensitive to changes in
government regulation and interest rates and to economic downturns in the United
States and abroad.
Issuer-Specific Changes. Changes in the financial condition of an
issuer, changes in specific economic or political conditions that affect a
particular type of issuer, and changes in general economic or political
conditions all can affect the credit quality or value of an issuer's securities.
Entities providing credit support or a maturity-shortening structure also can be
affected by these types of changes.
MANAGEMENT
INVESTMENT ADVISOR
Ziegler Asset Management, Inc. ("ZAMI" or the "Advisor") is the
investment Advisor for the Portfolio. In addition to the Portfolio, ZAMI
privately manages numerous customer advisory accounts. On January 1, 1999, ZAMI
managed approximately $1.3 billion in assets on a discretionary basis. B.C.
Ziegler and Company ("Ziegler"), an affiliate of ZAMI, serves as distributor,
accounting/pricing agent, transfer and dividend disbursing agent, administrative
servicing agent and shareholder servicing agent for the Portfolio. Ziegler has
been engaged in the underwriting of debt securities for approximately 80 years.
Ziegler and ZAMI are each wholly-owned subsidiaries of The Ziegler Companies,
Inc., a publicly owned financial services holding company. Ziegler and ZAMI are
each headquartered at 215 North Main Street, West Bend, Wisconsin 53095.
ZAMI provides the Portfolio with overall investment advisory services,
and Ziegler provides administrative services and other back room operations.
For 1998, the Portfolio paid $329,759 (or 0.20% of the Portfolio's average net
assets) in advisory fees to ZAMI. ZAMI voluntarily reimbursed $102,246 in
expenses (or 0.07% of the Portfolio's average net assets).
PURCHASING SHARES
GENERAL INFORMATION
You may buy Retail Shares through Ziegler and selected dealers. You also
may purchase shares in connection with asset allocation programs, wrap free
programs and other programs of services offered or administered by broker-
dealers, investment advisors, financial institutions and certain other service
providers, provided the program meets certain standards established from time to
time by Ziegler.
MINIMUM PURCHASE AMOUNTS
The Portfolio has established minimum amounts that you must invest to
open an account initially, and to add to the account at later times. These
minimum investment amounts help the Portfolio control its operating expenses.
The Portfolio incurs certain fixed costs with the opening and maintaining of
every account and the acceptance of every additional investment, regardless of
the amount of the investment involved. If the Portfolio accepted and maintained
numerous small shareholder accounts and small additional investments, its
operating expense ratio would increase and its total return would decline. The
table below shows the minimum initial investment amounts and additional
investment amounts currently in effect for the Portfolio for various types of
investors.
MINIMUM INITIAL MINIMUM ADDITIONAL
TYPE OF INVESTOR INVESTMENT AMOUNT INVESTMENT AMOUNT(1)<F6>
- ---------------- ---------------- -------------------------
All investors, except special
investors listed below $1,000 $50
Purchases through Systematic
Purchase Plans (see "Shareholder
Services - Systematic Purchase Plan") $100 $100(2)<F7>
- ---------------------------
(1)<F6>There is no minimum additional investment requirement for purchases of
shares of the Portfolio if: (I) the purchase is made in connection with
an exchange from another mutual fund within the Principal Preservation
family of funds (see "Redeeming and Exchanging Shares - Exchanging
Shares"); (ii) reinvestment of distributions received from another
mutual fund within the Principal Preservation family of funds or from
various unit investment trusts sponsored by Ziegler; (iii) the
reinvestment of interest and/or principal payments on bonds issued by
Ziegler Mortgage Securities, Inc. II; (iv) reinvestment of interest
payments on bonds underwritten by Ziegler; and contributions for various
retirement plans.
(2)<F7>The minimum subsequent monthly investment under a Systematic Purchase
Plan is $50 for accounts with balances of $1,000 or more.
METHODS FOR PURCHASING SHARES
You must pay for shares of the Portfolio in U.S. dollars and your check
must be drawn on a U.S. bank. Principal Preservation will not accept cash or
traveler's checks. If your check does not clear, we will cancel your purchase
and you will be responsible for any losses and any applicable fees. When you
buy shares by any type of check, wire transfer or automatic investment purchase,
you may not be able to redeem the shares for fifteen days or until your check
has cleared, whichever is later. This does not limit your right to redeem
shares. Rather, it operates to make sure that payment for the shares redeemed
has been received by Principal Preservation.
We consider your order for the purchase of shares to have been received
when it is physically received by the Transfer Agent, the Distributor, a
Selected Dealer or certain other financial services firms that Principal
Preservation has appointed as agents for the purpose of accepting share purchase
and redemption orders. The Portfolio pays each shareholder servicing agent a
fee at the annual rate of 0.25 of 1% of the average net asset value of Retail
Shares that investors purchase and hold through the agent. This fee compensates
the shareholder servicing agent for the sub-accounting, sub-transfer agent and
other shareholder services they provide to their clients on behalf of the
Portfolio. This shareholder servicing agent fee is in lieu of annual transfer
agent fees (presently $16.00 per shareholder account) that the Portfolio would
pay if the shareholder servicing agent's clients held their accounts directly
with the Portfolio's Transfer Agent.
If your purchase order is received prior to the close of trading on the
New York Stock Exchange, we will invest it at the net asset value computed for
the Portfolio on that day. If your order is received after the close of trading
on the New York Stock Exchange, we will invest it at the net asset value
determined for the Portfolio as of the close of trading on the New York Stock
Exchange on the next business day.
The following describes the different ways in which you may purchase
shares and the procedures you must follow in doing so.
<TABLE>
TO ADD TO
METHOD TO OPEN A NEW ACCOUNT AN EXISTING ACCOUNT
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<S> <C> <C>
BY MAIL OR PERSONAL DELIVERY 1.Complete the Account Application 1.Complete the Additional In vestment
included in this prospectus. form included with your account statement.
Personally deliver or send by First Alternatively, you may write a note indicating
Class or Express Mail or Private your account number.
Delivery Service to: 2.Make your check or money order
payable to: "Principal Preservation." 2.Make your check payable to "Principal
Preservation."
Principal Preservation Note: The amount of your purchase
215 N. Main Street ----- 3.Personally deliver or mail the Additional
West Bend WI 53095 must meet the applicable minimum Investment Form (or note) and your check
initial investment account. See or money order.
"Purchasing Shares - Minimum
Purchase Amounts."
3.Personally deliver or mail the
com pleted Account Application and
your check or money order.
AUTOMATICALLY Not Applicable USE ONE OF PRINCIPAL PRESERVATION'S AUTOMATIC
INVESTMENT PROGRAMS. Sign up for these services
when you open your account, or call 1-800-826-4600
for instructions on how to add them to your existing
account.
SYSTEMATIC PURCHASE PLAN. Make regular, systematic
investments into your Principal Preservation
account(s) from your bank checking or NOW account.
See "Shareholder Services - Systematic Purchase
Plan."
AUTOMATIC DIVIDEND REINVESTMENT. Unless you choose
otherwise, all of your dividends and capital gain
distributions automatically will be reinvested in
additional Portfolio shares. You also may elect to
have your dividends and capital gain distributions
automatically invested in shares of another
Principal Preservation mutual fund.
TELEPHONE BY EXCHANGE BY EXCHANGE
1-800-826-4600 Call to establish a new account by Add to an account by exchanging funds from another
ex changing funds from an existing Principal Preservation account. See "Exchanging
Principal Preservation account. Shares."
See "Exchanging Shares."
FINANCIAL SERVICES FIRMS You may purchase shares in a Portfolio You may purchase additional shares in a Portfolio
through a broker-dealer or other through a broker-dealer or other financial services
financial service firm that may charge firm that may charge a transaction fee.
a transaction fee.
Principal Preservation may accept Principal Preservation may accept requests to
requests to purchase shares into a purchase additional shares into a broker-dealer
broker-dealer street name account only street name account only from the broker-dealer.
from the broker-dealer.
</TABLE>
DISTRIBUTION AND DISTRIBUTION EXPENSES
The Portfolio is authorized under a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act to use a portion of its assets to
finance certain activities relating to the distribution of its Retail Shares to
investors. Because the Portfolio pays these fees on an ongoing basis out of the
portion of its assets attributable to Retail Shares, over time these fees will
increase the cost of your investment.
The Plan permits the Portfolio to reimburse the Distributor for
expenditures it incurs in connection with the distribution of Retail Shares to
investors. These payments include, but are not limited to, trail commissions to
the Distributor and Selected Dealers and costs and expenses that the Distributor
incurs for advertising, preparation and distribution of sales literature and
prospectuses to prospective investors, implementing and operating the Plan and
performing other promotional or administrative activities. The Portfolio also
may make payments under the Plan to reimburse the Distributor for its overhead
expenses related to distribution of the Portfolio's shares. The Plan does not
allow the Portfolio to reimburse the Distributor for expenses from past fiscal
years or in contemplation of expenses for future fiscal years.
Under the Plan, the Portfolio assesses a service fee of up to 0.25 of
1% of the portion of the Portfolio's average daily net assets attributable to
its Retail Shares. The Portfolio uses this shareholder servicing fee to
reimburse the Distributor for the shareholder and distribution services
described above. The Plan continues in effect, if not sooner terminated, for
successive one-year periods, provided that its continuance is specifically
approved by the vote of the Directors, including a majority of the Directors who
are not interested persons of the Advisor or the Distributor.
REDEEMING SHARES
GENERAL INFORMATION
You may redeem any or all of your shares as described below on any day
Principal Preservation is open for business. The Portfolio redeems shares at
net asset value. If your redemption order is received prior to the close of the
New York Stock Exchange, the redemption will be at the net asset value
calculated that day. If not, you will receive the net asset value calculated as
of the close of trading on the next New York Stock Exchange trading day.
REDEMPTIONS
The following table describes different ways that you may redeem your
shares, and the steps you should follow.
METHOD STEPS TO FOLLOW
- ------- ----------------
BY TELEPHONE If you have completed the Telephone Redemption
1-800-826-4600 Authorization and signature guarantee sections of
the Account Application, you may redeem shares by
calling Principal Preservation. If you did not
sign up for telephone redemptions when you opened
your account and would like to do so, call, write
or stop into Principal Preservation's offices and
request, complete, sign and return a Telephone
Redemption Authorization Form. This authorization
must be on file at least five days prior to the
first telephone redemption.
Please note: You may not redeem shares by
------------
telephone if you hold stock certificates for those
shares. Additionally, shares paid for by
personal, corporate, or government check cannot
normally be redeemed before the 15th day after the
purchase date or until the check clears.
BY MAIL To redeem shares by mail, send the following
information to the Transfer Agent:
Address to: o A written request for redemption signed by
- ----------- the registered owner(s) of the shares,
Principal Preservation exactly as the account is registered,
215 N. Main Street together with the shareholder's account
West Bend WI 53095 number;
o The stock certificates for the shares being
re deemed, if any;
o Any required signature guarantees (see "Other
In formation About Redemptions" below); and
o Any additional documents which might be re
quired for redemptions by corporations,
executors, administrators, trustees,
guardians, or other similar entities.
The Transfer Agent will redeem shares when it has
received all necessary documents. The Transfer
Agent will notify you promptly if it cannot accept
your redemption. The Transfer Agent cannot accept
redemption requests that specify a particular date
for redemption or which specify any special
conditions.
SYSTEMATIC WITHDRAWAL PLAN You can set up an automatic systematic withdrawal
plan from any of your Principal Preservation
accounts. To establish the systematic withdrawal
plan, complete the appropriate section of the
Account Application or call, write or stop by
Principal Preservation and request a Systematic
Withdrawal Plan Application Form and complete,
sign and return the Form to Principal
Preservation. See "Shareholder Services -
Systematic Withdrawal Plan."
FINANCIAL SERVICES FIRMS You also may redeem shares through broker-dealers,
financial advisory firms and other financial
institutions, which may charge a commission or
other transaction fee in connection with the
redemption.
CHECKWRITING Upon request, you will be provided with checks to
be drawn on the Portfolio ("Redemption Checks").
Redemption checks may be written for amounts up to
$500,000. There is a $10.00 service fee for each
check under $250.
RECEIVING REDEMPTION PROCEEDS
You may request to receive your redemption proceeds by mail or wire.
Follow the steps outlined below. The Transfer Agent will not send redemption
proceeds until all payments for the shares being redeemed have cleared, which
may take up to 15 days from the purchase date of the shares.
METHOD STEPS TO FOLLOW
- ------- ----------------
BY MAIL The Transfer Agent mails checks for redemption
proceeds typically within one or two days, but not
later than seven days, after it receives the
request and all necessary documents. There is no
charge for this service.
BY WIRE The Transfer Agent will normally wire redemption
proceeds to your bank the next business day after
receiving the redemption request and all necessary
documents. The signatures on any written request
for a wire redemption must be guaranteed. The
Transfer Agent currently deducts a $12.00 wire
charge from the redemption proceeds. This charge
is subject to change. You will be responsible for
any charges which your bank may make for receiving
wires.
OTHER INFORMATION ABOUT REDEMPTIONS
TELEPHONE REDEMPTIONS. By establishing the telephone redemption
service, you authorize Ziegler, as Principal Preservation's transfer agent (the
"Transfer Agent"), to: (1) act upon the instruction of any person by telephone
to redeem shares from the account for which such services have been authorized;
and (2) honor any written instructions for a change of address if accompanied by
a signature guarantee. You assume some risk for unauthorized transactions by
establishing the telephone redemption services. The Transfer Agent has
implemented procedures designed to reasonably assure that telephone instructions
are genuine. These procedures include recording telephone conversations,
requesting verification of various pieces of personal information and providing
written confirmation of such transactions. If the Transfer Agent, Principal
Preservation, or any of their employees fails to abide by these procedures,
Principal Preservation may be liable to a shareholder for losses the shareholder
suffers from any resulting unauthorized transaction(s). However, neither the
Transfer Agent, Principal Preservation nor any of their employees will be liable
for losses suffered by you which result from following telephone instructions
reasonably believed to be genuine after verification pursuant to these
procedures. This service may be changed, modified or terminated at any time.
There is currently no charge for telephone redemptions, although a charge may be
imposed in the future.
SIGNATURE GUARANTEES. To protect you, the Transfer Agent and
Principal Preservation from fraud, signature guarantees are required for certain
redemptions. Signature guarantees enable the Transfer Agent to be sure that you
are the person who has authorized a redemption from your account. We require
signature guarantees for: (1) any redemptions by mail if the proceeds are to be
paid to someone else or are to be sent to an address other than your address as
shown on Principal Preservation's records; (2) any redemptions by mail which
request that the proceeds be wired to a bank, unless you designated the bank as
an authorized recipient of the wire on your account application or subsequent
authorization form and such application or authorization includes a signature
guarantee; (3) any redemptions by mail if the proceeds are to be sent to an
address for the shareholder that has been changed within the past thirty (30)
days; (4) authorizations to redeem by telephone; and (5) requests to transfer
the registration of shares to another owner. Principal Preservation may waive
these requirements in certain instances.
The Transfer Agent will accept signature guarantees from all
institutions which are eligible to provide them under federal or state law.
Institutions which typically are eligible to provide signature guarantees
include commercial banks, trust companies, brokers, dealers, national securities
exchanges, savings and loan associations and credit unions. A signature
guarantee is not the same as a notarized signature.
CHECKWRITING. When a redemption check is presented for payment, the
Portfolio will redeem a sufficient number of full and fractional shares in your
account as of the next determined net asset value to cover the check. You will
continue to earn income dividends until a redemption check is presented for
payment. To use this method of redemption, you must complete and return the
Account Information Form, which is available from Principal Preservation.
Please do not attempt to use redemption checks to close your account. Principal
Preservation may modify or terminate this privilege at any time. Redemption
checks may not be available through agents other than Ziegler. In addition,
these agents may impose other fees and minimum balance requirements as a
condition to checkwriting privileges. With the approval, minimum amount
requirements for redemption checks may vary.
Unless otherwise authorized on the Account Information Form,
redemption checks must be signed by all account owners. If the Portfolio
receives written notice from any owner revoking another owner's authority to
sign individually, the signatures of all account owners will be required for
payment on any redemption check. Shares purchased by check may not be redeemed
via redemption check until 15 days after funds for those shares have been
received. You may not use checkwriting to redeem shares held in certificated
form.
Your Agent or the Portfolio may refuse to honor redemption checks
whenever the right of redemption has been suspended, or if the account is
otherwise impaired. A $10.00 service fee per check will be charged if (a) a
redemption check for less than $250 is presented for payment, (b) the amount
of a redemption check presented for payment exceeds the value of the investor's
account, (c) a redemption check is presented that may not be cleared because it
would require redemption of shares purchased by check within 15 days, or (d) a
stop payment is requested.
CLOSING SMALL ACCOUNTS. If, due to redemption, your account in the
Portfolio drops below $500 for three months or more, the Portfolio may redeem
your shares and close your account, after giving 60 days' written notice,
unless you make additional investments to bring the account value to $1,000
or more.
SUSPENSION OF REDEMPTIONS. Principal Preservation may suspend the
right to redeem shares of the Portfolio for any period during which: (1) the
Exchange is closed or the Securities and Exchange Commission determines that
trading on the Exchange is restricted; (2) there is an emergency as a result of
which it is not reasonably practical for the Portfolio to sell its securities or
to calculate the fair value of its net assets; or (3) the Securities and
Exchange Commission may permit for the protection of the Portfolio's
shareholders.
REDEMPTIONS IN OTHER THAN CASH. It is possible that conditions may
arise in the future which would, in the opinion of the Board of Directors of
Principal Preservation, make it undesirable for the Portfolio to pay for all
redemptions in cash. In such cases, the Board may authorize the Portfolio to
make redemption payments in securities or other property of the Portfolio.
However, the Portfolio will redeem for cash all shares presented for redemption
by any one shareholder up to $250,000 (or 1% of the Portfolio's net assets if
that is less) in any 90-day period. If the Portfolio delivers any securities to
you as payment of a redemption, we will value the securities at the same price
assigned to them in computing the Portfolio's net asset value per share. You
would incur brokerage costs when you sell any securities that the Portfolio
distributes to you in this fashion.
EXCHANGING SHARES
GENERAL INFORMATION
Provided you meet the minimum investment requirement applicable to the
Portfolio, you may exchange Retail Shares of the Portfolio for front-end load
shares (Class A shares) of any other Principal Preservation mutual fund in any
state where the exchange legally may be made. Before engaging in any exchange,
you should obtain from Principal Preservation and read the current prospectus
for the mutual fund into which you intend to exchange. Principal Preservation
charges a $5.00 administrative fee for all exchanges.
An exchange of shares is considered a redemption of the shares of the
Principal Preservation mutual fund from which you are exchanging, and a purchase
----------
of shares of the Principal Preservation mutual fund into which you are
----------
exchanging. Accordingly, you must comply with all of the conditions on
redemptions for the shares being exchanged, and with all of the conditions on
purchases for the shares you receive in the exchange. Moreover, for tax
purposes you will be considered to have sold the shares exchanged, and you will
realize a gain or loss for federal income tax purposes on that sale.
SALES CHARGES APPLICABLE TO EXCHANGES
The standard front-end sales charge applicable to purchases of shares
of the Principal Preservation mutual fund into which the exchange is being made
(as disclosed in the then current prospectus for that Principal Preservation
mutual fund) will be charged in connection with the exchange, less any front-end
sales charge you previously paid with respect to the shares being exchanged, if
any. However, if the shares you are exchanging represent an investment held for
at least six continuous months in any one or more Principal Preservation mutual
funds, then Principal Preservation will not charge any additional front-end
sales charge in connection with the exchange.
RULES AND REQUIREMENTS FOR EXCHANGES
GENERAL. In order to effect an exchange on a particular business day,
Principal Preservation must receive your exchange order in good form no later
than 3:00 p.m. Eastern Time. Principal Preservation may amend, suspend or
revoke this exchange privilege at any time, but will provide you with at least
60 days' prior notice of any change that adversely affects your rights under
this exchange privilege.
An excessive number of exchanges may be disadvantageous to Principal
Preservation. Principal Preservation may terminate the exchange privilege of
any shareholder who makes more than three exchanges in any twelve consecutive
month period or who makes more than one exchange during any calendar quarter.
The following additional rules and requirements apply to all
exchanges:
o The shares you receive in the exchange must be of the same Class
as the shares you are exchanging, except that Retail Shares of
the Portfolio may be exchanged for front-end load shares (Class A
shares) of any Principal Preservation mutual fund and vice versa.
o The account into which you wish to exchange must be identical to
the account from which you are exchanging (meaning the account
into which you are exchanging must be of the same type as the
account from which you are exchanging, and the registered
owner(s) of the account into which you are exchanging must have
the same name(s), address and taxpayer identification or social
security number as the registered owner(s) on the account from
which you are exchanging).
o The amount of your exchange must meet the minimum initial or
minimum additional investment amount of the Principal
Preservation mutual fund into which you are exchanging.
o If the shares being exchanged are represented by a share
certificate, you must sign the certificate(s), have your
signature guaranteed and return the certificate(s) with your
Exchange Authorization Form.
METHODS FOR EXCHANGING SHARES. Set forth below is a description of
the different ways you can exchange shares of Principal Preservation mutual
funds and procedures you should follow when doing so.
<TABLE>
METHOD STEPS TO FOLLOW
- ------- ----------------
<S> <C>
BY MAIL OR PERSONAL DE LIVERY Mail your exchange order to Principal Preservation.
Personally deliver or send by first class Please Note: Principal Preservation must receive your exchange order no
or express mail or private delivery ------------
addressed to: later than 3:00 p.m. Eastern Time in order to effect an exchange
on that business day.
Principal Preservation,
215 N. Main Street,
West Bend, WI 53095
BY TELEPHONE You automatically receive telephone exchange privileges when you
open your account. To decline the telephone exchange privilege,
1-800-826-4600 you must check the appropriate box on the Application Form when you open your
account.
Call Principal Preservation to order the desired exchange and, if required, to
establish a new account for the Principal Preservation mutual fund into which you
wish to exchange.
Telephone exchanges are not available if you have certificated shares.
FINANCIAL SERVICES FIRMS You may exchange shares through your broker-dealer or other financial services
firm, which may charge a transaction fee.
</TABLE>
SHAREHOLDER SERVICES
Principal Preservation offers a number of shareholder services designed to
facilitate investment in Portfolio shares. Full details of each of the
services, copies of the various plans described below and instructions as to how
to participate in the various services or plans can be obtained by calling
Principal Preservation at 1-800-826-4600.
SYSTEMATIC PURCHASE PLAN. You may establish a Systematic Purchase Plan
("SPP") at any time with a minimum initial investment of $100 and minimum
subsequent monthly investments of $100. The minimum subsequent monthly
investment is reduced to $50 for IRAs, Keogh plans, self-directed retirement
plan accounts and custodial accounts under the Uniform Gifts/Transfers to Minors
Act until your account balance reaches $500, after which the minimum reduces to
$25. The minimum subsequent investment is $50 for all other accounts with
balances of $1,000 or more.
By participating in the SPP, you may automatically make purchases of Portfolio
shares on a regular, convenient basis. Under the SPP, your bank or other
financial institution honors preauthorized debits of a selected amount drawn on
your account each month and applied to the purchase of Principal Preservation
shares. You can implement the SPP with any financial institution that will
accept the debits. There is no service fee for participating in the SPP. You
can obtain an application and instructions on establishing the SPP from your
registered representative, the Distributor or Principal Preservation.
SYSTEMATIC WITHDRAWAL PLAN. You may establish a systematic withdrawal plan
if you own or purchase shares having a current offering price value of at least
$10,000 in the Portfolio (except no such minimum applies for distributions from
an IRA). The systematic withdrawal plan involves the planned redemption of
shares on a periodic basis by receiving either fixed or variable amounts at
periodic intervals. The minimum amount you may receive under a systematic
withdrawal plan is $150 per month. The minimum investment that the Portfolio
will accept while a withdrawal plan is in effect is $1,000. You may terminate
your systematic withdrawal plan at any time by written notice to Principal
Preservation or the Transfer Agent.
REINVESTMENT OF DISTRIBUTIONS OR INTEREST PAYMENTS. Unit holders of
Ziegler-sponsored unit investment trusts, holders of Ziegler Mortgage
Securities, Inc. II bonds and holders of bonds underwritten by Ziegler may
purchase shares of the Portfolio by automatically reinvesting distributions from
their unit investment trust, reinvesting principal or interest from their
Ziegler Mortgage Securities, Inc. II bonds, or reinvesting interest from the
bonds underwritten by Ziegler, as the case may be. Unit holders and bondholders
desiring to participate in this plan should contact the Distributor for further
information.
TAX-SHELTERED RETIREMENT PLANS. You may purchase shares of the Portfolio
through any of the following tax-sheltered plans: (1) Individual Retirement
Accounts (including Education IRAs, Roth IRAs, Simplified Employee Pension Plan
Accounts (SEP-IRAs) and Savings Incentive Match Plan for Employees Accounts
(SIMPLE-IRAs)); (2) Keogh plans; (3) 401(k) Plans; and (4) 403(b) Plans for
employees of most nonprofit organizations. You can obtain detailed information
concerning these plans, prototype plans and related information from the
Distributor. You should carefully review and consider the plans and related
information with your tax or financial adviser.
OTHER INFORMATION
DETERMINATION OF NET ASSET VALUE PER SHARE
The Portfolio sells its shares at their net asset value per share. We
determine the net asset value per share daily by adding up the total value of
the Portfolio's investments and other assets and subtracting any of its
liabilities, or debts, and then dividing by the number of outstanding shares of
the Portfolio. For this purpose, the Portfolio values its securities at
amortized cost in accordance with procedures set forth in Rule 2a-7 of the 1940
Act and policies and guidelines adopted by Principal Preservation's Board of
Directors. The net asset value per share is calculated each business day,
Monday through Friday, except on customary national business holidays which
result in closing of the New York Stock Exchange (the "Exchange"). The
calculation is as of 12:00 noon (Eastern Time) on each business day.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND REINVESTMENT
The Portfolio earns interest, dividends and other income from its
investments, and distributes this income (less expenses) to shareholders as
dividends. The Portfolio may also realize capital gains from its investments,
and distributes these gains (less losses), if any, to shareholders as capital
gains distributions. Distributions you receive from the Portfolio consist
primarily of dividends. The Portfolio normally declares dividends daily and
pays them monthly. Dividends may be taken in cash or additional shares at net
asset value. Unless you have elected in writing to the Transfer Agent to
receive dividends and capital gain distributions in cash, the Portfolio
automatically will reinvest your dividends in additional shares of the
Portfolio.
Capital gains distributions, if any, in the Portfolio will be declared
annually and normally will be paid within 45 days after the end of the fiscal
year.
TAX CONSEQUENCES
Distributions you receive from the Portfolio are subject to federal income
tax, and may also be subject to state or local taxes. The dividends that the
Portfolio pays from its taxable net investment income and the distributions that
the Portfolio makes from its net realized short-term capital gains generally
will be taxable to you as ordinary income. This is true whether you elect to
receive your dividends and distributions in cash or in additional shares of the
Portfolio. The Portfolio does not expect that it will have any long-term
capital gains, and thus does not contemplate paying distributions that would be
taxable to you as long-term capital gains.
The Portfolio will mail statements to shareholders annually regarding the
tax status of its dividends and distributions, if any. You should consult your
own tax adviser to assess the consequences of investing in the Portfolio under
tax laws applicable to you. In particular, because the Portfolio invests a
significant portion of its assets from time to time in U.S. Government
securities, you should ascertain the status under state and local laws of
dividends that the Portfolio pays to you which represent interest that the
Portfolio earns on its U.S. Government securities.
Any taxable distributions you receive from the Portfolio will normally be
taxable to you when you receive them, regardless of your distribution option.
However, distributions declared in December and paid in January each year are
taxable as if paid on December 31 of the earlier year.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products used by
businesses worldwide will need to be upgraded to accept four digit entries to
distinguish 21st century dates from 20th century dates. Significant uncertainty
exists concerning the potential costs and effectiveness of efforts to achieve
"Year 2000" compliance, and the possible consequences of failure.
Year 2000 issues potentially could affect the Portfolio in a number of
ways. For example, the Portfolio relies on service providers for such critical
daily operations as pricing (including both external pricing services that
provide market quotes and the pricing agent that calculates the Portfolio's net
asset value), custody, selection of portfolio securities, tracking of purchases
and sales of portfolio securities in automated systems, transfer agent functions
(including purchases and redemptions of Portfolio shares, opening and closing of
shareholder accounts, calculating and recording automatic investments and
dividend and capital gain reinvestment, etc.), and the like. The Year 2000
problem in an automated system used to provide these services could affect the
ability of the service provider to render the service or could corrupt the
integrity of the information generated and transactions recorded in the
provision of these services. Such developments could materially impair the
ability of the Portfolio to conduct day-to-day operations.
Also, governmental agencies and private enterprises that issue or insure
money market instruments owned by the Portfolio face Year 2000 risks. They
could experience disruptions or failures of their own internal automated systems
or those of the customers, vendors and service providers on which their
businesses and day-to-day operations rely. These developments could adversely
affect the price of such an issuer's securities and/or the ability of such an
issuer to make interest and principal or dividend payments on its securities.
If a significant number of issuers of securities held by the Portfolio were to
experience such difficulties, the value of the Portfolio's shares could decline.
Principal Preservation is assessing its exposure from Year 2000 issues.
Ziegler and Firstar Trust Company have assured Principal Preservation that they
have taken reasonable steps designed to assure that the pricing, custodial and
transfer agent services provide to the Portfolio will not be disrupted or
otherwise affected by Year 2000 issues. These steps include extensive diagnosis
of systems to identify Year 2000 problems, the correction and upgrading of the
systems to eliminate those problems, and the testing of the corrections and
upgrades to assure resolution of the problem. While those firms are incurring
costs in these efforts, they have advised Principal Preservation that they do
not anticipate that they will find it necessary to increase fees for their
services solely to recover these costs.
The Advisor has taken appropriate steps to consider how Year 2000 issues
will affect its ability to render investment advisory and administrative
services to the Portfolio, and to resolve those issues. Based on periodic
reports that the Advisor makes to Principal Preservation's Board of Directors,
the Board of Directors believes that the Advisor will achieve Year 2000
compliance sufficient to enable it to provide uninterrupted investment
management and administrative services to the Portfolio through December 31,
1999 and beyond. The Advisor also has reported that it is considering Year 2000
readiness as a factor in determining which securities to purchase and sell for
the Portfolio. In this regard, the Advisor relies on publicly available
information, which may not be complete.
Principal Preservation's Board of Directors and management will continue to
monitor this situation, and will continue to receive periodic reports and
updates on the progress being made by the Advisor and the Portfolio's other
service providers. Despite the precautions being taken by the Board of
Directors and the service providers of the Portfolio, because of the inherent
uncertainty of the scope of the Year 2000 readiness issue worldwide (as
evidenced by the various levels of severity and catastrophe that have been
predicted by numerous "experts" and commentators), Principal Preservation can
provide no absolute assurance that it and its service providers will be able to
identify all Year 2000 compliance risk faced by the Portfolio, or that the
measures they are taking to resolve those issues and the contingency plans they
have put in place will succeed in allowing the Portfolio to conduct day-to-day
operations across the change to the Year 2000 and to protect the Portfolio from
potential economic loss.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Portfolio's financial performance for the past 5 years. Certain information
reflects financial results for a single Retail Share of the Portfolio. The
total returns in the table represent the rate that an investor would have earned
(or lost) on an investment in the Portfolio (assuming reinvestment of all
dividends and distributions). This information has been audited by Arthur
Andersen LLP, whose report, along with the Portfolio's financial statements, is
included in the Annual Report to Shareholders. The Annual Report is available
upon request.
<TABLE>
CASH RESERVE PORTFOLIO (RETAIL SHARES)
--------------------------------------------------------------------
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 $1.00 $1.00 $1.00 $1.00 $1.00
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.05 0.05 0.05 0.05 0.04
LESS DISTRIBUTIONS:
Dividends from net investment income (0.05) (0.05) (0.05) (0.05) (0.04)
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN(A)<F8> 4.77% 4.80% 4.78% 5.32% 3.64%
RATIOS/ SUPPLEMENTAL DATA:
Net assets, end of period (nearest thousand) $147,994 $122,710 $89,946 $86,590 $52,593
Ratio of net expenses to average net assets(b)<F9> 0.89% 0.86% 0.78% 0.79% 1.05%
Capital Contributions(c)<F10> -0- 0.13% -0- 0.06% -0-
Ratio of net investment income to
average net assets(b)<F9> 4.65% 4.71% 4.73% 5.23% 3.62%
- --------------------
</TABLE>
Prior to 1996, the assets of the Cash Reserve Portfolio were invested in the
Prime Money Market Portfolio ("Prime") of The Prime Portfolios. At the opening
of business on January 1, 1996, the assets of Prime were liquidated and
transferred to the Principal Preservation Cash Reserve Portfolio ("Portfolio").
At that time, Classes were established for the Cash Reserve Portfolio, Class X
(Retail) and Class Y (Institutional). Assets of Prime which previously were
attributed to the Portfolio were allocated to the Portfolio's Class X (Retail)
shares. Information as of and results for periods ended prior to January 1,
1996 reflect the Portfolio's investments in Prime. Results for the year ended
December 31, 1996 and later periods reflect the new dual class structure.
(a)<F8> In 1997, 1995 and 1994, the Adviser and its predecessor made
capital contributions to offset losses in securities. Without
those capital contributions, the adjusted annualized total
returns would have been 4.67%, 5.26% and 1.91% for 1997, 1995 and
1994, respectively.
(b)<F9> Prior to 1996, the ratio reflects the Portfolio's share of
Prime's expenses as well as voluntary waivers of fees and expense
and reimbursements by Prime's adviser. For the years ended
December 31, 1998, 1997 and 1996, the Portfolio's adviser and
administrator voluntarily waived a portion of their fees.
Without these voluntary waivers and expense reimbursements, the
annualized ratios of net investment income and expenses to
average net assets would have been as follows:
<TABLE>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Ratio of expenses to average net assets... 0.96% 0.94% 0.99% 1.16% 1.32%
Ratio of net investment income to average
net assets 4.58% 4.63% 4.63% 4.86% 3.35%
</TABLE>
(c)<F10> For the year ended December 31, 1995, the manner in which capital
contributions are presented changed from the prior year as a
result of a Securities and Exchange Commission Division of
Investment Management letter clarifying the presentation of
capital contributions. For the year ended December 31, 1995,
capital contributions were presented in the financial statements
of both the Portfolio and Prime. Prior to that time, they were
shown only in Prime's financial statements.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
INVESTMENT ADVISOR
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
ADMINISTRATOR, DISTRIBUTOR, ACCOUNTING/PRICING AGENT, AND
TRANSFER AND DIVIDEND DISBURSING AGENT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
CUSTODIAN
Firstar Trust Company
777 East Wisconsin Avenue
Milwaukee, WI 53202
COUNSEL
Quarles & Brady LLP
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
FOR MORE INFORMATION
If you have any questions about the Portfolio or would like more
information, including a free copy of the Portfolio's Statement of Additional
Information ("SAI"), or its Annual or Semi-Annual Reports, you may call or write
Principal Preservation at:
Principal Preservation Portfolios, Inc.
215 North Main Street
West Bend, Wisconsin 53095
(800) 826-4600
The SAI, which contains more information about the Portfolio, has been filed
with the Securities and Exchange Commission ("SEC"), and is legally a part of
this prospectus. The Annual and Semi-Annual Reports, also filed with the SEC,
discuss market conditions and investment strategies that affected the
Portfolio's performance during the prior fiscal year and six-month fiscal
period, respectively.
To view these documents, along with other related documents, you can visit the
SEC's Internet website (http://www.sec.gov) or the SEC's Public Reference Room
in Washington, D.C. Information on the operation of the Public Reference Room
can be obtained by calling 1.800.SEC.0330. Additionally, copies of this
information can be obtained, for a duplicating fee, by writing the Public
Reference Section of the SEC, Washington, D.C. 20549-6009.
Investment Company Act File No. 811-4401.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
CASH RESERVE PORTFOLIO
CLASS Y COMMON STOCK (INSTITUTIONAL SHARES)
MINIMUM INITIAL INVESTMENT: $50,000
The Principal Preservation Cash Reserve Portfolio (the "Portfolio") is one
of a series of separate mutual fund portfolios within the Principal Preservation
Portfolios, Inc. ("Principal Preservation") family of funds. The Portfolio, a
money market fund, seeks to provide investors with a high level of current
income consistent with stability of principal and the maintenance of liquidity.
The Portfolio invests primarily in domestic money market securities with a
weighted average maturity of ninety days or less. The longest maturity will be
397 days. The Portfolio's investment advisor (the "Advisor") is Ziegler Asset
Management, Inc.
The Portfolio offers two classes of shares, Class X Common Stock (the
"Retail Shares") and the Class Y Common Stock (the "Institutional Shares")
(referred to together as the "Classes"). The Portfolio's Retail Shares are
offered by a separate prospectus.
This Prospectus has information you should know before you decide to
purchase Institutional Shares of the Portfolio. Please read it carefully and
keep it with your investment records. There is a Table of Contents on the next
page which allows you to quickly find information about investment strategies,
buying and selling shares and other information about the Portfolio.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. IF
ANYONE TELLS YOU OTHERWISE, THEY ARE COMMITTING A CRIME.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1999.
QUICK REFERENCE
INVESTMENTS, RISKS AND PERFORMANCE SUMMARY :
Investment objectives and risks associated
with the Portfolio page
Performance information page
Fees and expenses Page
ACCOUNT INFORMATION, SHAREHOLDER SERVICES AND HOW TO BUY OR SELL SHARES:
How to buy Portfolio shares (including sales
charges and combined purchase programs) pages
How to redeem Portfolio shares pages
How to exchange between Portfolios pages
How to begin an automatic investment plan pages
How to begin an automatic withdrawal plan pages
IRA and other retirement plan programs pages
PRINCIPAL PRESERVATION PORTFOLIOS' MANAGEMENT:
Investment Advisor page
INVESTMENTS, RISKS AND PERFORMANCE SUMMARY
INVESTMENT OBJECTIVE. The Cash Reserve Portfolio seeks to provide
investors with a high a level of current income consistent with the stability
of principal and the maintenance of liquidity.
PRINCIPAL INVESTMENT STRATEGIES. The Advisor's principal investment
strategies include:
o Investing in U.S. dollar-denominated money market securities,
including U.S. Government securities and repurchase agreements, and
entering into reverse repurchase agreements.
o Investing more than 25% of total assets in the financial services
industry.
o Investing in compliance with industry-standard requirements for money
market funds for the quality, maturity and diversification of
investments.
PRINCIPAL INVESTMENT RISKS. The Portfolio is subject to the following
principal investment risks:
o Interest Rate Changes. Interest rate increases can cause the price of
a money market security to decrease.
o Financial Services Exposure. Changes in government regulation or
economic downturns can have a significant negative affect on issuers
in the financial services sector. The Portfolio frequently
concentrates its investments in this sector.
o Issuer-Specific Changes. A decline in the credit quality of an issuer
or the provider of credit support or a maturity-shortening structure
for a security can cause the price of a money market security to
decrease.
An investment in the Portfolio is not a deposit of a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Portfolio seeks to preserve the value of your
investment at $1.00 per share, you could lose money by investing in the
Portfolio.
PERFORMANCE INFORMATION. The bar chart and table below provide you with
information regarding the Portfolio's annual return on its Institutional Shares.
You should bear in mind that past performance is not an indication of future
results.
The bar chart demonstrates the variability of the annual total returns of
the Portfolio for the calendar years indicated. In 1997, the Advisor made
capital contributions to the Portfolio to offset certain capital losses. The
Advisor also waived fees and/or reimbursed expenses to the Portfolio for certain
years. Without those contributions, waivers and reimbursements, the returns for
those years would have been lower.
CASH RESERVE PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN(1)<F11>
1996 5.20%
1997 5.21
1998 5.15
- ----------------------
(1)<F11> As a percent of average annual net assets.
The Portfolio's highest and lowest quarterly returns during the periods
presented in the bar chart were:
Highest: 1.31% (Fourth quarter of 1997)
Lowest: 1.19% (Fourth quarter of 1998)
The tables below compare the average annual return and yield on the
Portfolio's Institutional Shares with those of a broad measure of market
performance over the periods indicated.
FOR THE PERIOD FROM
FOR THE YEAR ENDED JANUARY 1, 1996 THROUGH
AVERAGE ANNUAL TOTAL RETURN DECEMBER 31, 1998 DECEMBER 31, 1998
- --------------------------- ----------------- -----------------
90-Day U.S. Treasury Bill % %
Cash Reserve Portfolio
(Institutional Shares) 5.15% 4.92%
YIELD FOR THE 30 DAYS ENDED DECEMBER 31, 1998 ANNUALIZED YIELD
- --------------------------------------------- -----------------
90-Day U.S. Treasury Bill %
Cash Reserve Portfolio (Institutional Shares) %
For current yield information, please call 1-800-826.4600.
FEES AND EXPENSES. You should carefully consider fees and expenses when
choosing a money market fund. As a shareholder, you pay the costs of operating
a fund, plus any transaction costs associated with buying, selling and
exchanging shares.
Shareholder transaction expenses are charges you pay when you buy, sell or
exchange shares. In the case of purchases and exchanges, shareholder
transaction expenses reduce the amount of your payment that is invested in
shares of the money market fund. In the case of sales, shareholder transaction
expenses reduce the amount of the sale proceeds returned to you.
Annual fund operating expenses, on the other hand, are expenses that a
money market fund pays to conduct its business, including investment advisory
fees and the costs of maintaining shareholder accounts, administering the fund,
providing shareholder services and other activities of the money market fund.
Money market funds pay annual operating expenses out of their assets. Therefore
operating expenses reduce your total return.
The following table describes the fees and expenses that you may pay if
you buy, hold, sell or exchange Institutional Shares of the Portfolio.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO
ASSETS)(1)<F13>
Management Fee 0.20%
Distribution (12b-1) Fees None
Other Expenses: 0.35%
Administrative Service Fees 0.15%
Other Fees 0.20%
Annual Fund Operating Expenses 0.55%
-----
-----
----------------------
(1)<F13>The percentages expressing annual operating expenses are based on
amounts actually incurred during the year ended December 31, 1998.
During the year, the Advisor waived administrative fees. Giving
effect to this waiver, "Administratvie Fees," "Other Fees" and
"Annual Fund Operating Expenses" were 0.08%, 0.28% and 0.48%,
respectively.
The following example is intended to help you compare the cost of investing
in the Portfolio with the cost of investing in other money market funds.
The example assumes that you invest $10,000 in Institutional Shares of
Portfolio for the time periods indicated and then redeem all of your shares at
the end of those periods. The example also assumes that your investment has a 5%
return each year and that the Portfolio's operating expenses remain the same.
The example is for comparison purposes only. Actual returns and costs may be
higher or lower.
AFTER 1 YEAR AFTER 3 YEARS AFTER 5 YEARS AFTER 10 YEARS
------------ ------------- ------------- --------------
$56 $176 $307 $689
If you wish to review historical financial information about the Portfolio,
please refer to the section of this Prospectus captioned "Financial Highlights."
INVESTMENT OBJECTIVES AND STRATEGIES
INVESTMENT OBJECTIVE
The Portfolio seeks to provide investors with a high level of current
income consistent with the stability of principal and the maintenance of
liquidity.
INVESTMENT STRATEGIES
To achieve its investment objective, the Portfolio invests in U.S. dollar-
denominated short-term money market obligations, including securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
certificates of deposit, time deposits, bankers' acceptances and other short-
term obligations issued by domestic banks and domestic branches and subsidiaries
of foreign banks; repurchase agreements and high quality domestic commercial
paper and other short-term corporate obligations, including those with floating
or variable rates of interest. In addition, the Portfolio may lend portfolio
securities, enter into reverse repurchase agreements and, to a limited extent,
invest in securities issued by foreign banks and corporations outside the United
States.
The Portfolio may invest more than 25% of its total assets in obligations
of domestic branches of domestic banks.
In buying and selling securities for the Portfolio, the Advisor complies
with industry-standard requirements for money market funds regarding the
quality, maturity and diversification of the fund's investments. The Advisor
stresses maintaining a stable $1.00 share price, liquidity and income.
The Board of Directors of Principal Preservation has established minimum
credit standards governing the securities that the Portfolio may purchase.
Among other requirements, the Portfolio's securities must be rated in one of the
two highest rating categories for debt obligations by at least two nationally
recognized statistical rating organizations (unless the instrument is rated by
only one such rating agency, in which case a single rating is sufficient) or, if
unrated, are determined by the Advisor to be of comparable quality under the
Board of Directors' guidelines and procedures. The Portfolio will invest at
least 95% of its total assets in securities rated in the highest category or, if
unrated, determined by the Advisor to be of comparable quality. The rating
organizations that rate the money market instruments in which the Portfolio may
invest include Moody's Investors Service, Inc., Standard & Poor's Corporation,
Duff & Phelps, Inc., Fitch Investors Service, Inc., IBCA Limited and IBCA Inc.,
and Thomson Bank Watch, Inc.
DESCRIPTION OF PRINCIPAL SECURITY TYPES
Money Market securities are high quality, short-term debt securities that
pay a fixed, variable or floating interest rate. Securities are often
specifically structured so that they are eligible investments for a money market
fund. For example, in order to satisfy the maturity restrictions for a money
market fund, some money market securities have demand or put features which have
the effect of shortening the security's maturity. Taxable money market
securities include bank certificates of deposit, bank acceptances, bank time
deposits, notes, commercial papers and U.S. Government securities.
U.S. Government securities are high-quality securities issued or
guaranteed by the U.S. Treasury or by an agency or instrumentality of the U.S.
Government. U.S. Government Securities may be backed by the full faith and
credit of the U.S. Treasury, the right to borrow from the U.S. Treasury, or the
agency or instrumentality issuing or guaranteeing the security.
A repurchase agreement is an agreement to buy a security at one price and a
simultaneous agreement to sell it back at an agreed-upon price.
INVESTMENT RISKS
Many factors affect the Portfolio's performance. The Portfolio's yield
will change daily based on changes in interest rates and other market
conditions. Although the Advisor manages the Portfolio to maintain a stable
$1.00 share price, there is no guarantee that it will be successful. For
example, a major increase in short-term interest rates or a decrease in the
credit quality of the issuer of one of the Portfolio's investments could cause
the Portfolio's share price to decrease. It is important to note that neither
the Portfolio's share prices nor its yield are guaranteed by the U.S.
Government.
The following factors may significantly affect the Portfolio's performance:
Interest Rate Changes. Money market securities have varying levels of
sensitivity to changes in interest rates. In general, the price of a money
market security will fall when interest rates rise and will rise when interest
rates fall. Securities with longer maturities and the securities of issuers in
the financial services industry tend to be more sensitive to interest rate
changes. Sometimes securities have new or novel features that are designed for
specific market environments. If the structure of the security does not
function as planned, the security could decline in value. Also, the behavior of
these securities under various and changing market environments is not always
well understood. Their values can decline unexpectedly.
Financial Services Exposure. Financial services companies are highly
dependent on the supply of short-term financing. The value of securities of
issuers in the financial services sector can be sensitive to changes in
government regulation and interest rates and to economic downturns in the United
States and abroad.
Issuer-Specific Changes. Changes in the financial condition of an issuer,
changes in specific economic or political conditions that affect a particular
type of issuer, and changes in general economic or political conditions all can
affect the credit quality or value of an issuer's securities. Entities
providing credit support or a maturity-shortening structure also can be affected
by these types of changes.
MANAGEMENT
INVESTMENT ADVISOR
Ziegler Asset Management, Inc. ("ZAMI" or the "Advisor") is the investment
Advisor for the Portfolio. In addition to the Portfolio, ZAMI privately manages
numerous customer advisory accounts. On January 1, 1999, ZAMI managed
approximately $1.3 billion in assets on a discretionary basis. B.C. Ziegler
and Company ("Ziegler"), an affiliate of ZAMI, serves as distributor,
accounting/pricing agent, transfer and dividend disbursing agent, administrative
servicing agent and shareholder servicing agent for the Portfolio. Ziegler has
been engaged in the underwriting of debt securities for approximately 80 years.
Ziegler and ZAMI are each wholly-owned subsidiaries of The Ziegler Companies,
Inc., a publicly owned financial services holding company. Ziegler and ZAMI are
each headquartered at 215 North Main Street, West Bend, Wisconsin 53095.
ZAMI provides the Portfolio with overall investment advisory services, and
Ziegler provides administrative services and other back room operations. For
1998, the Portfolio paid $329,759 (or 0.20% of the Portfolio's average
net assets) in advisory fees to ZAMI. ZAMI voluntarily reimbursed $102,246
in expenses (or 0.07% of the Portfolio's average net assets).
PURCHASING SHARES
GENERAL INFORMATION
You may buy Institutional Shares through Ziegler and selected dealers. You
also may purchase shares in connection with asset allocation programs, wrap free
programs and other programs of services offered or administered by broker-
dealers, investment advisors, financial institutions and certain other service
providers, provided the program meets certain standards established from time to
time by Ziegler.
MINIMUM PURCHASE AMOUNTS
The Portfolio has established minimum amounts that you must invest to open
an account initially, and to add to the account at later times. These minimum
investment amounts help the Portfolio control its operating expenses. The
Portfolio incurs certain fixed costs with the opening and maintaining of every
account and the acceptance of every additional investment, regardless of the
amount of the investment involved. If the Portfolio accepted and maintained
numerous small shareholder accounts and small additional investments, its
operating expense ratio would increase and its total return would decline. The
table below shows the minimum initial investment amounts and additional
investment amounts currently in effect for the Portfolio for Institutional
Shares:
MINIMUM INITIAL MINIMUM ADDITIONAL
TYPE OF INVESTOR INVESTMENT AMOUNT INVESTMENT AMOUNT
- ---------------- ----------------- -----------------
Institutional Investors $50,000 $100
METHODS FOR PURCHASING SHARES
You must pay for shares of the Portfolio in U.S. dollars and your check
must be drawn on a U.S. bank. Principal Preservation will not accept cash or
traveler's checks. If your check does not clear, we will cancel your purchase
and you will be responsible for any losses and any applicable fees. When you
buy shares by any type of check, wire transfer or automatic investment purchase,
you may not be able to redeem the shares for fifteen days or until your check
has cleared, whichever is later. This does not limit your right to redeem
shares. Rather, it operates to make sure that payment for the shares redeemed
has been received by Principal Preservation.
We consider your order for the purchase of shares to have been received
when it is physically received by the Transfer Agent or the Distributor. The
Portfolio pays annual transfer agent fees of $16.00 per shareholder account
(subject to a monthly minimum fee of $200).
If your purchase order is received prior to 12:00 noon (Eastern Time), we
will invest it at the net asset value computed for the Portfolio on that day.
If your order is received after 12:00 noon (Eastern Time), we will invest it at
the net asset value determined for the Portfolio on the next business day.
The following describes the different ways in which you may purchase shares
and the procedures you must follow in doing so.
<TABLE>
TO ADD TO
METHOD TO OPEN A NEW ACCOUNT AN EXISTING ACCOUNT
------- ---------------------- --------------------
<S> <C> <C>
BY MAIL OR PERSONAL DELIVERY 1. Complete the Account Application 1. Complete the Additional In vestment form
included in this prospectus. included with your account statement.
Personally deliver or send by Alternatively, you may write a note
First Class or Express Mail or 2. Make your check or money order indicating your account number.
Private Delivery Service to: payable to: "Principal
Preservation." 2. Make your check payable to
Principal Preservation "Principal Preservation."
215 N. Main Street Note: The amount of your purchase
West Bend WI 53095 ----- 3. Personally deliver or mail the
must meet the applicable minimum Additional Investment Form (or note)
initial investment account. See and your check or money order.
"Purchasing Shares - Minimum Purchase
Amounts."
3. Personally deliver or mail the
com pleted Account Application and
your check or money order.
WIRE NOT APPLICABLE You may purchase shares by wire provided you
advise Principal Preservation in advance.
1-800-826-4600 Wire funds to M&I First National Bank, West
Bend, Wisconsin (ABA #75909576), for credit to
the account of Principal Preservation Account
number 692-343-7.
Wire purchase instructions must include the
name of the Portfolio, the Class of shares and
your account number.
</TABLE>
REDEEMING SHARES
GENERAL INFORMATION
You may redeem any or all of your shares as described below on any day
Principal Preservation is open for business. The Portfolio redeems shares at
net asset value. If your redemption order is received prior to 12:00 Noon
(Eastern Time), the redemption will be at the net asset value calculated that
day. If not, you will receive the net asset value calculated as of the next
business day.
REDEMPTIONS
The following table describes different ways that you may redeem your
shares, and the steps you should follow.
METHOD STEPS TO FOLLOW
- ------- ----------------
BY TELEPHONE If you have completed the Telephone
1-800-826-4600 Redemption Authorization and signature
guarantee sections of the Account
Application, you may redeem shares by calling
Principal Preservation. If you did not sign
up for telephone redemptions when you opened
your account and would like to do so, call,
write or stop into Principal Preservation's
offices and request, complete, sign and
return a Telephone Redemption Authorization
Form. This authorization must be on file at
least five days prior to the first telephone
redemption.
Please note: You may not redeem shares by
------------
telephone if you hold stock certificates for
those shares. Additionally, shares paid for
by personal, corporate, or government check
cannot normally be redeemed before the 15th
day after the purchase date or until the
check clears, whichever occurs first.
BY MAIL To redeem shares by mail, send the following
information to the Transfer Agent:
Address to:
- ----------- o A written request for redemption signed by
Principal Preservation the registered owner(s) of the shares,
215 N. Main Street exactly as the account is registered,
West Bend WI 53095 together with the shareholder's account
number;
o The stock certificates for the shares
being re deemed, if any;
o Any required signature guarantees (see
"Other In formation About Redemptions"
below); and
o Any additional documents which might be re
quired for redemptions by corporations,
executors, administrators, trustees,
guardians, or other similar entities.
The Transfer Agent will redeem shares when it
has received all necessary documents. The
Transfer Agent will notify you promptly if it
cannot accept your redemption. The Transfer
Agent cannot accept redemption requests that
specify a particular date for redemption or
which specify any special conditions.
CHECKWRITING Upon request, you will be provided with
checks to be drawn on the Portfolio
("Redemption Checks"). Redemption checks may
be written for amounts up to $500,000. There
is a $10.00 service fee for each check under
$250.
RECEIVING REDEMPTION PROCEEDS
You may request to receive your redemption proceeds by mail or wire.
Follow the steps outlined below. The Transfer Agent will not send redemption
proceeds until all payments for the shares being redeemed have cleared, which
may take up to 15 days from the purchase date of the shares.
METHOD STEPS TO FOLLOW
- ------- ----------------
BY MAIL The Transfer Agent mails checks for
redemption proceeds typically within one or
two days, but not later than seven days,
after it receives the request and all
necessary documents. There is no charge for
this service.
BY WIRE The Transfer Agent will normally wire
redemption proceeds to your bank the next
business day after receiving the redemption
request and all necessary documents. The
signatures on any written request for a wire
redemption must be guaranteed. The Transfer
Agent currently deducts a $12.00 wire charge
from the redemption proceeds. This charge is
subject to change. You will be responsible
for any charges which your bank may make for
receiving wires.
OTHER INFORMATION ABOUT REDEMPTIONS
TELEPHONE REDEMPTIONS. By establishing the telephone redemption service,
you authorize Ziegler, as Principal Preservation's transfer agent (the "Transfer
Agent"), to: (1) act upon the instruction of any person by telephone to redeem
shares from the account for which such services have been authorized; and (2)
honor any written instructions for a change of address if accompanied by a
signature guarantee. You assume some risk for unauthorized transactions by
establishing the telephone redemption services. The Transfer Agent has
implemented procedures designed to reasonably assure that telephone instructions
are genuine. These procedures include recording telephone conversations,
requesting verification of various pieces of personal information and providing
written confirmation of such transactions. If the Transfer Agent, Principal
Preservation, or any of their employees fails to abide by these procedures,
Principal Preservation may be liable to a shareholder for losses the shareholder
suffers from any resulting unauthorized transaction(s). However, neither the
Transfer Agent, Principal Preservation nor any of their employees will be liable
for losses suffered by you which result from following telephone instructions
reasonably believed to be genuine after verification pursuant to these
procedures. This service may be changed, modified or terminated at any time.
There is currently no charge for telephone redemptions, although a charge may be
imposed in the future.
SIGNATURE GUARANTEES. To protect you, the Transfer Agent and Principal
Preservation from fraud, signature guarantees are required for certain
redemptions. Signature guarantees enable the Transfer Agent to be sure that you
are the person who has authorized a redemption from your account. We require
signature guarantees for: (1) any redemptions by mail if the proceeds are to be
paid to someone else or are to be sent to an address other than your address as
shown on Principal Preservation's records; (2) any redemptions by mail which
request that the proceeds be wired to a bank, unless you designated the bank as
an authorized recipient of the wire on your account application or subsequent
authorization form and such application or authorization includes a signature
guarantee; (3) any redemptions by mail if the proceeds are to be sent to an
address for the shareholder that has been changed within the past thirty (30)
days; (4) authorizations to redeem by telephone; and (5) requests to transfer
the registration of shares to another owner. Principal Preservation may waive
these requirements in certain instances.
The Transfer Agent will accept signature guarantees from all institutions
which are eligible to provide them under federal or state law. Institutions
which typically are eligible to provide signature guarantees include commercial
banks, trust companies, brokers, dealers, national securities exchanges, savings
and loan associations and credit unions. A signature guarantee is not the same
as a notarized signature.
CHECKWRITING. When a redemption check is presented for payment, the
Portfolio will redeem a sufficient number of full and fractional shares in your
account as of the next determined net asset value to cover the check. You will
continue to earn income dividends until a redemption check is presented for
payment. To use this method of redemption, you must complete and return the
Account Information Form, which is available from Principal Preservation.
Please do not attempt to use redemption checks to close your account. Principal
Preservation may modify or terminate this privilege at any time.
Unless otherwise authorized on the Account Information Form,
redemption checks must be signed by all account owners. If the Portfolio
receives written notice from any owner revoking another owner's authority to
sign individually, the signatures of all account owners will be required for
payment on any redemption check. Shares purchased by check may not be redeemed
via redemption check until 15 days after funds for those shares have been
received. You may not use checkwriting to redeem shares held in certificated
form.
The Portfolio may refuse to honor redemption checks whenever the right of
redemption has been suspended, or if the account is otherwise impaired. A
$10.00 service fee per check will be charged if (a) a redemption check for less
than $250 is presented for payment, (b) the amount of a redemption check
presented for payment exceeds the value of the investor's account, (c) a
redemption check is presented that may not be cleared because it would require
redemption of shares purchased by check within 15 days, or (d) a stop payment is
requested.
CLOSING SMALL ACCOUNTS. If you opened an account in the Prospect Hill
Prime Money Market Fund prior to May 1, 1995 and transferred to the Portfolio in
the Reorganization, if, due to redemption, your account drops below $500 for
three months or more, the Portfolio may redeem your shares and close your
account, after giving 60 days' written notice, unless you make additional
investments to bring the account value to $1,000 or more. If your account was
opened after May 1, 1995 and your account balance drops below $25,000 for three
months or more, the Portfolio may redeem your shares and close your account,
after giving 60 days' written notice, unless you make additional investments to
bring the account value to $50,000 or more.
SUSPENSION OF REDEMPTIONS. Principal Preservation may suspend the right to
redeem shares of the Portfolio for any period during which: (1) the Exchange is
closed or the Securities and Exchange Commission determines that trading on the
Exchange is restricted; (2) there is an emergency as a result of which it is not
reasonably practical for the Portfolio to sell its securities or to calculate
the fair value of its net assets; or (3) the Securities and Exchange Commission
may permit for the protection of the Portfolio's shareholders.
REDEMPTIONS IN OTHER THAN CASH. It is possible that conditions may arise
in the future which would, in the opinion of the Board of Directors of Principal
Preservation, make it undesirable for the Portfolio to pay for all redemptions
in cash. In such cases, the Board may authorize the Portfolio to make
redemption payments in securities or other property of the Portfolio. However,
the Portfolio will redeem for cash all shares presented for redemption by any
one shareholder up to $250,000 (or 1% of the Portfolio's net assets if that is
less) in any 90-day period. If the Portfolio delivers any securities to you as
payment of a redemption, we will value the securities at the same price assigned
to them in computing the Portfolio's net asset value per share. You would incur
brokerage costs when you sell any securities that the Portfolio distributes to
you in this fashion.
OTHER INFORMATION
DETERMINATION OF NET ASSET VALUE PER SHARE
The Portfolio sells its shares at their net asset value per share. We
determine the net asset value per share daily by adding up the total value of
the Portfolio's investments and other assets and subtracting any of its
liabilities, or debts, and then dividing by the number of outstanding shares of
the Portfolio. For this purpose, the Portfolio values its securities at
amortized cost in accordance with procedures set forth in Rule 2a-7 of the 1940
Act and policies and guidelines adopted by Principal Preservation's Board of
Directors. The net asset value per share is calculated each business day,
Monday through Friday, except on customary national business holidays which
result in closing of the New York Stock Exchange (the "Exchange"). The
calculation is as of 12:00 noon (Eastern Time) on each business day.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND REINVESTMENTS
The Portfolio earns interest, dividends and other income from its
investments, and distributes this income (less expenses) to shareholders as
dividends. The Portfolio may also realize capital gains from its investments,
and distributes these gains (less losses), if any, to shareholders as capital
gains distributions. Distributions you receive from the Portfolio consist
primarily of dividends. The Portfolio normally declares dividends daily and
pays them monthly. Dividends may be taken in cash or additional shares at net
asset value. Unless you have elected in writing to the Transfer Agent to
receive dividends and capital gain distributions in cash, the Portfolio
automatically will reinvest your dividends in additional shares of the
Portfolio.
Capital gains distributions, if any, in the Portfolio will be declared
annually and normally will be paid within 45 days after the end of the fiscal
year.
TAX CONSEQUENCES
Distributions you receive from the Portfolio are subject to federal income
tax, and may also be subject to state or local taxes. The dividends that the
Portfolio pays from its taxable net investment income and the distributions that
the Portfolio makes from its net realized short-term capital gains generally
will be taxable to you as ordinary income. This is true whether you elect to
receive your dividends and distributions in cash or in additional shares of the
Portfolio. The Portfolio does not expect that it will have any long-term
capital gains, and thus does not contemplate paying distributions that would be
taxable to you as long-term capital gains.
The Portfolio will mail statements to shareholders annually regarding the
tax status of its dividends and distributions, if any. You should consult your
own tax adviser to assess the consequences of investing in the Portfolio under
tax laws applicable to you. In particular, because the Portfolio invests a
significant portion of its assets from time to time in U.S. Government
securities, you should ascertain the status under state and local laws of
dividends that the Portfolio pays to you which represent interest that the
Portfolio earns on its U.S. Government securities.
Any taxable distributions you receive from the Portfolio will normally be
taxable to you when you receive them, regardless of your distribution option.
However, distributions declared in December and paid in January each year are
taxable as if paid on December 31 of the earlier year.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products used by
businesses worldwide will need to be upgraded to accept four digit entries to
distinguish 21st century dates from 20th century dates. Significant uncertainty
exists concerning the potential costs and effectiveness of efforts to achieve
"Year 2000" compliance, and the possible consequences of failure.
Year 2000 issues potentially could affect the Portfolio in a number of
ways. For example, the Portfolio relies on service providers for such critical
daily operations as pricing (including both external pricing services that
provide market quotes and the pricing agent that calculates the Portfolio's net
asset value), custody, selection of portfolio securities, tracking of purchases
and sales of portfolio securities in automated systems, transfer agent functions
(including purchases and redemptions of Portfolio shares, opening and closing of
shareholder accounts, calculating and recording automatic investments and
dividend and capital gain reinvestment, etc.), and the like. The Year 2000
problem in an automated system used to provide these services could affect the
ability of the service provider to render the service or could corrupt the
integrity of the information generated and transactions recorded in the
provision of these services. Such developments could materially impair the
ability of the Portfolio to conduct day-to-day operations.
Also, governmental agencies and private enterprises that issue or insure
money market instruments owned by the Portfolio face Year 2000 risks. They
could experience disruptions or failures of their own internal automated systems
or those of the customers, vendors and service providers on which their
businesses and day-to-day operations rely. These developments could adversely
affect the price of such an issuer's securities and/or the ability of such an
issuer to make interest and principal or dividend payments on its securities.
If a significant number of issuers of securities held by the Portfolio were to
experience such difficulties, the value of the Portfolio's shares could decline.
Principal Preservation is assessing its exposure from Year 2000 issues.
Ziegler and Firstar Trust Company have assured Principal Preservation that they
have taken reasonable steps designed to assure that the pricing, custodial and
transfer agent services provide to the Portfolio will not be disrupted or
otherwise affected by Year 2000 issues. These steps include extensive diagnosis
of systems to identify Year 2000 problems, the correction and upgrading of the
systems to eliminate those problems, and the testing of the corrections and
upgrades to assure resolution of the problem. While those firms are incurring
costs in these efforts, they have advised Principal Preservation that they do
not anticipate that they will find it necessary to increase fees for their
services solely to recover these costs.
The Advisor has taken appropriate steps to consider how Year 2000 issues
will affect its ability to render investment advisory and administrative
services to the Portfolio, and to resolve those issues. Based on periodic
reports that the Advisor makes to Principal Preservation's Board of Directors,
the Board of Directors believes that the Advisor will achieve Year 2000
compliance sufficient to enable it to provide uninterrupted investment
management and administrative services to the Portfolio through December 31,
1999 and beyond. The Advisor also has reported that it is considering Year 2000
readiness as a factor in determining which securities to purchase and sell for
the Portfolio. In this regard, the Advisor relies on publicly available
information, which may not be complete.
Principal Preservation's Board of Directors and management will continue to
monitor this situation, and will continue to receive periodic reports and
updates on the progress being made by the Advisor and the Portfolio's other
service providers. Despite the precautions being taken by the Board of
Directors and the service providers of the Portfolio, because of the inherent
uncertainty of the scope of the Year 2000 readiness issue worldwide (as
evidenced by the various levels of severity and catastrophe that have been
predicted by numerous "experts" and commentators), Principal Preservation can
provide no absolute assurance that it and its service providers will be able to
identify all Year 2000 compliance risk faced by the Portfolio, or that the
measures they are taking to resolve those issues and the contingency plans they
have put in place will succeed in allowing the Portfolio to conduct day-to-day
operations across the change to the Year 2000 and to protect the Portfolio from
potential economic loss.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Portfolio's financial performance for the past 3 years. Certain information
reflects financial results for a single Institutional Share of the Portfolio.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the Portfolio (assuming reinvestment of all
dividends and distributions). This information has been audited by Arthur
Andersen LLP, whose report, along with the Portfolio's financial statements, is
included in the Annual Report to Shareholders. The Annual Report is available
upon request.
<TABLE>
CASH RESERVE PORTFOLIO (INSTITUTIONAL SHARES)
---------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
PER SHARE DATA;
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.05 0.05 0.05
LESS DISTRIBUTIONS:
Dividends from net investment income (0.05) (0.05) (0.05)
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00
------- ------- -------
------- ------- -------
TOTAL RETURN(A)<F14> 5.15% 5.21% 5.20%
RATIOS/ SUPPLEMENTAL DATA:
Net assets, end of period (nearest thousand) $19,889 $33,057 $35,120
Ratio of net expenses to average net assets(b)<F15> 0.48% 0.45% 0.34%
Capital Contributions -0-% 0.17% -0-
Ratio of net investment income to average net assets(b)<F15> 5.06% 5.10% 4.95%
- --------------------
</TABLE>
(a)<F14> During 1997, the Advisor made capital contributions to offset losses
in securities. Without those capital contributions, the adjusted
annualized total return would have been 5.04%.
(b)<F15> For the years ended December 31, 1998, 1997 and 1996, the Portfolio's
adviser and administrator voluntarily waived a portion of their fees.
Without these voluntary waivers and expense reimbursements, the
annualized ratios of net investment income and expenses to average net
assets would have been as follows:
<TABLE>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Ratio of expenses to average net assets... 0.55% 0.54% 0.54%
Ratio of net investment income to average
net assets 4.99% 5.01% 4.75%
</TABLE>
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
INVESTMENT ADVISOR
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
ADMINISTRATOR, DISTRIBUTOR, ACCOUNTING/PRICING AGENT, AND
TRANSFER AND DIVIDEND DISBURSING AGENT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
CUSTODIAN
Firstar Trust Company
777 East Wisconsin Avenue
Milwaukee, WI 53202
COUNSEL
Quarles & Brady LLP
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
FOR MORE INFORMATION
If you have any questions about the Portfolio or would like more
information, including a free copy of the Portfolio's Statement of Additional
Information ("SAI"), or its Annual or Semi-Annual Reports, you may call or write
Principal Preservation at:
Principal Preservation Portfolios, Inc.
215 North Main Street
West Bend, Wisconsin 53095
(800) 826-4600
The SAI, which contains more information about the Portfolio, has been
filed with the Securities and Exchange Commission ("SEC"), and is legally a part
of this prospectus. The Annual and Semi-Annual Reports, also filed with the
SEC, discuss market conditions and investment strategies that affected the
Portfolio's performance during the prior fiscal year and six-month fiscal
period, respectively.
To view these documents, along with other related documents, you can visit
the SEC's Internet website (http://www.sec.gov) or the SEC's Public Reference
Room in Washington, D.C. Information on the operation of the Public Reference
Room can be obtained by calling 1.800.SEC.0330. Additionally, copies of this
information can be obtained, for a duplicating fee, by writing the Public
Reference Section of the SEC, Washington, D.C. 20549-6009.
Investment Company Act File No. 811-4401.
STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 1999
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
CASH RESERVE PORTFOLIO
CLASS X COMMON STOCK (RETAIL SHARES)
CLASS Y COMMON STOCK (INSTITUTIONAL SHARES)
215 North Main Street
West Bend, Wisconsin 53095
800-826-4600
This Statement of Additional Information and the separate Prospectuses to
which it relates describe the Class X Common Stock and Class Y Common Stock
(referred to together as the "Classes") of the Principal Preservation Cash
Reserve Portfolio (the "Portfolio"), one of several separate mutual fund
portfolios within the Principal Preservation Portfolios, Inc. ("Principal
Preservation") family of funds.
The Portfolio seeks to obtain high current income consistent with
stability of principal and the maintenance of liquidity.
You may obtain separate Prospectuses for and buy shares of Class X and
Class Y Common Stock of the Portfolio from B.C. Ziegler and Company ("Ziegler"
or the "Distributor"), 215 North Main Street, West Bend, Wisconsin 53095,
telephone 800-826-4600, or from Selected Dealers (see the relevant Prospectus
dated May 1, 1999 for more complete information, including an account
application.) This Statement of Additional Information is not a prospectus, and
should be read in conjunction with the relevant Prospectus. This Statement of
Additional Information provides details about the Portfolio that are not
required to be included in the Prospectuses, and should be viewed as a
supplement to, and not as a substitute for, the Prospectuses. Capitalized terms
not otherwise defined in this Statement of Additional Information have the
meanings ascribed to them in the relevant Prospectus.
TABLE OF CONTENTS
PAGE
----
STATEMENT OF ADDITIONAL INFORMATION 1
FUND HISTORY AND CAPITAL STOCK 3
INVESTMENT PROGRAM 4
INVESTMENT RESTRICTIONS 9
PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES 12
MANAGEMENT OF PRINCIPAL PRESERVATION 13
PERFORMANCE INFORMATION 21
DETERMINATION OF NET ASSET VALUE PER SHARE;
VALUATION OF SECURITIES; REDEMPTION IN KIND 22
PURCHASE OF SHARES 23
TAX STATUS 24
RETAIL SHARES DISTRIBUTION EXPENSES 25
COUNSEL AND INDEPENDENT ACCOUNTANTS 28
EXPERTS 28
FINANCIAL STATEMENTS 28
APPENDIX A-1
FUND HISTORY AND CAPITAL STOCK
Principal Preservation is a diversified, open-end, management investment
company. It was organized in 1984 as a Maryland corporation. The Board of
Directors of Principal Preservation may authorize the issuance of additional
series and, within each series, individual classes, and may increase or
decrease the number of shares in each series or class.
Prior to January 1, 1996, the Cash Reserve Portfolio, which was established
in 1993, and the Prospect Hill Prime Money Market Fund comprised the two spokes
of a Hub and Spoke money market complex. The Cash Reserve Portfolio consisted of
a single class of common stock and operated as a retail spoke of the money
market complex. The Prospect Hill Prime Money Market Fund, which was operated as
a separate series of Prospect Hill Trust, a series open-end management
investment company organized as a Massachusetts business trust, was an
institutional money market fund and served as the institutional spoke in the
complex. In the Hub and Spoke structure, the Cash Reserve Portfolio and the
Prospect Hill Prime Money Market Fund invested all of their investable assets in
the Prime Money Market Portfolio, a series of The Prime Portfolios. Ziegler
Asset Management, Inc., the Portfolio's current Advisor, managed the investment
and reinvestment of the assets held in the Prime Money Market Portfolio.
Effective January 1, 1996 the Portfolio was recapitalized with two classes
of stock, Class X Common Stock (the "Retail Shares") and Class Y Common Stock
(the "Institutional Shares"). At that time each outstanding share of Cash
Reserve Portfolio's original class of common stock was redesignated (without
otherwise affecting the rights and privileges appertaining thereto) as a share
of Class X Common Stock, and shares of Class Y Common Stock were issued in
exchange for the outstanding shares of the Prospect Hill Prime Money Market
Fund.
The authorized common stock of Principal Preservation consists of one
billion shares, with a par value of $.001 per share. Shares of Principal
Preservation are divided into nine mutual fund series, each with distinct
investment objectives, policies and strategies. In addition to the Portfolio
described in this Statement of Additional Information, Principal Preservation
also offers shares of the Tax-Exempt Portfolio, Government Portfolio, S&P 100
Plus Portfolio, Dividend Achievers Portfolio, Select Value Portfolio, PSE Tech
100 Index Portfolio, Managed Growth Portfolio and the Wisconsin Tax-Exempt
Portfolio through separate prospectuses. Each portfolio consists of 50 million
shares, except for the Cash Reserve Portfolio, which consists of 400 million
shares. The Tax-Exempt, Government and Wisconsin Tax-Exempt Portfolios offer
only Class A (front-end load) shares. Shares of the S&P 100 Plus, Dividend
Achievers, Select Value, PS Tech 100 Index and Managed Growth Portfolios are
divided into two separate classes of 25 million shares each; namely, Class A
shares and Class B (contingent deferred sales charge) shares. As noted above,
shares of the Cash Reserve Portfolio are divided into two classes, Retail Shares
and Institutional Shares. Each Class consists of 200 million shares.
Each share of each series of Principal Preservation is entitled to one vote
on each matter presented to shareholders. All shares of Principal Preservation
vote together on any matter that affects all shareholders uniformly, such as the
election of directors. On matters that affect an individual series (such as
approval of advisory or sub-advisory contracts and changes in fundamental
policies of that series) a separate vote of the shareholders of that series is
required, and the matter must be approved by the requisite vote of the
shareholders of that series. On matters that uniquely affect a particular class
of shares within a series (such as an increase in 12b-1 fees for that class),
the shareholders of that class vote separately on the matter and the matter must
be approved by the requisite vote of the shareholders of that class. Shares of a
series or class are not entitled to vote on any matter that does not affect the
particular series or class.
Each share of Cash Reserve is entitled to participate pro rata in any
dividends or other distributions declared by the Board of Directors of Principal
Preservation with respect to Cash Reserve, and all shares of Cash Reserve have
equal rights in the event of a liquidation of Cash Reserve. Both Class X and
Class Y Shares are redeemable at net asset value, at the option of the
shareholder. Shares have no preemptive, subscription or conversion rights and
are freely transferable. Shares can be issued as full shares or fractions of
shares. A fraction of a share has the same kind of rights and privileges within
the class as full shares in that class. Shares do not have cumulative voting
rights.
The phrase "majority vote" of the outstanding shares of a class, Portfolio
or Principal Preservation means the vote of the lesser of: (1) 67% of the shares
of the class, Portfolio or Principal Preservation, as the case may be, present
at the meeting if the holders of more than 50% of the outstanding shares are
present in person or by proxy; or (2) more than 50% of the outstanding shares of
the class, Portfolio or Principal Preservation, as the case may be.
As a Maryland corporation, Principal Preservation is not required to hold,
and in the future does not plan to hold, annual shareholder meetings unless
required by law or deemed appropriate by the Board of Directors. However,
special meetings may be called for purposes such as electing or removing
Directors, changing fundamental policies or approving an investment advisory
contract.
INVESTMENT PROGRAM
As described above and in the Prospectuses for the Retail Shares and
Institutional Shares, the Portfolio is designed to provide investors with
current income. The Portfolio is not intended to constitute a balanced
investment program and is not designed for investors seeking capital gains or
maximum income irrespective of fluctuations in principal.
The following information supplements and should be read in conjunction
- -----------------------------------------------------------------------------
with the sections in the Prospectuses entitled "Investment, Risks and
- ----------------------------------------------------------------------
Performance Summary."
- ---------------------
Bank Obligations. Domestic commercial banks organized under Federal law
are supervised and examined by the Comptroller of the Currency and are required
to be members of the Federal Reserve System. Domestic banks organized under
state law are supervised and examined by state banking authorities and are
members of the Federal Reserve System only if they elect to join. In addition,
state banks are subject to Federal examination and to a substantial body of
Federal law and regulation. As a result of Federal or state laws and
regulations, domestic banks, among other things, generally are required to
maintain specified levels of reserves, are limited in the amounts which they can
loan to a single borrower, and are subject to other regulations designed to
promote financial soundness. However, not all of such laws and regulations
apply to the foreign branches of domestic banks.
Obligations of foreign branches and subsidiaries of domestic banks and
domestic and foreign branches of foreign banks, such as CDs and time deposits
("TDs"), may be general obligations of the parent banks in addition to the
issuing branch, or may be limited by the terms of a specific obligation and
governmental regulation. Such obligations are subject to different risks than
are those of domestic banks. These risks include foreign economic and political
developments, foreign governmental restrictions that may adversely affect
payment of principal and interest on the obligations, foreign exchange controls
and foreign withholding and other taxes on interest income. These foreign
branches and subsidiaries are not necessarily subject to the same or similar
regulatory requirements that apply to domestic banks, such as mandatory reserve
requirements, loan limitations, and accounting, auditing and financial record
keeping requirements. In addition, less information may be publicly available
about a foreign branch of a domestic bank or about a foreign bank than about a
domestic bank.
Obligations of United States branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by Federal or state regulation
as well as governmental action in the country in which the foreign bank has its
head office. A domestic branch of a foreign bank with assets in excess of $1
billion may be subject to reserve requirements imposed by the Federal Reserve
System or by the state in which the branch is located if the branch is licensed
in that state.
In addition, branches licensed by the Comptroller of the Currency and
branches licensed by certain states may be required to: (1) pledge to the
regulator, by depositing assets with a designated bank within the state, a
certain percentage of their assets as fixed from time to time by the appropriate
regulatory authority; and (2) maintain assets within the state in an amount
equal to a specified percentage of the aggregate amount of liabilities of the
foreign bank payable at or through all of its agencies or branches within the
state.
In view of the foregoing factors associated with the purchase of CDs and
TDs issued by foreign branches of domestic banks, by foreign subsidiaries of
domestic banks, by foreign branches of foreign banks or by domestic branches of
foreign banks, the Advisor carefully evaluates such investments on a case-by-
case basis.
Commercial Paper. The Portfolio may invest in commercial paper issued by
major corporations in reliance on the exemption from registration afforded by
Section 3(a)(3) under the Securities Act of 1933, as amended (the "1933 Act").
Such commercial paper may be issued only to finance current transactions and
must mature in nine months or less. Trading of such commercial paper is
conducted primarily by institutional investors through investment dealers, and
individual investor participation in the commercial paper market is very
limited. Such commercial paper generally can be readily traded in secondary
trading markets among qualified institutional buyers without registration
pursuant to the conditions of Rule 144A under the 1933 Act.
The Portfolio also may invest in commercial paper in reliance on the so-
called "private placement" exemption from registration which is afforded by
Section 4(2) of the 1933 Act ("Section 4(2) paper"). Section 4(2) paper is
restricted as to disposition under the 1933 Act and generally is sold to
institutional investors who agree that they are purchasing the paper for
investment and not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) paper normally is
resold to other institutional investors through or with the assistance of the
issuer or investment dealers who make a market in the paper, thus providing
liquidity.
The Advisor considers the legally restricted but readily saleable Section
4(2) and Rule 144A paper to be liquid. However, pursuant to procedures approved
by the Board of Directors of Principal Preservation, if a particular investment
in Section 4(2) or Rule 144A paper is not determined to be liquid, that
investment will be included within the 10% limitation on illiquid securities.
The Advisor monitors the liquidity of the Portfolio's investments in Section
4(2) and Rule 144A paper on a continuous basis.
Variable Rate and Floating Rate Demand Securities. The Portfolio may
purchase floating and variable rate demand notes and bonds, which are
obligations ordinarily having stated maturities in excess of 397 days, but which
permit the holder to demand payment of principal at any time, or at specified
intervals not exceeding 397 days, in each case upon not more than 30 days'
notice. Variable rate demand notes include master demand notes which are
obligations that permit the Portfolio to invest fluctuating amounts, which may
change daily without penalty, pursuant to direct arrangements between the
Portfolio, as lender, and the borrower. The interest rates on these notes
fluctuate from time to time. The issuer of such obligations normally has a
corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus accrued interest upon a
specified number of days' notice to the holders of such obligations. The
interest rate on a floating rate demand obligation is based on a known lending
rate, such as a bank's prime rate, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable rate demand obligation is
adjusted automatically at specified intervals. Frequently, such obligations are
secured by letters of credit or other credit support arrangements provided by
banks. Because these obligations are direct lending arrangements between the
lender and borrower, it is not contemplated that such instruments generally will
be traded, and there generally is no established secondary market for these
obligations, although they are redeemable at face value. Accordingly, where
these obligations are not secured by letters of credit or other credit support
arrangements, the Portfolio's right to redeem is dependent on the ability of the
borrower to pay principal and interest on demand.
Such obligations frequently are not rated by credit rating agencies and the
Portfolio may invest in obligations which are not so rated only if the Advisor
determines that at the time of investment the obligations are of comparable
quality to the other obligations in which the Portfolio may invest. The
Advisor, on behalf of the Portfolio, will consider on an ongoing basis the
creditworthiness of the issuers of the floating and variable rate demand
obligations held by the Portfolio. The Portfolio will not invest more than 10%
of the value of its net assets in floating or variable rate demand obligations
as to which it cannot exercise the demand feature on not more than seven days'
notice if there is no secondary market available for these obligations, and in
other securities that are not readily marketable. See "Investment Restrictions"
below.
Unsecured Promissory Notes. The Portfolio also may purchase unsecured
promissory notes ("Notes") which are not readily marketable and have not been
registered under the 1933 Act, provided such investments are consistent with the
Portfolio's investment objective. The Notes purchased by the Portfolio will
have remaining maturities of 13 months or less, must be deemed under policies
adopted by the Board of Directors of Principal Preservation to present minimal
credit risks and will meet the quality criteria set forth in the Prospectus
under "Investment Policies." The Portfolio will invest no more than 10% of its
net assets in such Notes and in other securities that are not readily marketable
(which securities would include floating and variable rate demand obligations as
to which the Portfolio cannot exercise the demand feature described above and as
to which there is no secondary market). See "Investment Restrictions" below.
Participation Interests. The Portfolio may purchase from financial
institutions participation interests in securities in which the Portfolio may
invest. A participation interest gives the Portfolio an undivided interest in
the security in the proportion that the Portfolio's participation interest bears
to the total principal amount of the security. These instruments may have
fixed, floating or variable rates of interest, with remaining maturities of 13
months or less. If the participation interest is unrated, or has been given a
rating below that which is permissible for purchase by the Portfolio, the
participation interest will be backed by an irrevocable letter of credit or
guarantee of a bank, or the payment obligation otherwise will be collateralized
by U.S. Government securities, or, in the case of unrated participation
interests, the Advisor must have determined that the instrument is of comparable
quality to those instruments in which the Portfolio may invest. For certain
participation interests, the Portfolio will have the right to demand payment, on
not more than seven days' notice, for all or any part of the Portfolio's
participation interest in the security, plus accrued interest. As to these
instruments, the Portfolio intends to exercise its right to demand payment only
upon a default under the terms of the security, as needed to provide liquidity
to meet redemptions, or to maintain or improve the quality of its investment
portfolio. The Portfolio will not invest more than 10% of its net assets in
participation interests that do not have this demand feature, and in other
securities that are not readily marketable. See "Investment Restrictions"
below.
Lending of Portfolio Securities. To a limited extent, the Portfolio may
lend its portfolio securities to brokers, dealers and other institutional
investors, provided it receives cash collateral which at all times is maintained
in an amount equal to at least 100% of the current market value of the
securities loaned. By lending its portfolio securities, the Portfolio can
increase its income through the investment of the cash collateral. For the
purposes of this policy, the Portfolio considers collateral consisting of U.S.
Government securities or irrevocable letters of credit issued by banks whose
securities meet the standards for investment by the Portfolio to be the
equivalent of cash. Such loans may not exceed 33 1/3% of the value of the
Portfolio's total assets. From time to time, the Portfolio may return to the
borrower and/or a third party which is unaffiliated with the Portfolio, and
which is acting as a "placing broker," a part of the interest earned from the
investment of collateral received for securities loaned.
The Securities and Exchange Commission (the "SEC") currently requires that
the following conditions must be met whenever portfolio securities are loaned:
(1) the Portfolio must receive at least 100% cash collateral from the borrower;
(2) the borrower must increase such collateral whenever the market value of the
securities rises above the level of such collateral; (3) the Portfolio must be
able to terminate the loan at any time; (4) the Portfolio must receive
reasonable interest on the loan, as well as any interest or other distributions
on the loaned securities, and any increase in market value; and (5) the
Portfolio may pay only reasonable custodian fees in connection with the loan.
These conditions may be subject to future modification.
Foreign Securities. The Portfolio may invest no more than 5% of its total
assets in foreign securities, including U.S. dollar-denominated obligations of
foreign branches and subsidiaries of domestic banks and foreign banks, such as
Eurodollar certificates of deposit, which are U.S. dollar-denominated
certificates of deposit issued by branches of foreign and domestic banks located
outside the United States, and Yankee CDs, which are certificates of deposit
issued by a U.S. branch of a foreign bank denominated in U.S. dollars and held
in the United States; Eurodollar time deposits ("ETDs"), which are U.S. dollar-
denominated deposits in a foreign branch of a foreign or domestic bank, and
Canadian time deposits, which are essentially the same as ETDs except they are
issued by branches of major Canadian banks; high quality, U.S. dollar-
denominated short-term bonds and notes (including variable amount master demand
notes) issued by foreign corporations, including Canadian commercial paper,
which is commercial paper issued by a Canadian corporation or a Canadian
counterpart of a U.S. corporation, and Europaper, which is U.S. dollar-
denominated commercial paper of a foreign issuer; and U.S. dollar-denominated
obligations issued or guaranteed by one or more foreign governments or any of
their political subdivisions, agencies or instrumentalities that are determined
by the Advisor to be of comparable quality to the other obligations in which the
Portfolio may invest. Such securities also include debt obligations of
supranational entities. Supranational entities include international
organizations designated or supported by governmental entities to promote
economic reconstruction or development and international banking institutions
and related government agencies. Examples include the International Bank for
Reconstruction and Development (the World Bank), the European Coal and Steel
Community, the Asian Development Bank and the InterAmerican Development Bank.
The Portfolio may be subject to investment risks with respect to foreign
securities that are different in some respects from those incurred by a fund
which invests only in debt obligations of U.S. domestic issuers, although such
obligations may be higher yielding when compared to the securities of U.S.
domestic issuers. In making foreign investments, therefore, the Portfolio will
give appropriate consideration to the following factors, among others.
Foreign securities markets generally are not as developed or efficient as
those in the United States. Securities of some foreign issuers are less liquid
and more volatile than securities of comparable U.S. issuers. Similarly, volume
and liquidity in most foreign securities markets are less than in the United
States and, at times, volatility of price can be greater than in the United
States. The issuers of some of these securities, such as bank obligations, may
be subject to less stringent or different regulation than are U.S. issuers. In
addition, there may be less publicly available information about a non-U.S.
issuer, and non-U.S. issuers generally are not subject to uniform accounting and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. issuers.
Because evidences of ownership of such securities usually are held outside
the United States, the Portfolio will be subject to additional risks which
include possible adverse political and economic developments, possible seizure
or nationalization of foreign deposits and possible adoption of governmental
restrictions which might adversely affect the payment of principal and interest
on the foreign securities or might restrict the payment of principal and
interest to investors located outside the country of the issuer, whether from
currency blockage or otherwise.
Furthermore, some of these securities are subject to brokerage taxes levied
by foreign governments, which have the effect of increasing the cost of such
investment and reducing the realized gain or increasing the realized loss on
such securities at the time of sale. Income earned or received by the Portfolio
from sources within foreign countries may be reduced by withholding and other
taxes imposed by such countries. Tax conventions between certain countries and
the United States, however, may reduce or eliminate such taxes. All such taxes
paid by the Portfolio will reduce its net income available for distribution to
its investors (e.g., the Retail Class). In selecting foreign securities, the
----
Advisor will consider available yields, and any applicable taxes. All such
investments will be U.S. dollar denominated.
Investments In Other Investment Companies. An investment by the Portfolio
in other investment companies -- which is limited by fundamental investment
restriction (13) below -- may cause the Portfolio to incur increased costs of
administration and distribution expenses.
Securities Rating Criteria. A description of the characteristics and
criteria of the various securities ratings used by several nationally recognized
securities rating organizations is included in Appendix A attached to this
Statement of Additional Information.
INVESTMENT RESTRICTIONS
The following restrictions, which are a matter of "fundamental policy," may
not be changed with respect to the Portfolio without the approval of a "majority
of the outstanding voting securities" of the Portfolio, which, under the
Investment Company Act of 1940 (the "1940 Act") and the rules thereunder and as
used in this Statement of Additional Information and the Prospectus, means, with
respect to the Portfolio, the lesser of (i) 67% or more of the outstanding
voting securities of the Portfolio present at a meeting, if the holders of more
than 50% of the outstanding voting securities of the Portfolio are present or
represented by proxy, or (ii) more than 50% of the outstanding voting securities
of the Portfolio.
As a matter of fundamental policy, the Portfolio may not:
1. Issue senior securities.
2. Borrow money, except from banks or through repurchase agreements for
temporary or emergency (not leveraging) purposes in an amount up to 33 1/3% of
the value of the Portfolio's total assets (including the amount borrowed), less
liabilities (not including the amount borrowed) at the time the borrowing is
made. While borrowings exceed 5% of the value of the Portfolio's total assets,
the Portfolio will not make any additional investments.
3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except
(i) to secure borrowings for temporary or emergency purposes and (ii) in
connection with the purchase of securities on a forward commitment basis and the
entry into reverse repurchase agreements or for similar transactions.
4. Invest in puts, calls, straddles, spreads or any combination thereof
if, by reason of such investment, the value of the Portfolio's investments in
all such classes of securities would exceed 5% of the Portfolio's total assets.
5. Sell securities short or purchase securities on margin.
6. Act as underwriter of securities of other issuers, except insofar as
the Portfolio may be deemed an underwriter in connection with the disposition of
a portfolio security.
7. Enter into repurchase agreements providing for settlement in more than
seven days after notice or purchase securities which are not readily marketable
(which securities would include participation interests that are not subject to
the demand feature described in the then-current Prospectus and floating and
variable rate demand obligations as to which no secondary market exists and the
Portfolio cannot exercise the demand feature described in the then-current
Prospectus on not more than seven days' notice), if, in the aggregate, more than
10% of its net assets would be so invested. The Portfolio may not invest in
time deposits maturing in more than seven days.
8. Purchase or sell real estate, real estate investment trust securities,
commodities, or oil and gas interests, except for any of the foregoing acquired
as a result of ownership of another portfolio or security.
9. Make short-term loans to others, except through the purchase of debt
obligations and through repurchase agreements referred to in the Prospectus, and
except that the Portfolio may lend its portfolio securities in an amount not to
exceed 33 % of the value of its total assets. Any loans of portfolio securities
will be made according to guidelines established by the SEC and the Board of
Directors.
10. Invest more than 5% of its assets in the obligations of any other
issuer, except that up to 25% of the value of the Portfolio's total assets may
be invested without regard to any such limitations. Notwithstanding the
foregoing, to the extent required by the rules of the SEC, the Portfolio will
not invest more than 5% of its assets in the obligations of any one bank.
11. Invest more than 25% of its assets in the securities of issuers in any
industry other than banking, provided that there shall be no limitation on the
purchase of obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
12. Invest in companies for the purpose of exercising control.
13. Purchase securities of other investment companies if the purchase
would cause more than 10% of the value of the total assets of the Portfolio, as
the case may be, to be invested in investment company securities, provided that:
(i) the Portfolio will not make any investment in the securities of any single
investment company if, immediately after such investment, more than 3% of the
outstanding voting securities of such investment company would be owned by the
Portfolio, or more than 5% of the value of the total assets of the Portfolio,
would be invested in such investment company; and (ii) no such restrictions
shall apply to a purchase by the Portfolio of investment company securities as a
part of a merger, consolidation, acquisition of assets or reorganization.
14. Purchase securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, or
purchase equity securities of issuers which are not readily marketable if, by
reason thereof, the value of the Portfolio's aggregate investment in all classes
of such securities will exceed 5% of its total assets.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values or
assets will not constitute a violation of that restriction.
Principal Preservation may make commitments more restrictive than the
restrictions listed above so as to permit the sale of Portfolio shares in
certain states. In the event that, once such a commitment is made, the state
restrictions with respect to which the commitment was made are modified or
repealed, Principal Preservation reserves the right to correspondingly modify or
revoke the commitment; provided no such action on the part of Principal
Preservation may result in an investment restriction that is less restrictive
than restrictions 1-14 above. Should Principal Preservation determine that,
once made, any such commitment is no longer in the best interests of Portfolio
and its shareholders, Principal Preservation reserves the right to revoke the
commitment by terminating the sale of Portfolio shares in the state involved.
PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES
Subject to the general supervision of the Directors, the Advisor is
responsible for decisions to buy and sell securities for the Portfolio, the
selection of brokers and dealers to effect the transactions, and the negotiation
of brokerage commissions, if any. Purchases and sales of securities on a stock
exchange are effected through brokers who charge a commission for their
services. In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a profit
to the dealer. The Portfolio also expects that securities will be purchased at
times in underwritten offerings where the price includes a fixed amount of
compensation, generally referred to as the underwriter's concession or discount.
On occasion, the Portfolio may also purchase certain money market instruments
directly from an issuer, in which case no commission or discounts are paid.
The Advisor currently serves as investment manager to a number of clients,
and may in the future act as investment manager or advisor to others, including
other registered investment companies. It is the practice of the Advisor to
allocate purchase and sale transactions among the Portfolio and others whose
assets it manages in such manner as it deems equitable. In making such
allocations the Advisor considers the respective investment objectives, the
relative size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held and opinions of the persons responsible for managing the
Portfolio and other client accounts.
The Advisor gives primary consideration to obtaining the most favorable
prices and efficient executions of transactions. Consistent with this policy,
when securities transactions are effected on a stock exchange, the Advisor
assures that commissions are fair and reasonable, but does not necessarily seek
the lowest possible commissions in all circumstances. The Advisor believes that
a requirement always to seek the lowest possible commission could impede
effective portfolio management and preclude the Portfolio and the Advisor from
obtaining high quality execution and research services. In seeking to determine
the reasonableness of brokerage commissions paid in any transactions, the
Advisor relies upon its experience and knowledge regarding commissions generally
charged by various brokers and on its judgment in evaluating the brokerage and
research services received from the broker effecting the transaction. Such
determinations are necessarily subjective and imprecise, as in most cases an
exact dollar value for the services is not ascertainable. In transactions
effected with a dealer, acting as principal, who furnishes research services to
the Advisor, the Advisor will not purchase securities for the Portfolio at a
higher price, or sell securities at a lower price, than would be the case if the
dealer had not furnished such services.
In seeking to implement the Portfolio's policies, the Advisor effects
transactions with those brokers and dealers whom the Advisor believes provide
the most favorable prices and are capable of providing efficient executions. If
the Advisor believes such prices and executions are obtainable from more than
one broker or dealer, it may give consideration to placing portfolio
transactions with those brokers and dealers who also furnish research and other
services to the Portfolio or the Advisor. Such services include, but are not
limited to, information as to the availability of securities for purchase or
sale, statistical or factual information or opinions pertaining to investment,
wire services, and appraisals or evaluation of portfolio securities.
The information and services received by the Advisor from brokers and
dealers may be of benefit to the Advisor in the management of accounts of some
of its other clients and may not in all cases benefit the Portfolio directly.
While the receipt of such information and services is useful in varying degrees
and would generally reduce the amount of research or services otherwise
performed by the Advisor and thereby reduce its expenses, it is of
indeterminable value and the Portfolio does not reduce the management fee it
pays to the Advisor by any amount that may be attributable to the value of such
services.
During the last three years, the Portfolio paid brokerage commissions in
the following amounts: 1996 - $ ; 1997 - $ ; and 1998 - $ .
None of the commissions was paid to any broker that is an affiliate of the
Advisor.
MANAGEMENT OF PRINCIPAL PRESERVATION
The Directors and officers of Principal Preservation and their principal
occupations during the past five years are set forth below. Their titles may
have varied during that period. Asterisks indicate those Directors of Principal
Preservation who are "interested persons" (as defined in the 1940 Act) of
Principal Preservation. Unless otherwise indicated, the address of each
Director and officer of Principal Preservation is 215 North Main Street, West
Bend, Wisconsin 53095.
<TABLE>
POSITION WITH PRINCIPAL
PRINCIPAL OCCUPATION DURING
NAME, AGE AND ADDRESS PRESERVATION PAST FIVE YEARS
- ---------------------- ------------ ----------------
<S> <C> <C>
Richard J. Glaisner, * ---- Director Senior Managing Director - Ziegler Investment Division,
B.C. Ziegler and Company, since January 1999; President
and Chief Executive Officer of GS2 Securities, Inc., a
subsidiary of The Ziegler Companies, Inc., from July 1997
to December 1998; from 1993 to 1997, President and Chief
Executive Officer of Glaisner, Schilffarth, Grande &
Schnoll, Ltd., an investment management and investment
banking firm acquired by The Ziegler Companies, Inc. in
1997; prior thereto, Managing Director, Kidder Peabody
and Company in New York (investment banking), and prior
to that, Executive Vice President, Kemper Securities
Group (securities brokerage and investment banking).
Robert J. Tuszynski,* 40 President and Director Senior Vice President, B.C. Ziegler and Company, since
1996; prior thereto, Vice President, Director of Mutual
Funds, B.C. Ziegler and Company from 1987 to 1996;
Trustee, Chairman of the Board and President, Prospect
Hill Trust and The Prime Portfolios (registered
investment companies) from 1994 to 1996.
Richard H. Aster, M.D., 68 Director Since June, 1996, Senior Investigator and Professor of
8727 W. Watertown Plank Rd. Medicine, Medical College of Wisconsin; prior thereto,
Milwaukee, WI 53226 President and Director of Research, The Blood Center of
Southeastern Wisconsin, Inc.
Augustine J. English, 69 Director Retired; President, Tupperware North America from 1990 to
1724 Lake Roberts Court 1994 (manufacturing); prior to 1990, President, The West
Windermere, FL 34786 Bend Company (manufacturing), a division of Dart
Industries, a subsidiary of Premark International, Inc.,
of which Mr. English was a Group Vice President.
Ralph J. Eckert, 70 Director Chairman Emeritus and Director, Trustmark Insurance Cos.
2059 Keystone Ranch Road (Mutual Life Insurance Company) since April, 1997; from
Dillon, CO 80435 1991 to 1997 Chairman, Trustmark Insurance Cos.; prior to
1991, Chairman, President and Chief Executive Officer
Trustmark Insurance Cos. since 1971; Trustee of the Board
of Pensions of the Evangelical Lutheran Church in America
from 1991 to 1997, and Chairman of the Board from 1993 to
1997; Trustee of the Board of Pensions for the Lutheran
Church of America from 1987 to 1989; and Trustee of The
Prime Portfolios (registered investment company) from
1993 to 1996.
John H. Lauderdale, 33 Vice President - Director of Marketing Wholesaler, B.C. Ziegler and Company since 1991; prior
thereto, Marketing Account Executive, The Patten Company.
Franklin P. Ciano, 47 Chief Financial Officer and Treasurer Manager of Principal Preservation Operations, B.C.
Ziegler and Company since 1996; prior thereto, Vice
President, Fixed Income Department, Firstar Bank.
Marc J. Dion, 41 Vice President Vice President - Portfolio Manager and Chief Investment
Officer, Ziegler Asset Management, Inc. since 1993; prior
thereto, Vice President, Ziegler Asset Management, Inc.
S. Charles O'Meara, 49 Secretary Senior Vice President and General Counsel, B.C. Ziegler
and Company since 1993; prior thereto, Partner, O'Meara,
Eckert, Pourus & Gonring (law firm).
</TABLE>
Principal Preservation pays the compensation of the three Principal
Preservation Directors who are not officers, directors or employees of Ziegler.
They receive an annual fee of $12,000 and an additional $450 for each Board or
Committee meeting attended. Principal Preservation may also retain consultants,
who will be paid a fee, to provide the Board with advice and research on
investment matters.
The table below shows fees paid to Directors of Principal Preservation for
the year ended December 31, 1998. Each series of Principal Preservation,
including the Portfolio, pays a proportionate share of these expenses based on
the ratio such series' total assets bear to the aggregate of the total assets of
all nine series of Principal Preservation. Principal Preservation made no
payments to its officers or directors who are affiliated with any investment
advisor to Principal Preservation.
<TABLE>
PENSION OR
RETIREMENT
NAME OF PERSON AND BENEFITS ACCRUED
AGGREGATE AS PART OF TOTAL
POSITION WITH COMPENSATION PRINCIPAL ESTIMATED COMPENSATION
PRINCIPAL FROM PRINCIPAL PRESERVATION'S ANNUAL BENEFITS FROM PRINCIPAL
PRESERVATION PRESERVATION EXPENSES UPON RETIREMENT PRESERVATION
------------- ------------ --------- --------------- -------------
<S> <C> <C> <C> <C>
R. D. Ziegler, -0- -0- -0- -0-
President and
Director (1)<F16>
Richard J. Glaisner, -0- -0- -0- -0-
Director (2)<F17>
Robert J. Tuszynski, -0- -0- -0- -0-
Vice President and
Director
Richard H. Aster, M.D. $14,250 -0- -0- $14,250
Director
Augustine J. English, $14,250 -0- -0- $14,250
Director
Ralph J. Eckert, $14,250 -0- -0- $14,250
Director
</TABLE>
(1)<F16>Mr. Ziegler retired from his position as Director effective May 15,
1998.
(2)<F17>At a special meeting held on May 15, 1998, Mr. Glaisner was elected by
shareholders as a Director to fill the vacancy created by Mr. Ziegler's
retirement.
The executive officers and Directors as a group (nine persons) owned
beneficially, as of February , 1999, less than 1% of all outstanding shares
of the Portfolio. This management group's beneficial ownership of shares of
Principal Preservation as a whole also amounted to less than 1% of the
outstanding shares. See also "Control Persons and Principal Holders of
Securities."
INVESTMENT ADVISOR
The Advisor, Ziegler Asset Management, Inc. ("ZAMI"), manages the assets of
the Portfolio pursuant to an Investment Advisory Agreement (the "Advisory
Agreement") and the investment policies described herein. Subject to such
further policies as the Board of Directors may determine, the Advisor makes
investment decisions for the Portfolio. The Advisor furnishes at its own
expense all services, facilities and personnel necessary in connection with
managing the Portfolio's investments and effecting securities transactions for
the Portfolio.
The Advisory Agreement provides that the Advisor may render services to
others. The Advisory Agreement is terminable without penalty on not more than
60 days' nor less than 30 days' written notice by the Portfolio when authorized
either by majority vote of the investors in the Portfolio (with the vote of each
being in proportion to the amount of their investment) or by a vote of a
majority of the Board of Directors, or by the Advisor on not more than 60 days
nor less than 30 days written notice, and will automatically terminate in the
event of its assignment. The Advisory Agreement provides that neither the
Advisor nor its personnel shall be liable for any error of judgment or mistake
of law or for any loss arising out of any investment or for any act or omission
in the execution of security transactions for the Portfolio, except for willful
misfeasance, bad faith, gross negligence or reckless disregard of its or their
obligations and duties under the Advisory Agreement.
For its services under the Advisory Agreement, the Advisor receives from
the Portfolio a fee accrued daily and paid monthly at an annual rate equal to
0.20% of the Portfolio's average daily net assets. Pursuant to the Advisory
Agreement, for the years ended December 31, 1996, 1997 and 1998, the Portfolio
accrued investment advisory fees of $256,191, $278,005 and $329,759,
respectively, of which $169,288, and $77,504 was waived voluntarily for 1996
and 1997, repsectively.
The Advisor's affiliate, B.C. Ziegler and Company ("Ziegler"), serves as
the Portfolio's Administrative Services Agent, Accounting/Pricing Agent and
Transfer and Dividend Disbursing Agent.
ADMINISTRATIVE SERVICES
Portfolio Administrative Services. Ziegler provides certain administrative
----------------------------------
services to Principal Preservation, on behalf of the Portfolio, including: (a)
providing office space, equipment and clerical personnel necessary for
maintaining the organization of Principal Preservation; (b) providing personnel
to serve as directors, officers and employees of Principal Preservation to the
extent requested by Principal Preservation and as permitted and appropriate
under applicable laws and regulations; (c) supervising the overall
administration of Principal Preservation, including negotiation of contracts and
fees with, and the monitoring of performance and billings of, Principal
Preservation's independent contractors or agents; (c) preparing and, if
applicable, filing all documents required for compliance by Principal
Preservation with applicable laws and regulations; (e) preparing agendas and
supporting documents for and minutes of meetings of the Board of Directors of
Principal Preservation and committees thereof and shareholders of the Portfolio;
and (f) maintaining other books and records of Principal Preservation. Ziegler
has agreed to provide these services pursuant to an Administrative Services
Agreement.
The Administrative Services Agreement provides that it will continue in
effect from year to year, as long as approved at least annually by Principal
Preservation's Board of Directors or by a vote of the outstanding voting
securities of the Portfolio and in either case by a majority of the Directors
who are not parties to the relevant Agreement or interested persons of any such
party. The Agreement terminates automatically if assigned and may be terminated
without penalty by either party on 60 days notice. The Agreement provides that
neither Ziegler nor its personnel shall be liable for any error of judgment or
mistake of law or for any loss arising out of any act or omission in the
execution and the discharge of its obligations under the Agreement, except for
willful misfeasance, bad faith or gross negligence in the performance of their
duties or by reason of reckless disregard of their obligations and duties under
the Agreement.
For providing the services contemplated by the Administrative Services
Agreement, Ziegler is entitled to receive a fee, computed daily and paid
monthly, at the annual rate of 0.15 of 1% of the Portfolio's average daily net
assets. Prior to May 1, 1999, ZAMI provided administrative services to
the Portfolio under the terms of an administrative services agreement with terms
substantively identical to those of the Ziegler Administrative Services
Agreement. For the years ended December 31, 1996, 1997 and 1998 the Portfolio
accrued administrative fees aggregating $192,145, $208,504 and $247,327
respectively. For those years, ZAMI reimbursed $95,339, $38,757 and $102,246
respectively, of this fee to the Portfolio.
Accounting/Pricing Agreement. Pursuant to the terms of an
-----------------------------
Accounting/Pricing Agreement between Ziegler and Principal Preservation, Ziegler
provides fund accounting and net asset value calculation services to the
Portfolio. Under this Accounting/Pricing Agreement, Ziegler is entitled to
compensation at a rate approved annually by the Board of Directors, plus
reimbursement for reasonable out-of-pocket expenses. The Portfolio currently
pays Ziegler a monthly fee at an annual rate of 0.04 of 1% on average daily net
assets between $50 million and $100 million, 0.03 of 1% on the next $100
million, and 0.01 of 1% on average daily net assets in excess of $200 million,
subject to a minimum annual fee of $15,000 and a maximum annual fee of $125,000.
For the years ended December 31, 1996, 1997 and 1998, the Portfolio accrued fees
under the Accounting/Pricing Agreement aggregating $43,596, $45,625 and
$ , respectively.
The services provided by Ziegler to the Portfolio under the
Accounting/Pricing Agreement include daily calculation of net asset value per
share, maintenance of original entry documents and books of record and general
ledgers of the Portfolio, posting of cash receipts and disbursements,
reconciliation of bank account balances on a monthly basis, recording purchases
and sales based upon communications from the Portfolio's portfolio managers, and
preparing monthly and annual summaries to assist in the preparation of financial
statements of, and regulatory reports for, the Portfolio. The
Accounting/Pricing Agreement provides that Ziegler may render fund accounting
and pricing services to others, continues in effect from year to year if
approved by a majority of the Board of Directors, terminates automatically if it
is assigned, and may be terminated without penalty by a majority vote of the
shareholders of the Portfolio. The Accounting/Pricing Agreement also provides
that neither Ziegler nor its personnel shall be liable for any error of judgment
or mistake of law or for any loss suffered by the Portfolio in connection with
the matters to which the Accounting/Pricing Agreement relates, except for loss
resulting from willful misfeasance, bad faith or gross negligence in the
performance of its or their duties on behalf of the Portfolio or from reckless
disregard by Ziegler or any of its personnel of the duties of Ziegler under the
Accounting/Pricing Agreement. Ziegler's liability under the Accounting/ Pricing
Agreement is limited in all events to one-year's fees received by Ziegler under
the Accounting/Pricing Agreement.
CUSTODIAN SERVICES
Firstar Trust Company serves as the Custodian of the Fund's assets,
pursuant to a Custodian Servicing Agreement. The Custodian Servicing Agreement
provides that Firstar Trust Company is entitled to receive an annual fee of
0.02% on the first $500 million of the net asset value and 0.015% of assets in
excess of 500 million.
Prior to March 31, 1998, the Fund served as custodian of its own assets
(i.e., cash and securities). Pursuant to a Depository Contract, Ziegler, a
registered broker-dealer and registered investment adviser, acted as Depository
of the Fund's assets. For providing services as Depository to Cash Reserve,
Ziegler was entitled to compensation at an annual rate of 0.055% on the first
$50 million of Cash Reserve's average daily net assets, 0.035% on the next $150
million, 0.030% on the next $300 million, and 0.025% on average daily net assets
in excess of $500 million, subject to a minimum annual fee of $15,000. For the
years ended December 31, 1996 and 1997, the Portfolio incurred fees of $62,415
and $68,281, respectively, under the Depository Contract.
SHAREHOLDER SERVICES FOR RETAIL SHARES
Ziegler has, and certain other brokers and financial institutions in the
future may, enter into shareholder servicing agreements with Principal
Preservation pursuant to which they provide shareholder services to the
Portfolio. Under such agreements, the shareholder servicing Agents maintain
shareholder accounts for Retail Shares of the Portfolio and perform the
functions of transfer and dividend paying agents, among other services, with
respect to such accounts. For providing these services, each Agent receives a
fee at an annual rate of up to 0.25 of 1% of that portion of the Portfolio's
average daily net assets allocated to Retail Shares owned by the customers of
such Agent and held in the shareholder accounts maintained by the Agent. An
Agent may impose additional service charges and fees on its customer's accounts.
The Agent must invoice those charges and fees directly to the customer and may
not deduct them from the customer's holdings in the Portfolio.
Each shareholder servicing agreement continues in effect until terminated,
and may be terminated by either party without cause on not less than 30 days nor
more than 60 days prior notice. Each shareholder servicing agreement provides
that the Agent thereunder shall be indemnified by Principal Preservation for any
action taken or omitted by the Agent under the agreement except for, (a) the bad
faith or negligence of the Agent, its officers, employees or agents, or (b) any
breach of applicable law by the Agent, its officers, employees or agents, or (c)
any action of the Agent, its officers, employees or agents which exceeds the
legal authority of the Agent or its authority under its shareholder servicing
agreement, or (d) any error or omission of the Agent, its officers, employees or
agents with respect to the purchase, redemption and transfer of Shares of the
Portfolio held in accounts serviced by the Agent or the Agent's verification or
guarantee of any signature of a shareholder owning Retail Shares in such
account.
For the years ended December 31, 1996, 1997 and 1998, fees received by
Ziegler with respect to the Retail Shares pursuant to the Shareholder Servicing
Agreement totaled $223,602, $252,921 and $347,848, respectively.
TRANSFER AND DIVIDEND DISBURSING AGENT SERVICES
For those Retail Share shareholder accounts that are not separately
serviced by an Agent pursuant to the terms of a shareholder servicing agreement
and for Institutional Shares, Ziegler provides transfer agent and dividend
disbursing services pursuant to the terms of a Transfer and Dividend Disbursing
Agency Agreement (the "Agency Agreement"). Under the terms of the Agency
Agreement, Ziegler is entitled to reasonable compensation for its services and
expenses as agreed upon from time to time between it and the Board of Directors
of Principal Preservation. The rate of compensation agreed upon for these
services is currently $16.00 per account for the Portfolio. The Portfolio also
reimburses Ziegler for all out of pocket expenses incurred in providing such
services. Ziegler also has the right to retain certain service charges as
described from time to time in the current prospectus of Principal Preservation.
The Agency Agreement will continue in effect until terminated, and may be
terminated by either party without cause on 90 days prior written notice. The
Agency Agreement provides that Ziegler shall be indemnified by and not be liable
to Principal Preservation for any action taken or omitted by it under such
agreement, except for liability for breach of its obligation to maintain all
Principal Preservation records in absolute confidence.
For the years ended December 31, 1996, 1997 and 1998, fees received by
Ziegler pursuant to the Agency Agreement totaled $ , $ and $7,780,
respectively.
PERFORMANCE INFORMATION
Yield is computed in accordance with a standardized method which involves
determining the net change in the value of a hypothetical pre-existing Portfolio
account having a balance of one Retail Share or Institutional Share at the
beginning of a seven calendar day period for which yield is to be quoted,
dividing the net change computed at the end of the period by the value of the
account at the beginning of the period to obtain the base period return, and
analyzing the results (i.e., multiplying the base period return by 365/7). The
net change in the value of the account reflects the value of additional Retail
Shares or Institutional Shares purchased with dividends declared on the
original Retail Share or Institutional Share and any such additional Retail
Shares or Institutional Shares and fees that may be charged to shareholder
accounts, in proportion to the length of the base period and the Portfolio's
average account size, but does not include realized gains and losses or
unrealized appreciation and depreciation. Effective annualized yield is
computed by adding 1 to the base period return (calculated as described above),
raising that sum to a power equal to 365 divided by 7, and subtracting 1 from
the result. The yield and the effective yield for the Portfolio's Retail Shares
for the seven days ended December 31, 1998 was % and %, respectively.
The yield and the effective yield for the Institutional Shares for the seven
days ended December 31, 1998 was % and %, respectively.
Yields will fluctuate and are not necessarily representative of future
results. The investor should remember that yield is a function of the type and
quality of the instruments held by the Portfolio, portfolio maturity and
operating expenses. An investor's principal in the Portfolio is not guaranteed.
See "Determination of Net Asset Value" for a discussion of the manner in which
the Portfolio's price per share is determined.
From time to time, the Portfolio in its advertising and sales literature
may refer to the growth of assets managed or administered by the Advisor over
certain time periods.
Comparative performance information may be used from time to time in
advertising or marketing the Portfolio's Retail Shares and Institutional Shares,
including data from Lipper Analytical Services, Inc., IBC/Donoghue's Money
Portfolio Report and other publications.
DETERMINATION OF NET ASSET VALUE PER SHARE; VALUATION OF SECURITIES; REDEMPTION
IN KIND
The Prospectuses for the Classes discuss when the net asset value of the
Portfolio is determined for purposes of sales and redemptions. The net asset
value per share of the Portfolio is determined by subtracting the Portfolio's
liabilities from the Portfolio's total assets and dividing the result by the
total number of shares outstanding. The following is a description of the
procedures used by the Portfolio in valuing its assets.
The valuation of the Portfolio's securities is based on their amortized
cost, which does not take into account unrealized capital gains or losses.
Amortized cost valuation involves initially valuing an instrument at its cost
and thereafter assuming a constant amortization to maturity of any discount or
premium, generally without regard to the impact of fluctuating interest rates on
the market value of the instrument. Although this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price the Portfolio would receive if
it sold the instrument.
The Portfolio's use of the amortized cost method of valuing their
securities is permitted by a rule adopted by the SEC. The Portfolio will also
maintain a dollar-weighted average portfolio maturity of 90 days or less,
purchase only instruments having remaining maturities of 13 months or less and
invest only in securities determined by or under the supervision of the Board of
Directors to be of high quality with minimal credit risks.
Pursuant to the rule, the Board of Directors also has established
procedures designed to allow the Portfolio to stabilize, to the extent
reasonably possible, the Portfolio's price per share as computed for the purpose
of sales and redemptions at $1.00. These procedures include review of the
Portfolio's holdings by the Board of Directors, at such intervals as it deems
appropriate, to determine whether the value of the Portfolio's assets calculated
by using available market quotations or market equivalents deviates from such
valuation based on amortized cost.
The rule also provides that the extent of any deviation between the value
of the Portfolio's assets based on available market quotations (or an
appropriate substitute which reflects current market conditions) and such
valuation based on amortized cost must be examined by the Board of Directors.
In the event the Board of Directors determines that a deviation exists that may
result in material dilution or other unfair results to new or existing investors
or existing shareholders, pursuant to the rule, the Board of Directors must
cause the Portfolio to take such corrective action as the Board of Directors
regards as necessary and appropriate, including: selling portfolio instruments
prior to maturity to realize capital gains or losses or to shorten average
portfolio maturity; or valuing the Portfolio's assets by using available market
quotations.
For the purpose of determining the deviation between the value of the
Portfolio's assets based on available market quotations and such valuation based
on amortized cost, if market quotations are not readily available, or if the
securities are illiquid, the value of such portfolio securities will be
determined in good faith by the Directors based upon calculations and findings
made by the Advisor, and reviewed by the Directors. The Directors may consider
that certain securities are securities for which market quotations are not
readily available if the validity of the quotations received with respect to
such securities appears to be questionable. Factors which the Directors might
consider as indicating that the validity of market quotes is questionable
include an inordinately large spread between bid and ask prices, or an
inordinately small number of quotations indicating that there is only a thin
market in the securities.
Principal Preservation, on behalf of the Portfolio, reserves the right, if
conditions exist which make cash payments undesirable, to honor any request for
redemption or repurchase order by making payment in whole or in part in readily
marketable securities chosen by Principal Preservation and valued as they are
for purposes of computing the Portfolio's net asset value (a redemption in
kind). If payment is made in securities, an investor may incur transaction
expenses in converting these securities into cash.
The Portfolio has elected, however, to be governed by Rule 18f-1 under the
1940 Act, as a result of which the Portfolio is obligated to redeem shares with
respect to any one investor during any 90-day period, solely in cash up to the
lesser of $250,000 or 1% of the net asset value of the Portfolio at the
beginning of the period.
Each investor in the Portfolio may add to or reduce its investment in the
Portfolio on each Business Day of the Portfolio. A "Business Day" is any day on
which the New York Stock Exchange is open for trading and any other day (other
than a day on which no shares of the Portfolio are tendered for redemption and
no order to purchase shares of the Portfolio is received) during which there is
sufficient trading in money market instruments that the Portfolio's net asset
value might be materially affected. As of 12:00 noon (New York time) on each
such Business Day, net asset value for the Classes of shares will be computed by
dividing the value of the Portfolio's total net assets by the total number of
shares outstanding, including both Classes.
PURCHASE OF SHARES
The Portfolio will not issue shares for consideration other than cash
except in the case of a bona fide reorganization, statutory merger, or in
certain other acquisition of securities in accordance with state securities
laws, which: (1) meet the investment objectives and policies of the Portfolio;
(2) are acquired for investment and not for resale; (3) are not restricted
securities; and (4) have a value which is readily ascertainable.
TAX STATUS
The following is only a summary of certain tax considerations generally
affecting the Portfolio and its shareholders, and is not intended as a
substitute for careful tax planning. Shareholders are urged to consult their
tax advisers with specific reference to their own tax situations.
Each series of a series company, such as Principal Preservation, is treated
as a single entity for Federal income tax purposes so that the net realized
capital gains and losses of the various series in one fund are not combined.
However, Retail Shares and Institutional Shares are treated as the same for tax
purposes.
The Portfolio intends to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986 (the "Code"). In order to qualify as a
regulated investment company, the Portfolio must satisfy a number of
requirements. Among such requirements is the requirement that less than 30
percent of the Portfolio's gross income be derived from the sale or other
disposition of securities held for less than three months. In determining these
gross income requirements, a loss from the sale or other disposition of
securities does not enter into the computation.
The Portfolio will distribute substantially all of its net income and
capital gains so as to avoid any federal income tax to it. Although Principal
Preservation expects the Portfolio to be relieved of all or substantially all
federal income taxes, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located or in which it is otherwise deemed to be
conducting business, that portion of the Portfolio's income which is treated as
earned in any such state or locality could be subject to state and local tax.
Any such taxes paid by the Portfolio would reduce the amount of income and gains
available for distribution to its shareholders.
While the Portfolio does not expect to realize net long-term capital gains,
any such gains realized will be distributed annually as described in the
Portfolio's Prospectus. Such distributions ("capital gain dividends"), if any,
will be taxable to shareholders as long-term capital gains, regardless of how
long a shareholder has held Portfolio shares, and will be designated as capital
gain dividends in a written notice mailed by the Portfolio to shareholders after
the close of the Portfolio's prior taxable year.
Dividends and other distributions paid to individuals and other non-exempt
payees are subject to a 31% backup federal withholding tax if the Agent is not
provided with the shareholder's correct taxpayer identification number or
certification that the shareholder is not subject to such backup withholding or
if the Portfolio is notified that the shareholder has under-reported income in
the past. In addition, such backup withholding tax will apply to the proceeds
of redemption or repurchase of shares from a shareholder account for which the
correct taxpayer identification number has not been furnished. For most
individual taxpayers, the taxpayer identification number is the social security
number. An investor may furnish the Agent with such number and the required
certifications by completing and sending the Agent either the Account
Application form attached to the relevant Prospectus or IRS Form W-9.
Interest on indebtedness incurred (directly or indirectly) by shareholders
to purchase or carry shares will not be deductible for Federal income tax
purposes.
If a shareholder exchanges shares of one Principal Preservation portfolio
for shares of another, the shareholder will recognize gain or loss for federal
income tax purposes. That gain or loss will be measured by the difference
between the shareholder's basis in the shares exchanged and the value of the
shares acquired.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of February , 1999, no person was known to be the "beneficial owner"
(determined in accordance with Rule 13d-3 under the Securities Exchange Act of
1934) of more than 5% of the outstanding shares of the Portfolio, except the
following:
NAME AND ADDRESS OF PERCENT OF
SHAREHOLDER NUMBER OF SHARES OUTSTANDING SHARES
------------ ---------------- -------------------
Retail Institutional
------ -------------
M&I First National Bank
321 North Main Street
P. O. Box 1980
West Bend, WI 53095
B.C. Ziegler and Co.
215 N. Main Street
West Bend, WI 53095
[ANY ADDITIONS?]
RETAIL SHARE DISTRIBUTION EXPENSES
Principal Preservation's Distribution Plan (the "Plan") is its written
plan contemplated by Rule 12b-1 (the "Rule") under the Act.
The Plan authorizes Ziegler, as the "Distributor" of the Portfolio's
Retail Shares, to make certain payments to any qualified recipient, as defined
in the Plan, that has rendered assistance in the distribution of the Portfolio's
Retail Shares (such as sale or placement of the Portfolio's Retail Shares, or
administrative assistance, such as maintenance of sub-accounting or other
records). Qualified recipients may include Selected Dealers, banks and other
financial institutions. The Plan also authorizes the Distributor to purchase
advertising for Retail Shares of the Portfolio, to pay for sales literature and
other promotional material, and to make payments to its sales personnel. Any
such payments to qualified recipients or expenses will be reimbursed or paid by
the Portfolio, up to a limit of 0.15 of 1% of the average net assets allocated
to its Retail Shares. The Distributor bears its expenses of distribution above
the foregoing amounts. No reimbursement or payment may be made for expenses of
past fiscal years or in contemplation of expenses for future fiscal years under
the Plan.
The Plan states that if and to the extent that any of the payments by
Principal Preservation listed below are considered to be "primarily intended to
result in the sale of shares" issued by Principal Preservation within the
meaning of the Rule, such payments by Principal Preservation are authorized
without limit under the Plan and shall not be included in the limitations
contained in the Plan: (a) the costs of the preparation, printing and mailing of
all required reports and notices to shareholders, irrespective of whether such
reports or notices contain or are accompanied by material intended to result in
the sale of shares of Principal Preservation or other funds or other
investments; (b) the costs of preparing, printing and mailing of all
prospectuses to shareholders; (c) the costs of preparing, printing and mailing
of any proxy statements and proxies, irrespective of whether any such proxy
statement includes any item relating to, or directed toward, the sale of
Principal Preservation's shares; (d) all legal and accounting fees relating to
the preparation of any such reports, prospectuses, proxies and proxy statements;
(e) all fees and expenses relating to the qualification of the funds and or
their shares under the securities or "Blue Sky" laws of any jurisdiction; (f)
all fees under the Act and the Securities Act of 1933, including fees in
connection with any application for exemption relating to or directed toward the
sale of Principal Preservation's shares; (g) all fees and assessments of the
Investment Company Institute or any successor organization or industry
association irrespective of whether some of its activities are designed to
provide sales assistance; (h) all costs of preparing and mailing confirmations
of shares sold or redeemed or share certificates and reports of share balances;
and (i) all costs of responding to telephone or mail inquiries of shareholders.
The Plan also states that it is recognized that the costs of distribution
of Principal Preservation's shares are expected to exceed the sum of permitted
payments, permitted expenses, and the portion of the sales charge retained by
the Distributor, and that the profits, if any, of Principal Preservation's
investment advisors are dependent primarily on the advisory fees paid to them.
If and to the extent that any investment advisory fees paid by Principal
Preservation might, in view of any excess distribution costs, be considered as
indirectly financing any activity which is primarily intended to result in the
sale of shares issued by Principal Preservation, the payment of such fees is
authorized under the Plan. The Plan states that in taking any action
contemplated by Section 15 of the Act as to any investment advisory contract to
which Principal Preservation is a party, the Board of Directors including its
Directors who are not "interested persons" as defined in the Act, and who have
no direct or indirect financial interest in the operation of the Plan or any
agreements related to the Plan ("Qualified Directors"), shall, in acting on the
terms of any such contract, apply the "fiduciary duty" standard contained in
Sections 36(a) and (b) of the Act.
Under the Plan, Principal Preservation is obligated to pay distribution
fees only to the extent of expenses actually incurred by the Distributor for the
current year, and thus there will be no carryover expenses from the previous
years. The Plan permits the Distributor to pay a portion of the distribution
fee to authorized broker dealers, which may include banks or other financial
institutions, and to make payments to such persons based on either or both of
the following: (a) as reimbursement for direct expenses incurred in the course
of distributing Principal Preservation shares or providing administrative
assistance to Principal Preservation or its shareholders, including, but not
limited to, advertising, printing and mailing promotional material, telephone
calls and lines, computer terminals and personnel (including commissions and
other compensation paid to such personnel); and/or (b) at a specified percentage
of the average value of certain qualifying accounts of customers of such
persons.
The Plan requires that while it is in effect the Distributor shall report
in writing at least quarterly to the Directors, and the Directors shall review,
the following: (a) the amounts of all payments, the identity of recipients of
each such payment, the basis on which each such recipient was chosen and the
basis on which the amount of the payment was made; (b) the amounts of expenses
and the purpose of each such expense; and (c) all costs of the other payments
specified in the Plan (making estimates of such costs where necessary or
desirable) in each case during the preceding calendar or fiscal quarter.
The Plan will continue in effect from year to year only so long as such
continuance is specifically approved at least annually by the Board of Directors
and by a majority of those Directors who are not interested persons of Principal
Preservation cast in person at a meeting called for the purpose of voting on
such continuance. The Plan may be terminated at any time without penalty by a
vote of a majority of those Directors who are not interested persons of
Principal Preservation or by the vote of the holders of a majority of the
outstanding voting securities of Principal Preservation, and, with respect to
any Principal Preservation portfolio or with respect to the Portfolio's Retail
Shares, by the vote of a majority of the outstanding shares of such portfolio or
of the outstanding Retail Shares, as the case may be. The Plan may not be
amended to increase materially the amount of payments to be made without
shareholder approval. While the Plan is in effect, the selection and nomination
of those Directors who are not interested persons of Principal Preservation is
committed to the discretion of such disinterested Directors. Nothing in the
Plan will prevent the involvement of others in such selection and nomination if
the final decision on any such selection and nomination is approved by a
majority of such disinterested Directors.
The table below reflects distribution fees paid by the Portfolio pursuant
to the Plan and the amount retained by the Distributor for the periods
indicated:
RULE 12B-1 DISTRIBUTION FEES
----------------------------
TOTAL FEE PAID AMOUNT RETAINED
PERIOD TO DISTRIBUTOR BY DISTRIBUTOR
- ------- -------------- ---------------
Fiscal year ended
December 31, 1996 $134,161 $133,525
Fiscal year ended
December 31, 1997 $155,053 $154,048
Fiscal year ended
December 31, 1998 $ $
COUNSEL AND INDEPENDENT ACCOUNTANTS
Quarles & Brady LLP, as counsel for Principal Preservation, has rendered
its opinion as to certain legal matters regarding the due authorization and
valid issuance of the shares of common stock being sold pursuant to the relevant
Prospectus. Arthur Andersen LLP, independent accountants, are the auditors of
the Portfolio.
EXPERTS
The audited financial statements of the Portfolio incorporated by reference
into the Portfolio's Prospectuses and this Statement of Additional Information
have been so incorporated in reliance on the report of Arthur Andersen LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing in giving said report.
FINANCIAL STATEMENTS
The following audited financial statements and footnotes thereto of
Principal Preservation Cash Reserve Portfolio, together with the Report of the
Independent Accountants thereon, are incorporated herein by reference from the
Portfolio's 1998 Annual Report to Shareholders.
(1) Statement of Assets and Liabilities for the Portfolio as of December
31, 1998.
(2) Statement of Operations for the Portfolio for the year ended December
31, 1998.
(3) Statements of Changes in Net Assets for the Portfolio for the years
ended December 31, 1997 and 1998.
(4) Schedule of Investments of the Portfolio as of December 31, 1998.
(5) Notes to Financial Statements.
A copy of the Portfolio's 1998 Annual Report to Shareholders may be
obtained free of charge from Ziegler upon request.
APPENDIX
A description of the two highest commercial paper, bond and other short-
and long-term rating categories assigned by Standard & Poor's Corporation
("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch Investors Service,
Inc. ("Fitch"), Duff & Phelps, Inc. ("Duff"), IBCA Limited and IBCA Inc.
("IBCA") and Thomson BankWatch, Inc. ("BankWatch") now follows.
COMMERCIAL PAPER AND SHORT-TERM RATINGS
The designation A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation. Capacity
for timely payment on issues with an A-2 designation is satisfactory. However,
the relative degree of safety is not as high as for issues designated A-1.
The rating Prime-1 (P-1) is the highest commercial paper rating assigned by
Moody's. Issuers of P-1 paper must have a superior ability for repayment of
senior short-term debt obligations, and Prime-1 repayment ability will often be
evidenced by leading market positions in well established industries, high rates
of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and well
established access to a range of financial markets and assured sources of
alternate liquidity. Issues rated Prime-2 (P-2) have a strong ability for
repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
The rating F-1+ (Exceptionally Strong Credit Quality) is the highest
commercial paper rating assigned by Fitch. Paper rated F-1+ is regarded as
having the strongest degree of assurance for timely payment. The rating F-2
(Very Strong Credit Quality) is the second highest commercial paper rating
assigned by Fitch which reflects an assurance of timely payment only slightly
less in degree than issues rated F-1+.
The rating Duff 1+ is the highest commercial paper rating assigned by Duff.
Paper rated Duff 1+ is regarded as having the highest certainty of timely
payment. Short-term liquidity, including internal operating factors and/or
access to alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations. Paper rated Duff 1 is regarded
as having a very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors
are minor.
The designation A1 by IBCA indicates that the obligation is supported by a
strong capacity for timely repayment. Those obligations rated Al+ are supported
by the highest capacity for timely repayment. Obligations rated A2 are
supported by a satisfactory capacity for timely repayment, although such
capacity may be susceptible to adverse changes in business, economic or
financial conditions.
The rating TBW-1 is the highest short-term obligation rating assigned by
BankWatch. A rating of TBW-1 indicates a very high likelihood that principal
and interest will be paid on a timely basis. Obligations rated TBW-2 are in the
second-highest category, indicating that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated TBW-1.
BOND AND LONG-TERM RATINGS
Bonds rated AAA have the highest rating assigned by S&P and possess an
extremely strong capacity to pay principal and interest. Bonds rated AA by S&P
are judged by S&P to have a very strong capacity to pay principal and interest,
and differ from the higher rated issues only in small degree. Bonds rated AA
may be modified by the addition of a plus or minus sign to show relative
standing in the category.
Bonds rated Aaa are judged by Moody's to be of the best quality. Bonds
rated Aa by Moody's are judged by Moody's to be of high quality by all standards
and, together with the Aaa group, they comprise what are generally known as
high-grade bonds. Bonds rated Aa are rated lower than Aaa bonds because margins
of protection may not be as large or fluctuations of protective elements may be
of greater amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in Aaa securities. Moody's applies
numerical modifiers 1, 2 and 3 in the Aa rating category. The modifier 1
indicates a ranking for the security in the higher end of this rating category,
the modifier 2 indicates a mid-range ranking, and the modifier 3 indicates a
ranking in the lower end of the rating category.
Bonds rated AAA by Fitch are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. Bonds rated AA by Fitch are considered to be investment
grade and of very high credit quality. The obligor's ability to pay interest
and repay principal is very strong, although not quite as strong as bonds rated
AAA. Because bonds rated in the AAA and AA categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these issuers
is generally rated F-1+. Bonds rated AA may be modified by the addition of a
plus or minus sign to show relative standing in the category.
Bonds rated AAA by Duff are considered to be of the highest credit quality.
The risk factors are negligible, being only slightly more than for risk-free
U.S. Treasury debt. Bonds rated AA+, AA and AA- are considered by Duff to be of
high credit quality with strong protection factors. Risk is modest but may vary
slightly from time to time because of economic conditions.
Obligations rated AAA by IBCA have the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial.
Adverse changes in business, economic or financial conditions are unlikely to
increase investment risk significantly. Obligations rated AA by IBCA have a
very low expectation of investment risk. Capacity for timely repayment of
principal and interest is substantial. Adverse changes in business, economic or
financial conditions may increase investment risk albeit not very significantly.
A plus or minus may be appended to a rating to denote relative status within
major rating categories.
IBCA also assigns a rating to certain international and U.S. banks. An
IBCA bank rating represents IBCA's current assessment of the strength of the
bank and whether such bank would receive support should it experience
difficulties. In its assessment of a bank, IBCA uses a dual rating system
comprised of Legal Ratings and Individual Ratings. In addition, IBCA assigns
banks Long- and Short-Term Ratings as used in the corporate ratings discussed
above. Legal Ratings, which range in gradation from 1 through 5, address the
question of whether the bank would receive support provided by central banks or
shareholders if it experienced difficulties, and such ratings are considered by
IBCA to be a prime factor in its assessment of credit risk. Individual Ratings,
which range in gradations from A through E, address the question of how the bank
would be viewed if it were entirely independent and could not rely on support
from state authorities or its owners.
In addition to its ratings of short-term obligations, BankWatch assigns a
rating to each issuer it rates, in gradations of A through E. BankWatch
examines all segments of the organization, including, where applicable, the
holding company and operating subsidiaries. Long-term debt obligations rated in
AAA, the highest category, indicate that the ability to repay principal and
interest on a timely basis is very high. A rating of AA, BankWatch's second-
highest category, indicates a superior ability to repay principal and interest
on a timely basis, with limited incremental risk compared to issues rated in the
highest category. BankWatch also assigns, in the case of foreign banks, a
country rating ranging from I through V, which represents an assessment of the
overall political and economic stability of the country in which the bank is
domiciled.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
INVESTMENT ADVISOR
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
DISTRIBUTOR, PORTFOLIO ADMINISTRATOR,
ACCOUNTING/PRICING AGENT,
SHAREHOLDER SERVICING AGENT AND
TRANSFER AND DIVIDEND DISBURSING AGENT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
CUSTODIAN
Firstar Trust Company
777 East Wisconsin Avenue
Milwaukee, WI 53202
LEGAL COUNSEL
Quarles & Brady LLP
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
CASH RESERVE PORTFOLIO
CLASS X COMMON STOCK (RETAIL SHARES)
CLASS Y COMMON STOCK (INSTITUTIONAL SHARES)
--------------------------------------------
MAY 1, 1999
STATEMENT OF ADDITIONAL INFORMATION
--------------------------------------------
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
Part C. Other Information
Item 23. Exhibits
--------
See Exhibit Index following Signature Page, which Exhibit Index is
incorporated herein by this reference.
Item 24. Persons Controlled by or under Common Control with the Fund
-----------------------------------------------------------
Not applicable.
Item 25. Indemnification
---------------
Reference is made to Article IX of Principal Preservation's Bylaws
filed as Exhibit No. (A)(1) to its Registration Statement with respect
to the indemnification of Principal Preservation's directors and
officers, which is set forth below:
Section 9.1. Indemnification of Officers, Directors, Employees and
-------------------------------------------------------------------
Agents. The Corporation shall indemnify each person who was or is a
-------
party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative ("Proceeding"), by reason of the fact
that he is or was a Director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as
a Director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against all
expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in
connection with such Proceeding to the fullest extent permitted by
law; provided that:
--------
(a) whether or not there is an adjudication of liability in such
Proceeding, the Corporation shall not indemnify any person for any
liability arising by reason of such person's willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved
in the conduct of his office or under any contract or agreement with
the Corporation ("disabling conduct"); and
(b) the Corporation shall not indemnify any person unless:
(1) the court or other body before which the Proceeding was
brought (i) dismisses the Proceeding for insufficiency of
evidence of any disabling conduct, or (ii) reaches a final
decision on the merits that such person was not liable by
reason of disabling conduct; or
(2) absent such a decision, a reasonable determination is
made, based upon a review of the facts, by (i) the vote of a
majority of a quorum of the Directors of the Corporation who
are neither interested persons of the Corporation as defined
in the Investment Company Act of 1940 nor parties to the
Proceeding, or (ii) if such quorum is not obtainable, or
even if obtainable, if a majority of a quorum of Directors
described in paragraph (b)(2)(i) above so directs, by
independent legal counsel in a written opinion, that such
person was not liable by reason of disabling conduct.
Expenses (including attorneys' fees) incurred in defending a Proceeding
will be paid by the Corporation in advance of the final disposition thereof upon
an undertaking by such person to repay such expenses (unless it is ultimately
determined that he is entitled to indemnification), if:
(1) such person shall provide adequate security for his undertaking;
(2) the Corporation shall be insured against losses arising by reason
of such advance; or
(3) a majority of a quorum of the Directors of the Corporation who
are neither interested persons of the Corporation as defined in the Investment
Company Act of 1940 nor parties to the Proceeding, or independent legal counsel
in a written opinion, shall determine, based on a review of readily available
facts, that there is reason to believe that such person will be found to be
entitled to indemnification.
Section 9.2 Insurance of Officers, Directors, Employees and Agents. The
-------------------------------------------------------------------
Corporation may purchase and maintain insurance on behalf of any person who is
or was a Director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a Director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in or
arising out of his position. However, in no event will the Corporation purchase
insurance to indemnify any such person for any act for which the Corporation
itself is not permitted to indemnify him.
Item 26. Business and Other Connections of Investment Advisor
----------------------------------------------------
(a) B.C. Ziegler and Company
B.C. Ziegler and Company is a wholly owned subsidiary of The Ziegler
Companies, Inc. It serves as investment advisor to all of the currently
designated series of Principal Preservation Portfolios, Inc. other than the
Cash Reserve Portfolio. Ziegler Asset Management, Inc., another subsidiary
of The Ziegler Companies, Inc., serves as investment advisor to the Cash
Reserve Portfolio.
Set forth below is a list of the officers and directors of B.C.
Ziegler and Company as of December 31, 1998, together with information as
to any other business, profession, vocation or employment of a substantial
nature of those officers and directors during the past two years:
<TABLE>
POSITION WITH
B.C. ZIEGLER
NAME AND COMPANY(1)<F18> HER AFFILIATIONS(2)<F19>
- ----- -------------------- ------------------------
<S> <C> <C>
Peter D. Ziegler Chairman of the Board, President, Chief Director of West Bend Mutual Insurance Company,
Executive Officer and Director; Chairman 1900 S. 18th Avenue, West Bend, WI 53095
- Ziegler Securities (insurance company); Director of Trustmark Insurance
Cos. (mutual life insurance company)
S. Charles O'Meara Senior Vice President, General Counsel, Secretary of Principal Preservation Portfolios, Inc.
Corporate Secretary and Director
D. A. Wallestad(3)<F20> Senior Vice President - Chief Financial
Officer
John C. Wagner Senior Vice President - Ziegler Investment
Division Retail Sales and Director
Ronald N. Spears Senior Vice President - Ziegler
Investment Division
Donald A. Carlson, Jr. Senior Vice President
Michael P. Doyle Senior Vice President - Ziegler
Investment Division Retail Operations
Robert J. Tuszynski Senior Vice President - Ziegler Investment President, Chief Executive Officer and Director of
Division Principal Preservation Portfolios, Inc.
Richard J. Glaisner Senior Managing Director - Ziegler Director of Principal Preservation Portfolios, Inc.
Investment Division
R. R. Poggenburg Senior Vice President - Ziegler
Investment Division
D. A. Carlson, Jr. President, Chief Executive Officer
and Treasurer - Ziegler Securities
S. R. Arnold Senior Vice President - TFI Institutional
Sales - Ziegler Securities
M. P. McDaniel Senior Vice President and Director of
Tax-Exempt Sales and Trading -
Ziegler Securities
T. R. Paprocki Senior Vice President and Director
of Capital Markets - Ziegler Securities
M. A. Baumgartner Senior Vice President - Ziegler Securities
D. J. Hermann Senior Vice President - Ziegler Securities
J. C. Vredenbregt Vice President - Treasurer and Controller;
Assistant Treasurer - Ziegler Securities
</TABLE>
- -----------------------------
(1)<F18> Ziegler Investment Division and Ziegler Securities are divisions of B.
C. Ziegler and Company.
(2)<F19> Certain of the indicated persons are officers or directors, or both,
of B.C. Ziegler and Company's parent, The Ziegler Companies, Inc., and
of other subsidiaries of its parent. Other than these affiliations,
and except as otherwise indicated on the table, the response is none.
(3)<F20> Mr. Wallestad has since left the firm.
(b) Ziegler Asset Management, Inc.
Ziegler Asset Management, Inc. is a wholly owned subsidiary of The Ziegler
Companies, Inc. It serves as sub-advisor to the S&P 100 Plus, Dividend
Achievers and PSE Tech 100 Index Portfolios and as investment advisor to
the Cash Reserve Portfolio.
Set forth below is a list of the officers and directors of Ziegler Asset
Management, Inc. as of December 31, 1998, together with information as to
any other business, profession, vocation or employment of a substantial
nature of those officers and directors during the past two years:
<TABLE>
POSITION WITH
ZIEGLER ASSET
NAME MANAGEMENT OTHER AFFILIATIONS(1)<F21>
- ----- ----------- --------------------------
<S> <C> <C>
P. D. Ziegler Chairman and Director Chairman of the Board, President, Chief Executive
Officer and Director, B.C. Ziegler and Company;
Chairman, Ziegler Securities; Director, West Bend
Mutual Insurance Company, 1900 S. 18th Avenue, West
Bend, WI 53095 (insurance company)
Geoffrey G. Maclay, Jr. President and Chief Executive Officer President and Chief Executive Officer, Ziegler Asset
Management, Inc.
R. D. Ziegler Senior Vice President and Director Chairman and Director, Principal Preservation
Portfolios, Inc., Director, Johnson Controls, Inc.,
5757 N. Green Bay Avenue, Milwaukee, WI 53201
(manufacturing)
Robert J. Tuszynski Vice President Senior Vice President, B.C. Ziegler and Company;
President, Chief Executive Officer and Director of
Principal Preservation Portfolios, Inc.
M. J. Dion Vice President - Portfolio Manager None
and Chief Investment Officer
R. F. Patek Vice President - Portfolio Manager None
D. R. Wyatt Vice President - Retirement Plan Services None
J. R. Yovanovich Corporate Secretary Corporate Secretary, B.C. Ziegler and Company
J. C. Vredenbregt Treasurer Vice President - Treasurer and Controller, B.C.
Ziegler and Company; Assistant Treasures; Ziegler
Securities
D. L. Lauterbach Vice President None
W. E. Hansen Vice President None
J. R. Wyatt Vice President None
Jay Ferrara, Jr. Vice President - Portfolio Manager None
and Analyst
</TABLE>
- -------------------------
(1)<F21> Certain of the indicated persons are officers or directors, or both,
of Ziegler Asset Management, Inc.'s parent, The Ziegler Companies,
Inc., and of other subsidiaries of its parent. Other than these
affiliations, and except as otherwise indicated on the table, the
response is none.
(c) Skyline Asset Management, L.P.
Skyline Asset Management, L.P. ("Skyline") serves as sub-advisor to the
Select Value Portfolio. Skyline is a Delaware limited partnership whose
general partner is Affiliated Managers Group, Inc. ("AMG") and whose
limited partners consist of five corporations owned separately by five
officers of Skyline, namely William M. Dutton, Kenneth S. Kailin, Stephen
F. Kendall, Geoffrey F. Lutz and Michael Maloney. AMG is a New York Stock
Exchange traded Delaware corporation which is an asset management holding
company that acquires interests in investment management firms. The
executive offices of AMG are located at Two International Place, 23rd
Floor, Boston, Massachusetts 02110.
Set forth below is a list of the officers and directors of Skyline Asset
Management, L.P. as of December 31, 1998, together with information as to
any other business, profession, vocation or employment of a substantial
nature of those officers and directors during the past two years (the
business address of all such persons is c/o Skyline Asset Management, L.P.,
311 South Wacker Drive, Suite 4500, Chicago, Illinois 60606):
<TABLE>
POSITION WITH SKYLINE
NAME ASSET MANAGEMENT, L.P. PRINCIPAL OCCUPATION
- ----- ---------------------- ---------------------
<S> <C> <C>
William M. Dutton
Chief Investment Officer and Limited Partner Chief Investment Officer of Skyline Asset
Management, L.P. since June, 1995; Executive Vice
President, Mesirow Asset Management, Inc., from
April, 1984 through August, 1995; President, Skyline
Fund (registered investment company)
William L. Achenbach Trustee President, W.L. Achenbach & Associates, Inc., a
financial counseling firm, since July 1992.
Paul J. Finnegan Trustee Vice President, Madison Dearborn Partners, Inc., a
venture capital firm, since January 1993.
David A. Martin Trustee Attorney and Principal, Righeimer, Martin &
Cinquino.
Richard K. Pearson Trustee Retired; Director, Citizens Savings Bank (Anamosa,
Iowa), and Director, First Community Bank (Milton,
Wisconsin). Previously, Director and President,
LaSalle Bank, Westmont, (Westmont, Illinois), from
1994 to 1997, and Director, Chief Executive Officer,
and President, LaSalle Bank, Northbrook (Northbrook,
Illinois), from 1986 to 1994.
Stephen F. Kendall President President, Skyline Asset Management, L.P., since
January 1998. Previously, Regional Vice President,
Metro Region, Nabisco Biscuit Company.
Kenneth S. Kailin Principal - Portfolio Manager and Principal - Portfolio Manager, Skyline Asset
Limited Partner Management, L.P. since June, 1995; Senior Vice
President, Mesirow Asset Management, Inc., from
April, 1987 through August, 1995; Executive Vice
President, Skyline Fund (registered investment
company)
Geoffrey P. Lutz Principal - Institutional Marketing Principal - Institutional Marketing, Skyline Asset
and Limited Partner Management, L.P. since June, 1995; Vice President,
Mesirow Asset Management, Inc., May, 1992 through
August, 1995; prior thereto, Registered
Representative, Mesirow Financial, Inc. and Mesirow
Investment Services, Inc. (registered brokers-
dealers/ investment advisers); Executive Vice
President, Skyline Fund (registered investment
company)
Michael Maloney Principal - Securities Analyst and Principal - Securities Analyst, Skyline Asset
Limited Partner Management, L.P., since June, 1995; Investment
Analyst, Mesirow Asset Management, Inc. from
February, 1993 through August, 1995; prior thereto
Investment Analyst, Baker Fentress & Co. (investment
manager); Senior Vice President, Skyline Fund
(registered investment company)
Daren C. Heitman Portfolio Manager Portfolio Manager, Skyline Asset Management, L.P.,
since August 1997; Securities Analyst Skyline Asset
Management, L.P. from September 1995 to August 1997;
Securities Analyst with Mesirow Asset Management,
Inc. from May 1994 to August 1995, and Securities
Analyst with Mesirow Financial, Inc. from January
1993 to May 1994.
Scott C. Blim Chief Financial Officer Director of Chief Financial Officer, Skyline Asset Management,
Fund Marketing L.P. since September, 1995; Vice President, Director
and Chief Administrative Officer, Murray Johnstone
International Ltd. (investment firm) from 1989 to
1994; Secretary and Treasurer, Skyline Fund
(registered investment company)
Michelle M. Brennan Director of Fund Marketing Director of Fund Marketing, Skyline Asset
Management, since August 1996; previously Regional
Marketing Associate, Strong Capital Management
</TABLE>
(d) Geneva Capital Management Ltd.
Geneva Capital Management Ltd. ("Geneva") serves as sub-advisor to the
Managed Growth Portfolio. Geneva is a privately owned Wisconsin
corporation. Set forth below is a list of the officers and directors of
Geneva as of December 31, 1998, together with information as to any other
business, profession, vocation or employment of a substantial nature of
those officers and directors during the past two years (the business
address of all such persons is c/o Geneva Capital Management L.P., 250 East
Wisconsin Avenue, Suite 1050, Milwaukee, Wisconsin 53202):
<TABLE>
NAME POSITION WITH GENEVA OTHER AFFILIATIONS
- ----- --------------------- ------------------
<S> <C> <C>
William A. Priebe
President and Director None
Amy S. Croen Executive Vice President and Director None
John J. O'Hare II Vice President Senior Analyst, The Nicholas Funds (registered
investment company), from 1992 to 1997
William F. Schneider, M.D. Director Retired Surgeon
</TABLE>
Item 27. Principal Underwriters
-----------------------
(a)
OTHER INVESTMENT COMPANIES FOR WHICH
UNDERWRITER ACTS AS UNDERWRITER,
UNDERWRITER DEPOSITOR OR INVESTMENT ADVISOR
- ----------- --------------------------------
B.C. Ziegler and Company An underwriter for all of the mutual fund series
of Principal Preservation; American Tax-Exempt
Bond Trust, Series 1 (and subsequent series);
Ziegler U.S. Government Securities Trust, Series 1
(and subsequent series); American Income Trust,
Series 1 (and subsequent series); Ziegler Money
Market Trust; The Insured American Tax-Exempt Bond
Trust, Series 1 (and subsequent series); and
principal underwriter for Portico Funds.
(b) A list of the officers and directors of B.C. Ziegler and Company as of
December 31, 1998, together with information as to their positions
with B.C. Ziegler and Company and with Principal Preservation, is set
forth under Item 26(a) above. The address of each officer and
director of B.C. Ziegler and Company is 215 North Main Street, West
Bend, Wisconsin 53095, Telephone (414) 334-5521.
(c) Not applicable.
Item 28. Location of Accounts and Records
---------------------------------
(a) B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
General ledger, including subsidiary ledgers; corporate records
and contracts; Portfolio ledger; shareholder documents, including
IRA documents; and transaction journals and confirmations for
portfolio trades for the Tax-Exempt, Government and Wisconsin
Tax-Exempt Portfolios.
(b) Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
Transaction journals and confirmations for portfolio trades for
the S&P 100 Plus, Dividend Achievers, PSE Tech 100 Index and Cash
Reserve Portfolios.
(c) Skyline Asset Management, L.P.
311 South Wacker Drive
Suite 4500
Chicago, Illinois 60606
Transaction journals and confirmations for portfolio trades for
the Select Value Portfolio.
(d) Geneva Capital Management, Ltd.
250 East Wisconsin Avenue
Suite 1050
Milwaukee, Wisconsin 53202
Transaction journals and confirmations for portfolio trades for
the Managed Growth Portfolio.
Item 29. Management Services
-------------------
Not applicable.
Item 30. Undertakings
------------
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment
Company Act, the Registrant has caused this Post-Effective Amendment to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of West Bend and State of Wisconsin on this 1st day of March, 1999.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
/s/ Robert J. Tuszynski
By: ------------------------------
Robert J. Tuszynski, President
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment to its Registration Statement on Form N-1A has been signed below on
this 1st day of March, 1999, by the following persons in the capacities
indicated.
SIGNATURE TITLE
---------- ------
/s/ Robert J. Tuszynski Director and President (Chief Executive
------------------------- Officer)
Robert J. Tuszynski
/s/ Franklin P. Ciano Chief Financial Officer and Treasurer
------------------------- (Chief Financial and Accounting Officer)
Franklin P. Ciano
Richard H. Aster*<F22> Director
- ------------------------------
Richard H. Aster
August J. English*<F22> Director
- ------------------------------
August J. English
Ralph J. Eckert*<F22> Director
- ------------------------------
Ralph J. Eckert
Richard J. Glaisner*<F22> Director
- ------------------------------
Richard J. Glaisner
*<F22>By: /s/ Robert J. Tuszynski
-----------------------------
Robert J. Tuszynski, pursuant to a Power of Attorney dated May 15, 1998, a
copy of which is filed herewith (see following page)
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Robert J. Tuszynski, Franklin P. Ciano and S.
Charles O'Meara, or any of them, with full power of substitution, as his true
and lawful attorneys and agents, to execute in his name and on his behalf, in
any and all capacities, Principal Preservation Portfolios, Inc.'s Registration
Statement on Form N-1A (Registration No. 33-12 under the Securities Act of
1933; File No. 811-4401 under the Investment Company Act of 1940) filed with
the Securities and Exchange Commission under both the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended, together with
any and all other instruments which such attorneys and agents, or any of them,
deem necessary or advisable to enable Principal Preservation Portfolios, Inc.
to comply with such Acts and the rules, regulations and requirements of the
Securities and Exchange Commission and the securities or Blue Sky laws of any
state or other jurisdiction, and the undersigned hereby ratifies and confirms
as his own act and deed any and all actions that such attorneys and agents, or
any of them, shall do or cause to be done by virtue hereof. Any of such
attorneys and agents have, and may exercise, all of the powers conferred
herein.
IN WITNESS WHEREOF, each of the undersigned directors of Principal
Preservation Portfolios, Inc. has hereunto set his hand as of this 15th day of
May, 1998.
/s/ Robert J. Tuszynski /s/ August J. English
- ------------------------------- ---------------------------
Robert J. Tuszynski August J. English
/s/ Richard J. Glaisner /s/ Ralph J. Eckert
- ------------------------------- ---------------------------
Richard J. Glaisner Ralph J. Eckert
/s/ Richard H. Aster
- -------------------------------
Richard H. Aster
EXHIBIT INDEX
<TABLE>
PREVIOUSLY FILED AND INCORPORATED
BY REFERENCE FROM:
-------------------------------------
1933 ACT
POST-EFFECTIVE
EXHIBIT AMENDMENT DATE FILED FILED
NUMBER DESCRIPTION NUMBER WITH SEC HEREWITH
- ------- ----------- ------- -------- --------
<C> <C> <C> <C> <C>
(A)(1) Amended and Restated Articles of Incorporation 38 4/30/97
(A)(2) December 23, 1998 Articles Supplementary 47 12/31/98
(B) By-Laws 38 4/30/97
(C) Rule 18f-3 Operating Plan 41 4/2/98
(D)(1) Investment Advisory Agreement with B.C. Ziegler and Company 48 2/12/99
(D)(2) Investment Advisory Agreement with Ziegler Asset Management for Cash Reserve Portfolio 31 12/29/95
(D)(3) Sub-Advisory Agreement with Ziegler Asset Management 48 2/12/99
(D)(4) Sub-Advisory Agreement with Skyline Asset Management 32 3/27/96
(D)(5) Sub-Advisory Agreement with Geneva Capital Management 47 12/31/98
(E)(1) Distribution Agreement 48 2/12/99
(E)(2) Form of Selected Dealer's Agreement 48 2/12/99
(F) Not Applicable
(G) Custodian Agreement with Firstar Trust Company 43 5/1/98
(H)(1) Transfer and Dividend Disbursing Agent Agreement 33 3/27/96
(H)(2) Accounting/Pricing Agreement 46 10/15/98
(H)(3) Shareholder Servicing Agreement for Class X Shares of the Cash Reserve Portfolio 36 12/10/96
(H)(4) Administrative Services Agreement for Cash Reserve Portfolio 48 2/12/99
(H)(5) License Agreement with Pacific Stock Exchange Incorporated 37 2/28/97
(H)(6) License Agreement with Standard and Poor's Corporation (1)<F23>
(I) Opinion of Counsel 38 4/30/97
(J)(1) Consent of Independent Public Accountants X
(J)(2) Consent of Counsel 48 2/12/99
(K) Not Applicable
(L) Not Applicable
(M) Amended and Restated Distribution Plan Pursuant to Rule 12b-1 46 10/15/98
(N)(1) Financial Data Schedule - Class X - Retail X
(N)(2) Financial Data Schedule - Class Y - Retail X
(O) See Exhibit (C)
- ---------------------
(1)<F23> To be filed by Amendment prior to effectiveness of this Amendment.
</TABLE>
EXHIBIT (J)(1)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
------------------------------------------
EXHIBIT (J)(1)
--------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
and Statement of Additional Information constituting parts of this Post-
Effective Amendment to the Registration Statement on Form N-1A (the
"Registration Statement") of Principal Preservation Portfolios, Inc.
("Principal Preservation") of our report, dated January 15, 1999, relating to
the financial statements and financial highlights of the series of Principal
Preservation known as the Cash Reserve Portfolio, which financial statements
and financial highlights also are incorporated by reference into said
Amendment to the Registration Statement from Principal Preservation's separate
1998 Annual Reports to Shareholders of Class X Common Stock and Class Y Common
Stock of the Cash Reserve Portfolio. We also consent to the references to us
under the heading "Financial Highlights" in the separate Prospectuses for the
Portfolio's Class X and Class Y Common Stock and under the headings "Counsel
and Independent Public Accountants" and "Experts" in the combined Statement of
Additional Information for the Portfolio's two classes of stock.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
February 26, 1999
EXHIBIT (N)(1)
FINANCIAL DATA SCHEDULES
-------------------------
[ARTICLE] 6
[SERIES]
[NUMBER] 5
[NAME] CASH RESERVE CLASS X-RETAIL
[MULTIPLIER] 1,000
[CURRENCY] U.S. DOLLARS
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-START] JAN-01-1998
[PERIOD-END] DEC-31-1998
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 168,063
[INVESTMENTS-AT-VALUE] 168,063
[RECEIVABLES] 41
[ASSETS-OTHER] 9
[OTHER-ITEMS-ASSETS] -
[TOTAL-ASSETS] 168,113
[PAYABLE-FOR-SECURITIES] -
[SENIOR-LONG-TERM-DEBT] -
[OTHER-ITEMS-LIABILITIES] 229
[TOTAL-LIABILITIES] 229
[SENIOR-EQUITY] 167,884
[PAID-IN-CAPITAL-COMMON] -
[SHARES-COMMON-STOCK] 147,994
[SHARES-COMMON-PRIOR] 122,710
[ACCUMULATED-NII-CURRENT] 1
[OVERDISTRIBUTION-NII] -
[ACCUMULATED-NET-GAINS] 1
[OVERDISTRIBUTION-GAINS] -
[ACCUM-APPREC-OR-DEPREC] -
[NET-ASSETS] 147,995
[DIVIDEND-INCOME] -
[INTEREST-INCOME] 9,103
[OTHER-INCOME] -
[EXPENSES-NET] 1,331
[NET-INVESTMENT-INCOME] 7,771
[REALIZED-GAINS-CURRENT] 1
[APPREC-INCREASE-CURRENT] 1
[NET-CHANGE-FROM-OPS] 7,772
[EQUALIZATION] -
[DISTRIBUTIONS-OF-INCOME] 6,465
[DISTRIBUTIONS-OF-GAINS] -
[DISTRIBUTIONS-OTHER] -
[NUMBER-OF-SHARES-SOLD] 617,229
[NUMBER-OF-SHARES-REDEEMED] (611,830)
[SHARES-REINVESTED] 6,717
[NET-CHANGE-IN-ASSETS] 12,116
[ACCUMULATED-NII-PRIOR] 1
[ACCUMULATED-GAINS-PRIOR] -
[OVERDISTRIB-NII-PRIOR] -
[OVERDIST-NET-GAINS-PRIOR] -
[GROSS-ADVISORY-FEES] 330
[INTEREST-EXPENSE] -
[GROSS-EXPENSE] 1,434
[AVERAGE-NET-ASSETS]
[PER-SHARE-NAV-BEGIN] 1.00
[PER-SHARE-NII] .05
[PER-SHARE-GAIN-APPREC] -
[PER-SHARE-DIVIDEND] .05
[PER-SHARE-DISTRIBUTIONS] -
[RETURNS-OF-CAPITAL] -
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] 0.89
[AVG-DEBT-OUTSTANDING] -
[AVG-DEBT-PER-SHARE] -
</TABLE>
EXHIBIT (N)(2)
FINANCIAL DATA SCHEDULES
-------------------------
[ARTICLE] 6
[SERIES]
[NUMBER] 6
[NAME] CASH RESERVE CLASS Y-RETAIL
[MULTIPLIER] 1,000
[CURRENCY] U.S. DOLLARS
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-START] JAN-01-1998
[PERIOD-END] DEC-31-1998
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 168,063
[INVESTMENTS-AT-VALUE] 168,063
[RECEIVABLES] 41
[ASSETS-OTHER] 9
[OTHER-ITEMS-ASSETS] -
[TOTAL-ASSETS] 168,113
[PAYABLE-FOR-SECURITIES] -
[SENIOR-LONG-TERM-DEBT] -
[OTHER-ITEMS-LIABILITIES] 229
[TOTAL-LIABILITIES] 229
[SENIOR-EQUITY] 167,884
[PAID-IN-CAPITAL-COMMON] -
[SHARES-COMMON-STOCK] 147,994
[SHARES-COMMON-PRIOR] 122,710
[ACCUMULATED-NII-CURRENT] 1
[OVERDISTRIBUTION-NII] -
[ACCUMULATED-NET-GAINS] 1
[OVERDISTRIBUTION-GAINS] -
[ACCUM-APPREC-OR-DEPREC] -
[NET-ASSETS] 147,995
[DIVIDEND-INCOME] -
[INTEREST-INCOME] 9,103
[OTHER-INCOME] -
[EXPENSES-NET] 1,331
[NET-INVESTMENT-INCOME] 7,771
[REALIZED-GAINS-CURRENT] 1
[APPREC-INCREASE-CURRENT] -
[NET-CHANGE-FROM-OPS] 7,772
[EQUALIZATION] -
[DISTRIBUTIONS-OF-INCOME] 6,465
[DISTRIBUTIONS-OF-GAINS] -
[DISTRIBUTIONS-OTHER] -
[NUMBER-OF-SHARES-SOLD] 617,229
[NUMBER-OF-SHARES-REDEEMED] (611,830)
[SHARES-REINVESTED] 6,717
[NET-CHANGE-IN-ASSETS] -
[ACCUMULATED-NII-PRIOR] 1
[ACCUMULATED-GAINS-PRIOR] -
[OVERDISTRIB-NII-PRIOR] -
[OVERDIST-NET-GAINS-PRIOR] -
[GROSS-ADVISORY-FEES] 330
[INTEREST-EXPENSE] -
[GROSS-EXPENSE] 1,434
[AVERAGE-NET-ASSETS]
[PER-SHARE-NAV-BEGIN] 1.00
[PER-SHARE-NII] .05
[PER-SHARE-GAIN-APPREC] -
[PER-SHARE-DIVIDEND] .05
[PER-SHARE-DISTRIBUTIONS] -
[RETURNS-OF-CAPITAL] -
[PER-SHARE-NAV-END] 1.00
[EXPENSE-RATIO] 0.48
[AVG-DEBT-OUTSTANDING] -
[AVG-DEBT-PER-SHARE] -
</TABLE>
