(WISCONSIN TAX-EXEMPT
PORTFOLIO LOGO)
------------
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1998
------------
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
WISCONSIN TAX-EXEMPT PORTFOLIO
PRESIDENT'S LETTER/MANAGEMENT DISCUSSION AND ANALYSIS
ANNUAL REPORT TO SHAREHOLDERS
DECEMBER 31, 1998
February 25, 1999
Dear Wisconsin Shareholder:
I am pleased to provide you with this December 31, 1998 annual report for the
Wisconsin Tax-Exempt Portfolio. The Portfolio's net assets continued to grow
this year, from $32,850,000 at December 31, 1997 to $45,693,000 at December 31,
1998. Most of the growth came from new shares purchased by investors. The total
assets for the Principal Preservation Fund Family grew from $463,000,000 to
$602,000,000 during the year.
During 1998, the economy generally continued at a strong pace, with extended
low unemployment and interest rates. In light of slowing economic growth,
Chairman Alan Greenspan of the Federal Reserve led the Fed on a stable course of
action. However, with the onset of the Asian and other foreign market turmoils,
the Fed, concerned about possible inflation signals, instituted a series of
three one quarter percent (0.25%) reductions in the target Fed Funds rate during
the period from late September through mid November. Yields on taxable fixed
income securities declined in response to these developments by 0.50%. However,
due to a large supply of municipal securities in the market, the tax-exempt
securities' markets did not respond in the same fashion. The following pages
discuss the strategies that the portfolio manager implemented in response to
these market trends, and how they influenced the performance of the Wisconsin
Tax-Exempt Portfolio.
We sincerely thank you for your continued trust with us at Principal
Preservation.
Sincerely,
/s/Robert J. Tuszynski
Robert J. Tuszynski
President and CEO
This report was prepared for shareholders of Principal Preservation's Wisconsin
Tax-Exempt Portfolio. It does not constitute an offer to sell shares of the
Portfolio. Any investor who wishes to receive more information about the
Wisconsin Tax-Exempt Portfolio or any of the other portfolios in the Principal
Preservation Fund Family should obtain a prospectus, which includes a discussion
of the investment objective, all sales charges and expenses and the investment
risks associated with each portfolio.
MANAGEMENT DISCUSSION AND ANALYSIS
WISCONSIN TAX-EXEMPT PORTFOLIO
The graph below compares the change in the value of a $10,000 investment in
Principal Preservation Wisconsin Tax-Exempt Portfolio with that of the Lehman
20-Year Municipal Bond Index.
AVERAGE ANNUAL TOTAL RETURN
(includes the effect of the sales charge)
SINCE INCEPTION
1-YEAR 6/13/94
------ -------
Wisconsin Tax-Exempt:
Full Sales Charge 2.71% 5.08%
Net Asset Value 5.35% 5.67%
Principal Preservation Lehman 20-Year
Date Wisconsin Tax-Exempt Portfolio Municipal Bond Index
---- ------------------------------ --------------------
6/13/94*<F99> $9,750 $10,000
6/30/94 $9,452 $9,900
7/31/94 $9,543 $10,127
8/31/94 $9,543 $10,155
9/30/94 $9,446 $9,952
10/31/94 $9,179 $9,689
11/30/94 $8,862 $9,462
12/31/94 $9,112 $9,759
1/31/95 $9,403 $10,141
2/28/95 $9,687 $10,509
3/31/95 $9,780 $10,629
4/30/95 $9,803 $10,627
5/31/95 $10,081 $11,028
6/30/95 $9,992 $10,858
7/31/95 $10,026 $10,914
8/31/95 $10,112 $11,064
9/30/95 $10,166 $11,151
10/31/95 $10,303 $11,389
11/30/95 $10,493 $11,641
12/31/95 $10,599 $11,804
1/31/96 $10,652 $11,864
2/29/96 $10,546 $11,729
3/31/96 $10,408 $11,541
4/30/96 $10,322 $11,495
5/31/96 $10,388 $11,509
6/30/96 $10,465 $11,671
7/31/96 $10,575 $11,785
8/31/96 $10,554 $11,766
9/30/96 $10,708 $12,004
10/31/96 $10,797 $12,148
11/30/96 $10,996 $12,402
12/31/96 $10,943 $12,329
1/31/97 $10,944 $12,317
2/28/97 $11,057 $12,449
3/31/97 $10,901 $12,254
4/30/97 $11,004 $12,390
5/31/97 $11,174 $12,613
6/30/97 $11,288 $12,772
7/31/97 $11,551 $13,201
8/31/97 $11,449 $13,039
9/30/97 $11,588 $13,219
10/31/97 $11,648 $13,315
11/30/97 $11,718 $13,423
12/31/97 $11,895 $13,667
1/31/98 $11,988 $13,820
2/28/98 $11,999 $13,830
3/31/98 $12,011 $13,849
4/30/98 $11,999 $13,778
5/31/98 $12,141 $14,027
6/30/98 $12,189 $14,090
7/31/98 $12,213 $14,120
8/31/98 $12,346 $14,364
9/30/98 $12,487 $14,567
10/31/98 $12,473 $14,520
11/30/98 $12,508 $14,587
12/31/98 $12,531 $14,619
*<F99> June 13, 1994 inception date.
Past performance is not predictive of future performance.
LEHMAN 20-YEAR MUNICIPAL BOND INDEX
The Lehman 20-Year Municipal Bond Index is a broad based index containing
over 22,000 issues with maturities ranging from 2-30 years. The issues
comprising the index are those completed within the last five years with total
issue size of $50 million or more. The average quality rating is "AA." The
performance of the index does not include sales charges or other fees which an
investor would incur if s/he attempted to replicate this index.
WISCONSIN TAX-EXEMPT PORTFOLIO
The Wisconsin Tax-Exempt Portfolio's performance is presented from June 13,
1994, commencement of operations, through December 31, 1998. It is based upon a
$10,000 investment at the Portfolio's public offering price then in effect,
which included a 2.5% sales charge. It represents the actual total returns for
each of the years ended December 31, net of any fees and expenses charged to the
Portfolio during those periods.
DISCUSSION AND ANALYSIS
The total return of the Wisconsin Tax-Exempt Portfolio on its net assets for
the year ended December 31, 1998 was 5.35%, compared to 6.97% for the 20-year
Bond Buyer Index and 5.32% for the Lipper General Municipal Bond Fund. During
the year, Thomas Sancomb, your Portfolio Manager, continued to find an ample
supply of bonds issued by municipalities located in Wisconsin. He also was
successful in locating securities that avoided alternative minimum tax. During
the early part of 1998, the Wisconsin municipal bond supply was limited, and the
manager purchased AAA Standard & Poor's rated territorial paper. After the first
quarter, the manager was able to replace those securities with a number of bonds
issued by Wisconsin issuers. As a result, more than 71% of the Portfolio's
assets was invested in Wisconsin issues by December 31, 1998. The Portfolio
limited its exposure to both Guam and Puerto Rico to approximately 10%. As of
December 31, 1998, approximately 70% of the territorial paper was rated AAA by
virtue of the fact that it either is pre-refunded or escrowed in U.S. Treasury
securities.
The Portfolio continues to focus on purchasing Wisconsin issues. The high
credit quality of the Wisconsin Tax-Exempt Portfolio in a flat yield environment
caused the performance to lag slightly the performance of higher yielding
municipal funds (approximately 0.30%). At December 31, 1998, the 30-year
municipal bond yields were 101% of the 30-year U.S. Treasury yields. Over the
past eight years, the municipal bond yields maintained an average 80%
comparative yield spread to U.S. Treasury bonds. The manager anticipates that
the municipal bond supply will remain strong. However, he also anticipates a
continued high demand for tax exempt securities due to the attractiveness of
municipal bonds over taxable alternatives. The combination of these factors
should provide an attractive investment climate in the near term.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
WISCONSIN TAX-EXEMPT PORTFOLIO
FINANCIAL HIGHLIGHTS
The table below presents information for a share of capital stock of
Principal Preservation Portfolios, Inc.' s. Wisconsin Tax-Exempt Portfolio
outstanding for the periods indicated. You should read this information in
conjunction with the financial statements and related notes.
<TABLE>
WISCONSIN
TAX-EXEMPT PORTFOLIO
-----------------------------------------------------------------------
For the
period from
June 13, 1994
For the years ended December 31, (commencement
------------------------------------------------ of operations) to
1998 1997 1996 1995 December 31, 1994
------ ------ ------ ------ ----------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD $10.21 $ 9.87 $10.05 $ 9.10 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .48 .49 .49 .50 .25
Net realized and unrealized
gains (losses) on investments .06 .34 (.18) .95 (.90)
------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS .54 .83 .31 1.45 (.65)
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income (.48) (.49) (.49) (.50) (.25)
------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (.48) (.49) (.49) (.50) (.25)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $10.27 $ 10.21 $ 9.87 $10.05 $ 9.10
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL RETURN **<F2> 5.4% 8.7% 3.3% 16.3% (6.5)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(to nearest thousand) $45,693 $32,852 $25,750 $18,986 $8,116
Ratio of expenses to average
net assets 0.6%+<F3> 0.5%+<F3> 0.5%+<F3> 0.4%+<F3> 0.2%*<F1>+<F3>
Ratio of net investment income
to average net assets 4.6%+<F3> 4.9%+<F3> 4.9%+<F3> 5.0%+<F3> 4.4%*<F1>+<F3>
Portfolio turnover rate 12.5% 16.9% 16.0% 9.7% 23.4%
- --------------------
*<F1> Annualized.
**<F2>The Fund's sales charge is not reflected in total return as set forth in the table.
+<F3> Reflects a voluntary reimbursement of fund expenses of 0.4% in 1998, 0.6% in 1997, 0.6% in 1996, 0.8% in 1995 and 1.4% in
1994, respectively.
</TABLE>
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
WISCONSIN TAX-EXEMPT PORTFOLIO
BALANCE SHEET
DECEMBER 31, 1998
WISCONSIN
TAX-EXEMPT PORTFOLIO
---------------------
ASSETS:
Investments:
Cost basis of investments $43,171,213
------------
------------
Long-term investments in securities $44,973,693
Cash 252,019
Receivables:
Capital shares sold 16,687
Interest 570,230
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Total receivables 586,917
Other assets 4,162
------------
Total assets $45,816,791
------------
------------
LIABILITIES:
Payables:
Capital shares redeemed $ 13,000
Distributions to shareholders 53,435
Management fees 18,890
Other accrued expenses 38,761
------------
Total liabilities 124,086
------------
NET ASSETS:
Capital stock 43,915,457
Undistributed net investment income 10,018
Undistributed net realized losses on investments (35,250)
Net unrealized appreciation on investments 1,802,480
------------
Total net assets 45,692,705
------------
Total liabilities and net assets $45,816,791
------------
------------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE $ 10.27
------------
------------
MAXIMUM OFFERING PRICE PER SHARE $ 10.53
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The accompanying notes to financial statements are an integral part of this
statement.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
WISCONSIN TAX-EXEMPT PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
WISCONSIN
TAX-EXEMPT PORTFOLIO
--------------------
INVESTMENT INCOME:
Interest $2,050,088
------------
Total investment income 2,050,088
------------
EXPENSES:
Investment advisory fees 194,141
Custodian fees 10,075
Transfer agent fees 27,590
Broker service fees 96,969
Professional fees 41,745
Registration 5,630
Communication 7,372
Director fees 6,355
Pricing of investments 11,220
Deferred organization expense 2,599
Other 5,771
------------
Total expenses 409,467
Less expenses absorbed by advisor (160,276)
------------
Net expenses 249,191
------------
NET INVESTMENT INCOME 1,800,897
------------
NET REALIZED LOSSES ON INVESTMENTS (29,062)
CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS FOR THE YEAR 268,450
------------
Net gain on investments 239,388
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,040,285
------------
------------
The accompanying notes to financial statements are an integral part of this
statement.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
WISCONSIN TAX-EXEMPT PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
WISCONSIN
TAX-EXEMPT PORTFOLIO
--------------------
OPERATIONS:
Net investment income $ 1,800,897
Net realized losses on investments (29,062)
Change in unrealized appreciation on
investments for the year 268,450
------------
Net increase in net assets resulting from operations 2,040,285
------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income ($0.48 per share) (1,792,682)
------------
Total distributions (1,792,682)
------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued 14,532,615
Net asset value of shares issued in distributions 1,251,011
Cost of shares redeemed (3,190,205)
------------
Net increase in net assets from
capital share transactions 12,593,421
------------
Total increase 12,841,024
NET ASSETS:
Balance at beginning of period 32,851,681
------------
Balance at end of period $45,692,705
------------
------------
The accompanying notes to financial statements are an integral part of this
statement.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
WISCONSIN TAX-EXEMPT PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
WISCONSIN
TAX-EXEMPT PORTFOLIO
--------------------
OPERATIONS:
Net investment income $ 1,409,828
Net realized losses on investments (3,012)
Change in unrealized appreciation on
investments for the year 1,014,603
------------
Net increase in net assets resulting from operations 2,421,419
------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income ($0.49 per share) (1,408,836)
------------
Total distributions (1,408,836)
------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued 8,494,645
Net asset value of shares issued in distributions 972,957
Cost of shares redeemed (3,378,102)
------------
Net increase in net assets from
capital share transactions 6,089,500
------------
Total increase 7,102,083
NET ASSETS:
Balance at beginning of year 25,749,598
------------
Balance at end of year $32,851,681
------------
------------
The accompanying notes to financial statements are an integral part of this
statement.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
WISCONSIN TAX-EXEMPT PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES --
Principal Preservation Portfolios, Inc. (the "Fund"), registered under the
Investment Company Act of 1940 as an open-end management investment company, is
a series company with nine portfolios: Tax-Exempt Portfolio, Government
Portfolio, S&P100 Plus Portfolio, Dividend Achievers Portfolio, PSE Tech 100
Index Portfolio, Cash Reserve Portfolio, Wisconsin Tax-Exempt Portfolio, Select
Value Portfolio and Managed Growth Portfolio (which commenced operations on
January 1, 1999). This report presents information only for the Wisconsin Tax-
Exempt Portfolio (the "Portfolio"). Information regarding the other portfolios
is presented in separate reports. The assets and liabilities of each portfolio
are segregated and a shareholder's interest is limited to the portfolio in which
the shareholder owns shares.
The following is a summary of the significant accounting policies of the Fund.
(a) Long-Term Securities
The long-term tax-exempt securities are valued at market or fair value using
quotations by an independent pricing service (the "Service"). When, in the
judgment of the Service, quoted bid prices for securities are readily
available and are representative of the bid side of the market, these
investments are valued at the mean between quoted bid prices (as obtained by
the Service from dealers in such securities) and ask prices (as calculated
by the Service based upon its evaluation of the market for such securities).
Securities for which, in the judgment of the Service, there are no readily
obtainable market quotations (which may constitute a majority of the
portfolio's securities) are carried at fair value as determined by the
Service in accordance with procedures approved by the Fund's Board of
Directors. Among other factors, these procedures include consideration of
yields or prices of municipal securities of comparable quality, coupon,
maturity, type, indications as to values from dealers, and general market
conditions.
Investment transactions are recorded on the day after trade date. However,
the financial statement information reflects an adjustment to reflect trade
date activity.
Premiums on long-term tax-exempt securities are amortized to the shorter of
call date or maturity. The fund does not amortize premiums on taxable long-
term securities. The fund amortizes all discounts on taxable securities and
on original issue discount tax-exempt securities.
(b) Net Realized Gains and Losses and Investment Income
Net realized gains and losses on securities sales are computed on the
identified cost basis. Dividend income is recorded on the ex-dividend date.
Interest income is recorded on an accrual basis.
(c) Federal Income Taxes
Provision has not been made for Federal income taxes, because the Portfolio
has elected to be taxed as a "regulated investment company" and intends to
distribute substantially all income to its shareholders and otherwise to
comply with the provisions of the Internal Revenue Code applicable to
regulated investment companies. As of December 31, 1998, the Portfolio had
Federal income tax capital loss carryforwards of $3,176 expiring in 2003,
$3,012 expiring in 2004 and $29,061 expiring in 2005. It is management's
intention to make no distribution of any future realized capital gains until
the Federal income tax capital loss carryforward is exhausted.
The character of distributions made during the year from net investment
income or net realized gains may differ from the characterization for
federal income tax purposes due to differences in the recognition of income,
expense or gain items for financial statement and tax purposes. Where
appropriate, reclassifications between net asset accounts are made for such
differences that are permanent in nature.
(d) Expenses
Fund expenses associated with a specific portfolio are charged to that
portfolio as they are incurred. Common expenses incurred by the Fund are
allocated, as incurred, between the portfolios based upon the ratio of the
net assets of each portfolio to the combined net assets of the Fund, by the
ratio of accounts maintained in each portfolio or some other fair allocation
process.
(e) Distributions to Shareholders
Dividends to shareholders are recorded on the ex-dividend date.
(f) Deferred Organization Costs
Costs incurred with the organization, initial registration and public
offering of shares aggregating $13,000 for the Portfolio have been paid by
the Fund and are being amortized over a five year period.
(g) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2.INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH RELATED PARTIES --
The Fund has an Investment Advisory Agreement (the "Agreement") with Ziegler
Asset Management, Inc. ("ZAMI") (with whom certain officers and directors of the
Fund are affiliated), to serve as the Investment Advisor. ZAMI is a wholly owned
subsidiary of The Ziegler Companies, Inc. Under the Agreement, the Portfolio
pays ZAMI a monthly fee based upon the average daily net assets of the Portfolio
at the rate of .50% of the first $250,000,000 of the Portfolio's average daily
net assets, reducing to .40% of the Portfolio's average daily net assets in
excess of $250,000,000.
For the year ended December 31, 1998, ZAMI voluntarily reimbursed expenses to
the Portfolio totaling $160,276. ZAMI is not obligated to continue the voluntary
reimbursement in the future.
On May 17, 1991, the Fund's shareholders approved a Distribution Agreement
under Rule 12b-1. According to this agreement the Fund pays a distribution fee
of up to 0.25% to Ziegler, as the distributor, which is passed through to the
broker/dealer as a service fee. This fee is calculated on the average daily net
assets and is shown as broker service fees in the Statement of Operations.
Ziegler has an Accounting and Pricing Agreement with the Fund to perform
accounting and pricing services and a Transfer and Dividend Disbursing and
Shareholder Servicing Agreement with the Fund to provide Transfer Agent
Services. In addition, the Portfolio pays Ziegler commissions on sales of
Portfolio shares and 12b-1 distribution fees. Prior to May 1, 1998, Ziegler also
performed the depositing function. The transfer agent fees, commissions,
accounting and pricing fees, depository and 12b-1 fees paid to Ziegler by the
Portfolio for the year ended December 31, 1998 were as follows:
<TABLE>
ACCOUNTING
TRANSFER COMMISSIONS AND PRICING DEPOSITORY
AGENT FEES ON PORTFOLIO SHARES FEES FEES 12B-1 FEES
---------- ------------------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Wisconsin Tax-Exempt Portfolio $27,923 $93,498 $21,329 $4,402 $61,872
</TABLE>
3. INVESTMENT TRANSACTIONS --
Purchases and proceeds from sales of securities, excluding short-term
investments, for the year ended December 31, 1998, consisted of purchases of
$22,238,696 and $10,863,608 in proceeds from the sale of securities.
Net tax basis unrealized appreciation (depreciation) on investments as of
December 31, 1998, included:
WISCONSIN
TAX-EXEMPT
----------
Gross unrealized appreciation $2,240,358
Gross unrealized depreciation (437,879)
---------
Net unrealized appreciation $1,802,479
---------
---------
The tax basis cost of investments at December 31, 1998 was $43,171,213.
4. LINE OF CREDIT --
The Fund has an available line of credit of $3,000,000. However, each
portfolio's borrowings, by investment restriction, cannot exceed 10% of the
total net assets not including the borrowings. Interest expense incurred in
connection with such borrowings was not material during the year. Borrowings
under this arrangement bear interest approximating the then current Prime Rate.
All borrowings under this line of credit are guaranteed by Ziegler. Each
portfolio's policies allow borrowings for temporary or emergency purposes.
5. CAPITAL SHARE TRANSACTIONS --
(a) The Fund has authorized capital of 1,000,000,000 shares at $.001 par value
per share. The Fund's shares are divided into nine separate portfolios:
Wisconsin Tax-Exempt Portfolio, Government Portfolio, Tax-Exempt Portfolio,
S&P 100 Plus Portfolio, Dividend Achievers Portfolio, Select Value
Portfolio, PSE Tech 100 Index Portfolio, Managed Growth Portfolio (which
commenced operations on January 1, 1999), and Cash Reserve Portfolio,
consisting of 50,000,000 shares in each of the first eight portfolios and
400,000,000 in the Cash Reserve Portfolio. Each portfolio (other than the
Cash Reserve Portfolio) has designated Class A (front-end load) shares. In
addition, the S&P 100 Plus, Dividend Achievers, Select Value, PSE Tech 100
Index and Managed Growth Portfolio also have designated Class B (contingent
deferred sales charge) shares. The shares of the Cash Reserve Portfolio have
been subdivided into 200,000,000 shares of Class X (Retail Shares) and
200,000,000 shares of Class Y (Institutional Shares). The remaining
200,000,000 authorized shares of common stock of the Fund may be allocated
to any of the above portfolios or to new portfolios as determined by the
Board of Directors. The shares of each portfolio have equal rights and
privileges with all other shares of that portfolio.
(b) Capital share activity during the years ended December 31, 1997 and
December 31, 1998, respectively, were as follows:
WISCONSIN
TAX-EXEMPT
-----------
SHARES OUTSTANDING AT DECEMBER 31, 1996 2,609,778
---------
---------
Shares issued 851,162
Shares issued in distributions 97,574
Shares redeemed (339,806)
---------
SHARES OUTSTANDING AT DECEMBER 31, 1997 3,218,708
---------
---------
Shares issued 1,419,230
Shares issued in distributions 122,119
Shares redeemed (312,229)
---------
SHARES OUTSTANDING AT DECEMBER 31, 1998 4,447,828
---------
---------
(c) Maximum offering price per share is computed based on a maximum sales
charge of 2.5% of the offering price or 2.56% of the net asset value. For
purpose of this computation, the price per share is derived from multiplying
the net asset value and redemption price per share by 100 and then dividing
the product by 97.5.
<TABLE>
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
WISCONSIN TAX-EXEMPT PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL S&P MOODY'S
AMOUNT DESCRIPTION RATING RATING VALUE
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LONG-TERM TAX-EXEMPT SECURITIES -- 98.4%
GEORGIA -- 1.3%
$ 325,000 Atlanta, Georgia, New Public Housing Authority, 5.00%, AAA Aaa $ 332,703
due 05-01-2007
250,000 Newnan, Georgia, New Public Housing Authority, 5.00%, AAA Aaa 255,500
due 04-01-2012
GUAM -- 4.9%
650,000 Guam Government Limited Obligation Highway Bonds, AAA Aaa 706,062
Series A, 6.30%, due 05-01-2012
935,000 Government of Guam Limited Obligation Infrastructure AAA Aaa 946,688
Improvement Bonds, 1997 Series A, 5.00%, due 11-01-2017
515,000 Guam Power Authority Revenue Bonds, Series A, 6.375%, AAA Aaa 564,569
due 10-01-2008
ILLINOIS -- 1.1%
200,000 Cook County, Illinois, New Public Housing Authority, 5.25%, AAA Aaa 204,550
due 04-01-2010
300,000 Peoria, Illinois, New Public Housing Authority, 5.00%, AAA Aaa 306,765
due 06-01-2012
MASSACHUSETTS -- 1.8%
695,000 Massachusetts State Housing Finance Agency, Multi-Family Housing AAA A1 845,294
Bonds, First Issue, 1979 Series A, 7.00%, due 04-01-2021
NEVADA -- 0.6%
255,000 Las Vegas, Nevada, New Public Housing Authority, 5.00%, AAA Aaa 261,015
due 01-01-2012
NEW JERSEY -- 1.5%
250,000 Newark, New Jersey, New Public Housing Authority, 4.50%, AAA Aaa 252,687
due 04-01-2008
435,000 Newark, New Jersey, New Public Housing Authority, 5.25%, AAA Aaa 440,651
due 04-01-2009
NEW YORK -- 0.9%
200,000 New York, New York, New Public Housing Authority, 5.00%, AAA Aaa 204,718
due 01-01-2012
200,000 New York, New York, New Public Housing Authority, 5.375%, AAA Aaa 205,174
due 01-01-2012
NORTH CAROLINA -- 0.9%
400,000 Durham, North Carolina, New Public Housing Authority, 5.00%, AAA Aaa 408,228
due 02-01-2012
NORTH DAKOTA -- 0.9%
185,000 Burleigh County, North Dakota, New Public Housing Authority, AAA Aaa 189,499
4.875%, due 01-01-2010
200,000 Burleigh County, North Dakota, New Public Housing Authority, AAA Aaa 204,872
4.875%, due 01-01-2009
OHIO -- 2.8%
250,000 Youngstown, Ohio, New Public Housing Authority, 4.875%, AAA Aaa 255,697
due 05-01-2009
500,000 Youngstown, Ohio, New Public Housing Authority, 5.00%, AAA Aaa 511,915
due 05-01-2011
200,000 Youngstown, Ohio, New Public Housing Authority, 4.875%, AAA Aaa 204,486
due 05-01-2010
300,000 Youngstown, Ohio, New Public Housing Authority, 5.00%, AAA Aaa 307,149
due 05-01-2012
PENNSYLVANIA -- 1.1%
270,000 Allentown, Pennsylvania, New Public Housing Authority, 4.875%, AAA Aaa 275,846
due 05-01-2011
200,000 Clinton County, Pennsylvania, New Public Housing Authority, AAA Aaa 204,702
5.25%, due 11-01-2007
PUERTO RICO -- 6.3%
100,000 Puerto Rico Commonwealth Highway &Transportation, 6.625%, A Baa1 110,750
due 07-01-2012
350,000 Puerto Rico Commonwealth Highway & Transportation Authority, A Aaa 388,500
Highway Revenue Unrefunded Balance, Series T, 6.625%,
due 07-01-2018
350,000 Puerto Rico Commonwealth General Obligation Bonds, 6.00%, A Aaa 381,500
Prerefunded 07-01-2002
325,000 Puerto Rico Commonwealth, Refunding Bonds, Series A, 6.00%, A Baa1 344,906
due 07-01-2014
180,000 Puerto Rico Commonwealth Electric &Power Authority, Series R, AAA Aaa 197,550
6.25%, due 07-01-2017
200,000 Puerto Rico Municipal Finance Agency, 1997 Series A Bonds, 5.50%, AAA Aaa 212,000
due 07-01-2017
700,000 Puerto Rico Public Buildings Authority, Public Education A Baa1 735,875
& Health Facilities, Refunding Bonds, Series M, 5.75%,
due 07-01-2015
150,000 Puerto Rico Telephone Authority, Series L, 5.75%, due 01-01-2011 A+ A2 157,875
350,000 Puerto Rico Telephone Authority, Series L, 6.125%, due 01-01-2022 A+ A2 370,562
SOUTH CAROLINA -- 0.4%
200,000 Marion, South Carolina, New Public Housing Authority, 4.875%, AAA Aaa 204,190
due 09-01-2010
TENNESSEE -- 0.4%
190,000 Nashville, Tennessee, New Public Housing Authority, 5.00%, AAA Aaa 193,834
due 08-01-2010
TEXAS -- 1.9%
300,000 El Paso, Texas, New Public Housing Authority, 5.00%, AAA Aaa 307,167
due 07-01-2005
200,000 Waco, Texas, New Public Housing Authority, 4.875%, AAA Aaa 204,534
due 12-01-2012
340,000 Waco, Texas, New Public Housing Authority, 4.875%, AAA Aaa 348,442
due 12-01-2009
WISCONSIN -- 71.6%
500,000 Housing Authority of the City of Ashland, Wisconsin, Student NR Aa3 503,125
Housing Revenue Bonds, Series 1998, (Northland College Project),
5.10%, due 04-01-2018
200,000 Brown County (Wisconsin) Housing Authority, Student Housing NR NR 202,500
Revenue Bonds, Series 1997B, (University Village Housing, Inc.,
Project), 5.400%, due 04-01-2017
600,000 Community Development Authority of the City of Franklin, (Wisconsin), NR NR 595,500
Redevelopment Lease Revenue Refunding Bonds, Series 1998-B, 4.80%,
due 04-01-2009
3,000,000 Community Development Authority of the City of Glendale, Wisconsin, NR NR 2,981,250
Lease Revenue Bonds, Series 1998A (Tax Increment District No. 7),
5.40%, due 09-01-2018
1,000,000 Housing Authority of the County of Grant, Wisconsin, Housing NR Baa1 1,003,750
Refunding Revenue Bonds, Series 1998, (Orchard Manor), 5.35%,
due 07-01-2026
500,000 Housing Authority of the County of Grant, Wisconsin, Housing, NR Baa1 501,875
Refunding Revenue Bonds, Series 1998, (Orchard Manor), 5.25%,
due 07-01-2018
150,000 Housing Authority of the City of Green Bay, Wisconsin, Student NR NR 156,750
Housing Refunding Revenue Bonds, Series 1997, (University Village
Housing, Inc.), 6.00%, due 04-01-2017
200,000 City of Hartford Community Development Authority, Dodge and NR NR 216,250
Washington Counties, Wisconsin, Community Development Lease
Revenue Bonds, 5.90%, due 12-01-2006
500,000 Community Development Authority of the Village of Little Chute, NR NR 519,375
Wisconsin, Community Development Lease Revenue Bonds, 5.625%,
due 03-01-2019
1,500,000 Community Development Authority of the City of Madison,Wisconsin, AA- NR 1,486,875
Fixed Rate Development Revenue Bonds, Series 1998A, (Fluno
Center Project), 5.00%, due 11-01-2020
300,000 Community Development Authority of the City of Madison,Wisconsin, NR NR 307,500
Multifamily Housing Revenue Bonds, Series 1995, (Dempsey Manor
Project), 6.65%, due 10-01-2025
500,000 Community Development Authority of the City of Madison, Wisconsin, NR NR 538,750
Redevelopment Revenue Bonds, Series 1995,(Meriter Retirement
Services, Inc.), 6.125%, due 12-01-2019
265,000 Community Development Authority of the City of Madison, Wisconsin, NR NR 282,225
Project Revenue Bonds, (Series 1986), 5.875%, due 07-01-2016
1,000,000 Madison, Wisconsin, Community Development Authority Lease NR Aa2 1,088,750
Revenue Bonds, Monona Terrace Community & Convention Center
Project, 6.10%, due 03-01-2010
500,000 Redevelopment Authority of the City of Milwaukee, Wisconsin, NR A1 524,375
Development Revenue Bonds, (Goodwill Industries of Southeastern
Wisconsin Project), 6.35%, due 10-01-2009
100,000 Milwaukee, Wisconsin, Housing Authority Multifamily Revenue NR Aa2 103,500
Refunding Bonds-Blatz Apartments Project, 7.50%, due 12-01-2028
1,000,000 Redevelopment Authority of the City of Milwaukee (Wisconsin), NR NR 992,500
Development Revenue Bonds, Series 1998, (YMCA of Metropolitan
Milwaukee, Inc. Project), 5.10%, due 12-01-2023
1,000,000 Housing Authority of the City of Oak Creek, Wisconsin, Multifamily NR NR 1,073,750
Housing Refunding Revenue Bonds, Series 1994A, (Country Oaks II
Project), 6.30%, due 08-01-2028
75,000 Housing Authority of the City of Oak Creek, Wisconsin, Multifamily AAA NR 76,500
Housing Refunding Revenue Bonds, Series 1993, (Wood Creek
Project), 5.625%, due 07-20-2029
210,000 Community Development Authority of the City of Onalaska, NR NR 214,462
Wisconsin, Redevelopment Lease Revenue Refunding Bonds, 5.30%,
due 06-01-2015
125,000 Housing Authority of the City of Oshkosh, Wisconsin, GNMA NR Aaa 129,062
Collateralized Multifamily Housing Revenue Bonds, Series 1997,
(VNA Assisted Living, Inc. Project), 5.45%, due 09-20-2017
1,275,000 Housing Authority of the City of Oshkosh, Wisconsin, GNMA NR Aaa 1,313,250
Collateralized Multifamily Housing Revenue Bonds, Series 1997,
(VNA Assisted Living, Inc. Project), 5.75%, due 09-20-2038
2,260,000 Southeast Wisconsin Professional Baseball Park District Sales AAA Aaa 2,528,375
Tax Revenue Bonds, Series 1996, 5.750%, prerefunded 03-13-2007
1,000,000 Housing Authority of the City of Sheboygan, Wisconsin, Multifamily AAA NR 1,005,000
Housing Refunding Revenue Bonds, Series 1998A (GNMA Collat-
Lake Shore Apartments), 5.10%, due 11-20-2026
600,000 Redevelopment Authority of the Village of Slinger, Wisconsin, NR NR 638,250
Redevelopment Lease Revenue Bonds, Series 1995-A, 6.25%,
due 09-01-2001
400,000 Redevelopment Lease Revenue Refunding Bonds, Redevelopment NR NR 400,000
Authority of the Village of Slinger, Wisconsin, 4.70%, due 09-01-2012
2,000,000 Waterfront Redevelopment Authority of the City of Sturgeon Bay, NR NR 1,957,500
Wisconsin, Redevelopment Lease Revenue Bonds, Series 1998A,
5.20%, due 10-01-2021
155,000 Redevelopment Authority of the City of Superior, Wisconsin, NR Aa2 163,719
Revenue Bonds, Series 1994, (Superior Memorial Hospital, Inc.),
5.60%, due 05-01-2007
150,000 Redevelopment Authority of the City of Superior, Wisconsin, NR Aa2 158,438
Revenue Bonds, Series 1994, (Superior Memorial Hospital, Inc.),
5.65%, due 11-01-2008
100,000 Redevelopment Authority of the City of Superior, Wisconsin, NR Aa2 105,750
Revenue Bonds, Series 1994, (Superior Memorial Hospital, Inc.),
5.80%, due 05-01-2010
600,000 Housing Authority of the City of Superior, Wisconsin, Housing NR NR 621,750
Revenue Refunding Bonds, Series 1996, (GNMA Collateralized-
St. Francis Home, Inc. Project), 6.15%, due 07-20-2031
600,000 Community Development Authority of the Village of Sussex, NR NR 665,250
Wisconsin, Community Development Revenue Bonds, Series 1995,
6.10%, due 04-01-2015
445,000 Community Development Lease Revenue Bonds, Series 1997A, NR NR 462,800
Community Development Authority of the City of Verona, Wisconsin,
5.50%, due 06-01-2017
3,000,000 Wisconsin Center District, Junior Dedicated Tax Revenue Bonds, A NR 3,116,250
Series 1996B, 5.75%, due 12-15-2027
1,290,000 Wisconsin Housing Finance Authority Revenue Bonds, Prerefunded NR NR 1,441,575
12-01-2017 at Par, Escrowed by U.S. Government Security, 6.10%,
prerefunded 12-01-2017
460,000 Walworth County (Wisconsin) Housing Authority Housing Revenue Bonds, NR NR 473,225
Series 1997, (FHA Insured Mortgage Loan-Kiwanis Herigage,
Inc. Senior Apartment Project), 5.70%, due 03-01-2039
1,000,000 Community Development Authority of the City of Watertown, NR NR 1,001,250
(Wisconsin), Redevelopment Lease Revenue Bonds, Series 1998A, 5.00%,
due 05-01-2018
500,000 Housing Authority of the City of Waukesha, Wisconsin, Multifamily NR NR 506,250
Housing Refunding Revenue Bonds, Series 1998A, (FHA Insured
Mortgage Loan-Oak Hills Terrace Project), 5.45%, due 06-01-2027
1,000,000 Wauwatosa, Wisconsin, Redevelopment Authority, Milwaukee County, AAA Aaa 1,070,000
Wisconsin, Redevelopment Authority Lease Revenue Bonds, Series 1997,
5.65%, due 12-01-2015
715,000 Housing Authority of Winnebago County, Wisconsin, Multifamily NR NR 731,088
Housing Refunding Revenue Bonds, (Neenah-Menasha Ecumenical
Retirement Community, Inc. Project), 5.50%, due 10-01-2015
855,000 Housing Authority of Winnebago County, Wisconsin, Multifamily NR NR 868,894
Housing Refunding Revenue Bonds, (Neenah-Menasha Ecumenical
Retirement Community, Inc. Project), 5.60%, due 10-01-2020 ------------
Total Long-Term Tax-Exempt Securities (Cost $43,171,213)....................................................... 44,973,693
------------
Total Investments.............................................................................................. $44,973,693
------------
------------
</TABLE>
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
WISCONSIN TAX-EXEMPT PORTFOLIO
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Principal Preservation Portfolios, Inc. and the
Shareholders of the Wisconsin Tax-Exempt Portfolio:
We have audited the accompanying balance sheet, including the schedule of
investments, of the PRINCIPAL PRESERVATION PORTFOLIOS, INC. (a Maryland
corporation) Wisconsin Tax-Exempt Portfolio as of December 31, 1998, and the
related statement of operations for the year then ended and the statements of
changes in net assets for each of the two years in the period then ended and the
financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Principal Preservation Portfolios, Inc. Wisconsin Tax-Exempt Portfolio as of
December 31, 1998, the results of its operations for the year then ended and the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
January 15, 1999
PRINCIPAL PRESERVATION
PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
OFFICERS AND DIRECTORS
Richard H. Aster, M.D., Director
Augustine J. English, Director
Ralph J. Eckert, Director
Richard J. Glaisner, Director
Robert J. Tuszynski, President, Director
Frank Ciano, Chief Financial Officer and Treasurer
John Lauderdale, Vice President of Marketing
S. Charles O'Meara, Secretary
Marc Dion, Vice President
INVESTMENT ADVISOR
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
DISTRIBUTOR, TRANSFER AND DIVIDEND
DISBURSING ACCOUNTING/PRICING AGENT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
COUNSEL
Quarles & Brady LLP
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
This report was prepared for shareholders of Principal Preservation Portfolios,
Inc.' s Wisconsin Tax-Exempt Portfolio. It may not be used in connection with
the offering of shares of the Wisconsin Tax-Exempt Portfolio unless preceded or
accompanied by a current Prospectus.
PP842-2/99
