As filed with the Securities and Exchange Commission on March 2, 2000
1933 Act Registration No. 33-12
1940 Act File No. 811-4401
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 x
Post-Effective Amendment No. 54
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 x
Amendment No. 56
----
(Check appropriate box or boxes)
-------------
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
(Exact name of registrant as specified in charter)
215 NORTH MAIN STREET
WEST BEND, WISCONSIN 53095
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (414) 334-5521
ROBERT J. TUSZYNSKI
President and Director
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 NORTH MAIN STREET
WEST BEND, WISCONSIN 53095
(Name and Address of Agent for Service)
Copy to:
CONRAD G. GOODKIND, ESQ.
Quarles & Brady LLP
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Approximate Date of Proposed Public Offerings: As soon as practicable
following the effective date of this amendment to the registration statement.
It is proposed that this filing will become effective
___ immediately upon filing pursuant to paragraph (b)
___ on May 1, 1999 pursuant to paragraph (b)
X 60 days after filing pursuant to paragraph (a)(1)
___ on [Date] pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following:
___ this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
This Prospectus has information you should know before you decide to
invest. Please read it carefully and keep it with your investment records.
There is a Table of Contents on the next page which allows you to quickly find
information about investment risks and strategies, Portfolio managers, buying
and selling shares and other information about the Portfolios.
Principal Preservation Portfolios, Inc. ("Principal Preservation") is a
family of mutual funds contained within a single investment company organized in
1984 as a Maryland corporation. This Prospectus describes shares available in
the seven mutual funds (the "Portfolios") of Principal Preservation listed
below.
BOND PORTFOLIOS:
- ----------------
[ICON] TAX-EXEMPT PORTFOLIO [ICON] GOVERNMENT PORTFOLIO
STOCK PORTFOLIOS:
- -----------------
[ICON] S&P 100 PLUS PORTFOLIO [ICON] DIVIDEND ACHIEVERS PORTFOLIO
[ICON] PSE TECH 100 INDEX PORTFOLIO [ICON] SELECT VALUE PORTFOLIO
[ICON] MANAGED GROWTH 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, 2000.
QUICK REFERENCE
RISK/RETURN INFORMATION:
Investment objectives and risks associated
with the Portfolios page
Specific investment objectives, strategies, risks,
expenses and performance information for:
Tax-Exempt Portfolio pages
Government Portfolio pages
S&P 100 Plus Portfolio pages
Dividend Achievers Portfolio pages
Select Value Portfolio pages
PSE Tech 100 Index Portfolio pages
Managed Growth Portfolio pages
Additional risks associated with investment
securities purchased by the Portfolios pages
ACCOUNT INFORMATION, SHAREHOLDER SERVICES AND HOW TO BUY OR SELL SHARES:
How to buy Portfolio shares (including sales
charges and combined purchase programs) pages
How to redeem Portfolio shares pages
How to exchange between Portfolios pages
How to begin an automatic investment plan pages
How to begin an automatic withdrawal plan pages
IRA and other retirement plan programs pages
PRINCIPAL PRESERVATION PORTFOLIOS' MANAGEMENT:
Investment Advisor page
Sub-Advisors page
Portfolio Managers page
Important Notice
- ----------------
During 1999, each of the Portfolios described in this Prospectus changed
its fiscal year. Each Portfolio's fiscal year now ends on October 31 of each
year, rather than December 31. For this reason, information reported in this
Prospectus for the Portfolios' most recent fiscal year is for the ten-month
period from January 1, 1999 through October 31, 1999.
RISK/RETURN INFORMATION; INVESTMENT OBJECTIVES AND STRATEGIES
THE PORTFOLIOS
Principal Preservation offers investors nine distinct mutual funds choices.
This prospectus describes the seven Portfolios listed on the front cover page.
PRINCIPAL RISKS COMMON TO ALL PORTFOLIOS
Certain securities in which the Portfolios invest and strategies in which
they engage involve special considerations and risks. The table below describes
some of the general risks associated with bonds and common stocks in which the
Portfolios commonly invest.
BONDS
Interest Rate Risk - The value of bonds typically moves in the opposite
direction of interest rates. Bonds of longer maturities are affected to a
greater degree by changes in interest rates than bonds of shorter maturities.
Credit Risk - The creditworthiness of issuers of bonds could deteriorate
because of: (1) general economic conditions; (2) developments affecting the
industry in which the borrower of the bond proceeds operates; or (3)
developments affecting the borrower uniquely. Such a deterioration causes a
higher risk of default on interest and principal payments, and likely would
cause a Portfolio's bonds to decline in value.
COMMON STOCKS
Market Risk - Common stock prices overall will rise and fall over short and
even extended periods. The stock markets tend to move in cycles, and a
Portfolio's net asset value will fluctuate with these market changes.
Objective Risk - Objective risk is the risk that a Portfolio's common stocks
may not fluctuate in the same manner as the stock markets. This is because
each of the stock Portfolios selects common stocks for investment in accordance
with defined objectives and policies. A Portfolio may focus on one or more of
the following characteristics: (1) specified sizes of companies; (2) companies
included on certain stock indices; (3) companies in certain industries or
market sectors; or (4) companies meeting other specified criteria. Because of
this selection process, a Portfolio may hold common stocks that are not
representative of the overall stock market.
Other principal risks specific to each Portfolio are discussed in the
following information about the individual Portfolios. Risks associated with
special investment strategies and techniques used by some of the Portfolios are
discussed below under the subheading "Additional Investment Practices and
Risks."
Money you invest in the Portfolios is not a deposit of a bank. Your
investment is not insured or guaranteed by the Federal Deposit Insurance
Corporation (FDIC) or any other governmental agency. By investing in the
Portfolios, you assume risk, and you could lose money.
TAX-EXEMPT PORTFOLIO
INVESTMENT OBJECTIVE. The Portfolio seeks to provide the highest total
return, consistent with preserving principal, by investing in high quality
municipal bonds.
INVESTMENT STRATEGY AND PROGRAM. Under normal market conditions, the
Portfolio invests at least 90% of its total assets in tax-exempt municipal
securities. This investment policy is fundamental, which means it cannot be
changed unless a majority of the Portfolio's shareholders vote to do so. The
Portfolio may purchase municipal securities of any maturity, and is not required
to maintain its portfolio within any range of average maturities or durations.
The Portfolio will invest primarily in municipal securities rated at the time of
purchase in an "A" category or higher by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Ratings Services ("S&P"), or Fitch Investors
Service, Inc. Generally, the Portfolio will invest at least 65% of its assets
in bonds rated in one of the top two rating categories. For a description of
such ratings, see the Statement of Additional Information.
INVESTMENT RISKS. In addition to interest rate risk and credit risk, this
Portfolio is subject to the risk of changes in tax rates. Changes in federal
income tax rates may affect the net asset value of the Portfolio and may reduce
the benefit of tax-exempt interest to you.
PERFORMANCE INFORMATION. The bar chart and table below provide you with
information regarding the Portfolio's annual return. You should bear in mind
that past performance is not an indication of future results.
The bar chart demonstrates the variability of the annual total returns of
the Portfolio's Class A shares for the past ten calendar years. Front end sales
loads that you pay when you purchase Class A shares of the Portfolio are not
reflected in the bar chart. If those sales loads were reflected, the returns
shown in the bar chart would be lower. Also, the Advisor reimbursed expenses
and/or waived fees that the Portfolio otherwise would have paid for certain of
the years presented. If the Advisor had not taken those actions, the returns
for the relevant years would have been lower.
TAX-EXEMPT PORTFOLIO
1990 6.00%
1991 10.00%
1992 8.60%
1993 14.30%
1994 -6.40%
1995 18.10%
1996 3.80%
1997 9.40%
1998 4.30%
1999 -7.93%
HIGHEST QUARTERLY RETURN:
7.79%, 1st Quarter 1995
LOWEST QUARTERLY RETURN:
- -6.14%, 1st Quarter 1994
The Portfolio's year-to-date return as of March 31, 2000 was ____%.
The following table compares the average annual return on Class A shares of
the Portfolio with that of a broad measure of market performance over the
periods indicated. The Portfolio's performance presented in the table reflects
the effects of the maximum applicable sales charge and the Portfolio's operating
expenses. No comparable reductions have been made in the performance presented
for the Index.
AVERAGE ANNUAL TOTAL
RETURN (FOR THE PERIODS
ENDED DECEMBER 31, 1999) ONE YEAR FIVE YEARS TEN YEARS
- ------------------------ -------- ---------- ---------
Tax-Exempt Portfolio -11.16% 4.42% 5.36%
Lehman 20-Year Municipal Bond Index*<F1> -4.67% 7.35% 6.87%
*<F1> The Lehman 20-Year Municipal Bond Index is a broad based index
containing over 22,000 issues with maturities ranging from two to thirty
years. The bonds included in the Index were issued in offerings of $50
million or more completed within the past five years. The average
quality rating of municipal bonds included in the Index is "AA."
FEES AND EXPENSES. You should bear in mind that you, as a shareholder,
generally pay certain fees when you buy, sell or exchange shares of a mutual
fund (shareholder transaction expenses), and you also pay the operating costs of
the fund (annual fund operating expenses). When you purchase or exchange shares
of a mutual fund, shareholder transaction expenses reduce the amount of your
payment that is invested in shares of the fund. When you redeem shares of a
mutual fund, shareholder transaction expenses reduce the amount of the sale
proceeds that the fund returns to you. Annual fund operating expenses, on the
other hand, are expenses that a mutual fund pays to conduct its business,
including investment advisory fees and the costs of maintaining shareholder
accounts, administering the fund, providing shareholder services, and other
activities of the mutual fund. Annual fund operating expenses are deducted
directly from a mutual fund's assets, and therefore reduce the total return that
you receive on your investment.
The following table describes the fees and expenses that you may pay if
you buy, hold, sell or exchange Class A shares of the Portfolio.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A
SHARES
-------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) (1)<F2> 3.5%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
Contingent Deferred Sales Charge (Load) None
Redemption Fees ($12.00 for each wire redemption) None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO
ASSETS)(2)<F3>
CLASS A
SHARES
-------
Management Fees 0.60%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses:
Custodian Fees 0.03%
Transfer Agent Fees 0.08%
Other Fees 0.22%
-----
Total Other Expenses 0.33%
-----
Annual Fund Operating Expenses 1.18%
-----
-----
(1)<F2> To determine if you qualify for a lower sales charge, see "Purchasing
Shares" and "Shareholder Services."
(2)<F3> The percentages expressing annual operating expenses are based on
amounts actually incurred during the ten months ended October 31,
1999.
The following example is intended to help you compare the cost of investing
in the Portfolio with the cost of investing in other mutual funds. It assumes
that:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year; and
o The Portfolio's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
AFTER 1 YEAR AFTER 3 YEARS AFTER 5 YEARS AFTER 10 YEARS
------------- ------------- ------------- --------------
$466 $712 $976 $1,732
If you wish to review historical financial information about the Portfolio,
please refer to the section of this Prospectus captioned "Financial Highlights."
GOVERNMENT PORTFOLIO
INVESTMENT OBJECTIVE. The Government Portfolio seeks to obtain the highest
total return, consistent with preserving principal, by investing in a portfolio
of instruments and obligations issued by the U.S. Treasury or which are backed
by the unconditional full faith and credit of the United States government, its
agencies or instrumentalities ("U.S. Government Securities").
INVESTMENT STRATEGY AND PROGRAM. Under normal market conditions, the
Portfolio will have at least 65% of its total assets invested in U.S. Government
Securities. These securities are issued with original maturities of from a few
days to 30 years or more, and have varying coupon rates. Although the Portfolio
is not limited as to the average maturity of its investments, the Advisor
intends to maintain the Portfolio's dollar-weighted average maturity within a
range of five to ten years. Historically, bonds within this maturity range have
captured at least 80% of the yield on long term U.S. treasury bonds, but these
intermediate maturity bonds typically experience less price volatility. The
Portfolio manager therefore believes bonds within this range are most consistent
with the Portfolio's investment objective of preservation of principal. If
market conditions were to cause a shift in the relative yield performance and
price volatility of intermediate bonds as compared to longer term bonds, the
portfolio manager likely would respond by shortening or lengthening his maturity
strategy, as appropriate.
INVESTMENT RISKS. The Portfolio is subject to interest rate risk. Because
the Portfolio's investments are concentrated in U.S. Government Securities,
credit risk is not a significant consideration for this Portfolio.
PERFORMANCE INFORMATION. The bar chart and table below provide you with
information regarding the Portfolio's annual return. You should bear in mind
that past performance is not an indication of future results.
The bar chart demonstrates the variability of the annual total returns of
the Portfolio's Class A shares for the past ten calendar years. Front end sales
loads that you pay when you purchase Class A shares of the Portfolio are not
reflected in the bar chart. If those sales loads were reflected, the returns
shown in the bar chart would be lower. Also, the Advisor reimbursed expenses
and/or waived fees that the Portfolio otherwise would have paid for certain of
the years presented. If the Advisor had not taken those actions, the returns
for the relevant years would have been lower.
GOVERNMENT PORTFOLIO
1990 8.70%
1991 15.10%
1992 6.80%
1993 10.30%
1994 -5.40%
1995 16.30%
1996 2.30%
1997 8.10%
1998 9.10%
1999 -2.63%
Highest Quarterly Return:
6.78%, 2nd Quarter 1989
Lowest Quarterly Return:
- -3.73%, 1st Quarter 1994
The Portfolio's year-to-date return as of March 31, 2000 was ____%.
The following table compares the average annual return on Class A shares of
the Portfolio with that of a broad measure of market performance over the
periods indicated. The Portfolio's performance presented in the table reflects
the effects of the maximum applicable sales charge and the Portfolio's operating
expenses. No comparable reductions have been made in the performance presented
for the Index. We have not included any total return information in the table
for the Portfolio's Class C shares, because those shares have been available for
less than one year.
AVERAGE ANNUAL TOTAL
RETURN (FOR THE PERIODS
ENDED DECEMBER 31, 1999) ONE YEAR FIVE YEARS TEN YEARS
- ------------------------ -------- ---------- ---------
Government Portfolio -6.04% 5.08% 6.27%
Lehman Intermediate Government Bond Index*<F4> 0.50% 6.93% 7.10%
*<F4> The Lehman Intermediate Government Bond Index represents a total return
of U.S. Government bonds with maturities ranging from 2 to 10 years.
The average duration of the underlying Index is approximately four
years.
FEES AND EXPENSES. You should bear in mind that you, as a shareholder,
generally pay certain fees when you buy, sell or exchange shares of a mutual
fund (shareholder transaction expenses), and you also pay the operating costs of
the fund (annual fund operating expenses). When you purchase or exchange shares
of a mutual fund, shareholder transaction expenses reduce the amount of your
payment that is invested in shares of the fund. When you redeem shares of a
mutual fund, shareholder transaction expenses reduce the amount of the sale
proceeds that the fund returns to you. Annual fund operating expenses, on the
other hand, are expenses that a mutual fund pays to conduct its business,
including investment advisory fees and the costs of maintaining shareholder
accounts, administering the fund, providing shareholder services, and other
activities of the mutual fund. Annual fund operating expenses are deducted
directly from a mutual fund's assets, and therefore reduce the total return that
you receive on your investment.
The following table describes the fees and expenses that you may pay if
you buy, hold, sell or exchange Class A or Class C shares of the Portfolio.
SHAREHOLDER FEES EXPENSES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS C
SHARES SHARES
------- -------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price)(1)<F5> 3.50% 1.00%
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None
Contingent Deferred Sales Charge (Load)
(as a percentage of original purchase price
or redemption proceeds, whichever is less)(2)<F6> None 1.00%
Redemption Fees ($12.00 for each wire redemption) None None
Exchange Fee None None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO
ASSETS)(3)<F7>
CLASS A CLASS C
SHARES SHARES
------- -------
Management Fees 0.60% 0.60%
Distribution and Service (12b-1) Fees 0.25% 1.00%
Other Expenses:
Custodian Fees 0.03% 0.03%
Transfer Agent Fees 0.11% 0.11%
Other Fees 0.18% 0.18%
----- -----
Total Other Expenses 0.32% 0.32%
----- -----
Annual Fund Operating Expenses 1.17% 1.92%
----- -----
----- -----
(1)<F5> To determine if you qualify for a lower sales charge, see "Purchasing
Shares" and "Shareholder Services"
(2)<F6> The contingent deferred sales charge on Class C shares is eliminated
after you have held your shares for 18 months. See "Purchasing
Shares."
(3)<F7> The percentages expressing annual operating expenses for Class A
shares are based on amounts actually incurred during the ten months
ended October 31, 1999. For Class C shares those percentages are
based on management's estimates of anticipated expenses for the fiscal
year ending October 31, 2000.
The following example is intended to help you compare the cost of investing
in the Portfolio with the cost of investing in other mutual funds. It assumes
that:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year; and
o The Portfolio's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
IF YOU SELL YOUR SHARES AT THE
END OF THE PERIOD:
Class A shares $465 $709 $971 $1,721
Class C shares $392 $697 $1,126 $2,321
IF YOU DO NOT SELL YOUR SHARES:
Class C shares $293 $697 $1,126 $2,321
Because of the higher expense structure associated with Class C shares as
compared to Class A shares, you ordinarily would not purchase Class C shares
directly. Class C shares for this Portfolio are designed for use by investors
who own Class C shares in another Principal Preservation Portfolio and who wish
to exchange into the Government Portfolio as a temporary defensive strategy
during periods of market uncertainties. See "Purchasing Shares - Three Classes
of Shares."
If you wish to review historical financial information about the Portfolio,
please refer to the section of this Prospectus captioned "Financial Highlights."
S&P 100 PLUS PORTFOLIO
INVESTMENT OBJECTIVE. The S&P 100 Plus Portfolio seeks to obtain a total
return from dividends and capital gains which, before deducting the Portfolio's
operating expenses, exceeds the total return of the S&P 100 Index. The
Portfolio attempts to achieve its objective by investing in a portfolio of
common stocks that approximately parallels the composition of the S&P 100 Index,
but it does not intend to replicate the Index at all times.
S&P 100 INDEX. The S&P 100 Index consists of 100 common stocks for which
options trade on the U.S. stock exchanges. Historically, the performance of the
S&P 100 Index has closely tracked the performance of the S&P 500 Index over the
long term, although there have been significant variations in performance during
shorter periods. The S&P 500 Index consists of common stocks selected to
represent the stock markets as a whole. The corporations whose stocks are
included in the S&P100 Index are some of the largest U.S. companies based on
market capitalization. These companies span a broad spectrum of industries.
INVESTMENT STRATEGY AND PROGRAM. The S&P 100 Plus Portfolio invests in the
common stocks which make up the S&P 100 Index, in approximately the same
proportion as they are held in the Index. When the Advisor receives
notification of a change in the composition of the Index, the Advisor generally
makes a corresponding change in the composition of the Portfolio. However, the
Portfolio is not a true "index fund," insofar as it does not seek to replicate
the S&P 100 Index at all times. From time to time, the Advisor may underweight
or overweight the Portfolio's investments in certain stocks that it believes
will under perform or outperform the Index. The Advisor will limit these
overweighting/underweighting strategies to not more than 10% of the Portfolio's
total assets. Under normal market conditions, at least 65% of this Portfolio's
total assets will be invested in the common stocks which make up the Index.
At times, the Portfolio will hold uncommitted cash, which will be invested
in short-term, money market instruments. In order to achieve a return on such
uncommitted cash which approximates the investment performance of the S&P 100
Index, the Advisor may elect to invest in exchange-traded futures contracts and
options on the S&P 500 Index and/or the S&P 100 Index. This practice is
commonly referred to as "equitizing cash." For an expanded discussion of these
options and futures instruments and the risks associated with their use, see
"Additional Investment Practices and Risks - Options and Futures Activities."
INVESTMENT RISKS
Market and Objective Risks. The Portfolio is subject to market risk. The
objective risk is that large capitalization stocks included in the S&P 100 Plus
Index may trail returns from the overall stock market for short or extended
periods.
Overweighting/Underweighting Strategies. Overweighting/underweighting
strategies involve the risk that the Advisor will incorrectly identify those
stocks that will either under perform or out perform the Index. If the Advisor's
judgment proves correct, the Portfolio's performance will improve relative to
the S&P 100 Index. Conversely, if the Advisor's judgment proves incorrect, the
Portfolio's performance will decline relative to the Index.
Imperfect Correlation. The Portfolio's performance will not precisely
track that of the S&P 100 Plus Portfolio. In addition to the effects of the
Advisor's overweighting/ underweighting strategies, instruments used by the
Advisor to equitize cash may not perform the same as the Index. Unlike the
Index, the Portfolio incurs transaction costs (e.g., brokerage commissions,
etc.) in order to maintain a portfolio of securities that closely mirrors the
composition of the Index, and also incurs other fees and operating expenses.
PERFORMANCE INFORMATION. The bar chart and table below provide you with
information regarding the Portfolio's annual return. You should bear in mind
that past performance is not an indication of future results.
The bar chart demonstrates the variability of the annual total returns of
the Portfolio's Class A shares for the past ten calendar years. Front end sales
loads that you pay when you purchase Class A shares of the Portfolio are not
reflected in the bar chart. If those sales loads were reflected, the returns
shown in the bar chart would be lower. Also, the Advisor reimbursed expenses
and/or waived fees that the Portfolio otherwise would have paid for certain of
the years presented. If the Advisor had not taken those actions, the returns
for the relevant years would have been lower.
S&P 100 PLUS PORTFOLIO
1990 -3.20%
1991 27.80%
1992 5.20%
1993 9.70%
1994 1.10%
1995 36.70%
1996 22.40%
1997 26.80%
1998 32.30%
1999 32.32%
Highest Quarterly Return:
22.73%, 4th Quarter 1998
Lowest Quarterly Return:
- -13.09%, 3rd Quarter 1990
The Portfolio's year-to-date return as of March 31, 2000 was ____%.
The following table compares the average annual return on Class A and Class
B shares of the Portfolio with that of a broad measure of market performance
over the periods indicated. The Portfolio's performance presented in the table
reflects the effects of the maximum applicable sales charge and the Portfolio's
operating expenses. No comparable reductions have been made in the performance
presented for the Index. We have not included any total return information in
the table for the Portfolio's Class C shares, because those shares have been
available for less than one year.
AVERAGE ANNUAL TOTAL
RETURN (FOR THE PERIODS
ENDED DECEMBER 31, 1999) ONE YEAR FIVE YEARS TEN YEARS
- ----------------------- -------- ---------- ---------
S&P 100 Plus Portfolio - Class A 25.38% 28.62% 17.63%
S&P 100 Index*<F8> 32.74% 32.21% 19.86%
ONE YEAR SINCE INCEPTION (7/27/98)
-------- -------------------------
S&P 100 Plus Portfolio - Class B 26.40% 24.06%
S&P 100 Index*<F8> 32.74% 28.04%
*<F8> The S&P 100 Index is a broad based stock index comprised of 100 common
stocks for which options trade on the U.S. stock exchanges. Over the
long term, the Index historically has closely tracked the S&P 500
Index, which is designed to be representative of the stock market as a
whole.
FEES AND EXPENSES. You should bear in mind that you, as a shareholder,
generally pay certain fees when you buy, sell or exchange shares of a mutual
fund (shareholder transaction expenses), and you also pay the operating costs of
the fund (annual fund operating expenses). When you purchase or exchange shares
of a mutual fund, shareholder transaction expenses reduce the amount of your
payment that is invested in shares of the fund. When you redeem shares of a
mutual fund, shareholder transaction expenses reduce the amount of the sale
proceeds that the fund returns to you. Annual fund operating expenses, on the
other hand, are expenses that a mutual fund pays to conduct its business,
including investment advisory fees and the costs of maintaining shareholder
accounts, administering the fund, providing shareholder services, and other
activities of the mutual fund. Annual fund operating expenses are deducted
directly from a mutual fund's assets, and therefore reduce the total return that
you receive on your investment.
The following table describes the fees and expenses that you may pay if
you buy, hold, sell or exchange Class A, Class B or Class C shares of the
Portfolio.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- ------------- --------------
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering
price)(1)<F9> 5.25% None 1.00%
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends None None None
Contingent Deferred Sales
Charge (Load) (as a percentage
of original purchase price or
redemption proceeds,
whichever is less)(2)<F10> None 5.00% 1.00%
Redemption Fees ($12.00 charge
for each wire redemption) None None None
Exchange Fee None None None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO
ASSETS)(3)<F11>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- ------------- --------------
Management Fees 0.39% 0.39% 0.39%
Distribution and Service
(12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses
Custodian Fees 0.02% 0.02% 0.02%
Transfer Agent Fees 0.05% 0.05% 0.05%
Other Fees 0.12% 0.02% 0.02%
----- ----- -----
Total Other Expenses 0.19% 0.09% 0.09%
----- ----- -----
Annual Fund Operating Expenses 0.83% 1.48% 1.48%
----- ----- -----
----- ----- -----
(1)<F9> You may qualify for a lower front-end sales charge on your purchases
of Class A shares. See "Purchasing Shares" and "Shareholder
Services."
(2)<F10> For Class B shares, the contingent deferred sales charge is reduced
for each year that you hold the shares and is eliminated after six
years. For Class C shares, the contingent deferred sales charge is
eliminated after 18 months. See "Purchasing Shares."
(3)<F11> The percentages expressing annual operating expenses are based on
amounts actually incurred during the ten months ended October 31,
1999 for Class A and Class B shares, and are based on management's
estimates of anticipated expenses for the fiscal year ending October
31, 2000 for Class C shares.
The following example is intended to help you compare the cost of investing
in the Portfolio with the cost of investing in other mutual funds. It assumes
that:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year; and
o The Portfolio's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
IF YOU SELL YOUR SHARES AT THE
END OF THE PERIOD:
Class A shares $605 $776 $961 $1,497
Class B shares $651 $768 $908 $1,563*<F12>
Class C shares $448 $563 $899 $1,850
IF YOU DO NOT SELL YOUR SHARES:
Class B shares $151 $468 $808 $1,563
Class C shares $249 $563 $899 $1,850
*<F12> Reflects conversion of Class B shares to Class A shares after eight
years, lowering your annual expenses from that time on.
If you wish to review historical financial information about the Portfolio,
please refer to the section of this Prospectus captioned "Financial Highlights."
DIVIDEND ACHIEVERS PORTFOLIO
INVESTMENT OBJECTIVE. The Dividend Achievers Portfolio seeks to obtain
capital appreciation and income by investing in a portfolio of common stocks of
companies that have achieved a superior record of dividend growth.
INVESTMENT STRATEGY AND PROGRAM. The Portfolio invests primarily in common
stocks of companies which: (a) have market capitalizations in excess of $2
billion; and (b) have a five-year average dividend growth rate which exceeds
that of the S&P 500 Index by at least 20%. As of December 31, 1999,
approximately 290 companies traded on the New York or American Stock Exchange or
listed on the Nasdaq Stock Market met these criteria. These companies also
typically have strong balance sheets. In addition to providing an income stream
from dividend payments, the Advisor believes that the market values of these
stocks will increase over time, because anticipated future dividend growth
typically is reflected in increased market prices.
From this universe of stocks, the Advisor selects for purchase the stocks
of those companies that it believes have strong potential for long term growth
of earnings and dividends which the market has not fully valued. These
companies typically have a history of consistent increases in earnings and
dividends, and frequently are major players in their respective industries. The
Advisor generally holds stocks of these companies for so long as the potential
for continued growth in earnings and dividends persists. The Advisor would
consider selling stocks of companies when it believes this growth potential no
longer exists. Factor that might bring the Advisor to this conclusion include
the failure of any such growth to materialize over an acceptable period of time,
a deterioration in fundamentals of the company that appears to reduce the
potential for future growth, or the company's reduction of its dividend.
At times, the Portfolio will hold uncommitted cash, which will be invested
in short-term, money market instruments. In order to achieve a return on such
uncommitted cash which more closely approximates the investment performance of
the Portfolio generally, the Advisor may elect to invest in exchange-traded
futures contracts on the S&P 500 Index, the S&P MidCap 400 Index or the Nasdaq
Composite Index. This practice is commonly referred to as "equitizing cash."
For an expanded discussion of these futures instruments and the risks associated
with their use, see "Additional Investment Practices and Risks - Options and
Futures Activities."
INVESTMENT RISKS
Market and Objective Risks. The Portfolio is subject to market risk. The
objective risk is that the Portfolio's returns from mid to large capitalization
stocks, or those within its universe, may trail returns as compared to the
overall stock market.
Stock Selection Risk. The Portfolio will not hold all of the stocks that
meet its investment criteria. Rather, the Advisor will select from that
universe the stocks that it believes will best help the Portfolio to reach its
objective. Accordingly, the Portfolio's performance may be better or worse than
the performance of the universe of stocks.
PERFORMANCE INFORMATION. The bar chart and table below provide you with
information regarding the Portfolio's annual return. You should bear in mind
that past performance is not an indication of future results.
The bar chart demonstrates the variability of the annual total returns of
the Portfolio's Class A shares for the past ten calendar years. Front end sales
loads that you pay when you purchase Class A shares of the Portfolio are not
reflected in the bar chart. If those sales loads were reflected, the returns
shown in the bar chart would be lower. Also, the Advisor reimbursed expenses
and/or waived fees that the Portfolio otherwise would have paid for certain of
the years presented. If the Advisor had not taken those actions, the returns
for the relevant years would have been lower.
DIVIDEND ACHIEVERS PORTFOLIO
1990 1.00%
1991 38.50%
1992 3.10%
1993 -5.00%
1994 1.20%
1995 31.70%
1996 21.80%
1997 27.90%
1998 4.90%
1999 15.93%
Highest Quarterly Return:
19.22%, 4th Quarter 1998
Lowest Quarterly Return:
- -12.10%, 3rd Quarter 1990
The Portfolio's year-to-date return as of March 31, 2000 was ____%.
The following table compares the average annual return on Class A and Class
B shares of the Portfolio with that of a broad measure of market performance
over the periods indicated. The Portfolio's performance presented in the table
reflects the effects of the maximum applicable sales charge and the Portfolio's
operating expenses. No comparable reductions have been made in the performance
presented for the Index. We have not included any total return information in
the table for the Portfolio's Class C shares, because those shares have been
available for less than one year.
AVERAGE ANNUAL TOTAL
RETURN (FOR THE PERIODS
ENDED DECEMBER 31, 1999) ONE YEAR FIVE YEARS TEN YEARS
- ----------------------- -------- ---------- ---------
Dividend Achievers Portfolio - Class A 9.84% 21.88% 14.05%
S&P 500 Index*<F13> 21.04% 28.47% 18.14%
ONE YEAR SINCE INCEPTION (7/27/98)
-------- -------------------------
Dividend Achievers Portfolio - Class B 10.31% 10.94%
S&P 500 Index*<F13> 21.04% 19.37%
*<F13> The S&P 500 Index is an unmanaged index of 500 U.S. stocks chosen for
market size, liquidity and industry group representation, and is a
widely used benchmark of U.S. equity performance.
FEES AND EXPENSES. You should bear in mind that you, as a shareholder,
generally pay certain fees when you buy, sell or exchange shares of a mutual
fund (shareholder transaction expenses), and you also pay the operating costs of
the fund (annual fund operating expenses). When you purchase or exchange shares
of a mutual fund, shareholder transaction expenses reduce the amount of your
payment that is invested in shares of the fund. When you redeem shares of a
mutual fund, shareholder transaction expenses reduce the amount of the sale
proceeds that the fund returns to you. Annual fund operating expenses, on the
other hand, are expenses that a mutual fund pays to conduct its business,
including investment advisory fees and the costs of maintaining shareholder
accounts, administering the fund, providing shareholder services, and other
activities of the mutual fund. Annual fund operating expenses are deducted
directly from a mutual fund's assets, and therefore reduce the total return that
you receive on your investment.
The following table describes the fees and expenses that you may pay if
you buy, hold, sell or exchange Class A, Class B or Class C shares of the
Portfolio.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- -------------- --------------
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering
price)(1)<F14> 5.25% None 1.00%
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends None None None
Contingent Deferred Sales
Charge (Load) (as a percentage
of original purchase price or
redemption proceeds, whichever
is less)(2)<F15> None 5.00% 1.00%
Redemption Fees ($12.00 charge
for each wire redemption) None None None
Exchange Fee None None None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO
ASSETS)(3)<F16>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- -------------- --------------
Management Fees 0.75% 0.75% 0.75%
Distribution and Service
(12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses
Custodian Fees 0.02% 0.02% 0.02%
Transfer Agent Fees 0.08% 0.08% 0.08%
Other Fees 0.24% 0.17% 0.17%
----- ----- -----
Total Other Expenses 0.34% 0.27% 0.27%
----- ----- -----
Annual Fund Operating Expenses 1.34% 2.02% 2.02%
----- ----- -----
----- ----- -----
(1)<F14> You may qualify for a lower front-end sales charge on your purchases
of Class A shares. See "Purchasing Shares" and "Shareholder
Services."
(2)<F15> For Class B shares, the contingent deferred sales charge is reduced
for each year that you hold the shares and is eliminated after six
years. For Class C shares, the contingent deferred sales charge is
eliminated after 18 months. See "Purchasing Shares."
(3)<F16> The percentages expressing annual operating expenses are based on
amounts actually incurred during the ten months ended October 31, 1999
for Class A and Class B shares, and are based on management's
estimates of anticipated expenses for the fiscal year ending October
31, 2000 for Class C shares.
The following example is intended to help you compare the cost of investing
in the Portfolio with the cost of investing in other mutual funds. It assumes
that:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year; and
o The Portfolio's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
IF YOU SELL YOUR SHARES AT THE
END OF THE PERIOD:
Class A shares $653 $924 $1,216 $2,042
Class B shares $705 $934 $1,188 $2,153*<F17>
Class C shares $402 $727 $1,177 $2,425
IF YOU DO NOT SELL YOUR SHARES:
Class B shares $205 $634 $1,088 $2,153
Class C shares $303 $727 $1,177 $2,425
*<F17> Reflects conversion of Class B shares to Class A shares after eight
years, lowering your annual expenses from that time on.
If you wish to review historical financial information about the Portfolio,
please refer to the section of this Prospectus captioned "Financial Highlights."
SELECT VALUE PORTFOLIO
INVESTMENT OBJECTIVE. The Portfolio seeks to obtain maximum capital
appreciation by investing primarily in common stocks that the Advisors consider
undervalued relative to earnings, book value, or potential earnings growth.
INVESTMENT STRATEGY AND PROGRAM. The Portfolio pursues its investment
objective generally by investing in smaller-sized companies having market
capitalizations less than $2 billion, although the Portfolio is not restricted
to investments in companies of any particular size. Under normal market
conditions, at least 65% of the Portfolio's total assets will be invested in
common stocks of domestic issuers. The Portfolio uses a value-oriented style of
investing, emphasizing companies with relatively low price/earnings ratios,
reasonable financial strength and strong cash flows. These companies tend to be
out of favor with investors.
The Portfolio may invest up to 35% of its total assets in high-quality,
fixed-income securities and short-term investments. Fixed income securities
generally would not contribute to the Portfolio's investment objective of
maximum capital appreciation, and the portfolio manager generally will not
invest a significant portion of the Portfolio's assets in these instruments.
However, if the portfolio manager anticipates a severe downturn in the equity
markets, he might temporarily move a portion of the Portfolio's assets into
these instruments to protect the Portfolio against capital loses. High-quality,
fixed-income securities in which the Portfolio may invest are limited to those
securities which are rated at the time of purchase within the two highest rating
categories assigned by Moody's or S&P, or securities which are unrated, provided
that such securities are judged by the Advisors, at the time of purchase, to be
of comparable quality to securities rated within such two highest categories.
The Portfolio may also invest up to 5% of its total assets directly in
securities of foreign issuers not publicly traded in the United States, and may
invest without regard to this restriction in securities of foreign issuers
represented by American Depository Receipts (ADRs). ADRs are receipts issued by
an American bank or trust company and traded on national securities exchange
evidencing ownership of the underlying foreign securities, and equity securities
issued by Canadian issuers.
The Portfolio will look to replace stocks in the investment portfolio when
they have achieved certain performance targets or when the portfolio manager
otherwise believes they no longer show strong potential for appreciation in
value. The portfolio manager also will look to replace stocks of companies
whose fundamentals have deteriorated to a point where the original investment
criteria no longer are valid.
INVESTMENT RISKS
Market and Objective Risk. The Portfolio is subject to market risk. The
objective risk is that the returns of the Portfolio from attractively priced or
"value" stocks may trail returns from the overall stock market. As a group,
value stocks tend to go through cycles of either relative under or over
performance in comparison to the overall stock market. Also, the Portfolio's
common stocks of smaller to medium sized companies historically have experienced
more price volatility than larger capitalization stocks. The value of the
Portfolio's investments therefore may tend to increase and decrease
substantially more than the broad based indices such as the S&P 500 Index.
Stock Selection Risk. The value-oriented style of investing used by the
Portfolio depends on the ability of the Advisors to select stocks that perform
well. The Advisors' stock selections may not achieve the desired appreciation
in value, or may even decline in value.
WHO SHOULD INVEST IN THE PORTFOLIO. The Select Value Portfolio is designed
for long-term investors who characterize their investment temperament as
"moderately aggressive," and is not appropriate for market timers or other
short-term investors. Value funds generally emphasize companies that -
considering their assets and earnings history - have relatively low stock
prices. Such funds are appropriate for investors who want the potential for
capital gains but are less tolerant of the share price fluctuations found in
more aggressive investments, for example, growth funds.
PERFORMANCE INFORMATION. The bar chart and table below provide you with
information regarding the Portfolio's annual return. You should bear in mind
that past performance is not an indication of future results.
The bar chart demonstrates the variability of the annual total returns of
the Portfolio's Class A shares for the past five calendar years. Front end sales
loads that you pay when you purchase Class A shares of the Portfolio are not
reflected in the bar chart. If those sales loads were reflected, the returns
shown in the bar chart would be lower. Also, the Advisor reimbursed expenses
and/or waived fees that the Portfolio otherwise would have paid for certain of
the years presented. If the Advisor had not taken those actions, the returns
for the relevant years would have been lower.
SELECT VALUE PORTFOLIO
1995 20.80%
1996 26.70%
1997 27.20%
1998 -6.40%
1999 5.41%
Highest Quarterly Return:
19.85%, 2nd Quarter 1997
Lowest Quarterly Return:
- -17.60%, 3rd Quarter 1998
The Portfolio's year-to-date return as of March 31, 2000 was ____%.
The following table compares the average annual return on Class A and Class
B shares of the Portfolio with that of a broad measure of market performance
over the periods indicated. The Portfolio's performance presented in the table
reflects the effects of the maximum applicable sales charge and the Portfolio's
operating expenses. No comparable reductions have been made in the performance
presented for the Index. We have not included any total return information in
the table for the Portfolio's Class C shares, because those shares have been
available for less than one year.
AVERAGE ANNUAL TOTAL SINCE
RETURN (FOR THE PERIODS INCEPTION
ENDED DECEMBER 31, 1999) ONE YEAR FIVE YEARS (8/23/94)
- ----------------------- -------- ---------- ---------
Select Value Portfolio - Class A -0.12% 12.72% 10.76%
Russell 2000 Index*<F18> 21.36% 18.27% 16.85%
ONE YEAR SINCE INCEPTION (7/27/98)
-------- -------------------------
Select Value Portfolio - Class B -0.21% -6.33%
Russell 2000 Index*<F18> 21.36% 6.37%
*<F18> The Russell 2000 Index is a broad stock index made up of 2,000 small
market capitalization companies. The Index tracks the general stock
market performance of these 2,000 companies.
FEES AND EXPENSES. You should bear in mind that you, as a shareholder,
generally pay certain fees when you buy, sell or exchange shares of a mutual
fund (shareholder transaction expenses), and you also pay the operating costs of
the fund (annual fund operating expenses). When you purchase or exchange shares
of a mutual fund, shareholder transaction expenses reduce the amount of your
payment that is invested in shares of the fund. When you redeem shares of a
mutual fund, shareholder transaction expenses reduce the amount of the sale
proceeds that the fund returns to you. Annual fund operating expenses, on the
other hand, are expenses that a mutual fund pays to conduct its business,
including investment advisory fees and the costs of maintaining shareholder
accounts, administering the fund, providing shareholder services, and other
activities of the mutual fund. Annual fund operating expenses are deducted
directly from a mutual fund's assets, and therefore reduce the total return that
you receive on your investment.
The following table describes the fees and expenses that you may pay if
you buy, hold, sell or exchange Class A, Class B or Class C shares of the
Portfolio.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- -------------- --------------
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering
price)(1)<F19> 5.25% None 1.00%
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends None None None
Contingent Deferred Sales
Charge (Load) (as a percentage
of original purchase price or
redemption proceeds, whichever
is less)(2)<F20> None 5.00% 1.00%
Redemption Fees ($12.00 charge
for each wire redemption) None None None
Exchange Fee None None None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO
ASSETS)(3)<F21>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- -------------- --------------
Management Fees 0.75% 0.75% 0.75%
Distribution and Service
(12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses
Custodian Fees 0.06% 0.06% 0.06%
Transfer Agent Fees 0.17% 0.17% 0.17%
Other Fees 0.68% 0.63% 0.63%
----- ----- -----
Total Other Expenses 0.91% 0.86% 0.86%
----- ----- -----
Annual Fund Operating Expenses 1.91% 2.61% 2.61%
----- ----- -----
----- ----- -----
(1)<F19> You may qualify for a lower front-end sales charge on your purchases
of Class A shares. See "Purchasing Shares" and "Shareholder
Services."
(2)<F20> For Class B shares, the contingent deferred sales charge is reduced
for each year that you hold the shares and is eliminated after six
years. For Class C shares, the contingent deferred sales charge is
eliminated after 18 months. See "Purchasing Shares."
(3)<F21> The percentages expressing annual operating expenses are based on
amounts actually incurred during the ten months ended October 31, 1999
for Class A and Class B shares, and are based on management's
estimates of anticipated expenses for the fiscal year ending October
31, 2000 for Class C shares. For the ten months ended October 31,
1999, the Advisor voluntarily waived a portion of its Management Fee
and reimbursed expenses. Giving effect to this waiver and
reimbursement, Management Fees and Annual Fund Operating Expenses for
Class A shares were 0.375% and 1.35%, respectively, and for Class B
shares were 0.375% and 2.00%, respectively. The Advisor may
discontinue this voluntary waiver and reimbursement at any time.
The following example is intended to help you compare the cost of investing
in the Portfolio with the cost of investing in other mutual funds. It assumes
that:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year; and
o The Portfolio's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
IF YOU SELL YOUR SHARES AT THE
END OF THE PERIOD:
Class A shares $709 $1,094 $1,502 $2,640
Class B shares $764 $1,111 $1,485 $2,750*<F22>
Class C shares $460 $ 903 $1,471 $3,014
IF YOU DO NOT SELL YOUR SHARES:
Class B shares $264 $ 811 $1,385 $2,758
Class C shares $360 $ 903 $1,471 $3,014
*<F22> Reflects conversion of Class B shares to Class A shares after eight
years, lowering your annual expenses from that time on.
If you wish to review historical financial information about the Portfolio,
please refer to the section of this Prospectus captioned "Financial Highlights."
PSE TECH 100 INDEX PORTFOLIO
INVESTMENT OBJECTIVE. The PSE Tech 100 Index Portfolio seeks to obtain a
total return, before operating expenses of the Portfolio are deducted, that
replicates the total return of the Pacific Stock Exchange Technology Stock Index
(the "PSE Technology Index"). The PSE Technology Index, which consists of
common stocks of 100 technology companies, is widely recognized as a benchmark
for the technology sector of the United States stock market.
INVESTMENT STRATEGY AND PROGRAM. The Portfolio seeks to achieve its
objective by investing in all 100 common stocks included in the PSE Technology
Index in approximately the same proportions as they are represented in the
Index. However, the Portfolio is not required to invest its assets so as to
meet any specified coefficient of correlation to the Index. Under normal market
conditions, the Portfolio will invest at least 95% of its assets in the common
stocks included in the PSE Technology Index and futures contracts and options.
The Portfolio will maintain at least 90% of its assets in common stocks traded
on the PSE Technology Index, except that the percentage of its assets so
invested temporarily (and in any event for a period of not more than five
trading days) may fall below the 90% mark if the Portfolio receives cash inflows
that it cannot invest immediately in units of common stocks that replicate the
Index.
From time to time up to 5% of the Portfolio's assets may be held in cash,
cash equivalents or certain short-term, fixed-income securities. These
investments will not perform the same as the PSE Technology Index. In order to
help the performance of the Portfolio more closely replicate the performance of
the PSE Technology Index, the Portfolio may equitize its cash position by
investing up to 20% of its assets in exchange-traded index futures contracts and
index options. For a more detailed explanation of these instruments and certain
risks associated with their use, see "Additional Investment Practices and Risks
- - Options and Futures Activities."
INVESTMENT RISKS
Market and Objective Risk. The PSE Technology Index is subject to market
risk. Also, the technology market sector increases and decreases in favor with
the investing public relative to the overall stock market. As a result, the
Portfolio's share price is subject to volatility. Moreover, because the PSE
Technology Index is price-weighted, the performance of the Index and the
Portfolio will be more sensitive to price movements in higher-priced stocks than
in lower-priced stocks. Additionally, the PSE Technology Index includes common
stocks of many small to medium sized companies, which historically have been
more volatile and less liquid than stocks of larger companies. For these
reasons, the Portfolio may experience more volatility and greater price swings
as compared to the stock market generally. See "Additional Investment Practices
and Risks."
Correlation Risk. Although the Advisor will attempt to replicate the
performance of the PSE Technology Index, there can be no assurance that it will
be able to do so in all market conditions. For example, the index options and
futures used by the Advisor to equitize the Portfolio's cash positions and
short-term investments may not precisely track the performance of the PSE
Technology Index. Also, the Portfolio will incur brokerage commissions and
other transaction costs in order to maintain investments that mirror the PSE
Technology Index, and will incur advisory and other service fees and operating
costs and expenses that will reduce the total return of the Portfolio as
compared to that of the PSE Technology Index.
Technology Industry Concentration. A significant portion of the PSE Tech
100 Index Portfolio's investments will consist of technology-based companies.
This industry con centration exposes the Portfolio to risks associated with
economic conditions in that technology market sector. Due to competition, a
less diversified product line, and other factors, companies that develop and/or
rely on technology could become increasingly sensitive to downswings in the
economy.
Options and Futures Strategies. Losses associated with index futures
contracts and index options in which the Portfolio may invest sometimes can be
substantial. This partly is because a relatively small price movement in an
index option or an index futures contract could result in an immediate and
substantial loss or gain for the Portfolio. Also, there is a possibility that
active trading may decline or cease all together in the secondary market for a
futures contract or option held by the Portfolio. The Portfolio consequently
might be unable to close out a position prior to its maturity date. Finally,
the Portfolio's options and futures strategies expose it to the correlation
risks discussed above.
PERFORMANCE INFORMATION. The bar chart and table below provide you with
information regarding the Portfolio's annual return. You should bear in mind
that past performance is not an indication of future results.
The bar chart demonstrates the variability of the annual total returns of
the Portfolio's Class A shares for the past three calendar years. Front end
sales loads that you pay when you purchase Class A shares of the Portfolio are
not reflected in the bar chart. If those sales loads were reflected, the
returns shown in the bar chart would be lower. Also, the Advisor reimbursed
expenses and/or waived fees that the Portfolio otherwise would have paid for
certain of the years presented. If the Advisor had not taken those actions, the
returns for the relevant years would have been lower.
PSE TECH 100 INDEX PORTFOLIO
1997 19.40%
1998 54.00%
1999 114.64%
Highest Quarterly Return:
54.45%, 4th Quarter 1998
Lowest Quarterly Return:
- -13.81%, 4th Quarter 1997
The Portfolio's year-to-date return as of March 31, 2000 was ____%.
The following table compares the average annual return on Class A and Class
B shares of the Portfolio with that of a broad measure of market performance
over the periods indicated. The Portfolio's performance presented in the table
reflects the effects of the maximum applicable sales charge and the Portfolio's
operating expenses. No comparable reductions have been made in the performance
presented for the Index. We have not included any total return information in
the table for the Portfolio's Class C shares, because those shares have been
available for less than one year.
AVERAGE ANNUAL TOTAL
RETURN (FOR THE PERIODS
ENDED DECEMBER 31, 1999) ONE YEAR SINCE INCEPTION (6/10/96)
- ------------------------ -------- -------------------------
PSE Tech 100 Index Portfolio - Class A 103.37% 49.01%
PSE Technology Stock Index*<F23> 116.83% 52.51%
ONE YEAR SINCE INCEPTION (7/27/98)
-------- -------------------------
PSE Tech 100 Index Portfolio - Class B 108.21% 98.32%
PSE Technology Stock Index*<F23> 116.83% 103.88%
*<F23> The Pacific Stock Exchange Technology Stock Index consists of 100
common stocks of companies in 15 different industries. The Index is
widely recognized as a benchmark for the technology sector of the
United Stated stock market.
FEES AND EXPENSES. You should bear in mind that you, as a shareholder,
generally pay certain fees when you buy, sell or exchange shares of a mutual
fund (shareholder transaction expenses), and you also pay the operating costs of
the fund (annual fund operating expenses). When you purchase or exchange shares
of a mutual fund, shareholder transaction expenses reduce the amount of your
payment that is invested in shares of the fund. When you redeem shares of a
mutual fund, shareholder transaction expenses reduce the amount of the sale
proceeds that the fund returns to you. Annual fund operating expenses, on the
other hand, are expenses that a mutual fund pays to conduct its business,
including investment advisory fees and the costs of maintaining shareholder
accounts, administering the fund, providing shareholder services, and other
activities of the mutual fund. Annual fund operating expenses are deducted
directly from a mutual fund's assets, and therefore reduce the total return that
you receive on your investment.
The following table describes the fees and expenses that you may pay if
you buy, hold, sell or exchange Class A, Class B or Class C shares of the
Portfolio.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- -------------- --------------
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering
price)(1)<F24> 5.25% None 1.00%
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends None None None
Contingent Deferred Sales Charge
(Load) (as a percentage of
original purchase price or
redemption proceeds, whichever
is less)(2)<F25> None 5.00% 1.00%
Redemption Fees ($12.00 charge
for each wire redemption) None None None
Exchange Fee None None None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO
ASSETS)(3)<F26>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- -------------- --------------
Management Fees 0.35% 0.35% 0.35%
Distribution and Service
(12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses
Custodian Fees 0.05% 0.05% 0.05%
Transfer Agent Fees 0.07% 0.07% 0.07%
Other Fees 0.12% 0.01% 0.01%
----- ----- -----
Total Other Expenses 0.24% 0.13% 0.13%
----- ----- -----
Annual Fund Operating Expenses 0.84% 1.48% 1.48%
----- ----- -----
----- ----- -----
(1)<F24> You may qualify for a lower front-end sales charge on your purchases
of Class A shares. See "Purchasing Shares" and "Shareholder
Services."
(2)<F25> For Class B shares, the contingent deferred sales charge is reduced
for each year that you hold the shares and is eliminated after six
years. For Class C shares, the contingent deferred sales charge is
eliminated after 18 months. See "Purchasing Shares."
(3)<F26> The percentages expressing annual operating expenses are based on
amounts actually incurred during the ten months ended October 31, 1999
for Class A and Class B shares, and are based on management's
estimates of anticipated expenses for the fiscal year ending October
31, 2000 for Class C shares. For the ten months ended October 31,
1999, the Advisor waived a portion of its Management Fee and
reimbursed expenses. Giving effect to this waiver and reimbursement,
Management Fees and Annual Fund Operating Expenses for Class A shares
were 0.20% and 0.69%, respectively, and for Class B shares were 0.22%
and 1.35%, respectively. The Advisor may discontinue this voluntary
waiver and reimbursement at any time.
The following example is intended to help you compare the cost of investing
in the Portfolio with the cost of investing in other mutual funds. It assumes
that:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year; and
o The Portfolio's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
IF YOU SELL YOUR SHARES AT THE
END OF THE PERIOD:
Class A shares $606 $779 $966 $1,508
Class B shares $651 $768 $908 $1,563*<F27>
Class C shares $348 $563 $899 $1,850
IF YOU DO NOT SELL YOUR SHARES:
Class B shares $151 $468 $808 $1,563
Class C shares $248 $563 $899 $1,850
*<F27> Reflects conversion of Class B shares to Class A shares after eight
years, lowering your annual expenses from that time on.
If you wish to review historical financial information about the Portfolio,
please refer to the section of this Prospectus captioned "Financial Highlights."
MANAGED GROWTH PORTFOLIO
INVESTMENT OBJECTIVE. The Managed Growth Portfolio's investment objective
is long- term capital appreciation. It pursues its goal by investing in
publicly traded common stocks that the Advisor believes demonstrates strong
growth characteristics.
INVESTMENT STRATEGY AND PROGRAM. The Advisor selects stocks for the
Portfolio based on the Advisor's assessment of their growth characteristics.
The Portfolio's investment focus is on U.S. companies whose market values are
within the market capitalization range of the companies that make up the S&P
MidCap 400 Index (approximately $500 million to $20 billion, although the
Portfolio may invest in companies outside this range). The Advisor believes
that these middle market capitalization (mid-cap) stocks provide better long-
term returns than large company stocks and, at the same time, offer lower risk
than small company stocks.
In selecting growth stocks for the Portfolio, the Advisor emphasizes a
"bottom-up" fundamental analysis (i.e., developing an understanding of the
specific company through research, meetings with management and analysis of its
financial statements and public disclosures). The Advisor's "bottom-up"
approach is supplemented by "top down" considerations (i.e., reviewing general
economic conditions in analyzing their effect on various industries). The
Advisor also screens out high risk ideas such as securities that are not traded
on U.S. exchanges, turnaround stories, initial public offerings and companies
that have less than three years of operating history or do not have earnings.
The Advisor then focuses on companies that it believes are outperforming or
growing faster than others in their industry, and applies a proprietary
valuation model to determine their values compared to the broader securities
markets. Stocks that meet the above criteria are reviewed and approved by the
portfolio management team before they are purchased for the Portfolio. The
Advisor also seeks industry diversification in its investment approach, and
invests in companies that have leading positions in industries that offer growth
potential.
The Advisor buys stocks for the Portfolio with the intent of holding them
for the long term. It does not generally engage in market-timing or short-term
trading strategies. However, the Advisor generally will sell some or all of a
company's stock if: (a) the Advisor perceives a major change in the long-term
outlook for the company or its industry, (b) the stock becomes extremely
overvalued based on the Advisor's proprietary valuation model, (c) the market
value of the particular holding represents more than 5% of the Portfolio's total
assets or (d) more than 25% of the Portfolio's total assets are invested in a
single industry.
INVESTMENT RISKS
Market and Objective Risk. The Portfolio is subject to market risk. Also,
because the Advisor selects stocks for the Portfolio according to defined
objectives and strategies (which will focus on mid-cap stocks), the common
stocks held by the Portfolio at any given time likely will not represent the
stock market generally. Mid-cap stocks involve greater risk and price
volatility than large company stocks, especially at the lower end of the
Advisor's capitalization range (i.e., under $1.0 billion). As a result, the
value of the Portfolio's investments may tend to increase and decrease
substantially more than the stock market in general, as measured by broad based
indices such as the S&P 500 Index.
Stock Selection Risk. The Advisor's strategy for selecting common stocks
for purchase depends on the ability of the Advisor to select stocks that
demonstrate growth (and thus capital appreciation) over time. The Portfolio is
subject to the risk that the Advisor's stock selections may not achieve the
desired capital appreciation, or may even decline in value.
Change in Investment Objective. Principal Preservation's Board of
Directors may change the Portfolio's investment objective may be changed in the
future without shareholder approval, although the Board presently has no plans
to do so.
PERFORMANCE INFORMATION. The bar chart and the table below provide you with
information regarding the Portfolio's annual return. You should bear in mind
that past performance is not an indication of future results.
The bar chart shows the annual total return on the Portfolio's Class A
shares for the calendar year 1999. Front-end sales loads that you pay when you
purchase Class A shares of the Portfolio are not reflected in the bar chart. If
those sales loads were reflected, the return shown in the bar chart would be
lower. Also, the Advisor reimbursed expenses and/or waived fees that the
Portfolio otherwise would have paid for 1999. If the Advisor had not taken
those actions, the total return on the Portfolio's Class A shares for 1999 would
have been lower.
MANAGED GROWTH PORTFOLIO
1999 12.90%
Highest Quarterly Return:
11.3% for the 4th Quarter, 1999
Lowest Quarterly Return:
- -11.5% for the 1st Quarter, 1999
The Portfolio's year-to-date return as of March 31, 2000 was ____%.
The following table compares the average annual return on Class A and Class
B shares of the Portfolio with that of a broad measure of market performance
over the periods indicated. The Portfolio's performance presented in the table
reflects the effects of the maximum applicable sales charge and the Portfolio's
operating expenses. No comparable reductions have been made in the performance
presented for the Index. We have not included any total return information in
the table for the Portfolio's Class C shares, because those shares have been
available for less than one year.
AVERAGE ANNUAL TOTAL RETURN YEAR ENDED DECEMBER 31, 1999
----------------------------
Managed Growth Portfolio - Class A 6.97%
Managed Growth Portfolio - Class B 7.30%
S&P MidCap 400 Index*<F28> 14.70%
*<F28> The S&P MidCap 400 Index is an unmanaged index that represents the
average performance of a group of 400 medium capitalization stocks.
FEES AND EXPENSES. You should bear in mind that you, as a shareholder,
generally pay certain fees when you buy, sell or exchange shares of a mutual
fund (shareholder transaction expenses), and you also pay the operating costs of
the fund (annual fund operating expenses). When you purchase or exchange shares
of a mutual fund, shareholder transaction expenses reduce the amount of your
payment that is invested in shares of the fund. When you redeem shares of a
mutual fund, shareholder transaction expenses reduce the amount of the sale
proceeds that the fund returns to you. Annual fund operating expenses, on the
other hand, are expenses that a mutual fund pays to conduct its business,
including investment advisory fees and the costs of maintaining shareholder
accounts, administering the fund, providing shareholder services, and other
activities of the mutual fund. Annual fund operating expenses are deducted
directly from a mutual fund's assets, and therefore reduce the total return that
you receive on your investment.
The following table describes the fees and expenses that you may pay if you
buy, hold, sell or exchange Class A, Class B or Class C shares of the Portfolio.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- -------------- --------------
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering
price)(1)<F29> 5.25% None 1.00%
Maximum Sales Charge (Load)
Imposed on Reinvested Dividends None None None
Contingent Deferred Sales Charge
(Load) (as a percentage of
original purchase price or
redemption proceeds, whichever
is less)(2)<F30> None 5.00% 1.00%
Redemption Fees ($12.00 charge
for each wire redemption) None None None
Exchange Fee None None None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO
ASSETS)(3)<F31>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- -------------- --------------
Management Fees 0.75% 0.75% 0.75%
Distribution and Service
(12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses
Custodian Fees 0.11% 0.11% 0.11%
Transfer Agent Fees 0.08% 0.08% 0.08%
Other Fees 1.71% 1.56% 1.56%
----- ----- -----
Total Other Expenses 1.90% 1.75% 1.75%
----- ----- -----
Annual Fund Operating Expenses 2.90% 3.50% 3.50%
----- ----- -----
----- ----- -----
(1)<F29> You may qualify for a lower front-end sales charge on your purchases
of Class A shares. See "Purchasing Shares" and "Shareholder
Services."
(2)<F30> For Class B shares, the contingent deferred sales charge is reduced
for each year that you own the shares, and is eliminated after six
years. For Class C shares, the contingent deferred sales charge is
eliminated after 18 months. See "Purchasing Shares."
(3)<F31> The percentages expressing annual operating expenses are based on
amounts actually incurred during the ten months ended October 31, 1999
for Class A and Class B shares, and are based on management's
estimates of the anticipated expenses for the fiscal year ending
October 31, 2000 for Class C shares. For the ten months ended October
31, 1999, the Advisor voluntarily waived its entire Management Fee and
reimbursed expenses. Giving effect to this waiver and reimbursement,
Management Fees and Annual Fund Operating Expenses for Class A shares
were 0% and 0.57%, respectively, and for Class B shares were 0% and
1.24%, respectively. The Advisor may discontinue this voluntary
waiver at any time.
The following example is intended to help you compare the cost of investing
in the Portfolio with the cost of investing in other mutual funds. The example
assumes that:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year; and
o The Portfolio's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
IF YOU SELL YOUR SHARES AT THE
END OF THE PERIOD:
Class A shares $804 $1,369 $2,031 $3,834
Class B shares $853 $1,374 $1,917 $3,603*<F32>
Class C shares $548 $1,163 $1,899 $3,863
IF YOU DO NOT SELL YOUR SHARES:
Class B shares $353 $1,074 $1,817 $3,774
Class C shares $448 $1,163 $1,899 $3,863
*<F32> Reflects conversion of Class B shares to Class A shares after eight
years, lowering your annual expenses from that time on.
ADDITIONAL INVESTMENT PRACTICES AND RISKS
DEBT AND OTHER FIXED INCOME SECURITIES. A bond's yield reflects the fixed
annual interest as a percent of its current price. This price (the bond's
market value) must increase or decrease in order to adjust the bond's yield to
current interest rate levels. Therefore, bond prices generally move in the
opposite direction of interest rates. As a result, interest rate fluctuations
will affect the net asset value of the fixed income securities held by a
Portfolio, but will not affect the income received by the Portfolio from its
existing fixed income securities. However, changes in prevailing interest rates
will affect the yield on shares subsequently issued by the Portfolio. In
addition, such fluctuations would affect the income received on any variable
rate demand notes or other variable rate securities held by the Portfolio.
Movements in interest rates typically have a greater effect on the prices
of longer-term bonds than those with shorter maturities. The following table
illustrates the effect of a 1% change in interest rates on a $1,000 bond with a
7% coupon.
PRINCIPAL VALUE IF RATES:
---------------------------------------
MATURITY INCREASE 1% DECREASE 1%
-------- ----------- -----------
Intermediate Bond 5 years $959 $1,043
Long-Term Bond 20 years $901 $1,116
The Advisors will manage the maturity of debt securities in the Tax-Exempt
and Government Portfolios according to their assessment of the interest rate
outlook. During periods of rising interest rates, the Advisors will likely
attempt to shorten the average maturity of the Portfolio to cushion the effect
of falling bond prices on the Portfolio's share prices. When interest rates are
falling and bond prices are increasing, on the other hand, the Advisors will
likely seek to lengthen the average maturity. Generally, the Advisors will
implement a "laddered structure" in the investment portfolios. Under this
structure, each Portfolio will hold bonds in most, if not all, of the various
maturity ranges, but will maintain a dollar-weighted average maturity within a
range deemed appropriate by the portfolio manager under then existing market
conditions. This strategy softens price volatility that potentially might occur
in a particular range of maturity.
STOCK INDEXING. Index funds, such as the PSE Tech 100 Index Portfolio, are
"passively managed," meaning they try to match, as closely as possible, the
performance of a target securities index by holding each stock found in the
index in roughly the same proportion as represented in the index itself. For
example, if 5% of the PSE Technology Index were made up of the assets of a
specific company, the PSE Tech 100 Index Portfolio would invest 5% of its assets
in that company.
Indexing appeals to many investors for a number of reasons, including its
simplicity (indexing is a straightforward marketing-matching strategy);
diversification (indices generally cover a wide variety of companies and
industries); relative performance predictability (an index fund is expected to
move in the same direction - up or down - as its target index); and
comparatively low cost (index funds do not have many of the expenses of an
actively-managed mutual fund, such as research and company visits). Also,
assuming the composition of the relevant index remains fairly stable, index
funds may experience lower portfolio turnover rates, which would result in
reduced transaction costs (brokerage commissions, etc.) and capital gains. With
respect to the PSE Tech 100 Index Portfolio, investors should bear in mind that
this latter benefit may not hold true. The PSE Technology Index has experienced
rather rapid changeover at times, as a result of the volatility of the
technology industry generally and of specific companies included in the Index
from time to time.
The performance of an index fund generally will trail the performance of
the index it attempts to replicate. This is because the mutual fund and its
investors incur operating costs and expenses that are not shared by an index.
For example, investors may pay sales charges which result in less than all of
the price they pay for their mutual fund shares being invested in common stocks
of companies included in the index. With respect to the S&P 100 Plus and PSE
Tech 100 Index Portfolios, investors pay front-end sales charges for Class A and
Class C shares at the time of purchase, and a contingent deferred sales charge
for Class B shares at the time of redemption (if redeemed less than six years
after the date of purchase), and for Class C shares if redeemed less than 18
months after the date of purchase. These sales charges reduce the total return
on the shareholder's mutual fund shares, as compared to a direct investment in
stocks.
Additionally, when a mutual fund invests the cash proceeds it receives from
investors in common stocks of companies included in the index, the mutual fund
must pay brokerage commissions, which further reduce the amount invested. As
the composition of the index changes, the mutual fund must make corresponding
adjustments in its holdings, which gives rise to additional brokerage
commissions. Also, mutual funds incur other operating expenses, including
investment management fees, custodial and transfer agent fees, legal and
accounting fees and possibly 12b-1 service and distribution fees, all of which
reduce the mutual fund's total return. No such fees affect the total return of
the index.
Finally, because of liquidity needs and other constraints under which
mutual funds operate, index funds generally cannot invest their assets so that
they correlate 100% at all times with the common stocks of the index. Although
many index funds attempt to use options and futures strategies to generate
returns on these assets which replicate the return on the index, these
strategies are imperfect and give rise to additional transaction costs.
For these reasons, investors should expect that the performance of an index
mutual fund will lag that of the index it attempts to replicate. In recognition
of this disparity, the S&P 100 Plus and PSE Tech 100 Index Portfolios compare
their gross returns (returns before deducting the Portfolios' operating
expenses) to their respective benchmark indices.
S&P 100 Index. The S&P 100 Index was created by the Chicago Board Options
Exchange (CBOE) in 1983 with stocks selected from the optionable equities traded
on that exchange. The 100 stocks on the Index include many large U.S.
corporations. General Electric Company, Cisco Systems, Walmart, Intel
Corporation and Microsoft Corporation are five of the largest components of the
Index. A complete list of the stocks comprising the S&P 100 Index at March 31,
2000 is included as Appendix A to this Prospectus.
----------
The performance of the S&P 100 Index historically has tracked closely the
performance of the S&P 500 Index over the long term. The S&P 500 Index is
designed to be representative of the stock market as a whole. There have been
some significant variances in the correlation between the S&P 100 and S&P 500
Indices over shorter periods, and between the S&P 500 Index and the broad market
for large capitalization common stocks. In this regard, over the past five
calendar years, the S&P 100 Index's total return was 304.01%, as compared to the
S&P 500 Index's total return of 249.94%. There can be no assurance that any
index will correlate precisely to the stock market as a whole over any specific
period of time, or that the S&P 100 Plus Portfolio's performance will parallel
that of either of these indices or the stock market generally.
The S&P 100 Plus Portfolio is not sponsored, endorsed, sold or promoted by
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"). S&P
makes no representation or warranty, implied or expressed, to the shareholders
of the Portfolio, or any member of the public regarding the advisability of
investing in index funds generally, or in this Portfolio in particular, or the
ability of the S&P 100 Index to track general stock market performance. S&P's
only relationship to this Portfolio is the licensing of the S&P trademarks and
the S&P 100 Index which is determined, composed and calculated by S&P without
regard to this Portfolio. "Standard & Poor's," "Standard & Poor's 100," "S&P,"
"S&P 100" and "100" in connection with the S&P 100 are trademarks of The McGraw-
Hill Companies, Inc.
PSE Technology Index. The PSE Technology Index consists of 100 common
stocks, which are chosen by Pacific Exchange Incorporated based on its
assessment that the issuer is a company which has, or likely will develop,
products, processes, or services that will provide or will benefit significantly
from technological advances and improvements. The PSE Technology Index offers a
broad basket of stocks spanning the full spectrum of high tech industry groups.
Diversity within the Index ranges from biotechnology firms to semiconductor
capital equipment manufacturers and includes a cross-section of U.S. companies
that are leaders in 15 technology subsectors, including biotechnology, CAD/CAM,
data communications, data storage and processing, diversified computer
manufacturing, electronic equipment, information processing medical technology,
micro-computer manufacturers, semi-conductor manufacturers, software products,
test, analysis and instrumentation equipment, mini and mainframe computer
manufacturing, office automation equipment and semi-conductor capital equipment
manufacturing. A full listing of the companies included in the PSE Technology
Index as of March 31, 2000 is attached as Appendix B to this Prospectus.
----------
Similar to the Dow Jones Industrial Average, the PSE Technology Index is
price weighted, meaning the component stocks are given a percentage weighting
based on their price. Although this indexing method allows the PSE Technology
Index to accurately measure a broad representation of technology stocks without
being dominated by a few large companies, it results in smaller- and mid-sized
companies representing a more significant portion of the Index than is the case
for indices such as the S&P 100 Index, which are weighted by the market value of
the companies represented on the index.
The PSE Tech 100 Index Portfolio is not sponsored, endorsed, sold, or
promoted by the PSE Technology Index (PSESM, Pacific Stock ExchangeSM, PSE
Technology IndexSM, and PSE Tech 100SM are service marks of the Pacific Exchange
Incorporated).
INDUSTRY CONCENTRATIONS. A significant portion of the PSE Tech 100 Index
Portfolio's investments will consist of technology-based issues, which exposes
the Portfolio to risks associated with economic conditions in that market
sector. Due to competition, a less diversified product line, and other factors,
companies that develop and/or rely on technology could become increasingly
sensitive to downswings in the economy. However, the companies whose common
stocks are included in the PSE Technology Index comprise a fairly broad range of
industries. This broad industry representation likely will soften volatility
associated with economic and political developments that disproportionately
affect specific industries represented within the Index. Nonetheless, the PSE
Tech 100 Index Portfolio intends to maintain a complete replication investment
philosophy even during periods when one or more industries may be over-
represented on the PSE Technology Index, which may expose the Portfolio during
such periods to risks associated with industry concentration. See "Industry
Concentration Factors" in the Statement of Additional Information.
INVESTMENTS IN SMALL TO MEDIUM SIZED COMPANIES. The investment program and
strategies of the Select Value Portfolio, PSE Tech 100 Index Portfolio and the
Managed Growth Portfolio may cause those Portfolios to invest a greater portion
of their assets in small to medium sized companies. These companies may have
relatively lower revenues, limited product lines, less management depth and a
lower share of the market for their products or services as compared to larger
companies. Historically, small and medium sized capitalization stocks have
experienced more price volatility than large capitalization stocks. Some
factors contributing to this greater volatility include: (a) less certain
growth prospects of small and medium sized companies, as compared to larger
companies (this loss of certainty may be offset in part by the opportunity for
small and medium sized companies to demonstrate greater percentage growth
relative to their size, as compared to larger companies); (b) less liquidity in
the trading markets for their stocks, in part because of fewer shares trading in
the market and in part because of a low public profile which reduces the
interest level of financial analysts and the investing public; and (c) greater
sensitivity to changing economic conditions. For these reasons, the net asset
value of the Select Value, PSE Tech 100 Index and Managed Growth Portfolios may
increase and decrease substantially more than the stock market in general, as
measured by broad-based indices such as the S&P 500 Index.
VALUE INVESTING. The value-oriented style of investing used by the Select
Value Portfolio emphasizes companies with relatively low price/earnings ratios,
reasonable financial strength and strong cash flows. These companies tend to be
out of favor with investors. As a group, value stocks tend to go through cycles
of relative under performance and outperformance in comparison to common stocks
generally. Although value investing has been less favored in the recent past,
the Advisor believes that the advantage of value-oriented stocks over growth-
oriented stocks is greater than usual during periods of economic recovery.
During periods of economic weakness, growth-oriented stocks may provide solid
earnings growth despite the difficult economic environment, but as the economy
improves, many investors are reluctant to pay a premium for high-priced growth
stocks when lower-priced stocks are available that also are showing good
earnings growth. The performance of the Select Value Portfolio is dependent on
the ability of the Advisor successfully to select stocks that outperform the
market.
INDEX OPTIONS AND FUTURES. The S&P 100 Plus and PSE Tech 100 Index
Portfolios may use exchange-traded index futures contracts and options on stock
indices for the following purposes: (1) to equitize their cash and other liquid
investments so as to more nearly simulate full investment in stocks; (2) to make
it easier to trade; and (3) to reduce costs by buying futures instead of actual
stocks when futures are cheaper. The Dividend Achievers Portfolio may use
exchange-traded index futures to equitize cash. The S&P 100 Plus and Dividend
Achievers Portfolios may also use options on individual stocks, but the Advisor
has no plans to do so at this time.
Index Futures and Options. The S&P 100 Plus and PSE Tech 100 Index
Portfolios may write (sell) and purchase covered call options and put options on
stock indices. Put and call options for various stock indices are traded on
registered securities exchanges. The S&P 100 Plus Portfolio will generally use
futures contracts on the S&P 500 Index and index options on the S&P 100 Index or
the S&P 500 Index, but may use other index options if the exchange on which the
S&P options are traded is closed, there is insufficient liquidity in the
options, or if the Portfolio or the Advisor reaches exchange position limits.
The PSE Tech 100 Index Portfolio plans to use options and futures on both the
PSE Technology Index and the S&P 500 Index. The Dividend Achievers Portfolio
may use exchange traded index futures on any of the S&P 500 Index, the S&P
MidCap 400 Index or the Nasdaq Composite Index.
Put and call options on a securities index are similar to options on an
individual stock. The principal difference is that an option on a securities
index is settled only in cash. The exercising holder of an index option,
instead of receiving a security, receives the difference between the closing
price of the securities index and the exercise price of the option times a
specified multiple ($100 in the case of the S&P 100 Index).
An index futures contract is a contract to buy or sell units of a
particular index at an agreed price on a specified future date. Depending on
the change in value of the index between the time a Portfolio enters into and
terminates an index futures transaction, the Portfolio may realize a gain or a
loss.
Risks Associated with Options and Futures. Losses involving index futures
contracts and index options can sometimes be substantial, in part because a
relatively small price movement in an index option or an index futures contract
may result in an immediate and substantial loss or gain for a Portfolio. The
Portfolios will not use futures and options contracts for speculative purposes
or as leveraged investments that magnify the gains or losses on an investment.
Rather, each relevant Portfolio will keep separate cash or cash-equivalent
securities in the amount of the obligation underlying the futures contract.
Only a limited percentage of a Portfolio's assets - up to 5% if required for
deposit and no more than 20% of total assets - may be committed to such
contracts.
Additional risks associated with the intended use by the S&P 100 Plus,
Dividend Achievers and PSE Tech 100 Index Portfolios of index futures contracts
and index options include the following:
(1) An imperfect correlation between movements in prices of options
and futures contracts and movements in the value of the stock
index that the instrument is designed to simulate;
(2) An imperfect correlation between the price movement in the index
underlying the futures contract or option agreement and the price
movement in the index which the relevant Portfolio seeks to
match; and
(3) The possibility of no liquid secondary market for a futures
contract or option and the resulting inability to close a
position prior to its maturity date.
A Portfolio will seek to minimize the risk of imperfect correlation by
investing only in those futures contracts and options whose behavior is expected
to resemble that of the Portfolio's underlying securities. A Portfolio will
also seek to reduce the risk of being unable to close out a futures position by
entering into such transactions on registered securities exchanges with an
active and liquid secondary market.
MANAGEMENT
INVESTMENT ADVISOR
B.C. Ziegler and Company ("Ziegler") is the primary investment advisor of
each of the Portfolios. Ziegler also serves as distributor and
accounting/pricing agent for each of the Portfolios. In addition to managing
the Portfolios, Ziegler provides counseling services to retail and institutional
clients to help them select investment advisors appropriate to manage their
assets. In this capacity, Ziegler monitors and assesses the performance of
numerous investment advisors and makes recommendations to its clients. Ziegler
is a wholly owned subsidiary of The Ziegler Companies, Inc., a publicly owned
financial services holding company. Ziegler's address is 215 North Main Street,
West Bend, Wisconsin 53095.
Ziegler provides each Portfolio with overall investment advisory and
administrative services. The table below shows the fees that each of the
Portfolios paid to Ziegler for investment advisory services for the ten months
ended October 31, 1999. The fees are expressed as a percentage of the relevant
Portfolio's average net assets over that period.
FEES WAIVED FOR
FEES PAID FOR TEN MONTHS TEN MONTHS ENDED
PORTFOLIO ENDED OCTOBER 31, 1999 OCTOBER 31, 1999
- --------- ---------------------- ----------------
Tax-Exempt Portfolio 0.60% -0-
Government Portfolio 0.60% -0-
S&P 100 Plus Portfolio 0.39% -0-
Dividend Achievers Portfolio 0.75% -0-
Select Value Portfolio 0.75% 0.375%
PSE Tech 100 Index Portfolio 0.35% 0.15%
Managed Growth Portfolio 0.75% 0.75%
SUB-ADVISORS
Ziegler and Principal Preservation have retained sub-advisors to manage the
day-to-day selection and disposition of investment securities for each of the
stock Portfolios. Ziegler's affiliate, Ziegler Asset Management, Inc. ("Ziegler
Asset Management"), is the sub-advisor for the Tax-Exempt, Government, S&P 100
Plus, Dividend Achievers and PSE Tech 100 Index Portfolios. Geneva Capital
Management Ltd. ("Geneva") is the sub-advisor for the Managed Growth Portfolio.
We sometimes refer to Ziegler and/or any or all of the sub-advisors together as
the "Advisors" or individually as an or the "Advisor."
ZIEGLER ASSET MANAGEMENT. In its capacity as the sub-advisor of the S&P
100 Plus, Dividend Achievers and PSE Tech 100 Index Portfolios, Ziegler Asset
Management (subject to Ziegler's oversight) makes investment decisions for each
of those Portfolios and supervises the acquisition and disposition of their
investments. On January 1, 2000, Ziegler Asset Management managed approximately
$1.5 billion in assets on a discretionary basis. Ziegler Asset Management
receives a sub-advisory fee which is paid by Ziegler (and not by any of the
Portfolios) out of Ziegler's advisory fee.
Like Ziegler, Ziegler Asset Management is a wholly-owned subsidiary of The
Ziegler Companies, Inc., and Ziegler Asset Management's address is 250 East
Wisconsin Avenue, Suite 1900, Milwaukee, Wisconsin 53202.
GENEVA CAPITAL MANAGEMENT LTD. In its capacity as sub-advisor to the
Managed Growth Portfolio, Geneva is responsible for managing the Portfolio's
assets (subject to Ziegler's oversight). Geneva makes investment decisions for
the Portfolio and supervises the acquisition and disposition of the Portfolio's
investments. For these services, Ziegler (and not the Managed Growth Portfolio)
pays a sub-advisory fee to Geneva out of Ziegler's advisory fee.
In addition to managing the Managed Growth Portfolio, Geneva manages
numerous customer accounts as an investment advisor. On January 1, 2000, Geneva
managed approximately $___ million in assets on a discretionary basis. Geneva's
investment team focuses primarily on mid-cap growth stocks. Its portfolio
managers average almost 20 years in the investment business. Geneva's address
is 250 East Wisconsin Avenue, Suite 1050, Milwaukee, Wisconsin 53202.
PORTFOLIO MANAGERS
TAX-EXEMPT PORTFOLIO. Mr. Thomas P. Sancomb has served as portfolio
manager for the Tax-Exempt Portfolio since April, 1996. Mr. Sancomb has served
with Ziegler and Ziegler Asset Management in various capacities since March
1975. He has served on Ziegler's Investment Committee since July, 1984. He is
a Vice President of both Ziegler and Ziegler Asset Management.
GOVERNMENT PORTFOLIO. An investment team consisting of advisory personnel
of Ziegler has been responsible for managing the assets of the Government
Portfolio since April 1996. Mr. Thomas P. Sancomb has been the team leader
since August, 1998. His investment team includes Mr. Leon Dodge and Mr. Thomas
R. Paprocki. Information about Mr. Sancomb is included above under the
discussion of the Tax-Exempt Portfolio.
Mr. Dodge is a Vice President and Portfolio Manager at Ziegler Asset
Management. Prior to joining Ziegler Asset Management, Mr. Dodge served as a
Senior Research Analyst for GS2 Securities, Inc., a position he had held since
1993. Mr. Dodge, who earned an MBA degree in finance from the University of
Wisconsin-Whitewater, has also served in various portfolio manager capacities
for both M&I Investment Management and First Wisconsin Bank. (n/k/a Firstar
Bank).
Mr. Paprocki is a managing director of Ziegler. He has over twenty years
of capital markets experience, including portfolio management, trading research
and sales and training management. Prior to joining Ziegler, Mr. Paprocki
served as President of The Huntington Capital Corp., a subsidiary of Huntington
Bancshares, Columbus, Ohio. In that position he managed all capital markets
activities, including institutional securities, sales and trading, investment
banking and retail brokerage services. Prior to that, Mr. Paprocki served as
Senior Vice President and head bond trader for Robert W. Baird & Co.
Incorporated in Milwaukee, Wisconsin.
S&P 100 PLUS PORTFOLIO. Mr. Leon Dodge and Mr. Jay Ferrara co-manage the
assets of the S&P 100 Plus Portfolio. Information about Mr. Dodge is included
above under the discussion of the Government Portfolio. Mr. Ferrara is Vice
President - Portfolio Manager and Analyst for Ziegler Asset Management and
Assistant Vice President of Ziegler. He has more than ten years of experience
in the mutual fund industry. Prior to joining Principal Preservation, Mr.
Ferrara served as Senior Portfolio Accountant for Wells Fargo Nikko Investment
Advisors and, from 1993 to 1994, as Controller of the California Investment
Trust.
DIVIDEND ACHIEVERS PORTFOLIO. Since May, 1999, Mr. Jay Ferrara and Mr.
Leon Dodge have co-managed the assets of the Dividend Achievers Portfolio.
These two individuals also co-manage the assets of the S&P 100 Plus Portfolio.
In addition, Mr. Dodge assists with the management of the Government Portfolio,
and Mr. Ferrara manages the assets of the PSE Tech 100 Index Portfolio.
Information about Mr. Dodge is included above under the discussion for the
Government Portfolio, and information about Mr. Ferrara is included above under
the discussion for the S&P 100 Plus Portfolio.
SELECT VALUE PORTFOLIO. Beginning on March 1, 2000, Mr. Leon Dodge took
over as portfolio manager for the Select Value Portfolio. Information about Mr.
Dodge is included above under the discussion of the Government Portfolio.
PSE TECH 100 INDEX PORTFOLIO. Mr. Jay Ferrara has been the portfolio
manager for the PSE Tech 100 Index Portfolio since its inception June, 1996.
Information about Mr. Ferrara is included above under the discussion for the S&P
100 Plus Portfolio.
MANAGED GROWTH PORTFOLIO. An investment team, consisting of William A.
Priebe, Amy S. Croen and John J. O'Hare II, all of whom are officers of Geneva
and chartered financial analysts (CFAs), is primarily responsible for the day-
to-day management of the Managed Growth Portfolio's investments. The team
selects securities for investment after thorough discussion and approval by its
members. No stock may be bought or sold without prior team approval.
Mr. Priebe has been Principal and President of Geneva since 1987 after
having managed assets for First Wisconsin Trust Co. Mr. Priebe received an MBA
from the University of Chicago in 1977, an MA in Finance from Northern Illinois
University in 1968 and a BA from Northern Illinois University in 1965. Ms.
Croen has been Principal and Executive Vice President of Geneva since 1987,
after serving as a securities analyst for First Wisconsin Trust Co. for six
years. Ms. Croen received an MBA from Columbia University in 1979 and a BA from
Princeton University in 1975. Mr. O'Hare has been Vice President of Geneva
since 1997. From 1992 to 1997, he was a senior analyst at The Nicholas Funds.
Before then he was a securities analyst for Barrington Research and Kemper
Securities. Mr. O'Hare received a BA from the University of Wisconsin-
Whitewater in 1981.
PURCHASING SHARES
GENERAL INFORMATION
You may buy shares of any of the Portfolios through Ziegler and Selected
Dealers. You also may purchase shares in connection with asset allocation
programs, wrap free programs and other programs of services offered or
administered by broker-dealers, investment advisors, financial institutions and
certain other service providers, provided the program meets certain standards
established from time to time by Ziegler.
Principal Preservation discontinued issuing certificates for shares of the
Portfolios, because certain shareholder services are either cumbersome or
unavailable for certificated shares. If you hold previously issued certificates
for some or all of your shares, you cannot use certain shareholder services for
those shares, including telephone redemptions and exchanges and any systematic
withdrawal. Before you can redeem, transfer or exchange shares held in
certificate form, you must deliver the share certificate to the Transfer Agent
in negotiable form (with a signature guarantee).
THREE CLASSES OF SHARES
This prospectus describes three classes of shares; Class A shares, Class B
shares and Class C shares. Each class has its own sales charge and expense
structure, allowing you to choose the class that best meets your situation. Not
all classes are available in all Portfolios. Your investment representative can
help you choose the class most appropriate for you.
One guideline you should bear in mind is that if you are making a large
investment of $250,000 or more, either in a lump sum or pursuant to a letter of
intent, Class A shares likely will best suit your needs. This is true because
the front-end sales charge on Class A shares is reduced for larger size
purchases. At the same time, Class A shares carry a lower ongoing distribution
fee than Class B or Class C shares. The combination of these two factors likely
will mean that purchases of Class A shares in amounts of $250,000 or more will
minimize your overall cost, and thus maximize your overall total return, as
compared to an investment of the same amount in Class B shares or Class C
shares.
If you are considering a direct investment in shares of the Government
Portfolio, you should purchase Class A shares rather than Class C shares,
especially if you are considering a long term investment. This is true because
the overall expense structure of the Class C shares for the Government Portfolio
is considerably greater than the overall expense structure for its Class A
shares, which has a relatively modest front-end sales charge of 3.50%. We have
designed and made Class C shares of the Government Portfolio available for
purchase primarily by investors who hold Class C shares of another Principal
Preservation Portfolio and who wish to exchange into the Government Portfolio as
a temporary defensive strategy during times of market turmoil or uncertainty.
Class C shares of the Government Portfolio are not intended for persons who wish
to purchase and hold shares directly in the Government Portfolio.
The following table shows which Classes of shares are available for which
Portfolios, and highlights some of the differences between the three Classes.
<TABLE>
Class A Shares Class B Shares Class C Shares
- -------------- -------------- --------------
<S> <C> <C>
Available for all Portfolios Available for all Portfolios Available for all Portfolios,
except the Tax-Exempt and except the Tax-Exempt
Government Portfolios Portfolio, beginning May 8,
2000
Maximum front-end sales charge: No front-end sales charge 1.00% front-end sales charge
5.25% for the S&P 100 Plus,
Dividend Achievers, Select Value,
PSE Tech 100 Index and Managed
Growth Portfolios
3.50% for the Tax-Exempt and
Government Portfolios
No contingent deferred sales charge Maximum 5.0% contingent deferred sales 1.00% contingent deferred sales charge
charge (reducing each year you own your (which is eliminated after you own
shares, and going to zero after six years) your shares for 18 months)
Lower annual expenses, including the Higher annual expenses, including the Higher annual expenses, including the
12b-1 fee (0.25%), than Class B or 12b-1 fee (1.00%), than Class A shares 12b-1 fee (1.00%), than Class A shares
Class C shares
Automatic conversion to Class A shares No conversion to Class A shares, meaning
after eight years, reducing future annual that higher annual expenses continue for
expenses as long as you hold your Class C shares
</TABLE>
You should bear in mind that exchanges of shares among the various mutual
funds included in the Principal Preservation family can be made only for shares
of the same Class, except that Class A shares of any Principal Preservation
mutual fund may be exchanged for Class X (Retail Class) shares of the Cash
Reserve Portfolio, and vice versa. For example, Class B shares can be exchanged
only for shares of the other Portfolios that offer Class B shares.
MINIMUM PURCHASE AMOUNTS
The Portfolios have established minimum amounts that a person must invest
to open an account initially, and to add to the account at later times. These
minimum investment amounts help control each Portfolio's operating expenses.
Each Portfolio incurs certain fixed costs with the opening and maintaining of
every account and the acceptance of every additional investment, regardless of
the amount of the investment involved. Accordingly, the acceptance and
maintenance of small shareholder accounts and small additional investments
increases a Portfolio's operating expense ratio, and adversely affects its total
return. The table below shows the minimum initial investment amounts and
additional investment amounts currently in effect for each of the Portfolios for
various types of investors.
MINIMUM INITIAL MINIMUM ADDITIONAL
TYPE OF INVESTOR INVESTMENT AMOUNT INVESTMENT AMOUNT(1)<F33>
- ---------------- ----------------- -------------------------
All investors, except special
investors listed below $1,000 $50
IRAs, Keogh plans, self-directed
retirement accounts and custodial
accounts under the Uniform Gifts/
Transfers to Minors Act (see
"Shareholder Services") $500 $25
Purchases through Systematic
Purchase Plans (see "Shareholder
Services - Systematic Purchase
Plan") $100 $100(2)<F34>
(1)<F33> There is no minimum additional investment requirement for purchases of
shares of any of the Portfolios if: (i) the purchase is made in
connection with an exchange from another mutual fund within the
Principal Preservation family of funds (see "Redeeming and Exchanging
Shares - Exchanging Shares"); (ii) reinvestment of distributions
received from another mutual fund within the Principal Preservation
family of funds or from various unit investment trusts sponsored by
Ziegler; (iii) the reinvestment of interest and/or principal payments
on bonds issued by Ziegler Mortgage Securities, Inc. II; and (iv)
reinvestments of interest payments on bonds underwritten by Ziegler.
(2)<F34> The minimum subsequent monthly investment under a Systematic Purchase
Plan is $50 for IRAs, Keogh plans, self-directed retirement plan
accounts and custodial accounts under the Uniform Gifts/Transfers to
Minors Act until the account balance reaches $500, after which the
minimum additional investment amount is reduced to $25. The minimum
subsequent investment amount also is reduced to $50 for all other
accounts with balances of $1,000 or more.
PURCHASING CLASS A SHARES
FRONT-END SALES CHARGE. You may purchase Class A shares of each Portfolio
at net asset value plus any sales charge that applies (the "public offering
price"). The maximum front-end sales charge is 3.50% of the public offering
price for the Tax-Exempt and Government Portfolios, and 5.25% of the public
offering price for the S&P 100 Plus, Dividend Achievers, Select Value and PSE
100 Index Portfolios. The front-end sales charge is reduced or eliminated on
certain purchases, as described below.
The table below shows the front-end sales charges (expressed as a
percentage of the public offering price and of the net amount invested) in
effect for sales of Class A shares of each of the Portfolios. None of the
Portfolios will issue shares for consideration other than cash, except in the
case of a bonafide reorganization or statutory merger or in certain other
acquisitions of portfolio securities which meet the requirements of applicable
state securities laws.
PUBLIC OFFERING NET AMOUNT
SIZE OF INVESTMENT PRICE INVESTED
------------------ --------------- ---------
TAX-EXEMPT AND GOVERNMENT PORTFOLIOS:
Less than $25,000 3.50% 3.63%
$25,000 but less than $50,000 3.00% 3.09%
$50,000 but less than $100,000 2.50% 2.56%
$100,000 but less than $250,000 2.00% 2.04%
$250,000 but less than $500,000 1.50% 1.52%
$500,000 but less than $1,000,000 1.00% 1.01%
$1,000,000 or more None None
S&P 100 PLUS, DIVIDEND ACHIEVERS, SELECT VALUE, PSE TECH 100 INDEX AND MANAGED
GROWTH PORTFOLIOS:
Less than $25,000 5.25% 5.54%
$25,000 but less than $50,000 5.00% 5.26%
$50,000 but less than $100,000 4.75% 4.98%
$100,000 but less than $250,000 3.75% 3.40%
$250,000 but less than $500,000 3.00% 3.09%
$500,000 but less than $1,000,000 2.00% 2.04%
$1,000,000 or more None None
REDUCED FRONT-END SALES CHARGES. There are several ways to pay a lower
sales charge. One is to increase the initial investment to reach a higher
discount level. The scale in the table above applies to initial purchases of
Principal Preservation shares by any "purchaser." The term "purchaser" includes
(1) an individual, (2) the individual's spouse and their children under the age
of 21 purchasing shares for their own accounts, (3) a trustee or other fiduciary
purchasing shares for a single trust estate or single fiduciary account, (4) a
pension, profit-sharing, or other employee benefit plan qualified or non-
qualified under Section 401 of the Internal Revenue Code, (5) tax-exempt
organizations enumerated in Section 501(c)(3) or (13) of the Code, (6) employee
benefit plans qualified under Section 401 of the Code of a single employer or
employers who are "affiliated persons" of each other within the meaning of
Section 2(a)(3)(c) of the Act, or (7) any other organized group of persons,
whether incorporated or not, provided the organization has been in existence for
at least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount.
Another way to pay a lower sales charge is for a "purchaser" to add to his
or her investment so that the public offering price of his or her shares, plus
the new investment, reaches a higher discount level. For example, if the public
offering price of your shares in the Portfolios equals $100,000, you will pay a
reduced sales charge on additional purchases of shares. If you invested an
additional $100,000, the sales charge would be 2.00% in the Government and Tax-
Exempt Portfolios on that additional investment and 3.75% in the S&P 100 Plus,
Dividend Achievers, Select Value and PSE Tech 100 Index Portfolios. You can
aggregate your holdings of Class A and Class B shares in all Portfolios that
have a sales charge to determine the break-point at which you may purchase in
any Portfolio.
A third way is for a "purchaser" to sign a non-binding statement of
intention to invest $25,000 or more over a 13 month period in any one or
combination of Principal Preservation Portfolios which have a sales charge. If
you complete your purchases during that period, each purchase will be at a sales
charge applicable to the aggregate of your intended purchases. Under terms set
forth in your statement of intention, we will escrow shares valued at 5% of the
amount of your intended purchase, and we will redeem some or all of those shares
to cover the additional sales charge payable if you do not complete your
statement. We will release any remaining shares held in escrow to you. You
will continue to earn dividends and capital gains distributions declared by a
Portfolio with respect to shares held in escrow.
Members of a qualified group also may purchase Class A shares at a reduced
front-end sales charge. We calculate the sales charge for such persons by
taking into account the aggregate dollar value of shares of all Principal
Preservation shares subject to a sales charge being purchased or currently held
by all members of the group. Further information on group purchases is
contained in "Purchase of Shares" in the Statement of Additional Information.
To receive the benefit of the reduced sales charge, you must inform
Principal Preservation, Ziegler or the Selected Dealer that you qualify for such
a discount.
PURCHASES WITHOUT A FRONT-END SALES CHARGE. Various types of purchasers
may buy Class A shares of the Portfolios at net asset value (that is, without a
front-end sales charge), as described below.
$1.0 Million Purchases You may purchase Class A shares at net asset value
if you purchase at least $1.0 million of shares or
the value of your account at the time of your
purchase is at least $1.0 million, provided you
make your purchase through a Selected Dealer who
has executed a dealer agreement with Ziegler. The
Distributor may make a payment or payments, out of
its own funds, to the Selected Dealer in an amount
not to exceed 0.75 of 1% of the amount invested.
All or a part of such payment may be conditioned
on the monies remaining invested with Principal
Preservation for a minimum period of time.
Employee Benefit Plans Any pension, profit sharing or other employee
benefit plan qualified under Section 401 of the
Internal Revenue Code that purchased shares prior
to July 1, 1998 may continue to purchase Class A
shares at net asset value. Also any plan
qualified under Section 401(k) of the Internal
Revenue Code may purchase Class A shares at net
asset value. If such a plan purchases shares of
any of the Portfolios through a Selected Dealer,
the Distributor may make a payment or payments,
out of its own funds, to the Selected Dealer in an
amount not to exceed 0.75 of 1% of the amount
invested.
State and Municipal Class A shares of the Portfolios also may be
Governments and Charities purchased at net asset value without a sales
charge by any state, county or city, or any
instrumentality, department, authority or agency
thereof, and by any nonprofit organization
operated for religious, charitable, scientific,
literary, educational or other benevolent purpose
which is exempt from federal income tax pursuant
to Section 501(c)(3) of the Internal Revenue Code;
provided that any such purchaser must purchase at
least $500,000 of Class A shares, or the value of
such purchaser's account at the time of purchase
must be at least $500,000.
Persons Associated with Class A shares may be purchased at net asset value
Principal Preservation and by: Directors and officers of Principal
Its Service Providers Preservation (including shares purchased jointly
with or individually by any such person's spouse
and shares purchased by any such person's children
or grandchildren under age 21); employees of
Ziegler, Selected Dealers, and Geneva, and the
trustee or custodian under any pension or profit-
sharing plan established for the benefit of the
employees of any of the foregoing; and non-
employee directors of The Ziegler Companies, Inc.
Also, employees of the Pacific Stock Exchange may
purchase Class A shares of the PSE Tech 100 Index
Portfolio at net asset value. The term "employee"
includes an employee's spouse (including the
surviving spouse of a deceased employee), parents
(including step-parents and in-laws), children,
grandchildren under age 21, siblings, and retired
employees.
Reinvestments of Class A shares may be purchased without a sales
Distributions From charge upon the reinvestment of distributions from
Principal Preservation any Principal Preservation mutual fund, or
Mutual Funds and Other investment of distributions from various unit
Investment Vehicles investment trusts sponsored by Ziegler; the
Sponsored by Ziegler reinvestment of principal or interest payments on
bonds issued by Ziegler Mortgage Securities, Inc.
II; or the reinvestment of interest payments on
bonds underwritten by Ziegler.
Purchases Through Certain You may purchase Class A shares without a sales
Investment Programs charge through an asset allocation program, wrap
fee program or similar program of services
administered for you by a broker-dealer,
investment advisor, financial institution or other
service provider, provided the program meets
certain standards established from time to time by
Ziegler. You should read the program materials
provided by the service provider, including
information related to fees, in conjunction with
this Prospectus. Certain features of a Portfolio
may not be available or may be modified in
connection with the program of services. When you
purchase shares this way, the service provider,
rather than you as the service provider's
customer, may be the shareholder of record for the
shares. The service provider may charge fees of
its own in connection with your participation in
the program of services. Certain service
providers may receive compensation from Principal
Preservation and/or Ziegler for providing such
services.
Reinvestment Privilege If you redeem Class A shares, you may reinvest all
or part of the redemption proceeds in Class A
shares of the same Portfolio, without a front-end
sales charge, if you send written notice to
Principal Preservation or the Transfer Agent not
more than 90 days after the shares are redeemed.
Your redemption proceeds will be reinvested on the
basis of net asset value of the shares in effect
immediately after receipt of the written request.
You may exercise this reinvestment privilege only
once upon redemption of your shares. Any capital
gains tax you incur on the redemption of your
shares is not altered by your subsequent exercise
of this privilege. If the redemption resulted in
a loss and reinvestment is made in shares, the
loss will not be recognized.
PURCHASING CLASS B SHARES
You may purchase Class B shares of any of the S&P 100 Plus, Dividend
Achievers, Select Value, PSE Tech 100 Index and Managed Growth Portfolios at net
asset value with no front-end sales charge. However, you pay a contingent
deferred sales charge (expressed as a percent of the lesser of the net asset
value at the time of redemption or at the time of your original purchase) if you
redeem your Class B shares within six years after purchase. No contingent
deferred sales charge is imposed on any shares that you acquire through the
reinvestment of dividends and capital gains distributions paid by the Portfolio
on your Class B shares. To reduce your cost, when you redeem shares in a
Portfolio, you will redeem either shares that are not subject to a contingent
deferred sales charge (i.e., those purchased through the reinvestment of
dividends and capital gains), if any, or shares with the lowest contingent
deferred sales charge. We will waive the contingent deferred sales charge for
redemptions of shares following the death or disability of a shareholder, for
mandatory or hardship distributions from retirement plans, IRAs and 403(b)
plans, to meet certain retirement plan requirements, or for systematic
withdrawal plans not to exceed 10% annually.
CONTINGENT DEFERRED SALES CHARGE. The table below shows the contingent
deferred sales charge applicable to Class B shares of the S&P 100 Plus, Dividend
Achievers, Select Value and PSE Tech 100 Index Portfolios based on how long you
hold the shares before redeeming them. The percentages reflected in the table
are based on the lesser of the net asset value of your Class B shares at the
time of purchase or at the time of redemption.
HOLDING CONTINGENT DEFERRED SALES CHARGE
- ------- --------------------------------
1 Year or less 5.00%
More than 1 Year, but less than 3 Years 4.00%
3 Years, but less than 4 Years 3.00%
4 Years, but less than 5 Years 2.00%
5 Years, but less than 6 Years 1.00%
6 Years or More(1)<F35> None
(1)<F35> Class B shares convert to Class A shares automatically after eight
years.
Selected Dealers who sell Class B shares of a Portfolio receive a
commission from Ziegler in an amount equal to 4.00% of the net asset value of
the shares sold.
PURCHASING CLASS C SHARES
Beginning on May 8, 2000, you may purchase Class C shares of any of the
Government, S&P 100 Plus, Dividend Achievers, Select Value, PSE Tech 100 Index
and Managed Growth Portfolios at net asset value plus a front-end sales charge
equal to 1.00% of the public offering price (or 1.01% of the net amount
invested). You also pay a contingent deferred sales charge if you redeem any of
your Class C shares within 18 months after purchase. The amount of the
contingent deferred sales charge is 1.00% of the net asset value of the shares
measured as of the date of redemption or the date of purchase, whichever is
less. No front-end or contingent deferred sales charge is imposed on any shares
that you acquire through the reinvestment of dividends and capital gains
distributions paid by the Portfolio on your Class C shares. To reduce your
costs, when you redeem shares in a Portfolio, we will first redeem shares that
are not subject to the contingent deferred sales charge (i.e., those held for
more than 18 months or those purchased through the reinvestment of dividends and
capital gains distributions), if any. We will waive the contingent deferred
sales charge for redemptions of Class C shares following the death or disability
of a shareholder, for mandatory or hardship distributions from retirement plans,
IRAs and 403(b) plans, or to meet certain retirement plan requirements.
If you are considering a direct investment in the Government Portfolio, you
should purchase Class A shares, not Class C shares. For an explanation, see
"Purchasing Shares - Three Classes of Shares."
DISTRIBUTION AND DISTRIBUTION EXPENSES
In addition to the front-end or contingent deferred sales charges that
apply to the purchase of shares, each Portfolio is authorized under a
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act to use
a portion of its assets to finance certain activities relating to the
distribution of its shares to investors, the maintenance of shareholder accounts
and the provision of other shareholder services. Because each Portfolio pays
these fees out of its own assets on an ongoing basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
The Plan permits each Portfolio to make payments to the Distributor to
reimburse it for expenditures it incurs in connection with the distribution of
each Portfolio's shares to investors, and to compensate the Distributor in
connection with sales of Class B and Class C shares. The reimbursement payments
include, but are not limited to, payments made by the Distributor to selling
representatives or brokers as a service fee, and costs and expenses incurred by
the Distributor for advertising, preparation and distribution of sales
literature and prospectuses to prospective investors, implementing and operating
the Plan and performing other promotional or administrative activities on behalf
of each of the Portfolios. Plan payments may also be made to reimburse the
Distributor for its overhead expenses related to distribution of the Portfolio's
shares. No reimbursement may be made under the Plan for expenses of the past
fiscal years or in contemplation of expenses for future fiscal years.
Under the Plan, each Portfolio assesses a service fee of up to 0.25 of 1%
of the Portfolio's average daily net assets for all three Classes of shares.
This shareholder servicing fee is used to reimburse the Distributor for certain
shareholder services as described above. In addition, the Portfolios that offer
Class B and Class C shares assess a distribution fee of 0.75 of 1% of the
portion of the Portfolio's average daily net assets represented by its those
respective Classes. This distribution fee is compensatory in nature, meaning
the Distributor is entitled to receive the fee regardless of whether its costs
and expenses equal or exceed the fee. Class B shares automatically convert to
Class A shares eight years after purchase, after which time the shares no longer
are subject to this distribution fee but, like all other Class A shares, remain
subject to the service fee. Unlike Class B shares, Class C shares do not
convert to Class A shares, and as a result Class C shares remain subject to the
entire 1.00% 12b-1 distribution and service fees for the entire time that you
hold your shares.
The Plan continues in effect, if not sooner terminated, for successive one-
year periods, provided that its continuance is specifically approved by the vote
of the Directors, including a majority of the Directors who are not interested
persons of any of the Advisors.
METHODS FOR PURCHASING SHARES
All purchases must be in U.S. dollars. Checks must be drawn on a U.S.
bank, and must be made payable to Principal Preservation. We will not accept
third-party checks, cash or traveler's checks. If your check does not clear,
your purchase will be canceled and you will be responsible for any losses and
any applicable fees. If you buy shares by any type of check, wire transfer or
automatic investment purchase, and soon thereafter you elect to redeem your
shares, we may withhold your redemption payment 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 Principal Preservation has
received payment for the shares you are redeeming before returning that payment
to you.
We will 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 have entered
into an agreement with Principal Preservation appointing the firm as an agent of
Principal Preservation for the purpose of accepting share purchase and
redemption orders. Those financial services firms also may designate other
intermediaries to accept share purchase and redemption orders on their behalf.
If your purchase order is received prior to the close of trading on the New York
Stock Exchange, it will be invested based on the net asset value computed for
the relevant Portfolio on that day. If your order is received after the close
of trading on the New York Stock Exchange, it will be invested based on the net
asset value determined for the relevant Portfolio as of the close of trading on
the New York Stock Exchange on the next business day.
The following describes the different ways in which you may purchase shares
and the procedures you must follow in doing so.
<TABLE>
METHOD TO OPEN A NEW ACCOUNT TO ADD TO AN EXISTING ACCOUNT
- ----------------------------------- --------------------------------------------- ------------------------------------------
<S> <C> <C>
BY MAIL OR PERSONAL DELIVERY 1. Complete the Account Appli cation 1. Complete the Additional In vestment
included in this prospectus. form included with your account
Personally deliver or send by First 2. Make your check or money order payable statement. Alternatively, you may
Class or Express Mail or Private to: "Principal Preservation." write a note indicating your account
Delivery Service to: number.
Note: The amount of your pur chase must
Principal Preservation meet the applicable minimum initial 2. Make your check payable to "Principal
c/o PFPC Global Fund investment account. See "Purchasing Preservation."
Services Shares - Minimum Purchase Amounts."
P.O. Box 60504 3. Personally deliver or mail the
King of Prussia, PA 19406 3. Personally deliver or mail the completed Additional Investment Form (or note)
Account Application and your check or and your check or money order.
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 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 exchanging Add to an account by exchanging funds from
funds from an existing Principal Preservation another Principal Preservation account.
account. See "Redeeming and Exchanging See "Redeeming and Exchanging Shares -
Shares - Exchanging Shares." Exchanging Shares."
FINANCIAL SERVICES FIRMS You may purchase shares in a Portfolio through You may purchase additional shares in a
a broker-dealer or other financial service Portfolio through a broker-dealer or other
firm that may charge a transaction fee. financial services firm that may charge a
transaction fee.
Principal Preservation may accept requests Principal Preservation may accept requests
to purchase shares into a broker-dealer street to purchase additional shares into a
name account only from the broker-dealer. broker-dealer street name account only
from the broker-dealer.
</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. We redeem Class A shares at net
asset value. We redeem Class B shares and Class C shares at net asset value,
less the amount of the remaining contingent deferred sales charge, if any,
depending on how long you have held the shares. If we receive your redemption
order 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
1-800-826-4600 You may use Principal Preservation's Telephone
Redemption Privilege to redeem shares valued at
less than $50,000, unless you have notified the
Transfer Agent of an address change within the
preceding 30 days. The Transfer Agent will send
redemption proceeds only to the shareholder of
record at the address shown on the Transfer
Agent's records. However, if you have provided
the Transfer Agent with a signature guarantee, the
Transfer Agent will wire redemption proceeds to a
predesignated bank account.
Unless you indicate otherwise on your account
application, the Transfer Agent may accept
redemption instructions received by telephone.
The Telephone Redemption Privilege is not
available for shares represented by stock
certificates.
BY MAIL To redeem shares by mail, send the following
information to the Transfer Agent:
Address to:
- -----------
Principal Preservation O A written request for redemption signed by
c/o PFPC Global Fund the registered owner(s) of the shares,
Services exactly as the account is registered,
P.O. Box 60504 together with the shareholder's account
King of Prussia, PA 19406 number;
O The certificates for the shares being
redeemed, if any;
O Any required signature guarantees (see "Other
Information 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 promptly will notify you if your redemption
request cannot be accepted. The Transfer Agent
cannot accept redemption requests which specify a
particular date for redemption or which specify
any special conditions.
SYSTEMATIC WITHDRAWAL PLAN You can set up an automatic systematic withdrawal
plan from any of your Principal Preservation
accounts. To establish the systematic withdrawal
plan, complete the appropriate section of the
Account Application or call, write or stop by
Principal Preservation and request a Systematic
Withdrawal Plan Application Form and complete,
sign and return the Form to Principal
Preservation. See "Shareholder Services -
Systematic Withdrawal Plan."
Financial Services Firms You also may redeem shares through broker-dealers,
financial advisory firms and other financial
institutions, which may charge a commission or
other transaction fee in connection with the
redemption.
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 accepting the Telephone Redemption Privilege,
you authorize PFPC Global Fund Services 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 accepting the telephone redemption services. The Transfer Agent
has implemented procedures designed to reasonably assure that telephone
instructions are genuine. These procedures include recording telephone
conversations, requesting verification of various pieces of personal information
and providing written confirmation of such transactions. If the Transfer Agent,
Principal Preservation, or any of their employees fails to abide by these
procedures, Principal Preservation may be liable to a shareholder for losses the
shareholder suffers from any resulting unauthorized transaction(s). However,
none of the Transfer Agent, Principal Preservation or any of their employees
will be liable for losses suffered by a shareholder which result from following
telephone instructions reasonably believed to be genuine after verification
pursuant to these procedures. This service may be changed, modified or
terminated at any time. There is currently no charge for telephone redemptions,
although a charge may be imposed in the future.
SIGNATURE GUARANTEES. To protect you, the Transfer Agent and Principal
Preservation from fraud, we require signature guarantees 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 or
telephone 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; and (4) 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.
CLOSING SMALL ACCOUNTS. If, due to redemption, your account in a Portfolio
drops below $500 for three months or more, the Portfolio has the right to redeem
your account, after giving 60 days' written notice, unless you make additional
investments to bring the account value to $1,000 or more.
SUSPENSION OF REDEMPTIONS. Principal Preservation may suspend the right to
redeem shares of one or more of the Portfolios for any period during which: (1)
the Exchange is closed or the Securities and Exchange Commission determines that
trading on the Exchange is restricted; (2) there is an emergency as a result of
which it is not reasonably practical for the Portfolio(s) to sell its securities
or to calculate the fair value of its net assets; or (3) the Securities and
Exchange Commission may permit for the protection of the shareholders of the
Portfolio(s).
REDEMPTIONS IN OTHER THAN CASH. It is possible that conditions may arise
in the future which would, in the opinion of the Board of Directors of Principal
Preservation, make it undesirable for a Portfolio to pay for all redemptions in
cash. In such cases, the Board may authorize payment to be made in securities
or other property of a Portfolio. However, the Portfolios have obligated
themselves under the 1940 Act to redeem for cash all shares presented for
redemption by any one shareholder up to $250,000 (or 1% of a Portfolio's net
assets if that is less) in any 90-day period. Securities delivered in payment
of redemptions would be valued at the same value assigned to them in computing
the net asset value per share. Persons receiving such securities would incur
brokerage costs when these securities are sold.
EXCHANGING SHARES
GENERAL INFORMATION
Subject to compliance with applicable minimum investment requirements, you
may exchange your shares of any Principal Preservation mutual fund (including
any of the Portfolios) for shares of the same Class of any other Principal
Preservation mutual fund in any state where the exchange legally may be made.
Additionally, you may exchange Class A shares of any Principal Preservation
mutual fund (including any of the Portfolios) for Class X (Retail Class) shares
of the Cash Reserve Portfolio, and vice versa. Before engaging in any exchange,
you should obtain from Principal Preservation and read the current prospectus
for the mutual fund into which you intend to exchange. There presently is no
administrative charge for exchanges, but you may be subject to a sales charge.
See "Sales Charges Applicable to Exchanges" below.
An exchange of shares is considered a redemption of the shares of the
Principal Preservation mutual fund from which you are exchanging, and a purchase
----------
of shares of the Principal Preservation mutual fund into which you are
----------
exchanging. Accordingly, you must comply with all of the conditions on
redemptions for the shares being exchanged, and with all of the conditions on
purchases for the shares you receive in the exchange. Moreover, for tax
purposes you will be considered to have sold the shares exchanged, and you will
realize a gain or loss for federal income tax purposes on that sale.
SALES CHARGES APPLICABLE TO EXCHANGES
EXCHANGING CLASS A SHARES. If your exchange involves Class A shares, you
will pay the standard front-end sales charge applicable to purchases of Class A
shares of the Principal Preservation mutual fund into which you are exchanging
(as disclosed in the then current prospectus for that Principal Preservation
mutual fund), less any front-end sales charge you paid when you purchased the
shares you are exchanging, if any. For example, if you exchange Class A shares
of the Tax-Exempt Portfolio for Class A shares of the S&P 100 Plus Portfolio,
you would pay a front-end sales charge on the exchange in an amount equal to the
difference between: (a) the front-end sales charge you paid when you purchased
your S&P 100 Plus Portfolio shares (a maximum of 5.25%); minus (b) the front-end
sales charge applicable to your purchase of Class A shares of the Tax-Exempt
Portfolio (a maximum of 3.50%), or a maximum of 1.75%. However, if the shares
you are exchanging represent an investment held for at least six months in any
one or more Principal Preservation mutual funds (other than the Cash Reserve
Portfolio), then Principal Preservation will not charge any additional front-end
sales charge in connection with the exchange.
EXCHANGING CLASS B AND CLASS C SHARES. You may exchange Class B and Class
C shares in a Portfolio only for shares of the same class of another Portfolio.
You will not pay a contingent deferred sales charge on any such exchange.
However, the new shares you receive in the exchange will remain subject to a
contingent deferred sales charge based on the period of time for which you held
the Class B or Class C shares you are exchanging.
RULES AND REQUIREMENTS FOR EXCHANGES
GENERAL. In order to effect an exchange on a particular business day,
Principal Preservation must receive an exchange order in good form no later than
3:00 p.m. Eastern Time. Principal Preservation may amend, suspend or revoke
this exchange privilege at any time, but will provide shareholders at least 60
days' prior notice of any change at adversely affects their rights under this
exchange privilege.
An excessive number of exchanges may be disadvantageous to Principal
Preservation. Therefore, Principal Preservation reserves the right to terminate
the exchange privilege of any shareholder who makes more than three exchanges in
any twelve consecutive month period or who makes more than one exchange during
any calendar quarter.
The following additional rules and requirements apply to all exchanges:
o The shares you receive in the exchange must be of the same Class as
the shares you are exchanging, except that Class A shares of any
Portfolio may be exchanged for Class X shares of the Cash Reserve
Portfolio and vice versa.
o The account into which you wish to exchange must be identical to the
account from which you are exchanging (meaning the account into which
you are exchanging must be of the same type as the account from which
you are exchanging, and the registered owner(s) of the account into
which you are exchanging must have the same name(s), address and
taxpayer identification or social security number as the registered
owner(s) on the account from which you are exchanging).
o The amount of your exchange must meet the minimum initial or minimum
additional investment amount of the Principal Preservation mutual fund
into which you are exchanging.
o If the shares being exchanged are represented by a share certificate,
you must sign the certificate(s), have your signature guaranteed and
return the certificate(s) with your Exchange Authorization Form.
METHODS FOR EXCHANGING SHARES. Set forth below is a description of the
different ways you can exchange shares of Principal Preservation mutual funds
and procedures you should follow when doing so.
METHOD STEPS TO FOLLOW
- ------ ---------------
BY MAIL OR PERSONAL Mail your exchange order to Principal
DELIVERY Preservation.
Personally deliver or send Please Note: Principal Preservation must receive
by first class or express -----------
mail or private delivery your exchange order no later than 3:00 p.m.
addressed to: Eastern Time in order to effect an exchange on
that business day.
Principal Preservation
c/o PFPC Global Fund
Services
P.O. Box 60504
King of Prussia, PA 19406
BY TELEPHONE
1-800-826-4600 You receive telephone exchange privileges when you
open your account. To decline the telephone
exchange privilege, you must check the appropriate
box on the Application Form when you open your
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.
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 is further
reduced to $25. The minimum subsequent investment is also reduced to $50 for
all other accounts with balances of $1,000 or more. By participating in the
SPP, you may automatically make purchases of Principal Preservation shares on a
regular, convenient basis. Under the SPP, your bank or other financial
institution honors preauthorized debits of a selected amount drawn on your
account each month and applied to the purchase of Principal Preservation shares.
You can establish 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 how to establish the SPP from your registered
representative, the Distributor or Principal Preservation.
SYSTEMATIC WITHDRAWAL PLAN. The systematic withdrawal plan involves the
planned redemption of shares on a periodic basis by receiving either fixed or
variable amounts at periodic intervals. You may establish a systematic
withdrawal plan if you own or purchase shares having a current offering price
value of at least $10,000 in a single Portfolio (except no such minimum applies
for distributions from an IRA). The minimum amount you may receive under a
systematic withdrawal plan is $150 per month. Normally, you would not make
regular investments at the same time you are receiving systematic withdrawal
payments because it is not in your interest to pay a sales charge on new
investments when, in effect, a portion of your new investment is soon withdrawn.
The minimum investment accepted while a withdrawal plan is in effect is $1,000.
You may terminate your systematic withdrawal plan at any time by written notice
to Principal Preservation or the Transfer Agent.
REINVESTMENT OF DISTRIBUTIONS OR INTEREST PAYMENTS. Unit holders of
Ziegler-sponsored unit investment trusts, holders of Ziegler Mortgage
Securities, Inc. II bonds and holders of bonds underwritten by Ziegler may
purchase shares of Principal Preservation by automatically reinvesting
distributions from their unit investment trust, reinvesting principal or
interest from their Ziegler Mortgage Securities, Inc. II bonds, or reinvesting
interest from the bonds underwritten by Ziegler, as the case may be. Unit
holders and bondholders desiring to participate in this plan should contact the
Distributor for further information.
TAX-SHELTERED RETIREMENT PLANS. The following tax-sheltered plans may
purchase shares of the Portfolios: (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 and prototypes of these plans and other information from the
Distributor. You should carefully review and consider this information and
these materials with your tax or financial adviser. Conventional IRA investors
do not receive the benefits of long-term capital gains treatment when funds are
distributed from their account.
OTHER INFORMATION
DETERMINATION OF NET ASSET VALUE PER SHARE
We determine the net asset value per share of each Portfolio daily by
adding up the total value of the Portfolio's investments and other assets and
subtracting any of its liabilities, or debts, and then dividing by the number of
outstanding shares of the Portfolio. For this purpose, we value each
Portfolio's investments at the closing price listed for the relevant security on
the securities exchange on which it trades, unless no closing price is
available. The net asset value per share is calculated each business day,
Monday through Friday, except on customary national business holidays which
result in closing of the New York Stock Exchange (the "Exchange"). The
calculation is as of the close of regular trading on the Exchange (4:00 p.m.
Eastern time) for the S&P 100 Plus, Dividend Achievers, Select Value, PSE Tech
100 Index and Managed Growth Portfolios, 2:30 p.m. Eastern time for the Tax-
Exempt Portfolio, and 3:00 p.m. Eastern time for the Government Portfolio.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND REINVESTMENTS
The Government and Tax-Exempt Portfolios declare dividends daily and pay
them monthly. The S&P 100 Plus, Select Value, Dividend Achievers, PSE Tech 100
Index and Managed Growth Portfolios declare and pay their dividends quarterly.
You may elect to receive your dividends either in cash or additional shares at
net asset value (without a sales charge). You may also direct the Transfer
Agent to invest the dividends in shares of any other Principal Preservation
portfolio for which you have an account. We reinvest dividends on the same day
they are distributed to shareholders. Unless you have elected in writing to the
Transfer Agent to receive dividends and capital gain distributions in cash, we
automatically will reinvest them in additional shares of the relevant Portfolio.
Capital gains distributions, if any, in all Portfolios will be declared
annually and normally will be paid within 45 days after the end of the fiscal
year.
TAX STATUS
Each Portfolio distributes substantially all of its net income and capital
gains. We will annually report to you the federal income tax status of all
distributions. You will be taxed on each Portfolio's distributions (other than
exempt-interest dividends distributed by the Tax-Exempt Portfolio) when they are
paid, whether you elect to take them in cash or to reinvest them in additional
shares, except that distributions declared in December and paid in January each
year will be taxable to you as if you received them on December 31 of the
earlier year.
With the exception of exempt-interest dividends distributed by the Tax-
Exempt Portfolio, distributions will be taxable as ordinary income or capital
gains. Capital gains may be taxed at different rates, depending on how long the
Portfolio holds its assets.
That part of the Tax-Exempt Portfolio's net investment income which is
attributable to interest from tax-exempt securities and which is distributed to
shareholders will be designated as an "exempt-interest dividend" under the Code.
The exemption of exempt-interest dividends for federal income tax purposes does
not necessarily result in exemption under the tax laws of any state or local
taxing authority which vary with respect to the taxation of such dividend
income. It is possible that some states will exempt from tax that portion of
the exempt-interest dividend which represents interest received by the Tax-
Exempt Portfolio on that state's securities. Therefore, the Tax-Exempt
Portfolio will report annually to its shareholders the percentage of interest
income received on a state-by-state basis. You should consult with your tax
adviser regarding the extent, if any, to which exempt-interest dividends are
exempt under state laws applicable to your dividend distributions.
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the
Portfolios' financial performance for the past 5 years (or such shorter period
as the particular Portfolio has been in operation). Certain information reflects
financial results for a single share of a Portfolio. The total returns in the
tables represent the rate that an investor would have earned on an investment in
the Portfolios (assuming reinvestment of all dividends and distributions). This
information has been audited by Arthur Andersen LLP, whose report, along with
the Portfolios' financial statements, is included in the Annual Report to
Shareholders. The Annual Report is available upon request.
<TABLE>
TAX-EXEMPT PORTFOLIO
----------------------------------------------------------------------------
FOR THE TEN FOR THE YEARS ENDED DECEMBER 31,
MONTHS ENDED -------------------------------------------------
OCTOBER 31, 1999 1998 1997 1996 1995
---------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
NET ASSET VALUE, BEGINNING OF PERIOD $9.24 $9.52 $9.30 $9.39 $ 8.36
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .29 .37 .41 .43 .45
Net realized and unrealized gains
(losses) on investments (1.01) .03 .44 (.09) 1.03
Total from investment operations (.72) .40 .85 .34 1.48
LESS DISTRIBUTIONS:
Dividends from net investment income (.29) (.37) (.41) (.43) (.45)
Distributions from net realized
gains on investments -- (.31) (.22) -- --
----- ----- ----- ----- -----
Total distributions (.29) (.68) (.63) (.43) (.45)
----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD $8.23 $9.24 $9.52 $9.30 $9.39
----- ----- ----- ----- -----
----- ----- ----- ----- -----
TOTAL RETURN**<F36> (7.8)%++<F38> 4.3% 9.4% 3.8% 18.1%
RATIOS/ SUPPLEMENTAL DATA:
Net assets, end of period (to nearest thousand) $42,954 $54,914 $60,252 $66,310 $56,443
Ratio of net expenses to average net assets 1.2%*<F35> 1.1% 1.1% 1.1%+<F37> 1.0%+<F37>
Ratio of net investment income to
average net assets 4.0%*<F35> 3.9% 4.4% 4.7%+<F37> 4.9%+<F37>
Portfolio turnover rate 39.1%++<F38> 236.7% 209.2% 163.1% 105.9%
</TABLE>
*<F35> Annualized.
**<F36> The front-end sales charge for Class A shares is not reflected in total
return as set forth in the table.
+<F37> Reflects a voluntary reimbursement of expenses of 0.1% in 1996 and 0.01%
in 1995.
++<F38> Not Annualized.
<TABLE>
GOVERNMENT PORTFOLIO
----------------------------------------------------------------------------
FOR THE TEN FOR THE YEARS ENDED DECEMBER 31,
MONTHS ENDED -------------------------------------------------
OCTOBER 31, 1999 1998 1997 1996 1995
---------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per Share Data:
NET ASSET VALUE, BEGINNING OF PERIOD $9.55 $9.28 $9.20 $9.64 $ 8.84
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .47 .55 .63 .64 .61
Net realized and unrealized gains
(losses) on investments (.63) .27 .08 (.44) .80
Total from investment operations (.16) .82 .71 .20 1.41
LESS DISTRIBUTIONS:
Dividends from net investment income (.47) (.55) (.63) (.64) (.61)
Distributions from net realized
gains on investments -- -- -- -- --
----- ----- ----- ----- -----
Total distributions (.47) (.55) (.63) (.64) (.61)
----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD $8.92 $9.55 $9.28 $9.20 $9.64
----- ----- ----- ----- -----
----- ----- ----- ----- -----
TOTAL RETURN**<F40> (1.7)%++<F42> 9.1% 8.1% 2.3% 16.3%
RATIOS/ SUPPLEMENTAL DATA:
Net assets, end of period (to nearest thousand) $37,379 $40,088 $40,683 $44,920 $49,319
Ratio of net expenses to average net assets 1.2%*<F39> 1.2% 1.1%+<F41> 1.1%+<F41> 1.1%+<F41>
Ratio of net investment income to
average net assets 6.2%*<F39> 5.9% 7.0%+<F41> 7.0%+<F41> 6.5%+<F41>
Portfolio turnover rate 30.3%++<F42> 87.7% 78.6% 36.9% 68.2%
</TABLE>
*<F39> Annualized.
**<F40> The front-end sales charge for Class A shares is not reflected in
total return as set forth in the table.
+<F41> Reflects a voluntary reimbursement of expenses of 0.04% in each of
1997 and 1996 and 0.02% in 1995.
++<F42> Not Annualized.
<TABLE>
S&P 100 PLUS PORTFOLIO
-----------------------------------------------------------------------------------
FOR THE
PERIOD FROM
7/27/98
(COMMENCE-
FOR THE TEN MENT OF FOR THE YEARS ENDED DECEMBER 31,
MONTHS ENDED OPERATIONS) -----------------------------------------
OCTOBER 31, 1999 TO 12/31/98 1998 1997 1996 1995
-------------------- ----------- ---- ---- ---- ----
CLASS B CLASS A CLASS B CLASS A
SHARES SHARES SHARES SHARES
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Data:
NET ASSET VALUE, BEGINNING OF PERIOD $34.91 $34.90 $33.13 $27.04 $22.08 $19.53 $14.95
INCOME FROM INVESTMENT OPERA TIONS:
Net investment income (loss) (.13) .10 .01 .20 .26 .29 .25
Net realized and unrealized
gains on investments 6.57 6.57 2.43 8.51 5.63 4.07 5.21
------ ------ ------ ------ ------ ------ ------
Total from investment operations 6.44 6.67 2.44 8.71 5.89 4.36 5.46
------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income -- (.08) (.01) (.20) (.26) (.29) (.25)
Distributions from net realized
gains on investments -- -- (.59) (.59) (.65) (1.52) (.63)
Distributions in excess of
net realized gains -- -- (.06) (.06) (.02) -- --
------ ------ ------ ------ ------ ------ ------
Total distributions -- (.08) (.66) (.85) (.93) (1.81) (.88)
------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $41.35 $41.49 $34.91 $34.90 $27.04 $22.08 $19.53
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
TOTAL RETURN**<F44> 18.4%++<F46> 19.1%++<F46> 7.4%++<F46> 32.3% 26.8% 22.4% 36.7%
RATIOS/ SUPPLEMENTAL DATA:
Net assets, end of period
(to nearest thousand) $37,160 $214,358 $6,123 $160,190 $105,738 $77,517 $57,062
Ratio of net expenses to
average net assets 1.5%*<F43> 0.8%*<F43> 1.3%*+ 0.9%+<F45> 0.9%+<F45> 1.0%+<F45> 1.2%
<F43> <F45>
Ratio of net investment income
(loss) to average net assets (0.4)%*<F43> 0.3%*<F43> --*+ 0.6%+<F45> 1.0%+<F45> 1.4%+<F45> 1.4%
<F43> <F45>
Portfolio turnover rate 4.9%++<F46> 4.9%++<F46> 10.2%++<F46> 10.2% 17.0% 8.0% 3.5%
</TABLE>
*<F43> Annualized.
**<F44> The Portfolio's sales charge is not reflected in total return as set
forth in the table.
+<F45> Reflects a voluntary reimbursement of expenses of 0.03% in Class B
shares and 0.07% in Class A Shares in 1998, 0.11% in 1997, and 0.01%
in 1996.
++<F46> Not Annualized.
<TABLE>
DIVIDEND ACHIEVERS PORTFOLIO
-----------------------------------------------------------------------------------
FOR THE
PERIOD FROM
7/27/98
(COMMENCE-
FOR THE TEN MENT OF FOR THE YEARS ENDED DECEMBER 31,
MONTHS ENDED OPERATIONS) ------------------------------------------
OCTOBER 31, 1999 TO 12/31/98 1998 1997 1996 1995
-------------------- ------------ ---- ---- ---- ----
CLASS B CLASS A CLASS B CLASS A
SHARES SHARES SHARES SHARES
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Data:
NET ASSET VALUE, BEGINNING OF PERIOD $27.86 $27.92 $28.48 $25.13 $20.01 $16.97 $13.24
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (.16) .02 .01 .07 .13 .14 .18
Net realized and unrealized
gains on investments 2.42 2.39 1.39 4.80 5.43 3.54 3.99
------ ------ ------ ------ ------ ------ ------
Total from investment operations 2.26 2.41 1.40 4.87 5.56 3.68 4.17
------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income -- (.01) (.01) (.07) (.13) (.14) (.18)
Distributions from net realized
gains on investments -- -- (2.01) (2.01) (.31) (.50) (.26)
------ ------ ------ ------ ------ ------ ------
Total distributions -- (.01) (2.02) (2.08) (.44) (.64) (.44)
------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $30.12 $30.32 $27.86 $27.92 $25.13 $20.01 $16.97
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
TOTAL RETURN**<F48> 8.1%++<F50> 8.6%++<F50> 4.9%++<F50> 19.4% 27.9% 21.8% 31.7%
RATIOS/ SUPPLEMENTAL DATA:
Net assets, end of period
(to nearest thousand) $1,138 $45,071 $338 $44,219 $39,565 $30,504 $25,393
Ratio of net expenses to
average net assets 2.0%*+ 1.3%*+ 1.7%*+ 1.3%+ 1.2%+ 1.2%+ 1.3%+
<F47> <F49> <F47> <F49> <F47> <F49> <F49> <F49> <F49> <F49>
Ratio of net investment income
(loss) to average net assets (.07)%*+ 0.1%*+ --*+ 0.2%+ 0.6%+ 0.8%+ 1.2%+
<F47> <F49> <F47> <F49> <F47> <F49> <F49> <F49> <F49> <F49>
Portfolio turnover rate 18.1%++ 18.1%++ 11.9%++ 11.9% 11.9% 13.1% 28.2%
<F50> <F50> <F50>
</TABLE>
*<F47> Annualized.
**<F48> The Portfolio's sales charge is not reflected in total return as set
forth in the table.
+<F49> Reflects voluntary reimbursements of expenses as shown below:
1999 - 0.02% in both Class A 1997 - 0.10%
and Class B shares 1996 - 0.10%
1998 - 0.02% in Class A shares 1995 - 0.20%
1998 - 0.06% in Class B shares
++<F50> Not Annualized.
<TABLE>
SELECT VALUE PORTFOLIO
-----------------------------------------------------------------------------------
FOR THE
PERIOD FROM
7/27/98
(COMMENCE-
FOR THE TEN MENT OF FOR THE YEARS ENDED DECEMBER 31,
MONTHS ENDED OPERATIONS) ------------------------------------------
OCTOBER 31, 1999 TO 12/31/98 1998 1997 1996 1995
-------------------- ------------ ---- ---- ---- ----
CLASS B CLASS A CLASS B CLASS A
SHARES SHARES SHARES SHARES
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Data:
NET ASSET VALUE, BEGINNING OF PERIOD $11.27 $11.30 $12.32 $12.07 $10.97 $10.21 $ 9.03
INCOME FROM INVESTMENT OPERA TIONS:
Net investment income (loss) (.09) (.03) -- -- .01 .04 .14
Net realized and unrealized gains
(losses) on investments (.58) (.59) (1.05) (.77) 2.93 2.68 1.73
------ ------ ------ ------ ------ ------ ------
Total from investment operations (.67) (.62) (1.05) (.77) 2.94 2.72 1.87
------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment
income -- -- -- -- (.01) (.04) (.14)
Distributions from net realized
gains on investments -- -- -- -- (1.83) (1.92) (.43)
Distributions in excess of net
realized gains on investments -- -- -- -- -- -- (.12)
Book return of capital -- -- -- --- -- -- --
------ ------ ------ ------ ------ ------ ------
Total distributions -- -- -- --- (1.84) (1.96) (.69)
------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $10.60 $10.68 $11.27 $11.30 $12.07 $10.97 $10.21
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
TOTAL RETURN**<F52> (5.9)%++ (5.5)%++ (8.5%)++ (6.4%) 27.2% 26.7% 20.8%
<F54> <F54> <F54>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (to nearest
thousand) $1,234 $9,219 $1,012 $10,520 $8,497 $4,829 $3,445
Ratio of net expenses to average
net assets 2.0%*++ 1.4%*++ 1.7%*+ 1.3%+ 1.1%+ 1.0%+ 0.8%+
<F51> <F54> <F51> <F54> <F51> <F53> <F53> <F53> <F53> <F53>
Ratio of net investment income
(loss) to average net assets (1.0)%*++ (0.3)%*++ --*+ --+ 0.1%+ 0.3%+ 1.4%+
<F51> <F54> <F51> <F54> <F51> <F53> <F53> <F53> <F53> <F53>
Portfolio turnover rate 91.2%++ 91.2%++ 110.0%++ 110.0% 82.5% 122.2% 124.3%
<F54> <F54> <F54>
</TABLE>
*<F51> Annualized.
**<F52> The Portfolio's sales charge is not reflected in total return as set
forth in the table.
+<F53> Reflects a voluntary reimbursement of expenses as follows::
1999 - 0.6% in both Class A and Class B shares 1997 - 1.0%
1998 - 0.5% in both Class A and Class B shares 1996 - 1.4%
1995 - 2.5%
++<F54> Not Annualized.
<TABLE>
PSE TECH 100 INDEX PORTFOLIO
---------------------------------------------------------------------------------------------
FOR THE PE-
RIOD FROM
7/27/98 FOR THE PERIOD FROM
(COMMENCE- FOR THE YEARS ENDED 6/10/96
FOR THE TEN MENT OF OPER- DECEMBER 31, (COMMENCEMENT
MONTHS ENDED ATIONS) TO ------------------ OF OPERATIONS) TO
OCTOBER 31, 1999 12/31/98 1998 1997 12/31/96
---------------- -------- ---- ---- --------
CLASS B CLASS A CLASS B CLASS A
SHARES SHARES SHARES SHARES
<S> <C> <C> <C> <C> <C> <C>
Per Share Data:
NET ASSET VALUE, BEGINNING OF PERIOD $18.39 $18.45 $14.94 $12.39 $10.76 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (.22) (.08) .01 .01 .04 .03
Net realized and unrealized
gains on investments 8.73 8.76 4.07 6.68 2.04 1.03
------ ------ ------ ------ ------ ------
Total from investment operations 8.51 8.68 4.08 6.69 2.08 1.06
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income -- -- (.01) (.01) (.04) (.03)
Distributions from net realized
gains on investments -- -- (.60) (.60) (.38) (.24)
Distributions in excess of net
realized gains -- -- (.02) (.02) (.03) (.03)
------ ------ ------ ------ ------ ------
Total distributions -- -- (.63) (.63) (.45) (.30)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $26.90 $27.13 $18.39 $18.45 $12.39 $10.76
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
TOTAL RETURN**<F56> 46.3%++<F58> 47.0%++<F58> 27.2% 54.0% 19.4% 10.7%++<F58>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(to nearest thousand) $60,038 $169,247 $6,559 $72,724 $27,144 $6,004
Ratio of net expenses to
average net asset 1.4%*+ 0.7%*+ 1.2%*+ 0.6%+ 0.2%+ --*+
<F55> <F57> <F55> <F57> <F55> <F57> <F57> <F57> <F55> <F57>
Ratio of net investment income
(loss) to average net assets (1.1)%*+ (0.4)%*+ --*+ --+ 0.3%+ 0.7%*+
<F55> <F57> <F55> <F57> <F55> <F57> <F57> <F57> <F55> <F57>
Portfolio turnover rate 33.0%++<F58> 33.0%++<F58> 25.4%++<F58> 25.4% 22.0% 3.0%++<F58>
</TABLE>
*<F55> Annualized.
**<F56> The Portfolio's sales charge is not reflected in total return as set
forth in the table.
+<F57> Reflects a voluntary reimbursement of expenses as follows::
1999 - 0.13% in both Class A and Class B shares 1997 - 1.1%
1998 - 0.5% in Class A shares 1996 - 3.3%
1998 - 0.3% in Class B shares
++<F58> Not Annualized.
<TABLE>
MANAGED GROWTH PORTFOLIO
-------------------------------------------
FOR THE PERIOD FROM JANUARY 1, 1999
(COMMENCEMENT OF OPERATIONS)
TO OCTOBER 31, 1999
--------------------------------------------
CLASS B SHARES CLASS A SHARES
<S> <C> <C>
Per Share Data:
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.7) (.01)
Net realized and unrealized gains on investments .08 .06
------ ------
Total from investment operations .01 .05
------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income -- --
Distributions from net realized gains on investments -- --
Distributions in excess of net realized gains -- --
------ ------
Total distributions -- --
------ ------
NET ASSET VALUE, END OF PERIOD $10.01 $10.05
------ ------
------ ------
TOTAL RETURN**<F60> 0.1%++<F62> 0.5%++<F62>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (to nearest thousand) $1,701 $5,913
Ratio of net expenses to average net assets 1.2%*<F59>+<F61> 0.6%*<F59>+<F61>
Ratio of net investment income (loss) to average net assets (0.8)%*<F59>+<F61> (0.1)%*<F59>+<F61>
Portfolio turnover rate 27.5%++<F62> 27.5%++<F62>
</TABLE>
*<F59> Annualized.
**<F60> The Portfolio's sales charge is not reflected in total return as set
forth in the table.
+<F61> Reflects a voluntary reimbursement of expenses of 2.3% in both Class A
and Class B shares in 1999.
++<F62> Not Annualized.
APPENDIX A
COMPOSITION OF THE S&P 100 INDEX*
(As of March 31, 2000)
[To be provided]
APPENDIX B
COMPOSITION OF THE PSE TECHNOLOGY INDEX
(As of March 31, 2000)
[To be provided]
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
INVESTMENT ADVISOR
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
SUB-ADVISORS
Ziegler Asset Management, Inc.
(Sub-Advisor to S&P 100 Plus, Dividend Achievers and PSE Tech 100
Index Portfolios)
250 East Wisconsin Avenue, Suite 1900
Milwaukee, Wisconsin 53202
Geneva Capital Management Ltd.
(Sub-Advisor to Managed Growth Portfolio)
250 East Wisconsin Avenue
Suite 1050
Milwaukee, Wisconsin 53202
DISTRIBUTOR AND ACCOUNTING/PRICING AGENT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
TRANSFER AND DIVIDEND DISBURSING AGENT
PFPC Global Fund Services
P.O. Box 60504
King of Prussia, Pennsylvania 19406
CUSTODIAN
Firstar Trust Company
777 East Wisconsin Avenue
Milwaukee, WI 53202
COUNSEL
Quarles & Brady LLP
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
If you have any questions about any of the Portfolios or would like more
information, including a free copy of the Portfolios' Statement of Additional
Information ("SAI"), or their Annual or Semi-Annual Reports, you may call or
write Principal Preservation at:
Principal Preservation Portfolios, Inc.
215 North Main Street
West Bend, Wisconsin 53095
(800) 826-4600, Option 2
The SAI, which contains more information on the Portfolios, has been
filed with the Securities and Exchange Commission ("SEC"), and is legally a
part of this prospectus. The Annual and Semi-Annual Reports, also filed with
the SEC, discuss market conditions and investment strategies that affected
each Portfolio's performance during the prior fiscal year and six-month
fiscal period, respectively.
To view these documents, along with other related documents, you can
visit the SEC's Internet website (http://www.sec.gov) or the SEC's Public
Reference Room in Washington, D.C. Information on the operation of the
Public Reference Room can be obtained by calling 1.800.SEC.0330.
Additionally, copies of this information can be obtained, for a duplicating
fee, by writing the Public Reference Section of the SEC, Washington, D.C.
20549-6009.
Investment Company Act File No. 811-4401.
STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 2000
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
Seven portfolios (each a "Portfolio") of the Principal Preservation
Portfolios, Inc. ("Principal Preservation") family of funds are described in
this Statement of Additional Information and the Prospectus to which it relates:
the Tax-Exempt Portfolio, Government Portfolio, S&P 100 Plus Portfolio, Dividend
Achievers Portfolio, Select Value Portfolio, PSE Tech 100 Index Portfolio and
Managed Growth Portfolio.
Class A shares are available for all seven of the Portfolios. Class B
shares are available for all of the Portfolios, except for the Tax-Exempt and
Government Portfolios. Class C shares are available beginning May 8, 2000 for
all Portfolios other than the Tax-Exempt Portfolio. Each Portfolio has a
distinct investment objective and distinct investment policies, and there can be
no assurance that any Portfolio will achieve its investment objective. Each
shareholder's interest is limited to the particular Portfolio in which his/her
shares are owned.
You may obtain a Prospectus and purchase shares of each Portfolio from B.C.
Ziegler and Company ("Ziegler" or the "Distributor"), 215 North Main Street,
West Bend, Wisconsin 53095, telephone 800-826-4600, or from Selected Dealers
(see the Prospectus dated May 1, 2000 for more complete information, including
an account application.) This Statement of Additional Information is not a
prospectus, and should be read in conjunction with the Prospectus. This
Statement of Additional Information provides details about each Portfolio that
are not required to be included in the Prospectus, and should be viewed as a
supplement to, and not as a substitute for, the Prospectus. Capitalized terms
not otherwise defined in this Statement of Additional Information have the
meanings ascribed to them in the Prospectus.
IMPORTANT NOTICE
- ----------------
Beginning in 1999, the Portfolios changed their fiscal years so that they
end on October 31 of each year, rather than December 31. As a result, much of
the financial and performance information presented in this Statement of
Additional Information and the related Prospectus is for the ten-month period
ended October 31, 1999.
TABLE OF CONTENTS
PAGE
----
STATEMENT OF ADDITIONAL INFORMATION 1
FUND HISTORY AND CAPITAL STOCK 2
INVESTMENT PROGRAM 3
INVESTMENT RESTRICTIONS 19
MANAGEMENT OF PRINCIPAL PRESERVATION 28
PURCHASE OF SHARES 37
DISTRIBUTION EXPENSES 40
DETERMINATION OF NET ASSET VALUE PER SHARE 43
PERFORMANCE INFORMATION 44
TAX STATUS 50
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES 51
PORTFOLIO TRANSACTIONS AND BROKERAGE 52
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS 54
FINANCIAL STATEMENTS 54
DESCRIPTION OF RATINGS OF CERTAIN SECURITIES 55
FUND HISTORY AND CAPITAL STOCK
Principal Preservation is a diversified, open-end, management investment
company. It was organized in 1984 as a Maryland corporation.
The authorized common stock of Principal Preservation consists of one
billion shares, with a par value of $.001 per share. Shares of Principal
Preservation are divided into nine mutual fund series, each with distinct
investment objectives, policies and strategies. In addition to the Portfolios
described in this Statement of Additional Information, Principal Preservation
also offers shares of the Wisconsin Tax-Exempt Portfolio and the Cash Reserve
Portfolio through separate prospectuses. The S&P 100 Plus, Dividend Achievers,
Select Value, PSE Tech 100 Index and Managed Growth Portfolios each offer Class
A, Class B and Class C shares. The Government Portfolio offers Class A and
Class C shares. The Tax-Exempt and Wisconsin Tax-Exempt Portfolios offer only
Class A shares. Shares of the Cash Reserve Portfolio also are divided into
three separate classes; namely, Class X (Retail Class) shares, Class Y
(Institutional Class) shares and Class B shares.
Separate classes of shares within a Portfolio have identical dividend,
liquidation and other rights. However, each class bears its separate
distribution and shareholder servicing expenses and may have its own sales load
structure. At the discretion of Principal Preservation's Board of Directors,
each class may pay a different share of other expenses (not including advisory
or custodial fees or other expenses related to the management of the Portfolio's
assets) if the separate classes incur those expenses in different amounts, or if
one class receives services of a different kind or to a different degree than
another class within the same portfolio. Each portfolio allocates all other
expenses to each class of its shares on the basis of the net asset value of that
class in relation to the net asset value of the particular fund.
The Board of Directors of Principal Preservation may authorize the issuance
of additional series and, within each series, individual classes, and may
increase or decrease the number of shares in each series or class.
Each share of Principal Preservation, when issued and paid for in
accordance with the terms of the offering, will be fully paid and nonassessable.
Shares of stock are redeemable at net asset value, at the option of the
shareholder. Shares have no preemptive, subscription or conversion rights and
are freely transferable. Shares can be issued as full shares or fractions of
shares. A fraction of a share has the same kind of rights and privileges as a
full share.
Each share of Principal Preservation has one vote on each matter presented
to shareholders. All shares of Principal Preservation vote together on matters
that affect all shareholders uniformly, such as in the election of directors.
On matters affecting an individual portfolio (such as approval of advisory or
sub-advisory contracts and changes in fundamental policies of a series) a
separate vote of the shares of that series is required. On matters that
uniquely affect a particular class of shares (such as an increase in 12b-1 fees
for that class), a separate vote by the shareholders of that class of shares is
required. Shares of a portfolio or class are not entitled to vote on any matter
that does not affect it.
As used in the Prospectus, the phrase "majority vote" of the outstanding
shares of a class, Portfolio or Principal Preservation means the vote of the
lesser of: (1) 67% of the shares of the class, Portfolio or Principal
Preservation, as the case may be, present at the meeting if the holders of more
than 50% of the outstanding shares are present in person or by proxy; or (2)
more than 50% of the outstanding shares of the class, Portfolio or Principal
Preservation, as the case may be.
As a Maryland corporation, Principal Preservation is not required to hold,
and in the future does not plan to hold, annual shareholder meetings unless
required by law or deemed appropriate by the Board of Directors. However,
special meetings may be called for purposes such as electing or removing
Directors, changing fundamental policies or approving an investment advisory
contract.
INVESTMENT PROGRAM
The Prospectus describes the investment objective and principal investment
strategies of each of the Portfolios. Certain other investment strategies and
policies of each Portfolio are described in greater detail below.
INFORMATION REGARDING TAX-EXEMPT INVESTMENTS
Before investing in a particular Portfolio, an investor may wish to
determine which investment -- tax-free or taxable -- will provide a higher
after-tax return. To make such a comparison, the yields should be viewed on a
comparable basis. The table below illustrates, at the tax brackets provided in
the Internal Revenue Code of 1986, as amended, the yield an investor would have
to obtain from taxable investments to equal tax-free yields ranging from 6% to
9%. An investor can determine from the following table the taxable return
necessary to match the yield from a tax-free investment by locating the tax
bracket applicable to the investor, and then reading across to the yield column
which is closest to the yield applicable to the investor's investment. This
presentation illustrates current tax rates, and will be modified to reflect any
changes in such tax rates.
<TABLE>
TAX-FREE V. TAXABLE INCOME
ASSUMED TAX-FREE YIELDS
TAXABLE INCOME 6.00% 6.50% 7.00% 7.50% 8.00%
- -------------------------------------------- --------------------------------------------------------
FEDERAL TAX
SINGLE RETURN JOINT RETURN RATE EQUIVALENT TAXABLE YIELDS*<F63>
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Up to $22,100 Up to $38,000 15.00% 7.06% 7.65% 8.24% 8.82% 9.41%
$22,100-55,100 $38,000-91,850 28.00% 8.33% 9.03% 9.72% 10.42% 11.11%
$55,100-115,000 $91,850-140,000 31.00% 8.70% 9.42% 10.14% 10.87% 11.59%
$115,000-250,000 $140,000-250,000 36.00% 9.38% 10.16% 10.94% 11.72% 12.50%
over $250,000 over $250,000 39.60% 9.93% 10.76% 11.59% 12.42% 13.25%
</TABLE>
*<F63> The Equivalent taxable yields are calculated based on the maximum
marginal tax rate at each tax bracket. These rates and brackets are
subject to change. The table is based on tax rates in effect as of
December 31, 1999. You should consult your tax advisor regarding more
recent tax legislation and how tax laws affect your personal financial
circumstances.
The Tax-Exempt Portfolio seeks to attain its objective by investing
primarily in municipal securities, such as general obligation, revenue and
industrial development bonds, rated at the time of purchase in an "A" category
or higher by Moody's Investors Service, Inc., Standard & Poor's Ratings Services
or by Fitch Investors Service, Inc. This Portfolio may also invest in certain
temporary short-term investments, money market fund investments, U.S. Government
Securities, or securities collateralized by U.S. Government Securities. A
description of the ratings is included in this Statement of Additional
Information under the caption "Description of Ratings of Certain Fixed Income
Securities."
For illustrative purposes, the Tax-Exempt Portfolio may include in its
supplemental sales literature from time to time a Bond Buyer Index line graph
which shows the yield obtained on twenty (20) long-term municipal bonds from
December 1980 through December 1999. The presentation consists of a line graph
with yield (presented as a percentage) reflected along a vertical axis and the
relevant time of inquiry reflected along a horizontal axis. This line graph is
for illustrative purposes only and is not meant to be indicative of any
Portfolio's total return. Information as to actual yield and total return is
set forth under "Performance Information."
The Tax-Exempt Portfolio also sometimes presents in supplemental sales
literature a line graph that displays the difference in the growth in $10,000
placed in a tax-free investment as compared to the growth of the same amount
placed in a taxable investment. This graph assumes $10,000 of principal is
invested at a nominal annual rate of 6% compounded monthly (6.17% equivalent
effective yield). The value of the investment is shown on the vertical axis
with the time period (0-20 years) over which the investment has been held being
reflected along the horizontal axis. This graph is for illustrative purposes
only and is not meant to be indicative of the Tax-Exempt Portfolio's actual
return. An investor is assumed to pay annual federal income tax at a 33% rate
on the total amount of interest credited to the account. The presentation
illustrates current tax rates, and will be modified to reflect any changes in
such tax rates.
MUNICIPAL SECURITIES
Municipal securities include obligations issued by or on behalf of states,
territories, and possessions of the United States and the District of Columbia,
and their political subdivisions, agencies, and instrumentalities, the interest
of which is exempt from Federal income tax. The tax-exempt status of the
municipal security is determined under Federal tax laws and is usually opined
upon by the issuer's bond counsel at the time of the issuance of the security.
The two principal classifications of municipal securities are notes and
bonds. Municipal notes are generally used to provide short-term working capital
needs and typically have maturities of one year or less. Municipal notes
include Project Notes, Tax Anticipation Notes, Bond Anticipation Notes and Tax-
Exempt Commercial Paper, and other similar short-term obligations.
Municipal bonds are issued to obtain funds for various public purposes,
including the construction of a wide range of public facilities such as
airports, bridges, highways, housing, hospitals, mass transportation, schools,
streets, water and sewer works, and gas and electric utilities. Municipal bonds
may also be issued in connection with the refunding of similar outstanding
obligations, or obtaining funds to lend to other public institutions, or for
general operating expenses. Industrial development bonds, which are considered
municipal bonds if the interest paid thereon is exempt from Federal income tax,
are issued by or on behalf of public authorities to obtain funds to provide
various privately- operated facilities for business and manufacturing, housing,
sports, pollution control, and for airport, mass transit, port, and parking
facilities.
The two principal classifications of municipal bonds are "general
obligation" and "revenue." General obligation bonds are secured by the issuer's
pledge of its full faith, credit, and taxing power for the payment of principal
and interest. Revenue bonds are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases from the proceeds
of a special tax or other specific revenue source. Although industrial
development bonds are issued by municipal authorities, they are generally
secured by specific facilities financed by the proceeds and, payable only from
the revenues derived from the industrial user of those facilities. Payment of
principal and interest on industrial revenue bonds generally depends on the
ability of such user to meet its financial obligations, or, in case of default,
upon the amount realizable upon the disposition of property pledged as security
for payment of the user's obligation.
Obligations of issuers of municipal securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Reform Act of 1978. In
addition, the obligations of such issuers may become subject to laws enacted in
the future by Congress, state legislatures, or referenda extending the time for
payment of principal and/or interest, or imposing other constraints upon
enforcement of such obligations or upon the issuer's ability to generate tax
revenues. There is also the possibility that, as a result of litigation or
other conditions, the authority or ability of an issuer to pay, when due, the
principal of and interest on its municipal securities may be materially
affected.
GOVERNMENT SECURITIES
Direct obligations issued by the U.S. Treasury include bills, notes and
bonds which differ from each other only as to interest rate, maturity and time
of issuance. Treasury Bills have a maturity of one year or less, Treasury Notes
have maturities of one to ten years and Treasury Bonds generally have maturities
of greater than ten years.
In addition to direct obligations issued by the U.S. Treasury, the
Portfolios may also invest in obligations issued by agencies or
instrumentalities of the U.S. Government; provided that with respect to the
Government Portfolio, such obligations are backed by the unconditional full
faith and credit of the U.S. government, its agencies or instrumentalities.
OPTIONS
To the extent consistent with their investment objectives, the S&P 100 Plus
and PSE Tech 100 Index Portfolios will employ options strategies designed to
hedge protectively against any anticipated adverse movements in the market
values of its portfolio securities or securities it intends to purchase and to
enhance return.
Listed options are traded on each of the stocks in the S&P 100 Index, and
the S&P 100 Plus Portfolio may write (sell) covered call options and put
options, and may purchase call options and put options on individual stocks as
well as on stock indices (including the S&P 500 Index and S&P 100 Index) for the
purposes and subject to the limitations stated herein and as outlined in
"Risk/Return Information; Investment Objectives and Strategies - S&P 100 Plus
Portfolio" in the Prospectus. The S&P 100 Plus Portfolio may seek to enhance
its return by writing covered call options for purchasing put options with
respect to some or all of the individual stocks held in its portfolio. Through
the purchase of call and put options with respect to individual stocks, the
Portfolio may at times protectively hedge against an increase in the price of
securities which the Portfolio plans to purchase or against a decline in the
value of securities owned by the Portfolio. Whenever the Portfolio does not own
securities underlying an open option position sufficient to cover the position,
the Portfolio will maintain in a segregated account with its depository cash or
cash equivalents sufficient to cover the market value of the open position. The
S&P 100 Plus Portfolio may also engage in option transactions on securities
indices as a strategy to hedge against anticipated declines in the S&P 100 Index
(and thereby to hedge against a similar decline in its portfolio) and to enhance
the Portfolio's return through premium income.
The PSE Tech 100 Index Portfolio may write (sell) covered call options and
put options, and may purchase call options and put options on stock indices for
the purposes and subject to the limitations outlined in "Risk/Return
Information; Investment Objectives and Strategies - PSE Tech 100 Index
Portfolio" in the Prospectus. See also "Risk/Return Information; Investment
Objectives and Strategies - Additional Investment Practices and Risks - Index
Options and Futures" in the Prospectus.
Options on individual stocks may also be utilized by the Dividend Achievers
Portfolio to enhance income and for hedging purposes, but the Advisors has no
plans to do so at this time.
A call option on a security gives the purchaser of the option the right to
buy, and the writer (seller) of the option the obligation to sell, the
underlying security at the exercise price at any time during the option period.
The premium paid to the writer is the consideration for undertaking the
obligations under the option contract. A call option written (sold) by a
Portfolio exposes the Portfolio during the term of the option to possible loss
of an opportunity to realize appreciation in the market price of the related
portfolio security, or to possible continued holding of a security which might
otherwise have been sold to protect against depreciation in the market price of
the security.
A call option is considered to be covered if: (i) the writer (seller)
thereof owns the security underlying the call or has an absolute and immediate
right to acquire that security without payment of additional cash consideration
(or for additional cash consideration held in a segregated account by its
custodian or depository) upon conversion or exchange of other securities; (ii)
the writer holds on a unit-for-unit basis a call on the same security as the
call written, and the exercise price of the call purchased is equal to or less
than the exercise price of the call written, or greater than the exercise price
of the call written if the difference is maintained by the Portfolio in cash or
cash equivalents in a segregated account with its custodian or depository; or
(iii) the writer maintains in a segregated account with its custodian or
depository cash or cash equivalents sufficient to cover the market value of the
open position.
An option on an index is a contract that gives the holder of the option, in
return for payment of a premium, the right to demand from the seller (call)
delivery of cash in an amount equal to the value of the index at a specified
exercise price at any time during the term of the option. Upon exercise, the
writer of an option on an index is obligated to pay the difference between the
cash value of the index and the exercise price multiplied by the specified
multiplier for the index option. A call option on an index is considered to be
covered if the writer (seller) maintains with its custodian or depository cash
or cash equivalents equal to the contract value. A call option is also covered
if the writer holds a call on the same index as the call written where the
exercise price of the call purchased is equal to or less than the exercise price
of the call written.
A put option on a security gives the purchaser of the option the right to
sell, and the writer (seller) of the option the obligation to buy, the
underlying security at the exercise price at any time during the option period.
A put option on a securities index gives the purchaser of the option the right
to sell, and the writer (seller) of the option the obligation buy, the cash
value of the index at any time during the option.
A put option on an index is covered if a writer holds a put on the same
index as the put written where the exercise price of the put held is (i) equal
to or greater than the exercise price of the put written, or (ii) less than the
exercise price of the put written provided the difference is maintained by the
writer in cash or cash equivalents in a segregated account with its custodian or
depository.
A Portfolio will only purchase put options on individual securities held by
the Portfolio, or, in the case of the S&P 100 Plus Portfolio and the PSE Tech
100 Index Portfolio, on securities indices which, in the opinion of the
Advisors, have investment characteristics similar to those of securities in the
Portfolio or an index on the securities.
Whenever a Portfolio does not own securities underlying an open option
position sufficient to cover the position, or whenever a Portfolio has written
(sold) a put, the Portfolio will maintain in a segregated account with its
Custodian cash or cash equivalents sufficient to cover the exercise price or,
with respect to index options, the market value of the open position. The
purchase of a put option may be intended to protect the Portfolio from the risk
of a decline in the value of a security below the exercise price of the option.
The Portfolio may ultimately sell the option in a closing sale transaction,
exercise it or permit it to expire.
FUTURES
The S&P 100 Plus Portfolio, Dividend Achievers Portfolio and PSE Tech 100
Index Portfolio may purchase and sell exchange-traded index futures contracts
for the purposes and strategies described in the Prospectus. The S&P 100 Plus
Portfolio may use futures on the S&P 500 Index, the Dividend Achievers Portfolio
may use them on the S&P 500 Index, the S&P MidCap 400 Index and the Nasdaq
Composite Index, and the PSE Tech 100 Index Portfolio may use them on the S&P
500 Index and the PSE Technology Index. A futures contract on an index is an
agreement by which one party agrees to accept delivery of, and the other party
agrees to make delivery of, an amount of cash equal to the difference between
the value of the underlying index at the close of the last trading day of the
futures contract and the price at which the contract originally was written.
Although the value of an index might be a function of the value of certain
specified securities, no physical delivery of those securities is made.
Futures contracts covering the indexes in which the Portfolios may trade
presently are traded on the Chicago Mercantile Exchange or the New York Futures
Exchange. The S&P 100 Plus Portfolio, Dividend Achievers Portfolio and PSE Tech
100 Index Portfolio also may engage in transactions involving futures contracts
on other indices presently traded or in the future created and traded on
national stock exchanges if, in the opinion of the Board of Directors of
Principal Preservation, such futures contracts are appropriate instruments to
help the Advisors achieve the respective Portfolio's objective.
Each of the S&P 100 Plus and PSE Tech 100 Index Portfolios generally will
limit its use of futures contracts to hedging transactions. For example, the
S&P 100 Plus Portfolio or PSE Tech 100 Index Portfolio might use futures
contracts to equitize uncommitted cash or to hedge against anticipated declines
in the cash value of the S&P 100 Index or the PSE Technology Index, as the case
may be. Each of the S&P 100 Plus and PSE Tech 100 Index Portfolios also may
sell futures contracts to hedge against anticipated declines in common stocks
presently owned and may purchase futures contracts to hedge against anticipated
increases in common stocks the Portfolio intends to purchase. The success of
any hedging technique depends on the abilities of the Advisors correctly to
predict changes in the level and direction of movement in the underlying index.
Should these predictions prove incorrect, each such Portfolio's return might
have been better had hedging not been attempted; however, in the absence of the
ability to hedge, the Advisors might have taken portfolio actions in
anticipation of the same market movements with similar investment results but,
presumably, at greater transaction costs. The Advisor will limit its futures
strategies for the Dividend Achievers Portfolio to equitizing uninvested cash
held temporarily by the Portfolio from time to time. The Portfolios will only
enter into futures contracts which are standardized and traded on a U.S.
exchange, board of trade, or similar entity, or quoted on an automated quotation
system.
When a purchase or sale of a futures contract is made by a Portfolio, the
Portfolio is required to deposit with the Custodian (or broker, if legally
permitted) a specified amount of cash or U.S. Government Securities ("initial
margin"). The margin required for a futures contract is set by the exchange on
which the contract is traded and may be modified during the term of the
contract. The initial margin is in the nature of a performance bond or good
faith deposit on the futures contract which is returned to the Portfolio upon
termination of the contract, assuming all contractual obligations have been
satisfied. Each of the Portfolios expects to earn interest income on its
initial margin deposits. A futures contract held by a Portfolio is valued daily
at the official settlement price of the exchange on which it is traded. Each
day a Portfolio pays or receives cash, called "variation margin," equal to the
daily change in value of the futures contract. This process is known as
"marking to market." Variation margin does not represent a borrowing or loan by
a Portfolio, but is instead a settlement between the Portfolio and the broker of
the amount one would owe the other if the futures contract expired. In
computing daily net asset value, each of the Portfolios will mark to market all
of its open futures positions.
While a Portfolio maintains an open futures position, the Portfolio must
maintain with the Custodian, in a segregated account, assets with a market value
sufficient to cover the Portfolio's exposure on the position (less the amount of
the margin deposit associated with the position). A Portfolio's exposure on a
futures contract is equal to the amount paid for the contract by the Portfolio.
Index futures contracts in which the S&P 100 Plus Portfolio, Dividend
Achievers Portfolio and PSE Tech 100 Index Portfolio may invest are closed out
prior to delivery by offsetting purchases or sales of matching futures contracts
(same exchange, underlying index, and delivery month), or in cash. If an
offsetting purchase price is less than the original sale price, the Portfolio
would realize a capital gain, or if it is more, the Portfolio would realize a
capital loss. Conversely, if an offsetting sale price is more than the original
purchase price, the Portfolio would realize a capital gain, or if it is less,
the Portfolio would realize a capital loss. The transaction costs must also be
included in these calculations.
There are several risks associated with the use of futures contracts in the
manner intended by the S&P 100 Plus Portfolio, Dividend Achievers Portfolio and
PSE Tech 100 Index Portfolio. A purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract.
There can be no guarantee that there will be a correlation between the price
movements in the underlying index and in the portfolio securities being hedged
or the index being simulated, as the case may be. In addition, there are
significant differences between the securities and futures markets that could
result in an imperfect correlation between the markets, causing a given strategy
not to achieve its objective. The degree of imperfection of correlation depends
on circumstances such as: variations in speculative market demand for futures
and differences between the financial instruments being hedged or replicated and
the instruments underlying the standard contracts available for trading.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of the futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day,
and therefore does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example, futures prices
have occasionally moved to the daily limit for several consecutive trading days
with little or no trading, thereby preventing prompt liquidation of positions
and subjecting some holders of futures contracts to substantial losses. There
can be no assurance that a liquid market will exist at a time when a Portfolio
seeks to close out a futures position and the Portfolio would continue to be
required to meet margin requirements until the position is closed.
To minimize such risks, none of the Portfolios will enter into a futures
contract if, immediately after such transaction, the initial margin deposits for
futures contracts held by the Portfolio would exceed 5% of the Portfolio's total
assets. Additionally, a Portfolio may not maintain open short positions in
futures contracts or call options written on indices if, in the aggregate, the
market value of all such open positions exceeds the current value of the
securities in the Portfolio's investment portfolio, plus or minus unrealized
gains and losses on the open positions, adjusted for the historical relative
volatility of the relationship between the portfolio and the positions. For
this purpose, to the extent a Portfolio has written call options on specific
securities in its investment portfolio, the value of those securities will be
deducted from the current market value of the securities portfolio.
TAXATION OF OPTIONS AND FUTURES
If a Portfolio exercises a call or put option it owns, the premium paid for
the option is added to the cost of the security purchased (call) or deducted
from the proceeds of the sale (put). For cash settlement options, the
difference between the cash received at exercise and the premium paid is a
capital gain or loss. If a call or put option written by a Portfolio is
exercised, the premium is included in the proceeds of the sale of the underlying
security (call) or reduces the cost of the security purchased (put). For cash
settlement options, the difference between the cash paid at exercise and the
premium received is a capital gain or loss. Entry into a closing purchase
transaction will result in capital gain or loss. If an option was "in the
money" at the time it was written and the security covering the option was held
for more than one year prior to the writing of the option, any loss realized as
a result of a closing purchase transaction will be long-term for federal tax
purposes. The holding period of the securities covering an "in the money"
option will not include the period of time the option was outstanding.
A futures contract held until delivery results in capital gain or loss
equal to the difference between the price at which the futures contract was
entered into and the settlement price on the earlier of the delivery notice date
or the expiration date. Should a Portfolio ever deliver securities under a
futures contract (which is not expected to occur), the Portfolio will realize a
capital gain or loss on those securities.
For federal income tax purposes, a Portfolio generally is required to
recognize as income for each taxable year its net unrealized gains and losses as
of the end of the year on options and futures positions ("year-end mark to
market"). Generally any gain or loss recognized with respect to such positions
(either by year-end mark to market or by actually closing of the positions) is
considered to be 60% long term and 40% short term, without regard to the holding
periods of the contracts. However, in the case of positions classified as part
of a "mixed straddle," the recognition of losses on certain positions (including
options and futures positions, the related securities positions and certain
successor positions thereto) may be deferred to a later taxable year. Sales of
futures contracts or writing of call options or buying put options which are
intended to hedge against a change in the value of securities held by a
Portfolio may affect the holding period of the hedged securities.
Each Portfolio distributes to shareholders annually any net capital gains
which have been recognized for federal income tax purposes (including year-end
mark to market gains) on options and futures transactions. Such distributions
are combined with distributions of capital gains realized on the Portfolio's
other investments and shareholders are advised of the nature of the payments.
S&P 100 INDEX AND PSE TECHNOLOGY INDEX
For illustrative purposes, the S&P 100 Plus Portfolio and the PSE Tech 100
Index Portfolio sometimes includes in their supplemental sales literature a line
graph showing the similarity of the price patterns of the S&P 100 and the S&P
500 stock indices (in the case of the S&P 100 Plus Portfolio), and the PSE
Technology Index (in the case of the PSE Tech 100 Index Portfolio), over the
past decade. The presentation displays superimposed line graphs of annual
prices of the S&P 100 and the S&P 500 stock indices or the PSE Technology Index,
as the case may be, over approximately a 10-year period, with prices reflected
on the vertical axis and years reflected on the horizontal axis.
The S&P 100 Index is based upon stocks which are all listed on the NYSE and
all have equity options trading on the CBOE. The S&P 100 Index was also the
first stock index listed for options trading. The S&P 100 stocks are all
included in the S&P 500 Index, which is designed to be representative of the
stock market as a whole. The graph indicates that there have been some modest
discrepancies between the stock prices in the S&P 100 Index and the S&P 500
Index in recent years, as compared to the very high price correlation observed
between those indices in earlier years. Historical prices are not necessarily
indicative of the future prices of either of these indices, or of the
performance of the S&P 100 Plus Portfolio or the ability of that Portfolio to
match the performance of either of those indices or of the broad stock market
generally.
The S&P 100 Plus Portfolio also sometimes presents in its supplemental
sales materials charts that compare the growth in value of a share of the S&P
100 Plus Portfolio from commencement of its operations through December 31, 1998
to the growth of the S&P 100 Index over the same period. One chart presents the
comparison on a total yield basis, and another on a gross dollar basis. Each
presentation assumes the reinvestment of all dividends.
Historical prices are not necessarily indicative of the future prices of an
index, or of the performance of a Portfolio or the ability of a Portfolio to
match the performance of an index or of the stock market generally.
FOREIGN INVESTMENTS
The Select Value Portfolio and the Managed Growth Portfolio each may invest
in foreign securities. The Select Value Portfolio may invest up to 5% of its
assets in securities of foreign issuers that are not publicly traded in the
United States, excluding American Depository Receipts ("ADRs") in which the
Portfolio also may invest. The Managed Growth Portfolio will not invest in
foreign securities which are not publicly traded on U.S. exchanges. However, it
may invest up to 10% of its assets in ADRs and other securities of foreign
issuers that are traded on one of the three primary U.S. exchanges.
ADRs are receipts issued by an American bank or trust company evidencing
ownership of underlying securities issued by a foreign issuer. ADRs may be
listed on a national securities exchange or may trade on the Nasdaq Stock
Market. ADR prices are denominated in United States dollars, although the
underlying security may be denominated in a foreign currency.
RISKS OF INVESTING IN FOREIGN SECURITIES. Investments in securities of
foreign issuers (including ADRs) involve certain inherent risks, including the
following:
Political and Economic Factors. Individual foreign economies of certain
countries may differ favorably or unfavorably from the United States' economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, diversification and balance of payments
position. Governments in certain foreign countries also continue to participate
to a significant degree, through ownership interest or regulation, in their
respective economies. Action by these governments could include restrictions on
foreign investment, nationalization, expropriation of goods or imposition of
taxes, and could have a significant effect on market prices of securities and
payment of interest. The economies of many foreign countries are heavily
dependent upon international trade and are accordingly affected by the trade
policies and economic conditions of their trading partners. Enactment by these
trading partners of protectionist trade legislation could have a significant
adverse effect upon the securities markets of such countries.
Currency Fluctuations. A change in the value of a foreign currency against
the U.S. dollar may affect the value of the foreign securities held by the
Select Value and Managed Growth Portfolios. The value of the Portfolio's assets
invested in securities of foreign issuers may also be affected significantly by
currency restrictions and exchange control regulations enacted from time to
time.
Market Characteristics. The Advisors expect that most foreign securities
in which the Select Value and Managed Growth Portfolios may invest will be
purchased in over-the-counter markets or on exchanges located in the countries
in which the principal offices of the issuers of the various securities are
located, if that is the best available market. Foreign exchanges and markets
may be more volatile than those in the United States, and foreign securities may
be less liquid than domestic securities. Moreover, settlement practices for
transactions in foreign markets may differ from those in United States markets,
and may include delays beyond periods customary in the United States.
Legal and Regulatory Matters. Certain foreign countries may have less
supervision of securities markets, brokers and issuers of securities, and less
financial information available to issuers, than is available in the United
States.
Taxes. Dividends and interest payable on the Select Value and Managed
Growth Portfolios' foreign portfolio securities may be subject to foreign
withholding taxes, thus reducing the net amount of income available for
distribution to the relevant Portfolio's shareholders.
In considering whether to invest in the securities of a foreign company,
the Advisors consider such factors as the characteristics of the particular
company, differences between economic trends and the performance of securities
markets within the U.S. and those within other countries, and also factors
relating to the general economic, governmental and social conditions of the
country or countries where the company is located. The extent to which either
Portfolio will be invested in ADRs will fluctuate from time to time within the
limitations imposed above, depending on the Advisors' assessment of prevailing
market, economic and other conditions.
SHORT-TERM INVESTMENTS
Each Portfolio may invest in any of the following securities and
instruments in management of cash receipts, for liquidity for anticipated
redemptions, to meet cash flow needs to enable the Portfolio to take advantage
of buying opportunities, during periods when attractive investments are
unavailable and for temporary defensive purposes. Normally, a Portfolio will
invest less than 10% of its total assets in short-term investments, although the
Advisors have discretion to increase a Portfolio's cash position without limit
for temporary defensive purposes.
SHORT SALES "AGAINST-THE-BOX." Any of the Portfolios may make short sales
of securities or maintain a short position, provided that at all times when a
short position is open the Portfolio owns an equal amount of such securities of
the same issue as the securities sold short. A Portfolio may not engage in a
short sale if the transaction would result in more than 10% of the Portfolio's
net assets being held as collateral for such short sales. Short sales
structured in this fashion are referred to as short sales "against-the-box." A
Portfolio might use short sales against-the-box, for example, to defer the
realization of a capital gain for federal income tax purposes.
GOVERNMENT SECURITIES. Each Portfolio may acquire Government Securities.
A discussion of Government Securities is included under the caption "Investment
Program - Government Securities" above.
BANK CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS. Each
Portfolio may acquire certificates of deposit, bankers' acceptances and time
deposits. Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank for a definite period of time and earn a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers' acceptances acquired by the Portfolio will
be dollar-denominated obligations of domestic banks or financial institutions
which at the time of purchase have capital, surplus and undivided profits in
excess of $100 million, based on latest published reports, or less than $100
million if the principal amount of such bank obligations are fully insured by
the U.S. Government.
In addition to purchasing certificates of deposit and bankers' acceptances,
to the extent permitted under its investment objective and policies, each
Portfolio may make interest-bearing time or other interest-bearing deposits in
commercial or savings banks. Time deposits are non-negotiable deposits
maintained at a banking institution for a specified period of time at a
specified interest rate.
SAVINGS ASSOCIATION OBLIGATIONS. Each Portfolio may invest in certificates
of deposit (interest-bearing time deposits) issued by savings banks or savings
and loan associations that have capital and undivided profits in excess of $100
million, based on latest published reports, or less than $100 million if the
principal amount of such obligations is fully insured by the U.S. Government.
COMMERCIAL PAPER, SHORT-TERM NOTES, VARIABLE RATE DEMAND NOTES, REPURCHASE
AGREEMENTS AND OTHER CORPORATE OBLIGATIONS. Each Portfolio may invest a portion
of its assets in high quality commercial paper and short-term notes, including
variable rate demand notes. Commercial paper consists of unsecured promissory
notes issued by corporations. Issues of commercial paper and short-term notes
will normally have maturities of less than nine months and fixed rates of
return, although such instruments may have maturities of up to one year.
Corporate obligations include bonds and notes issued by corporations to
finance longer-term credit needs than supported by commercial paper. While such
obligations generally have maturities of ten years or more, a Portfolio may
purchase high quality corporate obligations which have remaining maturities of
one year or less from the date of purchase.
Each Portfolio also may purchase corporate obligations known as variable
rate demand notes. Variable rate demand notes are unsecured instruments that
permit the indebtedness thereunder to vary and provide for periodic adjustments
in the interest rate. Although the notes are not normally traded and there may
be no secondary market in the notes, a Portfolio may demand payment of principal
and accrued interest at any time. The investment policies of each Portfolio
permit the purchase of variable rate demand notes only if, at the time of
purchase, the notes are rated in the two highest rating categories by a
Nationally Recognized Statistical Rating Organization, or, if unrated, the
issuer has unsecured debt securities outstanding of an equivalent rating.
Each Portfolio also may invest in repurchase agreements as short-term
instruments. See "Investment Program - Repurchase Agreements" below.
MONEY MARKET FUNDS. Each Portfolio may invest in money market mutual
funds. An investment by a Portfolio in a money market mutual fund may cause the
Portfolio to incur duplicate and/or increased administration and distribution
expenses. Such investments are limited under the 1940 Act and by applicable
investment restrictions. See "Investment Restrictions" in this Statement of
Additional Information.
REPURCHASE AGREEMENTS
Each Portfolio may from time to time enter into repurchase agreements.
Repurchase agreements involve the sale of securities to the purchasing Portfolio
with the concurrent agreement of the seller to repurchase the securities at the
same price plus an amount equal to an agreed upon interest rate within a
specified time, usually less than one week, but on occasion for a longer period.
Each Portfolio may enter into repurchase agreements with broker-dealers and with
banks. At the time a Portfolio enters into a repurchase agreement, the value of
the underlying security, including accrued interest, will be equal to or exceed
the value of the repurchase agreement and, in the case of repurchase agreements
exceeding one day, the seller will agree that the value of the underlying
security, including accrued interest, will at all times be equal to or exceed
the value of the repurchase agreement. Each Portfolio will require continual
maintenance of cash or cash equivalents held by its depository in an amount
equal to, or in excess of, the market value of the securities which are subject
to the agreement.
In the event the seller of the repurchase agreement becomes the subject of
a bankruptcy or insolvency proceeding, or in the event of the failure of the
seller to repurchase the underlying security as agreed, a Portfolio could
experience losses that include: (1) possible decline in the value of the
underlying security during the period that the Portfolio seeks to enforce its
rights with respect thereto, and possible delay in the enforcement of such
rights; (2) possible loss of all or a part of the income or proceeds of the
repurchase; (3) additional expenses to the Portfolio in connection with
enforcing those rights; and (4) possible delay in the disposition of the
underlying security pending court action or possible loss of rights in such
securities. The Advisors will invest in repurchase agreements only when they
determine that the Portfolio should invest in short-term money market
instruments and that the rates available on repurchase agreements are favorable
as compared to the rates available on other short-term money market instruments
or money market mutual funds. The Advisors do not currently intend to invest
the assets of any Portfolio in repurchase agreements if, after doing so, more
than 5% of the Portfolio's net assets would be invested in repurchase
agreements.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Tax-Exempt Portfolio and the Government Portfolio may purchase or sell
securities in when-issued or delayed delivery transactions. In such
transactions, instruments are bought or sold with payment and delivery taking
place in the future in order to secure what is considered to be an advantageous
yield or price to the purchasing Portfolio at the time of entering into the
transactions. The payment obligations and the interest rate are fixed at the
time the buyer enters into the commitment, although no interest accrues to the
purchaser prior to settlement of the transaction. Consistent with the
requirements of the 1940 Act, securities purchased on a when-issued basis are
recorded as an asset (with the purchase price being recorded as a liability) and
are subject to changes in value based upon changes in the general level of
interest rates. At the time of delivery of the security, the value may be more
or less than the transaction price. At the time a purchasing Portfolio enters
into a binding obligation to purchase securities on a when-issued basis, liquid
assets of the Portfolio having a value at least as great as the purchase price
of the securities to be purchased are identified on the books of the Portfolio
and held by the Portfolio's depository throughout the period of the obligation.
The use of these investment strategies may increase net asset value
fluctuations.
The purchasing Portfolio will only make commitments to purchase securities
on a when-issued basis with the intention of actually acquiring the securities,
and not for the purpose of investment leverage, but the Portfolio reserves the
right to sell the securities before the settlement date if it is deemed
advisable. Any gains from such sales will be subject to federal income tax to
the extent not offset by losses on other transactions. Neither Portfolio
currently intends to purchase securities in when-issued transactions if, after
such purchase, more than 5% of the Portfolio's net assets would consist of when-
issued securities.
LENDING OF PORTFOLIO SECURITIES
In order to generate income, each Portfolio may lend its portfolio
securities to brokers, dealers and other institutional investors, provided the
Portfolio receives cash collateral which at all times is maintained in an amount
equal to at least 100% of the current market value of the securities loaned. By
reinvesting the collateral it receives in these transactions, a Portfolio could
magnify any gain or loss it realizes on the underlying investment. If the
borrower fails to return the securities and the collateral is insufficient to
cover the loss, the Portfolio could lose money. For the purposes of this
policy, each Portfolio considers collateral consisting of U.S. Government
securities or irrevocable letters of credit issued by banks whose securities
meet the standards for investment by the Portfolio to be the equivalent of cash.
During the term of the loan, the Portfolio is entitled to receive interest and
other distributions paid on the loaned securities, as well as any appreciation
in the market value. The Portfolio also is entitled to receive interest from
the institutional borrower based on the value of the securities loaned. From
time to time, a Portfolio may return to the borrower, and/or a third party which
is unaffiliated with Principal Preservation and which is acting as a "placing
broker," a part of the interest earned from the investment of the collateral
received for securities loaned.
The lending Portfolio does not have the right to vote the securities loaned
during the existence of the loan, but can call the loan to permit voting of the
securities if, in the Advisors' judgment, a material event requiring a
shareholder vote would otherwise occur before the loan is repaid. In the event
of bankruptcy or other default of the borrowing institution, a Portfolio could
experience delays in liquidating the loan collateral or recovering the loan
securities, and incur risk of loss including: (1) possible decline in the value
of the collateral or in the value of the securities loaned during the period
while the Portfolio seeks to enforce its rights thereto; (2) possible subnormal
levels of income and lack of access to income during this period; and (3)
expenses of enforcing its rights. To minimize these risks, the Advisors
evaluate and continually monitor the creditworthiness of the institutional
borrowers to which a Portfolio lends its securities.
To minimize the foregoing risks, each Portfolio's securities lending
practices are subject to the following conditions and restrictions: (1) the
Portfolio may not make such loans in excess of 33% of the value of its total
assets; (2) the Portfolio must receive cash collateral in an amount at least
equal to 100% of the value of the securities loaned; (3) the institutional
borrower must be required to increase the amounts of the cash collateral
whenever the market value of the loaned securities rises above the amount of the
collateral; (4) the Portfolio must have the right to terminate the loan at any
time; (5) the Portfolio must receive reasonable interest on the loan, as well as
any interest or other distributions on the loaned securities and any increase in
the market value of the loaned securities; and (6) the Portfolio may not pay any
more than reasonable custodian fees in connection with the loan.
INDUSTRY CONCENTRATION
There may be periods of time during which the issuers represented in the
PSE Technology Index are concentrated in one or more industries.
Notwithstanding the occurrence of such industry concentrations, the PSE Tech 100
Index Portfolio intends to maintain its investments so as to replicate that
Index. As a result, a relatively high percentage of the Portfolio's assets may
be concentrated from time to time in stocks of issuers within a single industry.
Such issuers may be subject to the same economic trends. Securities held by the
Portfolio may therefore be more susceptible to any single economic, political,
or regulatory occurrence than the portfolio securities of many other investment
companies.
PORTFOLIO TURNOVER
In general, the greater the volume of buying and selling by a mutual fund,
the greater the impact that brokerage commissions and other transaction costs
will have on its return. A mutual fund with turnover in excess of 100% engages
in a high volume of buying and selling, and likely will pay brokerage
commissions and realize more taxable gains than a mutual fund with a lower
turnover rate. High portfolio turnover rates also may result in the realization
of substantial net short-term gains. Any such gains that you receive as a
shareholder will be taxed as ordinary income for federal income tax purposes.
The Government and Select Value Portfolios expect to have portfolio
turnover rates between 100% and 200%. All of the other Portfolios expect
portfolio turnover rates of less than 100%, given the fact that the Advisors for
those Portfolios make investments for their long-term growth potential, and do
not engage in market-timing and short-term trading strategies.
Because of their passive investment strategies, the S&P 100 Plus and PSE
Tech 100 Index Portfolios expect portfolio turnover rates of less than 50%.
However, because the PSE Technology Index is "price weighted," that Portfolio
may experience higher turnover and brokerage expenses than would be the case if
the Index's component stocks were weighted by market capitalization, rather than
by price. Ordinarily the S&P 100 Plus and PSE Tech 100 Index Portfolios will
sell securities only to reflect certain administrative changes in their
respective indices (including mergers or changes in the composition of the
Index) or to accommodate cash flows into and out of the Portfolio while
attempting to replicate the composition of the relevant Index on a continuing
basis. Upon notice of a change in the composition of their respective Indices,
each of these Portfolios intends to adjust its investments as soon as reasonably
practicable to more closely replicate its respective Index. The S&P 100 Plus
Portfolio also anticipates some trading activity related to its
over/underweighting strategies, separate and apart from changes in the S&P 100
Index.
INVESTMENT RESTRICTIONS
RESTRICTIONS FOR THE TAX-EXEMPT, GOVERNMENTAL, S&P 100 PLUS AND DIVIDEND
ACHIEVERS PORTFOLIOS
Each Portfolio, other than the Select Value, PSE Tech 100 Index and Managed
Growth Portfolios, has adopted the following fundamental investment restrictions
and policies which cannot be changed without a majority vote of shareholders of
that Portfolio, except that the restriction set forth in paragraph 16 is not
fundamental. Policies that are not "fundamental policies" are subject to change
by the Board of Directors without shareholder approval. A Portfolio may not:
(1) Invest more than 5% of the fair market value of its assets in
securities of any one issuer, except for U.S. Government Securities, which may
be purchased without limitation; and, with respect to the S&P 100 Plus
Portfolio, except as necessary to parallel the composition of the S&P 100 Stock
Index. For the purposes of this limitation, the Tax-Exempt Portfolio will
regard the entity which has the ultimate responsibility for payment of principal
and interest as the issuer.
(2) Purchase more than 10% of the outstanding voting securities of an
issuer, or invest in a company to get control or manage it.
(3) Invest 25% or more of its total assets, based on current market value
at the time of purchase, in securities of issuers in any single industry;
provided that there shall be no limitation on the purchase of U.S. Government
securities or on municipal securities.
(4) Invest more than 5% of its total assets in securities of companies
which, including any predecessors, have a record of less than three years of
continuous operations.
(5) Invest in securities of other investment companies, except by
purchases as a result of which not more than 10% of the Portfolio's total assets
(taken at current value) would be invested in such securities, or except as they
may be acquired as part of a merger, consolidation, reorganization or
acquisition of assets.
(6) Buy or sell real estate, real estate investment trusts, interests in
real estate limited partnerships, oil, gas and mineral interests, or oil, gas
and mineral leases, but this shall not prevent the Tax-Exempt Portfolio from
investing in municipal securities secured by real estate or interests therein.
(7) Borrow money or property except for temporary or emergency purposes.
If a Portfolio ever should borrow money it would only borrow from banks and in
an amount not exceeding 10% of the market value of its total assets (not
including the amount borrowed). The Portfolio will not pledge more than 15% of
its net assets to secure such borrowings. In the event a Portfolio's borrowing
exceeds 5% of the market value of its total assets the Portfolio will not invest
in any additional portfolio securities until its borrowings are reduced to below
5% of its total assets. For purposes of these restrictions, collateral
arrangements for premium and margin payments in connection with a Portfolio's
hedging activities are not to be deemed to be a pledge of assets.
(8) Make loans, except that a Portfolio may lend its portfolio securities,
subject to the conditions and limitations established in this Statement of
Additional Information. See "Investment Program - Lending of Portfolio
Securities" above. For the purposes of this restriction, investments in
publicly-traded debt securities or debt securities of the type customarily
purchased by institutional investors and investments in repurchase agreements
are not considered loans.
(9) Underwrite the securities of other issuers, except that the Tax-Exempt
Portfolio may bid, separately or as part of a group, for the purchase of
municipal securities directly from an issuer for its own portfolio in order to
take advantage of the lower purchase price available.
(10) Purchase securities with legal or contractual restrictions on resale.
(11) Issue senior securities.
(12) Purchase securities on margin, make short sales or write or purchase
put and call options, except for the purposes and subject to the conditions and
limitations described in the Prospectus.
(13) Buy or sell commodities or commodity contracts.
(14) Invest in illiquid securities.
(15) Purchase warrants, valued at lower of cost or market, in excess of 5%
of the value of the Portfolio's net assets; included within the 5%, but not to
exceed 2% of the Portfolio's net assets, may be warrants which are not listed on
the New York Stock Exchange or The NASDAQ Stock Market.
(16) Purchase or retain the securities of an issuer if those officers or
Directors of Principal Preservation or the Advisors (as defined under the
caption "Management of Principal Preservation - The Investment Advisors" in this
Statement of Additional Information) who individually own beneficially more than
0.5 of 1% of the outstanding securities of such issuer together own beneficially
more than 5% of such outstanding securities.
In addition to the investment restrictions above, the Tax-Exempt Portfolio
also is subject to a fundamental investment restriction that it will invest at
least 90% of its total assets in tax-exempt municipal securities, under normal
circumstances.
Each Portfolio also is subject to certain nonfundamental investment
restrictions described below. See "Investment Restrictions - Nonfundamental
Investment Restrictions Common to All Portfolios" below.
RESTRICTIONS FOR SELECT VALUE PORTFOLIO
The Select Value Portfolio has adopted the following fundamental investment
restrictions. The Portfolio may not:
(1) Invest more than 5% of the fair market value of its assets in
securities of any one issuer, except for U.S. Government securities or bank
certificates of deposit and bankers' acceptances, which may be purchased without
such limitation.
(2) Acquire securities of any one issuer which at the time of investment
(i) represent more than 10% of the outstanding voting securities of such issuer,
or (ii) have a value greater than 10% of the value of the outstanding voting
securities of such issuer.
(3) Invest 25% or more of its total assets, based on current market value
at the time of purchase, in securities of issuers in any single industry;
provided that there shall be no limitation on the purchase of securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities.
(4) Invest more than 5% of its total assets in securities of companies
which, including any predecessors, have a record of less than three years of
continuous operations.
(5) Purchase securities on margin or effect short sales of securities (but
the Portfolio may obtain such short-term credits as may be necessary for the
clearance of transactions and may make margin payments in connection with
transactions in options, futures and options on futures).
(6) Buy or sell real estate (although it may purchase securities secured
by real estate or interests therein, or securities issued by companies which
invest in real estate or interests therein, except that it may not invest over
10% of the value of its assets in real estate investment trusts).
(7) Borrow money or property except for temporary or emergency purposes
and in connection with transactions in options, futures or futures options. If
the Portfolio ever should borrow money it would only borrow from banks and in an
amount not exceeding 10% of the market value of its total assets (not including
the amount borrowed). The Portfolio will not pledge more than 15% of its net
assets to secure such borrowings. In the event the Portfolio's borrowing
exceeds 5% of the market value of its total assets, the Portfolio will not
invest in any portfolio securities until its borrowings are reduced to below 5%
of its total assets.
(8) Make loans to other persons. For the purposes of this restriction,
investments in publicly-traded debt securities or debt securities of the type
customarily purchased by institutional investors and investments in repurchase
agreements are not considered loans.
(9) Underwrite the securities of other issuers except where it might
technically be deemed to be an underwriter for purposes of the Securities Act of
1933 upon the disposition of certain securities.
(10) Issue senior securities (other than the borrowings permitted above).
In accordance with the following non-fundamental policies, which may be
changed without shareholder approval, the Select Value Portfolio may not:
(A) Invest in companies for the purpose of exercising control or
management.
(B) Invest in securities of other open-end investment companies (other
than money market funds which are subject to restrictions described below. See
"Investment Restrictions - Non-Fundamental Investment Restrictions Common to All
Portfolios").
(C) Mortgage, hypothecate, or in any manner transfer as security for any
indebtedness, any securities owned or held by the Portfolio, except that this
restriction does not apply to borrowings permitted above.
(D) Purchase or retain the securities of an issuer if those officers or
Directors of Principal Preservation or the Advisors (as defined under the
caption "Management of Principal Preservation - The Investment Advisors" in this
Statement of Additional Information) who individually own beneficially more than
0.5 of 1% of the outstanding securities of such issuer together own beneficially
more than 5% of such outstanding securities.
(E) Invest more than 5% of its assets (valued at the time of investment)
in restricted securities or securities which are not readily marketable,
including (i) securities subject to legal or contractual restrictions on resale;
(ii) securities for which market quotations are not readily available; or (iii)
repurchase agreements which expire in excess of seven days.
(F) Purchase warrants, valued at lower of cost or market, in excess of 5%
of the value of the Portfolio's net assets. Included within the 5%, but not to
exceed 2% of the Portfolio's net assets, may be warrants which are not listed on
the New York Stock Exchange or on the NASDAQ Stock Market. Warrants acquired
by the Portfolio in units or attached to securities shall be deemed to be
without value for the purposes of this restriction.
(G) Buy or sell commodities or commodity contracts or invest in financial
futures, options or options on financial futures.
(H) Invest less than 65% of its total assets in common stocks.
(I) Invest over 5% of its total assets in repurchase agreements.
(J) Invest in oil, gas or other mineral exploration or development
programs, except that the Portfolio may invest in marketable securities of
enterprises engaged in oil, gas or mineral exploration.
RESTRICTIONS FOR PSE TECH 100 INDEX PORTFOLIO
The PSE Tech 100 Index Portfolio has adopted the following fundamental
investment restrictions. The Portfolio may not:
(1) Purchase more than 10% of the outstanding voting securities of an
issuer or invest in a company to get control or manage it.
(2) Borrow money or property except for temporary or emergency purposes.
If the Portfolio ever should borrow money it would only borrow from banks and in
an amount not exceeding 10% of the market value of its total assets (not
including the amount borrowed). The Portfolio will not pledge more than 15% of
its net assets to secure such borrowings. In the event the Portfolio's
borrowing exceeds 5% of the market value of its total assets, the Portfolio will
not invest in any portfolio securities until its borrowings are reduced to below
5% of its total assets. For purposes of these restrictions, collateral
arrangements for premium and margin payments in connection with hedging
activities, if any, are not to be deemed to be a pledge of assets.
(3) Make loans, except that it may lend its portfolio securities. For the
purposes of this restriction, investments in publicly-traded debt securities or
debt securities of the type customarily purchased by institutional investors and
investments in repurchase agreements are not considered loans.
(4) Underwrite the securities of other issuers, except where it might
technically be deemed to be an underwriter for purposes of the Securities Act of
1933 upon the disposition of certain securities.
(5) Issue senior securities.
(6) Purchase a security if, as a result, more than 10% of the value of the
Portfolio's net assets would be invested in: (i) securities with legal or
contractual restrictions on resale (other than investments and repurchase
agreements); (ii) securities for which market quotations are not readily
available; and (iii) repurchase agreements which do not provide for payment
within 7 days.
(7) Invest in commodities, but the Portfolio may invest in futures
contracts and options.
(8) Purchase securities on margin or effect short sales of securities,
except short sales "against the box" (but the Portfolio may obtain such short-
term credits as may be necessary for the clearance of transactions and may make
margin payments in connection with transactions in options and futures
transactions).
(9) Buy or sell real estate, real estate investment trusts, real estate
limited partnerships, or oil and gas interests or leases.
In accordance with the following non-fundamental policies, which may be
changed without shareholder approval, the PSE Tech 100 Index Portfolio may not:
(A) Invest more than 5% of its total assets in securities of companies
which, including any predecessors, have a record of less than three years of
continuous operations.
(B) Purchase warrants, except that the Portfolio may purchase warrants
which, when valued at lower of cost or market, do not exceed 5% of the value of
the Portfolio's net assets; included within the 5%, but not to exceed 2% of the
Portfolio's net assets, may be warrants which are not listed on the New York
Stock Exchange or the NASDAQ Stock Market.
(C) Purchase or retain the securities of an issuer if those officers or
Directors of Principal Preservation or the Advisors (as defined under the
caption "Management of Principal Preservation-The Investment Advisors" in this
Statement of Additional Information) who individually own beneficially more than
0.5 of 1% of the outstanding securities of such issuer together own beneficially
more than 5% of such outstanding securities; provided that no officer or
director shall be deemed to own beneficially securities held in other accounts
managed by such person or held in employee or similar plans for which such
person acts as trustee.
(D) Purchase securities of other investment companies if the purchase
would cause more than 10% of the value of the total assets of the Portfolio to
be invested in investment company securities, provided that: (i) no investment
will be made in the securities of any single investment company if, immediately
after such investment, more than 3% of the outstanding voting securities of such
investment company would be owned by the Portfolio or more than 5% of the value
of the total assets of the Portfolio would be invested in such investment
company; and (ii) no such restrictions shall apply to a purchase of investment
company securities as a part of a merger, consolidation, reorganization or
acquisition of assets.
With respect to fundamental investment restriction (6) above for the PSE
Tech 100 Index Portfolio, portfolio securities are classified by the Advisors as
liquid or illiquid under the supervision of, and pursuant to guidelines
established by, the Board of Directors of Principal Preservation. It is
possible that the 10% limitation on illiquid securities could be exceeded as a
result of a security which, although liquid at the time of purchase, later is
classified by the Advisors as illiquid as a result of market conditions or
developments with respect to the issuer. Under such circumstances the Board of
Directors would investigate and consider all of the surrounding circumstances,
would evaluate all available alternatives to bring the PSE Tech 100 Index
Portfolio back into compliance with the 10% limitation as soon as reasonably
practicable, and would take appropriate action. However, the Portfolio would
not necessarily be required immediately to dispose of illiquid securities until
the 10% limitation is met if, in the judgment of the Board of Directors, it
would not be in the best interests of the shareholders to do so. Disposing of
illiquid investments potentially may involve time-consuming negotiation and
legal expenses, and it may be difficult or impossible for the Portfolio to sell
an illiquid security promptly at an acceptable price. The absence of a trading
market can make it difficult to ascertain the market value for illiquid
investments, and could require the Portfolio to employ special pricing
procedures. Because the stocks included in the PSE Technology Index are listed
on the NASDAQ Stock Market or the New York Stock Exchange, the Portfolio does
not anticipate any difficulty in maintaining adequate liquidity under normal
market conditions.
RESTRICTIONS FOR THE MANAGED GROWTH PORTFOLIO
The Managed Growth Portfolio has adopted the following fundamental
investment restrictions. The Portfolio may not:
(1) Invest more than 5% of the fair market value of its assets in
securities of any one issuer, except for U.S. Government securities or bank
certificates of deposit and bankers' acceptances, which may be purchased without
such limitation.
(2) Acquire securities of any one issuer which at the time of investment
(i) represent more than 10% of the outstanding voting securities of such issuer,
or (ii) have a value greater than 10% of the value of the outstanding voting
securities of such issuer.
(3) Invest 25% or more of its total assets, based on current market value
at the time of purchase, in securities of issuers in any single industry;
provided that there shall be no limitation on the purchase of securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities.
(4) Invest more than 5% of its total assets in securities of companies
which, including any predecessors, have a record of less than three years of
continuous operations.
(5) Buy or sell real estate (although it may purchase securities secured
by real estate or interests therein, or securities issued by companies which
invest in real estate or interests therein, except that it may not invest more
than 5% of the value of its assets in real estate investment trusts).
(6) Borrow money or property except for temporary or emergency purposes
and in connection with transactions in options, futures or futures options. If
the Portfolio ever should borrow money it would only borrow from banks and in an
amount not exceeding 10% of the market value of its total assets (not including
the amount borrowed). The Portfolio will not pledge more than 15% of its net
assets to secure such borrowings. In the event the Portfolio's borrowing
exceeds 5% of the market value of its total assets, the Portfolio will not
invest in any portfolio securities until its borrowings are reduced to below 5%
of its total assets.
(7) Make loans to other persons, except that the Portfolio may lend its
portfolio securities subject to the conditions and limitations set forth in this
Statement of Additional Information under "Investment Program - Lending of
Portfolio Securities." For the purposes of this restriction, investments in
publicly-traded debt securities or debt securities of the type customarily
purchased by institutional investors and investments in repurchase agreements
are not considered loans.
(8) Underwrite the securities of other issuers except where it might
technically be deemed to be an underwriter for purposes of the Securities Act of
1933 upon the disposition of certain securities.
(9) Issue senior securities (other than the borrowings permitted above).
(10) Buy or sell commodities (other than futures contracts and options
thereon).
(11) Invest more than 10% of its total assets in securities of other
investment companies, invest more than 5% of its total assets in securities of
any particular investment company or purchase more than 3% of the total
outstanding voting stock of another investment company, except that this
restriction does not apply to a purchase of investment company securities as
part of a merger, consolidation, reorganization or acquisition of assets.
In accordance with the following non-fundamental policies, which may be
changed without shareholder approval, the Portfolio may not:
(A) Invest in companies for the purpose of exercising control or
management.
(B) Invest in securities of other open-end investment companies (other
than money market mutual funds which are subject to restrictions described
above).
(C) Mortgage, hypothecate, or in any manner transfer as security for any
indebtedness, any securities owned or held by the Portfolio, except that this
restriction does not apply to borrowings permitted above.
(D) Purchase securities on margin, effect short sales of securities, write
or sell put or call options, or engage in futures transactions.
(E) Purchase or retain the securities of an issuer if those officers or
Directors of Principal Preservation or the Advisors (as defined under the
caption "Management of Principal Preservation - The Investment Advisors" in this
Statement of Additional Information) who individually own beneficially more than
0.5 of 1% of the outstanding securities of such issuer together own beneficially
more than 5% of such outstanding securities.
(F) Invest in restricted securities, securities which are not readily
marketable or other illiquid securities, including (i) securities subject to
legal or contractual restrictions on resale; (ii) securities for which market
quotations are not readily available; or (iii) repurchase agreements which
expire in excess of seven days.
(G) Purchase warrants.
(H) Invest less than 80% of its total assets in common stocks.
(I) Invest over 5% of its total assets in repurchase agreements.
(J) Invest in oil, gas or other mineral exploration or development
programs, except that the Portfolio may invest in marketable securities of
enterprises engaged in oil, gas or mineral exploration.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS COMMON TO ALL PORTFOLIOS
Also, the 1940 Act currently places further restrictions on certain
investments by each of the Portfolios, including: (a) subject to certain
exceptions, the 1940 Act currently prohibits each Portfolio from investing more
than 5% of its total assets in securities of another investment company or
purchasing more than 3% of the total outstanding voting stock of another
investment company, except that this restriction does not apply to a purchase of
investment company securities as a part of a merger, consolidation,
reorganization or acquisition of assets; and (b) the 1940 Act's limit on
aggregate holdings of illiquid securities or securities with restrictions on
resale is 15% of a Portfolio's net assets.
MANAGEMENT OF PRINCIPAL PRESERVATION
DIRECTORS AND OFFICERS
Under applicable law, the Board of Directors is responsible for management
of Principal Preservation, and provides broad supervision over its affairs. The
Advisors are responsible for the Portfolio's investment management, and
Principal Preservation's officers are responsible for the Portfolio's
operations.
The directors and officers of Principal Preservation and their principal
occupations during the past five years are set forth below. Their titles may
have varied during that period. Unless otherwise indicated, the address of each
director and officer of Principal Preservation is 215 North Main Street, West
Bend, Wisconsin, 53095. Asterisks indicate those Directors of Principal
Preservation who are "interested persons" (as defined in the 1940 Act) of any of
the Advisors or of any affiliate of any of the Advisors.
Due to the resignation of an "interested" Director in 1999, there presently
is a vacancy on Principal Preservation's Board. The remaining Directors
anticipate appointing a person affiliated with Ziegler to fill that vacancy
during the course of 2000.
<TABLE>
POSITION WITH PRINCIPAL
PRINCIPAL OCCUPATION DURING
NAME, AGE AND ADDRESS PRESERVATION PAST FIVE YEARS
- --------------------- ------------- ----------------
<S> <C> <C>
Robert J. Tuszynski,* 41 President and Senior Vice President, B.C. Ziegler and Company, since 1996; prior thereto,
Director 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., 69 Director Since June 1996, Senior Investigator and Professor of Medicine, Medical
8727 W. Watertown Plank Rd. College of Wisconsin; prior thereto, President and Director of Research, The
Milwaukee, WI 53226 Blood Center of Southeastern Wisconsin, Inc.
Augustine J. English, 70 Director Retired; President, Tupperware North America from 1990 to 1994
1724 Lake Roberts Court (manufacturing); prior to 1990, President, The West Bend Company
Windermere, FL 34786 (manufacturing), a division of Dart Industries, a subsidiary of Premark
International, Inc., of which Mr. English was a Group Vice President.
Ralph J. Eckert, 71 Director Chairman Emeritus and Director, Trustmark Insurance Cos. (Mutual Life
2059 Keystone Ranch Road Insurance Company) since April 1997; from 1991 to 1997, Chairman, Trustmark
Dillon, CO 80435 Insurance Cos; prior to 1991, Chairman, President and Chief Executive
Officer, Trustmark Insurance Cos; Trustee of the Board of Pensions of the
Evangelical Lutheran Church in America from 1991 to 1997, and Chairman of the
Board from 1993 to 1997; Trustee of the Board of Pensions for the Lutheran
Church in America from 1987 to 1989; and Trustee of The Prime Portfolios
(registered investment company) from 1993 to 1996.
James L. Brendemuehl, 54 Senior Vice Vice President - Mutual Funds, B.C. Ziegler and Company since 1995.
President - Sales
John H. Lauderdale, 34 Senior Vice Wholesaler, B.C. Ziegler and Company since 1991; prior thereto, Marketing
President - Account Executive, The Patten Company.
Marketing
Franklin P. Ciano, 48 Chief Financial Manager of Principal Preservation Operations, B.C. Ziegler and Company
Officer and since 1996; prior thereto, Vice President, Fixed Income Department, Firstar
Treasurer Bank.
Kathleen Cain, 42 Secretary Administrative assistant to President of Principal Preservation, B.C. Ziegler
and Company, since 1999; prior thereto, Assistant Secretary/Treasurer for
Regal Ware, Inc. (kitchen items manufacturer).
</TABLE>
Principal Preservation pays the compensation of the three Directors who are
not officers, directors or employees of Ziegler. Principal Preservation pays
each of these Directors an annual fee of $12,000 and an additional $450 for each
Board or committee meeting he attends. Principal Preservation may also retain
consultants, who will be paid a fee, to provide the Board with advice and
research on investment matters. Each Portfolio, together with Principal
Preservation's other series, pays a proportionate amount of these expenses based
on its total assets.
The table below shows fees paid to Directors of Principal Preservation for
the fiscal year ended October 31, 1999 (a period of ten months). Each series of
Principal Preservation pays a proportionate share of these expenses based on the
ratio such series' total assets bear to the aggregate of the total assets of all
nine series of Principal Preservation. Principal Preservation made no payments
to its officers or directors who are affiliated with any of the Advisors.
<TABLE>
PENSION OR
RETIREMENT TOTAL
BENEFITS ACCRUED COMPENSATION
NAME OF PERSON AND AGGREGATE AS PART OF FROM PRINCIPAL
POSITION WITH COMPENSATION PRINCIPAL ESTIMATED ANNUAL PRESERVATION AND
PRINCIPAL FROM PRINCIPAL PRESERVATION'S BENEFITS UPON FUND COMPLEX
PRESERVATION PRESERVATION EXPENSES RETIREMENT PAID TO DIRECTORS
------------- ------------ -------- ---------- -----------------
<S> <C> <C> <C> <C>
Richard J. Glaisner,
Director(1)<F64> -0- -0- -0- -0-
Robert J. Tuszynski,
President and Director -0- -0- -0- -0-
Richard H. Aster,
Director $9,350 -0- -0- $9,350
Augustine J. English,
Director $9,350 -0- -0- $9,350
Ralph J. Eckert
Director $9,350 -0- -0- $9,350
</TABLE>
(1)<F64> Mr. Glaisner resigned from the Board in 1999 in connection with his
decision to resign from his positions with Ziegler and its affiliates
to pursue other interests.
ELIMINATION OF SALES LOADS FOR AFFILIATES
Class A shares of each Portfolio may be purchased at net asset value (that
is, without a front-end sales charge) by directors and officers of Principal
Preservation (including shares purchased by any such person's spouse, children
or grandchildren under age 21, and by employees of B.C. Ziegler and Company,
Ziegler Asset Management (the sub-advisor for all of the Portfolios except for
the Select Value and Managed Growth Portfolios), Geneva Capital Management Ltd.
(the sub-advisor for the Managed Growth Portfolio) and Skyline Asset Management,
L.P. (the sub-advisor for the Select Value Portfolio), and the trustee or
custodian under any pension or profit-sharing plan established for the benefit
of any such employees. Non-employee directors of The Ziegler Companies, Inc.
also may purchase Class A shares of each Portfolio without a sales charge.
Also, employees of the Pacific Stock Exchange may purchase Class A shares of the
PSE Tech 100 Index Portfolio at net asset value. The term "employees" includes
an employee's spouse (including the surviving spouse of a deceased employee),
parents (including step-parents and in-laws), children, grandchildren under age
21, siblings, and retired employees. Principal Preservation permits such
persons to purchase Class A shares of each Portfolio without a sales charge
because of the minimum sales effort to accommodate these persons. The
elimination of the sales load for these affiliates also encourages them to
invest in Principal Preservation and rewards them for their services to
Principal Preservation.
THE INVESTMENT ADVISORS
Pursuant to the terms of an Investment Advisory Agreement, Ziegler provides
each Portfolio with overall investment advisory and administrative services.
Subject to such policies as the Principal Preservation Board of Directors may
determine, Ziegler makes investment decisions on behalf of the Portfolio, makes
available research and statistical data in connection therewith, and supervises
the acquisition and disposition of investments by the Portfolio. Principal
Preservation and Ziegler have retained Ziegler Asset Management and Geneva
Capital Management Ltd. ("Geneva Capital") to serve as sub-advisors to certain
of the Portfolios.
Ziegler Asset Management serves as sub-advisor to each of the Tax-Exempt,
Government, S&P 100 Plus, Dividend Achievers and PSE Tech 100 Index Portfolios.
Each of Ziegler and Ziegler Asset Management is a wholly-owned subsidiary of The
Ziegler Companies, Inc., a publicly-held financial services holding company. As
indicated in the table above (see "Management of Principal Preservation -
Directors and Officers"), Robert J. Tuszynski, President and a Director of
Principal Preservation, James L. Brendemuehl, Senior Vice President - Sales of
Principal Preservation, John H. Lauderdale, Senior Vice President - Marketing of
Principal Preservation, and Franklin P. Ciano, Chief Financial Officer and
Treasurer of Principal Preservation, each also serve as officers of either or
both of Ziegler and Ziegler Asset Management. No other officer or Director of
Principal Preservation is an officer or director of any of the Advisors or of
any affiliate of any of the Advisors.
The advisory and sub-advisory agreements pursuant to which the Advisors are
retained by the Portfolios provide for compensation to the Advisors (computed
daily and paid monthly) at annual rates based on the relevant Portfolio's
average daily net assets as follows:
<TABLE>
ADVISORY FEE SUB-ADVISORY FEE PAID BY
PORTFOLIO PAID TO ZIEGLER ZIEGLER TO THE SUB-ADVISOR(1)<F65>
--------- --------------- ----------------------------------
<S> <C> <C>
TAX-EXEMPT AND GOVERNMENT PORTFOLIOS:
First $50 million in assets 0.60 of 1% One-Fourth of the
Next $200 million in assets 0.50 of 1% Advisory Fee
Assets over $250 million 0.40 of 1%
S&P 100 PLUS PORTFOLIO:
First $20 million in assets 0.575 of 1% One-Fourth of the
Next $30 million in assets 0.450 of 1% Advisory Fee
Next $50 million in assets 0.400 of 1%
Next $400 million in assets 0.350 of 1%
Assets over $500 million 0.300 of 1%
DIVIDEND ACHIEVERS PORTFOLIO:
First $250 million in assets 0.75 of 1% One-Fourth of the
Next $250 million in assets 0.70 of 1% Advisory Fee
Assets over $500 million 0.65 of 1%
SELECT VALUE PORTFOLIO:
First $250 million in assets 0.75 of 1%
Next $250 million in assets 0.65 of 1%
Assets over $500 million 0.65 of 1%
PSE TECH 100 INDEX PORTFOLIO:
First $50 million in assets 0.50 of 1% One-Fourth of the
Next $200 million in assets 0.30 of 1% Advisory Fee
Next $250 million in assets 0.25 of 1%
Assets over $500 million 0.20 of 1%
MANAGED GROWTH PORTFOLIO:
First $250 million in assets 0.75 of 1% 0.375 of 1%
Next $250 million in assets 0.65 of 1% 0.350 of 1%
Assets over $500 million 0.65 of 1% 0.325 of 1%
</TABLE>
(1)<F65> Ziegler (and not the Portfolios) pays fees to the sub-advisors out of
the advisory fees it receives from each Portfolio.
The following table shows the advisory fees paid by each Portfolio during
the past three years (or such shorter period during which the Portfolio has
conducted operations).
ADVISORY FEES PAID TO ZIEGLER
-----------------------------
PORTFOLIO 1999(1)<F66> 1998 1997
- --------- ----------- ---- ----
Tax-Exempt(2)<F67> $249,494 $341,777 $359,288
Government(2)<F67> 193,345 240,128 248,936
S&P 100 Plus(2)<F67> 691,480 558,044 424,699
Dividend Achievers(2)<F67> 283,524 312,503 265,344
Select Value(2)<F67> 68,688 78,515 50,294
PSE Tech 100 Index(2)<F67> 433,025 216,619 76,584
Managed Growth(3)<F68> 32,184 -0- -0-
(1)<F66> Covers the ten-month period from January 1, 1999 through October 31,
1999 (the end of the Portfolio's new fiscal year).
(2)<F67> The table does not reflect expenses that Ziegler reimbursed to the
Portfolios and fees it waived during the periods presented. The
following table shows the amounts of those reimbursements and waivers:
EXPENSE REIMBURSEMENTS AND FEE WAIVERS BY ZIEGLER
--------------------------------------------------
PORTFOLIO 1999 1998 1997
- --------- ---- ---- ----
Tax-Exempt $ -0- $ -0- $ -0-
Government -0- 1,102 17,630
S&P 100 Plus 10,732 87,812 98,729
Dividend Achievers 3,994 6,452 34,811
Select Value 52,577 57,264 65,968
PSE Tech 100 Index 184,234 257,074 179,273
Managed Growth 106,790 -0- -0-
(3)<F68> The Managed Growth Portfolio first commenced operations on January 1,
1999.
The following table shows the fees paid by Ziegler to the sub-advisor of
the indicated Portfolios for the periods indicated. Ziegler paid these sub-
advisory fees out of the advisor fee it received from the particular Portfolio.
SUB-ADVISORY FEES PAID BY ZIEGLER
----------------------------------
PORTFOLIO AND SUB-ADVISOR 1999 1998 1997
- --------------------------- ---- ---- ----
Select Value Portfolio(1)<F69> $34,344(2) $39,259 $25,147
<F70>
Managed Growth Portfolio
(Geneva Capital) -0-(2)(3) -0- -0-
<F70> <F71>
(1)<F69> Skyline Asset Management, L.P. served as sub-advisor to the Select
Value Portfolio until March 1, 2000, when its resignation took effect
and Ziegler assumed responsibility for portfolio management under its
investment advisory agreement with Principal Preservation.
(2)<F70> Covers the ten-month period from January 1, 1999 through October 31,
1999 (the end of the Portfolio's new fiscal year).
(3)<F71> Geneva Capital waived the entire sub-advisory fee for the ten months
ended October 31, 1999, which amounted to $16,092.
ACCOUNTING/PRICING SERVICES
In addition to serving as investment advisor, Ziegler provides certain
administrative, accounting and pricing services to Principal Preservation,
including calculating daily net asset value per share; maintaining original
entry documents and books of record and general ledgers; posting cash receipts
and disbursements; reconciling bank account balances monthly; recording
purchases and sales based upon portfolio manager communications; and preparing
monthly and annual summaries to assist in the preparation of financial
statements of, and regulatory reports for, Principal Preservation. Ziegler has
agreed to provide these services pursuant to the terms of an Accounting/Pricing
Agreement at rates found by the Board of Directors to be fair and reasonable in
light of the usual and customary charges made by unaffiliated vendors for
similar services. The current rate of payment for these services per Portfolio
per year is .03 of 1% of the Portfolio's total assets of $30 million but less
than $100 million, .02 of 1% of the Portfolio's total assets of $100 million but
less than $250 million and .01 of 1% of the Portfolio's total assets of $250
million or more, with a minimum fee of $19,000 per portfolio per year, plus
expenses.
The Accounting/Pricing Agreement will continue in effect from year to year,
as long as it is approved at least annually by Principal Preservation's Board of
Directors or by a vote of the outstanding voting securities of Principal
Preservation and in either case by a majority of the Directors who are not
parties to the Accounting/Pricing Agreement or interested persons of any such
party. The Accounting/Pricing Agreement terminates automatically if assigned
and may be terminated without penalty by either party on 60 days notice. The
Accounting/Pricing Agreement provides that neither Ziegler nor their personnel
shall be liable for any error of judgment or mistake of law or for any loss
arising out of any act or omission in the execution and the discharge of its
obligations under the Accounting/Pricing Agreement, except for willful
misfeasance, bad faith or gross negligence in the performance of their duties or
by reason of reckless disregard of their obligations and duties under the
Accounting/Pricing Agreement, and in no case shall their liability exceed one
year's fee income received by them under such Agreement.
The table below shows the total compensation paid by each Portfolio to
Ziegler for its accounting/pricing services during each of the past three fiscal
years (or such shorter period during which the particular Portfolio conducted
operations).
ACCOUNTING/PRICING FEES FOR THE FISCAL YEAR
-------------------------------------------
PORTFOLIO 1999(1)<F72> 1998 1997
- ---------- ------------ ---- ----
Tax-Exempt $21,166 $27,814 $28,797
Government 18,083 22,022 22,601
S&P 100 Plus 50,125 45,253 37,391
Dividend Achievers 19,662 22,405 20,418
Select Value 15,833 19,000 19,000
PSE Tech 100 Index 37,084 22,397 19,000
Managed Growth ` 14,250 -0- -0-
(1)<F72> For the ten-month period from January 1, 1999 through October 31, 1999
(the end of the Portfolio's new fiscal year).
OTHER SERVICES PROVIDED BY ZIEGLER
Ziegler also serves as the principal Distributor of shares of the Portfolio
and receives commissions on sales of such shares. See "Purchase of Shares." In
addition Ziegler receives reimbursement from each Portfolio for certain expenses
Ziegler incurs in connection with distributing the Portfolio's shares pursuant
to the Distribution Plan adopted by each Portfolio under Rule 12b-1 of the 1940
Act. See "Distribution Expenses."
CUSTODIAN SERVICES
Firstar Bank Milwaukee, N.A., serves as the custodian of Principal
Preservation's assets, pursuant to a Custodian Servicing Agreement. The
Custodian is responsible for holding and safekeeping of each Portfolio's
assets.
TRANSFER AGENT SERVICES
PFPC Global Fund Services provides transfer agent and dividend disbursing
services to each Portfolio.
PURCHASE OF SHARES
As the principal Distributor for the Portfolio, Ziegler allows Selected
Dealer discounts (which are alike for all Selected Dealers) from the applicable
public offering price. Neither Ziegler nor Selected Dealers are permitted to
withhold placing orders to benefit themselves by a price change. The
Distribution Agreement between Principal Preservation and Ziegler continues from
year to year if it is approved annually by Principal Preservation's Board of
Directors, including a majority of those Directors who are not interested
persons, or by a vote of the holders of a majority of the outstanding shares.
The Distribution Agreement may be terminated at any time by either party on 60
days notice and will automatically terminate if assigned.
CLASS A SHARES
The public offering price of each Portfolio's Class A shares is the net
asset value plus a maximum front-end sales charge equal to a percentage of the
offering price. For the Income-Oriented Portfolios (Tax-Exempt and Government
Portfolios) the maximum front-end sales charge is 3.50% of the offering price.
For the Equity-Oriented Portfolios (S&P 100 Plus, Dividend Achievers, Select
Value, PSE Tech 100 Index and Managed Growth Portfolios) the maximum front-end
sales charge is 5.25% of the offering price.
Class A shares of each Portfolio may be purchased by certain classes of
persons without a sales charge, or a reduced sales charge, as described in the
Prospectus. The Board of Directors believes this is appropriate because of the
minimal sales effort needed to accommodate these classes of persons.
Because sales to members of qualified groups result in economies of sales
efforts and sales related expenses, the Distributor is able to offer a reduced
sales charge to such persons. A "qualified group" is one which: (1) has been
in existence for more than six months; (2) has a purpose other than acquiring
shares of one or more of the Portfolios at a discount; (3) has more than 10
members; (4) is available to arrange for group meetings between representatives
of the Distributor or Selected Dealers distributing shares of the relevant
Portfolios; and (5) agrees to include sales and other materials related to
Principal Preservation in its mailings to members at reduced or no cost to the
Distributor or Selected Dealers. See "Purchasing Shares - Reduced Front-End
Sales Charge" in the Prospectus.
CLASS B SHARES
You may purchase Class B shares of all of the Equity-Oriented Portfolios.
The public offering price of Class B shares is net asset value with no front-end
sales charge. However, you pay a contingent deferred sales charge (expressed as
a percent of the lesser of the current net asset value or original cost) if the
Class B shares are redeemed within six years after purchase. See "How to
Purchase Shares" in the Prospectus.
CLASS C SHARES
Beginning May 8, 2000, you may purchase Class C shares in all of the
Equity-Oriented Portfolios and the Government Portfolio. The public offering
price for Class C shares is the net asset value plus a front-end sales charge
equal to 1.00% of the offering price. In addition, if you redeem Class C shares
which you have held for less than 18 months, you must pay a contingent deferred
sales charge in an amount equal to 1.00% of the lesser of the current net asset
value at the time of redemption or the original cost for your shares. See "How
to Purchase Shares" in the Prospectus.
DEALER REALLOWANCES
The Distributor pays a reallowance to Selected Dealers out of the front-end
sales load it receives on sales of Class A shares of each Portfolio, which
reallowance is equal to the following percentage of the offering price of such
shares:
DEALER REALLOWANCE
-------------------------------------
INCOME-ORIENTED EQUITY-ORIENTED
SIZE OF INVESTMENT PORTFOLIOS(1)<F73> PORTFOLIOS(2)<F74>
- ------------------ ------------------ ------------------
Less than $25,000 3.00% 4.50%
$25,000 but less than $50,000 2.75% 4.25%
$50,000 but less than $100,000 2.25% 4.25%
$100,000 but less than $250,000 1.75% 3.25%
$250,000 but less than %500,000 1.25% 2.50%
$500,000 but less than $1,000,000 1.00% 1.80%
$1,000,000 or more None 0.50%
(1)<F73> The Income-Oriented Portfolios include the Tax-Exempt and Government
Portfolios.
(2)<F74> The Equity-Oriented Portfolios include the S&P 100 Plus, Dividend
Achievers, Select Value, PSE Tech 100 Index and Managed Growth
Portfolios.
In addition, the Distributor may pay an additional commission to
participating dealers and participating financial institutions acting as agents
for their customers in an amount up to the difference between the sales charge
and the selected dealer reallowance in respect of the shares sold. The
Distributor may offer additional compensation in the form of trips, merchandise
or entertainment as sales incentives to Selected Dealers. The Distributor's
sales representatives may not qualify to participate in some of these incentive
compensation programs, and the Distributor may offer similar incentive
compensation programs in which only its own sales representatives qualify to
participate. In addition to the Selected Dealer Reallowances reflected in the
table, the Distributor may from time to time pay an additional concession to a
Selected Dealer which employs a registered representative who sells, during a
specific period, a minimum dollar amount of shares, or may pay an additional
concession to Selected Dealers on such terms and conditions as the Distributor
determines. In no event will such additional concession paid by the Distributor
to the Selected Dealer exceed the difference between the sales charge and the
Selected Dealer Reallowance in respect of shares sold by the qualifying
registered representatives of the Selected Dealer. Selected Dealers who receive
a concession may be deemed to be "underwriters" in connection with sales by them
of such shares and in that capacity they may be subject to the applicable
provisions of the Securities Act of 1933.
The Distributor may make the following payments, out of its own funds, to
Selected Dealers when Class A shares are purchased without a front-end sales
charge as follows:
O Up to 0.75% of the amount invested through the Selected Dealer
when at least $1 million of shares are purchased.
O Up to 0.75% of the amount invested through the Selected Dealer by
a pension, profit sharing or other employee benefit plan
qualified under Section 401 of the Internal Revenue that also
purchased shares of a Principal Preservation mutual fund prior to
July 1, 1998.
The Distributor will pay a commission to Selected Dealers who sell Class B
shares of a Portfolio in an amount equal to 4.00% of the net asset value of the
shares sold.
The Distributor will pay a commission to Selected Dealers who sell Class C
shares of a Portfolio in an amount equal to 1.50% of the net asset value of the
shares sold.
The table below shows commissions that Ziegler earned on sales of shares of
each Portfolio during the past three years, including front-end sales charges on
Class A shares and contingent deferred sales charges on Class B shares. Because
Class C shares first became available on May 8, 2000, no commission information
is included for Class C shares.
COMMISSIONS EARNED BY ZIEGLER ON
SALES OF PORTFOLIO SHARES FOR THE INDICATED FISCAL YEAR
--------------------------------------------------------
PORTFOLIO 1999(1)<F75> 1998 1997
- --------- ------------ ---- ----
Tax-Exempt $ 10,493 $ 43,412 $23,711
Government 32,631 23,795 17,919
S&P 100 Plus 870,283 476,872 308,152
Dividend Achievers 42,218 64,342 35,580
Select Value 44,091 141,410 52,442
PSE Tech 100 Index 1,098,728 276,176 77,640
Managed Growth 97,275 -0- -0-
(1)<F75> Covers the ten-month period from January 1, 1999 through October 31,
1999 (the end of the Portfolio's new fiscal year).
DISTRIBUTION EXPENSES
Principal Preservation's Distribution Plan (the "Plan") is its written plan
contemplated by Rule 12b-1 (the "Rule") under the 1940 Act.
The Plan authorizes the Distributor to make certain payments to any
qualified recipient, as defined in the Plan, that has rendered assistance in the
distribution of Principal Preservation's shares (such as sale or placement of
Principal Preservation's shares, or administrative assistance, such as
maintenance of sub-accounting or other records). Qualified recipients include
banks and other financial institutions. The Plan also authorizes the
Distributor to purchase advertising for shares of the Portfolio, to pay for
sales literature and other promotional material, and to make payments to its
sales personnel. The Plan also entitles the Distributor to receive a fee of .25
of 1% on an annual basis of the average daily net assets of Portfolio shares
that are owned of record by the Distributor as nominee for the Distributor's
customers or which are owned by those customers of the Distributor whose
records, as maintained by Principal Preservation or its agent, designate the
Distributor as the customer's dealer of record. Any such payments to qualified
recipients or expenses will be reimbursed or paid by Principal Preservation, up
to maximum annual amounts established under the terms of the Plan.
CLASS A SHARES
The maximum amount of fees payable under the Plan during any calendar year
with respect to Class A Shares of the Portfolio may not exceed an amount equal
to 0.25 of 1% of the average daily net assets of the Portfolio over the relevant
year.
CLASS B AND CLASS C SHARES
The maximum amount of fees payable under the Plan during any calendar year
by a Portfolio with respect to its outstanding Class B and Class C shares may
not exceed an amount equal to 1.00% of the average daily net assets of the
Portfolio over the relevant year which are attributable to such shares. A part
of the distribution fee equal to 0.75 of 1% of the average daily net assets of
the Portfolio will be paid to compensate the Distributor for assuming the costs
of brokers' commissions in connection with the sale of the Class B and Class C
shares.
The Distributor bears its expenses of distribution above the foregoing
amounts. No reimbursement or payment may be made for expenses of past fiscal
years or in contemplation of expenses for future fiscal years under the Plan.
The Plan states that if and to the extent that any of the payments by
Principal Preservation listed below are considered to be "primarily intended to
result in the sale of shares" issued by the Portfolio within the meaning of the
Rule, such payments by Principal Preservation are authorized without limit under
the Plan and shall not be included in the limitations contained in the Plan:
(1) the costs of the preparation, printing and mailing of all required reports
and notices to shareholders, irrespective of whether such reports or notices
contain or are accompanied by material intended to result in the sale of shares
of Principal Preservation or other funds or other investments; (2) the costs of
preparing, printing and mailing of all prospectuses to shareholders; (3) the
costs of preparing, printing and mailing of any proxy statements and proxies,
irrespective of whether any such proxy statement includes any item relating to,
or directed toward, the sale of Principal Preservation's shares; (4) all legal
and accounting fees relating to the preparation of any such reports,
prospectuses, proxies and proxy statements; (5) all fees and expenses relating
to the qualification of Principal Preservation and or their shares under the
securities or "Blue Sky" laws of any jurisdiction; (6) all fees under the 1940
Act and the Securities Act of 1933, including fees in connection with any
application for exemption relating to or directed toward the sale of Principal
Preservation's shares; (7) all fees and assessments of the Investment Company
Institute or any successor organization or industry association irrespective of
whether some of its activities are designed to provide sales assistance; (8) all
costs of preparing and mailing confirmations of shares sold or redeemed or share
certificates and reports of share balances; and (9) all costs of responding to
telephone or mail inquiries of shareholders.
The Plan also states that it is recognized that the costs of distribution
of Principal Preservation's shares are expected to exceed the sum of permitted
payments, permitted expenses, and the portion of the sales charge retained by
the Distributor, and that the profits, if any, of the Advisors are dependent
primarily on the advisory fees paid by Principal Preservation to Ziegler. If
and to the extent that any investment advisory fees paid by Principal
Preservation might, in view of any excess distribution costs, be considered as
indirectly financing any activity which is primarily intended to result in the
sale of shares issued by Principal Preservation, the payment of such fees is
nonetheless authorized under the Plan. The Plan states that in taking any
action contemplated by Section 15 of the 1940 Act as to any investment advisory
contract to which Principal Preservation is a party, the Board of Directors
including its Directors who are not "interested persons" as defined in the 1940
Act, and who have no direct or indirect financial interest in the operation of
the Plan or any agreements related to the Plan ("Qualified Directors"), shall,
in acting on the terms of any such contract, apply the "fiduciary duty" standard
contained in Sections 36(a) and (b) of the 1940 Act.
Under the Plan, Principal Preservation is obligated to pay distribution
fees only to the extent of expenses actually incurred by the Distributor for the
current year, and thus there will be no carry-over expenses from the previous
years. The Plan permits the Distributor to pay a portion of the distribution
fee to authorized broker dealers, which may include banks or other financial
institutions, and to make payments to such persons based on either or both of
the following: (1) as reimbursement for direct expenses incurred in the course
of distributing Principal Preservation's shares or providing administrative
assistance to Principal Preservation or its shareholders, including, but not
limited to, advertising, printing and mailing promotional material, telephone
calls and lines, computer terminals and personnel (including commissions and
other compensation paid to such personnel); and/or (2) at a specified percentage
of the average value of certain qualifying accounts of customers of such
persons.
The Plan requires that while it is in effect the Distributor shall report
in writing at least quarterly to the Directors, and the Directors shall review,
the following: (1) the amounts of all payments, the identity of recipients of
each such payment, the basis on which each such recipient was chosen and the
basis on which the amount of the payment was made; (2) the amounts of expenses
and the purpose of each such expense; and (3) all costs of the other payments
specified in the Plan (making estimates of such costs where necessary or
desirable) in each case during the preceding calendar or fiscal quarter.
The Plan will continue in effect from year to year only so long as such
continuance is specifically approved at least annually by the Board of Directors
and its Qualified Directors cast in person at a meeting called for the purpose
of voting on such continuance. The Plan may be terminated any time without
penalty by a vote of a majority of the Qualified Directors or by the vote of the
holders of a majority of the outstanding voting securities of Principal
Preservation (or with respect to any Portfolio, by the vote of a majority of the
outstanding shares of such Portfolio). The Plan may not be amended to increase
materially the amount of payments to be made without shareholder approval.
While the Plan is in effect, the selection and nomination of those Directors who
are not interested persons of Principal Preservation is committed to the
discretion of such disinterested Directors. Nothing in the Plan will prevent
the involvement of others in such selection and nomination if the final decision
on any such selection and nomination is approved by a majority of such
disinterested Directors.
The table below shows the total Rule 12b-1 fees that Ziegler earned during
the ten-month fiscal year ended October 31, 1999 with respect to Class A and
Class B shares of each Portfolio. No information is presented for the Class C
shares, because those shares first became available on May 8, 2000.
RULE 12B-1 FEES EARNED BY ZIEGLER IN
TEN-MONTH FISCAL YEAR ENDED OCTOBER 31, 1999
---------------------------------------------
PORTFOLIO CLASS A SHARES CLASS B SHARES
- --------- -------------- --------------
Tax-Exempt $ 63,449 N/A
Government 54,977 N/A
S&P 100 Plus 246,181 $648
Dividend Achievers 72,381 82
Select Value 11,850 124
PSE Tech 100 Index 83,327 256
Managed Growth 2,905 -0-
DETERMINATION OF NET ASSET VALUE PER SHARE
Shares are sold at their net asset value per share plus the applicable
sales charge, if any. See "Purchase of Shares." Net asset value per share of
each Portfolio is determined by subtracting the Portfolio's liabilities
(including accrued expenses and dividends payable) from the Portfolio's total
assets (the value of the securities the portfolio holds plus cash or other
assets, including interest accrued but not yet received) and dividing the result
by the total number of shares outstanding.
Each Portfolio will calculate its net asset value per share as of the close
of trading on the New York Stock Exchange (the "Exchange") at least once every
weekday, Monday through Friday, except on customary national business holidays
which result in the closing of the Exchange (including New Year's Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day).
Securities for which market quotations are readily available will be valued
at their last sale price prior to the close of the Exchange, unless there have
been no trades on that day and the last sale price is below the bid price or
above the ask price. If the last prior sale price is below the bid, instruments
will be valued at the bid price at the close of the Exchange; if the last prior
sale price is above the ask price, the instrument will be valued at the ask
price at the close of the Exchange. Securities and other assets for which
quotations are not readily available will be valued at their fair value on a
consistent basis using valuation methods determined by the Board of Directors.
The Portfolio intends to determine fair value for such securities based in part
upon the information supplied by pricing services approved by the Board of
Directors. Valuations of portfolio securities furnished by the pricing service
will be based upon a computerized matrix system and/or appraisals by the pricing
service in each case in reliance upon information concerning market transactions
and quotations from recognized securities dealers.
PERFORMANCE INFORMATION
From time to time the Portfolios may advertise their "yield" and "total
return." Yield is based on historical earnings and total return is based on
-------------------------------------------------------------------
historical distributions; neither is intended to indicate future performance.
- -----------------------------------------------------------------------------
The "yield" of a Portfolio refers to the income generated by an investment in
that Portfolio over a one-month period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of
income generated by the investment during the month is assumed to be generated
each month over a 12-month period and is shown as a percentage of the
investment. "Total return" of the Portfolio refers to the average annual total
return for one, five and ten year periods (or so much thereof as a Portfolio has
been in existence). Total return is the change in redemption value of shares
purchased with an initial $1,000 investment, assuming the reinvestment of
dividends and capital gain distributions, after giving effect to the maximum
applicable sales charge. In addition, the Tax-Exempt Portfolio may advertise
its "tax equivalent yield," which is computed by dividing that portion of the
Portfolio's yield which is tax-exempt by one minus a stated income tax rate and
adding the product to that portion, if any, of the yield of the Portfolio which
is not tax-exempt. Performance information should be considered in light of the
Portfolio's investment objectives and policies, characteristics and quality of
the portfolios and the market conditions during the time period, and should not
be considered as a representation of what may be achieved in the future.
Investors should consider these factors and possible differences in the methods
used in calculating performance information when comparing a Portfolio's
performance to performance figures published for other investment vehicles.
Average annual total return is computed by finding the average annual
compounded rates of return over the 1, 5, and 10 year periods (or so much
thereof as the Portfolio has been in existence) ended on the date of the balance
sheet of the respective Portfolio (each of which balance sheets are incorporated
by reference into this Statement of Additional Information - See "Financial
Statements") that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
n
P(1 + T) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5, or 10 year
periods at the end of the 1, 5, or 10 year periods (or
fractional portion thereof).
In some circumstances the Portfolio may advertise its total return for a 1,
2 or 3-year period, or the total return since the Portfolio commenced
operations. In such circumstances the Portfolio will adjust the values used in
computing return to correspond to the time period for which the information is
provided.
The average annual total returns for the Class A shares of each Portfolio
for the 1, 5 and 10 year periods ended October 31, 1999 are set forth in the
table below. The total returns for the Government and Tax-Exempt Portfolios
have been restated to reflect the May 1, 1995 reduction in the maximum sales
loads for those Portfolios from 4.5% to 3.5% of the public offering price. The
total returns for Class A shares of the S&P 100 Plus, Dividend Achievers, Select
Value and PSE Tech 100 Index Portfolios have been restated to reflect the
September 8, 1997 increase in the maximum sales loads for those Portfolios from
4.50% to 5.25% of the public offering price.
CLASS A SHARES
FROM COMMENCEMENT
PORTFOLIO 1 YEAR 5 YEAR 10 YEAR OF OPERATIONS
- --------- ------ ------ ------- -------------
Tax-Exempt -10.99% 4.49% 5.56% N/A
Government -5.23% 5.78% 6.50% N/A
S&P 100 Plus 27.38% 25.51% 16.87% N/A
Dividend Achievers 13.83% 20.14% 13.74% N/A
Select Value -4.17% 9.92% N/A 8.82%
PSE Tech 100 Index 75.68% N/A N/A 35.98%
Managed Growth N/A N/A N/A 4.78%
The average annual total returns for the Class B shares of each Portfolio
that offers Class B shares for the indicated periods ended October 31, 1999 are
set forth in the table below.
FROM AVAILABILITY OF
PORTFOLIO ONE YEAR CLASS B SHARES ON JULY 27, 1998
- ---------- -------- --------------------------------
S&P 100 Plus Portfolio 28.49% 17.26%
Dividend Achievers 14.40% 6.65%
Select Value -4.43% -14.79%
PSE Tech 100 Index 79.10% 60.20%
Managed Growth N/A 4.90%(1)<F76>
(1)<F76> Covers the ten-month period from January 1, 1999 (commencement of
operations of the Managed Growth Portfolio) through October 31, 1999.
For illustrative purposes, the Portfolio may include in its supplemental
sales literature from time to time a mountain graph that advertises the
Portfolio's total return by depicting the growth in the value of an initial
investment of $10,000 that a shareholder would have experienced in the relevant
Portfolio since the commencement of the Portfolio's operations to the present.
The presentation consists of a line graph shaded underneath with the value of
the amount invested reflected along a vertical axis and the time period from the
commencement of the Portfolio's operations through a given date reflected along
a horizontal axis.
Yield quotations are based on a 30-day (or one-month) period, and are
computed by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
a-b 6
YIELD = 2[(---- + 1) - 1]
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
The yields for certain of the Portfolios for the month ended October 31,
1999 were: 4.46% for the Tax-Exempt Portfolio, and 5.20% for the Government
Portfolio. When advertising yield, a Portfolio will not advertise a one-month
or 30-day period which ends more than 45 days before the date the advertisement
is published.
A tax equivalent yield is based on a 30-day (or one-month) period, and is
computed by dividing that portion of the yield of the Tax-Exempt Portfolio (as
computed in accordance with the description above) by one minus a stated income
tax rate and adding the products to that portion, if any, of the yield of the
Portfolio that is not tax-exempt.
The tax equivalent yield, assuming a 33% marginal tax rate, for the month
ended October 31, 1999 was 6.65% for the Tax-Exempt Portfolio.
Performance information for the Portfolios may be compared to various
unmanaged indices, such as the S&P 500 Stock Index or the S&P MidCap 400 Stock
Index, as well as indices of similar mutual funds. A Portfolio's advertising
may also quote rankings published by other recognized statistical services or
publishers such as Lipper Analytical Services, Inc. ("Lipper"), or Weisenberger
Investment Companies Service.
An illustration may be used comparing the growth in value of an initial
investment in a Portfolio compared to a fixed rate of return compounded on a
monthly basis. This illustration will reflect the effect of the Portfolio's
sales charge and fluctuations in net asset value, and will assume all income and
capital gain distributions are reinvested. The fixed rate of return will be
clearly stated and presented as a monthly compounded figure, and therefore will
not reflect any market fluctuation.
In advertising and sales literature, the performance of a Portfolio may be
compared with that of other mutual funds, indexes or averages of other mutual
funds, indexes of related financial assets or data and other competing
investment and deposit products available from or through other financial
institutions. The composition of these indexes, averages or accounts differs
from that of the Portfolio. Comparison of the Portfolio to an alternative
investment will consider differences in features and expected performance.
All of the indexes and averages noted below will be obtained from the
indicated sources or reporting services, which Principal Preservation generally
believes to be accurate. A Portfolio may also note its mention (including
performance or other comparative rankings) in newspapers, magazines, or other
media from time to time. However, Principal Preservation assumes no
responsibility for the accuracy of such data. Newspapers and magazines which
might mention a Portfolio or Principal Preservation include, but are not limited
to, the following:
The Business Journal Milwaukee Journal Sentinel
Business Week Money
Changing Times Mutual Fund Letter
Chicago Tribune Mutual Fund Values
Chicago Sun-Times (Morningstar)
Crain's Chicago Newsweek
Business The New York Times
Consumer Reports Pension and Investments
Consumer Digest Personal Investor
Financial World Stanger Reports
Forbes Time
Fortune USA Today
Investor's Daily U.S. News and World Reports
Los Angeles Times The Wall Street Journal
When a newspaper, magazine or other publication mentions Principal
Preservation or a Portfolio, such mention may include: (i) listings of some or
all of the Portfolio's holdings; (ii) descriptions of characteristics of some or
all of the securities held by the Portfolio, including price-earnings ratios,
earnings, growth rates and other statistical information, and comparisons of
that information or similar statistics for the securities comprising any of the
indexes or averages listed above; and (iii) descriptions of Principal
Preservation or a portfolio manager's economic and market outlook, in general
and for a Portfolio.
A Portfolio may compare its performance to the Consumer Price Index (All
Urban), a widely recognized measure of inflation.
The performance of a Portfolio may be compared to any or all of the
following indexes or averages:
Dow-Jones Industrial Average New York Stock Exchange Composite Index
Russell 2000 Small Stock Index American Stock Exchange Composite Index
Russell Mid-Cap Stock Index NASDAQ Composite
Russell 2500 Index NASDAQ Industrials
Standard & Poor's 500 Stock Index (These indexes generally reflect the
Standard & Poor's 400 Industrials performance of stock traded in the
Standard & Poor's Mid-Cap 400 Index indicated markets.)
Wilshire 5000
Wilshire 4500
Wilshire 4000
(These indexes are widely recognized
indicators of general U.S. stock
market results.)
The performance of a Portfolio may also be compared to the following mutual
fund industry indexes or averages: Value Line Index; Lipper Capital
Appreciation Fund Average; Lipper Growth Funds Average; Lipper Mid-Cap Growth
Funds Average; Lipper General Equity Funds Average; Lipper Equity Funds Average;
Morningstar Growth Average; Morningstar Aggressive Growth Average; Morningstar
U.S. Diversified Average; Morningstar Equity Fund Average; Morningstar Hybrid
Average; Morningstar All Equity Funds Average; and Morningstar General Equity
Average.
Lipper Small Growth Fund Index reflects the net asset value weighted total
return of the largest thirty growth funds as calculated and published by Lipper.
Lipper is an independent service that monitors the performance of more than
1,000 funds.
The Lipper and Morningstar averages are unweighted averages of total return
performance of mutual funds as classified, calculated and published by Lipper
and by Morningstar, Inc. ("Morningstar"), respectively. The Portfolio may also
use comparative performance as computed in a ranking by Lipper or category
averages and rankings provided by another independent service. Should Lipper or
another service reclassify a Portfolio to a different category or develop (and
place the Portfolio into) a new category, the Portfolio may compare its
performance or ranking against other funds in the newly assigned category, as
published by the service. Moreover, a Portfolio may compare its performance or
ranking against all funds tracked by Lipper or another independent service, and
may cite its rating, recognition or other mention by Morningstar or any other
entity. Morningstar's rating system is based on risk-adjusted total return
performance and is expressed in a star-rating format. The risk-adjusted number
is computed by subtracting a Portfolio's risk score (which is a function of the
Portfolio's monthly returns less the 3-month Treasury bill return) from the
Portfolio's load-adjusted total return score. This numerical score is then
translated into rating categories, with the top 10% labeled five star, the next
22.5% labeled four star, the next 35% labeled three star, the next 22.5% labeled
two star and the bottom 10% one star. A high rating reflects either above-
average returns or below-average risks, or both.
To illustrate the historical returns on various types of financial assets,
a Portfolio may use historical data provided by Ibbotson Associates, Inc.
("Ibbotson"), a Chicago-based investment firm. Ibbotson constructs (or obtains)
very long-term (since 1926) total return data (including, for example, total
return indexes, total return percentages, average annual total returns and
standard deviations of such returns) for the following asset types: common
stocks, small company stocks, long-term corporate bonds, long-term government
bonds, intermediate-term government bonds, U.S. Treasury bills and Consumer
Price Index. A Portfolio may also use historical data compiled by Prudential
Securities, Inc., or by other similar sources believed by Principal Preservation
to be accurate, illustrating the past performance of small-capitalization
stocks, large-capitalization stocks, common stocks, equity securities, growth
stocks (small-capitalization, large-capitalization, or both) and value stock
(small-capitalization, large-capitalization, or both).
TAX STATUS
Each series of a series company, such as Principal Preservation, is treated
as a single entity for Federal income tax purposes so that the net realized
capital gains and losses of the various portfolios in one fund are not combined.
The Portfolio intends to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986 (the "Code"). In order to qualify as a
regulated investment company, the Portfolio must satisfy a number of
requirements. Among such requirements is the requirement that at least 90% of
the Portfolio's gross income is derived from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of stocks,
securities or foreign currencies, and other income (including but not limited to
gains from options, futures or forward contracts) derived with respect to the
Portfolio's business of investing in such stock, securities or currencies. In
addition, each Portfolio must distribute at least 90% of its taxable income
(including short-term realized gains on the sale of securities in addition to
interest, dividend and other income) and, is subject to a 4% federal excise tax
if it fails to distribute at least 98% of its ordinary income and 98% of its net
capital gains earned or realized during a calendar year. Each Portfolio plans
to distribute its income and capital gains so as to avoid the excise tax. Each
Portfolio is subject to the further limitation that, with respect to 50% of its
assets, no more than 5% of its assets may be invested in the securities of any
one issuer and the Portfolio may not hold more than 10% of the outstanding
voting securities of such issuer. Finally, a Portfolio may not invest more than
25% of its assets in securities (other than Government securities or securities
of other regulated investment companies) of any one issuer or two or more
affiliated issuers in the same or similar businesses or in related businesses.
A portion of each Portfolio's net investment income may qualify for the 70%
dividends received deduction for corporations. The aggregate amount eligible
for the dividends received deduction may not exceed the aggregate qualifying
dividends received by the Portfolio for the year.
Dividends and other distributions paid to individuals and other non-exempt
payees are subject to a 31% backup Federal withholding tax if the Transfer Agent
is not provided with the shareholder's correct taxpayer identification number or
certification that the shareholder is not subject to such backup withholding or
if one of the Portfolios is notified that the shareholder has under reported
income in the past. In addition, such backup withholding tax will apply to the
proceeds of redemption or repurchase of shares from a shareholder account for
which the correct taxpayer identification number has not been furnished. For
most individual taxpayers, the taxpayer identification number is the social
security number. An investor may furnish the Transfer Agent with such number
and the required certifications by completing and sending the Transfer Agent
either the Account Application form attached to the Prospectus or IRS Form W-9.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
No person controls Principal Preservation or any Portfolio.
As of December 31, 1999, no person was known to Principal Preservation to
be the "beneficial owner" (determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934) of more than 5% of the outstanding shares of
Principal Preservation's common stock, or of any of the Portfolios, except as
reflected in the table below:
PERCENT OF
OUTSTANDING
SHAREHOLDER PORTFOLIO SHARES AT 12/31/99
- ------------ --------- ------------------
Ottawa County, #28
P.O. Box 705
414 Washington
Grand Haven, MI Government Portfolio ____%
Washtenah Community College
P.O. Box D1
Ann Arbor, MI Government Portfolio ____%
Ziegler Growth Retirement Plan
215 North Main Street
West Bend, WI Select Value Portfolio ____%
Robert W. Baird & Co. Inc.
A/C 6374-2427
777 East Wisconsin Avenue
Milwaukee, WI 53202 Managed Growth Portfolio ____%
Etrust & Co. Partnership
Suite 800
511 Union Street
Nashville, TN 37219 Managed Growth Portfolio ____%
B.C. Ziegler & Co., Cust.
William Schneider IRA
4424 Oakridge Circle
De Pere, WI 54115 Managed Growth Portfolio ____%
Information as to beneficial ownership was obtained from information on
file with the Securities and Exchange Commission or furnished by the specified
person or the Transfer Agent.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Purchase and sale orders for portfolio securities may be effected through
brokers, although it is expected that transactions in debt securities will
generally be conducted with dealers acting as principals. Purchases and sales
of securities on a stock exchange are effected through brokers who charge a
commission for their services. Purchases and sales of securities traded over-
the-counter may be effected through brokers or dealers. Brokerage commissions
on securities and options are subject to negotiation between Principal
Preservation and the broker.
Allocation of transactions, including their frequency, to various dealers
is determined by the Advisors in their best judgment and in a manner deemed fair
and reasonable to shareholders. The primary consideration is prompt and
efficient execution of orders in an effective manner at the most favorable
price. Principal Preservation may also consider sales of shares of its various
series as a factor in the selection of broker-dealers, subject to the policy of
obtaining best price and execution. In addition, if Ziegler or another
affiliate of an Advisor is utilized as a broker by Principal Preservation, and
other clients of such Advisor are considering the same types of transactions
simultaneously, the Advisor will allocate the transactions and securities in
which they are made in a manner deemed by it to be equitable, taking into
account size, timing and amounts. This may affect the price and availability of
securities to the Portfolio.
The table below shows, for the last three fiscal years, the aggregate
brokerage commissions paid by each Portfolio on purchases and sales of portfolio
securities.
FISCAL YEAR
----------------------------------------
PORTFOLIO 1999(1)<F77> 1998 1997
- --------- ------------ ---- ----
S&P 100 Plus $ 26,320 $16,836 $17,347
Dividend Achievers 10,784 9,835 9,685
Select Value 36,087 46,251 25,014
PSE Tech 100 Index 106,650 35,409 33,759
Managed Growth 8,910 -0- -0-
(1)<F77> Covers the ten-month period from January 1, 1999 through October 31,
1999 (the end of the Portfolio's new fiscal year).
During the ten-month fiscal year ended October 31, 1999 and the complete
fiscal years ended December 31, 1998 and 1997 (or the portion of such fiscal
year during which the relevant Portfolio was in operation), the aggregate
brokerage commissions paid by each Portfolio to Ziegler or an affiliate of
Ziegler were as follows:
BROKERAGE COMMISSIONS PAID TO ZIEGLER OR ITS
AFFILIATES FOR THE INDICATED FISCAL YEAR
---------------------------------------------
PORTFOLIO 1999(1)<F78> 1998 1997
- --------- ------------ ---- ----
S&P 100 Plus $11,212 $8,821 $ -0-
Select Value -0- -0- -0-
Dividend Achievers 10,789 9,835 9,685
PSE Tech 100 Index 8,922 1,114 -0-
Managed Growth 4,345 -0- -0-
------- ------ ------
TOTAL 35,268 19,770 $9,685
------- ------ ------
------- ------ ------
(1)<F78> Covers the ten-month period from January 1, 1999 through October 31,
1999 (the end of the Portfolio's new fiscal year).
The amount received by Ziegler or its affiliates for the ten months ended
October 31, 1999 constituted 18,8% of the aggregate brokerage commissions paid
by Principal Preservation during that fiscal year, and the brokerage commissions
earned by Ziegler and its affiliates during that fiscal year were earned on
approximately 14.4% of the total dollar amount of portfolio transactions of
Principal Preservation which involved the payment of commissions.
Except for commissions paid to Ziegler and its affiliates, none of the
Portfolios paid brokerage commission to any affiliate of any of the Advisors
during the periods presented.
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
The audited financial statements of each Portfolio incorporated by
reference into the Prospectus and this Statement of Additional Information have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto and incorporated by reference
into the Prospectus and this Statement of Additional Information and reliance
upon the authority of said firm as experts in accounting and auditing in giving
said report.
Quarles & Brady LLP, as counsel to Principal Preservation, has rendered its
opinion as to certain legal matters regarding the due authorization and valid
issuance of the shares of common stock being sold pursuant to the Prospectus.
FINANCIAL STATEMENTS
The following audited financial statements and related footnotes of each
Portfolio and the Report of the Independent Public Accountants thereon are
incorporated herein by reference from Principal Preservation's 1999 Annual
Report to shareholders of the Portfolios.
1. Balance Sheets of each Portfolio dated October 31, 1999.
2. Statements of Changes in Net Assets of each Portfolio other then the
Managed Growth Portfolio for the ten months ended October 31, 1999 and
the year ended December 31, 1998, and the Statement of Changes in Net
Assets for the Managed Growth Portfolio for the ten months ended
October 31, 1999.
3. Statement of Operations of each Portfolio for the ten months ended
October 31, 1999.
A copy of the 1999 Annual Report may be obtained free of charge by writing
or calling Principal Preservation, 215 North Main Street, West Bend, Wisconsin
53095, telephone: 1-800-826-4600.
DESCRIPTION OF RATINGS OF CERTAIN SECURITIES
Each Portfolio will limit its investment in debt securities to those which
are rated in one of certain specified categories by a Nationally Recognized
Statistical Rating Organization or are U.S. Government Securities. The
following is a brief description of the rating systems used by three of these
organizations.
CORPORATE AND MUNICIPAL BOND RATINGS
Standard & Poor's Ratings Services
- ----------------------------------
An S&P corporate debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligers such as guarantors, insurers or
lessees.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default - capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
II. Nature of and provisions of the obligation; and
III. Protection afforded by, and relative position of the obligation in the
event of bankruptcy, reorganization or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.
S&P's four highest rating categories are as follows:
AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small
degree.
A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in the
higher rated categories.
BBB. Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protective parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds
in the higher-rated categories.
Moody's Investors Service, Inc.
- -------------------------------
The purpose of Moody's Ratings is to provide investors with a simple system
of gradation by which the relative investment qualities of bonds may be noted.
Moody's four highest rating categories are as follows:
Aaa. Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa. Bonds which are Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude, or
there may be other elements present which make the long term risks
appear somewhat larger than in Aaa securities.
A. Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa. Bonds which are rated Baa are considered as medium grade obligations:
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Fitch Investors Service, Inc.
- -----------------------------
Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner. Fitch's four highest
rating categories are:
AAA. Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA. Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly
vulnerable to foreseeable future developments, short-term debt of
these issuers is generally rated F-1+.
A. Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes
in economic conditions and circumstances than bonds with higher
ratings.
BBB. Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on
these bonds and therefore impair timely payment. The likelihood that
the ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
General
- -------
The S&P and Fitch "AA", "A" and "BBB" ratings may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
The letter "p" following an S&P rating indicates the rating is provisional.
A provisional rating assumes the successful completion of the project being
financed by the issuance of the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion. Accordingly, the
investor should exercise his or her own judgment with respect to such likelihood
and risk.
The word "Conditional" following a Fitch rating indicates the rating is
conditional and is premised on the successful completion of a project or the
occurrence of a specific event.
Moody's security rating symbols may contain numerical modifiers of a
generic rating classification. The modifier 1 indicates that the security ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
The symbol "Con" in a rating by Moody's indicates a provisional rating
given to bonds for which the security depends upon the completion of some act of
the fulfillment of some condition. These are bonds secured by: (1) earnings of
projects under construction; (2) earnings of projects unseasoned in operating
experience; (3) rentals which begin when facilities are completed; or (4)
payments to which some other limiting condition attaches. A parenthetical
rating denotes probable credit stature upon completion of construction or
elimination of basis of condition.
MUNICIPAL NOTE RATINGS
Moody's Investors Service, Inc.
- -------------------------------
MIG 1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable
strength of the preceding grades. Liquidity and cash flow
protection may be narrow and market access for refinancing is
likely to be less well established.
MIG 4. This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and
although not distinctly or predominantly speculative, there is
specific risk.
Standard & Poor's Ratings Services
- ----------------------------------
SP-1. Notes rated SP-1 have very strong or strong capacity to pay
principal and interest. Those issues determined to possess
overwhelming safety characteristics are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and
interest.
Notes due in three years or less normally receive a note rating. Notes
maturing beyond three years normally receive a bond rating, although the
following criteria are used in making that assessment:
-Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue will be rated as a note.)
-Source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be rated as a note.)
Fitch Investors Service, Inc.
- -----------------------------
Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.
F-1+. Exceptionally Strong Credit Quality. Issues assigned this rating
-----------------------------------
are regarded as having the strongest degree of assurance for timely
payment.
F-1. Very Strong Credit Quality. Issues assigned this rating reflect an
--------------------------
assurance of timely payment only slightly less in degree than issues
rated "F-1+."
F-2. Good Credit Quality. Issues assigned this rating have a
-------------------
satisfactory degree of assurance for timely payment, but the margin
of safety is not as great as for issues assigned "F-1+" and "F-1"
ratings.
F-3. Fair Credit Quality. Issues assigned this rating have
-------------------
characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause
these securities to be rated below investment grade.
Fitch also uses the symbol "LOC" which indicates that the rating is based
on a letter of credit issued by a commercial bank.
RATINGS OF COMMERCIAL PAPER
Standard & Poor's Ratings Services
- ----------------------------------
S&P ratings are a current assessment of the likelihood of timely payment
of debt having an original maturity of no more than 365 days. The ratings are
based on current information furnished to S&P by the issuer and obtained by S&P
from other sources it considers reliable. Ratings are graded into four
categories, ranging from "A" for the highest quality obligations to "D" for the
lowest. Issues within the "A" category are delineated with the numbers 1, 2,
and 3 to indicate the relative degree of safety, as follows:
A-1. This designation indicates the degree of safety regarding timely
payment is overwhelming or very strong. Those issuers determined to
possess overwhelming safety characteristics are denoted with a
"plus" (+) designation.
A-2. Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as
overwhelming as for issues designated A-1.
A-3. Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the
adverse effects of changes in circumstances than obligations
carrying the higher designations.
B. Issues rated "B" are regarded as having only an adequate capacity
for timely payment. However, such capacity may be damaged by
changing conditions or short-term adversities.
C. Issues rated "C" are regarded as having a doubtful capacity for
payment.
D. Issues rated "D" are in payment default.
Moody's Investors Service, Inc.
- -------------------------------
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually their promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following designations, all judged
to be investment grade, to indicate the relative repayment capacity of rated
issuers:
Prime-1. Issuers (or related supporting institutions) rated Prime-1 have a
superior capacity for repayment or short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics: (a) leading market positions in well-established
industries; (b) high rates of return on funds employed; (c)
conservative capitalization structures with moderate reliance on debt
and ample asset protection; (d) broad margins in earnings coverage of
fixed financial charges and high internal cash generation; and (e)
well-established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2. Issuers (or related supporting institutions) rated Prime-2 have a
strong capacity for repayment of short- term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above in the Prime-1 category but to a lesser degree. Earning trends
and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is
maintained.
Prime-3. Issuers (or related supporting institutions) rated Prime-3 have an
acceptable capacity for repayment of short-term promissory
obligations. The effect of industry characteristics and market
composition may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt protection
measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
The ratings of S&P, Moody's and Fitch represent their opinions as to the
quality of the instruments rated by them. It should be emphasized that such
ratings, which are subject to revision or withdrawal, are general and are not
absolute standards of quality.
PRINCIPAL PRESERVATION PORTFOLIOS,
215 North Main Street
West Bend, Wisconsin 53095
INVESTMENT ADVISOR
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
SUB-ADVISORS
Ziegler Asset Management, Inc.
(Sub-Advisor to the S&P 100 Plus, Dividend
Achievers and PSE Tech 100 Index Portfolios)
250 East Wisconsin Avenue
Suite 1900
Milwaukee, Wisconsin 53202
Geneva Capital Management, Ltd.
(Sub-Advisor to the Managed Growth Portfolio)
250 East Wisconsin Avenue
Suite 1050
Milwaukee, Wisconsin 53202
DISTRIBUTOR AND ACCOUNTING/PRICING AGENT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
TRANSFER AGENT
PFPC Global Fund Services
P.O. Box 60504
King of Prussia, Pennsylvania 19406
CUSTODIAN
Firstar Bank Milwaukee, N.A.
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
LEGAL COUNSEL
Quarles & Brady LLP
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
--------------------------------------
MAY 1, 2000
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. (B) 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 February 29, 2000 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)<F79> OTHER AFFILIATIONS(2)<F80>
- ---- ------------------- --------------------------
<S> <C> <C>
Peter D. Ziegler Chairman of the Board Director of West Bend Mutual Insurance Company, 1900 S. 18th
Avenue, West Bend, WI 53095 (insurance company); Director of
Trustmark Insurance Cos. (mutual life insurance company)
John Mulhurn President and Chief Executive Officer
S. Charles O'Meara Senior Vice President, General Counsel,
Corporate Secretary and Director
John C. Wagner Senior Vice President - Ziegler Investment
Division Retail Sales and Director
Ronald N. Spears Senior Vice President - Ziegler
Investment Division
Donald A. Carlson, Jr. Senior Vice President
Michael P. Doyle Senior Vice President - Ziegler Investment
Division Retail Operations
Robert J. Tuszynski Senior Vice President - Ziegler President, Chief Executive Officer and Director of Principal
Investment Division Preservation Portfolios, Inc.
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)<F79> Ziegler Investment Division and Ziegler Securities are divisions of B.
C. Ziegler and Company.
(2)<F80> Certain of the indicated persons are officers or directors, or both,
of B.C. Ziegler and Company's parent, The Ziegler Companies, Inc., and
of other subsidiaries of its parent. Other than these affiliations,
and except as otherwise indicated on the table, the response is none.
(b) Ziegler Asset Management, Inc.
Ziegler Asset Management, Inc. is a wholly owned subsidiary of The
Ziegler Companies, Inc. It serves as sub-advisor to the S&P 100 Plus,
Dividend Achievers and PSE Tech 100 Index Portfolios and as investment
advisor to the Cash Reserve Portfolio.
Set forth below is a list of the officers and directors of Ziegler
Asset Management, Inc. as of February 29, 2000, 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)<F81>
- ---- ---------- --------------------------
<S> <C> <C>
P. D. Ziegler Chairman and Director Chairman of the Board, B.C. Ziegler and Company; Chairman, Ziegler
Securities; Director, West Bend Mutual Insurance Company, 1900 S.
18th Avenue, West Bend, WI 53095 (insurance company)
Robert J. Tuszynski Vice President Senior Vice President, B.C. Ziegler and Company; President, Chief
Executive Officer and Director of Principal Preservation
Portfolios, Inc.
R. F. Patek Vice President - Portfolio Manager None
D. R. Wyatt Vice President - Retirement Plan None
Services
J. R. Yovanovich Corporate Secretary Corporate Secretary, B.C. Ziegler and Company
J. C. Vredenbregt Treasurer Vice President - Treasurer and Controller, B.C. Ziegler and
Company; Assistant Treasures; Ziegler Securities
D. L. Lauterbach Vice President None
W. E. Hansen Vice President None
J. R. Wyatt Vice President None
Jay Ferrara, Jr. Vice President - Portfolio Manager None
and Analyst
Leon Dodge Vice President - Portfolio Manager None
and Analyst
</TABLE>
(1)<F81> 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) 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 February 29, 2000, 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 None
and Director
John J. O'Hare II Vice President Senior Analyst, The Nicholas Funds (registered investment company),
from 1992 to 1997
William F. Schneider, M.D. Director Retired Surgeon
</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
February 29, 2000, 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) 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, 2000.
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, 2000, 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*<F82> Director
- ------------------------------
Richard H. Aster
August J. English*<F82> Director
- ------------------------------
August J. English
Ralph J. Eckert*<F82> Director
- ------------------------------
Ralph J. Eckert
*<F82> 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
<TABLE>
EXHIBIT INDEX
PREVIOUSLY FILED AND
INCORPORATED
BY REFERENCE FROM:
--------------------------------
1933 ACT
POST-EFFECTIVE
EXHIBIT AMENDMENT DATE FILED
NUMBER DESCRIPTION NUMBER WITH SEC HEREWITH
- ------ ----------- ------ -------- --------
<S> <C> <C> <C> <C>
(A)(1) Amended and Restated Articles of Incorporation 38 4/30/97
(A)(2) February 29, 2000 Articles Supplementary X
(B) By-Laws 38 4/30/97
(C) Rule 18f-3 Operating Plan X
(D)(1) Investment Advisory Agreement with B.C. Ziegler 48 2/12/99
and Company
(D)(2) Investment Advisory Agreement with Ziegler Asset 31 12/29/95
Management for Cash Reserve Portfolio
(D)(3) Sub-Advisory Agreement with Ziegler Asset Management 48 2/12/99
(D)(4) Sub-Advisory Agreement with Geneva Capital Management 47 12/31/98
(E)(1) Distribution Agreement 48 2/12/99
(E)(2) Amendment No. 1, dated February 29, 2000, to Amended X
and Restated Distribution Agreement
(E)(3) 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 36 12/10/96
of the Cash Reserve Portfolio
(H)(4) Administrative Services Agreement for Cash 48 2/12/99
Reserve Portfolio
(H)(5) License Agreement with Pacific Stock 37 2/28/97
Exchange Incorporated
(H)(6) License Agreement with Standard and Poor's Corporation 51 4/30/99
(I) Opinion of Counsel 38 4/30/97
(J)(1) Consent of Independent Public Accountants X
(J)(2) Consent of Counsel X
(K) Not Applicable
(L) Not Applicable
(M) Amended and Restated Distribution Plan Pursuant to X
Rule 12b-1, including Form of Related Agreement with
Selected Dealers
(O) See Exhibit (C)
</TABLE>
EXHIBIT (A)(2)
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
ARTICLES SUPPLEMENTARY
----------------------
The Board of Directors of Principal Preservation Portfolios, Inc., a
corporation organized and existing under the laws of the State of Maryland, by
Resolution adopted on February 3, 2000 by a majority of the Directors of said
corporation, has established and designated shares of its previously authorized
but unissued common stock, one tenth of one cent ($.001) par value per share, as
an additional class (Class C) for its existing series, and has reallocated
shares of its authorized and unissued common stock among its existing series and
existing classes within those series. Shares of Class C Common Stock of each
series shall have the preferences, rights, voting powers, restrictions,
limitations as to dividends, qualifications and other conditions of redemption
as set forth in Section 7.2 of Principal Preservation Portfolios, Inc.'s
Articles of Incorporation. Giving effect to this action of the Board of
Directors, the presently designated series of shares of Principal Preservation
Portfolios, Inc.'s common stock and the classes of shares within each such
series consist of the following:
SERIES NO. OF SHARES
------ -------------
Tax-Exempt Portfolio
Class A Common Stock 20 million
Government Portfolio
Class A Common Stock 50 million
Class C Common Stock 5 million
Dividend Achievers Portfolio
Class A Common Stock 25 million
Class B Common Stock 25 million
Class C Common Stock 10 million
S&P 100 Plus Portfolio
Class A Common Stock 35 million
Class B Common Stock 35 million
Class C Common Stock 35 million
Wisconsin Tax-Exempt Portfolio
Class A Common Stock 25 million
Select Value Portfolio
Class A Common Stock 25 million
Class B Common Stock 25 million
Class C Common Stock 5 million
Cash Reserve Portfolio
Class B Common Stock 50 million
Class X Common Stock 200 million
Class Y Common Stock 100 million
PSE Tech 100 Index Portfolio
Class A Common Stock 50 million
Class B Common Stock 50 million
Class C Common Stock 40 million
Managed Growth Portfolio
Class A Common Stock 25 million
Class B Common Stock 25 million
Class C Common Stock 5 million
This action does not alter the number of authorized shares of Principal
Preservation, which consists of one billion shares, par value $0.001 per share.
The Board of Directors has taken this action pursuant to the powers conferred
upon it under Section 7.1 of Principal Preservation Portfolios, Inc.'s Articles
of Incorporation and Section 2.208 of the Maryland General Corporation Law.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
By: /s/ Robert J. Tuszynski
------------------------------------
Robert J. Tuszynski, President
Attest:
By: /s/ Kathleen J. Cain
------------------------------------
Kathleen Cain, Secretary
STATE OF WISCONSIN )
) SS
COUNTY OF WASHINGTON )
On this 23d day of February, 2000, before me a Notary Public for the State
and County set forth above, personally came Robert J. Tuszynski, as President of
Principal Preservation Portfolios, Inc., and Kathleen Cain, as Secretary of
Principal Preservation Portfolios, Inc., and in their said capacities each
acknowledged the foregoing Articles Supplementary to be the act and deed of said
corporation and further acknowledged that, to the best of their knowledge, the
matters and facts set forth are true in all material respects under the
penalties of perjury.
IN WITNESS WHEREOF, I have signed below in my own hand and attached my
official seal on the day and year set forth above.
[Notary Seal] /s/ Donald J. Liebetrau
-------------------------------
Notary Public
My Commission expires: 8/26/01
EXHIBIT (C)
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
AMENDED AND RESTATED
MULTIPLE CLASS OPERATING PLAN
(Pursuant to Rule 18f-3)
February 29, 2000
WHEREAS, the Board of Directors of Principal Preservation Portfolios, Inc.
("Principal Preservation") has considered the addition of Class C Shares to the
multi-class plan ("Plan") for the Portfolios, under which Plan Principal
Preservation presently may offer multiple classes of shares in various mutual
fund portfolios pursuant to Rule 18f-3 under the Investment Company Act of 1940,
as amended (the "1940 Act"), such Plan originally having been adopted by a vote
of the Board of Directors of Principal Preservation on November 3, 1995; as
amended and restated effective May 5, 1998; and as amended and restated again as
of November 1, 1999;
WHEREAS, a majority of the Directors of Principal Preservation, including a
majority of the Directors who are not interested persons of Principal
Preservation, have found the Plan, as amended and restated and set forth herein,
to be in the best interests of the shareholders of Principal Preservation;
NOW, THEREFORE, Principal Preservation hereby approves and adopts the
addition of Class C Shares to the Plan for the Portfolios as set forth below
pursuant to Rule 18f-3 of the 1940 Act.
ARTICLE
MULTIPLE CLASSES FOR ALL PORTFOLIOS
All currently-designated series of Principal Preservation and any and all
series of Principal Preservation designated in the future (the "Portfolios"),
may, from time to time, issue one or more of the following classes of shares:
Class A Shares
Class B Shares
Class C Shares
Each class is subject to such investment minimums and other conditions as
set forth in Principal Preservation's prospectuses and statements of additional
information as from time to time are in effect. Differences and expenses among
Classes, the conversion from one Class to another Class, and exchange features
are subject to the terms and conditions of this Plan.
I. INITIAL SALES CHARGE
Class A Shares and Class C Shares of the Portfolios are offered at a public
offering price that is equal to their net asset value ("NAV") plus a sales
charge of up to a maximum percentage of the public offering price, as
established for each Portfolio from time to time in the relevant prospectuses of
Principal Preservation. The maximum sales charges on Class A Shares and Class C
Shares of any Portfolio may be reduced or waived as permitted under Rule 22d-1
of the 1940 Act and as described in Principal Preservation's prospectus for the
relevant Portfolio as in effect from time to time. For example, sales charges
may be reduced or eliminated for investments at various levels (breakpoints), as
well as for certain classes of investors such as employees of the advisor, sub-
advisor, distributor, etc.
Class B Shares have no initial sales charge and no sales charge is imposed
when Class B Shares are automatically converted to Class A Shares.
II. CONTINGENT DEFERRED SALES CHARGE
A Contingent Deferred Sales Charge ("CDSC") is imposed on Class B Shares
and Class C Shares under certain circumstances.
Principal Preservation imposes a CDSC on Class B Shares if the investor
redeems Class B Shares that have been owned less than eight years according to
the following schedule:
HOLDING PERIOD: CDSC
- -------------- ----
1 Year or Less 5%
More Than 1 Year, But Less than 3 Years 4%
3 Years, But Less than 4 Years 3%
4 Years, But Less than 5 Years 2%
5 Years, But Less than 6 Years 1%
6 Years or More*<F83> 0%
*<F83> Convert to Class A Shares after 8 years, except for Class B Shares of
the Cash Reserve Portfolio which convert to Class X Shares of that
Portfolio after eight years.
Principal Preservation imposes a CDSC on Class C Shares if the investor
redeems Class C Shares that have been owned less than 18 months. The rate of
the CDSC applicable to Class C Shares is 1.00%.
The amount of the CDSC is based upon the NAV of the Class B Shares or Class
C Shares, as the case may be, at the time of redemption or at the time of
purchase, whichever is less. For Class B Shares, the CDSC is gradually reduced
over a period of six years. Consistent with the requirements of Rule 6c-10 of
the 1940 Act, the CDSC will not be imposed under certain circumstances as
described in Principal Preservation's prospectuses. For example, the CDSC will
not be imposed on shares acquired through the reinvestment of dividends or
capital gains or upon certain redemptions from retirement plans. In determining
whether an amount is available for redemption without a CDSC as well as to
compute the amount of the CDSC, it is assumed that shares acquired through the
reinvestment of dividends and capital gains distributions are redeemed first,
then shares are redeemed in the order purchased, from last to first.
Class A Shares, Class B Shares and Class C Shares are aggregated for
purposes of Rights of Accumulations and Letters of Intent as described in
Principal Preservation's prospectuses.
III. SEPARATE ARRANGEMENTS AND EXPENSE ALLOCATIONS OF EACH CLASS
Class A Shares, Class B Shares and Class C Shares pay the expenses
associated with their different distribution and servicing arrangements. Each
Class may, at the Directors' discretion, also pay a different share of other
expenses, not including advisory or custodial fees or other expenses related to
the management of Principal Preservation's assets, if those expenses actually
are incurred in a different amount by the Class, or if the Class receives
services of a different kind or to a different degree than the other Class. All
other expenses will be allocated to each Class on the basis of the net asset
value of the Shares.
Class A Shares, Class B Shares and Class C Shares pay fees for services
rendered and borne in connection with personal services rendered to the
shareholders of the respective Classes and the maintenance of shareholder
accounts. In addition, Class A Shares, Class B Shares and Class C Shares pay
service fees at an annual rate of twenty-five basis points (0.25%) of net assets
computed on a daily basis, and Class B Shares and Class C Shares also pay a
separate Rule 12b-1 distribution fee at an annual rate of seventy-five basis
points (0.75%) of net assets computed on a daily basis, as described in
Principal Preservation's prospectuses.
IV. CONVERSION FEATURES
Class B Shares of each Portfolio automatically convert to Class A Shares
(Class X Shares in the case of the Cash Reserve Portfolio) of the same Portfolio
after they have been held for eight years, and thereafter are subject to lower
fees charged to Class A Shares (Class X Shares in the case of the Cash Reserve
Portfolio). In this regard, if there are any material changes in payments
authorized under the Rule 12b-1 Plan applicable to Class A Shares (Class X
Shares in the case of the Cash Reserve Portfolio) without the approval of the
Class B shareholders, Principal Preservation will establish a new class of
shares into which Class B Shares would convert, on the same terms as those
applied to Class A Shares (Class X Shares in the case of the Cash Reserve
Portfolio) before such increase.
Class C Shares do not convert into any other Class, and therefore remain
subject to the higher distribution fees charged to Class C Shares the entire
time they are held.
V.EXCHANGE FEATURES
A shareholder may exchange Class A Shares, Class B Shares and Class C
Shares of any Portfolio at net asset value for the same Class of Shares of any
other Portfolio provided the registration will be identical and the other
Portfolio offers the particular Class of Shares. If less than all of a Class B
Share investment or a Class C Share investment is exchanged, any portion of the
investment attributable to dividends, capital gains and/or capital appreciation
will be exchanged first, and thereafter any portions exchanged will be in the
order purchased, from first to last. In determining a shareholder's holding
period for Class B Shares or Class C Shares, the period for which the
shareholder held the same Class of Shares of another portfolio that were
exchanged for the Shares of the then current portfolio shall be included.
VI. DIVIDENDS AND OTHER DISTRIBUTIONS
Each Portfolio pays out as dividends substantially all of its net
investment income (which comes from dividends and interest it receives from its
investments) and net realized short-term capital gains. All dividends and
distributions will be paid in the form of additional shares of the same Class of
the same Portfolio that generated the dividend or distribution, unless the
shareholder has elected another option. Dividends paid by each Portfolio with
respect to each Class are calculated in the same manner and at the same time.
VII. VOTING RIGHTS
Each Share of a Portfolio entitles the shareholder of record to one vote.
Each Portfolio votes separately on matters relating solely to that Portfolio.
Each Class shall have exclusive voting rights on any matter than affects that
Class individually, and shall have separate voting rights on any matters
submitted to shareholders in which interests of the separate Classes differ.
All shareholders will have equal voting rights on any matter that affects all
shareholders of all Classes equally, and all shareholders within a separate
Class will have equal voting rights with all other shareholders of that Class on
any matter that affects that Class individually. Because of the automatic
conversion feature of the Class B Shares, Class B shareholders may be asked to
vote separately on any material increase in payments under the Rule 12b-1 Plan,
even if the increase affects only the Class A Shares (or Class X Shares in the
case of the Cash Reserve Portfolio).
VIII. LIQUIDATION RIGHTS
Class A Shares, Class B Shares and Class C Shares shall have equal rights
in connection with voluntary or involuntary redemptions and any liquidation of
any Portfolio, all in accordance with the conditions and policies and procedures
established from time to time in the current Prospectus and Statement of
Additional Information relating to the relevant Portfolio.
ARTICLE
OPERATING PLAN FOR CASH RESERVE PORTFOLIO
In addition to Class B Shares, the Cash Reserve Portfolio may, from time to
time, issue one or more of the following Classes of shares:
Class X Shares (Retail Shares)
Class Y Shares (Institutional Shares)
Each Class is subject to such investment minimums and other conditions as
set forth in Principal Preservation's prospectuses as from time to time are in
effect. The relative rights and preferences of the Classes, including the
differences in allocation of expenses among the Classes, are set forth below.
IX. OWNERSHIP RIGHTS
Each Class B Share, Class X Share and Class Y Share represents a pro rata
ownership interest in the net assets of the Cash Reserve Portfolio, taking all
outstanding Class B Shares, Class X Shares and Class Y Shares together without
regard to Class.
X.VOTING RIGHTS
Each Class shall have exclusive voting rights on any matter submitted to
shareholders of the Cash Reserve Portfolio that affects only the Class (e.g., in
the case of Class X Shares, amendments to Principal Preservation's Rule 12b-1
Plan as it relates to the Class X Shares of the Cash Reserve Portfolio).
Each Class shall vote separately by Class on any matter submitted to
shareholders of the Cash Reserve Portfolio with respect to which the Classes of
shares have interests different from one another, and approval of any such
matter with respect to any Class shall require the affirmative vote of
shareholders holding the requisite majority of shares of that Class.
All Classes shall vote together and shall have equal voting rights (one
vote for each Share and a proportional vote for each fractional share) with
respect to all other matters submitted to shareholders of the Cash Reserve
Portfolio.
XI. DIVIDEND AND LIQUIDATION RIGHTS
All Classes shall be entitled to participate equally on a pro rata basis in
all dividends as and when declared and paid by the Cash Reserve Portfolio from
time to time pursuant to the direction of Principal Preservation's Board of
Directors and the dividend policy disclosed in the Cash Reserve Portfolio's
current prospectuses and statements of additional information relating to its
various Classes of Shares.
All Classes shall have equal rights in connection with voluntary or
involuntary redemptions and any liquidation of the Cash Reserve Portfolio, all
in accordance with the conditions and the policies and procedures established
from time to time in the current prospectuses and statements of additional
information relating to the Cash Reserve Portfolio.
XII. INCOME AND EXPENSE ALLOCATIONS
Except as described in this Article II, Section D of this Plan, all income
and capital gains and all expenses and capital losses earned or incurred by the
Cash Reserve Portfolio shall be allocated equally to each outstanding share of
common stock of the Cash Reserve Portfolio, without regard to Class.
In general, each Class shall pay the expenses associated with its unique
distribution and servicing arrangements. Costs and expenses incurred by the
Cash Reserve Portfolio exclusively for the benefit of any one Class (e.g., state
securities qualification fees; costs and expenses incurred in connection with a
shareholder meeting in which only holders of one or another of the Classes will
participate; costs incurred for preparation, printing and mailing of marketing
materials, relating to only one of the Classes; etc.) shall be allocated
entirely to the Class for whose benefit such costs and expenses are incurred.
Any such disproportionate allocations will be made at the discretion of the
Board of Directors of Principal Preservation, taking into account such factors
as whether the expenses actually are incurred in a different amount by one Class
as opposed to another, or if one Class receives services of a different kind or
to a different degree than another Class. All other expenses, including without
limitation advisory and custodial fees and other expenses related to the
management of the Cash Reserve Portfolio's assets, shall be allocated to each
Share regardless of Class, or based on relative net assets (e.g., settled
shares), as permitted by the provisions of Rule 18f-3 under the 1940 Act.
With respect to Principal Preservation's Rule 12b-1 Distribution Plan,
Class X Shares pay service fees at an annual rate of 15 basis points (0.15%) of
net assets computed on a daily basis. Class B Shares pay service fees at an
annual rate of 25 basis points (0.25%) of net assets computed on a daily basis,
and also pay a separate Rule 12b-1 distribution fee at an annual rate of 75
basis points (0.75%) of net assets computed on a daily basis, as described in
the Prospectuses relating to those Classes of shares. Class Y Shares do not pay
any Rule 12b-1 service fees or distribution fees.
Fees payable pursuant to any shareholder servicing agent agreements entered
into by Principal Preservation Portfolios, Inc. (on behalf of the Cash Reserve
Portfolio) shall be payable only with respect to the Class of shares held
pursuant to such agreement(s) (and each shareholder servicing agent agreement
shall so provide), and any such fees incurred by the Cash Reserve Portfolio
shall be allocated entirely to the outstanding of the relevant Class(es) shares.
This Plan is subject to amendment in accordance with the provisions of
Principal Preservation's Articles of Incorporation and Bylaws and in accordance
with the provisions of applicable law. This Plan shall be construed and
interpreted in compliance with the requirements of Rule 18f-3 of the 1940 Act.
EXHIBIT (E)(2)
AMENDMENT NO. 1 TO
AMENDED AND RESTATED
DISTRIBUTION AGREEMENT
THIS AMENDMENT NO. 1, dated this 29th day of February, 2000, amends that
certain Amended and Restated Distribution Agreement, dated as of July 31, 1998,
by and between Principal Preservation Portfolios, Inc. (the "Fund"), a Maryland
corporation, and B.C. Ziegler and Company (the "Distributor"), a Wisconsin
corporation.
WITNESSETH
WHEREAS, the Fund and the Distributor are parties to the Amended and
Restated Distribution Agreement, dated as of July 31, 1998 (the "Distribution
Agreement"), and said parties wish to amend the Distribution Agreement for the
purpose of reflecting that, on May 15, 2000, the Distributor will begin offering
and selling Class C Shares for certain of the Fund's Portfolios.
NOW, THEREFORE, the parties agree as follows:
DEFINITIONS OF TERMS. Except as specifically defined otherwise
in this Amendment No. 1, capitalized terms used herein shall have the meanings
defined for them in the Distribution Agreement.
FRONT-END SALES CHARGE FOR CLASS C SHARES. Paragraph (d) of
Section 2 (Services and Duties of the Distributor) of the Distribution Agreement
shall be amended to read in its entirety as follows:
(d) The offering price of shares of each Portfolio of Common
Stock shall be the net asset value (as defined in the Articles of
Incorporation of the Fund and determined as set forth in the
Prospectus) per share of such Portfolio of the Common Stock next
determined following receipt of an order, plus, in the case of
Class A Shares, Class X Shares and Class C Shares, the applicable
front-end sales charge, if any, determined as set forth in the
Prospectus. The Fund shall furnish the Distributor, with all
possible promptness, an advice of each computation of net asset
value.
COMPENSATION OF THE DISTRIBUTOR. Paragraph (a) of Section 3
(Compensation of the Distributor) of the Distribution Agreement shall be amended
to read in its entirety as follows:
(a) Class A and Class X Shares. The Fund shall pay to the
--------------------------
Distributor, as compensation for acting as principal
distributor in respect of Class A and Class X Shares of the
Portfolios, the front-end sales charge described in Section
2(d) above. In addition, the Fund shall pay to the
Distributor, as compensation for providing shareholder services
to holders of Class A or Class X Shares of the Portfolios, a
service fee (the "Service Fee") computed at the rates of 0.25%
and 0.15% per annum of such Portfolio's average daily net
assets attributable to its Class A Shares and Class X Shares,
respectively, which service fee will accrue daily and be paid
monthly. The Distributor may allow such concessions or
reallowances to dealers out of the front-end sales charges as
it may from time to time determine, and also may allow all or
any portion of the Service Fee to securities dealers in
consideration of the provision by such securities dealers of
shareholder services to holders of Class A Shares or Class X
Shares.
In addition, the following shall be added as a new paragraph (c) under
Section 3 (Compensation of the Distributor) of the Distribution Agreement:
(b) Class C Shares. As compensation for acting as principal
--------------
Distributor in respect of Class C Shares of the Portfolios, the
Distributor shall be entitled to receive the entire amount of
the front-end sales charge applicable to Class C Shares, as
described in Section 2(d) above. The Fund also shall pay to
the Distributor, as additional compensation for acting as
principal Distributor in respect of the Class C Shares of each
Portfolio, a Distribution Fee computed at the rate of 0.75% per
annum of such Portfolio's average daily net assets attributable
to Class C Shares, which Distribution Fee will accrue daily and
be paid monthly. The Fund also shall pay to the Distributor,
as compensation for providing shareholder services to the
holders of Class C Shares of each Portfolio, a Service Fee
computed at the rate of 0.25% per annum of such Portfolio's
average daily net assets attributable to Class C Shares, which
Service Fee will accrue daily and be paid monthly. The
Distributor may allow such concessions or reallowances of all
or any portion of the front-end sales charge, Distribution Fee
and Service Fee attributable to Class C Shares to securities
dealers in consideration of the provision by such securities
dealers of shareholder services and distribution services with
respect to such Class C Shares.
EFFECT ON DISTRIBUTION AGREEMENT. Except as explicitly provided
in the foregoing, this Amendment No. 1 does not amend or otherwise affect the
terms and conditions of the Distribution Agreement, all of which shall remain in
full force and effect in accordance with, and subject to, the terms thereof.
IN WITNESS WHEREOF, each of the parties to this Amendment No. 1 to the
Distribution Agreement have caused said Amendment No. 1 to be executed by its
duly authorized officer on the date and year first written above.
B.C. ZIEGLER AND COMPANY
By: ------------------------------
[Name of President], President
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
By: ------------------------------
Robert J. Tuszynski, President
EXHIBIT (J)(1)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report, and to all references to our firm, including in or made a part of this
Post-Effective Amendment to the Registration Statement on Form N-1A for
Principal Preservation Portfolios, Inc. (Registration Statement File No. 33-12).
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
March 1, 2000
EXHIBIT (J)(2)
CONSENT OF LEGAL COUNSEL
------------------------
[QUARLES & BRADY LLP LETTERHEAD]
March 2, 2000
Principal Preservation Portfolios, Inc.
215 North Main Street
West Bend WI 53095
Attn: Robert J. Tuszynski, President
Re: CONSENT TO INCORPORATION OF LEGAL OPINION IN POST-EFFECTIVE AMENDMENT
TO REGISTRATION STATEMENT
Ladies and Gentlemen:
We hereby consent to the incorporation of our opinion regarding the
legality of the shares of Principal Preservation Portfolios, Inc. into the Post-
Effective Amendment to Principal Preservation's Registration Statement to which
this consent letter is attached as an Exhibit. Our legal opinion appeared as an
Exhibit to Post-Effective Amendment No.38 to Principal Preservation's
Registration Statement on Form N-1A (Registration Number 33-12), which was filed
with the Securities and Exchange Commission on April 30, 1997. We also consent
to the use of our name under the heading "Counsel and Independent Public
Accountants" in the Statement of Additional Information included as Part B of
this Post-Effective Amendment.
Very truly yours,
/s/ Quarles & Brady LLP
QUARLES & BRADY LLP
291:ba
760314.40007
EXHIBIT (M)
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
AMENDED AND RESTATED DISTRIBUTION PLAN
PURSUANT TO RULE 12B-1
This Amended and Restated Distribution Plan (the "Plan") is adopted by a
vote of the Board of Directors and of the Qualified Directors (as those terms
are defined herein) of Principal Preservation Portfolios, Inc. (the "Fund") on
February 29, 2000 to add "Class C" shares to the Plan as follows:
The Plan. This Plan is the written plan of the Fund contemplated
--------
by Rule 12b-1 (the "Rule") under the Investment Company Act of 1940 (the "Act").
Definitions. As used in this Plan, the following terms shall
-----------
have the following meanings:
"Portfolio" shall mean any separate series or mutual fund
portfolio of the Fund.
"Qualified Recipient" shall mean any broker-dealer or other
"person" (as that term is defined in the Act) which (i) has entered into a
written agreement that complies with the Rule (a "related agreement") with the
Fund's Distributor and (ii) has rendered distribution assistance (whether
direct, administrative or both) in the distribution of the Fund's Class A (or
Class X) shares.
"Qualified Holdings" shall mean all Class A (or Class X)
shares of the Fund beneficially owned by (i) a Qualified Recipient, (ii) the
customers (brokerage or other) of a Qualified Recipient, (iii) the clients
(investment advisory or other) of a Qualified Recipient, (iv) the accounts as to
which a Qualified Recipient has a fiduciary or custodial relationship, and (v)
the members of a Qualified Recipient, if such Qualified Recipient is an
association or union; provided that the Qualified Recipient shall have been
instrumental in the purchase of such shares by, or shall have provided
administrative assistance to, such customers, clients, accounts or members in
relation thereto. The Distributor may make final and binding decisions as to
all matters relating to Qualified Holdings and Qualified Recipients, including
but not limited to (i) the identity of Qualified Recipients; (ii) whether or not
any shares are to be considered as Qualified Holdings of any particular
Qualified Recipient; and (iii) what shares, if any, are to be attributed to a
particular Qualified Recipient, to a different Qualified Recipient or to no
Qualified Recipient.
"Qualified Directors" shall mean the Directors of the Fund
who are not interested persons as defined in the Act of the Fund and who have no
direct or indirect financial interest in the operation of this Plan or any
agreement related to this Plan. While this Plan is in effect, the selection and
nomination of Qualified Directors shall be committed to the discretion of the
Directors who are not interested persons of the Fund. Nothing herein shall
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.
"Permitted Payments" shall mean payments by the Distributor
to Qualified Recipients as permitted by this Plan.
"Permitted Expenses" shall mean expenses incurred by the
Distributor in connection with the distribution of Class A (or Class X) shares
of the Fund as defined below in Section 4.
Permitted Payments and Permitted Expenses shall not include
any expenses listed in Section 5 below.
Payments Authorized
-------------------
Class A (or Class X) Shares. The Distributor is authorized,
---------------------------
pursuant to this Plan, to make Permitted Payments to any Qualified Recipient
under a related agreement on either or both of the following bases for Class A
(or Class X) shares:
As reimbursement for direct expenses incurred in the
course of distributing Fund shares or providing administrative assistance to the
Fund 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
At a rate specified in the related agreement with the
Qualified Recipient in question based on the average value of the Qualified
Holdings of such Qualified Recipient.
The Distributor may make Permitted Payments in any amount to any
Qualified Recipient, provided that: (A) the total amount of all Permitted
Payments made during a fiscal year of the Fund to all Qualified Recipients
(whether made under (i) and/or (ii) above) do not exceed, in that fiscal year of
the Fund, the amounts for each Portfolio's Class A (or Class X) shares as set
forth in Exhibit A attached hereto; and (B) a majority of the Fund's Qualified
---------
Directors may at any time decrease or limit the aggregate amount of all
Permitted Payments or decrease or limit the amount payable to any Qualified
Recipient. Each Portfolio will reimburse the Distributor for such Permitted
Payments within such limit, but the Distributor shall bear any Permitted
Payments beyond such limits.
Class B Shares
--------------
(i) The Fund wishes to retain, pursuant to the terms of a
distribution agreement (each, a "Distribution Agreement") pursuant to the Plan,
from time to time persons (each such person so acting from time to time, the
"Distributor") to act as principal distributor of the Class B Shares of each
Portfolio of the Fund.
(ii) The Fund shall pay to each Distributor, as compensation for
acting as principal distributor in respect of the Class B Shares of each
Portfolio of the Fund its "Allocable Portion" (as hereinafter defined) of a fee
(the "Distribution Fee") computed at the rate of 0.75% per annum of such
Portfolio's average daily net assets attributable to Class B Shares of such
Portfolio, which Distribution Fee will accrue daily and be payable monthly.
(iii) The Fund shall pay to each Distributor, as compensation
for providing, or arranging for the provision of, shareholder services in
respect of the Class B Shares of each Portfolio of the Fund, a service fee (the
"Service Fee") computed at the rate of 0.25% per annum of the Fund's average
daily net assets attributable to Class B Shares of such Portfolio, which Service
Fee will accrue daily and be paid monthly. The Distributor may allow all or any
portion of the Service Fee to securities dealers for providing such Shareholder
services to particular Class B Shares. If, in lieu of allowing a portion of the
Service Fee relating to a particular Class B Share to a securities dealer in
consideration of such securities dealer providing shareholder services to such
Class B Share for the twelve-month period following the issuance thereof, the
Distributor makes a payment to such securities dealer on the settlement date for
the issuance of such Class B Share in consideration of such security dealer's
commitment to provide such services for such twelve-month period, without
further compensation, the Distributor will be deemed to have earned the Service
Fee that accrues in respect of such Class B Share during such twelve-month
period (the "Earned Service Fee") upon making such payment to such securities
dealer and all of the provisions of Section 3(b)(iv) hereof shall apply to the
Earned Service Fee, in the same manner as they apply to the Distributor's
Allocable Portion of the Distribution Fee and for this purpose references in
Section 3(b)(v) hereof to Distribution Fees shall be deemed to include Earned
Service Fees and references in such section to the financing of distribution
services shall be deemed to include financing of shareholder services.
(iv) The Distribution Agreement between the Fund and each
Distributor relating to the Class B Shares of each Portfolio shall provide that:
(I) the Distributor will be deemed to have performed all services required to be
performed in order to be entitled to receive its Allocable Portion (as defined
below) of the Distribution Fee payable in respect of the Class B Shares upon the
settlement date of each sale of a "Commission Share" (as defined in the
Allocation Schedule attached to the Distribution Agreement) taken into account
in determining such Distributor's Allocable Portion of such Distribution Fee;
(II) notwithstanding anything to the contrary set forth in this Plan or the
Distribution Agreement, the Fund's obligation to pay such Distributor its
Allocable Portion of the Distribution Fee payable shall not be terminated or
modified in any manner (including without limitation, by change in the auto-
conversion arrangements relating to Class B Shares for which the "Date of
Original Issuance" (as defined below) occurs prior to such action) for any
reason (including a termination of the Distribution Agreement between such
Distributor and the Fund) except to the extent required by a change in the
Investment Company Act of 1940 (the "Act") or the Conduct Rules of the National
Association of Securities Dealers, Inc., (the "NASD") in each case enacted or
promulgated after the date of the Distribution Agreement (or amendment thereof
relating to Class B Shares) with the Distributor, or in connection with a
"Complete Termination" (as hereinafter defined) of this Plan in respect of the
Class B Shares; (III) the Fund will not take any action to waive or change in
any manner (including without limitation, by change in the auto-conversion
arrangements relating to Class B Shares for which the Date of Original Issuance
occurs prior to such action) any contingent deferred sales charge ("CDSC") in
respect of any Class B Shares for which the Date or Original Issuance occurs
prior to such action except as provided in the Fund's prospectus or statement of
additional information as in effect on the date of the Distribution Agreement
(or amendment thereof relating to Class B Shares) with the Distributor, without
the consent of such Distributor and its "Transferees" (as hereinafter defined);
(IV) notwithstanding anything to the contrary set forth in this Plan or the
Distribution Agreement, neither the termination of such Distributor's role as
principal distributor of the Class B Shares in respect of any Portfolio, nor the
termination of such Distribution Agreement nor the termination of this Plan will
terminate such Distributor's right to its Allocable Portion of the CDSC's; and
(V) notwithstanding anything to the contrary set forth in this Plan or the
Distribution Agreement, such Distributor may assign, sell or pledge
(collectively, "Transfer") its rights to its Allocable Portion of the
Distribution Fees and CDSC'S (but not such Distributor's obligations to the Fund
under the Distribution Agreement) to raise funds to make the expenditures
related to the distribution of Class B Shares, and in connection therewith, upon
receipt of notice of such Transfer, the Fund shall pay to the assignee,
purchaser or pledgee (collectively with their subsequent transferees,
"Transferees"), as third party beneficiaries, such portion of such Distributor's
Allocable Portion of the Distribution Fees or CDSC'S in respect of the Class B
Shares so sold or pledged, and except as provided in (II) above and
notwithstanding anything to the contrary set forth in this Plan or in the
Distribution Agreement, to the extent such Distributor has transferred its right
thereto as aforesaid, the Fund's obligation to pay such Distributor's Allocable
Portion of the Distribution Fees and CDSC'S payable in respect of the Class B
Shares shall be absolute and unconditional and shall not be subject to dispute,
offset, counterclaim or any defense whatsoever, at law or equity, including,
without limitation, any of the foregoing based on the insolvency or bankruptcy
of such Distributor (it being understood that such provision is not a waiver of
the Fund's right to pursue such Distributor and enforce such claims against the
assets of such Distributor other than its right to the Distribution Fees and
CDSC'S in respect of the Class B Shares of the Fund or of any other trust, fund,
portfolio or Company, Distribution Fees and CDSC's in respect of the Class B
Shares of which were transferred in connection with such Transfer). For
purposes of this Plan, the term Allocable Portion of Distribution Fees or CDSC'S
payable in respect of the Class B Shares of each Portfolio as applied to any
Distributor shall mean the portion of such Distribution Fees or CDSC'S payable
in respect of such Class B Shares of such Portfolio allocated to such
Distributor in accordance with the Allocation of such Portfolio allocated to
such Distributor in accordance with the Allocation Schedule (attached to the
Distribution Agreement as it relates to the Class B Shares of such Portfolio)
which Allocation Schedule shall be substantially identical in respect of each
such Distribution Agreement. For purposes of this Plan, the term "Date of
Original Issuance" shall have the meaning assigned to such term in such
Allocation Schedule, and the term "Complete Termination" of this Plan in respect
of Class B Shares means a termination of this Plan involving the complete
cessation of the payment of Distribution Fees in respect of all Class B Shares
of the Fund, and the termination of the distribution plans and the complete
cessation of the payment of distribution fees pursuant to every other
Distribution Plan pursuant to Rule 12b-1 in respect of the Class B Shares of the
Fund and any successor trust, fund, portfolio or company or any trust, fund,
portfolio or company acquiring a substantial portion of the assets of the Fund
and for every future class of shares of the Fund or any such other trust, fund,
portfolio or company which has substantially similar characteristics to the
Class B Shares of the Fund taking into account the manner of payment and amount
of sales charge, contingent deferred sales charge or other similar charges borne
directly or indirectly by the holders of such shares.
Class C Shares. The Fund shall pay to the Distributor, as
--------------
compensation for acting as principal Distributor in respect of the Class C
Shares of each Portfolio of the Fund, a Distribution Fee computed at the rate of
0.75% per annum of such Portfolio's average daily net assets attributable to
Class C Shares of such Portfolio, which Distribution Fee will accrue daily and
be paid monthly. The Fund also shall pay to the Distributor, as compensation
for providing, or arranging for the provision of, shareholder services in
respect of the Class C Shares of each Portfolio of the Fund, a Service Fee
computed at the rate of 0.25% per annum of such Portfolio's average daily net
assets attributable to Class C Shares, which Service Fee will accrue daily and
be paid monthly. The Distributor may allow all or any portion of the
Distribution Fee and the Service Fee attributable to Class C Shares to
securities dealers for assisting with the distribution of, and providing
shareholder services to the holders of, Class C Shares.
Payment to Distributor in Respect of Class A (or Class X)
----------------------------------------------------------
Shares. Distributor is entitled to receive from each Portfolio of the Fund the
- ------
payment of Permitted Expenses on an annual basis at the rate specified in
Exhibit A with respect to Class A (or Class X) shares which are owned of record
- ---------
by the Distributor as nominee for the Distributor's customers or which are owned
by those customers of the Distributor whose records, as maintained by the Fund
or its agent, designate the Distributor as the customer's dealer of record, and
said fee shall be considered a Permitted Expense; provided, however, that in no
event shall Permitted Expenses and Permitted Payments, in the aggregate, in that
fiscal year of the Fund, exceed the amounts set forth in Exhibit A for the
---------
relevant Class of shares and the relevant Portfolio, as the case may be, and the
Distributor shall bear any such expenses beyond such limit.
Said fee shall be calculated and paid quarterly. The Distributor
shall furnish the Fund with such information as shall be reasonably requested by
the Fund with respect to the fees paid to the Distributor.
Expenses Authorized. The Distributor is authorized, pursuant to
-------------------
this Plan, to purchase advertising for Class A (or Class X) shares of the Fund,
to pay for sales literature and other promotional material, and to make payments
to sales personnel affiliated with it, in the form of commissions or other
compensation. Any such advertising and sales material may include references to
other open-end investment companies or other investments and any salesmen so
paid are not required to devote their time solely to the sale of Fund shares.
Any such expenses ("Permitted Expenses") made during a fiscal year of any
Portfolio shall be reimbursed or paid by the Portfolio, except that the combined
amount of reimbursement or payment of Permitted Expenses together with the
Permitted Payments made pursuant to Section 3 of this Plan by a Portfolio shall
not, in the aggregate, in that fiscal year of the Portfolio, exceed the amounts
set forth in Exhibit A attached hereto. The Distributor shall bear any expenses
---------
beyond such limit. No such reimbursement may be made for Permitted Expenses or
Permitted Payments for fiscal years prior to the fiscal year in question or in
contemplation of future Permitted Expenses or Permitted Payments.
Certain Other Payments Authorized. If and to the extent that any
---------------------------------
of the payments by the Fund listed below are considered to be "primarily
intended to result in the sale of shares" issued by the Fund within the meaning
of the Rule, such payments by the Fund are authorized without limit under this
Plan and shall not be included in the limitations contained in this Plan: (i)
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 the
Fund or other funds or other investments; (ii) the costs of preparing, printing
and mailing of all prospectuses to shareholders; (iii) 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 the Fund's shares; (iv) all legal and accounting fees
relating to the preparation of any such reports, prospectuses, proxies and proxy
statements; (v) all fees and expenses relating to the qualification of the Fund,
the Portfolios and/or their shares under the securities or "Blue Sky" law of any
jurisdiction; (vi) 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 the Fund's shares; (vii) all fees and assessments of
the Investment Company Institute or any successor organization, irrespective of
whether some of its activities are designed to provide sales assistance; (viii)
all costs of preparing and mailing confirmations of shares sold or redeemed or
share certificates, and reports of share balances; and (ix) all costs of
responding to telephone or mail inquiries of shareholders.
Investment Advisory Fees. It is recognized that the costs of
------------------------
distribution of the Fund's Class A (or Class X) shares are expected to exceed
the sum of Permitted Payments and Permitted Expenses ("Excess Distribution
Costs") and that the profits, if any, of the Fund's Advisor are dependent
primarily on the advisory fees paid by the Fund to the Advisor. If and to the
extent that any investment advisory fees paid by the Fund 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 the Fund,
the payment of such fees is authorized under this Plan. In taking any action
contemplated by Section 15 of the Act as to any investment advisory contract to
which the Fund is a party, the Fund's Board of Directors, including its
Directors who are not "interested persons," as defined in the Act, shall, in
acting on the terms of any such contract, apply its "fiduciary duty" standard
contained in Sections 36(a) and 36(b) of the Act.
Reports. While this Plan is in effect, the Distributor shall
-------
report in writing at least quarterly to the Fund's Board of Directors, and the
Board shall review the following: (i) the amounts of all Permitted Payments for
Class A (or Class X) shares, the identity of the recipients of each such
Payment; the basis on which each such recipient was chosen as a Qualified
Recipient and the basis on which the amount of the Permitted Payment to such
Qualified Recipient was made; (ii) the amounts of Permitted Expenses and the
purpose of each such Expense; and (iii) all costs of each item specified in
Section 5 of the Plan (making estimates of such costs where necessary or
desirable), in each case during the preceding calendar or fiscal quarter.
Effectiveness, Continuation, Termination and Amendment
-----------------------------------------------------
Class A (or Class X) Shares. This Plan, as applied to Class
---------------------------
A (or Class X) shares, has been approved by a vote of a majority of the Board of
Directors of the Fund and of a majority of the Qualified Directors, cast in
person at a meeting called for the purpose of voting on this Plan. This Plan
shall, unless terminated as hereinafter provided, continue in effect with
respect to Class A (or Class X) shares from year to year only so long as such
continuance is specifically approved at least annually by a majority of the
Fund's Board of Directors and a majority of its Qualified Directors cast in
person at a meeting called for the purpose of voting on such continuance. This
Plan may be terminated with respect to Class A (or Class X) shares at any time
as to any Portfolio by a vote of a majority of the Qualified Directors or by the
vote of the holders of a "majority" (as defined in the Act) of all outstanding
voting securities of any Portfolio. This Plan may not be amended to increase
materially the amount of payments to be made by any Portfolio with respect to
Class A (or Class X) shares except by the vote of the holders of a "majority"
(as defined in the Act) of the outstanding voting securities of that Portfolio,
and all amendments must be approved by a vote of a majority of the Board of
Directors of the Fund and of a majority of the Qualified Directors, cast in
person at a meeting called for the purpose of voting on this Plan. In the event
of a termination of this Plan with respect to Class A (or Class X) shares of any
Portfolio, the Distributor shall be reimbursed only for Permitted Payments and
Permitted Expenses for Class A (or Class X) shares of the relevant Portfolio
incurred to the date of termination and within the limits set forth in Section 4
above.
Class B Shares. This Plan, as applied to Class B shares,
--------------
has been approved by a vote of the Board of Directors of the Fund and of the
Qualified Directors, cast in person at a meeting called for the purpose of
voting on this Plan. This Plan, as applied to Class B shares, shall, unless
terminated as hereinafter provided, continue in effect until June 1, 2000, and
thereafter from year to year only so long as such continuance is specifically
approved at least annually by the Fund's Board of Directors and its Qualified
Directors cast in person at a meeting called for the purpose of voting on such
continuance for Class B shares. This Plan, as applied to Class B shares, may be
terminated at any time with respect to any Portfolio by a vote of a majority of
the Qualified Directors or by the vote of the holders of a "majority" (as
defined in the Act) of the outstanding Class B shares of that Portfolio. This
Plan may not be amended to increase materially the amount of payments to be made
for Class B shares of any Portfolio except by a vote of holders of least a
"majority" (as defined in the Act) of the outstanding voting securities of Class
B shares of the relevant Portfolio, and all amendments must be approved by a
vote of the Board of Directors of the Fund and of the Qualified Directors, cast
in person at a meeting called for the purpose of voting on Class B shares of
this Plan.
Class C Shares. This Plan, as applied to Class C shares,
--------------
has been approved by a vote of the Board of Directors of the Fund and of the
Qualified Directors, cast in person at a meeting called for the purpose of
voting on this Plan. This Plan, as applied to Class C shares, shall, unless
terminated as hereinafter provided, continue in effect until February 28, 2002,
and thereafter from year to year only so long as such continuance is
specifically approved at least annually by the Fund's Board of Directors and its
Qualified Directors cast in person at a meeting called for the purpose of voting
on such continuance for Class C shares. This Plan, as applied to Class C
shares, may be terminated at any time with respect to any Portfolio by a vote of
a majority of the Qualified Directors or by the vote of the holders of a
"majority" (as defined in the Act) of the outstanding Class C shares of that
Portfolio. This Plan may not be amended to increase materially the amount of
payments to be made for Class C shares of any Portfolio except by a vote of
holders of least a "majority" (as defined in the Act) of the outstanding voting
securities of Class C shares of the relevant Portfolio, and all amendments must
be approved by a vote of the Board of Directors of the Fund and of the Qualified
Directors, cast in person at a meeting called for the purpose of voting on Class
C shares of this Plan.
CLASS A (OR CLASS X) SHARES
Rule 12b-1 service fees are expressed as a percentage of the relevant
Portfolio's average daily net assets.
1. Tax-Exempt Portfolio (Class A)
Service Fee: 0.25 of 1%
2. Government Portfolio (Class A)
Service Fee: 0.25 of 1%
3. S&P 100 Plus Portfolio (Class A)
Service Fee: 0.25 of 1%
4. Dividend Achievers Portfolio (Class A)
Service Fee: 0.25 of 1%
5. Select Value Portfolio (Class A)
Service Fee: 0.25 of 1%
6. PSE Tech 100 Index Portfolio (Class A)
Service Fee: 0.25 of 1%
7. Managed Growth Portfolio (Class A)
Service Fee: 0.25 of 1%
8. Cash Reserve Portfolio (Class X)
Service Fee: 0.15 of 1%
9. Wisconsin Tax-Exempt Portfolio (Class A)
Service Fee: 0.25 of 1%
EXHIBIT A
- ---------
CLASS B SHARES
Rule 12b-1 service and distribution fees are expressed as a percentage of
the relevant Portfolio's average daily net assets.
1. S&P 100 Plus Portfolio (Class B)
Service Fee: 0.25 of 1%
Distribution Fee: 0.75 of 1%
2. Dividend Achievers Portfolio (Class B)
Service Fee: 0.25 of 1%
Distribution Fee: 0.75 of 1%
3. Select Value Portfolio (Class B)
Service Fee: 0.25 of 1%
Distribution Fee: 0.75 of 1%
4. PSE Tech 100 Index Portfolio (Class B)
Service Fee: 0.25 of 1%
Distribution Fee: 0.75 of 1%
5. Managed Growth Portfolio (Class B)
Service Fee: 0.25 of 1%
Distribution Fee: 0.75 of 1%
6. Cash Reserve Portfolio (Class B)
Service Fee: 0.25 of 1%
Distribution Fee: 0.75 of 1%
EXHIBIT C
- ---------
CLASS C SHARES
Rule 12b-1 service and distribution fees are expressed as a percentage of
the relevant Portfolio's average daily net assets.
1. Government Portfolio (Class C)
Service Fee: 0.25 of 1%
Distribution Fee: 0.75 of 1%
2. S&P 100 Plus Portfolio (Class C)
Service Fee: 0.25 of 1%
Distribution Fee: 0.75 of 1%
3. Dividend Achievers Portfolio (Class C)
Service Fee: 0.25 of 1%
Distribution Fee: 0.75 of 1%
4. Select Value Portfolio (Class C)
Service Fee: 0.25 of 1%
Distribution Fee: 0.75 of 1%
5. PSE Tech 100 Index Portfolio (Class C)
Service Fee: 0.25 of 1%
Distribution Fee: 0.75 of 1%
6. Managed Growth Portfolio (Class C)
Service Fee: 0.25 of 1%
Distribution Fee: 0.75 of 1%
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 NORTH MAIN STREET
WEST BEND, WISCONSIN 53095
PARTICIPATING DEALER AGREEMENT
(UNDER RULE 12B-1)
-------------------, 20--
Dear Sirs:
This letter will confirm our understanding and agreement with respect to
payments to be made to you pursuant to a plan of distribution adopted by
Principal Preservation Portfolios, Inc. (the "Fund") pursuant to Rule 12b-1 (the
"Plan") under the Investment Company Act of 1940 (the "Act"). The Plan and this
related agreement have been approved by a majority of the Directors of the Fund
including a majority of the Directors who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operation of the
Plan or any related agreements (the "Qualified Directors"), cast in person at a
meeting called for the purpose of voting thereon. Such approval included a
determination that in the exercise of reasonable business judgment and in light
of their fiduciary duties, there is a reasonable likelihood that the Plan will
benefit the Fund and its shareholders. This Agreement shall apply to additional
Portfolios of the Fund which approve the Plan in the manner required by the Act
and rules thereunder.
To the extent you provide distribution and marketing services in the
promotion of the Fund's Class A (or Class X with respect to the Cash Reserve
Portfolio), Class B or Class C shares, including furnishing services and
assistance to your customers who invest in and own Fund shares, including, but
not limited to, answering routine inquires regarding the Fund, assisting in
changing distribution options, account designations and addresses, and/or
administrative services, we shall pay you a fee at the maximum rate for the
relevant Portfolio set forth in: (a) attached Exhibit A (for Class A or Class X
---------
shares); (b) attached Exhibit B for Class B shares; and (c) attached Exhibit C
--------- ---------
for Class C shares, in each case based upon the average daily net asset value of
the shares of that Portfolio which are owned of record by your firm as nominee
for your customers or which are owned by those customers of your firm whose
records, as maintained by the Fund or its Agent, designate your firm as the
Customer's dealer of record. The fee will be calculated and paid quarterly. No
such quarterly fee will be paid to you with respect to shares purchased by you
and redeemed or repurchased by the Fund or by us as Agent within seven (7)
business days after the date of our confirmation of such purchase. No such
quarterly fee will be paid to you with respect to any of your customers if the
amount of such fee based upon the value of such customer's Fund shares will be
less than $1.00. We reserve the right to increase, decrease or discontinue the
fee at any time in our sole discretion upon written notice to you.
Payment of such quarterly fee shall be made within 45 days after the close
of each quarter for which such fee is payable.
You shall furnish us and the Fund with such information as shall
reasonably be requested by the Directors of the Fund with respect to the fees
paid to you pursuant to this Agreement.
We shall furnish to the Directors of the Fund, for their review, on a
quarterly basis a written report of the amounts expended under the Plan by us
and the purposes for which such expenditures were made.
This Agreement may be terminated with respect to any Portfolio by the
vote of a majority of the Qualified Directors of the Fund or by a vote of
majority of the Portfolio's outstanding shares on sixty (60) days' written
notice, without payment of any penalty. It will be terminated by any act which
terminates either the Distribution Agreement between the Fund and us or the
Dealer Agreement between your firm and us and shall terminate immediately in the
event of its assignment as that term is defined in the Act.
The provisions of the Distribution Agreement between the Fund and us,
insofar as they relate to the Plan, are incorporated herein by reference. This
Agreement shall become effective as of the date hereof and shall continue in
full force and effect so long as the continuance of the Distribution Agreement
and the Plan and this Agreement are approved at least annually by a vote of a
majority of the Fund's Directors and a majority of the Qualified Directors, cast
in person at a meeting called for the purpose of voting thereon. All
communications to us should be sent to the above address. Any notice to you
shall be given if marked or telegraphed to you at the address specified by you
below. This agreement shall be effective when accepted by you below and shall
be construed under the laws of the State of Wisconsin.
B.C. ZIEGLER AND COMPANY
By: -----------------------------
(Authorized Signature)
Accepted:
- ------------------------------------
(Dealer's Name)
- ------------------------------------
(Street Address)
- ------------------------------------
(City) (State) (Zip)
By: --------------------------------
(Authorized Signature of Dealer)
MAXIMUM FEES FOR CLASS A (OR CLASS X) SHARES
1. Tax-Exempt Portfolio (Class A)
0.25 of 1% of average daily net assets
2. Government Portfolio (Class A)
0.25 of 1% of average daily net assets
3. S&P 100 Plus Portfolio (Class A)
0.25 of 1% of average daily net assets
4. Dividend Achievers Portfolio
0.25 of 1% of average daily net assets
5. Select Value Portfolio (Class A)
0.25 of 1% of average daily net assets
6. PSE Tech 100 Index Portfolio (Class A)
0.25 of 1% of average daily net assets
7. Managed Growth Portfolio (Class A)
0.25 of 1% of average daily net assets
8. Cash Reserve Portfolio (Class X)
0.15 of 1% of average daily net assets
9. Wisconsin Tax-Exempt Portfolio (Class A)
0.25 of 1% of average daily net assets
EXHIBIT A
- ---------
MAXIMUM FEES FOR CLASS B SHARES
The fees for Class B shares are not payable during the initial one-year
period following the sale of the shares to an investor.
1. S&P 100 Plus Portfolio
0.25 of 1% of average daily net assets
2. Dividend Achievers Portfolio
0.25 of 1% of average daily net assets
3. Select Value Portfolio
0.25 of 1% of average daily net assets
4. PSE Tech 100 Index Portfolio
0.25 of 1% of average daily net assets
5. Managed Growth Portfolio
0.25 of 1% of average daily net assets
6. Cash Reserve Portfolio
0.25 of 1% of average daily net assets
EXHIBIT B
- ---------
MAXIMUM FEES FOR CLASS C SHARES
The fees for Class C shares are not payable during the initial one-year
period following the sale of the shares to the investor.
1. Government Portfolio
1.00% of average daily net assets
2. S&P 100 Plus Portfolio
1.00% of average daily net assets
3. Dividend Achievers Portfolio
1.00% of average daily net assets
4. Select Value Portfolio
1.00% of average daily net assets
5. PSE Tech 100 Index Portfolio
1.00% of average daily net assets
6. Managed Growth Portfolio
1.00% of average daily net assets
