As filed with the Securities and Exchange Commission on May 1, 2000
1933 Act Registration No. 33-12
1940 Act File No. 811-4401
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 x
Post-Effective Amendment No. 55
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 x
Amendment No. 57
----
(Check appropriate box or boxes)
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PRINCIPAL PRESERVATION PORTFOLIOS, INC.
(Exact name of registrant as specified in charter)
215 NORTH MAIN STREET
WEST BEND, WISCONSIN 53095
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (414) 334-5521
ROBERT J. TUSZYNSKI
President and Director
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 NORTH MAIN STREET
WEST BEND, WISCONSIN 53095
(Name and Address of Agent for Service)
Copy to:
CONRAD G. GOODKIND, ESQ.
Quarles & Brady LLP
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Approximate Date of Proposed Public Offerings: As soon as practicable
following the effective date of this amendment to the registration statement.
It is proposed that this filing will become effective
----- immediately upon filing pursuant to paragraph (b)
--x-- on May 1, 2000 pursuant to paragraph (b)
----- 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.
CASH RESERVE PORTFOLIO
CLASS B AND CLASS X COMMON STOCK (RETAIL SHARES)
MINIMUM INITIAL INVESTMENT: $1,000
The Principal Preservation Cash Reserve Portfolio (the "Portfolio") is one
of a series of separate mutual fund portfolios within the Principal Preservation
Portfolios, Inc. ("Principal Preservation") family of funds. The Portfolio, a
money market fund, seeks to provide investors with a high level of current
income consistent with stability of principal and the maintenance of liquidity.
The Portfolio invests primarily in domestic money market securities with a
weighted average maturity of ninety days or less. The longest maturity will be
397 days. The Portfolio's investment advisor (the "Advisor") is Ziegler Asset
Management, Inc.
The Portfolio offers three classes of shares, Class B and Class X Common
Stock (the "Retail Shares"), and Class Y Common Stock (the "Institutional
Shares") (referred to together as the "Classes"). This Prospectus discusses
only the Class B Retail Shares and Class X Retail Shares. The Portfolio's
Institutional Shares are offered by a separate prospectus.
This Prospectus has information you should know before you decide to
purchase Retail Shares of the Portfolio. Please read it carefully and keep it
with your investment records. There is a Table of Contents on the next page
which allows you to quickly find information about investment strategies, buying
and selling shares and other information about the Portfolio.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. IF
ANYONE TELLS YOU OTHERWISE, THEY ARE COMMITTING A CRIME.
THE DATE OF THIS PROSPECTUS IS MAY 1, 2000.
QUICK REFERENCE
INVESTMENTS, RISKS AND PERFORMANCE SUMMARY :
Investment objectives and risks associated
with the Portfolio 3
Performance information 3
Fees and expenses 3
ACCOUNT INFORMATION, SHAREHOLDER SERVICES AND HOW TO BUY OR SELL SHARES:
How to buy Portfolio shares (including sales
charges and combined purchase programs) 6
How to redeem Portfolio shares 9
How to exchange between Portfolios 12
How to begin an automatic investment plan 13
How to begin an automatic withdrawal plan 14
IRA and other retirement plan programs 14
PRINCIPAL PRESERVATION PORTFOLIOS' MANAGEMENT:
Investment Advisor 5
INVESTMENTS, RISKS AND PERFORMANCE SUMMARY
INVESTMENT OBJECTIVE. The Cash Reserve Portfolio seeks to provide
investors with a high a level of current income consistent with the stability
of principal and the maintenance of liquidity.
PRINCIPAL INVESTMENT STRATEGIES. The Advisor's principal investment
strategies include:
o Investing in U.S. dollar-denominated money market securities,
including U.S. Government securities and repurchase agreements.
o Investing more than 25% of total assets in the financial services
industry.
o Investing in compliance with industry-standard requirements for money
market funds for the quality, maturity and diversification of
investments.
PRINCIPAL INVESTMENT RISKS. The Portfolio is subject to the following
principal investment risks:
o Interest Rate Changes. Interest rate increases can cause the price of
a money market security to decrease.
o Financial Services Exposure. Changes in government regulation or
economic downturns can have a significant negative affect on issuers
in the financial services sector. The Portfolio frequently
concentrates its investments in this sector.
o Issuer-Specific Changes. A decline in the credit quality of an issuer
or the provider of credit support or a maturity-shortening structure
for a security can cause the price of a money market security to
decrease.
An investment in the Portfolio is not a deposit of a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Portfolio seeks to preserve the value of your
investment at $1.00 per share, you could lose money by investing in the
Portfolio.
PERFORMANCE INFORMATION. The bar chart and table below provide you with
information regarding the Portfolio's annual return on its Class X Retail
Shares. We have provided no comparable information for Class B Retail Shares
because those shares have been available for less than one year. You should
bear in mind that past performance is not an indication of future results.
The bar chart demonstrates the variability of the annual total returns of
the Portfolio for the calendar years indicated. In 1997 and 1995, the Advisor
made capital contributions to the Portfolio to offset certain capital losses.
Without those contributions, the returns for those years would have been lower.
CASH RESERVE PORTFOLIO (CLASS X RETAIL SHARES)(1)<F1>
AVERAGE ANNUAL TOTAL RETURN(2)<F2>
1994 3.64%
1995 5.32%
1996 4.78%
1997 4.80%
1998 4.77%
1999 4.35%
HIGHEST QUARTERLY RETURN:
1.35%, 2nd Quarter 1995
LOWEST QUARTERLY RETURN:
0.71%, 1st Quarter 1994
(1)<F1> The Portfolio's Class B Retail Shares carry a higher Rule 12b-1 fee
than its Class X Retail Shares. Accordingly, the total returns
reflected for the Portfolio's Class X Retail Shares are greater than
total returns would have been for the Portfolio's Class B Retail
Shares over the same periods.
(2)<F2> As a percent of average annual net assets.
The table below shows the average annual total return on the Portfolio's
Class X Retail Shares for the periods presented:
PERIOD ENDED DECEMBER 31, 1999 AVERAGE ANNUAL TOTAL RETURN
- ------------------------------ ---------------------------
One Year 4.35%
Five Year 4.81%
Since Inception (April 3, 1993) 4.34%
The seven-day yield on the Portfolio's Retail Shares as of December 31,
1999 was 4.94% for Class X and 4.38% for Class B. For current yield
information, please call 1-800-826-4600.
FEES AND EXPENSES. You should carefully consider fees and expenses when
choosing a money market fund. As a shareholder, you pay the costs of operating
a fund, plus any transaction costs associated with buying, selling and
exchanging shares.
Annual fund operating expenses are expenses that a money market fund pays
to conduct its business, including investment advisory fees and the costs of
maintaining shareholder accounts, administering the fund, providing shareholder
services and other activities of the fund. Money market funds pay annual
operating expenses out of their assets. Therefore operating expenses reduce your
total return.
The following table describes the fees and expenses that you may pay if
you buy, hold, sell or exchange Retail Shares of the Portfolio.
CLASS X CLASS B
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SHAREHOLDER FEES
(FEES YOU PAY DIRECTLY FROM YOUR INVESTMENT)
Sales Charge (Load) Imposed on Purchases
and reinvested distributions None None
Contingent Deferred Sales Charge (Load)
(as a percentage of the original purchase
price or redemption proceeds, whichever
is less)(1)<F3> None 5.00%
Redemption Fees(2)<F4> None None
Exchange Fee None None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO ASSETS)(3)<F5>
Management Fee 0.20% 0.20%
Distribution (12b-1) Fees 0.15% 1.00%
Other Expenses:
Shareholder Servicing Agent Fees 0.25% -0-%
Administrative Fees 0.15% 0.15%
Other Fees 0.18% 0.21%
----- -----
Total Other Expenses 0.58% 0.36%
----- -----
Annual Fund Operating Expenses 0.93% 1.56%
----- -----
----- -----
(1)<F3> The contingent deferred sales charge declines each year that you own
your Class B shares. See "Purchasing Shares - General Information."
(2)<F4> We charge investors a wire redemption fee, which is currently $12.00
per wire. Also, there is a $10.00 service fee for redemptions of less
than $250 made by check for Class X Retail Shares.
(3)<F5> The percentages expressing annual operating expenses are based on
amounts actually incurred during the year ended December 31, 1999 for
Class X Retail Shares, and are based on management's estimates of
anticipated expenses applicable to Class B Retail Shares for the year
ending December 31, 2000.
For the year, the Advisor voluntarily waived administrative fees. Giving
effect to this waiver, "Administrative Fees," "Other Fees" and "Annual Fund
Operating Expenses" for Class X Retail Shares were 0.12%, 0.55% and 0.90%,
respectively. The Advisor presently plans voluntarily to waive fees at a
comparable level for the current fiscal year. However, this is a voluntary
action which the Advisor may discontinue 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 money market funds.
The example assumes that you invest $10,000 in Retail Shares of Portfolio
for the time periods indicated. For Class X Retail Shares, the example assumes
you redeem all of your shares at the end of those periods. For Class B Retail
Shares, the example shows the effect of whether or not you redeem your shares at
the end of each period. The example also assumes that your investment has a 5%
return each year and that the Portfolio's operating expenses remain the same.
The example is for comparison purposes only. Actual returns and costs may be
higher or lower.
AFTER AFTER AFTER AFTER
CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----- ------ ------- ------- -------
Class X $ 95 $295 $512 $1,128
Class B (With Redemption) $659 $793 $950 $1,653
Class B (Without Redemption) $159 $493 $850 $1,653
If you wish to review historical financial information about the Portfolio,
please refer to the section of this Prospectus captioned "Financial Highlights."
INVESTMENT OBJECTIVES AND STRATEGIES
GENERAL INFORMATION.
The Portfolio was established in 1993 with a single class of common stock.
Initially the Portfolio operated as a retail spoke of a two-tiered,
master/feeder structure. Effective January 1, 1996, the Portfolio was
restructured with Class X Retail Shares and Class Y Institutional Shares. The
Portfolio first began offering Class B Retail Shares on December 15, 1999.
Class B Retail Shares of the Portfolio are designed as a short-term
investment alternative for shareholders who own Class B shares of any of
Principal Preservation's S&P 100 Plus Portfolio, Dividend Achievers Portfolio,
PSE Tech 100 Index Portfolio, Select Value Portfolio or Managed Growth Portfolio
(the "Equity Portfolios") and who, because of their concern over market
conditions, wish temporarily to reduce their exposure to the equity markets.
The Class B Retail Shares of the Portfolio are subject to the same contingent
deferred sales charges and Rule 12b-1 service and distribution fees as Class B
shares of the Equity Portfolios. See "Purchasing Shares" for a more detailed
description of the contingent deferred sales charge and Rule 12b-1 fee
applicable to Class B Retail Shares. BECAUSE THIS FEE STRUCTURE IS RELATIVELY
HIGH FOR A MONEY MARKET INVESTMENT, YOU SHOULD PURCHASE CLASS B RETAIL SHARES OF
THE CASH RESERVE PORTFOLIO ONLY IN CONNECTION WITH A TEMPORARY EXCHANGE FROM
CLASS B SHARES OF ANY ONE OR MORE OF THE EQUITY PORTFOLIOS.
INVESTMENT OBJECTIVE
The Portfolio seeks to provide investors with a high level of current
income consistent with the stability of principal and the maintenance of
liquidity.
INVESTMENT STRATEGIES
To achieve its investment objective, the Portfolio invests in U.S. dollar-
denominated short-term money market obligations, including securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
certificates of deposit, time deposits, bankers' acceptances and other short-
term obligations issued by domestic banks and domestic branches and subsidiaries
of foreign banks; repurchase agreements and high quality domestic commercial
paper an other short-term corporate obligations, including those with floating
or variable rates of interest. In addition, the Portfolio may lend portfolio
securities, enter into reverse repurchase agreements and, to a limited extent,
invest in securities issued by foreign banks and corporations outside the United
States.
The Portfolio may invest more than 25% of its total assets in obligations
of domestic branches of domestic banks.
In buying and selling securities for the Portfolio, the Advisor complies
with industry-standard requirements for money market funds regarding the
quality, maturity and diversification of the fund's investments. The Advisor
stresses maintaining a stable $1.00 share price, liquidity and income.
The Board of Directors of Principal Preservation has established minimum
credit standards governing the securities that the Portfolio may purchase.
Among other requirements, the Portfolio's securities must be rated in one of the
two highest rating categories for debt obligations by at least two nationally
recognized statistical rating organizations (unless the instrument is rated by
only one such rating agency, in which case a single rating is sufficient) or, if
unrated, are determined by the Advisor to be of comparable quality under the
Board of Directors' guidelines and procedures. The Portfolio will invest at
least 95% of its total assets in securities rated in the highest category or, if
unrated, determined by the Advisor to be of comparable quality. The rating
organizations that rate the money market instruments in which the Portfolio may
invest include Moody's Investors Service, Inc., Standard & Poor's Corporation,
Duff & Phelps, Inc., Fitch Investors Service, Inc., IBCA Limited and IBCA Inc.,
and Thomson Bank Watch, Inc.
DESCRIPTION OF PRINCIPAL SECURITY TYPES
Money Market securities are high quality, short-term debt securities that
pay a fixed, variable or floating interest rate. Securities are often
specifically structured so that they are eligible investments for a money market
fund. For example, in order to satisfy the maturity restrictions for a money
market fund, some money market securities have demand or put features which have
the effect of shortening the security's maturity. Taxable money market
securities include bank certificates of deposit, bank acceptances, bank time
deposits, notes, commercial papers and U.S. Government securities.
U.S. Government securities are high-quality securities issued or
guaranteed by the U.S. Treasury or by an agency or instrumentality of the U.S.
Government. U.S. Government Securities may be backed by the full faith and
credit of the U.S. Treasury, the right to borrow from the U.S. Treasury, or the
agency or instrumentality issuing or guaranteeing the security.
A repurchase agreement is an agreement to buy a security at one price and a
simultaneous agreement to sell it back at an agreed-upon price.
INVESTMENT RISKS
Many factors affect the Portfolio's performance. The Portfolio's yield
will change daily based on changes in interest rates and other market
conditions. Although the Advisor manages the Portfolio to maintain a stable
$1.00 share price, there is no guarantee that it will be successful. For
example, a major increase in short-term interest rates or a decrease in the
credit quality of the issuer of one of the Portfolio's investments could cause
the Portfolio's share price to decrease. It is important to note that neither
the Portfolio's share prices nor its yield are guaranteed by the U.S.
Government.
The following factors may significantly affect the Portfolio's performance:
Interest Rate Changes. Money market securities have varying levels of
sensitivity to changes in interest rates. In general, the price of a money
market security will fall when interest rates rise and will rise when interest
rates fall. Securities with longer maturities and the securities of issuers in
the financial services industry tend to be more sensitive to interest rate
changes. Sometimes securities have new or novel features that are designed for
specific market environments. If the structure of the security does not
function as planned, the security could decline in value. Also, the behavior of
these securities under various and changing market environments is not always
well understood. Their values can decline unexpectedly.
Financial Services Exposure. Financial services companies are highly
dependent on the supply of short-term financing. The value of securities of
issuers in the financial services sector can be sensitive to changes in
government regulation and interest rates and to economic downturns in the United
States and abroad.
Issuer-Specific Changes. Changes in the financial condition of an issuer,
changes in specific economic or political conditions that affect a particular
type of issuer, and changes in general economic or political conditions all can
affect the credit quality or value of an issuer's securities. Entities
providing credit support or a maturity-shortening structure also can be affected
by these types of changes.
MANAGEMENT
INVESTMENT ADVISOR
Ziegler Asset Management, Inc. ("ZAMI" or the "Advisor") is the investment
Advisor for the Portfolio. In addition to the Portfolio, ZAMI privately manages
numerous customer advisory accounts. On January 1, 2000, ZAMI managed
approximately $1.5 billion in assets on a discretionary basis. B.C. Ziegler and
Company ("Ziegler"), an affiliate of ZAMI, serves as distributor,
accounting/pricing agent, administrative servicing agent and shareholder
servicing agent for the Portfolio. Ziegler has been engaged in the underwriting
of debt securities for approximately 80 years. Ziegler and ZAMI are each
wholly-owned subsidiaries of The Ziegler Companies, Inc., a publicly owned
financial services holding company. Ziegler and ZAMI are each headquartered at
215 North Main Street, West Bend, Wisconsin 53095.
ZAMI provides the Portfolio with overall investment advisory services, and
Ziegler provides administrative services and other back room operations. For
1999, the Portfolio paid $323,977 (or 0.20% of the Portfolio's average net
assets) in advisory fees. Ziegler voluntarily reimbursed $50,609 in expenses
(or 0.03% of the Portfolio's average net assets).
TRANSFER AGENT
PFPC Global Fund Services serves as the transfer and dividend disbursing
agent (the "Transfer Agent") for all of Principal Preservation's portfolios,
including the Cash Reserve Portfolio. Its address is:
PFPC Global Fund Services
P.O. Box 60504
King of Prussia, PA 19406
PURCHASING SHARES
GENERAL INFORMATION
You may buy Class X Retail Shares through Ziegler and selected dealers.
You also may purchase shares in connection with asset allocation programs, wrap
free programs and other programs of services offered or administered by broker-
dealers, investment advisors, financial institutions and certain other service
providers, provided the program meets certain standards established from time to
time by Ziegler.
Class B Retail Shares of the Portfolio are subject to a contingent deferred
sales charge and a 1.00% Rule 12b-1 fee, each of which is described in more
detail below. Because of this higher fee structure, if you wish to purchase and
hold Retail Shares directly, you should purchase Class X shares rather than
Class B shares.
The Portfolio offers its Class B Retail Shares primarily as a short-term
investment alternative for shareholders who hold Class B shares of any of the
Equity Portfolios, but who wish temporarily to reduce their exposure to the
stock market. Under uncertain or adverse market conditions, a shareholder may
wish temporarily to exchange his or her Class B shares of any of the Equity
Portfolios for Class B Retail Shares of the Cash Reserve Portfolio. Later, when
the shareholder believes the equity markets are again more favorable, the
shareholder may wish to exchange some or all of his or her Class B Retail Shares
of the Portfolio back into Class B shares of any of the Equity Portfolios.
Alternatively, the shareholder may redeem his or her Class B Retail Shares of
the Portfolio for cash, subject to any contingent deferred sales charge as
described below.
MINIMUM PURCHASE AMOUNTS
The Portfolio has established minimum amounts that you must invest to open
an account initially, and to add to the account at later times. These minimum
investment amounts help the Portfolio control its operating expenses. The
Portfolio incurs certain fixed costs with the opening and maintaining of every
account and the acceptance of every additional investment, regardless of the
amount of the investment involved. If the Portfolio accepted and maintained
numerous small shareholder accounts and small additional investments, its
operating expense ratio would increase and its total return would decline. The
table below shows the minimum initial investment amounts and additional
investment amounts currently in effect for the Portfolio for various types of
investors.
MINIMUM INITIAL MINIMUM ADDITIONAL
TYPE OF INVESTOR INVESTMENT AMOUNT INVESTMENT AMOUNT(1)<F6>
- ---------------- ----------------- --------------------
All investors, except special
investors listed below $1,000 $50
Purchases through Systematic
Purchase Plans (see "Shareholder
Services - Systematic Purchase Plan") $100 $100(2)<F7>
(1)<F6> There is no minimum additional investment requirement for purchases of
shares of the Portfolio if: (I) the purchase is made in connection
with an exchange from another mutual fund within the Principal
Preservation family of funds (see "Exchanging Shares"); (ii)
reinvestment of distributions received from another mutual fund within
the Principal Preservation family of funds or from various unit
investment trusts sponsored by Ziegler; (iii) the reinvestment of
interest and/or principal payments on bonds issued by Ziegler Mortgage
Securities, Inc. II; (iv) reinvestment of interest payments on bonds
underwritten by Ziegler; and contributions for various retirement
plans.
(2)<F7> The minimum subsequent monthly investment under a Systematic Purchase
Plan is $50 for accounts with balances of $1,000 or more.
METHODS FOR PURCHASING SHARES
If you purchase Retail Shares directly for cash, you must pay for your
shares of the Portfolio in U.S. dollars and your check must be drawn on a U.S.
bank. Principal Preservation will not accept cash or traveler's checks. If your
check does not clear, we will cancel your purchase and you will be responsible
for any losses and any applicable fees. If you buy shares by any type of check,
wire transfer or automatic investment purchase, and soon thereafter you decide
to redeem your shares, we may postpone making your redemption payment for
fifteen days or until your check has cleared, whichever is earlier. This does
not limit your right to redeem shares. Rather, it operates to make sure that
payment for the shares redeemed has been received by Principal Preservation.
You may purchase Class B Retail Shares of the Portfolio by obtaining and
completing an Exchange Authorization Form available from the Distributor, and
delivering the completed form in person or by mail in accordance with the
instructions below. Alternatively, you can complete an exchange through the
telephone exchange privilege by following the instructions below.
Because of the contingent deferred sales charge and the higher Rule 12b-1
fees that apply to Class B Retail Shares of the Portfolio as opposed to its
Class X Retail Shares, you should not purchase Class B Retail Shares directly.
The only exception may be in the situation where you purchase Class B Retail
Shares of the Portfolio in exchange for Class B shares of any of the Equity
Portfolios, and you wish to continue dividend and capital gains distribution
reinvestment plans and possibly automatic investment plans that you had in
effect with respect to the Class B shares of the Equity Portfolio(s) so
exchanged.
We consider your order for the purchase of shares to have been received
when it is physically received by the Transfer Agent, the Distributor, a
Selected Dealer or certain other financial services firms that Principal
Preservation has appointed as agents for the purpose of accepting share purchase
and redemption orders. The Portfolio pays each shareholder servicing agent a
fee at the annual rate of 0.25 of 1% of the average net asset value of Retail
Shares that investors purchase and hold through the agent. This fee compensates
the shareholder servicing agent for the sub-accounting, sub-transfer agent and
other shareholder services they provide to their clients on behalf of the
Portfolio. This shareholder servicing agent fee is in lieu of annual transfer
agent fees (presently $16.00 per shareholder account) that the Portfolio would
pay if the shareholder servicing agent's clients held their accounts directly
with the Portfolio's Transfer Agent.
If your purchase order is received prior to the close of trading on the New
York Stock Exchange, we will invest it at the net asset value computed for the
Portfolio on that day. If your order is received after the close of trading on
the New York Stock Exchange, we will invest it at the net asset value determined
for the Portfolio as of the close of trading on the New York Stock Exchange on
the next business day.
The following describes the different ways in which you may purchase shares
and the procedures you must follow in doing so.
<TABLE>
METHOD TO OPEN A NEW ACCOUNT TO ADD TO AN EXISTING ACCOUNT
- ------- ---------------------- ------------------------------
<S> <C> <C>
BY MAIL OR PERSONAL DELIVERY 1. Complete the Account Application 1. Complete the Additional In vestment form
included in this prospectus. included with your account statement.
Alternatively, you may write a note indicating
Personally deliver or send by First 2. Make your check or money order your account number.
Class or Express Mail to: payable to: "Principal
Preservation."
Principal Preservation Note: The amount of your purchase 2. Make your check payable to "Principal
c/o PFPC Global Fund ---- must meet the applicable Preservation."
Services minimum initial investment
P.O. Box 60504 account. See "Purchasing Shares- 3. Personally deliver or mail the Additional
King of Prussia, PA 19406 Minimum Purchase Amounts." Investment Form (or note) and your check or
money order.
3. Personally deliver or mail the
completed Account Application and
your check or money order.
AUTOMATICALLY Not Applicable USE ONE OF PRINCIPAL PRESERVATION'S AUTOMATIC
INVESTMENT PROGRAMS. Sign up for these services
when you open your account, or call 1-800-826-4600
for instructions on how to add them to your existing
account.
SYSTEMATIC PURCHASE PLAN. Make regular, systematic
investments into your Principal Preservation
account(s) from your bank checking or NOW account.
See "Shareholder Services - Systematic Purchase
Plan."
AUTOMATIC DIVIDEND REINVESTMENT. Unless you choose
otherwise, all of your dividends and capital gain
distributions automatically will be reinvested in
additional Portfolio shares. You also may elect to
have your dividends and capital gain distributions
automatically invested in shares of another
Principal Preservation mutual fund.
TELEPHONE BY EXCHANGE BY EXCHANGE
1-800-826-4600 Call to establish a new account by Add to an account by exchanging funds from another
exchanging funds from an existing Principal Preservation account. See "Exchanging
Principal Preservation account. Shares."
See "Exchanging Shares."
FINANCIAL SERVICES FIRMS You may purchase shares in a You may purchase additional shares in a Portfolio
Portfolio through a broker-dealer through a broker-dealer or other financial services
or other financial service firm firm that may charge a transaction fee.
that may charge a transaction fee.
Principal Preservation may accept Principal Preservation may accept requests to
requests to purchase shares into a purchase additional shares into a broker-dealer
broker-dealer street name account street name account only from the broker-dealer.
only from the broker-dealer.
</TABLE>
DISTRIBUTION AND DISTRIBUTION EXPENSES
The Portfolio is authorized under a Distribution Plan (the "Plan") pursuant
to Rule 12b-1 under the 1940 Act to use a portion of its assets to finance
certain activities relating to the distribution of its Retail Shares to
investors and, with respect to Class B shares, the maintenance of shareholder
accounts and the provision of other shareholder services. Because the Portfolio
pays these fees on an ongoing basis out of the portion of its assets
attributable to Retail Shares, over time these fees will increase the cost of
your investment.
The Plan permits the Portfolio to reimburse the Distributor for
expenditures it incurs in connection with the distribution of Retail Shares to
investors, and, with respect to Class B shares only, also to compensate the
Distributor in connection with sales of those shares. The reimbursement
payments include, but are not limited to, payments made by the Distributor to
selling representatives or brokers as a service fee or trail commissions, and
costs and expenses that the Distributor incurs for advertising, preparation and
distribution of sales literature and prospectuses to prospective investors,
implementing and operating the Plan and performing other promotional or
administrative activities. The Portfolio also may make payments under the Plan
to reimburse the Distributor for its overhead expenses related to distribution
of the Portfolio's Retail Shares. The Plan does not allow the Portfolio to
reimburse the Distributor for expenses from past fiscal years or in
contemplation of expenses for future fiscal years.
Under the Plan, the Portfolio assesses a service fee of up to 0.15 of 1% of
the portion of the Portfolio's average daily net assets attributable to its
Class X Retail Shares, and 0.25 of 1% of the portion of the Portfolio's average
daily net assets attributable to its Class B Retail Shares. The Portfolio uses
this shareholder servicing fee to reimburse the Distributor for the shareholder
services described above.
In addition, the Portfolio assesses a distribution fee of 0.75 of 1% of the
portion of its average daily net assets attributable to its Class B Retail
Shares. This distribution fee is compensatory in nature, meaning the
Distributor is entitled to receive the fee regardless of whether its costs and
expenses equal or exceed the fee. Class B shares automatically convert to Class
X shares eight years after purchase, after which time the shares no longer are
subject to this distribution fee. Following this conversion, the shares instead
become subject to Rule 12b-1 service fees applicable to the Portfolio's Class X
Retail Shares, as described above.
The Plan continues in effect, if not sooner terminated, for successive one-
year periods, provided that its continuance is specifically approved by the vote
of the Directors, including a majority of the Directors who are not interested
persons of the Advisor or the Distributor.
REDEEMING SHARES
GENERAL INFORMATION
You may redeem any or all of your Retail Shares as described below on any
day Principal Preservation is open for business. The Portfolio redeems shares
at net asset value subject, in the case of Class B shares, to a contingent
deferred sales charge as described below. If your redemption order is received
prior to the close of the New York Stock Exchange, the redemption will be at the
net asset value calculated that day. If not, you will receive the net asset
value calculated as of the close of trading on the next New York Stock Exchange
trading day.
CONTINGENT DEFERRED SALES CHARGE ON CLASS B SHARES
Class B Retail Shares of the Cash Reserve Portfolio are subject to a
contingent deferred sales charge. This means that, if you redeem any of your
Class B shares of the Portfolio for cash, you will pay a contingent deferred
sales charge out of the redemption proceeds. The amount of the contingent
deferred sales charge reduces over time, and is eliminated after six years. No
contingent deferred sales charge is imposed on any Class B 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 costs, when you redeem Class B shares in the 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 distributions), if any, or Class B 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, or
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.
The table below shows the contingent deferred sales charge applicable to
Class B shares of the Portfolio based on how long you hold the shares before
redeeming them. The amount of the contingent deferred sales charge is expressed
as a percent of the lesser of the net asset value at the time of the redemption
or at the time of your initial purchase of the Class B shares of the Portfolio
being redeemed. If you acquired the Class B shares of the Portfolio that you
are redeeming by exchanging Class B shares of any of the Equity Portfolios, then
for purposes of calculating the contingent deferred sales charge the initial net
asset value of your shares will be the net amount you invested when you acquired
the Class B shares of the Equity Portfolio(s) so exchanged. The holding period
for the Class B shares of the Portfolio that you are redeeming will be deemed to
have started on the date you purchased the Class B shares of the Equity
Portfolio(s) so exchanged.
HOLDING PERIOD 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)<F8> None
(1)<F8> Class B Retail Shares of the Portfolio convert to Class X Retail
Shares of the Portfolio automatically after eight years from the date
of initial purchase of the Class B shares of the Equity Portfolio(s)
exchanged in connection with the purchase of the Class B Retail Shares
of the Portfolio.
REDEMPTIONS
The following table describes different ways that you may redeem your
Retail 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:
- ----------- o A written request for redemption signed
by the registered owner(s) of the
Principal Preservation shares, exactly as the account is
c/o PFPC Global Fund Services registered, together with the
P.O. Box 60504 shareholder's account number;
King of Prussia, PA 19406
o The stock 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
required for redemptions by
corporations, executors, administrators,
trustees, guardians, or other similar
entities.
The Transfer Agent will redeem shares when it
has received all necessary documents. The
Transfer Agent will notify you promptly if it
cannot accept your redemption. The Transfer
Agent cannot accept redemption requests that
specify a particular date for redemption or
which specify any special conditions.
SYSTEMATIC WITHDRAWAL PLAN You can set up an automatic systematic
withdrawal plan from any of your Principal
Preservation accounts. To establish the
systematic withdrawal plan, complete the
appropriate section of the Account
Application or call, write or stop by
Principal Preservation and request a
Systematic Withdrawal Plan Application Form
and complete, sign and return the Form to
Principal Preservation. See "Shareholder
Services - Systematic Withdrawal Plan."
FINANCIAL SERVICES FIRMS You also may redeem shares through broker-
dealers, financial advisory firms and other
financial institutions, which may charge a
commission or other transaction fee in
connection with the redemption.
CHECKWRITING (CLASS X RETAIL
SHARES ONLY) Upon request, you will be provided with
checks to be drawn on the Portfolio
("Redemption Checks"). Redemption checks may
be written for amounts up to $500,000. There
is a $10.00 service fee for each check under
$250. These check writing privileges are
available only for Class X Retail Shares.
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 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 Privilege. The Transfer
Agent has implemented procedures designed to reasonably assure that telephone
instructions are genuine. These procedures include recording telephone
conversations, requesting verification of various pieces of personal information
and providing written confirmation of such transactions. If the Transfer Agent,
Principal Preservation, or any of their employees fails to abide by these
procedures, Principal Preservation may be liable to a shareholder for losses the
shareholder suffers from any resulting unauthorized transaction(s). However,
neither the Transfer Agent, Principal Preservation nor any of their employees
will be liable for losses suffered by you which result from following telephone
instructions reasonably believed to be genuine after verification pursuant to
these procedures. This service may be changed, modified or terminated at any
time. There is currently no charge for telephone redemptions, although a charge
may be imposed in the future.
SIGNATURE GUARANTEES. To protect you, the Transfer Agent and Principal
Preservation from fraud, signature guarantees are required for certain
redemptions. Signature guarantees enable the Transfer Agent to be sure that you
are the person who has authorized a redemption from your account. We require
signature guarantees for: (1) any redemptions by mail if the proceeds are to be
paid to someone else or are to be sent to an address other than your address as
shown on Principal Preservation's records; (2) any redemptions by mail 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.
CHECKWRITING (CLASS X RETAIL SHARES ONLY). Checkwriting privileges are
available only for Class X Retail Shares, not for Class B Retail Shares. When a
redemption check is presented for payment, the Portfolio will redeem a
sufficient number of full and fractional Class X shares in your account as of
the next determined net asset value to cover the check. You will continue to
earn income dividends until a redemption check is presented for payment. To use
this method of redemption, you must complete and return the Account Information
Form, which is available from Principal Preservation. Please do not attempt to
use redemption checks to close your account. Principal Preservation may modify
or terminate this privilege at any time. Redemption checks may not be available
through agents other than Ziegler. In addition, any such agents that do make
this privilege available may impose other fees and minimum balance requirements
as a condition to checkwriting privileges. With the approval of the particular
agent, minimum amount requirements for redemption checks may vary.
Unless otherwise authorized on the Account Information Form, redemption
checks must be signed by all account owners. If the Portfolio receives written
notice from any owner revoking another owner's authority to sign individually,
the signatures of all account owners will be required for payment on any
redemption check. Class X shares purchased by check may not be redeemed via
redemption check until 15 days after funds for those shares have been received.
You may not use checkwriting to redeem shares held in certificated form.
Your Agent or the Portfolio may refuse to honor redemption checks whenever
the right of redemption has been suspended, or if the account is otherwise
impaired. A $10.00 service fee per check will be charged if (a) a redemption
check for less than $250 is presented for payment, (b) the amount of a
redemption check presented for payment exceeds the value of the investor's
account, (c) a redemption check is presented that may not be cleared because it
would require redemption of shares purchased by check within 15 days, or (d) a
stop payment is requested.
CLOSING SMALL ACCOUNTS. If, due to redemption, your account in the
Portfolio drops below $500 for three months or more, the Portfolio may redeem
your shares and close your account, after giving 60 days' written notice, unless
you make additional investments to bring the account value to $1,000 or more.
SUSPENSION OF REDEMPTIONS. Principal Preservation may suspend the right to
redeem shares of the Portfolio for any period during which: (1) the Exchange is
closed or the Securities and Exchange Commission determines that trading on the
Exchange is restricted; (2) there is an emergency as a result of which it is not
reasonably practical for the Portfolio to sell its securities or to calculate
the fair value of its net assets; or (3) the Securities and Exchange Commission
may permit for the protection of the Portfolio's shareholders.
REDEMPTIONS IN OTHER THAN CASH. It is possible that conditions may arise
in the future which would, in the opinion of the Board of Directors of Principal
Preservation, make it undesirable for the Portfolio to pay for all redemptions
in cash. In such cases, the Board may authorize the Portfolio to make
redemption payments in securities or other property of the Portfolio. However,
the Portfolio will redeem for cash all shares presented for redemption by any
one shareholder up to $250,000 (or 1% of the Portfolio's net assets if that is
less) in any 90-day period. If the Portfolio delivers any securities to you as
payment of a redemption, we will value the securities at the same price assigned
to them in computing the Portfolio's net asset value per share. You would incur
brokerage costs when you sell any securities that the Portfolio distributes to
you in this fashion.
EXCHANGING SHARES
GENERAL INFORMATION
Provided you meet the minimum investment requirement applicable to the
Portfolio, you may exchange Class X Retail Shares of the Portfolio for front-end
load shares (Class A shares) of any other Principal Preservation mutual fund in
any state where the exchange legally may be made. You also may exchange Class B
Retail Shares of the Portfolio for Class B shares of any other Principal
Preservation mutual fund that offers Class B shares in any state where the
exchange legally may be made. Before engaging in any exchange, you should
obtain from Principal Preservation and read the current prospectus for the
mutual fund into which you intend to exchange. Presently, Principal
Preservation does not charge any fees for exchanges.
An exchange of shares is considered a redemption of the shares of the
Principal Preservation mutual fund from which you are exchanging, and a purchase
----------
of shares of the Principal Preservation mutual fund into which you are
-----------
exchanging. Accordingly, you must comply with all of the conditions on
redemptions for the shares being exchanged, and with all of the conditions on
purchases for the shares you receive in the exchange. Moreover, for tax
purposes you will be considered to have sold the shares exchanged, and you will
realize a gain or loss for federal income tax purposes on that sale.
SALES CHARGES APPLICABLE TO EXCHANGES
CLASS X RETAIL SHARES. If you are exchanging Class X Retail Shares of the
Portfolio for Class A shares of another Principal Preservation mutual fund, the
standard front-end sales charge applicable to purchases of Class A shares of the
Principal Preservation mutual fund into which the exchange is being made (as
disclosed in the then current prospectus for that Principal Preservation mutual
fund) will be charged in connection with the exchange, less any front-end sales
charge you previously paid with respect to the shares being exchanged, if any.
However, if the Class X shares you are exchanging represent an investment held
for at least six continuous months in any one or more Principal Preservation
mutual funds, then Principal Preservation will not charge any additional front-
end sales charge in connection with the exchange.
CLASS B RETAIL SHARES. You will not pay a contingent deferred sales charge
in connection with any exchange of Class B shares of one Principal Preservation
mutual fund for Class B shares of any other Principal Preservation mutual fund,
including exchanges involving Class B Retail Shares of the Portfolio. However,
the new Class B shares you receive in the exchange will remain subject to a
contingent deferred sales charge based on the period of time for which you held
the Class B shares you are exchanging, and based on the net asset value of the
Class B shares you are exchanging at the time you originally purchased those
shares.
RULES AND REQUIREMENTS FOR EXCHANGES
GENERAL. In order to effect an exchange on a particular business day, the
Transfer Agent must receive your exchange order in good form no later than 3:00
p.m. Eastern Time. Principal Preservation may amend, suspend or revoke this
exchange privilege at any time, but will provide you with at least 60 days'
prior notice of any change that adversely affects your rights under this
exchange privilege.
An excessive number of exchanges may be disadvantageous to Principal
Preservation. Principal Preservation may terminate the exchange privilege of
any shareholder who makes more than three exchanges in any twelve consecutive
month period or who makes more than one exchange during any calendar quarter.
The following additional rules and requirements apply to all exchanges:
o The shares you receive in the exchange must be of the same Class
as the shares you are exchanging, except that Class X Retail
Shares of the Portfolio may be exchanged for front-end load
shares (Class A shares) of any Principal Preservation mutual fund
and vice versa.
o The account into which you wish to exchange must be identical to
the account from which you are exchanging (meaning the account
into which you are exchanging must be of the same type as the
account from which you are exchanging, and the registered
owner(s) of the account into which you are exchanging must have
the same name(s), address and taxpayer identification or social
security number as the registered owner(s) on the account from
which you are exchanging).
o The amount of your exchange must meet the minimum initial or
minimum additional investment amount of the Principal
Preservation mutual fund into which you are exchanging.
o If the shares you are exchanging 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 DELIVERY Mail your exchange order to the Transfer
Agent.
Personally deliver or send by
first class or express mail Please Note: the Transfer Agent must receive
addressed to: -----------
your exchange order no later than 3:00 p.m.
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 You automatically receive telephone exchange
privileges when you open your account. To
1-800-826-4600 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 reduces to
$25. The minimum subsequent investment is $50 for all other accounts with
balances of $1,000 or more.
By participating in the SPP, you may automatically make purchases of
Portfolio shares on a regular, convenient basis. Under the SPP, your bank or
other financial institution honors preauthorized debits of a selected amount
drawn on your account each month and applied to the purchase of Principal
Preservation shares. You can implement the SPP with any financial institution
that will accept the debits. There is no service fee for participating in the
SPP. You can obtain an application and instructions on establishing the SPP
from your registered representative, the Distributor or Principal Preservation.
SYSTEMATIC WITHDRAWAL PLAN. You may establish a systematic withdrawal plan
if you own or purchase shares having a current offering price value of at least
$10,000 in the Portfolio (except no such minimum applies for distributions from
an IRA). The systematic withdrawal plan involves the planned redemption of
shares on a periodic basis by receiving either fixed or variable amounts at
periodic intervals. The minimum amount you may receive under a systematic
withdrawal plan is $150 per month. The minimum investment that the Portfolio
will accept while a withdrawal plan is in effect is $1,000. You may terminate
your systematic withdrawal plan at any time by written notice to Principal
Preservation or the Transfer Agent.
REINVESTMENT OF DISTRIBUTIONS OR INTEREST PAYMENTS. Unit holders of
Ziegler-sponsored unit investment trusts, holders of Ziegler Mortgage
Securities, Inc. II bonds and holders of bonds underwritten by Ziegler may
purchase shares of the Portfolio by automatically reinvesting distributions from
their unit investment trust, reinvesting principal or interest from their
Ziegler Mortgage Securities, Inc. II bonds, or reinvesting interest from the
bonds underwritten by Ziegler, as the case may be. Unit holders and bondholders
desiring to participate in this plan should contact the Distributor for further
information.
TAX-SHELTERED RETIREMENT PLANS. You may purchase shares of the Portfolio
through any of the following tax-sheltered plans: (1) Individual Retirement
Accounts (including Education IRAs, Roth IRAs, Simplified Employee Pension Plan
Accounts (SEP-IRAs) and Savings Incentive Match Plan for Employees Accounts
(SIMPLE-IRAs)); (2) Keogh plans; (3) 401(k) Plans; and (4) 403(b) Plans for
employees of most nonprofit organizations. You can obtain detailed information
concerning these plans, prototype plans and related information from the
Distributor. You should carefully review and consider the plans and related
information with your tax or financial adviser.
OTHER INFORMATION
DETERMINATION OF NET ASSET VALUE PER SHARE
The Portfolio sells its shares at their net asset value per share. We
determine the net asset value per share daily by adding up the total value of
the Portfolio's investments and other assets and subtracting any of its
liabilities, or debts, and then dividing by the number of outstanding shares of
the Portfolio. For this purpose, the Portfolio values its securities at
amortized cost in accordance with procedures set forth in Rule 2a-7 of the 1940
Act and policies and guidelines adopted by Principal Preservation's Board of
Directors. The net asset value per share is calculated each business day,
Monday through Friday, except on customary national business holidays which
result in closing of the New York Stock Exchange (the "Exchange"). The
calculation is as of 12:00 noon (Eastern Time) on each business day.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND REINVESTMENT
The Portfolio earns interest, dividends and other income from its
investments, and distributes this income (less expenses) to shareholders as
dividends. The Portfolio may also realize capital gains from its investments,
and distributes these gains (less losses), if any, to shareholders as capital
gains distributions. Distributions you receive from the Portfolio consist
primarily of dividends. The Portfolio normally declares dividends daily and
pays them monthly. Dividends may be taken in cash or additional shares at net
asset value. Unless you have elected in writing to the Transfer Agent to
receive dividends and capital gain distributions in cash, the Portfolio
automatically will reinvest your dividends in additional shares of the
Portfolio.
Capital gains distributions, if any, in the Portfolio will be declared
annually and normally will be paid within 45 days after the end of the fiscal
year.
TAX CONSEQUENCES
Distributions you receive from the Portfolio are subject to federal income
tax, and may also be subject to state or local taxes. The dividends that the
Portfolio pays from its taxable net investment income and the distributions that
the Portfolio makes from its net realized short-term capital gains generally
will be taxable to you as ordinary income. This is true whether you elect to
receive your dividends and distributions in cash or in additional shares of the
Portfolio. The Portfolio does not expect that it will have any long-term
capital gains, and thus does not contemplate paying distributions that would be
taxable to you as long-term capital gains.
The Portfolio will mail statements to shareholders annually regarding the
tax status of its dividends and distributions, if any. You should consult your
own tax adviser to assess the consequences of investing in the Portfolio under
tax laws applicable to you. In particular, because the Portfolio invests a
significant portion of its assets from time to time in U.S. Government
securities, you should ascertain the status under state and local laws of
dividends that the Portfolio pays to you which represent interest that the
Portfolio earns on its U.S. Government securities.
Any taxable distributions you receive from the Portfolio will normally be
taxable to you when you receive them, regardless of your distribution option.
However, distributions declared in December and paid in January each year are
taxable as if paid on December 31 of the earlier year.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Portfolio's financial performance for the past 5 years. Certain information
reflects financial results for a single Retail Share of the Portfolio. The
total returns in the table represent the rate that an investor would have earned
(or lost) on an investment in the Portfolio (assuming reinvestment of all
dividends and distributions). This information has been audited by Arthur
Andersen LLP, whose report, along with the Portfolio's financial statements, is
included in the Annual Report to Shareholders. The Annual Report is available
upon request.
<TABLE>
CLASS X RETAIL SHARES
CASH RESERVE PORTFOLIO
-----------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(SELECTED DATA FOR EACH CLASS X RETAIL SHARE OF THE
PORTFOLIO OUTSTANDING THROUGHOUT THE PERIODS)
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- -----
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .04 0.05 0.05 0.05 0.05
LESS DISTRIBUTIONS:
Dividends from net investment income (.04) (0.05) (0.05) (0.05) (0.05)
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- -----
----- ----- ----- ----- -----
TOTAL INVESTMENT RETURN(A)<F9> 4.35% 4.77% 4.80% 4.78% 5.32%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (nearest thousand) $136,998 $147,995 $122,710 $89,946 $86,590
Ratio of net expenses to average net assets(b)<F10> 0.90% 0.89% 0.86% 0.78% 0.79%
Capital Contributions(a)<F9> -0- -0- 0.13% -0- 0.06%
Ratio of net investment income to average
net assets(b)<F10> 4.26% 4.65% 4.71% 4.73% 5.23%
</TABLE>
Prior to 1996, the assets of the Cash Reserve Portfolio were invested in the
Prime Money Market Portfolio ("Prime") of The Prime Portfolios. At the opening
of business on January 1, 1996, the assets of Prime were liquidated and
transferred to the Principal Preservation Cash Reserve Portfolio ("Portfolio").
At that time, Classes were established for the Cash Reserve Portfolio, Class X
(Retail) and Class Y (Institutional). Assets of Prime which previously were
attributed to the Portfolio were allocated to the Portfolio's Class X (Retail)
shares. Information as of and results for periods ended prior to January 1,
1996 reflect the Portfolio's investments in Prime. Results for the year ended
December 31, 1996 and later periods reflect the new dual class structure.
(a)<F9> In 1997 and 1995, the Adviser and its predecessor made capital
contributions to offset losses in securities. Without those capital
contributions, the adjusted annualized total returns would have been
4.67% and 5.26% for 1997 and 1995, respectively.
(b)<F10> Prior to 1996, the ratio reflects the Portfolio's share of Prime's
expenses as well as voluntary waivers of fees and expense and
reimbursements by Prime's adviser. For the years ended December 31,
1999, 1998, 1997 and 1996, the Portfolio's adviser and administrator
voluntarily waived a portion of their fees. Without these voluntary
waivers and expense reimbursements, the annualized ratios of net
investment income and expenses to average net assets would have been
as follows:
<TABLE>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of expenses to average net assets 0.93% 0.96% 0.94% 0.99% 1.16%
Ratio of net investment income to average
net assets 4.23% 4.58% 4.63% 4.63% 4.86%
</TABLE>
CLASS B RETAIL SHARES
---------------------
For the period from
December 15, 1999
(commencement of
operations) to
December 31, 1999
-----------------
(SELECTED DATA FOR EACH CLASS B RETAIL SHARE OF THE PORTFOLIO
OUTSTANDING THROUGHOUT THE PERIOD)
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income --
LESS DISTRIBUTIONS:
Dividends from net investment income --
------
NET ASSET VALUE, END OF PERIOD $ 1.00
------
------
TOTAL INVESTMENT RETURN 3.47%*<F12>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (nearest thousand) $117
Ratio of expenses to average net assets 1.39%*<F12>
Ratio of net investment income to average net assets 3.47%*<F12>
*<F12> Annualized
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
INVESTMENT ADVISOR
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
ADMINISTRATOR, DISTRIBUTOR, 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
FOR MORE INFORMATION
If you have any questions about the Portfolio or would like more
information, including a free copy of the Portfolio's Statement of Additional
Information ("SAI"), or its Annual or Semi-Annual Reports, you may call or
write Principal Preservation at:
Principal Preservation Portfolios, Inc.
215 North Main Street
West Bend, Wisconsin 53095
(800) 826-4600
The SAI, which contains more information about the Portfolio, has been
filed with the Securities and Exchange Commission ("SEC"), and is legally a
part of this prospectus. The Annual and Semi-Annual Reports, also filed with
the SEC, discuss market conditions and investment strategies that affected
the Portfolio's performance during the prior fiscal year and six-month fiscal
period, respectively.
To view these documents, along with other related documents, you can
visit the SEC's Internet website (http://www.sec.gov) or the SEC's Public
Reference Room in Washington, D.C. Information on the operation of the
Public Reference Room can be obtained by calling 1.800.SEC.0330.
Additionally, copies of this information can be obtained, for a duplicating
fee, by electronic request to E-mail address: [email protected], or by
writing the Public Reference Section of the SEC, Washington, D.C. 20549-6009.
Investment Company Act File No. 811-4401.
(PRINCIPAL PRESERVATION LOGO)
Cash Reserve Portfolio
Class Y Common Stock
(Institutional Shares)
MAY 1, 2000
PROSPECTUS
PRINCIPAL PRESERVATION
PORTFOLIOS, INC.
CASH RESERVE PORTFOLIO
CLASS Y COMMON STOCK (INSTITUTIONAL SHARES)
MINIMUM INITIAL INVESTMENT: $50,000
The Principal Preservation Cash Reserve Portfolio (the "Portfolio") is one
of a series of separate mutual fund portfolios within the Principal Preservation
Portfolios, Inc. ("Principal Preservation") family of funds. The Portfolio, a
money market fund, seeks to provide investors with a high level of current
income consistent with stability of principal and the maintenance of liquidity.
The Portfolio invests primarily in domestic money market securities with a
weighted average maturity of ninety days or less. The longest maturity will be
397 days. The Portfolio's investment advisor (the "Advisor") is Ziegler Asset
Management, Inc.
The Portfolio offers three classes of shares, Class B Common Stock and Class
X Common Stock (the "Retail Shares") and Class Y Common Stock (the
"Institutional Shares") (referred to together as the "Classes"). This
Prospectus discusses only Institutional Shares. The Portfolio's Retail Shares
are offered by a separate prospectus.
This Prospectus has information you should know before you decide to
purchase Institutional Shares of the Portfolio. Please read it carefully and
keep it with your investment records. There is a Table of Contents on the next
page which allows you to quickly find information about investment strategies,
buying and selling shares and other information about the Portfolio.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. IF ANYONE
TELLS YOU OTHERWISE THEY ARE COMMITTING A CRIME.
THE DATE OF THIS PROSPECTUS IS MAY 1, 2000.
QUICK REFERENCE
INVESTMENTS, RISKS AND PERFORMANCE SUMMARY:
INVESTMENT OBJECTIVES AND RISKS ASSOCIATED WITH THE PORTFOLIO 3
PERFORMANCE INFORMATION 3
FEES AND EXPENSES 3
ACCOUNT INFORMATION, SHAREHOLDER SERVICES AND HOW TO BUY OR SELL SHARES:
HOW TO BUY PORTFOLIO SHARES (INCLUDING SALES CHARGES AND
COMBINED PURCHASE PROGRAMS) 5
HOW TO REDEEM PORTFOLIO SHARES 7
PRINCIPAL PRESERVATION PORTFOLIOS' MANAGEMENT:
INVESTMENT ADVISOR 5
INVESTMENT, RISKS AND PERFORMANCE SUMMARY
INVESTMENT OBJECTIVE. The Cash Reserve Portfolio seeks to provide investors with
a high a level of current income consistent with the stability of principal and
the maintenance of liquidity.
PRINCIPAL INVESTMENT STRATEGIES. The Advisor's principal investment strategies
include:
o Investing in U.S. dollar-denominated money market securities, including
U.S. Government securities and repurchase agreements.
o Investing more than 25% of total assets in the financial services
industry.
o Investing in compliance with industry-standard requirements for money
market funds for the quality, maturity and diversification of
investments.
PRINCIPAL INVESTMENT RISKS. The Portfolio is subject to the following principal
investment risks:
o Interest Rate Changes. Interest rate increases can cause the price of a
money market security to decrease.
o Financial Services Exposure. Changes in government regulation or
economic downturns can have a significant negative affect on issuers in
the financial services sector. The Portfolio frequently concentrates
its investments in this sector.
o Issuer-Specific Changes. A decline in the credit quality of an issuer
or the provider of credit support or a maturity-shortening structure for
a security can cause the price of a money market security to decrease.
An investment in the Portfolio is not a deposit of a bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Portfolio seeks to preserve the value of your
investment at $1.00 per share, you could lose money by investing in the
Portfolio.
PERFORMANCE INFORMATION. The bar chart and table below provide you with
information regarding the Portfolio's annual return on its Institutional Shares.
You should bear in mind that past performance is not an indication of future
results.
The bar chart demonstrates the variability of the annual total returns of
the Portfolio for the calendar years indicated. In 1997, the Advisor made
capital contributions to the Portfolio to offset certain capital losses. The
Advisor also waived fees and/or reimbursed expenses to the Portfolio for certain
years. Without those contributions, waivers and reimbursements, the returns for
those years would have been lower.
Average Annual Total Return*<F13>
1996 5.20%
1997 5.21%
1998 5.15%
1999 4.67%
*<F13> As a percent of Average Net Assets.
HIGHEST QUARTERLY RETURN: LOWEST QUARTERLY RETURN:
1.31%, 4th Quarter 1997 1.07%, 2nd Quarter 1999
The table below shows the average annual total return on the Portfolio's
Institutional Shares for the periods presented:
PERIOD ENDED AVERAGE ANNUAL
DECEMBER 31, 1999 TOTAL RETURN
- ----------------- --------------
One Year 4.67%
Since Inception (January 1, 1996) 5.06%
The 7-day yield on the Portfolio's Institutional Shares as of December 31,
1999 was 5.15%. For current yield information, please call 1-800-826-4600.
FEES AND EXPENSES. You should carefully consider fees and expenses when
choosing a money market fund. As a shareholder, you pay the costs of operating
a fund, plus any transaction costs associated with buying, selling and
exchanging shares.
Annual fund operating expenses are expenses that a money market fund pays to
conduct its business, including investment advisory fees and the costs of
maintaining shareholder accounts, administering the fund, providing shareholder
services and other activities of the money market fund. Money market funds pay
annual operating expenses out of their assets. Therefore operating expenses
reduce your total return.
The following table describes the fees and expenses that you may pay if you
buy, hold, sell or exchange Institutional Shares of the Portfolio.
SHAREHOLDER FEES
(FEES YOU PAY DIRECTLY FROM YOUR INVESTMENT)
Sales Charge (Load) Imposed on Purchases
and Reinvested Distributions None
Redemption Fees (1)<F14> None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO ASSETS)(2)<F15>
Management Fee 0.20%
Distribution (12b-1) Fees None
Other Expenses
Administrative Service Fees 0.15%
Other Fees 0.27%
-----
Total Other Expenses 0.42%
-----
Annual Fund Operating Expenses 0.62%
-----
-----
(1)<F14> We charge investors a wire redemption fee, which is currently $12.00
per wire. Also, there is a $10.00 service fee for redemptions of less
than $250 made by check.
(2)<F15> The percentages expressing annual operating expenses are based on
amounts actually incurred during the year ended December 31, 1999.
During the year, the Advisor waived administrative fees. Giving
effect to this waiver, "Administrative Fees," "Other Expenses" and
"Annual Fund Operating Expenses" were 0.12%, 0.39% and 0.59%,
respectively. The Advisor presently plans voluntarily to waive fees
at a comparable level for the current fiscal year. However, this is a
voluntary action which the Advisor may discontinue 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 money market funds.
The example assumes that you invest $10,000 in Institutional Shares of the
Portfolio for the time periods indicated and then redeem all of your shares at
the end of those periods. The example also assumes that your investment has a 5%
return each year and that the Portfolio's operating expenses remain the same.
The example is for comparison purposes only. Actual returns and costs may be
higher or lower.
AFTER 1 YEAR AFTER 3 YEARS AFTER 5 YEARS AFTER 10 YEARS
------------ ------------- ------------- --------------
$63 $197 $341 $753
If you wish to review historical financial information about the Portfolio,
please refer to the section of this Prospectus captioned "Financial Highlights."
INVESTMENT OBJECTIVES AND STRATEGIES
INVESTMENT OBJECTIVE
The Portfolio seeks to provide investors with a high level of current income
consistent with the stability of principal and the maintenance of liquidity.
INVESTMENT STRATEGIES
To achieve its investment objective, the Portfolio invests in U.S. dollar-
denominated short-term money market obligations, including securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
certificates of deposit, time deposits, bankers' acceptances and other short-
term obligations issued by domestic banks and domestic branches and subsidiaries
of foreign banks; repurchase agreements and high quality domestic commercial
paper and other short-term corporate obligations, including those with floating
or variable rates of interest. In addition, the Portfolio may lend portfolio
securities, enter into reverse repurchase agreements and, to a limited extent,
invest in securities issued by foreign banks and corporations outside the United
States.
The Portfolio may invest more than 25% of its total assets in obligations of
domestic branches of domestic banks.
In buying and selling securities for the Portfolio, the Advisor complies
with industry-standard requirements for money market funds regarding the
quality, maturity and diversification of the fund's investments. The Advisor
stresses maintaining a stable $1.00 share price, liquidity and income.
The Board of Directors of Principal Preservation has established minimum
credit standards governing the securities that the Portfolio may purchase.
Among other requirements, the Portfolio's securities must be rated in one of the
two highest rating categories for debt obligations by at least two nationally
recognized statistical rating organizations (unless the instrument is rated by
only one such rating agency, in which case a single rating is sufficient) or, if
unrated, are determined by the Advisor to be of comparable quality under the
Board of Directors' guidelines and procedures. The Portfolio will invest at
least 95% of its total assets in securities rated in the highest category or, if
unrated, determined by the Advisor to be of comparable quality. The rating
organizations that rate the money market instruments in which the Portfolio may
invest include Moody's Investors Service, Inc., Standard & Poor's Corporation,
Duff & Phelps, Inc., Fitch Investors Service, Inc., IBCA Limited and IBCA Inc.,
and Thomson Bank Watch, Inc.
DESCRIPTION OF PRINCIPAL SECURITY TYPES
Money Market securities are high quality, short-term debt securities that
pay a fixed, variable or floating interest rate. Securities are often
specifically structured so that they are eligible investments for a money market
fund. For example, in order to satisfy the maturity restrictions for a money
market fund, some money market securities have demand or put features which have
the effect of shortening the security's maturity. Taxable money market
securities include bank certificates of deposit, bank acceptances, bank time
deposits, notes, commercial papers and U.S. Government securities.
U.S. Government securities are high-quality securities issued or guaranteed
by the U.S. Treasury or by an agency or instrumentality of the U.S. Government.
U.S. Government Securities may be backed by the full faith and credit of the
U.S. Treasury, the right to borrow from the U.S. Treasury, or the agency or
instrumentality issuing or guaranteeing the security.
A repurchase agreement is an agreement to buy a security at one price and a
simultaneous agreement to sell it back at an agreed-upon price.
INVESTMENT RISKS
Many factors affect the Portfolio's performance. The Portfolio's yield will
change daily based on changes in interest rates and other market conditions.
Although the Advisor manages the Portfolio to maintain a stable $1.00 share
price, there is no guarantee that it will be successful. For example, a major
increase in short-term interest rates or a decrease in the credit quality of the
issuer of one of the Portfolio's investments could cause the Portfolio's share
price to decrease. It is important to note that neither the Portfolio's share
prices nor its yield are guaranteed by the U.S. Government.
The following factors may significantly affect the Portfolio's performance:
INTEREST RATE CHANGES. Money market securities have varying levels of
sensitivity to changes in interest rates. In general, the price of a money
market security will fall when interest rates rise and will rise when interest
rates fall. Securities with longer maturities and the securities of issuers in
the financial services industry tend to be more sensitive to interest rate
changes. Sometimes securities have new or novel features that are designed for
specific market environments. If the structure of the security does not
function as planned, the security could decline in value. Also, the behavior of
these securities under various and changing market environments is not always
well understood. Their values can decline unexpectedly.
FINANCIAL SERVICES EXPOSURE. Financial services companies are highly dependent
on the supply of short-term financing. The value of securities of issuers in
the financial services sector can be sensitive to changes in government
regulation and interest rates and to economic downturns in the United States and
abroad.
ISSUER-SPECIFIC CHANGES. Changes in the financial condition of an issuer,
changes in specific economic or political conditions that affect a particular
type of issuer, and changes in general economic or political conditions all can
affect the credit quality or value of an issuer's securities. Entities
providing credit support or a maturity-shortening structure also can be affected
by these types of changes.
MANAGEMENT
INVESTMENT ADVISOR
Ziegler Asset Management, Inc. ("ZAMI" or the "Advisor") is the investment
Advisor for the Portfolio. In addition to the Portfolio, ZAMI serves as sub-
advisor to other portfolios within the Principal Preservation family of funds,
and privately manages numerous customer advisory accounts. On January 1, 2000,
ZAMI managed approximately $1.5 billion in assets on a discretionary basis.
B.C. Ziegler and Company ("Ziegler"), an affiliate of ZAMI, serves as
distributor, accounting/pricing agent, administrative servicing agent and
shareholder servicing agent for the Portfolio. Ziegler has been engaged in the
underwriting of debt securities for approximately 80 years. Ziegler and ZAMI
are each wholly-owned subsidiaries of The Ziegler Companies, Inc., a publicly
owned financial services holding company. Ziegler and ZAMI are each
headquartered at 215 North Main Street, West Bend, Wisconsin 53095.
ZAMI provides the Portfolio with overall investment advisory services, and
Ziegler provides administrative services and other back room operations. For
1999, the Portfolio paid $323,977 (or 0.20% of the Portfolio's average net
assets) in advisory fees. Ziegler voluntarily reimbursed $50,609 in expenses
(or 0.03% of the Portfolio's average net assets).
PURCHASING SHARES
GENERAL INFORMATION
You may buy Institutional Shares through Ziegler and selected dealers. You
also may purchase shares in connection with asset allocation programs, wrap free
programs and other programs of services offered or administered by broker-
dealers, investment advisors, financial institutions and certain other service
providers, provided the program meets certain standards established from time to
time by Ziegler.
MINIMUM PURCHASE AMOUNTS
The Portfolio has established minimum amounts that you must invest to open
an account initially, and to add to the account at later times. These minimum
investment amounts help the Portfolio control its operating expenses. The
Portfolio incurs certain fixed costs with the opening and maintaining of every
account and the acceptance of every additional investment, regardless of the
amount of the investment involved. If the Portfolio accepted and maintained
numerous small shareholder accounts and small additional investments, its
operating expense ratio would increase and its total return would decline. The
table below shows the minimum initial investment amounts and additional
investment amounts currently in effect for the Portfolio for Institutional
Shares:
MINIMUM INITIAL MINIMUM ADDITIONAL
TYPE OF INVESTOR INVESTMENT AMOUNT INVESTMENT AMOUNT
- ---------------- ----------------- -----------------
Institutional Investors $50,000 $100
METHODS FOR PURCHASING SHARES
You must pay for shares of the Portfolio in U.S. dollars and your check must
be drawn on a U.S. bank. Principal Preservation will not accept cash or
traveler's checks. If your check does not clear, we will cancel your purchase
and you will be responsible for any losses and any applicable fees. If you buy
shares by any type of check, wire transfer or automatic investment purchase, and
soon thereafter you decide to redeem your shares, we may postpone making your
redemption payment for fifteen days or until your check has cleared, whichever
is earlier. This does not limit your right to redeem shares. Rather, it
operates to make sure that payment for the shares redeemed has been received by
Principal Preservation.
We consider your order for the purchase of shares to have been received when
it is physically received by the Transfer Agent or the Distributor. The
Portfolio pays annual transfer agent fees of $16.00 per shareholder account
(subject to a monthly minimum fee of $200).
If your purchase order is received prior to 12:00 noon (Eastern Time), we
will invest it at the net asset value computed for the Portfolio on that day.
If your order is received after 12:00 noon (Eastern Time), we will invest it at
the net asset value determined for the Portfolio on the next business day.The
following describes the different ways in which you may purchase shares and the
procedures you must follow in doing so.
METHOD STEPS TO FOLLOW
- ------ ---------------
BY MAIL OR PERSONAL TO OPEN A NEW ACCOUNT:
DELIVERY 1. Complete the Account Application included in this
prospectus.
2. Make your check or money order payable to:
"Principal Preservation."
Note: The amount of your purchase must meet the
applicable minimum initial investment account.
See "Purchasing Shares - Minimum Purchase
Amounts."
Personally deliver or send 3. Personally deliver or mail the completed Account
by First Class or Express Application and your check or money order.
Mail to:
TO ADD TO AN EXISTING ACCOUNT:
1. Complete the Additional Investment form included
with your account statement. Alternatively, you
Service to: may write a note indicating your account number.
Principal Preservation 2. Make your check payable to: "Principal
c/o PFPC Global Preservation."
Fund Services 3. Personally deliver or mail the Additional
P.O. Box 60504 Investment form (or note) and your check or money
King of Prussia, PA 19406 order.
WIRE TO OPEN A NEW ACCOUNT:
Not Applicable
TO ADD TO AN EXISTING ACCOUNT:
You may purchase shares by wire provided you advise
Principal Preservation in advance. Wire funds to
Boston Safe Deposit & Trust Company, Everett, MA,
ABA #011001234, Account #044865, N/O PFPC as Agent,
F/B/O Principal Preservation Portfolios, Inc.
Wire purchase instructions must include the name of
the Portfolio, the Class of shares and your account
number.
REDEEMING SHARES
GENERAL INFORMATION
You may redeem any or all of your shares as described below on any day the
Transfer Agent is open for business. The Portfolio redeems shares at net asset
value. If your redemption order is received prior to 12:00 Noon (Eastern Time),
the redemption will be at the net asset value calculated that day. If not, you
will receive the net asset value calculated as of the next business day.
REDEMPTIONS
The following table describes different ways that you may redeem your
shares, and the steps you should follow.
METHOD STEPS TO FOLLOW
- ------ ---------------
BY TELEPHONE You may use Principal Preservation's Telephone
1-800-826-4600 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
Address to: information to the Transfer Agent:
Principal Preservation o A written request for redemption signed by the
c/o PFPC Global registered owner(s) of the shares, exactly as the
Fund Services account is registered, together with the
P.O. Box 60504 shareholder's account number;
King of Prussia,
PA 19406
o The stock 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 required
for redemptions by corporations, executors,
administrators, trustees, guardians, or other
similar entities.
The Transfer Agent will redeem shares when it has
received all necessary documents. The Transfer
Agent will notify you promptly if it cannot accept
your redemption. The Transfer Agent cannot accept
redemption requests that specify a particular date
for redemption or which specify any special
conditions.
CHECKWRITING Upon request, you will be provided with checks to be
drawn on the Portfolio ("Redemption Checks").
Redemption checks may be written for amounts up to
$500,000. There is a $10.00 service fee for each
check under $250.
RECEIVING REDEMPTION PROCEEDS
You may request to receive your redemption proceeds by mail or wire. Follow the
steps outlined below. The Transfer Agent will not send redemption proceeds
until all payments for the shares being redeemed have cleared, which may take up
to 15 days from the purchase date of the shares.
METHOD STEPS TO FOLLOW
- ------ ---------------
BY MAIL The Transfer Agent mails checks for redemption
proceeds typically within one or two days, but not
later than seven days, after it receives the request
and all necessary documents. There is no charge for
this service.
BY WIRE The Transfer Agent will normally wire redemption
proceeds to your bank the next business day after
receiving the redemption request and all necessary
documents. The signatures on any written request
for a wire redemption must be guaranteed. The
Transfer Agent currently deducts a $12.00 wire
charge from the redemption proceeds. This charge is
subject to change. You will be responsible for any
charges which your bank may make for receiving
wires.
OTHER INFORMATION ABOUT REDEMPTIONS
TELEPHONE REDEMPTIONS. By accepting the Telephone Redemption Privilege, you
authorize Principal Preservation's 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
Privilege. The Transfer Agent has implemented procedures designed to reasonably
assure that telephone instructions are genuine. These procedures include
recording telephone conversations, requesting verification of various pieces of
personal information and providing written confirmation of such transactions.
If the Transfer Agent, Principal Preservation, or any of their employees fails
to abide by these procedures, Principal Preservation may be liable to a
shareholder for losses the shareholder suffers from any resulting unauthorized
transaction(s). However, neither the Transfer Agent, Principal Preservation nor
any of their employees will be liable for losses suffered by you which result
from following telephone instructions reasonably believed to be genuine after
verification pursuant to these procedures. This service may be changed,
modified or terminated at any time. There is currently no charge for telephone
redemptions, although a charge may be imposed in the future.
SIGNATURE GUARANTEES. To protect you, the Transfer Agent and Principal
Preservation from fraud, signature guarantees are required for certain
redemptions. Signature guarantees enable the Transfer Agent to be sure that you
are the person who has authorized a redemption from your account. We require
signature guarantees for: (1) any redemptions by mail if the proceeds are to be
paid to someone else or are to be sent to an address other than your address as
shown on Principal Preservation's records; (2) any redemptions by mail 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.
CHECKWRITING. When a redemption check is presented for payment, the
Portfolio will redeem a sufficient number of full and fractional shares in your
account as of the next determined net asset value to cover the check. You will
continue to earn income dividends until a redemption check is presented for
payment. To use this method of redemption, you must complete and return the
Account Information Form, which is available from Principal Preservation.
Please do not attempt to use redemption checks to close your account. Principal
Preservation may modify or terminate this privilege at any time.
Unless otherwise authorized on the Account Information Form, redemption
checks must be signed by all account owners. If the Portfolio receives written
notice from any owner revoking another owner's authority to sign individually,
the signatures of all account owners will be required for payment on any
redemption check. Shares purchased by check may not be redeemed via redemption
check until 15 days after funds for those shares have been received. You may
not use checkwriting to redeem shares held in certificated form.
The Portfolio may refuse to honor redemption checks whenever the right of
redemption has been suspended, or if the account is otherwise impaired. A
$10.00 service fee per check will be charged if (a) a redemption check for less
than $250 is presented for payment, (b) the amount of a redemption check
presented for payment exceeds the value of the investor's account, (c) a
redemption check is presented that may not be cleared because it would require
redemption of shares purchased by check within 15 days, or (d) a stop payment is
requested.
CLOSING SMALL ACCOUNTS. If you opened an account in the Prospect Hill Prime
Money Market Fund prior to May 1, 1995 and transferred to the Portfolio in the
Reorganization, and, due to redemption, your account drops below $500 for three
months or more, the Portfolio may redeem your shares and close your account,
after giving 60 days' written notice, unless you make additional investments to
bring the account value to $1,000 or more. If your account was opened after May
1, 1995 and your account balance drops below $25,000 for three months or more,
the Portfolio may redeem your shares and close your account, after giving 60
days' written notice, unless you make additional investments to bring the
account value to $50,000 or more.
SUSPENSION OF REDEMPTIONS. Principal Preservation may suspend the right to
redeem shares of the Portfolio for any period during which: (1) the Exchange is
closed or the Securities and Exchange Commission determines that trading on the
Exchange is restricted; (2) there is an emergency as a result of which it is not
reasonably practical for the Portfolio to sell its securities or to calculate
the fair value of its net assets; or (3) the Securities and Exchange Commission
may permit for the protection of the Portfolio's shareholders.
REDEMPTIONS IN OTHER THAN CASH. It is possible that conditions may arise in
the future which would, in the opinion of the Board of Directors of Principal
Preservation, make it undesirable for the Portfolio to pay for all redemptions
in cash. In such cases, the Board may authorize the Portfolio to make
redemption payments in securities or other property of the Portfolio. However,
the Portfolio will redeem for cash all shares presented for redemption by any
one shareholder up to $250,000 (or 1% of the Portfolio's net assets if that is
less) in any 90-day period. If the Portfolio delivers any securities to you as
payment of a redemption, we will value the securities at the same price assigned
to them in computing the Portfolio's net asset value per share. You would incur
brokerage costs when you sell any securities that the Portfolio distributes to
you in this fashion.
OTHER INFORMATION
DETERMINATION OF NET ASSET VALUE PER SHARE
The Portfolio sells its shares at their net asset value per share. We
determine the net asset value per share daily by adding up the total value of
the Portfolio's investments and other assets and subtracting any of its
liabilities, or debts, and then dividing by the number of outstanding shares of
the Portfolio. For this purpose, the Portfolio values its securities at
amortized cost in accordance with procedures set forth in Rule 2a-7 of the 1940
Act and policies and guidelines adopted by Principal Preservation's Board of
Directors. The net asset value per share is calculated each business day,
Monday through Friday, except on customary national business holidays which
result in closing of the New York Stock Exchange (the "Exchange"). The
calculation is as of 12:00 noon (Eastern Time) on each business day.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND REINVESTMENTS
The Portfolio earns interest, dividends and other income from its
investments, and distributes this income (less expenses) to shareholders as
dividends. The Portfolio may also realize capital gains from its investments,
and distributes these gains (less losses), if any, to shareholders as capital
gains distributions. Distributions you receive from the Portfolio consist
primarily of dividends. The Portfolio normally declares dividends daily and
pays them monthly. Dividends may be taken in cash or additional shares at net
asset value. Unless you have elected in writing to the Transfer Agent to
receive dividends and capital gain distributions in cash, the Portfolio
automatically will reinvest your dividends in additional shares of the
Portfolio.
Capital gains distributions, if any, in the Portfolio will be declared
annually and normally will be paid within 45 days after the end of the fiscal
year.
TAX CONSEQUENCES
Distributions you receive from the Portfolio are subject to federal income
tax, and may also be subject to state or local taxes. The dividends that the
Portfolio pays from its taxable net investment income and the distributions that
the Portfolio makes from its net realized short-term capital gains generally
will be taxable to you as ordinary income. This is true whether you elect to
receive your dividends and distributions in cash or in additional shares of the
Portfolio. The Portfolio does not expect that it will have any long-term
capital gains, and thus does not contemplate paying distributions that would be
taxable to you as long-term capital gains.
The Portfolio will mail statements to shareholders annually regarding the
tax status of its dividends and distributions, if any. You should consult your
own tax adviser to assess the consequences of investing in the Portfolio under
tax laws applicable to you. In particular, because the Portfolio invests a
significant portion of its assets from time to time in U.S. Government
securities, you should ascertain the status under state and local laws of
dividends that the Portfolio pays to you which represent interest that the
Portfolio earns on its U.S. Government securities.
Any taxable distributions you receive from the Portfolio will normally be
taxable to you when you receive them, regardless of your distribution option.
However, distributions declared in December and paid in January each year are
taxable as if paid on December 31 of the earlier year.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Portfolio's financial performance for the period of the Portfolio's operations.
Certain information reflects financial results for a single Institutional Share
of the Portfolio. The total returns in the table represent the rate that an
investor would have earned (or lost) on an investment in the Portfolio (assuming
reinvestment of all dividends and distributions). This information has been
audited by Arthur Andersen LLP, whose report, along with the Portfolio's
financial statements, is included in the Annual Report to Shareholders. The
Annual Report is available upon request.
<TABLE>
CASH RESERVE PORTFOLIO
CLASS Y SHARES (INSTITUTIONAL SHARES)
---------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------
1999 1998 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
(Selected data for each Institutional Share of the Portfolio
outstanding throughout the periods)
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- -------
Income from investment operations:
Net investment income 0.05 0.05 0.05 0.05
Less distributions:
Dividends from net investment income (0.05) (0.05) (0.05) (0.05)
------- ------- ------- -------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- -------
------- ------- ------- -------
Total investment return (a)<F16> 4.67% 5.15% 5.21% 5.20%
Ratios/Supplemental Data:
Net assets, end of period (nearest thousand) $10,536 $19,889 $33,057 $35,120
Ratio of expenses to average net assets (b)<F17> 0.58% 0.48% 0.45% 0.34%
Capital contribution(a)<F16> -- -- 0.17% --
Ratio of net investment income to average net assets (b)<F17> 4.54% 5.06% 5.10% 4.95%
(a)<F16> During 1997, the adviser made capital contributions to offset losses in securities. Had the adviser not made capital
contributions, the adjusted total return would have been 5.04%.
(b)<F17> For the years ended December 31, 1999, 1998, 1997 and 1996, respectively, the adviser and administrator voluntarily waived
a portion of their fees. Without these voluntary waivers, the annualized ratios would have been as follows:
Ratio of expenses to average net assets 0.62% 0.55% 0.54% 0.54%
Ratio of net investment income to average net assets 4.50% 4.99% 5.01% 4.75%
</TABLE>
If you have any questions about the Portfolio or would like more
information, including a free copy of the Portfolio's Statement of Additional
Information ("SAI"), or its Annual or Semi-Annual Reports, you may call or write
Principal Preservation at:
Principal Preservation Portfolios, Inc.
215 North Main Street
West Bend, Wisconsin 53095
(800) 826-4600
The SAI, which contains more information about the Portfolio, has been filed
with the Securities and Exchange Commission ("SEC"), and is legally a part of
this prospectus. The Annual and Semi-Annual Reports, also filed with the SEC,
discuss market conditions and investment strategies that affected the
Portfolio's performance during the prior fiscal year and six-month fiscal
period, respectively.
To view these documents, along with other related documents, you can visit
the SEC's Internet website (http://www.sec.gov) or the SEC's Public Reference
Room in Washington, D.C. Information on the operation of the Public Reference
Room can be obtained by calling 1.800.SEC.0330. Additionally, copies of this
information can be obtained, for a duplicating fee, by electronic request to E-
mail address: [email protected], or by writing the Public Reference Section of
the SEC, Washington, D.C. 20549-6009.
Investment Company Act File No. 811-4401.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
INVESTMENT ADVISOR
ZIEGLER ASSET MANAGEMENT, INC.
215 North Main Street
West Bend, Wisconsin 53095
ADMINISTRATOR, 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, Wisconsin 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
PP 207-5/00
STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 2000
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
CASH RESERVE PORTFOLIO
CLASS X COMMON STOCK (RETAIL SHARES)
CLASS B COMMON STOCK (RETAIL SHARES)
CLASS Y COMMON STOCK (INSTITUTIONAL SHARES)
215 North Main Street
West Bend, Wisconsin 53095
800-826-4600
This Statement of Additional Information and the separate Prospectuses to
which it relates describe the Class X Common Stock, Class B Common Stock and
Class Y Common Stock (referred to together as the "Classes") of the Principal
Preservation Cash Reserve Portfolio (the "Portfolio"), one of several separate
mutual fund portfolios within the Principal Preservation Portfolios, Inc.
("Principal Preservation") family of funds.
The Portfolio seeks to obtain high current income consistent with stability
of principal and the maintenance of liquidity.
You may obtain a Prospectus describing the Portfolio's Class X Common Stock
and Class B Common Stock (together the "Retail Shares") or a separate Prospectus
describing Class Y Common Stock ("Institutional Shares") from B.C. Ziegler and
Company ("Ziegler" or the "Distributor"), 215 North Main Street, West Bend,
Wisconsin 53095, telephone 800-826-4600, or from Selected Dealers (see the
relevant Prospectus dated May 1, 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 relevant Prospectus.
This Statement of Additional Information provides details about the Portfolio
that are not required to be included in the Prospectuses, and should be viewed
as a supplement to, and not as a substitute for, the Prospectuses. Capitalized
terms not otherwise defined in this Statement of Additional Information have the
meanings ascribed to them in the relevant Prospectus.
The financial statements of the Portfolio and the report of the independent
auditor thereon are incorporated by reference into this Statement of Additional
Information from the Portfolio's Annual Report to Shareholders for the year
ended December 31, 1999. See "Financial Statements."
TABLE OF CONTENTS
PAGE
----
STATEMENT OF ADDITIONAL INFORMATION 1
FUND HISTORY AND CAPITAL STOCK 3
INVESTMENT PROGRAM 5
INVESTMENT RESTRICTIONS 10
PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES 13
MANAGEMENT OF PRINCIPAL PRESERVATION 14
PERFORMANCE INFORMATION 21
DETERMINATION OF NET ASSET VALUE PER SHARE; VALUATION OF
SECURITIES; REDEMPTION IN KIND 22
PURCHASE OF SHARES 24
TAX STATUS 24
RETAIL SHARE DISTRIBUTION EXPENSES 27
COUNSEL AND INDEPENDENT ACCOUNTANTS 30
EXPERTS 30
FINANCIAL STATEMENTS 30
APPENDIX A-1
FUND HISTORY AND CAPITAL STOCK
Principal Preservation is a diversified, open-end, management investment
company. It was organized in 1984 as a Maryland corporation. The Board of
Directors of Principal Preservation may authorize the issuance of additional
series and, within each series, individual classes, and may increase or
decrease the number of shares in each series or class.
Prior to January 1, 1996, the Cash Reserve Portfolio, which was established
in 1993, and the Prospect Hill Prime Money Market Fund comprised the two spokes
of a Hub and Spoke money market complex. The Cash Reserve Portfolio consisted of
a single class of common stock and operated as a retail spoke of the money
market complex. The Prospect Hill Prime Money Market Fund, which was operated as
a separate series of Prospect Hill Trust, a series open-end management
investment company organized as a Massachusetts business trust, was an
institutional money market fund and served as the institutional spoke in the
complex. In the Hub and Spoke structure, the Cash Reserve Portfolio and the
Prospect Hill Prime Money Market Fund invested all of their investable assets in
the Prime Money Market Portfolio, a series of The Prime Portfolios. Ziegler
Asset Management, Inc., the Portfolio's current Advisor, managed the investment
and reinvestment of the assets held in the Prime Money Market Portfolio.
Effective January 1, 1996 the Portfolio was recapitalized with two classes
of stock, Class X Common Stock and Class Y Common Stock. At that time each
outstanding share of Cash Reserve Portfolio's original class of common stock was
redesignated (without otherwise affecting the rights and privileges appertaining
thereto) as a share of Class X Common Stock, and shares of Class Y Common Stock
were issued in exchange for the outstanding shares of the Prospect Hill Prime
Money Market Fund. The Portfolio first began offering shares of Class B Common
Stock on December 15, 1999.
The authorized common stock of Principal Preservation consists of one
billion shares, with a par value of $.001 per share. Shares of Principal
Preservation are divided into nine mutual fund series, each with distinct
investment objectives, policies and strategies. In addition to the Portfolio
described in this Statement of Additional Information, Principal Preservation
also offers shares of the Tax-Exempt Portfolio, Government Portfolio, S&P 100
Plus Portfolio, Dividend Achievers Portfolio, Select Value Portfolio, PSE Tech
100 Index Portfolio, Managed Growth Portfolio and the Wisconsin Tax-Exempt
Portfolio through separate prospectuses. The Tax-Exempt and Wisconsin Tax-
Exempt Portfolios offer only Class A shares (front-end sales charge). The
Government Portfolio offers Class A shares and Class C shares (a combination of
front-end and contingent deferred sales charge). Shares of the S&P 100 Plus,
Dividend Achievers, Select Value, PS Tech 100 Index and Managed Growth
Portfolios are divided into three separate classes; namely, Class A shares,
Class B shares (contingent deferred sales charge) and Class C shares. As noted
above, shares of the Cash Reserve Portfolio are divided into three classes, two
classes of Retail Shares and a class of Institutional Shares.
Each share of each series of Principal Preservation is entitled to one vote
on each matter presented to shareholders. All shares of Principal Preservation
vote together on any matter that affects all shareholders uniformly, such as the
election of directors. On matters that affect an individual series (such as
approval of advisory or sub-advisory contracts and changes in fundamental
policies of that series) a separate vote of the shareholders of that series is
required, and the matter must be approved by the requisite vote of the
shareholders of that series. On matters that uniquely affect a particular class
of shares within a series (such as an increase in 12b-1 fees for that class),
the shareholders of that class vote separately on the matter and the matter must
be approved by the requisite vote of the shareholders of that class. Shares of a
series or class are not entitled to vote on any matter that does not affect the
particular series or class.
Each share of the Cash Reserve Portfolio is entitled to participate pro
rata in any dividends or other distributions declared by the Board of Directors
of Principal Preservation with respect to the Portfolio, and all shares of the
Portfolio have equal rights in the event of a liquidation of the Portfolio.
Shares of both Retail Classes and the Institutional Class are redeemable at net
asset value, at the option of the shareholder. Shares have no preemptive,
subscription or conversion rights and are freely transferable. Shares can be
issued as full shares or fractions of shares. A fraction of a share has the
same kind of rights and privileges within the class as full shares in that
class. Shares do not have cumulative voting rights.
The phrase "majority vote" of the outstanding shares of a class, Portfolio
or Principal Preservation means the vote of the lesser of: (1) 67% of the shares
of the class, Portfolio or Principal Preservation, as the case may be, present
at the meeting if the holders of more than 50% of the outstanding shares are
present in person or by proxy; or (2) more than 50% of the outstanding shares of
the class, Portfolio or Principal Preservation, as the case may be.
As a Maryland corporation, Principal Preservation is not required to hold,
and in the future does not plan to hold, annual shareholder meetings unless
required by law or deemed appropriate by the Board of Directors. However,
special meetings may be called for purposes such as electing or removing
Directors, changing fundamental policies or approving an investment advisory
contract.
INVESTMENT PROGRAM
As described above and in the Prospectuses for the Retail Shares and
Institutional Shares, the Portfolio is designed to provide investors with
current income. The Portfolio is not intended to constitute a balanced
investment program and is not designed for investors seeking capital gains or
maximum income irrespective of fluctuations in principal.
The following information supplements and should be read in conjunction
-----------------------------------------------------------------------
with the sections in the Prospectuses entitled "Investment, Risks and
- ---------------------------------------------------------------------
Performance Summary."
- ---------------------
Bank Obligations. Domestic commercial banks organized under Federal law
are supervised and examined by the Comptroller of the Currency and are required
to be members of the Federal Reserve System. Domestic banks organized under
state law are supervised and examined by state banking authorities and are
members of the Federal Reserve System only if they elect to join. In addition,
state banks are subject to Federal examination and to a substantial body of
Federal law and regulation. As a result of Federal or state laws and
regulations, domestic banks, among other things, generally are required to
maintain specified levels of reserves, are limited in the amounts which they can
loan to a single borrower, and are subject to other regulations designed to
promote financial soundness. However, not all of such laws and regulations
apply to the foreign branches of domestic banks.
Obligations of foreign branches and subsidiaries of domestic banks and
domestic and foreign branches of foreign banks, such as CDs and time deposits
("TDs"), may be general obligations of the parent banks in addition to the
issuing branch, or may be limited by the terms of a specific obligation and
governmental regulation. Such obligations are subject to different risks than
are those of domestic banks. These risks include foreign economic and political
developments, foreign governmental restrictions that may adversely affect
payment of principal and interest on the obligations, foreign exchange controls
and foreign withholding and other taxes on interest income. These foreign
branches and subsidiaries are not necessarily subject to the same or similar
regulatory requirements that apply to domestic banks, such as mandatory reserve
requirements, loan limitations, and accounting, auditing and financial record
keeping requirements. In addition, less information may be publicly available
about a foreign branch of a domestic bank or about a foreign bank than about a
domestic bank.
Obligations of United States branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by Federal or state regulation
as well as governmental action in the country in which the foreign bank has its
head office. A domestic branch of a foreign bank with assets in excess of $1
billion may be subject to reserve requirements imposed by the Federal Reserve
System or by the state in which the branch is located if the branch is licensed
in that state.
In addition, branches licensed by the Comptroller of the Currency and
branches licensed by certain states may be required to: (1) pledge to the
regulator, by depositing assets with a designated bank within the state, a
certain percentage of their assets as fixed from time to time by the appropriate
regulatory authority; and (2) maintain assets within the state in an amount
equal to a specified percentage of the aggregate amount of liabilities of the
foreign bank payable at or through all of its agencies or branches within the
state.
In view of the foregoing factors associated with the purchase of CDs and
TDs issued by foreign branches of domestic banks, by foreign subsidiaries of
domestic banks, by foreign branches of foreign banks or by domestic branches of
foreign banks, the Advisor carefully evaluates such investments on a case-by-
case basis.
Commercial Paper. The Portfolio may invest in commercial paper issued by
major corporations in reliance on the exemption from registration afforded by
Section 3(a)(3) under the Securities Act of 1933, as amended (the "1933 Act").
Such commercial paper may be issued only to finance current transactions and
must mature in nine months or less. Trading of such commercial paper is
conducted primarily by institutional investors through investment dealers, and
individual investor participation in the commercial paper market is very
limited. Such commercial paper generally can be readily traded in secondary
trading markets among qualified institutional buyers without registration
pursuant to the conditions of Rule 144A under the 1933 Act.
The Portfolio also may invest in commercial paper in reliance on the so-
called "private placement" exemption from registration which is afforded by
Section 4(2) of the 1933 Act ("Section 4(2) paper"). Section 4(2) paper is
restricted as to disposition under the 1933 Act and generally is sold to
institutional investors who agree that they are purchasing the paper for
investment and not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) paper normally is
resold to other institutional investors through or with the assistance of the
issuer or investment dealers who make a market in the paper, thus providing
liquidity.
The Advisor considers the legally restricted but readily saleable Section
4(2) and Rule 144A paper to be liquid. However, pursuant to procedures approved
by the Board of Directors of Principal Preservation, if a particular investment
in Section 4(2) or Rule 144A paper is not determined to be liquid, that
investment will be included within the 10% limitation on illiquid securities.
The Advisor monitors the liquidity of the Portfolio's investments in Section
4(2) and Rule 144A paper on a continuous basis.
Variable Rate and Floating Rate Demand Securities. The Portfolio may
purchase floating and variable rate demand notes and bonds, which are
obligations ordinarily having stated maturities in excess of 397 days, but which
permit the holder to demand payment of principal at any time, or at specified
intervals not exceeding 397 days, in each case upon not more than 30 days'
notice. Variable rate demand notes include master demand notes which are
obligations that permit the Portfolio to invest fluctuating amounts, which may
change daily without penalty, pursuant to direct arrangements between the
Portfolio, as lender, and the borrower. The interest rates on these notes
fluctuate from time to time. The issuer of such obligations normally has a
corresponding right, after a given period, to prepay in its discretion the
outstanding principal amount of the obligations plus accrued interest upon a
specified number of days' notice to the holders of such obligations. The
interest rate on a floating rate demand obligation is based on a known lending
rate, such as a bank's prime rate, and is adjusted automatically each time such
rate is adjusted. The interest rate on a variable rate demand obligation is
adjusted automatically at specified intervals. Frequently, such obligations are
secured by letters of credit or other credit support arrangements provided by
banks. Because these obligations are direct lending arrangements between the
lender and borrower, it is not contemplated that such instruments generally will
be traded, and there generally is no established secondary market for these
obligations, although they are redeemable at face value. Accordingly, where
these obligations are not secured by letters of credit or other credit support
arrangements, the Portfolio's right to redeem is dependent on the ability of the
borrower to pay principal and interest on demand.
Such obligations frequently are not rated by credit rating agencies and the
Portfolio may invest in obligations which are not so rated only if the Advisor
determines that at the time of investment the obligations are of comparable
quality to the other obligations in which the Portfolio may invest. The
Advisor, on behalf of the Portfolio, will consider on an ongoing basis the
creditworthiness of the issuers of the floating and variable rate demand
obligations held by the Portfolio. The Portfolio will not invest more than 10%
of the value of its net assets in floating or variable rate demand obligations
as to which it cannot exercise the demand feature on not more than seven days'
notice if there is no secondary market available for these obligations, and in
other securities that are not readily marketable. See "Investment Restrictions"
below.
Unsecured Promissory Notes. The Portfolio also may purchase unsecured
promissory notes ("Notes") which are not readily marketable and have not been
registered under the 1933 Act, provided such investments are consistent with the
Portfolio's investment objective. The Notes purchased by the Portfolio will
have remaining maturities of 13 months or less, must be deemed under policies
adopted by the Board of Directors of Principal Preservation to present minimal
credit risks and will meet the quality criteria set forth in the Prospectus
under "Investment Policies." The Portfolio will invest no more than 10% of its
net assets in such Notes and in other securities that are not readily marketable
(which securities would include floating and variable rate demand obligations as
to which the Portfolio cannot exercise the demand feature described above and as
to which there is no secondary market). See "Investment Restrictions" below.
Participation Interests. The Portfolio may purchase from financial
institutions participation interests in securities in which the Portfolio may
invest. A participation interest gives the Portfolio an undivided interest in
the security in the proportion that the Portfolio's participation interest bears
to the total principal amount of the security. These instruments may have
fixed, floating or variable rates of interest, with remaining maturities of 13
months or less. If the participation interest is unrated, or has been given a
rating below that which is permissible for purchase by the Portfolio, the
participation interest will be backed by an irrevocable letter of credit or
guarantee of a bank, or the payment obligation otherwise will be collateralized
by U.S. Government securities, or, in the case of unrated participation
interests, the Advisor must have determined that the instrument is of comparable
quality to those instruments in which the Portfolio may invest. For certain
participation interests, the Portfolio will have the right to demand payment, on
not more than seven days' notice, for all or any part of the Portfolio's
participation interest in the security, plus accrued interest. As to these
instruments, the Portfolio intends to exercise its right to demand payment only
upon a default under the terms of the security, as needed to provide liquidity
to meet redemptions, or to maintain or improve the quality of its investment
portfolio. The Portfolio will not invest more than 10% of its net assets in
participation interests that do not have this demand feature, and in other
securities that are not readily marketable. See "Investment Restrictions"
below.
Lending of Portfolio Securities. To a limited extent, the Portfolio may
lend its portfolio securities to brokers, dealers and other institutional
investors, provided it receives cash collateral which at all times is maintained
in an amount equal to at least 100% of the current market value of the
securities loaned. By lending its portfolio securities, the Portfolio can
increase its income through the investment of the cash collateral. For the
purposes of this policy, the Portfolio considers collateral consisting of U.S.
Government securities or irrevocable letters of credit issued by banks whose
securities meet the standards for investment by the Portfolio to be the
equivalent of cash. Such loans may not exceed 33 1/3% of the value of the
Portfolio's total assets. From time to time, the Portfolio may return to the
borrower and/or a third party which is unaffiliated with the Portfolio, and
which is acting as a "placing broker," a part of the interest earned from the
investment of collateral received for securities loaned.
The Securities and Exchange Commission (the "SEC") currently requires that
the following conditions must be met whenever portfolio securities are loaned:
(1) the Portfolio must receive at least 100% cash collateral from the borrower;
(2) the borrower must increase such collateral whenever the market value of the
securities rises above the level of such collateral; (3) the Portfolio must be
able to terminate the loan at any time; (4) the Portfolio must receive
reasonable interest on the loan, as well as any interest or other distributions
on the loaned securities, and any increase in market value; and (5) the
Portfolio may pay only reasonable custodian fees in connection with the loan.
These conditions may be subject to future modification.
Foreign Securities. The Portfolio may invest no more than 5% of its total
assets in foreign securities, including U.S. dollar-denominated obligations of
foreign branches and subsidiaries of domestic banks and foreign banks, such as
Eurodollar certificates of deposit, which are U.S. dollar-denominated
certificates of deposit issued by branches of foreign and domestic banks located
outside the United States, and Yankee CDs, which are certificates of deposit
issued by a U.S. branch of a foreign bank denominated in U.S. dollars and held
in the United States; Eurodollar time deposits ("ETDs"), which are U.S. dollar-
denominated deposits in a foreign branch of a foreign or domestic bank, and
Canadian time deposits, which are essentially the same as ETDs except they are
issued by branches of major Canadian banks; high quality, U.S. dollar-
denominated short-term bonds and notes (including variable amount master demand
notes) issued by foreign corporations, including Canadian commercial paper,
which is commercial paper issued by a Canadian corporation or a Canadian
counterpart of a U.S. corporation, and Europaper, which is U.S. dollar-
denominated commercial paper of a foreign issuer; and U.S. dollar-denominated
obligations issued or guaranteed by one or more foreign governments or any of
their political subdivisions, agencies or instrumentalities that are determined
by the Advisor to be of comparable quality to the other obligations in which the
Portfolio may invest. Such securities also include debt obligations of
supranational entities. Supranational entities include international
organizations designated or supported by governmental entities to promote
economic reconstruction or development and international banking institutions
and related government agencies. Examples include the International Bank for
Reconstruction and Development (the World Bank), the European Coal and Steel
Community, the Asian Development Bank and the InterAmerican Development Bank.
The Portfolio may be subject to investment risks with respect to foreign
securities that are different in some respects from those incurred by a fund
which invests only in debt obligations of U.S. domestic issuers, although such
obligations may be higher yielding when compared to the securities of U.S.
domestic issuers. In making foreign investments, therefore, the Portfolio will
give appropriate consideration to the following factors, among others.
Foreign securities markets generally are not as developed or efficient as
those in the United States. Securities of some foreign issuers are less liquid
and more volatile than securities of comparable U.S. issuers. Similarly, volume
and liquidity in most foreign securities markets are less than in the United
States and, at times, volatility of price can be greater than in the United
States. The issuers of some of these securities, such as bank obligations, may
be subject to less stringent or different regulation than are U.S. issuers. In
addition, there may be less publicly available information about a non-U.S.
issuer, and non-U.S. issuers generally are not subject to uniform accounting and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. issuers.
Because evidences of ownership of such securities usually are held outside
the United States, the Portfolio will be subject to additional risks which
include possible adverse political and economic developments, possible seizure
or nationalization of foreign deposits and possible adoption of governmental
restrictions which might adversely affect the payment of principal and interest
on the foreign securities or might restrict the payment of principal and
interest to investors located outside the country of the issuer, whether from
currency blockage or otherwise.
Furthermore, some of these securities are subject to brokerage taxes levied
by foreign governments, which have the effect of increasing the cost of such
investment and reducing the realized gain or increasing the realized loss on
such securities at the time of sale. Income earned or received by the Portfolio
from sources within foreign countries may be reduced by withholding and other
taxes imposed by such countries. Tax conventions between certain countries and
the United States, however, may reduce or eliminate such taxes. All such taxes
paid by the Portfolio will reduce its net income available for distribution to
its investors (e.g., the Retail Class). In selecting foreign securities, the
----
Advisor will consider available yields, and any applicable taxes. All such
investments will be U.S. dollar denominated.
Investments In Other Investment Companies. An investment by the Portfolio
in other investment companies - which is limited by fundamental investment
restriction (13) below - may cause the Portfolio to incur increased costs of
administration and distribution expenses.
Securities Rating Criteria. A description of the characteristics and
criteria of the various securities ratings used by several nationally recognized
securities rating organizations is included in Appendix A attached to this
Statement of Additional Information.
INVESTMENT RESTRICTIONS
The following restrictions, which are a matter of "fundamental policy," may
not be changed with respect to the Portfolio without the approval of a "majority
of the outstanding voting securities" of the Portfolio, which, under the
Investment Company Act of 1940 (the "1940 Act") and the rules thereunder and as
used in this Statement of Additional Information and the Prospectus, means, with
respect to the Portfolio, the lesser of (i) 67% or more of the outstanding
voting securities of the Portfolio present at a meeting, if the holders of more
than 50% of the outstanding voting securities of the Portfolio are present or
represented by proxy, or (ii) more than 50% of the outstanding voting securities
of the Portfolio.
As a matter of fundamental policy, the Portfolio may not:
1. Issue senior securities.
2. Borrow money, except from banks or through repurchase agreements for
temporary or emergency (not leveraging) purposes in an amount up to 33 1/3% of
the value of the Portfolio's total assets (including the amount borrowed), less
liabilities (not including the amount borrowed) at the time the borrowing is
made. While borrowings exceed 5% of the value of the Portfolio's total assets,
the Portfolio will not make any additional investments.
3. Pledge, hypothecate, mortgage or otherwise encumber its assets, except
(i) to secure borrowings for temporary or emergency purposes and (ii) in
connection with the purchase of securities on a forward commitment basis and the
entry into reverse repurchase agreements or for similar transactions.
4. Invest in puts, calls, straddles, spreads or any combination thereof
if, by reason of such investment, the value of the Portfolio's investments in
all such classes of securities would exceed 5% of the Portfolio's total assets.
5. Sell securities short or purchase securities on margin.
6. Act as underwriter of securities of other issuers, except insofar as
the Portfolio may be deemed an underwriter in connection with the disposition of
a portfolio security.
7. Enter into repurchase agreements providing for settlement in more than
seven days after notice or purchase securities which are not readily marketable
(which securities would include participation interests that are not subject to
the demand feature described in the then-current Prospectus and floating and
variable rate demand obligations as to which no secondary market exists and the
Portfolio cannot exercise the demand feature described in the then-current
Prospectus on not more than seven days' notice), if, in the aggregate, more than
10% of its net assets would be so invested. The Portfolio may not invest in
time deposits maturing in more than seven days.
8. Purchase or sell real estate, real estate investment trust securities,
commodities, or oil and gas interests, except for any of the foregoing acquired
as a result of ownership of another portfolio or security.
9. Make short-term loans to others, except through the purchase of debt
obligations and through repurchase agreements referred to in the Prospectus, and
except that the Portfolio may lend its portfolio securities in an amount not to
exceed 33 1/3% of the value of its total assets. Any loans of portfolio
securities will be made according to guidelines established by the SEC and the
Board of Directors.
10. Invest more than 5% of its assets in the obligations of any other
issuer, except that up to 25% of the value of the Portfolio's total assets may
be invested without regard to any such limitations. Notwithstanding the
foregoing, to the extent required by the rules of the SEC, the Portfolio will
not invest more than 5% of its assets in the obligations of any one bank.
11. Invest more than 25% of its assets in the securities of issuers in any
industry other than banking, provided that there shall be no limitation on the
purchase of obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
12. Invest in companies for the purpose of exercising control.
13. Purchase securities of other investment companies if the purchase
would cause more than 10% of the value of the total assets of the Portfolio, as
the case may be, to be invested in investment company securities, provided that:
(i) the Portfolio will not make any investment in the securities of any single
investment company if, immediately after such investment, more than 3% of the
outstanding voting securities of such investment company would be owned by the
Portfolio, or more than 5% of the value of the total assets of the Portfolio,
would be invested in such investment company; and (ii) no such restrictions
shall apply to a purchase by the Portfolio of investment company securities as a
part of a merger, consolidation, acquisition of assets or reorganization.
14. Purchase securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, or
purchase equity securities of issuers which are not readily marketable if, by
reason thereof, the value of the Portfolio's aggregate investment in all classes
of such securities will exceed 5% of its total assets.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values or
assets will not constitute a violation of that restriction.
Principal Preservation may make commitments more restrictive than the
restrictions listed above so as to permit the sale of Portfolio shares in
certain states. In the event that, once such a commitment is made, the state
restrictions with respect to which the commitment was made are modified or
repealed, Principal Preservation reserves the right to correspondingly modify or
revoke the commitment; provided no such action on the part of Principal
Preservation may result in an investment restriction that is less restrictive
than restrictions 1-14 above. Should Principal Preservation determine that,
once made, any such commitment is no longer in the best interests of Portfolio
and its shareholders, Principal Preservation reserves the right to revoke the
commitment by terminating the sale of Portfolio shares in the state involved.
PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES
Subject to the general supervision of the Directors, the Advisor is
responsible for decisions to buy and sell securities for the Portfolio, the
selection of brokers and dealers to effect the transactions, and the negotiation
of brokerage commissions, if any. Purchases and sales of securities on a stock
exchange are effected through brokers who charge a commission for their
services. In the over-the-counter market, securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission, although the price of the security usually includes a profit
to the dealer. The Portfolio also expects that securities will be purchased at
times in underwritten offerings where the price includes a fixed amount of
compensation, generally referred to as the underwriter's concession or discount.
On occasion, the Portfolio may also purchase certain money market instruments
directly from an issuer, in which case no commission or discounts are paid.
The Advisor currently serves as investment manager to a number of clients,
and may in the future act as investment manager or advisor to others, including
other registered investment companies. It is the practice of the Advisor to
allocate purchase and sale transactions among the Portfolio and others whose
assets it manages in such manner as it deems equitable. In making such
allocations the Advisor considers the respective investment objectives, the
relative size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments
generally held and opinions of the persons responsible for managing the
Portfolio and other client accounts.
The Advisor gives primary consideration to obtaining the most favorable
prices and efficient executions of transactions. Consistent with this policy,
when securities transactions are effected on a stock exchange, the Advisor
assures that commissions are fair and reasonable, but does not necessarily seek
the lowest possible commissions in all circumstances. The Advisor believes that
a requirement always to seek the lowest possible commission could impede
effective portfolio management and preclude the Portfolio and the Advisor from
obtaining high quality execution and research services. In seeking to determine
the reasonableness of brokerage commissions paid in any transactions, the
Advisor relies upon its experience and knowledge regarding commissions generally
charged by various brokers and on its judgment in evaluating the brokerage and
research services received from the broker effecting the transaction. Such
determinations are necessarily subjective and imprecise, as in most cases an
exact dollar value for the services is not ascertainable. In transactions
effected with a dealer, acting as principal, who furnishes research services to
the Advisor, the Advisor will not purchase securities for the Portfolio at a
higher price, or sell securities at a lower price, than would be the case if the
dealer had not furnished such services.
In seeking to implement the Portfolio's policies, the Advisor effects
transactions with those brokers and dealers whom the Advisor believes provide
the most favorable prices and are capable of providing efficient executions. If
the Advisor believes such prices and executions are obtainable from more than
one broker or dealer, it may give consideration to placing portfolio
transactions with those brokers and dealers who also furnish research and other
services to the Portfolio or the Advisor. Such services include, but are not
limited to, information as to the availability of securities for purchase or
sale, statistical or factual information or opinions pertaining to investment,
wire services, and appraisals or evaluation of portfolio securities.
The information and services received by the Advisor from brokers and
dealers may be of benefit to the Advisor in the management of accounts of some
of its other clients and may not in all cases benefit the Portfolio directly.
While the receipt of such information and services is useful in varying degrees
and would generally reduce the amount of research or services otherwise
performed by the Advisor and thereby reduce its expenses, it is of
indeterminable value and the Portfolio does not reduce the management fee it
pays to the Advisor by any amount that may be attributable to the value of such
services.
During the last three years, the Portfolio paid no brokerage commissions.
MANAGEMENT OF PRINCIPAL PRESERVATION
The Directors and officers of Principal Preservation and their principal
occupations during the past five years are set forth below. Their titles may
have varied during that period. Asterisks indicate those Directors of Principal
Preservation who are "interested persons" (as defined in the 1940 Act) of
Principal Preservation. Unless otherwise indicated, the address of each
Director and officer of Principal Preservation is 215 North Main Street, West
Bend, Wisconsin 53095.
POSITION WITH PRINCIPAL
PRINCIPAL OCCUPATION DURING
NAME, AGE AND ADDRESS PRESERVATION PAST FIVE YEARS
- --------------------- ------------ ---------------
Robert J. Tuszynski,* 41 President and Managing Director, Ziegler
Director Investment Group, B.C. Ziegler
and Company since 1999; prior
thereto, Senior Vice President,
B.C. Ziegler and Company, from
1996 to 1999; prior thereto,
Vice President, Director of
Mutual Funds, B.C. Ziegler and
Company from 1987 to 1996;
Trustee, Chairman of the
Board and President, Prospect
Hill Trust and The Prime
Portfolios (registered
investment companies) from
1994 to 1996.
Richard H. Aster, M.D., 69 Director Since June, 1996, Senior
8727 W. Watertown Plank Rd. Investigator and Professor of
Milwaukee, WI 53226 Medicine, Medical College of
Wisconsin; prior thereto,
President and Director of
Research, The Blood Center of
Southeastern Wisconsin, Inc.
Augustine J. English, 70 Director Retired; President,
1724 Lake Roberts Court Tupperware North America from
Windermere, FL 34786 1990 to 1994 (manufacturing);
prior to 1990, President, The
West Bend Company
(manufacturing), a division
of Dart Industries, a
subsidiary of Premark
International, Inc., of which
Mr. English was a Group Vice
President.
Ralph J. Eckert, 71 Director Formerly Chairman Emeritus and
2059 Keystone Ranch Road Director, Trustmark Insurance
Dillon, CO 80435 Cos. (Mutual Life Insurance
Company) from April, 1997 to
1999; from 1991 to 1997
Chairman, Trustmark Insurance
Cos.; prior to 1991, Chairman,
President and Chief Executive
Officer Trustmark Insurance
Cos. since 1971; Trustee of
the Board of Pensions of the
Evangelical Lutheran Church
in America from 1991 to 1997,
and Chairman of the Board
from 1993 to 1997; Trustee of
the Board of Pensions for the
Lutheran Church of America
from 1987 to 1989; and
Trustee of The Prime
Portfolios (registered
investment company) from 1993
to 1996.
James L. Brendemuehl, 54 Senior Vice Vice President - Mutual
President - Sales Funds, B.C. Ziegler and
Company, since 1995.
John H. Lauderdale, 34 Senior Vice Wholesaler, B.C. Ziegler and
President - Company since 1991; prior
Marketing thereto, Marketing Account
Executive, The Patten
Company.
Franklin P. Ciano, 49 Chief Financial Manager of Principal
Officer and Preservation Operations, B.C.
Treasurer Ziegler and Company since
1996; prior thereto, Vice
President, Fixed Income
Department, Firstar Bank.
Kathleen Cain, 42 Secretary Administrative assistant to
President of Principal
Preservation, B.C. Ziegler
and Company since 1999; prior
thereto, Assistant
Secretary/Treasurer, Regal
Ware, Inc. (kitchen wares
manufacturer).
Principal Preservation pays the compensation of the three Principal
Preservation Directors who are not officers, directors or employees of Ziegler.
They receive an annual fee of $12,000 and an additional $450 for each Board or
Committee meeting attended. Principal Preservation may also retain consultants,
who will be paid a fee, to provide the Board with advice and research on
investment matters.
The table below shows fees paid to Directors of Principal Preservation for
the year ended December 31, 1999. Each series of Principal Preservation,
including the Portfolio, pays a proportionate share of these expenses based on
the ratio such series' total assets bear to the aggregate of the total assets of
all nine series of Principal Preservation. Principal Preservation made no
payments to its officers or directors who are affiliated with any investment
advisor to Principal Preservation.
<TABLE>
PENSION OR
RETIREMENT
BENEFITS ACCRUED
NAME OF PERSON AND AGGREGATE AS PART OF
POSITION WITH COMPENSATION PRINCIPAL ESTIMATED
PRINCIPAL FROM PRINCIPAL PRESERVATION'S ANNUAL BENEFITS FCOMPTOTALIONL
PRESERVATION PRESERVATION EXPENSES UPON RETIREMENT PRESERVATION
------------ ------------ --------- --------------- -------------
<S> <C> <C> <C> <C>
Richard J. Glaisner, -0- -0- -0- -0-
Director(1)<F18>
Robert J. Tuszynski, -0- -0- -0- -0-
Vice President and
Director
Richard H. Aster, M.D. $13,800 -0- -0- $13,800
Director
Augustine J. English, $13,800 -0- -0- $13,800
Director
Ralph J. Eckert, $13,800 -0- -0- $13,800
Director
</TABLE>
(1)<F18> 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.
The executive officers and Directors as a group (nine persons) owned
beneficially, as of March 31, 2000, less than 1% of all outstanding shares of
the Portfolio. This management group's beneficial ownership of shares of
Principal Preservation as a whole also amounted to less than 1% of the
outstanding shares. See also "Control Persons and Principal Holders of
Securities."
INVESTMENT ADVISOR
The Advisor, Ziegler Asset Management, Inc. ("ZAMI"), manages the assets of
the Portfolio pursuant to an Investment Advisory Agreement (the "Advisory
Agreement") and the investment policies described herein. Subject to such
further policies as the Board of Directors may determine, the Advisor makes
investment decisions for the Portfolio. The Advisor furnishes at its own
expense all services, facilities and personnel necessary in connection with
managing the Portfolio's investments and effecting securities transactions for
the Portfolio.
The Advisory Agreement provides that the Advisor may render services to
others. The Advisory Agreement is terminable without penalty on not more than
60 days' nor less than 30 days' written notice by the Portfolio when authorized
either by majority vote of the investors in the Portfolio (with the vote of each
being in proportion to the amount of their investment) or by a vote of a
majority of the Board of Directors, or by the Advisor on not more than 60 days
nor less than 30 days written notice, and will automatically terminate in the
event of its assignment. The Advisory Agreement provides that neither the
Advisor nor its personnel shall be liable for any error of judgment or mistake
of law or for any loss arising out of any investment or for any act or omission
in the execution of security transactions for the Portfolio, except for willful
misfeasance, bad faith, gross negligence or reckless disregard of its or their
obligations and duties under the Advisory Agreement.
For its services under the Advisory Agreement, the Advisor receives from
the Portfolio a fee accrued daily and paid monthly at an annual rate equal to
0.20% of the Portfolio's average daily net assets. Pursuant to the Advisory
Agreement, for the years ended December 31, 1997, 1998 and 1999, the Portfolio
accrued investment advisory fees of $278,005, $329,759 and $323,977,
respectively, of which $77,504 was waived voluntarily in 1997.
The Advisor's affiliate, B.C. Ziegler and Company ("Ziegler"), serves as
the Portfolio's Administrative Services Agent and Accounting/Pricing Agent.
As indicated in the table above, the following Directors and officers of
Principal Preservation also serve as officers of either or both of ZAMI and
Ziegler: 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. No other or Director of Principal Preservation is an
officer or Director of Ziegler, ZAMI or any of their affiliates.
ADMINISTRATIVE SERVICES
Portfolio Administrative Services. Ziegler provides certain administrative
---------------------------------
services to Principal Preservation, on behalf of the Portfolio, including: (a)
providing office space, equipment and clerical personnel necessary for
maintaining the organization of Principal Preservation; (b) providing personnel
to serve as directors, officers and employees of Principal Preservation to the
extent requested by Principal Preservation and as permitted and appropriate
under applicable laws and regulations; (c) supervising the overall
administration of Principal Preservation, including negotiation of contracts and
fees with, and the monitoring of performance and billings of, Principal
Preservation's independent contractors or agents; (c) preparing and, if
applicable, filing all documents required for compliance by Principal
Preservation with applicable laws and regulations; (e) preparing agendas and
supporting documents for and minutes of meetings of the Board of Directors of
Principal Preservation and committees thereof and shareholders of the Portfolio;
and (f) maintaining other books and records of Principal Preservation. Ziegler
has agreed to provide these services pursuant to an Administrative Services
Agreement.
The Administrative Services Agreement provides that it will continue in
effect from year to year, as long as approved at least annually by Principal
Preservation's Board of Directors or by a vote of the outstanding voting
securities of the Portfolio and in either case by a majority of the Directors
who are not parties to the relevant Agreement or interested persons of any such
party. The Agreement terminates automatically if assigned and may be terminated
without penalty by either party on 60 days notice. The Agreement provides that
neither Ziegler nor its personnel shall be liable for any error of judgment or
mistake of law or for any loss arising out of any act or omission in the
execution and the discharge of its obligations under the Agreement, except for
willful misfeasance, bad faith or gross negligence in the performance of their
duties or by reason of reckless disregard of their obligations and duties under
the Agreement.
For providing the services contemplated by the Administrative Services
Agreement, Ziegler is entitled to receive a fee, computed daily and paid
monthly, at the annual rate of 0.15 of 1% of the Portfolio's average daily net
assets. Prior to May 1, 1999, ZAMI provided administrative services to the
Portfolio under an administrative services agreement with terms substantively
identical to those of the Ziegler Administrative Services Agreement. For the
years ended December 31, 1997, 1998 and 1999, the Portfolio accrued
administrative fees aggregating $208,504, $247,327 and $243,237, respectively.
For those years, ZAMI reimbursed $38,757, $102,246 and $50,609, respectively, of
this fee to the Portfolio.
Accounting/Pricing Agreement. Pursuant to the terms of an
----------------------------
Accounting/Pricing Agreement between Ziegler and Principal Preservation, Ziegler
provides fund accounting and net asset value calculation services to the
Portfolio. Under this Accounting/Pricing Agreement, Ziegler is entitled to
compensation at a rate approved annually by the Board of Directors, plus
reimbursement for reasonable out-of-pocket expenses. The Portfolio currently
pays Ziegler a monthly fee at an annual rate of 0.04 of 1% on average daily net
assets between $50 million and $100 million, 0.03 of 1% on the next $100
million, and 0.01 of 1% on average daily net assets in excess of $200 million,
subject to a minimum annual fee of $15,000 and a maximum annual fee of $125,000.
For the years ended December 31, 1997, 1998 and 1999, the Portfolio accrued fees
under the Accounting/Pricing Agreement aggregating $45,625, $54,625 and
$59,165, respectively.
The services provided by Ziegler to the Portfolio under the
Accounting/Pricing Agreement include daily calculation of net asset value per
share, maintenance of original entry documents and books of record and general
ledgers of the Portfolio, posting of cash receipts and disbursements,
reconciliation of bank account balances on a monthly basis, recording purchases
and sales based upon communications from the Portfolio's portfolio managers, and
preparing monthly and annual summaries to assist in the preparation of financial
statements of, and regulatory reports for, the Portfolio. The
Accounting/Pricing Agreement provides that Ziegler may render fund accounting
and pricing services to others, continues in effect from year to year if
approved by a majority of the Board of Directors, terminates automatically if it
is assigned, and may be terminated without penalty by a majority vote of the
shareholders of the Portfolio. The Accounting/Pricing Agreement also provides
that neither Ziegler nor its personnel shall be liable for any error of judgment
or mistake of law or for any loss suffered by the Portfolio in connection with
the matters to which the Accounting/Pricing Agreement relates, except for loss
resulting from willful misfeasance, bad faith or gross negligence in the
performance of its or their duties on behalf of the Portfolio or from reckless
disregard by Ziegler or any of its personnel of the duties of Ziegler under the
Accounting/Pricing Agreement. Ziegler's liability under the Accounting/ Pricing
Agreement is limited in all events to one-year's fees received by Ziegler under
the Accounting/Pricing Agreement.
CUSTODIAN SERVICES
Firstar Trust Company serves as the Custodian of the Fund's assets,
pursuant to a Custodian Servicing Agreement. The Custodian Servicing Agreement
provides that Firstar Trust Company is entitled to receive an annual fee of
0.02% on the first $500 million of the net asset value and 0.015% of assets in
excess of 500 million.
Prior to March 31, 1998, the Fund served as custodian of its own assets
(i.e., cash and securities). Pursuant to a Depository Contract, Ziegler, a
registered broker-dealer and registered investment adviser, acted as Depository
of the Fund's assets. For providing services as Depository to Cash Reserve,
Ziegler was entitled to compensation at an annual rate of 0.055% on the first
$50 million of Cash Reserve's average daily net assets, 0.035% on the next $150
million, 0.030% on the next $300 million, and 0.025% on average daily net assets
in excess of $500 million, subject to a minimum annual fee of $15,000. For the
year ended December 31, 1997, the Portfolio incurred fees of $68,281 under the
Depository Contract.
SHAREHOLDER SERVICES FOR CLASS X RETAIL SHARES
Ziegler has, and certain other brokers and financial institutions in the
future may, enter into shareholder servicing agreements with Principal
Preservation pursuant to which they provide shareholder services to the
Portfolio. Under such agreements, the shareholder servicing agents (the
"Shareholder Servicing Agents") maintain shareholder accounts for Class X Retail
Shares of the Portfolio and perform the functions of transfer and dividend
paying agents, among other services, with respect to such accounts. For
providing these services, each Shareholder Servicing Agent receives a fee at an
annual rate of up to 0.25 of 1% of that portion of the Portfolio's average daily
net assets allocated to Class X Retail Shares owned by the customers of such
Shareholder Servicing Agent and held in the shareholder accounts maintained by
the Shareholder Servicing Agent. A Shareholder Servicing Agent may impose
additional service charges and fees on its customer's accounts. The Shareholder
Servicing Agent must invoice those charges and fees directly to the customer and
may not deduct them from the customer's holdings in the Portfolio.
Each shareholder servicing agreement continues in effect until terminated,
and may be terminated by either party without cause on not less than 30 days nor
more than 60 days prior notice. Each shareholder servicing agreement provides
that the Shareholder Servicing Agent thereunder shall be indemnified by
Principal Preservation for any action taken or omitted by the Shareholder
Servicing Agent under the agreement except for, (a) the bad faith or negligence
of the Shareholder Servicing Agent, its officers, employees or agents, or (b)
any breach of applicable law by the Shareholder Servicing Agent, its officers,
employees or agents, or (c) any action of the Shareholder Servicing Agent, its
officers, employees or agents which exceeds the legal authority of the
Shareholder Servicing Agent or its authority under its shareholder servicing
agreement, or (d) any error or omission of the Shareholder Servicing Agent, its
officers, employees or agents with respect to the purchase, redemption and
transfer of Class X Retail Shares of the Portfolio held in accounts serviced by
the Shareholder Servicing Agent or the Shareholder Servicing Agent's
verification or guarantee of any signature of a shareholder owning Class X
Retail Shares in such account.
For the years ended December 31, 1997, 1998 and 1999, fees received by
Ziegler with respect to the Class X Retail Shares pursuant to the Shareholder
Servicing Agreement totaled $252,921, $347,848 and $361,923, respectively.
TRANSFER AND DIVIDEND DISBURSING AGENT SERVICES
PFPC Global Fund Services (the "Transfer Agent") serves as transfer and
dividend disbursing agent for all outstanding shares of the Portfolio, other
than Class X Retail Shares held pursuant to a Shareholder Services Agreement as
described above. Its address is:
PFPC Global Fund Services
P.O. Box 60504
King of Prussia, Pennsylvania 19406
Prior to November 8, 1999, Ziegler served as transfer and dividend
disbursing agent to the Portfolio.
For the years ended December 31, 1997, 1998 and 1999, fees received by Ziegler
in this capacity amounted to $2,480, $7,780 and $4,682, respectively.
PERFORMANCE INFORMATION
Yield is computed in accordance with a standardized method which involves
determining the net change in the value of a hypothetical pre-existing Portfolio
account having a balance of one Retail Share or Institutional Share at the
beginning of a seven calendar day period for which yield is to be quoted,
dividing the net change computed at the end of the period by the value of the
account at the beginning of the period to obtain the base period return, and
analyzing the results (i.e., multiplying the base period return by 365/7). The
net change in the value of the account reflects the value of additional Retail
Shares or Institutional Shares purchased with dividends declared on the
original Retail Share or Institutional Share and any such additional Retail
Shares or Institutional Shares and fees that may be charged to shareholder
accounts, in proportion to the length of the base period and the Portfolio's
average account size, but does not include realized gains and losses or
unrealized appreciation and depreciation. Effective annualized yield is
computed by adding 1 to the base period return (calculated as described above),
raising that sum to a power equal to 365 divided by 7, and subtracting 1 from
the result. The yield and the effective yield for the Portfolio's shares for
the seven days ended December 31, 1998 are reflected in the table below.
YIELD AS OF EFFECTIVE YIELD AS OF
CLASS OF SHARES DECEMBER 31, 1999 DECEMBER 31, 1999
--------------- ----------------- -----------------
Class X Retail Shares 4.94% 5.07%
Class B Retail Shares 4.38% 4.49%
Class Y Institutional 5.15% 5.28%
Shares
Yields will fluctuate and are not necessarily representative of future
results. The investor should remember that yield is a function of the type and
quality of the instruments held by the Portfolio, portfolio maturity and
operating expenses. An investor's principal in the Portfolio is not guaranteed.
See "Determination of Net Asset Value" for a discussion of the manner in which
the Portfolio's price per share is determined.
From time to time, the Portfolio in its advertising and sales literature
may refer to the growth of assets managed or administered by the Advisor over
certain time periods.
Comparative performance information may be used from time to time in
advertising or marketing the Portfolio's Retail Shares and Institutional Shares,
including data from Lipper Analytical Services, Inc., IBC/Donoghue's Money
Portfolio Report and other publications.
DETERMINATION OF NET ASSET VALUE PER SHARE;
VALUATION OF SECURITIES; REDEMPTION IN KIND
The Prospectuses for the Classes discuss when the net asset value of the
Portfolio is determined for purposes of sales and redemptions. The net asset
value per share of the Portfolio is determined by subtracting the Portfolio's
liabilities from the Portfolio's total assets and dividing the result by the
total number of shares outstanding. The following is a description of the
procedures used by the Portfolio in valuing its assets.
The valuation of the Portfolio's securities is based on their amortized
cost, which does not take into account unrealized capital gains or losses.
Amortized cost valuation involves initially valuing an instrument at its cost
and thereafter assuming a constant amortization to maturity of any discount or
premium, generally without regard to the impact of fluctuating interest rates on
the market value of the instrument. Although this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price the Portfolio would receive if
it sold the instrument.
The Portfolio's use of the amortized cost method of valuing their
securities is permitted by a rule adopted by the SEC. The Portfolio will also
maintain a dollar-weighted average portfolio maturity of 90 days or less,
purchase only instruments having remaining maturities of 13 months or less and
invest only in securities determined by or under the supervision of the Board of
Directors to be of high quality with minimal credit risks.
Pursuant to the rule, the Board of Directors also has established
procedures designed to allow the Portfolio to stabilize, to the extent
reasonably possible, the Portfolio's price per share as computed for the purpose
of sales and redemptions at $1.00. These procedures include review of the
Portfolio's holdings by the Board of Directors, at such intervals as it deems
appropriate, to determine whether the value of the Portfolio's assets calculated
by using available market quotations or market equivalents deviates from such
valuation based on amortized cost.
The rule also provides that the extent of any deviation between the value
of the Portfolio's assets based on available market quotations (or an
appropriate substitute which reflects current market conditions) and such
valuation based on amortized cost must be examined by the Board of Directors.
In the event the Board of Directors determines that a deviation exists that may
result in material dilution or other unfair results to new or existing investors
or existing shareholders, pursuant to the rule, the Board of Directors must
cause the Portfolio to take such corrective action as the Board of Directors
regards as necessary and appropriate, including: selling portfolio instruments
prior to maturity to realize capital gains or losses or to shorten average
portfolio maturity; or valuing the Portfolio's assets by using available market
quotations.
For the purpose of determining the deviation between the value of the
Portfolio's assets based on available market quotations and such valuation based
on amortized cost, if market quotations are not readily available, or if the
securities are illiquid, the value of such portfolio securities will be
determined in good faith by the Directors based upon calculations and findings
made by the Advisor, and reviewed by the Directors. The Directors may consider
that certain securities are securities for which market quotations are not
readily available if the validity of the quotations received with respect to
such securities appears to be questionable. Factors which the Directors might
consider as indicating that the validity of market quotes is questionable
include an inordinately large spread between bid and ask prices, or an in
ordinately small number of quotations indicating that there is only a thin
market in the securities.
Principal Preservation, on behalf of the Portfolio, reserves the right, if
conditions exist which make cash payments undesirable, to honor any request for
redemption or repurchase order by making payment in whole or in part in readily
marketable securities chosen by Principal Preservation and valued as they are
for purposes of computing the Portfolio's net asset value (a redemption in
kind). If payment is made in securities, an investor may incur transaction
expenses in converting these securities into cash.
The Portfolio has elected, however, to be governed by Rule 18f-1 under the
1940 Act, as a result of which the Portfolio is obligated to redeem shares with
respect to any one investor during any 90-day period, solely in cash up to the
lesser of $250,000 or 1% of the net asset value of the Portfolio at the
beginning of the period.
Each investor in the Portfolio may add to or reduce its investment in the
Portfolio on each Business Day of the Portfolio. A "Business Day" is any day on
which the New York Stock Exchange is open for trading and any other day (other
than a day on which no shares of the Portfolio are tendered for redemption and
no order to purchase shares of the Portfolio is received) during which there is
sufficient trading in money market instruments that the Portfolio's net asset
value might be materially affected. As of 12:00 noon (New York time) on each
such Business Day, net asset value for the Classes of shares will be computed by
dividing the value of the Portfolio's total net assets by the total number of
shares outstanding, including all three Classes.
PURCHASE OF SHARES
The Portfolio will not issue shares for consideration other than cash
except in the case of a bona fide reorganization, statutory merger, or in
certain other acquisition of securities in accordance with state securities
laws, which: (1) meet the investment objectives and policies of the Portfolio;
(2) are acquired for investment and not for resale; (3) are not restricted
securities; and (4) have a value which is readily ascertainable.
TAX STATUS
The following is only a summary of certain tax considerations generally
affecting the Portfolio and its shareholders, and is not intended as a
substitute for careful tax planning. Shareholders are urged to consult their
tax advisers with specific reference to their own tax situations.
Each series of a series company, such as Principal Preservation, is treated
as a single entity for Federal income tax purposes so that the net realized
capital gains and losses of the various series in one fund are not combined.
However, both classes of the Retail Shares and the class of Institutional Shares
are treated as the same for tax purposes.
The Portfolio intends to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986 (the "Code"). In order to qualify as a
regulated investment company, the Portfolio must satisfy a number of
requirements. Among such requirements is the requirement that less than 30
percent of the Portfolio's gross income be derived from the sale or other
disposition of securities held for less than three months. In determining these
gross income requirements, a loss from the sale or other disposition of
securities does not enter into the computation.
The Portfolio will distribute substantially all of its net income and
capital gains so as to avoid any federal income tax to it. Although Principal
Preservation expects the Portfolio to be relieved of all or substantially all
federal income taxes, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located or in which it is otherwise deemed to be
conducting business, that portion of the Portfolio's income which is treated as
earned in any such state or locality could be subject to state and local tax.
Any such taxes paid by the Portfolio would reduce the amount of income and gains
available for distribution to its shareholders.
While the Portfolio does not expect to realize net long-term capital gains,
any such gains realized will be distributed annually as described in the
Portfolio's Prospectus. Such distributions ("capital gain dividends"), if any,
will be taxable to shareholders as long-term capital gains, regardless of how
long a shareholder has held Portfolio shares, and will be designated as capital
gain dividends in a written notice mailed by the Portfolio to shareholders after
the close of the Portfolio's prior taxable year.
Dividends and other distributions paid to individuals and other non-exempt
payees are subject to a 31% backup federal withholding tax if the 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 the Portfolio is notified that the shareholder has under-reported income in
the past. In addition, such backup withholding tax will apply to the proceeds
of redemption or repurchase of shares from a shareholder account for which the
correct taxpayer identification number has not been furnished. For most
individual taxpayers, the taxpayer identification number is the social security
number. An investor may furnish the Transfer Agent with such number and the
required certifications by completing and sending the Transfer Agent either the
Account Application form attached to the relevant Prospectus or IRS Form W-9.
Interest on indebtedness incurred (directly or indirectly) by shareholders
to purchase or carry shares will not be deductible for Federal income tax
purposes.
If a shareholder exchanges shares of one Principal Preservation portfolio
for shares of another, the shareholder will recognize gain or loss for federal
income tax purposes. That gain or loss will be measured by the difference
between the shareholder's basis in the shares exchanged and the value of the
shares acquired.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of February 28, 2000, no person was known to be the "beneficial owner"
(determined in accordance with Rule 13d-3 under the Securities Exchange Act of
1934) of more than 5% of the outstanding shares of the Portfolio, except the
following:
<TABLE>
NAME AND PERCENT OF ALL
ADDRESS OF SHAREHOLDER NUMBER OF SHARES OUTSTANDING SHARES
- ---------------------- ---------------- ------------------
RETAIL CLASS X INSTITUTIONAL
-------------- -------------
<S> <C> <C> <S>
M&I First National Bank 13,183,008 8.2%
321 North Main Street
P. O. Box 1980
West Bend, WI 53095
Pershing (As Agent - 142,696,487 88.9%
Omnibus Account)
f/b/o BCZ Customers
ProCash - 15th Floor
One Pershing Plaza
Jersey City, NJ 07399-0002
</TABLE>
RETAIL SHARE DISTRIBUTION EXPENSES
Principal Preservation's Distribution Plan (the "Plan") is its written
plan contemplated by Rule 12b-1 (the "Rule") under the Act.
The Plan authorizes Ziegler, as the "Distributor" of the Portfolio's
shares, to make certain payments to any qualified recipient, as defined in the
Plan, that has rendered assistance in the distribution of either class of the
Portfolio's Retail Shares (but not its Institutional Shares), such as sale or
placement of the Portfolio's Retail Shares or administrative assistance such as
maintenance of sub-accounting or other records. Qualified recipients may
include Selected Dealers, banks and other financial institutions. Under the
Plan, the Distributor also may purchase advertising for Retail Shares of the
Portfolio, pay for sales literature and other promotional material, and make
payments to its sales personnel. As reimbursement for these expenses, the Plan
entitles the Distributor to receive a annual service fee for Retail Shares of
the Portfolio 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 by the Portfolio, up to
maximum annual amounts established under the terms of the Plan.
CLASS X RETAIL SHARES. The maximum amount of service fees payable under
the Plan during any calendar year with respect to Class X Retail Shares of the
Portfolio may not exceed an annual rate of 0.15 of 1% of the average daily net
assets of the Portfolio attributable to such shares.
CLASS B RETAIL SHARES. The maximum amount of service fees payable under
the Plan during any calendar year with respect to Class B Retail Shares may not
exceed an annual rate of 0.25 of 1% of the average daily net assets of the
Portfolio attributable to such shares. The Plan entitles the Distributor to
receive an additional distribution fee equal to 0.75 of 1% of the average net
assets of the Portfolio attributable to its Class B Retail Shares. This
distribution fee is designed to compensate the Distributor for assuming the
costs of brokers' commissions in connection with the sale of the Class B Retail
Shares and generally for its promotion of sales of Class B Retail Shares. The
Portfolio therefore must pay this distribution fee, regardless of expenses
actually incurred by the Distributor.
The Distributor bears its expenses of distribution above the foregoing
amounts. No reimbursement or payment may be made for expenses of past fiscal
years or in contemplation of expenses for future fiscal years under the Plan.
The Plan states that if and to the extent that any of the payments by
Principal Preservation listed below are considered to be "primarily intended to
result in the sale of shares" issued by Principal Preservation within the
meaning of the Rule, such payments by Principal Preservation are authorized
without limit under the Plan and shall not be included in the limitations
contained in the Plan: (a) the costs of the preparation, printing and mailing of
all required reports and notices to shareholders, irrespective of whether such
reports or notices contain or are accompanied by material intended to result in
the sale of shares of Principal Preservation or other funds or other
investments; (b) the costs of preparing, printing and mailing of all
prospectuses to shareholders; (c) the costs of preparing, printing and mailing
of any proxy statements and proxies, irrespective of whether any such proxy
statement includes any item relating to, or directed toward, the sale of
Principal Preservation's shares; (d) all legal and accounting fees relating to
the preparation of any such reports, prospectuses, proxies and proxy statements;
(e) all fees and expenses relating to the qualification of the funds and or
their shares under the securities or "Blue Sky" laws of any jurisdiction; (f)
all fees under the Act and the Securities Act of 1933, including fees in
connection with any application for exemption relating to or directed toward the
sale of Principal Preservation's shares; (g) all fees and assessments of the
Investment Company Institute or any successor organization or industry
association irrespective of whether some of its activities are designed to
provide sales assistance; (h) all costs of preparing and mailing confirmations
of shares sold or redeemed or share certificates and reports of share balances;
and (i) all costs of responding to telephone or mail inquiries of shareholders.
The Plan also states that it is recognized that the costs of distribution
of Principal Preservation's shares are expected to exceed the sum of permitted
payments, permitted expenses, and the portion of the sales charge retained by
the Distributor, and that the profits, if any, of Principal Preservation's
investment advisors are dependent primarily on the advisory fees paid to them.
If and to the extent that any investment advisory fees paid by Principal
Preservation might, in view of any excess distribution costs, be considered as
indirectly financing any activity which is primarily intended to result in the
sale of shares issued by Principal Preservation, the payment of such fees is
authorized under the Plan. The Plan states that in taking any action
contemplated by Section 15 of the Act as to any investment advisory contract to
which Principal Preservation is a party, the Board of Directors including its
Directors who are not "interested persons" as defined in the Act, and who have
no direct or indirect financial interest in the operation of the Plan or any
agreements related to the Plan ("Qualified Directors"), shall, in acting on the
terms of any such contract, apply the "fiduciary duty" standard contained in
Sections 36(a) and (b) of the Act.
Under the Plan, Principal Preservation is obligated to pay distribution
fees only to the extent of expenses actually incurred by the Distributor for the
current year, and thus there will be no carryover expenses from the previous
years. The Plan permits the Distributor to pay a portion of the distribution
fee to authorized broker dealers, which may include banks or other financial
institutions, and to make payments to such persons based on either or both of
the following: (a) as reimbursement for direct expenses incurred in the course
of distributing Principal Preservation shares or providing administrative
assistance to Principal Preservation or its shareholders, including, but not
limited to, advertising, printing and mailing promotional material, telephone
calls and lines, computer terminals and personnel (including commissions and
other compensation paid to such personnel); and/or (b) at a specified percentage
of the average value of certain qualifying accounts of customers of such
persons.
The Plan requires that while it is in effect the Distributor shall report
in writing at least quarterly to the Directors, and the Directors shall review,
the following: (a) the amounts of all payments, the identity of recipients of
each such payment, the basis on which each such recipient was chosen and the
basis on which the amount of the payment was made; (b) the amounts of expenses
and the purpose of each such expense; and (c) all costs of the other payments
specified in the Plan (making estimates of such costs where necessary or
desirable) in each case during the preceding calendar or fiscal quarter.
The Plan will continue in effect from year to year only so long as such
continuance is specifically approved at least annually by the Board of Directors
and by a majority of those Directors who are not interested persons of Principal
Preservation cast in person at a meeting called for the purpose of voting on
such continuance. The Plan may be terminated at any time without penalty by a
vote of a majority of those Directors who are not interested persons of
Principal Preservation or by the vote of the holders of a majority of the
outstanding voting securities of Principal Preservation, and, with respect to
any Principal Preservation portfolio or with respect to the Portfolio's Retail
Shares, by the vote of a majority of the outstanding shares of such portfolio or
of the outstanding Class, as the case may be. The Plan may not be amended to
increase materially the amount of payments to be made without shareholder
approval. While the Plan is in effect, the selection and nomination of those
Directors who are not interested persons of Principal Preservation is committed
to the discretion of such disinterested Directors. Nothing in the Plan will
prevent the involvement of others in such selection and nomination if the final
decision on any such selection and nomination is approved by a majority of such
disinterested Directors.
The table below reflects distribution fees paid by the Portfolio pursuant
to the Plan and the amount retained by the Distributor for the periods
indicated:
RULE 12B-1 DISTRIBUTION FEES
TOTAL FEE PAID TO AMOUNT RETAINED BY
PERIOD DISTRIBUTOR DISTRIBUTOR
- ------ ----------- -----------
CLASS X CLASS B CLASS X CLASS B
------- ------- ------- -------
Fiscal year ended $155,053 N/A $154,048 N/A
December 31, 1997
Fiscal year ended $208,719 N/A $208,052 N/A
December 31, 1998
Fiscal year ended $224,978 $28(1)<F19> $222,235 $28(1)<F19>
December 31, 1999
(1)<F19> Class B shares of the Portfolio were first available beginning
December 15, 1999.
COUNSEL AND INDEPENDENT ACCOUNTANTS
Quarles & Brady LLP, as counsel for Principal Preservation, has rendered
its opinion as to certain legal matters regarding the due authorization and
valid issuance of the shares of common stock being sold pursuant to the relevant
Prospectus. Arthur Andersen LLP, independent accountants, are the auditors of
the Portfolio.
EXPERTS
The audited financial statements of the Portfolio incorporated by reference
into the Portfolio's Prospectuses and this Statement of Additional Information
have been so incorporated in reliance on the report of Arthur Andersen LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing in giving said report.
FINANCIAL STATEMENTS
The following audited financial statements and footnotes thereto of
Principal Preservation Cash Reserve Portfolio, together with the Report of the
Independent Accountants thereon, are incorporated herein by reference from the
Portfolio's 1999 Annual Report to Shareholders.
(1) Balance Sheet for the Portfolio as of December 31, 1999.
(2) Statement of Operations for the Portfolio for the year ended December
31, 1999.
(3) Statements of Changes in Net Assets for the Portfolio for the years
ended December 31, 1998 and 1999.
(4) Schedule of Investments of the Portfolio as of December 31, 1999.
(5) Notes to Financial Statements.
A copy of the Portfolio's 1999 Annual Report to Shareholders may be
obtained free of charge from Ziegler upon request.
APPENDIX
A description of the two highest commercial paper, bond and other short-
and long-term rating categories assigned by Standard & Poor's Corporation
("S&P"), Moody's Investors Service, Inc. ("Moody's"), Fitch Investors Service,
Inc. ("Fitch"), Duff & Phelps, Inc. ("Duff"), IBCA Limited and IBCA Inc.
("IBCA") and Thomson BankWatch, Inc. ("BankWatch") now follows.
COMMERCIAL PAPER AND SHORT-TERM RATINGS
The designation A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation. Capacity
for timely payment on issues with an A-2 designation is satisfactory. However,
the relative degree of safety is not as high as for issues designated A-1.
The rating Prime-1 (P-1) is the highest commercial paper rating assigned by
Moody's. Issuers of P-1 paper must have a superior ability for repayment of
senior short-term debt obligations, and Prime-1 repayment ability will often be
evidenced by leading market positions in well established industries, high rates
of return on funds employed, conservative capitalization structures with
moderate reliance on debt and ample asset protection, broad margins in earnings
coverage of fixed financial charges and high internal cash generation, and well
established access to a range of financial markets and assured sources of
alternate liquidity. Issues rated Prime-2 (P-2) have a strong ability for
repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
The rating F-1+ (Exceptionally Strong Credit Quality) is the highest
commercial paper rating assigned by Fitch. Paper rated F-1+ is regarded as
having the strongest degree of assurance for timely payment. The rating F-2
(Very Strong Credit Quality) is the second highest commercial paper rating
assigned by Fitch which reflects an assurance of timely payment only slightly
less in degree than issues rated F-1+.
The rating Duff 1+ is the highest commercial paper rating assigned by Duff.
Paper rated Duff 1+ is regarded as having the highest certainty of timely
payment. Short-term liquidity, including internal operating factors and/or
access to alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations. Paper rated Duff 1 is regarded
as having a very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors
are minor.
The designation A1 by IBCA indicates that the obligation is supported by a
strong capacity for timely repayment. Those obligations rated Al+ are supported
by the highest capacity for timely repayment. Obligations rated A2 are
supported by a satisfactory capacity for timely repayment, although such
capacity may be susceptible to adverse changes in business, economic or
financial conditions.
The rating TBW-1 is the highest short-term obligation rating assigned by
BankWatch. A rating of TBW-1 indicates a very high likelihood that principal
and interest will be paid on a timely basis. Obligations rated TBW-2 are in the
second-highest category, indicating that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated TBW-1.
BOND AND LONG-TERM RATINGS
Bonds rated AAA have the highest rating assigned by S&P and possess an
extremely strong capacity to pay principal and interest. Bonds rated AA by S&P
are judged by S&P to have a very strong capacity to pay principal and interest,
and differ from the higher rated issues only in small degree. Bonds rated AA
may be modified by the addition of a plus or minus sign to show relative
standing in the category.
Bonds rated Aaa are judged by Moody's to be of the best quality. Bonds
rated Aa by Moody's are judged by Moody's to be of high quality by all standards
and, together with the Aaa group, they comprise what are generally known as
high-grade bonds. Bonds rated Aa are rated lower than Aaa bonds because margins
of protection may not be as large or fluctuations of protective elements may be
of greater amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in Aaa securities. Moody's applies
numerical modifiers 1, 2 and 3 in the Aa rating category. The modifier 1
indicates a ranking for the security in the higher end of this rating category,
the modifier 2 indicates a mid-range ranking, and the modifier 3 indicates a
ranking in the lower end of the rating category.
Bonds rated AAA by Fitch are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. Bonds rated AA by Fitch are considered to be investment
grade and of very high credit quality. The obligor's ability to pay interest
and repay principal is very strong, although not quite as strong as bonds rated
AAA. Because bonds rated in the AAA and AA categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these issuers
is generally rated F-1+. Bonds rated AA may be modified by the addition of a
plus or minus sign to show relative standing in the category.
Bonds rated AAA by Duff are considered to be of the highest credit quality.
The risk factors are negligible, being only slightly more than for risk-free
U.S. Treasury debt. Bonds rated AA+, AA and AA- are considered by Duff to be of
high credit quality with strong protection factors. Risk is modest but may vary
slightly from time to time because of economic conditions.
Obligations rated AAA by IBCA have the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial.
Adverse changes in business, economic or financial conditions are unlikely to
increase investment risk significantly. Obligations rated AA by IBCA have a
very low expectation of investment risk. Capacity for timely repayment of
principal and interest is substantial. Adverse changes in business, economic or
financial conditions may increase investment risk albeit not very significantly.
A plus or minus may be appended to a rating to denote relative status within
major rating categories.
IBCA also assigns a rating to certain international and U.S. banks. An
IBCA bank rating represents IBCA's current assessment of the strength of the
bank and whether such bank would receive support should it experience
difficulties. In its assessment of a bank, IBCA uses a dual rating system
comprised of Legal Ratings and Individual Ratings. In addition, IBCA assigns
banks Long- and Short-Term Ratings as used in the corporate ratings discussed
above. Legal Ratings, which range in gradation from 1 through 5, address the
question of whether the bank would receive support provided by central banks or
shareholders if it experienced difficulties, and such ratings are considered by
IBCA to be a prime factor in its assessment of credit risk. Individual Ratings,
which range in gradations from A through E, address the question of how the bank
would be viewed if it were entirely independent and could not rely on support
from state authorities or its owners.
In addition to its ratings of short-term obligations, BankWatch assigns a
rating to each issuer it rates, in gradations of A through E. BankWatch
examines all segments of the organization, including, where applicable, the
holding company and operating subsidiaries. Long-term debt obligations rated in
AAA, the highest category, indicate that the ability to repay principal and
interest on a timely basis is very high. A rating of AA, BankWatch's second-
highest category, indicates a superior ability to repay principal and interest
on a timely basis, with limited incremental risk compared to issues rated in the
highest category. BankWatch also assigns, in the case of foreign banks, a
country rating ranging from I through V, which represents an assessment of the
overall political and economic stability of the country in which the bank is
domiciled.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
INVESTMENT ADVISOR
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
DISTRIBUTOR, PORTFOLIO ADMINISTRATOR,
ACCOUNTING/PRICING AGENT,
SHAREHOLDER SERVICING AGENT AND
TRANSFER AND DIVIDEND DISBURSING AGENT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
CUSTODIAN
Firstar Trust Company
777 East Wisconsin Avenue
Milwaukee, WI 53202
LEGAL COUNSEL
Quarles & Brady LLP
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
CASH RESERVE PORTFOLIO
CLASS X COMMON STOCK (RETAIL SHARES)
CLASS Y COMMON STOCK (INSTITUTIONAL SHARES)
MAY 1, 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 March 31, 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:
POSITION WITH
B.C. ZIEGLER
NAME AND COMPANY(1)<F35> OTHER AFFILIATIONS(2)<F36>
- ---- ------------------- --------------------------
Peter D. Ziegler Chairman of the Board and Chairman of the Board and
Director Director, The Ziegler
Companies, Inc.; Director,
PMC International, Inc.;
Director and Vice President,
Ziegler Financing Group;
Director, First Church
Financing Corporation;
Director and Vice President,
Ziegler Collateralized
Securities Group; 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 J. Mulherin Director, President and
Chief Executive Officer
S. Charles O'Meara Senior Vice President,
General Counsel, Secretary
and Director
Gary P. Engle Senior Vice President
John C. Wagner Senior Vice President -
Ziegler Investment Group
Retail Sales and Director
Donald A. Carlson, Senior Managing Director,
Jr. Healthcare and Senior
Living Investment Banking
Group
Robert J. Tuszynski Managing Director - President, Chief Executive
Ziegler Investment Group Officer and Director of
Principal Preservation
Portfolios, Inc.
R. R. Poggenburg Senior Vice President -
Ziegler Investment Group
M. P. McDaniel Managing Director - Sales
and Trading, Healthcare and
Senior Living Investment
Banking Group
T. R. Paprocki Managing Director, Ziegler
Investment Group
D. J. Hermann Managing Director,
Healthcare and Senior
Living Investment Group
J. C. Vredenbregt Senior Vice President -
Chief Financial Officer,
Treasurer and Controller
W. G. Morse Senior Vice President -
National Sales, Ziegler
Investment Group
R. C. Krieg Senior Vice President,
Ziegler Investment Group
(1)<F35> B.C. Ziegler and Company contains operating divisions, including the
Healthcare and Senior Living Investment Banking Group and The
Ziegler Investment Group.
(2)<F36> 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 for all of the
Portfolios, except that it is the principal investment advisor for the Cash
Reserve Portfolio.
Set forth below is a list of the officers and directors of Ziegler
Asset Management, Inc. as of March 31, 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:
POSITION WITH
ZIEGLER ASSET
NAME MANAGEMENT OTHER AFFILIATIONS(1)<F37>
- ---- ---------- --------------------------
J. J. Mulherin Director, President
and Chief Executive
Officer
P. D. Ziegler Chairman of the Chairman of the Board and
Board and Director Director, The Ziegler Companies,
Inc.; Chairman of the Board and
Director, B.C. Ziegler and
Company; Chairman, Ziegler
Securities; Director, PMC
International, Inc.; Director and
Vice President, Ziegler Financing
Group; Director, First Church
Financing Corporation; Director
and Vice President, Ziegler
Collateralized Securities Group;
Director, West Bend Mutual
Insurance Company, 1900 S. 18th
Avenue, West Bend, WI 53095
(insurance company)
R. D. Ziegler Vice President Director, Johnson Controls, Inc.,
5757 N. Green Bay Avenue,
Milwaukee, WI 53201
(manufacturing)
Robert J. Tuszynski Vice President Managing Director, Ziegler
Investment Group of B.C. Ziegler
and Company; President, Chief
Executive Officer and Director of
Principal Preservation
Portfolios, Inc.
C. S. Vanucci Senior Vice President
B. K. Andrew Executive Vice
President
J. C. Vredenbregt Treasurer Director, Senior Vice President,
Chief Financial Officer,
Treasurer and Controller, B.C.
Ziegler and Company; Assistant
Treasurer; Ziegler Financing
Corporation; Treasurer, Ziegler
Mortgage Securities, Inc.,
Secretary and Treasurer, First
Church Financing Corporation;
Director and Treasurer, Ziegler
Collateralized Securities, Inc.
D. L. Lauterbach Vice President None
J. R. Wyatt Vice President None
Jay Ferrara, Jr. Vice President - None
Portfolio Manager and
Analyst
Leon Dodge Vice President - None
Portfolio Manager and
Analyst
T. P. Sancomb Vice President
S. C. O'Meara Secretary
(1)<F37> 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 March 31, 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):
NAME POSITION WITH GENEVA OTHER AFFILIATIONS
- ---- -------------------- ------------------
William A. Priebe President and Director None
Amy S. Croen Executive Vice None
President and Director
John J. O'Hare II Vice President Senior Analyst, The Nicholas
Funds (registered investment
company), from 1992 to 1997
William F. Schneider, Director Retired Surgeon
M.D.
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
March 31, 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 certifies that this Post-Effective Amendment to its
Registration Statement meets all of the requirements for effectiveness under
Rule 485(b), and 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 26th day of April, 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 26th day of April, 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
Franklin P. Ciano Officer)
Richard H. Aster*<F38> Director
- --------------------------------
Richard H. Aster
August J. English*<F38> Director
- --------------------------------
August J. English
Ralph J. Eckert*<F38> Director
- --------------------------------
Ralph J. Eckert
*<F38>By: /s/ Robert J. Tuszynski
----------------------------------------
Robert J. Tuszynski, pursuant to a Power
of Attorney dated May 15, 1998, a copy
of which is filed herewith (see
following page)
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Robert J. Tuszynski, Franklin P. Ciano and S.
Charles O'Meara, or any of them, with full power of substitution, as his true
and lawful attorneys and agents, to execute in his name and on his behalf, in
any and all capacities, Principal Preservation Portfolios, Inc.'s Registration
Statement on Form N-1A (Registration No. 33-12 under the Securities Act of 1933;
File No. 811-4401 under the Investment Company Act of 1940) filed with the
Securities and Exchange Commission under both the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, together with any
and all other instruments which such attorneys and agents, or any of them, deem
necessary or advisable to enable Principal Preservation Portfolios, Inc. to
comply with such Acts and the rules, regulations and requirements of the
Securities and Exchange Commission and the securities or Blue Sky laws of any
state or other jurisdiction, and the undersigned hereby ratifies and confirms as
his own act and deed any and all actions that such attorneys and agents, or any
of them, shall do or cause to be done by virtue hereof. Any of such attorneys
and agents have, and may exercise, all of the powers conferred herein.
IN WITNESS WHEREOF, each of the undersigned directors of Principal
Preservation Portfolios, Inc. has hereunto set his hand as of this 15th day of
May, 1998.
/s/ Robert J. Tuszynski /s/ August J. English
- -------------------------------- --------------------------------
Robert J. Tuszynski August J. English
/s/ Richard J. Glaisner /s/ Ralph J. Eckert
- -------------------------------- --------------------------------
Richard J. Glaisner Ralph J. Eckert
/s/ Richard H. Aster
- --------------------------------
Richard H. Aster
EXHIBIT INDEX
PREVIOUSLY FILED AND
INCORPORATED
BY REFERENCE FROM:
------------------
1933 ACT
POST-EFFECTIVE
EXHIBIT AMENDMENT DATE FILED FILED
NUMBER DESCRIPTION NUMBER WITH SEC HEREWITH
- ------ ----------- ------ -------- --------
(A)(1) Amended and Restated 38 4/30/97
Articles of Incorporation
(A)(2) February 29, 2000 Articles 54 3/2/00
Supplementary
(B) By-Laws 38 4/30/97
(C) Rule 18f-3 Operating Plan 54 3/2/00
(D)(1) Investment Advisory 48 2/12/99
Agreement with B.C. Ziegler
and Company
(D)(2) Investment Advisory 31 12/29/95
Agreement with Ziegler Asset
Management for Cash Reserve
Portfolio
(D)(3) Sub-Advisory Agreement with 48 2/12/99
Ziegler Asset Management
(D)(4) Sub-Advisory Agreement with 47 12/31/98
Geneva Capital Management
(E)(1) Distribution Agreement 48 2/12/99
(E)(2) Amendment No. 1, dated 54 3/2/00
February 29, 2000, to
Amended and Restated
Distribution Agreement
(E)(3) Form of Selected Dealer's 48 2/12/99
Agreement
(F) Not Applicable
(G) Custodian Agreement with 43 5/1/98
Firstar Trust Company
(H)(1) Transfer and Dividend 33 3/27/96
Disbursing Agent Agreement
(H)(2) Accounting/Pricing Agreement 46 10/15/98
(H)(3) Shareholder Servicing 36 12/10/96
Agreement for Class X Retail
Shares of the Cash Reserve
Portfolio
(H)(4) Administrative Services 48 2/12/99
Agreement for Cash Reserve
Portfolio
(H)(5) License Agreement with 37 2/28/97
Pacific Stock Exchange
Incorporated
(H)(6) License Agreement with 51 4/30/99
Standard and Poor's
Corporation
(H)(7) Administration Agreement X
(I) Opinion of Counsel 38 4/30/97
(J)(1) Consent of Independent X
Public Accountants
(J)(2) Consent of Counsel 54 3/2/00
(K) Not Applicable
(L) Not Applicable
(M) Amended and Restated 54 3/2/00
Distribution Plan Pursuant
to Rule 12b-1, including
Form of Related Agreement
with Selected Dealers
(O) See Exhibit (C)
(P) Code of Ethics X
EXHIBIT (H)(7)
ADMINISTRATION AGREEMENT
This Agreement is made this 11th day of April, 2000, by and between
Principal Preservation Portfolios, Inc. ("Principal Preservation"), a Maryland
corporation registered under the Investment Company Act of 1940 ("1940 Act") as
an open-end diversified management investment company, and B.C. Ziegler and
Company, Inc. ("Administrator"), a Wisconsin corporation registered under the
Investment Advisers Act of 1940 as an investment adviser.
1. Appointment. Principal Preservation hereby appoints
-----------
Administrator to furnish certain administrative services with respect to
Principal Preservation and the series of Principal Preservation listed in
Schedule A hereto, as such schedule may be amended from time to time. Each such
- ----------
series is hereinafter referred to as a "Portfolio." Administrator accepts such
appointment and agrees to perform the services described herein.
2. Administrative Services. Subject to the terms of this Agreement
-----------------------
and the supervision and control of Principal Preservation's Board of Directors,
Administrator shall provide the following services:
a. Maintenance and retention of all Principal Preservation
charter documents and the filing of all documents required to maintain Principal
Preservation's status as a Maryland corporation and as a registered open-end
investment company;
b. Arrangement and preparation and dissemination of all
materials for meetings of Principal Preservation's Board of Directors and
committees thereof and review and retention of all minutes and other records
thereof;
c. Preparation and, subject to approval of Principal
Preservation's Chief Accounting Officer, dissemination of Principal
Preservation's and each Portfolio's quarterly financial information to Principal
Preservation's Board of Directors and preparation of such other reports relating
to the business and affairs of Principal Preservation and each Portfolio as the
officers and Principal Preservation's Board of Directors may from time to time
reasonably request;
d. Administration of Principal Preservation's Code of Ethics
and periodic reporting to Principal Preservation's Board of Directors concerning
compliance therewith by persons who are "Access Persons" (as that term is
defined in said Code of Ethics);
e. Provision of internal legal, compliance, audit, and risk
management services and periodic reporting to Principal Preservation's Board of
Directors with respect to such services;
f. Preparation or management of the preparation of responses to
all inquiries by regulatory agencies, the press, and the general public
concerning the business and affairs of Principal Preservation, including the
oversight of all periodic inspections of the operations of Principal
Preservation and its agents by regulatory authorities and responses to subpoenas
and tax levies;
g. Handling and resolution of any complaints registered with
Principal Preservation by shareholders, regulatory authorities, and the general
public;
h. Monitoring or arranging for the monitoring of legal, tax,
regulatory, and industry developments related to the business affairs of
Principal Preservation and communicating such developments to Principal
Preservation's officers and Board of Directors as they may reasonably request or
as the Administrator believes appropriate;
i. Administration of operating policies of Principal
Preservation and recommendation to Principal Preservation's officers and Board
of Directors of modifications to such policies to facilitate the protection of
the shareholders or market competitiveness of Principal Preservation and each
Portfolio and to the extent necessary to comply with new legal or regulatory
requirements;
j. Responding to surveys conducted by third parties and
reporting of each Portfolio's performance and other portfolio information;
k. Filing of claims, monitoring of class actions involving
portfolio securities, and handling administrative matters in connection with the
litigation or settlement of such claims with respect to each Portfolio'
l. Developing, installing and/or maintaining telephone and
automated systems for receiving, recording, tabulating and/or responding to
shareholder inquiries or communications;
m. Facilitating and assisting communication with beneficial
owners of Fund shares by brokers and other service providers who own shares in
street name; and
n. Maintaining and paying membership fees associated with the
Fund's membership in the Investment Company Institute for so long as the Board
of Directors deems it advisable and appropriate to maintain such membership.
3. Use of Affiliated Companies and Subcontractors. In connection
----------------------------------------------
with the services to be provided by Administrator under this Agreement,
Administrator may, to the extent it deems appropriate, and subject to compliance
with the requirements of applicable laws and regulations and upon receipt of
approval of Principal Preservation's Board of Directors, make use of (i) its
affiliated companies, if any, and their directors, officers, and employees and
(ii) subcontractors selected by Administrator, provided that Administrator shall
supervise and remain fully responsible for the services of all such third
parties in accordance with and to the extent provided by this Agreement. All
costs and expenses associated with services provided by any such third parties
shall be borne by Administrator or such parties.
4. Instructions, Opinions of Counsel, and Signatures. At any time
-------------------------------------------------
Administrator may request instructions regarding Principal Preservation from any
duly authorized agent of Principal Preservation, and may consult counsel for
Principal Preservation or its own counsel, in respect of any matter arising in
connection with this Agreement, and it shall not be liable for any action taken
or omitted by it in good faith in accordance with such instructions or with the
advice or opinion of such counsel. Administrator shall be protected in acting
upon any such instruction, advice, or opinion and upon any other paper or
document delivered by Principal Preservation or such counsel believed by
Administrator to be genuine and to have been signed by the proper person or
persons, and shall not be held to have notice of any change of authority of any
officer or agent of Principal Preservation, unless such change was authorized by
a duly authorized employee of Administrator or Administrator shall have received
written notice thereof from Principal Preservation.
5. Expenses Borne by Principal Preservation. Except to the extent
----------------------------------------
expressly assumed by Administrator herein or under a separate agreement between
Principal Preservation and Administrator and except to the extent required by
law to be paid by Administrator, Principal Preservation shall pay all costs and
expenses incidental to the organization, operations, and business of Principal
Preservation and each Portfolio. Without limitation, such costs and expenses
shall include, but not be limited to:
a. All charges of depositories, custodians, and other agencies
for the safekeeping and servicing of its cash, securities, and other property;
b. All charges for equipment or services used for obtaining
price quotations or for communication between Administrator or Principal
Preservation and the custodian, transfer agent, or any other agent selected by
Principal Preservation;
c. All charges for investment advisory, portfolio management,
and fund accounting and pricing services provided to Principal Preservation by
the Administrator, or any other provider of such services;
d. All charges for services of Principal Preservation's
independent auditors and for services to Principal Preservation by legal
counsel;
e. All compensation of directors and officers, other than those
employed by Administrator or its affiliates, all expenses of Principal
Preservation's officers and directors incurred in connection with their services
to Principal Preservation, and all expenses of meetings of the directors or
committees thereof;
f. All expenses incidental to holding meetings of shareholders,
including expenses of printing and supplying to each record-date shareholder
notice and proxy solicitation material, and all other proxy solicitation
expenses;
g. All expenses of printing of annual or more frequent
revisions of Principal Preservation prospectus(es) and of supplying each
existing shareholder with a copy of a revised prospectus; provided, however,
that any such expenses with respect to copies for persons other than existing
shareholders or regulatory agencies shall be paid by Principal Preservation's
distributor);
h. All expenses related to preparing and transmitting
certificates representing Portfolio shares, if any;
i. All expenses of bond and insurance coverage required by law
or deemed advisable by Principal Preservation's Board of Directors;
j. All brokers' commissions and other normal charges incident
to the purchase, sale, or lending of Portfolio securities;
k. All license fees assessed by any securities exchange or
other party for the use by a Portfolio of any trade name or other proprietary
information or intellectual property of such exchange or party;
l. All taxes and governmental fees payable to federal, state,
or other governmental agencies, domestic or foreign, including all stamp or
other transfer taxes;
m. All expenses of registering and maintaining the registration
of Principal Preservation under the 1940 Act and, to the extent no exemption is
available, expenses of registering Principal Preservation shares under the 1933
Act, of qualifying and maintaining qualification of Principal Preservation and
of Principal Preservation shares for sale under the securities laws of various
states or other jurisdictions and of registration and qualification of Principal
Preservation under all other laws applicable to Principal Preservation or its
business activities; and
n. All interest on indebtedness or commitment fees for letters
of credit, if any, incurred by Principal Preservation or a Portfolio.
6. Allocation of Expenses Borne by Principal Preservation. Any
------------------------------------------------------
expenses borne by Principal Preservation that are attributable solely to the
organization, operation, or business of a Portfolio shall be paid solely out of
Portfolio assets. Any expense borne by Principal Preservation which is not
solely attributable to a Portfolio, nor solely to any other series of shares of
Principal Preservation, shall be apportioned in such manner as Administrator
determines is fair and appropriate, or as otherwise specified by Principal
Preservation's Board of Directors.
7. Expenses Borne by Administrator.
-------------------------------
a. Administrator at its own expense shall furnish all executive
and other personnel, office space, and office facilities required to render the
services set forth in this Agreement. However, Administrator shall not be
required to pay or provide any credit for services provided by Principal
Preservation's custodian, transfer agent, or other agents without additional
cost to Principal Preservation.
b. In the event that Administrator pays or assumes any expenses
of Principal Preservation or a Portfolio not required to be paid or assumed by
Administrator under this Agreement, Administrator shall not be obligated hereby
to pay or assume the same or similar expense in the future.
8. Administration Fee. For the services rendered and charges
------------------
assumed and paid by Administrator hereunder, Principal Preservation shall pay to
Administrator out of the assets of each Portfolio fees at the annual rate for
such Portfolio as set forth in Schedule A to this Agreement. For each
----------
Portfolio, the administrative fee shall accrue on each calendar day, and shall
be payable monthly on the first business day of the next succeeding calendar
month. The daily fee accrual shall be computed by multiplying the fraction of
one divided by the number of days in the calendar year by the applicable annual
rate of fee, and multiplying this product by the net assets of Principal
Preservation, determined in the manner established by the Board of Directors, as
of the close of business on the last preceding business day on which the
Portfolio's net asset value was determined.
9. Reduction of Compensation and Reimbursement of Expenses.
-------------------------------------------------------
Administrator may voluntarily reduce any portion of the compensation or
reimbursement of expenses due to it pursuant to this Agreement and may agree to
make payments to limit the expenses which are the responsibility of a Portfolio
under this Agreement. Any such reduction or payment shall be applicable only to
such specific reduction or payment and shall not constitute an agreement to
reduce any future compensation due to Administrator or make any future payment
to limit expenses of a Portfolio hereunder. Any such reduction or payment will
be agreed upon prior to accrual of the related expense or fee and will be
estimated daily.
10. Nonexclusivity. The services of Administrator to Principal
--------------
Preservation hereunder are not to be deemed exclusive, and Administrator shall
be free to render similar services to others.
11. Standard of Care. Neither Administrator, nor any of its
----------------
directors, officers, shareholders, agents or employees shall be liable to
Principal Preservation, any Portfolio, or shareholders of either for any action
taken or thing done by it, or its subcontractors or agents, on behalf of
Principal Preservation or the Portfolio in carrying out the terms and provisions
of this Agreement if done in good faith and without negligence or misconduct on
the part of Administrator, its subcontractors, or agents. Nothing in this
Agreement shall be construed to protect any officer of Administrator from
liability for violation of Section 17(h) or (i) of the 1940 Act.
12. Liability and Indemnification.
-----------------------------
a. Principal Preservation shall indemnify and hold
Administrator and its controlling persons, if any, harmless from any and all
claims, actions, suits, losses, costs, damages, and expenses, including
reasonable expenses for counsel, incurred by it in connection with its
acceptance of this Agreement, in connection with any action or omission by it or
its employees, agents, or subcontractors in the performance of its duties
hereunder to Principal Preservation, or as a result of acting upon any
instruction believed by it to have been executed by a duly authorized agent of
Principal Preservation or as a result of acting upon information provided by
Principal Preservation in form and under policies agreed to by Administrator and
Principal Preservation; provided, however, that (i) to the extent such claims,
actions, suits, losses, costs, damages, or expenses relate solely to one or more
Portfolios, such indemnification shall be only out of the assets of that
Portfolio or group of Portfolios; (ii) this indemnification shall not apply to
actions or omissions constituting negligence or misconduct on the part of
Administrator or its employees, agents, or subcontractors, including, but not
limited to, willful misfeasance, bad faith, or negligence in the performance of
their duties, or reckless disregard of their obligations and duties under this
Agreement; and (iii) Administrator shall give Principal Preservation prompt
notice and reasonable opportunity to defend against any such claim or action in
its own name or in the name of Administrator. In any event, Principal
Preservation shall not be responsible for any claim settled or compromised, or
for any confession of judgment, without its prior written consent, which consent
shall not be unreasonably withheld.
b. Administrator shall indemnify and hold harmless Principal
Preservation from and against any and all claims, demands, expenses, and
liabilities which Principal Preservation may sustain or incur arising out of, or
incurred because of, the negligence or misconduct of Administrator, or its
agents or contractors, or the breach by Administrator of its obligations under
this Agreement, provided, however, that (i) this indemnification shall not apply
to actions or omissions constituting negligence or misconduct on the part of
Principal Preservation, or its other agents or contractors, and (ii) Principal
Preservation shall give Administrator prompt notice and reasonable opportunity
to defend against any such claim or action in its own name or in the name of
Principal Preservation In any event, Administrator shall not be responsible for
any claim settled or compromised, or for any confession of judgment, without its
prior written consent, which consent shall not be unreasonably withheld.
13. Effective Date, Amendment, and Termination.
------------------------------------------
a. This Agreement shall become effective as to any Portfolio as
of the effective date for that Portfolio specified in Schedule A hereto and,
----------
unless terminated as hereinafter provided, shall remain in effect with respect
to such Portfolio thereafter from year to year so long as such continuance is
specifically approved with respect to that Portfolio at least annually by a
majority of the directors who are not interested persons of Principal
Preservation or Administrator.
b. As to Principal Preservation or any Portfolio, this
Agreement may be modified or amended from time to time by mutual agreement
between Administrator and Principal Preservation, and may be terminated by
Administrator or Principal Preservation on at least sixty (60) days' written
notice given by the terminating party to the other party. Upon termination as
to any Portfolio, Principal Preservation shall pay to Administrator such
compensation as may be due under this Agreement as of the date of such
termination and shall reimburse Administrator for its costs, expenses, and
disbursements payable under this Agreement to such date. In the event that, in
connection with a termination, a successor to any of the duties or
responsibilities of Administrator hereunder is designated by Principal
Preservation by written notice to Administrator, upon such termination
Administrator shall promptly, and at the expense of Principal Preservation or
the Portfolio with respect to which this Agreement is terminated, transfer to
such successor all relevant books, records, and data established or maintained
by Administrator under this Agreement and shall cooperate in the transfer of
such duties and responsibilities, including provision, at the expense of such
Portfolio, for assistance from personnel of Administrator in the establishment
of books, records, and other data by such successor.
14. Assignment. Any interest of Administrator under this Agreement
----------
shall not be assigned either voluntarily or involuntarily, by operation of law
or otherwise, without the prior written consent of Principal Preservation.
15. Books and Records.
-----------------
a. Administrator shall maintain, or oversee the maintenance by
such other persons as may from time to time be approved by the Board of
Directors to maintain, the books, documents, records, and data required to be
kept by Principal Preservation under the 1940 Act, the laws -of the State of
Maryland, or such other authorities having jurisdiction over Principal
Preservation, or as may otherwise be required for the proper operation of the
business and affairs of Principal Preservation
b. Administrator will periodically send to Principal
Preservation all books, documents, records, and data of Principal Preservation
and each of its Portfolios listed in Schedule A that are no longer needed for
----------
current purposes or required to be retained as set forth herein. Administrator
shall have no liability for loss or destruction of such books, documents,
records, or data after they are returned to Principal Preservation.
c. Except as the parties otherwise agree, Administrator agrees
that all such books, documents, records, and data which it maintains shall be
maintained in accordance with Rule 31 a-3 of the 1940 Act and that any such
items maintained by it shall be the property of Principal Preservation.
Administrator further agrees to surrender promptly to Principal Preservation any
such items it maintains upon request; provided, however, that Administrator
shall be permitted to retain a copy of all such items. Administrator agrees to
preserve all such items maintained under Rule 31 a- I for the period prescribed
under Rule 31a-2 of the 1940 Act.
d. Principal Preservation shall furnish or otherwise make
available to Administrator such copies of the financial statements, proxy
statements, reports, and other information relating to the business and affairs
of each Portfolio or of Principal Preservation as Administrator may, at any time
or from time to time, reasonably require in order to discharge its obligations
under this agreement.
16. Notice. Any notice under this Agreement shall be in writing,
------
addressed and personally delivered, telecopied (and confirmed by mail) or sent
by certified mail, postage prepaid, to the other party at such address or
telecopy number as such other party may designate for the receipt of such
notices. Such notice shall be deemed given upon the earlier of actual receipt
by the party to be notified or two business days after mailing in the manner
described in the preceding sentence. Until further notice, it is agreed that
the address of both Principal Preservation and Administrator is 215 North Main
Street, West Bend, Wisconsin 53095, Attention: President, and their telecopy
numbers are each (262) 334-0388. With respect to any notice given hereunder to
Principal Preservation, a copy shall be delivered to Quarles & Brady LLP, 411
East Wisconsin Avenue, Milwaukee, Wisconsin 53202, telecopy number (414) 271-
3552, Attention: Conrad G. Goodkind, Esq., and with respect to any notice given
hereunder to Administrator, a copy shall be delivered to B.C. Ziegler and
Company, Inc., 215 North Main Street, West Bend, Wisconsin 53095, telecopy
number (262) 334-1840, Attention: General Counsel.
17. Headings. Headings are placed herein for convenience of
--------
reference only and shall not be taken as part hereof or control or affect the
meaning, construction, or effect of this Agreement.
18. Governing Law. This Agreement shall be governed by the laws of
-------------
the State of Wisconsin.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed by its duly authorized officer as of the date and year written above.
B.C. ZIEGLER AND COMPANY, INC.
By: --------------------------------------------
John Mulherin, President and Chief Executive
Officer
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
By: ---------------------------------------------
Robert J. Tuszynski, President
SCHEDULE A
----------
PORTFOLIO EFFECTIVE DATE RATE OF FEE*<F20>
- --------- -------------- -----------------
Tax-Exempt Portfolio May 1, 2000 0.10%
Government Portfolio May 1, 2000 0.10%
S&P 100 Plus Portfolio May 1, 2000 0.10%
Dividend Achievers Portfolio May 1, 2000 0.10%
Select Value Portfolio May 1, 2000 0.10%
PSE Tech 100 Index Portfolio May 1, 2000 0.10%
Managed Growth Portfolio May 1, 2000 0.10%
Wisconsin Tax-Exempt Portfolio May 1, 2000 0.10%
*<F20> Fee is based on average daily net assets of the Portfolio.
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
April 27, 2000
EXHIBIT (P)
PRINCIPAL PRESERVATION PORTFOLIOS, INC.,
B.C. ZIEGLER AND COMPANY
AND
ZIEGLER ASSET MANAGEMENT, INC.
CODE OF ETHICS WITH RESPECT TO
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SECURITIES TRANSACTIONS OF ACCESS PERSONS
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As Amended May 8, 1997
and
February 3, 2000
TABLE OF CONTENTS
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PAGE
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I. INTRODUCTION 1
II. DEFINITIONS 2
III. STATEMENT OF GENERAL PRINCIPLES 5
IV. RESTRICTIONS ON PERSONAL INVESTING ACTIVITIES 5
V. EXEMPT TRANSACTIONS 7
VI. REPORTING REQUIREMENTS OF ACCESS PERSONS 8
VII. COMPLIANCE MONITORING 10
VIII. REVIEW BY BOARD OF DIRECTORS 10
IX. RECORDS RETENTION 11
X. CONFIDENTIAL TREATMENT 11
XI. VIOLATIONS OF THIS CODE 11
XII. INTERPRETATION OF PROVISIONS 12
XIII. AMENDMENTS TO THE CODE 12
APPENDIX A A-1
APPENDIX B B-1
APPENDIX C C-1
APPENDIX D D-2
APPENDIX E E-5
I. INTRODUCTION
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Rule 17j-1 (the "Rule") under the Investment Company Act of 1940 (the "1940
Act") requires investment companies, as well as their investment advisers and
principal underwriters, to adopt, and the Board of Directors to approve, written
codes of ethics containing provisions reasonably necessary to prevent "access
persons" from engaging in any act, practice, or course of business prohibited
under the anti-fraud provisions of the Rule.1<F21> Pursuant to the requirements
of the Rule, Principal Preservation Portfolios, Inc. (the "Fund") and B.C.
Ziegler and Company and Ziegler Asset Management, Inc. (together, the "Adviser")
have adopted, through approval by a majority of independent directors on the
Board, this Code of Ethics (the "Code") with respect to the securities
transactions of the directors, officers, and certain employees of the Fund and
the directors, officers and certain employees of the Adviser that come within
the term "access person," as defined below. To the extent the Fund employs a
sub-adviser other than Ziegler Asset Management, Inc. to manage any series of
the Fund, the provisions of this Code shall apply to such sub-adviser with
respect to the series of the Fund for which it acts as sub-adviser. However,
any such sub-adviser need not comply with the provisions of this Code if it has
adopted its own code of ethics with provisions determined by management of the
Fund to be generally comparable to the provisions of this Code, in which case
the sub-adviser shall provide a quarterly report to the Fund as to compliance by
the sub-adviser's access persons with the sub-adviser's code of ethics.
1<F21> Rule 17j-1 under the 1940 Act provides that it is unlawful for any
affiliated person of or principal underwriter for a registered investment
company, or any affiliated person of such company's investment adviser or
principal underwriter, in connection with any purchase or sale, directly or
indirectly, by such person of a "security held or to be acquired" (as defined
therein) by such investment company, to engage in any of the following acts,
practices or courses of business:
A. employ any device, scheme, or artifice to defraud such investment
company,
B. make to such investment company any untrue statement of a material
fact or omit to state to such investment company a material fact
necessary in order to make the statements made, in light of the
circumstances under which they are made, not misleading;
C. engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon any such investment company;
and
D. engage in any manipulative practice with respect to such investment
company.
This Code reflects the principal recommendations in the May 9, 1994 Report
of the Investment Company Institute Advisory Group on Personal Investing. It is
intended to provide guidance to access persons of the Fund and the Adviser in
the conduct of their personal investments to eliminate the possibility of
securities transactions occurring that place, or appear to place, such persons
in conflict with the interests of the Fund or their shareholders.2<F22> As
required by the Rule, a copy of this Code has been filed with the Securities and
Exchange Commission.
2<F22> Consistent with Section 206 of the Investment Advisers Act of 1940 and
Rules 2042(a)(12) and (13), and to the extent appropriate, the access persons of
the Adviser shall abide by the principles established by this Code and the
specific reporting and other requirements hereof when dealing with other
advisory clients of the Adviser.
Your receipt of this Code for your review and signature means that you are
a person to whom the Code applies. You are required to certify annually that
you have read, understood and complied with this Code. See Appendix C.
If you have any questions concerning this Code, please contact the
Compliance Officer for the Fund and/or Fund counsel.
II. DEFINITIONS
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A. Access Person. "Access person" means any director, officer, general
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partner or "advisory person" (as hereinafter defined) of the Fund or
any director, officer, partner or "advisory person" of the Adviser
who, with respect to the Fund, makes any recommendation regarding the
purchase or sale of a security by the Fund, participates in the
determination of which recommendation shall be made, or whose
principal function or duties relate to the determination of which
recommendation shall be made to the Fund, who, in connection with
his3<F23> duties, has access to any information concerning securities
recommenda tions being made by the Adviser (including any sub-adviser)
to the Fund; or who is the Fund's Compliance Officer or a designated
alternate of such officer.
3<F23> The use of the masculine pronoun is for convenience of reference only
and is intended to include the feminine in all cases, unless the context
requires otherwise.
B. Advisory Person. "Advisory person" means (a) any employee of the Fund
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or the Adviser who, in connection with his regular functions or
duties, makes, participates in, or obtains information regarding the
purchase or sale of a security (as defined in II.H. below) by or on
behalf of the Fund, or (b) any employee of the Fund or the Adviser
whose functions relate to the making of any recommendations with
respect to such purchases or sales. In the event that any individual
or company is in a control relationship with the Fund or the Adviser,
the term "advisory person" includes such individual company, or any
employee of such a company to the same extent as an employee of the
Fund or the Adviser.
C. Beneficial Ownership. "Beneficial Ownership" has the same meaning as
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used in Rule 16a-1(a)(2) under the Securities Exchange Act of 1934,
except that the term applies to both debt and equity securities.
"Beneficial ownership" under Rule 16a-1(a)(2) includes accounts of a
spouse, minor children who reside in an access person's home and any
other relatives (parents, adult children, brothers, sisters, etc.)
whose investments the access person directs or controls, whether the
person lives with the access person or not, as well as accounts of
another person (individual, partner, corporation, trust, custodian, or
other entity) if by reason of any contract, understanding,
relationship, agreement or other arrangement the access person obtains
or may obtain therefrom a direct or indirect pecuniary interest. A
person does not derive a direct or indirect pecuniary interest by
virtue of serving as a trustee or executor unless he or a member of
his immediate family has a vested interest in the income or corpus of
the trust or estate. A copy of Release No. 34-18114 issued by the
Securities and Exchange Commission on the meaning of the term
"beneficial ownership" is available upon request from the Fund's
Compliance Officer, and should be reviewed carefully by any access
person before preparing any reports required by this Code.
D. Being Considered for Purchase or Sale. A security is "being
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considered for purchase or sale" when a recommendation to purchase or
sell such security has been made and communicated by an advisory
person of the Fund or the Adviser, in the course of his duties and,
with respect to the person making the recommendation, when such person
seriously considers making such a recommendation.
E. Control. "Control" means the power to exercise a controlling
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influence over the management and policies of a company, unless such
power is solely the result of an official position with such company.
F. Disinterested Director. The term "disinterested director" means a
----------------------
director of the Fund who is not an "interested person" of the Fund
within the meaning of Section 2(a)(19) of the 1940 Act. These
Directors have been designated by the Fund.
G. Portfolio Managers. Persons who make decisions as to the purchase or
------------------
sale of portfolio securities of the Fund.
H. Security. "Security" has the same meaning as in Section 2(a)(36) of
--------
the 1940 Act, except that it shall not include shares of registered
open-end investment companies, securities issued by the Government of
the United States, bankers' acceptances, bank certificates of deposit,
commercial paper, short-term debt securities that are "government
securities" within the meaning of Section 2(a)(16) of the 1940 Act, or
such other money market instruments as designated by the Board of
Directors of the Fund. Copies of Sections 2(a)(36) and 2(a)(16) are
available from the Fund's Compliance Officer.
III. STATEMENT OF GENERAL PRINCIPLES
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The following general fiduciary principles shall govern the personal
investment activities of all access persons.
Each access person shall adhere to the highest ethical standards and shall:
A. at all times, place the interests of the Fund before his personal
interests;
B. conduct all personal securities transactions in a manner consistent
with this Code, so as to avoid any actual or potential conflicts of
interest, or any abuse of position of trust and responsibility; and
C. not take any inappropriate advantage of his position with or on behalf
of the Fund.
Access persons should follow not only the letter of this Code, but also its
spirit and their transactions will be reviewed for this purpose.
IV. RESTRICTIONS ON PERSONAL INVESTING ACTIVITIES
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A. Prior Clearance Required for All Securities Transactions. Unless the
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transaction is exempt under V. below, no access person (other than a
disinterested director of the Fund) may directly or indirectly,
initiate, recommend, or in any other way participate in the purchase
or sale of a security in which such access person has, or by reason of
the transaction may acquire, any direct or indirect beneficial
interest, without first obtaining prior written clearance for such
transaction from the Fund's Compliance Officer or one of such
Officer's designated alternatives. No such person may approve their
own trades. When requesting prior clearance, each access person
should be aware that:
1. all requests for prior clearance must be set forth in writing on
the standard Personal Trading Request and Authorization Form, a
copy of which is attached as Appendix A.
2. prior clearance of a securities transaction is effective for
three business days from and including the date clearance is
granted.
The Fund and advisers shall retain a record of the approval of, and
rationale supporting, any direct or indirect acquisition by investment
personnel of a beneficial interest in securities.
B. Purchases and Sales Involving the Fund (Blackout Periods). Unless the
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transaction is exempt under V. below, no access person (other than a
disinter ested director of the Fund) may (i) execute a securities
transaction on a day during which the Fund has a pending "buy" or
"sell" order in that same security, until that order has been executed
or withdrawn; provided, if the Fund's "buy" or "sell" order is on
behalf of the PSE Tech 100 Index Portfolio, then this blackout period
shall apply only during the first and last hours of trading on the
relevant trading day, or (ii) purchase or sell any security in which
he has, or by reason of such transaction acquires, any direct or
indirect beneficial ownership, in a security being considered for
purchase or sale by the Fund. Additionally, no portfolio manager may
purchase or sell as beneficial owner any security within at least
seven calendar days before and after the Fund trades (or has traded)
in that security.
C. Short-Term Trading Profits. Short term trading by advisory persons in
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accounts as to which they have any beneficial ownership shall be
looked upon with disfavor. All sales and purchases (or purchases and
sales) of the same or equivalent securities within 60 calendar days by
an advisory person shall be reported to the Fund's Board of Directors.
D. Initial Public Offerings. No advisory person may acquire any
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beneficial ownership in any equity securities (or securities
convertible into equity securities) in an initial public offering.
E. Gifts. No advisory person may receive any gift or anything else of
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more than $100 value within any calendar year from any person, entity
or person affiliated with an entity that does business with or on
behalf of the Fund.
F. Private Placements. With regard to private placements, each advisory
------------------
person shall:
1. obtain express prior written approval from the Fund's Compliance
Officer (who, in making such determination, shall consider among
other factors, whether the investment opportunity should be
reserved for the Fund, and whether such opportunity is being
offered to such advisory person by virtue of his position with
the Fund) for any acquisition of securities in a private
placement; and,
2. if and after such authorization to acquire securities in a
private place ment has been obtained, disclose such personal
investment in any subsequent consideration by the Fund (or any
other investment company for which he acts in a capacity as an
advisory person) for investment in that issuer arises.
If the Fund decides to purchase securities of an issuer the
shares of which have been previously obtained for personal
investment by an advisory person, that decision shall be subject
to an independent review by the disinterested directors with no
personal interest in the issuer.
G. Service as a Director. No advisory person shall serve on a board of
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directors of a publicly traded company, absent prior written
authorization by the Board of Directors of the Fund, based upon a
determination that such service would be consistent with the interests
of the Fund.
If board service of an advisory person is authorized by the Board of
Directors of the Fund, such advisory person shall be isolated from the
investment making decisions of the Fund with respect to the company of
which he is a director.
H. Confidentiality. No access person shall reveal to any other person
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(except in the normal course of his duties on behalf of the Fund or
the Adviser) any information regarding securities transactions made,
or being considered, by or on behalf of the Fund.
V. EXEMPT TRANSACTIONS
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The prohibitions described in IV.A and B above shall not apply to:
A. purchases or sales effected in any account over which the access
person has no direct or indirect influence or control, or in any
account of the access person which is managed on a discretionary basis
by a person other than the access person and, with respect to which
the access person does not in fact influence or control purchase or
sale transactions;
B. purchases or sales that are non-volitional on the part of the access
person or the Fund, including mergers, recapitalizations or similar
transaction;
C. purchases that are part of an issuer's automatic dividend reinvestment
plan;
D. purchases effected upon the exercise of rights issued by the issuer
pro rata to all holders of a class of its securities, to the extent
such rights were acquired from such issuer, and sales of such rights
so acquired; and
E. purchases or sales that receive the prior approval of the Fund's
Compliance Officer on the basis that (a) the transaction is not
potentially harmful to the Fund, (b) the transaction would be unlikely
to affect the market in which the portfolio securities for the Fund
are traded, or (c) the transaction is not related economically to the
securities to be purchased, sold, or held by the Fund and the decision
to purchase or sell the security is not the result of material non-
public information. As noted above, prior approval must be set forth
in writing on the Personal Trading Request and Authorization Form
(Appendix A).
F. purchases or sales that receive the prior approval of the Fund's
Compliance Officer and that (a) are in equity securities of a company
for which the market capitalization is at least $2 billion; and (b)
which trades do not constitute more than 2% of the average daily
trading volume in such security over the preceding six months.
VI. REPORTING REQUIREMENTS OF ACCESS PERSONS
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A. Initial Holdings Report. Every access person (except disinterested
-----------------------
directors of the Fund) shall complete, sign and submit to the Fund's
Compliance Officer an Initial Holdings Report no later than 10 days
after becoming an access person. [Persons who became access persons
before March 1, 2000 are not required to submit an Initial Holdings
Report.] The Initial Holdings Report (attached hereto as Appendix D)
shall include the following information:
1. The title, number of shares and principal amount of each security
in which the access person had any direct or indirect beneficial
ownership when the person became an access person;
2. The name of any broker, dealer or bank with whom the access
person maintained an account in which any securities were held
for the direct or indirect benefit of the access person as of the
date the person became an access person; and
3. The date on which the report is submitted by the access person.
B. Quarterly Transaction Reports. Every access person (except
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disinterested directors of the Fund) shall complete, sign and submit a
Quarterly Report to the Fund's Compliance Officer (attached hereto as
Appendix C) which discloses information with respect to transactions
in any security in which such access person has, or by reason of such
transaction, acquires, any direct or indirect beneficial ownership in
the security. The Quarterly Transaction Report shall be submitted no
later than 10 days after the end of each calendar quarter, whether or
not there has been a transaction for the quarter. For any transaction
in a security during the quarter in which the access person had any
direct or indirect beneficial ownership, the Quarterly Transaction
Report shall contain the following information:
1. The date of the transaction, the title, interest rate and
maturity date (if applicable), the number of shares and the
principal amount of the security involved;
2. The nature of the transaction, i.e., purchase, sale or any other
type of acquisition or disposition;
3. the price at which the transaction was effected;
4. the name of the broker, dealer, or bank with or through whom the
transaction was effected; and
5. the date that the report is submitted by the access person.
For any account established by the access person in which any
securities were held during the quarter for the direct or indirect
benefit of the access person, the Quarterly Transaction Report shall
contain the following information:
1. The name of the broker, dealer or bank with whom the access
person established the account;
2. The date on which the account was established; and
3. The date on which the report is submitted by the access person.
In lieu of the report provided as Appendix B, the reporting person may
provide copies of monthly or quarterly brokerage statements reflecting
equivalent information, provided the reporting person dates and signs
each such statement.
D. Annual Holdings Reports. Every access person (except disinterested
-----------------------
directors of the Fund) shall complete, sign and submit to the Fund's
Compliance Officer an Annual Holdings Report no later than 30 days
following the end of the calendar year. The Annual Holdings Report
(attached hereto as Appendix E) shall contain the following
information (which shall be current as of a date no more than 30 days
before the report is submitted):
1. the title, number of shares and principal amount of each security
in which the access person has any direct or indirect beneficial
interest;
2. the name of any broker, dealer or bank with whom the access
person maintained an account in which any securities were held
for the benefit of the access person as of the date when that
person became an access person; and
3. the date when the access person submitted the report.
E. Disinterested Directors. A disinterested director of the Fund shall
-----------------------
report a transaction in a security if the director, at the time of the
transaction, knew or, in the ordinary course of fulfilling his
official duties as a director of the Fund, should have known that,
during the 15-day period immediately preceding or after the date of
the transaction by the director, the security is or was purchased or
sold by the Fund or was considered for purchase or sale.
F. Confirmations. All access persons (other than disinterested directors
-------------
of the Fund) shall direct their brokers to supply to the Fund's
Compliance Officer on a timely basis, duplicate copies of
confirmations of all personal securities transactions.
G. Disclosure of Personal Securities Holdings. All advisory persons
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shall disclose all personal securities holdings upon commencement of
employment and thereafter on an annual basis.
H. Disclaimer of Beneficial Ownership. No Quarterly Report or Initial or
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Annual Holdings Report shall be construed as an admission by the
person making such report that he has any direct or indirect
beneficial ownership in the security to which the report relates.
I. Potential Conflicts of Interest. Every access person shall
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immediately report to the Fund's Compliance Officer any factors of
which the access person is aware that would be relevant to a conflict
of interest analysis, including the existence of any substantial
economic relationship between the access person's transactions and
securities held or to be acquired by the Fund. These factors may
include, for example, officerships or directorships with issuers or
beneficial ownership of more than _ of 1% of the total outstanding
shares of any issuer whose shares are publicly traded or that may be
initially offered to the public in the foreseeable future.
J. Notification of Reporting Obligation. All access persons having a
------------------------------------
duty to file Quarterly Reports and Initial and Annual Holdings Report
hereunder shall be informed of such duty by the Fund's Compliance
Officer and shall be provided with a copy of this Code. Once informed
of the duty to file a Quarterly Report and Initial and Annual Holdings
Report, an access person has a continuing obligation to file such
report, in a timely manner, whether or not the access person had any
securities transactions for the month.
VII. COMPLIANCE MONITORING
---------------------
The Fund's Compliance Officer shall review all Quarterly Reports, Initial
and Annual Holdings Reports, confirmations, and other materials provided to
him regarding personal securities transactions by access persons to
ascertain compliance with the provisions of this Code. The Compliance
Officer shall institute any procedures necessary to monitor the adequacy of
such reports and to otherwise prevent or detect violations of this Code.
The Fund's Compliance Officer shall maintain a list of the names of persons
responsible for reviewing those reports. Upon discovery of a violation of
this Code, it shall be the responsibility of the Fund's Compliance Officer
to report such violation to the management of the Adviser, as well as to
the Board of Directors of the Fund.
VIII.REVIEW BY BOARD OF DIRECTORS
----------------------------
The Fund's Compliance Officer shall regularly (but not less frequently than
annually) furnish to the Board of Directors of the Fund a written report
regarding the administration of this Code. This report shall describe
issues that arose during the previous year under this Code, including but
not limited to information about material violations of this Code and
related procedures, as well as sanctions imposed as a result of these
violations. The report shall also certify to the Board of Directors that
the Fund has adopted procedures reasonably necessary to prevent its access
persons from violating this Code. The Board of Directors should consider
this report and determine whether amendments to the Fund's Code or
procedures are necessary. If any such report indicates that any change to
this Code is advisable, the Compliance Officer shall make an appropriate
recommendation to the Board of Directors. The Compliance Officer also
shall inquire into any apparent violation of this Code and shall report any
apparent violation requiring remedial action to the Board of Directors.
Upon finding such a violation of this Code, including the filing of any
false, incomplete, or untimely Quarterly Report, or the failure to obtain
prior clearance of any personal securities transaction, the Board of
Directors may impose any sanction or take such remedial actions as it deems
appropriate. No director shall participate in a determination of whether
he has committed a violation of this Code or of the imposition of any
sanction against himself.
IX. RECORDS RETENTION
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The Fund and the Adviser shall maintain records in the manner and to the
extent set forth below, which records may be maintained on microfilm under
the conditions described in Rule 31a-2(f)(1) under the 1940 Act:
A. Retention of Copy of Statement. A copy of this Code shall be
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preserved in an easily accessible place;
B. Record of Violations. A record of any violation of this Code and of
--------------------
any action taken as a result of such violation shall be preserved in
any easily accessible place for a period of not less than five years
following the end of the fiscal year in which the violation occurs;
C. Copy of Forms and Reports. A copy of each Personal Trading Request
-------------------------
and Authorization Form and each Quarterly Report, Initial Holdings
Report and Annual Holdings Report prepared and filed by an access
person pursuant to this Code shall be preserved by the Fund's
Compliance Officer for a period of not less than five years from the
end of the fiscal year in which such report is made, the first two
years in an easily accessible place;
D. List of Access Persons. A list of all persons who are, or within the
----------------------
past five years of business have been, required to file Personal
Trading Request and Authorization Forms, Quarterly Reports, Initial
Holdings Reports and Annual Holdings Reports pursuant to this Code
shall be maintained in an easily accessible place; and
E. Sites of Records to be Kept. All such records and/or documents
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required to be maintained pursuant to this Code shall be kept at the
offices of the Fund. The Fund shall also maintain a record of any
decision, and the reasons supporting the decision, to approve the
acquisition by investment personnel of a beneficial interest in
securities for not less than five years following the end of the
fiscal year in which the approval is granted.
X. CONFIDENTIAL TREATMENT
----------------------
All reports and other records required to be filed or maintained under this
Code shall be treated as confidential, except to the extent required by law.
XI. VIOLATIONS OF THIS CODE
-----------------------
Violations of this Code may result in the imposition of sanctions or the
taking of such remedial steps as the Fund and/or the Adviser may deem
appropriate, including, but not limited to, unwinding the transaction or, if
impractical, disgorgement of any profit from the transaction, a letter of
censure, reduction in salary, and suspension or termination of employment. No
director or officer of the Adviser or director or officer of the Fund shall
participate in a determination of whether he has committed a violation of this
Code or of the imposition of any sanction against himself.
In addition, the Fund or the Adviser may report any violations to the
appropriate regulatory authority, including the Securities and Exchange
Commission.
XII. INTERPRETATION OF PROVISIONS
----------------------------
The Board of Directors of the Fund and management of the Adviser may, from
time to time, adopt such interpretations of this Code as such Board or
management deems appropriate.
XIII.AMENDMENTS TO THE CODE
----------------------
Any material change to the Code subsequent to its initial approval must be
approved within six months of the change by the Board of Directors of the Fund.
Any amendment to the Code shall be effective 30 calendar days after written
notice of such amendment shall have been received by the Fund's Compliance
Officer, unless the Board of Directors of the Fund or the management of the
Adviser, as appropriate, expressly determines that such amendment shall become
effective on an earlier date or shall not be adopted.
APPENDIX A
PERSONAL TRADING REQUEST AND AUTHORIZATION FORM
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Personal Trading Request (to be completed by access person prior to any personal
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trade):
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Name: -------------------------------------------------------------------------
Date of proposed transaction: -------------------------------------------------
Name of the issuer and dollar amount or number of securities of the issuer
proposed to be purchased or sold: ---------------------------------------------
- --------------------------------------------------------------------------------
Nature of transaction (i.e., purchase, sale):1<F24> ---------------------------
- --------------------------------------------------------------------------------
Are you or is a member of your immediate family an officer or director of the
issuer of the securities or any affiliate2<F25> of the issuer? Yes --- No ---
If yes, please describe: -------------------------------------------------
- --------------------------------------------------------------------------------
Describe the nature of any direct or indirect professional or business
relationship that you may have with the issuer of the securities.3<F26>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1<F24> If other than a market order, please describe any proposed limits.
2<F25> For purposes of this question, "affiliate" includes (i) any entity that
directly or indirectly owns, controls, or holds with power to vote 5% or more of
the outstanding voting securities of the issuer and (ii) any entity under common
control with the issuer.
3<F26> A "professional relationship" includes, for example, the provision of
legal counsel or accounting services. A "business relationship" includes, for
example, the provision of consulting services or insurance coverage.
Do you have any material nonpublic information concerning the issuero
Yes --- No ---
Do you beneficially own more than 1/2 of 1% of the outstanding equity securities
of the issuero
Yes --- No ---
If yes, please report the name of the issuer and the total number of shares
"beneficially owned": ---------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Are you aware of any facts regarding the proposed transaction, including the
existence of any substantial economic relationship, between the proposed
transaction and any securities held or to be acquired by the Fund that may be
relevant to a determination as to the existence of a potential conflict of
interesto4<F27> Yes --- No ---
If yes, please describe: -------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
To the best of your knowledge and belief, the answers that you have
provided above are true and correct.
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Signature
4<F27> Facts that would be responsive to this question include, for example,
the receipt of "special favors" from a stock promotor, such as participation in
a private placement or initial public offering, as an inducement to purchase
other securities for the Fund. Another example would be investment in
securities of a limited partnership that in turn owned warrants of a company
formed for the purpose of effecting a leveraged buy-out in circumstances where
the Fund might invest in securities related to the leveraged buyout. The
foregoing are only examples of pertinent facts and in no way limits the types of
facts that may be responsive to this question.
Approval or Disapproval of Personal Trading Request (to be completed by
- -----------------------------------------------------------------------
Compliance Officer or a designated alternative for the Compliance Officer):
- --------------------------------------------------------------------------
- --- I confirm that the above-described proposed transaction appears to be
consistent with the policies described in the Code and that the conditions
necessary5<F28> for approval of the proposed transaction have been
satisfied.
- --- I do not believe the above-described proposed transaction is consistent
with the policies described in the Code or that the conditions necessary
for approval of the proposed transaction have been satisfied.
Dated: ---------------------- Signed: ------------------------------------
Title: -------------------------------------
5<F28> In the case of a personal securities transaction by an access person of
the Fund (other than disinterested trustees of the Fund), the Code of Ethics of
the Fund requires that the Fund's Compliance Officer (or a designated
alternative for the Compliance Officer) determine that the proposed personal
securities transaction (i) is not potentially harmful to the Fund, (ii) would be
unlikely to affect the market in which the Fund's portfolio securities are
traded, or (iii) is not related economically to securities to be purchased,
sold, or held by the Fund. In addition, the Code requires that the Fund's
Compliance Officer (or a designated alternative for the Compliance Officer)
determine that the decision to purchase or sell the security at issue is not the
result of information obtained in the course of the access person's relationship
with the Fund.
APPENDIX B
QUARTERLY SECURITIES TRANSACTIONS REPORT
FOR THE QUARTER ENDED ---------------- ,200-
- --------------------------------------
NAME
Reportable Securities Transactions are all securities transactions of
----------------------------------
access persons1<F29> of Principal Preservation Portfolios, Inc. (the "Fund"),
regardless of the size of the securities transaction. A report must be filed
quarterly, by the tenth day after the end of each calendar quarter, whether or
not you have had any securities transactions for the prior quarter. Each report
must cover all accounts in which you have a direct or indirect beneficial
ownership interest (unless you have no influence or control over such accounts)
and all non-client accounts that you manage or with respect to which you give
investment or voting advice.
I (had ----- had no -----) reportable securities
transactions during the above quarter.
Please describe all reportable securities transactions on the reverse side.
Copies of confirmation statements may be attached to a signed report in lieu of
setting forth the information otherwise required. Use additional copies of this
form if necessary.
To the best of my knowledge and belief, the answers set out in this Report
are true and correct.
--------------------------------------------
Signature
1<F29> The term "access person" is defined in the Code of Ethics. Certain
securities are exempted under Section II.H. of the Code.
REPORTABLE SECURITIES TRANSACTION2<F30>
Date of transaction: ----------------------------------------------------------
Name of the issuer and dollar amount or number of securities of the issuer
purchased or sold: ------------------------------------------------------------
- --------------------------------------------------------------------------------
Nature of transaction (i.e., purchase, sale, or other type of acquisition or
disposition): ------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Price at which the transaction was effected: -----------------------------------
- --------------------------------------------------------------------------------
Name of broker, dealer, or bank with or through whom the transaction was
effected: ----------------------------------------------------------------------
- --------------------------------------------------------------------------------
Does the transaction involve:
(a) sale of securities purchased
within the last 60 days (or
the purchase of securities sold
within the last 60 days)o Yes --- No ---
(b) purchase or sale of private
placement securitieso Yes --- No ---
(c) purchase of a security in an
initial public offeringo Yes --- No ---
OTHER RELEVANT INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2<F30> This Report shall not be construed as an admission by the person making
such Report that he or she has any direct or indirect beneficial interest in the
security or securities to which the Report relates.
APPENDIX C
ANNUAL CERTIFICATION
--------------------
I hereby certify that I (i) have read and understand the Code of Ethics of
Principal Preservation Portfolios, Inc., dated --------------, (ii) recognize
that I am subject to the Code of Ethics, (iii) have complied with the
requirements of the Code of Ethics over the past year, and (iv) have disclosed
all personal securities transactions, over the past year, required to disclosed
by the Code of Ethics.
Signed: -------------------------
Date: -------------------------
APPENDIX D
INITIAL SECURITIES HOLDINGS REPORT
- -----------------------------------
NAME
Reportable Securities Transactions are all securities transactions of
----------------------------------
access persons3<F31> of Principal Preservation Portfolios, Inc. (the "Fund"),
regardless of the size of the securities transaction. A report must be filed no
later than ten days after an individual becomes an access person. Each report
must cover all accounts in which you have a direct or indirect beneficial
ownership interest (unless you have no influence or control over such accounts)
and all non-client accounts that you manage or with respect to which you give
investment or voting advice.
I (have ----- have no -----) beneficial ownership
interest in securities as described above.
Please describe all reportable securities transactions on the reverse side.
Copies of confirmation statements may be attached to a signed report in lieu of
setting forth the information otherwise required. Use additional copies of this
form if necessary.
To the best of my knowledge and belief, the answers set out in this Report
are true and correct.
- ----------------------------------- ----------------------------------------
Date Submitted Signature
The undersigned, ----------------------------, in my capacity as the Fund's
Compliance Officer, hereby certify receipt of this Initial Holdings Report on
the ---- day of ---------, 200-.
3<F31> The term "access person" is defined in the Code of Ethics. Certain
securities are exempted under Section II.H. of the Code.
REPORTABLE SECURITIE4<F32>
Date of acquisition of interest: ----------------------------------------------
Name of the issuer and dollar amount or number of securities of the issuer
purchased or sold: ------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Price at which the security was acquired: -------------------------------------
- --------------------------------------------------------------------------------
Name of broker, dealer, or bank with or through whom the security was acquired:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Do your holdings include:
(a) securities purchased
within the last 60 days (or
the purchase of securities sold
within the last 60 days)o Yes --- No ---
(b) private placement securitieso Yes --- No ---
(c) any security purchased in an
initial public offeringo Yes --- No ---
OTHER RELEVANT INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4<F32> This Report shall not be construed as an admission by the person making
such Report that he or she has any direct or indirect beneficial interest in the
security or securities to which the Report relates.
APPENDIX E
ANNUAL SECURITIES HOLDINGS REPORT
FOR THE FISCAL YEAR ENDED ----------------- ,200-
- -------------------------------------
NAME
Reportable Securities Holdings are all securities holdings of access
------------------------------
persons3<F33> of Principal Preservation Portfolios, Inc. (the "Fund"),
regardless of the size of the securities transaction. A report must be filed
annually, by the tenth day after the end of each calendar year, whether or not
you have had any securities transactions for the prior year. Each report must
cover all accounts in which you have a direct or indirect beneficial ownership
interest (unless you have no influence or control over such accounts) and all
non-client accounts that you manage or with respect to which you give investment
or voting advice.
I (have ----- have no -----) beneficial ownership interest in securities as
described above during the above year.
Please describe all reportable securities transactions on the reverse side.
Copies of confirmation statements may be attached to a signed report in lieu of
setting forth the information otherwise required. Use additional copies of this
form if necessary.
To the best of my knowledge and belief, the answers set out in this Report
are true and correct.
- --------------------------------- -----------------------------------
Date Submitted Signature
The undersigned, -------------------------------, in my capacity as the Fund's
Compliance Officer, hereby certify receipt of this Annual Holdings Report on the
- ---- day of ---------, 200-.
------------------------------------------
Compliance Officer
3<F33> The term "access person" is defined in the Code of Ethics. Certain
securities are exempted under Section II.H. of the Code.
REPORTABLE SECURITIES2<F34>
Date of acquisition of interest: ----------------------------------------------
Name of the issuer and dollar amount or number of securities of the issuer held:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Price at which the security was acquired: -------------------------------------
- --------------------------------------------------------------------------------
Name of broker, dealer, or bank with or through whom the security was acquired:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Do your holdings include:
(a) securities purchased
within the last 60 days (or
the purchase of securities sold
within the last 60 days)o Yes --- No ---
(b) private placement securitieso Yes --- No ---
(c) any security purchased in an
initial public offeringo Yes --- No ---
OTHER RELEVANT INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2<F34> This Report shall not be construed as an admission by the person making
such Report that he or she has any direct or indirect beneficial interest in the
security or securities to which the Report relates.
