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. 56
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 x
Amendment No. 58
----
(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.
WISCONSIN TAX-EXEMPT PORTFOLIO
This Prospectus has information you should know before you decide to
invest. Please read it carefully and keep it with your investment records.
There is a Table of Contents on the next page which allows you to quickly find
information about investment risks and strategies, Portfolio managers, buying
and selling shares and other information about the Portfolio.
Principal Preservation Portfolios, Inc. ("Principal Preservation") is a
family of mutual funds contained within a single investment company organized in
1984 as a Maryland corporation. Principal Preservation presently offers nine
different mutual fund selections. This Prospectus describes one of those mutual
funds, the Wisconsin Tax-Exempt Portfolio. Its investment objective is to
provide investors with a high level of current income that is exempt from
federal income tax and Wisconsin personal income tax. The Portfolio is a non-
diversified mutual fund. This means that the Portfolio may invest significant
portions of its assets in bonds issued or guaranteed by a single business,
agency or enterprise.
B.C. Ziegler and Company serves as investment advisor to the Portfolio. We
sometimes refer to B.C. Ziegler and Company as Ziegler or the "Advisor."
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. IF
ANYONE TELLS YOU OTHERWISE THEY ARE COMMITTING A CRIME.
================================================================================
THE DATE OF THIS PROSPECTUS IS MAY 1, 2000.
QUICK REFERENCE
RISK/RETURN INFORMATION:
Specific investment objectives, strategies, risks,
expenses and performance information: 3
Additional investment practices and strategies
of the Portfolio and associated risks 6
ACCOUNT INFORMATION, SHAREHOLDER SERVICES AND HOW TO BUY OR SELL SHARES:
How to buy Portfolio shares (including sales
charges and combined purchase programs) 10
How to redeem Portfolio shares 14
How to exchange with other Principal Preservation funds 15
How to begin an automatic investment plan 17
How to begin an automatic withdrawal plan 17
MANAGEMENT:
Investment Advisor 9
Sub-Advisor 9
Portfolio Manager 10
Transfer Agent 10
RISK/RETURN INFORMATION; INVESTMENT OBJECTIVE AND STRATEGIES
INVESTMENT OBJECTIVE
The Wisconsin Tax-Exempt Portfolio (the "Portfolio") seeks to provide
investors with a high level of current income that is exempt from federal income
tax and Wisconsin personal income tax.
INVESTMENT STRATEGY AND PROGRAM
INVESTMENT PROGRAM. The Portfolio attempts to achieve its objective by
investing primarily in municipal bonds and other debt securities that pay
interest which is exempt from federal income tax and from Wisconsin personal
income tax. Under normal market conditions, the Portfolio will invest primarily
in municipal bonds issued by the State of Wisconsin, its municipalities, other
political subdivisions and public authorities of Wisconsin and similar
obligations of other agencies and entities (including territories and
possessions of the United States and their political subdivisions and public
authorities, and sovereign nations located within the territorial boundaries of
the United States).
As a matter of fundamental policy, the Portfolio will invest its assets so
that at least 80% of the income earned on those investments will be exempt from
federal and Wisconsin personal income taxes and also will be exempt from federal
and applicable state alternative minimum taxes. The Portfolio generally will
strive to invest all of its assets in this fashion.
TAX EXEMPT OBLIGATIONS. We use the term "Tax Exempt Obligations" to refer
to debt obligations issued by or on behalf of a state or territory or its
agencies, instrumentalities, municipalities and political subdivisions and
sovereign nations within the territorial boundaries of the United States. These
entities issue (sell) Tax Exempt Obligations primarily to finance various public
purposes, such as constructing public facilities and making loans to public
institutions. Tax Exempt Obligations may be either general obligation bonds or
revenue bonds. General obligation bonds normally are secured by the full faith
and credit of an agency with taxing power. The taxing authority makes interest
and principal payments on these bonds from its general unrestricted revenues.
The issuer of a revenue bond, on the other hand, makes interest and principal
payments from revenues generated from a particular source or facility, such as a
tax on particular property or revenues generated from a municipal water or sewer
utility or an airport. A municipality also sometimes issues short term notes in
anticipation of their sale of bonds, collection of taxes or receipt of other
revenue (anticipation notes).
Only limited categories of Tax Exempt Obligations are exempt from Wisconsin
personal income taxes. These include:
o Higher education bonds issued by the State of Wisconsin
o Public housing authority bonds issued by Wisconsin municipalities
o Redevelopment authority bonds issued by Wisconsin municipalities
o Certain bonds issued by the Wisconsin Housing and Economic Development
Authority
o Wisconsin Housing Finance Authority Bonds
o Certain general obligation bonds issued by the District of Columbia,
Puerto Rico, the U.S. Virgin Islands and Guam
o Certain public housing agency bonds issued by agencies located outside
of Wisconsin
Because of these limited categories of double tax exempt bonds, the
Portfolio may not always be able to invest its assets in Tax Exempt Obligations
issued in Wisconsin. When the Advisor is unable to find a sufficient supply of
qualifying Tax Exempt Obligations issued in Wisconsin, the Advisor may invest
more than 25% of the Portfolio's assets in securities of Puerto Rico, Guam or
the U.S. Virgin Islands and their municipalities and other political
subdivisions and public authorities.
CREDIT QUALITY OF TAX EXEMPT OBLIGATIONS. The Portfolio may invest any
portion of its assets in Tax Exempt Obligations rated at the time of purchase
within the four highest grades assigned by either Moody's Investors Service,
Inc. or Standard & Poor's Ratings Services. These are considered investment
grade securities. The Portfolio also may invest in unrated Tax Exempt
Obligations that the Advisor determines, at the time of purchase, are of
comparable quality to investment grade securities.
The Portfolio may invest up to 20% of its assets in Tax Exempt Obligations
that are rated in the fifth highest rating category by Moody's or Standard &
Poor's or, if unrated, that the Advisor determines to be of comparable quality
to bonds rated in the fifth highest category. These below investment grade
bonds (sometimes referred to as junk bonds) carry a higher risk of nonpayment
and tend to fluctuate more in market price than is the case for higher rated
bonds. We discuss these risks in more detail under the subsection of this
Prospectus titled "Investment Risks - Junk Bond Risks."
It is possible that, after the Portfolio purchases a Tax Exempt Obligation
which meets its credit quality standards, Moody's or Standard & Poor's may
downgrade the bond, or the Advisor may reassess its view of the issuer's credit
quality. The Advisor will consider such an event in determining whether the
Portfolio should continue to hold the bond, but will not automatically dispose
of the bond solely because it has been downgraded. However, if such a downgrade
causes more than 5% of the Portfolio's total assets to be invested in Tax Exempt
Obligations that do not meet the Portfolio's minimum credit standards, then the
Advisor promptly will sell some of the downgraded Tax Exempt Obligations so that
less than 5% of the Portfolio's total assets are invested in such bonds.
In analyzing rated and unrated Tax Exempt Obligations, the Advisor obtains
and reviews available information on the creditworthiness of the persons
obligated to make principal and interest payments (including any persons who
guarantee the borrower's payment obligations). The Advisor also considers
various qualitative factors and trends that affect Tax Exempt Obligations
generally.
PRINCIPAL INVESTMENT RISKS
You assume risk when you purchase shares of the Portfolio, and you could
lose money. Money you invest in the Portfolio is not a bank deposit. Your
investment is not insured or guaranteed by the Federal Deposit Insurance
Corporation ("FDIC") or any other governmental agency. As with any mutual fund,
the Portfolio cannot guarantee that it will achieve its investment objective.
The value of the Portfolio's shares and their yield will increase and decrease
over time, primarily in response to interest rate fluctuations.
MARKET RISK. Market risk is the possibility that the Portfolio's Tax
Exempt Obligations will decline in value. Factors that potentially could cause
such a decline include: (1) an increase in interest rates; (2) adverse changes
in supply and demand for Tax Exempt Obligations because of market, sector,
industry or political factors; or (3) the unavailability or inaccuracy of key
information about a particular Tax Exempt Obligation, its issuer or the market
in which it trades. The market values of longer maturity bonds tend to vary
more with changes in interest rates than is the case for bonds of shorter
maturities. Because the Portfolio's bonds are of fairly long maturities
(averaging between 15 and 25 years on a dollar weighted basis), the value of the
Portfolio's shares could be volatile in changing interest rate environments.
CREDIT RISK. Credit Risk is the possibility that the borrower of bond
proceeds, or its guarantor, will not be able to make timely principal and
interest payments. The creditworthiness of borrowers could deteriorate because
of: (1) general economic conditions; (2) adverse developments that affect the
industry in which the borrower conducts its business; or (3) adverse
developments that affect the borrower's business uniquely. Such deterioration
causes a higher risk of default on interest and principal payments, and likely
would cause the Portfolio's Tax Exempt Obligations to decline in value.
JUNK BOND RISKS. The Portfolio may invest in bonds rated in the fourth
highest rating category. Bonds in this category have speculative
characteristics.
Also, the Portfolio may invest up to 20% of its total assets in Tax Exempt
Obligations rated below investment grade (junk bonds). Below investment grade
bonds offer higher yields than investment grade bonds, but also carry greater
risk. They are more vulnerable to default than higher grade bonds, and are more
susceptible to adverse business, financial and economic conditions that impair
the capacity and willingness of borrowers to make scheduled interest and
principal payments. Standard & Poor's regards these bonds as having the
ability, at the time they are rated, to meet scheduled interest and principal
payments. Moody's characterizes the assurance of interest and principal
payments on these bonds over any extended period of time as small. The market
prices of these bonds tend to fluctuate more in times of economic uncertainty
than is the case for higher rated bonds. The Portfolio attempts to minimize its
exposure to this risk by limiting its investments in junk bonds to those rated
in the fifth and sixth highest categories (which is no more than two grades
below investment grade).
GEOGRAPHIC CONCENTRATION RISK. The Portfolio normally will invest
significant portions of its assets in several specific geographic areas.
Political, business and economic conditions and developments within Wisconsin
and, to a lesser extent, Puerto Rico and Guam (and perhaps the U.S. Virgin
Islands) will affect the Portfolio's performance, because the Portfolio's
investments primarily will be made in those geographic territories.
INDUSTRY CONCENTRATION. The Portfolio does not seek to concentrate its
investments in any particular industry, and generally will not invest more than
25% of its assets in Tax Exempt Obligations payable from the revenues of any
single industry. However, when the Advisor is unable to find a sufficient
supply of other appropriate Tax Exempt Obligations, it may invest more than 25%
of the Portfolio's assets in bonds payable from the revenues of any of the
housing, healthcare or utilities industries. Any economic, business, political
and other changes that affect one such revenue bond potentially could affect
other revenue bonds in the same industry segment. The resulting industry
concentration could increase the Portfolio's market risk or credit risk, or
both.
TAX RISK. The Portfolio may invest up to 20% of its total assets in Tax
Exempt Obligations that generate interest which is subject to alternative
minimum tax. As a result, taxpayers who are subject to the alternative minimum
tax potentially could earn a lower after-tax return.
As discussed above, the Portfolio may invest more than 25% of its assets in
any or all of the housing, healthcare and utilities industries. Like most
revenue bonds, the federal and Wisconsin tax-exempt status of these bonds
depends upon compliance with certain provisions of the Internal Revenue Code of
1986, as amended (the "Tax Code"). If the project or facility being financed,
the obligor of the revenue bond, some feature or attribute of the revenue bond
itself or some other factor or participant fails to comply with these provisions
of the Tax Code, then interest on the bonds may become taxable (possibly
retroactive to the date of issuance). This would reduce the value of the bonds,
subjecting shareholders (including the Portfolio) to unanticipated tax
liabilities and possibly force the Portfolio to sell the bonds at a reduced
value.
WHO SHOULD INVEST IN THE PORTFOLIO
The Wisconsin Tax-Exempt Portfolio is designed for long term investors who
seek a high level of current income that is exempt from both federal and
Wisconsin income tax, and who prefer to invest primarily in municipalities and
projects located in the State of Wisconsin.
PERFORMANCE INFORMATION
PAST PERFORMANCE. The bar chart and table below provide you with
information about the Portfolio's annual return and yield. You should bear in
mind that past performance is not an indication of future results.
The bar chart demonstrates the variability of the annual total returns of
the Portfolio's shares for the calendar years indicated. The chart does not
reflect front end sales loads that you pay when you buy shares of the Portfolio.
If the chart reflected those sales loads, the returns shown would be lower.
Also, the Advisor reimbursed expenses and/or waived fees that the Portfolio
otherwise would have paid for certain of the years presented. If the Advisor
had not taken those actions, the returns for the relevant years would have been
lower.
WISCONSIN TAX-EXEMPT PORTFOLIO
Average Annual
Year Total Return*<F1>
1995 16.30%
1996 3.30%
1997 8.70%
1998 5.40%
1999 -3.75%
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*<F1>As a percent of average net
assets.
HIGHEST QUARTERLY RETURN:
7.33%, 1st Quarter, 1995
LOWEST QUARTERLY RETURN:
(3.53%), 4th Quarter, 1994
The tables below compare the average annual return and yield on shares of
the Portfolio with that of a broad measure of market performance over the
periods indicated. The returns presented for the Portfolio reflect the maximum
front-end sales charge. No comparable reduction has been made in the returns
presented for the Index.
AVERAGE ANNUAL TOTAL PERIOD FROM JUNE 13, 1994
RETURN (FOR THE PERIODS PAST (COMMENCEMENT OF OPERATIONS)
ENDING DECEMBER 31, 1999) ONE YEAR FIVE YEAR THROUGH DECEMBER 31, 1999
- ------------------------- -------- --------- -------------------------
Wisconsin Tax-Exempt
Portfolio (7.12)% 5.01% 3.24%
Lehman 20-Year
Municipal Bond Index*<F2> (4.67)% 7.38% 7.08%
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*<F2> The Lehman 20-Year Municipal Bond Index is a broad based index containing
over 22,000 issues with maturities ranging from two to thirty years. The
bonds included in the Index were issued in offerings of $50 million or
more completed within the past five years. The average quality rating of
municipal bonds included in the Index is "AA."
YIELD FOR THE 30 DAYS ENDED TAXABLE
DECEMBER 31, 1999 (ANNUALIZED) TAX EXEMPT EQUIVALENT YIELD(1)<F3>
- ------------------------------ --------- -----------------------
Wisconsin Tax-Exempt Portfolio 4.46% 7.92%
Lehman 20-Year Municipal Bond Index 6.04% 10.73%
- ------------------------------
(1)<F3> Based upon a combined Wisconsin personal income tax rate of 6.77% and a
federal income tax rate of 39.6%, adjusted to reflect the deductibility
of state taxes, resulting in an effective combined rate of 43.69%.
For current yield information, please call 1-800-826-4600.
FEES AND EXPENSES. You should carefully consider fees and expenses when
choosing a mutual fund. As a shareholder, you pay the costs of operating a
fund, plus any transaction costs associated with buying, selling and exchanging
shares.
Shareholder transaction expenses are charges you pay when you buy, sell or
exchange shares. In the case of purchases and exchanges, shareholder
transaction expenses reduce the amount of your payment that is invested in
shares of the mutual fund. In the case of sales, shareholder transaction
expenses reduce the amount of the sale proceeds returned to you.
Annual fund operating expenses, on the other hand, are expenses that a
mutual fund pays to conduct its business, including investment advisory fees and
the costs of maintaining shareholder accounts, administering the fund, providing
shareholder services and other activities of the mutual fund. Mutual 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 shares of the Portfolio.
SHAREHOLDER FEES (FEES YOU PAY DIRECTLY WHEN YOU INVEST)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) (1)<F4> 3.5%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
Contingent Deferred Sales Charge (Load) None
Redemption Fees ($12.00 charge for each wire redemption) None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO
ASSETS)(2)<F5>
Management Fees 0.50%
Distribution (12b-1) Fees 0.25%
Other Expenses:
Custodian Fees 0.02%
Transfer Agent Fees 0.06%
Administrative Services Fee 0.10%
Other Fees 0.18%
Total Other Expenses 0.36%
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Annual Fund Operating Expenses(3)<F6> 1.11%
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(1)<F4>To determine if you qualify for a lower sales charge, see "Purchasing
Shares" and "Shareholder Services."
(2)<F5>The percentages expressing annual operating expenses are based on
amounts actually incurred during the year ended December 31, 1999.
(3)<F6>The Advisor contractually has committed to waive fees and or reimburse
expenses to the Fund so that annual fund operating expenses will not
exceed 1.15% for the fiscal year ending December 31, 2000.
The following example is intended to help you compare the cost of investing
in the Portfolio with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in 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 if for
comparison purposes only. Actual returns and costs may be higher or lower.
AFTER 1 YEAR AFTER 3 YEARS AFTER 5 YEARS AFTER 10 YEARS
------------ ------------- ------------- --------------
$458 $687 $934 $1,639
If you wish to review historical financial information about the Portfolio,
please refer to the section of this Prospectus captioned "Financial Highlights."
OTHER INVESTMENT STRATEGIES AND CONSIDERATIONS
MORE ABOUT TAX EXEMPT OBLIGATIONS
Tax Exempt Obligations include primary debt obligations which fund various
public purposes such as constructing public facilities and making loans to
public institutions. The two principal classifications of Tax Exempt
Obligations are general obligation bonds and revenue bonds. General obligation
bonds are generally securities backed by the full faith and credit of an issuer
possessing general taxing power and are payable from the issuer's general
unrestricted revenues and not from any particular fund or revenue source.
Revenue bonds are payable only from the revenues derived from a particular
source or facility, such as a tax on particular property or revenues derived
from, for example, a municipal water or sewer utility or an airport.
Tax Exempt Obligations that benefit private parties in a manner different
than members of the public generally (so-called private activity bonds or
industrial development bonds) are in most cases revenue bonds, payable solely
from specific revenues of the project to be financed. The credit quality of
private activity bonds is usually directly related to the creditworthiness of
the user of the facilities (or the creditworthiness of a third-party guarantor
or other credit enhancement participant, if any).
The Portfolio also may purchase floating and variable rate demand notes
from municipal issuers. These notes normally have a stated maturity in excess
of one year, but permit the holder to demand payment of principal plus accrued
interest upon a specified number of days' notice. Frequently, such obligations
are secured by letters of credit or other credit support arrangements provided
by banks.
The yields on Tax Exempt Obligations are dependent on a variety of factors,
including general money market conditions, the financial condition of the
issuer, general market conditions, the size of a particular offering, the
maturity of the obligation and the rating of the issuer. Generally, Tax Exempt
Obligations of longer maturity produce higher current yields than municipal
securities with shorter maturities, but are subject to greater price fluctuation
due to changes in interest rates, tax laws and other general market factors.
Lower-rated Tax Exempt Obligations generally produce a higher yield than higher-
rated Tax Exempt Obligations due to the perception of greater risk as to the
payment of principal and interest. While the Portfolio may invest in securities
of any maturity, the weighted average maturity of the Portfolio's investment
portfolio is expected to range between approximately 15 to 25 years.
GEOGRAPHIC CONCENTRATION
The Portfolio's practice of concentrating its investments in limited
geographic areas exposes it to greater credit risks than a mutual fund that
invests in a more geographically diversified portfolio of Tax Exempt
Obligations. The value of the Portfolio's Tax Exempt Obligations is closely
tied to local, political and economic conditions and developments within
Wisconsin and, to a lesser extent, Puerto Rico, Guam and perhaps the U.S. Virgin
Islands. These risks may include possible tax changes, legislative or judicial
action, environmental concerns, and differing levels of supply and demand for
debt obligations exempt from federal and Wisconsin personal income taxes. The
table below demonstrates the geographic concentration of the Portfolio's assets
at December 31, 1999.
GEOGRAPHIC TERRITORY PERCENT OF TOTAL ASSETS AT DECEMBER 31, 1999(1)<F7>
- -------------------- ---------------------------------------------------
Wisconsin 78.0%
Puerto Rico 4.7%
Guam 2.3%
Virgin Islands 0.5%
- -----------------------
(1)<F7>The remaining 14.5% of the Portfolio's assets was invested in Tax Exempt
Obligations of housing agencies in various other states.
WISCONSIN ECONOMY. Wisconsin's economy, although fairly diverse, is
concentrated in the manufacturing, services (accounting for approximately 25% of
total non-farm employment) and trade sectors and is influenced by the vast
supply of resources in the State. This diversification has helped the State's
economy to outperform the national economy. The State's annual unemployment
rate over the last 10 years has been below the national average. In addition,
over the past decade, Wisconsin has managed to balance its budget while cutting
income taxes and not increasing general taxes. As a result of these factors,
revenues and assets necessary to support and collateralize interest and
principal payments on bonds issued by Wisconsin public agencies and private
enterprises remain relatively strong. These factors help to maintain a robust
municipal bond market.
PUERTO RICO ECONOMY. From time to time the Portfolio may invest a
significant portion of its assets in Tax Exempt Obligations issued by or on
behalf of Puerto Rico or its agencies or instrumentalities. Once primarily
supported by agriculture, Puerto Rico's economy now has a diverse technology-
orientated manufacturing base. In terms of Gross Domestic Product,
manufacturing contributes $16 billion, or 42% of GDP. Finance, insurance and
real estate services have undergone dramatic growth over the past decade, and
now account for 14% of GDP. Puerto Rico's unemployment rate (seasonally
adjusted) remains relatively high at approximately 13%, and per capita income is
less than the U.S. average. Debt ratios for the Commonwealth are high as it
assumes much of the responsibility for financing improvements in the local
infrastructure.
Historically, Puerto Rico's economic base was centered around tax
advantages offered to U.S. manufacturing firms. However, legislation passed in
1996 significantly reduced those incentives, with a general phase-out by 2006
for corporations with operations on the island. While Puerto Rico may have time
to find other sources of economic growth, it is still uncertain what effect the
reduction in tax incentives will have on Puerto Rico's economic stability and on
the market for its municipal securities.
Hurricane Georges devastated Puerto Rico in late September, 1998. The
United States government's Federal Emergency Management Agency pledged 90%
reimbursement of the estimated $2 billion in damage. In addition, the damage
led to reconstruction-induced activity in 1999. This activity was a
contributing factor to Puerto Rico's gross national product growing at the rate
of about 4.2% in 1999, instead of the 2.6% to 2.8% originally projected. Much
of this growth came from investment in housing and infrastructure. The damage
to domestic crops of tropical produce helped fuel inflation, which held at a
rate of approximately 6%. Tourism increased during the June, 1997 through June,
1998 season, as evidenced by an 8% increase in registrations at tourist hotels
and tourism, and construction remained the leading sectors of growth in 1998.
GUAM ECONOMY. The Portfolio may also invest a significant portion of its
assets in certain obligations issued by or on behalf of the Government of Guam.
Tourism and, to a lesser extent, the U.S. military contribute significantly to
Guam's economy. The United States recently reduced its military presence in
Guam, which has had a negative effect on the local economy. Tourism also has
suffered in recent years as a result of natural disasters (such as earthquakes)
and domestic economic difficulties in countries that historically have
contributed large numbers of tourists to Guam, particularly Japan. If these
negative trends continue and/or other negative developments occur, they could
lead to economic instability and volatility in the Guam municipal securities
markets.
POSSIBLE INDUSTRY CONCENTRATION
The Portfolio may invest 25% or more of its total assets in revenue bonds
(including private activity and industrial development bonds), but may not
invest more than 25% of its total assets in revenue bonds payable only from
revenues derived from facilities or projects within a single industry. However,
the Portfolio may invest without limitation, in circumstances in which the other
appropriate available investments are in limited supply, in housing, health care
and/or utility obligations. In such circumstances, economic, business,
political and other changes affecting one bond might also affect other bonds in
the same segment, thereby potentially increasing market or credit risk.
Appropriate available investments may be in limited supply, from time to time in
the opinion of the Advisor, due to, among other things, the Portfolio's
investment policy of investing primarily in obligations of Wisconsin (and
municipalities, other political subdivisions and public authorities thereof) and
of investing primarily in investment grade securities.
The exclusion from gross income for purposes of federal income taxes and
Wisconsin personal income taxes for certain housing, health care and utility
bonds depends on compliance with relevant provisions of the Tax Code. The
failure to comply with these provisions could cause the interest on the bonds to
become includable in gross income, possibly retroactively to the date of
issuance, thereby reducing the value of the bonds, subjecting shareholders to
unanticipated tax liabilities and possibly requiring the Portfolio to sell the
bonds at the reduced value. Furthermore, failure to meet these ongoing
requirements may preclude the holder from accelerating payment of the bond or
requiring the issuer to redeem the bond. In any event, where the Federal Housing
Administration ("FHA") or another mortgage insurer insures a mortgage that
secures housing bonds, the FHA or other issuer may be required to consent before
insurance proceeds would become payable to redeem the bonds.
HOUSING OBLIGATIONS. The Portfolio may invest, from time to time, 25% or
more of its total assets in obligations of pubic bodies, including state and
municipal housing authorities, issued to finance the purchase of single-family
mortgage loans or the construction of multifamily housing projects. Housing
authority obligations (which are not general obligations of Wisconsin) generally
are supported to a large extent by Federal housing subsidy programs. The failure
of a housing authority to meet the qualifications required for coverage under
the Federal programs, or any legal or administrative determination that the
coverage of such Federal program is not available to a housing authority, could
result in a decrease or elimination of subsidies available for payment of
principal and interest on such housing authority's obligations. Weaknesses in
Federal housing subsidy programs and their administration also could result in a
decrease of those subsidies.
Repayment of housing loans and home improvement loans in a timely manner
depends upon factors affecting the housing market generally, and upon the
underwriting and management ability of the individual agencies (i.e., the
initial soundness of the loan and the effective use of available remedies should
there be a default in loan payments). Economic developments, including
fluctuations in interest rates, failure or inability to increase rentals and
increasing construction and operating costs, also could adversely affect
revenues of housing authorities. Furthermore, adverse economic conditions may
result in an increasing rate of default of mortgagors on the underlying mortgage
loans. In the case of some housing authorities, inability to obtain additional
financing also could reduce revenues available to pay existing obligations.
Single-family mortgage revenue bonds are subject to extraordinary mandatory
redemption at par at anytime in whole or in part from the proceeds derived from
pre-payments of underlying mortgage loans and also from the unused proceeds of
the issue within a stated period which may be within a year from the date of
issue.
HEALTH CARE OBLIGATIONS. The Portfolio may invest, from time to time, 25%
or more of its total assets in obligations issued by public bodies, including
state and municipal authorities, to finance hospital care facilities or
equipment. The ability of a health care entity or hospital to make payments in
amounts sufficient to pay maturing principal and interest obligations depends
upon, among other things, the revenues, costs and occupancy levels of the
facility. Some factors that could affect revenues and expenses of hospitals and
health care facilities include, among others, demand for health care services at
the particular type of facility, increasing costs of medical technology,
utilization practices of physicians, the ability of the facilities to provide
the services required by patients, employee strikes and other adverse labor
actions, economic developments in the service area, demographic changes, greater
longevity and the higher medical expenses of treating the elderly, increased
competition from other health care providers and rates that can be charged for
the services provided.
Additionally, federal and state programs such as Medicare and Medicaid, as
well as private insurers, typically provide a major portion of hospital
revenues. The future solvency of the Medicare trust fund is periodically
subject to question. Changes in the compensation and reimbursement formulas of
these governmental programs or in the rates of insurers may reduce revenues
available for the payment of principal of or interest on hospital revenue bonds.
Governmental legislation or regulations and other factors, such as the inability
to obtain sufficient malpractice insurance, may also adversely affect the
revenues or costs of hospitals. Future actions by the federal government with
respect to Medicare and by the federal and state governments with respect to
Medicaid, reducing the total amount of funds available for either or both of
these programs or changing the reimbursement regulations or their
interpretation, could adversely affect the amount of reimbursement available to
hospital facilities.
A number of addition legislative proposals concerning health care are
typically under review by the United States Congress at any given time. These
proposals span a wide range of topics, including cost controls, national health
insurance, incentives for competition in the provision of health care services,
tax incentives and penalties related to health care insurance premiums and
promotion of prepaid health care plans. We are unable to predict what
legislative reforms may be made in the future in the health care area and what
effect, if any, they may have on the health care industry generally or on the
creditworthiness of health care issuers of securities held by the Portfolio.
UTILITY OBLIGATIONS. The Portfolio may invest, from time to time, 25% or
more of its total assets in obligations issued by public bodies, including state
and municipal utility authorities, to finance the operation or expansion of
utilities. Various future economic and other conditions may adversely affect
utility entities, including inflation, increases in financing requirements,
increases in raw materials, construction and other operating costs, changes in
the demand for services and the effects of environmental and other governmental
regulations.
MORE ABOUT TOTAL RETURN AND YIELD
A mutual fund's total return is a measure of its performance based on its
historic distributions over a specified period of time, usually one, five and
ten years. Total return is the increase or decrease in the redemption value of
shares of a mutual fund purchased with a hypothetical initial investment amount,
assuming you reinvest all dividends and capital gains distributions. Total
return is expressed as a percent change in the redemption value from the
beginning to the end of the relevant period.
The Portfolio's total return consists of three major components, interest
and other income earned on its portfolio securities, realized and unrealized
gains and losses on portfolio securities, and operating expenses. The Portfolio
earns interest and other income on Tax Exempt Obligations during the period it
holds them, which contributes to total return. The market values of the
Portfolio's Tax Exempt Obligations fluctuate, which causes the total value of
the Portfolio's assets (and thus the net asset value of each of its shares) to
increase and decrease from day to day. Finally, the Portfolio pays its
operating expenses out of its assets, which reduces its per share net asset
value.
Yield is a measure of a bond's income performance over a one-month period.
This yield is then annualized, which allows an investor to compare a bond's
current income with annual interest rates existing at a given time. The
Portfolio calculates a bond's yield by dividing the fixed annual amount of
interest paid on the bond by the bond's market price, and expressing the result
as a percent. The Portfolio determines its yield by making the same calculation
over its entire investment portfolio.
A bond's market price generally moves in the opposite direction of interest
rates, causing its yield to move in the same direction as interest rates.
Interest rate movements typically affect the market prices of longer term bonds
greater than bonds with shorter maturities. The following table illustrates the
effect of a 1% change in interest rates on the market value of a bond with a
principal value of $1,000 and a 7% coupon.
MARKET VALUE IF INTEREST RATES:
-------------------------------
MATURITY INCREASE 1% DECREASE 1%
-------- ----------- -----------
Intermediate Bond 5 years $959 $1,043
Long-Term Bond 20 years $901 $1,116
These interest rate fluctuations will not affect the income that the
Portfolio earns on its Tax Exempt Obligations that have fixed interest rates,
but will affect the yield on shares that the Portfolio subsequently issues.
Also, interest rate fluctuations will affect the rate of interest on any
variable rate demand notes or other variable rate securities that the Portfolio
holds.
The Advisor will manage the debt securities in the Portfolio according to
its assessment of the interest rate environment. If the Advisor anticipates
rising interest rates, it will attempt to shorten the average maturity of the
Portfolio to cushion the effect of falling bond prices. If the Advisor
anticipates a decline in interest rates, it will seek to lengthen the average
maturity.
MANAGEMENT
INVESTMENT ADVISOR
Ziegler is the investment advisor of the Portfolio. In addition to the
Portfolio, Ziegler is the investment advisor for eight other mutual funds in the
Principal Preservation family, and serves as distributor, accounting/pricing
agent and administrator for the Portfolio and for the other portfolios in the
Principal Preservation family of funds. In addition to providing these services
to Principal Preservation, Ziegler provides counseling services to retail and
institutional clients to help them select investment advisors appropriate to
manage their assets. In this capacity, Ziegler monitors and assesses the
performance of numerous investment advisors and makes recommendations to its
clients. Ziegler is a wholly owned subsidiary of The Ziegler Companies, Inc., a
publicly owned financial services holding company. As of March 31, 2000, The
Ziegler Companies, Inc., through other wholly owned investment advisor
subsidiaries, managed approximately $2.0 billion in assets on a discretionary
basis. Ziegler's address is 215 North Main Street, West Bend, Wisconsin 53095.
Ziegler provides the Portfolio with overall investment advisory and
administrative services. For 1999, the Portfolio paid $260,395 (or 0.5 of 1% of
the Portfolio's average net assets) in advisory fees to Ziegler. Ziegler waived
and/or reimbursed $65,498 in advisory fees (or 0.12% of the Portfolio's average
net assets).
SUB-ADVISOR
Ziegler and Principal Preservation have retained Ziegler Asset Management,
Inc. ("Ziegler Asset Management") to serve as the sub-advisor for the Wisconsin
Tax-Exempt Portfolio. We sometimes refer to Ziegler and/or Ziegler Asset
Management together as the "Advisor" or individually as an or the "Advisor".
In its capacity as the Sub-Advisor of the Portfolio, Ziegler Asset
Management (subject to Ziegler's and Principal Preservation's Board of
Directors' oversight) makes investment decisions for the Portfolio and
supervises the acquisition and disposition of its investments.
On January 1, 2000, Ziegler Asset Management managed approximately $1.5
billion in assets on a discretionary basis. Ziegler Asset Management receives
a sub-advisory fee, which is paid by Ziegler (and not by the Portfolio) out of
Ziegler's advisory fee.
Like Ziegler, Ziegler Asset Management is a wholly-owned subsidiary of The
Ziegler Companies, Inc., and Ziegler Asset Management's address is 250 East
Wisconsin Avenue, Suite 1900, Milwaukee, Wisconsin 53202.
PORTFOLIO MANAGER
Mr. Thomas P. Sancomb has served as portfolio manager for the Wisconsin
Tax-Exempt Portfolio since it started operations in 1994. Mr. Sancomb has
served with Ziegler and Ziegler Asset Management in various capacities since
March 1975. He has served on Ziegler's Investment Committee since July, 1984.
He is a Vice President of both Ziegler and Ziegler Asset Management.
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 Wisconsin Tax-Exempt Portfolio. Its address is:
PFPC Global Fund Services
P.O. Box 60504
King of Prussia, Pennsylvania 19406
PURCHASING SHARES
GENERAL INFORMATION
You may buy shares of the Portfolio through Ziegler and Selected Dealers.
You also may purchase shares in connection with asset allocation programs, wrap
free programs and other programs of services offered or administered by broker-
dealers, investment advisors, financial institutions and certain other service
providers, provided the program meets certain standards established from time to
time by Ziegler.
Principal Preservation will issue share certificates only if you so request
in writing, and then only for full shares. You must make a new written request
for a share certificate each time you purchase shares. Principal Preservation
does not charge a fee to issue a share certificate. You cannot use certain
shareholder services, including telephone redemptions and exchanges and any
systematic withdrawal, for certificated shares. Before you can redeem, transfer
or exchange shares held in certificate form, you must deliver the share
certificate to the Transfer Agent in negotiable form (with a signature
guarantee). Share certificates may not be available for some retirement
accounts.
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 control the Portfolio's 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. Accordingly, small shareholder accounts and
small additional investments increases the Portfolio's operating expense ratio,
and adversely affect its total return. 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)<F8>
- ---------------- ------------------ --------------------
All investors, except special
investors listed below $1,000 $50
Custodial accounts under the
Uniform Gifts/ Transfers to
Minors Act (see
"Shareholder Services") $500 $25
Purchases through Systematic
Purchase Plans (see "Shareholder
Services - Systematic Purchase Plan") $100 $100(2)<F9>
- -------------------------
(1)<F8> There is no minimum additional investment requirement for purchases of
shares of the Portfolio if the purchase is made in connection with:
(i) 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; and (iv) reinvestments of interest payments on
bonds underwritten by Ziegler.
(2)<F9> The minimum subsequent monthly investment under a Systematic Purchase
Plan is $50 for custodial accounts under the Uniform Gifts/Transfers
to Minors Act until the account balance reaches $500, after which the
minimum additional investment amount is reduced to $25. The minimum
subsequent investment amount also is reduced to $50 for all other
accounts with balances of $1,000 or more.
PURCHASING SHARES
FRONT-END SALES CHARGE. You may purchase shares of the Portfolio at the
public offering price, which is the per share net asset value plus a maximum
front-end sales charge of 2.50% of the public offering price. The front-end
sales charge reduces (ultimately to zero) as the size of your investment
increases.
The table below shows the front-end sales charges (expressed as a
percentage of the public offering price and of the net amount invested) in
effect for sales of shares of the Portfolio. The Portfolio will not issue
shares for consideration other than cash, except in the case of a bonafide
reorganization or statutory merger or in certain other acquisitions of portfolio
securities which meet the requirements of applicable state securities laws.
PUBLIC OFFERING NET AMOUNT
SIZE OF INVESTMENT PRICE INVESTED
------------------ -------------- ----------
Less than $25,000 3.50% 3.63%
$25,000 but less than $50,000 3.00% 3.09%
$50,000 but less than $100,000 2.50% 2.56%
$100,000 but less than $250,000 2.00% 2.04%
$250,000 but less than $500,000 1.50% 1.52%
$500,000 but less than $1,000,000 1.00% 1.01%
$1,000,000 or more None None
REDUCED FRONT-END SALES CHARGES. There are several ways you can reduce
your sales charge. One is to increase your initial investment to reach a higher
discount level. The scale in the table above is applicable to initial purchases
of Principal Preservation shares by any "purchaser." The term "purchaser"
includes (1) an individual, (2) an individual, his or her spouse and their
children under the age of 21 purchasing shares for his or her own accounts, (3)
a trustee or other fiduciary purchasing shares for a single trust estate or
single fiduciary account, or (4) any other organized group of persons, whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount.
You (as a "purchaser") can reduce your sales charge by adding to your
investment so that the current offering price value of your shares, plus your
new investment, reach a higher discount level. For example, if the current
offering price of the shares you hold in the Portfolio is $100,000, you will pay
a reduced sales charge on additional purchases of shares. If you invest an
additional $100,000, your sales charge would be 2.00% on that additional
investment. You may aggregate your holdings of shares in the Portfolio with
shares you own in any other Principal Preservation mutual funds that have a
sales charge in order to determine the break-point at which you may purchase
shares in the Portfolio.
A third way is for you (as a "purchaser") to sign a non-binding statement
of intention to invest $25,000 or more over a 13 month period in any one or
combination of Principal Preservation mutual funds that have a sales charge. If
you complete your purchases during that period, each purchase will be at a sales
charge applicable to the aggregate of your intended purchases. Under terms set
forth in the statement of intention, we escrow shares valued at 5% of the amount
of your intended purchase, and we will redeem those shares to cover the
additional sales charge payable if you do not complete the statement. We will
release any remaining shares held in escrow to you. You will continue to earn
dividends and capital gains distributions declared by a Portfolio with respect
to shares held in escrow.
Members of a qualified group also may purchase shares at a reduced
front-end sales charge. We calculate the sales charge for these groups by
taking into account the aggregate dollar value of all Principal Preservation
shares subject to a sales charge being purchased or currently held by all
members of the group. Further information is contained in "Purchase of Shares"
in the Statement of Additional Information.
To receive the benefit of the reduced sales charge, you must inform
Principal Preservation, Ziegler or the Selected Dealer that you qualify for the
discount.
PURCHASES WITHOUT A FRONT-END SALES CHARGE. If you are one of the various
types of purchasers described below, you may purchase shares of the Portfolio at
net asset value (that is, without a front-end sales charge).
$1.0 Million Purchases If you (as a "purchaser") purchase at least $1.0
million of shares, or if your account value at the
time of purchase is at least $1.0 million, you may
purchase shares at net asset value, provided you
make the purchase through a Selected Dealer who
has executed a dealer agreement with Ziegler. The
Distributor may make a payment or payments, out of
its own funds, to the Selected Dealer in an amount
not to exceed 0.50 of 1% of the amount invested.
All or a part of such payment may be conditioned
on the monies remaining invested with Principal
Preservation for a minimum period of time. If you
purchase any shares without a sales charge
pursuant to this program, and you redeem any of
the shares within 180 days of the date of your
purchase, you will pay a contingent deferred sales
charge on the redeemed in an amount equal to 0.5
of 1% of the net asset value of those shares at
the time of redemption or, if less, the net asset
value of those shares at the time of your original
purchase.
Persons Associated with If you are any of the following persons, you may
Principal Preservation and purchase shares of the Portfolio at net asset
Its Service Providers value: a Director or officer of Principal
Preservation (including purchases jointly with or
individually by your spouse and purchases made by
your children or grandchildren under age 21); an
employee of Ziegler, a Selected Dealer, Ziegler
Asset Management, Inc. Geneva Capital Management,
Ltd. (sub-advisor to Principal Preservation's
Managed Growth Portfolio), and non-employee
directors of The Ziegler Companies, Inc. The term
"employee" includes an employee's spouse
(including the surviving spouse of a deceased
employee), parents (including step-parents and
in-laws), children, grandchildren under age 21,
siblings and retired employees.
Reinvestments of You may purchase shares of the Portfolio without a
Distributions From sales charge by reinvesting distributions from any
Principal Preservation Principal Preservation mutual fund, or investing
Mutual Funds and Other distributions from various unit investment trusts
Investment Vehicles sponsored by Ziegler; reinvesting principal or
Sponsored by Ziegler interest payments on bonds issued by Ziegler
Mortgage Securities, Inc. II; or reinvesting
interest payments on bonds underwritten by
Ziegler.
Purchases Through Certain You may purchase shares of the Portfolio without a
Investment Programs sales charge through an asset allocation program,
wrap fee program or similar program of services
offered or administered by a broker-dealer,
investment advisor, financial institution or other
service provider, provided the program meets
certain standards established from time to time by
Ziegler. You should read the program materials
provided by the service provider, including
information related to fees, in conjunction with
this Prospectus. Certain features of a Portfolio
may not be available or may be modified in
connection with the program of services. When you
purchase shares this way, the service provider,
rather than you as the service provider's
customer, may be the shareholder of record for the
shares. The service provider may charge fees of
its own in connection with your participation in
the program of services. Certain service
providers may receive compensation from Principal
Preservation and/or Ziegler for providing such
services.
Reinvestment Privilege If you redeem shares of the Portfolio, you may
reinvest all or part of the redemption proceeds
without a front-end sales charge, if you send
written notice to Principal Preservation or the
Transfer Agent not more than 90 days after the
shares are redeemed. We will reinvest your
redemption proceeds on the basis of the net asset
value of the shares in effect immediately after
receipt of the written request. You may exercise
this reinvestment privilege only once upon
redemption of your shares. Any capital gains tax
you incur on the redemption of your shares is not
altered by your subsequent exercise of this
privilege. If the redemption resulted in a loss
and reinvestment is made in shares, the loss will
not be recognized.
DISTRIBUTION AND DISTRIBUTION EXPENSES
In addition to the front-end or contingent deferred sales charges that
apply to the purchase of shares, 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 shares to investors, the maintenance of shareholder accounts
and the provision of other shareholder services. Because the Portfolio pays
these fees out of its own assets on an ongoing basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
The Plan permits payments to be made by the Portfolio to the Distributor to
reimburse it for expenditures incurred by it in connection with the distribution
of the Portfolio's shares to investors. The reimbursement payments include, but
are not limited to, payments made by the Distributor to selling representatives
or brokers as a service fee, and costs and expenses incurred by the Distributor
for advertising, preparation and distribution of sales literature and
prospectuses to prospective investors, implementing and operating the Plan and
performing other promotional or administrative activities on behalf of the
Portfolio. Plan payments may also be made to reimburse the Distributor for its
overhead expenses related to distribution of the Portfolio's shares. No
reimbursement may be made under the Plan for expenses of the past fiscal years
or in contemplation of expenses for future fiscal years.
Under the Plan, the Portfolio assesses a service fee of up to 0.25 of 1% of
the Portfolio's average daily net assets. The Distributor uses this shareholder
servicing fee as reimbursement for the shareholder services described above.
The Plan continues in effect, if not sooner terminated, for successive
one-year periods, provided that its continuance is specifically approved by the
vote of the Directors, including a majority of the Directors who are not
interested persons of any of the Advisors.
METHODS FOR PURCHASING SHARES
All purchases must be 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, your purchase will be canceled and you will be
responsible for any losses and any applicable fees. If you buy shares by any
type of check, wire transfer or automatic investment purchase, and soon
thereafter you choose to redeem your shares, we may postpone 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 will consider your order for the purchase of shares to have been
received when it is physically received by the Transfer Agent, the Distributor,
a Selected Dealer or certain other financial services firms that have entered
into an agreement with Principal Preservation appointing the firm as an agent of
Principal Preservation for the purpose of accepting share purchase and
redemption orders. We have authorized those financial services firms to
designate other intermediaries to accept share purchase and redemption orders on
their behalf. If your purchase order is received prior to the close of trading
on the New York Stock Exchange, it will be invested at the net asset value
computed for the relevant Portfolio on that day. If your order is received
after the close of trading on the New York Stock Exchange, it will be invested
at the net asset value determined for the relevant Portfolio as of the close of
trading on the New York Stock Exchange on the next business day.
The following describes the different ways in which you may purchase shares
and the procedures you must follow in doing so.
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
METHOD TO OPEN A NEW ACCOUNT TO ADD TO AN EXISTING ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BY MAIL OR PERSONAL DELIVERY 1.Complete the Account Application included in 1.Complete the Additional Investment form
this prospectus. included with your account statement.
Send by First Class or Alternatively, you may write a note
Express Mail to: 2.Make your check or money order payable to: indicating your account number.
"Principal Preservation."
2.Make your check payable to "Principal
Principal Preservation Note: The amount of your purchase must meet Preservation."
c/o PFPC Global Fund Services ----
P.O. Box 60504 the applicable minimum initial investment 3.Personally deliver or mail the Additional
King of Prussia, PA 19406 account.See "Purchasing Shares - Minimum Investment Form (or note) and your check
Purchase Amounts." 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 exchanging Add to an account by exchanging funds from
funds from an existing Principal Preservation another Principal Preservation account. See
account. See "Exchanging Shares." "Exchanging Shares."
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES FIRMS You may purchase shares in a Portfolio through You may purchase additional shares in a
a broker-dealer or other financial service Portfolio through a broker-dealer or other
firm that may charge a transaction fee. financial services firm that may charge a
transaction fee.
Principal Preservation may accept requests to
purchase shares into a broker-dealer street Principal Preservation may accept requests to
name account only from the broker-dealer. purchase additional shares into a broker-dealer
street name account only from the broker-
dealer.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
REDEEMING SHARES
GENERAL INFORMATION
You may redeem any or all of your shares at net asset value as described
below on any day Principal Preservation is open for business. If your
redemption order is received prior to the close of the New York Stock Exchange,
the redemption will be at the net asset value calculated that day. If not, you
will receive the net asset value calculated as of the close of trading on the
next New York Stock Exchange trading day.
REDEMPTIONS
The following table describes different ways that you may redeem your
shares, and the steps you should follow.
METHOD STEPS TO FOLLOW
- ------ ---------------
BY TELEPHONE 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
information to the Transfer Agent:
Address to:
- ----------- o A written request for redemption signed by
Principal Preservation the registered owner(s) of the shares,
c/o PFPC Global Fund Services exactly as the account is registered,
P.O. Box 60504 together with the shareholder's account
King of Prussia, PA 19406 number;
o The 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.
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,
none of the Transfer Agent, Principal Preservation or any of their employees
will be liable for losses suffered by a shareholder which result from following
telephone instructions reasonably believed to be genuine after verification
pursuant to these procedures. This service may be changed, modified or
terminated at any time. There is currently no charge for telephone redemptions,
although a charge may be imposed in the future.
SIGNATURE GUARANTEES. To protect you, the Transfer Agent and Principal
Preservation from fraud, we require signature guarantees for certain
redemptions. Signature guarantees enable the Transfer Agent to assure 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. We may waive these requirements in certain
instances.
The Transfer Agent will accept signature guarantees from all institutions
which are eligible to provide them under federal or state law. Institutions
which typically are eligible to provide signature guarantees include commercial
banks, trust companies, brokers, dealers, national securities exchanges, savings
and loan associations and credit unions. A signature guarantee is not the same
as a notarized signature.
CLOSING SMALL ACCOUNTS. If, due to redemption, your account in the
Portfolio drops below $500 for three months or more, we have the right to 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 one or more of the Portfolios for any period during which: (1)
the Exchange is closed or the Securities and Exchange Commission determines that
trading on the Exchange is restricted; (2) there is an emergency as a result of
which it is not reasonably practical for the Portfolio to sell its securities or
to calculate the fair value of its net assets; or (3) the Securities and
Exchange Commission may permit for the protection of the shareholders of the
Portfolio.
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 payment to be made in
securities or other property of the Portfolio. However, the Portfolio must
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 securities to you in payment of redemptions,
we would value them at the same value assigned to them in computing the
Portfolio's net asset value per share. You would incur brokerage costs when you
sell those securities.
EXCHANGING SHARES
GENERAL INFORMATION
Principal Preservation presently offers only a single class of shares of
the Portfolio, which is subject to a front-end sales charge (Class A shares).
Principal Preservation's other mutual fund portfolios offer one or both of two
additional classes of shares: Class B shares which are subject to a contingent
deferred sales charge payable when you redeem the shares (Class B shares); and
Class C shares which have a lower front-end sales charge than Class A shares and
also are subject to a 1.00% contingent deferred sales charge for 18 months after
purchase. The amount of the contingent deferred sales charge on Class B shares
reduces each year you hold the shares, and goes to zero after six years. Class
B shares automatically convert to Class A shares after eight years, but Class C
shares never convert. The only other difference among these three classes of
shares is that, in addition to the 0.25 of 1% Rule 12b-1 service fee applicable
to Class A shares, Class B shares and Class C shares also pay a Rule 12b-1
distribution fee in an amount equal to 0.75 of 1% of average daily net assets
of the relevant portfolio which are attributable to the particular class.
Because of the differences among these three classes of shares, exchanges of
shares between Principal Preservation mutual funds must be for shares of the
same class.
Subject to compliance with applicable minimum investment requirements, you
may exchange shares of any Principal Preservation mutual fund (including the
Portfolio) for shares of the same Class of any other Principal Preservation
mutual fund in any state where the exchange legally may be made. Additionally,
Class A shares of any Principal Preservation mutual fund (including the
Portfolio) may be exchanged for Class X (Retail Class) shares of the Cash
Reserve Portfolio, and vice versa. Before engaging in any exchange, you should
obtain from Principal Preservation and read the current prospectus for the
mutual fund into which you intend to exchange. Principal Preservation presently
charges no fee 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 OF CLASS A SHARES
When you exchange shares, you will pay the standard front-end sales charge
applicable to purchases of Class A shares of the Principal Preservation mutual
fund into which the exchange is being made (as disclosed in the then current
prospectus for that Principal Preservation mutual fund), less any front-end
sales charge you previously paid with respect to the shares being exchanged, if
any. For example, if you were exchanging shares of the Wisconsin Tax-Exempt
Portfolio for Class A shares of the S&P 100 Plus Portfolio, you would pay a
front-end sales charge on the exchange in an amount equal to the difference
between: (a) the front-end sales charge applicable to your purchase of the S&P
100 Plus Portfolio shares (a maximum of 5.25%); minus (b) the front-end sales
charge you paid when you purchased your shares of the Wisconsin Tax-Exempt
Portfolio (a maximum of 3.50%), or a maximum of 1.75%. However, if the shares
you are exchanging represent an investment held for at least six months in any
one or more Principal Preservation mutual funds (other than the Cash Reserve
Portfolio), then Principal Preservation will not charge any additional front-end
sales charge in connection with the exchange.
RULES AND REQUIREMENTS FOR EXCHANGES
GENERAL. In order to effect an exchange on a particular business day,
Principal Preservation must receive an exchange order in good form no later than
3:00 p.m. Eastern Time. Principal Preservation may amend, suspend or revoke
this exchange privilege at any time, but will provide shareholders at least 60
days' prior notice of any change at adversely affects their rights under this
exchange privilege.
An excessive number of exchanges may be disadvantageous to Principal
Preservation. Therefore, Principal Preservation reserves the right to terminate
the exchange privilege of any shareholder who makes more than three exchanges in
any twelve consecutive month period or who makes more than one exchange during
any calendar quarter.
The following additional rules and requirements apply to all exchanges:
o The shares you receive in the exchange must be of the same Class as
the shares you are exchanging, except that you may exchange Class A
shares of any Principal Preservation mutual fund (including the
Portfolio) for Class X shares of the Cash Reserve Portfolio, and vice
versa.
o The account into which you wish to exchange must be identical to the
account from which you are exchanging (meaning the account into which
you are exchanging must be of the same type as the account from which
you are exchanging, and the registered owner(s) of the account into
which you are exchanging must have the same name(s), address and
taxpayer identification or social security number as the registered
owner(s) on the account from which you are exchanging).
o The amount of your exchange must meet the minimum initial or minimum
additional investment amount of the Principal Preservation mutual fund
into which you are exchanging.
o If the shares 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 Principal
Preservation.
Send by first class or Please Note: Principal Preservation must receive
express mail to: ------------
your exchange order no later than 3:00 p.m.
Principal Preservation Eastern Time in order to effect an exchange on
c/o PFPC Global Fund Services
P.O. Box 60504
King of Prussia, PA 19406
BY TELEPHONE You receive telephone exchange privileges when
you open your account. To decline the telephone
1-800-826-4600 exchange privilege, you must check the appropriate
box on the Application Form when you open your
account.
Call Principal Preservation at 1-800-826-4600 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 $50 for custodial accounts under the Uniform Gifts/Transfers to
Minors Act until your account balance reaches $500, after which the minimum is
$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
Principal Preservation shares on a regular, convenient basis. Under the SPP,
your bank or other financial institution honors preauthorized debits of a
selected amount drawn on your account each month and applied to the purchase of
Principal Preservation shares. You may implement the SPP with any financial
institution that will accept the debits. There is no service fee for
participating in the SPP. You may 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 of at least
$10,000 in a single Principal Preservation mutual fund (including the
Portfolio). 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.
Normally, you would not make regular investments at the same time you are
receiving systematic withdrawal payments because it is not in your interest to
pay a sales charge on new investments when, in effect, a portion of your new
investment is soon withdrawn. The minimum investment accepted while a
withdrawal plan is in effect is $1,000. You may terminate your systematic
withdrawal plan at any time by written notice to Principal Preservation or the
Transfer Agent.
REINVESTMENT OF DISTRIBUTIONS OR INTEREST PAYMENTS. Unit holders of
Ziegler-sponsored unit investment trusts, holders of Ziegler Mortgage
Securities, Inc. II bonds and holders of bonds underwritten by Ziegler may
purchase shares of Principal Preservation by automatically reinvesting
distributions from their unit investment trust, reinvesting principal or
interest from their Ziegler Mortgage Securities, Inc. II bonds, or reinvesting
interest from the bonds underwritten by Ziegler, as the case may be. Unit
holders and bondholders desiring to participate in this plan should contact the
Distributor for further information.
OTHER INFORMATION
DETERMINATION OF NET ASSET VALUE PER SHARE
We determine the net asset value per share of the Portfolio daily by adding
up the total value of the Portfolio's investments and other assets and
subtracting its liabilities, or debts, and then dividing by the number of
outstanding shares of the Portfolio. We calculate the net asset value per share
each business day, Monday through Friday, except on customary national business
holidays which result in closing of the New York Stock Exchange (the
"Exchange"). We make the calculation as of 2:30 p.m. Eastern time.
In order to calculate the total value of the Portfolio's Investments on any
day, we value those securities on the basis of market quotations or at fair
value using methods and guidelines approved by Principal Preservation's Board of
Directors. Because market quotations generally are not available for Tax-Exempt
Obligations in which the Portfolio invests, we generally use fair value
methodologies to value the Portfolio's securities. We normally determine fair
values by using valuations furnished by one or more pricing services approved by
Principal Preservation's Board of Directors. We value debt securities that the
Portfolio purchases with remaining maturities of 60 days or less at the
Portfolio's cost, plus or minus any amortized discount or premium.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND REINVESTMENTS
The Portfolio declares dividends from net investment income daily and pays
them monthly. You may elect to take your dividends in cash or additional shares
at net asset value (without a sales charge). You may also direct the Transfer
Agent to invest the dividends in shares of any other Principal Preservation
mutual fund for which you have an account. The investment occurs on the same
day as the dividend distribution date. Unless you have elected in writing to
the Transfer Agent to receive dividends and capital gain distributions in cash,
we automatically will reinvest them in additional shares of the Portfolio.
The Portfolio declares capital gains distributions, if any, annually and
normally pays them within 45 days after the end of the fiscal year.
BUYING A DIVIDEND.
You should bear in mind that if you purchase shares of the Portfolio just
before the record date of a capital gains distribution, you will receive a
portion of your purchase price back as a taxable distribution. On the record
date for the distribution, the Portfolio's per share net asset value will be
reduced by an amount equal to the amount of the capital gains distribution.
This occurrence sometimes is referred to as "buying a dividend."
TAX STATUS
Interest that the Portfolio earns on Tax Exempt Obligations generally is
tax-free when we distribute it to you as a dividend. If the Portfolio earns
taxable income from any of its investments, the Portfolio would distribute that
income as a taxable dividend, and you would pay tax on that dividend as ordinary
income for federal income tax purposes.
Interest that the Portfolio earns on private activity bonds and certain
other Tax Exempt Obligations is subject to the federal alternative minimum tax
for individuals. If you are subject to the alternative minimum tax, you will be
required to report a portion of the Portfolio's dividends as a "tax preference
item" in determining your federal alternative minimum tax. Your liability for a
federal alternative minimum tax will depend on your individual tax
circumstances. Wisconsin imposes an alternative minimum tax which is based on
the federal alternative minimum tax, with certain adjustments.
If the Portfolio makes any short-term capital gain distributions, they will
be taxable to you as ordinary income for federal income tax purposes. Long-term
capital gain distributions will be taxable as long-term capital gains. If the
Portfolio declares a capital gains distribution in December, but does not make
the distribution until January of the following year, you still will be taxed as
if the distribution was paid in December. The Transfer Agent will process your
distributions and send you a statement for tax purposes each year, showing the
source of distributions for the preceding year.
The foregoing is only a summary of some of the important tax considerations
that generally affect the Portfolio and its shareholders. State and local tax
rules differ from the federal tax rules described in the foregoing. You should
NOT view this discussion as a substitute for careful tax planning. We urge you
to consult with your tax advisor to fully assess your specific tax situation
and the tax consequences of your investment in the Portfolio.
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 share of the Portfolio. The total
returns in the table represent the rate that you would have earned 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 Portfolio's Annual Report to Shareholders. The Annual Report is available
upon request.
<TABLE>
WISCONSIN TAX-EXEMPT PORTFOLIO
---------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per Share Data:
NET ASSET VALUE, BEGINNING OF PERIOD $10.27 $10.21 $ 9.87 $10.05 $ 9.10
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .45 .48 .49 .49 .50
Net realized and unrealized gains
(losses) on investments (.82) .06 .34 (.18) .95
------ ------ ------ ------ ------
Total from investment operations (.37) .54 .83 .31 1.45
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income (.45) (.48) (.49) (.49) (.50)
------ ------ ------ ------
Ttotal distributions (.45) (.48) (.49) (.49) (.50)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 9.45 $10.27 $10.21 $9.87 $10.05
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL RETURN*<F11> (3.8%) 5.4% 8.7% 3.3% 16.3%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (to nearest thousand) $52,320 $45,693 $32,852 $25,750 $18,986
Ratio of net expenses to average net assets 0.9%+<F12> 0.6%+<F12> 0.5%+<F12> 0.5%+<F12> 0.4%+<F12>
Ratio of net investment income to average
net assets 4.5%+<F12> 4.6%+<F12> 4.9%+<F12> 4.9%+<F12> 5.0%+<F12>
Portfolio turnover rate 15.2% 12.5% 16.9% 16.0% 9.7%
</TABLE>
- -----------------------
*<F11> The front-end sales charge for Class A shares is not reflected in total
return as set forth in the table.
+<F12> Reflects a voluntary reimbursement of expenses of 0.1% in 1999, 0.4% in
1998, 0.6% in 1997 and 1996, and 0.8% in 1995.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
INVESTMENT ADVISOR, DISTRIBUTOR,
ACCOUNTING/PRICING AGENT AND
ADMINISTRATOR
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
SUB-ADVISOR
Ziegler Asset Management, Inc.
250 East Wisconsin Avenue, Suite 1900
Milwaukee, Wisconsin 53202
CUSTODIAN
Firstar Trust Company
777 East Wisconsin Avenue
Milwaukee, WI 53202
TRANSFER AND DIVIDEND DISBURSING AGENT
PFPC Global Fund Services
P.O. Box 60504
King of Prussia, Pennsylvania 19406
COUNSEL
Quarles & Brady LLP
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
If you have any questions about 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.
STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 2000
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
WISCONSIN TAX-EXEMPT PORTFOLIO
215 North Main Street
West Bend, Wisconsin 53095
800-826-4600
This Statement of Additional Information and the related Prospectus
describe the Principal Preservation Wisconsin Tax-Exempt Portfolio (the
"Portfolio"). Principal Preservation Portfolios, Inc. ("Principal
Preservation") offers other mutual funds by separate prospectuses and statements
of additional information.
You may obtain a Prospectus and purchase shares of the Portfolio from B.C.
Ziegler and Company ("Ziegler" or the "Distributor"), 215 North Main Street,
West Bend, Wisconsin 53095,telephone 800-826-4600, or from Selected Dealers (see
the Prospectus dated May 1, 2000 for more complete information, including an
account application). This Statement of Additional Information is not a
Prospectus, and should be read in conjunction with the Prospectus. This
Statement of Additional Information provides details about the Portfolio that
are not required to be included in the Prospectus, and should be viewed as a
supplement to, and not as a substitute for, the Prospectus. Capitalized terms
---
not otherwise defined in this Statement of Additional Information have the
meanings defined for them in the Prospectus.
The financial statements of the Portfolio and the report of the independent
auditors thereon are incorporated by reference into this Statement of Additional
Information from the Portfolio's Annual Report to Shareholders for the fiscal
year ended December 31, 1999. See "Financial Statements."
TABLE OF CONTENTS
PAGE
----
STATEMENT OF ADDITIONAL INFORMATION 1
FUND HISTORY AND CAPITAL STOCK 2
INVESTMENT PROGRAM 3
INVESTMENT RESTRICTIONS 13
MANAGEMENT OF PRINCIPAL PRESERVATION 15
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES 23
PURCHASE OF SHARES 24
PERFORMANCE INFORMATION 26
DETERMINATION OF NET ASSET VALUE PER SHARE 28
TAX STATUS 29
PORTFOLIO TRANSACTIONS AND BROKERAGE 30
DISTRIBUTION EXPENSES 31
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS 33
FINANCIAL STATEMENTS 33
SECURITIES RATINGS A-1
FUND HISTORY AND CAPITAL
Principal Preservation is a diversified, open-end, management investment
company. It was organized in 1984 as a Maryland corporation.
The authorized common stock of Principal Preservation consists of one
billion shares, with a par value of $.001 per share. Shares of Principal
Preservation are divided into nine mutual fund series, each with distinct
investment objectives, policies and strategies. All nine Principal Preservation
mutual funds, including the Portfolio described in this Statement of Additional
Information, are listed below:
INCOME PORTFOLIOS COMMON STOCK PORTFOLIOS
- ----------------- -----------------------
Wisconsin Tax-Exempt Portfolio S&P 100 Plus Portfolio
Tax-Exempt Portfolio Dividend Achievers Portfolio
Government Portfolio Select Value Portfolio
Cash Reserve Portfolio (money market) PSE Tech 100 Index Portfolio
Managed Growth Portfolio
The Tax-Exempt and Wisconsin Tax-Exempt Portfolios offer only Class A
(front-end sales load) shares. The Government Portfolio offers both Class A and
Class C shares. Shares of the S&P 100 Plus, Dividend Achievers, Select Value,
PSE Tech 100 Index and Managed Growth Portfolios are subdivided into three
separate classes; namely, Class A shares, Class B shares (contingent deferred
sales charge) and Class C shares. Shares of the Cash Reserve Portfolio also are
subdivided into three separate classes; namely, Class X shares and Class B
shares (together Retail Shares) and Class Y shares (Institutional Shares).
Separate classes of shares within a portfolio have identical dividend,
liquidation and other rights. However, each class bears its separate
distribution and shareholder servicing expenses and may have its own sales load
structure. At the discretion of Principal Preservation's Board of Directors,
each class may pay a different share of other expenses (not including advisory
or custodial fees or other expenses related to the management of the portfolio's
assets) if the separate classes incur those expenses in different amounts, or if
one class receives services of a different kind or to a different degree than
another class within the same portfolio. Each portfolio allocates all other
expenses to each class of its shares on the basis of the net asset value of that
class in relation to the net asset value of the particular fund.
The Board of Directors of Principal Preservation may authorize the
issuance of additional series and, within each series, individual classes, and
may increase or decrease the number of shares in each series or class.
Each share of Principal Preservation, when issued and paid for in
accordance with the terms of the offering, will be fully paid and nonassessable.
Shares of stock are redeemable at net asset value, at the option of the
shareholder. Shares have no preemptive, subscription or conversion rights and
are freely transferable. Shares can be issued as full shares or fractions of
shares. A fraction of a share has the same kind of rights and privileges as a
full share.
Each share of Principal Preservation has one vote on each matter presented
to shareholders. All shares of Principal Preservation vote together on matters
that affect all shareholders uniformly, such as in the election of directors.
On matters affecting an individual portfolio (such as approval of advisory or
sub-advisory contracts and changes in fundamental policies of that portfolio) a
separate vote of the shares of that portfolio is required. On matters that
uniquely affect a particular class of shares (such as an increase in 12b-1 fees
for that class), a separate vote by the shareholders of that class of shares is
required. Shares of a portfolio or class are not entitled to vote on any matter
that does not affect that portfolio or class.
The phrase "majority vote" of the outstanding shares of a class, portfolio
or Principal Preservation means the vote of the lesser of: (1) 67% of the shares
of the class, portfolio or Principal Preservation, as the case may be, present
at the meeting if the holders of more than 50% of the outstanding shares are
present in person or by proxy; or (2) more than 50% of the outstanding shares of
the class, Portfolio or Principal Preservation, as the case may be.
As a Maryland corporation, Principal Preservation is not required to hold,
and in the future does not plan to hold, annual shareholder meetings unless
required by law or deemed appropriate by the Board of Directors. However,
special meetings may be called for purposes such as electing or removing
Directors, changing fundamental policies or approving an investment advisory
contract.
INVESTMENT PROGRAM
The Prospectus describes the investment objective and principal investment
strategies of each of the Portfolio. Certain other investment strategies and
policies of the Portfolio are described in greater detail below.
INFORMATION REGARDING TAX-EXEMPT INVESTMENTS
Before investing in the Portfolio, an investor may wish to determine which
investment -- tax-free or taxable -- will provide a higher after-tax return. To
make such a comparison, the yields should be viewed on a comparable basis. The
table below illustrates, at the tax brackets provided in the Internal Revenue
Code of 1986, as amended, and Chapter 71 of the Wisconsin Statutes, the yield an
investor would have to obtain from taxable investments to equal tax-free yields
ranging from 4.00% to 7.00%. An investor can determine from the following table
the taxable return necessary to match the yield from a tax-free investment by
locating the tax bracket applicable to the investor, and then reading across to
the yield column which is closest to the yield applicable to the investor's
investment. This presentation illustrates current tax rates, and will be
modified to reflect any changes in such tax rates.
<TABLE>
TAX-FREE V. TAXABLE INCOME*<F13>
TAX-FREE YIELD
-----------------------------------------------
2000 TAXABLE INCOME*<F13> 4.00% 5.00% 5.50% 6.00% 6.50% 7.00%
- ------------------------------------- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MARGINAL
JOINT RETURN: SINGLE RETURN: RATE EQUIVALENT TAXABLE YIELD
- ------------ ------------- ---- -----------------------------------------------
$0 - $43,850 $0 - $26,250 15.0% 4.71% 5.88% 6.47% 7.06% 7.65% 8.24%
$43,851 - $105,950 $26,251 - $63,550 28.0% 5.56% 6.94% 7.64% 8.33% 9.03% 9.72%
$105,951 - $161,450 $63,551 - $132,600 31.0% 5.80% 7.25% 7.97% 8.70% 9.42% 10.14%
$161,451 - $288,350 $132,601 - $288,350 36.0% 6.25% 7.81% 8.59% 9.38% 10.16% 10.94%
Over $288,350 Over $288,350 39.6% 6.62% 8.28% 9.11% 9.93% 10.76% 11.59%
</TABLE>
*<F13> Net amount subject to federal income tax after deductions and exemptions.
TAX EXEMPT OBLIGATIONS
As used in this Statement of Additional Information, the term "Tax Exempt
Obligations" refers to debt obligations issued by or on behalf of a state or
territory of the United States or its agencies, instrumentalities,
municipalities and political subdivisions, the interest payable on which is, in
the opinion of bond counsel, excludable from gross income for purposes of
federal income tax (except, in certain instances, the alternative minimum tax,
depending upon the shareholder's tax status) and from the Wisconsin personal
income tax.
Obligations of issuers of Tax Exempt Obligations are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Reform Act of 1978. In
addition, the obligations of such issuers may become subject to laws enacted in
the future by Congress, state legislatures, or referenda extending the time for
payment of principal and/or interest, or imposing other constraints upon
enforcement of such obligations or upon the issuer's ability to generate tax
revenues. There is also the possibility that, as a result of litigation or
other conditions, the authority or ability of an issuer to pay, when due, the
principal of and interest on its Tax Exempt Obligations may be materially
affected.
From time to time, legislation has been introduced in Congress for the
purpose of restricting the availability of or eliminating the federal income tax
exemption for interest on Tax Exempt Obligations, some of which have been
enacted. Additional proposals may be introduced in the future which, if
enacted, could affect the availability of Tax Exempt Obligations for investment
by the Portfolio and the value of securities held by the Portfolio. In such
event, management of each Portfolio may discontinue the issuance of shares to
new investors and may re-evaluate the Portfolio's investment objective and
policies and adopt and implement possible changes to them and the investment
program of the Portfolio.
NON-INVESTMENT GRADE BONDS
The Portfolio may invest up to 20% of its assets in non-investment grade
bonds (those rated below the four highest categories by Moody's or S&P or judged
by the Advisor to be of comparable quality), provided that the Portfolio may not
invest in bonds rated below B at the time of purchase. These so-called "junk
bonds" are regarded, on balance, as predominantly speculative with respect to
the capacity of the issuer to pay interest and repay principal in accordance
with the terms of the obligation. While such bonds typically offer higher rates
of return than investment grade bonds, they also involve greater risk, including
greater risk of default. An economic downturn could severely disrupt the market
for such high yield bonds and adversely affect their value and the ability of
the issuers to repay principal and interest. The rate of incidence of default
on junk bonds is likely to increase during times of economic downturns and
extended periods of increasing interest rates. Yields on junk bonds will
fluctuate over time, and are generally more volatile than yields on investment
grade bonds.
The secondary trading market for junk bonds may be less well established
than for investment grade bonds, and such bonds may therefore be only thinly
traded. As a result, there may be no readily ascertainable market value of such
securities, in which case it will be more difficult for the Board of Directors
of the Portfolio to accurately value the securities, and consequently the
investment portfolio. Under such circumstances, the Board's subjective judgment
will play a greater role in the valuation. Additionally, adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may decrease
the values and liquidity of junk bonds, especially in a thinly traded market.
To the extent such securities are or become "illiquid" in the judgment of the
Board of Directors, the Portfolio's ability to purchase and hold such securities
will be subject to its investment restriction limiting its investment in
illiquid securities. See "Investment Restrictions."
As noted above, the Portfolio will not invest in junk bonds that are rated
below the sixth rating categories by Moody's or S&P (B for Moody's and for S&P)
or judged comparable by the Advisor. Bonds rated in the fifth category (Ba for
Moody's and BB for S&P) have less near-term vulnerability to default than other
speculative issues, however they face major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. However,
business and financial alternatives available to obligors of such bonds can
generally be identified which could assist them in satisfying their debt service
requirements. Bonds rated in the sixth category are considered highly
speculative. While the issuers of such bonds must be currently meeting debt
service requirements in order to achieve this rating, adverse business,
financial or economic conditions could likely impair the issuer's capacity or
willingness to pay interest and repay principal. A detailed description of the
characteristics associated with the various debt credit ratings established by
S&P and Moody's is set forth in Appendix A to this Statement of Additional
Information.
While rating categories help identify credit risks associated with bonds,
they do not evaluate the market value risk of junk bonds. Additionally, the
credit rating agencies may fail to promptly change the credit ratings to reflect
subsequent events. Accordingly, Principal Preservation's Board of Directors and
the Advisor continuously monitor the issuers of junk bonds held by the Portfolio
to assess and determine whether the issuers will have sufficient cash flow to
meet required principal and interest payments, and to assure the continued
liquidity of such bonds so that the Portfolio can meet redemption requests.
STATE OR MUNICIPAL LEASE OBLIGATIONS
The Portfolio may invest up to 10% of its net assets in state or municipal
leases and participation interests therein. The leases may take the form of a
lease, an installment purchase or a conditional sales contract or a
participation certificate in any of the above. Such leases may be entered into
by state and local governments and authorities to purchase or lease a wide array
of equipment such as fire, sanitation or police vehicles or telecommunications
equipment, buildings or other capital assets. State or municipal lease
obligations frequently have the special risks described below which are not
associated with general obligation or revenue bonds issued by public bodies.
The constitution and statutes of many states contain requirements with
which the state and municipalities must comply whenever incurring debt.
Depending on the circumstances, these requirements may include approving voter
referenda, debt limits, interest rate limits and public sale requirements.
Leases have evolved as a means for public bodies to acquire property and
equipment without needing to comply with all of the constitutional and statutory
requirements for the issuance of debt. The debt-issuance limitations may be
inapplicable for one or more of the following reasons: (i) the inclusion in
many leases or contracts of "nonappropriation" clauses that provide that the
public body has no obligation to make future payments under the lease or
contract unless money is appropriated for such purpose by the appropriate
legislative body on a yearly or other periodic basis (the "nonappropriation"
clause); (ii) the exclusion of a lease or conditional sales contract from the
definition of indebtedness under relevant state law; or (iii) a provision in the
lease for termination at the option of the public body at the end of each fiscal
year for any reason or, in some cases, automatically if not affirmatively
renewed.
An investment in municipal lease obligations is generally less liquid than
an investment in comparable tax-exempt bonds because there is a limited
secondary trading market for such obligations. Furthermore, if the lease is
terminated by the public body for nonappropriation or other reason not
constituting a default under the lease, the lessor, or holder of a participation
interest in the lease, is limited solely to repossession of the leased property
without any recourse to the general credit of the public body. The disposition
of the leased property by the lessor in the event of termination of the lease
might, in many cases, prove difficult or result in loss. Accordingly, municipal
lease obligations will be characterized by the Portfolio as illiquid for
purposes of determining whether it complies with its investment limitation with
respect to illiquid securities, except where Principal Preservation's Board of
Directors expressly determines such a municipal lease obligation is not
illiquid.
GOVERNMENT SECURITIES
As set forth in the Prospectus, under certain circumstances and subject to
certain limitations, the Portfolio may invest in obligations and instruments,
the interest on which is includable in gross income for purposes of federal and
state income taxation, including obligations of the U.S. government, its
agencies or instrumentalities. Direct obligations issued by the U.S. Treasury
include bills, notes and bonds which differ from each other only as to interest
rate, maturity and time of issuance. Treasury Bills have a maturity of one year
or less, Treasury Notes have maturities of one to ten years and Treasury Bonds
generally have maturities of greater than ten years.
Some obligations issued or guaranteed by U.S. government agencies and
instrumentalities are supported by the full faith and credit of the U.S.
Treasury, other obligations are secured by the right of the issuer to borrow
from the Treasury or are supported by the discretionary authority of the U.S.
government to purchase certain obligations of the agency or instrumentality, and
other obligations are supported only by the credit of the instrumentality
itself. Although the U.S. government provides financial support to such U.S.
government-sponsored agencies or instrumentalities, no assurance can be given
that it will always do so, since it is not so obligated by law. The Portfolio
will invest in such securities only when the Advisor is satisfied that the
credit risk with respect to the issuer is appropriate for the Portfolio.
REPURCHASE AGREEMENTS
The Portfolio may from time to time enter into repurchase agreements in
accordance with the limits set forth in the Prospectus. Repurchase agreements
involve the purchase by the Portfolio of securities with the condition that,
after a stated period of time, the original seller (a member bank of the Federal
Reserve System or a recognized securities dealer) will buy back the same
securities ("collateral") at a predetermined price or yield. The Portfolio may
invest in repurchase agreements of a duration of 7 days or less subject to the
limits on such investments stated in the Prospectus. The Portfolio's ability to
invest in repurchase agreements that mature in more than 7 days is subject to
the limits stated in the Prospectus as well as its investment restriction
limiting investment in "illiquid" securities.
The Portfolio's custodian will hold the securities underlying any
repurchase agreement as collateral or such securities will be part of the
Federal Reserve Book Entry System. The market value of the collateral
underlying the repurchase agreement will be determined on each business day. If
at any time the market value of the collateral falls below the repurchase price
of the repurchase agreement (including any accrued interest), the obligor under
the agreement will promptly furnish additional collateral to the custodian so
that the total collateral is an amount at least equal to the repurchase price
plus accrued interest. The difference between the amount the Portfolio pays for
the securities and the amount it receives upon resale is accrued as interest and
reflected in its net income.
In determining whether to enter into a repurchase agreement, the Advisor
will take into account the creditworthiness of the original seller. In the
event the seller of the repurchase agreement becomes the subject of a bankruptcy
or insolvency proceeding, or in the event of the failure of the seller to
repurchase the underlying security as agreed, the Portfolio could experience
losses that include: (1) possible decline in the value of the collateral during
the period that the Portfolio seeks to enforce its rights with respect thereto,
and possible delay in the enforcement of such rights; (2) possible loss of all
or a part of the income or proceeds of the repurchase; (3) additional expenses
to the Portfolio in connection with enforcing those rights; and (4) possible
delay in the disposition of the underlying security pending court action or
possible loss of rights in such securities.
LENDING OF PORTFOLIO SECURITIES
In order to generate income, the Portfolio may lend its portfolio
securities to brokers, dealers and other institutional investors, provided the
Portfolio receives cash collateral which at all times is maintained in an amount
equal to at least 100% of the current market value of the securities loaned. By
reinvesting the collateral it receives in these transactions, the Portfolio
could magnify any gain or loss it realizes on the underlying investment. If the
borrower fails to return the securities and the collateral is insufficient to
cover the loss, the Portfolio could lose money. For the purposes of this
policy, 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.
During the term of the loan, the Portfolio is entitled to receive interest and
other distributions paid on the loaned securities, as well as any appreciation
in the market value. The Portfolio also is entitled to receive interest from
the institutional borrower based on the value of the securities loaned. From
time to time, the Portfolio may return to the borrower, and/or a third party
which is unaffiliated with Principal Preservation and which is acting as a
"placing broker," a part of the interest earned from the investment of the
collateral received for securities loaned.
The Portfolio does not have the right to vote the securities loaned during
the existence of the loan, but can call the loan to permit voting of the
securities if, in the Advisor's judgment, a material event requiring a
shareholder vote would otherwise occur before the loan is repaid. In the event
of bankruptcy or other default of the borrowing institution, the Portfolio could
experience delays in liquidating the loan collateral or recovering the loan
securities, and incur risk of loss including: (1) possible decline in the value
of the collateral or in the value of the securities loaned during the period
while the Portfolio seeks to enforce its rights thereto; (2) possible subnormal
levels of income and lack of access to income during this period; and (3)
expenses of enforcing its rights. To minimize these risks, the Advisor
evaluates and continually monitors the creditworthiness of the institutional
borrowers to which the Portfolio lends its securities.
To minimize the foregoing risks, the Portfolio's securities lending
practices are subject to the following conditions and restrictions: (1) the
Portfolio may not make such loans in excess of 33% of the value of its total
assets; (2) the Portfolio must receive cash collateral in an amount at least
equal to 100% of the value of the securities loaned; (3) the institutional
borrower must be required to increase the amounts of the cash collateral
whenever the market value of the loaned securities rises above the amount of the
collateral; (4) the Portfolio must have the right to terminate the loan at any
time; (5) the Portfolio must receive reasonable interest on the loan, as well as
any interest or other distributions on the loaned securities and any increase in
the market value of the loaned securities; and (6) the Portfolio may not pay any
more than reasonable custodian fees in connection with the loan.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Portfolio may purchase or sell securities in when-issued or delayed
delivery transactions. The Portfolio may not invest more than 5% of its net
assets in these instruments. In such transactions, instruments are bought or
sold with payment and delivery taking place in the future in order to secure
what is considered to be an advantageous yield or price to the Portfolio at the
time of entering into the transactions. The payment obligations and the
interest rate are fixed at the time the buyer enters into the commitment,
although no interest accrues to the purchaser prior to settlement of the
transaction. Consistent with the requirements of the 1940 Act, securities
purchased on a when-issued basis are recorded as an asset (with the purchase
price being recorded as a liability) and are subject to changes in value based
upon changes in the general level of interest rates. At the time of delivery of
the security, the value may be more or less than the transaction price. At the
time the Portfolio enters into a binding obligation to purchase securities on a
when-issued basis, liquid assets of the Portfolio having a value at least as
great as the purchase price of the securities to be purchased are identified on
the books of the Portfolio and held by the Portfolio's custodian throughout the
period of the obligation. The use of these investment strategies may increase
net asset value fluctuations.
The Portfolio will only make commitments to purchase securities on a when-
issued basis with the intention of actually acquiring the securities, and not
for the purpose of investment leverage, but the Portfolio may sell the
securities before the settlement date if it is deemed advisable. When payment
is made for when-issued securities, the Portfolio will meet its obligation from
its then available cashflow, sale of securities held in the separate account,
sale of other securities or, although it normally would not expect to do so,
from sale of the when-issued securities themselves (which may have a market
value greater or lesser than the Portfolio's obligation). The sale of
securities to meet such obligations may involve a greater potential for the
realization of capital gains, which could cause the Portfolio to realize income
not exempt from federal income tax and Wisconsin personal income tax.
INVESTMENTS IN OTHER INVESTMENT COMPANIES
If the Portfolio invests in another investment company, it will incur
increased administration and distribution expenses. The Portfolio's investment
restrictions limit such investments. See "Investment Restrictions" in this
Statement of Additional Information.
SHORT SALES "AGAINST-THE-BOX"
The Portfolio may make short sales of securities or maintain a short
position, provided that at all times when a short position is open: (1) the
Portfolio owns an equal amount of securities of the same issue as, and equal in
amount to, the securities sold short; and (2) not more than 10% of the
Portfolio's net assets (determined at the time of short sale) may be segregated
as collateral for such sales. The Advisor presently intends to make such sales
only to defer realization of gain or loss for federal income tax purposes.
TEMPORARY DEFENSIVE POSITIONS
For temporary or liquidity purposes, the Portfolio may invest in taxable
obligations. Under normal market conditions, no more than 20% of the
Portfolio's income distributions during any year will be includable in gross
income for purposes of federal income tax or Wisconsin personal income tax.
However, for temporary, defensive purposes, the Portfolio may invest without
limitation in taxable obligations. Taxable obligations might include
o Obligations of the U.S. Government, its agencies or instrumentalities
o Other debt securities rated within one of the two highest rating
categories by either Moody's or Standard & Poor's
o Commercial paper rated in the highest rating category by either
Moody's or Standard & Poor's
o Certificates of deposit and bankers' acceptances of domestic banks
which have capital, surplus and undivided profits or at least $100
million
o High-grade taxable municipal bonds
o Repurchase agreements with respect to any of the foregoing instruments
o Cash
While the Portfolio is permitted to engage in these temporary defensive
strategies, it is not required to do so. Prevailing market conditions could
make it impossible for the Portfolio to do so. Also, these defensive strategies
could hamper the Portfolio's ability to achieve its investment objective.
DIVERSIFICATION
The Portfolio may not always be able to find a sufficient number of issues
of securities that meet its investment objective and criteria. As a result, the
Portfolio from time to time may invest a relatively high percentage of its
assets in the obligations of a limited number of issuers, some of which may be
subject to the same economic trends and/or be located in the same geographic
area. The Portfolio's securities may therefore be more susceptible to a single
economic, political or regulatory occurrence than the portfolio securities of
diversified investment companies.
The Portfolio will operate as a non-diversified management investment
company under the 1940 Act, but intends to comply with the diversification
requirements contained in the Internal Revenue Code of 1986. These provisions
of the Internal Revenue Code presently require that, at the end of each quarter
of the Portfolio's taxable year: (i) at least 50% of the market value of the
Portfolio's assets must be invested in cash, government securities, the
securities of other regulated investment companies and other securities, with
such other securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of the Portfolio's
total assets; and (ii) not more than 25% of the value of the Portfolio's total
assets can be invested in the securities of any one issuer (other than
government securities or the securities of other regulated investment
companies).
For purposes of such diversification, the identification of the issuer of
Tax Exempt Obligations depends on the terms and conditions of the security. If
a state or territory of the United States or the District of Columbia or a
political subdivision of any of them or a sovereign nation within the
territorial boundaries of the U.S., as the case may be, pledges its full faith
and credit to payment of a security, we consider that entity to be the sole
issuer of the security. If the assets and revenues of an agency, authority or
instrumentality of a state or territory of the United States or the District of
Columbia, or a political subdivision of any of them or a sovereign nation within
the territorial boundaries of the U.S., are separate from those of the state,
territory, District or political subdivision or sovereign nation, and the
security is backed only by the assets and revenues of the agency, authority,
instrumentality or sovereign nation, such agency, authority, instrumentality or
sovereign nation, as the sole issuer of the security. Moreover, if the security
is backed only by revenues of an enterprise or specific projects of the state,
territory or District, or a political subdivision or agency, authority or
instrumentality thereof or a sovereign nation within the territorial boundaries
of the U.S., such as utility revenue bonds, and the full faith and credit of the
governmental unit or sovereign nation is not pledged to the payment of principal
and interest on the obligation, we deem such enterprise or specific project as
the sole issuer. Similarly, in the case of an industrial development bond, if
that bond is backed only by certain revenues to be received from the non-
governmental user of the project financed by the bond, then we deem such non-
governmental user as the sole issuer. If, however, in any of the above cases, a
state, territory or the District, or a political subdivision of any of them, a
sovereign nation located within the U.S. territorial boundaries, or some other
entity, guarantees a security and the value of all securities issued or
guaranteed by the guarantor and owned by the Portfolio exceeds 10% of the value
of the Portfolio's total assets, then we consider the guarantee as a separate
security and treat it as an issue of the guarantor.
PORTFOLIO TURNOVER
Principal Preservation has not established a limit to its portfolio
turnover rates, nor will it attempt to achieve or be limited to predetermined
rates of portfolio turnover. Although Principal Preservation cannot predict its
portfolio turnover rates, the Portfolio's portfolio turnover rate is not
expected to exceed 100%. For the year ended December 31, 1999, the Portfolio's
turnover rate was 15.2%.
INVESTMENT RESTRICTIONS
The Portfolio has adopted the following fundamental investment restrictions
and policies which cannot be changed without the approval of a majority of the
Portfolio's outstanding shares. Policies that are not "fundamental policies"
may be changed by the Board of Directors without shareholder approval. We will
not consider any investment restriction which involves a maximum percentage of
securities or assets to be violated unless an excess over the percentage occurs
immediately after, and is caused by, an acquisition of securities or assets of,
or borrowing by, the Portfolio. The Portfolio may not:
(1) Purchase more than 10% of the outstanding voting securities of an
issuer, or invest in a company to get control or manage it.
(2) Invest 25% or more of its total assets, based on current market value
at the time of purchase, in securities of issuers in any single industry (except
that it may invest without limitation, in circumstances in which other
appropriate available instruments may be in limited supply, in housing,
healthcare and/or utility obligations); provided that there shall be no
limitation on the purchase of Tax Exempt Obligations and securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities.
(3) Borrow money or property except for temporary or emergency purposes.
If the Portfolio ever should borrow money it would only borrow from banks and in
an amount not exceeding 10% of the market value of its total assets (not
including the amount borrowed). The Portfolio will not pledge more than 15% of
its net assets to secure such borrowings. In the event the Portfolio's
borrowing exceeds 5% of the market value of its total assets the Portfolio will
not invest in any portfolio securities until its borrowings are reduced to below
5% of its total assets. For purposes of these restrictions, collateral
arrangements for premium and margin payments in connection with hedging
activities, if any, are not to be deemed to be a pledge of assets.
(4) Make loans, except that it may lend its portfolio securities, as
permitted under the Investment Company Act of 1940. For the purposes of this
restriction, investments in publicly-traded debt securities or debt securities
of the type customarily purchased by institutional investors and investments in
repurchase agreements are not considered loans.
(5) Underwrite the securities of other issuers, except where the Portfolio
might technically be deemed to be an underwriter for purposes of the Securities
Act of 1933 upon the disposition of certain securities.
(6) Issue senior securities.
(7) Purchase a security if, as a result, more than 10% of the value of the
Portfolio's net assets would be invested in: (i) securities with legal or
contractual restrictions on resale (other than investments and repurchase
agreements); (ii) securities for which market quotations are not readily
available; and (iii) repurchase agreements which do not provide for payment
within 7 days.
(8) Invest in commodities, but the Portfolio may invest in futures
contracts, options on futures, and options.
In accordance with the following non-fundamental policies, which Principal
Preservation's Board of Directors may change without shareholder approval, the
Portfolio may not:
(1) Invest more than 5% of its total assets in securities of companies
which, including any predecessors, have a record of less than 3 years of
continuous operations.
(2) Buy or sell real estate, real estate investment trusts, real estate
limited partnerships, or oil and gas interests or leases, but this shall not
prevent the Portfolio from investing in Tax Exempt Obligations secured by real
estate or interests therein or in securities of companies whose business
involves the purchase or sale of real estate.
(3) Purchase warrants, except that the Portfolio may purchase warrants
which, when valued at lower of cost or market, do not exceed 5% of the value of
the Portfolio's net assets; included within the 5%, but not to exceed 2% of the
Portfolio's net assets, may be warrants which are not listed on the New York or
American Stock Exchange.
(4) Purchase or retain the securities of an issuer if those officers or
Directors of Principal Preservation or the Advisor (as defined under the caption
"Management of Principal Preservation - The Investment Advisor" in this
Statement of Additional Information) who individually own beneficially more than
0.5 of 1% of the outstanding securities of such issuer together own beneficially
more than 5% of such outstanding securities; provided that no officer or
director shall be deemed to own beneficially securities held in other accounts
managed by such person or held in employee or similar plans for which such
person acts as trustee.
(5) Purchase securities on margin (except in connection with its permitted
futures and options activities) or effect short sales of securities, except that
the Portfolio may sell securities short where it holds a long position in the
same security which equals or exceeds the number of shares sold short; provided
that the Portfolio may not effect any such short sale of securities if, as a
result thereof, more than 10% of the Portfolio's net assets would be held as
collateral for such short positions.
(6) Purchase securities of other investment companies if the purchase
would cause more than 10% of the value of the total assets of the Portfolio to
be invested in investment company securities, provided that: (i) no investment
will be made in the securities of any single investment company if, immediately
after such investment, more than 3% of the outstanding voting securities of such
investment company would be owned by the Portfolio or more than 5% of the value
of the total assets of the Portfolio would be invested in such investment
company; and (ii) no such restrictions shall apply to a purchase of investment
company securities as a part of a merger, consolidation, reorganization or
acquisition of assets.
(7) Engage in futures and options transactions, other than as described in
its current Prospectus and Statement of Additional Information.
MANAGEMENT OF PRINCIPAL PRESERVATION
DIRECTORS AND OFFICERS
Under applicable law, the Board of Directors is responsible for management
of Principal Preservation, and provides broad supervision over its affairs. The
Advisor is responsible for the Portfolio's investment management, and Principal
Preservation's officers are responsible for the Portfolio's operations.
The Directors and officers of Principal Preservation and their principal
occupations during the past five years are set forth below. Their titles may
have varied during that period. Asterisks indicate those Directors 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 Retired; President, Tupperware
1724 Lake Roberts Court Director North America from 1990 to 1994
Windermere, FL 34786 (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 Cos.
Dillon, CO 80435 (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; 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; and Trustee of The
Prime Portfolios (registered
investment company) from 1993
to 1996.
James L. Brendemuehl, 54 Senior Vice Vice President - Mutual Funds,
President - B.C. Ziegler and Company, since
Sales 1995.
John H. Lauderdale, 34 Senior Vice Wholesaler, B.C. Ziegler and
President - Company since 1991.
Marketing
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 Directors who are
not officers, directors or employees of Ziegler. Principal Preservation pays
each of these Directors an annual fee of $12,000 and an additional $450 for each
Board or committee meeting he attends. Principal Preservation may also retain
consultants, who will be paid a fee, to provide the Board with advice and
research on investment matters. The Portfolio, together with Principal
Preservation's other mutual funds, pays a proportionate amount of these expenses
based on its total assets.
The table below shows fees paid to Directors of Principal Preservation for
the year ended December 31, 1999. Each mutual fund portfolio of Principal
Preservation (including the Portfolio) pays a proportionate share of these
expenses based on the ratio such portfolio's total assets bear to the aggregate
of the total assets of all nine portfolios of Principal Preservation. Principal
Preservation made no payments to its officers or directors who are affiliated
with the Advisor or the Distributor.
<TABLE>
PENSION OR
RETIREMENT TOTAL
NAME OF BENEFITS ACCRUED COMPENSATION
PERSON AND AGGREGATE AS PART OF FROM PRINCIPAL
POSITION WITH COMPENSATION PRINCIPAL ESTIMATED ANNUAL PRESERVATION AND
PRINCIPAL FROM PRINCIPAL PRESERVATION'S BENEFITS UPON FUND COMPLEX PAID
PRESERVATION PRESERVATION EXPENSES RETIREMENT TO DIRECTORS
------------ ------------ -------- ---------- ------------
<S> <C> <C> <C> <C>
Richard J. Glaisner, -0- -0- -0- -0-
President and Director(1)<F14>
Robert J. Tuszynski, -0- -0- -0- -0-
President and Director
Richard H. Aster, $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)<F14> 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 INVESTMENT ADVISOR
Under the terms of an Investment Advisory Agreement, B.C. Ziegler and
Company ("Ziegler") provides the Portfolio with overall investment advisory and
administrative services. Ziegler Asset Management, Inc. ("ZAMI") serves as sub-
advisor for the Portfolio under the terms of a sub-advisory agreement by and
among Principal Preservation (on behalf of the Portfolio), Ziegler and ZAMI.
Subject to such policies as the Principal Preservation Board of Directors may
determine, Ziegler and ZAMI make investment decisions on behalf of the
Portfolio, make available research and statistical data in connection therewith,
and supervise the acquisition and disposition of investments by the Portfolio.
Ziegler and ZAMI are each wholly owned subsidiaries of The Ziegler Companies,
Inc., a publicly owned financial services holding company.
As indicated in the table above (see "Management of Principal Preservation
- - Director and Officers"), Robert J. Tuszynski, President and a Director of
Principal Preservation, James L. Brendemuehl, Senior Vice President - Sales of
Principal Preservation, John H. Lauderdale, Senior Vice President - Marketing of
Principal Preservation and Franklin P. Ciano, Chief Financial Officer and
Treasurer of Principal Preservation, also serve as officers of either or both of
Ziegler and ZAMI. No other officer or Director of Principal Preservation is an
officer or director of Ziegler, ZAMI or any of their affiliates.
The advisory agreement under which the Portfolio has retained Ziegler as
its investment advisor provides for compensation to Ziegler (computed daily and
paid monthly) at annual rates based on the Portfolio's average daily net assets
as follows: 0.50 of 1% of the first $250 million of the Portfolio's average
daily net assets; and 0.40 of 1% on the Portfolio's average daily net assets in
excess of $250 million. Out of this fee, Ziegler pays ZAMI a sub-advisory fee
at the rate of one-fourth of the advisory fee received by Ziegler.
During the past three fiscal years, the Portfolio paid the investment
advisory fees set forth in the table below.
YEAR ENDED GROSS AMOUNT AMOUNT OF EXPENSES
DECEMBER 31 OF ADVISORY FEE REIMBURSED AND FEES WAIVED
- ----------- --------------- --------------------------
1997 $142,200 $178,916
1998 $194,141 $160,276
1999 $260,395 $65,498
ACCOUNTING/PRICING SERVICES
Ziegler provides certain accounting and pricing services to the Portfolio,
including calculating daily net asset value per share; maintaining original
entry documents and books of record and general ledgers; posting cash receipts
and disbursements; reconciling bank account balances monthly; recording
purchases and sales based upon portfolio manager communications; and preparing
monthly and annual summaries to assist in the preparation of financial
statements of, and regulatory reports for, the Portfolio. Ziegler provides
these services pursuant to the terms of an Accounting/Pricing Agreement (the
"Accounting/Pricing Agreement") at rates found by the Board of Directors to be
fair and reasonable in light of the usual and customary charges made by
unaffiliated vendors for similar services. The current rate of payment for
these services per year is .03 of 1% of the Portfolio's total assets of $30
million or more but less than $100 million, .02 of 1% of the Portfolio's total
assets of $100 million or more but less than $250 million, and .01 of 1% of the
Portfolio's total assets of $250 million or more, with a minimum fee of $19,000
per year, plus expenses.
The Accounting/Pricing Agreement continues in effect from year to year, as
long as it is approved at least annually by Principal Preservation's Board of
Directors or by a vote of the outstanding voting securities of Principal
Preservation and in either case by a majority of the Directors who are not
parties to the Accounting/Pricing Agreement or interested persons of any such
party. The Accounting/Pricing Agreement terminates automatically if assigned
and may be terminated without penalty by either party on 60 days notice. The
Accounting/Pricing Agreement provides that neither Ziegler nor 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 Accounting/Pricing Agreement, except for willful
misfeasance, bad faith or gross negligence in the performance of their duties or
by reason of reckless disregard of their obligations and duties under the
Accounting/Pricing Agreement, and in no case shall their liability exceed one
year's fee income received by them under such Agreement.
For the past three fiscal years, the fees that the Portfolio paid to
Ziegler for accounting/ pricing services were as follows: 1999 - $25,436;
1998 - $11,220; and 1997 - $19,068.
ADMINISTRATIVE SERVICES
Ziegler also provides certain administrative services to Principal
Preservation and the Portfolio, including the following:
o Maintain and retain all of Principal Preservation's 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;
o Arrange and prepare and disseminate all materials for meetings of
Principal Preservation's Board of Directors and committees
thereof and review and retain all minutes and other records
thereof;
o Prepare and, subject to approval of Principal Preservation's
Chief Accounting Officer, disseminate Principal Preservation's
and the Portfolio's quarterly financial information to Principal
Preservation's Board of Directors and prepare such other reports
relating to the business and affairs of Principal Preservation
and the Portfolio as the officers and Principal Preservation's
Board of Directors may from time to time reasonably request;
o Administer 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);
o Provide internal legal, compliance, audit, and risk management
services and periodic reports to Principal Preservation's Board
of Directors with respect to such services;
o Prepare or manage 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;
o Handle and resolve any complaints registered with Principal
Preservation by shareholders, regulatory authorities and the
general public;
o Monitor and arrange for the monitoring of legal, tax, regulatory,
and industry developments related to the business affairs of
Principal Preservation and communicate such developments to
Principal Preservation's officers and Board of Directors as they
may reasonably request or as the Administrator believes
appropriate;
o Administer operating policies of Principal Preservation and
recommend to Principal Preservation's officers and Board of
Directors modifications to such policies to facilitate the
protection of the shareholders or market competitiveness of
Principal Preservation and the Portfolio and to the extent
necessary to comply with new legal or regulatory requirements;
o Respond to surveys conducted by third parties and report the
Portfolio's performance and other portfolio information;
o File claims, monitor class actions involving portfolio
securities, and handling administrative matters in connection
with the litigation or settlement of such claims with respect to
the Portfolio;
o Develop, install and/or maintain telephone and automated systems
for receiving, recording, tabulating and/or responding to
shareholder inquiries or communications;
o Facilitate and assist communication with beneficial owners of
Portfolio shares by brokers and other service providers who own
shares in street name; and
o Maintain and pay membership fees associated with Principal
Preservation's membership in the Investment Company Institute for
so long as the Board of Directors deems it advisable and
appropriate to maintain such membership.
Ziegler has agreed to provide these services commencing May 1, 2000
pursuant to the terms of an Administration Agreement between it and Principal
Preservation. The Portfolio pays Ziegler compensation for providing these
services at the rate of 0.1 of 1% of the Portfolio's average daily net assets.
The Administration Agreement will continue in effect with respect to each of the
Portfolio from year to year provided Principal Preservation's Board of
Directors, including at least a majority of the Directors who are not
"interested persons" (as that term is defined in the 1940 Act) of Principal
Preservation, approve such continuance with respect to the Portfolio. Either
party may terminate the Administration Agreement with respect to the Portfolio
at any time on not less than sixty (60) days prior written notice. The
Administration Agreement provides that the Administrator shall not be liable to
Principal Preservation or the Portfolio for any action taken or thing done by it
in good faith and without negligence or misconduct on its part or on the part of
any of its subcontractors or agents. Principal Preservation must indemnify and
hold the Administrator harmless from any and all claims, actions, suits, losses,
costs, damages and expenses (including reasonable expenses for counsel) that it
incurs in connection with any action or omission by it or its employees, agents
or subcontractors in the performance of their duties under the Administration
Agreement, unless such act or omission constitutes negligence, misconduct,
willful misfeasance, bad faith or reckless disregard.
CUSTODIAN SERVICES
Firstar Trust Company serves as the Custodian of the Portfolio's assets
pursuant to a Custodian Servicing Agreement. The Custodian Servicing Agreement
provides that the Custodian is entitled to receive an annual fee of 0.02% on the
first $500 million of the Portfolio's net asset value and 0.015% of assets in
excess of $500 million.
TRANSFER AGENT SERVICES
PFPC Global Fund Services provides transfer agent and dividend disbursing
services to the Portfolio.
CODE OF ETHICS
Rule 17j-1 under Section 17(j) of the 1940 Act makes it illegal for any
person associated with Principal Preservation, the Adviser or the Sub-Advisor,
who has knowledge of portfolio securities trades that the Portfolio makes or
intends to make, to use that information in a manner that benefits that person
and/or harms the Portfolio. To protect against such conduct, Principal
Preservation, the Advisor and the Sub-Advisor have adopted a code of ethics in
accordance with requirements established under Rule 17j-1. The code of ethics
does not prohibit persons who have knowledge of Principal Preservation's
portfolio securities trades from investing in the same securities; however, the
code of ethics establishes time frames, prior approval procedures and reporting
requirements designed to assure that persons who have knowledge of the
Portfolio's securities trades do not use that information in a manner which is
detrimental to the Portfolio and/or which benefits the person.
OTHER SERVICES
In addition to the foregoing, Ziegler also serves as the principal
Distributor of the Portfolio's shares and receives commissions on sales of
Portfolio shares. See "Purchase of Shares." Ziegler also receives
reimbursement from the Portfolio for certain expenses Ziegler incurs in
connection with distributing the Portfolio's shares pursuant to the Distribution
Plan adopted by the Portfolio under Rule 12b-1 of the 1940 Act. See
"Distribution Expenses."
For the past three fiscal years, the Rule 12b-1 fees that the Portfolio
paid to Ziegler, and the sales commissions earned by Ziegler on sales of shares
of the Portfolio, are reflected in the table below.
YEAR ENDED AGGREGATE COMMISSIONS
DECEMBER 31, RULE 12B-1 FEES SALES COMMISSIONS RETAINED BY ZIEGLER
- ------------ --------------- ----------------- ------------------
1999 $73,895 $130,440 $97,396
1998 $61,872 $93,498 $93,498
1997 $44,850 $129,117 $91,000
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of December 31, 1999, no person was known to Principal Preservation to
be the "beneficial owner" (determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934) of more than 5% of the outstanding shares of
Principal Preservation's common stock or of the outstanding shares of the
Portfolio. Information as to beneficial ownership was obtained from information
on file with the Securities and Exchange Commission or furnished by the
specified person or the transfer agent.
PURCHASE OF SHARES
As the principal Distributor for the Portfolio, Ziegler allows Selected
Dealer discounts (which are alike for all Selected Dealers) from the applicable
public offering price. Neither Ziegler nor Selected Dealers are permitted to
withhold placing orders to benefit themselves by a price change. The
Distribution Agreement between Principal Preservation and Ziegler continues from
year to year if it is approved annually by Principal Preservation's Board of
Directors, including a majority of those Directors who are not interested
persons, or by a vote of the holders of a majority of the outstanding shares.
The Distribution Agreement may be terminated at any time by either party on 60
days notice and will automatically terminate if assigned.
OFFERING PRICE; SALES CHARGES
The public offering price of the Portfolio's shares is the net asset value
plus a maximum front-end sales charge equal to 3.50% of the offering price.
Certain classes of purchasers may buy shares of the Portfolio without a
sales charge, or a reduced sales charge, as described in the Prospectus. The
Board of Directors believes this is appropriate because of the minimal sales
effort needed to accommodate these classes of persons.
Because sales to members of qualified groups result in economies of sales
efforts and sales related expenses, the Distributor is able to offer a reduced
sales charge to such persons. A "qualified group" is one which: (1) has been
in existence for more than six months; (2) has a purpose other than acquiring
shares of one or more of the Portfolios at a discount; (3) has more than 10
members; (4) is available to arrange for group meetings between representatives
of the Distributor or Selected Dealers distributing shares of the relevant
Portfolios; and (5) agrees to include sales and other materials related to
Principal Preservation in its mailings to members at reduced or no cost to the
Distributor or Selected Dealers. See "Purchasing Shares - Reduced Front-End
Sales Charges" in the Prospectus.
DEALER REALLOWANCES
The Distributor pays a reallowance to Selected Dealers out of the front-end
sales load it receives on sales of shares of the Portfolio, which reallowance is
equal to the following percentage of the offering price of such shares:
SIZE OF INVESTMENT SELECTED DEALER REALLOWANCE
- ------------------ ---------------------------
Less than $25,000 3.00%
$25,000 but less than $50,000 2.75%
$50,000 but less than $100,000 2.25%
$100,000 but less than $250,000 1.75%
$250,000 but less than $500,000 1.25%
$500,000 but less than $1,000,000 1.00%
$1,000,000 or more None
In addition, the Distributor may pay an additional commission to
participating dealers and participating financial institutions acting as agents
for their customers in an amount up to the difference between the sales charge
and the selected dealer reallowance in respect of the shares sold. The
Distributor may offer additional compensation in the form of trips, merchandise
or entertainment as sales incentives to Selected Dealers. The Distributor's
sales representatives may not qualify to participate in some of these incentive
compensation programs, and the Distributor may offer similar incentive
compensation programs in which only its own sales representatives qualify to
participate. In addition to the Selected Dealer Reallowances reflected in the
table, the Distributor may from time to time pay an additional concession to a
Selected Dealer which employs a registered representative who sells, during a
specific period, a minimum dollar amount of shares, or may pay an additional
concession to Selected Dealers on such terms and conditions as the Distributor
determines. In no event will such additional concession paid by the Distributor
to the Selected Dealer exceed the difference between the sales charge and the
Selected Dealer Reallowance in respect of shares sold by the qualifying
registered representatives of the Selected Dealer. Selected Dealers who receive
a concession may be deemed to be "underwriters" in connection with sales by them
of such shares and in that capacity they may be subject to the applicable
provisions of the Securities Act of 1933.
The Distributor may make payments to Selected Dealers to compensate them
for sales of Portfolio shares to purchasers who purchase $1.0 million or more in
shares, and who therefore do not pay a front-end sales charge. Any such
payments will be made by the Distributor out of its own funds. The rate of such
payments may be up to 0.75 of 1% of the amount invested.
PERFORMANCE INFORMATION
From time to time the Portfolio may advertise its "yield" and "total
return." Yield is based on historical earnings and total return is based on
------------------------------------------------------------------
historical distributions; neither is intended to indicate future performance.
- ----------------------------------------------------------------------------
The "yield" of the Portfolio refers to the income generated by an investment in
the Portfolio over a one-month period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of
income generated by the investment during the month is assumed to be generated
each month over a 12-month period and is shown as a percentage of the
investment. The Portfolio also may advertise its "tax equivalent yield," which
is computed by dividing that portion of the Portfolio's yield which is tax-
exempt by one minus a stated income tax rate and adding the product to that
portion, if any, of the yield of the Portfolio which is not tax-exempt.
"Total return" of the Portfolio refers to the average annual total return
for one, five and ten year periods (or so much thereof as the Portfolio has been
in existence). Total return is the change in redemption value of shares
purchased with an initial $1,000 investment, assuming the reinvestment of
dividends and capital gain distributions, after giving effect to the maximum
applicable sales charge.
Performance information should be considered in light of the Portfolio's
investment objectives and policies, characteristics and quality of its portfolio
securities and the market conditions during the time period, and should not be
considered as a representation of what may be achieved in the future. Investors
should consider these factors and possible differences in the methods used in
calculating performance information when comparing the Portfolio's performance
to performance figures published for other investment vehicles.
Average annual total return is computed by finding the average annual
compounded rates of return over the 1, 5, and 10 year periods (or so much
thereof as the Portfolio has been in existence) ended on the date of the balance
sheet that would equate the initial amount invested to the ending redeemable
value, according to the following formula:
n
P(1 + T) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1, 5, or 10 year periods at the end of the
1, 5, or 10 year periods (or fractional portion thereof).
In some circumstances the Portfolio may advertise its total return for a 1,
2 or 3-year period, or the total return since the Portfolio commenced
operations. In such circumstances the Portfolio will adjust the values used in
computing return to correspond to the time period for which the information is
provided.
Yield quotations are based on a 30-day (or one-month) period, and are
computed by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
a-b 6
Yield = 2[(----- + 1) - 1]
cd
Where:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
The total return for the Portfolio for the year ended December 31, 1999 was
- -7.12%, 5.01% for the five-year period then ended, and for the period from June
13, 1994 (commencement of operations) through December 31, 1999 was 3.24%. The
annualized yield for the Portfolio for the month ended December 31, 1999 was
4.46%. When advertising yield, the Portfolio will not advertise a one-month or
30-day period which ends more than 45 days before the date the advertisement is
published.
A tax equivalent yield is based on a 30-day (or one-month) period, and is
computed by dividing that portion of the yield of the Portfolio (as computed in
accordance with the description above) by one minus a stated income tax rate and
adding the products to that portion, if any, of the yield of the Portfolio that
is not tax-exempt. For the month ended December 31, 1999, the Portfolio's
taxable equivalent yield, based upon a 39.6% federal income tax rate, was 7.92%.
Performance information for the Portfolio may be compared to various
unmanaged indices as well as indices of similar mutual funds. The Portfolio's
advertising may also quote rankings published by other recognized statistical
services or publishers such as Lipper Analytical Services, Inc., or Weisenberger
Investment Companies Service.
An illustration may be used comparing the growth in value of an initial
investment in the Portfolio compared to a fixed rate of return compounded on a
monthly basis. This illustration will reflect the effect of the Portfolio's
sales charge and fluctuations in net asset value, and will assume all income and
capital gain distributions are reinvested. The fixed rate of return will be
clearly stated and presented as a monthly compounded figure, and therefore will
not reflect any market fluctuation. The Portfolio may also use illustrations
comparing tax-free yields to equivalent taxable yields based on maximum marginal
tax rates at varying income levels, as well as illustrations showing the effects
of compounding on a tax-free investment as compared with a taxable investment
offering the same hypothetical yield.
The Portfolio may from time to time include its ranking as published by
other comparable national services which rank mutual funds, in advertisements or
in information presented to prospective shareholders.
PORTFOLIO RATINGS
The Portfolio may obtain and use a rating from a nationally recognized
statistical rating organization. A rating on the shares of an investment
company is a current assessment of creditworthiness with respect to the
investments held by such fund. This assessment takes into consideration the
financial capacity of the issuers and of any guarantors, insurers, lessees, or
mortgagors with respect to such investments. The assessment, however, does not
take into account the extent to which the Portfolio's expenses or portfolio
asset sales for less than the Portfolio's purchase price will reduce yield or
return. In addition, the rating is not a recommendation to purchase, sell, or
hold units, inasmuch as the rating does not comment as to market price of the
shares or suitability for a particular investor.
DETERMINATION OF NET ASSET VALUE PER SHARE
Shares are sold at their net asset value per share plus the applicable
sales charge. See "Purchase of Shares." Net asset value per share of the
Portfolio is determined by subtracting the Portfolio's liabilities (including
accrued expenses and dividends payable) from the Portfolio's total assets (the
value of the securities the portfolio holds plus cash or other assets, including
interest accrued but not yet received) and dividing the result by the total
number of shares outstanding.
The Portfolio calculates its net asset value per share as of 2:30 p.m. New
York time at least once every weekday, Monday through Friday, except on
customary national business holidays which result in the closing of the New York
Stock Exchange (the "Exchange") (including New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day).
Tax Exempt Obligations in which the Portfolio invests are traded primarily
in the over-the-counter market. Securities for which market quotations are
readily available will be valued in the same manner as for hedging instruments.
Securities and other assets for which quotations are not readily available will
be valued at their fair value on a consistent basis using valuation methods
determined by the Board of Directors. The Portfolio intends to determine fair
value for such securities based in part upon the information supplied by pricing
services approved by the Board of Directors. Valuations of portfolio securities
furnished by the pricing service will be based upon a computerized matrix system
and/or appraisals by the pricing service in each case in reliance upon
information concerning market transactions and quotations from recognized
securities dealers.
Hedging instruments will be valued at their last sale price prior to the
close of the Exchange, unless there have been no trades on that day and the last
sale price is below the bid, or above the asked, price. If the last prior sale
price is below the bid, instruments will be valued at the bid price at the close
of the Exchange; if the last prior sale price is above the asked, the instrument
will be valued at the asked price at the close of the Exchange.
TAX STATUS
Each series of a series company, such as Principal Preservation, is treated
as a single entity for Federal income tax purposes so that the net realized
capital gains and losses of the various portfolios in one fund are not combined.
The Portfolio intends to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986 (the "Code"). In order to qualify as a
regulated investment company, the Portfolio must satisfy a number of
requirements. Among such requirements is the requirement that at least 90% of
the Portfolio's gross income is derived from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of stocks,
securities or foreign currencies, and other income (including but not limited to
gains from options, futures or forward contracts) derived with respect to the
Portfolio's business of investing in such stock, securities or currencies. In
addition, the Portfolio must distribute at least 90% of its taxable income
(including realized gains on the sale of securities in addition to interest,
dividend and other income), and is subject to a 4% federal excise tax if it
fails to distribute at least 98% of its ordinary income and 98% of its net
capital gains earned or realized during a calendar year. The Portfolio plans to
distribute its income and capital gains so as to avoid the excise tax. The
Portfolio also is subject to a limitation that, at the end of each fiscal
quarter, at least 50% of its assets must be represented by cash and cash items
(including receivables), Government securities, securities of other regulated
investment companies and other securities; provided that, with respect to such
other securities, no more than 5% of the Portfolio's assets may be invested in
the securities of any one issuer or may include securities that represent more
than 10% of the outstanding voting securities of any one issuer. Finally, the
Portfolio may not invest more than 25% of its total assets in securities of any
one issuer, or in two or more affiliated issuers which are in the same or
similar trades or businesses, excluding Government securities and securities of
other regulated investment companies.
Dividends and other distributions paid to individuals and other non-exempt
payees are subject to a 31% backup Federal withholding tax if the Agent is not
provided with the shareholder's correct taxpayer identification number or
certification that the shareholder is not subject to such backup withholding or
if the Portfolio is notified that the shareholder has under reported income in
the past. In addition, such backup withholding tax will apply to the proceeds
of redemption or repurchase of shares from a shareholder account for which the
correct taxpayer identification number has not been furnished. For most
individual taxpayers, the taxpayer identification number is the social security
number. An investor may furnish the Agent with such number and the required
certifications by completing and sending the Agent either the Account
Application form attached to the 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. Further, persons who are "substantial users" (or persons related
thereto) of facilities financed by industrial development bonds should consult
their own tax advisor before purchasing the Portfolio's shares.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Purchase and sale orders for portfolio securities may be effected through
brokers, although it is expected that transactions in debt securities will
generally be conducted with dealers acting as principals. Purchases and sales
of securities on a stock exchange are effected through brokers who charge a
commission for their services. Purchases and sales of securities traded over-
the-counter may be effected through brokers or dealers. Brokerage commissions
on securities and options are subject to negotiation between Principal
Preservation and the broker.
Allocation of transactions, including their frequency, to various brokers
is determined by the Advisor and Sub-Advisor in their best judgment and in a
manner deemed fair and reasonable to shareholders. The primary consideration is
prompt and efficient execution of orders in an effective manner at the most
favorable price. Principal Preservation may also consider sales of shares of
its various series as a factor in the selection of broker-dealers, subject to
the policy of obtaining best price and execution. In addition, if Ziegler or an
affiliate is utilized as a broker for portfolio trades, and other clients of the
Advisor or Sub-Advisor are considering the same types of transactions
simultaneously, the Advisor and the Sub-Advisor will allocate the transactions
and securities in which they are made in a manner deemed by them to be
equitable, taking into account size, timing and amounts. This may affect the
price and availability of securities to the Portfolio.
DISTRIBUTION EXPENSES
Principal Preservation's Distribution Plan (the "Plan") is its written plan
contemplated by Rule 12b-1 (the "Rule") under the 1940 Act.
The Plan authorizes the Distributor to make certain payments to any
qualified recipient, as defined in the Plan, that has rendered assistance in the
distribution of the Portfolio's shares (such as sale or placement of the
Portfolio's shares, or administrative assistance, such as maintenance of sub-
accounting or other records). Qualified recipients include banks and other
financial institutions. The Plan also authorizes the Distributor to purchase
advertising for shares of the Portfolio, to pay for sales literature and other
promotional material, and to make payments to its sales personnel. Any such
payments to qualified recipients or expenses will be reimbursed or paid by
Portfolio, up to a limit of 0.25 of 1% of the average net assets of the
Portfolio. 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 the
Portfolio listed below are considered to be "primarily intended to result in the
sale of shares" of the Portfolio within the meaning of the Rule, such payments
by the Portfolio are authorized without limit under the Plan and shall not be
included in the limitations contained in the Plan: (1) the costs of the
preparation, printing and mailing of all required reports and notices to
shareholders, irrespective of whether such reports or notices contain or are
accompanied by material intended to result in the sale of shares of the
Portfolio; (2) the costs of preparing, printing and mailing of all prospectuses
to shareholders; (3) the costs of preparing, printing and mailing of any proxy
statements and proxies, irrespective of whether any such proxy statement
includes any item relating to, or directed toward, the sale of the Portfolio's
shares; (4) all legal and accounting fees relating to the preparation of any
such reports, prospectuses, proxies and proxy statements; (5) all fees and
expenses relating to the qualification of the Portfolio and/or its shares under
the securities or "Blue Sky" laws of any jurisdiction; (6) all fees under the
1940 Act and the Securities Act of 1933, including fees in connection with any
application for exemption relating to or directed toward the sale of the
Portfolio's shares; (7) all fees and assessments of the Investment Company
Institute or any successor organization or industry association irrespective of
whether some of its activities are designed to provide sales assistance; (8) all
costs of preparing and mailing confirmations of shares sold or redeemed or share
certificates and reports of share balances; and (9) all costs of responding to
telephone or mail inquiries of shareholders.
The Plan also states that it is recognized that the costs of distribution
of the Portfolio's shares are expected to exceed the sum of permitted payments,
permitted expenses, and the portion of the sales charge retained by the
Distributor, and that the profits, if any, of the Advisor are dependent
primarily on the advisory fees paid by the Portfolio to Ziegler. If and to the
extent that any investment advisory fees paid by the Portfolio might, in view of
any excess distribution costs, be considered as indirectly financing any
activity which is primarily intended to result in the sale of shares issued by
the Portfolio, the payment of such fees is nonetheless authorized under the
Plan. The Plan states that in taking any action contemplated by Section 15 of
the 1940 Act as to any investment advisory contract to which the Portfolio is a
party, the Board of Directors including its Directors who are not "interested
persons" as defined in the 1940 Act, and who have no direct or indirect
financial interest in the operation of the Plan or any agreements related to the
Plan ("Qualified Directors"), shall, in acting on the terms of any such
contract, apply the "fiduciary duty" standard contained in Sections 36(a) and
(b) of the 1940 Act.
Under the Plan, the Portfolio is obligated to pay distribution fees only to
the extent of expenses actually incurred by the Distributor for the current
year, and thus there will be no carry-over expenses from the previous years.
The Plan permits the Distributor to pay a portion of the distribution fee to
authorized broker dealers, which may include banks or other financial
institutions, and to make payments to such persons based on either or both of
the following: (1) as reimbursement for direct expenses incurred in the course
of distributing the Portfolio's shares or providing administrative assistance to
the Portfolio or its shareholders, including, but not limited to, advertising,
printing and mailing promotional material, telephone calls and lines, computer
terminals and personnel (including commissions and other compensation paid to
such personnel); and/or (2) at a specified percentage of the average value of
certain qualifying accounts of customers of such persons.
The Plan requires that while it is in effect the Distributor shall report
in writing at least quarterly to the Directors, and the Directors shall review,
the following: (1) the amounts of all payments, the identity of recipients of
each such payment, the basis on which each such recipient was chosen and the
basis on which the amount of the payment was made; (2) the amounts of expenses
and the purpose of each such expense; and (3) all costs of the other payments
specified in the Plan (making estimates of such costs where necessary or
desirable) in each case during the preceding calendar or fiscal quarter.
The Plan will continue in effect from year to year only so long as such
continuance is specifically approved at least annually by the Board of Directors
and its Qualified Directors cast in person at a meeting called for the purpose
of voting on such continuance. The Plan may be terminated any time without
penalty by a vote of a majority of the Qualified Directors or by the vote of the
holders of a majority of the outstanding voting securities of the Portfolio.
The Plan may not be amended to increase materially the amount of payments to be
made without shareholder approval. While the Plan is in effect, the selection
and nomination of those Directors who are not interested persons of Principal
Preservation is committed to the discretion of such disinterested Directors.
Nothing in the Plan will prevent the involvement of others in such selection and
nomination if the final decision on any such selection and nomination is
approved by a majority of such disinterested Directors.
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
The audited financial statements of the Portfolio incorporated by reference
into the Prospectus and this Statement of Additional Information have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto and incorporated by reference into the
Prospectus in this Statement of Additional Information and reliance upon the
authority of said firm as experts in accounting and auditing in giving said
report.
Quarles & Brady LLP, as counsel to Principal Preservation, has rendered its
opinion as to certain legal matters regarding the due authorization and valid
issuance of the shares of common stock being sold pursuant to the Prospectus.
FINANCIAL STATEMENTS
The following audited financial statements and related footnotes of the
Principal Preservation Wisconsin Tax-Exempt Portfolio and the Report of the
Independent Public Accountants thereon are incorporated herein by reference from
the Principal Preservation Wisconsin Tax-Exempt Portfolio's 1999 Annual Report
to Shareholders.
1. Balance Sheet of the Portfolio dated December 31, 1999.
2. Statements of Changes in Net Assets of the Portfolio for the
years ended December 31, 1999 and December 31, 1998.
3. Statement of Operations of the Portfolio for the year ended
December 31, 1999.
A copy of the Principal Preservation Wisconsin Tax-Exempt Portfolio's 1999
Annual Report to Shareholders may be obtained free of charge by writing to
Principal Preservation, 215 North Main Street, West Bend, Wisconsin 53095, or by
calling 1-800-826-4600.
APPENDIX A
SECURITIES RATINGS
As set forth in the Prospectus under the caption "Investment Program,"
generally, the Portfolio will limit its investment in debt securities to those
which are rated in one of certain specified categories by Moody's or S&P. The
following is a brief description of the rating systems used by these
organizations.
FIXED INCOME SECURITIES
Standard & Poor's Ratings Services.
- ----------------------------------
An S&P debt rating is a current assessment of the creditworthiness of an
obligor with respect to a specific obligation. This assessment may take into
consideration obligors such as guarantors, insurers or lessees.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default - capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
II. Nature of and provisions of the obligation; and
III. Protection afforded by, and relative position of the obligation in the
event of bankruptcy, reorganization or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.
S&P's six highest rating categories are as follows:
AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small
degree.
A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in the
higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protective parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt
in higher-rated categories.
BB. Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which
could lead to inadequate capacity to meet timely interest and
principal payments. The BB rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BBB-
rating.
B. Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions will likely impair
capacity or willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied BB or BB- rating.
Moody's Investors Service, Inc.
- -------------------------------
The purpose of Moody's Ratings is to provide investors with a simple system
of gradation by which the relative investment qualities of bonds may be noted.
Moody's six highest rating categories are as follows:
Aaa. Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa. Bonds which are Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude, or
there may be other elements present which make the long term risks
appear somewhat larger than in Aaa securities.
A. Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa. Bonds which are rated Baa are considered as medium grade obligations:
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba. Bonds which are Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not
well safeguarded during other good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B. Bonds which are B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of contract over any long period of time
may be small.
General
- -------
S&P ratings, other than "AAA", may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
The letter "p" following an S&P rating indicates the rating is provisional.
A provisional rating assumes the successful completion of the project being
financed by the issuance of the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion. Accordingly, the
investor should exercise his or her own judgment with respect to such likelihood
and risk.
Moody's security rating symbols may contain numerical modifiers to the "Aa"
through "B" rating classification. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
The symbol "Con" in a rating by Moody's indicates a provisional rating
given to bonds for which the security depends upon the completion of some act of
the fulfillment of some condition. These are bonds secured by: (1) earnings of
projects under construction; (2) earnings of projects unseasoned in operating
experience; (3) rentals which begin when facilities are completed; or (4)
payments to which some other limiting condition attaches. A parenthetical
rating denotes probable credit stature upon completion of construction or
elimination of basis of condition.
MUNICIPAL NOTE RATINGS
Moody's Investors Service, Inc.
- -------------------------------
MIG 1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable
strength of the preceding grades. Liquidity and cash flow
protection may be narrow and market access for refinancing is
likely to be less well established.
MIG 4. This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and
although not distinctly or predominantly speculative, there is
specific risk.
Standard & Poor's Ratings Services
- ----------------------------------
SP-1. Notes rated SP-1 have very strong or strong capacity to pay
principal and interest. Those issues determined to possess
overwhelming safety characteristics are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and
interest.
Notes due in three years or less normally receive a note rating. Notes
maturing beyond three years normally receive a bond rating, although the
following criteria are used in making that assessment:
-Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue will be rated as a note.)
-Source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be rated as a note.)
The ratings of S&P and Moody's represent their opinions as to the quality
of the instruments rated by them. It should be emphasized that such ratings,
which are subject to revision or withdrawal, are general and are not absolute
standards of quality.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
INVESTMENT ADVISOR, DISTRIBUTOR, ADMINISTRATOR,
ACCOUNTING/PRICING AGENT AND SHAREHOLDER SERVICING AGENT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
SUB-ADVISOR
Ziegler Asset Management, Inc.
250 East Wisconsin Avenue
Suite 1900
Milwaukee, Wisconsin 53202
CUSTODIAN
Firstar Trust Company
777 East Wisconsin Avenue
Milwaukee, WI 53202
TRANSFER AGENT
PFPC Global Fund Services
P.O. Box 60504
King of Prussia, Pennsylvania 19406
LEGAL COUNSEL
Quarles & Brady LLP
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INDEPENDENT AUDITORS
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
WISCONSIN TAX-EXEMPT PORTFOLIO
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)<F15> OTHER AFFILIATIONS(2)<F16>
- ---- ------------------- --------------------------
Peter D. Ziegler Chairman of the Board Chairman of the Board and
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)<F15> B.C. Ziegler and Company contains operating divisions, including the
Healthcare and Senior Living Investment Banking Group and The Ziegler
Investment Group.
(2)<F16> Certain of the indicated persons are officers or directors, or both,
of B.C. Ziegler and Company's parent, The Ziegler Companies, Inc., and
of other subsidiaries of its parent. Other than these affiliations,
and except as otherwise indicated on the table, the response is none.
(b) Ziegler Asset Management, Inc.
Ziegler Asset Management, Inc. is a wholly owned subsidiary of The
Ziegler Companies, Inc. It serves as sub-advisor to the S&P 100 Plus,
Dividend Achievers and PSE Tech 100 Index Portfolios and as investment
advisor to the Cash Reserve Portfolio.
Set forth below is a list of the officers and directors of Ziegler
Asset Management, Inc. as of 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)<F17>
- ---- ---------- --------------------------
P. D. Ziegler Chairman and Chairman of the Board, B.C.
Director Ziegler and Company; Chairman,
Ziegler Securities; Director,
West Bend Mutual Insurance
Company, 1900 S. 18th Avenue,
West Bend, WI 53095 (insurance
company)
Robert J. Tuszynski Vice President Senior Vice President, B.C.
Ziegler and Company; President,
Chief Executive Officer and
Director of Principal
Preservation Portfolios, Inc.
R. F. Patek Vice President - None
Portfolio Manager
D. R. Wyatt Vice President - None
Retirement Plan
Services
J. R. Yovanovich Corporate Secretary Corporate Secretary, B.C. Ziegler
and Company
J. C. Vredenbregt Treasurer Vice President - Treasurer and
Controller, B.C. Ziegler and
Company; Assistant Treasures;
Ziegler Securities
D. L. Lauterbach Vice President None
W. E. Hansen Vice President None
J. R. Wyatt Vice President None
Jay Ferrara, Jr. Vice President - None
Portfolio Manager
and Analyst
Leon Dodge Vice President - None
Portfolio Manager
and Analyst
(1)<F17> 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*<F18>
- --------------------------------- Director
Richard H. Aster
August J. English*<F18> Director
- ---------------------------------
August J. English
Ralph J. Eckert*<F18> Director
- ---------------------------------
Ralph J. Eckert
*<F18>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 4/30/99
Standard and Poor's 51
Corporation
(H)(7) Administration Agreement 55 5/1/00
(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 55 5/1/00
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
