(B.C. ZIEGLER AND COMPANY LOGO)
Quality Investments Since 1902
Cash Reserve Portfolio
Class X Common Stock
(Retail Shares)
------------
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1999
------------
(PRINCIPAL PRESERVATION LOGO)
Cash Reserve Portfolio
Class X Common Stock
(Retail Shares)
------------
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1999
------------
(PRINCIPAL PRESERVATION LOGO)
Cash Reserve Portfolio
Class Y Common Stock
(Institutional Shares)
------------
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1999
------------
(PRINCIPAL PRESERVATION LOGO)
Cash Reserve Portfolio
Class B Common Stock
(Contingent
Deferred Shares)
------------
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1999
------------
CASH RESERVE PORTFOLIO
CLASS X COMMON STOCK (RETAIL SHARES)
ANNUAL REPORT TO SHAREHOLDERS
February 24, 2000
Dear Shareholder:
I am pleased to bring you this annual report for Principal Preservation
Portfolio Cash Reserve Retail Class for the year ended December 31, 1999. Since
December 31, 1998, the Cash Reserve net assets fell from $167,884,000 to
$147,650,000. At the same time the total assets of the fund family broke
through the $1.0 billion milestone, finishing the year with total net assets of
$1,046,000,000. As a result of investors' focus on the stock market, much of the
asset growth can be attributed to the net inflows and market appreciation of our
equity funds.
The domestic economy continued to grow at a healthy pace during the year.
Higher income levels combined with increasing stock prices fueled consumer
spending, which was the primary driver of domestic growth. The Federal Reserve
Bank, concerned about potential inflation as a result of the strong economy,
instituted a series of 0.25% increases in the overnight lending rate. Thus, the
bond market resulted in higher yields and lower prices causing negative returns
on investments. Short term interest rates, as measured by the 90 day U.S.
Treasury, rose from 4.5% at December 31, 1998 to 5.31% at December 31, 1999.
For much of the first half of the year, the yield environment for short-term
securities was fairly stable. The manager increased the exposure to A1/P1
commercial paper from 74% at December 31, 1998, to approximately 82% by June 30,
1999. At the same time he reduced the investment in overnight repurchase
agreements to 4%.
As the year progressed and the concerns shifted to the Y2K issue, liquidity
became the paramount issue. The maturities of commercial paper issues and other
short-term investments were reduced to accommodate any liquidity needs of
investors. None of these moves caused major deviations from the average money
market yields. During the final quarter, the Cash Reserve Portfolio stayed
within 7 to 11 basis points of the average money market yield. At December 31,
1999, the average 7 day yield of the Cash Reserve Retail Class was 5.04%,
compared to Donoghue's First Tier Money Market fund average of 5.15% and the All
Taxable Money Market fund average of 5.13%.
We thank you for your continued support and trust with us at Principal
Preservation.
Sincerely,
/s/ Robert J. Tuszynski
Robert J. Tuszynski
President and CEO
The accompanying report is intended for the existing shareholders of Principal
Preservation. It does not constitute an offer to sell. Any investor wishing to
receive more information about the portfolios should obtain a prospectus which
includes a discussion of each investment objective and all sales charges and
expenses of the relevant portfolio(s).
CASH RESERVE PORTFOLIO
CLASS X COMMON STOCK (RETAIL SHARES)
FINANCIAL HIGHLIGHTS
<TABLE>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
(Selected data for each retail share of the Fund
outstanding throughout the periods)
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
Income from investment operations:
Net investment income 0.04 0.05 0.05 0.05 0.05
Less distributions:
Dividends from net investment income (0.04) (0.05) (0.05) (0.05) (0.05)
------- ------- ------- ------- -------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Total investment return (a)<F1> 4.35% 4.77% 4.80% 4.78% 5.32%
Ratios/Supplemental Data:
Net assets, end of period (nearest thousand) $136,998 $147,995 $122,710 $89,946 $86,590
Ratio of expenses to average net assets (b)<F2> 0.90% 0.89% 0.86% 0.78% 0.79%
Capital contributions (a)<F1> -- -- 0.13% -- 0.06%
Ratio of net investment income
to average net assets (b)<F2> 4.26% 4.65% 4.71% 4.73% 5.23%
</TABLE>
Prior to 1996, the assets of the Cash Reserve Portfolio were invested in the
Prime Money Market Portfolio ("Prime") of The Prime Portfolios. At the opening
of business on January 1, 1996, the assets of Prime were liquidated and
transferred to the Principal Preservation Cash Reserve Portfolio ("Fund"). At
that time, Classes were established for the Cash Reserve Portfolio, Class X
(Retail) and Class Y (Institutional). Assets of Prime which previously were
attributed to the Fund were allocated to the Fund's Class X(Retail) shares.
Information as of and results for periods ended prior to January 1, 1996 reflect
the Fund's investments in Prime. Results for the year ended December 31, 1996
and later periods reflect the new dual class structure.
(a)<F1> In 1997 and 1995, the advisers to Prime and their predecessors made
capital contributions to offset losses in securities. Without those
capital contributions, the adjusted total returns would have been
4.67% and 5.26% for 1997 and 1995, respectively.
(b)<F2> Prior to 1996, the ratio reflects the Fund's share of Prime's expenses
as well as voluntary waivers of fees and expense reimbursements by
Prime's adviser. For the years ended December 31, 1999, 1998, 1997 and
1996, the Fund's adviser and administrator voluntarily waived a
portion of their fees. Without these voluntary waivers and expense
reimbursements, the ratios of net investment income and expenses to
average net assets would have been as follows:
<TABLE>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Ratio of expenses to average net assets 0.93% 0.96% 0.94% 0.99% 1.16%
Ratio of net investment income
to average net assets 4.23% 4.58% 4.63% 4.63% 4.86%
</TABLE>
The accompanying notes are an integral part of the financial statements.
CASH RESERVE PORTFOLIO
CLASS Y COMMON STOCK (INSTITUTIONAL SHARES)
FINANCIAL HIGHLIGHTS
<TABLE>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------
1999 1998 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
(Selected data for each institutional share of the Fund
outstanding throughout the periods)
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- -------
Income from investment operations:
Net investment income 0.05 0.05 0.05 0.05
Less distributions:
Dividends from net investment income (0.05) (0.05) (0.05) (0.05)
------- ------- ------- -------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- -------
------- ------- ------- -------
Total investment return (b)<F4> 4.67% 5.15% 5.21% 5.20%
Ratios/Supplemental Data:
Net assets, end of period (nearest thousand) $10,536 $19,889 $33,057 $35,120
Ratio of expenses to average net assets (a)<F3> 0.58% 0.48% 0.45% 0.34%
Capital contribution (b)<F4> -- -- 0.17% --
Ratio of net investment income to average net assets (a)<F3> 4.54% 5.06% 5.10% 4.95%
</TABLE>
(a)<F3> For the years ended December 31, 1999, 1998, 1997 and 1996 the adviser
and administrator voluntarily waived a portion of their fees. Without
these voluntary waivers, the ratios would have been as follows:
<TABLE>
<S> <C> <C> <C> <C>
Ratio of expenses to average net assets 0.62% 0.55% 0.54% 0.54%
Ratio of net investment income to average net assets 4.50% 4.99% 5.01% 4.75%
</TABLE>
(b)<F4> During 1997, the adviser made capital contributions to offset losses
in securities. Had the adviser not made capital contributions, the
adjusted total return would have been 5.04%.
The accompanying notes are an integral part of the financial statements.
CASH RESERVE PORTFOLIO
CLASS B COMMON STOCK (CONTINGENT DEFERRED SHARES)
FINANCIAL HIGHLIGHTS
FOR THE PERIOD FROM
DECEMBER 15, 1999
(COMMENCEMENT OF
OPERATIONS) TO
DECEMBER 31, 1999
-----------------
(Selected data for each Class B share of the Fund
outstanding throughout the period)
Net asset value, beginning of period $ 1.00
-------
Income from investment operations:
Net investment income --
Less distributions:
Dividends from net investment income --
-------
Net asset value, end of period $ 1.00
-------
-------
Total investment return 3.47%*<F5>
Ratios/Supplemental Data:
Net assets, end of period (nearest thousand) $117
Ratio of expenses to average net assets 1.39%*<F5>
Ratio of net investment income to average net assets 3.47%*<F5>
*<F5> Annualized.
The accompanying notes are an integral part of the financial statements.
CASH RESERVE PORTFOLIO
BALANCE SHEET
DECEMBER 31, 1999
ASSETS:
Investments in Securities, at amortized cost and value:
U.S. Government and Agency Obligations $ 42,402,648
Investment in Repurchase Agreement 7,364,778
Short-term investments 97,618,464
Interest receivable 537,713
Other assets 9,900
------------
Total Assets 147,933,503
LIABILITIES:
Dividends payable (Retail Class X) $ 539
Dividends payable (Institutional Class Y) 40,078
Management and Administrative Fees 26,907
Accrued expenses 215,325
--------
Total Liabilities 282,849
------------
NET ASSETS $147,650,654
------------
------------
NET ASSETS CONSIST OF:
Capital stock $147,646,807
Undistributed net investment income 5,699
Accumulated net realized loss (1,852)
------------
Net Assets $147,650,654
------------
------------
INSTITUTIONAL CLASS Y
Net Assets (in 000's) $ 10,536
Shares Authorized 200,000
Shares Issued and Outstanding 10,531
Net asset value and redemption price per share $1.00
RETAIL CLASS X
Net Assets (in 000's) $ 136,998
Shares Authorized 200,000
Shares Issued and Outstanding 137,002
Net asset value and redemption price per share $1.00
RETAIL CLASS B
Net Assets (in 000's) $ 117
Shares Authorized 50,000
Shares Issued and Outstanding 117
Net asset value and redemption price per share $1.00
The accompanying notes are an integral part of the financial statements.
CASH RESERVE PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
INVESTMENT INCOME:
Interest $8,327,750
----------
Total investment income 8,327,750
----------
EXPENSES:
Investment advisory fees 323,977
Administration fees 243,237
Shareholder servicing fees Class X 361,923
Distribution fees Class X 224,978
Distribution fees Class B 28
Professional fees 119,950
Depository fees 31,652
Directors fees 34,209
Registration fees 34,675
Transfer agent fees Class X 3,674
Transfer agent fees Class Y 2,073
Pricing 2,609
Printing and postage fees Class X 52,807
Printing and postage fees Class Y 11,972
Miscellaneous expenses 6,132
---------
Total expenses 1,453,896
Less: Waiver by the Adviser/Administrator (50,609)
---------
Net expenses 1,403,287
----------
NET INVESTMENT INCOME 6,924,463
NET REALIZED LOSS FROM PORTFOLIO SALES (1,852)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $6,922,611
----------
----------
The accompanying notes are an integral part of the financial statements.
CASH RESERVE PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income $ 6,924,463 $ 7,771,353
Net realized gain (loss) (1,852) 696
------------ ------------
Net increase (decrease) in net assets resulting from operations 6,922,611 7,772,049
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares issued 337,606,702 617,229,087
Net asset value of shares issued in distributions 6,269,819 6,716,763
Cost of shares redeemed (364,108,393) (611,830,421)
------------ ------------
Net increase (decrease) in net assets from capital share transactions (20,231,872) 12,115,429
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Class X Shares (6,216,350) (6,464,559)
Class Y Shares (707,877) (1,306,467)
Class B Shares (145) --
------------ ------------
Total distributions (6,924,372) (7,771,026)
------------ ------------
Total increase (decrease) in net assets (20,233,633) 12,116,452
NET ASSETS:
Balance at beginning of period 167,884,287 155,767,835
------------ ------------
Balance at end of period $147,650,654 $167,884,287
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
CASH RESERVE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 - ORGANIZATION
Principal Preservation Portfolios, Inc. (the "Company"), registered under the
Investment Company Act of 1940 as an open-end management investment company, is
a series company with nine portfolios: Tax-Exempt Portfolio, Government
Portfolio, S&P100 Plus Portfolio, Dividend Achievers Portfolio, PSE Tech 100
Index Portfolio, Cash Reserve Portfolio, Wisconsin Tax-Exempt Portfolio, Select
Value Portfolio and Managed Growth Portfolio. This report presents information
only for the Cash Reserve Portfolio (the "Fund"). Information regarding the
other portfolios is presented in separate reports. The assets and liabilities of
each portfolio are segregated and a shareholder's interest is limited to the
portfolio in which the shareholder owns shares.
The Fund is a separate series of the Company, a Maryland corporation organized
in 1984. The Fund's investment objective is a high level of current income
consistent with stability of principal and the maintenance of liquidity. The
Fund commenced operations on April 5, 1993. Institutionalshares were first
offered on January 1, 1996. Class B shares were first offered on December 15,
1999.
Through December 31, 1995, the Fund sought to achieve its investment objective
by investing all the investable assets in the Prime Money Market Portfolio (the
"Portfolio") a separate series of The Prime Portfolios, an open-end, diversified
management investment company. Prime had the same investment objectives as the
Fund.
Effective January 1, 1996, pursuant to an Agreement and Plan of Reorganization
and Liquidation dated December 8, 1995, this master/feeder fund structure was
unwound, and the Fund withdrew its investment in the Portfolio. The Fund was
restructured to increase its authorized capital from 300 million to 400 million
shares of the Company's common stock, which were subdivided into two separate
classes of 200 million shares each: Class X Common Stock (Retail Shares) and
Class Y Common Stock (Institutional Shares). All shares of the Fund outstanding
immediately prior to this restructuring were redesignated (without otherwise
affecting their rights and preferences) as Retail Shares. Financial highlights
presented herein as of and for periods ended prior to January 1, 1996 reflect
the performance of the Fund's investments through Prime.
Each class of shares has identical rights and privileges, except with respect to
service organization fees and distribution fees paid by Retail Shares, voting
rights on matters affecting a single Class of shares and the exchange privileges
of each Class of shares.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies of the Fund:
a) VALUATION OF INVESTMENTS - Money market instruments are valued at
amortized cost, which the Directors have determined in good faith
constitutes fair value. The Fund's use of amortized cost is subject to
the Fund's compliance with certain conditions as specified under Rule
2a-7 of the Investment Company Act of 1940.
b) INTEREST INCOME - Interest income consists of interest accrued and
discount earned (including both original issue and market discount) on
the investments of the Fund, accrued ratably to the date of expected
maturity. Premiums are amortized on the investments of the Fund,
accrued ratably to the date of expected maturity.
c) FEDERAL INCOME TAXES - The Fund intends to distribute substantially all
of its taxable income to its shareholders and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. Accordingly, no provision for federal income or
excise taxes is necessary. As of December 31, 1999 the Fund has a
Federal income tax capital loss carryforward of $1,852 expiring in
2007. Management does not intend to make any distributions of future
realized capital gains until its Federal income tax capital loss
carryforward is exhausted.
The character of distributions made during the year from net investment
income or net realized gains may differ from the characterization for
federal income tax purposes due to differences in the recognition of
income, expense or gain items for financial statement and tax purposes.
Where appropriate, reclassifications between net asset accounts are
made for such differences that are permanent in nature. Accordingly at
December 31, 1999 reclassifications were made to increase undistributed
net investment income by $4,228, decrease capital stock by $3,532 and
increase accumulated net realized loss by $696.
d) EXPENSE ALLOCATION - The Fund bears all costs of its operations other
than expenses specifically assumed by B.C. Ziegler and Company ("BCZ").
Expenses incurred by the Company with respect to any two or more funds
in the series are allocated in proportion to the average net assets of
each fund, except where allocations of direct expenses in each fund can
otherwise be made fairly. Net investment income, including expenses,
other than class specific expenses and realized and unrealized gains
and losses are allocated daily to each class of shares based upon the
relative net asset value of outstanding shares of each class of shares
at the beginning of the day.
e) USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
f) OTHER - Investment transactions are accounted for on the date the
security is purchased or sold. The Fund has investments in repurchase
agreements, which are securities purchased from another party who
agrees to repurchase the security within a specified time period at a
specified price. It is the policy of the Fund to require the custodian
bank to have legally segregated within the Federal Reserve/Treasury
book-entry system, all securities held as collateral in support of the
repurchase agreements. Procedures have been established by the Fund to
monitor the market value of the collateral to ensure the existence of a
proper level of collateral.
Risks may arise from the potential inability of counterparties to honor
the terms of the repurchase agreement. Accordingly, the Fund could
receive less than the repurchase price on the sale of the collateral
securities.
NOTE 3 - TRANSACTIONS WITH AFFILIATES
a) INVESTMENT ADVISORY FEES - Ziegler Asset Management, Inc. ("ZAMI"), a
wholly-owned subsidiary of The Ziegler Companies, Inc., is the
Investment Adviser to the Fund. For its services under the Investment
Advisory Agreement, the advisor receives from the Fund a fee accrued
daily and paid monthly at an annual rate equal to 0.20% of the
Portfolio's average daily net assets. For the year ended December 31,
1999, the Fund incurred total Advisory fees of $323,977.
b) ADMINISTRATION FEES - Pursuant to an Administrative Services Agreement,
BCZ, an affiliate of ZAMI, provides the Fund general office facilities
and supervises the overall administration of the Fund. For these
services, BCZ receives a fee computed daily and payable monthly
totalling 0.15% of average daily net assets up to $200 million, and
0.10% of such assets over $200 million. For the year ended December 31,
1999, the Fund incurred administration fees of $243,237. BCZ
voluntarily waived $50,609 of its administrative fees during the year
ended December 31, 1999. This waiver may be discontinued at any time
by BCZ.
c) BCZ has an Accounting and Pricing Agreement with the Fund to provide
accounting and pricing services. Until November 8, 1999 BCZ provided
transfer agent services to the Fund pursuant to a Transfer Agent and
Dividend Disbursing Agent. In addition, the Fund pays BCZ distribution
fees and shareholder service fees for shareholder accounts maintained
by BCZ instead of the applicable transfer agent fees. The total amount
of the fees paid to BCZ for the year ended December 31, 1999 were as
follows:
<TABLE>
TRANSFER AGENT SHAREHOLDER SERVICE CLASS X DISTRIBUTION - CLASS X DISTRIBUTION - CLASS B FUND ACCOUNTING
-------------- --------------------------- ---------------------- ----------------------- ---------------
<S> <C> <C> <C> <C> <C>
$3,892 $361,923 $224,978 $28 $59,165
</TABLE>
NOTE 4 - CAPITAL SHARE TRANSACTIONS
(a) The Company has authorized capital of 1,000,000,000 shares at $.001 par
value per share. The Company's shares are divided into nine separate
portfolios: Wisconsin Tax-Exempt Portfolio, Government Portfolio, Tax-
Exempt Portfolio, S&P 100 Plus Portfolio, Dividend Achievers Portfolio,
Select Value Portfolio, PSE Tech 100 Index Portfolio, Managed Growth
Portfolio and Cash Reserve Portfolio, consisting of 50,000,000 shares
in each of the first eight portfolios and 450,000,000 in the Cash
Reserve Portfolio. Each portfolio (other than the Cash Reserve
Portfolio) has designated Class A (front-end load) shares. In
addition, the S&P 100 Plus, Dividend Achievers, Select Value, PSE Tech
100 Index, Managed Growth and Cash Reserve Portfolio also have
designated Class B (contingent deferred sales charge) shares. The
shares of the Cash Reserve Portfolio have been subdivided into
200,000,000 shares of each of the Class X (Retail Shares) and Class Y
(Institutional Shares) and 50,000,000 shares of Class B. The remaining
150,000,000 authorized shares of common stock of the Company may be
allocated to any of the above portfolios or to new portfolios as
determined by the Board of Directors. The shares of each portfolio have
equal rights and privileges with all other shares of that portfolio.
(b) Shown below is the Capital share activity, in thousands, during the
year ended December 31, 1998 and December 31, 1999 for Class X and
Class Y shares. The activity for Class B shares is from December 15,
1999 (inception) through December 31, 1999.
CLASS X CLASS Y CLASS B
------- ------- -------
SHARES OUTSTANDING
AT DECEMBER 31, 1997 122,710 33,057 --
Shares sold 431,149 186,080 --
Shares reinvested 6,464 253 --
Shares redeemed (412,329) (199,501) --
------- ------- -------
SHARES OUTSTANDING
AT DECEMBER 31, 1998 147,994 19,889 --
------- ------- -------
Shares sold 253,274 84,215 117
Shares reinvested 6,215 55 --
Shares redeemed (270,481) (93,628) --
------- ------- -------
SHARES OUTSTANDING
AT DECEMBER 31, 1999 137,002 10,531 117
------- ------- -------
------- ------- -------
CASH RESERVE PORTFOLIO
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
<TABLE>
PRINCIPAL MATURITY INTEREST VALUE
AMOUNT DATE RATE (NOTE 2A)
--------- -------- -------- ---------
<S> <C> <C> <C>
CORPORATE BONDS -- 3.4%
$ 1,500,000 Household Finance Corporation 3/13/00 4.850% (a)<F6> $ 1,499,871
3,000,000 J.P. Morgan and Company 4/6/00 6.074 (b)<F7> 2,999,794
500,000 Norwest Corp (Wells Fargo Co.) 4/1/00 7.125 501,245
------------
Total Corporate Bonds 5,000,910
------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 28.7%
FEDERAL HOME LOAN BANK ("FHLB")
2,000,000 FHLB Note 9/22/00 5.750 1,999,547
1,000,000 FHLB Note 7/13/00 5.480 997,472
500,000 FHLB Note 7/3/00 6.190 501,637
2,095,000 FHLB Note 6/22/00 5.575 2,093,204
3,600,000 FHLB Note 5/11/00 5.100 3,596,519
1,000,000 FHLB Note 4/14/00 5.500 999,071
3,030,000 FHLB Note 2/4/00 4.790 3,029,421
3,000,000 FHLB Note 2/24/00 4.950 2,996,109
500,000 FHLB Note 2/25/00 5.000 499,440
1,000,000 FHLB Note 3/27/00 5.605 999,567
3,000,000 FHLB Note 1/28/00 6.013 (c)<F8> 2,999,736
------------
Total Federal Home Loan Bank 20,711,723
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION ("FHLMC")
12,000,000 FHLMC Discount Note 1/14/00 4.790 11,979,258
1,000,000 FHLMC Discount Note 3/2/00 5.731 990,414
3,000,000 FHLMC Discount Note 1/13/00 5.420 2,994,580
461,825 FHLMC Pool #N93596 5/1/00 6.500 462,846
------------
Total Federal Home Loan Mortgage Corporation 16,427,098
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FNMA")
2,300,000 FNMA Note 1/27/00 5.430 2,300,360
3,000,000 FNMA Discount Note 3/21/00 5.480 2,963,467
------------
Total Federal National Mortgage Association 5,263,827
------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS 42,402,648
------------
SHORT TERM -- 67.7%
COMMERCIAL PAPER
3,500,000 American General Finance Corporation 1/28/00 6.200 3,483,725
3,500,000 American General Finance Corporation 1/14/00 6.050 3,492,353
1,000,000 American Express Credit Corporation 2/8/00 5.730 993,952
3,500,000 Associates Corporation 1/25/00 5.700 3,486,700
3,500,000 Associates Corporation 1/13/00 5.950 3,493,058
3,000,000 The CIT Group Holdings Corporation 1/26/00 5.800 2,987,916
4,000,000 The CIT Group Holdings Corporation 1/6/00 5.920 3,996,711
5,000,000 DuPont EI De Nemours Company 2/9/00 5.780 4,968,692
2,000,000 Ford Motor Credit Corporation 2/7/00 5.550 1,988,592
3,000,000 General Electric Capital Corporation 1/20/00 6.000 2,990,500
4,000,000 General Electric Capital Corporation 1/18/00 5.850 3,988,950
4,000,000 General Motors Acceptance Corporation 2/3/00 5.950 3,978,183
3,000,000 General Motors Acceptance Corporation 1/13/00 6.300 2,993,700
3,000,000 Household Finance Corporation 1/24/00 5.720 2,989,037
3,500,000 Household Finance Corporation 1/11/00 5.720 3,494,439
4,000,000 IBM Credit Corporation 5/19/00 5.630 3,913,048
2,500,000 IBM Credit Corporation 1/20/00 5.700 2,492,479
3,000,000 John Deere Capital Corporation 1/13/00 6.000 2,994,000
4,000,000 John Deere Capital Corporation 1/12/00 5.680 3,993,058
5,000,000 Marshall & Ilsley Corporation 1/21/00 6.170 4,982,861
5,000,000 Merrill Lynch 1/24/00 5.930 4,981,057
2,000,000 Merrill Lynch 1/19/00 6.350 1,993,650
4,000,000 Norwest Financial Corporation 1/27/00 6.200 3,982,089
3,000,000 Norwest Financial Corporation 1/19/00 5.950 2,991,075
7,000,000 Prudential Funding Corporation 1/10/00 5.880 6,989,703
4,000,000 Toyota Motor Credit Corporation 2/2/00 6.180 3,978,027
------------
Total Commercial Paper 92,617,555
REPURCHASE AGREEMENT
7,364,778 First Boston Corporation 1/3/00 3.000 7,364,778
------------
(Agreement dated 12/31/99, collateralized by
$7,460,000 U.S. Treasury Notes, at 6.250%,
due 4/30/01, $7,549,792 market value)
TOTAL SHORT-TERM 99,982,333
------------
Total Investments, at amortized cost and value $147,385,891
------------
------------
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS
(a)<F6> The security has a floating/variable rate coupon payment tied to the
Federal Funds rate.
(b)<F7> The security has a floating/variable rate coupon payment tied to the 3
month Libor rate.
(c)<F8> The security has a floating/variable rate coupon payment tied to the 3
month T-Bill rate.
Percentages shown are a percent of net assets.
The accompanying notes to financial statements are an integral part of this
schedule.
CASH RESERVE PORTFOLIO
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Principal Preservation Portfolios, Inc. and the
Shareholders of the Cash Reserve Portfolio:
We have audited the accompanying balance sheet, including the schedule of
investments, of the PRINCIPAL PRESERVATION PORTFOLIOS, INC. (a Maryland
corporation) Cash Reserve Portfolio as of December 31, 1999, and the related
statement of operations for the year then ended, and the statements of changes
in net assets for each of the two years in the period then ended and the
financial highlights for each of the four years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The financial
highlights for the year ended December 31, 1995 were audited by other auditors
whose report dated February 26, 1996 expressed an unqualified opinion.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Principal Preservation Portfolios, Inc. Cash Reserve Portfolio as December 31,
1999, the results of its operations for the year then ended, and the changes in
its net assets for each of the two years in the period then ended and the
financial highlights for each of the four years in the period then ended, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
January 19, 2000.
CASH RESERVE PORTFOLIO
CLASS Y COMMON STOCK (INSTITUTIONAL SHARES)
ANNUAL REPORT TO SHAREHOLDERS
February 24, 2000
Dear Shareholder:
I am pleased to bring you this annual report for Principal Preservation
Portfolio Cash Reserve Institutional Class for the year ended December 31, 1999.
Since December 31, 1998, the Cash Reserve net assets fell from $167,884,000 to
$147,650,000. At the same time the total assets of the fund family broke
through the $1.0 billion milestone, finishing the year with total net assets of
$1,046,000,000. As a result of investors' focus on the stock market, much of the
asset growth can be attributed to the net inflows and market appreciation of our
equity funds.
The domestic economy continued to grow at a healthy pace during the year.
Higher income levels combined with increasing stock prices fueled consumer
spending, which was the primary driver of domestic growth. The Federal Reserve
Bank, concerned about potential inflation as a result of the strong economy,
instituted a series of 0.25% increases in the overnight lending rate. Thus, the
bond market resulted in higher yields and lower prices causing negative returns
on investments. Short term interest rates, as measured by the 90 day U.S.
Treasury, rose from 4.5% at December 31, 1998 to 5.31% at December 31, 1999.
For much of the first half of the year, the yield environment for short-term
securities was fairly stable. The manager increased the exposure to A1/P1
commercial paper from 74% at December 31, 1998, to approximately 82% by June 30,
1999. At the same time he reduced the investment in overnight repurchase
agreements to 4%.
As the year progressed and the concerns shifted to the Y2K issue, liquidity
became the paramount issue. The maturities of commercial paper issues and other
short-term investments were reduced to accommodate any liquidity needs of
investors. None of these moves caused major deviations from the average money
market yields. During the final quarter, the Cash Reserve Portfolio stayed
within 7 to 11 basis points of the average money market yield. At December 31,
1999, the average 7 day yield of the Cash Reserve Institutional Class was 5.14%,
compared to Donoghue's Institutional Money Market fund average of 5.26%.
We thank you for your continued support and trust with us at Principal
Preservation.
Sincerely,
/s/ Robert J. Tuszynski
Robert J. Tuszynski
President and CEO
The accompanying report is intended for the existing shareholders of Principal
Preservation. It does not constitute an offer to sell. Any investor wishing to
receive more information about the portfolios should obtain a prospectus which
includes a discussion of each investment objective and all sales charges and
expenses of the relevant portfolio(s).
CASH RESERVE PORTFOLIO
CLASS B COMMON STOCK (CONTINGENT DEFERRED SHARES)
ANNUAL REPORT TO SHAREHOLDERS
February 24, 2000
Dear Shareholder:
I am pleased to bring you this annual report for Principal Preservation
Portfolio Cash Reserve Contingent Deferred Class for the year ended December 31,
1999. Since December 31, 1998, the Cash Reserve net assets fell from
$167,884,000 to $147,650,000. At the same time the total assets of the fund
family broke through the $1.0 billion milestone, finishing the year with total
net assets of $1,046,000,000. As a result of investors' focus on the stock
market, much of the asset growth can be attributed to the net inflows and market
appreciation of our equity funds.
The domestic economy continued to grow at a healthy pace during the year.
Higher income levels combined with increasing stock prices fueled consumer
spending, which was the primary driver of domestic growth. The Federal Reserve
Bank, concerned about potential inflation as a result of the strong economy,
instituted a series of 0.25% increases in the overnight lending rate. Thus, the
bond market resulted in higher yields and lower prices causing negative returns
on investments. Short term interest rates, as measured by the 90 day U.S.
Treasury, rose from 4.5% at December 31, 1998 to 5.31% at December 31, 1999.
For much of the first half of the year, the yield environment for short-term
securities was fairly stable. The manager increased the exposure to A1/P1
commercial paper from 74% at December 31, 1998, to approximately 82% by June 30,
1999. At the same time he reduced the investment in overnight repurchase
agreements to 4%.
As the year progressed and the concerns shifted to the Y2K issue, liquidity
became the paramount issue. The maturities of commercial paper issues and other
short-term investments were reduced to accommodate any liquidity needs of
investors. None of these moves caused major deviations from the average money
market yields. During the final quarter, the Cash Reserve Portfolio stayed
within 7 to 11 basis points of the average money market yield.
We thank you for your continued support and trust with us at Principal
Preservation.
Sincerely,
/s/ Robert J. Tuszynski
Robert J. Tuszynski
President and CEO
The accompanying report is intended for the existing shareholders of Principal
Preservation. It does not constitute an offer to sell. Any investor wishing to
receive more information about the portfolios should obtain a prospectus which
includes a discussion of each investment objective and all sales charges and
expenses of the relevant portfolio(s).
PRINCIPAL PRESERVATION
PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
OFFICERS AND DIRECTORS
Richard H. Aster, M.D., Director
Augustine J. English, Director
Ralph J. Eckert, Director
Richard J. Glaisner, Director
Robert J. Tuszynski, President, Director
Frank Ciano, Chief Financial Officer and Treasurer
James Brendemuehl, Senior Vice President of Sales
John Lauderdale, Senior Vice President of Marketing
Kathleen Cain, Secretary
INVESTMENT ADVISOR
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
DISTRIBUTOR, ADMINISTRATOR, TRANSFER AND DIVIDEND
DISBURSING AGENT, ACCOUNTING/PRICING AGENT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
CUSTODIAN
Firstar Bank Milwaukee, N.A.
615 East Michigan Street
Milwaukee, Wisconsin 53202
COUNSEL
Quarles & Brady LLP
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
This report was prepared for shareholders who own Retail Shares of Principal
Preservation Portfolios, Inc.' s Cash Reserve Portfolio. It may not be used in
connection with the offering of securities unless preceded or accompanied by a
current Prospectus.
BCZ 172-2/00
PRINCIPAL PRESERVATION
PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
OFFICERS AND DIRECTORS
Richard H. Aster, M.D., Director
Augustine J. English, Director
Ralph J. Eckert, Director
Richard J. Glaisner, Director
Robert J. Tuszynski, President, Director
Frank Ciano, Chief Financial Officer and Treasurer
James Brendemuehl, Senior Vice President of Sales
John Lauderdale, Senior Vice President of Marketing
Kathleen Cain, Secretary
INVESTMENT ADVISOR
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
DISTRIBUTOR, ADMINISTRATOR, TRANSFER AND DIVIDEND
DISBURSING AGENT, ACCOUNTING/PRICING AGENT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
CUSTODIAN
Firstar Bank Milwaukee, N.A.
615 East Michigan Street
Milwaukee, Wisconsin 53202
COUNSEL
Quarles & Brady LLP
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
This report was prepared for shareholders who own Retail Shares of Principal
Preservation Portfolios, Inc.' s Cash Reserve Portfolio. It may not be used in
connection with the offering of securities unless preceded or accompanied by a
current Prospectus.
PP 178-2/00
PRINCIPAL PRESERVATION
PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
OFFICERS AND DIRECTORS
Richard H. Aster, M.D., Director
Augustine J. English, Director
Ralph J. Eckert, Director
Richard J. Glaisner, Director
Robert J. Tuszynski, President, Director
Frank Ciano, Chief Financial Officer and Treasurer
James Brendemuehl, Senior Vice President of Sales
John Lauderdale, Senior Vice President of Marketing
Kathleen Cain, Secretary
INVESTMENT ADVISOR
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
DISTRIBUTOR, ADMINISTRATOR, TRANSFER AND DIVIDEND
DISBURSING AGENT, ACCOUNTING/PRICING AGENT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
CUSTODIAN
Firstar Bank Milwaukee, N.A.
615 East Michigan Street
Milwaukee, Wisconsin 53202
COUNSEL
Quarles & Brady LLP
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
This report was prepared for shareholders who own Institutional Shares of
Principal Preservation Portfolios, Inc.' s Cash Reserve Portfolio. It may not be
used in connection with the offering of securities unless preceded or
accompanied by a current Prospectus.
PP 809-2/00
PRINCIPAL PRESERVATION
PORTFOLIOS, INC.
215 North Main Street
West Bend, Wisconsin 53095
OFFICERS AND DIRECTORS
Richard H. Aster, M.D., Director
Augustine J. English, Director
Ralph J. Eckert, Director
Richard J. Glaisner, Director
Robert J. Tuszynski, President, Director
Frank Ciano, Chief Financial Officer and Treasurer
James Brendemuehl, Senior Vice President of Sales
John Lauderdale, Senior Vice President of Marketing
Kathleen Cain, Secretary
INVESTMENT ADVISOR
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095
DISTRIBUTOR, ADMINISTRATOR, TRANSFER AND DIVIDEND
DISBURSING AGENT, ACCOUNTING/PRICING AGENT
B.C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095
CUSTODIAN
Firstar Bank Milwaukee, N.A.
615 East Michigan Street
Milwaukee, Wisconsin 53202
COUNSEL
Quarles & Brady LLP
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
100 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
This report was prepared for shareholders who own Institutional Shares of
Principal Preservation Portfolios, Inc.' s Cash Reserve Portfolio. It may not be
used in connection with the offering of securities unless preceded or
accompanied by a current Prospectus.
PP 962-2/00
